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SPI Spire Healthcare Group Plc

232.00
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Spire Healthcare Group Plc LSE:SPI London Ordinary Share GB00BNLPYF73 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 232.00 233.00 234.00 234.50 231.50 231.50 408,053 16:35:02
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Health & Allied Services,nec 1.36B 27.3M 0.0676 34.47 941.62M

Spire Healthcare Group PLC Interim Results - Replacement (1020B)

18/09/2018 9:50am

UK Regulatory


Spire Healthcare (LSE:SPI)
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TIDMSPI

RNS Number : 1020B

Spire Healthcare Group PLC

18 September 2018

CORRECTION interim results webcast link

This announcement amends the webcast link for Spire Healthcare's Interim Results announcement issued by the Company at 07:00 on 18 September 2018 under RNS number 0474B. The correct link is http://webcast.openbriefing.com/spire_hyr_2018/

Spire Healthcare Group plc

Interim results for the six months ended 30 June 2018

London, UK, 18 September 2018, Spire Healthcare Group plc (LSE: SPI), one of the UK's leading independent hospital groups, today announces its interim results for the six months ended 30 June 2018.

SUMMARY GROUP RESULTS FOR THE SIX MONTHSED 30 JUNE 2018

 
                                          Six months ended 30 June 
                                                 (Unaudited) 
                                       ============================= 
                                                            Variance 
 (GBP million)                             2018     2017           % 
=====================================  ========  =======  ========== 
 Revenue                                  475.6    481.0      (1.1%) 
 Operating profit before exceptional 
  and other items                          31.6     53.9     (41.4%) 
 Exceptional and other items             (15.3)   (32.1) 
 Operating profit after exceptional 
  and other items                          16.3     21.8     (25.2%) 
 Profit after tax                           8.2      8.9      (7.9%) 
 Adjusted profit after tax (2)             16.4     34.7     (52.7%) 
 
 EBITDA (1)                                66.1     83.2     (20.6%) 
 
 Adjusted, basic earnings per share, 
  pence (3)                                 4.1      8.7     (52.9%) 
 Interim dividend per share, pence          1.3      1.3           - 
 Operating cash flows                      59.4     75.7     (21.5%) 
 Capital investments                       33.5     59.5     (43.7%) 
 Net debt (4)                             458.1    436.1        5.0% 
=====================================  ========  =======  ========== 
 

1. Operating profit, adjusted to add back depreciation, loss on disposal of PPE and exceptional and other items, referred to hereafter as 'EBITDA'.

2. Adjusted profit is calculated as earnings after tax adjusted for exceptional and other items and related tax.

3. Calculated as adjusted profit after tax divided by the weighted average number of ordinary shares in issue. Adjusted profit is calculated as earnings after tax adjusted for exceptional and other items and related tax.

4. Net debt is calculated as total debt (comprising obligations under finance leases and borrowings), less cash and cash equivalents.

GROUP FINANCIAL HIGHLIGHTS

-- Underlying(1) H1 performance down on previous year reflecting significantly declining NHS admissions , lower than anticipated growth in Private admissions and planned investment in Clinical quality and Consumer engagement

-- Revenue declined by 1.1% to GBP475.6m (H1 2017: GBP481.0m), while underlying revenue(5) decreased by 2.4% to GBP445.6m (H1 2017: GBP456.6m)

-- EBITDA (1) declined 20.6% to GBP66.1m (H1 2017: GBP83.2m), while underlying EBITDA(5) decreased by 21.1% to GBP65.3m (H1 2017: GBP82.8m)

-- Underlying EBITDA(1) margin of 14.7% (H1 2017: 18.1%), including an adverse margin impact of NHS tariff of 0.6% in the period

   --      Strong cash flow performance with EBITDA conversion to cash flow of 94.1% (H1 2017: 97.6%) 

-- Invested GBP33.5m (H1 2017: GBP59.5m) in capital expenditure funded by operating cash flows, with net debt at 30 June 2018 reduced to GBP458.1m (31 December 2017: GBP462.8m)

   --      Interim dividend maintained at 1.3p per share payable on 11 December 2018 (H1 2017: 1.3p) 

1. Excludes the impact of Spire Manchester, Nottingham and St Anthony's hospitals (referred to as 'underlying' in this announcement further details are shown on page 16).

OPERATING HIGHLIGHTS

   --      Overall private income up 2.5% 

-- Completed the roll-out of Spire GP service in all Spire's hospitals with a view to adding digital Spire GP service in due course

-- Good progress with quality improvements - Spire Nottingham achieved a CQC rating of "Outstanding" (Spire now has four "Outstanding" hospitals out of only 14 in the entire independent hospital sector) and Spire St Anthony's and Spire Wellesley were rerated by the CQC to "Good"

   --      Implemented new central online marketing strategy 

Senior management appointments

-- Appointed Jitesh Sodha as Chief Financial Officer and as an Executive Director with effect from 1 October 2018

   --      Appointed John Forrest as Chief Operating Officer with effect from 8 October 2018 

updated Outlook FOR FY 2018

-- EBITDA will be in the range of GBP120 to GBP125 million, after charging non-recurring items of approximately GBP5 million

   --      Year end net debt will be broadly in line with 31 December 2017 and 30 June 2018 

Comment from Justin Ash, Chief Executive Officer of Spire Healthcare

"We presented at our Capital Markets Day in April a comprehensive reset of our approach to the market, setting out our corporate vision "To become the go-to UK independent healthcare brand, famous for clinical quality and customer care" and the two core strategies underlying that vision- to focus on clinical quality and to increase the private share of our business to at least 80% of our revenues. Events in the year so far have absolutely confirmed the appropriateness of our new approach.

Government, regulators and payor groups have all upped their requirements on clinical quality from healthcare providers - not only is this of course the correct approach as far as patients are concerned, but it also provides Spire with the opportunity for a genuine commercial advantage.

On the payor side, the unprecedented decline (both in scale and speed) in NHS admissions has led to Spire having to announce disappointing H1 2018 results and a revised outlook for the financial year as a whole. Nonetheless our overall revenues are broadly flat as the growth opportunity in our private business, 2.5% in the period, continues to support our shift in strategic focus.

While the prolonged decline in NHS volumes had negative margin implications for us, overall our H1 2018 costs were in line with our budget, even after the previously indicated increases in spend on the clinical quality and our private proposition.

We continue to review our non-clinical costs to ensure optimal efficiency. We have also robustly reviewed our previously proposed capital expenditure plans, and now expect to maintain the quality and capability of our asset base with a reduced level of expenditure.

More broadly, the headwinds that Spire is facing, as the largest company in the sector by revenues and EBITDA, appear to be translating into significant business challenges for many sector participants, which in turn may lead to opportunities for Spire.

I believe our reset strategy is absolutely the right one for Spire and that Spire continues to be well positioned to reinforce its leading role in the independent sector and indeed in UK healthcare as a whole."

For further information please contact:

Spire Healthcare

Antony Mannion, Investor Relations Director

+44 (0)20 7427 9160

Instinctif

Damian Reece

Guy Scarborough

+44 (0)20 7457 2020

   REGISTERED OFFICE AND HEAD OFFICE             : 

Spire Healthcare Group plc

3 Dorset Rise

London

EC4Y 8EN

Registered number 09084066

ABOUT SPIRE HEALTHCARE

Spire Healthcare is a leading independent hospital group in the United Kingdom, with 39 private hospitals, 11 clinics and one Specialist Cancer Care Centre across England, Wales and Scotland.

Spire delivered tailored, personalised care to approximately 134,000 in-patients and daycase patients in the six months ended 30 June 2018, and is the leading private provider, by volume, of knee and hip operations in the United Kingdom. Spire is uniquely positioned to capture a growing share of the expanding private healthcare market. The Group's well positioned and scalable hospitals have earned reputations as centres of excellence, delivering successful and award winning clinical outcomes, positioning the Group well with patients, consultants, the NHS, GPs and Private Medical Insurance ("PMI") providers. Spire treats patients through a variety of routes including PMI, Self-pay and the NHS, providing the Group with diversified access to the expected growth opportunities in the UK healthcare market, which faces significant supply challenges as a result of NHS operating constraints and increasing demand from a growing population with longer life expectancy.

CAUTIONARY STATEMENT

This interim announcement contains certain forward-looking statements relating to the business of Spire Healthcare Group plc (the "Company") and its subsidiaries (collectively, the "Group"), including with respect to the progress, timing and completion of the Group's development, the Group's ability to treat, attract, and retain patients and customers, its ability to engage consultants and GPs and to operate its business and increase referrals, the integration of prior acquisitions, the Group's estimates for future performance and its estimates regarding anticipated operating results, future revenue, capital requirements, shareholder structure and financing. In addition, even if the Group's actual results or development are consistent with the forward-looking statements contained in this interim announcement, those results or developments may not be indicative of the Group's results or developments in the future. In some cases, you can identify forward-looking statements by words such as "could," "should," "may," "expects," "aims," "targets," "anticipates," "believes," "intends," "estimates," or similar words. These forward-looking statements are based largely on the Group's current expectations as of the date of this

interim announcement and are subject to a number of known and unknown risks and uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by these forward-looking statements. In particular, the Group's expectations could be affected by, among other things, uncertainties involved in the integration of acquisitions or new developments, changes in legislation or the regulatory regime governing healthcare in the UK, poor performance by consultants who practice at our facilities, unexpected regulatory actions or suspensions, competition in general, the impact of global economic changes, and the Group's ability to obtain or maintain accreditation or approval for its facilities or service lines. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements made in this preliminary announcement will in fact be realised and no representation or warranty is given as to the completeness or accuracy of the forward-looking statements contained in this interim announcement.

The Group is providing the information in this interim announcement as of this date, and we disclaim any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ANALYST AND INVESTOR MEETING

There will be an analyst and investor meeting today at 9.30am at Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HT.

A live audiocast of the presentation will be available at 9.30am from the Spire website at http://webcast.openbriefing.com/spire_hyr_2018/

.

Operating Review

PERFORMANCE IN PERIOD

Group revenue decreased in the first six months of 2018 by 1.1% to GBP475.6 million (H1 2017: GBP481.0 million), while EBITDA declined 20.6% to GBP66.1 million (H1 2017: GBP83.2 million). In-patient and daycase admissions reduced by (4.1%) to 133,700 cases (H1 2017: 139,400 patients). Two of our "new" hospitals (Manchester and St Anthony's) have improved their profitability while there were continuing start-up losses from our new hospital in Nottingham.

Group underlying (1) revenue performance in the first six months of 2018 decreased by 2.4% to GBP445.6million (H1 2017: GBP456.6m). This has resulted in underlying EBITDA decline of 21.1% to GBP65.3 million (H1 2017: GBP82.8 million), with In-patient and daycase admissions decreasing by 5.3% to 126,500 patients (H1 2017: 133,500 patients).

Underlying (1) self-pay revenue growth was 7.0% for the period. Including the average 3.9% reduction in NHS tariff for Q1 2018 over the corresponding Q1 2017, NHS revenues declined 10.0% in the period. PMI performance was stable.

The main drivers of the Group's lower Operating profits between H1 2018 (GBP31.6m) and H1 2017 (GBP53.9m) were GBP5.4m of lower revenue, higher depreciation of GBP5.8m, GBP11.8m increase in other costs and GBP0.6m in lower loss on asset disposals. Of the increase in other costs the main drivers were, GBP7.2m was planned clinical staff cost and GBP3.6 million was the cost of drugs.

Revenue

-- Overall, In-patient/daycase admissions declined and there was also a change in admissions mix in terms of type of procedure, with proprtionally less orthopaedic work and proportionally more oncology.

