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Edited Transcript of SPI.L earnings conference call or presentation 5-Mar-20 9:30am GMT

Full Year 2019 Spire Healthcare Group PLC Earnings Presentation

London Apr 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Spire Healthcare Group PLC earnings conference call or presentation Thursday, March 5, 2020 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jitesh H. Sodha

Spire Healthcare Group plc - CFO & Executive Director

* John Forrest

Spire Healthcare Group plc - COO

* Justin J. Ash

Spire Healthcare Group plc - CEO & Executive Director

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Conference Call Participants

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* Alexander Matthew Gibson

Morgan Stanley, Research Division - Equity Analyst

* Charles Robert Weston

RBC Capital Markets, Research Division - Analyst

* David James Adlington

JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research

* Emmanuel de Figueiredo

LBV Asset Management LLP - CIO

* Miles Dixon

Peel Hunt LLP, Research Division - Analyst

* Sally Anne Taylor

Numis Securities Limited, Research Division - Director & Healthcare Analyst

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Presentation

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [1]

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So good morning. Good morning, everybody. Thank you for joining us at the 2019 preliminary results presentation. Are we good for sound? It sounds resonating, but is that all right? Good? Okay.

So as you may have noticed, some of you, I love Spire so much that I purposely injured myself, and I'm being admitted as an inpatient next week actually, so I should test the service. Because of this, we're all going to be sitting down because I'm sitting down, so we're all sitting down. So I hope that's all right.

So this morning, I'm going to provide an introduction to our performance, and then I'm going to reflect on quality initiatives. And then I'll ask Jitesh Sodha who you know, our CFO, to present the financial results. And after that, John Forrest, our COO, is going to provide an update on our operational performance and plans for the year. And then we'll take Q&A.

So at the FY '18 results presentation in February, you'll remember we reiterated our strategy, which is represented on this slide. We are committed to developing our private business whilst remaining a key partner to the NHS. We will always be uncompromising on clinical quality and patient safety. These key initiatives are now driving improving revenue, profit and cash. And this entire strategy is underpinned by our clear purpose to make a positive difference to our patients' lives through outstanding personalized care.

At the FY '18 results, we also laid out our plans for 2019 with our expectation that modest revenue growth will be offset by mix and managed cost increases. And I'm pleased to announce that we have delivered on our promises. This is a significant turning point for Spire, with all key financial and quality measures in line with or above our expectations.

As a result of the hard work and professionalism of our hospital and support team colleagues, we had some remarkable achievements in 2019. Our focus on private patients in particular has delivered a 5.8% private revenue growth, the fastest since IPO as consumers responded to our marketing campaigns and our relationships with insurers strengthened. And this is all underpinned by our relentless focus on quality. We remained a key partner to the NHS, driving admissions growth in H2 despite continued pressure on orthopedics as we opened new service lines. I'm delighted by the progress we made on quality, with 85% of our hospitals now rated Good or Outstanding.

And finally, with operating profit growth and solid conversion to cash, we were able to further reduce net bank debt. We've built a strong platform for the future. This platform is well positioned to translate future performance into profit growth in 2020 and beyond, and that is our aim. Jitesh and John will cover in more detail Spire's performance in 2019 and our plans and outlook for 2020.

Now you will be aware of the recent publication of the Paterson inquiry findings. We welcomed its publication and the voice it provided to his victims. We fully support the report's recommendations, which impacts the independent sector and the NHS, many of these we'd already implemented, and we will work with government and the health care sector to drive further improvements.

So I think it's appropriate for me to spend the rest of my section addressing the work we have done and will do to strengthen quality and patient safety at Spire and why this is so important.

You'll remember that when I joined Spire in October of 2017, I placed quality at the heart of our strategy. Spire is in the patient care and safety business. As you can see, when we get that right, we get the whole business right. So in the last 2 years, we have comprehensively overhauled our patient safety and consultant governance process. There are 3 key areas to this. Starting with ward to Board governance, we now have an integrated process that starts with an open, honest and transparent culture led by a visible executive team and Board. Spire was the first private-sector provider to appoint a Freedom To Speak Up Guardian in all its sites in 2018, both clinical and nonclinical, giving colleagues the opportunities to raise concerns confidentially and personally.

We are clinician-led now with 2 clinicians on the ExCo, the Group Medical Director and Group Clinical Director, who are both here today; and in addition, the 2 clinicians on the Board, Jenny Kay and Dame Janet Husband, who are also both with us today. We have a Medical Advisory Committee Chair in each of our 39 hospitals. Last year, we took a decision to standardize the terms of the committees and the chairs and make these paid appointments in recognition of their integral role in delivering our strength in clinical governance and the increased workload this would inevitably create. And we thank them for their continued support and professionalism.

Moving to patient safety. We now have a comprehensive toolkit to protect patient safety, including an internal inspection team which conducts unannounced inspections aligned with the CQC. We've invested in preoperative assessment, I'm having one tomorrow, and increased our clinical staff ratios. We also have clinical governance leads at each hospital, driving governance analysis and compliance. And we've previously outlined our investments here, and they've been intensive and demanding for our hospitals but have underpinned much of our CQC progress.

Good governance involves a robust consultant oversight, and I will expand upon this in my next slide. But as an overview, we have significantly enhanced how we assess performance and identify concerns, increased our oversight and standardized the process for reviewing concerns, and worked to have clearer outcomes and transparent communication when necessary with patients.

I've referred to the impact of the independent Paterson inquiry report and our response. In keeping with the inquiry's recommendation, from next week, we will be writing to all patients treated by Paterson in Spire to explain the recall process we conducted from 2013 to '16 and offer ongoing support where necessary. We will conduct a thorough and sensitive communications exercise to ensure every patient's needs have been met, but we do not anticipate a material cost impact at this stage.

Turning then to the matter of consultant oversight. When assessing performance and identifying concerns, we now have a suite of tools to facilitate the early identification of potential issues, many of which have been introduced over the last 3 years. This is a combination of soft data, like that from Freedom to Speak Up Guardians, which is used locally and reviewed centrally; and hard data, such as biannual reviews and statistical analysis of consultants' practice. We think our lead participation in the Get It Right First Time NHS program, led by Prof. Tim Briggs, will be an additional invaluable source of whole practice data.

Initial concerns are investigated at a local level, and each one is now automatically classified as a serious incident and reported and reviewed by our new National Medical Governance Committee. This is an additional body to our monthly Executive Quality Committee and regular Board Scrutiny Committee chaired by Dame Janet. Outcomes are clear and often result in the issue being closed or used as an opportunity for learning and reflection by the consultant. If issues do appear more serious, we engage an independent consultant with the Royal College of Surgeons to conduct a review of patients' needs. If this in turn raises further concerns, we will contact the appropriate patients promptly through a precautionary patient notification exercise to invite them to see a consultant for a review.

