Spire Healthcare expecting a mediocre 2017

Independent hospital operator Spire Healthcare Group issued an update for financial year 2016, alongside preliminary guidance for financial year 2017, on Thursday.

The FTSE 250 firm’s management expected group revenues for the year to 31 December 2016 of approximately £925m, up from £885m a year earlier, and group EBITDA of £162m, rising from £160m.

While the overall results for the year were adversely impacted by recent trading performance at St Anthony's Hospital, the board said, the group's underlying performance excluding St Anthony's was still expected to be towards the top end of guidance for 2016.

That guidance was for a range for revenue growth of between 3% and 5% over 2015 at a margin of around 18%.

Cash flow remained strong throughout the year, the board said, and the group expected year-end net debt leverage of about 2.7x EBITDA, against guidance of 3.0x.

St Anthony's was currently undergoing a redevelopment and reconfiguration process, which Spire said was now expected to take longer than initially anticipated.

It explained that although much of the building programme was successfully completed on time in the second half of 2016, the work to reconfigure staffing levels, clinical processes and competencies was still ongoing and is not now expected to be completed until the second half of 2017.

Because of that delay, St Anthony's was now expected to report an EBITDA loss of approximately £1.5m for 2016, swinging from a £5m EBITDA profit, on revenues of approximately £30m, which are down from £32m.

The majority of the expected EBITDA loss accumulated over the last two months of 2016.

Spire’s board also reported that NHS Improvement recently finalised its consultation on the NHS tariff for the fiscal year commencing 1 April 2017.

It said the impact of the changes to prices for the weighted basket of services currently delivered to the NHS by Spire Healthcare was an overall reduction of about 3.9%, which for the financial year to 31 December 2017 would have an adverse nine month revenue impact of £7m.

The company’s management said it expected the net effect of those factors to result in an EBITDA outcome for 2017 in line with 2016, before the group returns to mid to high single digit EBITDA growth from financial year 2018 onwards.

“While it is disappointing that St Anthony's return to profitability has been delayed, we are nevertheless pleased with the robust underlying performance of our established hospitals and remain very positive about the prospects for Spire's business overall,” said executive chairman Garry Watts.

“Spire's fundamental business proposition is solid and we continue to be well placed to benefit from opportunities arising from constrained NHS funding and capacity.”