Annual Report and Notice of Annual General Meeting
Source: RNS
Spire Healthcare Group plc
Annual Report and Notice of Annual General Meeting
6 April 2020
Spire Healthcare Group plc (the "Company") released its preliminary announcement of its annual results for the year ended 31 December 2019 ("Preliminary Announcement") on Thursday, 5 March 2020.
Further to that Preliminary Announcement, the Company confirms that its Annual Report and Accounts for the year ended 31 December 2019 ("2019 Annual Report"), 2020 Notice of Annual General Meeting and Form of Proxy have now been published. Printed copies have been posted to shareholders who have requested hard copies.
The following documents are available on the Company's website:
2019 Annual Report: www.spirehealthcare.com/AR2019
2020 Notice of Meeting: www.spirehealthcare.com/Notice2020
In accordance with Listing Rule 9.6.1, the Company will submit its 2019 Annual Report and other shareholder documents to the National Storage Mechanism. These documents should then be available for inspection within two working days at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Arrangements for the Annual General Meeting in light of COVID-19
The Annual General Meeting of the Company will take place at 9.00am on Thursday, 14 May 2020 at 3 Dorset Rise, London EC4Y 8EN (the "2020 AGM").
On 26 March 2020, the Government's Stay at Home Measures (Measures) were passed into law in England and Wales with immediate effect to deal with the COVID-19 pandemic. These Measures prohibit public gatherings of more than two people, except where the gathering is 'essential for work purposes'. The FRC and ICSA published supplemental guidance on 27 March 2020 in response to the Measures, advising that attendance at a general meeting by a shareholder (other than one specifically required to form the quorum for that meeting), does not meet that criterion. Please note that, in order to comply with the Measures, shareholders will not be permitted to attend the Meeting in person and should instead vote by appointing the Chairman of the Meeting by way of proxy.
We expect only one Director and one other shareholder to be in attendance in person at the Meeting to ensure that the 2020 AGM is quorate and to conduct the business contained in the 2020 Notice of Meeting. No other Directors will be present in person. We intend to reduce the length of the 2020 AGM by limiting it to the formal business required and no presentations from management will be provided. The voting results of all resolutions put before the 2020 AGM will be announced to the market following the 2020 AGM. Any questions that shareholders have on the business of the 2020 AGM should be sent by e-mail to companysecretary@spirehealthcare.com.
Appendix
The Appendix to this announcement contains information required for the purposes of compliance with DTR 6.3.5 (1) of the Disclosure and Transparency Rules, including a Statement of Directors' responsibilities. This information is extracted, in full unedited text, from the 2019 Annual Report and should be read in conjunction with the Preliminary Announcement, which contained other information required by DTR 6.3.5 (1), released to the market on Thursday, 5 March 2020.
Enquiries:
Philip Davies, Deputy Company Secretary
Tel: 07803 508348
Principal risks
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
1. Workforce |
|
|||||
|
(previously: Availability of Key Clinical and Medical Professionals) - Group Human Resources Director - Group Clinical Director - Chief Operating Officer
|
Increase |
Increase |
Strategic First choice for private healthcare
Uncompromising on patient safety and clinical care |
There is a global shortage of nursing and allied healthcare practitioners. In addition, the Group has an ageing workforce. The Group's ability to attract and retain clinical practitioners, in particular, is affected by: - Government immigration policy and the post Brexit labour market - The impact of the NHS 'Agenda for Change' causing inflationary wage pressure - Our business strategy of increasing complexity of medical procedures that requires a higher skilled workforce - The changing Pensions and Tax (IR35) landscape that might reduce the availability of consultants, bank and agency staff. - The reduction in elective activity within trusts reducing the training opportunities for new consultants.
|
The Group is able to provide safe patient care only with delays to treatment because of scarce resources.
Over the medium to long term this could result in a decline in the Group's profits and affect expected revenue growth from more complex surgical procedures and treatment of higher-risk patients.
|
The Group seeks to retain staff through: - a common purpose and a positive workplace culture. - Maintaining competitive pay and benefits. - Responding to key metrics such as staff turnover, rookie staff levels, vacancy rates and levels of positive engagement from staff surveys. - Continuous investment in its equipment, facilities and services to retain high-quality clinicians.