If this review identifies cases of possible harm, we may then commence a wider patient recall. The Walsh, Rahman and Dixon recalls, all variously reported in the press, were initiated in this way in 2017 and 2018. In every case, the consultant was suspended early in the process.

Finally, during any of these stages, a duty of candor may be triggered. This was introduced by statute and enforced by the CQC to make sure that when things go wrong, patients are informed, receive an apology and have an appropriate care plan.

Patient safety comes first, and we are rightly inquiring of our consultants. It's also a necessary requirement to achieving Good or Outstanding ratings in hospital reviews. And it does follow that greater scrutiny leads to identification of a greater number of possible concerns, but it's a necessary function of a responsible health care provider. And in order to make our process even more transparent, as of today, we announced we're publishing all active patient recalls on our main consumer website. And we hope that other providers in the sector will follow our lead.

Finally, I should emphasize that we work with 7,300 consultants, the vast majority of whom provide outstanding, safe and high-quality care. It's clearly the case in health care that things can sometimes go wrong, a fact acknowledged by our regulators. Our bold goal is, of course, to eliminate all errors and poor practice. When things do go wrong, we're not complacent. We're open to further recommendations to further strengthen our processes. But we believe our approach now ranks with the best and the best NHS trusts in its rigor. Our commitment is to spot issues early and respond robustly. I would also add that either a consultant's insurance or our own enhanced insurance should cover the associated cost of mistakes in all the cases we are aware of or might anticipate.

So how do we demonstrate the objective proof of the changes made in Spire in the last 2 years? The CQC has a rigorous inspection regime that tests patient safety and governance, including consultant oversight. And here, we list the 11 hospitals that were expected by the CQC at Spire in 2019. We have received 9 reports to date, all of which were Good or Outstanding, including 3 upgrades from Requires Improvement. And we're awaiting 2 further reports.

The next slide puts those results into perspective relative to our private sector competitors. And we believe it is testament to our commitment to quality. Spire has gone from trailing the sector to an 85% Good or Outstanding, being above the sector in just 2 years. You can also see that Spire Manchester was the only hospital in the private sector to be rated Outstanding in 2019, an achievement that the Spire Manchester team should be rightly proud of. It's been hard work. We have invested substantially. But as a result, we are not just providing a safe and high-quality environment, we're translating this into robust sector-leading private growth.

There is a time in business when doing the right thing is just the right thing to do. And that time for the independent hospital sector is now. Our top line results, however, demonstrate that doing the right thing is also right for our business results. We can see directly how quality improvements are driving our top line. As sites are upgraded from Good or Outstanding, private income grows quickly and materially. The independent inquiry has also called for NHS volume allocation to depend on the demonstration of high governance standards, and we welcome that.

We believe Spire is ahead of the curve in making these investments. You will also see today that over the last 18 months, we have been preparing the ground for well-planned, sustainable and material savings initiatives, which will deliver 2020 profit growth in line with market expectations as well as top line growth whilst supporting our uncompromising approach to patient safety and governance.

Thank you very much. I will now hand over to Jitesh and John who are going to take you through our financial results and our forward plans. Jitesh?

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [2]

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Thank you, Justin, and good morning to everyone. So I'm pleased to report a good set of results for Spire where we have kept our promises. We made our planned investments in quality and safety, which are clearly shown by the improved CQC scores that Justin has highlighted. This investment in quality helped deliver strong revenue growth.

Given the questions 18 months ago about leverage, I am particularly pleased with our cash generation and reduction in leverage. We said 2019 would be a year of consolidation and stabilization, and I'm happy that we met our financial expectations for the year. We recognize that 2020 is the year for us to demonstrate profit growth.

So having provided the highlights, I will now talk you through the key headlines. Since 2016, our strategy has been to clearly improve and invest in patient safety and clinical quality. Our OpEx investment in 2019 when compared to 2016 in extra clinical and governance costs is GBP 24 million. This investment in quality has directly contributed to strong revenue growth of 5.3%. Revenue grew in all our payer groups, especially in our private business. I'll speak more about the revenue growth in a moment. The 5.3% growth is pleasing given virtually flat revenue growth in both 2017 and 2018. Operating profit increased from GBP 71 million to GBP 94.4 million mainly due to lower adjusting items.

Net bank debt decreased by GBP 43 million to GBP 330 million. The net debt-to-EBITDA ratio has improved from 3.3x last year to 3x in 2019 against a limit of 4x.

EBITDA was GBP 189 million with a pre-IFRS 16 EBITDA of GBP 120.5 million, both up on prior year and in line with expectations. The margin decline was expected due to our planned investments. I'm pleased to confirm that the Board have proposed to maintain the full year dividend at 3.8p per share.

Operating profit grew from GBP 71 million in 2018 to GBP 94.4 million in 2019 mainly due to the significantly lower adjusting items during the year. Adjusting items were GBP 3.2 million compared to GBP 25.6 million in 2018. This is the lowest total for adjusting items in the last 10 years. Adjusted operating profit grew from GBP 96.7 million to GBP 97.6 million. I'll provide more detail on that on the next slide.

At the 2018 full year results, we guided that revenue growth would be offset by mix and the full year impact of investments, which this waterfall clearly demonstrates when adjusting items are excluded. I will speak about volume, price/mix and particularly strong growth in outpatient revenue in more detail in the following slides.

I've split up oncology separately to reiterate the impact of this specialty on our numbers. Oncology is a high-growth part of our business and is virtually all PMI-funded, so strategically important. Oncology revenue grew by 16% year-on-year. Oncology is materially lower in margin than most of our surgical business and so dilutes the gross margin, but it's still a net contributor to the bottom line.

The investment in clinical safety and governance can be seen in the bar for hospital costs. It should be noted that this also includes inflation as well as additional administrative costs due to the growth in outpatients. For the first time in many years, we have accrued for team incentives for delivery of financial and quality targets. Our leases have inflationary rent increases, and depreciation charges were also higher due to the impact of IFRS 16.

Here, we detail the development of gross profit, which declined 60 basis points due to the increase in clinical staff costs and direct costs. Clinical staff costs increased by GBP 12.6 million or 6.7% higher than the growth of -- rate of growth in revenue. This reflects the annualization of additional staff appointed in the second half of 2018 particularly in the area of preoperative assessment to meet our quality agenda but also a higher proportion of agency staff due to the challenging labor market in health care. As a reminder, we have added approximately GBP 24 million of additional costs in clinical quality and governance over the last 3 years, but this investment is largely complete now.

