Annual Financial Report and Notice of Meeting

RNS Number : 2777D

Spire Healthcare Group PLC

25 April 2017

 

Spire Healthcare Group plc

25 April 2017

Annual Report and Notice of Annual General Meeting

Spire Healthcare Group plc (the "Company") released its preliminary announcement of its annual results for the year ended 31 December 2016 ("Preliminary Announcement") on Thursday, 1 March 2017.

Further to that Preliminary Announcement, the Company confirms that its Annual Report and Accounts for the year ended 31 December 2016 ("2016 Annual Report"), 2017 Notice of Annual General Meeting and Form of Proxy have now been published. Printed copies have been posted to shareholders who have requested hard copies.

The Annual General Meeting of the Company will take place at 11.00am on Friday, 26 May 2017 at the offices of J.P. Morgan at 60 Victoria Embankment, London EC4Y 0JP.

Documents are available on the Company's website as follows:

2016 Annual Report:               www.spirehealthcare.com/AR2016

2017 Notice of Meeting:          www.spirehealthcare.com/Notice2017

In accordance with Listing Rule 9.6.1, the Company will submit its 2016 Annual Report and other shareholder documents to the National Storage Mechanism. These documents should then be available for inspection within two working days at www.hemscott.com/nsm.do.

The Appendix to this announcement contains information required for the purposes of compliance with DTR 6.3.5 (1) of the Disclosure and Transparency Rules, including a Statement of Directors' responsibilities This information is extracted, in full unedited text, from the 2016 Annual Report and should be read in conjunction with the Preliminary Announcement, which contained other information required by DTR 6.3.5 (1), released to the market on Thursday, 1 March 2017.

Enquiries:

Antony Mannion, Director, Strategy and Investor Relations

Philip Davies, Deputy Company Secretary

Tel: [phone]

 

Appendix

Principal risks

Principal risks

The Group's financial and operational risks, how they have changed and how they are managed are shown below.

Risk Theme	Risk description and impact	How we manage the risk
Availability of key medical staff Risk increased	Growing demand for healthcare, changes to the working requirements and a limited supply of appropriately qualified key medical staff, leads to a shortage of medical staff. Profitable growth, in line with the Group's strategy, requires an expansion of clinical services in hospitals, particularly including more complex surgical procedures and ongoing treatment of higher-risk patients, which could be impacted by a shortage of key medical staff. In order to expand our directory of services at hospital level, in line with our strategy, it is vital to have access to appropriately qualified, clinical staff. The market may see salary rates rise as competition for staff increases and, as a result, the Group's costs may increase and its profits may reduce.	The Board focuses on staff retention, evidenced by high levels of staff satisfaction and, hence, low staff turnover. Management deploy productivity tools and pursue opportunities to reduce clinical nursing time spent on non-clinical activities to optimise the effectiveness of its clinical staff base. We have introduced a new solution for the recruitment of clinical staff, partnering with an external provider. The Group believes consultants are attracted by its advanced facilities, technology and equipment, excellent brand and reputation, the availability of a broad range of treatments, skilled nursing staff and medical support staff, and the efficiency of administrative support. The Group undertakes continuous investment in its equipment, facilities and services to retain high-quality consultants and also provides theatre capacity to new consultants. This is confirmed by high consultant satisfaction levels.
Clinical care Risk remained stable	The Group's future growth depends upon its ability to maintain its reputation for high-quality services by meeting its quality goals. Poor clinical outcomes, negative media comment or patient, GP and/or consultant dissatisfaction could reduce the quality ratings, which could lead to a loss of patient referrals and lost earnings.	Spire Healthcare continually monitors its clinical standards, policies and procedures through the Board's Clinical Governance and Safety Committee. During 2016, regular management information and associated reporting has been provided to the Executive Committee. Management information is subject to continuous improvement to best leverage underlying clinical data. A number of key performance indicators are used in the assessment of clinical standards and these may be found in the Clinical review. The Group reviews and maintains insurance to mitigate the possibility of a major loss. Adequacy of cover is reviewed annually with the Group's brokers.
Macroeconomic conditions Risk increased	Approximately 68% of the Group's revenue is dependent on private patients having private medical insurance (PMI), paid by their employer or paid by the individual, or being able to afford its services (Self-pay). In an economic downturn, the number of insured individuals falls with the level of employment and individuals have reduced real income to fund insurance or Self-pay for procedures. This would have an adverse effect on the business, the results of its operations and prospects.	The Board manages this risk by regularly reviewing market conditions and economic indicators to assess whether actions are required. As successfully employed in the recent economic downturn, if the private market contracts, the Group can try to reduce costs and future investment to improve profit and cash flow, and may be able to offer the released capacity to the NHS at its lower tariff, reducing the impact on profit.