The Group seeks to recruit staff through: - A centralised recruitment processes - An overseas recruitment capability to secure skilled healthcare workers from outside the EU where necessary. - Offering apprenticeship programmes to support the development of clinical and non-clinical teams across the business. - Working with the Royal Colleges to offer consultant training opportunities in the private sector. - Building of local bank staff pools
The Group manages immediate staff shortages through the use of agency and bank workers. |
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
|
2. Government and NHS Policy |
|
||||||
|
(previously: Government) - Chief Commercial Officer |
Increase |
Increase |
Strategic Key partner of the NHS
|
Short to medium-term changes in government policy that directly or indirectly impact NHS commissioning.
Public funding of NHS services provision, and/or the prioritisation of this funding to particular service lines over time could adversely reduce the flow of NHS patients to Spire Healthcare.
A material change in NHS commissioning models and/or change in the tariff structure could result in reduced access to patients, reduced tariffs, or reduced prices adversely impacting revenues and/or margins.
Changes in taxation, laws and government policy for providers of NHS services, and service level commitments to members of the public served by the NHS, could adversely impact the consultants, the workforce, supply chain.
|
Reduction of NHS patients and associated revenue and profit.
Reduction in the operational efficiency of our existing hospital network.
|
The Group derives revenues from three primary payor groups (PMI, NHS and Self-pay) which provides a natural 'hedge' against exposure to this risk.
The Group regularly monitors changes in government policy and the impact that these have on the business.
It has direct engagement with government via the Department of Health and Social Care, NHS England, NHS Improvement and closely monitors government thinking on Healthcare. The Group is an active member of the Independent Healthcare Providers Network, contributing across all associated specialist working groups.
The Board continually monitors NHS requirements and associated tariff structures to consider the need for cost and/or investment reduction, whether in the short, medium or long term.
The Board regularly reviews consultant and employee feedback to ensure our propositions remains competitive.
|
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
|
3. PMI market dynamics |
|
||||||
|
(previously Concentration of PMI market) - Chief Commercial Officer |
Remained stable |
Decrease |
Strategic First choice for private healthcare
Improving revenue, profit and cash |
The PMI market is concentrated, with the top four companies (Bupa, AXA, Aviva and VitalityHealth) 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.
Growth in Service line tenders beyond traditional Imaging and Cataract. E.g. MSK, & Hernia.
|
Reduction of PMI patients and/or associated revenue and profit.
Reduction in the operational efficiency of our existing hospital network.
|
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 Group ensures we have long-term contracts in place with our PMI partners to avoid co-termination of contractual arrangements, recently announcing new and extended long term contracts with the top two insurers in 2019.
The Board believes continuing to invest in its well-placed portfolio of hospitals provides a natural fit to the local requirements of all the PMI providers long term.
|
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
4. Cyber Security |
|
|||||
|
- Chief Financial Officer |
Remained stable |
Remained stable |
Strategic First choice for private healthcare
Key partner of the NHS
Uncompromising on patient safety and clinical care
Improving revenue, profit and cash |
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 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 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 Group could also be subject to litigation by third-parties. |
The Group'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, multiple layers of business protection have been created 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 the Group to keep pace with the increasing risk profile, ensuring the risk to Spire Healthcare remains stable.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
5. Macroeconomics |
|
|||||
|
- Chief Commercial Officer |
Increase |
Increase |
Strategic First choice for private healthcare |
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 numbers 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.
A major flu pandemic or outbreak of an infectious virus (e.g. a Coronavirus) could lead to cancellation of patient appointments because of clinical staff shortages, disruption to supply chains and disruption to support services (e.g. pathology services). In extreme but highly unlikely scenarios, HM Government could requisition Spire Healthcare's facilities.
|
Reduction of Private patients and associated revenue and profit contributions.
Reduction in the operational efficiency of our existing hospital network.
The early stages of new disease outbreaks are characterised by a high degree of uncertainty where it is impossible to predict the impact on the Group. In worst-case scenarios, the financial consequences of a major worldwide or UK epidemic could be material on the Group from lost revenue or increased costs.
|
Health is generally not as sensitive to economic downturns as other retail environments. However, as successfully employed in the last recession, if the private market contracts the Group can reduce costs and future investment to improve profit and cash flow, and is 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.
