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ANNUAL REPORT 2016
STRATEGIC REPORT: OVERVIEW
Spire Healthcare is a leading independent
hospital group in the United Kingdom.
We deliver high standards of care
to our insured, Self-pay and NHS patients
with integrity and compassion within
high-quality facilities.
We are totally focused on our customers.
Our business is more than just treating
patients, it’s about looking after you.
Hospitals
38
Patients
773,000*
Clinics
10
Consultants
3,800
*
Including out-patient, in-patient, daycase and individual patients treated at least once during the year.
Specialist Cancer Care Centres
2
Full-time equivalent staff
8,055
Revenue (+4.7%)
£926.4m
2015: £884.8 million
Operating cash flow before
exceptional items and tax** (+12.1%)
£186.3m
2015: £166.7 million
Patient discharges (+1.5%)
(in-patient and daycase)
274.1k
2015: 270.0k
2016
2015
2014
2013
2012
£926.4m
£884.8m
£856.0m
£764.5m
£738.9m
2016
2015
2014
2016
2015
2014
2013
2012
£186.3m
£166.7m
£164.2m
274.1k
270.0k
260.3k
236.2k
232.6k
EBITDA* (+1.2%)
Profit for the year (-10.7%)
£162.0m
2015: £160.1 million
£53.6m
2015: £60.0 million
Operating profit before
exceptional items (-2.0%)
£108.2m
2015: £110.4 million
2016
2015
2014
£162.0m
£160.1m
2016
2015
£156.7m
Cheated for style>
2014
£6.0m
£53.6m
£60.0m
2016
2015
2014
£108.2m
£110.4m
£113.4m
*
Operating profit, adjusted to add back depreciation, profit or loss arising from the disposal of fixed assets and exceptional items, referred to hereafter as ‘EBITDA’ (2014 EBITDA adjusted to conform
the property rental base and PLC operating costs base, referred to hereafter as ‘Adjusted EBITDA’).
** Operating cash flow adjusted to add back the cash flow effect of exceptional items and income tax.
06
Executive Chairman’s
statement
12
Getting my
life back
Self-pay at
Spire Healthcare
Governance
54 Board of Directors
56 Senior leadership team
58
Senior Independent Director’s
governance letter
60 Corporate governance
68
72
Audit and Risk Committee Report
Clinical Governance and
Safety Committee Report
Nomination Committee Report
Directors’ Remuneration Report
74
76
92 Directors’ Report
95
Statement of Directors’ responsibilities
Adjusted basic earnings per share*
(+4.9%)
19.2p
2015: 18.3 pence
2016
2015
2014
19.2p
18.3p
17.9p
Proposed final dividend per share
(+4.2%)
2.5p
2015: 2.4 pence
2016
2015
2014
2.5p
2.4p
1.8p
34
Cutting
edge
partnerships
Innovative
treatments
at Spire
Southampton
40
Full support
Partnering
and supporting
Scottish Rugby
*
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. For 2014, profit is calculated as
earnings after tax adjusted for the capital restructuring, exceptional items, to conform the property rental base, PLC
operating costs and the net profit arising on the sale of property and other assets.
Strategic report
02 At a glance
06
09
Executive Chairman’s
statement
Five reasons to invest
in Spire Healthcare
Business model
10
14 Our strategy
16 Key Performance Indicators
18 The UK healthcare market
Chief Operating Officer’s
20
statement
26 Group Financial review
36 Clinical review
Group Human
42
Resources Director’s
review – Our people
Looking after our
environment
Risk management
and internal control
46
48
50 Principal risks
24
Local hero
The new Spire Manchester
Hospital at West Didsbury
Financial statements
Independent
96
Auditor’s Report
104 Consolidated
financial statements
109 Notes to the
financial statements
136 Parent Company
financial statements
Shareholder information
140 Additional shareholder
information
142 Glossary
144 Important information:
forward-looking statements
Client Sign Off:
Job: Spire Annual Report 2016
Section: Strategic report
Page No: [••]–[••]
Proof: VAW[••]
Date: 10 March 2017 4:01 PM
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ANNUAL REPORT 2016
This Annual Report is also
available on our website:
spirehealthcare.com/AR2016
1
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
STRATEGIC REPORT: AT A GLANCE
At a glance
Spire Healthcare provides diagnostics, in-patient,
daycase and out-patient care from 38 hospitals,
10 clinics and two Specialist Cancer Care Centres
throughout the UK.
We also own and operate sports medicine,
physiotherapy and rehabilitation brand, Perform.
A well diversified business
2016 Percentage of revenue*
Orthopaedics
Gynaecology,
plastic surgery,
urology and
others
High acuity
services,
including
cardiology,
cardiothoracic,
neurosurgery,
oncology
and general
surgery
22.7
26.5
50.8
*
In-patient and daycase revenue.
Source: Company information.
2016 Key activities (%)
What we provide
Providing high-quality patient care is
our top priority. To improve our patient
offering, we invest consistently in a
wide range of services and treatments
at each stage of the care pathway:
from initial GP referral, through
consultation, diagnosis and treatment,
to recovery and rehabilitation.
Who we serve
Our hospitals span the country,
serving a diversified patient mix, made
up of private medical insurance (PMI),
Self-pay and NHS patients.
Private medical insurance (PMI)
15.2
14.3
Diagnostic
Out-patient
services
In-patient
daycase
procedures
Self-pay
NHS patients
70.5
Read more on pages 18 and 19
Market trends
Demand growth
Driven by a growing and ageing
population – with a higher incidence
of long-term and chronic conditions,
such as cancer, obesity and diabetes.
NHS funding gap
Funding and capacity constraints are
forecast to continue throughout this
Parliament. The independent sector
can help to bridge the gap.
Read more on pages 18 and 19
• Diagnostic
• Imaging
• MRI/CT
scanning
• Pathology
• Out-patient
services
• Consulting
• Minor
procedures
• Treatments
• Health checks
• Physiotherapy
• In-patient
daycase
procedures
• Orthopaedics
• Cardiology
• Neurology
• Oncology
• General surgery
Source: Company information.
2
Our services
Primary care
Working with GPs to facilitate speedy,
convenient and fully informed
referrals. Enabling patients to make a
considered choice at the start of the
care pathway. We are investing in our
own hospital-based primary care
service to offer patients convenience
and to facilitate speedier referrals.
Consultants
Improving the quality of our facilities
and providing a wide range of services
and highly-trained staff, so that our
experienced consultant body can
deliver outstanding healthcare.
Working with consultants throughout
their careers to develop their skills and
their private practices.
Diagnostics
Investing in the latest scanning
technology, skilled clinicians and
comprehensive pathology services
to provide prompt and accurate
diagnoses, giving patients the
reassurance that comes from
a clear treatment plan.
Treatment and surgery
Offering a wide range of treatment
and surgery, including good
outcomes for routine procedures
such as knee and hip replacements,
and specialist procedures across our
network, providing choice to patients.
Recovery
From high dependency and intensive
care units to our injury rehabilitation
facilities, getting patients back on
their feet as fast as possible.
Spire Healthcare Group plc Annual Report 2016 Our services
Diversified payor mix
The quality of our care and
outcomes, and the efficiency
of our delivery, attracts patients
from all major payor groups.
The diversified payor mix across
PMI, Self-pay and NHS-funded
provision offers built-in resilience.
2016 Funding sources (%)
3.6
18.4
PMI
NHS
Self-pay
Other
46.3
Read more on pages 6 to 8
31.7
Source: Company information.
Our strategy development
Clinical quality
Operational excellence
Growth engine
Our people
Read more on our strategy on pages 14 and 15
How we create value
Through our operations, we create and deliver measurable value for our stakeholders.
Investing in
New sites
and services
Our people
Improved
efficiency
Providing
Patients
We provide fast and convenient access to
diagnostics, hotel-style customer service and
excellent clinical outcomes.
Consultants
We offer high-quality facilities and well-trained staff
to help consultants deliver effective care and develop
their private practices.
Employees
We provide excellent training, flexibility and a
supportive working environment, enabling our staff
to deliver outstanding care.
Payors
We deliver value for money, price transparency, patient
choice and additional capacity to insurers, Self-paying
patients and the NHS.
Shareholders
Strong cash flow enables dividend payments in line
with our policy and the return of excess cash to
shareholders when available.
Read more about how we create value in our Business model on pages 10 and 11
3
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: AT A GLANCE
LOOKING AFTER YOU
Delivered in 2016/17
01
Spire Manchester
£63m
02
Spire St Anthony’s
£27m
03
Spire Southampton
£6m
Designed with extensive input from consultants, staff and
patients, the new 76-bed Spire Manchester Hospital will offer
highly complex surgery and medicine through a large and
fully functioning Intensive Therapy Critical Care Unit (CCITU),
together with ultramodern diagnostic and imaging equipment.
Read more on pages 24 and 25
In August 2016, we opened a purpose-built theatre suite
at Spire St Anthony’s Hospital, Sutton, increasing capacity
from four to six theatres whilst thoroughly modernising
the rest of the complex.
Read more on page 21
Last year, we partnered with the NHS to install a surgical
da Vinci robot for the treatment of prostate cancer as well
as the specialised theatre to house it. We also enlarged an
existing ward at the hospital to take extra capacity.
Read more on pages 34 and 35
LOOKING AFTER YOU
Schemes in progress for 2017
04
Spire Nottingham
Creating 150 new jobs for the local area, the 58-bed Spire
Nottingham Hospital will have five theatres, an endoscopy
suite, a 20-room outpatients department and an oncology
suite, as well as an advanced radiology department that
comprises a 3T MRI, CT and X-ray.
Read more on pages 21 and 22
One of the principal investments agreed in 2016 was the
development of a medical centre based in Hertfordshire,
serving the Greater London market.
Designed as a ‘satellite centre’ to Spire Bushey Hospital, the
Spire Bushey Medical Centre will see patients for diagnostic
and outpatient appointments, creating additional surgical
capacity at the main hospital.
Read more on page 21
A considerable refurbishment project which includes patient
bedrooms, public areas and nurse’s stations; 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.
Read more on page 21
£60m
05
Spire Bushey
£23m
06
Spire Cambridge Lea
£10m
4
Spire Healthcare Group plc Annual Report 2016
Our network of hospitals covers
major population centres across
the country – with scope for
further expansion, for instance in
Central London, South Yorkshire
or Scotland’s central belt.
Spire Healthcare Hospitals
Spire Healthcare Clinics
Perform at St George’s Park
Specialist Cancer Care Centres
Development
People per sq km
0–250
250–500
500–1,000
1,000–1,500
1,500–2,500
More than 2,500
Hospitals
East of England
Cambridge Lea
Harpenden
Hartswood
Norwich
Wellesley
London
Bushey
Roding
St Anthony’s
Thames Valley
Midlands
Leicester
Little Aston
Nottingham
Parkway
South Bank
North East
& Yorkshire
Elland
Hull and East Riding
Leeds
Methley Park
Washington
North West
Cheshire
Fylde Coast
Liverpool
Manchester
Murrayfield, Wirral
Regency
Scotland
Murrayfield, Edinburgh
Shawfair Park
South East
Alexandra
Clare Park
Dunedin
Gatwick Park
Montefiore
Portsmouth
Southampton
Sussex
Tunbridge Wells
South West
Bristol ‘The Glen’
Wales
Cardiff
Yale
Clinics
Abergele
Dewsbury
Droitwich
Hale
Harrogate
Hesslewood
Ilkley
Livingston
Lytham
Windsor
Specialist Cancer
Care Centres
Baddow
Bristol
5
04
01
06
05
02
03
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
STRATEGIC REPORT: EXECUTIVE CHAIRMAN’S STATEMENT
Executive Chairman’s
statement
In the year to 31 December 2016, Spire Healthcare’s 12,400
dedicated staff and the 3,800 plus consultants who work with
us, provided treatment of the highest quality to over 773,000
private and NHS patients. Working together, we delivered
outstanding value for patients and continued our profitable
growth as a listed company.
As we announced in January 2017, results
were negatively impacted by performance
at our latest acquisition, Spire St Anthony’s
Hospital, Sutton. Following significant
redevelopment and reconfiguration work,
it has taken longer than expected to adapt
staffing and working practices to the
increased capacity and the highest
standards we expect.
We continued to invest significantly,
particularly in the new Manchester and
Nottingham hospitals, together with
their equipment and staff, but also in our
people, services, treatments, hospitals
and equipment across the network.
Overall, we invested £149.5 million in
the business during the year.
Dividend
Reflecting this performance, and subject
to shareholder approval, the Company
intends to pay a final dividend in respect
of the year of 2.5 pence per ordinary share.
Together with the interim dividend of
1.3 pence per ordinary share this amounts
to a total annual dividend of 3.8 pence per
ordinary share, in line with our stated
dividend policy which aims to pay out around
20% of profit after taxation each year.
Service quality
Our hospitals are subject to the same
Care Quality Commission (‘CQC’) inspection
regime as all private and NHS hospitals in
England and to inspection by the relevant
authorities in Wales and Scotland. We
fully support the CQC’s approach and aim
for all of our hospitals to be rated at least
‘good’. Reviewing our clinical governance
performance is always top of our
Board agenda.
During the year under review, the CQC
completed its initial inspections of the
majority of our hospitals and while we await
the final reports I am pleased to announce
that our overall performance is better than
Garry Watts
Executive Chairman
Adjusted profit is calculated as earnings after tax adjusted
for exceptional and other items and related tax (detailed
on page 27).
*
6
Performance
Patient numbers and the value of the care we
provided experienced differing performance
among our three payor groups. While overall
revenue increased by 4.7% to £926.4 million
(2015: £884.8 million), our NHS business
grew 12.0%, while Self-pay grew 9.1%
and our PMI business declined by 1.3%.
Underlying revenue, which excludes the
impact of the closure of Spire St Saviour’s
Hospital in September 2015, increased by
5.4% in 2016. This has resulted in underlying
EBITDA growth of 1.4% to £162.0 million
(2015: £159.8 million).
Financial performance in 2016 was
reasonable. In a year when we faced some
market headwinds and continued our major
investment in two new build hospitals,
we still achieved a ninth successive year
of growth. Total revenue increased 4.7% to
£926.4 million; resulting in an adjusted profit
after tax of £76.6 million* (2015: £73.0 million).
Spire Healthcare Group plc Annual Report 2016 Strategic development
Spire Healthcare operates within the UK’s
healthcare system, which is, of course,
dominated by the NHS. While nearly a
third of our work is on behalf of the NHS, we
never forget that the majority of our patients
have chosen to pay for their care – either
through Private Medical Insurance (‘PMI’),
or, increasingly, directly by Self-paying. The
size of the PMI sector is closely linked to
economic and corporate growth which, over
the last decade has been limited, restricting
our PMI sector growth opportunity to gains
in market share.
At the same time, our NHS work has grown
markedly. We greatly value working with the
NHS, so while NHS funding constraints will
continue to drive tariff reductions – for the
fiscal year commencing 1 April 2017 the
prices for the weighted basket of services
we currently deliver will reduce by circa 3.9%
– we will continue to pursue strategies to
mitigate these pricing pressures so as to
ensure we continue to offer services to
the NHS.
Our third payor group, Self-pay, continues
to show good growth both in numbers
of patients and in the complexity of care
we provide. As discussed elsewhere in this
report, demographic drivers, technological
advances and public service restrictions
suggest this trend will continue.
The number of patients we treat, and the
efficiency with which we do it, are the key
determinants, regardless by which route
they come to us. Our capital expenditure
programme is designed to ensure we
have adequate capacity and appropriate
technology both to meet demand and
continually to improve productivity.
the average for the rest of the private sector
and far exceeds the NHS average. However,
there is always room for improvement in
individual inspection domains. All of our
hospitals have specific improvement plans
in place to address points raised by their
regulatory inspections. These are followed
up by the Operations Board with oversight
by the Executive Committee and the Board’s
Clinical Governance and Safety Committee,
chaired by Professor Dame Janet Husband.
You can read her report on this committee’s
activities on pages 72 and 73.
Service development
The opening of our new hospital in
Manchester in January 2017 marked not
only the culmination of many months
of extremely hard work by our staff and
contractors but also a major enhancement in
our capacity to serve patients in its catchment
area. We are also well-advanced with a
new-build hospital in Nottingham which
we expect to open around Easter 2017.
Spire Manchester Hospital is a new build,
replacing and improving the facilities of an
existing hospital. You can read more about
Spire Manchester Hospital and the services
it provides on pages 24 and 25, and see
how it is a clear example of our business
growth strategy in action.
Our Nottingham hospital marks Spire
Healthcare’s entry into an entirely new local
market. Both new hospitals demonstrate
our ability to identify and invest in emerging
customer needs.
Plans for further capacity expansion
through new builds will be considered on a
case-by-case basis. We continue to research
opportunities to fill our Central London
coverage gap. The change in the Central
London property market brought about by the
Brexit vote last year has delayed our plans and
we are re-evaluating suitable, available sites
and the quantum of the future opportunity.
We hope to update on progress later this year.
“The development
of services at Spire
Manchester and
Nottingham hospitals,
and other hospitals,
supported by increased
investment in a customer
focused strategy, will
provide accelerated
revenue and profit growth
in 2018 and beyond.”
Proposed final dividend per share (+4.2%)
2.5p
2015: 2.4 pence
Total revenue (+4.7%)
£926.4m
2015: £884.8 million
7
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: EXECUTIVE CHAIRMAN’S STATEMENT
“Spire Healthcare’s
clinical and financial
performance go hand in
hand – and both are
created by our outstanding
team of people.”
The Spire Healthcare name clearly has
resonance with our customer and patient
base, as well as with the consultant
community; and we intend increasingly to
focus on building Spire Healthcare’s name
recognition and brand by re-examining
every stage of the patient journey and
experience from a customer viewpoint,
and by optimising our operational efficiency
for the benefit of patients. Throughout, we
will be driven by a relentless focus on quality.
We regard the investment required in this
total customer focus – both in terms of time
and money – as being as fundamental to our
future success as the capital expenditure
we make on buildings and equipment,
or the investments we make in our staff.
Board development
We seek to ensure we have a diverse and
experienced Board and senior management
team in place at all times.
My role as Executive Chairman originally
resulted from the departure of Rob Roger
in June 2016, but has now been extended
as the Board’s intended successor Chief
Executive Officer, Andrew White, undergoes
a sustained period of medical treatment.
We wish Andrew the very best for a
complete recovery, and in the meantime,
the appointment of Catherine Mason as
Chief Operating Officer in December has
very efficiently supplemented our executive
team. Together, with our experienced Chief
Financial Officer, Simon Gordon, we provide
leadership and supervision of the day-to-day
running of the business until Andrew is able
to return to full time activity.
We regretfully accepted the resignation,
for personal reasons, of Robert Lerwill as a
Non-Executive Director in June. Robert was
appointed as an independent Non-Executive
Director in the lead up to the Company’s
listing in July 2014. He left with the thanks
of the Board for his contribution both in
that role and also as chair of the Audit and
Risk Committee.
In July, we were pleased to announce the
appointment of Adèle Anderson as an
independent Non-Executive Director of the
Company. She also became chair of the
Company’s Audit and Risk Committee. Until
July 2011, Adèle was a partner in KPMG and
held a number of senior roles across their
business. She has been a non-executive
director of easyJet plc since September 2011
and of intu properties plc since February
2013 and chairs the audit committees of
both companies. She brings considerable
recent and relevant financial experience to
our Board.
Our Senior Independent Director, John
Gildersleeve, has indicated that he wishes
to step down from the Board. We are in the
process, with external advisers, of recruiting
a successor. John originally intended to leave
by the end of December 2016 but has agreed
to remain until an appointment has been
made; he will not stand for re-election at
the annual general meeting in May.
Our people
Spire Healthcare’s clinical and financial
performance go hand in hand – and both are
created by our outstanding team of people.
It is they, working with the best consultants
and clinicians, who deliver first-class care
to our patients. We owe all our staff an
immense debt of gratitude for their
dedication and unstinting efforts on behalf
of our patients and our organisation.
The entire UK healthcare system faces
well publicised staff shortages – shortages
that are currently made up for through the
recruitment of overseas staff (an area where
Brexit could have an impact on our business),
but in the meantime recruiting, training,
motivating and retaining the best staff,
while trying to minimise reliance on
expensive agency staff, is crucial not only
to the quality of our care but also to the
long-term health of the business.
We are focused on the creation of an even
more attractive employee career offer and on
the development of our leaders, throughout
the business. Of particular note in this regard
is the work we are doing in developing
our cadre of Hospital Directors – both by
‘growing our own’ and through external
recruitment – and our programme to
increase the training we offer to clinical staff
eventually aims at providing a further source
of qualified professionals for our business.
You can read more on the development
of our employee proposition and the work
we are doing on leadership development
in Group HR Director’s review – Our people
on pages 42 to 45.
Looking ahead
Two and a half years after becoming a listed
company, our business is in good health.
We have good people, are well capitalised
and invested, and have a strong quality
care proposition. To seize the opportunity
that we have to lead and innovate in the
UK healthcare market, we now need to
accelerate our transformation.
In 2017, we are looking forward to the
first contributions of our two new build
hospitals in Manchester and Nottingham,
and to a positive contribution from
Spire St Anthony’s Hospital, Sutton. The
development of services at these, and at
our other hospitals, supported by increased
investment in a customer focused strategy,
will provide accelerated revenue and profit
growth in 2018 and beyond.
In the longer term, I remain convinced
that the recognised breadth and quality of
Spire Healthcare’s services and the macro
demographic and technological trends
in healthcare – together with funding
constraints in the NHS – will continue to
drive significant growth in our business.
I look forward to reporting further progress
in the months to come.
Garry Watts
Executive Chairman
1 March 2017
8
Spire Healthcare Group plc Annual Report 2016 Five reasons to invest
in Spire Healthcare
01
Attractive and
growing market
The UK private healthcare market should
continue to grow as the persistent supply
and demand gap in publicly funded
healthcare continues to widen, resulting
in longer waiting lists and increased
restrictions on the availability of procedures
by the NHS. We have a stable platform for
the future and are seeing real evidence
of this market growth.
02
Robust business underpinned
by growth in our Self-pay
and NHS groups
We continue to grow our asset base to
meet the growth in demand, and continue
gaining overall market share. We achieved
strong growth in our Self-pay and NHS
business and increased market share in
the PMI sector; the inherent ‘payor hedge’
between these three separate groups
means we are well placed to weather
any market volatility.
03
The core Spire Healthcare
proposition continues to
be validated
Our considered and disciplined investment in
both assets and operational improvements
helps to grow revenue while maintaining high
levels of cash generation. The increasingly
stretched NHS and favourable underlying
healthcare demographics will help drive
attractive revenue growth in all our payor
groups over the medium to long term.
04
Well positioned to
meet market needs
Our large network of hospitals, aligned to
major population centres, and the breadth
of our services, positions us to address
key market opportunities. Our financial
resilience and the development projects
underway put us in a strong position to
gain market share and to open in new
geographic markets in the UK.
05
Expanding capability
through innovation
and partnership
Modern equipment and outstanding clinical
and theatre spaces allow us to provide excellent
treatment for our patients, increasing access
to advanced surgical technology and reducing
recovery times. Read about the recent launch
of the innovative partnership between
Southampton NHS Foundation Trust and Spire
Southampton Hospital, to provide and use a new
da Vinci state-of-the-art 3D surgical robot system.
Read more on pages 34 and 35
9
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
STRATEGIC REPORT: BUSINESS MODEL
Business model
Spire Healthcare is a well-diversified business and a key part of
the UK’s healthcare system. Our business is built on providing
outstanding care, clinical outcomes and value to our patients.
The patient pathway
Our resources
We receive patients through multiple routes.
The patient’s journey typically begins with
a visit to their GP, who will either treat the
patient directly or provide a referral to a
consultant. The procedure or treatment
provided by the consultant can be funded
by the NHS, a PMI provider or by the patient
self-paying.
Patient
GP referral
Self-pay
Private Medical
Insurance
NHS e-Referral
Service
Open, direct or named referrals
Consultant
Spire Healthcare
hospital
NHS hospital
(including
foundation trust)
Local
contracting
NHS
Funding sources
Private
The sustainability of our business model
relies on several interconnected resources
and relationships.
Financial strength
We benefit from financial strength and stability, supported
by a cash-generative operating model and properties in
commercially attractive locations across the UK.
Well invested hospitals
Our growing portfolio of hospitals is equipped with up-to-
date technology and comfortable treatment facilities.
Highly skilled employees
Our 8,000 employees are highly skilled and our nursing
and medical support staff have the expertise to provide
an excellent standard of patient care.
Our relationships
Referrers
We work with GPs to facilitate speedy, convenient and fully
informed referrals. We are investing in our own hospital-
based primary care to offer patients convenience and
facilitate speedier referrals.
Consultants
Consultants are integral to providing high levels of medical
care to our patients and we offer them the facilities and
support they need to deliver outstanding healthcare.
All our consultants are on the General Medical Council’s
Specialist Register.
Patients
We expand access to treatments for patients facing rationing
and/or increased waiting times in the NHS. We offer them
choice of when and where to be treated, in hospitals that
combine excellent levels of infection control with ‘hotel style’
levels of service.
Payors
Treatment is funded by a PMI, the NHS or patients who
Self-pay.
10
Spire Healthcare Group plc Annual Report 2016 Our operating model
How we create value
By investing in excellent medical facilities
and patient care, and operating efficiently to
drive margins and generate strong cashflows,
we are able to create a virtuous circle, which
allows us to reinvest in future growth whilst
providing shareholder returns.
Through our operations, we create and deliver
measurable value for our stakeholders.
Patients
NHS Referral to Treatment Time (reporting month December 2016)
94.7%
Percentage of patients seen within 18 weeks of referral
(National standard: 92%, NHS: 89.7%)
Revenue
Our sources of revenue
are well diversified, and
we are focused on driving
growth from all of our
three payor groups.
Consultants
95%
of consultants believe our hospitals go out of their way to make
a difference to their working relationship.
Investment
We invest consistently
in further capacity, new
hospitals, equipment and
services. With the ability to
deploy further capital from
strong cashflow, we are able
to invest in future expansion
and to benefit from market
consolidation opportunities
as they arise.
Cash flow
Strong cash conversion
enables us to reinvest in
future growth.
Operating efficiencies
We drive margin through
a close focus on improving
operational efficiency,
balancing central protocols
and procurement with
empowerment of local
teams to drive local growth
and performance.
Employees
We provide a wide range of training, and a flexible and
supportive working environment.
93%*
Employees who believe what they do at work
makes a positive difference.
Payors
We deliver value for money, price transparency, patient choice
and additional capacity to help relieve pressure on overstretched
NHS hospitals.
+9%
Growth in NHS e-referral admissions.
Shareholders
We aim to continue to pay a dividend in line with our policy
and to return excess cash to shareholders when available.
2.5p
Proposed final dividend per share (+4.2%)
11
*
2015 employee satisfaction score. The 2016 employee engagement survey was postponed
until Q2 of 2017 in order to undertake a review of the survey.
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CASE STUDY
Spire Healthcare transforms
people’s lives for the better every
day. Increasingly we are offering
patients complex solutions to
high acuity and rare conditions.
12
Spire Healthcare Group plc Annual Report 2016
LOOKING AFTER YOU
Self-pay treatments
For most people, food is one of life’s great pleasures.
Yet Kelly Holder suffered 10 years of feeling ill every
time she ate, and she was literally wasting away.
Now Kelly has finally found some relief from her
condition, thanks to Spire Healthcare.
“I saw various doctors without
finding a successful treatment.
In the end it was a Spire Healthcare
doctor at Hull who diagnosed me
and referred me to Mr Maslekar
and Mr Dexter, the consultants at
Spire Leeds Hospital.”
Kelly Holder
Kelly, who worked as a designer
in the auto industry, suffered
the debilitating symptoms of
stomach pain, bloating and
nausea for years, to the point
where she had to put her
career on hold and move back
home. While several doctors
failed to diagnose the cause, it
was a consultant at Spire Hull
and East Riding Hospital who
finally diagnosed her condition
as gastroparesis, and was able to
refer her to Spire Leeds Hospital.
Kelly underwent two procedures
to insert gastric and sacral nerve
stimulators. The results have
transformed Kelly’s life.
In her own words: “Without the
surgery I don’t believe I’d be here
today. Having the stimulators
fitted was a life changer. I can
eat almost normally again, not
big meals but little and often.
I’m putting weight back on.
And eating chocolate again!”
Kelly is now rebuilding her career
and her life.
13
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: OUR STRATEGY
Our strategy –
focusing on the customer
We are refining our strategy through a renewed focus
on our customers.
Our business is built on patient choice.
Whether that is through a specific
consultant, an NHS referral, or a personal
decision, we need to make Spire Healthcare
the first choice, unprompted or prompted,
for anyone thinking of where to receive the
healthcare that we can provide.
We need to attract those who have not used
private healthcare before, by making it more
affordable and more accessible to people
across the UK.
This insight has prompted us to review our
strategy, looking at all our services through
the prism of the customer.
This means re-examining every stage of
the patient journey and experience from
a customer viewpoint, and optimising
our operational efficiency for the benefit
of patients.
It also means building Spire Healthcare’s
brand, making Spire Healthcare the most
recognised quality private healthcare
provider in the market.
Our strategy puts the customer at
the heart of everything we do.
We aim to grow our business by
attracting the maximum number
of patients for our services, and
treating them as effectively and
efficiently as possible.
14
01
Clinical quality
• Continue to build on clinical experience and expertise
to ensure every one of our hospitals is CQC rated ‘Good’
or ‘Excellent’
• Continue to expand our higher acuity healthcare offer
• Continue to develop our cancer services
• Develop our consultant value proposition – helping new,
mid and late career consultants to build, maintain and
optimise their practices and deliver outstanding care
for their patients
• Continue to engage with consultants to explore new
services, developments and innovations to improve
the quality and scope of our offer to patients
03
Operational excellence
• Raise average theatre utilisation and increase theatre and
diagnostic capability, optimising throughput
• Continually refine and develop operational efficiency,
procurement and supply chain
• Minimise impact of likely NHS tariff changes through
increased efficiency
• Optimise patient experience through better use of
technology, delivering care in the most appropriate setting
• Drive operational synergies across the network
• Improve and standardise capabilities network-wide
• Refurbish and upgrade our patient bedrooms and in-patient
and out-patient facilities
Spire Healthcare Group plc Annual Report 2016 Clinical quality
Growth engine
02
Customer strategy
Continue to invest in our
existing hospitals to improve
the look and feel of our
facilities, and enhance the
customer experience.
• Drive market share, develop and leverage facilities and
services across all our existing hospitals
• Expand geographically to cover under-serviced areas
• Deepen and extend PMI relationships
• Drive volume growth by continuing to build relationships
with patients and GPs
• Provide training and information to GPs to facilitate referrals
• Develop our own network of GPs to shorten referral pathways
• Market directly to patients, highlighting the benefits
of private hospitals
• Extend transparent pricing and quality reporting
• Digitally enable and provide guidance to help customers
through their care pathway
Operational excellence
Our people
• Improve clinical staff retention and recruitment strategy
• Invest in upskilling training to increase value of workforce
• Develop Spire Healthcare as a compelling career brand
to maximise retention
• Develop programmes to increase supply of clinical
professionals
04
15
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: KEY PERFORMANCE INDICATORS
Key Performance
Indicators
We measure our strategic and operating progress using
a range of financial and non-financial performance indicators,
all of which are aligned to our strategy.
Key:
Clinical quality
Growth engine
Operational excellence
Our people
KPIs
Unplanned returns and readmissions
Patient discharges (In-patient/daycase) =
%
0.3
0.2
0.1
0
2012
2013
2014
2015
2016
Unplanned
readmissions
Unplanned
returns to theatre
2016
2015
2014
274.1k
270.0k
260.3k
We grew the volume of patients requiring an overnight stay
or an in-hospital recovery period by 1.5% in 2016
Unplanned readmissions remain at their lowest level on record
for a second consecutive year
Revenue by payor
MRSA (infection rate per 10,000 bed days)
0.06 (one case)
2016
2015
0.00
2014
0.00
2013
0.00
2012
£m
500
400
300
200
100
0
2012
2013
2014
2015
2016
PMI
NHS
Self-pay
Other
0.08 (one case)
Revenue increased, year-on-year, in total by £41.6 million (4.7%)
over 2015 with growth in NHS revenue, up £31.4 million (12.0%),
and Self-pay which increased by £14.2 million (9.1%)
We reported a single case across all 38 hospitals throughout 2016
C.difficile (infection rate per 10,000 bed days)
2016
2015
2014
2013
2012
0.55
0.60
0.51
0.30
0.24
Infection rates continued to remain extremely low –
approximately a third of the level seen across the NHS
Post-operative mortality* (per 10,000 anaesthetic episodes)
2016
2015
2014
2013
2012
0.93
1.24
1.25
1.45
1.08
* Within 31 days of surgery.
Post-operative mortality fell to the lowest rate on record
16
Number of theatres
2016
2015
2014
126
121
122
A net five new theatres, including the theatre block opened
in September 2016 at Spire St Anthony’s Hospital
Theatre utilisation
2016
2015
2014
63%
63%
64%
Utilisation was constant despite additional theatre capacity put
on in the year, which offset underlying like-for-like increases
Spire Healthcare Group plc Annual Report 2016
KPIs
Net debt/Adjusted EBITDA
Clinical staff costs as a percentage of revenue
2016
2015
2014
2.67
2.62
2.71
Despite capital expenditure of £149.5 million in 2016, strong
working capital management led to stable net indebtedness
(as a multiple of EBITDA)
Conversion of EBITDA to cash
2016
2015
2014
115.0%
104.1%
104.8%
2016
2015
2014
18.9%
18.9%
17.6%
Including disposals and Spire St Anthony’s Hospital
2016
2015
2014
18.3%
18.3%
17.3%
Adjusted (excluding disposals and Spire St Anthony’s Hospital)
In line with the prior year, despite supply-side constraints
of nursing resource
Conversion of EBITDA to operating cash flow before exceptional
items and taxation increased to 115.0%
Other direct costs* as a percentage of revenue
EBITDA margin
2016
2015
2014
17.5%
18.1%
18.3%
Including disposals and Spire St Anthony’s Hospital
2016
2015
2014
18.2%
18.3%
18.8%
Adjusted (excluding disposals and Spire St Anthony’s Hospital)
Factors adversely impacting margin included Spire St Anthony’s
Hospital, in part as a result of the significant physical reconfiguration
of the site and the establishment of a new theatre block in 2016.
After adjusting for the performance of Spire St Anthony’s Hospital and
Spire St Saviour’s Hospital which closed, the balance of the underlying
Group reported growth in EBITDA of 5.4%, from £154.8 million in 2015
to £163.2 million on comparable revenue growth of 5.8%
Patient satisfaction: Net Promoter Score
2016
2015
83
82
2016
2015
2014
33.6%
33.0%
33.4%
Including disposals and Spire St Anthony’s Hospital
2016
2015
2014
33.5%
33.3%
33.5%
Adjusted (excluding disposals and Spire St Anthony’s Hospital)
Up 0.6% of revenue, mainly due to improvements in case mix
complexities in 2016, which has driven growth in average revenue
per case in both NHS and Self-pay revenue. This has been largely
offset by supply chain cost management initiatives
* Comprises direct costs and medical fees
Employee Engagement Survey
The 2016 employee engagement survey was postponed until
Q2 2017 in order to undertake a review of the survey (which has
been in use since 2012) and incorporate questions from our safety
culture survey which was introduced as a standalone activity
in 2014. These changes will simplify and streamline gathering
feedback from employees by bringing both important surveys
together and conducting them on an annual basis
Our Net Promoter Score (NPS), a measure which aligns our reporting
with the NHS and other providers, improved to 83
Consultant Satisfaction
Patient satisfaction: Quality of service
2016
2015
2014
2013
2012
98%
98%
93%
92%
92%
The rating of our overall quality of service remained high at 98%
2016
2015
2014
2013
2012
77%
79%
79%
78%
78%
Consultants are our partners in delivering quality patient care –
satisfaction scores remained high at 77%
17
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: THE UK HEALTHCARE MARKET
The UK healthcare market
Spire Healthcare operates in the UK, a healthcare market
dominated by the NHS and Government spending, but subject
to strong macro growth drivers. Demographic pressures, rising
demand and a growing public funding gap present challenges.
And opportunities.
UK private acute
medical care market
UK Market (2015)
£5.6bn
2016 Private sector providers (%)
17
17
32
8
Spire Healthcare
BMI Healthcare
HCA
Nuffield Health
Ramsay
Health Care UK
Others
Annual growth (nominal) since 2006
10
16
5.8%
Independent (Private/Voluntary)
hospitals
£5.0bn
2016 Revenue split – independent acute
medical hospitals and clinics (%)
6.0
17.9
PMI
NHS
Self-pay
International
46.3
NHS private patient revenues
29.9
£0.5bn
1.8%–2.0% pa PMI nominal growth rate
forecast to end 2019
Overall Private Acute market growth
forecast to end 2019
2016 Spire Healthcare revenue (%)
5.0%
3.6
18.4
PMI
NHS
Self-pay
Other
Source: LaingBuisson Private Acute Medical Care – UK
Market Report Fourth Edition.
46.3
31.7
Source: Company information.
Market trends
The UK population is growing and ageing.
Acute and chronic long-term conditions such
as cancer, obesity and diabetes are rising,
as are the numbers of older patients with
multiple co-morbidities.
Increasing demand and continuing advances
in healthcare mean that the NHS needs
additional funding year-on-year of around
4% above inflation. Slow economic growth
is constraining Government spending and
is likely to impact the NHS’s ability to provide
universal healthcare, free at the point of use.
The NHS’s Five Year Forward View (published
in October 2014) required efficiency savings
of £22 billion by 2020/21 to balance the
books – higher than has ever been achieved
by the NHS or indeed any other major health
economy. It is unlikely to be achieved.
At the same time, Simon Stevens, the
chief executive of NHS England, told the
Commons Public Accounts Committee that
UK health spending is already much lower
than in many other European countries and,
in real-terms, NHS spending per person in
England is forecast to go down.
The NHS has relatively fewer staff and
hospital beds: France, Germany, Sweden and
the Netherlands have more doctors, nurses
and beds per head of population. The result
for the UK is that resources are worked hard
and capacity is always tight, with bed
occupancy rates often over 90%.
18
Source: Office of Budget Responsibility – Fiscal sustainability
analytical paper: Fiscal sustainability and public spending on health.
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 Not surprisingly, the NHS is increasingly
extending waiting times, missing
Emergency Department (ED) and Referral
to Treatment (RTT) targets, and rationing
non-urgent treatments.
The private sector not only provides capacity
for the NHS, but also outstanding healthcare
at affordable prices. This is subject to the
twin drivers of volume and productivity.
Static or falling prices, driven by cost
pressures across the sector, mean that
margin enhancement is a factor of scale,
efficiency and productivity.
Smaller operators face disproportionate
costs, having to meet the same regulatory
and operating costs as larger groups,
without the benefit of their economies
of scale or buying power.
Sector leading,
gaining market share
and well positioned
for further growth.
Why Spire Healthcare
17%
share of UK private
acute hospital market
Source: LaingBuisson Private Acute Medical Care – UK
Market Report Fourth Edition.
Investment since Spire Healthcare
was formed
£875m*
* including acquisitions
Source: Company Information.
NHS Referral to Treatment Time
(reporting month December 2016)
94.7%
Percentage of patients seen within
18 weeks of referral
(National standard: 92%, NHS: 89.7%)
Source: Company Information.
UK leaders in hip and knee
replacements by volume
(of the private sector)
24.4%
and gaining market share
Source: National Joint Registry.
Today:
PMI
• Our scale and national coverage allows
us to negotiate on an even basis with
key insurers
• Our Greater London ‘ring’ and the
expansion of Spire St Anthony’s Hospital
provides lower priced alternatives to
central London competitor facilities
Self-pay
• We are developing a strong and visible
brand
• Our national network provides local care
• We provide simple fixed prices for over
70 procedures including those most likely
to be rationed by the NHS
• We continue to invest in new theatres
NHS eReferral
• We expect market growth, driven
by increased patient and GP awareness
• Spire Healthcare is consistently gaining
market share, as our well invested estate
influences patient choice and
GP recommendation
Tomorrow:
• NHS e-Referral and Self-pay growth
should remain strong
• New capacity will meet demand
– e.g. new hospitals in Nottingham
and Manchester
• Ongoing cost optimisation will drive
margins
• Although significantly affected by the
uncertainties occasioned by Brexit,
London remains an attractive market
provided an appropriate entry strategy
can be executed
19
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CHIEF OPERATING OFFICER’S STATEMENT
Customer focus
We continue to seek ways in which we can improve
operational efficiency – safely delivering outstanding
healthcare to our patients while never forgetting that
the safety, comfort and wellbeing of our customers
is paramount.
In my first three months I have visited
hospitals across the country – the
commitment, care and efficiency shown
by everyone I have met is a testament to
Andrew’s leadership as the previous Chief
Operating Officer and to the strong culture
that runs through Spire Healthcare.
2016 performance
We judge our operational performance using
a range of metrics and key performance
indicators (KPIs) on a balanced scorecard
that covers service quality, people and
engagement, reputation, and shareholder
value. We also track our engagement and
reputation through regular surveys.
Overall, results during the year were good.
Patient satisfaction continued to be high.
Our Net Promoter Score (NPS), a measure
which aligns our reporting with the NHS and
other providers, improved to 83 out of a
possible 100 (2015: 82). Patient satisfaction
with overall care remained high, with 98% of
our patients rating overall quality of service
either ‘Excellent’ or ‘Very good’ (2015: 98%).
Catherine Mason
Chief Operating Officer
98%
Patients rating overall
quality of service either
‘Excellent’ or ‘Very good’
77%
Consultants rating our
quality of service either
‘Excellent’ or ‘Very good’
20
Consultant satisfaction also remained high,
with 77% rating our quality of service either
‘Excellent’ or ‘Very good’ (2015: 79%). The
proportion of consultants who believe that
our hospitals go out of their way to make a
difference to their working relationship was
95% (2015: 96%), and those who would be
‘Certain’ or ‘Very likely’ to recommend a
Spire Healthcare hospital to their friends
and family was 81%.
While there are always areas for
improvement, taken overall, we are pleased
with a good performance for the year.
Regulatory compliance
It is a similar story in our compliance with
regulatory standards. As at 28 February 2017,
all of our hospitals in England have now
had full Care Quality Commission (‘CQC’)
inspection visits. More information on our
CQC inspections can be found on pages 36
to 39. The CQC inspection regime is welcome
and necessary, but imposes a considerable
burden on everybody involved, including the
CQC itself.
Our staff have worked extremely hard,
preparing for inspections, sharing best
practice and making improvements in
response to CQC reports and all this while
continuing their ‘day job’, delivering
outstanding care to our patients. We are
very pleased with the way the business has
responded, and with the results achieved.
Our hospitals are in the main ‘Good’, and
‘Outstanding’ in some areas, putting us well
ahead of the NHS average.
However, there are always areas which can
be improved and, where these have been
identified by CQC, we have addressed all such
areas as a matter of urgency, drawing up and
following through on detailed improvement
plans addressing all areas highlighted by
the inspections.
Spire Healthcare Group plc Annual Report 2016 Our hospitals in Wales are regulated by
Healthcare Inspectorate Wales (HIW) and
those in Scotland by Healthcare Improvement
Scotland (HIS). There was one inspection in
2016 by HIW at Spire Cardiff Hospital, and
one in January 2017 by HIS at Shawfair Park
Hospital in Edinburgh. No ratings are applied
by HIW following inspections, but feedback
was very positive and only one minor action
was required following a two-day review.
The rating for Shawfair Park was ‘Very good’
for all five quality themes.
Continued investment
We continue to invest both to expand
capacity and to improve our existing facilities.
In August 2016, we opened a new £27 million
purpose-built complex at St Anthony’s,
increasing capacity to six theatres from four.
Other investments in capacity and enhanced
care across the network in 2016 included:
• Spire Parkway Hospital – the completion
of a theatre expansion and chemotherapy
development with endoscopy unit
• Spire Hull and East Riding Hospital – a
development comprising a purpose-built
outpatient clinic and new MRI/CT provision
• Spire Southampton Hospital – a project to
enlarge an existing ward and the creation
of a robotics theatre and installation of a
da Vinci surgical robot (see further details
on pages 34 and 35)
• Spire Clare Park Hospital – a JAG accredited
endoscopy unit
• Spire Cheshire Hospital – a JAG accredited
endoscopy unit
Further enhancements are underway,
including a considerable refurbishment
project 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. The
development of a medical centre based in
Elstree, Hertfordshire, is in the planning
phase. Designed as a ‘satellite centre’ to
Spire Bushey Hospital, Spire Bushey Medical
Centre will increase our capacity to see
patients for diagnostic and outpatient
appointments. Completion of these projects
is expected in 2018.
Spire Manchester and Nottingham
Our largest developments during the year
were the new hospitals in Manchester
and Nottingham.
Developing state-of-the-art hospitals,
from the ground up, presents a range of
challenges unique to the sector – from the
demands of the most modern healthcare
technology to optimising the patient
experience, and from building project
management to the recruitment and
training of caring hospital teams.
LOOKING AFTER YOU
Spire Parkway Hospital
Investment in
cancer services
Major investment in cancer
services at Spire Parkway Hospital
in East Midlands
In June, the Mayor of Solihull, Councillor
Mike Robinson, performed the official
opening of a new £1.3 million cancer
treatment centre at the Spire
Parkway Hospital.
The centre offers treatment for a wide
range of cancers with specialist nursing
and medical staff as well as some of
the region’s top oncology consultants.
It has six individual treatment pods
for the administration of systemic
anti-cancer therapy (chemotherapy,
immunotherapy and biological
therapies) and supportive treatments.
Before cutting the ribbon at the
Specialist Cancer Centre in the
grounds of the hospital on Damson
Parkway, Councillor Robinson said,
“I know the heartache that cancer
can cause and I am delighted that this
excellent facility is now open to the
people of this region.”
Macmillan Cancer Services Manager,
Elisa Follen, said she felt the centre
represented a major boost to
cancer services in the Solihull area.
“We have a fantastic team with
in-depth specialist knowledge along
with some experienced and very well
respected consultants.”
£1.3m
Investment
“The cancer journey is
a tough and emotional
one for everyone
involved – including
family and friends –
but I think we have
what we need to
make that journey
as comfortable and
successful as possible.”
Elisa Follen
Macmillan Cancer
Services Manager
21
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CHIEF OPERATING OFFICER’S STATEMENT
Spire Manchester Hospital is the largest
new-site, in-patient hospital that we have
built. Successful project management, CQC
certification and commissioning of Spire
Manchester Hospital is a testament to our
development team, contractors, Hospital
Director and staff.
The hospital offers six theatres, 76 beds,
a 150-seat education centre, and an ITU,
replacing our older four-theatre hospital, but
in a location that offers more convenient
travel, better parking and room for further
expansion. After three years of planning,
building, training and testing, first patients
were treated in the new hospital in January
2017 after a seamless transfer of operations
from the old site. More detail on Spire
Manchester Hospital can be found on
pages 24 and 25.
