Spire Healthcare Group plc (SPI) Earnings Call Transcript

So good morning, and welcome to Spire Healthcare's interim results webinar. I'd just like to run you through the process for today. All attendee lines are muted and the chat function is disabled. When we get to the Q&A section, if you would like to ask a question, please post your name and organization. If you want to turn to ask a question, I will open up your lines so you can ask that question in person, but you will need to unmute yourself. In the event of any problems, please e-mail Laura using the address on screen. So with that, I'd like to hand over to Justin Ash.

Thank you, Cora. Good morning, everybody, and thank you for joining us at our first-ever virtual results presentation. At Spire, we embraced Zoom from the very first days of lockdown. So I'm not anticipating any technical challenges, barking dogs or trombone lessons in the background. And that is almost, certainly, a hostage to fortune. So if you do have any difficulties, please send an e-mail to Laura Young. This morning, I will provide an introduction to our performance and thoughts about our forward trajectory, before asking Jitesh Sodha, our CFO, to present the financial results. After that, John Forrest, our COO, will provide an update on our operational activity and plans for the rest of the year and preparations for 2021. We will then take Q&A. So if Cora can make sure you are all on the mute, we'll begin. We entered 2020 enjoying good trading in January and February, continuing the strong performance of 2019. This performance was built on the operational, financial and leadership improvements made across Spire Healthcare in recent years. These improvements also met the company, was in robust shape to withstand the shock of the COVID-19 crisis and the sudden cessation of private revenues. Highly engaged colleagues operating in a more efficient, safer environment means Spire Healthcare was able to rapidly focused its business on meeting the country's immediate public health objectives of protecting the NHS and saving lives. These improvements also mean the company is now well positioned to refocus once again to meet the significant unmet demand for private treatment, while continuing to serve the needs of the NHS across the U.K. And I'm really pleased at how quickly the business is bouncing back in terms of private self-pay demand, PMI demand and our ability to add capacity. As I've already stated, we had the strong start to the year, with further positive momentum in self-pay to 9%, materially above the 4% we delivered in H2 '19. From March, as the COVID pandemic took hold, we led negotiations for the sector to agree an historic support package for the NHS in England. These discussions and subsequent implementation of the contract, have strengthened our relations with the NHS, at both a national and local level, with hospital directors collaborating with their local Trust and CCGs and various members of the executive team joining regular cross-sector meetings, reacting to the ever-changing needs of the NHS. I could not be more proud of the way our teams responded to the challenges presented. And I thank our colleagues and consultant partners for your professionalism and commitment during this most challenging period. We have announced an exceptional financial COVID gift to all colleagues, not on the bonus scheme, to thank them for their contribution. This will not be funded by the NHS. More recently, Spire was again instrumental in negotiations to agree a variation to the contract, to protect a minimum capacity for private patients. We were particularly focused on accommodating the growing private PMI and self-pay demand and able to help our consultant partners rebuild their practice, which, for most of them, had ceased completely during the peak of the COVID surge. This is a well-balanced and important contract to Spire in the current environment. It allows a return to normal treatment patterns, with a commitment to a definitive end date, which was not in place in the original contract. As we transition from providing COVID response to elective procedures, we've designed and delivered safe, efficient clinical pathways to ensure patients can get access to the treatments they need. This involved a major cross-trading exercise across all 39 sites, with significant investments in COVID-19 testing and operational efficiency to allow a rapid return to full capacity. We'll, rightfully, acknowledged the benefits that the NHS contract brought to Spire, allowing us to protect the employment of our colleagues, while preserving cash. Our net debt position has remained stable and will continue to do so, net of the continued investments we will make in capital expenditure on the estate during the year. The pandemic provides an opportunity to accelerate the business alignment that we've been working on, since I joined in October 2017. We have become much more one Spire operationally and culturally in the last 6 months, through the extensive use of digital communications and rapid alignment of business processes. We have accelerated efficiency programs during this period, in particular, addressing the areas of standardization in local business terms and procurement. I was delighted to be able to strengthen further our Executive Committee with the appointment of a new Group Medical Director, Kathy Cale, who would join us, having most recently been Medical Director at an NHS trust. And a new Group General Counsel, Gillian Fairfield, who has a long senior legal track-record, including most recently at Slaughter & May. As you would expect, we continue to place a particular focus on governance, including patient safety. We granted temporary practicing privileges to NHS consultants to accommodate new services and included trainees in some of our hospitals. The cascade of governance oversight was intensive during the period, including increased frequency of executive and board scrutiny, in an environment where we introduced many new treatments of our hospitals and face many new clinical challenges. Shortly, we will also be publishing our biannual quality report on our website, as part of our ongoing commitment to transparency and improvement. We placed a particular emphasis on