Direct costs are increasing predominantly due to the growing proportion of oncology revenues and associated higher drug costs. We also performed more complex orthopedic procedures this year, which carried higher prosthesis costs.

As I've said, there was revenue growth across all payer groups. Nearly 70% of our revenue is from private business, and we achieved our aim to disproportionately grow this part of our business. Private revenue growth was strong at 5.8% compared to NHS, which grew at 5%. PMI is half of our business, and we were very pleased with the progress of this segment with revenue growth of 7%. Self-pay revenue grew 2.7%, improving momentum through the year. In Self-pay, we have specifically targeted core clinical procedures rather than cosmetic and bariatric. Clinical Self-pay revenue grew 4.5% with 6.1% growth in H2, whilst lower-margin cosmetic and bariatric was down.

Looking at volumes, total volumes grew 0.4%, the first inpatient day case volume growth since 2016. PMI admissions grew 1.4%. This really is a demonstration of the impact of our quality investment. PMI admissions have been in steady decline, and we have to go back to the first half of 2015 for the last time there was volume growth in PMI. NHS volumes declined less than 1%, which was stabilizing following the nearly 9% declines in 2018. The strong private revenue growth we reported in H1 was sustained in the second half to 5.8% growth in the year. A feature of the year was strong growth in outpatient revenue across all payer groups. Outpatient revenue grew at 6.9%. Overall, we are pleased with the 5.3% growth for the year.

There was a material reduction in net bank debt, which fell from GBP 372.8 million to GBP 330 million. The focus on working capital improvements yielded a cash improvement of GBP 17.9 million. There was continued focus on debt collection and an improvement in the age profile of debtors as well as the total amount of trade receivables. There was a working capital benefit from payables, too. We are committed to treating our suppliers fairly. In our last statutory submission on payment practices, we have stated that we pay 98% of our suppliers within 60 days against the government target of 95%.

CapEx spend for the year was GBP 62.5 million and within the GBP 60 million to GBP 65 million range we guided to. This includes the new orthopedic center in Manchester and a new additional theater in Bushey. We also completed our detailed estate audit and have a clear 5-year plan for our investments.

The partnership deal with GenesisCare included net proceeds of GBP 11.6 million for the Bristol Cancer Centre and our Baddow site. We have 2 further unused properties which are held for sale and expect them to complete for a combined GBP 5 million during 2020.

Going forward, whilst continuing to invest in the business, we continue to focus on cash generation and deleveraging. As mentioned earlier, our net debt-to-EBITDA ratio has fallen from 3.3x to 3x. On a post-IFRS 16 basis, this -- which includes the capitalization of our leased properties, net debt to EBITDA has fallen from 5.8x to 5.7x. Alongside debt and leverage, we are increasing our focus on how our cash is used. There will be an increased focus on return on capital employed going forward.

Both John Forrest, our COO, and I have said that we believe there are significant opportunities to mitigate the increase in medical inflation by driving efficiency opportunities. And 2020 is the year we aim to demonstrate the efficiency improvements can help overcome medical inflation and improve the bottom line. In 2019, we realized procurement savings by standardizing on certain consumable lines. This and the introduction of standard food menu across the group proved that we are able to coordinate and leverage the scale of our 39 hospitals. We also worked hard on our culture through the launch of our purpose, which John will speak about in a moment. And to improve retention, we launched our first share save scheme. We are delighted that this was oversubscribed, and 1,700 of our colleagues signed up to start saving towards share ownership.

During 2019, we focused on a site-specific and targeted program for efficiency savings, which is now being implemented. There is further opportunity with procurement savings by reducing the number of suppliers for prosthesis and gaining scale benefits. As I mentioned earlier, the labor market in the U.K. is tight. We are investing in numerous programs to improve recruitment and retention and reduce our reliance on agency staff. John will cover this in more detail later.

An imaging transformation program has started to be implemented. This will result in fee alignment, increased home reporting as well as outsourcing of some of our image reporting. Growth and profitability will be underpinned by the delivery of these cost-saving initiatives. They will be H2 weighted and expected to deliver single-digit millions of pounds of benefit.

So turning to our outlook for 2020. As I'm sure you're aware, COVID-19 is creating uncertainty, and the nature and scale of disease progression is impossible to accurately predict. We are actively managing the situation on a daily basis and following Public Health England guidelines.

Such external risks notwithstanding, in 2020, we expect revenue to grow through GBP 1 billion and to meet market expectations on operating profit. We expect revenue to grow though at a slower rate than in -- the 5.3% in 2019 for a number of reasons. In 2019, we had 2 new PMI contract wins at an exceptional revenue growth rate of 7%. We do expect market share gains to continue, but it would be unwise of us to expect similar growth in 2020 in a declining market. We expect Self-pay revenue to continue the momentum that we saw in the second half of 2019. The NHS tariff improvement is expected to be less than 1%, and NHS revenue is highly volatile. We expect negligible growth in NHS revenue in 2020. The impact of the NHS tariff is almost entirely offset by increased CNST costs. CNST is the NHS program for insurance. There will be continued growth in oncology revenues, which will reduce gross margin further, and continued growth in outpatient revenue.

Overall, we expect costs to increase in line with medical inflation, though these increases will be mitigated by the efficiency programs that are planned. The benefits of the efficiency program will be second half weighted, and delivery of these programs will be key to achieving profit growth in 2020. Overall, the Board expects our operating profit to be in line with market expectations.

I'll now hand over to John.

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John Forrest, Spire Healthcare Group plc - COO [3]

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Thank you, Jitesh. Good morning. Our operational strategy is defined by our purpose to make a positive difference to our patients' lives through outstanding personalized care.

Since joining in October 2018, I have recruited and established a strong senior operations team led by 3 business unit directors supported by regional teams. We now have a strong network of hospital directors and directors of clinical service in each of our hospitals, recognizing the vital part they play in maximizing our performance. Better strategic planning and our 90-day planning process allows us to coordinate and maximize our ability to focus and deliver. We are now well placed to execute our strategy and deliver profitable growth.

As a reminder of the strategy template that Justin took you through earlier, these are the 4 key pillars that underpin the delivery of our strategy. I will look to provide more detail on our performance and outlook for each of these pillars over the next few slides.

