Spire revises outlook as growth in NHS business slows

Spire Healthcare's after-tax profits fell by 75.1% to £8.9m in the six months to the end of June.

Revenue increased by 2.4% to £481.0m, while underlying revenue rose by 3.8% to £456.6m.

EBITDA declined 1.5% to £83.2m (H1 2016: £84.5m), while underlying EBITDA increased by 1.3% to £82.8m.

Underlying EBITDA margin of 18.1% (H1 2016: 18.6%), including an adverse margin impact of NHS tariff of 0.6% in the period.

The group said the settlement agreement signed in respect of all civil litigation in relation to Ian Paterson, led to a £27.6m exceptional charge (pre-taxation) in the period.

Spire said that although trading performance for H1 was in line with expectations, it had seen significantly lower than anticipated revenues in July and August and this trend in performance appeared to be continuing into early September.

It said the primary driver of reduced revenue growth was a decline in NHS e-referral activity caused by recently introduced measures to reduce elective referrals.

It said that if this trend continued for the balance of the year, management expected H2 2017 revenues to be flat on H2 2016 numbers, and EBITDA margin for FY 2017 to be up to 0.7% lower than the previously guided margin of 16.8%.

Interim chief executive Simon Gordon said: "We have had a satisfactory first half in line with our plan.

"Underlying revenues grew in two of our three payor groups, with our Self-pay business in particular showing very encouraging growth, and the group overall continuing to be strongly cash-generative. We also maintained our focus on improving our offering to patients and enhancing clinical outcomes.

"In the period we completed and opened on budget and on schedule our two new hospitals in Manchester and Nottingham, and the ramp-up in both those hospitals is in accordance with our planning.

"We also announced our intention to develop a new £70m hospital in Milton Keynes, expected to open in early 2020. This will be a 4 theatre, 54 bed multi-specialty facility.

"The Milton Keynes announcement evidences our continuing belief in the medium to long term growth opportunities in UK private healthcare. At St Anthony's we have delivered performance in line with previous guidance and substantially curtailed the operating losses reported in Q4 2016.

"The restructuring of the cost base at the hospital is now complete, while the hospital is now focused on filling its expanded theatre capacity and is well placed to return to profitability in H2 2017.

"Following the completion of criminal proceedings against Ian Paterson earlier this year, we are pleased to announce that we have reached a settlement agreement with all civil claimants in connection with his practice at Spire.

"Although it is disappointing to report that growth in our NHS business appears to be slowing to some extent in H2 2017 and to accordingly have to revise our outlook for FY 2017, our correspondingly strong self-pay growth in H1 2017 (14.0% on an underlying basis) demonstrates that our core strategic proposition remains valid. NHS waiting lists are now at their highest since 2007 (when Choose & Book was introduced), and look set to continue to grow as patient choice and eligibility for treatment are actively restricted by CCG policies.

"With this in mind, we are increasingly focusing the business on the self-pay opportunity and on our existing robust healthcare insurer arrangements, while emphasising the need for a strong well-invested independent sector to meet the growing shortfall in elective care provision."

At 8:28am: (LON:SPI) Spire Healthcare Group share price was -43.85p at 266.05p