-- The increase in Self-pay admissions and in the Private Payor Average Revenue Per Case was not sufficient to offset the significant decline in NHS revenue.

-- NHS admissions and revenue were negatively impacted by widespread NHS cost constraints and referral management schemes which have undergone a shift change in severity in H1 2018.

Costs

   --      Planned increases in Clinical Staff cost due to Spire's drive to enhance Clinical Quality. 

-- Clinical Staff costs did not proportionately flex down with lower NHS activity levels due to (i) Spire's Clinical Quality agenda creating more governance and assurance overhead, and (ii) lower levels of theatre activity creating short term gaps in lists for which staff costs cannot be fully flexed.

   --      Drug costs rose, linked to the increased amounts of oncology admissions 

-- Planned investment in corporate costs to support strategic objectives; in recruitment and training, Clinical and other assurance (Health & Safety, Internal Audit, Engineering) activities.

Cash flows

Our robust operating cash flows enabled us to continue to invest in our estate and our systems, as well as maintain the interim dividend. During the period, we invested GBP33.5 million (H1 2017: GBP59.5 million) in various projects, including the conclusion of the developments of the new Spire Manchester Pathology Centre, and major upgrades of the facilities at Spire Bushey, Spire Hull, Spire Cheshire and Spire Cambridge Lea Hospitals. Despite this, net debt fell slightly to GBP458.1 million (31 December 2017: GBP462.8 million).

1. Excludes the impact of Spire Manchester, Nottingham and St Anthony's hospitals (referred to as 'underlying' in this announcement further details are shown on page 16).

MARKET TRS

The demand for healthcare in the UK continues to rise, underpinned by a growing ageing population and advancement in medical technology. The NHS continues to experience a significant and growing funding gap, which many observers believe is likely to be at best only partly alleviated by productivity improvements, cost efficiencies and recently announced funding increases over the coming years.

The NHS continues to target available funding towards treatment of acute A&E care and chronic medical conditions and has continued to have relaxed management of performance within elective care in the last 12 months. Waiting lists have now grown to 4.3m patients , and are particularly impacted by further rationing of elective treatment.

We therefore remain of the view that, in the medium to long term, Spire will benefit from its inherent 'payor hedge' as growing numbers of individuals - recognising the resulting increases in NHS waiting lists and/or rationing or restricting of certain procedures - are likely to elect to pay for their healthcare.

Against this general healthcare sector background, in H1 2018:

-- Our results indicate that the Self-Pay market continued to grow with a growth in the number of individuals requiring elective care increasingly choosing a private alternative over the NHS.

-- The underlying dynamics of the PMI market also prevailed with the number of lives covered remaining stable and insurers actively managing their claims volumes tightly.

-- For private providers, the impact in the NHS market has been unpredictable, with particular variation in certain localities. Overall NHS e-referral business has recovered in the later part of the first half, however orthopaedic work remains adverse, impacted by the growing influence of NHS triage applied by Clinical Commissioning Groups.

Although the Brexit referendum took place two years ago, it is still too early to assess the medium to long term impact of the result on future NHS funding levels, the UK healthcare sector as a whole (including clinical staffing levels) and Spire's position within that sector.

STRATEGIC RESET

At our Capital Markets Day presentation in April 2018, we set out in detail our evolving strategy. The basis of this is our ambition for Spire "to become the go-to UK independent healthcare brand, famous for clinical quality and customer care".

To achieve this we will focus on six core areas, which we term our Strategic Goals and Key Enablers

 
 Strategic Goals and            What we are changing             What it delivers 
  Key Enablers 
 First choice for private       Improve services                 Step-change in private 
  patients                       Digital, marketing               growth 
                                 and telephony upgrade 
                               -------------------------------  ---------------------------- 
 Plan and deliver operational   Data driven, granular            Stronger performance 
  excellence                     operations focus                 Leverage scale 
                                 Use hospital clusters            Deliver on new sites 
                                 to drive efficiency 
                               -------------------------------  ---------------------------- 
 Become best place to           Support consultants              Growing Spire share 
  practise                       to grow their business           of consultant practice 
                                 Targeted equipment 
                                 / facility investments 
                               -------------------------------  ---------------------------- 
 Become best place to           Central recruitment              High performance culture 
  work                           focus                            High capability people 
                                 Step change in communications 
                                 and development 
                               -------------------------------  ---------------------------- 
 Most recommended customer      Digitalise the patient           Number 1 in customer 
  experience                     journey                          recommendations and 
                                 Targeted investments             referrals 
                                 in facilities 
                               -------------------------------  ---------------------------- 
 Become famous for quality      Robust clinical governance       A strong pull for customers 
  and clinical care              at all levels                    to select Spire 
                                 Meet new exacting CQC            First choice for referrers 
                                 standards 
                                 Data driven, embedded 
                                 quality culture 
                               -------------------------------  ---------------------------- 
 

In terms of progress, we stated that FY 2018 would be overall a year of consolidation for Spire, focusing on Clinical quality, developing Self-Pay, driving recent hospital developments, investing in delivery infrastructure and minimising the impact of the volatile NHS market.

We also stated that the next five years would see rapid increases in growth, with a continuing focus on Clinical quality, an accelerating Self-Pay business, growth in PMI market share, reduction of NHS business to a selective basis, improving margins, lower but more targeted Capex, stronger free cash flows and a reduction in net debt.

We have also set ourselves the following three key targets in the next five year period:

   --      Private (i.e. non-NHS) revenues to be 80% of Spire's total revenues. 
   --      All Spire hospitals to be rated "Good" or "Outstanding" by the CQC. 
   --      Spire's EBITDA to be at least GBP200 million. 

BUSINESS DEVELOPMENT

Investing in our businesses

-- Work continues at Spire Cambridge Lea Hospital, comprising the expansion and refurbishment of the daycase unit, a new JAG accredited endoscopy suite and the upgrade of the Level 1 Critical Care extended recovery area - completion is expected in Q3 2018.

-- Development work completed on the medical centre based in Elstree, Hertfordshire, designed as a 'satellite centre' to Spire Bushey Hospital, and which will increase our capacity to see patients for diagnostic and outpatient appointments.

-- Development work began on Spire Bushey Hospital to provide a 6th theatre, new larger recovery unit and TSSU, as well as 10 new patient bedrooms. Work is due to complete in Q2 2019.

-- Development work at Spire Methley Park (refurbishment of administration areas, bedrooms and theatres, and creation of a new day care suite and theatre) has completed and is opened for business.

-- At the end June 2018, the Group has 134 operating theatres, including the new theatre at Spire Methley Park.

-- We have closed the Spire Radiotherapy Specialist Care Centre at Baddow and are seeking buyers for the site.

Developing our service offering for growth

-- We continue to update and extend our diagnostic network with investments in new MRI scanners.

-- Our new Spire GP service has now been rolled out to all our hospitals and we are looking to grow this service offering further - we will also add (in due course) a digital Spire GP service to this physical GP service.

-- We continue to finesse the design and responsiveness of our recently revamped website, which is key to attracting new patients to Spire.

   --      We have finalised and deployed our new central online marketing strategy. 

Developing operational excellence

-- We are seeking to improve the utilisation of spare theatre capacity to provide the opportunity to improve the recovery of fixed and semi-variable costs in the business.

-- We continue to focus on delivering economies of scale in procurement, distribution and logistics and other in-house support services such as pathology and sterilisation.

-- We are reducing staff numbers in several areas. Areas where actions have already been taken or are planned in FY 2018 include in H1 2018, procurement and purchasing and in H2 2018 central overhead and mainly non-clinical hospital costs. The estimated run rate savings from these actions for FY 2019 are in the high single digit GBP millions. From FY 2019 onwards we expect to continue restructuring the cost base through further cost optimisation in central functions, procurement and the hospital cost bases.

-- We retained our focus on recruitment and retention - improving the employer proposition to make Spire Healthcare an employer of choice plus introducing development programmes to 'grow our own'. We also hired a new specialist recruitment organisation - Cielo - to assist us in external recruitment across the country.

-- We continue a major programme to review and simplify end to end processes to deliver a better customer experience alongside ease of doing business and process efficiencies.

senior appointments

In July, the Company announced the appointment of Jitesh Sodha as Chief Financial Officer and an Executive Director from 1 October 2018. He replaces Simon Gordon who stood down from the Board on 2 March 2018 and left Spire at the end of that month. Jitesh will join Spire on 1 October 2018, bringing specific skills that will greatly benefit Spire including his track record in helping companies execute ambitious transformation plans. David Lomas has fulfilled the role of interim Chief Financial Officer since Simon's departure and will continue to do so until Jitesh joins. We would like to thank David Lomas very much for his contribution during his time with Spire.

In September, the Company announced the appointment of John Forrest as Chief Operating Officer from 8 October 2018. John's extensive experience, knowledge and relevant skills built up at Greene King and Premier Inn will make a significant and positive difference to Spire's operational aspirations.

Spire received notification from Mediclinic Jersey Limited, the Company's principal shareholder and a wholly-owned subsidiary of Mediclinic International plc, that its nominated Non-Executive Director to Spire's Board, Danie Meintjes, would not stand for re-election at the Company's annual general meeting on 24 May 2018 and would be replaced by Dr Ronnie van der Merwe (Mediclinic International's CEO). Ronnie was appointed a Non-Executive Director from the conclusion of the 2018 AGM.

REGULATION AND GOVERNANCE

As we strive to become famous for Clinical Quality and Customer Care, Spire continues to respond to areas of care identified as requiring improvement by the Care Quality Commission ('CQC') in both 'The state of care in independent acute hospitals' report, and within our own hospitals. We have increased our scrutiny of specialist service areas in our internal peer review programme, and have invested in championing best practice in these areas and wider practice.

Every Spire hospital and two Spire clinics in England have a rating under the revised CQC framework. Of those sites, four hospitals - Spire Sussex, Spire Cheshire, Spire Montefiore and Spire Nottingham - have received a rating of 'Outstanding', and those hospitals whose Children and Young People's services have been re-rated since the hospital's original inspection have demonstrated strong improvement. Following Spire St Anthony's review of Children and Young People's Services and Critical Care in June 2017, 22 hospitals and clinics have a rating of 'Good' and 11 hospitals have a rating of 'Requires Improvement'. Where CQC have advocated improvements, immediate actions have been put in place to address recommendations and progress is monitored on both a local and national level, with more recent CQC inspections indicating that these have been effective.

We have also invested in governance processes and information. This includes introducing "Freedom to Speak Up" guardians in all our hospitals, enhanced Root Cause Analysis, broader group quality KPIs and a monthly Learning from Deaths review.

Proving our commitment to transparency in our progress on continuous improvement in our quality and safety,

The Competitions and Markets Authority Private Healthcare Investigation Order requires doctors to send patients information regarding their fees with respect to their consultation and subsequent treatment as of February 2018. Spire Healthcare has worked with our Consultant community to successfully comply with these requirements as well as to review and approve their activity data prior to publication by the Private Health Information Network ("PHIN"). We continue to fund and support PHIN's objectives of improving transparency of private healthcare quality and have materially improved data quality to enable PHIN to publish accurate information regarding Spire hospitals. The next milestone is April 2019, by which PHIN intends to publish Consultant fee data online.

Dividend

The Board is pleased to announce the payment of a 1.3p interim dividend reflecting its confidence in the Company's strategy and future prospects.