Being first choice for private patients underpins the core part of our strategy to grow private revenues. This graph compares first half and second half performance for total private revenue since 2016 and clearly demonstrates solid above-market growth and sustained positive momentum. Our investment in quality is a major factor in driving this growth, with more insurance providers directing work on quality grounds. We are also seeing increases in the number of consultants interested in working with Spire, which is allowing us to be more selective with the consultants we choose to partner with and how we allocate theater slots to them. This was a solid performance reflecting a strong team effort. And whilst we expect positive growth in 2020, it will not be at the same level.

Let's look at the trends behind this chart in some more detail. PMI has been a major focus for us over the last 2 years, so we are delighted with the 7% revenue growth achieved in 2019, which exceeded our expectations. As Justin has already mentioned, the new contracts won in late 2018 continue to deliver volume growth, and the 2 long-term pricing agreements renewed last year provide a solid foundation for growth in future years. Our marketing campaigns, which have been refined over the course of the year, continue to deliver increase in brand awareness across both insured and uninsured populations. In an overall flat market, one of the most encouraging statistics therefore is that revenues from existing PMI contracts grew by 3.7% ahead of the long-term trend.

Our marketing campaigns also continue to have a positive impact on our Self-pay business, with 19% growth in Self-pay inquiries and a 7% growth in outpatient appointments. As we indicated at our first half results, we continue to prioritize core clinical procedures, which typically require less operating time and fewer returns to theater and therefore attract a higher margin. Growth in these core clinical procedures accelerated to 6.1% in the second half, driving 4.5% growth in the year.

This slide demonstrates the breadth of our marketing materials. We employ a mix of traditional and digital advertising created centrally but personalized at a local hospital level to build brand awareness. We have a range of specialty-specific campaigns to boost referrals. And finally, we use search engine optimization to ensure our customers get access to the right information, giving them the confidence to book an appointment.

Continuing the trend we discussed at half 1 results, you can see here that growth in outpatient first appointments remains positive as consumers are increasingly keen to find out "what's wrong with me" across all our payer groups. Total outpatient first appointments grew 8% in financial year '19 and 9% in the second half. These are exciting trends for our long-term growth, and we're looking to emulate the success of our stand-alone outpatient facility at Spire Bushey with the development of other stand-alone sites, starting at Spire Yale later this year. We have purchased land close to Spire Yale and will commence construction in the final quarter with a view to opening in 2021. We continue to invest in and upgrade our imaging departments and will look to reconfigure space for further outpatient activity.

Our Spire GP service has been in place for over 2 years now. GP appointments continue to grow strongly, up over 60% in the year with strong conversion to appointments to consultations and meaningful downstream revenue generation.

Our new orthopedic OrthTeam Centre, a collaboration between Spire and a group of leading orthopedic surgeons in Manchester, is now open and gaining momentum.

We've previously mentioned that oncology is an important speciality for Spire with significant opportunity for profitable expansion. Oncology revenues grew 16% in the year. Whilst operating margins are lower due to the use of expensive drugs, the absolute cash profit is very attractive, as Jitesh demonstrated earlier. It is, of course, a vital service to our patients, and oncology is almost entirely PMI-funded. As a result, any innovation around this service delivery in this field brings us closer to a key customer base.

Our partnership with GenesisCare in Bristol is progressing well, and we are creating action plans to implement similar arrangements at both Portsmouth and Little Aston. And we're also working to create oncology centers of excellence at Spire Bushey and Little Aston. In these ways, we have a clear route to expand this growing treatment area by providing an enhanced pathway for patients but in a less capital-intensive way.

Turning now to the NHS. The waiting list for NHS treatment reached a record high of 4.6 million at the end of the year. Overall, the orthopedic waiting list rose to 526,000 patients, an increase of 15,000 patients versus June 2019. Spire's e-referral growth of nearly 7% suggests a positive trend going forward. NHS orthopedic referrals are also showing signs of recovery. And in both of these charts, you can clearly see the lag effect between e-referral and treatment discharge.

NHS inpatient day case admissions declined 0.8% in the year, in keeping with our guidance of a slowing decline, but rose 2.3% in the second half. Please note, however, that ongoing mix shift and a changing national and local priorities alongside medical guidance mean we remain cautious about overextrapolating these trends.

As I said, we are pleased with our NHS performance this year with admissions just short of last year. We've remained true to our strategy to be selective in the work that we undertake for the NHS and are focused on growing core treatments such as knee and hip replacements. We have also generated additional mix through selectively opening new service lines, including more complex areas such as thoracic and cardiac surgery, leveraging our intensive care units in both Manchester and St. Anthony's. The tariff increase effective the 1st of April last year, combined with improved mix through complexity, helped deliver NHS revenue growth that was above our expectations.

There is still huge geographical variation in NHS activity across the clinical commissioning groups. Parts of the NHS still continue to employ strategies such as rationing and triage to control costs, but we continue to work closely with local commissioners to offer solutions. We are also launching direct consumer marketing in some areas where evidence suggests that Spire would facilitate a faster treatment pathway to remind patients of their right to choose provider at both the point of initial consultation and again at the 26-week wait.

We remain cautious about the NHS outlook, although recent commentary contained in the 2020/'21 NHS planning guidance appears more positive towards the private sector, including the desire to reduce waiting lists, eradicate the 52-week wait and provide patients with an alternative choice at 26 weeks.

Holding share in the NHS remains our strategy, but we think this will require more flexibility of approach and efficiencies in the future. Overall, we believe we have adapted successfully to the new environment, and we are making steady progress.

As Jitesh mentioned, we have added some GBP 24 million of additional cost over the last 3 years to drive improvements in quality. Those investments are largely complete. Over the last 12 months, this has allowed us to focus on developing future capability across 3 key areas: people; systems; and core efficiency programs, which are now gaining momentum.

Our teams are core to our purpose of making a positive difference to patients' lives and the delivery of outstanding personalized care. With the appointment of Shelley Thomas, our Group HR Director, we are focused on improving team retention, giving our teams the opportunity to gain new skills, developing our Spire Bank and filling vacancies to reduce our reliance on expensive agency worker support. We are building a new people management system, which will be implemented in 2020 and are actively trialing the automation of NHS referrals. We now have better systems in place to provide greater visibility on future admissions, which allows us to react more quickly to any changes in our business and markets. And I was delighted to see that in our recent annual engagement survey, our team engagement scores improved from 79% to 81%, well ahead of the sector average.

