S
p
i
r
e
H
e
a
l
t
h
c
a
r
e
G
r
o
u
p
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
2
0
1
7
Looking after you
Putting patients
at the heart of
everything we do
Spire Healthcare Group plc
Annual Report 2017
As a leading independent
hospital group we are
totally focused on looking
after people. See how we
put patients at the heart
of everything we do.
Spire Healthcare is a leading independent hospital group
in the United Kingdom and the largest in terms of revenue.
We deliver high standards of care, with integrity and
compassion and from high-quality facilities to our insured,
Self-pay and NHS patients.
www.spirehealthcare.com
Financial highlights
Contents
Strategic Report
02 At a glance
04 Our market
06 Business model
08 Chairman’s statement
10 Chief Executive Officer’s Q&A
15 Five reasons to invest in Spire Healthcare
18 Key Performance Indicators
20 Clinical review
26 Operating review
32 Group financial review
44 Our people
48 Looking after our environment
50 Risk management and internal control
52 Principal risks
Governance
56 Board of Directors
58 Executive Committee
60 Chairman’s Governance Letter
62 Corporate Governance Report
70 Audit and Risk Committee Report
74
Clinical Governance and Safety
Committee Report
76 Nomination Committee Report
78 Directors’ Remuneration Report
96 Directors’ Report
99 Statement of Directors’ responsibilities
Financial statements
100 Independent Auditor’s Report
110 Consolidated financial statements
115 Notes to the financial statements
143 Parent Company financial statements
Other information
150 Shareholder information
152 Alternative performance measure definitions
153 Glossary
156 Important information:
forward-looking statements
Revenue (+0.6%)
Self-pay revenue growth (+9.7%)
£931.7m
2016: £926.4m
£186.9m
2016: £170.4m
2015
2016
2017
£884.8m
£926.4m
£931.7m
2015
2016
2017
£156.2m
£170.4m
£186.9m
Conversion of EBITDA to cash
Adjusted basic earnings per
share** (-25.0%)
106%
2016: 115%
14.4p
2016: 19.2p
2015
2016
2017
104%
115%
106%
2015
2016
2017
18.3p
19.2p
14.4p
EBITDA* (-7.4%)
Profit for the year (-68.7%)
£150.0m
2016: £162.0m
£16.8m
2016: £53.6m
2015
2016
2017
£160.1m
£162.0m
£150.0m
2015
2016
2017
£16.8m
£60.0m
£53.6m
Operating profit before
exceptional items (-14.9%)
Proposed final dividend per share
(+0.0%)
£92.1m
2016: £108.2m
2.5p
2016: 2.5p
2015
2016
2017
£110.4m
£108.2m
£92.1m
2015
2016
2017
2.4p
2.5p
2.5p
Please see pages 18 and 19 for full financial KPIs, and page 152 for Alternative
Performance Measure (‘APMs’) definitions.
* 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’.
** 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.
At a glance
Spire Healthcare provides diagnostics, in-patient, daycase
and out-patient care throughout the UK. We also own
and operate the sports medicine, physiotherapy and
rehabilitation brand, Perform.
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.
A growing market
Growing and ageing population
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 and beyond. The independent
sector can help to bridge the gap.
A well
diversified business
2017 Percentage of revenue*
22.8
26.5
50.7
Orthopaedics
Gynaecology,
plastic surgery,
urology and
others
High acuity
services,
including
cardiology,
cardiothoracic,
neurosurgery,
oncology
and general
surgery
* In-patient and daycase revenue.
Source: Company information.
2017 Key activities (%)*
15.2
14.1
Diagnostic
Out-patient
services
In-patient
and daycase
procedures
70.7
* Excludes other revenue. Further details
can be found on page 34.
Source: Company information.
Spire Healthcare Group plc Annual Report 2017
2
Our services
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.
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.
Read more
Page 4 and 5
Spire Bristol
Spire Leicester
Spire Portsmouth
Spire Little Aston
Good to
Outstanding
Read more Page 16
Spire Healthcare aims to be
the ‘best place to practice’
Read more Page 24
Operational excellence
in everything we do
Read more Page 30
First choice for
self-paying patients
Read more Page 42
39
hospitals
11
clinics
1
specialist cancer care centre
1
diagnostic centre
775,000
patients
3,900
consultants
8,380
full-time equivalent staff
Who we serve
Our hospitals span the country, serving
a diversified patient mix, made up of:
• Private medical insurance (‘PMI’)
• Self-pay
• NHS patients
Read more
Page 4 and 5
Service coverage
where it’s needed
Our network of hospitals covers major
population centres across the country.
Map key
Spire Healthcare Hospitals
Spire Healthcare Clinics
Spire Healthcare Diagnostic Centre
Specialist Cancer Care Centre
People per sq km
0–250
250–500
500–1,000
1,000–1,500
1,500–2,500
Spire Healthcare Group plc Annual Report 2017
3
GovernanceStrategic ReportFinancial statementsOther information
Our market
Spire Healthcare serves a market
subject to major long-term trends.
The UK’s population is growing.
People are living longer, often with
multiple co-morbidities. The NHS
is the UK’s most valued institution,
but it is struggling under the
longest budget squeeze in its
history. Private provision can play
a key role in helping to meet the
UK’s increasing healthcare needs.
Serving an ageing population
Market context
UK health spend (2015)
£185bn
Source: Office for National Statistics.
UK private acute medical
care market (2015)
£5.6bn
Source: LaingBuisson Private Acute Medical
Care UK – Market Report 4th Edition.
UK private acute medical care
market forecast growth
(to end 2019)
5.0%
Source: LaingBuisson Private Acute Medical
Care UK – Market Report 4th Edition.
Trend
Commentary
Spire opportunity
In 2016 the population of the UK was
its largest ever. It is projected to reach over
66m
74m
by 2039
And it is ageing. Those over 65 are forecast
to grow from
of the population (2016) to nearly
18%
25%
by 2046
As people live longer they tend to
be subject to longer term multiple
co-morbidities –
of people over 60 compared to
58%
14%
under 40
People with long-term conditions
account for about 50% of all GP
appointments, 64% of all out-patient
appointments and over 70% of all
in-patient bed days. The number of
people with three or more long-term
conditions is predicted to reach 2.9 million
in 2018 (up from 1.9 million in 2008).
Treatment and care for people with
long-term conditions takes an estimated
70% of total health and social care
expenditure. The ageing population
and increased prevalence of long-term
conditions will inevitably create rising
demand for healthcare services and
have a significant impact on resources.1
Spire Healthcare has traditionally
provided outstanding care and outcomes
for orthopaedic patients, particularly
those receiving hip and knee replacements
later in life. Additionally, Spire Healthcare
has invested heavily over recent years
in higher acuity services, including
cancer and cardiac, ideally positioning
the Company to care for the growing
number of mature patients with
multiple and challenging co-morbidities.
Aged 65 and over of the UK population (%)
%
25
20
15
2016
2026
2036
2046
Source: Office for National Statistics.
Spire Healthcare Group plc Annual Report 2017
4
Market context
Private sector providers’ revenue (%)
Revenue split – independent acute
medical hospitals and clinics (%)
2017 Spire Healthcare revenue (£m)
32
8
Spire Healthcare
17
BMI Healthcare
HCA
6.0
17.9
PMI
NHS
Self-pay
31.0
186.9
17
Nuffield Health
46.3
International
426.0
PMI
NHS
Self-pay
Other
10
16
Ramsay
Health Care UK
Others
29.9
1.8%–2.0% p.a.
PMI nominal growth
rate forecast to
end 2019
287.8
Source: LaingBuisson Private Acute Medical Care UK – Market Report 4th Edition.
Source: Company information.
Healthcare resources struggling to meet demand
Trend
Commentary
Spire opportunity
The NHS delivers comprehensive
healthcare to the nation. It is a
treasured national institution and is
widely considered to be both efficient
and unique in offering care to all, free at
the point of care. Spire is proud to be a
partner to the NHS. However, it is under
the most intense strain it has ever faced –
hit by underfunding, staff shortages,
ever rising demand, a fragmented
structure and the systemic division
between health and social care.
Historically, spending on the NHS has
grown by an average 3.7% per year.
From 2010–2011 to 2020–2021, average
growth is expected to be 0.9%. The NHS
is suffering the longest budget squeeze
in its history.
In the last 30 years the number of
NHS beds has halved, admissions have
doubled and bed stays have halved.
The UK now has 2.6 beds per 1,000
people. In Germany it’s over eight and
it is 6.1 in France. The NHS is estimated
to be running at about 95% occupancy.
As at December 2017, the NHS was short
of an estimated 42,000 nurses, 11,000
hospital doctors and 12,000 nurse
support workers.2
In the same month, the percentage
of A&E patients being treated within
the politically important 95% four-hour
target reached its lowest ever level at
77.3%, and the Government instructed
the postponement of selected non-
urgent surgery.3
A national debate is starting to
emerge on whether the NHS is correctly
structured and adequately funded
for the 21st century.
There is increasing acceptance that
the country needs to spend more on
healthcare as a percentage of gross
domestic product (‘GDP’).
The private sector, while likely to remain
relatively small, can help the NHS deliver
outstanding healthcare and provide
choice to consumers.
In the UK, healthcare spending as a share
of GDP is projected to fall to
6.6%
by 2021, according to The Economist.
This compares with the EU average of
Lengthening waiting times and
rationing of treatment within the
NHS is increasingly reflected in demand
for private healthcare – particularly
on a Self-pay basis. The private sector
also provides capacity for the NHS,
optimising usage of facilities and helping
to maintain provision in periods of
highest demand.
Spire Healthcare’s nationwide presence,
modern facilities and capacity is well
placed to provide services to both local
NHS commissioners and providers,
and to self-paying patients.
Spire Healthcare’s strategy puts
the patient first and centre. We are
re-engineering every aspect of our service
to enable patients to access our services
quickly, efficiently and on a cost
assured basis.
or the G7 average of
9.9%
11.3%
(2015)
The UK spends less per head of population
than nine other EU countries and ranks
sixth in the G7
Spire Healthcare Group plc Annual Report 2017
5
1 Sources: https://www.kingsfund.org.uk/projects/
time-think-differently/trends-disease-and-disability-
long-term-conditions-multi-morbidity and Department
of Health (2012) Report. Long-term conditions
compendium of Information: 3rd edition.
2 Source: https://www.theguardian.com/society/2017/
dec/19/nhs-hospitals-unable-fill-thousands-vacant-
posts-labour-says.
3 Source: https://www.theguardian.com/society/2018/
jan/11/number-of-a-and-e-patients-treated-within-
four-hours-at-lowest-ever-level.
GovernanceStrategic ReportFinancial StatementsOther Information Business model
Spire Healthcare is a well-diversified business and an
important and growing 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 and relationships
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.
Our resources
Our 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.
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.
Well invested hospitals
Our portfolio of hospitals
is equipped with up-to-date
technology and comfortable
treatment facilities.
Highly skilled employees
Our 8,380 employees are highly
skilled and our nursing and
medical support staff have
the expertise to provide
an excellent standard
of patient care.
Clinical Governance
During the year under review
the Care Quality Commission
(‘CQC’) completed their first
round of comprehensive
inspections across all of our
hospitals and results have been
published for all sites. We are
pleased to report that our
overall performance is in line
with the rest of the private
sector and continues to far
exceed the NHS average.
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 offer treatments for
patients who have private
health insurance or wish to
pay for their own treatment.
We offer them choice of
when and where to be treated,
in hospitals that combine
excellent clinical outcomes and
levels of infection control with
‘hotel style’ levels of service.
Payors
Treatment is funded by a PMI,
the NHS or patients who
Self-pay.
Spire Healthcare Group plc Annual Report 2017
6
Our operating model
How we create value
Through our operations, we create and
deliver measurable value for our stakeholders.
Consultants
A well-run hospital with
supportive management
and clinical teams helps
us attract and retain
the best clinicians
Employees
We provide a wide range
of training, and a flexible
and supportive working
environment
92%
of consultants believe our
hospitals go out of their way
to make a difference to their
working relationship
86%
Employees who believe
what they do at work makes
a positive difference
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 (+0.0%)
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.
Investment
We invest consistently
in further capacity,
equipment and services.
With the ability to deploy
further capital from strong
cash flow, 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.
Revenue
Our sources of revenue
are well diversified, and
we are focused on driving
growth from all of our three
payor groups.
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.
Spire Healthcare Group plc Annual Report 2017
7
GovernanceStrategic ReportFinancial StatementsOther Information Chairman’s statement
Garry Watts, Chairman
In a year of considerable change and challenge,
I am proud to report that Spire Healthcare’s
8,380 staff, and the leading consultants we
work with, provided over 775,000 private
and NHS patients with outstanding clinical
care and outcomes. Exceptional patient care
is our business.”
Spire Healthcare Group plc Annual Report 2017
8
Performance
The Company’s performance over the year
showed further growth in our key private
patient income and reasonable progress
on our three new major capital investment
projects that became operational during
the year. Group revenue was £931.7 million,
£5.3 million ahead of 2016. On an underlying
basis, the Group delivered consistent gross
margins of over 48%. Operating profit,
however, fell significantly to £42.9 million.
This was the result of both our new
hospital openings; of exceptional and
other material items totalling £49.2 million
in the year arising from the patient
compensation costs in respect to Ian
Paterson’s historical practises; the write
down of our Specialist Cancer Care Centre
in Essex; and the decision to cease work on
the development of a central London site.
Additional information on exceptional
and other items is shown on pages 124
and 125. Our cash flow, however, remained
robust and our total dividend has been
maintained at 3.8p.
Revenue grew by 0.6% despite in-patient
and daycase admissions decreasing
by 1.8% to 269,300 patients (2016:
274,100 patients).
Revenues from Private Medical Insurance
(‘PMI’) sources declined slightly in 2017,
while underlying revenues (see further
information on page 35) in our Self-pay
payor group grew strongly, increasing
by 12.0%. Underlying revenues from
the NHS also declined by 0.5% due to
patient choice and eligibility for treatment
beginning to be actively restricted by
Clinical Commissioning Group (‘CCG’)
policies in response to NHS cost pressures
in the second half of 2017.
Dividend
The Company continues to be strongly
cash-generative, which will enable the
payment, subject to shareholder approval,
of a final dividend of 2.5 pence per
ordinary share for the year. 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, continuing our stated dividend
policy which aims to pay at least 20%
of profit after taxation each year.
Care quality
The quality of our patient care is of
paramount importance. It is at the
heart of what we do.
Three of our hospitals are rated
‘Outstanding’ by the Care Quality
Commission (‘CQC’), 20 hospitals and
two clinics as ‘Good’, and 11 as requiring
improvement in certain areas. Overall, our
quality of care is rated at the forefront of
the independent sector. More detail on
our clinical performance, quality of care,
and the unstinting efforts we are making
to improve further, can be found in our
Clinical review on pages 20 to 25.
Following the completion of the
criminal proceedings against Ian
Paterson (a consultant who previously
had practising privileges at two Spire
Healthcare hospitals), we were able to
agree to settle all current and known
claims against Spire Healthcare. A charge
amounting to £28.7 million for the cost
of such settlement is included in the
results for the year, in addition to other
costs associated with the matter.
We deeply regret the circumstances
but are pleased that the unfortunate
victims of Mr Paterson’s activities have
now received compensation. Your Board
is determined that the lessons learnt
from this affair will be applied throughout
Spire Healthcare.
Developments during the year
In the first half of 2017, we completed and
opened two new hospitals in Manchester
and Nottingham – we continue to develop
their full potential. In the second half
of the year, after major investment in
expanded theatre capacity and additional
staff at our 2014 acquisition, Spire
St Anthony’s Hospital started to deliver
improved performance.
Acquisition approach
During the year we received an approach
from Mediclinic, our principal shareholder,
with an offer to purchase the outstanding
shares in the Company. The Board
concluded that the offer did not value the
Company sufficiently and we were unable
to reach agreement. Mediclinic continues
to have a seat on the Board and remains
a valued international collaborator.
Board developments
In October, we were delighted to secure
the services of Justin Ash as Chief
Executive Officer (‘CEO’). Justin has
a wealth of relevant experience. He was
previously chief executive of Oasis Dental
Care where he built the UK’s first national
consumer driven dental brand. Prior to
that he was Managing Director of Lloyds
Pharmacy, where he grew the estate from
1,250 to 1,750 outlets and led a refocus
of the business towards health services.
In May, Peter Bamford joined the Board
as the Company’s Deputy Chairman
and Senior Independent Director. Peter
is chairman of both Superdry Plc and B&M
European Value Retail SA. He previously
held a number of senior executive roles at
Vodafone Group plc and has served on the
boards of public companies for the last
21 years. He brings considerable leadership
experience and maintains a strong
independent presence on our Board.
At the end of July, we regretfully announced
that Andrew White, an Executive Director
and our former Chief Operating Officer,
had passed away following a period of
illness. Andrew joined the Company in
2015, he was a trusted colleague and
made a significant contribution during
his time with us. He is greatly missed.
Following Andrew’s death, Simon Gordon
assumed the role of interim Chief Executive
Officer in addition to his role as Chief
Financial Officer. Our thanks go to
him for his additional contribution
over this difficult period.
Spire Healthcare Group plc Annual Report 2017
9
Subsequent to the year end, on 1 March
2018, Simon Gordon, our Chief Financial
Officer (‘CFO’), resigned from the Board
and will leave the Group at the end of
March 2018. Simon has been CFO since
2012 and, whilst I was undergoing
treatment for an illness last year, also
assumed the role of interim CEO.
Personally, and on behalf of the Board,
I would like to thank him for his services
to the Group in both roles and to wish
him every success in the future.
Strategy
Our new CEO has brought further clarity
and purpose to our established strategy.
In his Review on pages 10 to 14, Justin
gives further details on the Company’s
renewed and absolute focus on improving
our offering to patients and enhancing
clinical outcomes. Before we embark on
further major expansion we will continue
to develop and embed the highest levels
of clinical performance in every one of
our hospitals across the country.
Our people
Delivering our strategy depends on our
people, it is they who deliver outstanding
care, personally, every day to our patients.
Thanks go to all our staff, every one of
who is a highly valued member of the
Spire Healthcare family. It is by working
together closely and making a positive
contribution to the business that they
drive our strong culture.
Outlook
2017 was a year of considerable change
and challenge but with some notable
achievements. During 2018 we will
concentrate on developing our people,
on refining our systems and building the
returns on our recent investments in new
hospitals and additional capacity. In doing
so, we will be able to deliver outstanding
treatment and care to more people and
continue to build Spire Healthcare’s
nationwide reputation for quality and
excellent outcomes.
Garry Watts
Chairman
1 March 2018
GovernanceStrategic ReportFinancial statementsOther information Chief Executive Officer’s Q&A
Justin Ash, Chief Executive Officer
We need to be the best in everything we
do – caring for our patients, working with
our consultants, recruiting and retaining
our staff, achieving the best outcomes,
and delivering value.
I am determined that Spire Healthcare
will be famous for delivering the very best
in quality and clinical care. Quality will define
and differentiate us.”
10
Spire Healthcare Group plc Annual Report 2017
What have been your initial
impressions since joining Spire Healthcare?
I have found that Spire provides
outstanding care to thousands of patients
across Britain every day.
My many visits to our hospitals and our
CQC ratings show that Spire Healthcare
staff are devoted to caring for our patients,
well qualified and dedicated. Their work
is underpinned by good governance
practices. I’ve seen this in every hospital
I’ve visited and the many staff I’ve met,
as well as the patients I’ve spoken with.
Spire Healthcare clinical standards are
good, with lots of examples of outstanding
best practice and interesting improvement
projects. There are, nonetheless, variations
in quality. Three of our hospitals – Spire
Cheshire, The Montefiore and Sussex
hospitals – are rated ‘Outstanding’ by the
CQC, and we have excellent equivalent
results in Spire Cardiff and Edinburgh
hospitals. Twenty more are rated
‘Good’, while some were rated ‘Requires
Improvement’ on their first CQC inspection.
Overall, this puts Spire Healthcare on a par
with private sector healthcare standards.
I want every member of
the Spire Healthcare family
to judge themselves on
the quality of the care they
deliver to our patients.”
Similarly, Spire Healthcare runs effective
operations, good local marketing
campaigns and has seen success in
growing its private patient base. The estate
is well invested and often innovative,
for example, developing a da Vinci robot
in Spire Southampton Hospital and knee
robots in Spire Edinburgh and Bushey
hospitals. It has strong central teams,
and good local hospital leadership under
its hospital directors. As with clinical
standards, there is also lots of opportunity
to be more consistent as a unified group.
My overall impression is of a good, well-run
healthcare provider, with lots of exciting
opportunity to improve operational
performance, patient recruitment and
deliver more consistently outstanding
quality for the benefit of our patients.
What was performance like in 2017?
I joined in late October 2017, after
a period of some volatility in operating
performance.
Where our work matters most, with
patients, Spire Healthcare cared for
269,300 in-patient and daycase patients
during the year. Clinical quality remained
high, with good outcomes and only one
incident of MRSA or MSSA, and c.difficile
infection rates reducing further to 0.13
per 10,000 bed days. You can read details
on this in our Group Medical Director’s
review on pages 20 to 25.
Headline financial performance figures
can be found in the Chairman’s statement,
and the CFO reviews them in detail on
pages 32 to 43. The results were mixed
overall. Spire Healthcare experienced a
reduction in NHS-funded care, especially
contracts with NHS Trusts, and NHS-
funded care actually declined in the
second half of the year. This was driven
by cost saving measures by the NHS.
Income from Private Medical Insurance
(‘PMI’) funded care declined slightly,
while treatment and care for patients
who chose to Self-pay increased strongly
by 12.0%, an encouraging trend, which
we expect to continue.
A major variance to expectations was
the slower-than-planned build-up of
the three new sites: Spire Manchester,
Spire Nottingham and Spire St Anthony’s
hospitals. These are all outstanding
facilities that I’m delighted to have in the
Group. Improving their performance will
be a key feature of our forward strategy.
How do you see trends in Spire
Healthcare’s markets?
The trends in our three main payor
groups are connected to a certain degree.
PMI is currently about half of our business,
but it remains largely a benefit provided
by companies for their employees.
As such, overall growth in PMI is linked
closely to the health of the economy
and has remained flat. Forward growth
in this sector, in the short term, will
come from growing market share.
The independent sector provides valuable
capacity for the NHS as it seeks to deliver
care in the face of well publicised cost,
capacity and staffing pressures. Our
NHS business is important to us and
we will continue to build close working
partnerships with our local commissioners
and GPs. Major contracts with NHS trusts
are unlikely to grow in the future, while
e-Referral is still not fully adopted.
This provides choice for NHS patients,
underpinned in the NHS constitution,
and Spire Healthcare’s wide participation
in this is an asset. Overall, we seek to hold
share in the NHS market.
Our major growth opportunity lies in
those patients who elect to Self-pay.
Their reasons for choosing to pay for
private treatment vary. They may wish
to be seen faster as waiting times on the
NHS continue to rise, or seek treatments
that are unavailable within the NHS. They
may feel that they can self-insure more
competitively and flexibly than through
PMI products. They may just value the
convenience of having their treatment
when and where they want, in hotel-level
surroundings, with well-invested facilities.
Whatever their motivation, the macro
market drivers suggest that Self-pay
will be our key growth sector. We intend
to grow our market share aggressively
in this area.
11
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information In the last three months,
the executive committee
and I have developed our
strategic framework to
support a renewed focus
on growing our business.
We have put in place five
clear strategic priorities to
help us achieve the growth
we believe we can deliver.
This aims to drive improving
returns on capital.”
Chief Executive Officer’s Q&A
Continued
What are your immediate priorities?
Consistently high-quality and outstanding
clinical care are fundamental to
our business.
I think patients see us as good, but
maybe not the best everywhere – and
in truth, while some of our hospitals are
outstanding, others are less consistent.
Raising standards to the highest levels
and ensuring consistency of approach
and delivery across the Company, in every
hospital, is our first and last priority.
We want all our hospitals to be ‘Good’
or ‘Outstanding’. All of the time. I intend
Spire Healthcare to be famous for both
its quality of care and its ability to
evidence that quality.
We also need to optimise operational
performance, particularly in our recent
major investments. I have conducted a
review of lessons learnt about the cultural
and operational changes required in
developing and moving into new facilities,
and drawn on my extensive experience of
buying and opening new healthcare sites.
All three new hospitals are top of my list
to steer to robust financial performance,
as well as being great centres of patient
care. I was delighted that Spire St Anthony’s
Hospital was recently re-rated ‘Good’ by
the CQC and see much evidence that all
three sites will deliver strong returns. I am
pleased to say that Spire Manchester and
St Anthony’s hospitals are making good
progress. Both should be profitable in
2018. Spire Nottingham Hospital will take
further work to achieve its full potential.
We will also rapidly be enhancing
Spire Healthcare’s marketing capability,
especially digitally, to make our Self-pay
offering transparent and easy to access,
as well as improving our call services.
This will support our Self-pay
growth ambitions.
With more central support, an increased
focus on leadership, training and human
resources, enhanced leadership, and a
lot of hard work, I am confident Spire
Healthcare will deliver excellent outcomes
in the months ahead.
We will continue to invest in our current
estate, with a view to continuing to be the
lead investor in the sector. At the same
time, in the short to medium term we will
be focused on increasing the return on
capital and cash returns of historical and
new investments, and cautious about
further new hospital developments until
the case for them is proven by results.
How do you see Spire Healthcare’s
services developing?
In a number of ways – all aimed at
increasing patient, staff and partner
satisfaction.
Clinically, we will focus on specific
elements of our care, including our
patients’ understanding of their mobility
after a procedure, and their comfort with
what drugs to take and how to recover
effectively on their return home. We want
to empower our patients to a speedy
recovery and active life.
We will continue to develop service
lines in demand in the private sector, in
particular Spire Healthcare has a growing
paediatric and cardiology capability.
Operationally, we will have one best way
of working in increasing areas, aligning
all our hospitals around simple, national
systems and operating approach – one
‘Spire Way’ of working – while leaving
room for local best practice and strong
leadership by our hospitals’ senior
management teams.
We need to improve engagement with
our partners, which slipped last year.
Based on targeted understanding of
consultants and the development of
their private practices, we will provide
the support and services that they need.
We wish consultants to grow their
practice with us, and to feel that Spire
Healthcare is the very best place to bring
patients, as well as further developing
a mutual respect for the importance of
governance on the granting and overseeing
of practising privileges. Spire Healthcare
works hard to ensure that GPs recommend
patients to us based on sound knowledge
of our capabilities and this will continue.
I am also excited by the early success of
Spire GP. People with busy lives are turning
to this service for flexible and bespoke care,
and we will soon roll this out to all our sites.
12
Spire Healthcare Group plc Annual Report 2017
Accelerating growth and developing the
market-leading national brand that makes
Spire Healthcare the first choice of all
patients – but particularly those self-
paying – will depend on outstanding
performance, transparency in pricing
and clinical excellence.
We will seek continuous improvement
and consistency in our relationship with
consultants, in the capability of our teams
and in operational excellence at all levels.
All this aims to support a steadily improving
return on the recent substantial capital
investment in Spire Healthcare.
Simply put, we will aim to run outstanding
hospitals, totally focused on delivering
outstanding quality of care, consistently
in all our sites. That’s how Spire Healthcare
will grow to be the UK market leader.
Justin Ash
Chief Executive Officer
1 March 2018
In practical terms, some of the enablers
involved include increasing investment
in digital tools, communication, customer
feedback and service development,
and hospital infrastructure.
What do you see as key in helping
your team to deliver?
Sometimes, in healthcare, people get
very excited about technology, which
does indeed play a vital role in Spire
Healthcare’s well invested proposition.
I get most excited about our people.
Everything we do depends on them, they
deliver our promise to patients every day.
Healthcare is hard work, requiring
passion and commitment, be that in
Spire Healthcare or any other provider.
I am committed to increasing the training
and recognition needed to support and
engage that commitment, and we have a
number of initiatives underway to do this.
It is also well recognised that in some
areas there are shortages of qualified
staff. This makes it even more important
to attract, train, retain and develop our
staff in a much more considered and
consistent manner.
Success is also linked directly to leadership,
particularly at the key hospital director and
matron levels. Here we are launching an
externally validated programme to identify,
evaluate, train, motivate and develop
consistently great leaders, to complement
our many internal conferences and
specialist skills events. I have enjoyed
joining the first cohorts on our new
hospital director programme.
Spire Healthcare will continue to foster
a well-structured environment and culture
that encourages feedback and values ideas,
learning and constant improvement.
Should it be needed, Spire Healthcare
also runs a highly robust and confidential
whistleblowing procedure to ensure
everyone feels free to hold us to account
for the highest standards of conduct
and care.
You can read more about our focus on
human resources in the Our people section
on pages 44 to 47.
How important is the culture of Spire
Healthcare on the success of the business?
Since joining Spire Healthcare I have spent
a lot of time in our hospitals meeting
many colleagues, and it was clear right
from my first visits that we have a strong,
positive culture across the business.
Our colleagues are passionate about
the work they do and the care they
provide to our patients. They are
fundamental to the success of the
business so it is hugely important
to me that they are highly engaged.
The innovative ideas, feedback and
suggestions that I have heard first hand
from colleagues are invaluable so we have
introduced mechanisms to further
encourage this, along with promoting
collaborative working across our hospitals
and support functions. I believe our values
help demonstrate and represent how we
work together so we will further increase
awareness of these and what they mean
to our colleagues in their day-to-day roles.
Recognising the contribution of our
colleagues is a key element of our culture
and I am confident that our new
recognition scheme will reinforce the
importance we place on this.
How do you see Spire Healthcare’s
strategy developing?
The summary of our ambitions is that
we aim to be the most recognised and
respected healthcare provider brand
in the UK. I call that being the ‘go to’
brand in UK independent healthcare.
We will become famous for our clinical
quality and customer care.
This will underpin growth in all three
payor sectors. We will work with the
NHS to see us as their preferred local
option for high-quality treatments, and
with PMI providers to feel comfortable
signposting Spire Healthcare as the
benchmark provider in all our services.
A high-quality brand will underpin our
communication with people who are
increasingly looking for a Self-pay route to
fast, effective and personalised treatment.
13
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Chief Executive Officer’s Q&A
Continued
Our strategic priorities
Famous for quality
and clinical care
We aim to lead
our sector in quality
and clinical care.
Build on the systems
already in place to
reinforce best practice
standards of patient
care by:
• increasing clinical
resources to assess
and support quality
improvement;
• enhanced clinical
reviews of all sites,
so patients can be
assured of Spire
Healthcare standards;
• contributing to and
using all available
national quality
information;
• achieving external
accreditations from
specialist organisations
in addition to the CQC;
• embedding a ‘quality
first’ culture;
• awarding incentives
only on the
achievement of
quality standards; and
• Project Outstanding.
First choice for
private patients
We want to become
the ‘go to’ private
healthcare brand.
Most recommended
customer experience
We aim to
lead our sector in
customer care.
Best place
to practice
We aim to become the
place where consultants
most want to work.
Best place
to work
We want to be
recognised as a
Top 100 employer.
Drive growth across the
business, with particular
emphasis on ‘Self-pay’ by:
Build on local excellence
and make it consistent
across the portfolio by:
Improve our
consultant relationship
management by:
Drive performance
through an aligned
organisation by:
• improving the
performance of
new sites;
• aligning our sales and
marketing functions
to leverage scale
and best practice;
• developing advanced
services to meet
emerging needs; and
• continually investing
in our sites to provide
a high quality patient
environment.
• improving the
efficiency of the
reservation, admission
and discharge
processes;
• bringing these
activities on-line for
ease of patient use;
• doing more to prepare
patients for their
stay and for their
return home;
• further enhancing
standards in
accommodation
and catering; and
• focusing on ‘top box’
scores in the Friends
and Family test as a
measure of success.
• a programme of
engagement to
understand their needs
and to meet them;
• using technology to
make patient and
theatre booking easier
and more flexible;
• providing proven,
modern equipment
to support our
consultants’ practice;
• ensuring network-wide
CMA Compliance; and
• rigorously assessing
and governing
practising privileges
so all consultants
who work at Spire
Healthcare represent
the highest sector
standards.
• setting clear
capabilities for each
role, and supporting
teams to achieve them;
• improving employee
communications and
engagement to build
a more confident,
purposeful culture
focused on results;
• introducing a new
reward and
performance
framework, with
quality as a condition,
to encourage
excellence and
delivery;
• strengthening
recruitment with
a new centrally
co-ordinated team; and
• closing our gender
pay gap and being
a strong contributor
to the communities
in which we work.
These strategic priorities are being facilitated by operational excellence, with initiatives including:
Workforce planning
A predictive workflow tool,
ensuring an effective and safe
skill mix and efficient wards
and outpatient departments.
Best practice telephony
A technology-led programme
to raise private pay call
response and conversion.
Project Outstanding
Our initiative to deliver our
clinical and non-clinical standards
consistently in order to provide
outstanding quality care, as
rated by the CQC. You can read
more about this in the Clinical
Review on pages 20 to 25.
Investing
Capital to upgrade and
improve our existing sites
and raise return on capital
across the business.
How will we measure our progress?
• CQC site ratings and
Spire audit ratings
• NJR/PROMs
performance
• Unplanned returns to
theatre and unplanned
readmission rates
• Infection rates
• Post-operative
mortality rates
• Patient satisfaction:
percentage patients
Extremely Likely
to recommend
Spire Healthcare
• Patient satisfaction:
Quality of care
• Satisfaction on
discharge
• Annual consultant
• Employee
satisfaction
survey scores
engagement;
semi-annual survey
• Competency
assessment and
continuous
improvement
• Revenue by payor
• Self-pay growth
above market
• Return on Invested
Capital
14
Spire Healthcare Group plc Annual Report 2017
Five reasons to invest
in Spire Healthcare
03
Spire Healthcare is able to invest
in its future and target returns
Robust operating cash flows enable
Spire Healthcare to sustain a healthy
capital expenditure programme and
maintain an attractive dividend
payout ratio.
Going forward, Spire Healthcare will
focus on maintaining and developing its
existing hospitals and clinics. The payback
periods for such incremental investments
tend to be much shorter; therefore better
returns on the capital investment should
be achievable.
02
Spire Healthcare benefits from scale
in a market that demands excellence
The hospital environment is rightly
subject to regulation and oversight,
and rising patient expectation on
service and quality. Spire Healthcare’s
national network allows it to
simultaneously enforce consistent
standards, assess performance
and raise quality of delivery by
leveraging its central resource and
information systems. This delivers
a strong patient proposition and
payor confidence. National scale also
brings economic benefit in buying,
distribution and increasingly
marketing and sales effectiveness.