Spire Nottingham Hospital is expected to
open around Easter 2017; it is not only a
new-build, but also in a new operational area
for Spire Healthcare. Before commissioning,
we will recruit and train an entirely new
clinical, nursing and administrative team.
The recruitment and staffing of our two
new hospitals requires in excess of 180 new
positions to be filled, a number which will
grow significantly throughout 2017.
Both hospitals, in their individual ways,
demonstrate Spire Healthcare’s approach
to satisfying patient demand and
building businesses.
“Our staff have worked
extremely hard, preparing
for inspections, sharing
best practice and
making improvements in
response to CQC reports
– all this while continuing
their ‘day job’, delivering
outstanding care to
our patients.”
22
Operational development
During 2016, we continued to develop our
cancer services. While growth in our two
Specialist Cancer Care Centres has been
building gradually, we are now focused on
establishing better alignment with local
hospitals and improving referral relationships
with local consultants and oncologists.
In line with the strategic refocus on our core
customer proposition through our hospital
operations, we decided to exit two of our
ancillary services.
We took advantage of a five-year contract
break option to serve notice that we intend
to cease providing Perform services at St
George’s Park from September 2017. High
fixed rents and a revenue sharing agreement
were producing lower than expected returns,
without clear or significant revenue growth
opportunities. Despite this disappointment,
we are exploring proposals to continue
working with the Football Association,
given that an excellent working relationship
has been created, based on high levels
of customer satisfaction with our clinical
performance.
Following a strategic review of the business,
we made the decision to withdraw the
Lifescan product from the market and to
close the Lifescan operational business unit.
We continued to expand our pathology
service. The focus in the year was on
further exploiting capabilities within the
Spire Healthcare network and developing
opportunities in the wider pathology
market by bringing tests in-house from
third-party providers, as well as developing
new laboratories at Spire Hull and East Riding
Hospital, and our two new hospitals
in Manchester and Nottingham.
Our pathology laboratories undertook
2.3 million tests and showed a 6.5%
improvement in operational efficiency
(cost per test). Seven of our 22 laboratories
have now successfully completed the
transition from CPA to ISO accreditation.
Optimising efficiency
The third of our strategic pillars is to drive
efficiency and improve productivity.
Hospital leadership teams are empowered
to develop services tailored to the needs
of local patients and consultants whilst
working within Spire Healthcare’s operating
framework and management systems.
Maintaining the right balance of central
protocols, requirements and quality
standards, with local circumstances so as
to drive growth and performance, remains
a key aspect of operational management.
The Spire National Distribution Centre
(NDC) operates to the highest quality and
compliance standards, underpinned by
ISO 14001 and ISO 18001 accreditations.
The medical consumable kitting/assembly
service continued to be rolled out to the
network, providing hospitals with a more
efficient and effective service. During 2016,
the NDC produced internal sales of medical
consumables to its hospital customers of
circa £54 million.
Our Supply Chain continues to create value
from the expertise within its teams by
reducing costs and increasing efficiency. A
number of supply chain staff achieved Black
Belts in LEAN Six Sigma across purchasing,
warehousing and distribution, medical
records archiving, stock, and management
teams. Looking ahead, this internal capability
will further improve services and the
efficiency of our hospitals.
We also made progress in applying
performance management disciplines
consistently across the network. While
central management facilitates, it is the
leadership of our Hospital Directors and
the teams behind them that is crucial in
delivering consistent performance and
quality. Every month, we share the same
performance metrics across all our hospitals,
and across the whole patient pathway
and customer journey. We look both for
examples of best practice to share and
for outliers or trends where we need to
intervene appropriately. In this way,
using peer review and peer support,
we continue to develop best practice,
codifying, where appropriate, into Spire
Healthcare’s methodologies and processes.
Theatre utilisation is a key performance
indicator of operational efficiency. Over the
previous two years, average utilisation has
remained between 63% and 64% across
our hospitals. In 2016, the figure remained
the same at 63% despite an additional five
theatres opening during the year.
We are evolving tools within the business to
enable more efficient theatre list planning,
to ensure that we are making best use of not
only the physical asset, but also the clinical
staff we have at our disposal. By joining
together the various data points that exist
within the business we have been able to
create a management system that provides
an effective framework for hospitals to
improve their forward planning.
Spire Healthcare Group plc Annual Report 2016 Results from our hospitals that have fully
adopted and embedded the new tools
indicate higher utilisation rates, however,
elsewhere performance remains static, often
impacted by agency staffing requirements.
By being more proactive in planning our
theatre lists we can ensure a better patient
experience, for instance by scheduling
daycase procedures at times that give the
patient the best chance of being able to
get home the same day.
Utilisation is only part of the story. Last year
we highlighted our desire to move beyond
theatre utilisation, to theatre optimisation –
in other words, ensuring that the right teams
are in the right theatres at the right time,
with the appropriate skill mix and
consumable packs for the procedures
immediately to hand. This is an ongoing
process – getting it right will make the
journey faster and smoother for our
patients and better for our consultants.
Digital development
We believe there is an opportunity to lead
the UK Private Healthcare market through
our digital distribution and customer
strategy. A key component of this strategy
was the successful launch of a new
responsive website with enhanced search
functionality at the end of last year.
We will be delivering a number of key
enhancements to the website to help
patients self-serve in the coming months,
and will also be upgrading our partner-facing
digital propositions. In addition, we will
continue to strengthen our online marketing
capability to support patients in choosing
Spire Healthcare by providing key
information from which they can make
informed decisions regarding their
healthcare needs.
We continue to invest in our Customer
Relationship Management (CRM) and linked
SAP systems. The CRM system, covering
areas such as enquiry management and
conversion, call handling and direct patient
bookings for insurers and GPs, is a key
enabler not only of operational efficiency,
but also for our customers, helping them to
have the best experience throughout their
care pathway – from reception to discharge
and after care.
The dynamic nature of our business requires
a proactive approach to IT network
integration. For instance, our new hospitals
in Manchester and Nottingham, together
with new theatre builds and other expansion
projects, all require our IT team to deploy and
support the appropriate systems to ensure
the businesses operate effectively and
efficiently from the moment we open our
doors to first patients.
Priorities for 2017 include the continued
maintenance and enhancement of the
existing estate; continued compliance
with NHS Information Governance Toolkit
and ISO Standards; a focus on IT Security to
combat the increased level of threat from
Ransomware and other malicious attacks;
continued implementation of regulatory
projects such as PHIN and NHS e-discharge;
and a programme of replacement and
upgrades of Pathology, Imaging and
HR systems.
2017
Our staff are the heart of our service and our
success. It is they that deliver outstanding
care for our customers – both our patients
and the consultants that choose to work
with us. During 2016, our staff continued
to deliver on all fronts, contributing above
and beyond when faced by extra demands
such as regulatory inspections or the
commissioning of new facilities.
In the face of the UK’s well documented
shortage of trained nurses, clinicians
and allied healthcare professionals, the
recruitment, development and retention
of outstanding staff is critical to our future.
During 2016, we did much to develop our
recruitment and retention strategies. In 2017,
we will be going further in the development
of a compelling employer brand proposition
aimed at attracting and retaining the
outstanding people we need for future
success. Further details can be found in
the section, Group HR Director’s review –
Our people, that follows this review on
pages 42 to 45.
Elsewhere in this report we have outlined
the development of our strategy and,
in particular, the increase in focus we are
placing on the customer’s experience in
all aspects of our service.
The contribution that operational efficiency
can make to customers spans the full patient
journey – from diagnostics and links to
primary care to admissions forecasting,
enquiry conversion, admission processing
and treatment, through to timeliness,
quality of discharge and post-operative
rehabilitation. Linking all aspects of a
customer’s journey seamlessly – and doing
it well – will have a direct impact on safety,
quality and, ultimately, patient satisfaction.
Catherine Mason
Chief Operating Officer
1 March 2017
Operating efficiency
How we constantly drive
efficiency in our hospitals
Deploy available asset capacity
Utilise diagnostic facilities, surgical
theatres and beds to optimal effect.
Demand side
Maximise geographic reach of
facilities and ensure service
proposition represents highest quality
and best available value for money.
Clinical supply
Attract and retain the best available
clinical talent, build flexibility into
the skill base of the clinical team and
deliver continuous improvement in
clinical care pathways and manpower
planning over time. Retain a
sufficiently large pool of high-quality
clinicians to optimise the supply of
clinical services and match it to
available asset capacity.
Supply chain
Continuously improve clinical care
pathways to provide scope to further
reduce costs, consolidate purchasing
and standardise delivery. In-source
clinical supply capability (e.g.
pathology, sterilisation services)
where opportunities exists to deliver
highest quality service at lowest
available unit cost.
Administration
Improve administration process to
deliver best customer experience
at lowest transaction costs. Use
information technology solutions
to improve workflow and reduce
information handling costs.
Management information
Invest in best in class management
information systems to allow
for effective monitoring and
management decision-making.
Read more in our Clinical Review on
pages 36 to 38
23
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CASE STUDY
New hospitals, new services, new capacity.
Same high levels of clinical care excellence
for our patients.
LOOKING AFTER YOU
State-of the-art treatment in Manchester
Opened in January 2017
in Princess Parkway, our
new £63 million flagship
Spire Manchester Hospital
replaces the previous facility
in Whalley Range, offering
more patients a significantly
enhanced range of services,
in a convenient location.
Designed with extensive input from
consultants, staff and patients, the hospital
offers highly complex surgery and medicine
through a large Intensive Therapy Unit (ITU),
together with state-of-the-art diagnostic
and imaging equipment from Siemens.
New services include hydrotherapy, a hybrid
theatre and a 150 seat education centre.
Designed with the environment and local
residents in mind, the new facility also
features a range of carbon reducing features
such as solar panels and living roofs.
Fast track development
• February 2015: Planning permission
granted for new hospital
• April 2015: Ground broken
• December 2016: Build and fit out
completed
• January 2017: First patients treated
24
Spire Healthcare Group plc Annual Report 2016 6Operating theatres
44In-patient beds
27Daycase beds
5Level 3 Critical
Care beds
23Out-patient
consulting and
treatment rooms
150Seat education
centre
LOOKING AFTER YOU
From strength to strength
“We’re supported at every level
– from management through
ward, theatre and radiology
staff. Everyone worked round
the clock to complete the move
and open the new hospital on
time. It was very much a joint
effort, with all the levels of
staff up through to the
Hospital Director.”
Max Fehily
Consultant at Spire
Manchester Hospital
Manchester’s larger
capacity and state-of-the-
art facilities will allow
Professor Max Fehily’s
successful specialist
orthopaedic service to
treat even more patients.
Max Fehily is a consultant orthopaedic
surgeon at Spire Manchester,
specialising in hip surgery. He joined
Spire Healthcare’s previous Manchester
hospital at Whalley Range five years ago
to establish a young adult hip service,
specialising in keyhole surgery and
soft-tissue hip injuries associated with
athletes in a range of top level sports.
The service proved highly successful.
As Professor Fehily recounts, “We’ve
a mix of private and NHS work across
the whole of the north of England
– working with some 22 Clinical
Commissioning Groups and covering
a range of elite and Olympic sports,
including taekwondo, swimming,
squash and various rugby clubs,
like Sale Sharks, and lots of rugby
league clubs.
“I was Chairman of the Medical
Advisory Committee while we were
planning the new hospital. Spire’s
been very supportive in developing
the young adult hip service and now
with the new hospital obviously
even more so. With state-of-the-art
theatre suites, diagnostic imaging
and out-patient facilities, we’re
now able to develop it further – in
Greater Manchester, nationally
and internationally as well.
“I believe it is the best private hospital
in the UK right now.”
All our staff from Whalley Range
transferred to the new site in a
carefully planned phased programme.
Over 30 new posts have been created
in the new, larger facility.
25
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Group Financial review
Revenue growth continued in 2016, up £41.6 million in
the year (+4.7% on 2015) with growth in NHS and Self-pay
revenue, flowing through to increased EBITDA. Strong
conversion of earnings to cash flow led to stable net debt
leverage notwithstanding significant investment in capital
expenditure in the year.
Financial highlights
Patient discharges (+1.5%)
(in-patient and daycase)
274.1k
In-patient and daycase patient volumes
up 1.5% on prior year to approximately
274,100 patients (2015: 270,000 patients)
Revenue (+4.7%)
£926.4m
Revenue increased by 4.7% to £926.4 million
(2015: £884.8 million)
Simon Gordon
Chief Financial Officer
26
EBITDA (+1.2%)
£162.0m
EBITDA(2) up 1.2% to £162.0 million
(2015: £160.1 million)
Adjusted basic earnings per share
(+4.9%)
19.2p
Adjusted, basic earnings per share(5)
(2015: 18.3p)
Capital investments
£149.5m
Investment in capital projects totalled
£149.5 million (2015: £109.5 million)
Net debt
£432.3m
Net debt increased to £432.3 million,
with leverage at 2.67 times EBITDA
(2015: £419.5 million and 2.62 times EBITDA)
STRATEGIC REPORT: GROUP FINANCIAL REVIEWSpire Healthcare Group plc Annual Report 2016 Selected financial information
Year ended 31 December
2016
2015
Total before
exceptional
and other
items
Exceptional
and other
items5
926.4
(485.9)
440.5
(332.3)
108.2
(19.8)
88.4
(11.8)
76.6
–
–
–
(15.2)
(15.2)
–
(15.2)
(7.8)
(23.0)
(£ million)
Revenue
Cost of sales
Gross profit
Other operating costs
Operating profit
Net finance costs
Profit before taxation
Taxation
Profit for the year
EBITDA2
Basic earnings per share, pence
19.2
(5.8)
Total dividend paid/proposed
per share, pence3
Operating cash flows
Capital investments
Net debt at the year end4
183.9
(6.5)
Total before
exceptional
and other
items
Exceptional
and other
items5
884.8
(460.0)
424.8
(314.4)
110.4
(21.1)
89.3
(16.3)
73.0
–
–
–
(15.7)
(15.7)
–
(15.7)
2.7
(13.0)
18.3
(3.3)
159.8
(4.5)
Total
926.4
(485.9)
440.5
(347.5)
93.0
(19.8)
73.2
(19.6)
53.6
162.0
13.4
3.8
177.4
149.5
432.3
Total
884.8
(460.0)
424.8
(330.1)
94.7
(21.1)
73.6
(13.6)
60.0
160.1
15.0
3.7
155.3
109.5
419.5
Variance
(on total after
exceptional
and other
items)
%
Underlying
variance
excluding
disposals
%1
5.4%
(6.6%)
4.1%
(5.7%)
(1.5%)
1.4%
4.7%
(5.6%)
3.7%
(5.3%)
(1.8%)
6.2%
(0.5%)
(44.1%)
(10.7%)
1.2%
(10.7%)
2.7%
14.2%
36.5%
3.1%
1
2
3
4
5
Excludes the impact of Spire St Saviour’s Hospital which closed in September 2015 (referred to as ‘Underlying’ in this report).
Operating profit, adjusted to add back depreciation, profit or loss arising from the disposal of fixed assets and exceptional items, referred to hereafter as ‘EBITDA’.
A final dividend of 2.5 pence per ordinary share will be proposed at the Company’s annual general meeting on 26 May 2017. If approved, it will be paid on 27 June 2017 to shareholders on the register
of members as at 2 June 2017.
Net debt is calculated as total debt (comprising obligations under finance leases and borrowings), less cash and cash equivalents.
Exceptional and other items includes the before and after taxation impact of exceptional operating expenditure in each year and the Group’s review of its deferred tax approach on freehold properties
giving rise to a material taxation charge in 2016 of £8.4 million (2015: £nil).
27
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Analysis by payor
(£ million)
Total revenue
Of which:
PMI
NHS
Self-pay
Other(2)
Of which:
In-patient/daycase
Out-patient
Other
Number (’000s)
Total in-patient/daycase admissions
Of which:
PMI volumes
NHS volumes
Self-pay volumes
Year ended 31 December
Underlying
variance
excluding
disposals %(1)
2015
Variance %
884.8
4.7%
5.4%
434.8
262.0
156.2
31.8
884.8
598.3
254.7
31.8
884.8
(1.3%)
12.0%
(0.9%)
13.5%
9.1%
4.7%
4.7%
5.3%
3.3%
4.7%
4.7%
9.4%
5.7%
5.4%
5.8%
4.4%
5.0%
5.4%
2016
926.4
429.3
293.4
170.4
33.3
926.4
629.9
263.2
33.3
926.4
274.1
270.0
1.5%
2.3%
123.5
104.2
46.4
126.4
100.2
43.4
(2.3%)
4.0%
6.9%
(1.9%)
5.4%
7.4%
1
2
Excludes the impact of Spire St Saviour’s Hospital which closed in September 2015 (referred to as ‘Underlying’ in this report).
Other revenue includes consultant revenue, third-party revenue streams (e.g. pathology services), secretarial services and commissioning for quality and innovation payments (earned for meeting
quality targets on NHS work) (‘CQUIN’).
Growing revenue
(£ million)
Underlying revenue
Disposals
Total revenue
In-patient/
daycase
volume
In-patient/
daycase
rate
Out-patient
14.7
19.8
11.1
Other
1.8
2015
879.0
5.8
884.8
2016
926.4
–
926.4
Growth
5.4%
4.7%
Revenue for the year ended 31 December 2016 increased by £41.6 million, or 4.7%, to £926.4 million (2015: £884.8 million).
Underlying growth, excluding revenue of £nil (2015: £5.8 million) relating to Spire St Saviour’s Hospital which was closed in September 2015,
was 5.4%.
Of the underlying revenue growth of 5.4%:
• an increase of 2.3% in the volume of in-patient and daycase admissions accounted for a 1.7% increase in revenue in the year, with admissions
growth in both NHS and Self-pay activity compensating for a small volume decline in PMI business;
• the Group reported a 3.5% increase in the rate for in-patient and daycase admissions (average revenue per case) equivalent to an increase
to total revenue of 2.3%. This was the result of growth in average revenue per case across all payor groups, most particularly in NHS and
Self-pay activity in the year; and
• out-patient activities increased with the volume of admissions and this accounted for a further 1.3% growth in underlying revenue in the year.
28
STRATEGIC REPORT: GROUP FINANCIAL REVIEWSpire Healthcare Group plc Annual Report 2016 PMI
(£ million)
Underlying PMI revenue
Disposals
Total PMI revenue
In-patient/
daycase
volume
In-patient/
daycase
rate
Out-patient
(5.4)
0.4
1.1
2015
433.2
1.6
434.8
2016
429.3
–
429.3
Growth
(0.9%)
(1.3%)
PMI revenue for the year ended 31 December 2016 decreased by £5.5 million to £429.3 million (2015: £434.8 million). Underlying revenue,
excluding revenue relating to Spire St Saviour’s Hospital, declined by 0.9%.
Of the underlying decline in PMI revenue of 0.9%:
• a decrease of 1.9% in the volume of in-patient and daycase admissions accounted for a 1.2% reduction in PMI revenue in the year;
• overall, the proportion of lower yielding PMI daycase admissions remained comparable to that in 2015 (having increased significantly
between 2014 and 2015). Case mix complexity in in-patient admissions was slightly inferior to that in 2015 but was offset by an increase
in rate on daycase admissions. Overall these offsetting effects resulted in a net positive rate increase of 0.3% over 2015 which contributed
to growth of 0.1% in underlying PMI revenue; and
• notwithstanding the decline in in-patient and daycase admissions activity, out-patient revenue grew in the year and contributed growth
of 0.2% in underlying PMI revenue. The Group continues to invest in the expansion of its diagnostic capability and outpatient capacity.
NHS
(£ million)
Underlying NHS revenue
Disposals
Total NHS revenue
In-patient/
daycase
volume
In-patient/
daycase
rate
Out-patient
12.2
14.8
7.8
2015
258.6
3.4
262.0
2016
293.4
–
293.4
Growth
13.5%
12.0%
NHS revenue for the year ended 31 December 2016 increased by £31.4 million, or 12.0%, to £293.4 million (2015: £262.0 million). Underlying
growth, excluding revenue relating to Spire St Saviour’s Hospital, was 13.5%.
Of the underlying growth in NHS revenue of 13.5%:
• an increase of 5.4% in the volume of in-patient and daycase admissions accounted for a 4.7% increase in NHS revenue in the year;
• against the backdrop of a weighted increase to NHS tariff for the Group of 0.6% for the financial year, the average revenue per case for NHS
admissions increased by 7.0% over 2015. This was the result of a further concentration of case mix to higher yielding procedures (notably in
orthopaedics) which supplemented the loss of lower yielding NHS local contract revenue. Growth in in-patient and daycase rate contributed
5.7% to underlying NHS revenue growth in the year; and
• outpatient revenue increased both as a consequence of the increase in NHS admissions and the bias in growth towards NHS e-Referrals
relative to NHS local contract work. Most NHS local contract work does not include an out-patient element as the focus is often on access
to Spire Healthcare surgical capacity. Growth in out-patients revenue contributed 3.1% to underlying NHS revenue growth in the year.
The underlying revenue growth in NHS revenue is split as follows:
• NHS e-Referral (previously NHS Choose and Book) revenue grew by 16.9% in the year ended 31 December 2016;
• NHS local revenue grew by 1.5% in the same period. Management had expected NHS local contract revenue to stabilise in 2016 following
the decline experienced in 2015; and
• NHS e-Referrals revenue account for 79.8% of underlying NHS revenue in the year ended 31 December 2016, up from 77.4% in the prior year.
29
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Self-pay
(£ million)
Underlying Self-pay revenue
Disposals
Total Self-pay revenue
In-patient/
daycase
volume
In-patient/
daycase
rate
Out-patient
7.9
4.6
2.2
2015
155.7
0.5
156.2
2016
170.4
–
170.4
Growth
9.4%
9.1%
Self-pay revenue for the year ended 31 December 2016 increased by £14.2 million, or 9.1%, to £170.4 million (2015: £156.2 million).
Underlying growth, excluding revenue relating to Spire St Saviour’s Hospital, was 9.4%.
Of the underlying growth in Self-pay revenue of 9.4%:
• an increase of 7.4% in the volume of in-patient and daycase admissions accounted for a 5.0% increase in Self-pay revenue in the year;
• the average revenue per case for Self-pay in-patient and daycase admissions grew by 4.6% over the prior year, contributing 3.0% to the
increase in Self-pay revenue in the year. Price increases in 2016 were largely inflationary, with the balance of the increase in average rate per
case arising from improved case mix complexity; and
• outpatient activities in 2016 grew in line with admissions while price increases were tempered in an attempt to drive demand. Overall the
increase in Self-pay outpatient revenue drove 1.4% of the 9.4% increase in underlying Self-pay revenue for the year.
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 revenue
(e.g. pathology services to third-parties), increased by £1.5 million, or 4.7%, in the year, to £33.3 million (2015: £31.8 million).
Cost of sales and gross profit
Cost of sales increased in the year by £25.9 million, or 5.6%, to £485.9 million (2015: £460.0 million). Underlying cost of sales (excluding
Spire St Saviour’s Hospital) increased in the year by £29.9 million, or 6.6%.
Underlying gross margin for the year of 2016 was 47.6%, compared with 48.1% in 2015.
On an underlying basis, and as a percentage of relevant revenue:
Clinical staff
Direct costs
Medical fees
Cost of sales
Year ended 31 December
2016
18.9%
22.3%
11.3%
52.5%
2015
18.9%
21.6%
11.4%
51.9%
Trading losses for the year at Spire St Anthony’s Hospital had a significant impact on overall cost of sales for the underlying Group. Excluding
Spire St Anthony’s Hospital from the analysis provides the following comparison on an adjusted underlying basis and as a percentage of
relevant revenue:
Clinical staff
Direct costs
Medical fees
Cost of sales
Year ended 31 December
2016
18.3%
22.1%
11.4%
51.8%
2015
18.3%
21.7%
11.6%
51.6%
Overall the Group has substantially mitigated the impact on gross margin arising from the increase in the proportion of revenue derived from
the NHS which has increased to 31.7% of total revenue in 2016 from 29.6% in 2015.
Despite supply-side constraints of nursing resource, clinical staff costs as a percentage of revenue were in line with the prior year. Management
is focused on continuous improvement of recruitment, training and development process in the business as well as rostering and productivity
improvements designed to limit use of agency staff.
The impact on direct costs arising from the improvements in case mix complexity in 2016, which has driven growth in average revenue per
case in both NHS and Self-pay revenue, has been largely offset by supply chain cost management initiatives.
30
STRATEGIC REPORT: GROUP FINANCIAL REVIEWSpire Healthcare Group plc Annual Report 2016 Other operating costs
Other operating costs for the year ended 31 December 2016 increased by £17.4 million, or 5.3%, to £347.5 million (2015: £330.1 million).
Excluding exceptional items, other operating costs for the year increased by £17.9 million, or 5.7%, to £332.3 million.
Underlying other operating costs (excluding Spire St Saviour’s Hospital) increased in the year by £18.8 million, or 5.7%, to £347.5 million (2015:
£328.7 million). Excluding exceptional items, underlying other operating costs for the year increased by £19.3 million, or 6.2%, to £332.3 million.
Depreciation
Excluding depreciation relating to Spire St Saviour’s Hospital, the underlying depreciation charge for the year increased by £3.6 million, or 7.5%,
to £51.9 million (2015: £48.3 million).
Rent
Rent of land and buildings for the year decreased by £0.2 million, or 0.3%, to £62.7 million (2015: £62.9 million). The decrease is mainly due
to low inflationary uplifts in relation to annual rent indexation in line with RPI and the closure of two clinics during the year.
Share-based payments
During the year, grants were made to Executive Directors (excluding the Executive Chairman) and members of the senior leadership team
under the Company’s Long Term Incentive Plan. For the year ended 31 December 2016, the charge to the income statement was £0.4 million
(2015: £0.7 million), or £0.6 million inclusive of National Insurance (2015: £0.8 million). Further details are contained in note 26 on page 126
of the financial statements.
Exceptional items
(£ million)
Business reorganisation
Write-off of intangible assets
Hospital set-up costs
Hospital (reversal of)/impairment on property, plant and equipment
Hospital closure
Corporate restructuring
Loss on disposal of property, plant and equipment (also referred to as the Asset Swap Transaction)
Other
Year ended 31 December
2016
4.8
1.3
1.0
(1.9)
0.1
0.5
8.9
0.5
15.2
2015
3.1
–
–
5.7
6.9
–
–
–
15.7
In the year ended 31 December 2016, business reorganisation costs mainly comprised staff restructuring costs and the closure costs relating
to an onerous contract. In the year, the Group’s goodwill in relation to the Lifescan business was written-off following a strategic review and
the closure of this operation. Hospital set-up costs refer to pre-opening costs for the new Spire Manchester and Nottingham hospitals. The
reversal of the impairment is the result of the extension of the lives of medical and other equipment following the relocation of the assets
from the previous Spire Manchester Hospital to the new hospital facility and other Group hospitals following its closure.
On 31 August 2016, as a result of the development of a new hospital facility in Manchester and the closure of the previous Spire Manchester
Hospital (previously held under an operating lease), the freehold interest in Spire Wirral Hospital with a net book value of £11.5 million was
disposed of, and leased back in a sale and leaseback transaction. The consideration for the sale was realised in the form of a non-cash asset,
being the freehold of the previous Spire Manchester Hospital, which was simultaneously acquired by the Group (the ‘Asset Swap Transaction’).
The overall loss on these transactions was £7.7 million before sale costs of £1.2 million.
Full details of exceptional items are disclosed in note 8 on page 116.
EBITDA and underlying EBITDA
EBITDA for the year ended 31 December 2016 increased by £1.9 million, or 1.2%, to £162.0 million (2015: £160.1 million). Excluding the results
of Spire St Saviour’s Hospital in 2015, underlying EBITDA increased by 1.4%, from £159.8 million to £162.0 million. Within underlying EBITDA,
Spire St Anthony’s Hospital contributed an EBITDA profit of £5.0 million in 2015 and an EBITDA loss of £1.2 million in 2016, in part as a result
of the significant physical reconfiguration of the site and the establishment of a new six theatre block in September 2016. After adjusting for
the performance of Spire St Anthony’s Hospital, the balance of the underlying Group reported growth in EBITDA of 5.4%, from £154.8 million
in 2015 to £163.2 million on comparable revenue growth of 5.8%.
Net finance costs
Net finance costs decreased by 6.2% to £19.8 million (2015: £21.1 million) as a result of increased finance costs capitalised in the year in relation
to the Group’s development of the new Spire Manchester and Spire Nottingham hospitals.
31
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Taxation
The taxation charge for the year ended 31 December 2016 consisted of a £2.5 million charge for corporation tax and a charge of £17.1 million
for deferred tax. The effective tax rate for the year ended 31 December 2016 was 26.8% (before exceptional and other items 13.3%). The
effective tax rate of 13.3% is mainly due to the UK Government’s announcement of a further decrease in the future UK corporation tax rate
from 18% to 17% from April 2020. This change has resulted in a deferred tax credit arising from the reduction in the balance sheet carrying
value of deferred tax liabilities to reflect the anticipated rate of tax at which those liabilities are expected to reverse in the future. The
difference in the effective tax rates is mainly due to the Group’s review of its deferred tax approach on freehold properties discussed
further below.
The taxation charge for the year ended 31 December 2015 consisted of a £7.9 million charge for corporation tax and a charge of £5.7 million
for deferred tax. The effective tax rate for the year ended 31 December 2015 was 18.5% (before exceptional costs 18.3%).
(£ million)
Tax on profit before tax
Tax on exceptional items
Reassessment of property timing differences
Adjusted tax charge on the profit for the year
Year ended 31 December
2016
19.6
0.6
(8.4)
11.8
2015
13.6
2.7
–
16.3
During the year, the Group considered it to be appropriate to reassess the basis for calculating deferred tax on the property portfolio and has
now based the assessment on solely held-in-use basis. This gives rise to a material tax charge and is excluded from tax on underlying profit.
Profit after taxation
The profit after taxation for the year ended 31 December 2016 was £53.6 million (2015: £60.0 million).
Cash flows analysis for the year
(£ million)
Opening cash balance
Operating cash flows before exceptional items and income tax paid
Exceptional items
Net income tax paid
Operating cash flows after exceptional items and income tax paid
Net cash used in investing activities
Net cash used in financing activities
Closing cash balance
Closing net indebtedness
Year ended 31 December
2016
78.9
186.3
(5.9)
(3.0)
177.4
(149.9)
(38.5)
67.9
432.3
2015
74.5
166.7
(4.5)
(6.9)
155.3
(109.6)
(41.3)
78.9
419.5
32
STRATEGIC REPORT: GROUP FINANCIAL REVIEWSpire Healthcare Group plc Annual Report 2016 Operating cash flows before exceptional items and income tax paid
The cash inflow from operating activities before exceptional items and income tax paid for the year was £186.3 million, which constitutes
a cash conversion rate from EBITDA for the year of 115.0% (2015: £166.7 million or 104.1%). The net cash inflow from movements in working
capital in the year was £24.4 million (2015: £5.9 million), a significant improvement on that reported for the prior year.
Investing and financing cash flows
Net cash used in investing activities for the year was £149.9 million. Capital expenditure for the purchase of property, plant and equipment
in the year totalled £149.5 million, which included the development of the new Spire Manchester and Spire Nottingham hospitals, and theatre
development at Spire St Anthony’s Hospital.
Net cash used in investing activities for the prior year ended 31 December 2015 was £109.6 million. Capital expenditure for the purchase
of property, plant and equipment totalled £109.5 million, which included the development of the Spire Manchester and Spire Nottingham
hospitals, the Spire Specialist Cancer Care Centre in Baddow and theatre developments at Spire St Anthony’s and Spire Elland hospitals.
Net cash used in financing activities for the year ended 31 December 2016 was £38.5 million, including interest paid of £21.5 million and
dividend paid to shareholders of £14.8 million.
Net cash used in financing activities for the year ended 31 December 2015 was £41.3 million, including interest paid of £21.4 million,
purchase of shares held in the Company’s Employee Benefit Trust of £5.6 million and dividend paid to shareholders of £12.4 million.
Borrowings
At 31 December 2016, the Group had bank debt of £424.1 million (2015: 423.1 million), drawn under facilities which mature in 2019
and finance lease debt of £76.1 million (2015: £75.3 million). Additionally, the Group has a revolving loan facility of £100.0 million
(2015: £100.0 million) available until July 2019, which was undrawn at 31 December 2016.
(£ million)
Cash
External debt (incl finance leases)
2016
(67.9)
500.2
432.3
2015
(78.9)
498.4
419.5
As at 31 December 2016, net indebtedness was 2.67 times EBITDA (2015: 2.62 times).
Risk management
The principal risks faced by the Group are identified in the Principal risks section on pages 50 to 53.
Treasury policies and objectives
The Group has established treasury policies aimed at reducing financial risk.
Further information about financial risk management (including interest rate, credit and liquidity risks) is provided in note 30 to the financial
statements on pages 130 to 132.
The consolidated cash and cash equivalents as at 31 December 2016 was £67.9 million (2015: £78.9 million). Surplus cash balances are held
with UK-based investment-grade banks.
Simon Gordon
Chief Financial Officer
1 March 2017
33
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CASE STUDY
Spire Southampton Hospital is
working together with Southampton
NHS Foundation Trust to bring the
benefits of robotic surgery to
public and private patients alike.
34
Spire Healthcare Group plc Annual Report 2016
LOOKING AFTER YOU
Innovative treatment for all
Consultants across the country
know that patients can benefit
from robotic surgery for prostate
cancer, both in terms of cancer
clearance and reduced side
effects (potency and a faster
return to urinary continence).
But da Vinci robotic systems, and
the training required to operate
them successfully, are expensive.
Our urologists at Spire
Southampton Hospital were
keen to offer robotic surgery,
but we didn’t have the volume
of patients needed to pay back
such a large investment. That’s
when we approached our local
NHS Foundation Trust to see if
we could make the investment
viable by working together
to improve services for our
community – treating both
private and NHS patients.
Fiona Dalton, Chief Executive of
Southampton NHS Foundation
Trust, takes up the story, “We
have a good, long term, working
relationship with Spire
Healthcare, with our surgeons
regularly treating NHS patients
in their facilities – freeing NHS
capacity and helping us reduce
waiting lists. Our consultants
also wanted local NHS patients
to have the benefits of robotic
surgery. But with the current
capital expenditure constraints
in the NHS, and da Vinci systems
already operating in Portsmouth
and Bournemouth, we couldn’t
justify it on our own.”
The solution was for Spire
Healthcare to make the
investment on the basis of
guaranteed joint use of the
system – a minimum of two
days a week being reserved for
treating NHS patients at NHS
tariff rates – in order to treat
a viable number of patients.
Installed in June 2016, the unit
treated 103 cases in its first six
months and is set to comfortably
exceed first year projections. In
addition, we are already using
the unit to train consultants
from Salisbury and Winchester
and both hospitals will look to
extend the use of robotic surgery
to other treatments (such as
bowel, thoracic and head and
neck) as the procedures are
approved for use.
Spire Healthcare hospitals
around the country are always
encouraged to work with their
local NHS providers – for the
benefit of all our patients. As we
say, let’s work together.
The patient benefits of robotic surgery
• Less invasive surgery
• Shorter hospital stay
• Less pain, fewer painkillers
• Less blood loss, fewer blood transfusions
• Faster recovery and return to normal
daily activities
• Lower complication rate
• Lower wound infection rate
“We have a good, long term,
working relationship with
Spire Healthcare, with our
surgeons regularly treating
NHS patients in their facilities.”
Fiona Dalton
Chief Executive of Southampton
NHS Foundation Trust
The da Vinci surgical system
The first robotic operation in the UK took
place in 2000; there are now some 60 units
in the country, each costing approximately
£1 million. About one in four hospitals
that perform major surgery has one.
They are mostly used by urological surgeons
performing prostate cancer surgery; with
smaller use in other surgical specialities.
The da Vinci surgical system consists of a
surgeon console and a slave unit with robotic
arms for keyhole surgery using a miniature
video camera and surgical instruments.
The surgeon benefits from improved 3D
visualisation, enhanced dexterity and
greater precision.
£3.4m
total investment including theatre
reconfiguration
35
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CLINICAL REVIEW
Clinical review
Clinical quality and performance are
at the heart of everything we do.
I am therefore pleased to report that whilst
opportunities to improve were identified and
acted upon immediately, Spire Healthcare’s
ratings from inspection reports published up
to the end February 2017 were better than
the sector average, with 65% rated ‘Good’
compared with the sector average of 64%
and the NHS average of 39%. Of special
mention is the fact that Spire Liverpool
Hospital was the first independent hospital
to be rated ‘Outstanding’ by the CQC for the
Caring domain and Spire Washington
Hospital was the first independent hospital
to be rated ‘Outstanding’ for the Well-led
domain.
Our patients continue to rate the care and
attention our people deliver with 98% saying
that they would be extremely likely or likely to
recommend Spire Healthcare to their family
and friends. Our Net Promoter Score rose one
point from an already high level to 83.
In terms of outcomes, of the top ten
hospitals (NHS and independent) in England
for health gain following hip replacement,
three were Spire Healthcare hospitals –
Sussex, Alexandra and Regency. In relation to
knee replacement, again three Spire
Healthcare hospitals featured in the top ten
– Spire Sussex, Regency and Murrayfield
(Wirral) hospitals.
Infection control continues to feature as one
of Spire Healthcare’s strengths. With only a
single case of MRSA bacteraemia in 2016 –
our first for four years – and very low rates
of other healthcare acquired infections, we
continue to significantly outperform NHS
providers according to data published by
NHS England. Indeed, surgical site infection
following hip and knee replacement fell
to its lowest on record.
In terms of clinical performance and safety
indicators, I am pleased to report that the
Group as a whole achieved all clinical KPI
targets for 2016.
Notably, post-operative mortality also fell
to an all-time low, whilst at the same time,
rates for returns to theatre (0.14%),
unplanned transfers (0.05%) and
readmissions within 31 days (0.18%) all
remained exceptionally low following on
from the previous year’s strong performance.
Dr Jean-Jacques de Gorter
Group Medical Director
As Group Medical Director, I am responsible
for defining our clinical governance and
quality strategy. My team sets the clinical
standards, which they use to audit, monitor
and report on clinical performance in our
hospitals. They continuously provide
hands-on support to our hospitals to enable
them to comply with relevant healthcare
regulations across England, Scotland
and Wales.
During 2016, 26 Spire Healthcare hospitals
underwent an inspection by either the Care
Quality Commission (‘CQC’) in England (25)
or Healthcare Inspectorate Wales (‘HIW’) (1).
Whilst we prepared for these by
strengthening our systems for performance
management and assurance, this nevertheless
required a considerable effort by hospitals
and central teams working together to
manage the process of Inspection, repeated
requests for data and checking the factual
accuracy of draft reports, often extending
beyond 60 pages.
36
Spire Healthcare Group plc Annual Report 2016 LOOKING AFTER YOU
Spire Washington Hospital CQC
The inspectors call
Spire Healthcare is one of the CQC top rated
providers in the country.
‘Good’ and ‘Outstanding’
ratings – like those achieved
at Spire Washington Hospital –
are based on preparation,
engagement, experience and
sharing best practice.
In Washington, we used the
expertise of our central clinical
team and other Hospital
Directors to advise the team
throughout the process. Our staff
wanted to showcase the excellent
patient care and customer service
they deliver. Preparing them for
what to expect on the day was
key. We helped them refresh their
knowledge on likely inspection
topics through regular forums
and staff updates. Consultants
were briefed on the importance of
the inspection and the role they
can play in a successful outcome.
We reviewed reports from
hospitals that have already been
inspected and previous CQC
findings to identify and perform
a gap analysis on the CQC’s
Key Lines of Enquiry. This feeds
into a clinical review, to identify
any areas that might require
improvement.
Regular environmental and
security audits, ‘seeing things
through the eyes of an
inspector’, help our staff to spot
the small things, like unlocked
cupboards, and to ensure that
information posters such as
pain management or infection
prevention and control, are up
to date and well displayed.
Washington’s overall ‘Good’
rating is a testament to the
team’s performance – and
our approach.
“It was a delight to see staff
queuing to hear feedback
from the inspectors.
The lead inspector’s first
comment was how friendly,
professional and welcoming
the staff had all been.”
Shelagh Alderson
Hospital Director, Spire Washington
37
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CLINICAL REVIEW
Summary of inspection results
The following table shows the percentage of published reports receiving a positive rating (good or outstanding) by domain for the
independent sector.
Hospital
Spire Healthcare (28/02/17)
Sector excl. Spire Healthcare
(28/02/17)
NHS (01/01/17)
Published
Reports
Overall rating
20
68
255
65%
66%
39%
Safe
60%
51%
29%
Effective
79%
77%
61%
Responsive
Well led
Caring
100%
100%
100%
91%
96%
41%
Infection control
continues to feature as
one of Spire Healthcare’s
strengths. With only
a single case of MRSA
bacteraemia in 2016 and
very low rates of other
healthcare acquired
infections, we continue to
significantly outperform
NHS providers.
MRSA bacteraemia
(infection rate per 10,000 bed days)
In-patient surgical mortality
(per 10,000 theatre episodes)
2016
2015
0.00
2014
0.00
0.06
(one case)
2016
2015
2014
Returns to theatre (%)
2016
2015
2014
MSSA bacteraemia
(infection rate per 10,000 bed days)
2016
0.12
2015
0.00
2014
C. difficile
(infection rate per 10,000 bed days)
2016
2015
2014
0.30
0.30
0.55
0.60
38
65%
63%
45%
0.37
0.33
0.34
0.13
0.13
0.14
STRATEGIC REPORT: OUR STRATEGYSpire Healthcare Group plc Annual Report 2016 This level of safety and effectiveness of
care is a reflection of the dedication of our
clinical teams. Good teamwork, robust and
up-to-date care pathways, and a willingness
to challenge have together created a basis
for reliable and high-quality care.
Our in-house system for clinical assurance
is now well established and has proven to
be an effective assessment of regulatory
compliance and performance. Nevertheless,
in 2016 I commissioned an independent
review into the way that we undertake
incident management – from reporting
through to taking action to ensure
continuous improvement. There is now in
place a programme of work to bring our
systems and processes up to the standard of
the best. This will create a helpful platform
to ensure we learn and act as quickly as
possible when things do not go as expected.
At the back end of the year we further
strengthened our Clinical Services capability
and welcomed on board our new Chief
Nursing Officer – Alison Dickinson.
In conclusion, in 2016 our hospitals delivered
patient care that was safer and more
effective than in previous years. At the same
time, patients have responded by telling us
that their experience of receiving care was
better than ever.
As an organisation we are well prepared
to challenge ourselves that bit more and to
continue delivery high-quality care for our
patients and value to those who fund their
care. As a clinician, I would like to pay tribute
to my colleagues at the front end, those
who understand the value of touch, time
and compassion and who by doing so ensure
our continued success.
Dr Jean-Jacques de Gorter
Group Medical Director
1 March 2017
Anna Laws, sports
physiotherapist
LOOKING AFTER YOU
Musculoskeletal specialist
I moved
because it’s
my dream job
The new Spire Manchester Hospital at
Didsbury offers more facilities to patients and
healthcare professionals alike, extending the
range of treatments, speeding recovery and
creating new jobs.
One new recruit at Spire
Manchester Hospital is
musculoskeletal specialist Anna
Laws, who joined the established
team, attracted by the
opportunities in what is now the
region’s most advanced
physiotherapy setting.
“I had read about the new Spire
hospital in Manchester – and
I have a friend who works at
Perform at Spire Cardiff Hospital,
who told me how excellent the
facilities were there and how
good Spire Healthcare is as an
employer.
Anna is a sports physiotherapist,
specialising in running injuries,
but working with a wide range
of patients, including the GB
Water Polo team.
As she says, “In my previous role,
I worked alone in physio and
fitness centres, but I missed the
camaraderie and support of
working within a wider team.
I wanted a specialist role in a
team environment with great
people, in the best facilities for
my clients.
“The new hospital has the best
facilities on offer in the area –
including an anti-gravity
treadmill, Technogym
equipment and hydrotherapy.
And I’m also free to explore
setting up new facilities and
services, such as Pilates classes
and a functional movement
screening service to pre-empt
injury, so I can see a wider
range of patients and build
my experience.”
39
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: CASE STUDY
Spire Murrayfield Hospital and Scottish
Rugby have partnered for nearly a decade,
providing healthcare services that have
developed and grown to meet the changing
needs of elite, professional rugby players,
including Scotland’s national team.
40
Spire Healthcare Group plc Annual Report 2016
LOOKING AFTER YOU
Keeping Scotland’s internationals on their feet
Dr James Robson
Professional sport at
the international level
puts immense stress
on the players – and
on the coaching and
medical staff that
support them. The
pressure is always on
to be fit to play next
week, however hard
the last game.
As Dr James Robson, Scotland’s
team doctor and the Scottish
Rugby’s Chief Medical Officer,
puts it,
“I answer to a head coach
who wants instant answers.
In professional sport the need
for quick decisions can be vital.
While we use a range of Spire
Healthcare’s services at
Murrayfield – orthopaedics,
maxillofacial, neurosurgery,
plastics, and even psychiatry
– our biggest areas are
radiology, scanning and
interventional radiology.
Dr James Robson in action,
treating an injured player
on the pitch.
“If we’re able to get a scan after
the game and get the results the
same day, it makes an enormous
difference to how we manage
that player. We get a superb
service from Spire Healthcare,
the equal or better than any of
our counterparts on other teams.
You can’t beat the level of trust
and confidence we’ve built up
with Spire Healthcare’s
consultants.”
The team at Spire Murrayfield
Hospital is proud of their part
in keeping Scotland’s rugby
internationals on their feet.
“I answer to a head
coach who wants
instant answers.
In professional
sport the need for
quick decisions
can be vital.”
Dr James Robson
Scottish Rugby’s Chief
Medical Officer
41
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: GROUP HR DIRECTOR’S REVIEW – OUR PEOPLE
Group Human Resources
Director’s review – Our people
Skilled and dedicated people really are at the heart of what we do in
providing outstanding healthcare for our patients every day, and building
the business for the future.
In response to these challenges facing
healthcare provision in the UK, and the
specific staffing requirements of our new
and expanded hospitals, we are developing
a refreshed and integrated people strategy.
We recognise that the private sector
can provide exciting, rewarding and
professionally challenging opportunities,
with many advantages in terms of flexibility,
training, long-term career development
and other benefits.
A compelling employer brand
This year, we have been developing and
evolving our ‘people strategy’, aiming
to create a compelling recruitment and
employment proposition to attract and
retain the staff we need.
We have conducted extensive research to
enable us to develop a refreshed employer
brand and employee value proposition.
Based on the facts and insights that this
research has given us, our new employee
value proposition reflects the areas which
employees have told us they value most
– flexibility, training, career development and
a clear articulation of what Spire Healthcare
stands for and how private healthcare
works in relationship with the NHS and our
customers. Nurses, in particular, also want
to understand how they can transition to
the private sector.
