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Spire Healthcare Group plc

Spire Healthcare Group plc difficult market conditions greater impact on the business

Spire Healthcare Group plc (LON: SPI), the major UK independent hospital group, provided the following trading update. Having reviewed results for the period 1 January 2018 to 31 July 2018, and assessed likely market conditions for the balance of the financial year, the Company announces that it now expects EBITDA for the full financial year 2018 to be materially lower than for 2017.

Unaudited provisional results for H1 2018

Spire expects to announce the results for H1 2018 on Tuesday 18 September 2018. Ahead of that it confirms the following provisional unaudited results for H1 2018:

· Revenues were approximately £475 million, a decrease of 1.1% on H1 2017.

· EBITDA (before exceptional items) was approximately £66 million, at a margin of approximately 14%.

· Capital expenditure was £34 million (H1 2017: £59.5 million).

· Net debt at 30 June 2018 stood at approximately £458 million (H1 2017: £436.1 million).

Comment on H1 and H2 2018

In H1 2018, Self-Pay revenues increased 8.3%, PMI revenues increased 0.9% and NHS revenues decreased 9.5%. Overall, private revenues grew by 2.9%. Draft results for July 2018 show a return to revenue growth as anticipated, albeit lower than planned.

We continue to expect private payor revenue growth in H2 2018, and to see benefit from our investments in telephony and central marketing, and our evolving relations with PMI payors. That growth will be impacted, however, by continuing weakness in the NHS business where we see new signs of further NHS triaging and rationing in H2 2018, especially in orthopaedics as Clinical Commissioning Groups tighten their approach towards managing waiting lists.

We have invested significantly to improve our clinical quality and to drive our private payor proposition, including embedding new and enhanced standards, set and audited by our expanded clinical team. This is being effected with a number of one-off step-up costs, which in turn has led to overall hospital costs increasing ahead of our original estimates. The impact on earnings has therefore been more marked than anticipated.

In parallel we have identified and initiated substantial cost saving exercises in other areas of the business, including central functions and procurement. These savings are expected to have a significant impact on our cost base from 2019 onwards, with some benefit in H2 2018. In addition we have introduced a much tighter capex environment, and capex for FY 2018 will be approximately £90 million compared to £100 million original guidance and £118 million in FY 2017. This reduction is helping to fund our investments in clinical quality.

Spire Healthcare, Justin Ash, Chief Executive Officer, commented:

“The current difficult market conditions – also seen by other operators – had a greater impact on our business in the seven months to 31 July 2018 than we had expected. Nevertheless, through this transitional period we are relentlessly focused on raising our clinical quality to “best in sector” level and we believe this is beginning to bear fruit as a commercial differentiator. The recent achievement of an “Outstanding” CQC result at Spire Nottingham means that Spire now has four “Outstanding” hospitals out of only 14 in the entire independent sector, and all other CQC hospital or service inspections this year have been upgrades to “Good”.

With our renewed focus on the private market, we are seeing encouraging momentum and expect our top line to recover through the second half of 2018 and increasingly in 2019 and beyond, while the benefit of our major cost savings initiatives will accelerate through next year.

Our ongoing plans to lead on quality, to move our business model further towards the private payor and to adapt our operating costs to this new model, put us in a strong position against our competitors. We remain confident in our medium to long term prospects and fully committed to the delivery of our 80/100/200 Strategy.”