04
Spire Healthcare is well structured
to lead on private growth
Whilst continuing to focus on
relationships with each of its three
major payor groups, it is increasingly
prioritising investment designed to
accelerate Self-pay growth. Developing
our Self-pay opportunity whilst
driving participation in existing robust
healthcare insurer arrangements.
The majority of its hospitals are
able to accommodate the flexibility
required by the Self-pay patient,
while continuing to support the
local NHS demands.
01
Spire Healthcare bridges the gap
between rising healthcare demand
and projected NHS budgets
With NHS funding tightening and
healthcare demand growing, Spire
Healthcare is well positioned to help
bridge the gap. Spire healthcare is
able to benefit from its inherent
‘payor hedge’ as more people elect
to be PMI or self-paying patients.
Strong growth in Self-pay in particular
is set to continue as Spire Healthcare
rolls out its enhanced consumer
proposition.
05
Spire Healthcare has a track record
on innovation and learning
As well as opening new sites,
Spire Healthcare is often first to
develop new services, such as the
da Vinci robot at Spire Southampton
Hospital. Spire is actively developing
bariatric, paediatric, cardiology and
cancer services. Like all innovation,
not all developments succeed at first,
but as with the best innovative
organisations, it learns and then
re-invests in adapted services. This
drive to innovate and grow existing
and new service lines remains a key
feature of its investment proposition.
15
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Case study
Strategic priorities
Best place
to work
Famous for quality
and clinical care
Image:
Kate Hoffmann
Matron; Spire
Bristol Hospital
16
Spire Healthcare Group plc Annual Report 2017
Good to
Outstanding
We want all our hospitals to be rated
‘Outstanding’ by the CQC (or the required
equivalent); regulatory recognition of the
excellent care that we deliver to patients
across the country every day of the year.
Our 20 hospitals and two clinics currently
rated as ‘Good’ are on a journey to ‘Outstanding’.
Spire Bristol Hospital received its CQC
report in April 2017, rating it Good or
Outstanding across all domains, and
Good overall. Led by Hospital Matron and
Head of Clinical Services, Kate Hoffmann,
the team in Bristol is now working on
an action plan to be Outstanding across
the board.
Kate credits the support that is available
to all our hospitals: “The central team
has really helped us in understanding the
CQC’s approval and the evidence they look
for – simplifying the audits, spreadsheets
and data we need to supply.
“And their support can directly improve
our patient service – the legal team
recently provided us with specialist legal
consent forms we needed for the family
of a patient with learning disabilities.
Meaning that the patient, the family
and our clinical team were all assured
and happy, and a full and proper consent
process was undertaken.
We’re able to develop
our own initiatives to
improve patient care.”
Rated ‘Outstanding’
3 hospitals
Five additional hospitals have one
‘Outstanding’ domain with all other
domains rated ‘Good’
“We, in turn, share our expertise with
other hospitals – matrons, heads of
department – we all help. I’ve worked
in centrally controlled organisations and
it doesn’t necessarily work in complex
hospital environments. At Spire Healthcare
we’re a team – the centre supports us
to deliver outstanding care in each of
our hospitals.
“This means we’re able to develop our
own initiatives to improve patient care.
We were one of the first private hospital’s
in the country to have a critical care
outreach team – and our concierge
service, where every patient is greeted
and guided through their stay individually,
has won one of Spire Healthcare’s
Inspiring People Awards. David will even
carry your bags and help you to your car –
that’s outstanding!”
17
Spire Healthcare Group plc Annual Report 2017
Looking after you
Central support for
all our hospitals
In the last year we have doubled
the size of the central team
dedicated to supporting our
hospitals in their drive to be
Outstanding across the board.
Team members offer mentoring,
hands-on assistance, CQC mirror
inspections, reports and action
plans, and specialist clinical support
where necessary.
Alison Dickinson, Chief Nursing
Officer, comments: “To date we
have concentrated on ensuring that
all our hospitals have the leadership
and specialist resources they need –
that clinical leads are in place in
specialist areas like resuscitation,
pre-op assessment, medicine
management, cancer – that
incidents are fully reported,
investigated and learnt from.
In other words, making sure that
Spire Healthcare’s Clinical Standards
are in place, understood and met.
“Each hospital that was rated
Requires Improvement will undergo
a clinical review as a priority in the
first quarter of 2018. Over the next
two years we will be focused on
helping our hospitals to become
Outstanding across all aspects
of our care.”
GovernanceStrategic ReportFinancial statementsOther information
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.
Famous for quality and clinical care
Unplanned returns and readmissions
C.difficile (infection rate per 10,000 bed days)
We continued a low level
of returns and readmissions,
reflecting our strong record
of treatment effectiveness
%
0.3
0.2
0.1
0
2015
2016
2017
Unplanned readmissions
Unplanned returns to theatre
0.13
Infection rates continued
to remain extremely low
2015
2016
2017
0.13
0.60
0.55
MRSA (infection rate per 10,000 bed days)
Post-operative mortality* (per 10,000 anaesthetic episodes)
0.06
We reported a single case of
MRSA across all 39 hospitals
throughout 2017
2015
0.00
2016
2017
0.06
0.06
1.27
Post-operative mortality rates
increased slightly over the very
low rates reported in 2016
* Within 31 days of surgery.
2015
0.00
2016
2017
0.93
1.24
1.27
Most recommended customer experience
Patient satisfaction: Net Promoter Score
Patient satisfaction: Quality of care
83%
Our Net Promotor Score (‘NPS’),
a measure which aligns our
reporting with the NHS and other
providers, remained high at 83%
2015
2016
2017
82%
83%
83%
98%
Patients rated the overall quality
of care ‘Excellent’ or ‘Very good’
2015
2016
2017
98%
98%
98%
Best place to practice
Best place to work
Consultant satisfaction
-10%
Consultant satisfaction fell to
67% in 2017. We are committed
to working closely with our
consultants in delivering quality
patient care
2015
2016
2017
79%
77%
67%
Employee Engagement Survey
-7%
Percentage of participants in
the staff engagement survey
who said what they do at work
makes a positive difference
2015
2017
93%
86%
The survey was reintroduced in 2017, with 70% of all employees
taking part.
18
Spire Healthcare Group plc Annual Report 2017
First choice for private patients
Revenue by payor
£931.7m
Revenue growth continued in
2017, up by £5.3 million in the year
(0.6%). Self-pay growth was strong
which mitigated NHS revenue
pressure in the second half of 2017
£m
500
400
300
200
100
0
2015
2016
2017
PMI
NHS
Self-pay
Other
Financial and operating measures
EBITDA margin
16.1%
Including Spire St Anthony’s,
Spire Manchester and
Spire Nottingham hospitals
Underlying EBITDA margin
17.3%
Adjusted to exclude Spire
St Anthony’s, Spire Manchester
and Spire Nottingham hospitals
2015
2016
2017
2015
2016
2017
18.1%
17.5%
16.1%
18.3%
18.2%
17.3%
Factors affecting margin include inflationary cost increases,
investments to extend training and development capabilities,
clinical assurance functions and indexed property rental increases
Self-pay revenue growth
£186.9m
Self-pay revenue increased by
9.7% in the year to £186.9 million
2015
2016
2017
£156.2m
£170.4m
£186.9m
Conversion of EBITDA to cash
106%
Conversion of EBITDA to
operating cash flow before
exceptional items and taxation
decreased to 105.6%
Net debt/EBITDA
3.08
Net debt to EBITDA decreased only
marginally despite £119.5 million
of capital expenditure spent
in 2017, and the cash funding
of the Paterson settlement of
£27.6 million
2015
2016
2017
2015
2016
2017
104%
115%
106%
2.62
2.67
3.08
Clinical staff costs as a percentage of revenue
Other direct costs* as a percentage of revenue
19.6%
Including Spire St Anthony’s,
Spire Manchester and
Spire Nottingham hospitals
2015
2016
2017
18.9%
18.9%
19.6%
33.2%
Including Spire St Anthony’s,
Spire Manchester and
Spire Nottingham hospitals
2015
2016
2017
*Comprises direct costs and medical fees. For more information, see page 36.
Underlying clinical staff costs as a percentage
of underlying revenue
Underlying other direct costs as a percentage
of underlying revenue
18.8%
Adjusted to exclude Spire
St Anthony’s, Spire Manchester
and Spire Nottingham hospitals
2015
2016
2017
18.3%
18.3%
18.8%
33.0%
Adjusted to exclude Spire
St Anthony’s, Spire Manchester
and Spire Nottingham hospitals
2015
2016
2017
Supply-side constraints to nursing resource continue to exist.
Management is focused on continuous improvement of
recruitment and training.
Management actions alongside case mix changes
have generated medical fee savings in the year.
33.0%
33.6%
33.2%
33.3%
33.5%
33.0%
Following the appointment of our Chief Executive Officer, we have updated our KPI’s to reflect the new strategy, which is focused on Self-pay growth. Therefore we have
removed theatre utilisation, theatre numbers and patient discharges from our KPI’s as they are no longer relevant and have been have replaced with Self-pay revenue growth.
Further information on our KPIs can be found on pages 18 and 19, and full APM definitions can be found on page 152.
19
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Clinical review
Spire Healthcare aims to be ‘famous for quality and
clinical care’. Continuous improvement drives the
delivery of outstanding clinical quality and performance
for our patients.
Opportunities to improve, identified by
the CQC, are acted upon immediately.
As a result, Spire Healthcare’s ratings rose
from 67% ‘Good’ or Outstanding’ in 2017
to 69% at the time of writing, which is in
line with the independent sector average
and ahead of NHS partners (45%).
Of special mention are Spire Sussex,
Cheshire and The Montefiore hospitals ,
which were rated ‘Outstanding’, and Spire
St Anthony’s Hospital which was re-rated
to ‘Good’.
Nevertheless, 11 of our hospitals are
currently rated ‘Requires Improvement’.
Whilst the majority of these are rated
‘Good’ in the Caring, Effective and
Responsive domains, we are focusing on
improving our systems and processes at
these sites to ensure they achieve a rating
of at least ‘Good’ overall. This will require
improvements to be made in relation
to the compliant management of drugs,
refurbishing carpeted areas where
patients are cared for, and remedying
gaps in the perceived strength of
local leadership.
We are committed to resolving these
issues with the utmost urgency. Actions
include the recruitment of a medicines
management specialist to drive
improvements in drugs management;
a programme of replacement of
carpets in patient areas and concerted
improvements in leadership capability.
You can read more about this in the
Our people section on pages 44 to 47.
Clinical review
As Group Medical Director, I am
responsible for ensuring we deliver safe
and high-quality clinical care, defining our
clinical governance strategy, deploying
plans to deliver on quality goals and
ensuring adequate resources are available
to meet those goals. The national Clinical
Services team sets the clinical standards,
audits compliance and reports on the
clinical performance of our 52 facilities.
We also provide hands-on support to our
hospitals, working side-by-side with senior
management teams, to drive continuous
improvement by identifying and sharing
best practice across England, Scotland
and Wales.
During 2017, I am proud to report that
every Spire Healthcare hospital that
underwent a rated inspection by the
Care Quality Commission (‘CQC’) in
England achieving a rating of at least
‘Good’, with three hospitals achieved
the highest rating of ‘Outstanding’.
In addition, our two hospitals in Scotland
both received a rating of ‘Very Good’
from Health Improvement Scotland and
Spire Cardiff Hospital received a very
favourable inspection report (Healthcare
Inspectorate Wales do not issue ratings).
Whilst we have, to date, prepared for
these inspections by strengthening our
performance management and assurance
systems, we are now investing in growing
our specialist support teams to enable our
hospitals to deliver our quality goals –
for every hospital and clinic inspected
in 2018 to be rated at least ‘Good’; for
every hospitals and clinic to be rated at
least ‘Good’ in 2019; and for the majority
of hospitals and clinics to be rated
‘Outstanding’ in 2020.
20
Spire Healthcare Group plc Annual Report 2017
Dr Jean-Jacques de Gorter,
Group Medical Director
In terms of clinical
performance and safety,
post-operative mortality
within 31 days remained
low whilst at the same
time, rates of returns
to theatre, unplanned
transfers and readmissions
all remained low, following
on from last year’s strong
performance.”
Highlights
Case study
0.06We reported a single case of MRSA across
all 39 hospitals in 2017
69%Spire Healthcare hospitals rated ‘Good’
or ‘Outstanding’
3 Spire Healthcare hospitals rated
‘Outstanding’
All Spire Healthcare sites rated ‘Requires
Improvement’ have published an action
plan response to the CQC findings on
their websites for scrutiny by patients.
We are prioritising our central clinical
resources to support these hospitals,
with all of them undergoing a clinical
review in the first quarter of 2018.
We performed well in patient reported
outcome measures (‘PROMs’), of the top
10 hospitals (NHS and Independent)
in England for health gain following hip
replacement (April 2016–March 2017),
three were Spire Healthcare hospitals –
Spire Cambridge Lea, Leeds and Sussex
hospitals. In relation to knee replacement,
two Spire Healthcare hospitals featured
in the top 10 – Spire Washington (which
ranked top) and Portsmouth hospitals.
Learning from others
Nurses value professional
development and training,
so we not only help our
nurses to extend their
professional competencies
through formal training
but also encourage them
to apply for sponsorships,
scholarships and awards.
Vincenzo Calascibetta, a nurse at Spire
London East Hospital, has been awarded
a prestigious Florence Nightingale
Foundation Travel Scholarship. He will
be travelling to Australia to study acute
post-operative pain management.
Vincenzo became a nurse in 2011,
moving to England in 2015 and joining
Spire London East Hospital the
following year.
In Sydney, he will observe pain
management services at the Royal
North Shore Hospital and at the Pain
Management Research Institute. He will
also attend a two-week multidisciplinary
pain management workshop.
Vincenzo said: “This will give me an
amazing chance to travel and to observe
closely nursing practices in another
country which I think will really help
me. I strongly believe that these kind
of experiences promote professional
and personal growth.
21
Spire Healthcare Group plc Annual Report 2017
“My ultimate goal is to work as part
of a pain management team and this
experience will really put me on the
right road to achieving that.”
Spire London East Hospital Matron,
Patricia Turner, said: “The Florence
Nightingale Institute is close to all
nurses’ hearts. We were ecstatic when
Vincenzo won the scholarship. He will
bring his learning back from Australia
to share with us and the Company –
and we will support him in writing
his paper for publication. It will benefit
so many people.”
GovernanceStrategic ReportFinancial statementsOther information Clinical review
Continued
Famous for clinical quality and care
Unplanned returns (%)
0.12%
C.difficile (infection rate per 10,000 bed days)
2015
2016
2017
0.12
0.60
0.55
0.13
2015
2016
2017
0.13
MRSA (infection rate per 10,000 bed days)
MSSA (infection rate per 10,000 bed days)
0.06
2015
0.00
2016
2017
0.13
0.06
0.06
2015
0.00
2016
2017
0.60
0.55
0.12
0.13
Inpatient surgical mortality (per 10,000 anaesthetic episodes)
0.13
Source: Company information.
2015
2016
2017
0.13
0.33
0.37
Summary of inspection results
The following table shows the percentage of published CQC reports receiving a positive rating (Good or Outstanding) by domain for
the independent sector. Figures correct as of 1 February 2018.
Hospital
Spire Healthcare
Sector excl. Spire Healthcare
NHS
Published
Reports
Overall rating
36
137
294
69%
69%
45%
Safe
56%
55%
34%
Effective
82%
78%
66%
Caring
100%
100%
98%
Responsive
Well led
94%
93%
48%
69%
67%
48%
22
Spire Healthcare Group plc Annual Report 2017
Infection control continues to feature
as one of Spire Healthcare’s strengths.
With only a single case of MRSA
bacteraemia in 2017 and very low rates
of other healthcare acquired infections,
we continually outperform NHS providers
according to data published by NHS
England. Indeed, surgical site infection
following hip and knee replacement
reduced once again to the lowest level
on Spire Healthcare’s record.
In other clinical performance and safety
indicators, post-operative mortality
within 31 days rose slightly (1.27 per
10,000 theatre episodes), whilst rates
for returns to theatre (0.12%), unplanned
transfers (0.05%) and readmissions within
31 days (0.18%) all remained exceptionally
low following on from last year’s
strong performance.
Safety and effectiveness of care is
a reflection of the dedication and
engagement of clinical teams. Combined
with our ambition to improve further and
to challenge practice that does not meet
our high standard, our goal is to lead the
sector on quality. In 2017, we reported
16 ‘Never Events’ across our 39 hospitals
which whilst a slight reduction on the
number reported in 2016, is not in keeping
with our drive to be the best. We will
build on our programme of human factors
training which we launched last year
and redouble our efforts to reduce
these further.
We have also introduced a programme of
human factors training for our colleagues
and made this available to consultants
who practise with us.
Our peer-review system for clinical
assurance (the ‘Clinical Review’) is now
well established and has proven to be
an effective assessment of regulatory
compliance and performance. We have
invested further to strengthen and grow
the capacity of this team under the
leadership of the Chief Nursing Officer
in order to undertake more frequent
assessments of our clinical compliance.
We continue to innovate to make care
safer and to provide us with assurance
in this regard. By the end of 2017,
we completed the roll out of two new
platforms to support cancer care – the
Ardeo pathway system to collect and track
a patient through their breast cancer and
chemotherapy treatments, and iQemo –
a system to electronically prescribe
validated and approved chemotherapy
protocols in line with published best
practice. In parallel, we also undertook
analysis of thousands of surgeons and
interventional physicians to assess their
intervention rates, looking to benchmark
every individual with their specialty
peers – an exercise we will repeat
on an annual basis with a view to
understanding and acting upon outliers.
We believe we are the only provider
in the sector to be doing so.
Over the last year, following a commissioned
review into Spire Healthcare’s systems
and processes for risk management, we
have updated our approach to reporting,
investigating and acting upon lessons from
clinical and non-clinical incidents, in order
to make care safer and more responsive.
At the start of 2018 we launched
‘Project Outstanding’, our initiative
to systematically articulate what
‘Outstanding’ looks like – both clinical
and non-clinical – and to deliver this
consistently across our network with
the aim of leading on quality as rated by
the CQC. In the absence of every hospital
being re-inspected by the CQC this year,
we also plan to apply for and achieve
a number of additional external
independent accreditations over and
above those we have already achieved –
such as the Macmillan environmental
accreditation and the Joint Advisory
Group (‘JAG’) accreditation for endoscopy.
More and more information on quality
is being published and we are entirely
supportive of the Private Healthcare
Information Network (‘PHIN’) initiative
which seeks to collect, analyse and publish
information on both quality and costs
in line with the requirements of the
Competition and Markets Authority
(‘CMA’). We have been submitting data
for many months and have extended
our collection of PROMs beyond hip and
knee replacement and cataract surgery
to include cosmetic procedures using
our digital platform, My Clinical
Outcomes.
We also plan to support patients to make
more informed decisions by helping them
to better understand their treatment
options as well as their risks and benefits,
by updating our approach to procedure
specific consent. We believe that engaged
patients who are aware of the treatment
options available to them, cared for by
talented and dedicated professionals,
ultimately experience the best possible
outcomes. We remain passionate and
determined to deliver the highest quality
care for all those who choose us to look
after them.
Dr Jean-Jacques de Gorter
Group Medical Director
1 March 2018
23
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Case study
Strategic priorities
Best place
to practice
Image:
Monika Kaushik
Consultant Breast
Surgeon; Spire
Leicester Hospital
24
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare aims
to be the ‘best place
to practice’
We work closely with consultants at every stage of
their career – from their earliest years to retirement –
helping them build and maintain their private practices
with tailored clinical, operational, business and
marketing support.
Monika Kaushik is a Consultant Breast
Surgeon at Spire Leicester Hospital.
Her experience of working with one
of our hospitals is typical of the support
we give to consultants as they grow
their private practices.
“In 2014, after my appointment as a
Consultant at University Hospitals of
Leicester NHS Trust, I wanted to develop
a private practice. One call to Spire
Healthcare resulted in a meeting the
next day with the Hospital Director,
the hospital team, a full hospital tour
and a really useful conversation.
They already had a successful Tuesday
one-stop breast clinic, but my idea
was to open a Saturday morning clinic
which would be easier for busy working
women to attend. Spire Healthcare
was immediately supportive and, after
a few teething issues around business
administration and bookings, the clinic
has gone from strength to strength.
Spire Healthcare
was immediately
supportive and the clinic
has gone from strength
to strength.”
Together, we have used advertising,
GP evening talks and word of mouth to
promote our services. And looking ahead,
after this year’s work review, we’re
planning to introduce 10-minute free
consultations for women with any
cosmetic breast concerns, together with
more editorial in Spire Leicester Hospital’s
newsletter and a series of GP talks on
aftercare for breast patients.”
David Macdonald’s (based at Spire Leeds
Hospital) career started in 1992 – making
him one of our longest established
Orthopaedic Consultants. In David’s view,
maintaining a successful private practice
is based on two factors – your chosen
hospital partner having an excellent local
reputation and word of mouth reflecting
the quality of your work.
“I always tell younger consultants,
don’t spread yourself too thinly. Choose
a hospital partner that can provide all
the capacity and back-up you need and
work with them. Spire Leeds Hospital has
everything – imaging, high dependency
unit, cardiologists – to reassure patients
and consultants that they will receive
a comprehensive, quality service.
“At a local level, Spire Healthcare invests
constantly to keep equipment up-to-date –
and at a national level, if the need is there,
they will invest in cutting-edge technology
to improve patient services – like the
computer assisted surgery I provide for
the most complex joint reconstructions.”
25
Spire Healthcare Group plc Annual Report 2017
Looking after you
Investing in the future
Mark Rochester, a Consultant
Urological Surgeon at Spire
Norwich Hospital, has seen his
relatively new private practice
transformed over the last year by
our investment in a Holmium laser,
enabling HoLEP laser prostatectomy
for benign prostate enlargement.
Mark commented: “I was having
to fit some of my private patients
in around the edges of my work
at our NHS hospital, but now that
Spire Norwich Hospital has the
equipment, we can offer patients
all the clinical benefits of a shorter
hospital stay and post-operative
catheterisation time, with excellent
outcomes – at a time and place
that’s best for them.
“We had to make the investment
case, but since then there’s been
a significant increase in the number
of patients I’ve been able to treat.
It’s the gold standard, and still
relatively rare in the private sector.”
£36.9m
Purchase of medical equipment
in 2017
GovernanceStrategic ReportFinancial statementsOther information Operating review
Spire Healthcare aims to deliver operational excellence
The operations team is focused on delivering the core
elements of our strategy – being ‘first choice for private
patients’, delivering ‘the most recommended customer
experience’, and ‘operational excellence’. In 2007, many
initiatives laid foundations for future success in these areas.
10 years of looking after people
£119.2m
Investment in capital projects in 2017
(2016: £149.5m)
98%
Friends and Family Test
134Operating theatres in the Spire Healthcare
hospital network
In 2017, our patients continued to rate
our care and attention highly, with 98%
of patients overall saying that they would
be extremely likely or likely to recommend
Spire Healthcare to their family and friends.
Patients at Spire Leeds, Parkway and
Sussex hospitals reported a 100% Friends
and Family score.
A number of lessons have been learnt
in relation to the scale and complexity
of such projects. Achieving full operating
efficiency in the new build sites is slower
than we had expected, but additional
central resources and targeted development
programmes implemented in 2017 will
ensure positive contributions in the future.
We continued to invest in the capacity
and services to maintain high levels
of recommendation by our customers.
At the end of 2017, our operating theatre
network grew to 134, including six new
theatres at Spire Manchester Hospital
and five at Spire Nottingham Hospital.
Across the network, 66 MRI and CT
scanners support rapid diagnostics,
while our pathology services undertook
1.8 million tests.
In 2018, we have ambitious plans to
sustain that investment, and make our
private services even easier to access,
broader and more transparent in price
and quality of outcome. We also aim
to be even more operationally efficient
in running and scaling-up existing and
new capacity.
New builds and acquisitions
Developments during 2017 included:
• Spire Manchester Hospital (six theatres,
76 beds, ITU) opened in January; and
• Spire Nottingham Hospital (five theatres,
56 Beds, ITU) opened in April.
Spire Manchester and Spire Nottingham
hospitals were our first entirely new build
hospitals, Spire St Anthony’s Hospital our
first acquisition and major expansion.
Investment in existing facilities
Investments during 2017 included:
• Spire Methley Park Hospital –
refurbishment of administration areas,
bedrooms and theatres, and creation
of a new daycase suite and theatre –
opened in September;
• Spire Bushey Hospital – satellite
out-patient and diagnostic centre with
14 consulting rooms, associated
treatment rooms, out-patient diagnostic
clinics, state-of-the-art MRI, X-ray and
ultrasound – opened in November;
• new MRI scanners at Spire Hull and
East Riding and Thames Valley hospitals,
and a replacement scanner at Spire
South Bank Hospital; and
• new CT scanner at Spire Hull and
East Riding Hospital.
During the year, we invested £119.2 million
in enhancing facilities and new equipment
across our existing estate.
Spire Bushey Hospital, our largest
facility in the south-east, is benefiting
from a two-phase investment which
will significantly increase its capacity.
The first phase involved the building of
a dedicated diagnostic and outpatient
centre in Elstree, Hertfordshire. It not only
offers state-of-the-art diagnostic facilities
but also frees the way for the second
phase of the development, adding
26
Spire Healthcare Group plc Annual Report 2017
During the year, we
invested £119.5 million
in enhancing facilities and
new equipment across
our existing estate.
New private services
In 2017, we launched our Children and
Young People’s Service. Working with the
CQC, we developed a safe, effective and
compliant service with approved clinical
standards. We also sought input from
our PMI partners to ensure our service
took into account and resolved the
key issues they and their customers
were experiencing.
With our hospitals working together
as a network, we are now able to offer
a range of paediatric services from
initial consultation and diagnosis through
to treatment and surgery on a broad
national basis.
We also launched Spire GP, our hospital
based primary care service. Planned to
be available at all our hospitals by the
end of 2018, Spire GP provides quick and
easy access to professional private GP
services at a time and location that suits
our customers.
The launch also marked our first online
customer service – offering patients
the opportunity to book and pay for GP
appointments from their mobile, laptop
or tablet – the first step in a full range
of planned online services.
capacity in the main hospital. This will
create six new consulting rooms, 10 extra
beds and a new theatre – offering the
potential for an additional 1,400 private
surgical patients a year.
In September, we completed the
£7.6 million transformation of Spire
Methley Park Hospital. A new operating
theatre, equipped with leading-edge
technology, has enabled more complex
surgery, while five extra beds, a new
physiotherapy unit, gymnasium, daycase
unit and discharge lounge, an on-site
pharmacy and a total redesign of the
out-patient department have further
increased capacity.
Planned 2018 investments
In 2018, we will continue to invest in
the latest equipment, to add capacity
and capability in our hospitals.
Planned investments include:
• phase 2 expansion of Spire Bushey
Hospital (one additional theatre,
six consulting rooms and 10 beds);
• Spire Murrayfield and Shawfair Park
hospitals (new MRI scanner).
• Spire Cheshire Hospital (new
MRI scanner);
• Manchester Parkway One Pathology
Laboratory (regional and national
Histopathology hub); and
• the ongoing large-scale refurbishment
project at Spire Cambridge Lea Hospital,
comprising the expansion and
refurbishment of the daycase unit;
a new Joint Advisory Group (‘JAG’)
accredited endoscopy suite; and the
upgrade of the Level 1 Critical Care
extended recovery area.
27
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Operating review
Continued
Directly booked appointments 2017
800
600
400
200
0
Insurer engagement
End of pilot
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Insurer 1
Insurer 2
Grand total
Jan
2018
The goal is one ‘Spire Way’
of working, to free up
strong local hospital
leadership to run great
hospitals, support their
consultants and patients
and grow the local business.
We are increasing investment in marketing
and services to drive further growth in
self-paying patients. Our central team of
sales trainers work across the network to
support the hospital based Self-pay sales
teams. They focus on improving sales
conversion through the coaching and
reinforcement of quality enquiry handling,
enquiry management and sales process.
They also co-ordinate the best use of
the Self-pay CRM system standardising its
use, training its users and recommending
developments to improve the user
experience and enquiry data collection.
Improving service for our PMI partners, we
successfully completed the pilot of a Direct
Booking Portal and from the late summer
rolled it out across our full network. The
portal was developed in response to our
insurance partners seeking to support their
members to book more easily into our
consultants’ clinics and avoid the need for
lengthy telephone calls. The portal provides
claims management teams with direct
access to electronic diaries, booking and
appointment confirmation. By year end
we had scaled up from around 200 referrals
per month in the pilot to over 600; totalling
over 4,000 direct bookings for the year.
Building on this success we are working
to make the portal available to more of
our insurance partners. We are also piloting
a Direct to Patient service, giving insured
patients direct access to support them to
select appointments with our consultants.
28
Spire Healthcare Group plc Annual Report 2017
2017 saw the Private Healthcare
Information Network (‘PHIN’) publish
quality measures about private hospitals
online for the first time as a result of
the Competitions and Markets Authority
Private Healthcare Investigation Order.
We support PHIN’s objectives of improving
transparency around quality and cost
and continue to actively work with PHIN
and the industry as new sections of the
regulation are implemented on a phased
basis. In addition, we continue to work
with our consultants to ensure patients
have the information they need to make
informed choices.
Further work is also underway on our
website to raise the level of information
available to patients.
Continuous operational improvement
A range of work streams aimed at
delivering operational excellence,
consistently, across all our hospitals, is
being driven forward by enhanced central
resources, working with hospital senior
leadership teams. The goal is one ‘Spire
Way’ of working, to free up strong local
hospital leadership to run great hospitals,
support their consultants and patients
and grow the local business.
Specific programmes tested in 2017
to be fully implemented in 2018 include:
• after a review of our telephony
capability identified overwhelming
customer demand, resulting in
a frustrated customer experience,
we piloted across six hospitals
a workstream to identify the
opportunities to improve our telephony
capability. This includes improved
call routing to ensure a positive impact
to customer experience and the ability
to measure performance to drive
further improvements;
• headline improvements across the
six pilot hospitals include 20% increase
in Self-pay appointment bookings
compared to non-pilot hospitals.
• a relaunch of our website to raise
search optimisation and usage; and
• an ongoing development of a workforce
planning tool which uses best in class
acuity assessment and on-line updates
to create a safe and efficient staff rota
and bookings allocation.
The NHS standard acute contract
requires discharge summaries to be sent
electronically – the so-called e-discharge.
Our SAP system already links to many
GPs’ systems across the country. In 2017,
we trialled e-discharge notes at Spire
Alexandra and Spire Sussex hospitals.
In 2018, we will extend the benefits to
other hospitals, ensuring notes are with
GPs within 24 hours. The next step will be
to send clinic letters to GPs electronically.
During 2017, our coding teams
implemented the NHS’s new tariffs and
upgraded to HRG4+1. This included the
creation of a co-morbidity tick-sheet to
bridge the gap between terminologies
used by clinicians and coders. The result
ensures that all secondary conditions
relevant to any one patient can be clearly
documented and accurately coded.
All our hospitals have had at least one
coding review during the year, highlighting
areas where improvements can be
made to the accuracy of clinical coding.
A summary of findings is provided for
each site and, where necessary, action
plans provided to support improvement.
In addition to the on-site reviews, our
central team analyses monthly coding
outputs in order to identify potential
inaccuracies. The reviews and monthly
analysis have increased coding accuracy
and income.
1 HRG – Healthcare Resource Group. NHS Tariff prices are applied to units of healthcare, based on groups
of services that are clinically similar and require similar resources to deliver. HRG4+ is the latest set of such
groups, used in present prices.
29
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Case study
Strategic priorities
Famous for quality
and clinical care
Most recommended
customer experience
Image:
Val Price
Matron; Spire
Portsmouth Hospital
30
Spire Healthcare Group plc Annual Report 2017
Operational
excellence in
everything we do
Operational excellence helps our Consultants
and staff deliver the best experience and
outcomes for our patients – through the
most efficient use of our resources.
Looking after you
Theatre utilisation is one of the key
performance indicators of operational
excellence. Maximising the productivity of
our operating theatres requires efficiency
throughout the patient pathway –
from original booking, through smooth
admissions processes, comprehensive
pre-assessments, timely starts, full lists
and appropriate post-operative care,
to prompt discharge.
All of which requires focus, firmness
and flexibility – from everyone involved.
Spire Portsmouth Hospital achieved
theatre utilisation rates of 79% in January
2017, and by October it had improved
still further, to 84%. Hospital Director,
Heather Dob, explains their approach.
We’re fully focused on
maximising theatre usage.”
“Our operating theatres work up to three
sessions a day, six days a week, and we
have more orthopaedic consultants who
want to treat their patients here than
we can easily accommodate.
“So, we’re fully focused on maximising
theatre usage. Senior managers, Matron
and myself have weekly and daily planning
meetings, working flexibly to ensure every
list is full. We concentrate on starting
on time. We make sure that the right
equipment and consumables are in
theatre. Very soon we will have one
of our store staff in theatre at all times
to improve that link still further.
“We work hard to ensure that patients are
properly prepared and pre-assessed – this
year we created a patient briefing video,
featuring our staff, taking patients right
through the pathway.
“And we try to optimise productivity
per hour, making sure, where appropriate,
that patients are treated in endoscopy
suites or as out-patients, and using the
theatres for high-value procedures as
much as possible.”
Developing
our leaders
The quality of our hospital
leadership is crucial to the delivery
of excellence. Heather Dob, Spire
Portsmouth’s Hospital Director,
is a former Matron who has been
with us since 2002. She is currently
in her second stint as Hospital
Director at Portsmouth and typical
of the best leaders, she knows
every aspect of the hospital’s
operations, but leads her team
with delegated responsibilities.
As she says: “I lead a team that
is completely focused on providing
flexible capacity for our consultants
and patients. It’s all in the detail.”
84%
Theatre utilisation at Spire
Portsmouth Hospital
How we manage our theatres is central
to effective patient flow in a hospital
31
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Group financial review
Revenue growth continued in 2017, up £5.3 million in
the year (+0.6% on 2016). Self-pay growth was strong
throughout the year (+9.7%) and mitigated NHS revenue
pressure in the second half of 2017.
Simon Gordon,
Chief Financial Officer
Continued strong conversion
of earnings to cash flow
led to a modest increase in
year end net debt leverage,
notwithstanding significant
further investment in capital
expenditure in the year
and the settlement of
Paterson claims.”