Our new end-to-end recruitment delivery
model now targets specific recruitment
groups, such as newly qualified, experienced
or returning to practice nurses, and works
by designing and tailoring bespoke and
specific strategies centred on the needs
and specifications of our particular
employment groups.
The recruitment and staffing of our new
hospitals in Manchester and more
particularly Nottingham, has required in
excess of 180 new positions to be filled,
a number which will grow significantly
throughout 2017. The process of filling these
positions has enabled us to trial successfully
our new approach to attracting, recruiting,
inducting and training staff.
Caroline Roberts
Group Human
Resources Director
42
At 31 December 2016, we employed 12,454
people, comprising 3,365 bank workers and
9,089 permanent employees. These numbers
include nurses, theatre staff, allied health
professionals, and administration and
clinical support staff.
Our priorities and landscape
Finding, recruiting, developing and retaining
the best leaders, clinical and support staff
with the right skill mix to serve increasingly
complex and high acuity patient needs is one
of our key priorities.
We know that engaged, motivated and
highly trained staff deliver the best care
for our patients, and we are committed
to recruiting and retaining the right talent
across our portfolio.
However, we, in common with the whole
UK healthcare economy, are subject to a
number of human resourcing issues: from
staff shortages in nursing and trained
healthcare professionals, to an ageing
workforce and declining applications for
nursing courses, to the potential impact of
Brexit on EU nationals thinking of coming
to work in Britain, as well as those who
are already working in the UK.
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 Diversity
Diversity and equality within our
workforce remains a key element to our
people strategy. Our employees are
predominantly female, 10,166 or 82%,
compared to 2,288 or 18% male. Our
management includes 111 females out
of a total cadre of 199 (compared to 149
females out of a total cadre of 247 in 2015).
Overall employees
2016
2,288
2015
2,261
2014
2,256
Senior Managers
2016
37
2015
41
2014
38
Board
2016
2015
7
8
Male
Female
10,166
10,165
10,113
26
25
27
2
1
LOOKING AFTER YOU
Rewarding loyalty
Leading
Hospitals
What makes a Spire Hospital Director?
Spire Healthcare’s Hospital
Directors are the key leaders
across our healthcare network –
delivering outstanding care to
patients, motivating their teams
and building businesses with the
consultants in their area. Great
Hospital Directors are rare – so
we find and develop them where
we can – both internally and
externally, through targeted
recruitment.
Will Pressley, who leads our
new Nottingham hospital,
transferred to the role after
three years as Hospital Director
of Spire Regency Hospital in
Cheshire. He has both a 15-year
clinical background and four
years’ executive experience
running a privately owned,
multi-site physiotherapy business. His successor at Spire Regency
Will Pressley and Nayab Haider
Hospital, Nayab Haider, is a new
recruit, joining from a large
facilities management company
and the NHS. Nayab comments,
“I’m not a clinician, but my role
here is to work with the Head of
Clinical Services and medical
advisory committee to improve
our core business. We’re subject
to the same CQC governance
structure and standards, but
compared to the NHS we have
much more choice in the
development of our business
plan, marketing, business
development and the services
we can offer our customers.
“We share the same care and
compassion, but I think the
private sector is more advanced
in the way we manage the care
pathway, use our theatres,
monitor KPIs and manage
procurement. The result is
better care for our patients.”
43
“One of the core values
of Spire Healthcare is
compassionate care and in
my short experience that’s
a living and breathing reality.
It’s a genuine difference.
I think it’s in Spire’s DNA.”
Nayab Haider
Hospital Director,
Spire Regency Hospital
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: GROUP HR DIRECTOR’S REVIEW – OUR PEOPLE
“We are committed to playing our
part in the training and development
of future generations of healthcare
professionals.”
Caroline Roberts
Group Human Resources Director
Developing our leaders
In a network that devolves significant
autonomy to each hospital, the role and
capability of our leaders is key. The role
of Hospital Director is particularly crucial,
combining, as it does, the three factors
of clinical, people and commercial
leadership – delivered together for
our patients and the business.
We continue to support the development
of our leaders at all levels, but crucially at
Hospital Director and the senior leadership
team levels. The case study on page 43
looks at the contrasting backgrounds of
two of our Hospital Directors.
We also continue to invest in our junior
leadership cadre through, for example, our
Management Fundamentals programme.
The programme teaches new and existing
managers how to manage successfully their
team in a way that will inspire them to
achieve organisation goals. It helps delegates
understand the role and responsibilities of
a manager, as well as their own approach
to working with others and leading a team.
During 2016, 96 managers undertook the
Management Fundamentals programme,
adding to a growing cohort from
previous years.
In 2017, we will be reviewing and refreshing
all our leadership training programmes to
ensure that our leaders are fit for the future
and the challenges ahead.
Caroline Roberts
Group Human Resources Director
1 March 2017
Growing our own
In parallel with the progress made on our
employee value proposition, we are also
committed to playing our part in the training
and development of future generations
of healthcare professionals.
We regard the UK Government’s
apprenticeship levy scheme, due to come
into force in April 2017, as offering a great
opportunity for us to enable young people
to enter the healthcare workforce, in both
clinical and non-clinical roles, throughout
our business, as well as providing our
existing employees with a real career
progression route.
Our focus in 2017 is to design a strategy
which enables us to develop our own
people; we believe ‘growing our own’,
which includes apprenticeships and defining
clear career paths for our current employees,
is a key element in meeting our future
staffing requirements.
Engaging our people
When it comes to engagement and
communications, our vision is to inspire all
Spire Healthcare employees through timely,
informative and compelling communications
so that our people are fully aware and
motivated to support the strategic direction
of the Company. We want colleagues to feel
valued, listened to, and part of the current
and future success of our business.
During 2016, we took significant steps to
bring this ambition to life. For instance we
launched the ‘Spire Healthcare discussion
channel’, a new communication channel
established to provide colleagues, on a
regular basis, with audio updates from our
leadership team – covering topics which
are pertinent to our business; from our
strategic direction to operational and
people highlights. In terms of recognising
our people, we continue to celebrate the
achievements of our colleagues through our
annual Inspiring People Awards ceremony,
and once again we thanked those people
who have reached 21 years with the business
at our Long Service lunch.
£62,000
Funds raised by hospitals
Hospitals fundraised over £62,300
for their local communities and
charities over the last year.
1,700
Educational events
1,700 GP/clinical education events
were held at our hospitals.
26,000
Attendees
Over 26,300 GPs, nurses,
physiotherapists and other healthcare
professionals attended these events.
44
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 LOOKING AFTER YOU
Inspiring people
People
awards
In December, a ceremony
took place for nominees of
the ‘Inspiring People’ award
– a Group-wide accolade
given to the most deserving
team or member of staff
that has shown outstanding
commitment and dedication
throughout the year.
The 2016 winner was David Barnes,
Concierge at Spire Bristol Hospital.
Offering a gold-standard concierge
service to our patients is vital in
driving excellence and growing
our business, and we know this
differentiates us from our
competitors. David makes it his
mission to bring this to life in every
aspect of his job – from meeting and
greeting patients to delivering their
newspapers and offering them a
listening ear. In the most recent
patient satisfaction survey, David
had over 200 named compliments
about the service he delivers.
At the event, Dan Rees Jones,
Hospital Director said, “David has
a warm, friendly and attentive
approach, ensuring that each patient
receives a personal Spire Healthcare
touch at the start of their stay. He has
clearly transformed the admission
experience for these patients as
exemplified by the comments in
our patient satisfaction survey”.
David Barnes with wife, Alison, and
Hospital Director, Dan Rees Jones.
Our values
Caring is our passion
Succeeding together
Driving excellence
Doing the right thing
Delivering on our promises
Keeping it simple
LOOKING AFTER YOU
The people who make it possible
2016 Employees including bank staff*
(31 December 2016) (%)
Long-serving people
54
19
11
16
Nursing 2,405
Theatre staff 1,366
Allied health professionals 2,025
Clinical support and admin 6,658
*
The Group employs ‘bank’ staff (staff who do not
work regularly scheduled hours, but are directly
employed by the Group).
Celebrating over 1,870 years of independent healthcare
knowledge and experience
A day of celebration was held in late
November to recognise the hard work
of long-serving members of staff, who
between them, have clocked up over
1,870 years of service.
Those recognised included nurses,
clinical team leaders, engineering
and maintenance managers, and
administrative colleagues. All enjoyed
a three-course lunch along with
personalised gifts to commemorate
their 21 years of service.
The event, hosted by Spire Healthcare’s
Executive Team, was held at the Royal
Automotive Club in Pall Mall where
89 colleagues from across the hospital
network were honoured – a long-standing
tradition that we have celebrated for
many years.
Peter Corfield, Group Commercial
Director, said on the day, “It’s my
pleasure to celebrate the amazing
contribution you have made to
Spire Healthcare over the years.
Twenty-one years working for one
organisation, in its many different
guises, is an outstanding milestone,
especially in an era of job mobility.
Your achievement is what makes Spire
such an amazing place to work.
Thank you for your dedication and
commitment through the years –
we really appreciate it.”
The long-servers celebrating at the Royal
Automotive Club in Pall Mall.
45
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION STRATEGIC REPORT: LOOKING AFTER OUR ENVIRONMENT
Looking after
our environment
Spire Healthcare realises that we have a ‘duty of care’ to the
environment as well as our patients and we continue to promote
a low carbon culture across our hospitals. We continually review
how we operate our buildings and infrastructure to improve the
carbon efficiencies across our portfolio.
A key focus is to reduce carbon emissions
associated with our usage of electricity and
natural gas. The way we purchase, monitor,
target and report on our buildings’ energy
consumption is undertaken in partnership
with our energy consultants Inenco.
Legislation
Since becoming a publicly listed company
in 2014, Spire Healthcare has now registered
for the Government’s CRC Energy Efficiency
Scheme and will report our carbon emissions
to the Environment Agency accordingly.
Energy
Targets vs performance
In 2016, we published the five-year energy
reduction targets set out in our Carbon and
Environmental policy document to reduce
CO2e from electricity and natural gas by 15%
per pound of revenue by 2020 from the
baseline year of 2015.
We use the intensity metric of carbon
emissions per £ revenue which increases
in proportion to the growth in our business.
The addition of Spire St Anthony’s Hospital
to our portfolio for example added 6% to our
energy consumption overnight. Our values
are based on providing excellence in clinical
quality and innovation to our patients. As a
consequence of continuing to meet these
values we will continue to grow, to treat
more patients, to provide more treatments
and to offer the latest technology.
Our mandatory Energy Savings Opportunity
Scheme (‘ESOS’) audits were completed
on schedule and concluded that due to
the excellent work already undertaken in
improving energy efficiencies across our
estate, their recommendations would be
unlikely to produce large energy savings.
The recommendations will, however, be
incorporated into our carbon reduction
planning for the future.
Spire Healthcare was invited to participate
in the Carbon Disclosure Projects (CPD) again
in 2016.
We made our second submission to the CDP
this year and we are delighted to say that
Spire Healthcare scored a B rating, which
is a great score in only our second year and
a good improvement on last year’s 90D.
Capital investment in low
carbon infrastructure
We continue to invest in our engineering
infrastructure to improve energy efficiencies.
Key projects this year included investment
in areas such as lighting, mechanical
ventilation, building controls, heating and
domestic hot water services.
High Efficiency Lighting – after the success of
our lighting replacement projects previously
reported, we continue to invest in this area to
reduce our carbon footprint and also benefit
from the much improved light quality that
this technology brings. On the back of the
measured energy and aesthetic benefits of
our internal upgrade to LED lighting at Spire
Leicester and Southampton hospitals, we
have invested in excess of £500,000 at our
National Distribution Centre and five further
Spire hospitals in 2016. We intend to invest
heavily again in this area during 2017 to
ensure we continue to reduce our electricity
consumption. It is planned to replace the
internal lighting with LED technology at a
further 25 of our hospitals in 2017 together
with our central finance office in Reading to
ensure we meet our stated energy reduction
targets in 2020.
Key projects this year included investments
in areas such as lighting, mechanical
ventilation, building controls, heating
and domestic hot water services.
46
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 High Efficiency Heating and Hot Water
Services – modular condensing heating
and hot water boilers were installed at
Spire Parkway Hospital in 2016, which will
deliver a reduction in gas consumption at
this site in future years.
High Efficiency Ventilation Systems – our
theatre ventilation plant ensures rapid air
exchange within our theatre suites to protect
our patients from infection. By its nature
these systems are energy hungry. We have
replaced ageing systems at Spire St Anthony’s,
Portsmouth, Edinburgh and Leeds hospitals
in 2016. The new systems now include high
efficiency control and heat recovery systems
that help deliver this critical air in the most
efficient way.
Greenhouse Gas Emissions (GHG)
This section provides the emission data
and supporting information required by
The Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013.
Footprint boundary
An operational control approach has been
used to set the Greenhouse Gas (GHG)
emissions boundary, as defined in Defra’s
latest Environmental Reporting guidelines:
‘Your organisation has operational control
over an operation if it, or one of its
subsidiaries, has the full authority to
introduce and implement its operating
policies at the operation’.
For Spire Healthcare this captures emissions
associated with the operation of all our
hospitals and other buildings such as
clinics, offices and distribution centre, plus
company-owned and leased transport. As
Spire Healthcare has no overseas operations,
all emissions refer to UK operations only.
Emission sources
All material scope one and two emissions
are included. These include emissions
associated with:
• fuel combustion: stationary (natural gas;
and red diesel for backup generators);
mobile (vehicle fuel);
• purchased electricity; and
• fugitive emissions (refrigerants,
medical gases).
Methodology and emissions factors
This report was calculated using the
methodology set out in Environmental
Reporting Guidelines (ref. PB 13944),
published by Defra in June 2013.
Emissions factors are taken from the
Defra/DECC emissions factor update
published in 2016.
GHG emissions data
The GHG emissions for Spire Healthcare for
the reporting period January – December
2016 were 43,520tCO2e, tabulated by
emissions source below. The ‘facility
operation’ emissions are attributable to the
use of medical gases, carbon dioxide and
nitrous oxide, (6,189tCO2e) and leakage of
refrigerant gases (2,099tCO2e). This is 4%
lower than the emissions reported for 2015
(45,282 tCO2e).
For purposes of baselining and ongoing
comparison, it is required to express the
GHG emissions using a carbon intensity
metric. The intensity metric chosen is
£m revenue. Spire Healthcare’s revenue in
2016 was £926.4 million, giving an intensity
of 47.0 tCO2e per £m revenue, 8% lower
than last year.
Total emissions 2016 (tCO2e)
Fuel combustion: stationary
2016
2015
2014
10,488
11,150
10,360
Fuel combustion: mobile
2016
952
2015
1,112
2014
1,124
Facility operation
2016
2015
2014
8,288
7,152
6,543
Purchased electricity
2016
2015
2014
23,792
25,868
27,027
47
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
STRATEGIC REPORT: RISK MANAGEMENT AND INTERNAL CONTROL
Risk management
and internal control
The Group’s risk management and internal control
systems are overseen by two committees, with overall
responsibility lying with the Board of Directors.
The Audit and Risk Committee, with the
assistance of the Clinical Governance and
Safety Committee (CGSC), provides the
Board with a consolidated review of key
risks from all levels of the Group, advice
on the Group’s overall risk appetite and
strategy, and on the effectiveness of the
Group’s risk management and internal
control processes.
The risk management framework is designed
to identify, evaluate and mitigate the risks
that the Group faces at all levels. The
underlying process aims to provide robust
management information to enable
conscious risk-based decision-making.
In 2016, the Group adopted a detailed risk
management methodology in order to ensure
that all hospital and business-level risks were
being identified and assessed consistently
across all of Spire Healthcare. This enabled
more effective risk analysis and
management reporting to be conducted
allowing greater visibility to the two
committees overseeing risk – Audit and
Risk Committee and CGSC.
The Board recognises that it has limited
control over many of the external risks
it faces, such as macroeconomic events
and the complex regulatory environment.
However, it is important to consider the
potential impact of such ongoing risks to
the business and where possible develop
contingency plans to minimise the impact
of these external risks.
Risk management
The Board recognises that the Group
needs to comply with the UK Corporate
Governance Code and with its increasing
regulatory expectations for listed companies.
The risk management framework was
reviewed by the Board and its committees
during 2016, and it will continue to evolve
and develop as the level of risk maturity
increases within the Group.
All significant risks facing the Group are
captured within a Risk Register and are
assessed in terms of consequence and
likelihood. Each such risk is owned by a
member of the senior leadership team who
works to monitor and mitigate that risk.
The Risk Register is reviewed on a regular
basis at all levels, and in response to changes
in the risk environment (for example
following a change in regulations). The
principal risks facing the Group are drawn
from the Business-wide Risk Register and are
linked to the strategy of the Group. Changes
from last year are indicated in the Principal
risks section on pages 50 to 53.
Clinical risks
During 2016, the CGSC chaired by Dame
Janet Husband focused on key clinical risks
and trends including the review of notifiable
incidents and external regulatory inspections
across the Group. A copy of the CGSC report
can be found on pages 72 and 73.
Internal controls
The principal internal controls and assurance
activity over the risks that are directly
manageable by the Group are:
Standard policies and procedures
The Group has documented policies and
standard procedures in place covering all
significant activities and areas of risk, which
are subject to regular review and update.
Assurance over clinical delivery and
clinical regulatory compliance risks
As a provider of clinical services to patients,
the Group faces a specific set of non-financial
risks associated with such provision.
In relation to these risks:
• the corporate Clinical Services team,
which is independent of the hospital
operations and is led by the Group Medical
Director, oversees a national programme
of clinical audits, in addition to conducting
on-site clinical reviews of every hospital
and non-hospital unit, according to the
approach taken at regulatory inspections.
These form part of the overall framework
for clinical governance and quality,
to ensure that clinical risk and clinical
regulatory compliance is managed
effectively across all registered sites.
The results of these activities are regularly
reviewed by the corporate Clinical Services
team, Operations Directors, Matrons,
the Executive Committee and the CGSC;
• comprehensive, non-financial
management information on clinical
performance, including safety, clinical
effectiveness and customer experience, is
produced and reviewed quarterly against
pre-agreed standards by the corporate
Clinical Services team, Operations
Directors, Matrons, the Executive
Committee and the CGSC. Specific KPI
measures drawn from this management
information are given on page 38;
48
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 • the Group is subject to substantial levels
of external inspection and review, both by
the range of national healthcare regulators
and through invited assurance inspections
such as the rolling programme of health
and safety inspections carried out by
third-party specialists. The outcomes
of these activities are reviewed by the
Executive Committee and the CGSC; and
• the structures and processes for internal
confirmation of clinical regulatory
compliance and the level of evidence
and assurance required to monitor this
on an ongoing basis have been further
strengthened and formalised in 2016.
Financial and operational controls
Financial control is established through:
• the annual process of preparing business
plans and budgets, followed up by close
monitoring of operational performance by
the executive management and the Board;
• monthly monitoring of actual results,
compared to budgets, forecasts and the
previous year;
• all material capital expenditure is subject
to an investment evaluation and
authorisation procedure;
• common accounting policies and
procedures; and
• the Group’s treasury position and forecast
liquidity are kept under review to ensure
that borrowings are aligned with the
Group’s growth and are in compliance
with banking covenants.
Other non-financial operational risks are
managed by means of the application of
best practice, as defined by Group policies
and standard procedures, in areas such as
project management, human resources
management and IT security and delivery,
supported by detailed performance
monitoring of outputs and issues.
Internal audit/internal
control assurance
The need for an Internal Audit function was
reviewed by the Audit and Risk Committee
during the year. It is anticipated that the
structure of the function will be formalised
and the remit of the Internal Audit activities
will be further redefined during 2017.
Historically, the Group has not considered
it necessary to establish an Internal
Audit function, in part because of the way
hospitals and administration activities are
structured, which means that the initiation
of transactions is entirely separated from
the delivery of the associated services and
their financial recording, and the low level of
delegated authority at hospital level limits
risk exposure. Reliance is placed on the
management review process, transaction-
level controls built into business processes
and other forms of assurance activity and
audits being performed across the Group,
including clinical audits, health and safety
audits and regulatory inspections.
The Audit and Risk Committee has decided
that the assurance provided by these
processes will be supplemented in certain
specific areas through the procurement of
specific independent reviews undertaken
within an Internal Audit framework, the
scope of which is set by the Audit and Risk
Committee based on a periodic review of
the risk register and internal controls.
Continuous learning
Accepting that internal control systems and
robust risk management cannot guarantee
to reduce error or loss to zero, the Group
takes all instances of complaints, control
failures, regulatory non-compliance or other
risk events (or near misses) very seriously, and
has a detailed process in place to take action
in respect of each specific issue identified, to
understand the cause and to learn from the
event wherever possible, so that the chance
of reoccurrence is minimised. An open
culture is actively promoted and monitored
within the Group that positively encourages
the reporting of all risk events and other
issues arising. The number and nature of
events arising and the operation of event
management processes are closely
monitored by hospital management,
the Executive Committee, the Audit
and Risk Committee and the CGSC.
The Group offers an independent
whistleblowing service to facilitate reporting
of any issues or concerns that staff may
have that they are unwilling to raise via
any other channel.
Viability Statement
In accordance with provision C.2.2 of the 2014 revision of the Corporate Governance Code, the Directors assessed the viability of
the Group and have adopted a period of three years for the assessment. A three-year period was selected as it corresponds with the
Board’s strategic planning horizon. Whilst existing bank facilities extend until July 2019, this viability assessment has also considered
the ability of the Group to refinance bank facilities at the end of 2018 based on current market-lending multiples.
The assessment conducted considered the Group’s revenue, EBITDA, operating profit, cash flows, risk management controls and loan
covenants over the three-year period. These metrics were subject to severe downside stress testing and sensitivity analyses over the
assessment period, taking account of the Group’s current position, the Group’s experience of managing adverse conditions in the past
and the impact of a number of severe yet plausible scenarios, based on the principal risks set out in the Strategic Report.
These scenarios may be summarised as follows:
• Spire Healthcare is unable to access sufficient numbers of appropriately qualified clinical staff, restricting growth, driving up
clinical staff costs and constraining the capacity of new hospital developments (this links with Availability of key medical staff);
• a key hospital is subject to temporary suspension of trade, with a permanent adverse impact on revenues, for example, due to
failure to meet Care Quality Commission (‘CQC’) regulatory standards (this links with Compliance with laws, regulations and other
applicable requirements);
• the Group is subject to temporary suspension of trade, with a temporary adverse impact on revenue, for example, as a result
of a successful cyberattack on key business systems (this links with Cybersecurity);
• the downside modelling of a number of risks which result in a decline in earnings, including lower NHS tariffs or referral rates
or a general economic downturn (this links with Macroeconomic conditions and Government policy); and
• the business is subject to significant uninsured losses arising from medical malpractice, negligence or similar claims (this links
with Insurance).
Based on the results of this analysis, the Directors confirm that they have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over the next three years.
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016 STRATEGIC REPORT: PRINCIPAL RISKS
Principal risks
The Group’s financial and operational risks,
how they have changed and how they are
managed are shown below.
Key:
Risk increased
Risk remained stable
Risk decreased
Risk theme
Risk description and impact
Risk change
2016
How we manage the risk
Availability
of key
medical staff
Growing demand for healthcare, changes
to the working requirements and a limited
supply of appropriately qualified key medical
staff, leads to a shortage of medical staff.
Profitable growth, in line with the Group’s
strategy, requires an expansion of clinical
services in hospitals, particularly including
more complex surgical procedures and ongoing
treatment of higher-risk patients, which could
be impacted by a shortage of key medical staff.
In order to expand our directory of services
at hospital level, in line with our strategy, it is
vital to have access to appropriately qualified,
clinical staff.
The market may see salary rates rise as
competition for staff increases and, as a result,
the Group’s costs may increase and its profits
may reduce.
Clinical care
The Group’s future growth depends upon its
ability to maintain its reputation for high-
quality services by meeting its quality goals.
Poor clinical outcomes, negative media
comment or patient, GP and/or consultant
dissatisfaction could reduce the quality ratings,
which could lead to a loss of patient referrals
and lost earnings.
The Board focuses on staff retention, evidenced
by high levels of staff satisfaction and, hence,
low staff turnover.
Management deploy productivity tools and pursue
opportunities to reduce clinical nursing time spent
on non-clinical activities to optimise the effectiveness
of its clinical staff base.
We have introduced a new solution for the
recruitment of clinical staff, partnering with an
external provider.
The Group believes consultants are attracted by
its advanced facilities, technology and equipment,
excellent brand and reputation, the availability of
a broad range of treatments, skilled nursing staff
and medical support staff, and the efficiency of
administrative support. The Group undertakes
continuous investment in its equipment, facilities and
services to retain high-quality consultants and also
provides theatre capacity to new consultants. This
is confirmed by high consultant satisfaction levels.
Spire Healthcare continually monitors its clinical
standards, policies and procedures through the
Board’s Clinical Governance and Safety Committee.
During 2016, regular management information
and associated reporting has been provided to the
Executive Committee. Management information is
subject to continuous improvement to best leverage
underlying clinical data.
A number of key performance indicators are used in
the assessment of clinical standards and these may
be found in the Clinical review.
The Group reviews and maintains insurance to
mitigate the possibility of a major loss. Adequacy of
cover is reviewed annually with the Group’s brokers.
50
STRATEGIC REPORT: OVERVIEWSpire Healthcare Group plc Annual Report 2016 Risk theme
Risk description and impact
Risk change
2016
How we manage the risk
Macroeconomic
conditions
Government
policy
Compliance
with laws,
regulations
and other
applicable
requirements
Approximately 68% of the Group’s revenue is
dependent on private patients having private
medical insurance (PMI), paid by their employer
or paid by the individual, or being able to afford
its services (Self-pay).
In an economic downturn, the number of
insured individuals falls with the level of
employment and individuals have reduced
real income to fund insurance or Self-pay
for procedures.
This would have an adverse effect on the
Group’s business, the results of its operations
and prospects.
Change in the medium-term public funding of
NHS services provision, and/or the prioritisation
of this funding to particular service lines over
time (elective healthcare, A&E, community
care, etc.), could adversely reduce the flow
of NHS patients to Spire Healthcare.
Changes in the service level requirements for
providers of NHS services, and service level
commitments to members of the public
served by the NHS, could adversely impact the
attractiveness of privately funded treatment.
Changes in fiscal policy could increase the
burden of welfare resulting in a reduction
of NHS-funded options.
A fundamental change in the tariff structure
(pricing arrangements) associated with the
provision of services to the NHS could result
in reduced access to patients, reduced tariffs,
or reduced prices leading to reduced revenues
and/or margins.
The Group operates in a highly regulated
environment, including complying with the
requirements of, for example, the CQC, Monitor
and the CMA.
Failure to comply with laws, regulations or
regulatory standards may expose the Group
to patient claims, fines, penalties, damage to
reputation, suspension from the treatment of
NHS patients, loss of hospital licence and loss of
private patients, such that the Group may not
be able to operate one or more of its hospitals,
causing a significant reduction in profit.
The CQC has continued its new inspection
regime which assesses and rates hospitals
and makes these results publicly available. If a
hospital fared badly in one of these inspections,
it could result in that hospital being assessed
as ‘Inadequate’ which could have significant
regulatory and reputational impacts. As at the
end of 2016, no Spire Healthcare hospitals have
received an ‘Inadequate’ rating.
In addition, the Group could fail to anticipate
legal or regulatory changes leading to a
significant financial or reputational impact.
The Board manages this risk by regularly reviewing
market conditions and economic indicators to assess
whether actions are required.
As successfully employed in the recent economic
downturn, if the private market contracts, the Group
can try to reduce costs and future investment to
improve profit and cash flow, and may be able to offer
the released capacity to the NHS at its lower tariff,
reducing the impact on profit.
The Group believes that the private sector has become
a fundamental partner of the NHS across the UK.
The continued use of private facilities is, in Spire
Healthcare’s view, the best way to meet the challenges
facing the NHS, particularly as there is limited capacity
within the NHS to take back work currently undertaken
by the private sector.
The Group’s service levels are confirmed by regular
surveys of patients, GPs and consultants, which
provide ongoing feedback to ensure NHS requirements
(whether as providers or as commitments to its
patients) are met. In addition, the Board regularly
reviews the competitiveness of its patient offering
(both NHS and private patients).
The Board continually monitors Government policy,
NHS requirements and associated tariff structures
to consider the need for cost and/or investment
reduction, whether in the short, medium or long term.
The Group continues to strengthen its Group-wide
risk management framework (and associated policies
and procedures) to ensure that risks are mitigated
as far as possible, the Executive Committee has
appropriate visibility to ensure robust decision-making,
and the Group has the ability to monitor and react
to the changing regulatory framework of a listed
company in the healthcare sector.
The Group has a significant centralised clinical team
which assists hospitals in establishing and maintaining
a high level of clinical performance.
Emerging legal or regulatory changes are monitored
by the Board, the Executive Committee, the Audit and
Risk Committee and the Clinical Governance and
Safety Committee, in addition to consultations with
external advisers and industry briefings.
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016 STRATEGIC REPORT: PRINCIPAL RISKS
Risk theme
Risk description and impact
Risk change
2016
How we manage the risk
Spire Healthcare operates in a highly
competitive market. New or existing
competitors may enter the market of one
or more of our existing hospitals, or offer
new services.
The potential impact would be the loss
of market share due to a new competitor
and reduced profitability and cash flow.
Healthcare companies, including Spire
Healthcare, are sometimes subject to actions
alleging negligence, malpractice and other
legal claims that may involve large potential
damages and significant defence costs,
whether or not the defendant is ultimately
found liable.
The Group could be subject to litigation for
actions by third parties or may be found liable
for damages which may not be covered by its
insurance policies, if the claims are in excess of
cover or claims are not covered by the Group’s
insurance due to other policy limitations or
exclusions or where it has failed to comply
with the terms of the policy.
The Group’s insurance premiums may increase
and, if there is a significant deterioration in
its claims experience, insurance may not be
available on acceptable terms.
The Group’s information technology platform
supports, among other things, management
control of patient administration, billing
and financial information and reporting
processes. In common with other corporate
organisations, the Group faces the challenges
of a continually evolving external cyberthreat
landscape, and could become vulnerable to
computer viruses, break-ins and similar
disruption from unauthorised tampering.
The Group’s business could be disrupted if its
information systems fail or if its databases are
breached, destroyed or damaged. This could
cause financial and reputational impacts.
The level of risk to Spire Healthcare’s IT
architecture and systems continues to
grow as the volume of cybersecurity threats
are increasing and becoming more sophisticated.
The Group maintains a watching brief on new and
existing competitor activity and retains the ability to
react quickly to changes in-patient and market demand.
The Group considers that a partial mitigation of the
impact of competitor activity is ensured by providing
patients with high-quality care and by maintaining
good working relationships with GPs and consultants.
The Group holds third-party liability insurance to
partially cover patient, third-party and employee
personal injury claims, and is partially self-insured up
to predetermined levels, above which its third-party
liability insurance applies.
The Group reviews and maintains insurance adequacy
of cover annually with the Group’s broker.
Spire Healthcare’s technical IT teams continually
monitor these developments as a business as usual
activity. Working with a number of specialist and
industry leading technical partners, Spire Healthcare
has created multiple layers of business protection
through the use of advanced intrusion detection
and protection systems, web access firewalls
and advanced content filtering to combat denial
of service attacks.
Business processes are also kept under review and
user education regularly carried out to minimise the
possibility of ransomware incidents.
Regular third-party penetration testing is performed
on Spire Healthcare’s core IT systems. New IT system
developments are subject to rigorous penetration
testing prior to release.
Competitor
challenge
Insurance
Cybersecurity
52
Spire Healthcare Group plc Annual Report 2016 Risk theme
Risk description and impact
Risk change
2016
How we manage the risk
Concentration
of PMI market
Investment plans
and execution
Liquidity and
covenant risk
The PMI market is concentrated, with the
top four companies (Bupa, AXA, Aviva and
VitalityHealth (formerly PruHealth)) having
a market share estimated at over 85%.
Loss of an existing contractual relationship
with any of the key insurers could significantly
reduce revenue and profit.
Further consolidation of the PMI market could
adversely impact Spire Healthcare’s relative
bargaining power in any ongoing commercial
arrangements.
The capital investment programme (which
includes IT system developments and the
construction of two new hospitals) at any time
consists of a number of individually significant
projects simultaneously in progress.
With any major project there are risks, such
as major cost overrun or substantial delay in
delivery, which could impact upon the
expected returns, the Group’s planned profit
growth and future cash flow.
The Group may have insufficient liquid
resources to meet its financial liabilities as they
fall due, or breach financial covenants linked
to its borrowings.
Failure to meet its obligations or covenants
would have a substantial adverse effect on
the Group’s reputation and may lead to
borrowings becoming repayable earlier than
contracted for.
The Group works hard to maintain good relationships
and a joint product/patient health offering with the
PMI companies, which, in the opinion of the Directors,
assists the healthcare sector as a whole in delivering
high-quality patient care.
The Board believes continuing to invest in its well-
placed portfolio of hospitals should provide a natural
fit to the local requirements of all the PMI providers.
The Group has looked to ensure that all significant
contracts run for a minimum of a year to avoid
co-termination of contractual arrangements across
its PMI base.
The Group conducts a detailed financial and
operational appraisal process to evaluate the
expected returns on capital during the evaluation
phase of the project.
Robust project management is employed throughout
the project, from the evaluation, to the bid process,
agreement of contract terms and conditions, cost
forecasting, as well as regular monitoring and
management of progress.
Regular reporting of all significant projects to the
executive sponsor and the Board is provided.
The Group actively monitors and manages its liquid
asset position, its financial liabilities falling due and
the cover against its loan covenants.
The Board has considered the risk in detail as part
of its assessment of the viability of the Company
(see page 49).
The Strategic Report, from pages 1 to 53, was reviewed, approved by the Board
and signed on its behalf on 1 March 2017.
Garry Watts
Executive Chairman
1 March 2017
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
GOVERNANCE: BOARD OF DIRECTORS
Board of Directors
1
3
5
7
Board committee membership:
A Audit and Risk Committee
C Clinical Governance and Safety Committee
D Disclosure Committee
N Nomination Committee
R Remuneration Committee
Committee Chair
Management committee membership:
E Executive Committee
Committee Chair
54
2
4
6
8
9
1. Garry Watts C D E N
Executive Chairman
Garry Watts joined the Group as Executive
Chairman in 2011 before becoming Non-
Executive Chairman between Admission and
March 2016. He resumed the role of Executive
Chairman in March 2016. The Company does
not consider Garry to be independent due to
his executive role.
Current external appointments
• chairman of BTG plc
• chairman of Foxtons Group plc
• non-executive director of Coca-Cola
European Partners Ltd
Skills and previous experience
A chartered accountant by profession and
former partner at KPMG, Garry’s extensive
business knowledge and leadership on other
listed company boards, including SSL
International plc and Celltech Group plc,
has ensured a seamless transition from private
to public for the Company. He has a deep
understanding of the healthcare sector, having
served as a member of the UK Medicines
and Healthcare Products Regulatory Agency
Supervisory Board for 17 years. Garry was also
previously an executive director of Medeva plc,
deputy chairman of Stagecoach Group plc
and a non-executive director of Protherics plc.
2. Andrew White
Executive Director
Andrew White joined Spire Healthcare in
November 2015 and served as Chief
Operating Officer until December 2016. He
was appointed an Executive Director in July
2016. Andrew is expected to be appointed the
Company’s new Chief Executive Officer once
he has recovered from a period of sustained
medical treatment. He remains engaged with
the business in his capacity as a Director whilst
temporarily stepping down from all Board and
management committees.
Skills and previous experience
Andrew began his working life in the Royal
Electrical and Mechanical Engineers and served
in Bosnia, Northern Ireland and the first Gulf
War. After leaving the army in 1995, Andrew
held senior positions at Serco plc and Nomura
Principal Finance Group and later Serco Nomura
Infrastructure Fund. Andrew became CEO of
Serco UK&E Local & Regional Government
division in January 2014 where he was
responsible for all aspects of Serco’s business
in the UK and Europe.
Spire Healthcare Group plc Annual Report 2016 Andrew is an ambassador to the National
Apprenticeship Service and has been the
industry chair of the Defence Suppliers
Forum Executive Group. He attended the
Advanced Management Program at Harvard
Business School in 2013.
3. Simon Gordon D E
Chief Financial Officer
Simon Gordon joined Spire Healthcare as
Chief Financial Officer in July 2011 and
became an Executive Director of the
Company in June 2014.
Skills and previous experience
Simon has a broad range of financial
experience and brings invaluable knowledge
of both audit and transaction advisory
projects for both listed and private
companies to the role. He qualified as a
chartered accountant with KPMG before
spending eight years as group finance
director of Virgin Active. During his time
at Virgin Active, the business grew from
break-even to £150 million EBITDA, operating
in five countries. This growth was achieved
by a successful combination of organic
development and acquisition.
4. John Gildersleeve N R
Deputy Chairman and
Senior Independent Director
John Gildersleeve was appointed the Deputy
Chairman and Senior Independent Director
in June 2014. John has indicated his desire
to retire from the Board and will do so by
the annual general meeting in 2017.
Current external appointments
• chairman of The British Land Company plc
• deputy chairman of TalkTalk Telecom
Group plc
Skills and previous experience
John is an experienced executive with strong
operational expertise from a number of
listed companies and is a skilled nomination
committee chair. He served as an executive
director of Tesco PLC and was formerly
chairman of Carphone Warehouse Group plc,
EMI Group plc and Gallaher Group plc.
John was also a non-executive director of
Dixons Carphone plc, Lloyds TSB Bank plc,
Pick N Pay Stores Limited (South Africa)
and Vodafone Group plc.
5. Dame Janet Husband A C N
Independent Non-Executive Director
Dame Janet Husband was appointed an
independent Non-Executive Director in
June 2014.
Current external appointments
• Emeritus Professor of Radiology at the
Institute of Cancer Research
• non-executive director of Royal Marsden
NHS Foundation Trust
Skills and previous experience
Having trained in medicine at Guy’s Hospital
Medical School, Dame Janet’s extensive
career in healthcare allows her to bring
invaluable insight and knowledge of the
healthcare industry. She has previously
served as a specially appointed commissioner
to the Royal Hospital Chelsea, was president
of the Royal College of Radiologists, chaired
the National Cancer Research Institute in
the UK and was a non-executive director
of Nuada Medical Group. Dame Janet
was appointed as Professor of Diagnostic
Radiology at the University of London,
Institute of Cancer Research, in addition to
more than 30 years as a practising consultant
radiologist at the Royal Marsden Hospital.
6. Tony Bourne A C R
Independent Non-Executive Director
Tony Bourne was appointed an independent
Non-Executive Director in June 2014.
Current external appointments
• non-executive director of Barchester
Healthcare Limited
• non-executive director of Bioquell Plc
• non-executive director of Totally plc
Skills and previous experience
Tony brings considerable knowledge of
the healthcare industry to his role, having
been chief executive of the British Medical
Association for nine years until 2013. Prior to
this, he was in investment banking for over
25 years, including as a partner at Hawkpoint
and as global head of the equities division
and a member of the managing board of
Paribas. Tony has also previously served
as a non-executive director of Southern
Housing Group, and the charity, Scope.
7. Adèle Anderson A R
Independent Non-Executive Director
Adèle Anderson was appointed an
independent Non-Executive Director
in July 2016.
Current external appointments
• non-executive director and chair of the
audit committee of easyJet plc
• non-executive director and chair of the
audit committee of intu properties plc
• member of the board of trustees of
Save the Children UK
• member of the audit committee of the
Wellcome Trust
Skills and previous experience
Adèle has gained extensive financial
experience throughout her career and has
significant knowledge of audit committees.
Until July 2011, she was a partner in KPMG
LLP and held a number of senior roles across
their business including Chief Financial
Officer of KPMG UK, Chief Executive Officer
of KPMG’s captive insurer and Chief Financial
Officer of KPMG Europe.
8. Simon Rowlands
Non-Executive Director
Simon Rowlands was appointed a
Non-Executive Director in June 2014,
although he served in a similar capacity prior
to Admission having been an appointment
of Cinven, the Company’s former principal
shareholder. The Company does not
consider Simon to be independent due
to the senior position he continues to hold
with Cinven Partners.
Current external appointments
• senior adviser to Cinven Partners
• non-executive director of Avio S.P.A. (Italy)
• non-executive director of MD Medical
Group Investment plc
• founding partner of Africa Platform Capital
Skills and previous experience
Simon’s extensive knowledge of the Company
and its markets, combined with his wise
counsel over a number of years, were among
the reasons he was asked to continue to serve
as a member of the Board following Cinven’s
sale of their shareholding. He was a founding
partner of the private equity firm Cinven
until 2013, and established and led its
healthcare team. Simon founded a new
private equity firm in 2016 focused on
healthcare and consumer sectors of Sub
Sahara Africa. Prior to joining Cinven, he
worked with an international consulting firm
on multidisciplinary engineering projects
in the UK and southern Africa.
9. Danie Meintjes
Non-Executive Director
Danie Meintjes was appointed as a
Non-Executive Director in August 2015.
The Company does not consider Danie to
be independent as he has been appointed
to the Board by the Company’s principal
shareholder, Mediclinic International PLC,
under the terms of the relationship
agreement with them.
Current external appointments
• chief executive officer of Mediclinic
International PLC
Skills and previous experience
Danie joined the Mediclinic International
group in 1985, were he has held a number
of senior positions. He was appointed as a
director of Mediclinic International Limited
(South Africa) in 1996 and then became its
chief executive officer in April 2010. Danie
holds a Bachelor of Personnel Leadership
from the University of the Free State
(South Africa) and has also attended
the Advanced Management Program
at Harvard Business School.
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Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: SENIOR LEADERSHIP TEAM
Senior leadership team
2
4
6
7
1
3
5
Board committee membership:
D Disclosure Committee
Management committee membership:
E Executive Committee member
Committee Chair
56
1. Catherine Mason
Chief Operating Officer E
Catherine Mason joined Spire Healthcare
in December 2016. Prior to that, she spent
the first half of her career in consumer goods,
then made the transition to transport,
and latterly moved to healthcare.
Following a degree in genetics, Catherine
worked in marketing in blue chip companies
on brands such as Ribena, Lucozade and
Clover. Following an MBA at Henley
Management College, she made the
progression to transport – initially working
for Arriva in a commercial capacity then
moving into operational roles in bus and rail.
Catherine was appointed group chief
executive of Translink in 2008 where she
oversaw public transport in Northern Ireland,
and then became managing director of NATS
Services in 2014. In 2016, she made the
transition to the independent healthcare
sector when she was appointed chief
executive of Allied Healthcare.
Catherine is a chartered director, a fellow of
the Institute of Directors, and a fellow
and former vice president of the Chartered
Institute of Logistics and Transport.
2. Dr Jean-Jacques de Gorter
Group Medical Director E
Dr Jean-Jacques de Gorter joined Bupa
Hospitals as director of clinical services
in 2005 before being appointed Spire
Healthcare’s Group Medical Director. He is
responsible for driving the Group’s clinical
governance and quality strategy. Prior
to joining Bupa Hospitals he served as
a medical director for NHS Direct.
Jean-Jacques is a non-executive director at
the Milton Keynes University Foundation
Trust and chairs its Quality Committee.
Jean-Jacques graduated with a Bachelor
of Medicine and Bachelor of Surgery from
Charing Cross and Westminster Medical
School, practised in the UK, Australia and
New Zealand and subsequently completed
his MBA degree at Cranfield School
of Management.
Spire Healthcare Group plc Annual Report 2016 7. Caroline Roberts
Group Human Resources Director
Caroline Roberts joined Spire Healthcare
as Group Human Resources Director in
September 2015 to develop and implement
the Company’s HR strategy for growth. In her
role, Caroline oversees all aspects of frontline
services including employment and welfare,
training, education and financial advice.
Caroline has experience in a variety of
sectors under public, private and private
equity ownership with significant
international exposure. She has held a
number of senior executive and board roles,
most recently as group HR director at Action
For Employment Ltd. Prior to this, Caroline
worked for The Royal Mint, Terra Firma
Capital Investors and British Airways Plc.
3. Peter Corfield
Group Commercial Director E
Peter Corfield joined Spire Healthcare in
October 2015 as Group Commercial Director
and has responsibility for delivering revenue
growth through our three payor groups
and identifying new business opportunities.
Prior to joining Spire Healthcare, he held a
number of senior executive and board roles
within the financial services industry in the
UK, most recently as managing director of
Ageas Retail Direct. Prior to this, Peter worked
for both Zurich Financial Services Group and
Royal Bank of Scotland in various roles that
covered Europe, Middle East and Japan.
4. Neil McCullough
Business Development Director E
Neil McCullough joined Spire Healthcare on
its formation in 2007 as Hospital Director at
Spire Cambridge Lea Hospital before joining
the executive team in 2011. In his role,
Neil oversees Spire Healthcare’s business
development strategy both at the local
hospital level and corporately.
Following an early career in accounting
and finance, Neil moved into healthcare in
1993 working with Bupa UK Membership,
where he held a number of senior sales and
relationship management roles. He joined
the Bupa Hospitals business in 1998,
holding hospital general manager roles in
both Birmingham and East Anglia. Neil then
moved into preventative healthcare with
Bupa Wellness in 2002, where, as sales
director, he led the rapid expansion of the
business for five years.
5. Daniel Toner
General Counsel and
Group Company Secretary D E
Daniel Toner joined Bupa Hospitals as head
of legal in 2006 before being appointed
General Counsel and Group Company
Secretary upon Spire Healthcare’s formation
in 2007 and is a solicitor by profession. He
oversees all legal activity at Spire Healthcare,
ensures compliance with statutory and
regulatory requirements, and that decisions
of the Board of Directors are realised. Daniel
is also the Company’s Whistleblowing Officer
and Freedom to Speak Up Guardian.
Daniel is a director of NHS Partners
Network, an organisation that represents
independent sector organisations that
provide NHS services. Previously, he worked
for international law firm Freshfields
Bruckhaus Deringer, in industry and
within the commercial directorate of the
Department of Health.
6. Antony Mannion
Director, Strategy and Investor
Relations D E
Antony Mannion joined Spire Healthcare
as Investor and Public Relations Director
in March 2012, having spent seven years
at SSL International plc, until its acquisition
by Reckitt Benckiser Group plc in 2010, as
group legal director and head of acquisitions.
Prior to SSL International plc, Antony worked
as a corporate lawyer at Freshfields in
London and Paris, then as an investment
banker at Citicorp in London and New York,
and at Standard Chartered in Singapore.
Antony has a wide range of experience
in all areas of corporate finance, and has
worked on significant acquisition and IPO
transactions in both the UK and overseas.
57
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: SENIOR INDEPENDENT DIRECTOR’S GOVERNANCE LETTER
Senior Independent
Director’s governance letter
I would like to take the opportunity to assure shareholders
that, despite the leadership changes made during the year,
the Board remains committed to applying the highest
standards of corporate governance across the Group.