supporting our colleagues during the crisis, which I believe also places us on a strong footing for the future. Our focus on safe operating was reassuring, and we supported all colleagues financially in their varied circumstances, including shielding, with individual specific risk assessments. Again, we use digital platforms to maintain strong communication. This included comprehensive mental health support programs, and I have been leading an active, "Let's Talk" debate to foster a strong listening and learning culture. We started with a very positive engagement on "Black Lives Matter" which, amongst other initiatives, is helping us to build new and exciting programs that support our succession plans and grow more black leaders of the future. Our Let's Talk program is extending to other areas of diversity, inclusion, and matters of importance to our teams and builds on our successful and sector-leading apprenticeship program, which attracted more than 150 internal candidates within days of the launch. A measure of our success is the recent strong results in our July colleague survey, a gradual reduction in our labor rates and improved recruitment, especially in our clinical areas. Throughout the pandemic, we've retained our focus on our long-term strategy and are poised to continue positive momentum in H2. Multiple data points demonstrate increasing demand from private patients, both PMI and self-funded. The pressure on the NHS waiting list has been well publicized, and we are collaborating with local trust to work through the backlog, whilst we rebuild private activity. There is clear unmet need from PMI and self-pay patients. The current contract with the NHS still limits our private capacity to the end of this year, so we anticipate this demand building into 2021. As we look to 2021, with cautious optimism, our strategy remains unchanged. We will disproportionately focus on private patients, whilst remaining a key partners of the NHS and we will not waver in our focus on delivering the highest clinical quality to keep our patients safe. In doing so, we remain well positioned to deliver improving revenue, profit and cash. Whilst the NHS contract will limit our capacity for private patients in 2020, this does create a private waiting list for us to service as we refocus our business under the new normal from 2021. We've extended our PMI partnerships, and opened 2 new Bupa breast cancer Specialist Centers, in Spire Bushey and Spire Little Aston. Given cost pressures in the sector, we also continue to be disciplined in margin preservation with this payer group. Our self-pay funnels are building nicely, and we've expanded our core handling capabilities to meet anticipated and actual strong private demand now and in 2021. We've been disciplined in self-pay pricing, holding prices for consumers wherever possible, whilst passing on clearly COVID-related costs, such as testing. This does not appear to be affecting demand. Spire has fostered strong relationships with the NHS through the COVID crisis, and we'll look to maintain these in the future. With an estimated 10 million people waiting for NHS treatment by the end of 2020, according to some sources, we expect to participate in the waiting list initiative. We await further details on the procurement process. We believe the scale of NHS demand makes it likely that our NHS volumes will represent a higher proportion of total activity in 2021 than 2019, but we aim to transition back to 30% over time. Improved flow through at hospital level, including evening and weekend working extensions, should not mean this cap's private capacity. Our uncompromising approach to patient safety is perhaps, now more important than ever. And this commitment has delivered further improvements in 2020, with 90% of our facilities now rated good or outstanding. We've invested in safe and efficient pathways, and would accelerate investment in our estate as we exit the NHS contract, subjects that we maximize our capacity to meet the expected demand. Clearly, in this environment, things can change very quickly. But everything we know, and are seeing today, makes us cautiously optimistic about our forward trajectory. Over the medium term, we anticipate benefits from our efficiency programs and our investments in digital as we look to return to more normal levels of profitability. There remains uncertainty, of course, as to whether a second wave could impact these trends, although the current contract provides Spire with financial protection for most or all of the remainder of 2020. We also believe that there is a determination by government to keep electives going to avoid a further increase in waiting lists, should new restrictions come into place. Even if there were such a deterioration in the COVID situation, with another pause on elective surgery was required, we now have revised banking arrangements to provide further headroom, and we have seen how quickly inquiries and activity returns afterwards and the scale of the demand for treatment. This is all encouraging for future prospects. Subject to those uncertainties, we anticipate that the underlying demand and our ability to respond to it may deliver 2021 trading similar to that in 2019. I would close by reiterating that thanks to the tremendous focus and commitment by my management team and colleagues across Spire and backed by a responsive and supportive Board. Spire has, in our view, come through 2020's challenges well and indeed strengthened. This places us in a good position to deliver in 2021, and to benefit from any opportunities that further sector consolidation might present. And it would be remissive to me not to acknowledge Garry Watts personal contribution to the business and support to me during this challenging period. I was sad to learn that he has decided to retire, after serving nearly 10 years as Chairman of the group. His expertise and guidance have proved instrumental in helping the business to develop into the company we are today. The process is underway to find his successor. And I will ensure we find a way to express our gratitude properly, when the rule of 6 is relaxed. Thank you, and I will now hand over to Jitesh and John to take you through our financial results and those forward plans.