Outlook

As set out above in detail, Spire's trading performance for the first 6 months of the year was disappointing, based on a combination of lower than expected revenues and adverse changes in mix. Having reviewed results for the period 1 January 2018 to 31 July 2018, and assessed likely market conditions for the balance of the financial year, the Company announced on 6 August 2018 that it now expected EBITDA for the full financial year 2018 to be materially lower than for 2017, to which it had previously guided. For the financial year as a whole we have reviewed (i) the market for payor trends (particularly in the NHS business) and (ii) Spire's cost base and (iii) August trading.

August trading has seen:

   --      Overall revenues flat year on year 

-- NHS revenues declining by a mid-single digit percentage, offset by growth in private payor revenues

   --      Costs in line with the trend seen in the seven months to 31 July 2018 

For the Financial Year 2018 as a whole, we now expect the following revenue performance:

   --      Self-pay: Continued good growth 
   --      PMI: Moderate increase over H2 2017. 
   --      NHS: eReferral and Local Contract work will be significantly lower than H2 2017 

There will also be a change in mix, with continuing reduction in NHS orthopaedics, and some PMI shift from orthopaedic to cancer.

For the Financial Year 2018 year as a whole we now expect the following outcome:

-- EBITDA will be in the range of GBP120 to GBP125 million, after charging non-recurring items of approximately GBP5 million

   --      Year end net debt will be broadly in line with 31 December 2017 and 30 June 2018 

The Board believes that the medium term outlook for Spire remains positive:

-- The overall demand for healthcare in the UK continues to rise ahead of the ability of the NHS to service it.

-- The NHS is choosing to prioritise available funding towards treatment of acute and chronic conditions and as a consequence we expect the demand and supply gap within NHS secondary elective care services to continue to expand rapidly. This is in our view highly likely to enable Spire to continue to benefit from the growing numbers of individuals that are likely to elect to fund their own care in the future

-- Spire's focus on clinical quality and care will give it a significant competitive advantage in the medium term.

-- The sector is facing significant headwinds which appear to be translating into business challenges for many participants, which in turn may lead to the opportunity for consolidation. Spire, as the largest company in the sector by revenues and EBITDA, and with a growing reputation for clinical quality, will monitor sector developments and look to take advantage of opportunities.

--

Financial Review

SELECTED FINANCIAL INFORMATION

 
                                           Six months ended 30 June 
                                                  (Unaudited) 
                 ============================================================================ 
                                 2018                                   2017 
                 ====================================  ====================================== 
                                                                                                   Variance 
                                                                                                        (on 
                        Total   Exceptional                   Total   Exceptional                     total 
                       before     and other                  before     and other                     after 
                  exceptional         items             exceptional         items               exceptional 
                    and other         (note               and other         (note                 and other   Underlying 
 (GBP million)          items            7)     Total         items            7)       Total       items)%        % (1) 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Revenue                475.6             -     475.6         481.0             -       481.0        (1.1%)       (2.4%) 
 Cost of sales        (251.6)             -   (251.6)       (249.5)             -     (249.5)          0.8% 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Gross profit           224.0             -     224.0         231.5             -       231.5        (3.2%) 
 Other 
  operating 
  costs               (192.4)        (15.3)   (207.7)       (177.6)        (32.1)     (209.7)        (1.0%) 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Operating 
  profit                 31.6        (15.3)      16.3          53.9        (32.1)        21.8       (25.2%) 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Net finance 
  costs                (11.2)             -    (11.2)         (9.7)             -       (9.7)         15.5% 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Profit before 
  taxation               20.4        (15.3)       5.1          44.2        (32.1)        12.1       (57.9%) 
 Taxation               (4.0)           7.1       3.1         (9.5)           6.3       (3.2)      (196.9%) 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 Profit for 
  the period             16.4         (8.2)       8.2          34.7        (25.8)         8.9        (7.9%) 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 
 EBITDA (2)                                      66.1                                    83.2       (20.6%)      (21.1%) 
 Adjusted, 
  basic 
  earnings per 
  share, pence 
  (3)                                             4.1                                     8.7       (52.9%) 
 Interim 
  dividend 
  per share, 
  pence                                           1.3                                     1.3             - 
 Operating cash 
  flows                                          59.4                                    75.7       (21.5%) 
 Capital 
  investments                                    33.5                                    59.5       (43.7%) 
 Net debt (4)                                   458.1                                   436.1          5.0% 
===============  ============  ============  ========  ============  ============  ==========  ============  =========== 
 
 

1. Excludes the impact of Spire Manchester, Nottingham and St Anthony's hospitals (referred to as 'underlying' in this announcement further details are shown on page 16).

2. Operating profit, adjusted to add back depreciation, loss on disposal of PPE and exceptional and other items, referred to hereafter as 'EBITDA'.

3. Calculated as adjusted profit after tax divided by the weighted average number of ordinary shares in issue. Adjusted profit is calculated as earnings after tax adjusted for exceptional and other items and related tax.

4. Net debt is calculated as total debt (comprising obligations under finance leases and borrowings), less cash and cash equivalents.

 
                                              Six months ended 30 June 
                                                     (Unaudited) 
                                       ====================================== 
                                                        Variance   Underlying 
 (GBP million)                           2018    2017          %        % (1) 
=====================================  ======  ======  =========  =========== 
 Total revenue                          475.6   481.0     (1.1%)       (2.4%) 
 Of which: 
 PMI                                    221.4   219.3       1.0%       (0.2%) 
 NHS                                    140.3   154.5     (9.2%)      (10.0%) 
 Self-pay                                87.3    80.6       8.3%         7.0% 
 Partnerships                            13.5    13.7     (1.5%)       (3.2%) 
 Other (2)                               13.1    12.9       1.6%       (1.6%) 
=====================================  ======  ======  =========  =========== 
                                        475.6   481.0     (1.1%)       (2.4%) 
=====================================  ======  ======  =========  =========== 
 Of which: 
 In-patient/daycase                     325.3   330.8     (1.7%)       (2.8%) 
 Out-patient                            137.2   137.3     (0.1%)       (1.6%) 
 Other                                   13.1    12.9       1.6%       (1.6%) 
=====================================  ======  ======  =========  =========== 
                                        475.6   481.0     (1.1%)       (2.4%) 
=====================================  ======  ======  =========  =========== 
 
 Number ('000s) 
 Total in-patient/daycase admissions    133.7   139.4     (4.1%)       (5.3%) 
 Of which: 
 PMI volumes                             59.6    61.2     (2.6%)       (3.6%) 
 NHS volumes                             48.5    53.0     (8.5%)       (9.6%) 
 Self-pay volumes                        24.0    23.5       2.1%         0.7% 
 Partnerships volumes                     1.6     1.7     (5.9%)       (9.9%) 
=====================================  ======  ======  =========  =========== 
 Theatres 
 Number of theatres (3)                   134     133       0.8%            - 
 Theatre utilisation (4)                  58%     62%     (6.5%)       (4.6%) 
=====================================  ======  ======  =========  =========== 
 

1. Excludes the impact of Spire Manchester, Nottingham and St Anthony's hospitals (referred to as 'underlying' in this announcement further details are shown on page 16).

2. Other revenue includes consultant revenue, third-party revenue streams (e.g. pathology services), secretarial services.

   3.        Represents the number of theatres in the Spire Healthcare hospital network. 

4. Theatre utilisation is calculated by dividing utilised theatre hours by maximum theatre hours (maximum theatre hours is defined as 10 hours per weekday and 7 hours per Saturday for 50 weeks per year).

REVENUE

 
                                       In-patient/   In-patient/ 
                             30 June       daycase       daycase                         30 June 
 (GBP million)                  2017        volume          rate   Out-patient   Other      2018   Growth 
==========================  ========  ============  ============  ============  ======  ========  ======= 
 Underlying total revenue 
  (1)                          456.6        (16.6)           7.9         (2.1)   (0.2)     445.6   (2.4%) 
==========================  ========  ============  ============  ============  ======  ========  ======= 
 Non underlying revenue         24.4           4.1         (0.9)           2.0     0.4      30.0    23.0% 
==========================  ========  ============  ============  ============  ======  ========  ======= 
 Total revenue                 481.0                                                       475.6   (1.1%) 
==========================  ========  ============  ============  ============  ======  ========  ======= 
 

Group revenue for the six months ended 30 June 2018 decreased by GBP5.4 million, or 1.1%, to GBP475.6 million (H1 2017: GBP481.0 million). The rate of growth in total revenues was impacted adversely by the volume of in-patient and daycase admissions decline, which was not offset by the H1 2018 rate increase. Revenues were also adversely impacted by the application of NHS tariff reductions in Q2 2017 which reduced prices for the basket of services offered to the NHS by Spire by approximately 3.9% with the impact flowing into Q1 2018, and the reduction in NHS local revenue as a result of reduced level of local contracting being carried out by the NHS Trusts following the relaxation of waiting list targets in mid-2017.

Notwithstanding this decline in NHS reimbursement rates the Group reported an overall improvement in in-patient and daycase rate per case:

-- decrease in in-patients and daycase admissions of 4.1% drove a 2.6% decrease in total revenues;

-- average revenue per case improved in the period, accounting for a 1.5% increase in total revenues; and

-- Declining outpatient revenue performance had a minimal decrease in total revenues in the period.

PMI

 
                                      In-patient/   In-patient/ 
                            30 June       daycase       daycase                 30 June 
 (GBP million)                 2017        volume          rate   Out-patient      2018   Growth 
========================   ========  ============  ============  ============  ========  ======= 
 Underlying PMI revenue 
  (1)                         204.1         (4.7)           4.8         (0.6)     203.6   (0.2%) 
=========================  ========  ============  ============  ============  ========  ======= 
 Non underlying revenue        15.2           1.4         (0.2)           1.4      17.8    17.1% 
=========================  ========  ============  ============  ============  ========  ======= 
 Total PMI revenue            219.3                                               221.4     1.0% 
=========================  ========  ============  ============  ============  ========  ======= 
 

Group PMI revenue for the six months ended 30 June 2018 increased by GBP2.1 million, or 1.0%, to GBP221.4 million (H1 2017: GBP219.3 million). Non underlying PMI revenues increased in the period by 17.1% as a result of the growth of Spire Manchester, St Anthony's and Spire Nottingham hospitals since launch.

Underlying PMI revenue decreased by GBP0.5 million, or 0.2%, to GBP203.6 million (H1 2017: GBP204.1 million).

Of the underlying decline in PMI revenue of 0.2%:

-- a decline of 3.6% in in-patient and daycase admissions during the period decreased PMI revenues by 2.3%;

-- average revenue per case improved in the period (notwithstanding an increase in the proportion of daycase patients treated) which increased PMI revenues by 2.4% over the prior period; and

-- declining outpatient revenue performance contributed to a reduction in PMI revenues of 0.3% over the six months ended 30 June 2018.

NHS

 
                                      In-patient/   In-patient/ 
                            30 June       daycase       daycase                 30 June 
 (GBP million)                 2017        volume          rate   Out-patient      2018    Growth 
========================   ========  ============  ============  ============  ========  ======== 
 Underlying NHS revenue 
  (1)                         151.5        (11.5)         (1.6)         (2.1)     136.3   (10.0%) 
=========================  ========  ============  ============  ============  ========  ======== 
 Non underlying revenue         3.0           1.3         (0.5)           0.2       4.0     33.3% 
=========================  ========  ============  ============  ============  ========  ======== 
 Total NHS revenue            154.5                                               140.3    (9.2%) 
=========================  ========  ============  ============  ============  ========  ======== 
 

Group NHS revenue for the six months ended 30 June 2018 decreased by GBP14.2 million, or 9.2%, to GBP140.3 million (H1 2017: GBP154.5 million). Non underlying NHS revenues increased by 33.3% in the period as a result of the growth of Spire Manchester, St Anthony's and Spire Nottingham hospitals since launch.