Risk theme	Risk description and impact	How we manage the risk
Government policy Risk remained stable	Change in the medium-term public funding of NHS services provision, and/or the prioritisation of this funding to particular service lines over time (elective healthcare, A&E, community care, etc.), could adversely reduce the flow of NHS patients to Spire Healthcare. Changes in the service level requirements for providers of NHS services, and service level commitments to members of the public served by the NHS, could adversely impact the attractiveness of privately funded treatment. Changes in fiscal policy could increase the burden of welfare resulting in a reduction of NHS-funded options. A fundamental change in the tariff structure (pricing arrangements) associated with the provision of services to the NHS could result in reduced access to patients, reduced tariffs, or reduced prices leading to reduced revenues and/or margins.	The Group believes that the private sector has become a fundamental partner of the NHS across the UK. The continued use of private facilities is, in Spire Healthcare's view, the best way to meet the challenges facing the NHS, particularly as there is limited capacity within the NHS to take back work currently undertaken by the private sector. The Group's service levels are confirmed by regular surveys of patients, GPs and consultants, which provide ongoing feedback to ensure NHS requirements (whether as providers or as commitments to its patients) are met. In addition, the Board regularly reviews the competitiveness of its patient offering (both NHS and private patients). The Board continually monitors Government policy, NHS requirements and associated tariff structures to consider the need for cost and/or investment reduction, whether in the short, medium or long term.
Compliance with laws, regulations and other applicable requirements Risk increased	The Group operates in a highly regulated environment, including complying with the requirements of, for example, the CQC, Monitor and the CMA. Failure to comply with laws, regulations or regulatory standards may expose the Group to patient claims, fines, penalties, damage to reputation, suspension from the treatment of NHS patients, loss of hospital licence and loss of private patients, such that the Group may not be able to operate one or more of its hospitals, causing a significant reduction in profit. The CQC has continued its new inspection regime which assesses and rates hospitals and makes these results publicly available. If a hospital fared badly in one of these inspections, it could result in that hospital being assessed as 'Inadequate' which could have significant regulatory and reputational impacts. As at the end of 2016, no Spire Healthcare hospitals have received an 'Inadequate' rating. In addition, the Group could fail to anticipate legal or regulatory changes leading to a significant financial or reputational impact.	The Group continues to strengthen its Group-wide risk management framework (and associated policies and procedures) to ensure that risks are mitigated as far as possible, the Executive Committee has appropriate visibility to ensure robust decision-making, and the Group has the ability to monitor and react to the changing regulatory framework of a listed company in the healthcare sector. The Group has a significant centralised clinical team which assists hospitals in establishing and maintaining a high level of clinical performance. Emerging legal or regulatory changes are monitored by the Board, the Executive Committee, the Audit and Risk Committee and the Clinical Governance and Safety Committee, in addition to consultations with external advisers and industry briefings.

 

Risk theme	Risk description and impact	How we manage the risk
Competitor challenge Risk remained stable	Spire Healthcare operates in a highly competitive market. New or existing competitors may enter the market of one or more of our existing hospitals, or offer new services. The potential impact would be the loss of market share due to a new competitor and reduced profitability and cash flow.	The Group maintains a watching brief on new and existing competitor activity and retains the ability to react quickly to changes in-patient and market demand. The Group considers that a partial mitigation of the impact of competitor activity is ensured by providing patients with high-quality care and by maintaining good working relationships with GPs and consultants.
Insurance Risk remained stable	Healthcare companies, including Spire Healthcare, are sometimes subject to actions alleging negligence, malpractice and other legal claims that may involve large potential damages and significant defence costs, whether or not the defendant is ultimately found liable. The Group could be subject to litigation for actions by third parties or may be found liable for damages which may not be covered by its insurance policies, if the claims are in excess of cover or claims are not covered by the Group's insurance due to other policy limitations or exclusions or where it has failed to comply with the terms of the policy. The Group's insurance premiums may increase and, if there is a significant deterioration in its claims experience, insurance may not be available on acceptable terms.	The Group holds third-party liability insurance to partially cover patient, third-party and employee personal injury claims, and is partially self-insured up to predetermined levels, above which its third-party liability insurance applies. The Group reviews and maintains insurance adequacy of cover annually with the Group's broker.
Cybersecurity Risk increased	The Group's information technology platform supports, among other things, management control of patient administration, billing and financial information and reporting processes. In common with other corporate organisations, the Group faces the challenges of a continually evolving external cyberthreat landscape, and could become vulnerable to computer viruses, break-ins and similar disruption from unauthorised tampering. The Group's business could be disrupted if its information systems fail or if its databases are breached, destroyed or damaged. This could cause financial and reputational impacts. The level of risk to Spire Healthcare's IT architecture and systems continues to grow as the volume of cybersecurity threats are increasing and becoming more sophisticated.	Spire Healthcare's technical IT teams continually monitor these developments as a business as usual activity. Working with a number of specialist and industry leading technical partners, Spire Healthcare has created multiple layers of business protection through the use of advanced intrusion detection and protection systems, web access firewalls and advanced content filtering to combat denial of service attacks. Business processes are also kept under review and user education regularly carried out to minimise the possibility of ransomware incidents. Regular third-party penetration testing is performed on Spire Healthcare's core IT systems. New IT system developments are subject to rigorous penetration testing prior to release.