Thank you, Justin. So Justin has explained how we have managed through the COVID-19 pandemic. I think we've managed this pandemic well, both operationally and financially. We had a good start to the year when -- we had a good start to the year, wherein the first 2 months of the year revenue was up 3% and self-pay up nearly 9% on the previous year. On the 5th of March, when we announced our full year results in 2019, we stated that absent COVID-19 uncertainty, we expected revenue in excess of GBP 1 billion and growth in operating profit in line with market expectations. At that time, we had a physical analyst presentation, used hand gel and avoided handshakes, but otherwise, went through a normal results process, including a full investor ratio. A week later, the COVID-19 situation have materially changed, and we informed the market that Spire had been asked for and had offered, in support to the NHS, to help manage the pandemic. Within 10 days, on the 23rd of March, we reached agreement with the NHS to make all of our hospitals available to them. And a week later, had reached agreement with our banks, the covenant waivers for June and December 2020. We continue to try and stay ahead, and I'm pleased to say that with the support of our banks, today, we have announced a further covenant waiver for June 2021 and an extension to our banking facilities to 2023. More of this in a moment. At a time of significant uncertainty and potentially severe business disruption, we shifted focus from P&L to cash management. We acted swiftly and decisively to both help the NHS and protect the interest of our employees and shareholders. Initially, we expected disruption for a few months and a return to normality by the summer. It is now clear that there will be some level of COVID-19 impact for months to come. However, we approached the future with cautious optimism. Whilst COVID-19 and how it develops will continue to create some caution, we are seeing a good return to private health care and expect the backlog of work, both private and NHS that should keep our hospitals busy in the coming years. The unusual trading period and the NHS contract mean that comparisons with prior periods are not particularly useful. I'd like to highlight that a signal, at full year, we are now presenting our numbers on a post-IFRS 16 basis and no longer showing pre-IFRS 16 comparisons. The revenue in the first half of the year was GBP 401.9 million. And despite COVID-19, adjusted EBIT was positive at GBP 14.9 million and an adjusted loss before tax of GBP 26.6 million. There are GBP 204.7 million of adjusting items, GBP 200 million relates to a goodwill write-down, and I'll provide some more detail of this in a moment. GBP 1.4 million relates to the finance costs associated with the CMA settlement announced in July and GBP 3.2 million relates to costs associated with the implementation of recommendations from the past inquiry. Management of cash and the balance sheet has been more important than P&L management in this period. Whilst we have reduced our CapEx spend for the year, we are still expecting to invest approximately GBP 50 million in our estate, and we anticipate spending the catch-up CapEx next year. In the first half, we spent GBP 19.5 million, which is similar to last year. Under the current NHS contract, we have paid weekly in advance, and this is providing a working capital benefit to us. Focus on cash and cash management has helped to keep net bank debt unchanged from 31st December at GBP 330 million. And I'll speak about our banking and covenant arrangements in a moment. We suspended the payment of the dividend while we focused on cash, and we'll review our dividend policy when we return to normal trading. In line with IFRS requirements, we perform a review of the value of our carrying goodwill every reporting period. We reviewed the market in the medium and long -- our view of the market in the medium and long term remained substantially the same as at the last review. Clearly, COVID has had a material impact this year, and it has changed some of the inputs, which lead to how we value goodwill. As a result, we have written off GBP 200 million of the GBP 518 million of historical goodwill. The goodwill originated from the original acquisition of hospitals to create Spire in 2007 and 2008. This is a noncash, nonrecurring item and is excluded from the adjusted earnings metrics. I will also add that this is not a write-down of our physical assets nor a write-down of our property portfolio. We led the negotiations with NHS England for the independent sector to agree on unprecedented contract to support the NHS at a time of need. We felt the right thing to do was not to seek a profit from a national emergency. The key features of the contract are that all of our sites in England, equipment, staff, clinical expertise and resources, will be made available to NHS England. This was followed with similar agreements in Scotland and Wales. Cash costs, including interest and rent costs, would be covered, whilst noncash costs and non-hospital costs are excluded. CapEx is also excluded. We made a decision to charge only 1/3 of our board cost to the NHS, and we deduct earned private income from the cost to the NHS, whilst retaining a small margin. This allows Spire and the NHS to sharing the benefit of increased private revenue. There is a 1-month notice period with NHS, which NHS England can trigger. In August, we agreed heads of terms to vary the agreement, which provides a firm backstop end date to the contract of 31st of December 2020. It also incentivizes us to do more private work. If we hit certain NHS and private targets, we can retain a higher margin from the private revenue we generate. This variation should provide value for money for the NHS, increased private capacity to Spire, and certainty for our consultants. We are working towards a similar variation with NHS Wales, and our contract with NHS Scotland terminates at the end of September 2020. As I said before, whilst year-on-year comparison of revenue is not very useful, this slide shows that, not surprisingly, NHS revenue grew 40% year-on-year, whilst private revenue declined. And in the first half, NHS revenue represented half of total revenue compared to 29% in 2019. As mentioned before, our cash position remain unchanged. The cash impact of CapEx of GBP 28 million was higher than the CapEx headline figure of GBP 19.5 million, as much of our CapEx in 2019 was weighted towards the end of the year and was settled in the first quarter of 2020. The GBP 47.4 million of financing activities is the impact of IFRS 16 on the cash flow statement and is a combination of bank interest and lease costs that are now capitalized. I would like to thank our banking group for their continued support, and I know many of them are on the call today. Following agreements with our banks to waive covenants for June and December 2020, we have today announced a further covenant waiver for June 2021 and additional headroom for the covenant test in December 2021 of up to 6x net debt-to-EBITDA. The net debt-to-EBITDA and interest cover ratios will be replaced with a simple liquidity test, and it should be noted that covenant calculations remain on a pre-IFRS 16 basis. We have also agreed a 1-year extension to the facility, which now expires in July 2023. So this agreement should provide comfort that we have access to sufficient liquidity through the pandemic period. IFRS 16 has significantly transformed our balance sheet, with the capitalization of our long-term leases. It is useful to look at the balance sheet, both with and without the leases. There was a material reduction in year-on-year net bank debt, which fell from GBP 362 million last year to GBP 330 million. Any outlook in the current environment will come with significant caveats. We have provided certainty where we can with our bank facilities and covenants. And despite all the caveats and uncertainties around COVID, I can say the following about the second half of the year and 2021. Firstly, there is significant unmet demand. We are seeing a good return of private patient activity and limited availability of NHS services outside of COVID is expected to result in high pent-up demand and significant NHS waiting list. John will provide more detail about this in a moment. There has also been some commentary that safe COVID-19 patient pathways will significantly reduce capacity. We have developed safe and efficient pathways that allow us to operate at near-normal levels of capacity. Again, John will speak about this in a while. So we are pleased with the pace and scale of the return of private activity since lockdown, for both PMI and self-pay. We are also confident with our medium-term outlook as waiting lists are likely to increase. Clearly, there's some uncertainty with how COVID-19 will develop over the next few months and how that will impact our business. With that caveat, if current trends continue, we expect operating profit in the second half to be at least that earned in the first half. Net debt at the end of the year should be between GBP 320 million and GBP 360 million, depending on the timing of the termination of the NHS contract. And whilst it is too early to set firm guidance for 2021, we are also cautiously optimistic that trading in 2021 will return to 2019 levels. I'll now hand over to John.