Underlying NHS revenue decreased by GBP15.2million, or 10.0%, to GBP136.3 million (H1 2017: GBP151.5 million).

Of the underlying decline in NHS revenue of 10.0%:

   --      a decrease of 9.6% in in-patient and daycase admissions decreased NHS revenues by 7.6%; 

-- average revenue per case declined in the period, due to the national tariff contributing a decline in NHS revenues of 1.0%: and

   --      decline in outpatient revenues contributed 1.4% to revenue decline in the period; 

The underlying revenue decline in NHS revenues is split as follows:

   --      33.3% decline in local contract NHS revenue compared to prior period; and 

-- 5.6% decrease in NHS revenues arising from e-referral compared to prior period (previously known as 'choose and book').

Self-pay

 
                                      In-patient/   In-patient/ 
                            30 June       daycase       daycase                 30 June 
 (GBP million)                 2017        volume          rate   Out-patient      2018   Growth 
========================   ========  ============  ============  ============  ========  ======= 
 Underlying Self-pay 
  revenue (1)                  76.1           0.4           3.9           1.0      81.4     7.0% 
=========================  ========  ============  ============  ============  ========  ======= 
 Non underlying revenue         4.5           1.2         (0.1)           0.3       5.9    31.1% 
=========================  ========  ============  ============  ============  ========  ======= 
 Total Self-pay revenue        80.6                                                87.3     8.3% 
=========================  ========  ============  ============  ============  ========  ======= 
 

Self-pay revenue for the six months ended 30 June 2018 increased by GBP6.7 million, or 8.3%, to GBP87.3 million (H1 2017: GBP80.6 million). Non underlying self-pay revenues increased by 31.1% in the period as a result of the growth of Spire Manchester, St Anthony's and Spire Nottingham hospitals since launch.

Underlying Self-pay revenue increased by GBP5.3 million, or 7.0%, to GBP81.4 million (H1 2017: GBP76.1 million).

Of the underlying growth in Self-pay revenue of 7.0%:

-- a 2.1% increase in the volume of in-patient and daycase admissions had a 0.6% impact on Self-pay revenues;

-- average revenue per case improved in the period which increased Self-pay revenues by 5.1%; and

   --      increase in outpatient revenues contributed 1.3% to Self-pay revenue growth in the period. 

Partnerships

Partnership revenue represents agreements and relationships directly with other bodies who provide their employees, members or customers access to healthcare treatment. Note in prior periods some of this revenue has been included within Self-Pay or Other, the restatement has been shown below. The Group internally reports Self-Pay as direct to consumer revenue and therefore we have restated the prior year comparatives to show a clear distinction between the two revenue streams.

 
                                         In-patient/   In-patient/ 
                               30 June       daycase       daycase                 30 June 
 (GBP million)                    2017        volume          rate   Out-patient      2018   Growth 
===========================   ========  ============  ============  ============  ========  ======= 
 Underlying Partnership 
  revenue (1)                     12.6         (0.4)           0.4         (0.4)      12.2   (3.2%) 
============================  ========  ============  ============  ============  ========  ======= 
 Non underlying revenue            1.1             -             -           0.2       1.3    18.2% 
============================  ========  ============  ============  ============  ========  ======= 
 Total Partnership revenue        13.7                                                13.5   (1.5%) 
============================  ========  ============  ============  ============  ========  ======= 
 

Group Partnership revenue for the six months ended 30 June 2018 decreased by GBP0.2 million, or 1.5%, to GBP13.5 million (H1 2017: GBP13.7 million). Underlying Partnership revenue decreased by GBP0.4 million, or 3.2%, to GBP12.2 million (H1 2017: GBP12.6 million).

   Of the underlying decrease               in Partnership revenue of 3.2%: 

-- a decline of 9.9% in-patient and daycase admissions during the period decreased Partnership revenues by 3.2%;

-- average revenue per case improved in the period which increased Partnership revenues by 3.2%; and

-- declining outpatient revenue performance contributed a reduction in Partnership revenues of 3.2% over the six months ended 30 June 2018.

Other revenue

Other revenue, which includes fees paid to the Group by consultants (e.g. for the use of Group facilities and services) and third-party revenues (e.g. pathology services to third-parties), increased by GBP0.2 million, or 1.6%, in the period, to GBP13.1 million (H1 2017: GBP12.9 million).

Restated revenue

The Group has restated revenue for 2017, in order to reflect the measures that management use internally, shown below are the adjustments made to revenue for 30 June 2017:

 
                                               30 June 
                                                  2017 
                                       ( As previously   Partnership                    30 June 
 (GBP million)                                 stated)        payors   CQUIN    2017 (restated) 
=============================  ===  ==================  ============  ======  ================= 
 Underlying NHS revenue 
  (1)                                            148.8             -     2.7              151.5 
 Non underlying revenue                            2.9             -     0.1                3.0 
 Underlying Self-pay revenue 
  (1)                                             88.7        (12.6)       -               76.1 
 Non underlying revenue                            5.7         (1.2)       -                4.5 
 Underlying Partnership 
  revenue (1)                                        -          12.6       -               12.6 
 Non underlying revenue                              -           1.2   (0.1)                1.1 
 Other                                            15.6             -   (2.7)               12.9 
==================================  ==================  ============  ======  ================= 
 

COST OF SALES AND GROSS PROFIT

Cost of sales increased in the period by GBP2.1 million, or 0.8%, to GBP251.6 million (H1 2017: GBP249.5 million). Underlying cost of sales (excluding Spire Manchester, Nottingham and St Anthony's hospitals) decreased in the period by GBP0.7 million or 0.3% to GBP232.4 million (H1 2017: GBP233.1 million).

Underlying gross margin for the six months ended 30 June 2018 was 47.8%, compared to 49.0% for the six months ended 30 June 2017 and 48.2% for the twelve months ended 31 December 2017.

On an underlying basis, and as a percentage of relevant revenue:

 
                             Group            Underlying      Group   Underlying 
                                                             ======  =========== 
                           Six months         Six months          Year ended 
                          ended 30 June      ended 30 June        31 December 
                                                             =================== 
                           2018     2017      2018     2017    2017         2017 
=====================  ========  =======  ========  =======  ======  =========== 
 Clinical staff           19.8%    18.8%     19.1%    18.0%   19.6%        18.8% 
 Direct costs             22.5%    22.0%     22.4%    21.9%   22.1%        21.9% 
 Medical fees             10.6%    11.0%     10.7%    11.2%   11.1%        11.1% 
 Cost of sales            52.9%    51.8%     52.2%    51.0%   52.8%        51.8% 
=====================  ========  =======  ========  =======  ======  =========== 
 Gross profit margin      47.1%    48.2%     47.8%    49.0%   47.2%        48.2% 
=====================  ========  =======  ========  =======  ======  =========== 
 

Underlying gross profit margin has declined against prior year as a result of both:

   --      Revenue reductions arising from 
   --      NHS tariff declines in April 2017, 0.6% margin impact on the business 
   --      Loss of NHS local contracts following a relaxation of waiting list targets in mid-2017 
   --      Cost pressures specifically in Clinical staff costs driven by: 
   --      The investment in clinical quality which has increased headcount in some locations 

-- Supply side pressures increasing the rate of contracted staff and requiring the use of premium agency staff where gaps exist in contracted rotas

Management is focused on, and during H1 2018 has invested significantly in continuous improvement of recruitment, training and development process in the business. Medical fees and direct costs have been controlled in line with activity and case mix, with Oncology drug cost increases, linked to increased activity levels.

OTHER OPERATING COSTS

Other operating costs for the six months ended 30 June 2018 decreased by GBP2.0 million, or 1.0%, to GBP207.7 million (H1 2017: GBP209.7 million). Excluding exceptional and other items, other operating costs for the period increased by GBP14.8 million, or 8.3%, to GBP192.4 million (H1 2017: GBP177.6 million).

Underlying other operating costs decreased in the period by GBP7.4 million, or 3.7%, to GBP191.9 million (H1 2017: GBP199.3 million). Excluding exceptional and other items, underlying other operating costs for the period increased by GBP9.4 million, or 5.6%, to GBP176.6 million. Underlying operating costs were driven by the focus on strategic investments in areas such as HR, Clinical Quality and Assurance linked with our strategy to drive clinical quality and assurance and develop our recruitment and development capability in an increasingly challenging market.

 
                                       Group             Underlying       Group   Underlying 
                                 ==================  ==================  =======  ========== 
                                  Six months ended    Six months ended      Year ended 31 
                                       30 June             30 June             December 
                                 ==================  ==================  =================== 
                                     2018      2017      2018      2017         2017 
===============================  ========  ========  ========  ========  =================== 
Gross profit margin                 47.1%     48.2%     47.8%     49.0%    47.2%       48.2% 
Hospital and central overheads    (26.3%)   (24.3%)   (25.7%)   (23.9%)  (24.2%)     (23.6%) 
Depreciation                       (7.2%)    (5.9%)    (6.5%)    (6.1%)   (6.2%)      (6.1%) 
Rent                               (6.9%)    (6.6%)    (7.4%)    (6.9%)   (6.9%)      (7.3%) 
Loss on disposal of assets              -    (0.1%)         -    (0.1%)        -      (0.1%) 
===============================  ========  ========  ========  ========  =======  ========== 
Operating margin                     6.7%     11.2%      8.2%     11.9%     9.9%       11.1% 
===============================  ========  ========  ========  ========  =======  ========== 
EBITDA margin                       13.9%     17.3%     14.7%     18.1%    16.1%       17.3% 
===============================  ========  ========  ========  ========  =======  ========== 
 

EBITDA

EBITDA for the Group declined by 20.6% in the period from GBP83.2 million in H1 2017 to GBP66.1 million for H1 2018. The result includes post opening trading losses in Nottingham as the business establishes itself in a new market. The performance was also adversely impacted by NHS tariff reductions from Q2 2017.

Underlying EBITDA decreased by 21.1% to GBP65.3 million (H1 2017: GBP82.8 million) and underlying margin declined by 3.4% from 18.1% in H1 2017 to 14.7% in H1 2018, as a result of revenue reduction and cost increases linked to strategic investments.

Depreciation

Group depreciation charge for the six months ended 30 June 2018 increased by GBP5.8 million, or 20.3%, to GBP34.4 million (H1 2017: GBP28.6 million).

Underlying depreciation charge for the six months ended 30 June 2018 increased by GBP2.7 million, or 10.4%, to GBP28.6 million (H1 2017: GBP25.9 million).

Rent

Rent of land and buildings for the period increased by GBP0.9 million, or 2.8%, to GBP32.8 million (H1 2017: GBP31.9 million).

Share-based payments

During the period, grants were made to executive directors and members of the executive management team under the Company's deferred bonus plan and long term incentive plan. For the six months ended 30 June 2018, the charge to the income statement was GBP0.5 million (H1 2017: GBP0.6 million), or GBP0.6 million inclusive of NI (H1 2017: GBP0.7 million). Further details are contained in note 16 of this announcement.