Highlights
Revenue (+0.6%)
£931.7m
Revenue increased by 0.6% to
£931.7 million (2016: £926.4 million)
EBITDA conversion to operating cash
flows before exceptional items and
income tax paid
105.6%
EBITDA conversion to operating cash flows
above 100% for the third successive year
Self-pay revenue growth (+9.7%)
Capital investments
186.9m
Self-pay revenue increased by 9.7% to
£186.9 million (2016: £170.4 million)
£119.2m
Investment in capital projects totalled
£119.2 million (2016: £149.5 million)
EBITDA (-7.4%)
Net debt
£150.0m
EBITDA2 down 7.4% to £150.0 million
(2016: £162.0 million)
£462.8m
Net debt increased to £462.8 million,
with leverage at 3.09 times EBITDA
(2016: £432.3 million and 2.67 times EBITDA)
Adjusted basic earnings per share (-25.0%)
14.4p
Adjusted, basic earnings per share
(2016: 19.2p)
Please see page 152 for full APM definitions.
32
Spire Healthcare Group plc Annual Report 2017
Selected financial information
(£ 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
Total dividend paid/proposed per share,
pence3
Operating cash flows
Capital investments
Net debt at the year end4
Year ended 31 December
2017
2016
Total before
exceptional
and other
items
931.7
(492.2)
439.5
(347.4)
92.1
(20.2)
71.9
(14.0)
57.9
Exceptional
and other
items5
–
–
–
(49.2)
(49.2)
–
(49.2)
8.1
(41.1)
14.4
(10.2)
158.4
(34.4)
Total before
exceptional
and other
items
926.4
(485.9)
440.5
(332.3)
108.2
(19.8)
88.4
(11.8)
76.6
Exceptional
and other
items5
–
–
–
(15.2)
(15.2)
–
(15.2)
(7.8)
(23.0)
19.2
(5.8)
183.9
(6.5)
Total
931.7
(492.2)
439.5
(396.6)
42.9
(20.2)
22.7
(5.9)
16.8
150.0
4.2
3.8
124.0
119.2
462.8
Underlying
variance
%1
1.0%
1.7%
0.4%
13.7%
(47.5%)
(4.7%)
Variance
(on total after
exceptional
and other
items)
%
0.6%
1.3%
(0.2%)
14.1%
(53.9%)
2.0%
(69.0%)
69.9%
(68.7%)
(7.4%)
(68.7%)
–
(30.1%)
(20.3%)
7.1%
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
1 Excludes the impact of Spire Manchester, Spire Nottingham, Spire St Anthony’s hospitals and Lifescan (referred to as ‘underlying’). See page 39.
2 Operating profit, adjusted to add back depreciation, loss on disposal of PPE and other exceptional and other items, referred to hereafter as ‘EBITDA’.
3 A final dividend of 2.5 pence per ordinary share will be proposed at the Company’s annual general meeting on 24 May 2018. If approved, it will be paid on 26 June 2018
to shareholders on the register of members as at 1 June 2018.
4 Net debt is calculated as total debt (comprising obligations under finance leases and borrowings), less cash and cash equivalents. See note 20 to the consolidated
financial statements.
5 Exceptional and other items includes the before and after taxation impact of exceptional operating expenditure in each year and in 2016 the Group’s review of its deferred
tax approach on freehold properties giving rise to a material taxation charge in that year. See note 9 to the consolidated financial statements.
33
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Group financial review
Continued
Analysis by payor
(£ million)
Total revenue
Of which:
PMI
NHS
Self-pay
Other2
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
2017
931.7
426.0
287.8
186.9
31.0
931.7
637.2
263.5
31.0
931.7
2016
926.4
429.3
293.4
170.4
33.3
926.4
629.9
263.2
33.3
926.4
Variance
%
0.6%
Underlying
variance
%1
1.0%
(0.8%)
(1.9%)
9.7%
(6.9%)
0.6%
1.2%
0.1%
(6.9%)
0.6%
(1.5%)
(0.5%)
12.0%
(6.8%)
1.0%
1.6%
0.8%
(6.8%)
1.0%
269.3
274.1
(1.8%)
(1.8%)
118.4
101.5
49.4
123.5
104.2
46.4
(4.1%)
(2.6%)
6.5%
(4.6%)
(1.8%)
6.5%
1 Excludes the impact of Spire Manchester, Spire Nottingham, Spire St Anthony’s hospitals and Lifescan (referred to as ‘underlying’).
2 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
Non underlying revenue
Total revenue
In-patient/
daycase
volume
(9.8)
(1.1)
In-patient/
daycase
rate
19.1
(0.9)
Out-patient
(0.7)
0.8
Other
0.4
(2.5)
2016
872.1
54.3
926.4
2017
881.1
50.6
931.7
Growth
1.0%
0.6%
Revenue for the year ended 31 December 2017 increased by £5.3 million, or 0.6%, to £931.7 million (2016: £926.4 million).
Underlying revenue grew by £9.0 million, or 1.0%, to £881.1 million (2016: £872.1 million). Of the underlying revenue growth of 1.0%:
• a decrease of 1.8% in the volume of in-patient and daycase admissions accounted for a 1.1% decline in revenue in the year,
with Self-pay admissions growth compensating for volume declines in both NHS and PMI business;
• the Group reported a 1.6% increase in rate for in-patient and daycase admissions (average revenue per case) equivalent to an
increase to total revenue of 2.2%. This was the result of modest increases in case mix complexity and PMI contractual price increases,
which delivered growth in average revenue per case across all payor groups, most particularly in PMI and Self-pay activity in the
year (notwithstanding reductions to applicable NHS tariffs of 3.9% from April 2017); and
• a decline in out-patient revenues, which was directly linked to in-patient and daycase surgical volumes. The impact of reduced NHS
volumes was felt less than private activity (as it carries less out-patient revenues) and as a consequence the decline in out-patient
revenues accounted for only a 0.1% decline in underlying revenues overall.
The reduction in non underlying revenues includes the impacts of the closure of Lifescan in 2016 and the closure of operations
in Manchester during January 2017 whilst activity was transferred between the old and new sites.
34
Spire Healthcare Group plc Annual Report 2017
PMI
(£ million)
Underlying PMI revenue
Non underlying revenue
Total PMI revenue
In-patient/
daycase
volume
(11.9)
0.5
In-patient/
daycase
rate
6.4
1.4
Out-patient
(0.7)
1.0
2016
401.1
28.2
429.3
2017
394.9
31.1
426.0
Growth
(1.5%)
(0.8%)
PMI revenue for the year ended 31 December 2017 decreased by £3.3 million, or 0.8%, to £426.0 million (2016: £429.3 million). Underlying
revenue declined by £6.2 million, or 1.5%, to £394.9 million (2016: £401.1 million). Of the underlying decline in PMI revenue of 1.5%:
• a decrease of 4.6% in the volume of in-patient and daycase admissions accounted for a 3.0% reduction in PMI revenue in the year;
• the Group reported a 3.0% increase in rate for in-patient and daycase admissions (average revenue per case), equivalent to an
increase to PMI revenues overall of 1.6%. This rate increase was a combination of contractual increases to prices and a modest
increase in the complexity of work undertaken in the year; and
• out-patient revenues contributed 0.2% to the overall decline in PMI revenues, performing significantly better than the volume
led decline in in-patient and daycase admissions in the year.
NHS
(£ million)
Underlying NHS revenue
Non underlying revenue
Total NHS revenue
In-patient/
daycase
volume
(4.1)
(1.9)
In-patient/
daycase
rate
2.8
(2.3)
Out-patient
(0.1)
–
2016
282.6
10.8
293.4
2017
281.2
6.6
287.8
Growth
(0.5%)
(1.9%)
NHS revenue for the year ended 31 December 2017 decreased by £5.6 million, or 1.9%, to £287.8 million (2016: £293.4 million).
Underlying NHS revenue declined by £1.4 million, or 0.5%, to £281.2 million (2016: £282.6 million). Of the underlying decline in NHS
revenue of 0.5%:
• a decrease of 1.8% in the volume of in-patient and daycase admissions accounted for a 1.5% decrease in NHS revenue in the year,
skewed heavily to NHS local contract work (see below);
• against the backdrop of a weighted decrease to NHS tariff for the Group of 2.8% for the financial year, the average revenue per
case for NHS admissions increased by 1.3% over 2016. Growth in in-patient and daycase rate (average revenue per case) contributed
1.0% to underlying NHS revenue growth in the year. This was the result of a further concentration of case mix to higher yielding
procedures (notably in orthopaedics) offsetting the impact of NHS tariff decline from April 2017; and
• out-patient revenue was stable during the year as a consequence of the bias in performance towards NHS e-Referrals relative
to NHS local contract work (which often carries little or no out-patient element).
The underlying revenue decline in NHS revenue of 0.5% is split as follows:
• NHS e-Referral (previously NHS Choose and Book) revenue grew by 5.5% in the year ended 31 December 2017;
• NHS local revenue declined by 26.2% in the same period. Management had expected NHS local contract revenue to decline
in 2017 due to removal of fines linked to referral to treatment time key performance indicators. This reduced the appetite of NHS
trusts to outsource work; and
• NHS e-Referrals revenue account for 86.0% of underlying NHS revenue in the year ended 31 December 2017, up from 81.2%
in the prior year.
Self-pay
(£ million)
Underlying Self-pay revenue
Non underlying revenue
Total Self-pay revenue
In-patient/
daycase
volume
7.6
0.3
In-patient/
daycase
rate
8.5
0.1
Out-patient
2.7
(2.7)
2016
156.6
13.8
170.4
2017
175.4
11.5
186.9
Growth
12.0%
9.7%
Self-pay revenue for the year ended 31 December 2017 increased by £16.5 million, or 9.7%, to £186.9 million (2016: £170.4 million).
Underlying revenue grew by £18.8 million, or 12.0%, to £175.4 million (2016: £156.6 million). Of the underlying growth in Self-pay
revenue of 12.0%:
• an increase of 6.5% in the volume of in-patient and daycase admissions accounted for a 4.4% increase in Self-pay revenue in the year;
• the average revenue per case for Self-pay in-patient and daycase admissions grew by 7.9% over the prior year, contributing 5.7%
to the increase in Self-pay revenue in the year. Price increases in 2017 were largely inflationary, with the balance of the increase
in average rate per case arising from improved case mix complexity; and
• out-patient activities in 2017 grew 0.2% as price increases were tempered in order to drive in-patient and daycase demand.
Overall the increase in Self-pay out-patient revenue drove 0.1% of the increase in underlying Self-pay revenue for the year.
35
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Group financial review
Continued
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), decreased by £2.3 million, or 6.9%, in the year, to £31.0 million (2016: £33.3 million).
Of the £2.3 million decrease in revenue, £1.8 million relates to pathology revenue which has reduced as a result of a refocusing of the
Spire pathology service to support the hospital network rather than third-party external contracts.
Cost of sales and gross profit
Cost of sales increased in the year by £6.3 million, or 1.3%, to £492.2 million (2016: £485.9 million) on revenues that increased 0.6%
in the year. Underlying cost of sales increased in the year by £7.5 million, or 1.7%, on underlying revenues that increased by 1.0%
in the year. Underlying gross margin for the year of 2017 was 48.2%, compared with 48.5% in 2016.
Cost of sales as a percentage of relevant revenue are as follows:
Clinical staff
Direct costs
Medical fees and other
Cost of sales
Gross margin
Group
Underlying
Year ended 31 December
Year ended 31 December
2017
19.6%
22.1%
11.1%
52.8%
47.2%
2016
18.9%
22.2%
11.3%
52.4%
47.6%
2017
18.8%
21.9%
11.1%
51.8%
48.2%
2016
18.1%
21.7%
11.7%
51.5%
48.5%
Overall, the Group has substantially mitigated the impact on gross margin arising from the effective 2.8% reduction in NHS Tariff
effective April 2017 (3.8% reduction in tariff on an annualised basis). The flow through impact of this price reduction in the year
is approximately 0.8%, significantly higher than the 0.3% underlying gross margin decline reported.
Management actions alongside case mix changes have generated medical fee savings in the year. Procurement initiatives have
resulted in savings in direct costs of drugs, prostheses and consumables which have significantly mitigated the margin pressure
arising from NHS tariff.
Supply-side constraints to nursing resource continue to exist; clinical staff costs as a percentage of revenues have increased in 2017
compared to the prior year. Management is focused on continuous improvement of recruitment and training and development
processes in the business as well as rostering and productivity improvements designed to limit use of agency staff.
Other operating costs
Other operating costs for the year ended 31 December 2017 increased by £49.1 million, or 14.1%, to £396.6 million (2016: £347.5 million).
Excluding exceptional and other items, other operating costs for the year increased by £15.1 million, or 4.5%, to £347.4 million.
Underlying other operating costs increased in the year by £45.4 million, or 13.7%, to £375.9 million (2016: £330.5 million).
Excluding exceptional and other items, underlying other operating costs for the year increased by £11.4 million, or 3.6%, to £326.7
million. The composition of these costs are shown below:
Stated before exceptional and other items
Gross profit margin
Hospital and central overheads
Depreciation and amortisation
Rent
Loss on disposal of assets
Operating margin
EBITDA margin
Group
Underlying
Year ended 31 December
Year ended 31 December
2017
47.2%
(24.2%)
(6.2%)
(6.9%)
–
9.9%
16.1%
2016
47.6%
(23.3%)
(5.6%)
(6.8%)
(0.2%)
11.7%
17.5%
2017
48.2%
(23.6%)
(6.1%)
(7.3%)
(0.1%)
11.1%
17.3%
2016
48.5%
(23.0%)
(5.6%)
(7.2%)
(0.4%)
12.3%
18.3%
EBITDA and underlying EBITDA
EBITDA for the year ended 31 December 2017 decreased by £12.0 million, or 7.4%, to £150.0 million (2016: £162.0 million).
Underlying EBITDA decreased by £7.5 million, or 4.7%, from £159.7 million to £152.2 million.
The Group EBITDA margin of 16.1% compares to 17.5% in 2016 and was impacted by the start-up nature of new hospitals opening.
The Group underlying EBITDA margin of 17.3% compares to 18.3% in 2016 and the movement is the result of hospital and central
overhead and rent increases explained below.
Hospital and central overhead costs have increased as a consequence of the opening of new hospitals in Manchester and Nottingham
and the annualised impact of the expansion of Spire St Anthony’s Hospital. In addition investments have been made in central
overheads to support additional training and development of our people, clinical and non-clinical assurance functions and sales
and marketing to support Self-pay growth.
36
Spire Healthcare Group plc Annual Report 2017
On an underlying basis, the increase in hospital and central overhead costs is substantially linked to those central investment
initiatives referred to opposite.
Underlying depreciation charged in the year increased by £5.3 million, or 10.9%, to £54.0 million (2016: £48.7 million) as the Group
continues to invest in capacity and capability across the existing network of hospitals.
Total depreciation charged in the year of £57.4 million includes that arising on the new hospital in Nottingham and higher charges
on Spire Manchester and Spire St Anthony’s hospitals as a consequence of the investment in new and extended facilities in these
sites respectively.
Rent of land and buildings for the year increased by £1.2 million, or 1.9%, to £63.9 million (2016: £62.7 million). The increase is mainly
due to inflationary uplifts in relation to annual rent indexation in line with RPI.
Share based payments
During the year, grants were made to Executive Directors and members of the senior leadership team under the Company’s Long
Term Incentive Plan. For the year ended 31 December 2017, the charge to the income statement was £1.0 million (2016: £0.4 million),
or £1.1 million inclusive of National Insurance (2016: £0.6 million). Further details are contained in note 21 on pages 134 to 136 of
the financial statements.
Exceptional and other items
(£ million)
Ian Paterson claims and related costs
Strategic review – write-offs and aborted costs
Hospital set-up and closure costs
Executive medical leave and death in service
Business reorganisation and corporate restructuring
Write-off intangible assets
Hospital reversal of impairment on property, plant and equipment
Loss on disposal of property, plant and equipment
Other
Total exceptional costs
Income tax credit on exceptional items
Total post-tax exceptional items
2017
28.7
14.4
3.4
0.9
0.6
–
–
–
0.7
48.7
(8.0)
40.7
2016
–
–
1.1
–
5.3
1.3
(1.9)
8.9
0.5
15.2
(0.6)
14.6
1 Other exceptional items in 2017 predominantly relate to the Mediclinic takeover bid, relocation of HR and payroll functions and release of an onerous lease provision.
In 2016 the costs primarily relate to National Insurance on Directors’ Share Bonus Award granted at the time of the IPO.
Following the completion of the criminal proceedings against Ian Paterson (a consultant who previously had practicing privileges
at Spire Healthcare) earlier in 2017, Spire Healthcare settled all current and known claims against Spire relating to his practice at
Spire Healthcare. Accordingly, Spire Healthcare has provided £28.7 million in relation to this settlement, plus related costs, of which
£26.1 million has been paid. Spire Healthcare is currently pursuing legal action against its insurers to seek recoveries against this
settlement and related costs, which may give rise to future exceptional income being recognised in the income statement.
No account has been taken of these further recoveries in the results for the year ended 31 December 2017.
In the final quarter of 2017, management undertook a strategic review of its current portfolio of sites and the future development
options for the Group. As part of the process, the decision was taken to cease the provision of radiotherapy services at the Spire Cancer
Care Centre in Baddow (Essex) as a consequence of poor commercial performance. The charge for the year includes £10.3 million
for the write-off of fixed assets, net of recoverable value, and a provision for site closure costs. Additionally, certain well progressed
capital projects, notably the development of a hospital in Central London, have been aborted and the costs associated with these
projects have been charged as exceptional items in the year due to the fundamental change in development strategy.
Hospital set-up and closure costs include the pre-opening expenses for the two new hospitals opened during 2017 (Spire Manchester
and Spire Nottingham hospitals), plus the decommissioning costs of the former Manchester hospital site.
An Executive Director had a period of illness during 2017. Costs associated with his remuneration during his medical leave were
duplicative to the business. After sadly passing away in July 2017, Spire Healthcare made a death in service payment which has also
been included in exceptional items.
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
37
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Group financial review
Continued
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.
For 2017, £4.0 million (2016: £3.7 million) in respect of wages, salaries and social security costs note 8 on page 123 is included in
write-off and aborted project costs, executive medical leave and death in service, business reorganisations, hospital set-up costs,
hospital closure, other and corporate restructuring costs.
(£ million)
Other items
Compliance set-up costs
Total other items
Income tax credit on other items
Deferred tax reassessment of temporary difference on property
Total post-tax other items
2017
2016
0.5
0.5
(0.1)
–
0.4
–
–
–
8.4
8.4
Compliance set-up costs include amounts incurred in 2017 to meet the requirements of General Data Protection Regulations (‘GDPR’)
regulations effective May 2018. Management expect further material costs to arise in 2018 in advance of the effective date to meet
these new regulations and for Spire Healthcare to fulfil its extended obligations under these new regulations.
Full details of exceptional items are disclosed in note 9 on page 124.
Net finance costs
Net finance costs increased by 2.0% to £20.2 million (2016: £19.8 million) as a result of incremental increase in finance lease costs.
Taxation
The taxation charge for the year is impacted by exceptional and other items in both 2017 and 2016. The table below provides a
reconciliation of the total taxation charge for the year to the adjusted tax charge for the year, before exceptional and other items.
(£ million)
Tax on profit
Tax credit on exceptional and other items
Reassessment of temporary difference on property
Adjusted tax charge before exceptional and other items
Profit before taxation and exceptional and other items
Adjusted effective tax rate before exceptional and other items
Year ended 31 December
2017
5.9
8.1
–
14.0
71.9
19.5%
2016
19.6
0.6
(8.4)
11.8
88.4
13.3%
For the year ended 31 December 2017, the effective rate of 19.5% before exceptional and other items is reduced by 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 in 2017 of £0.5 million 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.
For the year ended 31 December 2016 the effective tax rate of 13.3% is reduced (relative to the 20.0% prevailing UK corporation
tax rate) by prior year adjustments to deferred taxation (£2.4 million credit) and the impact on deferred tax net liabilities of previous
changes to the future rate of UK corporation tax (£5.2 million credit).
Profit after taxation
The profit after taxation for the year ended 31 December 2017 was £16.8 million (2016: £53.6 million).
38
Spire Healthcare Group plc Annual Report 2017
Adjusted financial information
This statement was prepared for illustrative purposes only and does not represent the Group’s actual earnings. The information
was prepared as described in the notes set out below.
Non-GAAP financial measures
We have provided in this release financial information that has not been prepared in accordance with International Financial
Reporting Standards (‘IFRS’). We use these non-GAAP financial measures internally in analysing our financial results and believe they
are useful to investors, as a supplement to IFRS measures, in evaluating our ongoing operational performance. We believe that the
use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results
and trends in comparing our financial results with other companies in our industry, many of which present similar non-GAAP
financial measures to investors.
Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared
in accordance with IFRS. Investors are encouraged to review the reconciliation to these non-GAAP financial to their most directly
comparable IFRS financial measures provided in the financial statement tables included in this press release.
Adjustments have been made to exclude the trading results of any new and redeveloped hospitals, closure or disposal in both current
and prior periods. We have therefore excluded the results of Spire Manchester, Nottingham and St Anthony’s hospitals and Lifescan
in arriving at ‘underlying’ in this annual report. The Group ceased trading the Lifescan product in H2 2016, Manchester hospital was
transitioned to a new and larger site during January 2017 (which resulted in a period of operational closure), the new hospital in
Nottingham was operational in late April 2017 and Spire St Anthony’s Hospital was redeveloped in the comparitive period, including
the construction of a new six surgical theatre complex which opened in late 2016. APM definitions can be found on page 152.
Year ended 31 December
(£ million)
Revenue
Adjustments:
New hospital openings (Spire Nottingham and Spire Manchester hospitals)
Hospital redevelopment (Spire St Anthony’s Hospital)
Lifescan closure
Underlying revenue
Operating profit before exceptional items
Adjustments:
New hospital openings (Spire Nottingham and Spire Manchester hospitals)
Hospital redevelopment (Spire St Anthony’s Hospital)
Lifescan closure
Underlying operating profit before exceptional and other items
Underlying depreciation and amortisation on underlying assets
Underlying EBITDA
EBITDA
Adjustments:
New hospital openings (Spire Nottingham and Spire Manchester hospitals)
Hospital redevelopment (Spire St Anthony’s Hospital)
Lifescan closure
Underlying EBITDA
2017
931.7
(24.5)
(26.1)
–
881.1
92.1
3.5
2.1
–
97.7
54.5
152.2
150.0
1.0
1.2
–
152.2
2016
926.4
(21.6)
(30.1)
(2.6)
872.1
108.2
(3.0)
2.9
(0.5)
107.6
52.1
159.7
162.0
(3.9)
2.1
(0.5)
159.7
39
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Group financial review
Continued
Adjusted profit after tax and adjusted earnings per share
Adjustments have been made to remove the impact of a number of significant non-recurring items.
(£ million)
Profit before taxation
Adjustment for:
Exceptional items
Adjusted profit before tax
Taxation (1a)
Adjusted profit after tax
Weighted average number of ordinary shares in issue (No.)
Adjusted basic earnings per share (pence)
1a
Reported tax charge for the period adjusted for the tax effect of exceptional items.
GAAP basic earnings per share can be found in note 12 of the financial statements on page 127.
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
2017
22.7
2016
73.2
49.2
71.9
(14.0)
57.9
400,614,357
14.4
15.2
88.4
(11.8)
76.6
399,995,435
19.2
Year ended 31 December
2017
67.9
158.4
(31.3)
(3.1)
124.0
(118.3)
(34.4)
39.2
462.8
2016
78.9
186.3
(5.9)
(3.0)
177.4
(149.9)
(38.5)
67.9
432.3
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 £158.4 million, which
constitutes a cash conversion rate from EBITDA for the year of 105.6% (2016: £186.3 million or 115.0%). The net cash inflow from
movements in working capital in the year was £15.1 million (2016: £24.4 million), a significant achievement given the working
capital requirements associated with new hospital openings in 2017.
Investing and financing cash flows
Net cash used in investing activities for the year was £118.3 million. Capital expenditure for the purchase of property, plant and
equipment in the year totalled £119.2 million, which included the completion of the new Spire Manchester (opened in January 2017)
and Spire Nottingham hospitals (opened in April 2017), and Spire Bushey Hospital medical centre (opened in November 2017).
Additional to the development scheme-led capital investment, the Group continued to invest significant amounts within the
existing estate in engineering, plant upgrade and replacement, diagnostic equipment upgrade and replacement, theatre
and bedroom refurbishment and other medical equipment replacement.
Net cash used in investing activities for the prior year ended 31 December 2016 was £149.9 million. Capital expenditure for the
purchase of property, plant and equipment 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 financing activities for the year ended 31 December 2017 was £34.4 million, including interest paid of £19.2 million
and dividend paid to shareholders of £15.2 million.
Net cash used in financing activities for the year ended 31 December 2016 was £38.5 million, including interest paid of £21.9 million
and dividend paid to shareholders of £14.8 million.
40
Spire Healthcare Group plc Annual Report 2017
Borrowings
At 31 December 2017, the Group had bank debt of £425.1 million (2016: 424.1 million), drawn under facilities which mature in 2019
and finance lease debt of £76.9 million (2016: £76.1 million). Additionally, the Group has a revolving loan facility of £100.0 million
(2016: £100.0 million undrawn) available until July 2019, which was undrawn at 31 December 2017.
(£ million)
Cash
External debt (including finance leases)
2017
(39.2)
502.0
462.8
2016
(67.9)
500.2
432.3
As at 31 December 2017, net indebtedness was 3.09 times EBITDA (2016: 2.67 times).
Risk management
The principal risks faced by the Group are identified in the Principal risks section on pages 52 to 55.
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 27
to the financial statements on pages 139 to 141.
The consolidated cash and cash equivalents as at 31 December 2017 was £39.2 million (2016: £67.9 million). Surplus cash balances
are held with UK-based investment-grade banks.
Simon Gordon
Chief Financial Officer
1 March 2018
41
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Case study
Strategic priorities
First choice for
private patients
Most recommended
customer experience
Image:
Tom Ryder
Business Development Manager,
talks with his colleagues at
Spire Little Aston Hospital
42
Spire Healthcare Group plc Annual Report 2017
First choice for
self-paying patients
We want Spire Healthcare to be the UK’s first
choice private healthcare brand, famous for
clinical quality and customer care. Nowhere is
this more important than in the growing market
for discerning, self-paying patients.
Looking after you
In the past year, Spire Little Aston Hospital
has seen 60% growth in patients self-
paying for orthopaedic procedures. Some
of this demand is driven by lengthening
NHS waiting lists, but growing market
share in a highly competitive local market
is the result of our hospital’s ability to
develop, market and deliver a compelling
customer value proposition.
Business Development Manager,
Tom Ryder, explains: “We have an
excellent clinical reputation, outstanding
consultants and can offer great care –
but beyond that, success in the Self-pay
market is down to doing the basics well,
converting enquiries, and then delivering
throughout the patient journey.
“You have to get your message out
to the right people. We work with the
central Commercial Marketing team,
using insight data to understand our
local demographics better, targeting
and constantly refining our direct mail,
advertising and digital communications.
We’ve aligned our GP events programme
with our marketing so that local doctors
are better informed about our services.
We have an excellent
clinical reputation,
outstanding consultants
and can offer great care.”
In the past year, Spire Little Aston
Hospital has seen
60%
growth in patients self-paying
for orthopaedic procedures
“You have to build trust from the very
first enquiry. Our sales team is motivated,
well-trained, knowledgeable and
committed to helping patients. We aim
to respond to any enquiry, personally,
on the phone, within one hour.
“And you have to be able to guide people,
who are often first-time buyers of private
healthcare, through the process, offering
them inclusive care packages with price
certainty and alternative financing
options through personalised medical
loans. We’re finding that successful
marketing is bringing in younger patients –
they’re typically more used to financing
packages – so we’re offering Spire’s
financing to spread the cost.
“Every single colleague in the hospital is
united in promoting our hospital’s services
and Self-pay proposition options as an
accessible and more affordable way
to benefit from private healthcare.”
Linking to Primary Care
Louise Downie, Spire Little Aston’s
Primary Care Manager, is part of a
transformation in our approach to
working with primary care providers.
In her view: “Primary care is
changing to meet increasing
demand – GP practices are merging
and patients are increasingly
being seen by Advance Nurse and
Musculoskeletal Extended Scope
Practitioners rather than GPs.
“As a result, we’ve extended our
programme of information and
educational events to this the
wider primary care audience,
explaining the benefits of new
services and equipment, building
relationships between them and
our Consultants, and making the
referral process as easy as possible.
“And Spire Healthcare is changing.
We’re working closer with our
sister Spire hospitals, and we’re
getting much more support and
databased guidance from central
management. The result is that
we’re more focused, more efficient –
and our customers benefit.”
43
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Keeping it simple
We make complex things easier
Delivering on our promises
People can trust us to do what
we say we’ll do
Succeeding and celebrating together
We work together, learn from each
other and celebrate success
Image:
Justin Ash reaffirming
Spire Healthcare’s
values at the
Senior Leadership
Conference
in December 2017.
Our people
We have over 13,000 nurses, theatre staff,
allied health professionals, non-clinical support
colleagues and bank staff, working together
to deliver outstanding care to our patients across
the United Kingdom. We are committed to doing
more to support them and to attract new talent
for the future.
Our values
Driving clinical excellence
We stretch ourselves to achieve
fantastic results
Doing the right thing
We make sound and considered
judgements
Caring is our passion
We put patients at the heart
of everything we do
Diversity
Overall employees
2015
2,261
2016
2,288
2017
2,461
Senior Managers
2015
41
2016
37
2017
48
Board
2015
2016
2017
8
7
7
Male
Female
Diversity
10,165
10,166
10,562
25
26
29
1
2
2
Clinical educational events held
1,500
Attendees at educational events
23,000
Money raised by our hospitals for their
local charities
£53k
Our challenges
It has been widely reported that there is
currently a shortage of nurses and doctors
in the UK. The number of registered nurses
is falling for the first time since training
cuts in 2010, and 96% fewer EU nurses
have registered since the Brexit vote.
Given the length of training required,
these shortages will take several years
to make good.
With the shortage of nurses, it is
more important than ever that we are
successfully recruiting and retaining
colleagues to account for natural
turnover and to meet our patient needs
where we have invested in new and
expanded facilities.
Engaging our colleagues
Our colleagues interact with thousands
of patients every day and play a crucial
role in delivering the highest quality
care and outcomes. It is therefore
more crucial than ever that we set our
colleagues up to succeed and engage
closely with them, particularly given
our competitive market.
Our annual engagement survey saw an
overall engagement score of 81% that
exceeded external benchmark rates
of 73%1, but was 7% lower than the last
survey. The results showed colleagues
feel positive about the type of work
they do and value the teams they work
in. Over 80% of colleagues who responded
to the survey are proud to work for Spire
Healthcare, feel they make a positive
difference and would be happy with
our care for a friend or relative.
44
Spire Healthcare Group plc Annual Report 2017
Whilst the feedback from the engagement
survey showed largely high scores, they
were lower than in the 2015 survey and
the results highlighted a number of areas
to focus on. As a result, we are relaunching
our performance management process,
reviewing incentives and recognition,
and introducing a number of new
communication and engagement activities.
We are committed to acting on the
feedback from our colleagues. To ensure we
have clear focus on making improvements
following the 2017 survey, we introduced
a simple action plan process for teams
to use across the business to make
positive change.
Culture and values
Our colleagues are at the heart of
our business, they are our lifeblood,
representing who we are, our positive
culture and live our values each day.
Our values demonstrate how we work
together and provide us with a common
language that all colleagues can recognise
and relate to. Following Justin Ash’s
appointment, we refreshed our values
slightly to reinforce the importance of
clinical excellence and that celebrating
our successes is important.
We are committed to supporting the
communities in which we operate, and
we run a comprehensive programme
of GP/clinical education events across
our network of hospitals. In 2017, 1,500
events were attended by over 23,000 GPs,
nurses, physiotherapists and other
healthcare professionals.
1 Ixia External Benchmarking, based a mixture of
over 50 public and private organisations across
multiple sectors.
Our values
Driving clinical excellence
We stretch ourselves to achieve
fantastic results
Doing the right thing
We make sound and considered
judgements
Caring is our passion
We put patients at the heart
of everything we do
Keeping it simple
We make complex things easier
Delivering on our promises
People can trust us to do what
we say we’ll do
Succeeding and celebrating together
We work together, learn from each
other and celebrate success
Last year, over £53,000 was raised by the
hospitals for important local and national
charitable causes. Next year, it is our aim
to go further and raise more, and build
upon the good work our colleagues
already do.
Our commitments
We are committed to delivering on our
promises and making Spire Healthcare
a ‘destination employer’ – attracting,
recruiting, training and retaining the best.
To do this we are committed to:
• being an employer of choice – based
on an outstanding recruitment process,
our quality performance culture, and
with an aligned reward framework;
• growing our own – both at the key
leadership roles in hospitals and
with our qualified clinical and other
colleagues – through training and
development, a clear competency
framework and apprenticeships to
attract and develop new talent; and
• setting ourselves up to succeed through
stronger human resources support,
comprehensive workforce planning
and effective communications across
all our hospitals.
Our priorities
In 2017, we strengthened our central
human resources capability and made
step changes towards delivering on our
commitments. We developed a Human
Resources Business Partner structure
to closely support each of our hospitals.
Leadership is a key driver and influence
on our culture so developing values-based
leadership competencies for our senior
hospital management teams was a top
priority in 2017. All senior hospital
Image:
Justin Ash reaffirming
Spire Healthcare’s
values at the
Senior Leadership
Conference
in December 2017.
Case study
Tomorrow’s team
Spire Healthcare is leading
developments in healthcare
education – developing
apprenticeship schemes
that will train our hospital
teams of tomorrow. We are
working with universities
across the country to develop
new degree courses –
enabling our staff to work
and learn together.
Jack Longhurst is a theatre healthcare
assistant at Spire Parkway Hospital.
Jack worked in a pharmacy before
joining Spire Healthcare two years ago.
He is currently on his Level 3 Healthcare
Support Worker qualification, a new
apprenticeship which became available
in May 2017.
His next step will be as one of the
first cohorts in the University of Derby’s
new three-year Operating Department
Practitioner (‘ODP’) degree course,
starting in January 2019.
As Jack says: “I asked about training
in my first interview and Spire
Healthcare has supported me all the
way since. It’s really exciting to be one
of the first to do this new university
apprenticeship course – I can continue
to work and get paid, and I don’t have to
take out a loan for university fees. I’ll go
to Derby three times a year but the rest
of the time I’m in the hospital with my
theatre team. At the end of the course
I’ll be a fully qualified ODP, thanks to
Spire Healthcare.”