Thank you, Jitesh. Good morning. As Justin already discussed, our strategy remains unchanged. COVID has seen us completely refocus our business and our ways of working to support the NHS and play our part in the nation's response to the pandemic. But we've also used this time to improve our ability to work remotely and to continue to develop our plans. We fast track key changes and now stand prepared to relaunch our business to be even stronger than ever. We activated our crisis management plan on the 17th of February, and have been focused on delivering our COVID response for the last 213 days. We embraced remote working, whilst implementing new managerial command structures to leverage our 3 business unit Directors and their regional teams. This coordinated approach always put the safety of our patients, teams and consultants first, with each decision made with an eye on our purpose. As a result, all 39 Spire hospitals are now more fully aligned and working more efficiently as one Spire. We've learned many lessons throughout COVID pandemic and developed strong relationships with our key stakeholders as a result. These relationships provide firm foundations as we look to refocus our business in the future. Spire has played a pivotal role in supporting the NHS during this national public health crisis. Our teams worked hard to maximize the services we provided in all sites. Together, we treated over 120,000 NHS patients since the contract began, with 49,300 admissions, including 18,800 for time-critical oncology procedures. We've also, in some cases, accommodated entire service lines from neighboring NHS Trust hospitals, such as chemotherapy in South Hampton and the cystic fibrosis service in Manchester. 241 of our colleagues volunteered to work in the NHS, and we loaned 52 ventilators and 49 sets of monitoring equipment to neighboring NHS hospitals. We learned new skills, embraced new processes, and all whilst remaining true to our purpose, to make a positive difference to our patients' lives through outstanding personalized care. And we've been delighted with the overwhelming positive response from both patients and trust colleagues. Our consultant partners are key to our strategy, and they have faced significant challenges during this COVID pandemic. They have worked hard on the front line in NHS hospitals, while seeing a significant reduction to their private income. All are keen to return to work, and we worked hard to facilitate this through the NHS contract variation. Again, we've improved communications with this vital community, holding weekly calls with our medical advisory committee chairs, producing regular newsletters, called the Two Minute Times, and holding conference calls and briefings with some 600 consultants so they could speak to our Executive Committee in a series of big briefs. We are nothing without our teams, and we have completely overhauled our operational communications and created policies to ensure that our people felt supported during this time of unprecedented change and challenge. 7,000 colleagues signed up to our new colleague communication app, Ryalto, providing access to regular video messages from the Executive Committee and a platform to celebrate outstanding achievements. With site visits restricted during the pandemic, Justin and our clinical nonexecutive Directors visited each hospital virtually, and site visits have now recommenced on a limited basis. We encouraged our colleagues to recognize their peers with awards for, Living Our Purpose, with weekly shout-outs and regular sessions with a performance psychologist and coach to protect their mental health. I am very proud that this focus on support and communication supported an improvement in engagement in this challenging period, with 80% of colleagues proud to work for Spire and 86% happy with the standard of care, both measures up on our last survey conducted in July 2019. COVID provided both the reason and momentum to fast track projects that will strengthen our capabilities for the long term. We accelerated the rollout of virtual consultations, with 20,000 taking place in the first 6 months of 2020. Our digital team works tirelessly to implement a new hospital management system. A vital platform to support further development, such as electronic pre-operative assessments, which is now in pilot launch in 3 sites, and which is expected to begin rollout across all Spire hospitals by the end of the year. Electronic pre-operative assessment will make us more consistent and more efficient. The automation of a previously paper-driven process means that thousands of prescreening questions are now electronically completed by patients on our MySpire portal. And our system checks responses, consistently stratifying risk and summarizing flights for our clinicians to follow up rather than requiring them to read all responses for themselves, thus freeing up time to review more patients more quickly. We accelerated the introduction of 2 HR projects, Florence, our new people management system, and the app to improve communication with our colleagues. The latter was particularly important to help colleagues feel connected to the business, when many were working remotely. We've also continued to work on our new self-pay pricing system, which introduces further compliance and standardization. The platform gives us the ability to automatically produce quotes for patients and delivers a central overview of all prices. Ultimately, the system will support customer demand driven dynamic pricing across all our services. From an operational perspective, we've introduced a 3-tiered command structure to improve communication, and we've refined and improved our KPI reporting to allow greater visibility of performance and we've also extended our pathology testing capability to support the safe patient pathways. A project to improve revenue new capture due to coding errors of incorrect billing delivered more than GBP 1 million additional profit in the period. And finally, we've commenced a project to completely remove cash from the transactional payment workflow. The intention is to replace all cash payments with electronic solutions in order to deliver cost savings, improve processes and liberate more colleague time to care for our patients. Having agreed the variation to the NHS England contract, which will, as you've heard, last