Spire Healthcare Group plc (RHC) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining our conference call and webcast at such short notice. On the call today, we have our Managing Director and sorry. Craig McNally; our group CFO, Martyn Roberts; and our U.K. sorry. Andy Jones. Slide 2 shows our disclaimer, and Slide 3 sets out the agenda for this afternoon. [Operator Instructions] I'll now hand the call over to Craig.

Thanks, Kelly. Good afternoon, everyone, and thanks for joining us today. I'm really delighted that today, we announced that we've reached an agreement with the Board of Spire Healthcare Plc on the terms of a recommended all cash offer of 240p per share to acquire 100% of the issued share capital of Spire, by way of a scheme of arrangement. As you may know, Spire is a leading independent hospital group in the U.K., providing best-in-class health care through 39 hospitals and 8 clinics across England, Wales and Scotland. It has a strong track record in the private patient market amongst both self-pay and insured patients and is a leader in the provision of high acuity care. The transaction announced today is transformational for our U.K. business. It allows us to combine 2 complementary private health care providers to create a leading independent private health care services platform across the U.K., which will better serve both public and private health care needs and will benefit patients, communities and key stakeholders, including both public and private payers. The total consideration payable under our offer is GBP 1 billion, which equates to AUD 1.8 billion, representing a premium of approximately 24.4% to the closing price of Spire shares on 25th of May and a premium of 47.6% for the VWAP of Spire shares over the 180-day period ending 25 May. We will fund the acquisition from existing debt facilities and expect to retain our FY '21 dividend payout ratio in line with historical levels. Martyn will talk shortly about how we propose to manage our wholly owned funding group leverage post the transaction. The Spire Board consider the terms of our offer to be fair and reasonable and have unanimously recommended that Spire shareholders vote in favor of the scheme. Spire directors who own Spire shares have irrevocably undertaken to vote in favor of the scheme. In addition, Mediclinic International and the former Chairman of Spire have provided irrevocable undertakings to vote in favor of the scheme. Mediclinic's irrevocable undertaking is subject, amongst other things, to no competing offer, higher offer emerging at 10% or more than the offer consideration. Combined, the irrevocable undertakings represent approximately 30.4% of Spire's issued share capital on 25 May 2021. Full details of our offer will be set out in a scheme document to be sent to Spire shareholders who will be given the opportunity to vote on the scheme at a shareholder meeting expected to be scheduled in July. Ramsay also intends to engage with the U.K. Competition and Markets Authority in relation to the transaction. As part of this process, the CMA may require that Ramsay make divestments of certain hospitals and/or clinics after the transaction becomes effective. The CMA is likely to require the 2 businesses to be held separately until its review is complete. I'd like to take a moment now just to talk about the high level benefits of the proposed acquisition before handing over to Andy who will talk in more detail about the opportunities that will flow from this transaction. As I mentioned earlier, the proposed transaction will be transformational for our U.K. business. It will diversify our payer sources and case mix through Spire's expertise in private pay and higher acuity procedures and it provides us with access to new geographies and will transform our U.K. platform. It will also extend our core capabilities and improve patient access throughout the longitudinal care pathway, improving capacity for diagnostic imaging, whole pathway propositions and enhanced recovery programs. Importantly, it will provide the foundation from which we can pursue further growth opportunities in the U.K. and will accelerate our strategy to create a leading ecosystem for patient-centric integrated care. From a financial perspective, the proposed acquisition is expected to deliver significant benefits for Ramsay, with expectations of synergies of at least GBP 26 million per annum, which will assist in delivering high single-digit earnings per share accretion in FY '24 and return on invested capital above weighted average cost of capital in FY '24. The annual benefits of at least GBP 26 million are expected to be earned regardless of the outcome of the CMA process, and we expect to achieve a full year run rate of these synergies in FY '24. EPS accretion and ROIC, however, may ultimately be impacted by the outcome of the CMA review. The acquisition will also enable us to enhance our partnerships with doctors, other clinicians, private health insurers, and the NHS to better serve U.K. patients. It will reinforce our valuable partnership with NHS and establish an enhanced offering for private patients. It will augment our ability to work with doctors and clinicians to ensure further investment in clinical excellence in our recognized specialties and deliver improved patient outcomes and experiences through bolstered partnerships with private insurers, the NHS and associated clinical networks. Importantly, it will accelerate our strategies to meet the growing patient demand for more convenient health care such as remote or digitized health care services through greater investment in digital innovation and transformation. From an employee perspective, the acquisition enables us to create an enhanced employee proposition through the combination of talent, learning and best practices across both Spire and Ramsay. I'll now hand over to Andy, who will explain why we are keen to grow in the U.K. market and talk in greater detail about the strategic rationale for the acquisition.