Exceptional and other items included in other operating costs

 
                                            Six months ended 
                                                 30 June 
                                               (Unaudited) 
                                          =================== 
 (GBP million)                                  2018     2017 
=======================================   ==========  ======= 
 Ian Paterson claims and related costs         (0.6)     27.6 
 Property impairment                            12.6        - 
 Business reorganisation                         1.0      1.3 
 Hospitals set up and closure costs              1.8      3.2 
 Total exceptional costs                        14.8     32.1 
========================================  ==========  ======= 
 Other costs 
 Compliance set-up costs                         0.5        - 
 Total exceptional and other costs              15.3     32.1 
========================================  ==========  ======= 
 

Property impairment relates to the Spire Alexandra hospital; this is a site that has underperformed in recent years. The performance in the first six months continued to deteriorate which has now resulted in impairment being recognised. Business reorganisation costs include internal group reorganisation costs associated with the strategic review that commenced in Q4 2017. Hospital set up and closure costs include the provision of impairment for fixed assets at the Windsor clinic; this is subsequent to discussions with the landlord following which Spire have agreed to terminate the lease early in September 2018, along with further decommissioning costs of the former Manchester hospital site. Further details of exceptional and other items are disclosed in note 8 of this interim announcement.

OPERATING PROFIT BEFORE AND AFTER EXCEPTIONAL AND OTHER ITEMS

Operating profit after exceptional and other items decreased by 25.2% in the period to GBP16.3 million. Before exceptional and other items, operating profit decreased by 41.4%, to GBP31.6 million for the six months ended 30 June 2018 (H1 2017: GBP53.9 million). Excluding the results of Spire Manchester, Nottingham and St Anthony's hospitals in H1 2018, underlying operating profit before exceptional and other items decreased by 34.8%, from GBP56.3 million to GBP36.7 million.

NET FINANCE COSTS

Net finance costs increased by 15.5% to GBP11.2 million (H1 2017: GBP9.7 million) as a result of applicable interest rates on borrowings in the period.

TAXATION

The taxation charge for the six months ended 30 June 2018 consisted of a GBP1.9 million charge for corporation tax and a credit of GBP5.0 million for deferred tax. The effective tax rate for the six months ended 30 June 2018 was credit 60.8% (before exceptional and other items 19.6%).

The taxation charge for the six months ended 30 June 2017 consisted of a GBP0.6 million charge for corporation tax and a charge of GBP2.6 million for deferred tax. The effective tax rate for the six months ended 30 June 2017 was 26.4% (before exceptional and other items 21.5%).

PROFIT FOR THE PERIOD

The profit after taxation for the six months ended 30 June 2018 was GBP8.2 million (H1 2017: GBP8.9 million).

ADJUSTED FINANCIAL INFORMATION

This statement was prepared for illustrative purposes only and did not represent the Group's actual earnings. The information was prepared as described in the notes set out below.

Non-GAAP financial measures

We have provided in this release financial information that has not been prepared in accordance with IFRS. We use these non-GAAP financial measures internally in analysing our financial results and believe they are useful to investors, as a supplement to IFRS measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with IFRS. Investors are encouraged to review the reconciliation to these non-GAAP financial to their most directly comparable IFRS financial measures provided in the financial statement tables included in this press release.

Adjustments have been made to exclude the trading results of any new hospital development, closure or disposal in both current and prior periods. We have therefore excluded the results of Spire Manchester, Spire Nottingham and Spire St Anthony hospitals in arriving at 'underlying' in this 2018 interim Report. Manchester hospital was transitioned to a new and larger site during January 2017 (which resulted in a period of operational closure), the new hospital in Nottingham was operational in late April 2017 and St Anthony's was redeveloped in 2017, including the construction of a new 6 surgical theatre complex which opened in late 2016.

 
                                                Six months ended 30 
                                                        June 
                                                    (Unaudited) 
                                              ====================== 
 (GBP million)                                      2018        2017 
============================================  ==========  ========== 
 Revenue                                           475.6       481.0 
 Adjustments: 
 New hospital openings (Spire Nottingham 
  and Spire Manchester hospitals)                 (16.4)      (10.5) 
 Hospital redevelopment (Spire St Anthony's 
  Hospital)                                       (13.6)      (13.9) 
 Underlying revenue                                445.6       456.6 
============================================  ==========  ========== 
 
 
 Operating profit before exceptional and 
  other items                                       31.6    53.9 
 Adjustments: 
 New hospital openings (Spire Nottingham 
  and Spire Manchester hospitals)                    5.4     2.4 
 Hospital redevelopment (Spire St Anthony's 
  Hospital)                                        (0.3)     0.6 
 Underlying operating profit before exceptional 
  and other items                                   36.7    56.9 
================================================  ======  ====== 
 Depreciation and amortization on underlying 
  assets                                            28.6    25.9 
================================================  ======  ====== 
 Underlying EBITDA                                  65.3    82.8 
================================================  ======  ====== 
 
 EBITDA                                             66.1    83.2 
 Adjustments: 
 New hospital openings (Spire Nottingham 
  and Spire Manchester hospitals)                    0.3   (0.5) 
 Hospital redevelopment (Spire St Anthony's 
  Hospital)                                        (1.1)     0.1 
 Underlying EBITDA                                  65.3    82.8 
================================================  ======  ====== 
 

Adjusted profit after tax and earnings per share

Adjustments have been made to remove the impact of a number of significant non-recurring items.

 
                                                   Six months ended 
                                                        30 June 
                                                      (Unaudited) 
                                              ========================== 
 (GBP million)                                        2018          2017 
===========================================   ============  ============ 
 Profit before taxation                                5.1          12.1 
 Adjustment for: 
 Exceptional and other items                          15.3          32.1 
============================================  ============  ============ 
 Adjusted profit before tax                           20.4          44.2 
 Taxation (1a)                                       (4.0)         (9.5) 
============================================  ============  ============ 
 Adjusted profit after tax                            16.4          34.7 
============================================  ============  ============ 
 Weighted average number of ordinary 
  shares in issue (No.)                        400,806,961   400,542,797 
============================================  ============  ============ 
 Adjusted basic earnings per share (pence)             4.1           8.7 
============================================  ============  ============ 
 

1a. Reported tax charge for the period adjusted for the tax effect of exceptional and other items.

CASH FLOWS ANALYSIS FOR THE PERIOD

 
                                              Six months ended 
                                                   30 June 
                                                 (Unaudited) 
                                            =================== 
 (GBP million)                                   2018      2017 
=========================================   =========  ======== 
 Opening cash balance                            39.2      67.9 
==========================================  =========  ======== 
 Operating cash flows before exceptional 
  and other items and income tax paid            62.2      81.2 
 Exceptional and other items (1b)               (1.4)     (4.9) 
 Income tax paid                                (1.4)     (0.6) 
==========================================  =========  ======== 
 Operating cash flows after exceptional 
  and other items and income tax paid            59.4      75.7 
 Net cash used in investing activities         (33.4)    (59.1) 
 Net cash used in financing activities         (20.1)    (19.6) 
==========================================  =========  ======== 
 Closing cash balance                            45.1      64.9 
==========================================  =========  ======== 
 Closing net indebtedness                       458.1     436.1 
==========================================  =========  ======== 
 

1b. Comprising exceptional and other items paid of GBP1.4 million (H1 2017: GBP4.9 million) included within movements in working capital (H1 2017: GBP0.4 million credit included within charge).

EBITDA CASH FLOW Conversion rate and DEBT leverage covenant

 
                                              Six months ended 
                                                   30 June 
                                                 (Unaudited) 
                                            =================== 
 (GBP million)                                   2018      2017 
=========================================   =========  ======== 
 Operating cash flows before exceptional 
  and other items and income tax paid            62.2      81.2 
==========================================  =========  ======== 
 EBITDA                                          66.1      83.2 
==========================================  =========  ======== 
 Cash conversion rate                           94.1%     97.6% 
==========================================  =========  ======== 
 
 
                       Six months ended 
                            30 June 
                          (Unaudited) 
                     =================== 
 (GBP million)            2018      2017 
==================   =========  ======== 
 Debt leverage(1)         3.4x      3.1x 
===================  =========  ======== 
 

1. Total net debt to EBITDA excluding exceptional and non-recurring items must not be greater that 4:1. Tested semi-annually.Included within the H1 2018 debt leverage calculation is some GBP2m of non-recurring items.

Operating cash flows before exceptional and other items and income tax paid

The cash inflow from operating activities before exceptional and other items and income tax paid for the six months ended 30 June 2018 was GBP62.2 million, which constitutes a cash conversion rate from EBITDA for the period of 94.1% (H1 2017: GBP81.2 million or 97.6%). The net cash inflow from movements in working capital in the period was GBP5.8 million (H1 2017: inflow GBP23.9 million) mainly due to the increase in trade and other receivables, of this GBP6.4 million relates a non cash item for the IFRS 9 transition.

Investing and financing cash flows

Net cash used in investing activities for the six months ended 30 June 2018 was GBP33.4 million. Capital expenditure for the purchase of property, plant and equipment in the period totalled GBP33.5 million, which included the ongoing upgrades of facilities notably at Spire Hull, Spire Bushey, Spire Cheshire and Spire Cambridge Lea Hospitals.

Net cash used in investing activities for the six months ended 30 June 2017 was GBP59.1 million. Capital expenditure for the purchase of property, plant and equipment in the period totalled GBP59.5 million, which included the completion of the new Spire Manchester and Spire Nottingham hospitals and ongoing upgrades of facilities notably at Spire Hull, Spire Bushey and Spire Cambridge Lea Hospitals.

Net cash used in financing activities for the six months ended 30 June 2018 was GBP20.1 million (H1 2017: GBP19.6 million), including interest paid of GBP10.1 million (H1 2017: GBP9.6 million) and final 2017 dividend paid to shareholders of GBP10.0 million (H1 2017: GBP10.0 million).

DIVID

The Board has approved a 2018 interim dividend of 1.3 pence per share (H1 2017: 1.3 pence) payable on 11 December 2018.

RELATED PARTY TRANSACTIONS

There were no significant related party transactions during the period under review.

Principal risks

The Board has overall responsibility for the Group's risk management and internal control systems.

The principal risks and mitigating factors are described in more detail on pages 52 to 55 of the Group's Annual Report and Accounts for the year ended 31 December 2017 (a copy of which is available on the Group's website at www.spirehealthcare.com). The Board have reconsidered the Group's key risks and believe the only additional risk to be considered is Brexit and that all remaining risks are appropriate for the remaining six months period to 31 December 2018.

   --      Clinical care 
   --      Government policy; including the commissioning of NHS services 
   --      Compliance with laws, regulations and other applicable requirements 
   --      Insurance 
   --      Concentration of the PMI market 
   --      Availability of key medical staff 
   --      Macroeconomic conditions 
   --      Competitor challenge 
   --      Cybersecurity 
   --      Investment plans and execution 
   --      Liquidity and covenant risk 
   --      Brexit 

Directors' responsibilities statement

We confirm that to the best of our knowledge:

-- This condensed consolidated interim financial information for the six months ended 30 June 2018 has been prepared in accordance with International Accounting Standard 34 ('IAS 34') as adopted by the EU.

-- The interim management report, which is incorporated into the Non-Executive Chairman's message, Operating Review and Financial Review, includes a fair review of the information as required by:

-- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of the important events that have occurred during the six months of the current financial year and their impact on the condensed consolidated interim financial information and a description of the principal risks for the remaining six months of the year; and

-- DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially impacted the financial position or performance of the Group during the period and any material changes in the related party transactions described in the Group's Annual Report and Accounts for the year ended 31 December 2017.