until the end of the year, we're now fully focused on navigating our business out of lockdown. We have recommenced selective work and have invested in safe patient pathways as we pivot from supporting the NHS to increasing private activity. Our patient pathways, screening, COVID testing of all patients, colleagues and consultants, coupled with the effective use of PPE, allow us to provide efficient, dedicated pathways to our patients. These physical changes to hospital lay out with access controls, pathways and new ways of working, mean that we've been able to return to normal levels of activity and throughput in theaters, outpatient and diagnostic departments. Alongside this, we've prioritized the development and rollout of digital systems and automation, as I outlined in the previous slide, to support cost reduction in 2021. We're also leveraging our newly reinforced local relationships with Trust to prepare for the upcoming NHS England tender process. To further support growth and our return to private activity, we fast tracked the development of central call handling service, and we've also recommenced very limited targeting online marketing to support activity. But as you'll see shortly, latent demand is currently strong, and therefore, at this time, significant investment is not required. We actively increased operating hours across evenings and weekends to support our consultants getting back to business. So as we look to 2021, we have multiple data sets that point to strong demand. Overall, consumer confidence is building as this survey, commissioned by Spire and conducted by Populus, demonstrates. Patients who are very anxious or anxious has reduced from 69% in May to 54% in September. In fact, the Spire target market is less anxious than the U.K. population on average, with levels of anxious and very anxious now dropping to 34% in the most recent data. The Spire target market is typically older and wealthier than average, living close to a Spire hospital and receptive to private health care, and we estimate this represents circa 10% of the U.K. population. We can influence and improve consumer confidence with our safe patient pathways, supported by our robust testing regime. If you visit our website or one of our hospitals, you will see clear guidance for each pathway, with regular reinforcement and reassurance through the use of videos, posters, and signage. These pages are now the most visited on our website, getting over 3,000 visitors per day. Our various commentators have attempted to calculate the potential waiting list for NHS patients. This data from independent healthcare providers' network suggests that the list could be in the range of 7 million to 13 million by the end of May 2021 versus the circa 4 million list as we entered the COVID pandemic. For this reason, we expect to remain a key partner to the NHS and anticipate participating in the waiting list procurement process. We expect this to be a nationally-managed, locally-commissioned process running in parallel with the electronic referral service. As I mentioned earlier, the strong local HD-led relationships with trusts built up during COVID will, in my opinion, be a critical advantage. Whilst we await further detail on this process, we continue to deliver the majority of our NHS activity under the current contract, whilst beginning to turn to our existing electronic referral service waiting lists. We kept electronic referral directories of service open to new electronic referrals during COVID and therefore, have active waiting lists and new activity building to address as space becomes available. We anticipate similar arrangements in Scotland and Wales with new waiting list contracts. In addition to the anticipated demand from the NHS, we've started to refill our funnels of private activity. Weekly relevant inquiries are now above prior year, and this is often a self-pay consumer's first step on the journey to becoming a Spire patient. You can see from this slide that self-pay outpatient consultations are now above prior year levels. And our own V-shaped recovery is in place, as we anticipate that inpatient and day case submissions will get there by the end of the year. The recovery in PMI is following a similar trajectory to self-pay, with a little lag, due to some of our biggest PMI hospitals still being required to deliver significant volumes of activity under the NHS contract. As this chart illustrates, our total admissions activity is now running at 95% of prior year levels and strengthening. The early phases of the NHS contract period reflects the lower admission numbers, driven by different, more complex, longer stay activity and also don't capture activity delivered in Spire by NHS whole service transfers. Since the variation and development of our safe patient pathways, activity levels have continued to improve. Strong demand will be underpinned by our relentless focus on patient safety and clinical quality. 90% of our sites are now rated good or outstanding or the equivalent, with 3 sites upgraded from requires improvement to good in the period. CQC inspections were paused during the peak of the COVID pandemic, but are now resuming. We're expanding our medical governance structure to provide further support to the business. And as you've heard, a new Group Medical Director, Dr. Catherine Cale, has been appointed and will join the company on the 26th of October. I'd like to take this opportunity to thank Fergus for taking on the interim role. We're also introducing a regional structure of medical Directors reporting into Catherine to provide greater resilience. And the publication of the pass and inquiry report required Spire to review the care of and communicate with all his patients, and this process is ongoing. So in summary, we have managed well in a very challenging time, and I wish to have my thanks to our colleagues and consultant partners for all the work they've done to keep our patients safe. We have built new capabilities, embraced new ways of working, and are leveraging our learnings as we focus on navigating the business out of lockdown. There is clear evidence of strong demand coming back to Spire, and we're well positioned to return to 2019 trading levels in 2021 and deliver growth over the long-term. With that, I'd like to hand over to Cora to moderate the question-and-answer session. Cora?