Deborah Barker, Spire Healthcare’s
national lead for developing
apprenticeships and university
relationships, comments: “In the
new Level 3 Apprenticeship Standard,
delivered by our supplier Eurosource
Solutions Ltd, there are Theatre and
Adult Nursing pathways, making it
much more flexible and appropriate
in hospitals. On completion of the
qualification, Jack will be able to assist
a fully qualified ODP to scrub in minor
cases – and it qualifies him for the
Degree Apprenticeship programme we
are developing with the University of
Derby. We’re committed to developing
apprenticeships across the country –
helping to develop the next generation
of healthcare professionals.”
45
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Our people
Continued
Leadership competencies
Inspiring
Building
relationships
Working
collaboratively
Adaptability
and resilience
Delivering
excellence
Drive
Customer
understanding
Balanced
judgement
Commerciality
management teams will be assessed
against these and in February 2018
a dedicated leadership development
programme at Ashridge Business
School began.
Ensuring new recruits are a good cultural
fit who will understand and support our
values helps to set new colleagues up
for a successful and rewarding career
with Spire Healthcare. To enable this, the
criteria from our leadership competencies
will be used as a part of our recruitment
processes in the future. To further improve
our recruitment processes both internally
and for candidates, we are aiming to
reduce hiring time, assure candidate
quality and improve retention.
During 2017, we completed a detailed
review of our reward framework
(including all benefits) to help develop
a simple, clear framework that can be
used across all roles and functions to
provide consistency and fairness.
Our communications and engagement
activity helps promote and maintain our
culture. We invested more in these areas
in 2017 across a number of channels and
activities. We held our first leadership
conference in over two years in December,
attended by 200 leaders across our
hospitals and central functions. The
new CEO and executive team engaged
the leaders in developing our forward
strategy and, following the event, 95%2
of delegates responded positively when
asked if they were excited about the
future of≈Spire Healthcare.
In 2018, we will continue to build on
our engagement activities such as town
hall forums, an executive leadership
hospital visits programme and ‘all hands’
conference calls for all colleagues.
As demonstrated in our values, it is
important that our colleagues always feel
able to do the right thing. Whilst we
encourage an open culture whereby issues
can be raised and handled at a local level,
we realise that there may be times where
it is not appropriate, or a person may not
feel comfortable, to raise a concern
through their line management.
Whistleblowing
We want colleagues to feel confident and
empowered to raise any issues of concern
they may have; however, we also have
a robust whistleblowing policy in place.
Our whistleblowing helpline is managed
by a third-party provider, enabling
colleagues to raise any concerns they
may have about issues of safety or
wrongdoing, if necessary, anonymously.
All such concerns received through the
helpline are sent to the Group Company
Secretary for review, and to ensure that
they are appropriately investigated and
concluded. In 2017, we received two calls
to the whistleblowing helpline.
Anti-bribery and corruption
Spire Healthcare’s Anti-Bribery, Gifts
and Hospitality policy extends to all of
its employees. Spire Healthcare takes a
zero-tolerance approach to bribery and
corruption and we are committed to
conducting our activities free from any
form of bribery and corruption. We also
expect the same from any third parties
providing services for or on behalf of Spire
Healthcare. Employees who fail to comply
with the requirements of our policies and
standards may face disciplinary action,
including dismissal.
46
Spire Healthcare Group plc Annual Report 2017
Gender pay gap (‘GPG’) reporting
Spire Healthcare’s workforce across all
our hospitals and clinics is 75% female
and includes 24% temporary workers
(predominantly bank staff comprising
nurses and other clinical staff).
We are required to report GPG figures
for our main employing entity – Spire
Healthcare Limited – covering 98%
of all relevant employees of Spire
Healthcare Group. In the interests of
full transparency, we have supplemented
the statutory disclosure requirements
with additional data that captures
relevant employees across the Spire
Healthcare Group.
The GPG required by the Gender Pay Gap
Regulations is expressed as an average
figure. It represents the percentage
difference between average hourly
earnings for men and women. This is
distinct from ‘equal pay’, which considers
whether men and women are paid the
same for carrying out the same work,
or work of equal value.
Key findings
The overall median GPG in both
Spire Healthcare Limited and the
Spire Healthcare Group (7.9% and 7.8%
respectively) is considerably lower than
the Office for National Statistics (‘ONS’)
provisional national average of 18.4%
(as per their publication of 26 October
2017). The bonus GPG for 2017 should
be treated with caution. Firstly, less
than 3% of employees received a bonus
in the period under review. This means
that the data is based on a relatively
small number of employees. Secondly,
the data has been heavily skewed by a
limited number of legacy share awards
granted in 2014 to a very small number
95%2
of delegates responded positively
when asked if they were excited about
the future of Spire Healthcare.
Gender pay gap (‘GPG’) reporting
Gender pay gap
of senior employees (who were all male).
These share awards were partly related
to legacy arrangements which pre-dated
the Company’s IPO in 2014. As these
awards crystallised in value during
2016/17, they are included in our
2017 reporting.
How we are responding to the GPG
Spire Healthcare is committed to
diversity and inclusivity, and in particular
supporting women to become leaders
within the business.
We believe that the completion of
our Reward Framework Project and
the introduction of the Leadership
Development Programme, both
discussed, under ‘Our priorities’, will
provide greater consistency between
roles and locations, assist reducing pay
anomalies and, in time, help our GPG.
In addition, we recently undertook
a review of our approach to maternity
pay. Previously, Spire Healthcare only
provided statutory maternity pay (SMP)
to eligible employees. We have reviewed
the level of maternity benefits which
we offer and we have enhanced our
maternity pay so that employees receive
100% of pay for six weeks, followed
by 50% of pay (plus SMP) for the next
18 weeks, to further improve reward
and retention. This change was
implemented in June 2017.
We will continue to monitor our GPG
and we are committed to taking steps
and spotting opportunities to reduce
it further.
Top pay quartile
(across Spire Healthcare Limited and the Combined Group)
75% women
Spire Healthcare Limited
Spire Healthcare Group
(including Spire Healthcare
Limited, Spire Healthcare
Group plc and Montefiore
House Limited)
Number of employees
(includes bank workers)
11,326*
11,536*
Women’s hourly rates within Spire are:
Mean
Median
17.1% lower
7.9% lower
20.5% lower
7.8% lower
Pay quartiles:
(How many men and women are in each quarter of our payroll)
Top quartile
Upper middle quartile
Lower middle quartile
Lower quartile
Women’s bonus pay is:
Mean
Median
Who received bonus pay?
Men
Women
Men
25%
14%
16%
19%
Women
75%
86%
84%
81%
Men
25%
14%
16%
20%
Women
75%
86%
84%
80%
96.8% lower*
60.0% lower
98.1% lower*
60.0% lower
2.9%
2.4%
2.9%
2.4%
* Employees who received salary during the year.
2 Leadership Conference feedback survey – To what extent do you agree with the following statement:
I am excited about the future of Spire Healthcare 94.87% favourable (48.72% Strongly agree; 46.15% Agree).
47
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information 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.
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.
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 Manchester and
Spire Nottingham hospitals to our portfolio
for example, has added significant 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.
Legislation
Since becoming a publicly listed company
in 2014, Spire Healthcare is registered
for the Government’s Carbon Reduction
Commitment (‘CRC’) Energy Efficiency
Scheme and will report our carbon
emissions to the Environment
Agency accordingly.
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 (‘CDP’)
again in 2017. We made our third
submission to the CDP this year and Spire
Healthcare have been graded C which
demonstrates our knowledge of our
impact on climate change issues.
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.
These projects are having a positive
impact on relevant Energy Performance
Certificates (‘EPCs’) for our buildings.
For example, after completion of boiler
replacement and LED lighting installation
at Spire Leicester Hospital, our EPC
improved dramatically from an energy
performance rating of F to a much
improved B rating.
High Efficiency Lighting – after the
success of our lighting replacement
projects previously reported, we have
invested heavily in this area in 2017 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 in previous years, we have
invested in excess of £2.5 million across
22 of our hospitals together with our
finance offices at Regents Gate. We intend
to invest further again in 2018 as part of
our national refurbishment programme
to ensure we continue to reduce our
electricity consumption and ensure
we meet our stated energy reduction
targets in 2020.
High Efficiency Heating and Hot Water
Services – modular condensing heating
and hot water boilers were installed at
Spire Dunedin, St Anthony’s, Leicester and
Fylde Coast hospitals during 2017, which
will deliver a reduction in as consumption
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 replaced ageing systems at Spire Leeds
and Tunbridge Wells hospitals in 2017. The
new systems now include high-efficiency
control and heat recovery systems that
help deliver this critical air in the most
efficient way.
48
Spire Healthcare Group plc Annual Report 2017
Total emissions 2017 (tCO2e)
Fuel combustion: stationary
Fuel combustion: mobile
Facility operation
Purchase electricity
2014
2015
2016
2017
10,360
11,150
10,488
10,842
2014
2015
2016
2017
1,124
1,112
952
1,314
2014
2015
2016
2017
6,543
7,152
8,288
6,128
2014
2015
2016
2017
27,027
25,868
23,792
21,145
Engineering Governance
and Compliance
Our central engineering team was
expanded in 2017. This development
has allowed dedicated engineering
risk and compliance auditing support
in this complex arena.
The identification, publication and
management of risk associated
with our engineering infrastructure
and its operation is managed though
annual audit alongside our clinical
team. These audits are used to make
this risk transparent enabling a
prioritised approach to risk mitigation.
The resultant risk profile informs
the business of future capital
requirements, gives confidence this
capital is managed on a true risk basis
and is targeted in the most efficient
and effective way. The central
engineering team supplements the
formal annual audits with regular
routine visits which ensure the
engineering governance system is
dynamic with the continuous addition,
closure and re-assessment of risk.
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.
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.
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).
Emissions factors are taken from
the Department Of Business, Energy
and Industrial strategy emissions
factor update published in 2017.
There are no notable omissions
from the mandatory scope one and
two emissions. Approximately 7% of
emissions are based on estimated data.
GHG emissions data
The GHG emissions for Spire Healthcare
for the reporting period January –
December 2017 were 39,429tCO2e,
tabulated by emissions source below.
The ‘facility operation’ emissions are
attributable to the use of medical gases,
carbon dioxide and nitrous oxide,
(5,201tCO2e) and leakage of refrigerant
gases (927tCO2e). This is 9% lower
than the emissions reported for 2016
(43,520 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 2017 was £931.7m, giving an intensity
of 42.3 tCO2e per £m revenue, 10% lower
than last year.
49
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Risk management
and internal control
The Group’s risk management and internal control systems
are overseen by two Board committees, with overall
responsibility lying with the Board of Directors as a whole.
The Audit and Risk Committee, with the
assistance of the Clinical Governance and
Safety Committee (‘CGSC’), provides the
Board with a consolidated view 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.
This is a core component of driving quality
improvement across the Group in order
to provide outstanding services. The
underlying process aims to provide robust
management information to enable
conscious risk-based decision-making.
In 2016, the Group implemented risk
management software to support its
approach to risk management. This
software has been implemented across
the Group and is now populated by risk
registers for all hospitals. This allows a
greater degree of oversight and analysis
across the Group as well as enhancing
integrated governance. Risk management
is supported by a detailed framework and
methodology to ensure that all hospital
and business-level risks are identified
and assessed consistently across all of
Spire Healthcare.
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.
In 2018, the Group will continue to
evolve its approach to and use of risk
management to drive quality improvement.
Each hospital has a risk register and
supporting governance structure, with
processes for managing and reporting
risks. Work is ongoing to create a
consolidated overview across the Group,
with this being a priority area for 2018.
In 2018, the risk management framework
will be fully embedded and integrated
with clinical governance and patient
experience indicators to drive
risk management as a cornerstone
of outstanding quality.
Significant risks facing the Group are
managed through risk registers and are
assessed in terms of consequence and
likelihood. Each risk has an identified
lead who works to monitor and mitigate
that risk. Risk registers are reviewed on
a regular basis at all levels in line with
the Group’s risk policy framework and/
or 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 Group’s risk
framework and are linked to the Group’s
strategic drivers, as set out in the Chief
Executive Officer’s strategy section
on page 14.
Clinical risks
During 2017, the CGSC chaired by
Professor 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 74 and 75.
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.
50
Spire Healthcare Group plc Annual Report 2017
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;
• each hospital has a risk register through
which risks are managed;
• 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 pages 18 and 19;
• 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 2017.
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 reassessed by the Audit and Risk
Committee early in 2017 and it was agreed
that an Internal Audit function should be
established. A process to recruit a Head
of Audit was undertaken and the function
established at the end of Q2 with a remit
to establish the audit function and create
a risk-based audit approach for 2018.
A small team of experienced, professional
Internal Auditors is being assembled and
the function will be fully staffed by the
end of Q1, 2018.
Internal Audit works closely with the
other internal assurance mechanisms,
i.e. Clinical Audit, Health and Safety
Audits (including engineering) and Risk
Management to align reviews where
possible. Additionally, the Risk Management
process moved its formal reporting line
from Legal to Internal Audit in Q4.
Continuous learning
The Group recognises the importance
of improving services by learning from
events that fall below the expected
outstanding quality. No matter how
robust and reliable, internal control
systems and risk management cannot
guarantee to remove all error or loss.
The Group takes all instances of incidents
(including near misses), complaints,
control failures, regulatory non-compliance
or other risk events very seriously. As such,
we have a detailed process in place to
fully understand the cause and identify
learning to minimise the chances of
reoccurrence.
An open culture is actively promoted and
monitored within the Group to positively
encourage 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 cyber attack
on key business systems (this links with
Cyber security);
• 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.
51
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information 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
2017
How we manage the risk
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.
Government
policy
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.
Spire Healthcare continually monitors its clinical
standards, policies and procedures through the
Board’s Clinical Governance and Safety Committee
(‘CGSC’).
During 2017, 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.
There is a schedule of regular Clinical Reviews using
the Care Quality Commission’s (‘CQC’) key lines of
enquiries. Each hospital is reviewed at least annually
with an action plan for improvement as well as
an overarching improving plan across the Group.
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.
‘Project Outstanding’ was launched in early 2018
with the overarching objective of achieving a rating
of Outstanding across the Group by 2020.
The Group derives revenues from three primary
payor groups (PMI, NHS and Self-pay) and this
provides a natural ‘hedge’ against exposure to risks
in each of these payors. The Group looks to optimise
the mix of revenues across each of these payor
groups dependent upon local market circumstances.
For example, restricted access to NHS treatment
can lead to increased numbers of patients electing
to pay privately for their healthcare needs.
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.
52
Spire Healthcare Group plc Annual Report 2017
Risk theme
Risk description and impact
Risk change
2017
How we manage the risk
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
services 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 CGSC, in addition
to consultations with external advisers and
industry briefings.
A GDPR implementation board is leading on
preparation for GDPR. Progress has included
a detailed gap analysis and the identification
of associated risks and mitigations.
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.
Compliance with
laws, regulations
and other
applicable
requirements
Insurance
The Group operates in a highly regulated
environment, including complying with the
requirements of, for example, the CQC, NHS
Improvement 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 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 2017,
no Spire Healthcare hospitals had received an
‘Inadequate’ rating.
The introduction of the General Data Protection
Regulation (‘GDPR’) will bring tighter controls
and responsibilities to how the Group controls
and processes personal data.
The Group is aware that HMRC has indicated
it will hold a public consultation on reforms to
the IR35 Regulation. It will be important that the
Group understands the impact that any changes
would have.
In addition, the Group could fail to anticipate
legal or regulatory changes leading to a
significant financial or reputational impact.
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.
53
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Principal risks
Continued
Risk theme
Risk description and impact
Risk change
2017
How we manage the risk
Concentration of
PMI market
Availability of key
medical staff
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.
Growing demand for healthcare, changes to the
working requirements and a limited supply of
appropriately qualified key medical staff may
lead 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.
There may be further complexity to recruitment
post-Brexit.
Macroeconomic
conditions
Approximately 70% of the Group’s revenue
is dependent on private patients having 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.
Competitor
challenge
Spire Healthcare operates in a highly competitive
market. New or existing competitors may enter
the market of one or more of our existing
hospitals, or offer new services.
The potential impact would be the loss of
market share due to a new competitor and
reduced profitability and cash flow.
The Group 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 continues to ensure we have long-term
contracts in place with our PMI partners to avoid
co-termination of contractual arrangements.
The Board focuses on staff retention, with trends
and changes in our staff survey informing our
strategy for engagement with a focus on incentives,
staff development and training.
Management deploys productivity tools and
pursues opportunities to reduce clinical nursing
time spent on non-clinical activities to optimise
the effectiveness of its clinical staff base.
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 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 good consultant satisfaction
levels, though these fell in 2017.
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.
Macroeconomic conditions may put comparable
finance strain on competitors, who may not be as
well positioned to respond. Opportunities may arise
from reduced competition or market consolidation.
The Group maintains a watching brief on new and
existing competitor activity and retains the ability
to react quickly to changes inpatient 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.
54
Spire Healthcare Group plc Annual Report 2017
Risk theme
Risk description and impact
Risk change
2017
How we manage the risk
Cyber security
Investment plans
and execution
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 cyber threat 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 cyber security threats are
increasing and becoming more sophisticated.
The capital investment programme (which
includes IT system developments) 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, or disruption to business activities
during capital builds which could impact
upon the expected returns, the Group’s
planned profit growth and future cash flow.
Liquidity and
covenant risk
The Group may not have sufficient 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.
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.
This approach allows us to keep pace with the
increasing risk profile, ensuring that the risk to Spire
Healthcare has remain stable.
The Group conducts a financial and operational
appraisal process to evaluate the expected returns
on capital during the evaluation phase of the project.
Comprehensive 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.
Learnings from recent new builds will strengthen
the process going forward.
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.
The Strategic Report, from pages 1 to 55, was reviewed, approved by the Board
and signed on its behalf on 1 March 2018.
Garry Watts
Chairman
1 March 2018
55
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Board of Directors
1
4
7
2
5
8
3
6
9
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
56
Spire Healthcare Group plc Annual Report 2017
1. Garry Watts C D N
Non-Executive Chairman
Garry Watts joined the Group as Executive
Chairman in 2011 before becoming
Non-Executive Chairman between
Admission and March 2016. He again
served as Executive Chairman between
March 2016 and June 2017 before resuming
his Non-Executive Chairman role in July 2017.
The Company does not consider Garry
to be independent due to his previous
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. Justin Ash C D E
Chief Executive Officer
Justin Ash was appointed Chief Executive
Officer and an Executive Director at the
end of October 2017.
Current external appointments
• non-executive board member
of Al Nadhi Medical Company
• non-executive chairman of The
New World Trading Company Co.
• vice chair of NHS Partners Network
Skills and previous experience
Justin was previously chief executive of
Oasis Dental Care between 2008 and 2017
before leading its sale to Bupa. Prior to this,
he was managing director of Lloyds Pharmacy
and has held several other senior retail
positions including general manager of KFC
in the UK/Ireland, and commercial director
of Allied Domecq Spirits and Wines (Europe).
Justin was previously a senior consultant
with Bain and Company in London and Paris.
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. Simon served as
interim Chief Executive Officer between
June 2017 and the end of October 2017. Simon
resigned from the Board on 1 March 2018.
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. Peter Bamford N R
Deputy Chairman and
Senior Independent Director
Peter Bamford was appointed as Deputy
Chairman and Senior Independent Director
in May 2017.
Current external appointments
• chairman of Superdry Plc
• chairman of B&M European Value Retail S.A.
Skills and previous experience
Peter was chairman of Six Degrees Holdings
Limited from 2011 to 2015 and a non-
executive director of Rentokil Initial plc
from 2006 until 2016. He was also a director
of Vodafone Group plc from 1998 to 2006
where he held senior executive roles,
including chief marketing officer, chief
executive of Northern Europe, Middle
East and Africa and chief executive of
Vodafone UK.
Prior to this, Peter held senior positions with
WH Smith plc (being a director between
1995 and 1997), Tesco plc and Kingfisher plc.
He has served on the boards of public
companies for the last 21 years and
has extensive experience in developing
and growing businesses and brands
internationally. Peter was also a director
of PRS for Music Limited between 2008
and 2014, being their chairman from 2010.
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 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 Bioquell Plc, Southern Housing
Group, and the charity, Scope.
7. Adèle Anderson A C 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
• senior independent director and chair of
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 held with Cinven Partners.
Current external appointments
• 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
in 2015. He was a founding partner of the
private equity firm Cinven until 2013,
establishing and leading its healthcare team,
and then served as a senior adviser until
2017. 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
the audit committee of intu properties plc
International PLC
• 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.
Adèle was a member of the board of
trustees of Save the Children UK until
December, 2017.
57
Spire Healthcare Group plc Annual Report 2017
Skills and previous experience
Danie joined the Mediclinic International
group in 1985, where 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.
Danie will not seek re-election at the annual
general meeting in May 2018. Mediclinic
International PLC has nominated Dr Ronnie
van der Merwe as its appointment to the
Board from 24 May 2018.
GovernanceStrategic ReportFinancial statementsOther information Executive Committee
1
4
2
5
3
Board committee
membership:
D Disclosure Committee
Management committee
membership:
E Executive Committee
Committee Chair
Justin Ash C D E
Chief Executive Officer
See biography on page 56.
Simon Gordon D E
Chief Financial Officer
See biography on page 56.
1. Dr Jean-Jacques de Gorter E
Group Medical Director
Dr Jean-Jacques de Gorter joined Bupa
Hospitals as director of clinical services
in 2005 before being appointed Spire
Healthcare’s Group Medical Director in 2007.
He is responsible for driving the Group’s
clinical governance, compliance and
quality strategy.
Prior to joining Bupa he served as a
medical director for NHS Direct. Jean-
Jacques has also been a non-executive
director at the Milton Keynes University
Foundation Trust, chairing its Quality
Committee. He graduated from Charing
Cross and Westminster Medical School,
practised in the UK, Australia and New
Zealand and subsequently completed his
MBA at Cranfield School of Management.
2. Peter Corfield E
Chief Commercial Officer
Peter Corfield joined Spire Healthcare in
October 2015 as Group Commercial Director
and has responsibility for delivering revenue
growth through our payor groups and
identifying new business opportunities.
He was appointed Chief Commercial
Officer in January 2018 with additional
responsibility for business development
across the hospital portfolio.
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.
58
Spire Healthcare Group plc Annual Report 2017
5. Antony Mannion D E
Director, Strategy and
Investor Relations
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.
3. Neil McCullough E
Group Development Director
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.
4. Daniel Toner D E
General Counsel and
Group Company Secretary
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.
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.
59
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Chairman’s Governance Letter
I am delighted with the Board appointments that the
Company has been able to make during the year which has
returned Spire Healthcare to a strong governance footing.
Garry Watts,
Chairman
Dear Shareholder,
Executive Directors
It was with great sadness that we
announced the death of Andrew White
in July following a period of illness. Andrew
joined Spire Healthcare towards the end
of 2015 and was appointed an Executive
Director the following June. He made a
significant contribution during his time
with us, and his enthusiastic and positive
approach are deeply missed.
I stepped back from my position as
Executive Chairman at the end of June
due to an illness and resumed my previous
role of Non-Executive Chairman. At this
time Simon Gordon agreed to act as
Chief Executive Officer on an interim basis
until a full-time appointment was made.
I remained engaged with the business
during my period of treatment.
Chief Executive Officer
We were delighted to appoint Justin Ash
as the Company’s new Chief Executive
Officer from 30 October 2017. The Board
believes Justin’s skillset is particularly
suited to developing Spire Healthcare
as the premier UK private hospital group
and to creating and delivering a strategy
focused on our private patients.
Deputy Chairman and
Senior Independent Director
I would like to take the opportunity
to thank John Gildersleeve for his wise
counsel and contribution to our Board.
John served as our Senior Independent
Director from Admission in July 2014 but
chose not to seek re-election at last year’s
annual general meeting.
After an extensive search which I led
with the assistance of Heidrick & Struggles,
we were delighted to appointed Peter
Bamford as Deputy Chairman and Senior
Independent Director. Peter brings
considerable plc board and leadership
experience and the appointment maintains
a strong independent presence on our
Board. He gave considerable focus to
ensuring that there was appropriate
scrutiny of decision-making during my
period of illness. Peter also chairs our
Nomination Committee.
The table on page 61 summarises
all of the changes to the Board made
during 2017.
Subsequent to the year end, on 1 March
2018, Simon Gordon, our Chief Financial
Officer, resigned from the Board and will
leave the Group at the end of March 2018.
Further details of Simon’s departure are
set out in the Directors’ Remuneration
Report on pages 78 to 95.
Simon has made a significant contribution
to Spire during his time with the Group,
and I would like to thank him in particular
for his extensive contribution to the
transformation of the business from
private ownership to public listing, and
more recently for fulfilling the interim
CEO role in difficult circumstances.
We also recently received notification
from Mediclinic Jersey Limited, our
largest shareholder and a wholly-owned
subsidiary of Mediclinic International PLC,
that Danie Meintjes would not seek
re-election at the annual general meeting
in May. It has nominated Dr Ronnie
van der Merwe to replace Danie as a
Non-Executive Director of the Company
from the conclusion of the meeting.
60
Spire Healthcare Group plc Annual Report 2017
Governance
The Company did not comply with two
aspects of the UK Corporate Governance
Code, one on a short-term basis during
the year, and you can read further about
these and the Board’s responses on
page 62. The appointment of Justin Ash
as Chief Executive Officer and Peter
Bamford as Senior Independent Director
has strengthened the Board.
As in previous years, the Board has taken
the matter of governance extremely
seriously and continues to perform
well with the Non-Executive Directors
all providing extensive challenge
to management.
2017 performance evaluation
The Board’s evaluation in 2017 was led
by Peter Bamford and facilitated using
Thinking Board, Independent Audit
Limited’s governance assessment process.
Independent Audit Limited is a reviewer of
board performance and is independent of
the Company. This was the first time since
Admission that an external third-party
had been engaged by the Company
and the review 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.
The principal conclusions of Independent
Audit Limited’s review were presented by
their lead facilitator and discussed at our
meeting in November. It was determined
that the Company’s Board continued
to operate effectively, in an open and
transparent manner, providing support
and challenge to senior management.
A fuller review of the results and our
Changes to your Board during 2017
Individual
John Gildersleeve Stepped down as Deputy Chairman and
Event
Date
26 May 2017
Senior Independent Director
Peter Bamford
Appointed as Deputy Chairman and Senior
Independent Director
Dame Janet
Husband
Tony Bourne
Re-appointed as an independent Non-Executive
Director following the completion of initial
three-year appointment period
Re-appointed as an independent Non-Executive
Director following the completion of initial
three-year appointment period
26 May 2017
26 May 2017
26 May 2017
Simon Gordon
Chief Financial Officer acted as interim
Chief Executive Officer
13 June 2017 to
29 October 2017
Garry Watts
Resumed previous role of Non-Executive Chairman
1 July 2017
Andrew White
Sadly passed away and ceased to be an
Executive Director
22 July 2017
Simon Rowlands Appointment as a Non-Executive Director
23 July 2017
renewed for a further year
Justin Ash
Appointed as Chief Executive Officer
30 October 2017
agreed action plan can be found on
page 65 as well as an update on the
actions identified from last year’s
evaluation. The Board will again use
the services of an independent third
party to facilitate its evaluation in 2018.
Peter Bamford also separately led the
review of my performance as chair of
the Board in conjunction with the other
Non-Executive Directors.
Risk management and corporate culture
Our risk culture is centred on risk
awareness, openness, continuous
improvement and encouraging the
right behaviours to ensure an appropriate
61
Spire Healthcare Group plc Annual Report 2017
outcome for both the Company and
its customers. A review of our principal
risks is set out on pages 52 to 55.
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 Thursday,
24 May 2018 at the offices of Freshfields
Bruckhaus Deringer LLP, Northcliffe House,
28 Tudor Street, London EC4Y 0AY.
Garry Watts
Chairman
1 March 2018
GovernanceStrategic ReportFinancial statementsOther information Corporate Governance Report
Compliance with the UK Corporate Governance Code in 2017
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 April 2016
(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
A.2.1
A.3.1
From 14 March 2016 to 12 June 2017, the roles of Chairman
and Chief Executive Officer were 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.
Simon Gordon was appointed interim Chief Executive
Officer on 13 June 2017 and the roles were split.
Garry Watts resumed the position of Non-Executive
Chairman on 1 July 2017.
The Non-Executive Directors have determined that
Garry Watts continues to lead the Board effectively.
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 2018
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.
The Chairman 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 previously held 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 2018.
The Directors believe that the terms
of the Relationship Agreement will
enable the Group to carry on its
business independently of Mediclinic
International PLC.
The Board considers that, excluding
the 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.
62
Spire Healthcare Group plc Annual Report 2017
Key roles and responsibilities
Garry Watts
Non-Executive Chairman
Justin Ash
Chief Executive Officer
The 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; and
• ensuring that the Board
receives accurate, relevant
and timely information about
the Group’s affairs.
The Chief Executive Officer
manages the Group and 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
reporting to, the Board on the
performance of the business.
Peter Bamford
Deputy Chairman and Senior
Independent Director
Daniel Toner
General Counsel and
Group Company Secretary
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
the recruitment process for
a new Chairman.
The Group Company Secretary
supports the 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.
63
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Corporate Governance Report
Continued
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 14 March 2016 and 12 June
2017, Garry Watts served as both
Executive Chairman and Chief Executive
Officer. Simon Gordon was appointed as
interim Chief Executive Officer on 13 June
2017. Garry Watts resumed the role of
Non-Executive Chairman on 1 July 2017.
The Company has set out in writing a
division of responsibilities between the
Chairman, Senior Independent Director
and 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.
The Board received regular briefings on
the trial of Ian Paterson and agreed the
basis for a settlement fund for the benefit
of his victims.
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
2017 included reviewing the Group’s
performance (monthly and year to date),
approving capital expenditure, setting
and approving the Group’s strategy
and annual budget.
Your Board in 2017
During the year, the Board met for seven
scheduled meetings but also convened on
other occasions, normally by telephone,
to discuss certain specific matters of
business. Director attendance at scheduled
meetings is shown on page 65.
The agenda at scheduled meetings in
2017 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.
During October and November, the Board
devoted considerable attention to the
potential offer for the Company received
from Mediclinic International PLC. Before
reaching its decision to reject the potential
offer the Board gave consideration to the
views of all stakeholders. Danie Meintjes
did not attend Board meetings when
the potential offer was discussed.
Also in 2017, the Board focused on major
elements of the Group’s operations by:
• reviewing the opening of the two
new hospitals at Manchester and
Nottingham, and progress made
at Spire St Anthony’s Hospital; and
• receiving, reviewing and approving
other major capital expenditure
proposals.
The Board’s plan for 2018
It is planned that the Board will convene
on seven formal scheduled occasions
during 2018, as well as holding any
necessary ad hoc Board and committee
meetings to consider non-routine business.
The Chairman and the other Non-
Executive Directors will meet on their own
without the Executive Directors present.
In addition, the Senior Independent
Director and other Non-Executive
Directors will meet without the Chairman
present to discuss matters such as the
Chairman’s performance.
The Board will maintain its focus on the
Group’s pursuit of its 2018 targets and
also review succession planning during
the year. Its activities will include:
• review and approve the 2017
Annual Report;
• review the proposed final dividend
for 2017;
• review the revised five-year strategic
plan and approve the 2018 Annual
Operating Plan;
• consider specific major themes;
• embed the risk management
framework;
• review the make up of the Board; and
• follow a rolling agenda, ensuring
proper time for strategic debate.
Furthermore, the Board will remain
focused on continuous improvement
of clinical quality and maintain
overall responsibility for the Group’s
system of internal control and risk
management processes via the relevant
Board committees.
64
Spire Healthcare Group plc Annual Report 2017
Board evaluation
2017 Action plan update
The 2016 Board evaluation identified three principal areas of focus and associated actions to address them during 2017.
Area of focus
Actions
Progress
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.
Regular reporting of Audit and Risk Committee and CGSC
matters at each other’s meeting is now a standing item.
Adèle Anderson, chair of the Audit and Risk Committee,
has been appointed a member of the CGSC to further
strengthen the link.
2) Board
composition
• Appoint a strong Senior Independent Director to
replace John Gildersleeve when he leaves the Board.
• Review the roles of the Chairman, Senior Executive
Director and the Executive Directors.
The Board was pleased to appoint Peter Bamford
as Senior Independent Director in May 2017. His
appointment ensures a strong independent presence
on our Board.
3) Strategy
• Provide a mid-year strategy session update to the
Board on progress made.
Following his appointment Justin Ash has taken the
opportunity to review the Group’s strategy and to
present the results thereof to the Board in January 2018.
2018 Action plan
The 2017 Board evaluation identified three principal areas of focus and associated actions to address them during 2018.
Area of focus
Actions
1) Leadership
• Review future composition of the Board and succession plan having regard for the likely revisions
and succession
planning
2) Risk management
to the UK Corporate Governance Code in 2018.
• Support Justin Ash in building capability and succession in the executive team.
• Maintain oversight and evaluation of risk management.
• Continue to develop internal risk management capabilities and processes.
• Oversee General Data Protection Regulation implementation project.
• Ensure IT security remains robust.
3) Board information • Review information flows to/from Board.
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 twice a
month, splitting its time between project
work and strategic matters. The Executive
Committee delegates certain matters to
the Safety, Quality and Risk Committee
who have specific focus on safety, quality
and risk matters respectively (see the
Governance framework on page 66).
Catherine Mason served as Chief
Operating Officer until October 2017,
when she left the organisation. The Group
is currently in the process of recruiting
Catherine’s replacement.
Board meetings
The attendance of the Directors who
served during the year ended 31 December
2017, at meetings of the Board, is shown
in the following table. The number of
meetings a Director could attend in the
year is shown in brackets.
Board meeting attendance
Non-Executive Chairman
Garry Watts1,6
Deputy Chairman and Senior
Independent Director
John Gildersleeve2
Peter Bamford3
Executive Directors
Justin Ash4
Simon Gordon
Andrew White5,6
Non-Executive Directors
Adèle Anderson
Tony Bourne
Dame Janet Husband
Danie Meintjes7
Simon Rowlands
5 (7)
0 (3)
4 (4)
1 (1)
7 (7)
2 (4)
7 (7)
7 (7)
7 (7)
5 (7)
7 (7)
1 Garry Watts resumed the role of Non-Executive
Chairman on 1 July 2017.