By order of the Board

   Justin Ash                              Garry Watts 
   Chief Executive Officer        Non-Executive Chairman 

17 September 2018

Independent review report to the members of Spire Healthcare Group plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the Consolidated interim income statement, Consolidated interim statement of comprehensive income, Consolidated interim statement of changes in equity, Consolidated interim balance sheet, Consolidated interim statement of cash flows and related explanatory notes 1 to 17 that have been reviewed. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

17 September 2018

Condensed financial statements

Consolidated interim income statement

For the six months ended 30 June 2018

 
                                                            Six months ended 30 June 
                                                                   (Unaudited) 
                                                   2018                                   2017 
 (GBP million)             Notes          Total   Exceptional     Total          Total   Exceptional     Total 
                                         before     and other                   before     and other 
                                    exceptional         items              exceptional         items 
                                      and other         (note                and other         (note 
                                          items            8)                    items            8) 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Revenue                       7          475.6             -     475.6          481.0             -     481.0 
 Cost of sales                          (251.6)             -   (251.6)        (249.5)             -   (249.5) 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Gross profit                             224.0             -     224.0          231.5             -     231.5 
 Other operating 
  costs                                 (192.4)        (15.3)   (207.7)        (177.6)        (32.1)   (209.7) 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Operating profit              6           31.6        (15.3)      16.3           53.9        (32.1)      21.8 
========================  ======  =============  ============  ========  =============  ============  ======== 
 
 Finance income                               -             -         -              -             -         - 
 Finance costs                 9         (11.2)             -    (11.2)          (9.7)             -     (9.7) 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Profit before taxation                    20.4        (15.3)       5.1           44.2        (32.1)      12.1 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Taxation                     10          (4.0)           7.1       3.1          (9.5)           6.3     (3.2) 
========================  ======  =============  ============  ========  =============  ============  ======== 
 Profit for the period                     16.4         (8.2)       8.2           34.7        (25.8)       8.9 
========================  ======  =============  ============  ========  =============  ============  ======== 
 
 Profit for the period 
  attributable to 
  owners of the Parent                     16.4         (8.2)       8.2           34.7        (25.8)       8.9 
========================  ======  =============  ============  ========  =============  ============  ======== 
 
 Earnings per share 
  - basic (in pence 
  per share)                  12            4.1         (2.1)       2.0            8.7         (6.5)       2.2 
 Earnings per share 
  -diluted (in pence 
  per share)                  12            4.1         (2.1)       2.0            8.6         (6.4)       2.2 
========================  ======  =============  ============  ========  =============  ============  ======== 
 

Consolidated interim statement of comprehensive income

For the six months ended 30 June 2018

 
                                                Six months ended 
                                                     30 June 
                                                   (Unaudited) 
                                              =================== 
 (GBP million)                                     2018      2017 
===========================================   =========  ======== 
 Profit for the period                              8.2       8.9 
============================================  =========  ======== 
 
 Other comprehensive income for the period            -         - 
============================================  =========  ======== 
 
 Total comprehensive income for the period 
  attributable to owners of the Parent              8.2       8.9 
============================================  =========  ======== 
 

Consolidated interim statement of changes in equity

For the six months ended 30 June 2018 (Unaudited)

 
                                                                                 EBT 
                                            Share      Share     Capital       share    Retained     Total 
 (GBP million)                   Notes    capital    premium    reserves    reserves    earnings    equity 
==============================  ======  =========  =========  ==========  ==========  ==========  ======== 
 As at 1 January 2017                         4.0      826.9       376.1       (2.2)     (169.5)   1,035.3 
 Profit for the period                          -          -           -           -         8.9       8.9 
 Other comprehensive income 
  for the period                                -          -           -           -           -         - 
 Share-based payments               16          -          -           -           -         0.7       0.7 
 Deferred tax on share-based 
  payments                                      -          -           -           -         0.1       0.1 
 Utilisation of EBT shares 
  for Directors' Share Bonus 
  Award                                         -          -           -         0.8       (0.8)         - 
 Dividend paid                      11          -          -           -           -      (10.0)    (10.0) 
==============================  ======  =========  =========  ==========  ==========  ==========  ======== 
 Balance at 30 June 2017                      4.0      826.9       376.1       (1.4)     (170.6)   1,035.0 
==============================  ======  =========  =========  ==========  ==========  ==========  ======== 
 
 As at 1 January 2018                         4.0      826.9       376.1       (0.9)     (168.2)   1,037.9 
 IFRS 9 transition adjustment        4          -          -           -           -       (6.4)     (6.4) 
 Restated as at 1 January 
  2018                                        4.0      826.9       376.1       (0.9)     (174.6)   1,031.5 
 Profit for the period                          -          -           -           -         8.2       8.2 
 Other comprehensive income 
  for the period                                -          -           -           -           -         - 
 Share-based payments               16          -          -           -           -         0.5       0.5 
 Deferred tax on share-based 
  payments                                      -          -           -           -         0.1       0.1 
 Utilisation of EBT shares 
  for Directors' Share Bonus 
  Award                                         -          -           -         0.1       (0.1)         - 
 Dividend paid                      11          -          -           -           -      (10.0)    (10.0) 
==============================  ======  =========  =========  ==========  ==========  ==========  ======== 
 Balance at 30 June 2018                      4.0      826.9       376.1       (0.8)     (175.9)   1,030.3 
==============================  ======  =========  =========  ==========  ==========  ==========  ======== 
 

Consolidated interim balance sheet

 
                                                           As at 
                                                =========================== 
                                                      30 June   31 December 
                                                         2018          2017 
 (GBP million)                           Notes    (Unaudited)     (Audited) 
======================================  ======  =============  ============ 
 ASSETS 
 Non-current assets 
 Intangible assets                                      517.8         517.8 
 Property, plant and equipment              13        1,021.9       1,036.9 
                                                      1,539.7       1,554.7 
======================================  ======  =============  ============ 
 Current assets 
 Inventories                                             29.0          30.1 
 Trade and other receivables                            108.6         104.5 
 Cash and cash equivalents                               45.1          39.2 
======================================  ======  =============  ============ 
                                                        182.7         173.8 
======================================  ======  =============  ============ 
 Non-current assets held for sale                         5.6           5.6 
======================================  ======  =============  ============ 
                                                        188.3         179.4 
======================================  ======  =============  ============ 
 Total assets                                         1,728.0       1,734.1 
======================================  ======  =============  ============ 
 EQUITY AND LIABILITIES 
 Equity 
 Share capital                                            4.0           4.0 
 Share premium                                          826.9         826.9 
 Capital reserves                                       376.1         376.1 
 EBT share reserves                                     (0.8)         (0.9) 
 Retained earnings                                    (175.9)       (168.2) 
======================================  ======  =============  ============ 
 Equity attributable to owners of the 
  Parent                                              1,030.3       1,037.9 
 Total equity                                         1,030.3       1,037.9 
======================================  ======  =============  ============ 
 Non-current liabilities 
 Borrowings                                 14          499.1         498.0 
 Deferred tax liabilities                                67.6          72.6 
======================================  ======  =============  ============ 
                                                        566.7         570.6 
======================================  ======  =============  ============ 
 Current liabilities 
 Provisions                                 15           19.2          17.9 
 Borrowings                                 14            4.1           4.0 
 Trade and other payables                               105.2         101.5 
 Income tax payable                                       2.5           2.2 
======================================  ======  =============  ============ 
                                                        131.0         125.6 
======================================  ======  =============  ============ 
 Total liabilities                                      697.7         696.2 
======================================  ======  =============  ============ 
 Total equity and liabilities                         1,728.0       1,734.1 
======================================  ======  =============  ============ 
 

Consolidated interim statement of cash flows

For the six months ended 30 June 2018

 
                                                           Six months ended 
                                                                30 June 
                                                              (Unaudited) 
                                                         =================== 
 (GBP million)                                    Notes       2018      2017 
===============================================  ======  =========  ======== 
 Cash flows from operating activities 
 Profit before taxation                                        5.1      12.1 
 Adjustments for: 
   Depreciation                                       6       34.4      28.6 
   Impairment of property, plant and equipment                13.9         - 
   Share-based payments                                        0.5       0.7 
   Loss on disposal of property, plant 
    and equipment                                              0.1       0.7 
   Finance income                                                -         - 
   Finance costs                                      9       11.2       9.7 
===============================================  ======  =========  ======== 
                                                              65.2      51.8 
 Movements in working capital: 
  (Increase)/decrease in trade and other 
   receivables                                              (10.5)       2.3 
  Decrease/(increase) in inventories                           1.1     (0.4) 
   Increase /(decrease) in trade and other 
    payables                                                   3.7     (4.8) 
  Increase in provisions                                       1.3      27.4 
   Income tax paid                                           (1.4)     (0.6) 
 Net cash from operating activities                           59.4      75.7 
 Cash flows from investing activities 
 Purchase of property, plant and equipment                  (33.5)    (59.5) 
 Proceeds from disposal of property, 
  plant and equipment                                          0.1       0.4 
 Interest received                                               -         - 
 Net cash used in investing activities                      (33.4)    (59.1) 
 Cash flows from financing activities 
 Interest paid                                              (10.1)     (9.6) 
 Repayment of borrowings                                         -         - 
 Dividend paid to equity holders of the 
  Parent                                                    (10.0)    (10.0) 
===============================================  ======  =========  ======== 
 Net cash used in financing activities                      (20.1)    (19.6) 
===============================================  ======  =========  ======== 
 Net increase/(decrease) in cash and 
  cash equivalents                                             5.9     (3.0) 
 Cash and cash equivalents at beginning 
  of period                                                   39.2      67.9 
===============================================  ======  =========  ======== 
 Cash and cash equivalents at end of 
  period                                                      45.1      64.9 
===============================================  ======  =========  ======== 
 
 Exceptional and other items 
 Exceptional and other items paid included 
  in the cash flow from operating activities                 (1.4)     (4.9) 
 Total exceptional and other items                    8     (15.3)    (32.1) 
===============================================  ======  =========  ======== 
 

Notes to the consolidated interim financial statements

   1.     GENERAL INFORMATION 

Spire Healthcare Group plc (the 'Company') and its subsidiaries (collectively, the 'Group') owns and operates private hospitals and clinics in the UK and provides a range of private healthcare services.

The Company is a public limited company, which is listed on the London Stock Exchange, incorporated, registered and domiciled in England (registered number: 09084066). The address of its registered office is 3 Dorset Rise, London EC4Y 8EN.

The condensed consolidated interim financial information for the six months ended 30 June 2018 was approved by the Board on 17 September 2018.

   2.     BASIS OF PREPARATION 

Basis of preparation of interim statements

The condensed consolidated interim financial information has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting, as adopted by the EU. They do not include all the information required for full annual financial statements and should be read in conjunction with information contained in the Group's Annual Report and Accounts for the year ended 31 December 2017. The condensed consolidated interim financial information has been reviewed, not audited.

The financial information for the year ended 31 December 2017 does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006 for that year, but it is derived from those accounts. Statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors on 1 March 2018 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under section s498 (2) or (3) of the Companies Act 2006.

Going concern

During July 2018, the Group renewed its finance facility with a bank loan that matures in July 2022. The directors have considered the Group's forecasts and projections, and the risks associated with their delivery, and are satisfied that the Group will be able to operate within the covenants imposed by the bank loan facility for the foreseeable future. In relation to available cash resources, the directors have had regard to both cash at bank and a GBP100.0 million committed undrawn revolving credit facility. Accordingly, they have adopted the going concern basis in preparing this condensed consolidated interim financial information.

   3.     ACCOUNTING POLICIES 

In preparing the condensed consolidated interim financial information, the same accounting policies, methods of computation and presentation have been applied as set out in the Group's Annual Report and Accounts for the year ended 31 December 2017. The accounting policies are consistent with those of the previous financial year and corresponding interim reporting period with the exception of the adoption of new and amended standards as set out below.

The annual financial statements of the Group are prepared in accordance with International Financial Reporting standards ('IFRS') as adopted by the EU.

The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.