Thanks, John. So as I said earlier, if you can write your name and organization in the Q&A, I will then go to the queue and unmute your line. So bear with me while I open the line. James Vane-Tempest, you're going to ask our first question.

You mentioned how the Board anticipates trading to return to 2019 levels in 2021. Just wondering if you can clarify if this is general activity in terms of volumes? Or is it revenues, profits, or something else?

Jitesh? So thank you for the question, James. And Jitesh, do you want to kick off with that one?

Sure, Justin. Thank you, James. As you can imagine, we took a lot of care and attention on picking those precised words that we put into our outlook statement. I think it's too early for us to be really specific on guidance for 2021. However, what we wanted to show was when we're looking at 2021, we're looking to benchmark it against 2019 and not 2020. And I think that's probably the biggest thing that you can take from that statement because there was such a wide range of views as to how our business will be impacted. I hope that answers your question, James?

Our next question is going to come from Kane at UBS.

Just a couple of questions, please. You've spoken about -- a lot about sort of unmet demand in private pay segments. Could you just give us maybe a little more color on some of the impediments or gating factors to a recovery, maybe with specific reference to sort of the operational constraints around anaesthetists theaters and diagnostics? And how do you see the sort of a weaker macro may be impacting affordability with respect to self-pay? And then just, secondly, how are you guys thinking about margins post-COVID-19? I mean, should we be penciling in a sort of an increased cost of doing business because of all the sort of increased protocols? And then, just finally, you made some comments around consolidation. Could you just maybe give us some color on what that may entail? Is it sort of bolt-on type investments? Is there -- I would imagine there's maybe a little bit of pain in the market presently? And how are you thinking about return on capital in this regard?