The systems in digital strategy is critical to delivering cost savings in the future. Those of you who have had the chance to visit our national distribution center in Droitwich will understand the current burden of paper in our organization. In November, we appointed Andy Ferrington as our new Chief Information Officer, and we are making great progress in designing, developing and preparing to roll out systems and automation. We now have a range of tools, for example, to facilitate online bookings by GPs, patients and PMI providers, and are now receiving some 5,000 online bookings per month, up from 1,300 at the beginning of the year.

Our custom efficiency programs are now moving towards implementation and will deliver benefit from quarter 2 onwards, with saving run rate growing through the balance of the year. Having spent the last 18 months understanding, testing and confirming the opportunities to reduce cost, we have now started delivery with 3 key programs: standardization of the single patient record; imaging transformation; and prothesis rationalization. For example, imaging transformation will deliver a significant saving as we align fee levels, support home reporting and launch a targeted outsource of image auditing and reading. We have developed a pipeline of further opportunities to roll out in 2021 and beyond.

We were also pleased that both Manchester and St. Anthony's accelerated profits in the year, whilst Nottingham reached breakeven run rate in quarter 4.

I have spoken about improving our culture to make it an even greater asset in growing our business. The development of our purpose was co-created and informed by customer insight. This can be summarized in 5 key themes of patient need: make it easy for me; recognize me; help me to understand; make me see -- feel safe and cared for. You can see how this, in turn, underpins our strategic platform and helps us to grow a differentiated private business. Initial feedback on the program has been very positive, and we are all excited by the momentum this is creating with our highly valued teams.

In summary, we are very pleased with and intend to build on our progress to date. We continue to make quality improvement, and this is contributing to our growth. But it would be remiss of me not to acknowledge the uncertainty created by COVID-19. Let me reassure you that alongside our Group Medical and Group Clinical Directors, I am taking responsibility for our corporate response team so we can actively manage the situation as it evolves.

I would also like to take this opportunity to thank all our teams, our hospital management and our consultant partners for their support, hard work and commitment to ensure that we kept our promises and delivered these results. Their continued hard work, dedication and engagement will be core to ensuring we do the same again this year.

Overall, the positive changes we are making in the business mean we expect to deliver profitable growth in 2020 absent the uncertainty created by COVID-19. We remain focused on our strategy led by a clear purpose to deliver sustained and improving performance and to make a positive difference to our patients' lives through outstanding personalized care.

Thank you, and I hand you back to Justin.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [4]

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John, thank you very much. So thank you for listening, and we'll now open up for questions.

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Questions and Answers

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Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [1]

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Charles Weston from RBC. Three questions to kick off, please. First of all, on the PMI contracts, has the -- have all the new contracts that you won fully annualized? And are there more contracts to potentially go for?

Second question on operating leverage. Your guidance seems to imply sort of a roundabout 3% revenue growth and perhaps twice that much in operating profit growth. Can you give us a sense of how that -- how we should be thinking about leverage within the business on a go-forward basis?

And then lastly, capacity utilization. Can you give us a sense of how much capacity there is in the system? Obviously, now that the revenues are returning to growth, volumes are starting to increase, does that mean that CapEx will have to increase to support that?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [2]

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Thank you. So 3 questions, PMI, leverage and capacity. Do you want to handle PMI?

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John Forrest, Spire Healthcare Group plc - COO [3]

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Yes. So all of the contracts are now annualized, and we continue to see growth. And Peter and his team continue to work on further opportunities, but the major PMI providers were the contracts that we settled first. So that's probably where we're at.

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [4]

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Let's say -- I think you interpreted our guidance pretty well, so very happy with the way you've done that. I think, looking forward, so certainly, if you take out the unpredictability of the NHS on the revenue side, we're looking to continue with market share gains and Self-pay. On the operating leverage and how that develops is going to be directly driven by our ability to drive out cost and efficiency in the system. We haven't guided beyond this year to the numbers that we expect to achieve in the outgoing years other than to say that we believe that there's material opportunities. So I know that's not what you're looking for, you want guidance in the outer years, but we've provided good guidance for this year.

On CapEx, I won't talk about capacity utilization, but CapEx, last year, we guided that we expected CapEx to be 6% to 7% of turnover. We've done a full-state audit. We are happy with that guidance, and we've got a full plan for CapEx for the next 5 years. So we're happy with the level of CapEx with where it's at.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [5]

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If I can build on those, just on PMI, I would add, whilst new contracts -- it's not a 0, but it's a smaller opportunity, complexity is a key part of our strategy. So if you look where we've opened ITUs, and we're planning to open the ITU in Nottingham, our strategy is specifically to become a more complex provider, cardiology, spinal, the thoracic contract in Manchester presents PMI opportunity, oncology. This -- working with PMI providers to be the leading, most complex provider outside of London is a PMI-ed layer of opportunity in and of itself. And all the contracts we have allow us to benefit from that opportunity. So I'd just add that point.

With regards to capacity, so overall, we have plenty of capacity. You have specific pinch points. So if you take an example, Yale, we're building an outpatients' clinic there because that presents an opportunity to grow our patients and to free up patient rooms for more treatment. If you were to look at where our capacity constraints exist such as they do, it's more in outpatients than it is in theaters. Outpatients are cheaper to build because they're basically offices than our theaters. But there are also other things available to us. So as we have more capacity constraint, for instance, video follow-up rather than coming in, for example, all of which we're exploring. So I think the specific answer to your question is we've got 5-year plans. It's all in the range that Jitesh just said, and it accommodates our expectations around where we have pressure points.

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [6]

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Actually, can I just add an additional clarification on the operating leverage point. The other way we expect to see operating leverage rather than just direct cost savings program is, there's a clear focus, as you saw in our program, on our workforce. It's a material component of our operations. We're a people-based business. And any improvement in our retention and recruitment will allow us to grow the cost on our labor line at a slower rate than the growth in our top line. And we do see opportunities there because we still have material usage of agency staff.

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Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [7]

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And just on that last point, that has been a theme, essentially over the last 7 or 8 years, the use of bank staff, and you and your predecessors have been talking about reducing the proportion. Is that actually realistic?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [8]

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John, do you want to...

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John Forrest, Spire Healthcare Group plc - COO [9]

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I'm quite happy to use bank staff. There's a difference between bank and agencies. So it's the agency staff that I'm keen to try and reduce reliance on. Having our own bank and our own core team is really important in terms of stability, and the teams are present in theater and the wards. What we're doing to try and get to that point is focus on recruitment, getting the right people in the first place and then retaining them. And our key challenge is 12-month retention. So all of the work that Shelley and I are doing is focused with the team on trying to improve retention, so we don't have to rely because agency tends to be used to fill the gap whilst there's a vacancy, and then again whilst that person is trained because you have to man-mark them for the initial training period. So that's the opportunity, and the opportunity to reduce agency -- we'll always have agency, but to reduce it is to lock and load the right people in the right place at the first time and then hang on to them. So yes, we will.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [10]

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Other questions?