Thank you, Craig, and good afternoon, everyone. Let's start by looking at the U.K. market. In terms of size, approximately 10.3% of the U.K. population has private medical insurance with GBP 4.8 billion spent per annum. Furthermore, the annual value of the private health care self-pay segment in the U.K., including cosmetic surgery, is GBP 1.1 billion, with an additional GBP 636 million per annum generated by private health care, self-pay into NHS private patient units. The highest demand for self-pay being in the 55 to 64 age group and expanding demographic. As at March 2021, there were around 5 million patients waiting for planned NHS surgery, and this is expected to continue to rise further. Approximately 1.5 million patients have waited more than the referral-to-treatment target of 18 weeks with trauma and orthopedics having the highest number of patients waiting. So as you can see, there is likely to be an opportunity for the combined business to assist in addressing the backlog in demand in both the private and public sector over the next few years. According to the Office of National Statistics, the U.K. acute sector is valued at approximately GBP 5.8 billion with strong growth projected, driven by privately funded demand, NHS waiting lists for outsourced health services and increased demand amongst both privately and public funded patients due to the COVID pandemic. It is this long-term demand which is expected to continue that underpins our investment thesis. On this slide, you can see 2 graphs. The left-hand side graph shows the year-on-year growth in waiting list and treatment times since 2014 and the right-hand side graph shows the population growth trajectory since 1991, projected out to 2066. These graphs paint a compelling picture of ongoing growth in demand for health services in the U.K. If you look at Ramsay's positioning in the U.K. market today, it has a market share of approximately 8% compared to Spire's 17%. We are, however, a leading provider of independent hospital services to the NHS, operating 37 facilities including 3 neurological rehabilitation centers and a mobile diagnostic fleet. We are a market leader for electronic GP referrals caring for over 200,000 patients each year and a strong advocate for patient safety with enhanced monitoring of the patient experience through Net Promoter Scores and digital engagement. We employ over 7,000 staff and work in partnership with over 3,000 doctors and clinicians. The complementary nature and strategic benefits of combining Spire and Ramsay's U.K. business is clearly illustrated if you look at the operational metrics set out on this slide. By combining both businesses, we will create a good balance of patients between private medical insurance, self-pay and public sector patients through the NHS and a more balanced mix of day patients and a higher acuity admissions across a broader geographic footprint. Both businesses have strong quality care ratings and extensive close relationships with doctors and clinicians. As Craig mentioned earlier, the acquisition of Spire will transform our U.K. business. From a financial perspective, you can see on this slide that the combination of Spire with Ramsay's U.K. business delivers a powerful foundation for further growth by diversifying our payer sources and case mix through Spire's expertise in acute care and significant exposure to the self-pay and insured patient market. We have set out the key financial metrics for both Spire and Ramsay U.K. for the 2020 year and the 2019 financial year, which reflects the financial performance of each business before the impact of the COVID-19 pandemic. Whilst the acquisition will, as Craig explained, be subject to CMA review and may result in the need to divest certain hospitals and/or clinics, the combination of both businesses will deliver a significant step-up in U.K. generated revenue with a more balanced contribution across NHS and private patient revenue. Importantly, it creates the opportunity to further enhance EBIT contribution through procurement savings and better capacity utilization. The acquisition will also deliver enhanced patient outcomes through further investment in digital innovation and clinical excellence in line with Ramsay's strategic vision focused on patient-centric integrated care. We will not only broaden our geographic footprint, but also grow our referral reach in both outpatients and diagnostics. Thereby enhancing Ramsay's position in its core specialties. The combination will provide us with the economics to invest in platforms that meet the growing demand for more convenient health care, including remote and digitized health services. In addition, the clinical expertise in both businesses will extend the reach of our capabilities through the longitudinal care pathway, adding wellness assessments, together with higher clinical complexity and deliver additional capacity for diagnostic imaging. As well as furthering whole pathway propositions and enhancing recovery programs. Our ability to provide multidisciplinary care, including ancillary services such as imaging and allied health, such as physiotherapy, will also be enhanced, and we will be able to work with our clinicians to further invest in clinical excellence and provide hub-and-spoke models supporting delivery of higher complexity care with high dependency unit support. Notably, the combination of the 2 businesses will facilitate investment in digital innovation and transformation. Thereby allowing improved patient navigation and coordinated clinical care along the pathway and across clinical disciplines, including by broadening our electronic patient register and eye care programs. Both Ramsay U.K. and Spire have been strong supporters of the NHS during the COVID-19 pandemic and have built strong local and central relationships with the NHS. Both businesses provided specialist treatment, ventilators and PPE to the NHS and accelerated medical technology through the provision of virtual consultations, e-prescribing and remote radiology reporting. We are committed to continuing to provide this high level of support for the NHS post this transaction. We are also focused on bringing together the brightest talent and the best practices of Ramsay and Spire. We will be able to harness the deep expertise of both teams and create a caring, empowered and productive culture where both our people and patients are our top priority. We are confident that we can create an enhanced employee proposition to attract talent and retain skilled employees and to be a trusted partner to our doctors and clinicians through the The Ramsay Way. I'll now hand over to Martyn, who will take you through the proposed financing of the acquisition and expected synergy benefits.