John Gildersleeve
Deputy Chairman and
Senior Independent Director
58
Dear Shareholder,
Executive Chairman
Following Rob Roger’s notification that he
intended to step down as Chief Executive
Officer, the Board unanimously agreed that
Garry Watts should resume the role of
Executive Chairman. This was not a decision
taken lightly but was seen as providing vital
continuity at the head of the Company while
a successor to Rob was identified. Harnessing
Garry’s knowledge of the Company and
many years of leadership experience has
been particularly important over the
short term.
This has meant that my role and that of the
other Non-Executives has become even
more important to ensure enhanced scrutiny
and challenge.
Changes to your Board and senior
management
The table on page 59 summarises the
changes to the Board made during 2016.
I would like to take this opportunity to thank
both Robert Lerwill and Rob Roger for their
sterling contributions to the Company.
Robert expertly chaired our Audit and Risk
Committee from Admission before his
unanticipated departure from the Board.
Rob was with the business for over nine years
and in that time saw the business grow
significantly under Cinven’s ownership
and become fully listed in 2014.
We were delighted to welcome Adèle
Anderson to the Board in July and recognise
the considerable experience she brings.
Spire Healthcare Group plc Annual Report 2016 Changes to your Board
Individual
Event
Date
Garry Watts
Resumed Executive Chairman role on announcement of Rob Roger’s intended departure
14 March 2016
John Gildersleeve Notified Company of intention to step down as Deputy Chairman and Senior Independent Director
18 May 2016
Robert Lerwill
Stepped down as a Non-Executive Director with immediate effect
Rob Roger
Stepped down as Chief Executive Officer
Andrew White
Appointed an Executive Director
Simon Rowlands Appointment as a Non-Executive Director renewed for a further year
Adèle Anderson
Appointed an independent Non-Executive Director
In December, the Board announced the
appointment of Catherine Mason as Chief
Operating Officer succeeding Andrew White
in that position. At the same time it indicated
its expectation that Andrew White would
become the next Chief Executive Officer
once he had recovered from a sustained
period of medical treatment. At the time
of writing, Andrew continues with his
treatment whilst remaining engaged with
the business in his capacity as a Director
of the Company.
Governance
Arising from the Board changes, the
Company did not comply with some aspects
of the UK Corporate Governance Code,
usually on a very short-term basis during
the year. You can read further about these
non-compliances and the Board’s responses
on page 60.
Again, I would like to take this opportunity
to assure shareholders that your Board
takes the matter of governance extremely
seriously and continues to perform well with
the Non-Executive Directors all providing
extensive challenge to management.
2016 performance evaluation
During the second half of 2016, the Board
completed its second formal performance
evaluation. The evaluation process was led by
the Executive Chairman, with support from
the Group Company Secretary, and consisted
of a questionnaire that covered areas
including strategy, Board and management
succession, Board culture, balance and
diversity, meetings and processes, investor
relations, decision-making, risk management
and Board committees. I separately led
the review of the Executive Chairman’s
performance in conjunction with the other
Non-Executive Directors.
The principal conclusions were presented
and discussed at our meeting in November.
It was determined that the Company’s Board
was operating effectively in an open and
transparent manner, providing support
and challenge to senior management.
A fuller review of the results and our agreed
action plan can be found on page 63 as well
as an update on the actions identified from
our first evaluation. The Board will use the
services of an independent third party
to facilitate its evaluation in 2017.
27 June 2016
30 June 2016
1 July 2016
23 July 2016
28 July 2016
Risk management
and corporate culture
Our risk culture is centred on risk awareness,
openness, continuous improvement and
encouraging the right behaviour to ensure an
appropriate outcome for both the Company
and its customers.
Annual general meeting
Finally, the Board looks forward to meeting
as many shareholders as possible at our
annual general meeting which will be held
at 11.00am on Friday, 26 May 2017 at
the offices of J.P. Morgan, 60 Victoria
Embankment, London EC4Y 0JP.
John Gildersleeve
Deputy Chairman and
Senior Independent Director
1 March 2017
59
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GOVERNANCE: CORPORATE GOVERNANCE
Corporate governance
Compliance with the UK Corporate Governance Code in 2016
The UK Corporate Governance Code provides the standard for corporate governance in the UK. The Financial Conduct Authority requires listed
companies to disclose whether they have complied with the provisions of the UK Code throughout the financial year under review.
The Company has complied with the principles (and code provisions) of the UK Corporate Governance Code issued in September 2014 (the ‘UK
Code’), throughout the year except as shown in the following table.
UK Code provision How has the Company not complied with the provisions of the UK Code?
The Board’s response
The Company will look to return to a position where
the roles of chairman and chief executive officer are
exercised by two individuals as soon as practicable.
The Board has announced its intention to appoint
Andrew White as Chief Executive Officer on his full
recovery from a period of sustained medical treatment.
The Non-Executive Directors have determined that
Garry Watts continues to lead the Board effectively.
Robert Lerwill’s departure from the Board
was unanticipated and regretful. Steps were taken to
address the position as soon as practicably possible.
The Company fully complied with each of these
provisions outside of this short period and continues
to do so up to the date of this report.
The members of the Audit and Risk Committee and
Remuneration Committee did not meet during these
short periods.
This was unfortunately an unavoidable occurrence.
It is intended that the full Board attend the annual
general meeting on 26 May 2017 when they will
all be available to shareholders.
A.2.1
From 1 July 2016, the roles of chairman and chief executive
have been exercised by Garry Watts.
Garry Watts was not independent on appointment to the
Board having previously served as Executive Chairman of the
Company prior to IPO.
Between Robert Lerwill’s resignation on 27 June 2016 and the
appointment of Adèle Anderson as an independent Non-
Executive Director on 28 July 2016, less than half of the Board,
excluding the Executive Chairman, comprised Non-Executive
Directors determined by the Board to be independent.
Between Robert Lerwill’s resignation on 27 June 2016 and
the appointment of Adèle Anderson as chair of the Audit and
Risk Committee on 28 July 2016, the Company’s Audit and
Risk Committee did not have three members or a member
designated as having recent and relevant financial experience.
Between Robert Lerwill’s resignation on 27 June 2016 and the
appointment of Adèle Anderson as a member of the
Remuneration Committee on 24 August 2016, the Company’s
Remuneration Committee did not have three members.
Robert Lerwill, who was chair of the Audit and Risk Committee
at the time, was unable to attend the Company’s annual
general meeting on 19 May 2016 due to illness.
A.3.1
B.1.2
C.3.1
D.2.1
E.2.3
60
Spire Healthcare Group plc Annual Report 2016 Director independence
Independence is determined by ensuring
that, apart from receiving their fees for
acting as directors or owning shares,
Non-Executive Directors do not have any
other material relationship or additional
remuneration from, or transactions with, the
Group, its promoters, its management or its
subsidiaries, which in the judgement of the
Board may affect, or could appear to affect,
their independence of judgement.
As the Executive Chairman acts in an
executive capacity he is not considered to
be independent. He also did not satisfy the
independence criteria on his appointment
to the Board. In addition, the Company
does not consider the following two
Non-Executive Directors to be independent
for the reasons given:
• Simon Rowlands continues to hold a senior
position with the Company’s former
principal shareholder, Cinven; and
• Danie Meintjes has been nominated to act
as a Non-Executive Director by Mediclinic
International PLC, the principal shareholder,
whose subsidiary, Mediclinic Jersey Limited
(formerly Remgro Jersey Limited), entered
into a relationship agreement with the
Company in June 2015 (the ‘Relationship
Agreement’). Under the terms of the
Relationship Agreement, when Mediclinic
International PLC controls 15% or more of
the votes, it will be entitled to appoint one
Non-Executive Director to the Board. It
controls 29.9% of votes as at 1 March 2017.
The Directors believe that the terms of
the Relationship Agreement will enable
the Group to carry on its business
independently of Mediclinic International.
The Board considers that, excluding the
Executive Chairman, half of the Board
is independent of management and free
from any business or other relationship
that could affect the exercise of their
independent judgement.
Conflicts of interest
Save as set out in the table below, there are
no actual or potential conflicts of interest
between any duties owed by the Directors or
senior management to the Company and their
private interests or other duties. The Board
will continue to monitor and review potential
conflicts of interest on a regular basis.
Director
Conflict
Danie Meintjes Chief executive officer of
Mediclinic International PLC,
which controls 29.9% of the
voting rights in the Company
as at 1 March 2017.
Key roles and responsibilities
Garry Watts
Executive Chairman
The Executive Chairman leads
the Board and is responsible for:
• the leadership and overall
effectiveness of the Board;
• a clear structure for the
operation of the Board and
its committees;
• setting the Board agenda in
conjunction with the Group
Company Secretary and Chief
Executive Officer;
• ensuring that the Board
receives accurate, relevant
and timely information about
the Group’s affairs; and
John Gildersleeve
Deputy Chairman and Senior
Independent Director
Daniel Toner
General Counsel and Group
Company Secretary
• In addition, whilst the Company
does not have a Chief Executive
Officer, the Executive Chairman,
together with the Chief Financial
Officer and the Chief Operating
Officer, is responsible for:
− developing the Group’s
strategic direction for
consideration and approval
by the Board;
− day-to-day management
of the Group’s operations;
− the application of the
Group’s policies;
− the implementation of the
agreed strategy; and
− being accountable to, and
The Board nominates one of
the independent Non-Executive
Directors to act as Senior
Independent Director. He is
responsible for:
• being an alternative contact
for shareholders at Board level
other than the Chairman;
• acting as a sounding board for
the Chairman;
• if required, being an intermediary
for Non-Executive Directors’
concerns;
• undertaking the annual
Chairman’s performance
evaluation; and
• when required, leading
reporting to, the Board on the
performance of the business.
the recruitment process for
a new Chairman.
The Group Company Secretary
supports the Executive Chairman
on Board corporate governance
matters. He is responsible for:
• planning the annual cycle
of Board and committee
meetings and setting the
meeting agendas;
• making appropriate
information available to the
Board in a timely manner;
• ensuring an appropriate level
of communication between
the Board and its committees;
• ensuring an appropriate level
of communication between
senior management and the
Non-Executive Directors;
• keeping the Board apprised
of developments in relevant
legislative, regulatory and
governance matters; and
• facilitating a new director’s
induction and assisting with
professional development,
as required.
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Board and Committee structure
Ultimate responsibility for the management
of the Group rests with the Board of Directors.
The Board focuses primarily upon strategic
and policy issues and is responsible for:
• leadership of the Group;
• implementing and monitoring effective
controls to assess and manage risk;
• supporting the senior leadership team to
formulate and execute the Group’s strategy;
• monitoring the performance of the Group;
and
• setting the Group’s values and standards.
There is a specific schedule of matters
reserved for the Board.
The Executive Chairman and
the Chief Executive Officer
Between 1 January 2016 and 30 June 2016,
the Company had set out in writing a division
of responsibilities between the Executive
Chairman, Senior Independent Director
and the Chief Executive Officer.
Since 1 July 2017, the Executive Chairman
has performed the role of the Chief
Executive Officer.
The Non-Executive Directors
The Non-Executive Directors bring a wide
range of skills and experience to the Board.
The independent Non-Executive Directors
represent a strong, independent element
on the Board and are well placed to
constructively challenge and support
management. They help to shape
the Group’s strategy, scrutinise the
performance of management in meeting
the Group’s objectives and monitor the
reporting of performance.
Their role is also to satisfy themselves
with regard to the integrity of the Group’s
financial information and to ensure that
the Group’s internal controls and risk
management systems are robust
and defensible.
The independent Non-Executive Directors
oversee the adequacy of the risk
management and internal control systems
(from their membership of the Audit and
Risk Committee and Clinical Governance
and Safety Committee (‘CGSC’)), as well
as the remuneration for the Executive
Directors (from their membership of the
Remuneration Committee).
As members of the Nomination Committee,
the Non-Executive Directors also play a
pivotal role in Board succession planning and
the appointment of new Executive Directors.
Your Board in 2016
During the year, the Board met on nine
occasions and Director attendance is shown
on page 65.
The agenda at scheduled meetings in 2016
covered standing agenda items, including:
a review of the Group’s performance by the
Chief Executive Officer or Chief Operating
Officer, the current month’s and year to date
financial statistics by the Chief Financial
Officer and a review of clinical performance.
In addition, the Board received a verbal
report from committee chairs, where their
committee met immediately in advance of
the scheduled Board meeting, and the Board
regularly received reports on legal and
statutory matters.
Also in 2016, the Board focused on major
elements of the Group’s operations by:
• reviewing, and approving, the Group’s
three-year Strategic Plan;
• reviewing progress on the two new
hospital developments at Manchester
and Nottingham; and
• receiving, reviewing and approving other
major capital expenditure proposals.
The Board has a formal schedule of matters
reserved to it and delegates certain matters
to committees. Specific matters reserved
for the Board considered during the year to
31 December 2016 included reviewing the
Group’s performance (monthly and year to
date), approving capital expenditure, setting
and approving the Group’s strategy and
annual budget.
The Board’s plan for 2017
It is planned that the Board will convene
on eight formal scheduled occasions during
2017, as well as holding any necessary ad hoc
Board and committee meetings to consider
non-routine business.
The Senior Independent Director and the
other Non-Executive Directors will meet on
their own without the Executive Directors
present. In addition, the Non-Executive
Directors will also meet without the
Executive Chairman present to discuss
matters such as the Executive Chairman’s
performance.
The Board will maintain its focus on the
Group’s pursuit of its 2017 targets and also
review succession planning during the year.
Its activities will include:
• review the roles of the Executive Chairman
and Executive Directors;
• review and approve the 2016 Annual
Report;
• review the proposed final dividend
for 2016;
• approve the 2017 Annual Operating Plan;
• consider specific major themes;
• embed the risk management framework;
and
• follow a rolling agenda, ensuring proper
time for strategic debate.
Furthermore, the Board will continue to
consider clinical safety matters and maintain
overall responsibility for the Group’s system
of internal control and risk management
processes via the relevant Board committees.
62
Spire Healthcare Group plc Annual Report 2016 Board evaluation
2016 Action plan update
The 2015 Board evaluation identified three principal areas of focus and associated actions to address them during 2016.
Area of focus
Actions
Progress
1) Risk
management
• Address resourcing for the internal risk function.
• Continue to develop risk reporting and the risk
register to ensure the Board has adequate
oversight of risk management and risk appetite.
2) Succession
planning
• Increase focus on matching succession and
development to the strategic challenges of the
business and the next decade of challenge it faces.
• Discuss succession planning for Executive
Directors at the Nomination Committee.
3) Non-Executive
• Continued familiarisation of the business
Directors
including developing a co-ordinated hospital visits.
• Hold one Board meeting at a hospital in 2016.
• Create greater interaction with the executive
at all levels in order to further enhance the
Board’s understanding of the business beyond
presentations at Board meetings.
Action plan for 2017
Area of focus
Actions
The Group appointed a Head of Group Risk in November 2015
who has taken a ‘bottom up’ approach to risk identification across
the business. The findings of their review have been reported to
the Executive Committee, Audit and Risk Committee and the
CGSC, and further updates on embedding risk management will
be provided in 2017.
The Audit and Risk Committee reviewed the need for an internal
audit function in 2016 and agreed that an appropriate structure
should be formalised. The Audit and Risk Committee agreed an
assurance programme for 2017 at their November meeting.
Due to the importance of risk identification and reporting to
both the business and Directors this area of focus will be carried
forward to next year’s Board evaluation action plan.
Succession planning was of particular focus following Rob Roger’s
decision to leave the business and the Board gave considerable
consideration to the position of Chief Executive Officer before
agreeing on the appointments it has made.
A change of plans meant that it was not possible to arrange a
meeting at a hospital during the year but the Board will visit the
new Spire Manchester Hospital in July 2017. Those Non-Executive
Directors on the CGSC regularly visit hospitals as part of that
committee’s agreed schedule.
Directors have had increased visibility of and interaction with the
senior leadership team.
1) Risk management
• Continue to develop risk reporting, especially clinical, and the risk register to ensure the Board has adequate
oversight of risk management and risk appetite.
• Develop the relationship and interaction between the Audit and Risk Committee and CGSC.
• Discuss and understand the Board’s risk appetite.
2) Board composition
• Appoint a strong Senior Independent Director to replace John Gildersleeve when he leaves the Board.
• Review the roles of the Executive Chairman and Executive Directors.
3) Strategy
• Provide a mid-year strategy session update to the Board on progress made.
Disclosure Committee
With the implementation of the EU’s
Market Abuse Regulations in 2016, the
Board established a Disclosure Committee
to ensure, under delegated authority from
the Board, that the Company complies with
its disclosure obligations, specifically under
the Market Abuse Regulation and related
legislation. The Disclosure Committee also
manages the Company’s share dealing code,
ensuring colleague compliance and provides
training where required. The members of the
Disclosure Committee are disclosed below.
Share Schemes Committee
In addition, the Board delegates certain
responsibilities in relation to the
administration of the Company’s share
schemes on an ad hoc basis to the Share
Schemes Committee. This committee
operates in accordance with the delegation
of authority agreed by the Board.
Executive Committee
The Executive Committee meets on
a monthly basis. It is supported by the
Operating Board and Safety, Quality and
Risk Committee who have specific focus on
operational and safety matters respectively.
63
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: CORPORATE GOVERNANCE
Governance framework in 2016
Garry Watts
Executive Chairman
Key objectives:
• ensure effectiveness of the Board;
• promote high standards of corporate governance;
• ensure clear structure for the operation of the Board and its committees; and
• encourage open communication between all Directors.
The Board of Spire Healthcare Group plc
The Board comprises nine Directors – the Executive Chairman, two Executive
Directors and six Non-Executive Directors, four of whom are deemed to be
independent for the purposes of the UK Code. Daniel Toner serves the Board as
General Counsel and Group Company Secretary.
Key objectives:
• leads the Group;
• oversees the Group’s system of risk management and internal controls;
• supports the Executive Committee to formulate and execute the
Group’s strategy;
• monitors the performance of the Group; and
• sets the Group’s values and standards.
Audit and Risk
Committee
Adèle Anderson (chair),
Tony Bourne,
Dame Janet Husband
Key objectives:
• monitors the integrity of
financial reporting; and
• assists the Board in its
review of the effectiveness
of the Group’s internal
control and risk
management systems.
Clinical Governance
and Safety Committee
Dame Janet Husband (chair),
Tony Bourne, Garry Watts,
Andrew White
Disclosure Committee
Garry Watts, Simon Gordon,
Andrew White, Daniel Toner,
Antony Mannion
Nomination Committee
John Gildersleeve (chair),
Dame Janet Husband,
Garry Watts
Key objectives:
• promotes, on behalf of the
Key objectives:
• ensures that the Company
Key objectives:
• advises the Board on
Remuneration
Committee
Tony Bourne (chair),
Adèle Anderson,
John Gildersleeve
Key objectives:
• determines the
Board, a culture of
high-quality and safe
patient care;
• monitors specific
non-financial risks and
their associated processes,
policies and controls:
clinical and
(i)
regulatory risks;
(ii) health and safety; and
(iii) facilities and plant.
complies with its
disclosure obligations,
specifically under the
Market Abuse Regulation
and related legislation; and
appointments,
retirements and
resignations from the
Board and its committees;
and
appropriate remuneration
packages for the
Chairman, Executive
Directors and Group
Company Secretary; and
• oversees the Company’s
• reviews succession
• recommends and
Share Dealing Code
including employee
training.
planning for the Board.
monitors the level and
structure for other senior
management
remuneration.
Executive Committee
The Group also operates an Executive Committee (convened and chaired by the
Executive Chairman). The team generally meets monthly as operational activities
allow and its members are shown on pages 54 to 57.
Key objectives:
• assists the Executive Chairman in discharging his responsibilities;
• ensures a direct line of authority from any member of staff to the Executive
Chairman; and
• assists in making executive decisions affecting the Company.
64
Spire Healthcare Group plc Annual Report 2016 Board meeting attendance
The attendance of the Directors who served
during the year ended 31 December 2016, at
meetings of the Board, is shown in the table
below. The number of meetings a Director
could attend in the year is shown in brackets.
Executive Chairman
Garry Watts
Deputy Chairman and Senior
Independent Director
John Gildersleeve
Executive Directors
Simon Gordon
Rob Roger
Andrew White1
Non-Executive Directors
Adèle Anderson2
Tony Bourne
Dame Janet Husband
Robert Lerwill
Danie Meintjes
Simon Rowlands
9(9)
8(9)
9(9)
3(4)
4(5)
4(4)
9(9)
9(9)
3(4)
9(9)
9(9)
1
2
Andrew White was appointed an Executive Director on
1 July 2016.
Adèle Anderson was appointed an independent
Non-Executive Director on 28 July 2016.
To the extent that Directors are unable to
attend scheduled meetings, or additional
meetings called on short notice, they will
receive the papers in advance and relay
their comments to the Executive Chairman
for communication at the meeting. The
Executive Chairman will follow up after the
meeting in relation to both the discussions
held and decisions taken.
Effectiveness
Board composition
The Board seeks to ensure that both it and
its committees have the appropriate range
of skills, experience, independence and
knowledge of the Group to enable them
to discharge their respective duties and
responsibilities effectively; for example,
the 2017 Board calendar includes both
sessions on clinical and statutory regulations,
and hospital visits.
The number of Non-Executive Directors and
their range of skills and experience continues
to be carefully reviewed. This requirement
and the number of Directors, together with
the Group’s succession plans, will form part
of the Nomination Committee activities and
the Board’s evaluation process in 2017. The
Board considers its size and composition to
be appropriate for the current requirements
of the business.
Committee composition is set out in the
relevant committee reports. No one other
than committee chairs and members of the
committees is entitled to participate in
meetings of the Audit and Risk, CGSC,
Disclosure, Nomination and Remuneration
committees, unless by invitation of the
respective committee chair. John Gildersleeve
is the Deputy Chairman and Senior
Independent Director.
Biographical details of the Directors are
set out on pages 54 and 55.
Appointments to the Board
Recommendations for appointments to
the Board are made by the Nomination
Committee. The Nomination Committee
follows a formal, rigorous and transparent
procedure for the appointment of new
Directors to the Board. Further information is
set out in the Nomination Committee Report
on pages 74 and 75.
Time commitment of the
Non-Executive Directors
The Non-Executive Directors each have a
letter of appointment, which sets out the
terms and conditions of their directorship.
An indication of the anticipated time
commitment is provided in any recruitment
role specification, and each Director’s letter
of appointment provides details of the
meetings that they are expected to attend.
Non-Executive Directors are required to set
aside sufficient time to prepare for meetings,
and to regularly refresh and update their
skills and knowledge. In signing their
letters of appointment, all Directors have
consequently agreed to commit sufficient
time for the proper performance of their
responsibilities, acknowledging that this will
vary from year to year, depending on the
Group’s activities.
Directors are expected to attend all Board
and committee meetings, and any additional
meetings, as required. Each Director’s other
significant commitments were disclosed to
the Board at the time of their appointment
and they are required to notify the Board
of any subsequent changes. The Group has
reviewed the availability of the Non-Executive
Directors and considers that each of them
is able to, and in practice does, devote
the necessary amount of time to the
Group’s business.
Induction and training
Generally, reference materials are provided,
including information about the Board, its
committees, directors’ duties, procedures
for dealing in the Group’s shares and other
regulatory and governance matters, and
Directors are advised of their legal and
other duties, and obligations as directors
of a listed company.
On appointment, Adèle Anderson completed
a detailed induction programme that
included meeting with other members of
the Board and the senior leadership team.
She undertook a thorough familiarisation
of the business which included a visit to
Spire Southampton Hospital. The Company’s
brokers and legal adviser also met with
Adèle to provide insight into the healthcare
industry and provide training on directors’
statutory duties respectively. Andrew White,
on appointment as an Executive Director,
also received training on his statutory duties.
The Group Company Secretary ensures that
any additional request for information is
promptly supplied. The Executive Chairman,
through the Group Company Secretary,
ensures that there is an ongoing process
to review any internal or external training
and development needs.
During the year, all Directors received
updates on the implementation and training
on the requirements of the EU’s Market
Abuse Regulation.
As already noted, in the event of a general
training need, in-house training will be
provided to the entire Board. Necessary and
relevant regulatory updates are provided
as a standing item at each Board meeting
in the Group Company Secretary’s report
and Board briefing by external advisers,
where appropriate.
65
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Directors’ indemnities
The Directors of the Company have the
benefit of a third-party indemnity provision,
as defined by section 236 of the Companies
Act 2006, in the Group’s Articles of
Association. In addition, Directors and
officers of the Group are covered by
directors’ and officers’ liability insurance.
Directors’ conflicts of interest
The Companies Act 2006 provides that
directors must avoid a situation where they
have, or can have, a direct or indirect interest
that conflicts, or possibly may conflict, with
the Company’s interests. Directors of public
companies may authorise conflicts and
potential conflicts, where appropriate, if a
company’s articles of association permit.
The Board has established formal procedures
to authorise situations where a Director has
an interest that conflicts, or may possibly
conflict, with the interests of the Company
(Situational Conflicts). Directors declare
Situational Conflicts, so that they can be
considered for authorisation by the
non-conflicted directors.
In considering a Situational Conflict, these
Directors act in the way they consider would
be most likely to promote the success of the
Group, and may impose limits, or conditions,
when giving authorisation or, subsequently,
if they think this is appropriate.
The Group Company Secretary records
the consideration of any conflict and
any authorisations granted. The Board
believes that the system it has in place for
reporting Situational Conflicts continues
to operate effectively.
Accountability
The Audit and Risk Committee
The Audit and Risk Committee Report is
set out on pages 68 to 71 and identifies
its members, whose details are set out
on page 55.
The report describes the Audit and Risk
Committee’s work in discharging its
responsibilities during the year ended
31 December 2016, and its terms of
reference can be found on the Group’s
website at www.spirehealthcare.com.
Risk management and internal control
The Board has overall responsibility for
establishing and maintaining a sound system
of risk management and internal control, and
for reviewing its effectiveness. This system
is designed to manage, rather than eliminate,
the risks facing the Group and safeguard its
assets. No system of internal control can
provide absolute assurance against material
misstatement or loss. The Group’s system
is designed to provide the Directors with
reasonable assurance that issues are
identified on a timely basis and are dealt
with appropriately.
The Audit and Risk Committee and the
Clinical Governance and Safety Committee,
whose reports are set out on pages 68 to 71
and pages 72 and 73, respectively, assist the
Board in reviewing the effectiveness of
the Group’s risk management system and
internal controls, including financial, clinical,
operational and compliance controls.
Executive compensation and risk
Only independent Non-Executive Directors
are allowed to serve on both the Audit
and Risk Committee and Remuneration
Committee. The Non-Executive Directors
are therefore able to bring their experience
and knowledge of the activities of each
committee to bear when considering the
critical judgements of the other.
This means that the Directors are in a
position to consider carefully the impact
of incentive arrangements on the Group’s
risk profile and to ensure the Group’s
remuneration policy and programme
are structured, so as to accord with the
long-term objectives and risk appetite
of the Group.
GOVERNANCE: CORPORATE GOVERNANCE
Information and support
The Board ensures that it receives, in a timely
manner, information of an appropriate
quality to enable it to adequately discharge
its responsibilities. This is aided by the use of
an online portal. Papers are provided to the
Directors in advance of the relevant Board or
committee meeting to enable them to make
further enquiries about any matters prior to
the meeting, should they so wish. This also
allows Directors who are unable to attend
to submit views in advance of the meeting.
Outside the Board papers process, the
Executive Directors provide written updates
to the Non-Executive Directors on important
business issues, including financial and
commercial information. In addition, relevant
updates on shareholder matters (including
analysts’ reports) are also provided to
the Board.
All Directors have access to the advice and
services of the Group Company Secretary.
There is also an agreed procedure in place
for Directors, in the furtherance of their
duties, to take independent legal advice,
if necessary, at the Group’s expense.
Election of Directors
All the Directors offered themselves for
election or re-election at the second annual
general meeting in May 2016 and, in future,
will be re-elected in accordance with the
requirements of the UK Code.
All Directors will stand for election or
re-election at the annual general meeting in
2017 except for John Gildersleeve who has
indicated that he wishes to retire from the
Board before this date. The biographical
details of each Director standing for election
or re-election is included in the 2017 Notice
of Meeting. The Board believes that each of
the Directors standing for election is
effective and demonstrates commitment to
their respective roles. Accordingly, the Board
recommends that shareholders approve the
resolutions to be proposed at the 2017
annual general meeting relating to the
election of the Directors.
The biographical details of all current
Directors are set out on pages 54 and 55.
66
Spire Healthcare Group plc Annual Report 2016 Financial and non-financial risk
The Clinical Governance and Safety
Committee, with the Audit and Risk
Committee, between them aim to ensure
that the control and monitoring of both
financial and non-financial risks
is satisfactory.
In addition, the committees, jointly, seek
to ensure, as far as practicable, there are
no elements omitted or unnecessarily
duplicated and that all critical judgements
receive the correct level of challenge.
Relations with shareholders
The Board is committed to communicating
with shareholders and stakeholders in
a clear and open manner, and seeks to
ensure effective engagement through
the Group’s regular communications, the
annual general meeting and other investor
relations activities.
The Group undertakes an ongoing
programme of meetings with investors,
which is led by the Chief Financial Officer
and the Director, Strategy and Investor
Relations and they attend a majority of
the meetings. During the year, there were
in excess of 260 individual meetings,
conference presentations, group lunches
and telephone briefings with investors.
During the consultation on executive
remuneration conducted in February 2017,
which you can read about on pages 76 to 91,
the chair of the Remuneration Committee
met with both major shareholders and
voting agencies.
The Executive Chairman, Senior Independent
Director and committee chairs remain
available for discussion with shareholders
on matters under their areas of responsibility,
either through contacting the Group
Company Secretary or directly at the annual
general meeting.
The Company reports its financial results
to shareholders twice a year, with the
publication of its annual and half yearly
financial reports. In conjunction with
these announcements, presentations
or teleconference calls are held with
institutional investors and analysts, and
copies of any presentation materials issued
are made available through the Company’s
website at www.spirehealthcare.com.
All Directors are expected to attend the
Company’s annual general meeting,
providing shareholders with the opportunity
to question them about issues relating
to the Group, either during the meeting,
or informally afterwards.
Annual general meeting
Shareholders are encouraged to participate at the Company’s annual general meeting, ensuring that there is a high level of accountability and
identification with the Group’s strategy and goals. A summary of the proxy voting for the 2016 annual general meeting was made available via
the London Stock Exchange and on the Company’s website as soon as reasonably practicable on the same day as the meeting.
Results of our second annual general meeting held on 19 May 2016 were:
Summary of resolution
Total votes for %
Total votes against %
Votes withheld
1
2
3
2015 Annual Report and Accounts
2015 Directors’ Remuneration Report
Final Dividend
99.96
99.02
100.00
0.04
0.98
0.00
12,059
26,991,857
0
4 to 12 Election or re-election of Directors
Between 97.34 and 99.89
Between 0.11 and 2.66 Maximum 120,000
13
14
15
16
17
18
19
Reappointment of Auditors
Auditors’ remuneration
Political expenditure
Authority to allot shares
Sharesave scheme approval
Disapplication of statutory pre-emption rights*
100.00
100.00
99.75
94.00
99.63
90.49
General meetings to be held on 14 clear days’ notice*
98.11
* Special resolution
0.00
0.00
0.25
6.00
0.37
9.51
1.89
1,156,173
0
0
0
0
0
0
67
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: AUDIT AND RISK COMMITTEE REPORT
Audit and Risk
Committee Report
Our priority is to deliver an effective governance and
risk management framework that allows us to ensure
the appropriateness of the Group’s financial reporting.
Adèle Anderson
Committee chair
68
Dear Shareholder,
I would like to begin by thanking Robert
Lerwill for his stewardship of the Committee
since the Company’s Admission in 2014 until
the end of June 2016 when he stepped down
from the Board. Under his leadership the
Committee established solid foundations
for maintaining the highest standards of
governance and risk management across
the Group which I aim to build on.
We have taken the decision to include
an extra meeting in our annual schedule
to allow more time for deep dive sessions
on matters of particular interest to
the Committee.
Risk management and internal controls
Internal audit and risk were two areas of
particular focus for the Committee during
the year and we allocated a significant
proportion of each meeting to ensure
a robust discussion on both matters.
2016 and 2017 Internal Audit Plans
From the 2016 Internal Audit Plan, the
Committee received a detailed presentation
from Phil Peplow, Group IT Director, on IT
security and also reviewed the results of an
independently commissioned Information
Assurance Health Check report. In a world
where cybersecurity regularly appears in
the national headlines, it was extremely
important for the Committee to understand
the challenges facing the Company and the
actions being taken.
Our plan for this year again focuses on areas
identified as high risk, in particular where
existing regulatory controls and inspections
are not considered to be sufficiently
comprehensive in terms of providing
independent assurance on the effectiveness
of internal controls. The specific areas of
focus for 2017 include:
• a revenue audit;
• a review of physical asset assessments
and maintenance through the buildings
maintenance system;
• a review of information governance; and
• an audit of business continuity.
A high-level Internal Audit Plan will continue
to be approved by the Committee on an
annual basis.
Internal Audit function
Historically, the Group has not considered
it necessary to establish an Internal Audit
function, in part because of the way
hospitals and administration activities
are structured. Whilst the Committee
acknowledges this as a basis, it agreed
during the year that a formal structure
for the function should be established
in early 2017 and recruitment of a
Head of Internal Audit is in progress.
Risk management
This year, the Committee performed
a detailed review of the ongoing risk
management identification programme
which is designed to: clarify roles and
responsibilities for risk management and
oversight; set out a consistent end-to-end
process for managing risk across the
business; provide the Board with a clear line
of sight over the principal risks; and provide
an overview of how the principal risks
are being managed. Our review included
reports from the Group Head of Risk on the
evaluation process as well as a review of
changes to significant risks identified at
both operating entity and Group levels.
This process will complete in 2017 and the
Committee will continue to monitor.
Spire Healthcare Group plc Annual Report 2016 An overview of the risk management and
internal controls processes are contained on
pages 48 to 53. The Committee, with the
assistance of the Clinical Governance and
Safety Committee (‘CGSC’) (which focuses on
key non-financial risks, including patient and
clinical risks), carried out the following:
• reviewed the work carried out by the CGSC
in relation to the risks within its remit;
• reviewed the Group’s system of
internal control;
• monitored the risks and associated
controls over the financial reporting
processes, including the process by
which the Group’s financial statements
are prepared for publication; and
• reviewed reports from the external
auditor on any issues identified during
the course of its work, including on
control weaknesses.
The overall risk management framework,
including the Board’s appetite for risk
and the underlying process for capturing
and reporting risk and control data, will
continue to be reviewed by the Board
and its committees during 2017 to
ensure that changes to reflect the new
regulatory environment and best practice
are incorporated.
Significant issues and material judgements
The Audit and Risk Committee assesses whether suitable accounting policies have been adopted and whether management has made
appropriate estimates and judgements. The table below summarises the matters where the most material judgements have been made
in relation to reporting in 2016:
Matters
Judgement and estimation required
How the Committee gained comfort on the matter
Improper
revenue
recognition
– management
manipulation
Pressure to achieve results and secure bonus
payments could lead management to manipulate the
financial reporting of revenue. This could include the:
Management carry out a detailed review of monthly hospital
performance compared to forecast, in particular focusing
on the cut-off of revenue reported at the balance sheet date.
• manipulation of prices charged, in particular in
relation to PMI and NHS revenue;
• intentional mis-coding of procedures by hospitals
The Group maintains effective segregation of duties to
safeguard the integrity of pricing masterfile data on which
billing is dependent.
impacting revenue recorded;
• misreporting of other income in the year; and
• overstatement of deferred revenue at the year end.
The complexity of the pricing structures and the high
volume of procedures undertaken present a risk
in relation to the accuracy of revenue recognition,
in particular the use of incorrect codes or prices.
Improper
revenue
recognition
– complexity
of PMI and
NHS contracts
Inappropriate
capitalisation
of development
costs
Expenditure on internal capital projects is high. As at
31 December 2016, construction is under way on two
new hospitals. Additionally, the Group has developed
Spire St Anthony’s Hospital, and is undertaking other
major projects at existing hospitals.
Deferred
taxation on
freehold
properties
There is a risk of inappropriate capitalisation to these
projects to enhance reported earnings.
During the year, the Group considered it to be
appropriate to reassess the basis for calculating
deferred tax on the property portfolio and has now
based the assessment on solely held-in-use basis.
This gives rise to a material tax charge of £8.4 million
which is excluded from tax on underlying profit.
Billing to PMIs is subject to selective independent audit by
representatives of the relevant PMI and issues arising are
subject to timely review by management as appropriate.
Management routinely reconcile revenues and cash collections
as part of monthly cashflow management procedures.
Internal audit work (commissioned from a third party) was
carried out to test the adequacy of clinical coders, which did
not raise any issues of concern.
The Committee noted the testing of revenue recognition,
which included substantive testing of a sample of transactions
back to proof of procedure and price lists. No significant
issues were noted by Ernst & Young LLP during the course
of their audit.
The Committee considered the controls over capital
expenditure incorporated within the Group’s project
management procedures, as implemented by the business
development team.
The Committee noted that the work carried out by Ernst &
Young LLP supported its own independent findings in this area.
The Committee was satisfied that the estimation of the tax
charge was reasonable, and that the disclosures in the Annual
Report and Accounts were appropriate.
The Committee was satisfied that any property valuation
assumptions and judgements that underpin the position
for taxation purposes were supported by independent
expert opinion.
Provisions for
patient claims
Such claims are typically complex. Judgement is
required in the estimation of the size and incidence
of claims, which is usually based on professional
advice and historical information on similar claims.
The Committee reviewed management’s detailed report
on the status of live claims and information concerning the
settlement of related claims. It also considered the advice
provided by the Group’s external legal and insurance advisers.
The Group recognised total net provisions of
£3.6 million at 31 December 2016.
69
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: AUDIT AND RISK COMMITTEE REPORT
External audit
The Committee has primary responsibility
for the relationship with, and performance
of, our external auditor. This includes making
the recommendation on their appointment,
reappointment and removal of the external
auditor, assessing their independence on
an ongoing basis and for negotiating the
audit fee in conjunction with the Chief
Financial Officer.
Auditor appointment
Ernst & Young LLP was appointed as the
Company’s external auditor in July 2014 on
our Admission to the London Stock Exchange,
although they have served the business prior
to Listing since 2008. Our current audit
partner appointed by Ernst & Young LLP is
Debbie O’Hanlon who took on the role in
2015. The Committee ensures that the
external auditor adheres to The Auditing
Practices Board’s Ethical Standard 3, which
requires the rotation of the audit partner for
listed companies every five years. As a result,
Debbie O’Hanlon is anticipated to serve
until 2020.
As noted, we reviewed the independence
and effectiveness of the external auditor.
We did this by:
• reviewing its proposed plan for the 2016
audit;
• discussing the results of its audit, including
its views about material accounting issues
and key judgements and estimates, and its
audit report;
• reviewing the quality of the people and
service provided by Ernst & Young LLP; and
• evaluating all of the relationships between
the external auditor and the Group, to
determine whether these impair, or appear
to impair, the auditor’s independence.
The Committee recommended, and the
Board subsequently agreed, that, for the year
ending 31 December 2017, Ernst & Young LLP
are reappointed under the current external
audit contract and the Directors will be
proposing the reappointment of Ernst &
Young LLP at the annual general meeting
in May 2017.
Audit risk
At the Committee’s first meeting of the year,
it received from Ernst & Young LLP a detailed
plan identifying the scope of their audit for
the year, planning materiality and their
assessment of key risks. The audit risk
identification process is considered a key
factor in the overall effectiveness of the
external audit process.
These risks were reviewed by the Committee
during the reporting of the half year results
to ensure the external auditor’s areas of
audit focus remain appropriate.
Working relationship with
the external auditor
During the year, the Committee met with
the external auditor without management
present to provide additional opportunity for
open dialogue and feedback between both
parties. Matters typically discussed include
the external auditor’s assessment of business
risks, the transparency and openness of
interactions with management, confirmation
that there has been no restriction in scope
placed on them by management, the
independence of their audit and how they
have exercised professional scepticism. I also
meet with the external lead audit partner
ahead of each Committee meeting.
External financial reporting
The Committee is responsible for
monitoring, reviewing and challenging the
integrity of the financial statements, and
ensuring compliance with legal, regulatory
and statutory requirements, giving due
consideration to the provisions of the UK
Corporate Governance Code.
The external auditor provided reports for the
half year and year end reporting, including all
significant issues, with an assessment of the
appropriateness of management’s
judgements. The Committee considered that
management’s judgements were cautious,
but not overly prudent.
At the request of the Board, the Committee
considered whether the Annual Report and
Accounts for the year ended 2016 was fair,
balanced and understandable, and whether
it provided the necessary information for
the shareholders to assess the Group’s
performance, business model and strategy.
The Committee took into account its own
knowledge of the Group, its strategy and
performance in the year, internal verification
of the factual content, comprehensive review
undertaken at different levels in the Group to
ensure consistency and overall balance, and
detailed review by senior management and
the external auditor. The Committee was
satisfied that, taken as a whole, the Annual
Report and Accounts for the year ended 2016
is fair, balanced and understandable, and
has affirmed that view to the Board.
Recent accounting developments
The Committee received updates from
the Chief Financial Officer on the Group’s
implementation of IFRS 15 Revenue from
contracts with customers, which will be
adopted in the year ending 31 December
2018, focusing on its implication for reported
results, the methodology in which the
standard would be adopted, and the
implication for systems and process.
An assessment of the impact of IFRS 16
Leases will be considered early in 2017.
Our priorities for 2017
We will continue to prioritise internal audit
in 2017 and look forward to the appointment
of a Head of Internal Audit and their team.
We will monitor their work as they begin
to co-ordinate and deliver the internal audit
programme we have agreed for the year.
A further focus for the Committee in 2017
will be embedding our agreed closer working
relationship with the Clinical Governance
and Safety Committee. We will together be
reviewing our approach to clinical risk and
audit, in order to recommend mitigation
of risks identified and provide assurance
to the Board.
Principal activities during 2016
The main activities relating to the financial year were as follows:
• agreeing the Committee’s rolling agenda for 2016;
• approving the terms of engagement of the external auditor, including its remuneration and reviewing its independence;
• approving the plan for the external audit for 2016;
• discussing and reviewing the Group’s accounting policies and critical estimates and judgements;
• assessing going concern and the viability of the Group;
• reviewing and approving the half year results and the Annual Report and Accounts for the year ended 2016;
• reviewing the development of the risk management framework for the Group, including risk appetite and risk evaluation
methodology and reviewing the Group risk register; and
• reviewing the systems of internal control, including assessing the requirement for an internal audit function.
70
Spire Healthcare Group plc Annual Report 2016 Non-audit services and independence
There are certain services termed ‘excluded
services’ that are not permitted to be
provided by the external auditor, including
where the auditor may be required to audit
its own work, would participate in activities
that would normally be undertaken by
management or is remunerated through
a ‘success fee’ structure.
Ernst & Young LLP provided no non-audit
services to the Group during the year ended
31 December 2016 (2015: £71,000 for
IT services). Going forward, all non-audit
fees will be approved by the Committee.
Viability
The Committee reviewed the process
undertaken by management to support
and allow the Directors to make the
Group’s viability statement. The Committee
considered and provided input into the
determination of which of the Group’s
principal risks and combinations thereof
might have an impact on the Group’s liquidity
and solvency. The Committee reviewed the
results of management’s scenario modelling
and the stress testing of these models. The
viability statement can be found on page 49.
Whistleblowing
The Committee also continued its
monitoring and oversight of the procedures
for the receipt, retention and treatment
of qualifying disclosures by staff.
The Group offers its staff an independent
and confidential service, where staff may
register any concerns about any wrongdoing
or safety at work. The General Counsel
and Group Company Secretary is, as
Whistleblowing Officer, responsible for the
investigation of any concerns arising and
reporting directly to the Committee.
Annual evaluation of the
Committee’s performance
The second evaluation of the Committee’s
performance was carried out in 2016
which confirmed that it continued to
perform effectively.
Adèle Anderson
Chair, Audit and Risk Committee
1 March 2017
Audit and Risk Committee at a glance
Committee membership and meeting attendance
The Audit and Risk Committee members at the end of 2016 and the number of meetings
they each attended during the year were as follows (the maximum number of
meetings that the member could have attended is shown in brackets):
Committee
member since Position in Company
Committee meetings
attended in 2016
Member
Adèle Anderson
(Committee Chair)
July 2016
Dame Janet Husband July 2014
Tony Bourne
July 2014
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive
Director
3 (3)
4 (4)
4 (4)
Committee members biographies are shown on pages 54 and 55. Robert Lerwill
chaired the Committee until 27 June 2016 when he stepped down as an independent
Non-Executive Director.
The Audit and Risk Committee must have at least three members, all of whom must
be independent Non-Executive Directors. If members are unable to attend a meeting,
they have the opportunity beforehand to discuss any agenda items with the Chair of
the Committee.
The Committee invites the external auditor and the Chief Financial Officer to attend
each meeting with other members of the management team attending as and when
invited. Representatives of the Group’s external auditor have a private session with the
Committee or Chair of the Committee whenever required.
The Group Company Secretary, or their appointed nominee, acts as secretary to
the Committee.
Recent and relevant financial experience
At least one member of the Committee must have been determined to have recent
and relevant financial experience and Adèle Anderson has been identified by the Board
as meeting this requirement. Her extensive current and previous experience which
included being a partner in KPMG until July 2011 and holding roles including chief
financial officer of KPMG UK, chief executive officer of KPMG’s captive insurer and
chief financial officer of KPMG Europe. Adèle Anderson also currently chairs the audit
committees of both easyJet plc and intu properties plc.
Role and responsibilities
The Committee has responsibility for overseeing the financial reporting and internal
financial controls of the Group, for reviewing the Group’s internal control and risk
management systems, and for maintaining an appropriate relationship with the
external auditor of the Group and for reporting its findings and recommendations
to the Board.
These include:
• receiving and reviewing the Annual Report and Accounts of the Group and half yearly
financial statements and any public financial announcements, and advising the Board
on whether the Annual Report and Accounts is fair, balanced and understandable;
• receiving and reviewing reports from the external auditor, monitoring its
effectiveness and independence, and approving its appointment and terms
of engagement;
• agreeing the annual internal audit programme, including the use of internal resource
or external consultants to undertake the programme, and reviewing the results;
• monitoring the effectiveness of the risk management system;
• reviewing the effectiveness of the Group’s system of internal controls and assessing
and advising the Board on the internal financial, operational and compliance
controls; and
• overseeing the Group’s procedures for detecting fraud and relating to whistleblowing.
The Committee’s terms of reference can be found at www.spirehealthcare.com
71
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: CLINICAL GOVERNANCE AND SAFETY COMMITTEE REPORT
Clinical Governance and
Safety Committee Report
During 2016, we continued to develop a robust and effective
clinical governance framework, aiming to ensure that our
hospitals and clinics consistently deliver the highest quality
healthcare for all our patients.
