Spending cuts in the National Health Service have pushed supplier Spire Healthcare to warn its profits will be "materially lower", resulting in its market value plunging by a fifth and its shares hitting an all-time low.
The UK’s second largest private healthcare company said revenue from the work it does for the NHS, which accounts for a third of its turnover, fell 9.5pc in the first half of the year. This compares with a 2.9pc rise in its private sector revenue. Overall revenue slipped 1.1pc to £475m.
The NHS has been using private companies such as Spire to help make up for shortages of beds and staff, but it has begun reducing referrals as it looks to save money and tackle a £1bn deficit.
Spire's revenue growth will continue to be dragged down by the NHS business, where it sees “new signs of further NHS triaging and rationing in [the second half of] 2018, especially in orthopaedics as clinical commissioning groups tighten their approach towards managing waiting lists”.
As a result its earnings before interest, taxes, depreciation and amortisation (ebitda) will come in below previous estimates of £150m for the year.
Shares in Spire fell as much as 28pc in early trading and were down 21pc in lunchtime trade at 193p, lower than the 210p price at which it floated in August 2014.
The company's Justin Ash, who took the helm of the troubled FTSE 250 firm in October, said the company was going through a “transitional period”, adding: "The current difficult market conditions - also seen by other operators - had a greater impact on our business in the seven months to 31 July 2018 than we had expected.”
The company plans to move its business model further towards private sector work and cut costs. Mr Ash claimed the business was "seeing encouraging momentum" and expected sales to recover over the next two years.
Spire has been plagued with historical issues, including being forced to pay out £27m to compensate victims of a rogue breast surgeon.
The company shelved development projects in Milton Keynes and central London to focus on returning capital to investors.
Shortly after joining the company, Mr Ash fended off a £1.2bn takeover bid from Spire’s largest shareholder, Mediclinic, which it argued "significantly" undervalued the firm.
“It is never a good sign when a company can’t quantify just how bad things are," said Russ Mould of AJ Bell. "After delivering the latest in a series of profit warnings, private healthcare provider Spire is unable to offer clarity on where earnings are likely to end up in 2018, only that they will be ‘materially lower’."
Analysts at Jefferies said Spire’s expected cost savings in central functions and procurement, as well as plans to reduce spending to £90m from £100m, “should have a significant impact on the cost base from 2019 onwards”.
“That said, we expect that, given the lower-than-expected margin in the first half (14pc) and consistent message of investments required to improve clinical and operational quality, focus will likely be on delivering top-line growth,” they said.