Thanks very much, Andy, and good afternoon, everyone. From a financial perspective, the acquisition delivers greater scale and diversification of Ramsay's global portfolio. We expect that bringing together the Spire and Ramsay U.K. businesses will deliver significant benefits of at least GBP 26 million per annum from procurement, improved capacity utilization and cessation of U.K. listing costs, which will assist in delivering high single-digit EPS accretion in FY '24 and ROIC above WACC in FY '24. As Craig explained at the start of this presentation, whilst we expect that we will generate these synergies regardless of the CMA review process, the combined U.K. portfolio will depend on the outcome of this review and the CMA may require Ramsay to make divestments of certain hospitals and/or clinics. Thus, the EPS accretion and ROIC may ultimately be impacted by the outcome of the CMA review. Importantly, the CMA is likely to require the 2 businesses to be held separately until its review is complete. So the synergies are unlikely to start to be realized until FY '23, with a full run rate expected to be realized in FY '24. In terms of financing, as Craig mentioned, the acquisition will be funded from existing debt facilities. This equates to day 1 pro forma combined net debt of approximately $4.7 billion at a consolidated group level and approximately AUD 3.1 billion at the wholly owned funding group, both figures excluding lease liabilities. Following completion of the transaction, our FFO adjusted leverage is expected to be elevated beyond threshold levels. We will look to manage our wholly owned funding group leverage within our current investment-grade credit rating target, through capital management initiatives and/or a strategic review of the Ramsay Group portfolio of assets. We also expect to retain our FY '21 dividend payout ratio in line with historical levels. Looking now at next steps and timing. We anticipate approximately 3 weeks until the scheme circular is posted to Spire shareholders. We then envisage a further 4 to 5 weeks until the general meeting of Spire shareholders to vote on the proposal and the court hearing to sanction the scheme, subject to Spire shareholders voting in favor of it proceeding. If all these steps are satisfied, then we expect the scheme to be effective within approximately 8 weeks of today's announcement. As I mentioned earlier, it's important to remember that the CMA is likely to require Ramsay U.K. and Spire to be held separately during this review which is anticipated to take 12 months. Subject to the outcome of this review and any remedies associated with this process, integration of both U.K. businesses will then take place. I'll now hand back to Craig, who will cover the key takeaways from today's announcement.

Thanks, Martyn. Before opening up to questions, I'd like to close by again emphasizing the strategic and financial rationale for the transaction. I think a fantastic opportunity to create value for Ramsay shareholders. We have been operating in the U.K. market for 15 years. And for the majority of that, we've been looking for growth opportunities. We do have a deep knowledge of the U.K. market. I mean I personally have spent the majority of the last 15 years working with the U.K. market. It's reported to me -- the business has reported to me for the best part of 10 years. So we do have an intimate knowledge, and we do understand and know the Spire portfolio particularly well. And we have been interested in Spire for most of the last 10 years, but we've maintained a financial discipline in the way we look at it. But I think now the planets have finally aligned at a time when there has never been a greater need for quality health care operators that can deliver outstanding patient outcomes in the U.K. market. We are confident that this transaction will not only deliver value for our shareholders, but also benefit our clinicians, doctors, patients and the NHS. We look forward to welcoming the highly regarded and valued Spire team into the Ramsay global fold and to working together to leverage future growth opportunities. Now let's open up to questions you may have for Martyn, Andy and myself, noting that the proposed transaction is subject to the requirements of the U.K. takeover panel, and as such, we are limited in what we can tell you beyond what you have read in our announcement today. Thank you.