Dear Shareholder,
On behalf of the Clinical Governance and
Safety Committee (the ‘Committee’ or
‘CGSC’), I am pleased to present our report
for the year ended 31 December 2016 and
to outline our plans for the coming year.
This is my second report on the Committee’s
oversight of the Company’s clinical services,
promotion of best practice and clinical
governance.
The paramount importance of consistently
delivering care of the highest quality to our
patients is recognised across the business
and I would like to acknowledge the support
the Committee has received from the Board
and senior leadership team as well as
individual hospitals and their front-line
clinical staff.
Professor Dame
Janet Husband
Committee chair
72
Our work is based on a Quality Governance
Framework which brings together the results
of clinical reviews, the clinical scorecard and
a number of key performance indicators to
give us, and the Board, assurance on the
quality of services provided across all our
hospitals. It enables benchmarking of clinical
services between individual hospitals and,
over time, provides indicators of trends in
hospital quality.
During the year under review this
framework has developed well, giving us
robust information and good indications
of progress.
Regulatory inspections
The Committee reviews the outcomes of
inspection reports from the Care Quality
Commission (‘CQC’), covering our hospitals
in England, and from Healthcare Inspectorate
Wales (HIW) and Healthcare Improvement
Scotland (HIS).
Our Quality Governance Framework mirrors
the CQC’s five domains of well-led, caring,
responsive, effective and safe. At the time
of writing, all Spire hospitals have received
their first new format CQC inspections.
Details of the results of those inspections
published to date are given in the Clinical
review on pages 36 to 39 of the Strategic
Report. While the CQC reports have identified
a number of areas for improvement, overall
they reflect well on the quality of our care.
Looking back over the programme of
CQC visits, there is no doubt that as an
organisation, we have benefited from
the scrutiny that they provide. The work
undertaken by the clinical team throughout
our group, involving clinical reviews and
preparation for CQC visits, has helped us
to identify areas for improvement and has
brought teams together, improving the
culture within our hospitals as our staff
have worked towards a common goal.
During 2017, the Committee will continue to
review progress in responding to regulatory
recommendations.
2016 activities
During 2016, the CGSC met on six occasions,
five of which were at a Spire Healthcare
hospital and one at the Company’s London
head office. Hospitals visited included Spire
St Anthony’s, Spire Washington, Spire
Parkway, Spire Cardiff and Spire Hull and East
Riding hospitals.
The hospital visits give the Committee
valuable time to hear from local hospital
teams on their plans for future development
of clinical services and investment as well
as to learn about the challenges they face
in the ever changing healthcare landscape.
Spire Healthcare Group plc Annual Report 2016 We have also gained greater insights by
meeting consultants and members of staff
on an individual and informal basis. As a
result we have been able to undertake
deeper dives, pursuing areas of concern
and gaining assurance that issues are dealt
with in an appropriate and timely manner.
During our programme of work the
Committee also reviewed the clinical
matters on the Company’s Whistleblowing
Register and the investigation reports into
whistleblowing concerns raised during
the year.
The Committee continued its programme
of themed reviews which this year included
presentations on:
• patient involvement in service
development;
• clinical training and recruitment;
• clinical claims rates and management; and
• quality assurance of services, particularly
in Radiology and Pathology.
Hospital visits
I have also continued my own programme
of informal personal visits to our hospitals.
I have now visited every one of our hospitals
and both of our state-of-the-art specialist
cancer centres – the latter, of course, being
my area of particular professional interest.
During my visits I have enjoyed meeting
groups of frontline staff to gain
understanding of the culture within their
hospitals, the challenges and pressures they
face in their roles, and their motivations
in working for Spire Healthcare. I have been
strongly impressed with the sense of family,
particularly within our smaller hospital
teams. I have met many colleagues who have
worked for Spire for many years. But I have
also detected some concern over pressure
of work, staff shortages and the difficulty in
recruiting suitably skilled staff, particularly
in areas such as theatres and critical care.
These concerns are linked to national issues,
but I am pleased to say that the Company
is developing a human resources strategy
to address the challenge.
Committee meetings in 2017
After our end of year evaluation of
Committee format, agendas and
performance, we have decided to continue
the successful plan of holding some of our
meetings at hospitals. These will continue to
be scheduled to take place ahead of Board
meetings, so that there is a timely flow of
information on clinical governance matters
to the other Board Directors. We believe that
this ‘Ward to Board’ approach to clinical
governance creates genuine value for both
the Board as well as to our hospital managers
and their staff.
Clinical Governance and Safety Committee at a glance
Committee membership
The Clinical Governance and Safety Committee must have at least two members,
one of whom must be an independent Non-Executive Director. The Board appoints
the Chair of the Committee who must be an independent Non-Executive Director.
Member
Committee
member since Position in Company
Committee meetings
attended in 2016
Dame Janet Husband
(Committee Chair)
July 2014
Independent Non-Executive
Director
Tony Bourne
July 2014
Independent Non-Executive
Director
Garry Watts
July 2014
Executive Chairman
Andrew White
July 2016
Executive Director
6 (6)
6 (6)
5 (6)
2 (3)
The maximum number of meetings that the member could have attended during 2016
is shown in brackets. Committee members’ biographies are shown on pages 54 and 55.
Rob Roger was also a member of the Committee until 30 June 2016.
The Group Company Secretary, or their appointed nominee, acts as secretary to the
Committee.
Role and responsibilities
These include:
• promoting a culture of high quality and safe patient care and experience;
• reviewing the Group Medical Director’s Clinical Assurance Report and the quarterly
review of serious adverse events;
• monitoring patient health and safety matters;
• reviewing patient information governance matters;
• reviewing the clinical matters on the Whistleblowing Register; and
• promoting continuous clinical improvements.
The Committee’s terms of reference can be found at www.spirehealthcare.com
robust assurance to the Board. Furthermore
we will be feeding into and monitoring the
progress of the development of a robust
clinical risk register, linking individual
hospital risk registers with the overall
corporate risk register.
I look forward to reporting further progress
in our continued development of robust
and effective clinical governance across all
Spire Healthcare’s hospitals during 2017.
Professor Dame Janet Husband DBE
FMedSci, FRCP, FRCR
Chair, Clinical Governance and Safety
Committee
1 March 2017
We will also continue our planned themed
review programme in 2017, with areas of
focus to include chemotherapy, pharmacy,
Specialist Cancer Care Centres as well
as a review of the quality data due to be
published by the Private Healthcare
Information Network (PHIN) from April 2017.
Developing our work
The Committee’s approach and areas of
focus continue to develop, linked to our
annual evaluation of performance. For
example, as part of our clinical governance
programme the Group Medical Director has
been instrumental in reviewing our approach
to serious adverse events (‘SAEs’), to improve
the reporting of SAEs, and the process of
root cause analysis and developing a more
standardised approach to the reporting
of such incidents across the Group.
In the coming year, a major focus will be
linking more closely with the Audit and
Risk Committee and its new chair, Adèle
Anderson. Together we will review our
approach to clinical risk and audit, reviewing
arrangements in order to improve
understanding and making recommendations
to mitigate any risks identified and to provide
73
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: NOMINATION COMMITTEE REPORT
Nomination
Committee Report
The Committee continues to play a vital role
in ensuring the right individuals are appointed
to lead the Company.
Dear Shareholder,
The Nomination Committee (the
‘Committee’) continues to play a vital role
in ensuring that the right individuals are
appointed to lead the Company and I am
extremely pleased with the recommendations
that have been made to the Board and
senior management.
Before I address the Committee’s role in these
appointments, I’d like to acknowledge some
changes to the Committee’s membership.
Robert Lerwill regretfully had to step down
as an independent Non-Executive Director
in June and I’d like to thank him for his
involvement at our meetings. Rob Roger also
stepped down from the Committee at the
end of June when he left the Company. The
Board decided to appoint Garry Watts as a
member of the Committee from July 2016
John Gildersleeve
Committee chair
74
and, although Garry is not classified as an
independent director, the Committee has
always, and continues, to meet the requirement
under its terms of reference to have a majority
of independent members.
Director and senior
management changes
I was able to report to you last year on the
role of the Committee in the management
changes that were agreed following Rob Roger’s
decision to leave the Board, with Garry Watts
resuming his role as Executive Chairman from
14 March 2016 and Andrew White becoming
an Executive Director from 1 July 2016. The
Committee closely monitored the transition
from the announcement through to Rob’s
departure on 30 June 2016.
Although the Company announced
Andrew White’s period of sustained medical
treatment, the Committee has been impressed
with his leadership of the Company and
enthusiasm for the role. As a Committee we
were in unanimous agreement that Andrew
should become the Company’s new Chief
Executive Officer on his full recovery.
In May, I informed the Executive Chairman
of my own intention to stand down as Deputy
Chairman and Senior Independent Director.
It was initially anticipated that this would
happen by the end of 2016 but I will now remain
in role until no later than our 2017 annual general
meeting. The Executive Chairman has led the
search for a new Senior Independent Director
with the assistance of Heidrick & Struggles, a
senior executive search firm.
Following Robert Lerwill’s unanticipated
departure, the Executive Chairman and the
Committee moved quickly to appoint a new
independent Non-Executive Director with
recent and relevant financial experience who
was capable of chairing the Company’s Audit
and Risk Committee. A number of candidates
were put forward by Heidrick & Struggles but
the Committee unanimously agreed on Adèle
Anderson. Adèle’s knowledge of FTSE boards
and experience of chairing audit committees
has meant she has speedily proved an excellent
addition to the Board.
The Committee reviewed and endorsed the
appointment of Catherine Mason as the
Company’s new Chief Operating Officer
following the recommendation of the Executive
Chairman. Members of the Committee took
the opportunity to meet with Catherine prior
to her appointment and were impressed with
her extensive operational experience and
recognised that she would make an important
addition to the senior leadership team.
Spire Healthcare Group plc Annual Report 2016 2016 activities
As a Committee our priorities during the year
have been to:
• review and recommend the Director and
senior management changes to the Board;
• evaluate the balance of skills, knowledge
and experience on the Board and its
diversity, including gender;
• undertake a performance review;
• review the independence of each
Non-Executive Director, and the balance
of skills, knowledge, experience and
diversity on the Board prior to
recommending Directors’ re-election
at the annual general meeting; and
• review and update the Committee’s terms
of reference.
Committee evaluation
The Committee completed its second annual
performance evaluation as part of the overall
Board evaluation process and the findings
were discussed and reviewed at a meeting in
November. The Committee was considered
to be operating effectively in fulfilling its
duties throughout 2016.
Diversity and inclusion
As a Committee we acknowledge the
importance of diversity, including gender,
both on the Board and throughout the
organisation. We pride ourselves on our
inclusive nature as a company.
Our aim is for the Board to consist of
individuals with diverse experience who
can add real value to Board debates, thereby
supporting the achievement of our strategic
objectives. This includes diversity of industry
skills, knowledge and experience in addition
to gender and ethnicity. We noted with
interest the publication of the Hampton-
Alexander review on gender leadership in
FTSE companies, and are always mindful of
the recommendations in the appointments
we make. However, our overriding intent
in any new appointment must always be
to select on merit, in fulfilment of our role
of ensuring the continued success of
the Company.
Re-election of Directors
The Committee met in early 2017 and
reviewed the continuation in office, and
potential reappointment, of all members
of the Board. Following this review, the
Committee recommended to the Board that
all Directors should be reappointed, and hence
all Directors, except for me, will seek election
or re-election at the annual general meeting.
John Gildersleeve
Chair, Nomination Committee
1 March 2017
Nomination Committee at a glance
Committee membership and meeting attendance
The Nomination Committee members at the end of 2016 and the number of meetings
they each attended during the year were as follows (the maximum number of
meetings that the member could have attended is shown in brackets):
Committee
member since Position in Company
Committee meetings
attended in 2016
Member
John Gildersleeve
(Committee Chair)
July 2014
Dame Janet Husband July 2014
Deputy Chairman and Senior
Independent Director
Independent Non-Executive
Director
4 (4)
4 (4)
2 (3)
Garry Watts
July 2016
Executive Chairman
Committee members’ biographies are shown on pages 54 and 55. Both Robert Lerwill
and Rob Roger also served as members of the Nomination Committee until 27 June
2016 and 30 June 2016 respectively when both resigned as Directors of the Company.
The Nomination Committee did not meet the requirements of its own terms of
reference to have at least three members between the resignation of Rob Roger in June
and the appointment of Garry Watts a month later. The Committee did not meet
during this short period. The majority of Committee members were independent
Non-Executive Directors at all times during the year, in line with the provisions of the
UK Corporate Governance Code. The Board appoints the Chair of the Committee, who
must be either the Chairman of the Board or an independent Non-Executive Director.
The Group Company Secretary, or their appointed nominee, acts as secretary to
the Committee.
Role and responsibilities
The Committee’s foremost priorities are to ensure that the Group has the best possible
leadership and a clear plan for both Executive and Non-Executive Director succession.
Its prime focus is, therefore, to concentrate upon the strength of the Board, for which
appointments will be made on merit against objective criteria, selecting the best
candidate for the post. The Nomination Committee advises the Board on these
appointments, and also on retirements and resignations from the Board, and its
other Committees.
The Committee will regularly examine succession planning based on the Board’s
balance of skills and overall diversity. Led by the Committee, succession planning
of the Board will form an integral part of the Board’s annual strategy meeting.
Process for Board appointments
When considering Board recruitment, the Committee will draw up a specification for
a Director, taking into consideration the balance of skills, knowledge and experience of
its existing Board members, the diversity of the Board, the independence of continuing
Board members, together with the ongoing requirements and strategic development
of the Group. The search process can then focus on appointing a candidate with
a balance of skills that will enhance the Board.
The Committee will utilise the services of an executive search firm to identify
appropriate candidates, ensuring that the search firm appointed does not have any
other conflicts with the Group. In addition, the Committee will only use those firms
that have adopted the Voluntary Code of Conduct addressing gender diversity and
best practice in search assignments. A long list of potential appointees will then be
reviewed, followed by the shortlisting of candidates for interview, based upon the
objective criteria identified at inception. Care is taken to ensure that all proposed
appointees will have sufficient time to devote to the role and do not have any conflicts
of interest. The Committee will then recommend a preferred candidate and the
Directors not on the Committee will meet the candidate. Following these meetings,
and assuming acceptance, the Committee will make a formal recommendation to the
Board on the appointment. Wherever possible, the Nomination Committee will arrange
for all Directors to meet the preferred candidate.
The Committee’s terms of reference can be found at www.spirehealthcare.com
75
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Directors’
Remuneration Report
At Spire Healthcare, we aim to operate a remuneration structure
that is both simple and transparent, which will deliver value
to shareholders in the medium to long term.
Dear Shareholder,
The remuneration structure operated
at Spire Healthcare is intended to be
simple and transparent. The Directors’
Remuneration Policy obtained strong
support from shareholders at the 2015
annual general meeting, and the Committee
intends to continue operating under this
policy in 2017. For the coming year, the
Committee is not proposing to make any
amendments to the Remuneration Policy
including any changes to the quantum of
opportunities proposed.
Overall, the Committee remains satisfied
that the current and proposed combination
of bonus and long-term incentive provides a
simple structure which appropriately reflects
the Group’s strategic priorities, our core
values and ultimately shareholders’ interests.
Tony Bourne
Committee chair
76
Remuneration decisions
in respect of 2016
Although financial results for the year
were reasonable, factors including market
headwinds, the continued investment in our
two new hospitals and the performance of
Spire St Anthony’s Hospital impacted our
overall performance.
This has meant that the EBITDA achieved
was below the threshold that was set by
the Committee at the start of the year
and consequently no bonus payment
will be made to senior management
in respect of the 2016 financial year.
Although this is disappointing, it does
once again demonstrate the robust
approach to target setting as well as the
Committee’s commitment to aligning
pay with performance.
The performance period for the share
awards granted in 2014 under the
Company’s Long Term Incentive Plan (‘LTIP’)
ended on 31 December 2016. As a result
of the significant increase in its share price
since Admission, the Company’s total
shareholder return (‘TSR’) performance
was well within the upper-quartile of the
comparator group. In due course, this
award will vest at 50% of the maximum
level. Further details are set out in the main
body of the Remuneration Report.
Remuneration decisions for 2017
As noted above no changes to the
Remuneration Policy are proposed for 2017.
The incentive structure will continue to
comprise an annual bonus, which is partially
deferred, and an LTIP award which measures
performance over three years.
Prior to the grant of LTIP awards in 2017,
the Committee reviewed the performance
measures applicable to future awards.
The Committee concluded that it was
important for the LTIP to focus on metrics
which provide a link to the Group’s strategic
priorities and are aligned to value created
for shareholders.
Consistent with awards granted in prior
years, the Committee has determined that
the majority of the 2017 LTIP award (70%)
will continue to be based on stretching EPS
and relative total shareholder return (TSR)
targets. These measures provide alignment
with the shareholder experience and remain
core indicators of our long-term performance.
For 2017 LTIP grants, the EPS and relative
TSR targets will be complemented with a
new element based on metrics linked to
Operational Excellence. Given the highly
regulated and quality-sensitive nature of
the healthcare sector, the clinical quality of
our operations and the experience of our
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 patients are vital to our long-term prospects.
These factors are key differentiators
between providers in the market, and drive
not only how Spire Healthcare performs over
the period, but also how the Company is
positioned for growth in future years. The
Committee has therefore determined that
this should be reflected in the LTIP for 2017.
Operational Excellence, will be based upon
two sector-specific performance metrics:
• Regulatory ratings – this is a measure
of clinical excellence based on a robust
external inspection regime. As results are
publicly available they are able directly to
influence how customers make informed
choices between providers; and
• Net Promoter Score – this is a measure
of the patient experience. Sustained
performance in this area supports
future referrals.
In respect of both our existing estate and
all future hospitals, targeting Operational
Excellence will provide a clear long-term
measure of how the Group sustains and
improves the underlying quality of
our operations.
Overall, the Committee is of the view that
the addition of the Operational Excellence
element provides a more balanced approach
to long-term performance assessment which
will be strongly aligned in the medium and
long term with shareholders’ interests.
As part of the review process, the Committee
engaged with major shareholders regarding
the proposed approach, and feedback
received regarding the addition of the
Operational Excellence measures was positive.
Further details of the targets are set out
in the Annual Report on Remuneration.
Shareholder communication
and the annual general meeting
The Directors’ Remuneration Policy is due
for renewal at the 2018 annual general
meeting, as part of the standard three-year
review process. Over the coming year, the
Committee therefore plans to undertake an
in-depth review of arrangements to ensure
they continue to support the objectives of
the business and remain in the best interests
of the shareholders over the medium to
long term.
Over the past year there has clearly been
considerable debate regarding the structure
of senior executive pay in the listed
environment. The Committee has also
noted evolving investor views on matters
such as alternative incentive models and
design features such as post-vesting holding
periods. As part of the forthcoming review
Remuneration Committee at a glance
2016 highlights
The Committee began the process to review the performance metrics associated with
future LTIP awards.
No changes have been made to the Company’s Remuneration Policy during the year.
Committee membership and meeting attendance
The Remuneration Committee members at the end of 2016 and the number of
Committee meetings they each attended during the year are as follows (the maximum
number of meetings that the member could have attended is shown in brackets):
Member
Tony Bourne
(Committee Chair)
Committee
member since
July 2014
John Gildersleeve
July 2014
Position in Company
Committee meetings
attended in 2016
Independent Non-Executive
Director
Deputy Chairman and Senior
Independent Director
4 (4)
3 (4)
Adèle Anderson
August 2016 Independent Non-Executive
2 (2)
Director
Committee members’ biographies are shown on pages 54 and 55. Robert Lerwill also
served as a member of the Remuneration Committee until 27 June 2016.
The Remuneration Committee must have at least three members, all of whom must
be independent Non-Executive Directors, and the Board appoints the Committee’s Chair.
If a member is unable to attend a meeting, they have the opportunity beforehand to
discuss any agenda items with the Committee’s Chair.
The Group Company Secretary, or their appointed nominee, acts as secretary to
the Committee.
Role and responsibilities
The Remuneration Committee has delegated authority from the Board to determine
the framework and total remuneration arrangements of the Executive Directors and,
in consultation with the Executive Chairman, senior management. It also oversees the
Group’s share-based incentive arrangements. In practice, the Committee agrees the:
• policy for cash remuneration, executive share plans, service contracts and
termination arrangements;
• reward packages of Executive Directors;
• termination arrangements for Executive Directors;
• recommendations to the Board concerning any new executive share plans or changes
to existing schemes which require shareholders’ approval; and
• basis on which awards are granted and their amount to Executive Directors and
senior management under the LTIP.
The Committee’s terms of reference can be found at www.spirehealthcare.com
the Committee will be mindful of these
developments in market and best practice.
The Committee intends to engage with
major shareholders regarding any proposals
in good time, prior to the annual general
meeting in 2018.
I am committed to ensuring an open
dialogue with our shareholders. If you
have any questions about the content
of this year’s Directors’ Remuneration
Report please contact me via
companysecretary@spirehealthcare.com.
The Committee recommends the 2016
Directors’ Remuneration Report to you for
approval and we look forward to your
continued support at our annual general
meeting in May 2017.
Tony Bourne
Chair, Remuneration Committee
1 March 2017
77
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Remuneration Policy Report
The Company’s Remuneration Policy was approved by shareholders at the annual general meeting held on 21 May 2015 and remains
unchanged. An extract from this report has been reproduced below for ease of reference. For clarity the content has been updated,
where relevant, to include details of how the Remuneration Policy will be implemented in 2017. The Remuneration Policy as approved
by shareholders is set out in the 2014 Annual Report and is available on our website.
Remuneration Policy table
Fixed remuneration
Element
Salary
Purpose and link
to strategy
• To provide fixed
remuneration
that is
appropriate for
the role and to
secure and retain
the talent
required by the
Group.
Benefits
• Fixed element of
remuneration
providing market
competitive
benefits to both
support retention
and recruit
people of the
necessary calibre.
Operation
Maximum opportunity
Performance
measures
• The Committee takes into account a
• While there is no defined maximum
• None
number of factors when setting salaries,
including:
− scope and responsibility of the role;
− the skills and experience of the
individual;
− salary levels for similar roles within
appropriate comparators;
− overall structure of the remuneration
package; and
− pay and conditions elsewhere in
the Group.
opportunity, salary increases normally
take into account increases for full-time
employees across the Group.
• The Committee retains discretion
to make higher increases in certain
circumstances, for example, following
an increase in the scope and/or
responsibility of the role, or a significant
change in market practice or the
development of the individual in the role.
• The Executive Directors’ salaries from
• Salaries are normally reviewed annually,
with any increase usually taking effect
in January.
1 April 2017 are:
− Andrew White: £365,000
− Simon Gordon: £373,013
• A range of role-appropriate benefits
• Whilst no maximum limit exists,
• None
individual benefit arrangements take
into account a number of factors,
including market practice
for comparable roles within appropriate
pay comparators.
• Participation in any HMRC-approved
all-employee share plan is subject to the
maximum permitted by the relevant
tax legislation.
may be provided to Executive Directors,
including such items as private medical
insurance (for the Executive Director and
their family), permanent health assurance,
participation in an income protection
scheme, life assurance, an annual health
assessment (for the Executive Director
and their spouse) and a car allowance.
• Additional one-off benefits may also be
provided where the Committee considers
this appropriate (e.g. on relocation).
• Executive Directors are also eligible to
participate in any all-employee share
plans operated by the Company from
time-to-time on the same basis as other
eligible colleagues.
• The Committee keeps the benefits
package offered to existing and new
Executive Directors under review.
Retirement
benefits
• Fixed element of
remuneration to
assist with
retirement
planning.
• Retirement
benefits
are provided to
both support
retention and
recruit people of
the necessary
calibre.
• Executive Directors can opt to join the
• The maximum level of retirement
• None
Company’s defined contribution scheme,
receive a contribution into a personal
pension scheme, take a cash supplement
or any combination of the three.
• The employer defined contribution level,
the contribution into a personal pension
scheme and/or cash supplement are
kept under review by the Committee.
• The retirement benefits are not included
in calculating bonus and long-term
incentive quantum.
benefits is 25% of base salary, and the
current provision for the Executive
Directors is 18% of base salary.
• They are set by taking into account a
number of factors, including market
practice for comparable roles at
appropriate pay comparators.
• For new Executive Directors, the nature
and value of any retirement benefits
provided will be, in the Committee’s
view, reasonable in the context of
market practice for comparable
roles and take account of both the
individual’s circumstances and the
cost to the Group.
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GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Variable remuneration
Element
Annual
bonus
Purpose and link
to strategy
Operation
• To incentivise
• Objectives are set annually
and reward the
achievement of
annual financial,
operational and
individual objectives
that are key to the
delivery of the
Group’s strategy.
to ensure that they remain targeted
and focused on the delivery of
strategic goals.
• The Committee sets targets that
require appropriate levels of
performance, taking into account
internal and external expectations
of performance.
• As soon as practicable after the year
end, the Committee meets to review
performance against objectives
and determines payout levels. The
Committee may adjust payments
to ensure they are reflective of
overall performance.
• A portion of any bonus (as
determined by the Committee) is
normally deferred into an award of
shares under the Deferred Bonus
Plan (‘DBP’). Currently one-third of
any bonus is deferred for a period
of three years (although the
Committee may vary this approach).
• DBP awards may be in the form of
conditional share awards or nil-cost
options or any other form allowed
by the Plan rules. This deferred
bonus element is not normally
subject to any further performance
conditions, although it is subject
to continued employment.
• Further details of the malus and
clawback provisions applicable
are set out on page 80.
• Awards granted under the LTIP
vest subject to achievement
of performance conditions
measured over a period of at least
three years, unless the Committee
determines otherwise.
• Awards may be in the form of
conditional share awards or nil-cost
options or any other form allowed
by the Plan rules.
Long
Term
Incentive
Plan (LTIP)
• To incentivise and
reward the delivery
of long-term
strategic objectives.
• To align the
interests of the
Executive Directors
with those of
shareholders.
• To assist
recruitment and
retention of
Executive Directors.
• Further details of the malus and
clawback provisions applicable are
set out on page 80.
Maximum opportunity
Performance measures
• Maximum award
opportunity for
Executive Directors is
150% of base salary for
each financial year, a
portion of which is
normally deferred into
an award of shares
under the DBP
(currently one-third).
• The maximum award
opportunity (at grant)
for Executive Directors
in respect of a financial
year is 200% of base
salary.
• Awards are based on a combination
of financial, operational and
individual goals measured over
one financial year.
• At least 50% of the award will
be assessed against the Group’s
financial metrics. The remainder
of the award will be based on
performance against strategic
objectives and/or individual
objectives. Details of the
performance measures for 2016
and 2017 are set out in the Annual
Report on Remuneration.
• A sliding scale between 0% and
100% of the maximum award
pays out for achievement between
the minimum and maximum
performance thresholds.
• For annual bonuses in respect of
2017, the targets will be based on
EBITDA and a balanced scorecard
of strategic metrics.
• The details of measures, targets
and weightings may be varied by
the Committee year-on-year based
on the Group’s strategic priorities.
• Vesting of awards will be dependent
on a range of financial, operational
or share price measures, as set by
the Committee, which are aligned
with the long-term strategic
objectives of the Group and
shareholder value creation.
• Not less than 30% of an award will
be based on share price measures.
The remainder will be based
on either financial and/or
operational measures.
• At the threshold performance,
no more than 25% of the award
will vest, rising to 100% for
maximum performance.
• For awards granted in 2017,
vesting will be based on EPS (35%),
relative TSR (35%) and Operational
Excellence (30%) targets.
• The details of measures, targets
and weightings may be varied by
the Committee prior to grant based
on the Group’s strategic objectives.
79
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Notes to the policy table performance
measures and targets
Annual bonus
The annual bonus performance measures
are designed to provide an appropriate
balance between incentivising Executive
Directors to meet financial targets for the
year and to deliver specific strategic,
operational and personal goals. This balance
allows the Committee to review the Group’s
performance in the round against the
key elements of our strategy, and
appropriately incentivise and reward
the Executive Directors.
Bonus targets are set by the Committee each
year to ensure that Executive Directors are
focused on the key financial and strategic
objectives for the financial year. In doing so,
the Committee usually takes into account a
number of internal and external reference
points, including the Group’s business plan.
Long Term Incentive Plan
The Committee believes it is important that
the performance conditions applying to LTIP
awards support the long-term ambitions of
the Group and the creation of shareholder
value. The Committee continues to consider
that EPS and relative TSR metrics remain
appropriate measures of long-term
performance. In addition, 2017 awards will
include Operational Excellence metrics to
provide qualitative measures which are
strategically important given the highly
regulated and quality sensitive nature of the
healthcare sector.
The Committee will keep the measures and
weightings under review to ensure that the
most appropriate measures to incentivise
the long-term success of the Group are used.
Recovery provisions
(malus and clawback)
Prior to vesting, the Committee may cancel
or reduce the number of shares subject to,
or impose additional conditions on LTIP, DBP
awards and Directors’ Share Bonus Awards
in circumstances where the Committee
considers it to be appropriate (‘malus’).
Such circumstances may include: a serious
misstatement of the Group’s audited
financial results; a serious miscalculation of
any relevant performance measure; a serious
failure of risk management or regulatory
compliance by a relevant entity; serious
reputational damage to the Group; or the
participant’s material misconduct.
In addition, for cash bonus awards in respect
of 2015 and future years, and for LTIP awards
granted after 1 January 2015, the Committee
may also claw back vested awards in certain
extreme circumstances (including those
listed above) for up to two years following
the determination of the relevant
performance outcome.
Prior to applying malus or clawback, the
Committee will take into account all relevant
factors (including, where a serious failure of
risk management or regulatory compliance
or serious reputational damage has occurred,
the degree of involvement of the employee
in that failure or damage in question and the
employee’s level of responsibility) in deciding
whether, and to what extent, it is reasonable
to operate malus and/or clawback. The
Committee is satisfied that the above
provisions provide robust safeguards against
inappropriate payment of incentive awards.
Legacy arrangements
Directors’ Share Bonus Plan Awards were
granted to Rob Roger, Simon Gordon
and Garry Watts (in recognition of his
performance as Executive Chairman prior
to Admission) to reflect their contribution to
the Company prior to Admission. The final
tranche of these awards vested during 2016.
There are no further outstanding awards
under this plan.
Recruitment policy
In determining remuneration for new
Executive Directors, the Committee will
consider all relevant factors, including the
calibre of the individual and the external
market, while aiming not to pay more than
is necessary to secure the required talent.
The Committee would seek to act in what
it considers to be the best interests of the
Group and its shareholders. Normally, the
Committee will seek to align the new
Executive Director’s remuneration package
to the Remuneration Policy, as set out above.
Salary and benefits (including any retirement
benefits) will be determined in accordance
with the policy table above. In certain
instances, the Committee may decide to
appoint an Executive Director to the Board
on a lower-than-typical salary, with the
intention of gradually increasing the salary
to move closer to market level as they build
experience in the role. Normally, benefits will
be limited to those outlined in the policy
table above, including a relocation allowance
in certain circumstances.
The maximum level of variable pay
(excluding any buyouts) that may be
awarded to a new Executive Director will
be limited to 350% of base salary, which
is consistent with the policy table above.
Incentives will normally be granted under the
existing plans; however, where appropriate,
the Committee may tailor the award (e.g.
time frame, form, performance criteria)
based on the commercial circumstances.
The Committee may ‘buy out’ remuneration
terms a new hire has had to forfeit on joining
the Group. Buyout awards are intended to
be of comparable commercial value, and
capped accordingly. The Committee will
take into account all relevant factors when
determining the quantum and form/
structure of any buyout, including any
performance conditions attached to any
forfeited awards, the likelihood of those
conditions being met, and the proportion of
the vesting/performance period remaining.
The service contracts for new appointments
will be consistent with the policy described
below. Where an Executive Director is
appointed from within the organisation,
the policy of the Group is that any legacy
arrangements would be honoured in line
with the original terms and conditions.
Similarly, if an executive is appointed
following an acquisition of, or merger
with, another company, legacy terms
and conditions would be honoured.
80
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Executive Director service contracts and payments for loss of office
The key employment terms and other conditions of the current Executive Directors, as stipulated in their service contracts, are set out below:
Provision
Policy
Notice period
• 12 months’ notice by either the Group or the Executive Director. This is also the policy for new recruits.
Benefits
Termination
payment
• The Group may agree that certain benefits will be specified within the Executive Directors’ service contracts.
• The current Executive Directors are contractually entitled to private medical insurance (for the Executive Director
and his family), permanent health assurance, income protection, life assurance, an annual health assessment
(for the Executive Director and their spouse) and a car allowance.
• It is the Group’s policy that service contracts contain provisions that allow the Group to terminate employment by
making a payment in lieu of notice (‘PILON’) equivalent to (i) 12 months’ base salary, and (ii) the cost of specific benefits
(including retirement benefits).
• Upon termination by the Group, the Group can determine whether a PILON is made as a single lump sum or paid in
instalments, subject to mitigation. Where the sum is paid in instalments, the Executive Director has a duty to use
reasonable endeavours to secure alternative employment as soon as reasonably practicable. In the event the Executive
Director commences alternative employment with an annual salary of greater than £30,000, there will be a pro rata
reduction in the PILON payments.
Immediate
termination
External
appointments
• The service contract of an Executive Director may also be terminated immediately and with no liability to make
payment in certain circumstances, such as the Executive Director bringing the Group into disrepute or committing
a fundamental breach of their employment obligations.
• Executive Directors may accept one position as a non-executive director of another publicly listed company that is
not a competitor of the Group, subject to prior approval of the Board. External appointments to any other company
(and treatment of any fees) are also subject to the prior approval of the Board.
In the event that the employment of an Executive Director is terminated, any compensation payable will be determined in accordance with
the terms of the service contract between the Group and the employee, as well as the rules of any incentive plans in which they participate.
Where an Executive Director’s employment with the Group ceases prior to the payment of the annual bonus in respect of a financial year,
the Committee in its absolute discretion will determine whether any bonus should be paid and the extent to which deferral into shares should
be applied. Any awards would normally be prorated. For bonuses in respect of 2015 onwards, clawback provisions will also apply. For the
avoidance of doubt, in the event the Executive Director is dismissed for misconduct, no bonus will be payable.
The treatment of share awards made by the Company is governed by the relevant share plan rules. The following table summarises the leaver
provisions of share plans under which Executive Directors may currently hold awards.
Plan
Deferred Bonus Plan
(DBP) and LTIP
Leaver reasons where awards
may continue to vest
Vesting arrangements
• Death
• Injury, ill health or
disability
• Retirement
• The transfer of the
individual’s employing
company or business
out of the Group
• Any other scenario in
which the Committee
determines good leaver
treatment is justified
• LTIP awards will vest to the extent determined by the Committee, which, unless
the Committee determines otherwise, will be calculated on the basis of the
achievement of any performance conditions at the relevant vesting date and,
unless the Committee determines otherwise, the period of time that has elapsed
between grant and cessation of employment/directorship.
• The vesting date for such awards will normally be the original vesting date,
although the Committee has the flexibility to determine that awards can vest
upon cessation of employment.
• DBP awards will normally vest in full on the original vesting date, although the
Committee has the flexibility to determine that awards can vest earlier.
• DBP and LTIP awards will continue to be subject to the malus provisions outlined
on page 80 until the vesting of the awards. LTIP awards granted from 2015
onwards are subject to a clawback provision, as described above.
• Any other reason
• Awards lapse in full.
Directors’ Share
Bonus Plan (Legacy
arrangements granted
prior to Admission)
• Any circumstance other
than dismissal for cause
• These awards were made in recognition of services provided to the Company
prior to Admission and, as such, are not subject to continued employment
(except in the case of dismissal for cause).
• Awards vested on the first and second anniversary of Admission to the extent
that the share price performance targets were met.
• Dismissal for cause
• Awards lapse in full.
Where Executive Directors participate in any HMRC-approved all-employee share plans, the leaver treatment will be consistent with the
relevant legislation and on the same terms as all other employees.
81
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Chairman and Non-Executive Directors
The Group seeks to appoint Non-Executive Directors who have relevant professional knowledge (and/or specific technical skills) to support
the current expertise of the Board and to match the healthcare sector within which the Group operates.
In the event of the appointment of a new Chairman and/or Non-Executive Director, remuneration arrangements will normally be in line with
those detailed in the relevant table below. Fees to Non-Executive Directors will not include share options or other performance-related elements.
Remuneration of independent Non-Executive Directors, with the exception of the Chairman, is determined by the Chairman and the Executive
Directors. The remuneration of the Chairman is determined by the Committee. Directors are not involved in any decisions in relation to their
own remuneration.
The table below sets out the remuneration policy with respect to Non-Executive Directors. Non-Executive Directors do not participate in the
Group’s bonus arrangements, share incentive schemes or retirement benefit plans.
Approach to setting remuneration for Non-Executive Directors
Opportunity
• Fees are set at appropriate levels to ensure Non-Executive
Directors are paid to reflect the individual responsibility
taken, as well as the skills and experience of the individual.
Fees are reviewed periodically.
• When setting fee levels, consideration is given to a number
of factors, including responsibilities and market positioning.
• Where appropriate, benefits to the role may be provided.
Travel and other reasonable expenses (including fees
incurred in obtaining professional advice in the furtherance
of their duties and any associated taxes) incurred in the
course of performing their duties may be paid by the
Group or reimbursed to Non-Executive Directors.
• The total fees paid to Non-Executive Directors will remain within
the limit stated in the Articles of Association of the Company.
• Individual fees reflect responsibility and time commitment, as well as
the skills and experience of the individual. Additional fees may be paid
for further responsibilities, such as chairmanship of committees.
• Any benefits provided will be reasonable in the market context and
take account of the individual circumstances and benefits provided to
comparable roles. Expenses reasonably incurred in the performance of the
role may be reimbursed or paid for directly by the Group, as appropriate,
including any tax due on the benefits. Non-Executive Directors will also
be covered by the Group’s indemnity insurance.
• The fees as at 31 December 2016 were:
− Deputy Chairman and Senior Independent Director: £140,000;
− Non-Executive Director basic: £50,000; and
− Committee chairmanship: £10,000.
With effect from 1 April 2017, the fees will be increased as follows:
− independent Non-Executive Director basic: £55,000; and
− Chair of the Clinical Governance and Safety Committee: £15,000.
These are the first increases in Non-Executive Director fees since
Admission in 2014.
Further details of remuneration arrangements for the Executive Chairman are set out in the Annual Report on Remuneration.
Under the terms of his appointment, Garry Watts is entitled to private medical expenses insurance (for both himself and his spouse and any
dependent children), life assurance, annual health assessment (for both himself and his spouse) and office facilities to perform his duties as
Chairman. Medical expenses insurance and life assurance will be provided under the Group’s arrangements or, if he obtains equivalent benefits
directly, the Group will meet his costs (up to a specified cap).
Chairman and Non-Executive Directors’ letters of appointment
The Chairman and Non-Executive Directors have letters of appointment that set out their duties and responsibilities. They do not have service
contracts with either the Group or any of its subsidiaries.
The key terms of the appointments are set out in the table below. This is the policy for current and any new Non-Executive Directors.
Provision
Period
Policy
• In line with the UK Corporate Governance Code, the Chairman and all independent Non-Executive Directors are
subject to annual re-election by shareholders at each annual general meeting.
• After the initial three-year term, the Chairman and the Non-Executive Directors are typically expected to serve
a further three-year term.
Termination
• The appointment of the Chairman is terminable by either the Group or the Director by giving 12 months’ notice.
• The appointment of the Deputy Chairman is terminable by either the Group or the Director by giving three
months’ notice.
• The appointment of any independent Non-Executive Directors is terminable by either the Group or the Director
by giving two months’ notice.
• The Non-Executive Director nominated by Mediclinic International PLC pursuant to the terms of the relationship
agreement is terminable without notice.
82
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Further detailed provisions
The DBP and LTIP, as well as the outstanding legacy Directors’ Share Bonus Awards, will be operated in accordance with the relevant plan
rules (which were summarised for shareholders in the Prospectus). The Committee may adjust or amend awards only in accordance with the
provisions of the relevant plan rules. This includes making adjustments to awards to reflect one-off corporate events, such as a change in the
Group’s capital structure. In accordance with the plan rules, awards may be settled in cash rather than shares, where the Committee considers
this appropriate.
The performance conditions applicable to incentive awards may be amended on an appropriate basis determined by the Committee,
if an event occurs or circumstances arise that cause the Committee to consider the performance condition is no longer a fair measure of
performance (and, in the case of the Directors’ Share Bonus Awards, the Committee determines fairly and reasonably that the circumstances
prevailing at grant have changed). For LTIP and Directors’ Share Bonus Awards, the amended performance condition will be at least as
challenging as the original condition.
Under the DBP, LTIP and Directors’ Share Bonus Awards, participants may receive an additional amount, in cash or shares, to take account
of the value of dividends the participant would have received on the shares that vest.
In the event of a change of control of the Company, LTIP awards may vest to the extent that the Committee determines, taking into account
the extent to which any performance conditions have been satisfied, and such other factors as the Committee considers relevant in the
circumstances, provided that, unless the Committee determines otherwise, awards will be adjusted to reflect the period of time that has
elapsed between grant and cessation of employment/directorship; DBP awards will normally vest in full; and Legacy Share Bonus Awards
may vest based on the per-share price payable to shareholders on the relevant transaction, or, in the case of a winding-up, the share price
at the time. Alternatively, awards may be exchanged for equivalent awards in the acquiring company.
The Committee may make any remuneration payments (including vesting of incentives) and payments for loss of office, notwithstanding
that they are not in line with the policy set out above, where the terms of that payment were agreed before this policy came into effect;
or at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not
in consideration for the individual becoming a Director of the Company.
The DBP and LTIP incorporate dilution limits. These limits are 10% in any rolling 10-year period for all plans and 5% in any rolling 10-year period
for executive share plans. Shares issued out of treasury will count towards these limits for so long as this is required under institutional
shareholder guidelines. Shares issued, or to be issued, pursuant to any awards granted on or before the date of Admission will not count
towards these limits. In addition, awards that lapse shall be disregarded for the purposes of these limits.
The Committee may make minor amendments to the Policy set out above for regulatory, exchange control, tax or administrative purposes
or to take account of a change in legislation without obtaining shareholder approval for that amendment.
Remuneration arrangements throughout the Company
The Policy for our Executive Directors is designed in line with the remuneration philosophy and principles that underpin remuneration across
the Group. When making decisions in respect of the Executive Directors’ remuneration arrangements, the Committee takes into consideration
the pay and conditions for employees throughout the Group. As stated in the policy table, salary increases are, in practice, normally aligned
to the general employee population. The Committee does not directly consult with our employees as part of the process of determining
executive pay.
Differences in Remuneration Policy for all employees
The remuneration of the wider employee population is based on the same reward philosophy, whilst the components of remuneration
vary with seniority. All employees, including Executive Directors, receive a salary and role-appropriate benefits. Role-specific annual bonus
arrangements are operated across the Group. For more senior roles, a portion of the bonus is deferred on a similar basis to Executive Directors.
Only senior individuals who can have significant influence on the performance of the Group as a whole are invited to participate in the
long-term incentive plans. This provides those individuals with an incentive to help achieve the Group’s medium- and long-term objectives
and create shareholder value, whilst ensuring their remuneration varies to the extent these goals are achieved.
Consideration of shareholder views
The structure of remuneration for Board members was first presented to shareholders in the Prospectus prior to Admission. It is next intended
to present the Remuneration Policy to shareholders for approval at the annual general meeting in 2018 unless any alterations are required
before then.
The Committee is always mindful of shareholders’ views when evaluating and setting future remuneration strategy, and intends to
appropriately consult prior to any significant proposed changes to the Remuneration Policy.
83
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Annual Report on Remuneration
Single total figure of remuneration – Executive Directors (audited)
The following table sets out the total remuneration for the Executive Directors for the year ended 31 December 2016. This comprises the total
remuneration received over the full year from 1 January 2016 to 31 December 2016.
(£000)
Salary
Benefits
Retirement benefits
Annual bonus (including deferred element)
Long-term incentives3
Sub-total
Legacy arrangement – Directors’ Share Bonus
Plan Award4
Total
Andrew White1
Simon Gordon
Rob Roger2
2016
182.5
6.4
31.1
–
–
220.0
–
220.0
2015
–
–
–
–
–
–
–
2016
363.1
16.8
62.5
–
459.5
901.9
200.0
2015
350.0
16.6
63.0
–
–
429.6
248.1
2016
262.5
10.7
47.3
–
–
320.5
–
2015
525.0
21.5
94.5
–
–
641.0
454.8
1,101.9
677.7
320.5
1,095.8
1 Andrew White was appointed an Executive Director on 1 July 2016 on a salary of £365,000 per annum.
2 Rob Roger stepped down as Chief Executive Officer and left the Company on 30 June 2016.
3
4
The 2014 LTIP award is due to vest during 2017. For the purpose of the single figure table, the value of shares forecast to vest (including dividend equivalents) have been valued based on the average
share price over the final quarter of 2016 of £3.634.
In accordance with the requirements of the disclosure regulations, the value of the Directors’ Share Bonus Plan Award vesting in 2016 is calculated based on the share price at the date of vesting of
£3.196 after part of the performance criteria for the second tranche of this award was met, inclusive of accrued dividends. Further details on the exercise of awards under the Directors’ Share Bonus
Plan can be found on page 86.
Additional notes to the table
Salary
Simon Gordon’s salary was increased from £350,000 to £367,500 per annum on 1 April 2016. Andrew White’s salary on appointment as an
Executive Director on 1 July 2016 was £365,000 per annum.
Benefits
The benefits consist of private medical insurance (for the Executive Directors and their families), life assurance, income protection cover and
a car allowance.
Retirement benefits
The amount set out in the table represents the Group contribution to the Executive Directors’ retirement planning at a rate of 18% of base
salary. Simon Gordon is a member of the Spire Healthcare Pension Plan. Amounts above the HMRC annual allowance are paid as taxable
cash supplements.
Annual bonus
For the 2016 financial year, the maximum bonus opportunity for Andrew White and Simon Gordon was 150% of base salary. The annual bonus
targets were set at the beginning of the financial year, with 70% of the award being assessed against EBITDA and 30% assessed against a
balanced scorecard based on strategic targets including productivity, customer, quality and staff measures. The threshold EBITDA target
for 2016 was set at £164.0 million and no bonus would be payable if this threshold was not achieved.
Although the Company’s performance remained reasonable during the year, a number of internal and external factors impacted the business,
meaning that it did not achieve the minimum EBITDA threshold of £164.0 million. Although both Executive Directors largely met their
individual objectives under the balanced scorecard, the Committee determined that no bonus will be paid in respect of 2016.
Departure terms for Rob Roger
As announced in March 2016, Rob Roger stepped down from the Board on 30 June 2016 after more than nine years with the business.
On departure, Rob Roger did not receive any cash termination payment or payment in lieu of notice. His outstanding LTIP awards lapsed
on departure. He did not receive a bonus in respect of the time working during 2016. The Committee determined that he would retain his
outstanding award over 18,057 shares under the Deferred Bonus Plan which is due to vest in 2018, as this relates to performance in 2014.