Kane, thank you for your questions. I think there are 3 questions there broadly. One about the operational position and how we're managing that, and I'll ask John to answer that. One, broadly about margins, which I'll ask Jitesh to answer afterwards, then I'll talk about consolidation. So John, do you want to talk about operations, in particular? Any constraints and diagnostics consultants? How we're managing it? How we see it, please?

I think, yes, there's a couple of points that we can help you with there. So firstly, the safe patient pathways we've talked a lot about are really important, underpin our ability to get the volume through. We've been extending our sessions as well into evenings and weekends, so we're able to provide more space. In terms of anaesthetists and key employees, that's why being part and close and a key partner with the NHS is key. It's a lot about local relationships, and we're in a good position on that. And we will be able to move and react as things change. In terms of specifically private, as you see on the graph, the level of inquiries are very significant. So we've been focusing on expanding our capacity in call centers and getting our team back up to speed and making sure we're answering those inquiries and getting back to customers. And in the short, medium-term, the pricing and system that we're putting in place will allow our sales teams to respond automatically and more rapidly. So there are a couple of points that perhaps helped on the private point, Justin.

Thank you. Jitesh?

Yes. So the way I understood your question, Kane, is that you're asking the impact of -- on our margins of the safe patient pathways that we are putting in place. Clearly, having the self-patient -- the safe pathways does involve more costs there. We're testing all our patients. We're testing our staff on a regular basis. And there's also an additional cost for PPE. The way we're managing that is in self-pay. We are charging the cost of the tests to the patient, and we haven't seen any appreciable impact on demand as a result of doing that. With the NHS in our current arrangement as it's a cost-based deal, they are covering the cost of the testing in the PPE. And with the insurers, we're currently in discussions as to how we get recovery for the additional costs that are in there. So hopefully, that answers your question, Kane?

And just to build on that as a general observation. Our primary focus initiative has been to demonstrate that we can be safe pathways deliver at least the capacity we had before in all areas, diagnostics, outpatients, use digital to increase capacity. And by way, this has a CapEx implication, by the way. So if -- before we were talking about, are we constrained with consulting rooms? Well, obviously, if we can embed as we are doing the use of video consultation, it just frees up more space for us generally. So this is -- this has a knock-on benefit to our overall capacity. We were particularly focused on theaters, and I think we've proven the point that you can have safe pathways and also have at least the same capacity. And with extending into more evenings and weekends, we think we're going to have more capacity. And our relations with the NHS are key with the availability of consultants. And that's one of the reasons why it's been so good that we've built strong relations during this period, and we'll continue to be a strong partner into next year. And we are also very mindful of the margin point. I've referenced it in my introductory words. And whilst we're still working on pieces there, a, we're very focused on how we appropriately pass on those costs that we have, but also on the underlying efficiencies, and we really have used the opportunity to make good progress there. As regards to consolidation, nothing specific other than, clearly, this has been a period which puts the sector under pressure. We're well able to absorb that pressure, partly thanks to the support of our banks and the good work that Jitesh has been doing and through prudent management of cash prior to this crisis, which has put us in good stead going into it, and you've seen we managed cash well. So we're in a position to keep our eyes open. We've always been very clear if we do anything strategic from a consolidation perspective that we are open to it. If it's the right price. If it's in places which make sense for us, so it has a synergistic effect on our overall estate. And with a mind that that would deliver an improvement in return on capital over the period of that acquisition. So we're mindful of the criteria that would apply, should we find something which we think is appropriate. So that's the way to think about that. And if something will happen, we'd, obviously, announce it. But we watch the market closely because we've always said that the changes in the market will drive consolidation sooner or later.

Our next question is going to come from Charles Weston.

Can you hear me, okay?

We can.

Great. I have 4 questions, please. The first carries on from Kane's, actually. And that is with all this pent-up demand, with clear recovery on the PMI -- recovering trends on the PMI and self-pay side, what is to stop you having a much better year in 2021 compared to 2019, sort of a return to normal plus then greater growth because of all the pent-up demand? Second question, on the inpatient safe pathways, could you comment on theater utilization, in particular, with perhaps reference to the aerosol time and patient throughput? Third question is relating to headwinds in self-pay. Spire, over the last couple of years, has been limiting some procedures that have less clinical benefit. And I just wondered if there's sort of more headwind to come there as you rationalize treatments? And then, lastly, on NHS tenders, do you have -- can you guide us on the next news flow there, the timing of those tenders, when we could hear announcements? What sort of form they're taking? If you know that already.

Okay. Charles, thank you very much. So a number of questions there. The first question is, what would stop us having a better year in 2021? Well, I think what I'd say to that is we've given the sort of outlook we've given. We are, clearly, gearing up our capacity so that we can have the best year possible. So if there should prove to be more demand, then I can see how you can reach that conclusion, then our intent is to be ready to manage it. I think that's the way to think about it. So we are clearly focused in that area. Which I think then goes to your second question, which is, how do we make sure that safe pathways, meaning that we are in a position to do as much as possible? I'll hand that to John on safe pathways.