2 John Gildersleeve stepped down as Deputy Chairman
3 Peter Bamford was appointed Deputy Chairman
and Senior Independent Director on 26 May 2017.
4 Justin Ash was appointed Chief Executive Officer
and Senior Independent Director on 26 May 2017.
on 30 October 2017.
5 Andrew White sadly passed away on 22 July 2017.
6 During the year both Garry Watts and Andrew White
were unfortunately unable to attend some meetings
due to their medical treatment.
7 Danie Meintjes excused himself from Board meetings
which discussed Mediclinic International PLC’s potential
bid for the Company.
65
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Corporate Governance Report
Continued
Governance framework in 2017
Garry Watts
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 Non-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), Adèle Anderson,
Justin Ash, Tony Bourne,
Garry Watts
Key objectives:
• promotes, on behalf of
the Board, a culture of
high-quality and safe
patient care;
• monitors specific
non-financial risks
and their associated
processes, policies and
controls:
(i) clinical and
regulatory risks;
(ii) health and safety; and
(iii) facilities and plant.
Disclosure Committee
Garry Watts (chair), Justin
Ash, Simon Gordon, Daniel
Toner, Antony Mannion
Nomination Committee
Peter Bamford (chair),
Dame Janet Husband,
Garry Watts
Key objectives:
• ensures that the
Company complies with
its disclosure obligations,
specifically under the
Market Abuse Regulation
and related legislation;
and
Key objectives:
• advises the Board
on appointments,
retirements and
resignations from
the Board and its
committees; and
• reviews succession
• oversees the Company’s
planning for the Board.
Share Dealing Code
including employee
training.
Remuneration
Committee
Tony Bourne (chair),
Adèle Anderson,
Peter Bamford
Key objectives:
• determines the
appropriate
remuneration packages
for the Chairman,
Executive Directors
and Group Company
Secretary; and
• recommends and
monitors the level
and structure for other
senior management
remuneration.
Executive Committee
The Group also operates an Executive Committee (convened and chaired by
the Chief Executive Officer). The team generally meets twice a month and
its members are shown on pages 58 to 59.
Safety, Quality and Risk Committee
A committee of the Executive Committee that focuses on safety,
quality and risk matters across the Group’s operations.
Key objectives:
• assists the Chief Executive Officer in discharging his responsibilities;
• ensures a direct line of authority from any member of staff to the
Chief Executive Officer; and
Key objectives:
• review the Group’s clinical performance;
• review evidence of compliance with statutory notification requirements;
and
• assists in making executive decisions affecting the Company.
• scrutinise all unexpected deaths occurring at hospitals.
66
Spire Healthcare Group plc Annual Report 2017
The Group Company Secretary ensures
that any additional request for information
is promptly supplied. The Chairman,
through the Group Company Secretary,
ensures that there is an ongoing process
to review any internal or external training
and development needs.
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.
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.
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 Chairman for
communication at the meeting. The
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 2018 Board calendar
includes both sessions on clinical and
statutory regulations, and hospital visits.
The Board considers its size and
composition to be appropriate for the
current requirements of the business but
will continue to keep this under review.
Committee composition is set out in the
relevant committee reports. No one other
than committee chairs and members of
the committees are entitled to participate
in meetings of the Audit and Risk, CGSC,
Disclosure, Nomination and Remuneration
committees, unless by invitation of the
respective committee chair.
Peter Bamford is the Deputy Chairman
and Senior Independent Director.
Biographical details of the Directors
are set out on pages 56 and 57.
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 76 and 77.
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 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.
During the Chairman’s illness in 2017,
the other Directors ensured that adequate
governance standards were maintained
at Board and committee meetings that
he missed.
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, Peter Bamford
completed a detailed induction
programme that included meeting with
other members of the Board and the
senior leadership team. He undertook a
thorough familiarisation of the business
which included a visit to Spire Bristol
Hospital. The Company’s brokers and legal
adviser also met with Peter to provide
insight into the healthcare industry and
provide training on directors’ statutory
duties respectively.
Justin Ash, on appointment as Chief
Executive Officer, spent considerable
time learning about the business through
a number of hospital visits and meeting
colleagues. He also received training on
his statutory duties.
67
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Corporate Governance Report
Continued
Election of Directors
All the Directors, except John Gildersleeve,
offered themselves for election or
re-election at the third annual general
meeting in May 2017 and, in future, will
be re-elected in accordance with the
requirements of the UK Code.
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.
All Directors, except for Simon Gordon
who leaves the Company on 31 March
2018 and Danie Meintjes who will not
seek re-election, will stand for election or
re-election at the annual general meeting
in 2018. The biographical details of each
Director standing for election or re-
election is included in the 2018 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 2018 annual general meeting
relating to the election of the Directors.
The biographical details of all current
Directors are set out on pages 56 and 57.
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.
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 70 to 73 and identifies
its members, whose details are set out
on page 57.
The report describes the Audit and Risk
Committee’s work in discharging its
responsibilities during the year ended
31 December 2017, 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 70 to 73 and pages 74 and 75,
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
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.
Financial and non-financial risk
The Clinical Governance and Safety
Committee, with the Audit and Risk
Committee, collectively ensure that the
control and monitoring of both financial
and non-financial risks is satisfactory.
In addition, both committees 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 during 2017 was 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 230 individual
meetings, conference presentations,
group lunches and telephone briefings
with investors.
68
Spire Healthcare Group plc Annual Report 2017
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 2017 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.
The chair of the Remuneration Committee
led a consultation on executive
remuneration in February 2017 with both
major shareholders and voting agencies.
The 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.
Modern slavery
During the year, the Board approved its
first Modern Slavery Act statement which
confirmed that Spire Healthcare is
committed to acting ethically and with
integrity in all its business dealings, and to
implementing and enforcing systems and
controls to prevent modern slavery in our
own business and our supply chains. We
are also committed to ensuring there is
transparency in our approach to tackling
modern slavery in our own business and
supply chains. Spire Healthcare expects
the same high standards from all of its
contractors, suppliers and other business
partners. All suppliers are required to
comply with the law as well as our policies
and codes to combat the use of forced,
compulsory or trafficked labour, or anyone
held in slavery or servitude, whether
adults or children. We expect our suppliers
in turn to hold their own suppliers to the
same high standards. All supplier-facing
staff receive training to raise awareness
on the requirements of the Modern
Slavery Act and are required to support
the continued risk assessment and roll-out
of our due diligence processes.
A copy of our Modern Slavery Act
statement can be found on our website.
Results of our third annual general meeting held on 26 May 2017 were:
Summary of resolution
Total votes for %
Total votes against %
Votes withheld
1
2
3
2016 Annual Report and Accounts
2016 Directors’ Remuneration Report
Final Dividend
4 to 11 Election or re-election of Directors
99.96
99.58
100.00
0.04
0.42
0.00
Between
91.91 and 99.85
Between
0.15 and 8.09
12
13
14
15
16
17
Reappointment of Auditors
Auditors’ remuneration
Political expenditure
Authority to allot shares
Disapplication of statutory pre-emption rights*
General meetings to be held on 14 clear days’ notice*
99.98
100.00
98.39
95.61
94.31
98.18
* Special resolution.
0.02
0.00
1.61
4.39
5.69
1.82
The Corporate Governance Report has been approved by the Board and signed on its behalf by:
12,059
1,088,678
0
Maximum
11,830,224
1,160,559
0
1,000
0
1,484,171
0
Daniel Toner
General Counsel and Group Company Secretary
1 March 2018
69
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information 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
An Internal Audit Plan will continue to
be approved by the Committee on an
annual basis.
Risk management
This year, a new risk management
framework was implemented, following
the review of risk management by
the Board noted in last year’s update.
Each hospital has a risk register and
supporting governance structure, with
processes for managing and reporting
risks. In 2018, further work will be
done to embed the risk management
framework and integrate it with clinical
governance and patient experience
indicators to drive risk management
as a cornerstone of outstanding quality.
Significant risks facing the Group are
managed through risk registers and
are assessed in terms of consequence
and likelihood. Each risk has an identified
lead who works to monitor and mitigate
that risk.
An overview of the risk management and
internal controls processes are contained
on pages 50 to 55. 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 during the year:
• monitored the work carried out by
the CGSC in relation to the risks within
its remit;
• monitored 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.
Dear Shareholder,
As Chair of the Audit and Risk Committee
(the ‘Committee’), I am pleased to present
our report for the year ended
31 December 2017.
Risk management and internal controls
Internal audit and risk management
remained 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.
Internal Audit function
As highlighted in our last annual report,
we planned to set-up an in-house Internal
Audit function and at the end of Q2 we
appointed our new Director of Internal
Audit and Risk. A small team of Internal
Audit professionals were hired during the
remainder of the year and the function
should be fully resourced by the end of
Q1 2018.
2017 and 2018 Internal Audit Plans
The 2017 Internal Audit Plan was focused
on areas of higher risk and covered:
• a revenue audit (completed on behalf
of Spire Healthcare by KPMG LLP);
• a review of physical asset assessments
and maintenance through the buildings
maintenance system; and
• an audit of business continuity planning.
Summary reports are sent to me as chair
of the Committee when published and
also included in the quarterly activity
report to the Audit and Risk Committee.
Our Internal Audit Plan for 2018 continues
to focus on areas identified as higher
risk. Additionally, a regular, risk-based
rotational Internal Audit of each of
the 39 principal hospital sites (initially
covering Finance (including Revenue,
Billing and Stock Management), HR, IT,
Payroll, Health and Safety, and Hospital
Governance) will commence in Q2 2018,
such that each hospital is intended to be
audited at least once every three years.
70
Spire Healthcare Group plc Annual Report 2017
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 2017:
Matters
Judgement and estimation required
How the Committee gained comfort on the matter
Improper
revenue
recognition:
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.
• Management
manipulation
• manipulation of prices charged, in particular
in relation to PMI and NHS revenue;
• intentional mis-coding of procedures by hospitals
impacting revenue recorded;
• misreporting of other income in the year; and
• overstatement of deferred revenue at the year end.
• Complexity
of PMI and
NHS contracts
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.
Inappropriate
capitalisation
of development
costs
Expenditure on capital projects has been significant
in both 2016 and 2017. This expenditure covers
a number of schemes across the network, most
notably the development of two new hospitals
in Manchester and Nottingham and the expansion
of Spire St Anthony’s Hospital. There is a risk of
inappropriate capitalisation of costs to these
projects to enhance reported earnings
The Group maintains effective segregation of duties to
safeguard the integrity of pricing masterfile data on which
billing is dependent.
Management routinely reconcile revenues and cash collections
as part of monthly cash flow management procedures.
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.
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
in the year by the external auditors. This testing included the
use of software-based assurance tools to check the accuracy of
invoicing for services delivered to the NHS and to match pricing
information to third-party reference information. This audit
work covered over 90% of the NHS revenues recognised in the
year. In addition the external auditors undertook sample-based
substantive testing on private revenues, checking invoices
back to procedure and price list information across a number
of contracts.
While considering the totality of revenues recognised in the
year, external auditors also compared the total of revenues
recorded in the year to cash collected to verify the recovery
of revenue billed (after consideration of the movement in the
year end debtors position). No significant differences were
noted by the external auditors during the course of this work.
During 2017 an internal audit, supported by an external
partner, was completed on Revenue and Billing function in
a sample of hospitals which did not identify any significant
errors or omissions. This area will remain a focus of the risk
focused internal audit plan of hospitals during 2018.
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.
Property
carrying values
Freehold property is held at depreciated cost and its
carrying value is required to be assessed for indicators
of impairment by management on an annual basis.
The Committee reviewed the impairment tests performed
by management and the appropriateness of the
assumptions applied.
For those properties with an indicator, an impairment
test is performed by calculating a value in use,
by means of a discounted cash flow model. As this
process involves some degree of estimation there
is a risk that properties are held in the financial
statements at inappropriate carrying values.
For properties where headroom on the impairment test
was limited the Committee reviewed the further evidence
to support the specific site cash flow profile which supported
the carrying value of the property.
71
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Audit and Risk Committee Report
Continued
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 and developed
by the Board and its committees during
2018 to ensure that changes to reflect the
new regulatory environment and best
practice are incorporated.
Other activities in 2017
In addition to providing oversight of
the Group’s financial reporting, internal
controls and risk framework, the Committee
has had the opportunity to complete a
number of deep dive sessions during the
year. This included sessions on taxation,
cyber security and health and safety.
The Committee reviewed the nature of
all items classified as ‘exceptional and
other items’ in the year and management’s
justification thereof against relevant
accounting guidance. Where costs
spanned a reporting period, the
Committee considered the significance
of the total expected costs to be incurred
across reporting periods (based on
management’s estimates) when
determining the appropriateness of
the accounting treatment.
External audit
The Committee has primary responsibility
for the relationship with, and performance
of, our external auditor. This includes
making the recommendation on the
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 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 the fiscal year commencing
on 1 January 2020.
In May, the Committee discussed the
mandatory requirement for companies
to rotate their external auditor every
10 years. Although noting that the
10-year period technically began with the
Company’s Admission in 2014, rather than
an earlier point, the Committee agreed
that a full external auditor tender should
be linked to the end of Debbie O’Hanlon’s
term as lead audit partner.
The Committee reviewed the
independence and effectiveness of
the external auditor. We did this by:
• reviewing its proposed plan for the
2017 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 2018.
UK Competition and Markets Authority
(CMA) Order
During the year, the Company has complied
with the CMA Order in relation to Statutory
Audit Services for Large Companies.
Audit risk
The Committee 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
72
Spire Healthcare Group plc Annual Report 2017
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. Additionally,
the Director of Internal Audit and Risk liaises
with, and meets, the external auditors on a
regular basis, and the external auditors also
receive a copy of each internal audit report.
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 their view of the
appropriateness of management’s
judgements.
At the request of the Board, the Committee
considered whether the Annual Report
and Accounts for the year ended 2017
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
2017 is fair, balanced and understandable,
and has affirmed that view to the Board.
Recent accounting developments
The Committee gave particular focus
to IFRS 16 Leases, which will be adopted
in the year ending 31 December 2019,
focusing on the implication for reported
results, the methodology in which the
standard would be adopted, and the
implication for systems and process.
The Chief Financial Officer also updated
the Committee on the Group’s adoption
of IFRS 9 Financial Instruments and IFRS 15
Revenue from Contracts with Customers
in 2018. Please see note 2 of the financial
statements on page 120 for further
information.
Our priorities for 2018
We will continue to enhance and improve
our Risk Management structure within
the organisation and better evaluate our
principal risks using an enhanced Board
Assurance Framework. Our Internal
Audit team will be fully resourced during
Q1 and will start undertaking regular
audits in each of our hospitals on a risk
rotational basis and following up on
agreed improvements to ensure they
are effectively implemented as well as
completing a number of key corporate
audits around governance. We will
evaluate our Clinical Assurance programme
to ensure its independence and focus
remain appropriate and works closely
with the internal audit function.
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 2017 (2016: nil).
All non-audit fees are 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 51.
Whistleblowing
The Committee also continued
its monitoring and oversight of the
procedures for the receipt, retention
and treatment of qualifying disclosures
by staff. Further details can be found
in Our people on page 46.
Audit and Risk Committee at a glance
Committee membership and meeting attendance
The Audit and Risk Committee members at the end of 2017 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):
Member
Adèle Anderson
(Committee Chair)
Committee
member since
July 2016
Position in Company
Independent Non-Executive
Director
Committee meetings
attended in 2017
5 (5)
Dame Janet Husband
July 2014
Tony Bourne
July 2014
Independent Non-Executive
Director
Independent Non-Executive
Director
5 (5)
5 (5)
Committee members biographies are shown on pages 56 and 57.
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, the Chief Financial Officer and the Director
of Internal Audit and Risk 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 external
consultants to support the internal resource, 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
Adèle Anderson
Chair, Audit and Risk Committee
1 March 2018
Annual evaluation of the
Committee’s performance
The evaluation of the Committee’s
performance was carried out in November
2017 which confirmed that it continued
to perform effectively.
73
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Clinical Governance and
Safety Committee Report
Robust and effective clinical governance is central
to Spire Healthcare’s focus on consistently delivering
the highest quality healthcare for all our patients.
Professor Dame Janet Husband,
Committee Chair
Dear Shareholder,
On behalf of the Clinical Governance
and Safety Committee (the ‘Committee’
or ‘CGSC’), I am pleased to present our
fourth annual report on the Committee’s
oversight of the Company’s clinical services,
promotion of best practice and clinical
governance.
Robust and effective clinical governance is
fully recognised throughout the Company
as the keystone to delivering excellence
in every aspect of patient care.
Firstly, I would like to acknowledge the
support the Committee has received
from the Board as a whole as well as
that of individual non-executive members
who have attended our meetings held
in different Spire Healthcare hospitals
around the country.
I am extremely grateful to the central
leadership team who have provided the
Committee with a comprehensive review
of clinical quality across our business. Early
in the year we welcomed Alison Dickinson
in her new role as Chief Nursing Officer.
She has been working closely with our
Group Medical Director, Dr Jean-Jacques
de Gorter, driving forward a programme
of continuous development and ever
improving clinical quality.
The appointment of our new Chief
Executive Officer, Justin Ash, has brought
new energy and focus to our drive for
clinical excellence. While much has been
accomplished during 2017, our Group
Medical Director recently launched
‘Project Outstanding’ which will introduce
a programme of clinical and non-clinical
workstreams to ensure that outstanding
quality is delivered in everything we do
within every hospital and clinic across
our network.
2017 activities
During 2017, the CGSC met on seven
occasions, three of which were at one of
the Company’s hospitals. When holding
our Committee meetings at hospitals,
74
Spire Healthcare Group plc Annual Report 2017
we extend the visit in order to engage
with Hospital Directors, their senior
management teams and front line staff.
We also have a tour of the hospital
facilities and discuss issues with members
of the Medical Advisory Committee and
other consultants in different specialties.
These extended Clinical Governance
visits give Committee members better
insight into the particular strengths
of an individual hospital as well as an
appreciation of the local healthcare
environment and specific challenges.
Hospitals visited this year were to Spire
Gatwick Park, Spire Manchester and
Spire Leicester.
Our clinical governance framework
continues to underpin our approach
to clinical assurance. The Committee
regularly reviews a comprehensive set
of data from our Clinical Reviews, our
Quality Reports and a number of key
performance indicators, including patient
safety incidents.
Our clinical assurance methodology
follows that of the Care Quality
Commission (‘CQC’) domains – Safe,
Effective, Responsive, Caring, and Well-led.
This approach allows us to align our own
assessments with CQC inspections and
to develop our services accordingly in a
continuous bid to deliver outstanding care
across our network.
This framework is augmented by a
continued programme of Themed
Reviews, which this year focused on:
• cancer, an area the Company continues
to develop and where the drive for high
standards involves co-ordinating our
approach to bring our cancer teams
together and working to strict protocols;
• complaints management, where the
Company redesigned its approach to
improve the patient experience;
• pharmacy, where the Company has
reorganised its service under a single
management and governance
programme;
• pathology, where the service has been
redesigned with a new framework
reporting directly to the clinical team;
and
• Resident Medical Officers (RMOs),
where we gained solid assurance from
NES, our preferred supplier, on the
appropriate selection, training and
management of this key clinical cadre
of trained medical practitioners.
In addition to regular governance reports
the Committee receives ‘Responsible
Officer Reports’ reviewing consultant
appraisal and revalidation data as well
as a recently introduced new metric of
monitoring surgical intervention ratios
across different specialties. This allows
benchmarking of surgical procedures
and is already proving to be a useful
tool in assessing specialist practice
and understanding practice trends.
A culture of empowerment, team
working and transparency is fostered to
the benefit of all our staff and patients.
In this light, whistleblowing is seen as a
valuable tool for raising and understanding
issues and oversight of its inquiry is an
important role for the Committee both
in identifying and rectifying any patient
related concerns.
As discussed in my report last year, during
2017 the Committee worked closely with
the Audit and Risk Committee (‘ARC’) in
jointly reviewing our approach to risk. The
two committees have clarified and revised
their terms of reference, with the ARC
being responsible for overall risk, while the
CGSC concentrates on patient safety. The
CGSC also has oversight of patient related
aspects of Health and Safety Governance
and Information Governance.
Regulatory inspections
Of the Spire Healthcare hospitals in
England inspected by the CQC last year,
three were rated ‘Outstanding’ and
20 ‘Good’ overall. There were also many
examples of hospitals rated ‘Outstanding’
and ‘Good’ for individual domains across
our group. In addition, our two hospitals
in Scotland were rated ‘Very Good’ by
Healthcare Improvement Scotland and
Spire Cardiff Hospital received a
favourable inspection report (Healthcare
Inspectorate Wales does not give ratings).
The process of preparing for and
undergoing regulatory inspection has
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
Dame Janet Husband
(Committee Chair)
Committee
member since
July 2014
Tony Bourne
July 2014
Position in Company
Deputy Chairman and
Senior Independent Director
Independent Non-Executive
Director
Garry Watts
Justin Ash
July 2014
Executive Chairman
October 2017 Chief Executive Officer
Committee meetings
attended in 2017
7 (7)
7 (7)
2 (7)
1 (1)
The maximum number of meetings that the member could have attended during 2017
is shown in brackets. Committee members’ biographies are shown on pages 56 and 57.
Andrew White was also a member of the Committee until he sadly passed away on
22 July 2017. Garry Watts was unable to attend a number of meetings due to his medical
treatment. 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
Developing our work
While our Committee is functioning well,
our approach and areas of focus will
continue to be enhanced, linked to our
annual evaluation of performance and
the Company’s needs.
During 2018, the Committee looks
forward to overseeing new approaches
to quality governance, in particular to
working with Justin Ash and his leadership
team in their drive to deliver outstanding
care across every hospital and every
service in the Company.
Professor Dame Janet Husband
DBE FMedSci, FRCP, FRCR
Chair, Clinical Governance and
Safety Committee
1 March 2018
been immensely valuable in bringing
teams together and in sharing information
and best practice.
Hospital visits
At a personal level, I have now begun
a second round of informal visits to all
our hospitals. I do this primarily to listen
to staff and patients; their engagement
is extremely valuable in furthering my
understanding of our services and of
individual hospital culture. They also help
to provide a strong link between the Board
of Directors and our patients as I visit
individual patients on the wards to ask
about their experience. I am delighted to
report that all the patients I have spoken
to this year have been unanimous in their
praise of our staff and their care.
Health care, in all its guises, and however
technically advanced it may become, will
always be an intensely personal activity.
I thank all our staff for their dedication to
delivering the highest quality treatment
and care.
75
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Nomination Committee Report
The Committee’s principal activities in the year have been
the arrangement of interim leadership, and the recruitment
and appointment of our new Chief Executive Officer.
Peter Bamford,
Committee Chair
Dear Shareholder,
The Nomination Committee (the
‘Committee’) plays a key role in appointing
the right individuals to the Company’s
Board and senior leadership team,
and in their ongoing evaluation
and development.
In the first part of the year under review,
the Committee was chaired by John
Gildersleeve, in his role as Deputy
Chairman and Senior Independent
Director. In anticipation of his retirement,
in March the Committee reviewed a list
of candidates to succeed him in the role,
prepared by Heidrick & Struggles, an
independent worldwide executive
search firm. This review resulted in my
appointment and I was pleased to join
the Board as Deputy Chairman and
Senior Independent Director at the end
of May 2017. I look forward to chairing
the Nomination Committee.
Director and Senior Management changes
Following my appointment, the
Committee’s immediate focus was on
the arrangements required to ensure
continuity of leadership in the face of
Andrew White’s tragic illness and to
enable Garry Watts to revert to Non-
Executive Chairman of the Company.
We again used Heidrick & Struggles in
our executive search, and in August the
Committee was able to review a strong
list of candidates for the role of Chief
Executive Officer. I am pleased to report
that we were able to secure the services
of Justin Ash as permanent Chief
Executive Officer.
The Committee’s thanks go to Simon
Gordon, who, as interim Chief Executive
Officer, was able to provide excellent
leadership during the transition period.
Since his appointment as Chief Executive
Officer, the Committee has engaged
positively with Justin Ash and we are
now supporting him in his plans
to further strengthen the Company’s
senior leadership team.
Performance evaluation
In November, the Committee completed
its annual performance evaluation.
In discussing the findings, it was agreed
that the Committee would become more
actively involved in the development of
skills and capabilities within the Executive
Committee and other members of the
senior leadership team, and in succession
planning. To this end, post year end,
at our February 2018 Board meeting,
the Committee’s Terms of Reference
were modified to reflect this change
in emphasis, and are available on
the Company’s website.
Diversity and inclusion
In the Committee’s report last year we
noted the publication of the Hampton-
Alexander review of gender leadership
in FTSE companies and in this year’s
Annual Report we publish details of the
Company’s staff diversity and gender pay
gap, in line with reporting requirements
(see the Our people section on pages 44
and 47).
76
Spire Healthcare Group plc Annual Report 2017
While Spire Healthcare employs a
large majority of female staff and the
Company’s gender pay gap is lower than
average, we recognise that there is further
progress to be made towards better
gender representation at Board and senior
leadership levels. Our aim is to move to
33% female representation on the Board
and Executive Committee as soon as
practicable, commensurate with selection
being on qualification and merit.
Re-election of Directors
The Committee met in early 2018 to
review the continuation in office, and
potential re-appointment, of all members
of the Board. Following this review, the
Committee recommended to the Board
that all Directors except for Simon Gordon,
who resigned as an Executive Director on
1 March 2018, and Danie Meintjes, who
has announced that he will not stand for
re-election, be re-appointed, and hence all
Directors will seek election or re-election
at the annual general meeting.
Peter Bamford
Chair, Nomination Committee
1 March 2018
Nomination Committee at a glance
Committee membership and meeting attendance
The Nomination Committee members at the end of 2017 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):
Member
Peter Bamford
(Committee Chair)
Committee
member since
May 2017
Dame Janet Husband July 2014
Position in Company
Committee meetings
attended in 2017
Deputy Chairman and
Senior Independent Director
Independent Non-Executive
Director
5 (5)
7 (7)
Garry Watts
July 2016
Non-Executive Chairman
7 (7)
Committee members’ biographies are shown on pages 56 and 57. John Gildersleeve also
served as a member of the Nomination Committee until 26 May 2017 when he resigned
as a Director of the Company.
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 to plan for both Executive and Non-Executive Director succession.
Its prime focus is, therefore, on composition of the Board, for which appointments
will be made on merit against objective criteria. The Nomination Committee advises
the Board on these appointments, oversees the recruitment processes,and also considers
retirements and resignations from the Board, and its other Committees. The Committee
will regularly examine succession planning based on the Board’s balance of experience,
overall diversity and the leadership skills required to deliver the Company’s strategy.
Process for Board appointments
When considering a Board appointment, the Committee will draw up a specification for
the Director, taking into consideration the specific role together with 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. Care is taken to ensure that proposed appointees
will have sufficient time to devote to the role and do not have any conflicts of interest
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 be reviewed, followed by the
shortlisting of candidates for interview, based upon the objective criteria identified in the
specification. Committee members will interview the shortlisted candidates, together with
other Directors as appropriate, and identify a preferred candidate. Following these
meetings, subject to satisfactory references, the Committee will make a formal
recommendation to the Board on the appointment.
The Committee’s terms of reference can be found at www.spirehealthcare.com
77
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Our proposed remuneration policy provides alignment to
our strategy to be famous for quality, and provide medium-
and long-term strategy for shareholders.
Tony Bourne,
Committee Chair
Dear Shareholder,
I am pleased to present the Directors’
Remuneration Report for 2017. This year’s
report also includes a slightly updated
Remuneration Policy. The previous
Remuneration Policy received strong
support when last approved at the 2015
annual general meeting. Shareholder
approval for a new policy will need to
be sought at this year’s annual general
meeting under the three-year renewal
cycle set out under the UK voting regime.
Further detail regarding the policy
renewal is set out below.
Alignment between pay and performance
While the Company has made positive
progress in a number of strategic areas,
trading conditions for Spire Healthcare
remained challenging during 2017.
The Company’s performance showed
further growth in our key private patient
income and reasonable progress on
our three new major capital investment
projects. Operating profit was significantly
impacted by exceptional and other material
items totalling £49.2 million for the year
and was lower than the range targeted
at the start of the year.
Taking into account the Group’s
performance, the Committee has
determined that no bonus will be paid
to any of our Executive Directors for 2017.
In addition the LTIP award that was based
on performance over the three years
to 31 December 2017 will lapse in full as
threshold performance was not achieved.
While these incentive outcomes are
disappointing, they demonstrate the rigour
of our approach to pay and our desire to
align remuneration with both business
performance and shareholder returns.
As we look ahead, the Board is excited
by the new strategy put forward by the
management team. We are optimistic that
successful execution of this strategy will
lead to long-term value for our shareholders
and that this will be positively reflected
in future incentive outcomes.
78
Spire Healthcare Group plc Annual Report 2017
For 2018, we have decided that certain
quality performance targets will
constitute a hurdle (‘underpin’) for the
payment of any bonuses. This applies
across the entire management of the
Company from Chief Executive Officer to
senior leadership teams in hospitals and
demonstrates our commitment to quality.
Board changes during the year
In October 2017, Justin Ash joined the
business as our new Chief Executive
Officer. Justin has a proven track record in
healthcare and the Board was delighted to
have secured his appointment. Justin did
not participate in any of the Company’s
incentive arrangements in respect of 2017.
For 2018, the structure of his incentive
arrangements and the maximum
opportunity will be aligned with the
existing package for Executive Directors,
save that the level of bonus deferral into
shares will be increased from one-third
to one-half of any bonus earned. The
Committee has made this change in order
to increase alignment with our shareholders.
In addition, shareholders will note
that no buy-out awards were made
to Justin on his appointment to the role.
Prior to Justin’s appointment, the Board
had to respond to certain unplanned and
unfortunate circumstances. Firstly, it was
with great sadness that we reported that
Andrew White passed away following
a period of illness. In his time with the
Company, Andrew made a significant
contribution to the business and it was
our plan for Andrew to play a pivotal role
in the future direction of Spire. Andrew
is deeply missed by all of us.
Secondly, during the year Garry Watts
stepped down from the role of Executive
Chairman, to resume his previous non-
executive Chairman role while he
underwent medical treatment. In light
of this, Simon Gordon agreed to undertake
the role of interim Chief Executive Officer
until Justin joined the business.
Further details regarding the remuneration
decisions taken in respect of each of the
above are set out in the main body of
the report.
Annual evaluation of the Committee
The annual evaluation of the Committee’s
performance was carried out in November
2017 which confirmed that it continued
to perform effectively.
AGM and Remuneration Policy renewal
The current remuneration policy was
approved by shareholders at the 2015
annual general meeting, and at the time
of adoption this policy received support
from more than 99% of shareholders.
This policy was relatively simple and
straightforward in nature with Executive
Directors participating in an annual bonus
which was partly deferred into shares
and a share-based long-term incentive
plan subject to performance targets
assessed over three years.
Shareholders will note that the key terms
of the previous policy have been largely
retained and that maximum incentive
opportunities also remain unchanged.
The only structural change proposed is
for future LTIP awards to be subject to
a post-vesting two-year holding period.
This change will increase alignment with
the long-term shareholder experience
and more closely conforms with recent
developments in best practice.
While the overall structure of remuneration
for 2018 will remain substantially
unchanged from prior years, during the
year the Remuneration Committee intends
to undertake an in-depth, holistic review
of our arrangements to ensure that they
remain aligned with our long-term strategy
and shareholders’ interests. As in prior
years we would seek to engage with
shareholders regarding the outcomes
of this review.
We remain committed to having an
open and transparent dialogue with
shareholders on remuneration. If you
have any questions about the content
of this year’s Directors’ Remuneration
Report you may contact me via
companysecretary@spirehealthcare.com.
The Remuneration Committee looks
forward to your continued support
at the 2018 annual general meeting.
Tony Bourne
Chair, Remuneration Committee
1 March 2018
Remuneration Committee at a glance
2017 highlights
The Committee began the process to review the Company’s Remuneration Policy
which will be presented to shareholders for approval in 2018.
Agreed new and revised remuneration arrangements for the Company’s
Executive Directors.
Committee membership and meeting attendance
The Remuneration Committee members at the end of 2017 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
Adèle Anderson
August 2016
Peter Bamford
May 2017
Position in Company
Independent
Non-Executive Director
Independent
Non-Executive Director
Deputy Chairman and
Senior Independent Director
Committee meetings
attended in 2017
6 (6)
6 (6)
3 (3)
Committee members’ biographies are shown on pages 56 and 57. John Gildersleeve
also served as a member of the Remuneration Committee until 26 May 2017 when he
resigned as a Director of the Company.
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 Chief Executive Officer, 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;
• basis on which awards are granted and their amount to Executive Directors
and senior management under the LTIP; and
• ensures a consistency of remuneration arrangements across all levels within
Spire Healthcare.
The Committee’s terms of reference can be found at www.spirehealthcare.com
79
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
Remuneration Policy Report
The following section sets out our Directors’ Remuneration Policy that will be put to a binding shareholder vote at the annual general
meeting in May 2018. If approved, it will be effective from this date.
The current policy was approved by shareholders in 2015, and therefore a new policy is being presented to shareholders under
the standard three-year renewal cycle. The key features of the current policy have been retained and remain unchanged under
the new policy. The current policy received strong shareholder support and the Remuneration Committee is of the view that
the structure continues to be aligned with prevailing market and best practice.
As part of the renewal process the Committee has taken the opportunity to make minor updates to certain detailed aspects
of the policy (e.g. remove references to legacy arrangements) and to reflect developments in market and best practice over
the last three years, in particular, the addition of a holding period for future LTIP awards.
Remuneration Policy table
Fixed remuneration
Purpose and link
to strategy
Operation
Maximum opportunity
Performance
measures
None
Element
Salary
Benefits
To provide fixed
remuneration that
is appropriate for
the role and to
secure and retain
the talent required
by the Group.
Fixed element of
remuneration
providing market
competitive
benefits to both
support retention
and recruit people
of the necessary
calibre.
The Committee takes into account a
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.
Salaries are normally reviewed annually.
While there is no defined maximum
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.
Current salary:
• Justin Ash: £615,000 (from 30 October 2017)
None
Whilst no maximum limit exists, 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.
A range of role-appropriate benefits
may be provided to Executive Directors,
including such items as private medical
cover (for the Executive Director and
their family), participation in an income
protection scheme, life assurance,
an annual health assessment (for the
Executive Director and their spouse)
and a car allowance.
Additional 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
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.
The maximum level of retirement 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.