Awards under the Directors’ Share Bonus Plan were treated in accordance with the plan rules and vested in line with other participants and
further details are shown on page 86.
84
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Deferred Bonus Plan (DBP)
Under the DBP, one-third of the Executive Directors’ annual bonus is deferred for three years. No award was made under the DBP in 2016.
The following award over shares was granted under the DBP in 2015 and relates to the 2014 bonus which was disclosed in the 2014 Annual
Report and Accounts:
Simon Gordon
Type of award
Conditional Share Award
(in the form of nil-cost options)
Date of award
1 June 2015
Shares awarded
Shares exercisable
10,922
1 June 2018 to 1 June 2025
The share price used to determine the number of deferred shares subject to award was £3.606, the mid-market closing share price on
29 May 2015.
Awards are deferred for a period of three years and are conditional on continued employment. There are no further performance conditions
attaching to these shares although they remain subject to a malus provision.
Long Term Incentive Plan (LTIP)
The performance period for awards granted in 2014 ended on 31 December 2016. This award was based on targets linked to EPS and relative
TSR performance.
Half of the award was based on TSR performance measured against the constituents of the FTSE 250 (excluding investment trusts). Threshold
vesting (25% of the element) required median performance, with outperformance of the upper quartile required for full vesting. Over the
period to 31 December 2016, the Company delivered a total shareholder return of +76%. This was well within the upper quartile of the
comparator group, and therefore this element of the award is due to vest in full.
The remaining half of the award was based on EPS targets. The 2016 EPS was below the threshold of 20.6 pence, and therefore this element
of the award will lapse.
This award will vest during 2017. For the purpose of the single figure table, the value of shares forecast to vest (including accrued dividends)
is based on the average share price over the final quarter of 2016.
Awards under the LTIP were granted on 30 March 2016. These awards were granted in the form of nil-cost options over Spire Healthcare
Group plc shares, with the number of shares that may vest conditional on performance over the three-year period to 31 December 2018.
The maximum award granted to Executive Directors (except for the Executive Chairman who does not receive an award under the terms
of his remuneration package) was equivalent to 200% of base salary.
The Committee determined that awards under this plan should be linked to the value created for shareholders over the period, and as a
consequence that the awards should continue to be equally weighted as to EPS and relative TSR performance targets. Further details of the
performance conditions applying to the 2016 awards are set out below.
EPS – 50% of award
Vesting of this element is based on the adjusted EPS outcome for the
2018 financial year.
Relative TSR – 50% of award
Vesting of this element is based on TSR performance measured
against the constituents of the FTSE 250 (excluding investment trusts).
2018 EPS
Less than 20.0 pence
20.0 pence
21.5 pence
23.3 pence or more
Straight-line vesting operates between these points.
Percentage of the
element vesting
0%
25%
50%
100%
TSR performance
Below median
Median
Upper quartile
Percentage of the
element vesting
0%
25%
100%
Straight-line vesting operates between these points. Based on relative TSR performance from
1 January 2016 to 31 December 2018.
The following table provides details of all outstanding awards, as at 31 December 2016, made to Executive Directors under the LTIP:
Type of award
Date of grant
Number of shares
Share price
Face value at grant1
End of performance period
Simon Gordon
Andrew White
Conditional Share
Award (in the form
of nil-cost options)
30 September 20142
1 April 2015
30 March 2016
30 March 2016
248,226
193,905
197,628
194,805
£2.823
£3.610
£3.542
£3.542
£700,000
£700,000
£700,000
£690,000
31 December 2016
31 December 2017
31 December 2018
31 December 2018
1
The share price used to determine the number of shares under each award is based on the average of the mid-market quotation at close of business over the last five dealing days prior to the date of
grant. The face values at grant are equivalent to 200% of base salary. All awards are subject to EPS and relative TSR performance conditions.
2 As noted above, following the year end 50% of this award is expected to vest during 2017, and the remaining portion will lapse.
85
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Legacy arrangement relating to the period prior to Admission – Directors’ Share Bonus Plan Awards
As disclosed in the Prospectus, the Directors’ Share Bonus Plan Awards are legacy arrangements that were adopted and operated prior to
Admission. These figures have been included in the single-figure table above in the interests of transparency; however, it should be noted that
they relate to performance delivered prior to Admission.
Awards were granted to Simon Gordon, Rob Roger and Garry Watts (in recognition of his performance in his pre-Admission role of Executive
Chairman) to reflect their contribution to the Company prior to Admission. Details of these awards are set out below. In order to create further
alignment with shareholders, these awards were made over shares in the form of nil-cost options and split into two equal tranches, which
become exercisable on the first and second anniversary of Admission, respectively.
Although these awards were made in recognition of services provided to the Company prior to Admission and, as such, are not subject to
continued employment, the Directors’ Share Bonus Plan Awards only remained exercisable in full if the 90-day average share price prior to
the first and second anniversary of Admission was at least 359 pence. If, at the relevant anniversary, the average share price was at or below
224 pence, the number of shares in the relevant tranche, to which the awards relate, would have been reduced by approximately 35%. Where
the average share price at the relevant anniversary was between 224 pence and 359 pence, the proportion exercisable would be reduced on
a pro rata basis.
As the awards were made in respect of the period prior to Admission, they are not subject to continued employment, except in the case
of dismissal for cause, however they were subject to the malus provisions detailed in the Remuneration Policy.
These awards were originally granted on 4 July 2014 and no further awards will be made under this arrangement.
First tranche
The 90-day average share price on the first anniversary of Admission was £3.438 and, as a result, the first tranche of the award (up to 50%
of the overall award) vested between the minimum and maximum level in 2015. The balance of the award under the first tranche lapsed.
The following table provides details of the first tranche of the Directors’ Share Bonus Plan Awards:
Simon Gordon
Rob Roger
Garry Watts (in respect of his role as
Executive Chairman prior to IPO)
Type of award
Minimum
exercisable award
No. of shares
Maximum
exercisable award
No. of shares
Shares vested
Shares lapsed
Shares exercised1
133,900
208,900
200,455
8,445
200,455
Conditional Share
Award (in the form
of nil-cost options)
245,500
383,000
367,517
15,483
367,517
156,250
243,700
233,853
9,847
233,853
1
Simon Gordon, Rob Roger and Garry Watts exercised the first tranche of their awards on 1 April 2016 and sold 94,546, 173,340 and 117,266 respectively to cover income tax and national insurance
liabilities, at an average share price of 360.0288 pence.
Second tranche
The 90-day average share price on the second anniversary of Admission was £3.3475 and, as a result, the second tranche of the award
(up to 50% of the overall award) vested between the minimum and maximum level during 2016. The balance of the award under the second
tranche lapsed.
The following table provides details of the second tranche of the Directors’ Share Bonus Plan Awards:
Simon Gordon
Rob Roger
Type of award
Minimum
exercisable award
No. of shares
Maximum
exercisable award
No. of shares
Shares vested
Shares lapsed
Shares exercised1
133,900
208,900
195,427
13,473
195,427
Conditional Share
Award (in the form
of nil-cost options)
245,500
383,000
358,300
24,700
358,300
Garry Watts (in respect of his role as
Executive Chairman prior to IPO)
156,250
243,700
227,991
15,709
227,991
1
Rob Roger exercised the second tranche of their awards on 19 August 2016 and sold 168,674 to cover income tax and national insurance liabilities, at an average share price of 343.98 pence.
Simon Gordon and Garry Watts exercised the second tranche of their awards on 30 August 2016 and sold 92,174 and 107,533 respectively to cover income tax and national insurance liabilities,
at an average share price of 350.4 pence.
86
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Single total figure of remuneration – Non-Executive Directors (audited)
The following table sets out the total remuneration for the Non-Executive Directors for the year ended 31 December 2016.
(£000s)
Adèle Anderson1
Tony Bourne
John Gildersleeve
Dame Janet Husband
Robert Lerwill
Danie Meintjes2
Simon Rowlands
Total
Fees
25.6
60.0
150.0
60.0
30.0
50.0
50.0
425.6
Benefits
–
–
–
–
–
–
–
–
Total remuneration
2016
25.6
60.0
150.0
60.0
30.0
50.0
50.0
2015
–
60.0
150.0
60.0
60.0
18.2
22.0
425.6
370.2
1 Adèle Anderson was appointed a Non-Executive Director and chair of the Company’s Audit and Risk Committee on 28 August 2016.
2 As a Non-Executive Director nominated by the principal shareholder, Danie Meintjes’s fees are paid to a subsidiary company within the Mediclinic International PLC group.
Notes to the table
Benefits
Reasonable expenses incurred by any Non-Executive Director will be reimbursed by the Company but they have no other contractual
entitlement to benefits.
Single total figure of remuneration – Chairman (audited)
(£000)
Salary/fees
Benefits
Retirement benefits
Annual bonus
Long-term incentives
Sub-total
Legacy arrangement – Directors’ Share Bonus Plan Award2
Total
Garry Watts1
(as Executive
Chairman)
Garry Watts1
(as Non-
Executive
Chairman)
Garry Watts1
(as Non-
Executive
Chairman)
2016
479.0
2.4
–
–
–
481.4
233.2
714.6
2016
51.8
0.5
–
–
–
52.3
–
52.3
2015
257.0
1.2
–
–
–
258.2
289.2
547.5
1
2
Garry Watts resumed his previous role of Executive Chairman on 14 March 2016 on a salary of £600,000 per annum. Between 1 January 2016 and 13 March 2016 he acted in the capacity of
Non-Executive Chairman on a salary of £257,000 per annum.
In accordance with the requirements of the disclosure regulations, the value of the Directors’ Share Bonus Plan Award for 2016 is calculated based on the share price at the date of vesting of £3.196
after part of the performance criteria for the second tranche of this award was met, inclusive of accrued dividend equivalents.
Notes to the table
Benefits
Garry Watts has a contractual entitlement to benefits, which include: private medical insurance for himself and his family; life cover for himself
only; annual health assessment for himself and his spouse; and office facilities to enable him to perform his duties as Executive Chairman.
Reasonable expenses incurred will be reimbursed by the Company.
Chairman
On Admission, Garry Watts was appointed as Non-Executive Chairman and, in line with corporate governance guidelines, in that role he did
not participate in any future incentive plans.
On 14 March 2016, Garry Watts resumed the role of Executive Chairman, following Rob Roger’s notification to leave the Company. Garry Watts
receives an annual salary of £600,000 for this role, but does not receive any pension allowance or LTIP awards.
Although Garry Watts was eligible for a bonus in respect of his executive role, no bonus will be paid for 2016, in line with other Executive Directors.
Details of the Directors’ Share Bonus Plan Awards, relating to performance prior to Admission, are set out on page 86.
87
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Implementation for 2017
The following table summarises how remuneration arrangements will be operated for 2017. Shareholders will note that, for the third year,
the maximum opportunity under the incentive plans will also remain unchanged.
Salary and
benefits
• Following the year end, the Committee reviewed the base salaries as part of the annual salary review process.
• Andrew White’s salary will remain unchanged for 2017. The Committee has determined that, with effect from 1 April 2017,
Simon Gordon’s salary will be increased by 1.5%.
Andrew White
Simon Gordon
2017 salary
£365,000
£373,0131
2016 salary
£365,000
£367,500
• No changes to benefits for 2017 – benefits include private medical insurance, permanent health assurance, income
protection, life assurance, an annual health assessment and car allowance. Company contributions to the Executive
Directors’ retirement benefits remain at 18% of salary.
1 Effective from 1 April 2017.
Annual bonus The maximum opportunity for Executive Directors (excluding the Executive Chairman) will remain at 150% of salary.
• The performance targets in respect of the 2017 bonus will be based as to 70% on EBITDA, and 30% on a balanced scorecard
of strategic targets linked to productivity, customer, quality and staff measures. The detail of targets for the coming year is
commercially sensitive; however, the Committee will look to provide disclosure regarding targets and bonus outcomes in
next year’s report.
• One-third of any bonus earned will be deferred into shares for three years.
LTIP
• Conditional award over shares will be made in 2017 equivalent to 200% of base salary in the form of nil-cost options.
• Performance will be measured over the period from 1 January 2017 to 31 December 2019. As noted in the Committee
Chairman’s letter, the 2017 award will include an element based on Operational Excellence.
TSR v FTSE 250 (excluding investment trusts) (35%)
25% vests
100% vests
Median1
Upper quartile
Adjusted EPS – outcome for 2019 (35%)
Operational Excellence:
• Regulatory Rating (15%)2
• Net Promotor Score (15%)
0% vests
18.5p1
25% vests
20.5p
50% vests
21.8p
100% vests
23.2p
n/a
821
85% achieve
‘Good’ or above1
90% achieve
‘Good’ or above
100% achieve
‘Good’ or above
83
84
85
There is no vesting for performance below these levels.
1
2 Vesting for this element would be scaled back (including to nil) if any site is rated as ‘Inadequate’.
3 There is straight line vesting between the points shown.
4
The Committee may adjust targets or outcomes in certain circumstances (e.g. for changes to accounting standards or material acquisitions). In line with good practice,
the Committee also retains the ability to exercise discretion so that the overall vesting level remains appropriate (e.g to reflect underlying performance).
Shareholding
guideline
Non-Executive
Directors
• Executive Directors (excluding the Executive Chairman) are expected to build up and maintain, over a period of five years,
a shareholding equivalent to twice their respective base salaries.
• As at the date of this report, Simon Gordon’s shareholding exceeds the guideline. Andrew White has until 30 June 2021 in
order to reach his shareholding requirement.
• The current fees payable to the Non-Executive Directors are shown in the following table.
Role
Deputy Chairman and Senior Independent Director
Basic fee for other Non-Executive Directors
Additional fee for chairing a Board committee
Fee per annum
£140,000
£50,000
£10,000
In early 2017, the Board of Directors reviewed and agreed that, with effect from 1 April 2017, the fees will be increased as follows:
• independent Non-Executive Director basic: £55,000; and
• Chair of the Clinical Governance and Safety Committee: £15,000.
These are the first increases in Non-Executive Director fees since Admission in 2014.
Executive
Chairman
As announced in March 2016, Garry Watts resumed the role of Executive Chairman on 14 March 2016 following Rob Roger’s
notification that he intended to leave the Company.
While in the role of Executive Chairman, Garry Watts receives a fee per annum of £600,000 and a cash bonus of up to 150% of
salary which will primarily be based on EBITDA performance. He will not receive any pension allowance or LTIP awards for this role.
Role
Executive Chairman
88
Fee per annum
£600,000
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016 Statement of directors’ shareholding and share interests (audited)
The table below sets out the Directors’ shareholdings in the Company. As noted above, Executive Directors are expected to build up and
maintain a holding equivalent to twice their base salary. There is no requirement for Non-Executive Directors to hold shares in the Company.
Shareholding
Guidelines
As at 31 December
2016
As at 31 December
2015
Proportion of shareholding
guideline achieved1
Executive Chairman
Garry Watts
Executive Directors
Simon Gordon
Rob Roger2
Andrew White3
Non-Executive Directors
Adèle Anderson4
Tony Bourne
John Gildersleeve
Dame Janet Husband
Robert Lerwill5
Danie Meintjes
Simon Rowlands
216%
n/a
0%
503,577
471,758
712,393
–
–
11,904
125,761
10,231
23,809
–
214,516
266,532
262,596
518,216
n/a
n/a
11,904
4,761
10,231
23,809
–
214,516
1 Calculated based upon the closing share price on 31 December 2016 of 337.7 pence.
2 Rob Roger stepped down from the Board on 30 June 2016 and his share interests are shown as at this date.
3 Andrew White was appointed as an Executive Director on 1 July 2016 and he did not hold any shares as at this date.
4 Adèle Anderson was appointed as a Non-Executive Director on 28 July 2016 and she did not hold any shares as at this date.
5 Robert Lerwill stepped down from the Board on 30 June 2016 and his share interests are shown as at this date.
There have been no changes to Directors’ shareholdings between 31 December 2016 and the date of this report.
The table below sets out the Directors’ interests in shares of the Company which remain unvested or have vested but are unexercised as at
31 December 2016. Unvested awards are structured as nil-cost options.
Unvested and subject to
performance conditions1
Unvested and not subject
to performance conditions2
Vested and not subject to
performance conditions
Shares
Executive Chairman
Garry Watts
Executive Directors
Simon Gordon
Rob Roger3
Andrew White
Non-Executive Directors
Adèle Anderson
Tony Bourne
Dame Janet Husband
John Gildersleeve
Robert Lerwill
Danie Meintjes
Simon Rowlands
–
639,759
–
194,805
–
–
–
–
–
–
–
–
10,922
18,057
–
–
–
–
–
–
–
–
1 Consists of awards granted under the LTIP.
2 Consists of shares held through the Deferred Bonus Plan awarded on 1 June 2015 in respect of the bonus paid for the 2014 financial year.
3 Rob Roger stepped down from the Board on 30 June 2016 and his interests are shown as at this date.
–
–
–
–
–
–
–
–
–
–
–
89
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Letters of appointment
Non-Executive Director
Adèle Anderson
Tony Bourne
John Gildersleeve
Dame Janet Husband
Danie Meintjes1
Simon Rowlands2
Date of appointment
Notice period
Date of expiry
2 months No later than 30 June 2019
28 July 2016
24 June 2014
24 June 2014
24 June 2014
2 months
3 months
2 months
20 August 2015
Not applicable
24 June 2014
2 months
26 May 2017
23 July 2017
26 May 2017
20 August 2018
23 July 2017
1 Pursuant to the relationship agreement dated 22 June 2015 between the Company and Remgro Jersey Limited, under which Remgro Jersey Limited is entitled to nominate for appointment to the Board
one Non-Executive Director, Danie Meintjes was appointed to the Board on 20 August 2015. Danie Meintjes is considered to be a non-independent Non-Executive Director.
2 Simon Rowlands appointment was renewed for a further one-year period and a letter of appointment dated 23 July 2016 was issued to him. Due to the senior position Simon Rowlands continues to
hold with Cinven Partners he is considered to be a non-independent Non-Executive Director.
Service contracts
Andrew White and Simon Gordon, who will both put themselves up for re-election at the annual general meeting to be held on 26 May 2017,
are employed under ongoing service contracts with the Group. These contracts do not have a fixed term of appointment. Copies of their
service contracts are available to shareholders at the registered office for inspection.
Performance graph
The graph below illustrates Spire Healthcare Group plc’s TSR performance against the FTSE 250 (excluding investment trusts) since Admission
on 23 July 2014.
)
n
o
i
s
s
i
m
d
A
n
o
0
0
1
o
t
d
e
s
a
b
e
r
(
R
S
T
200
180
160
140
120
100
80
60
23 July 2014
31 December 2014
31 December 2015
31 December 2016
Spire Healthcare Group plc
FTSE 250 (excluding investment trusts)
The table below shows the total remuneration paid to the previous Chief Executive Officer from Admission to the end of 2016. The table also
shows details of remuneration relating to the Executive Chairman role for 2016.
Chief Executive’s single figure remuneration (£000s)
Executive Chairman’s single figure remuneration (£000s)
Annual bonus payout (% of maximum)
LTIP vesting (% of maximum)
2016
320.51
714.62
0%
n/a
2015
2014
1,095.8
6,223.1
–
0%
n/a
–
34%
n/a
1 Rob Roger stepped down from the Board on 30 June 2016. The figure shows remuneration for the part-year served as Chief Executive Officer.
2 Garry Watts served as Non-Executive Chairman from 1 January 2016 to 13 March 2016 and as Executive Chairman from 14 March 2016 onwards. The figure shown is based on Garry Watts’
remuneration in his capacity as Executive Chairman.
90
GOVERNANCE: DIRECTORS’ REMUNERATION REPORTSpire Healthcare Group plc Annual Report 2016
Annual change in remuneration
The table below shows the percentage change in remuneration (based on salary, fees, benefits and annual bonus) between 2015 and 2016.
Base salary
Benefits
Annual bonus
Chief Executive
Officer/Executive
Chairman
% change1
n/a
n/a
0%
Other
employees
% change
2%
0.3%
0%
1
As noted above, Rob Roger stepped down from the Board on 30 June 2016 and Garry Watts resumed the role of Executive Chairman on 14 March 2016. Consequently, full year comparable data is not
available. Rob Roger and Garry Watts did not receive any increase to benefits arrangements for 2016.
Relative importance of spend on pay
The table below illustrates the year-on-year change in the total remuneration costs for all employees and shareholder distributions.
(£million)
Total remuneration
Distributions to shareholders
2016
268.0
14.8
2015
253.0
12.4
% change
5.93
19.35
Advice provided to the Remuneration Committee
During the course of the year, Deloitte LLP provided external advice to the Committee and its total fees were £19,500 (2015: £33,850). Deloitte
LLP has voluntarily signed up to the Remuneration Consultants’ Code of Conduct in relation to executive remuneration consulting during the
year. The Committee is comfortable that the Deloitte LLP engagement partner and team that provides remuneration advice to the Committee
do not have connections with the Company that may impair their independence. During the year, Deloitte LLP also provided unrelated tax and
consultancy services to the Group.
The Executive Chairman, Chief Financial Officer, Group Human Resources Director and Simon Rowlands attended Committee meetings by
invitation in order to provide the Committee with additional context. No individual participates in decisions regarding their own remuneration.
Statement of voting at 2016 annual general meeting
The following table sets out the voting in respect of the resolution to approve the Company’s 2015 Directors’ Remuneration Report, put to
shareholders at the Company’s annual general meeting held on 19 May 2016:
Resolution
Votes for
% of vote
Votes against
% of vote
Votes withheld
Approve the 2015 Directors’ Remuneration Report
305,605,620
99.02%
3,031,430
0.98%
26,991,857
The Directors were pleased with the response received from shareholders to the resolution proposed. This report on Directors’ remuneration
will be put to an advisory vote at the annual general meeting on 26 May 2017. The Directors confirm that this report has been prepared in
accordance with the Companies Act 2006 and reflects the provisions of the Large and Medium-sized Companies and Groups (Accounts &
Reports) (Amendment) Regulations 2013 and was approved at a meeting of the Directors held on 1 March 2017.
The Company’s Remuneration Policy was approved at its annual general meeting in 2015 and received 99.56% of the vote in favour from
shareholders. It is next intended to present the Remuneration Policy to shareholders for approval at the annual general meeting in 2018 unless
any alterations are required before then.
Details of all resolutions passed at the annual general meeting held on 19 May 2016 can be found on page 67.
Share prices
The market price of a Spire Healthcare Group plc ordinary share at 31 December 2016 was 337.7 pence and the range during the year was
300.1 pence to 400.0 pence.
Tony Bourne
Chair, Remuneration Committee
1 March 2017
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Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: DIRECTORS’ REPORT
Directors’ Report
The Directors submit their Annual Report
together with the audited financial
statements of Spire Healthcare Group plc
(the ‘Company’) together with its
subsidiaries (the ‘Group’) for the year
ended 31 December 2016.
Certain disclosure requirements for
inclusion in this Directors’ Report have been
incorporated by way of cross reference to
the Strategic Report on pages 1 to 53 and the
Directors’ Remuneration Report on pages 76
to 91, and should be read in conjunction
with this report. The following, included
in the Strategic Report, also form part of
this report:
• greenhouse gas emissions, which can be
found under Corporate social responsibility
on pages 46 and 47;
• employees, which can be found under
Group Human Resources Director’s review
– Our people on pages 42 to 45;
• the Corporate governance statement,
set out on pages 60 to 63; and
• Our strategy set out on pages 14 and 15.
A description of the Group’s exposure and
management of risks is provided in the
Strategic Report on pages 48 to 53.
Information regarding the Company’s
charitable donations can be found under
Group Human Resources Director’s review
– Our people on pages 42 to 45.
Registered office
The Company’s registered office and
principal place of business is 3 Dorset Rise,
London EC4Y 8EN.
Annual general meeting
The annual general meeting of Spire
Healthcare Group plc will be held at the
offices of J.P. Morgan at 60 Victoria
Embankment, London EC4Y 0JP on Friday,
26 May 2017 at 11.00am.
At the meeting, resolutions will be proposed
to declare a final dividend, to receive the
Annual Report and Financial Statements,
approve the Directors’ Remuneration Report,
elect or re-elect all of the Directors and to
92
reappoint Ernst & Young LLP as auditor.
Shareholders will also be asked to authorise
the Directors to hold general meetings at
14 clear days’ notice (where this flexibility
is merited by the business of the meeting
and is thought to be in the interests of
shareholders as a whole). Further items
of business to be proposed at the annual
general meeting are described throughout
this Directors’ Report.
Powers of the Directors
The business of the Company is managed
by the Directors who may exercise all the
powers of the Company, subject to any
relevant legislation, any directions given by
the Company by passing a special resolution
and to the Company’s Articles of Association.
The Articles, for example, contain specific
provisions concerning the Company’s power
to borrow money and issue shares.
Dividends
The Directors recommend the payment of
a final dividend in respect of the year ended
31 December 2016 of 2.5 pence (2015:
2.4 pence) per ordinary share making a
proposed total dividend for the year of
3.8 pence per share (2015: 3.7 pence).
Subject to shareholders approving the
recommendation at the annual general
meeting, the final dividend will be paid on
27 June 2017 to shareholders on the register
as at 2 June 2017.
The Company paid an interim dividend in
respect of the year ended 31 December 2016
of 1.3 pence per share on 13 December 2016.
Board of Directors
The following changes were made to the
Board of Directors during the year;
• Robert Lerwill stepped down from the
Board on 27 June 2016;
• Rob Roger stepped down as Chief
Executive Officer and left the Board on
30 June 2016;
• Andrew White was appointed an Executive
Director on 1 July 2016; and
• Adèle Anderson was appointed an
independent Non-Executive Director on
28 July 2016.
The UK Corporate Governance Code provides
for all Directors of FTSE companies to stand
for election or re-election by shareholders
every year. Accordingly, all members of the
Board, with the exception of Adèle Anderson
and Andrew White, who will stand for
election for the first time, will retire and
seek re-election at this year’s annual general
meeting. Full biographical details of all of the
Directors can be found on pages 54 and 55.
Further information on the contractual
arrangements of the Executive Directors
is given on page 81. The Non-Executive
Directors do not have service agreements.
Appointment and removal of Directors
Rules relating to the appointment and
removal of the Directors are contained
within the Company’s Articles of Association.
Director’s indemnities
See page 66 in the Corporate governance
section.
Amendment of articles of association
The Company may only make amendments
to the Articles of Association of the
Company by way of special resolution of
the shareholders, in accordance with the
Companies Act 2006.
Employees
The Group is an equal opportunities
employer and is committed to creating an
environment which will attract, retain and
motivate its people, by creating a working
environment in which individuals are able
to make best use of their skills, free from
discrimination or harassment, and in which
all decisions are based on merit. Spire
Healthcare employs people who consider
themselves to have a disability (a physical or
mental impairment which has a substantial
and long-term adverse effect on their ability
to carry out normal day-to-day activities).
Employees who consider themselves to have
a disability are under no obligation to inform
their employer of this, however, we are fully
aware of, and comply with, our obligations
in accordance with the relevant provisions
of the Equality Act 2010.
We launched the ‘Spire Healthcare discussion
channel’, a new communication channel
established to provide colleagues, on a
regular basis, with audio updates from our
leadership team – covering topics which are
pertinent to our business; from our strategic
direction to operational and people
highlights. When appropriate, consultations
with employee and union representatives
take place.
Spire Healthcare Group plc Annual Report 2016 Restrictions on voting
Unless the Directors otherwise determine,
a shareholder shall not be entitled to vote
either personally or by proxy:
• if any call or other sum presently payable
to the Company in respect of that share
remains unpaid; or
• having been duly served with a notice to
provide the Company with information
under Section 793 of the Companies Act
2006, and has failed to do so within 14
days, for so long as the default continues.
Directors’ interests in shares
The beneficial interests of the Directors’ and
their families in the shares of the Company
are detailed on page 89.
During the year, no Director had any material
interest in any contract of significance to the
Group’s business.
Material interests in shares
As of 1 March 2017, the Company has been
notified by the following investors of their
interests in 3% or more of the Company’s
issued share capital. These interests were
notified to the Company pursuant to
Disclosure and Transparency Rule 5:
Shareholder
Mediclinic International PLC
Current %
29.90
Woodford Investment
Management LLP
BlackRock, Inc
The Capital Group Companies, Inc
GIC Private Limited
14.00
6.38
4.83
3.04
The Group gives full and fair consideration
to applications for employment from
disabled persons. Should an employee
become disabled during their employment
with Spire Healthcare, every effort is made
to enable them to continue their service
with the Group.
Further information on our employees can
be found under Group Human Resources
Director’s review – Our people on pages
42 to 45.
Political donations and expenditure
The Group made no political donations
during the year. Although the Company
does not make, and does not intend to make,
donations to political parties, within the
normal meaning of that expression, the
definition of political donations under the
Companies Act 2006 is very broad and
includes expenses legitimately incurred as
part of the process of talking to members of
Parliament and opinion formers to ensure
that the issues and concerns of the Group are
considered and addressed. These activities
are not intended to support any political
party and the Group’s policy is not to make
any donations for political purposes in the
normally accepted sense.
A resolution will therefore be proposed at
the annual general meeting seeking
shareholder approval for the Directors to be
given authority to make donations and incur
expenditure which might otherwise be
caught by the terms of the Companies Act
2006. The authority sought will be limited to
a maximum amount of £100,000.
Share capital
As at the date of this report, Spire Healthcare
Group plc had an issued share capital of
401,081,391 ordinary shares of 1 pence each,
being the total number of shares with
voting rights.
Equiniti Trust (Jersey) Limited, as trustee of
the Company’s Employee Benefit Trust, holds
670,559 ordinary shares of 1 pence each
(2015: 1,692,242). Further details can be
found in note 25 on page 126.
The rights attaching to the shares are set
out in the Articles of Association. There are
no restrictions on the transfer of ordinary
shares in the capital of the Company other
than those which may be imposed by law
from time-to-time. There are no special
control rights in relation to the Company’s
shares and the Company is not aware of any
agreements between holders of securities
that may result in restrictions on the
transfer of securities or on voting rights.
In accordance with the Disclosure and
Transparency Rules, certain employees are
required to seek approval prior to dealing
in the Company’s shares. The Company’s
entire issued ordinary share capital is listed
on the premium segment of the Official
List of the Financial Conduct Authority and
to unconditional trading on the London
Stock Exchange plc’s main market for
listed securities.
Further information relating to the
Company’s issued share capital can be found
in note 25 to the Company’s financial
statements on page 126.
The Company has made no purchases of its
own shares during the year and no shares
were acquired by forfeiture or surrender or
made subject to a lien or charge. Details of
the shares purchased by the Company’s
Employee Benefit Trust are shown in note 25
on page 126.
Allot shares and pre-emption rights
Shareholders will be asked to renew both the
general authority of the Directors to issue
shares and to authorise the Directors to issue
shares without applying the statutory
pre-emption rights. In this regard, the
Company will continue to adhere to the
provisions in the Pre-emption Group’s
Statement of Principles.
Further details on these matters can
be found in the 2017 Notice of annual
general meeting.
Voting rights
In a general meeting of the Company, on a
show of hands, every member who is present
in person or by proxy and entitled to vote
shall have one vote. On a poll, every member
who is present in person or by proxy shall
have one vote for every share of which they
are the holder.
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Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION GOVERNANCE: DIRECTORS’ REPORT
Significant agreements
The following agreements are considered
to be significant in terms of their potential
impact on the business of the Group as
a whole and could alter or terminate on
a change of control of the Group:
• the Group’s bank facility agreement
contains provisions entitling the
counterparties to exercise termination
or other rights in the event of a change
of control;
• there are a number of contracts which
allow the counterparties to alter or
terminate those arrangements in the event
of a change of control of the Company.
These arrangements are commercially
sensitive and confidential and their
disclosure could be seriously prejudicial
to the Group; and
• the Company’s share incentive plans
contain provisions relating to a change of
control and full details of these plans are
provided in the Directors’ Remuneration
Report on pages 76 to 91. Outstanding
options and awards would normally vest
and become exercisable on a change of
control, subject to the satisfaction of
performance conditions, if applicable,
at that time.
The relationship agreement entered into
with Mediclinic Jersey Limited (formerly
called Remgro Jersey Limited), a subsidiary
of Mediclinic International PLC, in June 2015
is deemed a material agreement between
the Company and its principal shareholder.
The agreement does not include a change of
control provision but does terminate upon
the earlier of the Company’s ordinary shares
ceasing to be listed and traded on the
London Stock Exchange’s main market
for listed securities and the principal
shareholder’s ceasing to be entitled, in
aggregate, to exercise or to control the
exercise of 15% or more of the votes to be
cast on all or substantially all matters of a
general meeting of the Company.
Information required
Location in Annual Report 2016
Amount of interest capitalised
Note 10 on page 116
Long-term incentive schemes
Directors’ Remuneration Report pages 76 to 91
Equity securities allotted for cash
Note 25 on page 126
Parent and subsidiary undertakings
Note 17 on page 120
Subsisting significant agreements
Page 94
Controlling shareholder relationships
Pages 67 and 94
Disclosure of information to auditor
Having made enquiries of fellow Directors
and of the Company’s auditor, each of the
Directors confirms that:
• to the best of their knowledge and belief,
there is no relevant audit information of
which the Company’s auditor is unaware;
and
• they have taken all the steps a Director
might reasonably be expected to have
taken to be aware of relevant audit
information and to establish that the
Company’s auditor is aware of that
information.
Reappointment of auditor
Resolutions for the reappointment of Ernst &
Young LLP as the auditor of the Company and
to authorise the Directors to determine its
remuneration will be proposed at the annual
general meeting. Ernst & Young LLP has
expressed its willingness to be reappointed.
The Directors’ Report has been approved
by the Board and is signed on its behalf by:
Daniel Toner
General Counsel and Group Company
Secretary
1 March 2017
Compensation for loss of office
There are no agreements between the
Group and its Directors or employees
providing for compensation for loss of office
or employment that occurs as a result of
a change of control.
Disclosures required under listing
rule 9.8.4R
The above table is included to meet the
requirements of Listing Rule section 9.8.4R.
The information required to be disclosed
by that section, where applicable to the
Company, can be located in the Annual
Report 2016 at the references set out above.
Events after the reporting period
There have been no material events
affecting the Group or Company since
31 December 2016.
Going concern
The Group is financed by a bank loan facility
that matures in 2019. 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
£100.0 million committed undrawn revolving
credit facility. Accordingly, they have adopted
the going concern basis in preparing these
financial statements.
94
Spire Healthcare Group plc Annual Report 2016 GOVERNANCE: STATEMENT OF DIRECTORS’ RESPONSIBILITIES
Statement of Directors’ responsibilities
• they consider that the Annual Report and
Accounts for the year ended 31 December
2016, taken as a whole, is fair, balanced
and understandable, and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy.
By order of the Board.
Garry Watts
Executive Chairman
1 March 2017
Simon Gordon
Chief Financial Officer
1 March 2017
The Directors are responsible for preparing
the Annual Report and Accounts for the year
ended 31 December 2016, including the
Consolidated financial statements and the
Parent Company financial statements,
Directors’ Report, including the Directors’
Remuneration Report and the Strategic
Report in accordance with applicable law
and regulations. Under that law, the
Directors are required to prepare the Group
financial statements in accordance with
International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union
and Article 4 of the IAS Regulation and have
elected to prepare the Parent Company
financial statements in accordance with IFRS,
as adopted by the EU.
Company law requires the Directors to
prepare such financial statements for each
financial year. Under company law, the
Directors must not approve the financial
statements unless they are satisfied that
they give a true and fair view of the state
of affairs of the Company on a consolidated
and individual basis, and of the profit or loss
of the Company on a consolidated basis for
that period.
In preparing these financial statements,
the Directors are required to:
• select suitable accounting policies in
accordance with IAS 8: Accounting Policies,
Changes in Accounting Estimates and Errors
and then apply them consistently;
• state that the Group’s and Company’s
financial statements have complied
with IFRS as adopted by the EU, subject
to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on
a going concern basis, unless it is not
appropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions, and disclose,
with reasonable accuracy at any time,
the Company’s financial position and
enable them to ensure compliance with
the Companies Act 2006. They are also
responsible for safeguarding the Company’s
assets and for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
Each of the Directors, whose names and
functions are listed on pages 54 and 55,
confirms that:
• to the best of their knowledge, the
Consolidated financial statements and
the Parent Company financial statements,
which have been prepared in accordance
with IFRS as adopted by the EU, give a
true and fair view of the assets, liabilities,
financial position and profit of the
Company on a consolidated and
individual basis;
• make judgements and estimates that are
• to the best of their knowledge, the
Strategic Report and the Directors’ Report
include a fair review of the development
and performance of the business and the
position of the Company on a consolidated
and individual basis, together with a
description of the principal risks and
uncertainties that it faces; and
reasonable and prudent;
• present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
• provide additional disclosures when
compliance with the specific requirements
in IFRS as adopted by the EU is insufficient
to enable users to understand the impact
of particular transactions, other events
and conditions on the Group’s and
Company’s financial position and
financial performance;
95
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Independent Auditor’s Report
To the members of Spire Healthcare Group plc
Our opinion on the financial statements
In our opinion:
• Spire Healthcare Group plc’s Group financial statements and Parent Company financial statements (the ‘financial statements’) give a true
and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2016 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
Spire Healthcare Group plc’s financial statements comprise:
Balance sheet as at 31 December 2016
Income statement for the year then ended
Statement of comprehensive income for the year then ended
Statement of changes in equity for the year then ended
Statement of cash flows for the year then ended
Related notes to the financial statements
Group
Parent Company
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union
and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
Overview of our audit approach
Risks of material
misstatement
1. Manipulation of revenue, both intentional and through error, by changes to the pricing master file
2. Manipulation of accrued patient revenue
3. Inappropriate capitalisation of development costs of new hospitals
Audit scope
• We performed an audit of the complete financial information of four Group companies and audit procedures
on specific balances for a further 19 Group companies.
• The Group companies for which we performed full or specific audit procedures accounted for 100%
of revenue and 100% of total assets.
Materiality
• Overall Group materiality of £4.1 million which represents 5% of profit before tax adjusted for certain
non-recurring exceptional items.
96
Spire Healthcare Group plc Annual Report 2016FINANCIAL STATEMENTS: INDEPENDENT AUDITOR’S REPORT Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy,
the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed
the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express
any opinion on these individual areas.
Key observations communicated
to the Audit and Risk Committee
We did not identify material
errors in the pricing master file,
nor evidence of management
manipulation of revenue through
this means.
Furthermore, we did not identify
any indicators of pricing disputes
with insurers or the NHS.
Based on our audit procedures
performed, we concluded
that revenue for the year is
appropriately recognised and free
from material misstatement.
1. Manipulation of revenue, both intentional and through error, by changes to the pricing master file
Refer to the Audit and Risk Committee Report on pages 68 to 71.
Risk
Our response to the risk
2016 NHS revenue: £293 million
(2015: £262 million)
2016 PMI revenue: £429 million
(2015: £435 million)
Inappropriate revenue recognition by
way of management manipulation, both
intentional and through error, of the pricing
master file resulting in inaccurate patient
invoicing, primarily in respect of PMI and
NHS revenue.
We considered that the pressure to achieve
forecast results or targets increases the
risk of financial reporting manipulation
by management.
Additionally, the high volume of pricing
by procedure, all individually agreed with
PMI providers and the NHS, leads to a higher
likelihood of incorrect inputs to the pricing
master file through error.
In the prior year, we only considered
that this risk could result in material
misstatement of PMI revenue. We have
extended this to include NHS revenue this
year due to the complexity of NHS pricing
and the high volume of procedures.
We performed routine procedures to test revenue
recognised throughout the year. These included
analytical review of revenue disaggregated by month
and hospital, and cut off testing.
In order to specifically address this fraud risk, we then
performed the following procedures:
• we understood and evaluated the controls that
have been designed and implemented to prevent
or detect misstatements due to fraud or error
associated with changes to the pricing master file.
We adopted a fully substantive approach to
addressing this fraud risk, and as such did not
test or rely on the controls identified;
• we have agreed the prices used in a sample of
revenue transactions to the relevant contracts
or agreed price list. Our sample covered both PMI
and NHS patients, as well as a range of procedures,
services and products (e.g. drugs);
• we investigated whether there had been pricing
disputes with insurers or the NHS during the year
through discussions with legal counsel, review
of minutes and verifying this to correspondence,
where available. Additionally we searched journal
descriptions for key words that might indicate the
existence of pricing disputes; and
• we obtained a summary of aged receivables and
verified that the ageing was appropriate by testing
a sample across the different ageing categories. We
searched for any large or unusually long outstanding
receivables that were outside expected credit terms
that might have indicated pricing disagreements.
97
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Key observations communicated
to the Audit and Risk Committee
All items of accrued patient
revenue in our sample were
recognised in the correct period,
and the judgements made by
local hospital management were
appropriate and supported by
invoices issued after year end.
We did not identify any material
unusual items on the unbilled
WIP report, and our testing of
manual journal entries found
that these had been posted by
appropriate staff.
From the audit procedures we
performed, we did not identify
any issues regarding improper
recognition of accrued patient
revenue and hence conclude
that it is appropriately
recognised and free from
material misstatement.
2. Manipulation of accrued patient revenue
Refer to the Audit and Risk Committee Report on pages 68 to 71.
Risk
Our response to the risk
2016 accrued patient revenue: £11 million
(2015: £12 million)
We performed the following procedures in order
to specifically address this fraud risk:
Accrued patient revenue could be
manipulated at hospital level leading
to inappropriate revenue recognition at
year end. Accrued revenue at year end is
recorded in part by the Hospital Support
Centre (HSC) and in part by local hospitals,
the latter relying on local hospital
managements’ judgement.
We considered that the pressure to achieve
local hospital results increases the risk of
financial reporting manipulation by local
hospital management.
• we understood and evaluated the controls that
have been designed and implemented to prevent
or detect misstatements due to fraud associated
with the recognition of accrued patient revenue.
We adopted a fully substantive approach to
addressing this fraud risk, and as such did not test
or rely on the controls identified;
• we evaluated the accrued patient revenue data,
stratifying it into two sub-populations according to
their risk profiles; accrued patient revenue recorded
by the HSC in line with unbilled WIP report (revenue
value £5 million), and accrued patient revenue
recorded by local hospitals where judgement has
been applied (£6 million);
• as HSC management relies on an unbilled WIP
report generated from their general ledger IT system
to book accrued patient revenue, we utilised our
IT specialists to assess how the customised report
has been generated and whether it captured the
required information;
• for a sample across both sub-populations of accrued
patient revenue, we obtained patient procedure
notes to verify occurrence and completeness of the
revenue and that the procedure had been completed
before year end. Additionally, for the items selected
from the amounts recorded by local hospitals, we
obtained an understanding of the judgement made
by the local hospital when calculating the amount
of patient revenue to be accrued. We traced these
transactions to invoices issued after year end.
Where invoices have not been issued, we
investigated whether it represented an indication
of improper revenue recognition;
• we checked the unbilled WIP report for any
unusual items, such as aged transactions. We
assessed the items excluded from accrued patient
revenue to determine appropriateness of exclusion
and completeness of accrued patient revenue; and
• we validated that manual journal entries to accrued
revenue had been made by appropriate staff.
98
Spire Healthcare Group plc Annual Report 2016FINANCIAL STATEMENTS: INDEPENDENT AUDITOR’S REPORT Key observations communicated
to the Audit and Risk Committee
Our audit procedures found no
instances of expenditure which
had been inappropriately
capitalised.
3. Inappropriate capitalisation of development costs of new hospitals
Refer to the Audit and Risk Committee Report on pages 68 to 71.
Risk
Our response to the risk
2016 new hospital development costs
capitalised: £92 million (2015: £37 million)
The Group has incurred substantial costs
through the major development project at
St Anthony’s Hospital and the construction
of new hospitals in Manchester and
Nottingham.
Large hospital construction projects are
not the primary activity of the Group and
therefore the nature and scale of these
projects may give rise to increased
opportunity for management to manipulate
the Group’s profits. Given management’s
bonus structure and analysts’ expectations
on the Group’s performance, we consider
the risk of inappropriate capitalisation to
these significant development projects to
be susceptible to management override.
• We understood and evaluated the controls that
have been designed and implemented to prevent or
detect misstatements due to fraud associated with
the capitalisation of development expenditure. We
adopted a fully substantive approach to addressing
this fraud risk, and as such did not test or rely on
the controls identified.
• We compared the actual expenditure to the
approved budgets for the three projects, and
identified that there were no significant variances.
• We tested a sample of capital additions to property,
plant and equipment. We obtained the invoice to
verify the existence and valuation of each item,
and also obtained evidence that the expenditure
had been authorised by an appropriate individual.
We verified the expenditure was capital in nature by
reading the descriptions and details on the invoices
and supporting documentation. We obtained
evidence certified by third-party surveyors to
support the value of work completed by the main
contractors for each of the three development
projects as at year end.
• Our sample included both low and high value
items. We were particularly focused on accrued
expenses and ‘internal’ costs such as staff costs for
Spire Healthcare employees, where these were
included in our sample, as we considered there was
higher risk of manipulation in these areas. Where staff
costs had been capitalised, we verified that the costs
were directly attributable to the relevant project.
In the prior year, our auditor’s report also included further risks of material misstatements in relation to improper revenue recognition:
Risk identified in 2015
Why we do not consider this an area of significant risk in 2016
Inaccurate coding at the hospital level across
a number of hospitals where incentivisation
and direction to miscode could result in
a material revenue misstatement.
Material overstatement of other income,
specifically revenue earned through the
specific NHS campaigns where the reporting
of results achieved could be manipulated.
The complexity of PMI and NHS contracts
could result in mis-billing, either through
inaccurate coding, or using an inappropriate
price list.
Based on prior years’ audit experience, on reassessment, we do not consider that there
is a high likelihood of a material misstatement occurring at an individual hospital level.
We do not consider that any items within other income in 2016 could be manipulated
such that this would result in a material misstatement because of the small contribution
of other income to total Group revenue.
We continue to consider that there is a significant risk of material misstatement arising from
inaccuracies in the pricing master file (through fraud or otherwise), and our audit procedures
have addressed this risk as explained above.
We no longer consider there is a high enough likelihood that inaccurate coding would result
in a material misstatement to warrant identifying this as a separate significant risk.
As noted above, this year we have extended the risk we have identified in relation to the manipulation of revenue, both intentional and
through error, by changes to the pricing master file to cover NHS as well as PMI revenue.
99
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Our prior year auditor’s report also included details of a one-off impairment charge recorded against the leasehold improvements and
equipment held at the old Spire Manchester Hospital site which was closed in December 2016. In August 2016, the Group completed a
transaction to obtain the freehold of the closing hospital site in exchange for the freehold of the Spire Murrayfield Hospital Wirral site
(the ‘Asset Swap Transaction’). As part of the transaction, the impairment charge was partially reversed, and we no longer consider this
to be an area of significant risk or audit focus.
The scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
entity within the Group. Taken together, this enables us to form an opinion on the Consolidated financial statements. We take into account
size, risk profile, the organisation of the Group and effectiveness of Group-wide controls when assessing the level of work to be performed
at each entity.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage of
significant accounts in the financial statements, we identified the subsidiaries which represent the principal business units within the Group.
The Group continues to operate solely in the UK.
We performed an audit of the complete financial information of four (2015: four) entities (‘full scope components’) which were selected based
on their size or risk characteristics. For a further 19 (2015: 16) entities (‘specific scope components’), we performed audit procedures on specific
accounts within that entity that we considered had the potential for the greatest impact on the significant accounts in the Group financial
statements either because of the size of these accounts or their risk profile.
The entities for which we performed audit procedures accounted for 100% (2015: 100%) of the Group’s revenue and 100% (2015: 99%) of the
Group’s total assets. For the current year, the full scope components contributed 88% (2015: 97%) of the Group’s revenue and 69% (2015: 62%)
of the Group’s total assets. The specific scope components contributed 12% (2015: 3%) of the Group’s revenue and 31% (2015: 37%) of the
Group’s total assets. The audit scope of these components may not have included testing of all significant accounts of the component but has
contributed to the coverage of significant accounts tested for the Group. It is not possible to present the split between full and specific scope
components on a profit before tax basis in a meaningful way as intra-group profits earned in certain specific scope components results in the
aggregate of profit before tax at the component level being marginally in excess of 100% of Group profit before tax.
For the remaining 16 non-dormant entities we performed other procedures, including analytical review and testing of the clerical accuracy
of the consolidation to respond to any potential risks of material misstatement of the Group financial statements.
The charts below illustrate the coverage obtained from the work performed.
Group revenue (%)
Group total assets (%)
12
88
Full
scope
Specific
scope
31
Full
scope
Specific
scope
69
The audit of the entities within the Group is undertaken by one audit team which is led by the senior statutory auditor.
There have not been any significant changes to the scope of our audit from the prior year.
100
Spire Healthcare Group plc Annual Report 2016FINANCIAL STATEMENTS: INDEPENDENT AUDITOR’S REPORT Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
£4.1 millon
£3.1 millon
Profit
before tax
New hospital
set-up costs
Net loss on Asset Swap
Transaction
Adjusted profit
before tax
£74.1m
£1.0m
£7.5m
£82.6m
Materiality
100%
Performance
materiality
75%
Tolerance
for potential
undetected
misstatements
Tolerance for
uncorrected
misstatements
Materiality (5% of adjusted
profit before tax)
£4.1m
£0.2 millon
5%
Uncorrected
misstatements
reporting threshold
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £4.1 million (2015: £3.7 million), which is 5% of adjusted profit before tax (2015: 5% of profit
before tax). We have adjusted profit before tax for certain non-recurring exceptional items in order to calculate materiality on a basis which
reflects the underlying performance of the Group. We believe this provides us with the most applicable measurement basis for the users of the
financial statements. Adjustment was made for costs incurred in 2016 in relation to the opening of two new hospitals in 2017 (£1.0 million),
and the net loss on the Asset Swap Transaction (£7.5 million). Last year Group materiality was based on an unadjusted profit before tax.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 75% (2015: 75%) of our planning materiality, namely £3.1 million (2015: £2.8 million). We have set performance
materiality at this percentage due to our assessment of the overall control environment and the history of no or very few audit adjustments.
Audit work on subsidiaries for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based
on a percentage of total performance materiality. The performance materiality set for each entity is based on the relative size and risk
of the entity in relation to the Group as a whole and our assessment of the risk of misstatement arising in that entity. In the current year,
the range of performance materiality allocated to subsidiary entities was £0.5 million to £2.8 million (2015: £0.6 million to £2.8 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of £0.2 million
(2015: £0.2 million), which is set at 5% of materiality, as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
101
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
• whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently
applied and adequately disclosed;
• the reasonableness of significant accounting estimates made by the Directors; and
• the overall presentation of the financial statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 95, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• based on the work undertaken in the course of the audit:
− the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
− the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
ISA (UK and Ireland)
reporting
We are required to report to you if, in our opinion, financial and non-financial information
in the Annual Report is:
We have no
exceptions to report.
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies
between our knowledge acquired in the course of performing the audit and the Directors’
statement that they consider the Annual Report and Accounts taken as a whole is fair,
balanced and understandable and provides the information necessary for shareholders
to assess the entity’s performance, business model and strategy; and whether the Annual
Report appropriately addresses those matters that we communicated to the Audit and
Risk Committee that we consider should have been disclosed.
Companies Act 2006
reporting
In light of the knowledge and understanding of the Company and its environment obtained in
the course of the audit, we have identified no material misstatements in the Strategic Report
or Directors’ Report.
We have no
exceptions to report.
We are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors’ Remuneration
Report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We are required to review:
• the Directors’ statement in relation to going concern, set out on page 94, and longer-term
viability, set out on page 49; and
• the part of the Corporate Governance Statement relating to the Company’s compliance
with the provisions of the UK Corporate Governance Code specified for our review.
We have no
exceptions to report.
Listing Rules review
requirements
102
Spire Healthcare Group plc Annual Report 2016FINANCIAL STATEMENTS: INDEPENDENT AUDITOR’S REPORT Statement on the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the entity
We have nothing
material to add or to
draw attention to.
ISA (UK and Ireland)
reporting
We are required to give a statement as to whether we have anything material to add or
to draw attention to in relation to:
• the Directors’ confirmation in the Annual Report that they have carried out a robust
assessment of the principal risks facing the entity, including those that would threaten
its business model, future performance, solvency or liquidity;
• the disclosures in the Annual Report that describe those risks and explain how they are
being managed or mitigated;
• the Directors’ statement in the financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements; and
• the Directors’ explanation in the Annual Report as to how they have assessed the prospects
of the entity, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
entity will be able to continue in operation and meet its liabilities as they fall due over the
period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Debbie O’Hanlon (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
1 March 2017
Notes applicable where this report is published electronically:
1
The maintenance and integrity of the Spire Healthcare Group plc website is the responsibility of the Directors; the work carried out by the auditor does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
103
Spire Healthcare Group plc Annual Report 2016STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATION Consolidated income statement
For the year ended 31 December 2016
(£ million)
Revenue
Cost of sales
Gross profit
Other operating costs
Operating profit
Interest income
Finance costs
Profit before taxation
Taxation
Profit for the year
Profit for the year attributable to owners
of the Parent
Earnings per share (in pence per share)
– basic
– diluted
Total before
exceptional
and other
items
2016
Exceptional
and other
items
(note 8)
926.4
(485.9)
440.5
(332.3)
108.2
0.2
(20.0)
88.4
(11.8)
76.6
–
–
–
(15.2)
(15.2)
–
–
(15.2)
(7.8)
(23.0)
Notes
6
5
9
10
12
Total before
exceptional
and other
items
2015
Exceptional
and other
items
(note 8)
884.8
(460.0)
424.8
(314.4)
110.4
0.3
(21.4)
89.3
(16.3)
73.0
–
–
–
(15.7)
(15.7)
–
–
(15.7)
2.7
(13.0)
Total
926.4
(485.9)
440.5
(347.5)
93.0
0.2
(20.0)
73.2
(19.6)
53.6
Total
884.8
(460.0)
424.8
(330.1)
94.7
0.3
(21.4)
73.6
(13.6)
60.0
76.6
(23.0)
53.6
73.0
(13.0)
60.0
14
14
19.2
19.1
(5.8)
(5.8)
13.4
13.3
18.3
18.2
(3.3)
(3.3)
15.0
14.9
104
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
Consolidated statement of comprehensive income
For the year ended 31 December 2016
(£ million)
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year attributable to owners of the Parent
2016
53.6
2015
60.0
–
–
53.6
60.0
105
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Consolidated statement of changes in equity
For the year ended 31 December 2016
(£ million)
As at 1 January 2015
Profit for the year
Other comprehensive income for the year
Share-based payments
Deferred tax on share-based payments
Purchase of shares held in the Employee
Benefit Trust (‘EBT’)
Dividend paid
As at 1 January 2016
Profit for the year
Other comprehensive income for the year
Share-based payments
Deferred tax on share-based payments
Corporation tax on share-based payments
Purchase of shares held in the EBT
Utilisation of EBT shares for Directors’
Share Bonus Award
Dividend paid
Balance at 31 December 2016
Notes
Share
capital
4.0
Share
premium
826.9
Capital
reserves
376.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.0
826.9
376.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.0
826.9
376.1
25
13
25
13
EBT
share
reserves
–
–
–
–
–
(5.6)
–
(5.6)
–
–
–
–
–
(1.8)
5.2
–
(2.2)
Retained
earnings
(252.0)
60.0
–
0.7
(0.1)
–
(12.4)
(203.8)
53.6
–
0.4
(0.3)
0.6
–
(5.2)
(14.8)
Total equity
955.0
60.0
–
0.7
(0.1)
(5.6)
(12.4)
997.6
53.6
–
0.4
(0.3)
0.6
(1.8)
–
(14.8)
(169.5)
1,035.3
106
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
Consolidated balance sheet
As at 31 December 2016
(£ million)
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Capital reserves
EBT share reserves
Retained earnings
Equity attributable to owners of the Parent
Non-controlling interests
Total equity
Non-current liabilities
Borrowings
Deferred tax liability
Current liabilities
Provisions
Borrowings
Trade and other payables
Income tax payable
Total liabilities
Total equity and liabilities
Notes
2016
2015
15
16
18
19
20
25
25
25
21
23
22
21
24
517.8
991.5
519.1
895.5
1,509.3
1,414.6
28.1
119.1
67.9
215.1
29.0
134.7
78.9
242.6
1,724.4
1,657.2
4.0
826.9
376.1
(2.2)
(169.5)
1,035.3
–
1,035.3
495.7
71.2
566.9
16.7
4.5
100.3
0.7
122.2
689.1
4.0
826.9
376.1
(5.6)
(203.8)
997.6
–
997.6
493.5
53.6
547.1
15.6
4.9
90.3
1.7
112.5
659.6
1,724.4
1,657.2
These Consolidated financial statements and the accompanying notes were approved for issue by the Board of Directors on 1 March 2017
and were signed on its behalf by:
Garry Watts
Executive Chairman
Simon Gordon
Chief Financial Officer
107
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Consolidated statement of cash flows
For the year ended 31 December 2016
(£ million)
Cash flows from operating activities
Profit before taxation
Adjustments for:
Depreciation
Impairment of property, plant and equipment
Reversal of impairment on property, plant and equipment
Write-off of intangible assets
Share-based payments
Loss on disposal of property, plant and equipment
Interest income
Finance costs
Movements in working capital:
Decrease in trade and other receivables
Decrease/(increase) in inventories
Increase/(decrease) in trade and other payables
Increase in provisions
Cash generated from operations
Income tax received
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Costs of disposal of property, plant and equipment
Interest received
Net cash used in investing activities
Cash flows from financing activities
Payment of share issue costs relating to 2014 IPO
Interest paid
Repayments of borrowings
Purchase of shares held in the EBT
Dividend paid to equity holders of the Parent
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Exceptional costs
Exceptional costs paid included in the cash flow
Total exceptional costs
108
Notes
2016
2015
73.2
51.9
0.5
(1.9)
1.3
0.4
10.8
(0.2)
20.0
156.0
15.6
0.9
6.8
1.1
73.6
48.9
11.2
–
–
0.7
0.8
(0.3)
21.4
156.3
11.7
(3.0)
(4.4)
1.6
180.4
162.2
1.4
(4.4)
–
(6.9)
177.4
155.3
(149.5)
(109.5)
(0.6)
0.2
(0.4)
0.3
(149.9)
(109.6)
–
(21.5)
(0.4)
(1.8)
(14.8)
(38.5)
(11.0)
78.9
67.9
(5.9)
(15.2)
(1.1)
(21.4)
(0.8)
(5.6)
(12.4)
(41.3)
4.4
74.5
78.9
(4.5)
(15.7)
5
5
5
5, 15
26
5
9
10
20
8
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
Notes to the 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 financial statements for the year ended 31 December 2016 were authorised for issue by the Board of Directors of the Company
on 1 March 2017.
The Company is a public limited company, which is listed on the London Stock Exchange, incorporated, registered and domiciled
in England (registered number: 9084066). The address of its registered office is 3 Dorset Rise, London, EC4Y 8EN.
2. Basis of preparation
The financial statements are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the European
Union and on an historical cost basis.
Going concern
The Group is financed by a bank loan facility that matures in 2019. 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 £100.0 million committed undrawn revolving credit facility. Accordingly, they have adopted the going concern basis in preparing
these financial statements.
3. Accounting policies
Significant accounting policies applied
The principal accounting policies adopted are described below and were consistently applied for all periods presented.
Revenue recognition
The Group derives its revenue primarily from providing private healthcare services to both the public sector and private patients in the UK.
Revenue from charges to patients is recognised when the treatment is provided.
Interest income
Interest is recognised on an effective interest rate basis.
Cost of sales
Cost of sales principally comprises salaries of clinical staff, consultant and clinical fees, medical services and inventories, including drugs,
consumables and prostheses.
Other operating costs
Other operating costs mainly comprise non-clinical staff costs, rent associated with properties leased under operating leases, depreciation,
maintenance and running costs of properties and equipment. It also includes administrative expenses, including the provision of central
support services, IT and other administrative costs.
Operating profit
Operating profit is the profit arising from the normal, recurring operations of the business and after charging exceptional items, as defined below.
Operating profit is adjusted to exclude exceptional and other items to calculate the Key Performance Indicator ‘Operating profit before
exceptional items’, which is utilised in measuring performance before the impact of non-recurring exceptional items in the income statement.
Exceptional items
Exceptional items are those items which, by virtue of their size or incidence, either individually or in aggregate, need to be disclosed separately
to allow a full understanding of the underlying performance of the Group. Items which may be considered exceptional in nature include
significant write-downs of goodwill and other assets, restructuring costs, impairments, hospital closures and set-up costs and business
acquisition costs.
109
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
3. Accounting policies continued
Consolidation
The results of all subsidiary undertakings are included in the consolidated financial statements. Assets, liabilities, income and expenses
of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the subsidiary.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
• power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and
• the ability to use its power over the investee to affect its returns.
The Employee Benefit Trust (EBT) is treated as an extension of the Group and the Company.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each
business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate
share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in other operating costs.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Goodwill represents the excess of the cost of acquisition over the fair value of the assets, liabilities and contingent liabilities of acquired
businesses at the date of acquisition. Goodwill is stated at cost less accumulated impairment losses.
Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment, or more frequently if there is an
indication that the value of the goodwill may be impaired.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Major projects are treated as assets in the course of construction
until completed when they are transferred to the appropriate asset class.
No depreciation is charged on freehold land or assets in the course of construction. Other assets are depreciated so as to write off the carrying
amounts of the assets, less their estimated residual values, over their expected useful lives, as follows:
Freehold buildings and improvements
Leasehold buildings and improvements – lower of unexpired lease term or expected life, with a maximum of 35 years
Plant and machinery
– 5 to 50 years
Fixtures, fittings and equipment
– 5 to 10 years
– 3 to 10 years
The expected useful lives and residual values of property, plant and equipment are reviewed annually and revised as appropriate. The review
of the asset lives and residual values of properties takes into consideration the plans of the business and levels of expenditure incurred on
an ongoing basis to maintain the properties in a fit and proper state for their ongoing use as hospitals.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost means purchase price, less trade discounts, calculated on an average
basis. Net realisable value means estimated selling price, less trade discounts, and less all costs to be incurred in marketing, selling and distribution.
The Group holds consignment stock on sale or return. The Group is only required to pay for the equipment it chooses to use and therefore this
stock is not recognised as an asset.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose only of the statement
of cash flows.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost on an effective interest basis.
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FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
3. Accounting policies continued
Borrowing costs
Borrowing costs that are directly attributable to the acquisition and construction of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets
are substantially ready for their intended use or sale.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
Pensions
The Group operates the Spire Healthcare Pension, a defined contribution scheme. The assets of the scheme are held separately from those
of the Group in independently administered funds.
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred.
Other employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A provision is recognised for the amount expected to be paid under short-term cash bonuses if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Share-based payments
The Group operates a number of equity-settled share-based payment schemes under which the Group receives services from employees
as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the
grant of the options is recognised as an expense. Where the share awards have non-market related performance criteria, the Group has
used the Black Scholes valuation model to establish the relevant fair values. Where the share awards have total shareholder return (‘TSR’)
market-related performance criteria, the Group has used the Monte Carlo simulation valuation model to establish the relevant fair values
(see note 26). The resulting fair values are recognised in the income statement over the vesting period of the options.
At the end of each year, the Group revises its estimates of the number of options that are expected to vest based on the non-market conditions
and recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The social security contributions payable in connection with the grant of the share options is considered to be an integral part of the grant
itself, and the charge will be treated as a cash-settled transaction.
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected, risk-adjusted, future cash flows at a pre-tax risk-free rate. Provisions are measured gross of
any expected insurance recovery. Any such insurance recoveries are recognised in other receivables when the receipt of them is judged
sufficiently probable.
Leases
Leasing arrangements which transfer to the Group substantially all the risks and rewards of ownership of an asset are treated as if the
asset had been purchased outright. The assets are included in tangible assets and depreciated over their estimated economic lives or over
the term of the lease, whichever is the shorter.
The capital element of the leasing commitments is included in liabilities as obligations under finance leases. The lease rentals are treated
as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligation and the interest element
is charged to the income statement in proportion to the capital element outstanding.
Operating lease payments are recognised as an expense on a straight-line basis over the lease term.
Sale and leaseback of properties
In circumstances where the Group sells a property to a third party and then enters into an agreement with the buyer to lease the asset back
under an operating lease (a ‘sale and leaseback transaction’), the asset is shown as disposed from property, plant and equipment. If the sale
is at fair value, the profit or loss on disposal is recognised immediately in the income statement. If the sale price is below fair value, the profit
or loss on disposal is also recognised immediately, except if a loss is compensated for by future rentals being below a market price, in which
case the loss is amortised over the life of the lease. If the sale price is above fair value, the excess over fair value is deferred and amortised
over the period of the lease.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
3. Accounting policies continued
Taxation including deferred taxation
Total income tax on the result for the year comprises current and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items recognised directly in equity and other comprehensive income, in which case it is recognised directly
in equity and other comprehensive income.
Current tax is the expected tax payable on the taxable result for the year, using tax rates enacted, or substantively enacted, at the balance
sheet date, and any adjustments to tax payable in respect of previous years.
Deferred tax is provided on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes, except for:
• goodwill not deductible for tax purposes;
• the initial recognition of an asset or liability in a transaction that is not a business combination and which, at the time of the transaction,
affects neither the accounting profit nor the taxable profit or loss; and
• investments in subsidiary companies where the timing of the reversal of the temporary difference is controlled by the Group and it is
probable that the temporary difference will not reverse in the foreseeable future.
The amount of deferred tax recognised is based on the expected manner of realisation or settlement of the carrying amounts of assets and
liabilities, using tax rates enacted, or substantively enacted, at the balance sheet date. A deferred tax asset is only recognised to the extent
that it is probable that future taxable profits will be available against which the asset can be used.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are deducted from share premium.
Where the employee benefit trust purchases the Company’s equity share capital, the consideration paid, including any directly attributable
incremental costs, is deducted from equity attributable to the Company’s equity holders in both the Company and the Consolidated balance
sheet until the shares are cancelled or reissued.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which
the dividend is approved by the Company’s shareholders. Interim dividends are recognised when paid.
New and amended standards and interpretations
The following amendments to existing standards and interpretations were effective for the Group from 1 January 2016, but either they
were not applicable to or did not have a material impact on the Group:
• Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
• Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
• Amendments to IAS 27: Equity Method in Separate Financial Statements
• Amendments to IAS 1: Disclosure Initiative
• Annual Improvements to IFRSs 2012–2014 Cycle
• Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying Consolidation Exception
The Group or the Company has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective
on 1 January 2016.
112
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
3. Accounting policies continued
Standards and interpretations issued but not yet applied
The following new and amended standards and interpretations in issue are applicable to the Group but not yet effective and have not been
applied by the Group:
Amendment to IAS 7 Statement of Cash Flows: Changes in Financing Liabilities
Annual Improvements to IFRSs 2014-2016 Cycle
IAS 12 (Income taxes) Recognition of Deferred Tax Assets for Unrealised losses
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Clarification to IFRS 15 Revenue from Contracts with Customers
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
IFRS 16 Leases
Effective date*
1 January 2017†
1 January 2017/18†
1 January 2017†
1 January 2018
1 January 2018
1 January 2018†
1 January 2018†
1 January 2019
* The effective dates stated above are those given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European
Union (EU), the application of new standards and interpretations will be subject to their having been endorsed for use in the EU via the EU Endorsement mechanism. In the majority of cases this will result
in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group’s discretion to early adopt standards.
† At the date of authorisation of these financial statements, these standards and interpretation have not yet been endorsed or adopted by the EU.
The Directors do not expect the adoption of these standards and interpretations to have a material impact on the Consolidated or Parent
Company financial statements in the period of initial application, except for IFRS 16 Leases. The impact of this standard will be evaluated
during 2017.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 will be effective for annual periods beginning on or after 1 January 2018 with early adoption permitted. The standard establishes
a five-step principle-based approach for revenue recognition and is based on the concept of recognising an amount that reflects the
consideration for performance obligations only when they are satisfied and the control of goods or services is transferred. It applies to all
contracts with customers, except those in the scope of other standards. It replaces the separate models or goods, services and construction
contracts under the current accounting standards.
During 2016, the Group performed a preliminary assessment of IFRS 15 and concluded that the adoption of IFRS 15 will have a minimal impact
on its consolidated results. The Group is in the business of providing healthcare services. Approximately 70% of the Group’s revenue is derived
from in-patient and daycase admissions which are billed as an integrated service. In addition, services are typically provided over a short time
frame, that is, one to three days.
Out-patient cases, which generally do not involve surgical procedures, are billed at an individual component basis when performance
obligations are satisfied. Similarly, other revenue, which includes consultant revenue and other third-party revenue streams, is recognised
when performance obligations are satisfied and the control of goods or services is transferred.
4. Significant judgements and estimates
In the application of the Group’s accounting policies, the Directors are required to make judgements and estimates about the carrying
amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The following
accounting policies have been identified as involving particularly complex judgements or subjective estimates:
Judgements
• Deferred tax
Deferred tax assets are recognised for unutilised trading losses and capital losses. Deferred tax assets are recognised to the extent that
it is probable that taxable income will be available in future against which they can be utilised. Future taxable profits are estimated based
on business plans which include estimates and assumptions regarding economic growth, interest, inflation rates and taxation rates.
• Leases
In the determination of the classification of a number of leases over hospital properties as operating leases, assumptions have been made
about the discount rate applied to the annual rent payable over the remainder of the lease term compared against their respective fair
values and of the useful economic life of the hospitals. Further information about commitments under these leases is given in note 27.
• Exceptional items
Judgements are required as to whether items that are material in size, unusual or infrequent in nature should be disclosed as exceptional.
Deciding which items meet this definition requires the Group to exercise its judgement. Details of these items categorised as exceptional
are outlined in note 8.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
4. Significant judgements and estimates continued
Estimates
• Deferred tax
The Group owns a portfolio of freehold and leasehold property interests. In previous years, the Group had recognised a deferred tax liability
in its financial statements in respect of capital gains tax and other taxes based on the assumption that a proportion of the freehold properties
would have been disposed of in future years, whilst the remaining properties were realised through use. This calculation previously required
judgement about the timing and number of the related property disposals, which was potentially impacted by changes to plans made by
the business over time and, in particular, changes in business plans in respect of the holding or disposing of properties.
During the year, the Group considered it to be appropriate to reassess the basis for calculating deferred tax on the property portfolio and
has now based the assessment on solely held-in-use basis. This gives rise to a material tax charge of £8.4 million (refer to notes 12 and 23).
• Estimation of useful lives and residual values
Property, plant and equipment are depreciated over their useful lives, taking into account residual values, where appropriate. The actual
lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives,
factors such as technological innovation, product life cycles and maintenance programmes are taken into account. The estimated useful
lives of property, plant and equipment are set out in note 3.
• Goodwill
Goodwill is considered for impairment at least annually or more frequently if there is an indication that goodwill may be impaired.
This is achieved by comparing the value-in-use of the goodwill with its carrying value in the accounts. The value-in-use calculations
require the Group to estimate future cash flows expected to arise in the future, taking into account market conditions. The present
value of these cash flows is determined using an appropriate discount rate.
The assumptions considered to be most critical in reviewing goodwill for impairment are contained in note 15.
• Share-based payments
At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on
the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
The assumptions considered to be most critical in estimating share-based payments are contained in note 26.
• Provisions for patient claims
In the measurement of such provisions where the recognition criteria are met, the typical complexity of claims – for example, in respect
of their outcome and the extent of damages (if any) assessed on the Group – requires management to use estimation. Such estimates
are typically based on professional advice on expected outcomes and historic information on similar claims.
In some cases, judgement is also required, for example, as to whether the criteria for recognising provisions are met and whether
a reliable estimate of the outcomes can be made.
Further details of claims and the amounts provided are given in note 22.
5. Operating profit
Operating profit has been arrived at after charging/(crediting):
(£ million)
Rent of land and buildings under operating leases
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Reversal of impairment on property, plant and equipment
Write-off of intangible assets
Loss on disposal of property, plant and equipment
Staff costs (see note 7)
Impairment losses and reversals of impairment are included in other operating costs.
2016
62.7
51.9
0.5
(1.9)
1.3
10.8
268.0
2015
62.9
48.9
11.2
–
–
0.8
253.0
114
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
6. 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.
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:
(£ million)
Insured
NHS
Self-pay
Other
Total
7. Staff costs
Employees
The average number of persons employed by the Group during the year, analysed by category, was as follows:
(No.)
Clinical
Non-clinical
2016
429.3
293.4
170.4
33.3
926.4
2015
434.8
262.0
156.2
31.8
884.8
2016
6,128
4,848
2015
6,041
4,784
10,976
10,825
The average number of full-time equivalent persons employed by the Group during the year, analysed by category, was as follows:
(No.)
Clinical
Non-clinical
The aggregate payroll costs of these persons were as follows:
(£ million)
Wages and salaries
Social security costs
Other pension costs
2016
4,245
3,810
8,055
2016
230.4
20.4
17.2
268.0
2015
4,125
3,719
7,844
2015
218.0
18.6
16.4
253.0
Included in wages and salaries and social security costs for year ended 31 December 2016 are exceptional items of £3.4 million
(2015: £2.6 million) and £0.3 million (2015: £nil), respectively. Refer to note 8 for further details.
Other pension costs are in respect of the defined contribution scheme; unpaid contributions at 31 December 2016 were £1.6 million
(2015: £1.6 million).
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
8. Exceptional items
(£ million)
Business reorganisation
Write-off of intangible assets
Hospital set-up costs
Hospital (reversal of)/impairment on property, plant and equipment
Hospital closure
Corporate restructuring
Loss on disposal of property, plant and equipment
(also referred to as the Asset Swap Transaction)
Other1
Total exceptional costs
Income tax credit on exceptional items
Total post-tax exceptional costs
2016
4.8
1.3
1.0
(1.9)
0.1
0.5
8.9
0.5
15.2
(0.6)
14.6
2015
3.1
–
–
5.7
6.9
–
–
–
15.7
(2.7)
13.0
1 Other exceptional items primarily relate to National Insurance on Directors’ Share Bonus Award granted at the time of the IPO.
In the year ended 31 December 2016, business reorganisation mainly comprised staff restructuring costs and the closure costs relating to
an onerous contract. In the year, the Group’s goodwill in relation to the Lifescan business was written-off following a strategic review and the
closure of this operation. Hospital set-up costs refer to pre-opening costs for the new Spire Manchester and Spire Nottingham hospitals. The
reversal of the impairment is the result of the reassessment of the lives of medical and other equipment following the relocation of the assets
from the previous Spire Manchester Hospital to the new hospital facility and other Group hospitals following its closure. Hospital closure costs
relate to the decommissioning of the assets related to the previous Spire Manchester Hospital. Corporate restructuring related to an internal
group reorganisation and transaction costs relating to the Asset Swap Transaction as described below. Except for the corporate restructuring
costs, which were capital in nature, and write-off of intangible assets, all other exceptional costs are expected to be tax deductible.
On 31 August 2016, as a result of the development of a new hospital facility in Manchester and the closure of the previous Spire Manchester
Hospital (previously held under an operating lease), the freehold interest in Spire Wirral Hospital with a net book value of £11.7 million was
disposed of, and leased back in a sale and leaseback transaction. The consideration for the sale was realised in the form of a non-cash asset,
being the freehold of the previous Spire Manchester Hospital, which was simultaneously acquired by the Group (the ‘Asset Swap Transaction’).
The overall loss on these transactions was £7.7 million before sale costs of £1.2 million.
In the year ended 31 December 2015, business reorganisation costs mainly comprised staff restructuring costs. Hospital impairment relates
to an impairment charge of £5.7 million on leasehold improvements and equipment associated with the previous Spire Manchester Hospital,
as a result of the development of a new hospital facility in West Didsbury, South Manchester. Hospital closure costs relate to the closure of the
Spire St Saviour’s Hospital announced in June 2015 and includes an impairment charge on freehold property and equipment of £5.5 million.
Included in business reorganisations, hospital set-up costs, hospital closure, other and corporate restructuring costs are £3.7 million
(2015: £2.6 million) in respect of wages, salaries and social security costs (see note7).
9. Interest income
(£ million)
Interest income on bank deposits
10. Finance costs
(£ million)
Interest on bank facilities
Finance charges payable under finance leases
Finance costs capitalised in the year
Total finance costs
2016
0.2
2016
12.7
9.1
21.8
(1.8)
20.0
2015
0.3
2015
13.2
8.5
21.7
(0.3)
21.4
Finance costs capitalised during the year were calculated based on a weighted cost of borrowing of 3.5% (2015: 3.6%).
116
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
11. Auditor’s remuneration
During the year, the Group (including its subsidiary undertakings) obtained the following services from the Group’s external auditor
as detailed below:
(£ million)
Amounts receivable by auditor and its associates in respect of:
Audit of the Company’s and Group's financial statements
Audit of the Company’s subsidiaries
Other assurance services
12. Taxation
(£ million)
Current tax
UK Corporation tax expense
Adjustments in respect of prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect of change in tax rate
Reassessment of property timing differences (note 4)
Adjustments in respect of prior years
Total deferred tax
2016
2015
0.3
0.1
–
0.4
0.3
0.2
–
0.5
2016
2015
2.1
0.4
2.5
16.3
(5.2)
8.4
(2.4)
17.1
8.1
(0.2)
7.9
9.4
(5.8)
–
2.1
5.7
Total tax expense
19.6
13.6
Corporation tax is calculated at 20.00% (2015: 20.25%) of the estimated taxable profit or loss for the year. The effective tax rate on profit
before taxation for the year was 26.8% (2015: 18.5%).
The effective tax assessed for the year, all of which arises in the UK, differs from the standard weighted rate of corporation tax in the UK.
The reconciliation of the actual tax charge to that at the domestic corporation tax rate is as follows:
(£ million)
Profit before taxation
Tax at the standard rate of 20% (FY2015: 20.25%)
Effects of:
Expenses not deductible for tax purposes
Deferred tax credit on property assets
Non-taxable profit on disposal of property, plant and equipment
Disposal of subsidiary company
Write-off of intangible assets
Difference in tax rates
Reassessment of property timing differences (note 4)
Adjustments to prior years
Total tax expense
2016
73.2
14.6
2.7
–
–
0.8
0.3
(5.2)
8.4
(2.0)
19.6
2015
73.6
14.9
3.4
(0.7)
(0.1)
–
–
(5.8)
–
1.9
13.6
Expenses not deductible for tax purposes relate mostly to depreciation on non-qualifying fixed assets, disallowable entertaining
and professional fees.
The UK Government has announced a further decrease in the future UK corporation tax rate from 18% to 17% from April 2020. This change
has resulted in a deferred tax credit arising from the reduction in the balance sheet carrying value of deferred tax liabilities to reflect the
anticipated rate of tax at which those liabilities are expected to reverse.
During the year, the Group considered it to be appropriate to reassess the basis for calculating deferred tax on the property portfolio and
has now based the assessment on solely held-in-use basis (see note 4). This gives rise to a material tax charge and is excluded from tax
on underlying profit.
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
13. Dividend
(£ million)
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2015 of 2.4 pence per share (2015: 1.8 pence)
– interim dividend for the year ended 31 December 2016 of 1.3 pence per share (2015: 1.3 pence)
Total
2016
2015
9.6
5.2
14.8
7.2
5.2
12.4
A final dividend of 2.5 pence per share, amounting to a total final dividend of approximately £10.1 million, is to be proposed at the Company’s
annual general meeting on 26 May 2017. In accordance with IAS 10 Events After the Balance Sheet Date, dividend declared after the balance
sheet date is not recognised as a liability in these financial statements.
14. 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 year.
Profit for the year attributable to owners of the Parent (£ million)
Weighted average number of ordinary shares
Adjustment for weighted average number of shares held in the EBT
Weighted average number of ordinary shares in issue (No.)
Basic earnings per share (in pence per share)
2016
53.6
2015
60.0
401,081,391 401,081,391
(1,085,956)
(1,195,844)
399,995,435 399,885,547
13.4
15.0
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.
Profit for the year attributable to owners of the Parent (£ million)
Weighted average number of ordinary shares in issue
Adjustment for weighted average number of contingently issuable shares
Diluted weighted average number of ordinary shares in issue (No.)
Diluted earnings per share (in pence per share)
15. Intangible assets
(£ million)
Cost:
At 1 January 2016
Written-off
At 31 December 2016
Impairment:
At 1 January 2016 and 31 December 2016
Net book value:
At 31 December 2016
At 31 December 2015
2016
53.6
2015
60.0
399,995,435 399,885,547
1,576,430
2,052,534
401,571,865 401,938,081
13.3
14.9
Goodwill
520.1
(1.3)
518.8
1.0
517.8
519.1
The goodwill arising on acquisitions is reviewed annually for impairment or when there is an event that may indicate impairment. In the year,
the Group’s goodwill in relation to the Lifescan business was written-off following a strategic review and the closure of the operation.
The Directors do not believe that any further impairment is required in the current financial year.
Impairment testing
The Directors treat the business as a single cash-generating unit for the purposes of testing goodwill for impairment. The recoverable amount
of goodwill is calculated by reference to its estimated value-in-use.
In order to estimate the value-in-use, management has used trading projections covering the three-year period to December 2019, which were
extended to cover the five-year period to December 2021.
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FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
15. Intangible assets continued
Management identified a number of key assumptions relevant to the value-in-use calculations, being revenue growth, which is impacted
by an interaction of a number of elements of the operating model, including pricing trends, volume growth and the mix and complexity of
discharges, assumptions regarding cost inflation and discount rates. These variables are interdependent and the forecast cash flows reflect
management’s expectations based on current market trends. Revenue growth is projected to be in line with past experience and expectations
of future performance, averaging 4.1% for the five-year period (2015: 5.9%). Cost assumptions are consistent with the Group’s historical track
record, after taking account of headline inflation at 1.0% (2015: 2.7%).
A long-term growth rate of 2.25% (2015: 2.25%) has been applied to cash flows beyond 2020, which is based on historic growth rates achieved
by the sector, which have typically exceeded retail price index (‘RPI’). Pre-tax discount rates were based on the capital asset pricing model,
utilising a sector-specific Beta in arriving at the equity premium and cost of debt based on current bank lending rates. A specific pre-tax
discount rate was calculated to reflect the profile of cash flows inherent to the cash-generating unit and this was 9.0% (2015: 9.0%).
A sensitivity analysis has been performed in order to review the impact of changes in key assumptions. For example, an increase of 3.0% in
the pre-tax discount rate to 12.0%, with all other assumptions held constant, did not identify any impairments. Similarly, zero growth in the
period beyond 2021, with all other assumptions held constant or combined with a 1.0% increase in the pre-tax discount rate, did not identify
any impairment.
As at the balance sheet date, it is not considered to be reasonably possible that circumstances will change, such that the key assumptions made
in assessing the recoverable amount relating to each of the acquisitions will be revised to the point where the goodwill is considered impaired.
16. Property, plant and equipment
(£ million)
Cost:
At 1 January 2015 (as previously stated)
Reclassification
At 1 January 2015 (as restated)
Additions
Disposals
Reclassification
At 1 January 2016
Additions
Disposals
Transfers
At 31 December 2016
Depreciation:
At 1 January 2015
Charge for the year
Impairment
Disposals
Reclassification
At 1 January 2016
Charge for the year
Impairment
Reversal of impairment
Disposals
At 31 December 2016
Net book value:
At 31 December 2016
At 31 December 2015 ( as restated)
Freehold property
Long leasehold
property
Equipment
Assets in the
course of
construction
623.9
28.3
652.2
21.8
–
(0.7)
673.3
9.7
(15.3)
18.7
686.4
83.9
11.3
4.9
–
(5.4)
94.7
11.7
–
–
(3.0)
103.4
174.0
(28.3)
145.7
13.5
(0.7)
–
158.5
14.2
(2.3)
6.4
176.8
34.2
5.4
2.7
(0.6)
(1.0)
40.7
4.7
0.4
–
(2.0)
43.8
263.1
–
263.1
37.4
(2.2)
0.6
298.9
32.6
(25.7)
2.6
308.4
97.7
32.2
3.6
(1.5)
6.4
138.4
35.5
0.1
(1.9)
(24.4)
147.7
1.4
–
1.4
37.1
–
0.1
38.6
103.9
–
(27.7)
114.8
–
–
–
–
–
–
–
–
–
–
Total
1,062.4
–
1,062.4
109.8
(2.9)
–
1,169.3
160.4
(43.3)
–
1,286.4
215.8
48.9
11.2
(2.1)
–
273.8
51.9
0.5
(1.9)
(29.4)
294.9
583.0
578.6
133.0
117.8
160.7
160.5
114.8
38.6
991.5
895.5
119
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
16. Property, plant and equipment continued
On 31 August 2016, as a result of the development of a new hospital facility in Manchester and the closure of the previous Spire Manchester
Hospital (previously held under an operating lease), the freehold interest in Spire Wirral Hospital with a net book value of £11.5 million was
disposed of, and leased back in a sale and leaseback transaction. The consideration for the sale was realised in the form of a non-cash asset,
being the freehold of the previous Spire Manchester Hospital, which was simultaneously acquired by the Group (the “Asset Swap Transaction”).
Refer to note 8.
The reversal of the impairment in 2016 is the result of the reassessment of the lives of medical and other equipment following the relocation
of the assets from the previous Spire Manchester Hospital to the new hospital facility and other Group hospitals following its closure.
As at 31 December 2016, included in the net book value of property, plant and equipment above is £21.7 million (2015: £22.5 million) relating
to assets held under finance leases on which there was a depreciation charge of £1.2 million in the year (2015: £1.1 million). Also included in
property, plant and equipment with a net book value of £4.0 million (2015: £nil) is the freehold of the previous Spire Manchester Hospital
which has been retired from active use.
The amount of borrowing costs capitalised during the year ended 31 December 2016 was £1.8 million (2015: £0.3 million). The rate used to
determine the amount of borrowing costs eligible for capitalisation was 3.5% (2015: 3.6%) which is calculated on a weighted cost of borrowing.
17. Subsidiary undertakings
As at 31 December 2016, these Consolidated financial statements of the Group comprise the Company and the following companies,
most of which are incorporated in, and whose operations are conducted in, the United Kingdom.
120
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
17. Subsidiary undertakings continued
Incorporated in England and Wales and registered at 3 Dorset Rise, London EC4Y 8EN,
unless otherwise stated
Principal activity
Class of share
Classic Hospitals Group Limited
Classic Hospitals Limited
Classic Hospitals Property Limited
Fox Healthcare Acquisitions Limited
Fox Healthcare Holdco 2 Limited
Lifescan Limited
Links Bidco S.à r.l. Propco 8#
Medicainsure Limited
Montefiore House Limited†
SHC Holdings Limited
Spire Cambridge (Disposal) Limited
Spire Fertility (Disposal) Limited
Spire Healthcare (Holdings) Limited
Spire Healthcare Finance Limited*
Spire Healthcare Group UK Limited
Spire Healthcare Holdings 1
Spire Healthcare Holdings 2 Limited
Spire Healthcare Holdings 3 Limited
Spire Healthcare Limited
Spire Healthcare Properties Limited
Holding company
Non-trading company
Property company
Leasing company
Holding company
Non-trading company
Property company
Holding company
Health provision
Holding company
Non-trading company
Non-trading company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Health provision
Hospital leasing
Spire Healthcare Property Developments Limited (formerly Spire St Anthony’s Property Limited) Development company
Spire Links 2 Limited
Spire Property 1 Limited
Spire Property 2 Limited
Spire Property 4 Limited
Spire Property 5 Limited
Spire Property 6 Limited
Spire Property 13 Limited
Spire Property 16 Limited
Spire Property 17 Limited
Spire Property 18 Limited
Spire Property 19 Limited
Spire Property 23 Limited
Spire Thames Valley Hospital (BVI Property Holdings) Limited^
Spire Thames Valley Hospital Limited
Spire Thames Valley Hospital Propco Limited
Spire UK Holdco 2A Limited
Spire UK Holdco 4 Limited
Holding company
Property company
Non-trading company
Property company
Property company
Property company
Property company
Property company
Property company
Property company
Property company
Property company
Holding company
Non-trading company
Property company
Holding company
Holding company
* Direct shareholding of the Company.
† Ownership interest is 50.1%.
^ Incorporated in the British Virgin Islands (BVI) and registered at Harneys Corporate and Trust Services Limited, Craigmuir Chambers, Road Town, Tortola, VG1110, BVI.
#
incorporated in Luxembourg and registered at 2 Boulevard Konrad Adenauer, L-1115 Luxembourg.
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
121
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
18. Inventories
(£ million)
Prostheses, drugs, medical and other consumables
2016
28.1
2015
29.0
Cost of sales for the year ended 31 December 2016 includes inventories recognised as an expense amounting to £177.3 million
(2015: £164.3 million).
19. Trade and other receivables
(£ million)
Amounts falling due within one year:
Trade receivables – net
Other receivables
Prepayments
Accrued income
2016
2015
58.0
11.1
27.2
22.8
71.3
10.2
28.8
24.4
119.1
134.7
Trade receivables comprise amounts due from private medical insurers, the NHS, patients, and consultants and other third parties who use
the Group’s facilities. Invoices to customers fall due within 60 days of the date of issue. Some of the agreements with NHS customers operate
on the basis of monthly payments on account with quarterly reconciliations, which can lead to invoices being paid after their due date.
The ageing of trade receivables is shown below and shows amounts that are past due at the reporting date. A provision for doubtful receivables
has been recognised at the reporting date through consideration of the ageing profile of the Group’s receivables and the perceived credit quality
of its customers. The carrying amount of trade receivables is considered to be an approximation to its fair value.
The ageing of trade receivables at the reporting date was:
(£ million)
Not past due and not impaired
Past due 0–30 days, and not impaired
Past due 31–90 days, and not impaired
Past due and more than 91 days, and not impaired
Total
Trade receivables comprise the following wider customer/payor groups:
(£ million)
Private medical insurers
NHS
Patient debt
Other
Total
The movement in the allowance for impairment in respect of trade receivables during the year was as follows:
(£ million)
At 1 January
Provided in the year
Utilised during the year
At 31 December
122
2016
38.3
8.0
6.7
5.0
58.0
2016
34.0
10.8
4.9
8.3
58.0
2016
5.7
4.6
(5.3)
5.0
2015
32.7
17.0
9.2
12.4
71.3
2015
41.4
14.4
2.8
12.7
71.3
2015
5.9
5.0
(5.2)
5.7
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
20. Cash and cash equivalents
(£ million)
Cash at bank
Short-term investments
Short-term investments are money market deposits.
21. Borrowings
(£ million)
Secured borrowings
Bank loans
Obligations under finance leases
2016
53.9
14.0
67.9
2015
42.8
36.1
78.9
2016
2015
424.1
76.1
500.2
423.1
75.3
498.4
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)
(£ million)
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2016
4.5
495.7
500.2
2015
4.9
493.5
498.4
Obligations under finance leases
The Group has finance leases in respect of three hospital properties and medical equipment. Future minimum lease payments under finance
leases are as follows:
(£ million)
Within one year
After one year but not more than five years
More than five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2016
2015
Minimum
payments
8.7
35.8
229.8
274.3
(198.2)
76.1
Present
value of
payments
7.0
21.2
47.9
76.1
–
76.1
Minimum
payments
8.5
35.2
239.1
282.8
(207.5)
75.3
Present
value of
payments
7.5
23.6
44.2
75.3
–
75.3
Property leases, with a present value liability of £75.4 million (2015: £74.2 million), expire in 2040 and carry an implicit interest rate of 12.9%
(2015: 12.9%). Rent is reviewed annually with reference to RPI, subject to a floor of 3.0% and a cap at 5.0%.
123
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
21. Borrowings continued
Terms and debt repayment schedule
The maturity date is the date on which the relevant bank loans are due to be fully repaid, as at the balance sheet date.
The carrying amounts drawn (after issue costs and including interest accrued) under facilities in place at the balance sheet date were
as follows:
(£ million)
Senior finance facility
Maturity
Margin over LIBOR
July 2019
2.00%
2016
424.1
2015
423.1
Revolving credit facility (undrawn committed facility)
100.0
100.0
On 23 July 2014, the Group was refinanced, and it entered into a bank loan facility with a syndicate of banks, comprising a five-year,
£425.0 million term loan and a five-year £100.0 million revolving facility. The loan is non-amortising and carries interest at a margin
of 2.00% over LIBOR (2015: 2.00% over LIBOR).
Reconciliation of net change in cash and cash equivalents to net debt
(£ million)
2016
2015
Borrowings at start of year
Bank loans
Obligations under finance leases
Cash at bank
Short-term investments
Net debt at 1 January
Net decrease/(increase) in cash and cash equivalents
Loans movement
Movement in obligations under finance leases
Net debt at 31 December
22. Provisions
The movement for the year in the provisions is as follows:
(£ million)
At 1 January 2015
Utilised
Additions
Cash received for settlement of claims
At 1 January 2016
Utilised
Additions
At 31 December 2016
423.1
75.3
498.4
(42.8)
(36.1)
419.5
11.0
1.0
0.8
12.8
432.3
Medical
malpractice
Business
restructuring
and other
4.8
(2.8)
7.9
4.5
14.4
(2.2)
2.1
14.3
1.3
(0.7)
0.6
–
1.2
(0.3)
1.5
2.4
422.2
76.6
498.8
(65.4)
(9.1)
424.3
(4.4)
0.9
(1.3)
(4.8)
419.5
Total
6.1
(3.5)
8.5
4.5
15.6
(2.5)
3.6
16.7
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.