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Alexander Matthew Gibson, Morgan Stanley, Research Division - Equity Analyst [11]

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Alex Gibson here from Morgan Stanley. I have 3 questions as well. The first one, sort of the elephant in the room, what can you do to mitigate the operational deleverage that could come from patient volumes dropping off if the coronavirus was to develop more worsely in regions? For example, Northern Italy has shut down elective surgeries. And within that, maybe a reminder on your breakdown between fixed and variable costs.

My second question is around volumes from virtual GP services, so the likes of Babylon. Are you seeing any volumes there? And how are you expecting to work with these operators?

And then lastly is just on your comments about further investments in quality. Is that going to be additional OpEx spend? And what levels could that be?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [12]

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Okay. Thank you. Shall I give a comprehensive answer on COVID-19? The couple of the other questions, we'll add it together. So broadly, it is not possible to predict the future here. We have to do scenario planning. We are in a privileged position because we're a hospital group, so we have detailed knowledge on this. And as John says, we have a daily planning session. As yet, by the way, we've seen no impact from this. So it's not a reality yet. It's all about planning for it.

Could it have an impact on us in the future? Well, we've done a statement about the stretch scenario stated by government. And at that point, it would have an impact on us. When it comes to will it have an impact on patient demand, possibly, it could have 2 impacts. We are an elective business, of course, so it could have an impact that fewer people come. It could have an impact that we are a place where electives continue. So it's quite hard to extrapolate what could happen in these circumstances, and we're really not trying to second-guess that. We have a number of mitigating actions. So for instance, over time, a bank, for instance. So having variable cost becomes a benefit in those particular circumstances, obviously. That's one of the mitigating actions. We obviously have mitigating actions around CapEx as well because our CapEx is prestige on a very busy business. Now we have a less busy business, it's mitigating action. So there's plenty of mitigation available for us.

And we have comprehensive plans for the different scenarios. At this stage, however, it's very difficult to start extrapolating what will or won't happen, but we do feel confident that we are extremely focused on this. We are -- we said to government that if we can be helpful, we will be. We wouldn't want to be seen as being ahead of the curve on that. And they may or may not turn to us for help there.

And we would also point out and will point out, we have an extremely safe operating environment. We have extremely low in-hospital-acquired infection. Because we are elective, we are essentially screening at the point of entry. So that is an advantage in this environment, having that track record and having that operating environment. So as you think, indeed speculate about this, important to understand the nature of our operation, the visibility we have, the resilience we have and the options we have, depending on what happens.

Anything to add to that?

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Alexander Matthew Gibson, Morgan Stanley, Research Division - Equity Analyst [13]

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Variable costs -- breakdown between variable and fixed costs.

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [14]

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We don't break those out separately.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [15]

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But I have given you an indication of -- so if you look at our costs, labor costs are a big part of it. The nature of our model is that consultant costs are entirely variable, to let you know. And clearly, we know that a meaningful proportion of our staff costs are variable in terms of over time, bank and agency. So those are protective ratios without giving the exact percentages. Consumables is variable. You can work that out, as is prothesis, et cetera. So I think you can figure through that there's a meaningful variability in our cost base. I would also add that, absent that, we're focused on variability in terms of growth, and we're well positioned for profit growth in 2020. And at this stage, none of this has come to pass.

GP services, do you want to talk about that?

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John Forrest, Spire Healthcare Group plc - COO [16]

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Yes. So we focused on growing our own GP service rather than actively partnering with any of the other online. Our level of activity is now reaching the multiple thousands per month in terms of appointments. The real benefit of that is the downstream revenue. So we're not close to working with any of the other partners, but we're not actively partnering with anybody at the moment and focused on growing, as I said, our own business.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [17]

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And in terms of quality investments, so I think we can be quite clear, we have made the majority of step-up investments. You can range from the possible impact of recommendation as a passionate commission, the medical practitioners assurance framework, all of the things which are out there. We are confident that as we do our own audit of where we are against those, that the vast majority of them are in place already because we've been working, as I've emphasized for 2 years, to be well placed for this. So -- can I say there will be no more step-up costs? No, because the environment for health care changes. But relative to all the standards which we look at and all the benchmarks we want to hit, we've made the vast majority of those investments.

And the key thing for us is agency, stable workforce. So quality is our workforce, essentially. It's equipment, CapEx and workforce. And stability of workforce is the key area for us to focus this year because that allows us to sustain quality at improving flow-through. So that is the key area. It's not about do we need more, it's the mix of them, it's the permanence of them, it's the training of them, and it's the retention of them. That's the key -- it's the year of us really demonstrating momentum in that area.

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Sally Anne Taylor, Numis Securities Limited, Research Division - Director & Healthcare Analyst [18]

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Sally Taylor from Numis. You talked a bit about your digital strategy with regard to people, the single patient records [versus] meeting NHS referrals. Could you just talk about sort of returns on that? I know you sort of talked about focus on ROCI. And also just on a broader point, your sort of broader digitalization strategy and what we should expect in terms of CapEx over the coming medium term, please.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [19]

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Jitesh?

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [20]

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Sure, I can tackle that. So digital strategy, as John mentioned earlier, we've hired a new CIO, and we see a significant opportunity by digitizing our operations. The CapEx numbers are built into our CapEx. The -- what we're not going to do -- let me start off with what we're not going to do and then move on to what we are going to do. What we're not going to do is have a multi tens of millions of pounds ERP-type project, which brings in an electronic patient record, an EMR that will take 5 years to deliver and actually will take 10 and cost twice as much. What we are going to do and what we are doing is that, actually, technology has moved on. And the way technology has moved on is you can set your architecture in a way that is far more flexible and very quick to deliver. It's quicker. It's more -- you can achieve your benefits in a much more controlled way. And so we're changing our architecture at the moment to fit into our modular approach to driving our digital strategy.

So our digital strategy has identified tens of opportunities. I won't tell you how many because there's lots and lots. And in fact, the difficulty is not in the level of opportunities. The difficulty is in prioritizing them and actually implementing them and rolling them out and the capacity of the business to be able to handle that level of change. So we're starting off with our people system because it's the year of people as -- and workforce, as Justin has mentioned. And then as we go forward, we've already been making progress on having electronic references and bookings coming in. And we've now getting thousands of electronic bookings. 5,000, I think it was, electronic bookings a month. There's a huge opportunity to improve that.