   3.     ACCOUNTING POLICIES (CONTINUED) 

IFRS 16 LEASES

The Group is continuing to assess the impact of IFRS 16 Leases which will be concluded by the end of the year.

New and amended standards adopted by the Group

A number of new and amended accounting standards became applicable for the current reporting period and the Group had to change its accounting policies and make adjustments as a result of adopting the following standards:

IFRS9 Financial Instruments

IFRS 15 Revenue from contracts with customers

The impacts of adoption of these accounting standards are disclosed in note 4 below. The other standards did not have any impact on the Group's accounting policies and did not require retrospective adjustments.

   4.     CHANGES IN ACCOUNTING POLICIES 

IFRS 9 FINANCIAL INSTRUMENTS

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement bringing all three aspects of the accounting together for financial instruments: classification and measurements; impairment; and hedge accounting.

The adoption of IFRS 9 Financial Instruments from 1 January 2018, resulted in a change of accounting policy and adjustments through opening retained earnings. The new accounting policy is set out below.

The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

To measure the expected credit losses, trade receivables have been grouped based on shared characteristics and the days past due. The Group has concluded that the expected loss rates for trade receivables, are a reasonable approximation of the loss rates for each ageing bucket based on historical debt trends of our portfolio of customers for the last 2 reporting periods.

The loss allowance as at 1 January 2018 was determined as follows for trade receivables:

 
                       Current  0-30 days  31-90  91-364  1-2 years  Total 
                                            days    days 
=====================  =======  =========  =====  ======  =========  ===== 
Expected loss rate        1.1%       6.7%  16.2%     50%       100% 
Carrying amount (GBP 
 million)                 36.3        5.9    4.3     3.8        6.9   57.2 
Loss allowance             0.4        0.4    0.7     1.9        6.9   10.3 
=====================  =======  =========  =====  ======  =========  ===== 
 

The loss allowance for trade receivables as at 31 December 2017 reconcile to the opening loss allowances on 1 January 2018 as follows:

 
                                                        (GBP million) 
======================================================  ============= 
At 31 December 2017 - calculated under IAS 39                     3.9 
Amounts restated through opening retained earnings                6.4 
Opening loss allowance at 1 January 2018 - calculated 
 under IFRS 9                                                    10.3 
======================================================  ============= 
 

The loss allowance decreased by GBP4.8 million to GBP5.5 million for trade receivables during the six months to 30 June 2018. The bad debt provision decrease would have been GBP2.2 million for the period to bring the provision down to GBP1.7 million under the incurred loss model of IAS 39.

Trade receivables are written off when there is no longer a reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Group, and failure to make contractual payments for a period of greater than 2 years past due.

   4.     CHANGES IN ACCOUNTING POLICIES (CONTINUED) 

Accounting policy

From 1 January 2018, the Group assesses on a forward looking basis expected credit losses associated with its debt instruments carried at amortised cost. The impairment methodology applied for trade receivables is the simplified approach, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

IFRS 15 Revenue from Contracts with Customers

The Group adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018 which has not resulted in a material change in accounting for revenue. In accordance with IFRS 15, the Group has adopted the new rules using the modified retrospective approach, no adjustments were required at the date of application.

Accounting policy

PMI, Self-pay, Partnerships and NHS revenue

The Group's patient revenue for PMI, Self-pay, Partnerships and NHS is recognised when services have been delivered to the patient, this includes in-patient cases for which services are simultaneously received and consumed by the patient and outpatient cases which the revenue is recognised on an individual component basis when the performance obligations are satisfied.

Other revenue

Other revenue includes consultant revenue, third party revenue streams such as room rental, medical secretary services, training and hire of facilities. Revenue from providing these services or facilities is recognised in the accounting period in which the services are rendered.

   5.     SIGNIFICANT JUDGEMENTS AND ESTIMATES 

The preparation of the condensed consolidated interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, income and expense. Actual results may differ from these estimates.

The significant judgements and estimates used in the application of the Group's accounting policies are the same as those described in the Group's Annual Report and Accounts for the year ended 31 December 2017.

   6.     OPERATING PROFIT 

Operating profit for the period has been arrived at after charging:

 
                                                  Six months ended 
                                                       30 June 
                                                     (Unaudited) 
                                                =================== 
 (GBP million)                                       2018      2017 
=============================================   =========  ======== 
 Rent of land and buildings under operating 
  leases                                             32.8      31.9 
 Depreciation of property, plant and 
  equipment                                          34.4      28.6 
 Impairment of property, plant and equipment         13.9         - 
 Loss on disposal of property, plant 
  and equipment                                       0.1       0.7 
 Staff costs                                        147.8     137.6 
==============================================  =========  ======== 
 
   7.     SEGMENTAL REPORTING 

In determining the Group's operating segment, management has primarily considered the financial information in the internal reports that are reviewed and used by the executive management team and the Board of Directors (in aggregate the chief operating decision maker) in assessing performance and in determining the allocation of resources. The financial information in those internal reports in respect of revenue and expenses has led management to conclude that the Group has a single operating segment, being the provision of healthcare services.

Partnership revenue represents agreements and relationships directly with other bodies who provide their employees, members or customers access to healthcare treatment. Note in prior periods some of this revenue has been included within Self-Pay or Other. The Group internally reports Self-Pay as direct to consumer revenue and therefore we have restated the prior year comparatives to show a clear distinction between the two revenue streams.

 
                                               30 June 
                                                  2017 
                                       ( As previously   Partnership                     30 June 
 (GBP million)                                 stated)        payors    CQUIN    2017 (restated) 
=============================  ===  ==================  ============  =======  ================= 
 Underlying NHS revenue 
  (1)                                            148.8             -      2.7              151.5 
 Non underlying revenue                            2.9             -      0.1                3.0 
 Underlying Self-pay revenue 
  (1)                                             88.7        (12.6)        -               76.1 
 Non underlying revenue                            5.7         (1.2)        -                4.5 
 Underlying Partnership 
  revenue (1)                                        -          12.6        -               12.6 
 Non underlying revenue                              -           1.2   (0.1)-                1.1 
 Other                                            15.6             -    (2.7)               12.9 
==================================  ==================  ============  =======  ================= 
 

All revenue is attributable to and all non-current assets are located in the United Kingdom.

Revenue by wider customer (payor) group is shown below:

 
                    Six months ended 
                         30 June 
                       (Unaudited) 
                  =================== 
 (GBP million)         2018      2017 
===============   =========  ======== 
 Insured              221.4     219.3 
 NHS                  140.3     154.5 
 Self-pay              87.3      80.6 
 Partnerships          13.5      13.7 
 Other                 13.1      12.9 
================  =========  ======== 
 Total                475.6     481.0 
================  =========  ======== 
 
   8.     EXCEPTIONAL and other ITEMS 
 
                                                  Six months ended 
                                                       30 June 
                                                     (Unaudited) 
                                                =================== 
 (GBP million)                                       2018      2017 
=============================================   =========  ======== 
 Ian Paterson claims and related costs              (0.6)      27.6 
 Impairment of property, plant and equipment         12.6         - 
 Business reorganisation                              1.0       1.3 
 Hospitals set up and closure costs                   1.8       3.2 
==============================================  =========  ======== 
 Total exceptional costs                             14.8      32.1 
==============================================  =========  ======== 
 Income tax credit on exceptional items             (2.6)     (6.3) 
==============================================  =========  ======== 
 Net total                                           12.2      25.8 
==============================================  =========  ======== 
 

In the six months ended 30 June 2018:

Property impairment relates to the Spire Alexandra hospital; this is a site that has underperformed in recent years. The performance in the first six months continued to deteriorate which has now resulted in impairment being recognised. Business reorganisation costs include internal group reorganisation costs associated with the strategic review commenced in Q4 2017. Hospital set up and closure costs include the provision of impairment for fixed assets at the Spire Windsor clinic; this is subsequent to discussions with the landlord following which

   8.     EXCEPTIONAL and other ITEMS (CONTINUED) 

Spire have agreed to terminate the lease early in September 2018, along with further decommissioning costs of the former Manchester hospital site. All 2018 exceptional costs are expected to be tax deductible.

In the six months ended 30 June 2017:

Business reorganisation mainly comprised staff restructuring costs. Hospitals set up and closure costs refer to pre-opening costs for the new Manchester and Nottingham hospitals and decommissioning costs for the old Manchester site. Except for the disposal costs, which were capital in nature, all other exceptional costs in 2017 are expected to be tax deductible.

Following the completion of the criminal proceedings against Ian Paterson (a consultant who previously had practicing privileges at Spire Healthcare) earlier in 2017, Spire has entered into an agreement in principle to settle all current and known claims against Spire relating to his practice at Spire. In this connection Spire has made a provision amounting to GBP27.6m for the potential cost of such settlement in the results for the period. This provision has been determined before account is taken of any potential further recoveries from insurers.

 
                                       Six months ended 
                                            30 June 
 Other items                              (Unaudited) 
                                     =================== 
 (GBP million)                             2018     2017 
=================================    ==========  ======= 
 Compliance set-up costs                    0.5        - 
=================================    ==========  ======= 
 Total other items                          0.5        - 
=================================    ==========  ======= 
 Deferred tax on properties               (4.4)        - 
 Income tax credit on other items         (0.1)        - 
=================================    ==========  ======= 
 Total post tax other items               (4.0)        - 
=================================    ==========  ======= 
 

Compliance set up costs include amounts incurred in 2018 to meet the requirements of General Data Protection Regulation ('GDPR') which was effective from 25 May 2018. The initial tranche of costs were incurred and recognised in H2 2017 and management expect further material costs to be incurred to fulfil its expanded obligations by the end of 2018.

During the current period, the Group reassessed the basis of deferred tax on two properties that have been classified as held for sale, this has given rise to a prior year exceptional tax credit.

   9.     FINANCE COSTS 
 
                                              Six months ended 
                                                   30 June 
                                                 (Unaudited) 
                                            =================== 
 (GBP million)                                  2018       2017 
=========================================   ========  ========= 
 Interest on bank facilities                     6.6        5.8 
 Finance charges payable under finance 
  leases                                         4.6        4.6 
==========================================  ========  ========= 
                                                11.2       10.4 
 Finance costs capitalised in the period           -      (0.7) 
==========================================  ========  ========= 
 Total finance costs                            11.2        9.7 
==========================================  ========  ========= 
 

No finance costs were capitalised during the period. In the prior period they were calculated based on a weighted cost of borrowing of 2.5%.

   10.   TAXATION 
 
                                                 Six months ended 
                                                      30 June 
                                                    (Unaudited) 
                                               =================== 
 (GBP million)                                       2018     2017 
============================================   ==========  ======= 
 Current tax 
   UK Corporation tax arising in the period           1.9      0.6 
 Total current tax                                    1.9      0.6 
=============================================  ==========  ======= 
 
 Deferred tax 
   Origination and reversal of temporary 
    differences                                     (0.6)      2.6 
  Adjustment in respect of prior years              (4.4)        - 
============================================   ==========  ======= 
 Total deferred tax charge                          (5.0)      2.6 
=============================================  ==========  ======= 
 
 Taxation in the period                             (3.1)      3.2 
=============================================  ==========  ======= 
 

The tax charge for the period has been calculated using an estimate of the effective annual rate of tax for the full year. This rate has been applied to the pre-tax profits for the six months ended 30 June 2018. The Group has separately calculated the tax rates applicable to exceptional and other items for the period. Tax rate changes that were substantively enacted at the balance sheet date have been factored into the calculation of the effective tax rates.