Spire Healthcare will follow the guidance and requirements set out by Public Health England to help contain, delay and then mitigate any spread of a virus. A central incident management team comprising clinical and operational senior leaders taking advice, where necessary, from external specialist clinicians e.g. microbiologists, controls Spire Healthcare's response to such situations. In a serious epidemic, Spire Healthcare staff and patients are as exposed to a virus as are any members of public, and therefore the mitigation activities may only reduce, rather than avoid, operational disruption.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
6. Brand Reputation (New) |
|
|||||
|
- Chief Commercial Officer |
N/A |
N/A |
Strategic First choice for private healthcare
|
The Group's future growth depends upon its ability to maintain, and continue to enhance, its reputation amongst patients, clinicians and other stakeholders. |
If we fail to protect or grow the brand it may harm our ability: - to maintain or grow income - to attract and retain the best staff and clinicians - to win new contracts - to raise capital at competitive rates - to meet our regulatory obligations
|
The group has a strategy of developing Spire Healthcare's brand as a private healthcare provider and to promote its uncompromising patient safety culture.
Spire Healthcare has a strategy in place to protect and grow its reputation amongst stakeholders. This includes its medical and clinical governance, and capital investment programme in the hospital estate.
Across all elements of the principal risks we have a well-developed strategy and risk policy.
We conduct audits of our key stakeholders to contribute to plans for protecting and enhancing our reputation.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
7. Competitor Challenge |
|
|||||
|
- Chief Commercial Officer |
Remained stable |
Remained stable |
Strategic First choice for private healthcare
Key partner of the NHS |
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.
This could lead to uncertainly if a new strategy materially changed the existing operating model. In turn this could potentially impact the way in which the NHS and PMI providers' commission work.
There is also a risk that the competitive environment results in irrational market behaviour manifesting itself in low pricing on tenders or self pay.
|
The potential impact would be the loss of market share due to a new competitor and reduced profitability and cash flow.
|
The market has seen increased pressure in 2019 and the Group maintains a watching brief on new and existing competitor activity and retains the ability to react quickly to changes in patient and market demand.
The Group considers that a partial mitigation of the impact of competitor activity is ensured by providing patients with high-quality clinical care and by maintaining good working relationships with GP's and consultants.
Spire continues to invest in the brand and deliver an effective acquisition capability both direct and via our partners in order to protect our market position. We have also strengthened our pricing and tendering capabilities.
In addition we will maintain our investment into the estate and clinical equipment to differentiate our proposition.
Finally, we expect opportunities to continue to arise as competitors close facilities in specific geographies creating incremental volume.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
8. Patient Safety & Clinical Quality |
|
|||||
|
- Group Clinical Director - Group Medical Director
|
Decrease |
Decrease |
Strategic Uncompromising on patient safety and clinical care |
There is a risk to patient safety and clinical quality because of: - a shortage of skilled workforce (see Risk 1); - clinical and non-clinical staff failing to follow guidelines, standards and policies resulting in patient harm; and - poor execution of patient recall and notification exercises.
Reputational and financial loss could occur if Spire Healthcare fails to address adequately issues identified by incidents, audits, complaints, PROMs, National Registries, Whistleblowing, Freedom to speak up, workforce feedback and the internal Patient Safety Quality Reviews and Care Quality Commission. . |
Avoidable harm to patients
Unsatisfactory/poor outcomes
Regulatory enforcement and reputational damage.
Adverse regulatory inspection ratings.
Increase in legal claims.
Failure to attract and retain high quality staff and consultants
Reduced future earnings.
|
A programme of continuous improvement across all areas with active focus on areas identified not meeting required standards.
A reporting culture of openness and honesty from Ward to Board.
Quality metrics in place, including Board.
Continually monitoring clinical standards, reporting progress via the Board's Clinical Governance and Safety Committee ('CGSC'). A schedule of robust and regular hospital audits including the Patient Safety and Quality Reviews, with an action plan for improvement that is monitored.
Reporting on clinical outcomes with workforce and consultants including the Chairs of hospital Medical Advisory Committees with a view to driving up safety and performance.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
9. Compliance and Regulation |
||||||
|
- General Counsel and Group Company Secretary - Group Clinical Director
|
Increase |
Increase |
Strategic Uncompromising on patient safety and critical care |
The Group operates in a highly regulated environment, including complying with the requirements of, for example, the CQC, NHS Improvement and the CMA. The intensity and frequency of regulatory inspections (particularly those by the Group's principal regulator, the CQC) continues to increase. Failure to comply with laws, regulations or regulatory standards e.g. CQC/HIS/HIW, GMC, HSE, CMA NHS Improvement, NHS England, HMRC, DPA 2018 (GDPR) 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. |
The Group may not be able to operate one or more of its hospitals, due to regulatory breaches which could lead to loss of licence to practice at one or more sites causing a significant reduction in profit. |
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, with the Executive Committee having appropriate visibility to ensure robust decision-making.