And then as we move forward in the year, we're going to start looking at electronic pre-assessment, which is, again, a very manual process. And so what we're doing is we're evaluating each module, and we're looking at the return of each module and our focus on return on capital employed. We're focusing on the ones that we can deliver quickly and that provide us a return. So we're doing it in a sort of prioritized modular way. I hope that answers your question.

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Sally Anne Taylor, Numis Securities Limited, Research Division - Director & Healthcare Analyst [21]

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And then just a final question just on -- have you got any insight on timings of the inspections for the required improvement, hospitals and sort of where you expect that or hope that 85% Good and Outstanding will be in, say, a year's time, please?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [22]

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We don't, but we are sufficiently confident that we represent that we would like to be inspected. We're inspection ready, we're confident, and we'd like the CQC to come in, if you're listening.

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Unidentified Analyst, [23]

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It's [Hans Fosterman], independent analyst. Three questions, please. You talked about going to Outstanding drives an increase in private pay. And notably, Manchester has been awarded an Outstanding rating. What type of impact do you expect that given that it's a substantial hospital for you for 2020? If you could give us a sense of how important this is.

Secondly, you talked about also quite significant variation in NHS patterns across the country. And we know from the past that your Northeast region have suffered quite significantly. I wonder if you could give us a sense of how significant a revenue drop you have from peak in that business. I mean is this a matter of GBP 5 million or GBP 10 million a year or less than that?

And thirdly, in the Self-pay business, you had a 3% revenue growth rate, but quite significantly higher lead indicator numbers for inquiries and GP appointments, which would suggest actually declining conversion rate of your marketing activities there, which I understand are a bit -- some contrast to your own aspirations from before. Could you elaborate on how you see to improve that?

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John Forrest, Spire Healthcare Group plc - COO [24]

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Thank you. So Manchester -- yes, so the move -- what's been -- what does Outstanding do? I think in Manchester's case, it's underpinning the growth opportunity in terms of leveraging the investment we've already got in things like the intensive care unit. So we definitely see a swing in PMI providers referring, and we see the opposite when it goes the other way. Not in a position to put numbers on it, but the whole thing works together in terms of allowing us to be more selective in what we do and improve the overall value of the mix. So it's a definite worthwhile, and there's a definite benefit.

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Unidentified Company Representative, [25]

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It's also relative to the need...

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John Forrest, Spire Healthcare Group plc - COO [26]

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Yes. And it's clear as well, when the competitor hospitals' ratings move, we see the same impact both ways.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [27]

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And I was there on Monday, and we're very positive about the year, put it that way, it's in a good place.

NHS patterns, maybe I'll cover that. So without giving numbers, the impact, it's now flattening out, of course, which is worth stating, but now rolling over the declines. But these were material declines. In the Northeast, where independent sector provision is not being used, they have records and increasing waiting lists. And this is a matter of our continued representation. So the impact of this differential commissioning is what is often called a postcode lottery of NHS provision, and we're on the case. But it was a material decline. That material decline has ceased to be a material decline.

We're now in sort of flat territory. Whether that would increase is hard to say. It's not a national position. The 26-week waiting initiative is having a little bit of traction. We're not overly optimistic about it because it is quite difficult for national programs to get traction, but it will also be wrong to say there's nothing in it because we're clearly seeing some signs of that picking up.

Self-pay...

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John Forrest, Spire Healthcare Group plc - COO [28]

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So just on that point, can I just add something? That regional variation continues, and it continues from region to region. So sometimes, it's the Northeast, sometimes it's East Anglia, sometimes it's somewhere else. And it's hard to predict. So -- and it can work both ways. But with over 200 CCGs commissioning in different ways, you will have -- with different financial pressures, and I do understand why they reacted sometimes the way they did. We will have differences across regions continuously. I can't see that there is no single NHS commissioning group really that we can rely on.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [29]

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There is a slight one, but you can't rely upon it. Do you want to comment on Self-pay?

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John Forrest, Spire Healthcare Group plc - COO [30]

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Yes. So the question was around the inquiry levels converting to appointments. So we're seeing a substantial level of inquiry increase flowing through to about 7% appointments. Once we're at that point, the focus is on conversion. But of course, that is a medically guided decision. So with the changes in medical guidance, the changes in NHS guidance, that sort of influenced doctors' behaviors. We don't have a direct impact on that final decision to treat. That has to be the consultant's decision. And we're focused on making sure that we're getting the right activity into the hospitals through the specialty-focused campaigns. And we focus on those that give us the highest potential to convert.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [31]

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And just to build on that, the defocus on cosmetic treatments, the conversion rate in cosmetics is 50% to 60% because these are people that are coming and looking for a treatment. Conversion rate and clinically necessary can be as low as 10% or 20%. So there's a mix effect, which, as you can see in H2, is starting to unwind. You've also got a lag effect. We drove inquiries. There's obviously a period of time between an inquiry, the first consultation, the diagnosis and the treatment. So -- and you see in H2 that growth improves. So you see that coming through. But as we move to being more clinically focused in our Self-pay mix, you will have an implicitly lower conversion rate than we might have had historically.

Other questions?

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Miles Dixon, Peel Hunt LLP, Research Division - Analyst [32]

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Miles Dixon from Peel Hunt. Just recognizing that you said that there's no cookie-cutter approach to commissioning, you also mentioned about your move towards more complex care over a period of time, is that something that you're hearing from the commissioners that they would like you to provide more complex care? Or are they completely different ends of your strategy?

And secondly, on the imaging processing, is that a change that in -- are you standardizing the contract that you have with your existing providers? Or is it a genuine change in whether you in-source or outsource?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [33]

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If I do complexity and you do imaging? So it is our desire with the NHS that our engagements increasingly focus around more complex treatment. It covers off a number of things. The cherry-picking phrase, which has never been appropriate, is much more easily dealt with when you're doing thoracic work. This is complex as it gets, and it's a great service. And we're really proud of it. And we think we add particular value doing that. And of course, when you build those relationships with the NHS, these are much more sustainable relationships than pure commissioning of a certain number. So we absolutely -- our strategy, medium term, is to slowly add ITUs, add complexity. And that also provides us the base for those people who choose to go private. This is a carefully thought-through strategy. You don't deliver this instantaneously. It takes months to launch a service like that. So at St. Anthony's last year, we did a cardiac service for Plymouth, complex service. So absolutely, you'll see more of that over time, and it's a strategic intent.

John?

