Spire Healthcare's new vision fails to stop shares hitting thee-year low

Spire Healthcare Group reported a 24% fall in profits for the last full year after a decline in NHS local work but the private healthcare operator maintained its dividend as new boss Justin Ash said he was "encouraged by the excellent opportunity" ahead.

Revenues of £931.7m were pretty much flat, up 0.6% thanks to growth in self-pay customers, patient admission numbers and increases in average revenue per case across all groups. Adjusted earnings before interest, tax, depreciation and amortisation of £150m was down 4.7% at the underlying level.

Adjusted profit before tax fell 24.4% to £57.9m and adjusted earnings per share 25% to 14.4p. The dividend was held at 3.8p per share despite net cash from operating activities falling 30% to £124m and net debt rising 7% to £462.8m.

Last year saw challenges for the group from its NHS work and in insurance, with private medical insurance revenues down 1.5% and NHS revenues down 0.5%. NHS eReferrals grew 5.5% but NHS local revenue declined 26.2% as the removal of fines linked to referral to treatment time key performance indicators reduced the appetite of NHS Trusts to outsource work.

Chief executive Ash, who joined in October, acknowledged the loss of focus due to issues at new build facilities, which distracted from core operations and strategic development but set out a vision to become the "go-to UK independent healthcare brand".

Immediate areas of focus will remain the struggling Spire St Anthony's and the newly-opened Spire Manchester, which are both expected a significantly improvement in performance in 2018, while Spire Nottingham "will take longer to gain momentum".

Recognising the fiscal and other constraints under which the NHS is operating, Ash said Spire has "a major role to play", feeling its is "clear" that demand for healthcare provision by the independent sector will continue to rise rapidly as the NHS remains severely financially constrained and waiting lists and increased rationing, especially for elective work.

"These pressures will mean that our NHS business will remain subdued in 2018 but the opportunity in private provision will grow correspondingly."

Ash said there would be "some incremental investments to improve our delivery in several key areas, including clinical quality and customer care, the private proposition, and operational excellence, which will result in 2018 operational expenditure slightly above market expectations".

For 2018 he expects PMI & NHS e-Referral revenues to be flat with further declines in NHS local contract work, alongside "continued strong growth" in self-pay.

Chief financial officer Simon Gordon, who stepped in as interim CEO before Ash's appointment, stepped down from the board on 1 March and will leave the company at the end of the month. His successor is yet to be announced.

Shares in Spire hit a three-and-a-half-year low of 215p in early trading on Friday, but by 1042 GMT were down just 0.6% at 223.8p.

Broker Numis downgraded its FY18E EBITDA forecasts by £6m, or 3.8% to £150.4m but still saw Spire "as well-positioned, with a high quality, well-invested estate, benefiting from higher average revenue per case (+1.6%) across its payor groups, which reflects its improving acuity alongside contractual price increases for PMI patients".

Analysts expect 2018 to be weighted towards H2 in light of tougher H1 comparatives, improving performance at Manchester, St Anthony’s & Nottingham alongside a more favourable NHS Tariff from 1 April ‘18.