 

Risk theme	Risk description and impact	How we manage the risk
Concentration of PMI market Risk remained stable	The PMI market is concentrated, with the top four companies (Bupa, AXA, Aviva and VitalityHealth (formerly PruHealth)) having a market share estimated at over 85%. Loss of an existing contractual relationship with any of the key insurers could significantly reduce revenue and profit. Further consolidation of the PMI market could adversely impact Spire Healthcare's relative bargaining power in any ongoing commercial arrangements.	The Group works hard to maintain good relationships and a joint product/patient health offering with the PMI companies, which, in the opinion of the Directors, assists the healthcare sector as a whole in delivering high-quality patient care. The Board believes continuing to invest in its well-placed portfolio of hospitals should provide a natural fit to the local requirements of all the PMI providers. The Group has looked to ensure that all significant contracts run for a minimum of a year to avoid co-termination of contractual arrangements across its PMI base.
Investment plans and execution Risk increased	The capital investment programme (which includes IT system developments and the construction of two new hospitals) at any time consists of a number of individually significant projects simultaneously in progress. With any major project there are risks, such as major cost overrun or substantial delay in delivery, which could impact upon the expected returns, the Group's planned profit growth and future cash flow.	The Group conducts a detailed financial and operational appraisal process to evaluate the expected returns on capital during the evaluation phase of the project. Robust project management is employed throughout the project, from the evaluation, to the bid process, agreement of contract terms and conditions, cost forecasting, as well as regular monitoring and management of progress. Regular reporting of all significant projects to the executive sponsor and the Board is provided.
Liquidity and covenant risk Risk remained stable	The Group may have insufficient liquid resources to meet its financial liabilities as they fall due, or breach financial covenants linked to its borrowings. Failure to meet its obligations or covenants would have a substantial adverse effect on the Group's reputation and may lead to borrowings becoming repayable earlier than contracted for.	The Group actively monitors and manages its liquid asset position, its financial liabilities falling due and the cover against its loan covenants. The Board has considered the risk in detail as part of its assessment of the viability of the Company (see page 49).

Statement of Directors' responsibilities

The Directors are responsible for preparing the Annual Report and Accounts for the year ended 31 December 2016, including the Consolidated financial statements and the Parent Company financial statements, Directors' Report, including the Directors' Remuneration Report and the Strategic Report in accordance with applicable law and regulations. Under that law, the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with IFRS, as adopted by the EU.

Company law requires the Directors to prepare such financial statements for each financial year. Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company on a consolidated and individual basis, and of the profit or loss of the Company on a consolidated basis for that period.

In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

·      make judgements and estimates that are reasonable and prudent;

·      present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

·      provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the EU is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's and Company's financial position and financial performance;

·      state that the Group's and Company's financial statements have complied with IFRS as adopted by the EU, subject to any material departures disclosed and explained in the financial statements; and

·      prepare the financial statements on a going concern basis, unless it is not appropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions, and disclose, with reasonable accuracy at any time, the Company's financial position and enable them to ensure compliance with the Companies Act 2006. They are also responsible for safeguarding the Company's assets and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors, whose names and functions are listed on pages 54 and 55, confirms that:

·      to the best of their knowledge, the Consolidated financial statements and the Parent Company financial statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company on a consolidated and individual basis;

·      to the best of their knowledge, the Strategic Report and the Directors' Report include a fair review of the development and performance of the business and the position of the Company on a consolidated and individual basis, together with a description of the principal risks and uncertainties that it faces; and

·      they consider that the Annual Report and Accounts for the year ended 31 December 2016, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Related party transactions

Transactions with key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. They include the Board and Executive Committee, as identified on pages 54 to 57.

Compensation for key management personnel is set out in the table below:

(£ million)		2016	2015
Short-term employee benefits		3.2	2.6
Retirement benefits		0.4	0.4
Share-based payments		0.3	0.7
Total		3.9	3.7

Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 76 to 91.

There were no transactions with related parties external to the Group in the year to 31 December 2016 (2015: nil).

 

END

 

 

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