None
80
Spire Healthcare Group plc Annual Report 2017
Purpose and link
to strategy
Operation
Maximum opportunity
Performance measures
Variable remuneration
Element
Annual
bonus
To incentivise
and reward the
achievement of
annual financial,
operational and
individual objectives
that are key to the
delivery of the
Group’s strategy.
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.
The maximum award
opportunity (at grant)
for Executive Directors
in respect of a
financial year is 200%
of base salary.
Objectives are set annually
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 at least one-third of any
bonus is deferred for a period of three
years with the Chief Executive Officer
deferring one-half of any bonus.
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 82.
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.
The Committee will review
performance against the targets
set to determine the level of vesting.
The Committee may adjust vesting
outcomes to ensure that they are
reflective of overall performance.
Awards may be in the form of
conditional share awards or nil-cost
options or any other form allowed
by the Plan rules.
Further details of the malus and
clawback provisions applicable
are set out on page 82.
Awards granted in 2018 and future
years will normally be subject to
a two-year holding period.
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.
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
2018, the targets will be based on
profit and certain strategic metrics.
Further details are set out in the
Annual Report on Remuneration.
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 2018,
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.
81
Spire Healthcare Group plc Annual Report 2017
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.
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
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. Since 2017
awards have included 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 and DBP 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 and LTIP
awards the Committee may also apply
malus and/or claw back 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.
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
the 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.
82
Spire Healthcare Group plc Annual Report 2017
Illustration of the remuneration policy
The remuneration arrangements have been designed to ensure that a significant proportion of pay is dependent on the delivery of
stretching short-term and long-term performance targets aligned with the Group’s objectives, and on delivering shareholder value.
The Committee considers the level of remuneration that may be received under different performance outcomes to ensure that
this is appropriate in the context of the performance delivered and the value added for shareholders.
The chart below provides illustrative values of the annual remuneration package for the Chief Executive Officer in 2018 under
three assumed performance scenarios. This chart is for illustrative purposes only and actual outcomes may differ from those shown.
In accordance with the disclosure regulations, share awards have been shown at face value, with no share price growth, dividend
accrual or discount rate assumptions.
Chief Executive Officer – Justin Ash
£2,899k
Fixed
Pay
£3,000k
£2,500k
£2,000k
£1,500k
£1,000k
£500k
£0k
26%
21%
11%
42%
£1,822k
41%
17%
8%
34%
£746k
100%
Minimum
Performance
Mid-point
Maximum
Performance
Salary/benefits
Cash bonus
Deferred shares
LTIP
Assumed
performance
All
Performance
Scenarios
Assumptions
• Consists of total fixed pay,
including base salary, benefits
and retirement benefits.
• Base salary – salary effective
as at 1 January 2018.
• Benefits – based on 2017
values (annualised).
• Retirement benefits – 18%
of 2018 salary
Variable
Pay
Minimum
Performance
• No pay-out under the
annual bonus.
• No vesting under the LTIP.
Mid-point
Maximum
Performance
• 50% of the maximum pay-out
under the annual bonus. This
represents 75% of base salary.
A portion of the bonus is deferred
into shares under the DBP.
• 50% vesting under the LTIP. This
represents 100% of base salary.
• 100% of the maximum pay-out
under the annual bonus. This
represents 150% of base salary
for both Executive Directors.
A portion of the bonus is deferred
into shares under the DBP.
• 100% vesting under the LTIP. This
represents 200% of base salary.
83
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
Executive Director service contracts and payments for loss of office
The key employment terms and other conditions of the current Executive Directors 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 cover (for the Executive Director
and his family), income protection, life assurance, an annual health assessment (for the Executive Director and their
spouse) and a car allowance.
The Group may 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 a salary above a de minimus level, there will be a pro rata reduction
in the PILON payments.
Immediate
termination
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.
External
appointments
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 appropriate, the Company may also make a payment in respect of outplacement costs,
legal fees and the cost of settling any potential claims.
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. Malus and 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. Unless the Committee determines otherwise, LTIP awards will
normally continue to be subject to any holding period which applies to an award.
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 82 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.
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.
84
Spire Healthcare Group plc Annual Report 2017
Non-Executive 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 Non-Executive Chairman and/or Non-Executive Director, remuneration arrangements
will normally be in line with those detailed in the relevant table below.
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. Fees to Non-Executive Directors
will not include share options or other performance-related elements. 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 2017 were:
• Non-Executive Chairman: £295,000;
• Deputy Chairman and Senior Independent Director: £140,000;
• independent Non-Executive Director basic: £55,000;
• non-independent Non-Executive Director basic: £50,000;
• Chair of Audit and Risk Committee: £10,000;
• Chair of Remuneration Committee: £10,000; and
• Chair of the Clinical Governance and Safety Committee: £15,000.
Under the terms of his appointment, Garry Watts is entitled to private medical cover (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).
Non-Executive Chairman and Non-Executive Directors’ letters of appointment
The Non-Executive 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
Policy
Period
Termination
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.
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 Director is terminable by either the Group or the Director
by giving two months’ notice.
The Non-Executive Director nominated by Mediclinic International PLC or any other shareholder representative
is pursuant to the terms of any relationship agreement and is currently terminable without notice.
85
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
Further detailed provisions
The DBP and LTIP will be operated in accordance with the relevant plan rules. 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.
Under the DBP and LTIP, 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.
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 either agreed:
(i) prior to the implementation of the policy approved in 2014; (ii) during the term of, and were consistent with, any previous policy
approved by shareholders; or (iii) 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. 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.
Since Admission, we have regularly engaged with shareholders regarding our approach to remuneration and we remain mindful
of shareholders’ views and emerging market and best practice when evaluating and setting future remuneration strategy.
This Remuneration Policy will be presented to shareholders for approval at the 2018 AGM.
86
Spire Healthcare Group plc Annual Report 2017
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 2017. This comprises
the total remuneration received over the full year from 1 January 2017 to 31 December 2017.
(£000)
Salary
Benefits
Retirement benefits
Annual bonus (including deferred element)
Long-term incentives4
Sub-total
Legacy arrangement –
Directors’ Share Bonus Plan Award6
Total
Justin Ash1
Simon Gordon2
Andrew White3
2017
105.8
3.4
19.0
–
–
128.2
–
128.2
2016
–
–
–
–
–
–
–
2017
447.4
17.3
80.5
–
–
545.2
–
2016
363.1
16.8
62.5
–
422.45
864.8
200.0
2017
212.9
7.6
36.5
–
–
257.0
–
2016
182.5
6.4
31.1
–
–
220.0
–
545.2
1,064.8
257.0
220.0
1 Justin Ash was appointed as Chief Executive Officer on 30 October 2017 on a salary of £615,000 per annum.
2 Simon Gordon stepped down from the Board on 1 March 2018.
3 Andrew White sadly passed away and ceased to be an Executive Director on 22 July 2017.
4 The 2015 LTIP award is based on performance to 31 December 2017; as noted below this award will lapse in full and therefore no value is shown for 2017.
5 In line with the disclosure regulations, the LTIP value for 2016 has been restated to reflect the share price on 20 March 2017, being the date of vesting (333.5 pence). The restated
amount includes a cash dividend equivalent payment of £8,440. On 30 March 2017, Simon Gordon exercised his 2014 LTIP award over 124,113 shares, selling 58,539 shares
at an average price of 327.5 pence to cover tax and NIC due.
6 These awards were granted in 2014 and were granted in respect of performance prior to Admission. There are no further outstanding awards under this plan. Details of awards
vesting in 2016 were set out in last year’s Remuneration Report.
Additional notes to the table
Salary
Justin Ash’s salary on appointment was £615,000 per annum. Simon Gordon’s salary was increased from £367,500 to £373,013
per annum on 1 April 2017.
In June 2017, Garry Watts stepped down from his role as Executive Chairman, and Simon Gordon was appointed Interim Chief
Executive. To reflect this role change and his expanded duties over the coming months, the Committee determined that Simon
Gordon would be paid an interim salary supplement of £12,666 per month (equivalent to a total salary of £525,000 per annum)
for a period of six months. This arrangement came to an end on 12 December 2017.
Benefits
The benefits consist of private medical cover (for the Executive Directors and their families), life assurance and income protection
cover. Simon Gordon also receives 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 2017 financial year, the maximum bonus opportunity for 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 2017 was set at £160.0 million and no bonus would be payable if this threshold was not achieved.
Once again the Company made progress in a number of areas, however, a number of internal and external factors impacted the
business. This meant that it did not achieve the minimum EBITDA threshold of £160.0 million. Although Simon Gordon largely met
his individual objectives under the balanced scorecard, the Committee determined that no bonus will be paid in respect of 2017.
The Committee note the importance of enabling our shareholders to understand the basis of bonus outcomes and the Company
will therefore seek to provide expanded disclosure in respect of any bonuses paid in future years.
Justin Ash was not eligible for a bonus in respect of 2017.
87
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
Long Term Incentive Plan (LTIP)
The performance period for awards granted in 2015 ended on 31 December 2017. 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).
Over the period to 31 December 2017, the Company delivered negative total shareholder return which was below the median
position and therefore threshold vesting was not achieved. This meant that none of this element of the award would vest.
The remaining half of the award was based on EPS targets. The 2017 EPS was below the threshold of 23.8 pence. Therefore this
award will lapse in full.
Awards under the LTIP were granted on 30 March 2017. 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 2019. The maximum award granted to Executive Directors was equivalent to 200% of base salary. Justin Ash
and Garry Watts did not receive LTIP awards in 2017.
The Committee determined that in addition to the value created for shareholders over the period, measured by EPS and relative
TSR performance targets, 2017 awards should also include an element based on Operational Excellence. Further details of the
performance conditions applying to the 2017 awards are set out below.
LTIP
• Conditional award over shares were 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.
TSR v FTSE 250 (excluding investment trusts) (35%)
Adjusted EPS – outcome for 2020 (35%)
Operational Excellence:
Regulatory Rating (15%)2
Net Promotor Score (15%)
25% vests
100% vests
Median1 Upper quartile
0% vests
18.5p1
25% vests
50% vests
100% vests
20.5p
21.8p
23.2p
85% achieve
‘Good’ or
above1
90% achieve
‘Good’ or
above
100% achieve
‘Good’ or
above
83
84
85
n/a
821
1 There is no vesting for performance below these levels.
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).
Outstanding share awards
Under the DBP, 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. No award was made under the
DBP in 2016 or 2017. 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
10,9221
1 June 2018 to 1 June 2025
1 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.
The following table provides details of all outstanding awards, as at 31 December 2017, made to Executive Directors under the LTIP:
Simon Gordon
Type of award
Conditional Share
Award (in the form
of nil-cost options)
Date of grant
1 April 2015
30 March 2016
30 March 2017
Number of
shares
193,905
197,628
223,146
Share price
£3.610
£3.542
£3.294
Face value
at grant1
£700,000
£700,000
£735,000
End of
performance period
31 December 2017
31 December 2018
31 December 2019
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. 2015 and 2016 awards are subject to EPS and relative TSR performance conditions.
The 2017 award is subject to EPS, relative TSR performance and Operational Excellence conditions.
2 As noted above, the 2015 Award will lapse in full.
88
Spire Healthcare Group plc Annual Report 2017
Andrew White’s estate
Andrew White sadly passed away and ceased to be an Executive Director on 22 July 2017. Andrew received an LTIP award over
221,628 shares on 30 March 2017. As announced to the market in August 2017, the Remuneration Committee agreed that
Andrew White’s estate would receive:
• cash bonus award for 2017 of £136,875. The bonus payment was pro-rated by 50% in respect of the first six months of the year
before Andrew White commenced sick leave on 30 June 2017 and was further pro-rated by 50%, being the proportion of bonus
maximum that would accrue for on-target AOP performance; and
• vesting of a total of 134,339 shares (c. 32% of maximum) in respect of the 2016 and 2017 LTIP awards to the date of Andrew White’s
death as allowed for in the LTIP rules. Each award was pro-rated for time worked by Andrew White during the performance periods,
i.e. up to 22 July 2017 and all performance metrics associated with each award were waived.
Single total figure of remuneration – Non-Executive Directors (audited)
The basic fee for independent Non-Executive Directors was increased from £50,000 to £55,000 per annum from 1 April 2017.
This was the first increase in Non-Executive Directors fees since Admission. The fee for the chair of the Clinical Governance and
Safety Committee was also increased from £10,000 to £15,000 per annum from 1 April 2017.
The following table sets out the total remuneration for the Non-Executive Directors for the year ended 31 December 2017.
(£000)
Adèle Anderson
Peter Bamford1
Tony Bourne
John Gildersleeve2
Dame Janet Husband
Robert Lerwill3
Danie Meintjes4
Simon Rowlands
Total
Fees
63.8
89.9
63.8
62.5
67.5
–
50.0
50.0
Benefits5
1.3
4.6
1.3
–
11.8
–
–
–
Total remuneration
2017
65.1
94.5
65.1
62.5
79.3
–
50.0
50.0
2016
25.6
–
60.0
150.0
60.0
30.0
50.0
50.0
447.5
19.0
466.5
425.6
1 Peter Bamford was appointed Deputy Chairman and Senior Independent Director and chair of the Company’s Nomination Committee on 26 May 2017.
2 John Gildersleeve stepped down as Deputy Chairman and Senior Independent Director on 26 May 2017.
3 Robert Lerwill stepped down as an independent Non-Executive Director on 27 June 2016.
4 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.
5 Reasonable expenses incurred by any Non-Executive Director will be reimbursed by the Company but they have no other contractual entitlement to benefits. For Non-Executive
Directors certain expenses relating to the performance of a Non-Executive Director’s duties in carrying out activities, such as travel to and from Company meetings, are classified
as taxable benefits by HMRC. In such cases, the Company will ensure that the Non-Executive Director is not out of pocket by settling the related tax via the PAYE Settlement
Agreement. In line with current regulations these taxable benefits have been disclosed and are shown in the taxable benefits column in the Directors’ remuneration table above.
The figures shown include the cost of the expenses grossed up for tax and national insurance.
89
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
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 Non-
Executive
Chairman)
Garry Watts1
(as Executive
Chairman)
Garry Watts1
(as Executive
Chairman)
Garry Watts1
(as Non-
Executive
Chairman)
Jun 17 – Dec 17 Jan 17 – Jun 17 Mar 16 – Dec 16 Jan 16 –Mar 16
223.8
3.0
300.0
2.7
–
–
–
226.8
–
226.8
–
–
–
302.7
–
302.7
479.0
2.4
–
–
–
481.4
233.2
714.6
51.8
0.5
–
–
–
52.3
–
52.3
1 Garry Watts resumed his previous role of Non-Executive Chairman on 1 July 2017. He remained on a salary of £600,00 per annum until 30 September 2017 when it became
£295,000 per annum. Between 14 March 2016 and 30 June 2017 he acted in the capacity of Executive Chairman.
2 These awards were granted in 2014 and were granted in respect of performance prior to Admission. There are no further outstanding awards under this plan.
Details of awards vesting in 2016 were set out in last year’s Remuneration Report.
Notes to the table
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 received an annual salary of £600,000 for that role, but did 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 2017, in line with other
Executive Directors.
On 1 July 2017, Garry Watts resumed the role of Non-Executive Chairman. Since 1 October 2017 he received a fee of £295,000 per
annum for this role.
Garry Watts has a contractual entitlement to benefits, which include: private medical cover 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.
90
Spire Healthcare Group plc Annual Report 2017
Implementation for 2018
The following table summarises how remuneration arrangements will be operated for 2018. Shareholders will note that, for the
fourth 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.
• Justin Ash’s salary will remain unchanged for 2018 at £615,000.
• No changes to benefits for 2018 – benefits include private medical cover, permanent health assurance, income
protection, life assurance, an annual health assessment and car allowance. Company contributions retirement benefits
remain at 18% of salary.
Annual bonus
The maximum opportunity will remain at 150% of salary.
• The performance targets in respect of the 2018 bonus will be based as to 75% on EBITDA and 25% on operational
objectives. No bonus will be paid unless a minimum quality trigger or Group earnings targets are met. 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.
• For the Chief Executive Officer, one half of any bonus earned will be deferred into shares for three years.
LTIP
• Conditional award over shares will be made in 2018 equivalent to 200% of base salary in the form of nil-cost options.
• Performance will be measured over the period from 1 January 2018 to 31 December 2020. The 2018 award will
continue to include an element based on Operational Excellence.
• The Remuneration Committee have reviewed the targets for the performance period to ensure that they suitably
reflect both internal and external expectations over the performance period. The Committee are satisfied that the
target ranges for the 2018 awards are suitably stretching in the context of current expectations and that the hurdles
at the top-end of the range would suitably justify full vesting. The Committee have made some minor refinements
to the Operational Excellence measures, while maintaining the stretch of targets.
TSR v FTSE 250 (excluding investment trusts) (35%)
25% vests
100% vests
Median1 Upper quartile
Adjusted EPS – outcome for 2020 (35%)
n/a
16.5p1
17.2p
18.3p
0% vests
25% vests
50% vests
100% vests
Operational Excellence:
Regulatory Rating (15%)2
Friends and Family (15%)3
85% achieve
‘Good’ or
above1
90% achieve
‘Good’ or
above
100% achieve
‘Good’ or
above
82%1
85%
87%
n/a
n/a
1 There is no vesting for performance below these levels.
2 Vesting for this element would be scaled back (including to nil) if any site is rated as ‘Inadequate’. The target range has been adapted to reflect expected
changes in the stringency of the external regulatory review process and the benchmarks required to achieve a ‘Good’ rating. The threshold hurdle
would continue to require improvement from current levels.
3 The measure of customer satisfaction has been changed to better align with the key measure of performance used in the business.
4 There is straight line vesting between the points shown.
5 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).
• Executive Directors are expected to build up and maintain, over a period of five years, a shareholding equivalent
to twice their respective base salaries.
• Justin Ash has until 30 October 2022 in order to reach his shareholding requirement.
The current fees payable to the Non-Executive Directors are shown in the following table.
Role
Non-Executive Chairman
Deputy Chairman and Senior Independent Director
Basic fee for independent Non-Executive Directors
Basic fee for non-independent Non-Executive Director
Chairs of the Audit and Risk Committee and Remuneration Committee
Chair of the Clinical Governance and Safety Committee
Fee per annum
£295,000
£140,000
£55,000
£50,000
£10,000
£15,000
Shareholding
guideline
Non-Executive
Directors
91
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
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.
Non-Executive Chairman
Garry Watts
Executive Directors
Justin Ash2
Simon Gordon
Andrew White3
Non-Executive Directors
Adèle Anderson
Peter Bamford4
Tony Bourne
John Gildersleeve5
Dame Janet Husband
Danie Meintjes
Simon Rowlands
Shareholding
Guidelines
As at 31 December
2017
As at 31 December
2016
Proportion of shareholding
guideline achieved1
503,577
503,577
36%
183%
173,600
537,332
n/a
–
5,000
11,904
125,761
10,231
–
214,516
n/a
471,758
–
–
–
11,904
125,761
10,231
–
214,516
1 Calculated based upon the closing share price on 31 December 2017 of 253.6 pence.
2 Justin Ash was appointed Chief Executive Officer on 30 October 2017 and he held 89,100 shares on this date.
3 Andrew White sadly passed away and ceased to be an Executive Director on 22 July 2017 and he did not hold any shares as at this date.
4 Peter Bamford was appointed as Deputy Chairman and Senior Independent Director on 26 May 2017 and he did not hold any shares as at this date.
5 John Gildersleeve stepped down from the Board on 26 May 2017 and his share interests are shown as at this date.
There have been no changes to Directors’ shareholdings between 31 December 2017 and the date of this report.
92
Spire Healthcare Group plc Annual Report 2017
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 2017. 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
Non-Executive Chairman
Garry Watts
Executive Directors
Justin Ash3
Simon Gordon
Andrew White4
Non-Executive Directors
Adèle Anderson
Peter Bamford
Tony Bourne
Dame Janet Husband
John Gildersleeve
Danie Meintjes
Simon Rowlands
–
0
614,679
n/a
–
–
–
–
–
–
–
–
–
10,922
n/a
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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 Justin Ash was appointed Chief Executive Officer on 30 October 2017.
4 Andrew White sadly passed away and ceased to be an Executive Director on 22 July 2017.
Letters of appointment
Non-Executive Director
Adèle Anderson
Peter Bamford
Tony Bourne
Dame Janet Husband
Danie Meintjes1
Simon Rowlands2
Date of appointment
Notice period
Date of expiry
28 July 2016
26 May 2017
24 June 2014
24 June 2014
2 months No later than 30 June 2019
3 months No later than 30 June 2020
2 months
2 months
26 May 2020
26 May 2020
20 August 2018
23 July 2018
20 August 2015
Not applicable
24 June 2014
2 months
1 Pursuant to the relationship agreement dated 22 June 2015 between the Company and Mediclinic Jersey Limited, under which Mediclinic 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. Mediclinic Jersey Limited has given notice that Danie Meintjes will not stand for re-election at the 2018 annual general meeting.
2 Simon Rowlands appointment was renewed for a further one-year period and a letter of appointment dated 23 July 2017 was issued to him. Due to the senior position
Simon Rowlands previously held with Cinven Partners he is considered to be a non-independent Non-Executive Director.
Service contracts
Justin Ash will put himself up for election at the annual general meeting to be held on 24 May 2018. Executive Directors 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.
Following Simon Gordon’s decision to step down as a Director of Spire Healthcare Group plc on 1 March 2018, he will be leaving
the business on 31 March 2018. His contract of employment is terminable on 12 months’ notice which the Company intends
to pay to him when he leaves the business. The Company does not intend to make any further cash payments for loss of office.
All arrangements will be consistent with the shareholder approved Remuneration Policy.
93
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Directors’ Remuneration Report
Continued
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
31 December 2017
Spire Healthcare Group plc
FTSE 250 (excluding investment trusts)
The table below shows the total remuneration paid in respect of the Chief Executive Officer role.
Chief Executive’s single figure remuneration (£000s)1,2
Annual bonus payout (% of maximum)
LTIP vesting (% of maximum)3
2017
128.21
0%
n/a
2016
320.5
0%
n/a
2015
2014
1,095.8
6,223.1
0%
n/a
34%
n/a
1 2017: Justin Ash was appointed Chief Executive Officer on 30 October 2017. The value shown for 2017 therefore represents a part-year figure for his time in role. During 2017:
(i) Garry Watts fulfilled the role of Chief Executive Officer from 14 March 2016 to 12 June 2017 for which he was paid £714.6k; and (ii) Simon Gordon undertook the role of Interim
Chief Executive Officer between 13 June 2017 and 29 October 2017 for which he was paid c.£243k .
2 2016: Rob Roger stepped down from the Board on 30 June 2016. The value shown for 2016, therefore represents a part-year figure for his time in role. During 2016, Garry Watts
fulfilled the role of Chief Executive Officer from 14 March 2016 to 12 June 2017 for which he was paid £714.6k.
3 Rob Roger and Garry Watts did not have any LTIP awards vesting in respect of 2016; for other participants the LTIP based on performance to 31 December 2016 vested at 50%
of maximum. Similarly, Justin Ash and Garry Watts did not have any LTIP awards vesting in respect of 2017; for other participants (including Simon Gordon) the LTIP based on
performance to 31 December 2017 lapsed in full.
Annual change in remuneration
The table below shows the percentage change in remuneration (based on salary, fees, benefits and annual bonus) between
2016 and 2017.
Base salary
Benefits
Annual bonus
Chief Executive
Officer/Executive
Chairman
% change1
n/a
n/a
n/a
Other
employees
% change
1.5%
-0.6%
0%
1 As noted above, Justin Ash was appointed Chief Executive Officer on 30 October 2017. Consequently, full year comparable data is not available.
94
Spire Healthcare Group plc Annual Report 2017
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
2017
281.7
15.2
2016
268.0
14.8
% change
5.11
2.70
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 £57,950 (2016: £19,500).
During 2017, Deloitte LLP also provided other consulting services to the Group. 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.
The Chairman, Chief Executive Officer, 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 2017 annual general meeting
The following table sets out the voting in respect of the resolution to approve the Company’s 2016 Directors’ Remuneration Report,
put to shareholders at the Company’s annual general meeting held on 26 May 2017:
Resolution
Votes for
% of vote
Votes against
% of vote Votes withheld
Approve the 2016 Directors’ Remuneration Report
323,221,140
99.58%
1,364,890
0.42%
1,088,678
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 24 May 2018. 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 2018. 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 that the Remuneration Policy will be put to a binding vote at the annual
general meeting on 24 May 2018.
Details of all resolutions passed at the annual general meeting held on 26 May 2017 can be found on page 69.
Share prices
The market price of a Spire Healthcare Group plc ordinary share at 31 December 2017 was 253.6 pence and the range during
the year was 221.5 pence to 361.0 pence.
Tony Bourne
Chair, Remuneration Committee
1 March 2018
95
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information 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 2017.
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 55 and the Directors’ Remuneration
Report on pages 78 to 95, 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 48 and 49;
• employees, which can be found in the
Human Resources review – Our people
on pages 44 to 47;
• the Corporate governance statement,
set out on pages 62 to 67; 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 50 to 55.
Information regarding the Company’s
Gender Pay Gap Reporting and charitable
donations can be found in the Human
Resources review – Our people on pages
44 to 47.
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 Freshfields Bruckhaus Deringer
LLP, Northcliffe House, 28 Tudor Street,
London EC4Y 0AY on Thursday, 24 May
2018 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, approve
the Company’s Remuneration Policy,
elect or re-elect all of the Directors and
to 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.
Dividends
The Directors recommend the payment of
a final dividend in respect of the year ended
31 December 2017 of 2.5 pence (2016:
2.5 pence) per ordinary share making a
proposed total dividend for the year of
3.8 pence per share (2016: 3.8 pence).
Subject to shareholders approving the
recommendation at the annual general
meeting, the final dividend will be paid
on 26 June 2018 to shareholders on the
register as at 1 June 2018.
The Company paid an interim dividend
in respect of the year ended 31 December
2017 of 1.3 pence per share on
12 December 2017.
96
Spire Healthcare Group plc Annual Report 2017
Board of Directors
The following changes were made to
the Board of Directors during the year:
• John Gildersleeve stepped down
as Deputy Chairman and Senior
Independent Director on 26 May 2017;
• Peter Bamford was appointed Deputy
Chairman and Senior Independent
Director on 26 May 2017;
• Andrew White sadly passed away
on 22 July 2017 and ceased to be
an Executive Director; and
• Justin Ash was appointed Chief
Executive Officer and an Executive
Director on 30 October 2017.
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,
except for Simon Gordon who leaves
the Company on 31 March 2018 and
Danie Meintjes who will not stand for
re-election, will retire and seek election
or re-election at this year’s annual general
meeting. Full biographical details of all
of the Directors can be found on pages
56 and 57.
Further information on the contractual
arrangements of the Executive Directors
is given on page 84. The Non-Executive
Directors do not have service agreement.
Subsequent to the year end, Simon
Gordon resigned from the Board on
1 March 2018. A search is underway
for his replacement.
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.
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 68 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.
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 Our people on
pages 44 to 47.
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 281,631 ordinary shares of 1 pence
each (2016: 670,559). Further details can
be found in note 19 on page 132.
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
97
Spire Healthcare Group plc Annual Report 2017
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 19 to the Company’s
financial statements on page 132.
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 19 on page 132.
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 2018 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.
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.
GovernanceStrategic ReportFinancial statementsOther information Directors’ Report
Continued
Directors’ interests in shares
The beneficial interests of the Directors’
and their families in the shares of the
Company are detailed on page 92.
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 2018, 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
Woodford Investment
Management LLP
The Capital Group
Companies, Inc
Norges Bank
GIC Private Limited
Current %
29.90
16.02
4.83
4.32
3.95
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 78 to 93.
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.
Information required
Location in Annual Report 2017
Amount of interest capitalised
Note 7 on page 123
Long-term incentive schemes
Directors’ Remuneration Report
pages 78 to 95
Equity securities allotted for cash
Note 19 on page 132
Parent and subsidiary undertakings
Note 15 on page 130
Subsisting significant agreements
Controlling shareholder relationships
Page 98
Pages 69 and 98
to refinance this bank loan facility,
on terms largely comparable to the
current facility, before it matures.
On the same basis, the Directors are also
satisfied that the Group will be able to
operate within the covenants imposed
by the current 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.
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 2018
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.
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 2017
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 2017.
Going concern
The Group is financed by a bank loan
facility that matures in July 2019. The
Directors have considered the Group’s
forecasts and projections, and the risks
associated with their delivery, and are
satisfied, based on prevailing market
conditions, that the Group will be able
98
Spire Healthcare Group plc Annual Report 2017
Statement of Directors’
responsibilities
The Directors are responsible for preparing
the Annual Report and Accounts for the
year ended 31 December 2017, including
the Consolidated financial statements and
the Parent Company financial statements,
Directors’ Report, including the Directors’
Remuneration Report and the Strategic
Report in accordance with applicable law
and regulations. Under that law, the
Directors are required to prepare the
Group financial statements in accordance
with International Financial Reporting
Standards (‘IFRS’) as adopted by the
European Union and Article 4 of the IAS
Regulation and have elected to prepare
the Parent Company financial statements
in accordance with IFRS, as adopted
by the EU.
Company law requires the Directors to
prepare such financial statements for
each financial year. Under company law,
the Directors must not approve the
financial statements unless they are
satisfied that they give a true and fair
view of the state of affairs of the Company
on a consolidated and individual basis,
and of the profit or loss of the Company
on a consolidated basis for that period.
In preparing these financial statements,
the Directors are required to:
• select suitable accounting policies
in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates
and Errors and then apply them
consistently;
• make judgements and estimates that
are reasonable and prudent;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information;
• provide additional disclosures
when compliance with the specific
requirements in IFRS as adopted by
the EU is insufficient to enable users
to understand the impact of particular
transactions, other events and conditions
on the Group’s and Company’s financial
position and financial performance;
• state that the Group’s and Company’s
financial statements have complied
with IFRS as adopted by the EU, subject
to any material departures disclosed
and explained in the financial
statements; and
• prepare the financial statements
on a going concern basis, unless it is
not appropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions, and disclose,
with reasonable accuracy at any time,
the Company’s financial position and
enable them to ensure compliance
with the Companies Act 2006. They
are also responsible for safeguarding
the Company’s assets and for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
Each of the Directors, whose names and
functions are listed on pages 56 and 57,
confirms that:
• to the best of their knowledge, the
Consolidated financial statements
and the Parent Company financial
statements, which have been prepared
in accordance with IFRS as adopted
by the EU, give a true and fair view of
the assets, liabilities, financial position
and profit of the Company on a
consolidated and individual basis;
• to the best of their knowledge, the
Strategic Report and the Directors’
Report include a fair review of the
development and performance of
the business and the position of
the Company on a consolidated
and individual basis, together with
a description of the principal risks
and uncertainties that it faces; and
• they consider that the Annual Report
and Accounts for the year ended
31 December 2017, 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
Chairman
1 March 2018
Simon Gordon
Chief Financial Officer
1 March 2018
99
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Independent Auditor’s Report
To the members of Spire Healthcare Group plc
Our opinion on the Group financial statements and Parent Company 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 2017 and of the Group’s
profit for the year then ended;
• the financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘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; 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.
We have audited the financial statements which comprise:
Balance sheet as at 31 December 2017
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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our
report below. We are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of our report
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.
100
Spire Healthcare Group plc Annual Report 2017
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require
us to report to you whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 52 to 55 that describe the principal risks and explain how they are being
managed or mitigated;
• the Directors’ confirmation set out on page 99 in the annual report that they have carried out a robust assessment of the principal
risks facing the Group and the Parent Company, including those that would threaten its business model, future performance,
solvency or liquidity;
• the Directors’ statement set out on page 99 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 12 months from the date of approval of the financial statements;
• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule
9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 51 in the annual report as to how they have assessed the prospects of the Group and
the Parent Company, 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.
Overview of our audit approach
Key audit matters
• Manipulation of revenue by changes to the pricing master file.
• Misstatement due to management posting fraudulent manual journal entries to revenue.
• Inappropriate capitalisation of costs to property, plant and equipment.
• Property carrying values (hospital assets).
Audit scope
• We performed an audit of the complete financial information of four Group companies and
audit procedures on specific balances for a further 14 Group companies.
• The Group companies where we performed full or specific audit procedures accounted for 100%
of revenue and 100% of Total assets.
Materiality
• Overall Group materiality of £3.5 million which represents 5% of profit before tax adjusted for
certain exceptional items.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
101
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Key observations communicated to the
Audit and Risk Committee
We did not identify material errors on
pricing, 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.
Independent Auditor’s Report
Continued
Risk
Our response to the risk
Manipulation of revenue by changes
to the pricing master file
2017: NHS revenue
£287.8m
2016: £293.4m
2017: PMI revenue
£426.0m
2016: £429.3m
Refer to the Audit and Risk Committee
Report (pages 70 to 73); Accounting policies
(pages 115); and note 6 of the consolidated
financial statements (page 123).
Inappropriate revenue recognition by
way of management manipulation of the
pricing master file, resulting in inaccurate
patient invoicing in respect of PMI and
NHS revenue.
The high volume of patient transactions,
for which pricing is individually agreed by
procedure with PMI providers and the NHS,
leads to a higher likelihood of material
misstatement through intentional
changes to individual pricing on the
pricing master file.
We considered that the pressure to achieve
forecast results or targets increases the
risk of financial reporting manipulation
by management.
To gain assurance over revenue recognised
during the period, we tested the two-way
correlation between revenue and trade
receivables and three-way correlation
between revenue, trade receivables and
cash for the year. We also tested other
revenue and receivables transactions
that didn’t conform to our expectation
of typical revenue postings.
In order to specifically address this fraud risk,
we performed the following procedures:
• we understood and evaluated the controls
that have been designed and implemented
to prevent or detect misstatements due
to fraud 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;
• for PMI revenue, we have tested a
representative sample and agreed prices
from SAP billings (revenue) to insurer
contracts, price lists, or other supporting
correspondence as applicable. In instances
where no contract was available, we have
traced settlement of the invoice directly
to cash;
• we used a data analytics tool to address
the fraud risk for NHS revenue. We used
publicly available NHS national tariff base
prices and Market Force factors to check
the pricing accuracy of the NHS revenue
for the year. For the population outside
of the National Tariff, we have agreed
a sample of the billings to underlying
signed agreements with NHS or other
supporting correspondence as applicable,
including cash; and
• we investigated whether there had
been pricing disputes with insurers or the
NHS during the year through discussion
with senior finance and commercial
management, legal counsel, review of
Board and Executive Committee 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 reviewed the ageing of accounts
receivable to identify instances of aged
debt which might indicate a pricing
dispute with the customer.