Operator, we'll now start questions.

[Operator Instructions] Your first question comes from Andrew Goodsall with MST Marquee.

I just want to just to clarify with Martyn, just if I've understood this right, I guess, sort of you've got a 8-week process before you take control and then beneficial ownership transfers to yourselves and then just 12 months through the competition review to formalize that. Is that correct?

That's correct, yes. In 12 months. Yes. Yes.

Okay. And then just in terms of the regulator, a few years ago, there was sort of outright opposition to mergers. Do you know sort of just broadly whether that disposition has changed? And you had discussions to give you confidence?

No. Look, with respect to the CMA, we don't want to preempt what the outcome of that process will be and what their position will be. So we'll work closely with them through the process. That's all I can say on that, I think.

No, I understand. And final one for me. Just I think sort of when I've looked at Spire in the past, there did seem to be an opportunity to increase the NHS mix. I know that's sort of taken place a little bit, but is that -- I don't know you touched on that, but is there sort of any barriers to sort of moving the mix something that looks a bit similar to where Ramsay is today in the U.K.?

I think to be fair, there's no structural barriers. Where the hospitals are located in their particular markets. I don't know that you could necessarily assume that 70-30 split -- 70-30 private public that Spire has will transition to 70-30 public-private that we have, I think what we're going to be looking at is how we grow both the public and private markets.

Okay. So more organic type on the current mix?

Yes, I think there is certainly, given the environment in the U.K. that we anticipate over the next few years, strong growth to deal with not a backlog and an increase in volumes in both public and private.

Your next question comes from David Low with JPMorgan.

Maybe, Martyn, if I could start with some financial questions. So the EPS accretive by FY '24. Just trying to make sure I understand this correctly. So that implies that it's dilutive in '23 and has limited impact in '22?

No, it doesn't imply that. We've given a number for FY '24, but it doesn't imply that at all. What we've said is this high single-digit EPS accretion in FY '24.

Okay. But by not commenting on '23, the implication is that it's dilutive, am I misunderstanding that?

You are obviously misunderstanding that.

So it could be accretive in '23. You're just not commenting directly on it.

We haven't given any numbers for '23.

Okay. And '22, are we assuming that, that's the competition review, we'll see that meant it's not applicable.

Well, we will be consolidating the group, but it will be held separate. So we don't have direct management of that business. It will be under a whole separate agreement. So we won't be able to get any synergies during that year.

Okay. Just a related topic, I see that you -- there's talk there about managing to debt targets. Martyn, can I get you to remind us of what the debt targets are?

Well, where we're going to be aiming towards this under our new Fitch credit rating. And so the target is an FFO adjusted leverage of 4x EBITDA.

Okay. And when you're managing towards an implication being that you're going to be outside that at some point and you'll be managing back towards it potentially with asset sales.

Yes. So that's what we've said is that on day 1, we will be above that amount. And so what we've said is that in due course, we will manage our balance sheet accordingly to maintain our current investment-grade rating. So we've got a number of options available to us, whether it be capital management activities, whether it be asset sales, et cetera, we're going through a process at the moment of reviewing all those options.

And there's no time table on that, presumably. Presumably, but I mean, is that 24 a reasonable assumption there as well?

All I know well before then. Let's get through the scheme. And see if we actually do acquire the business and then when we've got some more information, we'll share it with you in due course.

Okay. And Craig just on the NHS waiting list. I mean we've heard a lot about it, and it does seem like there's a huge amount of work required. There was also a process in place by which private providers were to apply or to offer their services, just wondering where that process has got to? And how much you know about where Spire is in that process as well?

Yes. I'll let Andy answer the details. But effectively that process, which was late last year, was really a capability and capacity statement and we certainly got a tick in the box to be a provider for ongoing services for the NHS to reduce the waiting list, but Andy can pick up the detail.