Business restructuring and other includes staff restructuring costs and the closure costs relating to an onerous contract.
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 included in other receivables in that respect was £6.7 million
(2015: £6.2 million).
Provisions as at 31 December 2016 are expected to be utilised within three years.
124
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
22. Provisions continued
The Group has received claims and notifications from patients of a consultant, who previously had practising privileges at Spire Healthcare.
The patients are claiming against the consultant and other involved parties including the Group. Court hearings are scheduled for a limited
number of claims in October 2017 through which precedent will be established regarding how future claims will be treated. The Group is
defending such claims and the legal process is expected to take place over a period of several years. There is significant uncertainty regarding
the number of claims, the outcome of the claims, any amounts to be awarded to each claimant and the apportionment of damages between
the parties. It is, therefore, not possible to reliably estimate any liability of the Group. The Group maintains comprehensive medical malpractice
insurance, and in the event that the Group is found liable, the Directors consider that insurers will meet any such liabilities, subject to certain
terms and excess limitations.
23. Deferred taxation
The movement for the year in the net deferred tax liability is as follows:
(£ million)
At 1 January 2015
Recognised in profit or loss
Change in tax rates
Recognised in equity
At 1 January 2016
Recognised in profit or loss
Change in tax rates
Reassessment of property timing differences (note 4)
Disposal of subsidiary company
Recognised in equity
At 31 December 2016
Disclosed within liabilities
Property,
plant and
equipment
Losses
and other
91.7
(6.1)
(7.8)
–
77.8
0.3
(5.1)
8.4
–
–
81.4
81.4
(43.9)
17.6
2.0
0.1
(24.2)
13.6
(0.1)
–
0.2
0.3
(10.2)
(10.2)
Total
47.8
11.5
(5.8)
0.1
53.6
13.9
(5.2)
8.4
0.2
0.3
71.2
71.2
Deferred tax on property, plant and equipment has arisen on differences between the carrying value of the relevant assets and the tax base.
Of the amounts included in losses and other, £8.5 million (2015: £23.0 million) relate to losses. The losses relate entirely to non-trade losses.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability
settled, based on tax rates that have been enacted, or substantively enacted, at the balance sheet date. The Finance Bill 2016, which includes
a further reduction in the UK corporate tax rate from 18.0% to 17.0% on 1 April 2020, has been enacted and so deferred tax assets and liabilities
have been calculated at this rate unless the timing difference is expected to reverse sooner than 1 April 2020 in which case the applicable rate
of 18.00% to 20.0% has been used.
Deferred income tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets against current
tax liabilities.
The Group has unrecognised deferred tax assets as at 31 December 2016 as follows:
(£ million)
Trading losses
Capital losses
Tax basis for future capital disposals
2016
0.9
0.1
17.9
18.9
2015
1.9
0.3
10.7
12.9
These amounts are the expected tax value of the gross timing difference at the enacted long-term tax rate of 17% (2016: 18%). A deferred tax
asset has not been recognised in respect of these amounts due to uncertainties as to the timing of future profits that the trading losses could
be offset against and whether capital gains will arise against which the capital losses and tax basis for capital disposals could be utilised.
125
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
24. Trade and other payables
(£ million)
Trade payables
Other payables
Other taxation and social security
Accruals
25. Share capital and reserves
Share capital of Spire Healthcare Group plc
Issued and fully paid
At 31 December 2016
At 31 December 2015
2016
49.7
8.8
3.5
38.3
100.3
2015
46.8
7.1
4.2
32.2
90.3
£0.01 ordinary shares
Shares
£’000
401,081,391
401,081,391
4,010
4,010
Capital reserves
This reserve represents the loans of £376.1 million due to the former ultimate parent undertaking and management that were forgiven
by those counterparties as part of the reorganisation of the Group prior to the IPO in 2014.
EBT share reserves
Equiniti Trust (Jersey) Limited is acting in its capacity as trustee of the Company’s Employee Benefit Trust (‘EBT’). The purpose of the EBT is to
further the interests of the Company by benefiting employees and former employees of the Group and certain of their dependants. The EBT
is treated as an extension of the Group and the Company.
During 2016, the EBT purchased 561,860 shares at an average price of £3.18 per share (2015: 1,692,242 shares acquired at an average price
per share of £3.31 per share).
Where the EBT purchases the Company’s equity share capital the consideration paid, including any directly attributable incremental costs,
is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. As at 31 December 2016,
670,559 shares (2015: 1,692,242) were held by the EBT in relation to the Directors’ share bonus award and long-term incentive plan.
At 1 January 2016, the EBT held 1,692,242 shares. On 1 April 2016, 801,825 number of shares were exercised in Tranche 1 of the Directors’
Share Bonus Award and in August 2016, 781,718 shares were exercised for Tranche 2 (refer to Note 26). A purchase of 561,860 shares was
made in July 2016 for an average price of £3.18 per share; and at 31 December 2016, the EBT held 670,559 shares.
The EBT share reserve represents the consideration paid when the EBT purchases the Company’s equity share capital, until the shares
are reissued.
26. Share-based payments
The Group operates a number of share-based payment schemes for Executive Directors and other employees, all of which are equity settled.
The Group has no legal or constructive obligation to repurchase or settle any of the options in cash. The total cost recognised in the income
statement was £0.4 million in the year ended 31 December 2016 (2015: £0.7 million). Employer’s National Insurance is being accrued, where
applicable, at the rate of 13.8%, which management expects to be the prevailing rate at the time the options are exercised, based on the
share price at the reporting date. The total National Insurance charge for the year was £0.2 million (2015: £0.1 million).
The following table analyses the total cost between each of the relevant schemes, together with the number of options outstanding:
2016
2015
Charge £m
Number of
options
(thousands)
Charge £m
Number of
options
(thousands)
0.4
–
0.4
950
–
950
0.7
–
0.7
944
29
973
(£ million)
Long Term Incentive Plan
Deferred Bonus Plan
126
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
26. Share-based payments continued
A summary of the main features of the scheme is shown below:
Directors’ share bonus award
At the time of the IPO on 23 July 2014, the Company granted nil cost share options to Executive Directors to reflect their contribution prior to
Admission. The maximum number of shares underlying the awards total 1,671,200. Each award was divided into two equal tranches, the first
of which vested on 23 July 2015 and the second tranche vested on 23 July 2016. The number of options that vested depended on conditions
relating to share price on the relevant date. The second tranche, which vested on 23 July 2016, resulted in 781,718 options (23 July 2015:
801,824 options) being issued. All qualifying options relating to the Directors’ Share Bonus Award were exercised during the year.
Executive nil cost share options awarded at the time of the IPO were exercised as follows:
Tranche one 801,825 in April 2016 at an average price of £3.31.
Tranche two 781,718 in August 2016 at an average price of £3.26.
Simon Gordon, Rob Roger and Garry Watts exercised the first tranche of their awards on 1 April 2016 and sold 94,546, 173,340 and 117,266
respectively to cover income tax and national insurance liabilities, at an average share price of 360.0288 pence. They each retained the balance
of their shares.
Rob Roger exercised the second tranche of his awards on 19 August 2016 and sold 168,674 to cover income tax and national insurance
liabilities, at an average share price of 343.98 pence. He retained the balance of his shares. Simon Gordon and Garry Watts exercised the
second tranche of their awards on 30 August 2016 and sold 92,174 and 107,533 respectively to cover income tax and national insurance
liabilities, at an average share price of 350.4 pence. They each retained the balance of their shares. For further details, see the Directors’
Remuneration Report, on pages 76 to 91.
Long term incentive plan
The Long Term Incentive Plan (‘LTIP’) is open to Executive Directors and designated senior managers, and awards are made at the discretion
of the Remuneration Committee. Awards are subject to market and non-market performance criteria.
Awards granted under the LTIP vest subject to achievement of performance conditions measured over a period of at least three years, unless
the Committee determines otherwise. Awards may be in the form of conditional share awards or nil-cost options or any other form allowed
by the Plan rules.
Vesting of awards will be dependent on a range of financial, operational or share price measures, as set by the Committee, which are aligned
with the long-term strategic objectives of the Group and shareholder value creation. Not less than 30% of an award will be based on share
price measures. The remainder will be based on either financial and/or operational measures. At the threshold performance, no more than
25% of the award will vest, rising to 100% for maximum performance. For awards granted in 2017, vesting will be based on EPS (35%), relative
TSR (35%) and Operational Excellence (30%) targets. The details of measures, targets and weightings may be varied by the Committee prior
to grant based on the Group’s strategic objectives.
Deferred bonus plan
The Deferred Bonus Plan is a discretionary executive share bonus plan under which the Remuneration Committee determines that a proportion
of a participant’s annual bonus will be deferred. The market value of the shares granted to any employee will be equal to one-third of the total
annual bonus that would otherwise have been payable to the individual. The awards will be granted on the day after the announcement of
the Group’s annual results. The awards will normally vest over a three-year period.
The aggregate number of share awards outstanding for the Group and their weighted average exercise price is shown below:
2016
2015
Directors’
Share
Bonus Award*
(thousands)
LTIP
(TSR condition)
(thousands)
LTIP
(EPS condition)
(thousands)
Deferred
Bonus Plan
(thousands)
Directors’
Share
Bonus Award*
(thousands)
LTIP
(TSR condition)
(thousands)
LTIP
(EPS condition)
(thousands)
Deferred
Bonus Plan
(thousands)
At 1 January
Granted
Exercised
Surrendered
Cancelled
At 31 December
Exercisable at 31 December
Weighted average contractual life
–
(1,584)
–
(54)
–
–
–
1,638
1,003
1,003
29
1,671
475
–
(486)
–
992
286
475
–
(486)
–
992
286
–
–
–
–
29
–
–
–
–
(33)
1,638
802*
531
472
–
–
–
531
472
–
–
–
1,003
1,003
–
–
–
29
–
–
–
29
–
1.9 years
1.9 years
1.4 years
0.6 years
1.6 years
1.6 years
2.4 years
* The Directors’ Share Bonus Award was divided into two equal tranches, the first of which vested on 23 July 2015 and the second tranche vested on 23 July 2016. The number of options that vested
depended on conditions relating to share price on the relevant dates. The second tranche, which vested on 23 July 2016, resulted in 781,718 options (23 July 2015: 801,824 options) being issued. All
qualifying options relating to the Directors’ Share Bonus Award were exercised during the year. For further details, see the Directors’ Remuneration Report, on pages 76 to 91.
The weighted average remaining contractual life for the share options outstanding as at 31 December 2016 was 1.9 years (2015: 1.3 years).
127
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
26. Share-based payments continued
Share options outstanding at the end of the year have the following expiry date:
Grant – vest
Directors’ Share Bonus Award*
23/07/2014 – immediately upon grant
LTIP grants
30/09/2014 – 31/12/2016
01/04/2015 – March 2018
30/03/2016 – March 2019
Deferred Bonus Plan
01/06/2015 – 01/06/2018
Share options
(thousands)
Expiry date
Exercise price
(£)
2016
2015
23/07/2024
n/a
–
1,638
30/09/2024
01/04/2025
30/03/2026
01/06/2025
–
–
–
–
572
547
865
29
1,062
944
–
29
* The Directors’ Share Bonus Award was divided into two equal tranches, the first of which vested on 23 July 2015 and the second tranche vested on 23 July 2016. The number of options that vested
depended on conditions relating to share price on the relevant dates. The second tranche, which vested on 23 July 2016, resulted in 781,718 options (23 July 2015: 801,824 options) being issued. All
qualifying options relating to the Directors’ Share Bonus Award were exercised during the year. For further details, see the Directors’ Remuneration Report, on pages 76 to 91.
The following information is relevant to the determination of the fair value of the awards granted for the years ended 31 December 2016
and 2015, respectively, under the schemes:
2016
Option pricing model
Weighted average share price at grant date (£)
Exercise price (£)
Weighted average contractual life
Expected dividend yield
Risk-free interest rate
Volatility
2015
Option pricing model
Weighted average share price at grant date (£)
Exercise price (£)
Weighted average contractual life
Expected dividend yield
Risk-free interest rate
Volatility
LTIP
(TSR condition)
LTIP
(EPS condition)
Deferred
Bonus Plan
Monte Carlo
Fair value at
grant date
3.60
Nil
3.60
Nil
3.0 years
3.0 years
n/a
0.6%
37%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
LTIP
(TSR condition)
LTIP
(EPS condition)
Deferred
Bonus Plan
Monte Carlo
Fair value at
grant date
3.61
Nil
3.61
Nil
n/a
n/a
Nil
3.0 years
3.0 years
3.0 years
n/a
0.7%
33%
n/a
n/a
n/a
n/a
n/a
n/a
The expected volatility is based on the historical volatility of the Company and a comparator group of other international healthcare companies.
27. Commitments
(a) Operating leases
The Group had future minimum lease payments under non-cancellable operating leases, based on rents prevailing at the year end, as set
out below:
(£ million)
Not later than one year
Later than one year and not later than five years
Later than five years
128
2016
2015
Land and
buildings
63.1
249.7
1,282.9
1,595.7
Other
1.1
2.2
–
3.3
Land and
buildings
62.9
250.1
1,334.2
1,647.2
Other
0.9
1.7
–
2.6
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
27. Commitments continued
The Group has a number of long-term institutional lease arrangements. These include leases over 12 properties with a term up to
December 2042, subject to renewal or extension over each of the 12 properties. The leases include key terms such as annual rental covenants
and minimum levels of capital expenditure invested by the Group. Rent is indexed annually in line with RPI, upwards only and subject to
a cap of 5.0%. The capital expenditure covenants measured on an average basis over each five-year period during the term of the leases,
require the Group to incur, in total, £5.0 million of maintenance capital expenditure and £3.0 million of additional capital expenditure each
year, such being subject to indexation in line with RPI.
Other operating leases are in respect of vehicles and medical transportation.
(b) Consignment stock
At 31 December 2016, the Group held consignment stock on sale or return of £22.1 million (2015: £20.9 million). The Group is only required
to pay for the equipment it chooses to use and therefore this stock is not recognised as an asset.
(c) Capital expenditure commitments
Capital commitments comprise amounts payable under capital contracts which are duly authorised and in progress at the balance sheet
date. They include the full cost of goods and services to be provided under the contracts through to completion. The Group has rights within
its contracts to terminate at short notice and, therefore, cancellation payments are minimal.
Capital commitments at the end of the year were as follows:
(£ million)
Contracted but not provided for
28. Contingent liabilities
The Group had the following guarantees at 31 December 2016:
2016
63.8
2015
39.4
• the bankers to Spire Healthcare Limited have issued a letter of credit in the maximum amount of £1.5 million (2015: £1.5 million)
in relation to contractual pension obligations and statutory insurance cover in respect of the Group’s potential liability to claims
made by employees under the Employers’ Liability (Compulsory Insurance) Act 1969;
• under certain lease agreements entered into on 26 January 2010, the Group has given undertakings relating to obligations in the lease
documentation and the assets of the Group are subject to a fixed and floating charge; and
• see note 22 for details of a contingent liability in respect of Medical Malpractice.
29. Capital management
The Group’s objective is to maintain an appropriate balance of debt and equity financing to enable the Group to continue as a going concern,
to continue the future development of the business and to optimise returns to shareholders and benefits to other stakeholders.
The Board closely manages trading capital, defined as net assets plus net debt. The Group’s net assets at 31 December 2016 were
£1,035.3 million (2015: £997.6 million) and net debt, calculated as total debt (comprising obligations under finance leases and borrowings),
less cash and cash equivalents, amounted to £432.3 million (2015: £419.5 million).
The principal focus of capital management revolves around working capital management and compliance with externally imposed financial
covenants. Throughout the period, the Group complied with all covenants required by our lending group.
Major investment decisions are based on reviewing the expected future cash flows and all major capital expenditure requires approval
by the Board.
At the balance sheet date, the Group’s committed undrawn facilities, and cash and cash equivalents were as follows:
(£ million)
Committed undrawn revolving credit facility
Cash and cash equivalents
2016
100.0
67.9
2015
100.0
78.9
129
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
30. Financial risk management
The Group has exposure to the following risks from its use of financial instruments:
• credit risk;
• liquidity risk; and
• market risk.
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes
for measuring and managing risk. Further quantitative disclosures are included throughout these financial statements.
The Directors have overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers and investment securities.
• Trade and other receivables
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group’s exposure to credit
risk from trade receivables is considered to be low because of the nature of its customers and policies in place to prevent credit risk occurring.
Most revenues arise from insured patients’ business and the NHS. Insured revenues give rise to trade receivables which are mainly due
from large insurance institutions, which have high credit worthiness. The remainder of revenues arise from individual Self-pay patients
and consultants.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
This allowance is composed of specific losses that relate to individual exposures and also a collective loss component established in respect
of losses that have been incurred but not yet identified, determined based on historical data of payment statistics.
Note 19 shows the ageing and customer profiles of trade receivables outstanding at the year end.
• Investments
The Group limits its exposure to credit risk by only investing in short-term money market deposits with large financial institutions, which
must be rated at least Investment Grade by key rating agencies.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Liquidity is managed across the Group and consideration is taken of the segregation of accounts for regulatory purposes. Short-term
operational working capital requirements are met by cash in hand and overdraft facilities.
Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of at least 90 days,
including the servicing of financial obligations. In addition to cash on demand, the Group has available the following lines of credit:
• £100.0 million of revolving credit facility, which was fully undrawn as at 31 December 2016 (2015: £100.0 million).
130
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
30. Financial risk management continued
The following are the contractual maturities, as at the balance sheet date, of financial liabilities, including interest payments and excluding
the impact of netting arrangements:
At 31 December 2016
(£ million)
Non-derivative financial liabilities
Secured bank facility
Obligations under finance leases
Trade and other payables
As at 31 December 2016
At 31 December 2015
(£ million)
Non-derivative financial liabilities
Secured bank facility
Obligations under finance leases
Trade and other payables
As at 31 December 2015
Carrying
amount
Contractual
cash flows
1 year
or less
1–2 years
More than
2 years
424.1
76.1
55.9
556.1
456.0
270.4
55.9
782.3
10.9
8.5
55.9
75.3
11.3
8.5
–
19.8
433.8
253.4
–
687.2
Carrying
amount
Contractual
cash flows
1 year
or less
1–2 years
More than
2 years
423.1
75.3
50.5
548.9
479.3
278.7
50.5
808.5
12.1
8.3
50.5
70.9
14.0
8.5
–
22.5
453.2
261.9
–
715.1
Bases of valuation
The management assessed that cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate 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, except for floating rate debt, which is after the deduction of £2.9 million
(2015: £4.0 million) of issue costs.
As at 31 December 2016, the Group did not hold any financial instruments measured at fair value (2015: nil).
Market risk
Market risk is the risk that changes in market prices, such as interest rates, will affect the Group’s income or the value of its holdings of financial
instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return on risk.
Interest rate risk
The Group is exposed to interest rate risk arising from fluctuations in market rates. This affects future cash flows from money market
investments and the cost of floating rate borrowings.
From time-to-time, the Group considers the cost benefit of entering into derivative financial instruments to hedge its exposure to interest
rate volatility based on existing variable rates, current and predicted interest yield curves and the cost of associated medium-term derivative
financial instruments.
Interest rates on variable rate loans are determined by LIBOR fixings on a quarterly basis. Interest is settled on all loans in line with agreements
and is settled at least annually.
31 December 2016 (£ million)
Effective interest rate (%)
31 December 2015 (£ million)
Effective interest rate (%)
Variable
425.0
2.40%
425.0
2.58%
Total
425.0
2.40%
425.0
2.58%
Undrawn
facility
100.0
100.0
131
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the financial statements continued
30. Financial risk management continued
Sensitivity analysis
A change of 25 basis points in interest rates at the reporting date would have increased/(decreased) equity and reported results by the amounts
shown below. This analysis assumes that all other variables remain constant.
(£ million)
At 31 December 2016
Variable rate instruments
Sensitivity (net)
(£ million)
At 31 December 2015
Variable rate instruments
Sensitivity (net)
Profit or loss
Equity
25 bp increase
25 bp decrease
25 bp increase
25 bp decrease
(0.3)
(0.3)
0.3
0.3
(0.3)
(0.3)
0.3
0.3
Profit or loss
Equity
25 bp increase
25 bp decrease
25 bp increase
25 bp decrease
(0.3)
(0.3)
0.3
0.3
(0.3)
(0.3)
0.3
0.3
31. Related party transactions
Transactions with key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Group, directly or indirectly. They include the Board and Executive Committee, as identified on pages 54 to 57.
Compensation for key management personnel is set out in the table below:
(£ million)
Short-term employee benefits
Retirement benefits
Share-based payments
Total
2016
2015
3.2
0.4
0.3
3.9
2.6
0.4
0.7
3.7
Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration Report
on pages 76 to 91.
There were no transactions with related parties external to the Group in the year to 31 December 2016 (2015: nil).
32. Events after the reporting period
2016 final dividend
For 2016, the Board has recommended a final dividend of 2.5 pence per share, amounting to approximately £10.1 million, to be paid on
27 June 2017 to shareholders on the register at the close of business on 2 June 2017.
Spire Manchester Hospital
The new Spire Manchester Hospital in Didsbury was opened on 23 January 2017.
132
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
Company balance sheet
As at 31 December 2016
(Registered number: 9084066)
(£ million)
ASSETS
Non-current assets
Investments
Current assets
Other receivables
Income tax receivable
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
EBT share reserves
Retained earnings
Total equity
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
Notes
2016
2015
C9
C7
C6
25
25
C8
831.1
831.1
80.8
1.1
12.1
94.0
830.7
830.7
44.5
0.2
20.7
65.4
925.1
896.1
4.0
826.9
(2.2)
93.9
922.6
4.0
826.9
(5.6)
68.8
894.1
2.5
2.5
2.0
2.0
925.1
896.1
The profit attributable to the Company for the year ended 31 December 2016 was £44.7 million (2015: £41.6 million).
The financial statements on pages 133 to 139 were approved by the Board of Directors on 1 March 2017 and signed on its behalf by:
Garry Watts
Executive Chairman
Simon Gordon
Chief Financial Officer
133
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Company statements of changes in equity
For the year ended 31 December 2016
EBT
share
reserves
Retained
earnings
Share
capital
4.0
Share
premium
826.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(5.6)
–
–
4.0
826.9
(5.6)
–
–
–
–
–
–
–
–
–
–
–
–
4.0
826.9
–
–
(1.8)
–
5.2
–
(2.2)
38.9
41.6
–
–
0.7
(12.4)
68.8
44.7
–
–
0.4
(5.2)
(14.8)
93.9
Total
869.8
41.6
–
(5.6)
0.7
(12.4)
894.1
44.7
–
(1.8)
0.4
–
(14.8)
922.6
(£ million)
At 1 January 2015
Profit for the year
Other comprehensive income for the year
Purchase of shares held in the EBT
Share-based payment
Dividend paid
As at 1 January 2016
Profit for the year
Other comprehensive income for the year
Purchase of shares held in the EBT
Share-based payment
Utilisation of EBT shares for Directors’ Share Bonus Award
Dividend paid
As at 31 December 2016
134
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
Company statements of cash flows
For the year ended 31 December 2016
(£ million)
Cash flows from operating activities
Loss before taxation (excluding dividend received)
Adjustments for:
Interest income
Finance costs
Movements in working capital:
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Income tax received
Net cash used in operating activities
Cash flows from investing activities
Interest received
Dividend received
Net cash used in investing activities
Cash flows from financing activities
Payment of share issue costs relating to 2014 IPO
Purchase of shares held in the EBT
Dividend paid to equity holders of the Parent
Net cash generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2016
2015
(0.1)
(0.9)
(1.3)
–
(1.4)
(36.3)
0.5
0.3
(36.9)
1.3
43.6
44.9
–
(1.8)
(14.8)
(16.6)
(8.6)
20.7
12.1
(0.3)
0.2
(1.0)
(36.7)
(3.5)
–
(41.2)
0.1
42.3
42.4
(1.1)
(5.6)
(12.4)
(19.1)
(17.9)
38.6
20.7
135
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the Parent Company financial statements
This section contains the notes to the Company financial statements. The issued share capital and EBT share reserves
are consistent with the Spire Healthcare Group plc Group financial statements. Refer to note 25 of the Group
financial statements.
C1. Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted by the
European Union and on an historical basis.
See note 1 for general information about the Company.
The financial statements have been prepared on a going concern basis as the Directors believe there are no material uncertainties that
lead to significant doubt that the Company can continue as a going concern in the foreseeable future.
The Company applies consistent accounting policies, as applied by the Group. To the extent that an accounting policy is relevant to both
Group and Company financial statements, refer to the Group financial statements for disclosure of the accounting policy. Material policies
that apply to the Company only are included as appropriate.
The Company has used the exemption granted under s408 of the Companies Act 2006 that allows for the non-disclosure of the income
statement of the Parent Company.
The Company did not have items to be reported as other comprehensive income; therefore, no statement of comprehensive income was prepared.
C2. Significant accounting policies in this section
Investment in subsidiaries
The Company’s investments in subsidiaries are carried at cost less provisions resulting from impairment. In testing for impairment,
the carrying value of the investment is compared to its recoverable amount, being its value-in-use. The value-in-use is calculated using
the same assumptions as noted for the testing of goodwill impairment in note 15 to the Group financial statements.
Share-based payments
The financial effect of awards by the Company of options over its equity shares to employees of subsidiary undertakings is recognised by
the Company in its individual financial statements as an increase in its investment in subsidiaries with a credit to equity equivalent to the
IFRS 2 cost in subsidiary undertakings. The subsidiary, in turn, will recognise the IFRS 2 cost in its income statement with a credit to equity
to reflect the deemed capital contribution from the Company.
C3. Key estimates and assumptions in this section
Impairment testing of investments in subsidiaries
The Company’s investments in subsidiaries have been tested for impairment by comparison against the underlying value of the subsidiaries’
assets based on value-in-use calculated using the same assumptions as noted for the testing of goodwill impairment in note 15 of the Group
financial statements.
C4. Staff costs and Directors’ remuneration
The Company had no employees during the year, except for the Directors. The information on compensation for the Directors, being considered
as the key management personnel of the Company, is disclosed in note C12.
C5. Auditor’s remuneration
During the year, the Company obtained the following services from the Company’s external auditor, as detailed below:
(£’000)
2016
2015
Amounts receivable by auditor and its associates in respect of:
Audit of the Company’s annual financial statements
Other assurance services
C6. Cash and cash equivalents
(£ million)
Cash at bank
Short-term investments
136
10.0
–
10.0
2016
0.2
11.9
12.1
10.0
–
10.0
2015
0.2
20.5
20.7
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
C7. Other receivables
(£ million)
Amounts owed by subsidiary undertakings
2016
80.8
80.8
2015
44.5
44.5
The amounts owed by subsidiary undertakings bear interest at LIBOR plus 2.00% (2015: LIBOR plus 2.00%). The amounts are unsecured and
repayable on demand.
C8. Trade and other payables
(£ million)
Amounts owed to subsidiary undertakings
Accruals
2016
2.3
0.2
2.5
2015
1.9
0.1
2.0
The amounts owed to subsidiary undertakings bear interest at LIBOR plus 2.00% (2015: LIBOR plus 2.00%). The amounts are unsecured and
repayable on demand.
C9. Investment in subsidiaries
(£ million)
Net book value
At 1 January 2015
Additions – IFRS 2 costs
At 1 January 2016
Additions – IFRS 2 costs
At 31 December 2016
Subsidiary
undertakings
830.0
0.7
830.7
0.4
831.1
Total
830.0
0.7
830.7
0.4
831.1
Details of the Company’s subsidiaries at the balance sheet date are in note 17.
At the year end, investments in subsidiaries were reviewed for indicators of impairment and no indicators for impairment were found.
C10. Capital management and financial instruments
The capital structure of the Company comprises issued capital, reserves and retained earnings as disclosed in the Parent Company statement
of changes in equity totalling £922.6 million (2015: £894.1 million) as at 31 December 2016, and cash amounted to £12.1 million
(2015: £20.7 million).
Credit risk
As at 31 December 2016, the Company had amounts owed by subsidiary undertakings of £80.8 million (2015: £44.5 million). The Company’s
maximum exposure to credit risk from these amounts is £80.8 million (2015: £44.5 million).
Liquidity risk
The Company finances its activities through its investments in subsidiary undertakings.
The Company anticipates that its funding sources will be sufficient to meet its anticipated future administrative expenses and dividend
obligations as they become due over the next 12 months.
137
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
Notes to the Parent Company financial statements continued
C10. Capital management and financial instruments continued
(£ million)
Financial assets: Carrying amount and fair value
Loans and receivables
Cash and cash equivalents
Amounts owed by subsidiary undertakings
All of the above financial assets are current and unimpaired.
(£ million)
Financial liabilities: Carrying amount and fair value
Amortised cost
Amounts owed to subsidiary undertakings
2016
2015
12.1
80.8
92.9
20.7
44.5
65.2
2016
2015
2.3
2.3
1.9
1.9
The fair value of financial assets and liabilities approximates their carrying value.
All of the Company’s financial liabilities have a maturity of less than one year.
Market risk
Interest rate risk and sensitivity analysis
As at 31 December 2016 the Company had short-term borrowings of £2.3 million (2015: £1.9 million) owed to subsidiary undertakings,
which are repayable on demand and bear interest at LIBOR plus 2.00% (2015: LIBOR plus 2.00%). Interest on these borrowings in the year
amounted to nil (2015: £0.2 million) and the Directors do not perceive that servicing this debt poses any significant risk to the Company
given its size in relation to the Company’s net assets.
IFRS 7 Financial Instruments: Disclosures required a market risk sensitivity analysis illustrating the fair values of the Company’s financial
instruments and the impact on the Company’s income statement and shareholders’ equity of reasonably possible changes in selected
market risks. The Company has no financial assets or liabilities that expose it to market risk, other than the amounts owed by/to subsidiary
undertakings of £80.8 million (2015: £44.5 million) and £2.3 million (2015: £1.9 million) respectively. The Directors do not believe that a
change of 25 basis points in the LIBOR interest rates will have a material impact on the Company’s income statement or shareholders’ equity.
C11. Contingent liabilities
Lease arrangements with a consortium of investors
The Company has given a guarantee to a consortium of investors, comprising Malaysia’s Employees Provident Fund (EPF), affiliated funds
of Och-Ziff Capital Management Group and Moor Park Capital, in relation to the sale of 12 of the Spire Group’s property-owning companies
on 17 January 2013. With effect from 17 January 2013, the total third-party annual commitments of the Group under these operating leases
increased by £51.3 million per annum.
As a result of the sale, the Group has long-term institutional lease arrangements (up to December 2042, subject to renewal or extension),
with the landlord for each of the 12 properties. The leases include key terms such as annual rental covenants and minimum levels of capital
expenditure invested by the Group. The capital expenditure covenants measured on an average basis over each five-year period during the
term of the leases, require the Group to incur, in total, £5.0 million of maintenance capital expenditure and £3.0 million of additional capital
expenditure on the portfolio of 12 hospitals each year, such being subject to indexation in line with RPI. If the minimum rent cover ratio is not
met, the Group is required to enter into an asset performance recovery plan in order to comply with the covenants, but no default would be
deemed to have occurred. The Company is a party to this guarantee. As at 31 December 2016, the Group complied with the required covenants.
Lease agreements entered into by Classic Hospitals Limited
Under lease agreements entered into on 26 January 2010 by Classic Hospitals Limited, a subsidiary undertaking of the Company, the Company
has undertaken to guarantee the payment of rentals over the lease term to August 2040, and to ensure that the other covenants in the lease
are observed. The initial rentals payable under the leases in 2010 were £6.3 million per annum, which will be subject to an increase in future
years. As part of these arrangements, the assets of the Company are subject to a fixed and floating charge in the event of a default. As at
31 December 2016, there was no breach in the required covenants.
138
FINANCIAL STATEMENTSSpire Healthcare Group plc Annual Report 2016
C12. Related party transactions
The Company’s subsidiaries are listed in note 17 to the Group financial statements. The following table provides the Company’s balances that
are outstanding with subsidiary companies at the balance sheet date:
(£ million)
Amounts owed from subsidiary undertakings
Amounts owed to subsidiary undertakings
The amounts outstanding are unsecured and repayable on demand.
The following table provides the Company’s transactions with subsidiary companies recorded in the profit for the year:
(£ million)
Amounts invoiced to subsidiaries
Amounts invoiced by subsidiaries
Dividend received from subsidiaries
2016
80.8
(2.3)
78.5
2016
36.3
(0.4)
43.6
2015
44.5
(1.9)
42.6
2015
36.7
–
42.3
Amounts invoiced to/by subsidiaries relate to general corporate purposes.
Directors’ remuneration
The remuneration of the Non-Executive Directors of the Company is set out below. Further information about the remuneration of individual
Directors is provided in the audited part of the Directors’ Remuneration Report on pages 76 to 91.
(£ million)
Short term employee benefits*
Pension contributions
Share-based payments*
Total
2016
0.5
–
–
0.5
2015
0.6
–
–
0.6
* Emoluments and share-based payment charges for the Executive Directors are borne by a subsidiary company, Spire Healthcare Limited. Share-based payment related charges for the Executive Chairman
prior to Admission (i.e., Directors’ Share Bonus Plan) are also borne by a subsidiary company, Spire Healthcare Limited.
Directors’ interests in share-based payment schemes
Refer to note 26 to the Group financial statements for further details of the share options held by the Chairman and Executive Directors.
Other transactions
During the year, the Company did not make any purchases in the ordinary course of business from an entity under common control.
C13. Events after the reporting period
2016 final dividend
For 2016, the Board has recommended a final dividend of 2.5 pence per share, amounting to approximately £10.1 million, to be paid on
27 June 2017 to shareholders on the register at the close of business on 2 June 2017.
139
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016
SHAREHOLDER INFORMATION: ADDITIONAL SHAREHOLDER INFORMATION
Additional shareholder information
All other shareholder enquiries not related to
the share register should be addressed to the
Group Company Secretary at the registered
office or emailed to companysecretary@
spirehealthcare.com.
Electronic shareholder communications
Registering for online communications
gives shareholders more control of their
shareholding. The registration process is
via our registrar’s secure website at
www.shareview.co.uk. Once registered you
will be able to:
• elect how we communicate with you;
• amend your details;
• amend the way you receive dividends; and
• buy or sell shares online.
This does not mean shareholders can no
longer receive paper copies of documents if
they so wish. We are able to offer a range of
services and tailor communication to meet
your needs.
Share dealing services
UK resident shareholders can sell shares
on the internet or by phone using Equiniti
Limited’s Shareview Dealing facility by either
logging onto www.shareview.co.uk/dealing
or by calling 0345 603 7037 between 8.00am
and 4.30pm on any business day (excluding
bank holidays).
In order to gain access to this service, the
shareholder reference number is required,
which can be found at the top of the
Company’s share certificates.
Sharegift
It may be that you have a small number of
shares which would cost you more to sell
than they are worth. It is possible to donate
these to ShareGift, a registered charity, who
provide a free service to enable you to
dispose charitably of such shares. There are
no implications for Capital Gains Tax purposes
(no gain or loss) on gifts of shares to charity
and it is also possible to obtain income tax
relief. More information on this service can
be obtained from www.sharegift.org or by
calling +44 (0)207 930 3737.
Dividend allowance
The Government announced that from
6 April 2016 the Dividend Tax Credit has been
replaced by a tax-free Dividend Allowance.
This is in the form of a 0% tax rate on the
first £5,000 of dividend income per year.
UK residents will pay tax on any dividends
received over the £5,000 allowance
(reducing to £2,000 from April 2018)
at the following rates:
• 7.5% on dividend income within the
basic rate (20%) band;
• 32.5% on dividend income within the
higher rate (40%) band; and
• 38.1% on dividend income within the
additional rate (45%) band.
Dividends paid on shares held within
pensions and Individual Savings Accounts
(ISAs) continue to be tax free. Further
information is available from HMRC at
www.gov.uk/government/publications/
dividend-allowance-factsheet.
Important: You will be required to retain
details of any dividend payments you receive
and complete Tax Returns where required. For
further advice please contact a tax or financial
adviser, who in the UK must be authorised
by the Financial Conduct Authority.
Overseas dividend payment service
Equiniti Limited provides a dividend
payment service to over 30 countries that
automatically converts payments into the
local currency by an arrangement with
Citibank Europe PLC. Further details,
including an application form and terms
and conditions of the service, are available
on www.shareview.co.uk or from
Equiniti Limited by calling +44 (0)121 415
7047 or writing to them at Aspect House,
Spencer Road, Lancing, West Sussex
BN99 6DA (please quote Overseas Payment
Service with the Company name and your
shareholder reference number).
‘Boiler room’ scams
From time-to-time, in common with other
listed companies, shareholders may receive
unsolicited phone calls or correspondence
concerning investment matters. These are
typically from overseas-based ‘brokers’ who
target UK shareholders, using persuasive
and high-pressure tactics to lure investors
into scams in what often turn out to be
worthless, non-existent or high-risk shares
in US or UK investments. These operations
are commonly known as ‘boiler rooms’.
Shareholders are advised to be very wary of
any unsolicited advice, offers to buy shares at
a discount or offers of free company reports.
Further information on how to avoid share
fraud or to report a scam can be found on
our website at www.spirehealthcare.com.
Spire Healthcare website
Shareholders are encouraged to visit our
website at www.spirehealthcare.com which
has a wealth of information about the
Company and the services it offers. There is a
section designed specifically for investors at
www.investors.spirehealthcare.com where
shareholder and media information can
be accessed. This year’s Annual Report and
Notice of annual general meeting, together
with prior year documents, can also be
viewed there along with information on
dividends paid, our share price and how to
avoid shareholder fraud.
Registered office and Group 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 and Wales No.
09084066
Shareholder enquiries
All shareholder enquiries regarding your
shares should be addressed to the
Company’s share registrar at the address
on page 141, or as follows:
Equiniti Limited
Tel (UK only) 0371 384 2030*
Tel (non-UK) +44 (0)121 415 7047
For the hard of hearing, Equiniti Limited
offers a special Textel service that can be
accessed by dialling 0371 384 2255*
(or +44 (0)121 415 7028 from outside the UK).
*
Lines are open from 8.30am to 5.30pm, Monday to Friday,
UK time.
Managing your shares
Please contact our registrar, Equiniti Limited,
to manage your shareholding if you wish to:
• register for electronic communications;
• transfer your shares;
• change your registered name or address;
• register a lost share certificate and obtain
a replacement;
• consolidate your shareholdings;
• manage your dividend payments; and
• notify the death of a shareholder.
When contacting Equiniti Limited or
registering online, you should have your
shareholder reference number at hand. This
can be found on your share certificate or
latest dividend tax voucher. You can manage
your shareholding online by registering for
Shareview at www.shareview.co.uk. This
website has a ‘frequently asked questions’
section which addresses the most common
shareholder problems.
140
Spire Healthcare Group plc Annual Report 2016 Financial calendar
2017 annual general meeting (London)
Ex-dividend date for 2016 final dividend
Record date for 2016 final dividend
Payment date of 2016 final dividend
Announcement of 2017 half year results
Analysis of ordinary shareholders
As at 31 December 2016
Investor type
Number of holders
Percentage of holders
Percentage of shares held
Private
Institutional and other
Total
2016
69
13.02%
0.50%
2015
49
9.90%
0.29%
2016
461
86.98%
99.50%
2015
446
90.10%
99.71%
2016
530
100%
100%
1–1,000
1,001–50,000
50,001–500,000
500,001+
Shareholdings
Number of holders
Percentage of holders
Percentage of shares held
2016
79
14.91%
0.01%
2015
75
15.15%
0.01%
2016
261
49.25%
0.73%
2015
251
50.71%
0.68%
2016
117
22.08%
5.37%
2015
103
28.81%
4.94%
2016
73
13.76%
93.89%
Corporate advisers
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Brokers
Bank of America Merrill Lynch
2 King Edward Street
London EC1A 1HQ
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Legal advisers
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
Remuneration consultants
Deloitte LLP
2 New Street Square
London EC4A 3BZ
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
26 May 2017
1 June 2017
2 June 2017
27 June 2017
September 2017
2015
495
100%
100%
2015
66
13.33%
94.37%
141
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016 SHAREHOLDER INFORMATION: GLOSSARY
Glossary
The following definitions apply throughout the Annual Report 2016, unless the context requires otherwise:
Act
Acute care
Adjusted EBITDA
The Companies Act 2006, as amended
active but short-term treatment for a severe
injury or episode of illness
represents the Group’s operating profit,
adjusted to add back depreciation and
exceptional operating items
CT
DBP
Directors
EBITDA
computerised tomography
Deferred Bonus Plan
the Executive Directors and Non-Executive
Directors
Operating profit, adjusted to add back
depreciation, profit and loss arising from the
disposal of fixed assets and exceptional items
Admission
Articles
Board
c.difficile
CAGR
the admission of the Shares to the premium
listing segment of the Official List and to trading
on the London Stock Exchange’s main market for
listed securities
the Articles of Association of the Company
the Board of Directors of the Company
Clostridium difficile
compound annual growth rate
Cardiac
catheterisation
insertion of a catheter into a chamber or vessel
of the heart
Cardiology
speciality which encompasses the treatment
of patients with cardiovascular disease
CCG
CGSC
Cinven
Cinven Funds
Clinical Commissioning Group
Clinical Governance and Safety Committee
Cinven Partners LLP
Fourth Cinven Fund (No.1) Limited Partnership,
Fourth Cinven Fund (No.2) Limited Partnership,
Fourth Cinven Fund (No.3 VCOC) Limited
Partnership, Fourth Cinven Fund (No.4) Limited
Partnership, Fourth Cinven Fund FCPR, Fourth
Cinven Fund (UBTI) Limited Partnership, Fourth
Cinven Fund Co-Investment Partnership and
Fourth Cinven (MACIF) Limited Partnership
City Code
the City Code on Takeovers and Mergers
CMA
CNST
the UK Competition and Markets Authority
the Clinical Negligence Scheme for trusts
administered by the NHS Litigation Authority
Company
Spire Healthcare Group plc
Care Quality Commission
carbon dioxide equivalent
commissioning for quality and innovation
payment which is earned for meeting quality
targets on NHS work
The CRC (Carbon Reduction Commitment)
Scheme aims to incentivise energy efficiency
and cut emissions in large energy users in the
UK’s public and private sectors.
the UK-based system for the paperless
settlement of trades in listed securities,
of which Euroclear UK and Ireland Limited
is the operator
customer relationship management
system/software
CQC
CO2e
CQUIN
CRC Energy
Efficiency Scheme
CREST
CRM
142
Adjusted EBITDA
2014 EBITDA Adjusted to conform the property
rental base and PLC operating costs base
EfW
EPS
ESOS
EU
Energy from Waste
earnings per share
Energy Saving Opportunity Scheme
the European Union
Executive Directors the executive directors of the Company
EY
FCA
GDP
GHG
GP
Ernst & Young LLP, the Company’s external
auditor
the Financial Conduct Authority
gross domestic product
greenhouse gas
General Practitioner
Group
Spire Healthcare Group plc and its subsidiaries
HCA Holdings, Inc. Hospital Corporation of America
HD
Hospital Director
Health & Safety Act The Health & Safety at Work etc Act 1974
HMRC
IFRS
IPO
ISO 14001
ISO 18001
ITU
JAG accreditation
KPI
Lifescan
LinAc
Listing Rules
HM Revenue & Customs
International Financial Reporting Standards,
as adopted by the EU
initial public offering of Shares to certain
institutional and other investors
environmental management system
health and safety management system
Intensive Therapy Unit
The Joint Advisory Group on Gastrointestinal
Endoscopy (JAG) accreditation is the formal
recognition that an endoscopy service has
demonstrated that it has the competence to
deliver against the measures in the Endoscopy
Global Rating Scale standards.
key performance indicator
a former Spire Healthcare service, offering
advanced healthcare CT scans, health checks
and blood tests
linear accelerator enabling intensity modulated
and image guided radiotherapy treatment
the listing rules of the FCA made under section
74(4) of the Financial Services and Markets
Act 2000
LTIP
Long Term Incentive Plan
Spire Healthcare Group plc Annual Report 2016 Royal National Orthopaedic Hospital
return on capital employed
the independent health and social care regulator
for Northern Ireland is the Regulation and
Quality Improvement Authority
standard acute contract issued by NHS England
global software developer/software
when a procedure or treatment provided
is funded by the patient directly
the holders of Shares in the capital of
the Company
the ordinary shares of 1 pence each in the
Company, having the rights set out in the
Articles
tonnes of equivalent carbon dioxide
total shareholder return
the United Kingdom of Great Britain and
Northern Ireland
the UK Corporate Governance Code issued by
the Financial Reporting Council, as amended
from time-to-time
MAC
Monitor
MRgFUS
MRI
MRSA
MSSA
NDC
NHS
NI
NICE
Non-Executive
Directors
Official List
Oncology
Perform
PHIN
PILON
PIP Claims
PMI
PPE
PPU
PRisM
Prospectus
Public Health
England
Registrar
Registration
Regulations
Medical Advisory Committee
an executive non-departmental public body
of the Department of Health that acts as the
sector regulator for health services in England
RNOH
ROCE
RQIA
Magnetic Resonance guided Focused
Ultrasound treatment
magnetic resonance imaging
NHS Standard
Contract
Methicillin-resistant Staphylococcus aureus
Methicillin-sensitive Staphylococcus aureus
SAP
Self-pay
Spire Healthcare’s national distribution centre
in Droitwich
Shareholders
the National Health Services in England,
Scotland, Wales and Northern Ireland, collectively
Shares
tCO2e
TSR
UK
UK Code
National Insurance
the National Institute for Health and Care
Excellence
the non-executive directors of the Company
the record of whether a company’s shares
are officially listed, maintained by the FCA
(the UKLA Official List)
speciality which encompasses the treatment
of people with cancer
formerly part of Spire Healthcare, specialised in
sports medicine, rehabilitation and human
performance
Private Healthcare Information Network
payment in lieu of notice
the claims relating to the supply of alleged
faulty PIP breast implants
private medical insurance/insurer
property, plant and equipment
Private Patient Unit
Property and Risk Management system
the final prospectus of the Company approved
by the FCA as a prospectus prepared in
accordance with the Prospectus Rules made
under section 73A of the FSMA
the executive agency, whose purpose is to
protect and improve the nation’s health and
wellbeing, and reduce wealth inequalities
Equiniti Limited
the Care Quality Commission (Registration)
Regulations 2009
Regulated Activities
Regulations
the Health and Social Care Act 2008
(Regulated Activities) Regulations 2010
RIDDOR
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations
143
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSpire Healthcare Group plc Annual Report 2016 SHAREHOLDER INFORMATION: IMPORTANT INFORMATION
Important information: forward-looking statements
These materials contain 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 presentation, 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 presentation 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 during this presentation 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
these materials.
The Group is providing the information in these materials 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.
144
Spire Healthcare Group plc Annual Report 2016 Designed and produced by
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Spire Healthcare Group plc
3 Dorset Rise
London
EC4Y 8EN
spirehealthcare.com