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John Forrest, Spire Healthcare Group plc - COO [34]

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So the imaging transformation, I think, as we said, there are 3 phases, 3 parts of the current piece of work. The piece you're referring to in terms of outsource, okay, so firstly, just a bit of context. Our service, as you know, is consultant-led and the relationship between the consultant orthopedic surgeons, for example, and the consultant radiologists and radiographers is really important. We're not changing that working practice. What we are partnering with, and this is a new contract with an outside provider, is to focus on image discrepancy auditing, so something that we're currently paying to do in site can be done more efficiently remotely, and in addition to that also the basic plain film follow-up and x-ray. The real complexity and the value of the relationships is so important. That's not something that we would move towards.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [35]

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Question here?

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David James Adlington, JP Morgan Chase & Co, Research Division - Head of Medical Technology and Services Equity Research [36]

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David Adlington from JPMorgan. So first, just wondering if there's anything on the positive or negative side you're looking for in the budget next week. And then secondly, just on COVID, sorry, apologies, but in a worst-case scenario, you could presumably breach your covenants. I just wondered what sort of time frame or leniency you might get from your banks if that was the case. And then finally, just on sick pay, do you pay statutory sick pay or contracted sick pay? And what are your plans around payment for self-isolation?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [37]

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So I'll do budget and sick pay.

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John Forrest, Spire Healthcare Group plc - COO [38]

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I'll do the COVID scenarios.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [39]

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So budget, we have no expectations. If I just do sick pay, if people have to self-isolate, we have a clear policy, we will pay them a bare salary.

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [40]

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And COVID-19, I won't give you a time frame because it's speculating. You could create all sorts of scenarios. In terms of how the banks would react, we have a very supportive bank group who are in the room, so you could ask them. I'm sure they will be very supportive. And if you listen to the statements from government and the Bank of England, I think if there are really difficult scenarios, I don't think we would be the only people speaking to the banks. I think that might be a nationwide issue. So what I'm pleased about is that we did generate cash last year. We've got far more headroom and far more resilience than we did this time last year.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [41]

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Can I just remind everybody, when you're pondering that question, the stretch government case is 80% of people have it and 25% of the workforce is off sick. That's the stretch case. Other questions?

By the way, all the bankers were quite nervous when you asked that question. Charles has come back for one.

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Charles Robert Weston, RBC Capital Markets, Research Division - Analyst [42]

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Just a follow-up. First of all, you mentioned NHS tariff up 1% for the year. What is the tariff impact from April?

And secondly, in terms of the sort of the year of people, as you defined it, what KPIs can we look at to sort of understand how you're performing?

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [43]

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So the tariff question from April, that is...

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [44]

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It's less than 1% from...

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [45]

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That's what it is. That's the answer.

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [46]

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It's not finalized yet, but that's what's been guided to at the moment.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [47]

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So then to the second question, there's a question of what we look at versus what we publish. Well, I can tell you what we look at. We've got really clear KPIs, and that you may -- they range across a series of things, absence, et cetera. Engagement score is fundamental, which we do share because -- the reason that we focus so much on purpose is not just because it aligns us against what matters in our business, it is that, ultimately, in health care, people stay because they believe there is somewhere that's worthwhile to be. And that's why we place so much emphasis on the engagement score because the relationship with the engagement and retention is the key one.

Internally, a couple of measures which are particularly key to us. One is what we call the rookie ratio, which is the ratio of new joiners to people who have been here more than 1 year. And obviously, if you can reduce that ratio, you've got more permanent. And an underlying one is deliberate in people who joined us within 1 year. So if you look at our retention, after 1 year, particularly after 2 years, it's very good. There's something about this, which means people join and leave, which could be for a whole lot of reasons, including that recruiting people who are really right in the first place. We place a particular focus on that particular ratio. And that's probably one of our key ones. Put those 2 together, you end up with fewer levers, more retention and, therefore, ultimately, fewer recruitment costs.

So those are the ratios we look at. We're not planning to publish our rookie ratio or leaver rate because it's so commercially sensitive because everyone can benchmark against it. We do publish our engagement score because we feel we need to be accountable to our own people, that we're public about how they feel about this.

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John Forrest, Spire Healthcare Group plc - COO [48]

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That detail point aside, I guess, overall, on KPIs, we've shared quite a lot of data with you here today, both in the statement and in these presentations. I think it's far more comprehensive than, perhaps, I've seen shared in the past. And it is a fair reflection of how we look at the business. So there's a lot of data here.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [49]

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And before I close, does anybody has a final question? Yes?

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [50]

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Just an easy one -- or 2 easy ones for Jitesh.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [51]

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Can you...

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Emmanuel de Figueiredo, LBV Asset Management LLP - CIO [52]

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Sorry, it's Emmanuel from LBV Asset Management. Just on the net debt reduction journey, on an other-things-being-equal scenario, is it reasonable to assume at least GBP 30 million less of net debt at year-end? Or is there anything specific on working capital? So that's the one easy one. And the second easy one is what you have penciled in for wage inflation?

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Jitesh H. Sodha, Spire Healthcare Group plc - CFO & Executive Director [53]

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Okay. So yes, the first one is easy. It isn't as straightforward as just saying last year was GBP 43 million, this year will be GBP 30 million because there were a number of different factors. So we sold the Baddow and Bristol Cancer Centre, so we generated GBP 12 million. We also had an exceptional improvement in working capital of GBP 17.9 million. If I look at our working capital, our debtor days is -- would be the envy of virtually every company I've ever been in. And I think our ability to improve it much further is quite limited. It's a zero-sum game. There's only so far you can take your working capital, and I think we've done very well with it. So I wouldn't bake in huge, significant improvements in working capital. The rest of the components you can calculate quite easily from the guidance that we've given.

In terms of inflation, wage inflation in this sector is higher than national wage inflation and is higher than inflation generally. That's why we focused on people being the primary program of projects that we've got lined up for this year. That's why we've talked about a tight labor market. And clearly, it's something that is foremost in our minds. If you look at our -- I shared with you our labor cost as a percentage of revenue. They've increased over the last couple of years. Some of that is clearly the additional cost we've built in with the number of people we've brought in, but some of that is also the wage inflation that's come in. However, the way we deal with that is by mitigating it through the efficiency programs that we've lined up. And so that's how we'll tackle it.

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Justin J. Ash, Spire Healthcare Group plc - CEO & Executive Director [54]

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I would also add, it's the year of people because people are key to our care delivery, and it will also help us mitigate some of those costs.

Any other questions? Going, going, gone. Thank you so much for coming, and thank you for your questions.