102
Spire Healthcare Group plc Annual Report 2017
Key observations communicated to the
Audit and Risk Committee
We have not identified any
misstatements due to management
posting fraudulent manual journal
entries to revenue. We have not found
any instances of management override.
Risk
Our response to the risk
• We performed a walkthrough of the
financial statement close process and
obtained an understanding of the journal
entry process, including the journal
entry process for the consolidation,
and adjusting journals which are posted
directly to the financial statements.
We have used our understanding
of this process to develop our journal
testing approach.
• Utilising our analytics-based revenue
programme, we have understood
revenue trends through the use of
analytics as follows:
− analysis of double-entry postings
to the related accounts and how
these accounts are aligned with our
understanding of the revenue process,
activity and source; and
− identifying revenue trends which do
not correlate with our expectation and
investigating and corroborating these
uncorrelated trends.
• We performed mandatory journal testing
by focusing on specific criteria designed
to identify journals through which we
believe management can post fraudulent
manual entries to revenue.
Misstatement due to management
posting fraudulent manual journal
entries to revenue
2017: PMI
£426.0m
2016: £429.3m
2017: NHS
£287.8m
2016: £293.4m
2017: Self-pay
£186.9m
2016: £170.4m
Refer to the Audit and Risk Committee
Report (pages 70 to 73); Accounting policies
(page 115); and note 6 of the consolidated
financial statements (page 123).
We consider that the pressure to achieve
forecast results and analysts’ expectations
increases the risk of financial reporting
manipulation by management.
Given management’s bonus structure
and the pressure to achieve the agreed
performance target, we consider there
to be a risk of financial reporting
manipulation by management.
Based on the key performance indicators
that are analysed by both external and
internal parties, we consider revenue to
be susceptible to management override
of control as this forms the foundation
for the key performance indicators.
We understand that the high volume
of system generated and low value
revenue transactions, results in limited
opportunity for management to
fraudulently misstate revenue at a
transactional level, (other than through
manipulation of changes to the pricing
master file as considered on page 102).
For management to be able to fraudulently
misstate, we consider there to be a greater
incentive to override controls by posting
manual journal entries to revenue.
103
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Key observations communicated to the
Audit and Risk Committee
Our audit procedures found no material
instances of expenditure which had been
inappropriately capitalised to property,
plant and equipment.
Based on our audit procedures performed,
we concluded that costs have been
appropriately capitalised to property,
plant, and equipment.
Independent Auditor’s Report
Continued
Risk
Our response to the risk
Inappropriate capitalisation of costs
to property, plant and equipment
2017: Costs capitalised
£119.9m
2016: £160.4m
Refer to the Audit and Risk Committee
Report (pages 70 to 73); Accounting policies
(page 116); and note 13 of the consolidated
financial statements (page 128).
Given management’s bonus structure
and analysts’ expectations of the Group’s
performance, for example earnings per
share, we consider the risk of inappropriate
capitalisation to be a fraud risk.
In the prior year, the Group had three large
development projects (Spire Manchester,
Nottingham and St Anthony’s hospitals)
which were substantially completed in
this year. The capital expenditure for FY17
is across several existing hospitals and over
all property, plant and equipment categories.
Given the scale of the capital expenditure
in the current year relating to both
development projects and general capital
spend, we consider there is increased
opportunity for management to
inappropriately capitalise costs to
manipulate the Group’s profits. The high
volume of costs being capitalised over all
property, plant and equipment categories
means that it is harder for management
to detect material inappropriate items.
• We understood and evaluated the controls
that have been designed and implemented
to prevent or detect misstatements
due to fraud or error associated with
the inappropriate capitalisation of costs
on hospitals. We identified an operating
control deficiency and as a result adopted
a fully substantive approach to address
this fraud risk.
• We selected a sample of costs capitalised
during the year to address the nature
of the items capitalised, and to assess
whether the items have been appropriately
capitalised in accordance with IAS 16. Our
sample included both high and low value
items. We obtained the invoice to verify
the existence and valuation of each item,
and also obtained evidence that the
expenditure was authorised based on the
delegation of authority matrix. We verified
that 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 large project
samples selected.
• Where internal costs were capitalised,
we verified that the costs were directly
attributable to the relevant project
by obtaining calculation of staff cost
multiplied by percentage time allocated
to specific projects, correspondence
from project managers confirming the
percentage time for staff to be allocated,
and payslips to confirm staff costs.
• We performed mandatory testing of
journal entries. Our journal testing
approach considered appropriate criteria
to identify a journal testing sample
which addressed the risk of inappropriate
capitalisation of costs to property,
plant, and equipment.
104
Spire Healthcare Group plc Annual Report 2017
Key observations communicated to the
Audit and Risk Committee
Having sensitised management’s value-
in-use calculations for the hospitals we
focused on, we conclude that the risk of
material misstatement is low. The carrying
value was supported, suggesting no need
to recognise impairment on these properties.
We therefore agree with management’s
conclusion that the carrying value of the
Group’s properties is appropriate.
Risk
Our response to the risk
Property carrying values (hospital assets)
• We obtained a comparison of each
2017: Freehold property carrying value
£582.9m
2016: £575.2m
Refer to the Audit and Risk Committee
Report (pages 70 to 73); Accounting policies
(page 116); and notes 5 and 13 of the
consolidated financial statements
(pages 122 and 128)
Freehold property is held at depreciated
cost and its carrying value is required to
be assessed for indicators of impairment
by management on an annual basis.
For those properties with an indicator,
an impairment test is performed by
calculating a value in use, by means of
a discounted cash flow model.
As this process involves some degree of
estimation we consider that there is a risk
that properties are held in the financial
statements at an inappropriate
carrying value.
hospital’s EBITDA for 2017 to its budget.
We selected certain freehold and long
leasehold hospital properties to focus on,
specifically those which show notable
underperformance compared to budget
and prior year in percentage terms.
• We obtained management’s value-in-use
calculation for the selected hospitals. We
have understood the process and controls
behind the preparation of management’s
underlying three-year forecast, given
management’s reliance on the plan for
the value-in-use model. We have reviewed
performance against budget to assess
management’s ability to accurately forecast.
• We tested the reasonableness of
management’s cash flow forecasts by
comparing to prior year actuals and the
prior year forecasts. We discussed the
forecasts with management to
understand local factors regarding
strategy and market forces which had
been taken into account in the forecasts.
We corroborated the key assumptions
to evidence. We focused our procedures
on two hospitals which had minimal
headroom.
• We engaged our valuation specialist to
assist us in verifying the appropriateness
of certain key inputs to the discounted
cash flow model, such as the discount rate,
certain growth rates and the terminal
growth rate.
In the prior year, our auditor’s report included a key audit matter in relation to manipulation of accrued patient revenue. In the
current year we have concluded that, due to the size of the accrual at any point in the reporting period, any manipulation is unlikely
to be material and have removed this as an area of significant risk.
An overview of 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 and changes in the
business environment 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 identify 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 (2016: four) entities (‘full scope components’) which were
selected based on their size or risk characteristics. For a further 14 (2016: 19) 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.
105
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Independent Auditor’s Report
Continued
The entities for which we performed audit procedures accounted for 100% (2016: 100%) of the Group’s revenue and 100% (2016:
100%) of the Group’s total assets. For the current year, the full scope components contributed 92% (2016: 88%) of the Group’s revenue
and 68% (2016: 69%) of the Group’s total assets. The specific scope components contributed 8% (2016: 12%) of the Group’s revenue
and 32% (2015: 31%) 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. This is due to intra-
Group profits earned in certain specific scope components which result in consolidated profit before tax amount to more than 100%.
For the remaining 17 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 audit of the entities within the Group is undertaken by one audit team which is led by the senior statutory auditor.
Changes from the prior year
There have not been any significant changes to the scope of our audit from the prior year.
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.
Profit
before tax (Page 110)
Exceptional items
added back
Adjusted profit
before tax
£23.1m
£47.7m
£70.8m
£3.4 million
£2.5 million
Tolerance
for potential
undetected
misstatements
Materiality
100%
Performance
materiality
75%
Materiality (5% of
adjusted profit before tax) £3.5m
£0.2 million
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 £3.5 million (2016: £4.1 million), which is 5% of adjusted profit before tax (2016: 5%
of adjusted profit before tax). We have adjusted profit before tax for certain exceptional items amount to £47.7 million, 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 and is in line with the adjusted performance measures the
Group uses. We have not adjusted for £1.5 million of exceptional items which are not significant.
We determined materiality for the Parent Company to be the same as materiality for the Group.
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% (2016: 75%) of our planning materiality, namely £2.5 million (2015: £3.1 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.
106
Spire Healthcare Group plc Annual Report 2017
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 £2.5 million (2016: £0.5 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 (2016: £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.
Other information
The other information comprises the information included in the annual report set out on pages 2 to 99, including, the Strategic
Report set out on pages 2 to 55 and Governance report set out on pages 56 to 99, other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements,
we are required to determine whether there is a material misstatement in the financial statements or a material misstatement
of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items
meet the following conditions:
• fair, balanced and understandable set out on page 99 – Statement of Director’s responsibility – the statement given by the
Directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting set out on pages 70 to 73 – the section describing the work of the Audit and Risk Committee
does not appropriately address matters communicated by us to the Audit and Risk Committee/the explanation as to why the
annual report does not include a section describing the work of the Audit and Risk Committee is materially inconsistent with
our knowledge obtained in the audit; and
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 99 – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose
a departure from a relevant provision of the UK Corporate Governance Code.
Opinions 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.
In our opinion:
• 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.
107
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Independent Auditor’s Report
Continued
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the 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.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 99, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but
to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial
statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement
due to fraud, through designing and implementing appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both
those charged with governance of the entity and management.
Our approach was as follows:
• we obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that
the most significant are those related to the reporting framework (IFRS adopted by the EU, the Companies Act of 2006 and the
Corporate Governance Code), the relevant tax compliance regulations in the UK, and the Data Protection Act of 1998. In addition,
we conclude that there are certain laws and regulations which may have an effect on the determination of the amounts and
disclosures in the financial statements being the Listing Rules of the London Stock Exchange, the Bribery Act of 2010 and certain
laws specific to entities operating in the private healthcare provider industry;
• we understood how Spire Healthcare Group plc is complying with those frameworks by making enquiries of management,
internal audit, those responsible for legal and compliance procedures and the Group Company Secretary. We corroborated our
enquiries through the review of Board minutes, communications with the Audit and Risk Committee and correspondence received
from regulatory bodies; and
• we assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur
by meeting with management and those charged with governance to understand where they considered there was a susceptibility
to fraud. We also considered performance targets, forecasted results and bonus structures and their influence on efforts made
by management to manage earnings or influence the perception of analysts. Where this risk was considered to be higher,
we performed audit procedures to address each identified risk.
108
Spire Healthcare Group plc Annual Report 2017
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations.
Our procedures included the review of Board minutes to identify any non-compliance with laws and regulations, a review of
the reporting to the Audit and Risk Committee on compliance with regulations, enquiries with those responsible for legal and
compliance, enquiries with the Group Company Secretary and with management.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed as auditors by the Board in November 2008 to audit the financial statements of the Company for the period
ending 31 December 2008 and subsequent financial periods. The period of total uninterrupted engagement, including the period
prior to the Companies admission on the London Stock Exchange in 2014, is 10 years, covering the years ended 31 December 2008
to 31 December 2017.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we
remain independent of the Group and the Parent Company in conducting the audit.
• The audit opinion is consistent with the additional report to the Audit and Risk Committee.
Debbie O’Hanlon (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
1 March 2018
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.
109
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Consolidated income statement
For the year ended 31 December 2017
(£ million)
Revenue
Cost of sales
Gross profit
Other operating costs
Operating profit/(loss)
Finance income
Finance cost
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Profit/(loss) for the year attributable
to owners of the Parent
Earnings per share (in pence per share)
– basic
– diluted
Total before
exceptional
and other
items
2017
Exceptional
and other
items
(note 9)
931.7
(492.2)
439.5
(347.4)
92.1
0.1
(20.3)
71.9
(14.0)
57.9
–
–
–
(49.2)
(49.2)
–
–
(49.2)
8.1
(41.1)
Notes
6
5,9
7
7
9,11
Total before
exceptional
and other
items
2016
Exceptional
and other
items
(note 9)
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)
Total
931.7
(492.2)
439.5
(396.6)
42.9
0.1
(20.3)
22.7
(5.9)
16.8
Total
926.4
(485.9)
440.5
(347.5)
93.0
0.2
(20.0)
73.2
(19.6)
53.6
57.9
(41.1)
16.8
76.6
(23.0)
53.6
12
12
14.4
14.4
(10.2)
(10.2)
4.2
4.2
19.2
19.1
(5.8)
(5.8)
13.4
13.3
The notes on pages 115 to 142 form an integral part of these financial statements.
110
110
Spire Healthcare Group plc Annual Report 2017
Consolidated statement of comprehensive income
For the year ended 31 December 2017
(£ million)
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year attributable to owners of the Parent
The notes on pages 115 to 142 form an integral part of these financial statements.
2017
16.8
2016
53.6
–
–
16.8
53.6
111
111
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Consolidated statement of changes in equity
For the year ended 31 December 2017
(£ million)
As at 1 January 2016
Profit for the year
Other comprehensive income for the year
Dividend paid
Share based payments
Corporation tax on share based payments
Deferred tax on share based payments
Purchase of shares held in the EBT
Utilisation of EBT shares for Directors
Share Bonus Award
As at 1 January 2017
Profit for the year
Other comprehensive income for the year
Dividend paid
Share based payments
Utilisation of EBT shares for 2014 LTIP Award
24
21
19
19
24
21
19
Notes
Share
capital
4.0
Share
premium
826.9
Capital
reserves
376.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
EBT share
reserves
(5.6)
–
–
–
–
–
–
(1.8)
5.2
Retained
earnings
(203.8)
53.6
–
(14.8)
0.4
0.6
(0.3)
–
(5.2)
Total
equity
997.6
53.6
–
(14.8)
0.4
0.6
(0.3)
(1.8)
–
–
–
–
–
1.3
(0.9)
16.8
–
(15.2)
1.0
(1.3)
16.8
–
(15.2)
1.0
–
(168.2)
1,037.9
4.0
826.9
376.1
(2.2)
(169.5)
1,035.3
Balance at 31 December 2017
4.0
826.9
376.1
The notes on pages 115 to 142 form an integral part of these financial statements.
112
112
Spire Healthcare Group plc Annual Report 2017
Consolidated balance sheet
As at 31 December 2017
(£ million)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Non-current assets held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Capital reserves
EBT share reserves
Retained earnings
Equity attributable to owners of the Parent
Total equity
Non-current liabilities
Borrowings
Deferred tax liabilities
Current liabilities
Provisions
Borrowings
Trade and other payables
Income tax payable
Total liabilities
Total equity and liabilities
Notes
2017
2016
13
14
16
17
18
4
19
19
19
20
11
22
20
23
1,036.9
517.8
1,554.7
30.1
104.5
39.2
173.8
5.6
179.4
1,734.1
4.0
826.9
376.1
(0.9)
(168.2)
1,037.9
1,037.9
498.0
72.6
570.6
17.9
4.0
101.5
2.2
125.6
696.2
991.5
517.8
1,509.3
28.1
119.1
67.9
215.1
–
215.1
1,724.4
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
1,734.1
1,724.4
These Consolidated financial statements and the accompanying notes were approved for issue by the Board on 1 March 2018 and signed on
its behalf by:
Justin Ash
Chief Executive Officer
Simon Gordon
Chief Financial Officer
The notes on pages 115 to 142 form an integral part of these financial statements.
113
113
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Consolidated statement of cash flows
For the year ended 31 December 2017
(£ 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
Loss on disposal of property plant and equipment
Write-off intangible assets
Finance income
Finance costs
Share based payments
Movements in working capital:
Decrease in trade and other receivables
(Increase)/decrease in inventories
Increase 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
Interest received
Purchase of property plant and equipment
Proceeds on disposal of property plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Interest paid
Repayment of bank borrowing
Purchase of shares held in the EBT
Dividends paid to equity holders of the Parent
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Exceptional and other items
Exceptional and other items paid included in the cash flow
Total exceptional and other items
The notes on pages 115 to 142 form an integral part of these financial statements.
Notes
2017
2016
22.7
73.2
13
13
13
5
14
7
7
21
24
18
9
57.4
10.3
–
0.4
–
(0.1)
20.3
1.0
51.9
0.5
(1.9)
10.8
1.3
(0.2)
20.0
0.4
112.0
156.0
14.6
(2.0)
1.3
1.2
15.6
0.9
6.8
1.1
127.1
180.4
–
(3.1)
1.4
(4.4)
124.0
177.4
0.1
(119.2)
0.8
(118.3)
(18.8)
(0.4)
–
(15.2)
(34.4)
(28.7)
67.9
39.2
(31.3)
(49.2)
0.2
(149.5)
(0.6)
(149.9)
(21.5)
(0.4)
(1.8)
(14.8)
(38.5)
(11.0)
78.9
67.9
(5.9)
(15.2)
114
114
Spire Healthcare Group plc Annual Report 2017
Notes to the financial statements
For the year ended 31 December 2017
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 2017 were authorised for issue by the Board of Directors of the Company on
1 March 2018.
The Company is a public limited company, which is listed on the London Stock Exchange, incorporated, registered and domiciled in England
and Wales (registered number: 9084066). The address of its registered office is 3 Dorset Rise, London EC4Y 8EN.
2. Accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
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 cost basis. The Group financial statements are presented in UK sterling and all values are rounded to
the nearest million pounds (£ million), except when otherwise indicated.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Group’s accounting policies. Further details on the Group’s critical
judgements and estimates are included in note 3.
Going concern
The Group is financed by a bank loan facility that matures in July 2019. The Directors have considered the Group’s forecasts, projections,
ability to refinance, 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 at least 12 months from the date of approval of these financial statements. 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.
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 and other items,
as defined below.
Operating profit is adjusted to exclude exceptional and other items to calculate the Key Performance Indicator ‘Operating profit before
exceptional and other items’.
Exceptional and other items
Exceptional items are those items which, by virtue of their nature, 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, business
acquisition costs, medical malpractice provision, aborted project costs and executive medical leave and death in service.
Other items are those items which the Directors believe are relevant to the understanding of the results for the year and which are
excluded from the adjusted measures, where the Directors considered necessary to do so due to their nature or amount, to provide further
understanding of the Group’s financial performance and comparability between reporting periods. Other items include compliance set-up
costs and deferred tax adjustments in relation to revised property carrying values.
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. There are no bank overdrafts in either year presented.
115
115
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
2. 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.
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.
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.
116
116
Spire Healthcare Group plc Annual Report 2017
2. Accounting policies continued
Business combinations
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
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 one cash-generating unit 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.
Financial Instruments
i) Financial assets other than derivatives
Initial recognition and measurement
All financial assets are recognised initially at fair value plus directly attributable transaction costs. The Company’s financial assets include
cash and short-term deposits and trade and other receivables.
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables,
held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.
Subsequent measurement
Trade receivables are generally accounted for at amortised cost. The Company reviews indicators of impairment on an ongoing basis and
where such indicators exist, the Company makes an estimate of the asset's recoverable amount.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. On
initial recognition, loans and receivables are measured at fair value plus directly attributable transaction costs. Subsequently, such assets are
measured at amortised cost, using the effective interest rate (‘EIR’) method, less any allowance for impairment.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the
EIR. The EIR amortisation is included in interest receivable in the Consolidated income statement.
Losses arising from impairment are recognised in the Consolidated income statement in Other operating costs .
ii) Financial liabilities other than derivatives
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings
or as derivatives designated as hedging instruments in an effective hedge as appropriate. The Company determines the classification
of financial liabilities at initial recognition.
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.
Subsequent measurement
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate
method. Gains and losses arising on the repurchase, settlement or otherwise cancellation of liabilities are recognised respectively in interest
receivable and interest payable.
iii) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently
enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle
the liabilities simultaneously.
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.
117
117
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
2. Accounting policies continued
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.
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.
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
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangements at the inception
date: whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to
use the asset.
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.
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.
Pensions
The Group operates the Spire Healthcare Pension Plan, 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.
118
118
Spire Healthcare Group plc Annual Report 2017
2. Accounting policies continued
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
21). 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.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset
or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should
be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less
costs to sell.
Changes in accounting policy
New standards, interpretations and amendments applied
The following amendments to existing standards were effective for the Group from 1 January 2017, but either they were not applicable
to or did not have a material impact on the Group:
• Amendments to IAS 7 Disclosure Initiatives
• Annual Improvements to IFRSs 2014‒2016 Cycle: Clarification of the scope of the disclosure requirements in IFRS 12
• IAS 12 (Income taxes) Recognition of Deferred Tax Assets for Unrealised losses
New standards, interpretations and amendments not applied
As at date of approval of the Group financial statements, the following new and amended standards, interpretations and amendments in
issue are applicable to the Group but not yet effective and thus, have not been applied by the Group:
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
Annual Improvements 2014‒2016 Cycle
IFRIC 22 Foreign Currency Transactions and Advance Consideration
Annual Improvements 2015‒2017 Cycle
IFRS 16 Leases
Effective date*
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018†
1 January 2019†
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, interpretations and amendments 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 Group’s assessment of the impact of
applying IFRS 9, IFRS 15 and IFRS 16 are discussed on page 120.
119
119
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
2. Accounting policies continued
IFRS 15 Revenue from Contracts with Customers
IFRS 15 ‘Revenue from Contracts with Customers’ will be effective for annual periods beginning on or after 1 January 2018 with early adoption
permitted. The standard (endorsed on 22 September 2016) 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 for goods, services and construction contracts under the current accounting standards.
Impact of adoption
The Group is in the business of providing healthcare services. During 2017, the Group completed an impact assessment of IFRS 15 and
concluded that the adoption of IFRS 15 will have an insignificant impact on its consolidated results. As such, the Group will adopt IFRS 15
with effect from 1 January 2018 using the Modified Retrospective approach.
Analysis
Approximately 70% of the Group’s revenue is derived from in-patient and daycase admissions. Revenue is recognised day by day, as services
are provided to patients. These services are typically provided over a short time frame, that is, one to three days. Out-patient cases and other
revenue represent approximately 30% of the Group’s revenue. Out-patient cases generally do not involve surgical procedures and revenue is
recognised on 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. The current revenue recognition policy is in line with the requirements of IFRS 15 five-step model.
Disaggregated revenue disclosure
Spire Healthcare reports disaggregated revenue by material revenue stream (i.e. type of payor: PMI, NHS and Self-pay) and other revenue
which includes consultant revenue, third-party revenue streams (e.g. pathology services) and of commissioning for quality and innovation
payments (‘CQUIN’). Material revenue streams are consistent in nature, being the consideration received in return for the provision of
healthcare services to patients. The timing and uncertainty of cash flows is similar for PMI and NHS business while Self-pay revenue
is received in advance or collected by credit card shortly after treatment. In addition, Spire Healthcare reports revenue split between
in-patient/daycase, out-patient and other. As noted above, in all cases, revenue is recognised as performance obligations are completed
in the form of services being provided to patients. Uninvoiced revenue is accrued at period ends. Invoices for the combination of services
provided to patients are generally produced within three days of discharge. Spire Healthcare believes that these disclosures satisfy the
requirements of IFRS 15 to enable the reader to understand the nature, amount, timing and uncertainty of revenue and cash flows.
IFRS 16 Leases
IFRS 16 ‘Leases’ will be effective for annual periods beginning on or after 1 January 2019 with early adoption permitted for entities that apply
IFRS 15 at or before the date of initial application of IFRS 16.
IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right
to use the underlying asset and a lease liability representing its obligation to make lease payments. There are recognition exemptions for
short-term leases and leases of low-value items.
The Group has completed an initial assessment of the potential significant impact on its Consolidated financial statements but has not yet
completed a detailed assessment of all leases. At 31 December 2017, the Group’s future minimum lease payments under non-cancellable
operating leases amounted to £1,587.6 million, on an undiscounted basis. In addition, the nature of expenses related to those leases will
now change as IFRS 16 replaces the straight-line operating expense with a depreciation charge for right-of-use assets and interest expense
on lease liabilities. No significant impact is expected for the contracts currently accounted for as finance leases.
IFRS 9 Financial Instruments
IFRS 9 ‘Financial Instruments’ will be effective for annual periods beginning on or after 1 January 2018. IFRS 9 sets out requirements for
recognising and measuring financial assets, liabilities and some contract to buy or sell non-financial items. The standard replaces IAS 39
‘Financial Instruments: Recognition and Measurement’.
IFRS 9 new impairment models requires the recognition of impairment provisions based on the expected credit loss (‘ECL’) model which
replaces the ‘incurred loss’ model in IAS 39. Under the new loss allowance method, it can be measured on either of the following bases:
• 12 month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
• Lifetime ECLs: these ECLs that result from all possible default events over the expected life of the financial instrument.
Concerning impairment, the Directors expect to apply the simplified approach to recognise lifetime ECLs for the Group’s trade receivables.
This will result in an insignificant increase to the impairment provision on adoption of IFRS9 and going forwards greater judgement due to
the need to factor in forward looking information when estimating the appropriate amount of provision. In applying IFRS 9 the Group must
consider the probability of default occurring over the contractual life of its trade receivables.
120
120
Spire Healthcare Group plc Annual Report 2017
3. Critical accounting 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
Exceptional and other items
Judgements are required as to whether items that are material in size, unusual or infrequent in nature should be disclosed as exceptional
and other items. Deciding which items meet the respective definitions requires the Group to exercise its judgement. Details of these items
categorised as exceptional and other items are outlined in note 9.
Estimates
Deferred tax liabilities and assets
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.
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.
During 2016, the Group considered it to be appropriate to reassess the basis for calculating deferred tax on the property portfolio and has
since based the assessment on solely held-in-use basis. In 2016 this gave rise to a material tax charge of £8.4 million (refer to note 11).
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 14.
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 25.
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 21.
Provision for medical malpractice 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 historical 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.
Property impairment
Property is considered for impairment at least annually or more frequently if there is an indication that carrying amount may be impaired.
This is achieved by comparing the value-in-use of the property with its carrying value in the accounts. The value-in-use calculations require
the Group to estimate 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.
121
121
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
4. Non-current assets held for sale
As at December 2017, the Group’s management have committed to sell two properties which previously formed part of the Group
operations, Spire St Saviour’s Hospital which closed in 2015 and Whalley Range, Manchester which is due to close in April 2018. The properties
are expected to be sold within twelve months, have been classified as held for sale and are presented separately in the Consolidated
balance sheet.
The proceeds of disposal are expected to exceed the net carrying amount of the relevant assets and accordingly, no impairment loss has
been recognised on the classification of these operations as held for sale.
(£ million)
Spire St Saviour’s Hospital (note 13)
Whalley Range property (note 13)
5. Operating profit
Arrived at after charging/(crediting):
(£ million)
Rent of land and buildings under operating leases
Depreciation of property, plant and equipment
Ian Paterson claims and related costs (see note 9)
Reversal of impairment on property, plant and equipment (see note 13)
Impairment of property, plant and equipment (see note 13)
Write-off intangible assets
Loss on disposal of property, plant and equipment
Staff costs (see note 8)
Impairment losses and reversals of impairment are included in other operating costs.
2017
2.0
3.6
5.6
2016
62.7
51.9
–
(1.9)
0.5
1.3
10.8
268.0
2017
63.9
57.4
28.7
–
10.3
–
0.4
282.1
122
122
Spire Healthcare Group plc Annual Report 2017
6. Segmental reporting
In determining the Group’s operating segment, management has primarily considered the financial information in internal reports that are
reviewed and used by the executive management team and 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. Finance income and costs
(£ million)
Finance income
Interest income on bank deposits
Finance costs
Interest on bank facilities
Interest on obligations under finance leases and hire purchase contracts
Financed costs capitalised in the year
Total finance costs
2017
426.0
287.8
186.9
31.0
931.7
2016
429.3
293.4
170.4
33.3
926.4
2017
2016
0.1
0.2
11.8
9.2
(0.7)
20.3
12.7
9.1
(1.8)
20.0
Finance costs capitalised during the year were calculated based on a weighted cost of borrowing of 3.4% (2016: 3.5%).
8. Staff costs
The average number of persons employed by the Group (including Directors) during the year, analysed by category was as follows:
(No.)
Clinical
Non-clinical
2017
6,301
5,043
2016
6,128
4,848
11,344
10,976
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
Pension costs, defined contribution scheme
2017
4,391
3,990
8,381
2017
242.1
21.6
18.4
282.1
2016
4,245
3,810
8,055
2016
230.4
20.4
17.2
268.0
Included in wages and salaries and social security costs for year ended 31 December 2017 are exceptional items of £3.7 million
(2016: £3.4 million) and £0.3 million (2016: £0.3 million), respectively. Refer to note 9 for further details.
Pension costs are in respect of the defined contribution scheme; unpaid contributions at 31 December 2017 were £1.8 million
(2016: £1.6 million).
123
123
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
9. Exceptional and other items
(£ million)
Ian Paterson claims and related costs
Write-off and aborted project costs
Hospital set-up and closure costs
Executive medical leave and death in service
Business reorganisation and corporate restructuring
Write-off intangible assets
Hospital reversal of impairment on property, plant and equipment
Loss on disposal of property, plant and equipment (also referred to as the Asset Swap Transaction)
Other1
Total exceptional costs (see also other items)
Income tax credit on exceptional items
Total post-tax exceptional items
2017
28.7
14.4
3.4
0.9
0.6
–
–
–
0.7
48.7
(8.0)
40.7
2016
–
–
1.1
–
5.3
1.3
(1.9)
8.9
0.5
15.2
(0.6)
14.6
1 Other exceptional items in 2017 predominantly relate to the Mediclinic takeover bid, relocation of HR and payroll functions and the release of an onerous lease provision. In 2016 the costs
primarily relate to National Insurance on Directors’ Share Bonus Award granted at the time of the IPO.
Following the completion of the criminal proceedings against Ian Paterson (a consultant who previously had practicing privileges at Spire
Healthcare) earlier in 2017, Spire Healthcare settled all current and known claims against Spire relating to his practice at Spire Healthcare.
Accordingly, Spire Healthcare has provided £28.7 million in relation to this settlement, plus related costs, of which £26.1 million has been
paid. Spire is currently pursuing legal action against its insurers to seek recoveries against this settlement and related costs, which may give
rise to future exceptional income being recognised in the income statement. No account has been taken of these further recoveries in the
results for the year ended 31 December 2017.
In the final quarter of 2017, management undertook a strategic review of its current portfolio of sites and the future development options
for the Group. As part of the process, the decision was taken to cease the provision of radiotherapy services at the Spire Specialist Cancer Care
Centre in Baddow (Essex) as a consequence of poor commercial performance. The charge for the year includes £10.3 million for the write-off
of fixed assets, net of recoverable value, and a provision for site closure costs. Additionally, certain well progressed capital projects, notably
the development of a hospital in Central London, have been aborted and the costs associated with these projects have been charged as
exceptional items in the year due to the fundamental change in development strategy.
Hospital set-up and closure costs include the pre-opening expenses for the two new hospitals opened during 2017 (Spire Manchester and
Spire Nottingham hospitals), plus the decommissioning costs of the former Manchester hospital site.
An Executive Director had a period of illness during 2017. Costs associated with his remuneration during his medical leave were duplicative
to the business. After sadly passing away in July 2017, Spire Healthcare made a death in service payment which has also been included in
exceptional items.
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.
For 2017, £4.0 million (2016: £3.7 million) in respect of wages, salaries and social security costs (see note 8) is included in write-off and
aborted project costs, executive medical leave and death in service, business reorganisations, hospital set-up costs, hospital closure, other
and corporate restructuring costs.
124
124
Spire Healthcare Group plc Annual Report 2017
9. Exceptional and other items continued
(£ million)
Other items
Compliance set-up costs
Total other items
Income tax credit on other items
Deferred tax reassessment of temporary difference on property
Total post-tax other items
2017
2016
0.5
0.5
(0.1)
–
0.4
–
–
–
8.4
8.4
Compliance set-up costs include amounts incurred in 2017 to meet the requirements of General Data Protection Regulations (‘GDPR’)
effective May 2018. Management expect further material costs to arise in 2018 in advance of the effective date to meet these new
regulations and for Spire Healthcare to fulfil its extended obligations under these new regulations.
10. 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)
Audit of these financial statements
Audit of the financial statements of subsidiaries of the Company pursuant to legislation
11. Taxation
(£ million)
Current tax
UK corporation tax expense
UK corporation tax adjustment to prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Effect of change in tax rate
Reassessment property temporary differences (notes 3 and 9)
Adjustments in respect of prior years
Total deferred tax
Total tax expense
2017
0.4
0.1
0.5
2016
0.4
0.1
0.5
2017
2016
4.5
–
4.5
1.7
(0.5)
–
0.2
1.4
5.9
2.1
0.4
2.5
16.3
(5.2)
8.4
(2.4)
17.1
19.6
Corporation tax is calculated at 19.25% (2016: 20.0%) of the estimated taxable profit or loss for the year. The effective tax rate on profit
before taxation for the year was 26.0% (2016: 26.8%).
125
125
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
11. Taxation continued
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
Effects of:
Expenses not deductible for tax purposes
Adjustments to prior year
Reassessment of property temporary differences (notes 3 and 9)
Difference in tax rates
Increase from impairment of fixed assets
Disposal of subsidiary company
Write-off of intangible assets
Total tax expense
2017
22.7
4.4
0.5
0.2
–
(0.5)
1.3
–
–
5.9
2016
73.2
14.6
2.7
(2.0)
8.4
(5.2)
–
0.8
0.3
19.6
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 2016, 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 3). This gave rise to a material tax charge in 2016 which is excluded from tax
on underlying profit.
Deferred tax
At 1 January 2016
Recognised in profit or loss
Change in tax rates
Reassessment of property temporary differences (note 3)
Recognised in equity
Disposal of subsidiary company
At 1 January 2017
Recognised in profit or loss
Change in tax rates
At 31 December 2017
Disclosed within liabilities
Property, plant
and equipment
Share based
payments
77.8
0.3
(5.1)
8.4
–
–
81.4
(5.5)
(0.5)
75.4
75.4
(0.9)
0.3
–
–
0.3
–
(0.3)
0.1
–
(0.2)
(0.2)
Provisions
and other
temporary
differences
(0.3)
(1.0)
(0.1)
–
–
–
(1.4)
0.2
–
(1.2)
(1.2)
Losses
(23.0)
14.3
–
–
–
0.2
(8.5)
7.1
–
(1.4)
(1.4)
Total
53.6
13.9
(5.2)
8.4
0.3
0.2
71.2
1.9
(0.5)
72.6
72.6
Deferred tax on property, plant and equipment has arisen on differences between the carrying value of the relevant assets and the tax base.