   10.   DIVIDS 
 
                                                      Six months ended 
                                                           30 June 
                                                         (Unaudited) 
                                                    =================== 
 (GBP million)                                           2018      2017 
=================================================   =========  ======== 
 Amounts recognised as distributions to equity 
  holders in the period: 
 - final dividend for the year ended 31 December 
  2017 of 2.5 pence per share                            10.0         - 
 - final dividend for the year ended 31 December 
  2016 of 2.5 pence per share                               -      10.0 
==================================================  =========  ======== 
                                                         10.0      10.0 
==================================================  =========  ======== 
 

An interim dividend of 1.3 pence per share (H1 2017: 1.3 pence), amounting to a total interim dividend of approximately GBP5.2 million (H1 2017: GBP5.2 million), was proposed by the Board on 17 September 2018. The interim dividend is payable on 11 December 2018 to shareholders who are on the register at 16 November 2018. In accordance with IAS 10 'Events after the balance sheet date', dividends declared after the balance sheet date are not recognised as a liability in this condensed consolidated interim financial information.

   11.   EARNINGS PER SHARE 

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the period.

 
                                                       Six months ended 
                                                            30 June 
                                                          (Unaudited) 
                                                  ========================== 
                                                          2018          2017 
 ===============================================  ============  ============ 
 Profit for the period attributable to owners 
  of the Parent (GBP million)                              8.2           8.9 
================================================  ============  ============ 
 Weighted average number of ordinary shares        401,081,391   401,081,391 
 Adjustment for weighted average number of 
  shares held in the EBT                             (274,430)     (538,594) 
================================================  ============  ============ 
 Weighted average number of ordinary shares 
  in issue (No.)                                   400,806,961   400,542,797 
================================================  ============  ============ 
 Basic earnings per share (in pence per share)             2.0           2.2 
================================================  ============  ============ 
 

For dilutive earnings per share, the weighted average number of ordinary shares in issue is adjusted to include all dilutive potential ordinary shares arising from share options.

   11.   EARNINGS PER SHARE (CONTINUED) 
 
                                                      Six months ended 
                                                           30 June 
                                                         (Unaudited) 
                                                 ========================== 
                                                         2018          2017 
 ==============================================  ============  ============ 
 Profit for the period attributable to owners 
 of the Parent (GBP million)                              8.2           8.9 
===============================================  ============  ============ 
 Weighted average number of ordinary shares 
  in issue                                        400,806,961   400,542,797 
 Adjustment for weighted average number of 
  contingently issuable shares                      1,599,822     1,296,410 
===============================================  ============  ============ 
 Diluted weighted average number of ordinary 
  shares in issue (No.)                           402,406,783   401,839,207 
===============================================  ============  ============ 
 Diluted earnings per share (in pence per 
  share)                                                  2.0           2.2 
===============================================  ============  ============ 
 
   12.   PROPERTY, PLANT AND EQUIPMENT 
 
                                                                      Assets 
                                         Long                         in the 
                        Freehold    leasehold                         course 
 (GBP million)          property     property   Equipment    of construction     Total 
===================   ==========  ===========  ==========  =================  ======== 
 Net book value 
 At 1 January 2018         575.2        265.4       191.6                4.7   1,036.9 
 Additions                     -         14.2        11.4                7.9      33.5 
 Disposals                     -            -       (0.2)                  -     (0.2) 
 Impairment               (12.6)        (1.2)       (0.1)                  -    (13.9) 
 Depreciation              (4.5)        (9.3)      (20.6)                  -    (34.4) 
 At 30 June 2018           558.1        269.1       182.1               12.6   1,021.9 
====================  ==========  ===========  ==========  =================  ======== 
 

During the period, additions included the ongoing upgrade of facilities at Spire Hull, Cheshire and Cambridge hospitals.

During the period, impairment was recognised in relation to leasehold improvements and equipment as part of the termination of the lease for the Windsor clinic. Impairment of Freehold property relates to the Spire Alexandra hospital (refer note 8).

Capital expenditure commitments

Capital commitments authorised and contracted for, but not provided in the accounts as at 30 June 2018 amounted to GBP24.8 million (31 December 2017: GBP65.5 million).

   13.   BORROWINGS AND FINANCIAL INSTRUMENTS 
 
                                                    As at 
                                         =========================== 
                                               30 June   31 December 
                                                  2018          2017 
 (GBP million)                             (Unaudited)     (Audited) 
==================================  ===  =============  ============ 
 Secured borrowings 
 Bank loans                                      426.1         425.1 
 Obligations under finance leases                 77.1          76.9 
                                                 503.2         502.0 
 ======================================  =============  ============ 
 

The bank loans and finance leases are secured on fixed and floating charges over both the present and future assets of material subsidiaries of the Group.

Total borrowings (measured at amortised cost)

 
                                                             As at 
                                                  =========================== 
                                                        30 June   31 December 
                                                           2018          2017 
 (GBP million)                                      (Unaudited)     (Audited) 
===========================================  ===  =============  ============ 
 Amount due for settlement within 12 
  months                                                    4.1           4.0 
 Amount due for settlement after 12 months                499.1         498.0 
                                                          503.2         502.0 
 ===============================================  =============  ============ 
 
   13.   BORROWINGS AND FINANCIAL INSTRUMENTS (CONTINUED) 

Financial instruments

The Group's financial assets and liabilities, other than trade and other receivables and cash and short-term deposits, held by the Group at the balance sheet date were as set out below:

 
                                                                                         More 
 At 30 June 2018 (Unaudited)                                    1 year                   than 
                                                Contractual 
                                     Carrying          cash 
  (GBP million)                        amount         flows    or less   1-2 years    2 years 
=============================  ===  =========  ============  =========  ==========  ========= 
 Non-derivative financial 
  liabilities 
 Secured bank facilities                426.1         442.2       13.7       428.5          - 
 Obligations under finance 
  leases                                 77.1         252.7        8.6         8.9      235.2 
 Trade and other payables                63.2          63.2       63.2           -          - 
                                        566.4         758.1       85.5       437.4      235.2 
 =================================  =========  ============  =========  ==========  ========= 
 
 
                                                                                           More 
 At 31 December 2017 (Audited)                                    1 year                   than 
                                                  Contractual 
                                       Carrying          cash 
  (GBP million)                          amount         flows    or less   1-2 years    2 years 
===============================  ===  =========  ============  =========  ==========  ========= 
 Non-derivative financial 
  liabilities 
 Secured bank facilities                  425.1         445.8       11.5       434.3          - 
 Obligations under finance 
  leases                                   76.9         265.6        8.7         8.7      248.2 
  Trade and other payables                 59.0          59.0       59.0           -          - 
                                          561.0         770.4       79.2       443.0      248.2 
 ===================================  =========  ============  =========  ==========  ========= 
 

Bases of valuation

At 30 June 2018, the Group did not hold financial instruments measured at fair value (31 December 2017: nil).

Management assessed that cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The carrying value of the other financial instruments, being finance leases and debt, is approximately equal to their fair value, based on a review of current terms against market and expected short term settlements. The debt is presented after the deduction of GBP1.2 million (31 December 2017: GBP1.8 million) of issue costs.

   14.   PROVISIONS 

The movement for the period in the provisions is as follows:

 
                                                 Business 
                                Medical    reorganisation 
 (GBP million)              malpractice         and other    Total 
========================  =============  ================  ======= 
 At 1 January 2017                 14.3               2.4     16.7 
 Utilised                         (0.6)             (1.0)    (1.6) 
 Additions                         29.0                 -     29.0 
========================  =============  ================  ======= 
 At 30 June 2017                   42.7               1.4     44.1 
========================  =============  ================  ======= 
 Utilised                        (30.4)             (0.6)   (31.0) 
 Additions                          6.2               0.7      6.9 
 Released                         (1.7)             (0.4)    (2.1) 
========================  =============  ================  ======= 
 As at 31 December 2017            16.8               1.1     17.9 
========================  =============  ================  ======= 
 Utilised                         (3.1)             (0.5)    (3.6) 
 Additions                          3.6               1.9      5.5 
 Released                         (0.6)                 -    (0.6) 
 At 30 June 2018                   16.7               2.5     19.2 
========================  =============  ================  ======= 
 

Medical malpractice relates to commitments to patients in respect of the removal or replacement of the PIP brand of breast implants, and estimated liabilities arising from claims for damages in respect of services previously supplied to patients. Amounts are shown gross of insured liabilities. Any such insurance recoveries are recognised in other receivables. Following the completion of the criminal proceedings against I Paterson, a consultant who previously had practicing privileges at Spire Healthcare, management agreed settlement with all current and known claimants (and other co-defendants) and have made a provision for the expected remaining costs associated with

   14.   PROVISIONS 

the case and the ongoing public enquiry. This provision has been determined before account is taken of any potential further recoveries from insurers.

Business reorganisation and other includes staff restructuring costs, closure costs relating to an onerous contract and provision for payor claims.

The provisions are shown gross of any expected reimbursement from insurers of the related risks. The reimbursement is recognised as a separate receivable when receipt of it is judged sufficiently probable. The amount in receivables in that respect was GBP9.1 million (31 December 2017: GBP7.5 million).

Provisions as at 30 June 2018 are materially considered to be current and expected to be utilised at any time within three years.

   15.   SHARE-BASED PAYMENTS 

During the six months ended 30 June 2018, the Group made further grants under its existing share-based payment schemes, as follows:

Long term incentive plan ('LTIP')

On 28 March 2018, the Company granted Justin Ash 576,058 share options and 1,017,432 share options to other senior managers. The options will vest based on earnings per share ('EPS') (35%) targets for the financial year ending 31 December 2020, relative total shareholder return ('TSR') (35%) targets on performance over the three-year period to 31 December 2020 and operational excellence ('OE')(30%) targets based on net promotor scores and regulatory ratings for the current portfolio of hospitals, subject to continued employment. Upon vesting, the options will remain exercisable until 28 March 2028.

On 16 April 2018, the Company granted senior management 74,474 share options. The options will vest based on EBITDA (50%) target for the financial year ending 31 December 2020 and Regulatory rating (50%) for Manchester hospital, subject to continued employment. Upon vesting, the options will remain exercisable until 16 April 2028.

For the six months ended 30 June 2018, the total cost recognised in the income statement was GBP0.5 million (H1 2017: GBP0.6 million). Employer's NI is being accrued, where applicable, at the rate of 14.3%, which management expects to be the prevailing rate at the time the options are exercised, based on the share price at the reporting date. For the six months ended 30 June 2018, the total NI charge was GBP0.1 million (H1 2017: GBP0.1 million).

   16.   EVENTS AFTER THE REPORTING PERIOD 

2018 interim dividend

The Board has approved a 2018 interim dividend of 1.3 pence per share, amounting to approximately GBP5.2 million, to be paid on 11 December 2018 to shareholders on the register at the close of business on 16 November 2018.

Borrowings extension

During July 2018, the Group renewed its finance facility with a bank loan that matures in July 2022.

Shareholders' information

REGISTERED OFFICE AND HEAD OFFICE:

Spire Healthcare Group plc

3 Dorset Rise

London

EC4Y 8EN

Tel +44 (0)20 7427 9000

Fax +44 (0)20 7427 9001

(Registered in England & Wales No. 09084066)

CORPORATE WEBSITE

Shareholder and other information about the Company can be accessed on the Company's website:

www.spirehealthcare.com

FINANCIAL CALENDAR

   Ex-div date for 2018 interim dividend                              15 November 2018 
   Record date for 2018 interim dividend                            16 November 2018 
   Payment date for 2018 interim dividend                         11 December 2018 
   Announcement of 2018 preliminary results                   March 2019 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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