The Group has the ability to monitor and react to the changing regulatory framework of a listed Group 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.
Identification and reporting of data protection and associated risks are managed by responsible officers and brought to the attention of the board by the Data Protection Officer.
|
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
10. UK-EU Trade Negotiations |
||||||
|
- General Counsel and Group Company Secretary |
Increase |
Decrease |
Strategic First choice for private healthcare
Key partner of the NHS
Uncompromising on patient safety and clinical care
Improving revenue, profit and cash |
The Group potentially faces significant implications if there is a 'no deal' or disruptive Brexit.
If the UK-EU have not agreed a UK-EU trade deal by 31 December 2020, or the UK-EU have agreed a trade deal but the terms of the deal are such that it will cause disruption to our business post-31 December 2020, the delivery of health care services may be impacted, including: - supply chain; - medicines; - consumables; - prostheses; - food; - patients; - transport disruption; and - cash-flow.
|
The Group may experience major disruption in key function areas impacting on pricing, tariffs and costs, and see a significant reduction in patient numbers.
The group may find supply of medicines, consumables; drugs (especially those with short-life spans) and other key items are not available or severely restricted, which may impact the group's ability to trade.
|
The Group has undertaken a Brexit risk assessment and has comprehensive plans across all key risk areas to minimise disruption, including: utilising its national supply chain and distribution centre to efficiently utilise stock; undertaking supplier assurance; liaising with NHS England and the Department of Health and Social Care. Brexit planning team and promoting the EU settlement scheme to relevant staff. Brexit planning is overseen by the Group's Brexit Preparation Committee. |
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
11. Insurance & Indemnity |
||||||
|
- General Counsel and Group Company Secretary |
Remained stable |
Decrease |
Strategic Uncompromising on patient safety and critical care |
Spire Healthcare 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.
There may also be costs relating to damages and defence costs.
|
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 with coverage being maintained or increased depending on that advice.
Personal injury claims relating to patients, third-parties and employees are covered by insurance once predetermined deductible levels have been reached.
The Group engages with consultants in relation to indemnity and has developed a bespoke affinity insurance product MedicaInsure to provide consultants with a high-quality, regulated alternative to discretionary cover. The Group has made robust representations to government and the Paterson Inquiry with regard to the need to end discretionary indemnity and to regulate the medical defence organisations. |
|
Principal Risk and Executive Owner(s) |
Risk movement in 2018 |
Risk movement in 2019 |
Link to Strategy |
Risk Description |
Risk Impact |
Risk Mitigation |
|
12. Liquidity and Covenant risk |
||||||
|
- Chief Financial Officer |
Remained stable |
Decrease |
Strategic First choice for private healthcare
Key partner of the NHS
Uncompromising on patient safety and clinical care
Improving revenue, profit and cash |
The Group may not have sufficient liquidity to meet its financial liabilities as they fall due, or breach financial covenants linked to its borrowings.
|
Failure to meet its obligations or covenants would have a substantial adverse effect on the Group's reputation and may lead to borrowings becoming repayable earlier than contracted for.
|
The Group has a solid asset base with the ability to promptly leverage in a short timescale, if required.
The Group actively monitors and manages its liquid asset position, its financial liabilities falling due and the cover against its loan covenants, is actively focused on cash management and capital expenditure, and continues to maintain close working relationships with a highly supportive banking group.
The Board has considered the risk in detail as part of its assessment of the viability of the Group.
|
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report and Accounts for the year ended 31 December 2019, 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 96 and 99, 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 2019, 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.
Related party transactions
31. 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 96 to 99.
Compensation for key management personnel is set out in the table below:
Key management compensation
|
(£ million) |
2019 |
2018 |
|
Salaries and other short term employee benefits |
3.6 |
2.9 |
|
Post-employment benefits |
0.5 |
0.3 |
|
Share-based payments |
0.8 |
0.4 |
|
|
4.9 |
3.6 |
Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 113 to 121.
There were no transactions with related parties external to the Group in the year to 31 December 2019 (2018: nil).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