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 Act 2016, which
included 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 temporary difference is expected to reverse sooner than 1 April 2020 in which case
the applicable rate of 18.00% to 19.25% has been used.
126
126
Spire Healthcare Group plc Annual Report 2017
11. Taxation continued
The Group has unrecognised deferred tax assets as at 31 December 2017 as follows:
(£ million)
Trading losses
Capital losses
Tax basis for future capital disposals
2017
0.9
0.1
17.9
18.9
2016
0.9
0.1
17.9
18.9
These amounts are the expected tax value of the gross temporary difference at the enacted long-term tax rate of 17% (2016: 17%). 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.
12. 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 EBT
Weighted average number of ordinary shares in issue (No.)
Basic earnings per share (in pence per share)
2017
16.8
2016
53.6
401,081,391 401,081,391
(467,034)
(1,085,956)
400,614,357 399,995,435
4.2
13.4
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. Refer to the Remuneration Committee Report for the terms and conditions of instruments generating
potential ordinary shares that affect the measurement of diluted EPS. There are no instruments that are antidilutive for the periods
presented which have been excluded from the calculation of diluted EPS.
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)
2017
16.8
2016
53.6
400,614,357 399,995,435
861,612
1,576,430
401,475,969 401,571,865
4.2
13.3
127
127
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
13. Property, plant and equipment
(£ million)
Cost:
At 1 January 2016
Additions
Disposals
Transfers
At 1 January 2017
Additions
Disposals
Transfers
Assets held for sale
At 31 December 2017
Accumulated depreciation and impairment:
At 1 January 2016
Charge for year
Disposals
Impairment
Reversal of impairment
At 1 January 2017
Charge for the year
Disposals
Impairment (note 9)
Assets held for sale
At 31 December 2017
Net book value:
At 31 December 2017
At 31 December 2016
Freehold
property
Long leasehold
property
Equipment
Assets in
the course of
construction
673.3
9.7
(15.3)
18.7
686.4
14.0
–
–
(33.6)
666.8
94.7
11.7
(3.0)
–
–
103.4
9.3
–
6.9
(28.0)
91.6
575.2
583.0
158.5
14.2
(2.3)
6.4
176.8
7.8
(2.5)
133.9
–
316.0
40.7
4.7
(2.0)
0.4
–
43.8
9.1
(2.3)
–
–
50.6
265.4
133.0
298.9
32.6
(25.7)
2.6
308.4
45.9
(15.6)
28.4
–
367.1
138.4
35.5
(24.4)
0.1
(1.9)
147.7
39.0
(14.6)
3.4
–
175.5
191.6
160.7
Total
1,169.3
160.4
(43.3)
–
1,286.4
119.9
(18.1)
–
(33.6)
1,354.6
273.8
51.9
(29.4)
0.5
(1.9)
294.9
57.4
(16.9)
10.3
(28.0)
317.7
38.6
103.9
–
(27.7)
114.8
52.2
–
(162.3)
–
4.7
–
–
–
–
–
–
–
–
–
–
–
4.7
114.8
1,036.9
991.5
Assets held for sale are in relation to Spire St Saviour’s Hospital and Whalley Range, Manchester. Further details are shown in note 4.
The impairment in 2017 is the result of the closure of the Spire Specialist Cancer Care Centre in Baddow (Essex) further details as shown
in note 9.
As at 31 December 2017, included in the net book value of property, plant and equipment above is £20.3 million (2016: £21.7 million)
relating to assets held under finance leases on which there was a depreciation charge of £1.2 million in the year (2016: £1.2 million).
The amount of borrowing costs capitalised during the year ended 31 December 2017 was £0.7 million (2016: £1.8 million). The rate used
to determine the amount of borrowing costs eligible for capitalisation was 3.4% (2016: 3.5%) which is calculated on a weighted cost
of borrowing.
128
128
Spire Healthcare Group plc Annual Report 2017
14. Intangible assets
(£ million)
Cost or valuation:
At 1 January 2016
Written-off
At 31 December 2016
At 31 December 2017
Impairment:
At 1 January 2016, 31 December 2016 and 31 December 2017
Carrying amount:
At 31 December 2017
At 31 December 2016
Goodwill
520.1
(1.3)
518.8
518.8
1.0
517.8
517.8
The goodwill arising on acquisitions is reviewed annually for impairment on 31 December or when there is an event that may indicate
impairment. The recoverable amount of the Group’s cash-generating unit exceeds its carrying value and no impairment charge has been
recognised (2016: £nil) and no event has given rise to amounts written-off (2016: £1.3m).
The Directors do not believe that any 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 five-year period to December 2022.
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 averaging
4.3% for the five-year period (2016: 4.1%). Cost assumptions are consistent with the Group’s historical track record, after taking account
of headline inflation at 3.0% (2016: 1.0%).
A long-term growth rate of 2.25% (2016: 2.25%) has been applied to cash flows beyond 2022, which is based on historic growth rates
achieved by the sector, which have typically exceeded the 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%
(2016: 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 2022, with all other assumptions held constant or combined with a 1.0% increase in the pre-tax discount rate, did not identify
any impairment. The pre-tax discount rate would need to increase to 12.4%, with all other assumptions held constant, in order to reduce
recoverable value equal to the carrying amount.
129
129
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
15. Subsidiary undertakings
As at 31 December 2017, 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. All subsidiaries are 100% owned unless
otherwise indicated.
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
Didsbury MSK Limited
Fox Healthcare Acquisitions Limited
Fox Healthcare Holdco 2 Limited
Lifescan Limited
Links Bidco S.à r.l. Propco 8#
+
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
Dormant company
Leasing company
Holding company
Non-trading company
Property 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
Development company
Spire Property 1 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
Property 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
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
* 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.
On 5 October 2017, Didsbury MSK Limited was incorporated by the Registrar of Companies.
On 21 November 2017, Medicainsure Limited, Spire Links 2 Limited and Spire Property 2 Limited, were struck off by the Registrar of Companies.
130
130
Spire Healthcare Group plc Annual Report 2017
16. Inventories
(£ million)
Prostheses, drugs, medical and other consumables
2017
30.1
2016
28.1
Cost of sales for the year ended 31 December 2017 includes inventories recognised as an expense amounting to £179.0 million (2016: £177.3 million).
17. Trade and other receivables
(£ million)
Amounts falling due within one year:
Trade receivables – net
Accrued income
Prepayments
Other receivables
Total current trade and other receivables
2017
2016
50.3
14.4
29.1
10.7
58.0
22.8
27.2
11.1
104.5
119.1
Trade receivables comprise amounts due from private medical insurers, the NHS, patients, 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 that are past due but not impaired:
(£ 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
2017
38.5
4.6
3.7
3.5
50.3
2017
29.5
11.6
4.3
4.9
50.3
2017
5.0
5.0
(6.1)
3.9
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
131
131
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
18. Cash and cash equivalents
(£ million)
Cash at bank
Short-term deposits
19. Share capital and reserves
Issued and fully paid
At 31 December 2017
At 31 December 2016
2017
17.0
22.2
39.2
2016
53.9
14.0
67.9
£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 2017, the EBT purchased no shares (2016: 561,860 shares acquired at an average price per share of £3.18 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 2017,
281,631 shares (2016: 670,559) were held by the EBT in relation to the Directors’ share bonus award and long-term incentive plan.
At 1 January 2017, the EBT held 670,559 shares. In March 2017, 228,100 number of shares were exercised in relation to the 2014 Long term
incentive plan (‘LTIP’) and in April 2017, 26,489 number of shares were exercised in relation to the 2014 LTIP. In December 2017, 134,339
shares were exercised in relation to the 2016 and 2017 LTIP which were awarded as part of the death in service package for Andrew White.
There were no new purchases of shares and at 31 December 2017 the EBT held 281,631 shares.
At 1 January 2016, the EBT held 1,692,242. In 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 21). 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.
132
132
Spire Healthcare Group plc Annual Report 2017
20. Loans and borrowings
(£ million)
Secured borrowings
Bank loans
Obligations under finance leases
2017
2016
425.1
76.9
502.0
424.1
76.1
500.2
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.
(£ million)
Total borrowings (measured at amortised cost)
Amount due for settlement within 12 months
Amount due for settlement after 12 months
2017
2016
4.0
498.0
502.0
4.5
495.7
500.2
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
2017
2016
Minimum
payments
Present value
of payments
Minimum
payments
Present value
of payments
8.7
36.6
220.3
265.6
(188.7)
76.9
6.2
19.2
51.5
76.9
–
76.9
8.7
35.8
229.8
274.3
(198.2)
76.1
7.0
21.2
47.9
76.1
–
76.1
Property leases, with a present value liability of £76.6 million (2016: £75.4 million), expire in 2040 and carry an implicit interest rate of 12.9%
(2016: 12.9%). Rent is reviewed annually with reference to RPI, subject to a floor of 3.0% and a cap at 5.0%.
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%
2017
425.1
2016
424.1
Revolving credit facility (undrawn committed facility)
July 2019
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 (2016: 2.00% over LIBOR).
133
133
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
20. Loans and borrowings continued
Changes in liabilities arising from financing activities
(£ million)
2017
Bank loans
Lease liabilities
Total
Reconciliation of net change in cash and cash equivalents to net debt
(£ million)
Bank loans
Obligations under finance leases
Cash at bank
Short-term investments
Net debt at 1 January
Net decrease in cash and cash equivalents
Loans movement
Movement in obligations under finance leases
Net debt at 31 December
1 January
Cash flows
Non cash
changes
31 December
424.1
76.1
500.2
(10.0)
(9.2)
(19.2)
11.0
10.0
21.0
2017
424.1
76.1
500.2
(53.9)
(14.0)
432.3
28.7
1.0
0.8
30.5
462.8
425.1
76.9
502.0
2016
423.1
75.3
498.4
(42.8)
(36.1)
419.5
11.0
1.0
0.8
12.8
432.3
21. 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 £1.0 million in the year ended 31 December 2017 (2016: £0.4 million). Employer’s National Insurance is being accrued, where
applicable, at the rate of 14.3%, which management expects to be the prevailing rate at the time the options are exercised, based on the
share price at the reporting date. The total National Insurance charge for the year was £0.1 million (2016: £0.2 million).
The following table analyses the total cost between each of the relevant schemes, together with the number of options outstanding:
(£ million)
Long Term Incentive Plan
Deferred Bonus Plan
2017
2016
Number of
options
(thousands)
1,946
29
1,975
Charge £m
1.0
–
1.0
Number of
options
(thousands)
Charge £m
0.4
–
0.4
950
–
950
134
134
Spire Healthcare Group plc Annual Report 2017
21. Share based payments continued
A summary of the main features of the scheme is shown below:
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:
At 1 January
Granted
Exercised
Surrendered
Cancelled
At 31 December
Exercisable at 31 December
Weighted average contractual life
At 1 January
Granted
Exercised
Surrendered
Cancelled
At 31 December
Exercisable at 31 December
Weighted average contractual life
2017
LTIP
(TSR condition)
(thousands)
LTIP
(EPS condition)
(thousands)
LTIP
(OE condition)
(thousands)
Deferred
Bonus Plan
(thousands)
992
383
(189)
(323)
–
863
32
992
383
(189)
(323)
–
863
–
–
328
(11)
(96)
–
221
–
29
–
–
–
–
29
–
1.2 years
1.2 years
2.3 years
0.4 years
2016
Directors’ Share
Bonus Award*
(thousands)
LTIP
(TSR condition)
(thousands)
LTIP
(EPS condition)
(thousands)
Deferred
Bonus Plan
(thousands)
1,638
–
(1,584)
–
(54)
–
–
–
1,003
475
–
(486)
–
992
286
1,003
475
–
(486)
–
992
286
29
–
–
–
–
29
–
1.9 years
1.9 years
1.4 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 2016. For further details, see the Directors’ Remuneration Report, on pages 78 to 95 .
The weighted average remaining contractual life for the share options outstanding as at 31 December 2017 was 1.3 years (2016: 1.9 years).
135
135
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
21. Share based payments continued
Share options outstanding at the end of the year have the following expiry date:
Grant ‒ vest
LTIP grants
30/09/2014 ‒ 31/12/2016
01/04/2015 ‒ March 2018
30/03/2016 ‒ March 2019
30/03/2017 ‒ March 2020
Deferred Bonus Plan
01/06/2015 ‒ 01/06/2018
Expiry date
30/09/2024
01/04/2025
30/03/2026
30/03/2027
01/06/2025
Exercise
price
(£)
Share options
thousands
2017
2016
–
–
–
–
–
32
547
631
737
29
572
547
865
–
29
The following information is relevant to the determination of the fair value of the awards granted for the years ended 31 December 2017 and
2016, respectively, under the schemes:
2017
Option pricing model
Fair value at grant date (£)
Weighted average share price at grant date (£)
Exercise price (£)
Weighted average contractual life
Expected dividend yield
Risk-free interest rate
Volatility
2016
Option pricing model
Fair value at grant date (£)
Weighted average share price at grant date (£)
Exercise price (£)
Weighted average contractual life
Expected dividend yield
Risk-free interest rate
Volatility
LTIP
(TSR condition)
Monte Carlo
LTIP
(EPS condition)
Fair value
at grant date
LTIP
(OE condition)
Fair value
at grant date
1.47
3.26
Nil
3.26
3.26
Nil
3.26
3.26
Nil
3.0 years
3.0 years
3.0 years
n/a
0.2%
34%
n/a
n/a
n/a
n/a
n/a
n/a
LTIP
(TSR condition)
Monte Carlo
2.32
3.60
Nil
LTIP
(EPS condition)
Fair value
at grant date
3.60
3.60
Nil
3.0 years
3.0 years
n/a
0.6%
37%
n/a
n/a
n/a
Deferred
Bonus Plan
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Deferred
Bonus Plan
n/a
n/a
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.
136
136
Spire Healthcare Group plc Annual Report 2017
22. Provisions
(£ million)
At 1 January 2017
Increase in existing provisions
Provisions utilised
Provisions released
At 31 December 2017
Medical
malpractice
Business
restructuring
and other
14.3
35.2
(31.0)
(1.7)
16.8
2.4
0.7
(1.6)
(0.4)
1.1
Total
16.7
35.9
(32.6)
(2.1)
17.9
Medical malpractice relates to commitments to patients in respect of the removal or replacement of the PIP brand of breast implants, and
estimated liabilities arising from claims for damages in respect of services previously supplied to patients. Amounts are shown gross of
insured liabilities. Any such insurance recoveries are recognised in other receivables. Following the completion of the criminal proceedings
against Ian Paterson, a consultant who previously had practicing privileges at Spire Healthcare, management agreed settlement with all
current and known civil claimants (and the other co-defendants) and have made a provision for the expected remaining costs (see note 9).
The provision in relation to Ian Paterson costs have been determined before account is taken of any potential further recoveries from insurers.
Business restructuring and other includes staff restructuring costs and closure costs relating to the Specialist Cancer Care Centre in Baddow (Essex).
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
£7.5 million (2016: £6.7 million).
Provisions as at 31 December 2017 are materially considered to be current and expected to be utilised at any time within three years.
23. Trade and other payables
(£ million)
Trade payables
Accrued expenses
Social security and other taxes
Other payables
24. Dividends
(£ million)
Amounts recognised as distributions to equity holders in the year:
– final dividend for the year ended 31 December 2016 of 2.4 pence per share (2016: 2.4 pence)
– interim dividend for the year ended 31 December 2017 of 1.3 pence per share (2016: 1.3 pence)
Total
2017
49.0
36.5
6.0
10.0
2016
49.7
38.3
3.5
8.8
101.5
100.3
2017
2016
10.0
5.2
15.2
9.6
5.2
14.8
A final dividend of 2.5 pence per share amounting to a total final dividend of approximately £10.0 million, is to be proposed at the Company’s
annual general meeting on 24 May 2018. 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.
137
137
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
25. Commitments
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
2017
2016
Land and
buildings
65.4
259.1
1,263.1
1,587.6
Other
1.1
2.2
–
3.3
Land and
buildings
63.1
249.7
1,282.9
1,595.7
Other
1.1
2.2
–
3.3
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.
Consignment stock
At 31 December 2017, the Group held consignment stock on sale or return of £23.0 million (2016: £22.1 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.
Capital 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
26. Contingent liabilities
The Group had the following guarantees at 31 December 2017:
2017
65.5
2016
63.8
• the bankers to Spire Healthcare Limited have issued a letter of credit in the maximum amount of £1.5 million (2016: £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.
138
138
Spire Healthcare Group plc Annual Report 2017
27. Financial risk management and impairment of financial assets
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 and impairment
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 17 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.
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.
139
139
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
27. Financial risk management and impairment of financial assets continued
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 2017 (£ million)
Effective interest rate (%)
31 December 2016 (£ million)
Effective interest rate (%)
Variable
425.0
2.42%
425.0
2.40%
Total
Undrawn facility
425.0
2.42%
425.0
2.40%
100.0
100.0
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 2017
Variable rate instruments
At 31 December 2016
Variable rate instruments
Profit or loss
Equity
25bp increase 25bp decrease
25bp increase 25bp decrease
(0.3)
(0.3)
0.3
0.3
(0.3)
(0.3)
0.3
0.3
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 2017 (2016: £100.0 million undrawn).
140
140
Spire Healthcare Group plc Annual Report 2017
27. Financial risk management and impairment of financial assets continued
The following are contractual maturities, at as the balance sheet date, of financial liabilities, including interest payments and excluding the
impact of netting agreements:
2017
(£ million)
Trade and other payables
Bank borrowings
Finance lease liabilities (present value)
2016
(£ million)
Trade and other payables
Bank borrowings
Finance lease liabilities (present value)
Maturity analysis
Carrying
amount
Contractual
cash flows
Within
1 year
Between 1
and 2 years
More than
2 years
59.0
425.1
76.9
561.0
59.0
445.8
265.6
770.4
59.0
11.5
8.7
79.2
–
434.3
8.7
443.0
–
–
248.2
248.2
Maturity analysis
Carrying
amount
Contractual
cash flows
Within
1 year
Between 1
and 2 years
More than
2 years
55.9
424.1
76.1
556.1
55.9
456.0
270.4
782.3
55.9
10.9
8.5
75.3
–
11.3
8.5
19.8
–
433.8
253.4
687.2
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 review
of current terms against market and expected short-term settlements, except for floating rate debt, which is after the deduction of £1.8 million
(2016: £2.9 million) of issue costs.
As at 31 December 2017, the Group did not hold any financial instruments measured at fair value (2016: nil).
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 2017 were £1,037.9 million
(2016: £1,035.3 million) and net debt, calculated as total debt (comprising obligations under finance leases and borrowings), less cash and
cash equivalents, amounted to £462.8 million (2016: £432.3 million).
The principal focus of capital management revolves around working capital management and compliance with externally imposed financial
covenants. Throughout the period and up to the date of approval of these financial statements, 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
2017
100.0
39.2
2016
100.0
67.9
141
141
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Notes to the financial statements
For the year ended 31 December 2017
Continued
28. Related party transactions
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 56 to 59.
Compensation for key management personnel is set out in the table below:
Key management compensation
(£ million)
Salaries and other short-term employee benefits
Post-employment benefits
Share based payments
2017
2016
3.5
0.4
0.9
4.8
3.2
0.4
0.3
3.9
Further information about the remuneration of individual Directors is provided in the audited part of the Directors’ Remuneration Report
on pages 78 to 95.
There were no transactions with related parties external to the Group in the year to 31 December 2017 (2016: nil).
29. Events after the reporting period
2017 final dividend
For 2017, the Board has recommended a final dividend of 2.5 pence per share, amounting to approximately £10.0 million, to be paid on
26 June 2018 to shareholders on the register at the close of business on 1 June 2018.
142
142
Spire Healthcare Group plc Annual Report 2017
Company balance sheet
As at 31 December 2017
(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
2017
2016
C9
C7
C6
19
19
C8
832.2
832.2
122.0
0.2
0.1
122.3
954.5
4.0
826.9
(0.9)
122.0
952.0
831.1
831.1
80.8
1.1
12.1
94.0
925.1
4.0
826.9
(2.2)
93.9
922.6
2.5
2.5
2.5
2.5
954.5
925.1
The profit attributable to the owners of the Company for the year ended 31 December 2017 was £42.2 million (2016: £44.7 million).
The financial statements on pages 143 to 149 were approved by the Board of Directors on 1 March 2018 and signed on its behalf by:
Justin Ash
Chief Executive Officer
Simon Gordon
Chief Financial Officer
143
143
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Company statements of changes in equity
For the year ended 31 December 2017
(£ million)
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 1 January 2017
Profit for the year
Other comprehensive income for the year
Share based payment
Utilisation of EBT shares for 2014 LTIP Award
Dividend paid
As at 31 December 2017
Share
capital
4.0
Share
premium
826.9
EBT
share
reserves
(5.6)
–
–
–
–
–
–
–
–
–
–
–
–
4.0
826.9
–
–
–
–
–
–
–
–
–
–
4.0
826.9
–
–
(1.8)
–
5.2
–
(2.2)
–
–
–
1.3
–
(0.9)
Retained
earnings
68.8
44.7
–
–
0.4
(5.2)
(14.8)
93.9
42.2
–
1.1
–
(15.2)
122.0
Total
894.1
44.7
–
(1.8)
0.4
–
(14.8)
922.6
42.2
–
1.1
1.3
(15.2)
952.0
144
144
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
Company statements of cash flows
For the year ended 31 December 2017
(£ million)
Cash flows from operating activities
Profit/(loss) before taxation (excluding dividend received)
Adjustments for:
Interest income
Finance costs
Movements in working capital:
Increase in trade and other receivables
Increase in trade and other payables
Income tax received
Net cash used in operating activities
Cash flows from investing activities
Interest received
Finance costs
Dividend received
Net cash generated from investing activities
Cash flows from financing activities
Purchase of shares held in the EBT
Dividend paid to equity holders of the Parent
Net cash used in 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
2017
2016
0.3
(2.1)
0.1
(1.7)
(0.1)
(1.3)
–
(1.4)
(39.9)
(36.3)
–
–
0.5
0.3
(41.6)
(36.9)
2.1
(0.1)
42.8
44.8
–
(15.2)
(15.2)
(12.0)
12.1
0.1
1.3
–
43.6
44.9
(1.8)
(14.8)
(16.6)
(8.6)
20.7
12.1
145
145
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
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 19 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 cost basis. The financial statements are presented in UK sterling and all values are rounded to the
nearest million pounds (£ million), except when otherwise indicated.
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 for at least 12 months from the date of approval of these
financial statements.
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.
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 14 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)
Amounts receivable by auditor and its associates in respect of:
Audit of the Company’s annual financial statements
C6. Cash and cash equivalents
(£ million)
Cash at bank
Short-term investments
2017
2016
10.0
10.0
2017
0.1
–
0.1
10.0
10.0
2016
0.2
11.9
12.1
146
146
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
C7. Other receivables
(£ million)
Amounts owed by subsidiary undertakings
2017
122.0
122.0
2016
80.8
80.8
The amounts owed by subsidiary undertakings bear interest at LIBOR plus 2.00% (2016: LIBOR plus 2.00%). The amounts are unsecured and
repayable on demand.
C8. Trade and other payables
(£ million)
Amounts owed to subsidiary undertakings
Accruals
2017
2.4
0.1
2.5
2016
2.3
0.2
2.5
The amounts owed to subsidiary undertakings bear interest at LIBOR plus 2.00% (2016: LIBOR plus 2.00%). The amounts are unsecured and
repayable on demand.
C9. Investment in subsidiaries
(£ million)
Net book value
At 1 January 2016
Additions – IFRS 2 costs
At 1 January 2017
Additions – IFRS 2 costs
At 31 December 2017
Subsidiary
undertakings
830.7
0.4
831.1
1.1
832.2
Total
830.7
0.4
831.1
1.1
832.2
Details of the Company’s subsidiaries at the balance sheet date are in note 15 to the Group financial statements.
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 £952.0 million (2016: £922.6 million) as at 31 December 2017, and cash amounted to £0.1 million (2016: £12.1 million).
Credit risk
As at 31 December 2017, the Company had amounts owed by subsidiary undertakings of £122.0 million (2016: £80.8 million). The Company’s
maximum exposure to credit risk from these amounts is £122.0 million (2016: £80.8 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.
147
147
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
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 not impaired.
(£ million)
Financial liabilities: Carrying amount and fair value
Amortised cost
Amounts owed to subsidiary undertakings
2017
2016
0.1
122.0
122.1
12.1
80.8
92.9
2017
2016
2.4
2.4
2.3
2.3
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 2017 the Company had short-term borrowings of £2.4 million (2016: £2.3 million) owed to subsidiary undertakings,
which are repayable on demand and bear interest at LIBOR plus 2.00% (2016: LIBOR plus 2.00%). Interest on these borrowings in the year
amounted to nil (2016: nil) 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. Excluding cash and cash equivalents, the Company has no financial assets or liabilities that expose it to market risk, other than
the amounts owed by/to subsidiary undertakings of £122.0 million (2016: £80.8 million) and £2.4 million (2016: £2.3 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 2017, 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 2017, there was no breach in the required covenants.
148
148
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
C12. Related party transactions
The Company’s subsidiaries are listed in note 15 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
2017
122.0
(2.4)
119.6
2017
40.6
(0.1)
42.8
2016
80.8
(2.3)
78.5
2016
36.3
(0.4)
43.6
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 78 to 95.
(£ million)
Short-term employee benefits*
Pension contributions
Share based payments*
Total
2017
0.7
–
–
0.7
2016
0.5
–
–
0.5
* 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 21 to the Group financial statements for further details of the main features of the schemes relating to share options held
by the Chairman, Executive Directors and Senior Management Team.
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
2017 final dividend
For 2017, the Board has recommended a final dividend of 2.5 pence per share, amounting to approximately £10.0 million, to be paid on
26 June 2018 to shareholders on the register at the close of business on 1 June 2018.
149
149
Spire Healthcare Group plc Annual Report 2017
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information
Shareholder information
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
From 6 April 2018 the Dividend Allowance
has changed. To understand how you
are affected and for further information,
please visit the HMRC website at
www.gov.uk/tax-on-dividends.
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.
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.
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.
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 151, 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.
150
Spire Healthcare Group plc Annual Report 2017
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,
Financial calendar
2018 annual general meeting (London)
Ex-dividend date for 2017 final dividend
Record date for 2017 final dividend
Payment date of 2017 final dividend
Announcement of 2018 half year results
Analysis of ordinary shareholders
As at 31 December 2017
Investor type
Number of holders
Percentage of holders
Percentage of shares held
Shareholdings
Number of holders
Percentage of holders
Percentage of shares held
Corporate advisers
Auditor
Ernst & Young LLP
1 More London Place
London SE1 2AF
Brokers
J.P. Morgan Cazenove
25 Bank Street
Canary Wharf
London E14 5JP
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
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.
24 May 2018
31 May 2018
1 June 2018
26 June 2018
September 2018
Private
Institutional and other
Total
2017
93
2016
69
2017
498
15.73%
13.02%
84.27%
0.32%
0.50%
99.68%
2016
461
86.98%
99.50%
2017
591
100%
100%
1–1,000
50,001–500,000
Institutional and other
Total
2017
86
14.55%
0.01%
2016
79
14.91%
0.01%
2017
295
2016
261
2017
133
2016
117
2017
77
49.92%
49.25%
22.50%
22.08%
13.03%
0.81%
0.75%
5.74%
5.37%
93.44%
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
2016
530
100%
100%
2016
73
13.76%
93.89%
151
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Alternative performance measure definitions
Performance measure
Definition
Purpose
Conversion of EBITDA to cash
EBITDA divided by Operating cash flows before
exceptional and other items and taxation.
Intends to show the Group’s efficiency
at converting EBITDA into cash.
EBITDA
Operating profit excluding depreciation,
amortisation, exceptional and other items,
and profit or loss on disposal of assets.
EBITDA margin
EBITDA as a percentage of revenue.
Net debt
Interest-bearing liabilities, excluding borrowing
costs, less cash and cash equivalents.
EBITDA shows the Group’s earning power
independent of capital structure and tax situation
with the purpose of simplifying comparisons
with other companies in the same industry as
it excludes non-cash accounting entries, such
as depreciation.
Provides a comparable performance metric,
expressed as a percentage of revenues.
Measurement of net Group indebtedness.
Net debt/EBITDA
Net debt at the end of the period divided by EBITDA.
Indicates the Group’s ability to service its debt
from cash earnings.
Clinical staff costs as
a percentage of revenue
Clinical staff costs and medical fees as a percentage
of revenue.
Other direct costs as
a percentage of revenue
Other direct costs include, direct costs and
medical fees as a percentage of revenue.
Provides a comparable measure of cost
performance over time in relation to
revenue activity.
Provides a comparable measure of cost
performance over time in relation to
revenue activity.
Self-pay revenue growth
Self-pay revenue segment as shown in note 6
on the Consolidated financial statements.
Key pillar of Group’s strategy.
Underlying – Adjustments have been made to exclude the trading results of any new and redeveloped hospitals,
closure or disposal in current or prior periods.
Underlying revenue
Underlying operating profit
Underlying EBITDA
Revenue adjusted for the trading results of Spire
Manchester, Nottingham, St Anthony’s hospitals
and Lifescan.
Operating profit adjusted for the trading results
of Spire Manchester, Nottingham, St Anthony’s
hospitals and Lifescan.
EBITDA as defined above, adjusted for the
trading results of Spire Manchester, Nottingham,
St Anthony’s hospitals and Lifescan.
Provides a comparable measure of adjusted
revenue performance over time.
Provides a comparable measure of adjusted
profit performance over time.
Provides a comparable measure of underlying
EBITDA performance over time.
Underlying EBITDA margin
Underlying EBITDA as a percentage of
underlying revenue.
Provides a comparable performance metric,
expressed as a percentage of revenue.
Underlying clinical staff
costs as a percentage
of underlying revenue
Underlying other direct
costs as a percentage
of underlying revenue
Clinical staff costs and medical fees adjusted
for the trading results of Spire Manchester,
Nottingham, St Anthony’s hospitals and Lifescan,
as a percentage of underlying revenue.
Other direct costs (including direct costs and
medical fees) adjusted for the trading results
of Spire Manchester, Nottingham, St Anthony’s
hospitals and Lifescan, as a percentage of
underlying revenue.
Provides a comparable performance metric,
expressed as a percentage of revenue.
Provides a comparable performance metric,
expressed as a percentage of revenue.
152
Spire Healthcare Group plc Annual Report 2017
Glossary
The following definitions apply throughout
the Annual Report 2017, unless the context
requires otherwise:
Act
The Companies Act 2006, as amended
CREST
Acute care
active but short-term treatment for a severe
injury or episode of illness
Adjusted EBITDA
represents the Group’s operating profit,
adjusted to add back depreciation and
exceptional operating items
Admission
Articles
Board
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
c.difficile
Clostridium difficile
CAGR
compound annual growth rate
Cardiology
specialty which encompasses the treatment
of patients with cardiovascular disease
Clinical Commissioning Group
CRM
CT
DBP
Directors
EBITDA
EfW
EPS
ESOS
EU
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
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
Energy from Waste
earnings per share
Energy Saving Opportunity Scheme
the European Union
CCG
CGSC
Cinven
CMA
Clinical Governance and Safety Committee
Executive Directors the executive directors of the Company
Cinven Partners LLP
the UK Competition and Markets Authority
Company
Spire Healthcare Group plc
CQC
CO2e
CQUIN
Care Quality Commission
carbon dioxide equivalent
commissioning for quality and innovation
payment which is earned for meeting quality
targets on NHS work
CRC Energy
Efficiency Scheme
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.
FCA
GDP
GDPR
GHG
GP
Group
the Financial Conduct Authority
gross domestic product
General Data Protection Regulation
greenhouse gas
General Practitioner
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
HM Revenue & Customs
153
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information International Financial Reporting Standards, as
adopted by the EU
Non-Executive
Directors
the non-executive directors of the Company
IFRS
IPO
initial public offering of Shares to certain
institutional and other investors
Official List
ISO 14001
environmental management system
ISO 18001
health and safety management system
ITU
Intensive Therapy Unit
JAG accreditation
KPI
Lifescan
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
Listing Rules
the listing rules of the FCA made under
section 74(4) of the Financial Services and
Markets Act 2000
Oncology
Perform
PHIN
PILON
PIP Claims
PMI
PPE
PPU
the record of whether a company’s shares
are officially listed, maintained by the FCA
(the UKLA Official List)
specialty 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
PROMs
Patient Reported Outcome Measures
LTIP
MAC
MRI
MRSA
MSSA
NDC
NHS
NI
NIC
Long Term Incentive Plan
Medical Advisory Committee
Public Health
England
the executive agency, whose purpose is to
protect and improve the nation’s health and
wellbeing, and reduce wealth inequalities
magnetic resonance imaging
Registrar
Equiniti Limited
Methicillin-resistant Staphylococcus aureus
Methicillin-sensitive Staphylococcus aureus
Spire Healthcare’s national distribution centre
in Droitwich
Registration
Regulations
the Care Quality Commission (Registration)
Regulations 2009
Regulated Activities
Regulations
the Health and Social Care Act 2008
(Regulated Activities) Regulations 2010
the National Health Services in England,
Scotland, Wales and Northern Ireland,
collectively
National Insurance
National Insurance Contributions
RIDDOR
ROCE
SAP
Self-pay
Reporting of Injuries, Diseases and Dangerous
Occurrences Regulations
return on capital employed
global software developer/software
when a procedure or treatment provided is
funded by the patient directly
154
Spire Healthcare Group plc Annual Report 2017
Shareholders
the holders of Shares in the capital of the
Company
Shares
tCO2e
TSR
UK
UK Code
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
155
Spire Healthcare Group plc Annual Report 2017
GovernanceStrategic ReportFinancial statementsOther information Forward looking
statements
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.
156
Spire Healthcare Group plc Annual Report 2017
Designed and produced by
Copy writing: Chris North Consulting
Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental
Management System is certified to ISO 14001.
This document is printed on Satimat Green, a paper containing
75% post consumer recycled fibre and 25% virgin fibre sourced
from well-managed, responsible, FSC® certified forests and
Oxygen, a paper containing 100% de-inked pulp recycled fibre
approved by the Forest Stewardship Council®.
Spire Healthcare Group plc
3 Dorset Rise
London
EC4Y 8EN
spirehealthcare.com