Yes. I mean, there's a lot of work gone into making sure that we can get the throughput back to near-normal levels. The benefit we have as an elective hospital is we don't have to contend with the A&E and emergency unplanned admissions. So we are in a very, very different position to an acute NHS hospital. We can plan all of our activities. That's the first point. The second on theater utilization is we have started, before COVID, to look in detail at theater utilization and how we organize our lists and how we can better -- be efficient in terms of the movement of patients in and out of theater. Initially, we were heavily restricted due to guidance from Public Health England and NHS England, and the Public Health England bodies around aerosol-generating procedures and intubation outside of theater. Those controls are now lifted. With the right controls in PPE, we're able to reduce downtimes in theaters between procedures to the absolute minimum now. And in fact, in outpatient departments, those controls are no longer relevant to how we're operating. So big changes. One of the biggest challenges as a management team has been able to keep track of and constantly reflect the ever-changing guidance from the multiple regulators. So in terms of theater utilization, there is more to come and more to do. At the moment, it's a very manual process, and it's one of the areas we're looking at in terms of future systems and automation.

Jitesh, do you want to talk about our self-pay mix? And I guess this is a question which relates to the fact that we have been unwinding our reliance in the self-pay growth on aesthetic treatments, and whether that was starting to show that it had run its course?

Yes. So I think at the end of last year, we said that that targeting of which self -- which treatments we focus on self-pay had been mostly -- we've mostly done most of that. And what we were seeing now was we are bedding in the procedures that we have now. And what we're seeing in the charts, that John showed, is that there's significant demand and it's coming faster and earlier than PMI demand coming through. I think if we look at our self-pay customer base, they tend to be older. They tend to be wealthier. And so again, even if you're looking at the market dynamics of the macroeconomic trends around potential downturns in the economy, we think with high waiting list in the NHS that the self-pay segment is one that should remain fairly firm. I think the only other thing I wanted to add was really the first question that you had, Charles, which is about what stop us on the better year? Link it to the question that Kane had about margins, and really the 2 linked together that that one of the ways for us to mitigate and keep margins high is if we've got extra volume. And if we can capture the volume from both the NHS and private the demand that we're seeing, then that should help us on the margin structure.

Thank you, Jitesh. I'd also point out, Charles, that self-pay was up 9% for the first couple of months. So I think part of the answer to the unwinding question is in the actual results that were delivered just before COVID's really hit. On NHS tenders, so it's currently in the consultation phase. I think what has been said so far is or could be interpreted as it's a local procurement exercise with a national framework and oversight. So I would interpret that as looking a bit like the world 3 years ago, where there was substantial work coming from trusts. At that point, it was all entirely local. It was all in different agreements. It was really uncoordinated. I think what we're seeing suggests a coordinated, visible national effort on the framework, but engaging locally, which is why I emphasized the importance of the local relations that we've built. Timing-wise, it is presage to be something which happens this year. I think these things are always subject to the vicissitudes of complexity, timing, COVID, et cetera. So I would say it will be somewhere between the end of this year and the end of the first quarter of next year. I would give that sort of range. And I doubt there will be any new news really because it's in a consultation phase for the next period. And probably the next news that we would give would be when the process is completed because I imagine it will be relatively -- it will be subject to contracts, et cetera, during the tender process. Anything to add to that, John?

No, that's covered all the points.

And I just have one clarification, if I can, just on that point. With regard to the use of the independent sector, and obviously, you've worked hand in glove with the NHS. You've talked about how that improves your relationship. Is there a push centrally to get trust to use the independent sector, where they might have been reticent in the past or even for GPs to refer into the independent sector similarly?

Yes. Definitely. We're part of the solution as a sector to the record waiting lists. They want us to be used. They want ERS to be active. ERS will continue, by the way, in the new tender environment in parallel. Choice remains on the agenda. The 26-week waiting list remains on the agenda. And there has been a clear focus on making sure -- to be honest, there are very few reticent trust now. That story has really evolved. We are in a very different world to the one we were in 6 months ago. But there is a very clear focus on using the independent center, particularly, by the way, as you go into winter when the NHS Trust will be focusing on the general winter pressures, let alone the COVID pressures. And I think there is a genuinely changed view of us and appetite to use, if necessary generally because of this unfortunate crisis.

Our next question is going to come from the line of Miles Dixon.

Maybe we might have lost, Miles. Miles, are you there? Our first Zoom moment. Should we go to someone else and let Miles come back in a minute.

We should come back to Miles, and we'll go to Paul Cuddon.