Yes. Thanks, Craig. So both businesses worked incredibly hard during the pandemic to support the NHS. So thousands of cancer patients have been through both businesses. Both businesses were successful to get on a framework, which was around late November, which is how we're getting contracted to do work with the NHS at the moment. And we expect to hear more about an accelerated recovery program, say, late summer, which is when we think NHS England will set out a more detailed plan on how to deal with the waiting list. But right now, it's business as usual, and we're seeing a steady pickup in referrals and activity in terms of the routine care that both businesses provide.

And one last one, and I'll get back into the queue. We've heard about workforce being a bit of a challenge. I mean obviously, Brexit is there and the pandemic hasn't helped. How much of a strain is that, particularly if you're going to take on more work with the NHS looking to work through waitlist.

Yes. Look, I'll start, and then Andy can pick up in the U.K. Look, the workforce challenges have certainly increased [ right ] as a result of COVID. Some markets under more stress than others, obviously. U.K., leading into COVID. Brexit was an overhang on what was happening -- what would happen with the workforce that came from Continental Europe, particularly. And so there was that flow of clinical staff nurses and doctors had slowed down. But in the -- the type of business that we have, we're an attractive employer. And so we weren't seeing an immediate impact on that, but I'll let Andy talk about what the future looks like and what the initiatives might be.

Yes. Thanks. Probably the first thing to say is when you walk around our hospitals, and I was in Nottingham earlier this week, there's a real sense of pride amongst the clinical workforce for what they've done. So motivation is in a really good place, and that's helping both recruitment and retention. But you're right, the clinical workforce as a supply side factor in the U.K. is a consideration. And obviously, we have to work hard to make sure that we are an attractive proposition as an employer. And it probably is one of the key factors that determines how much work that we can do in both businesses.

Your next question comes from Steven Wheen with Jarden.

Can I just pick back up on the waiting lists in the U.K. which has been a situation that's been around for a very long time, and it's always been anticipated that the U.K. government will do something about that. What -- I mean, I know things have got worse, but it's been getting worse for a long time. What gives you the confidence that they're going to address at this time once and for all?

Yes. Well, you're right in the observation that it has got worse. It's got considerably worse through the last 12 months or so. The government have made public commitments and supported by other sides of politics to proactively address the waiting list. And so the mechanisms are being put in place. But again, I'll let Andy talk to the detail.

Yes. So we've seen a steady increase in the waiting list, unfortunately, and that's all due to the reduced provision in the hospital setting, all down to COVID. So unfortunately, the numbers keep going up month-on-month. I think we've got past the 5 million mark. The big change that we've perhaps seen since Christmas is the increase in long waiting. So there's 1.5 million patients that are beyond the statutory target of 18 weeks. Hospital activity is beginning to pick up, but I still don't think that we've reached that balance point of matching supply and demand. So it isn't going to clear the backlog quickly in the current shape of things. So there is really a question out there for the politicians in terms of what is the plan, and this is why we're guiding people to the accelerated recovery plan that we think that we're going to hear more about over the summer.

Yes. I guess, sort of just to follow that up. Has there been the dedication of actual funding to address the issue? Yes. I mean, I know the Queen's speech on the 11th of May referenced it, but I don't think there's been -- I mean has there been any sort of allocation of funding to bring those waiting lists down to manageable levels?

So the funding has started to flow. So there is a small amount, which has gone to NHS trusts and parts of the system that have got some of the biggest difficulties. There are targets that have been set towards recovery, and those targets start to ramp up, if you like, towards July. But there hasn't been the transformational funding that's going to be required to address this. And there are active conversations going on about what the recovery plan needs to be. The simple matter is in order to recover the waiting list, the health system in the U.K. needs to dial up to something like 120% plus to deal with the backlog in demand and to recover the waiting list position.

Yes, right. I wonder if you could comment as well on what the waiting lists are doing to the take-up of private health insurance? And is that part of the strategy here is to buy a business that has far more exposure on the private health insurance side?

Yes. I mean, part of the strategy or the rationale is that diversification of payer. So having the private and public payers in more balance, I think, is a better position for us. Hard to see yet the numbers coming through on increased private insurance take up. We're certainly seeing a backlog of private patient activity that needs to be dealt with, and that's flowing through. So we're seeing an increase in private activity. And we're seeing a significant increase, albeit off a lower base of self-pay. And so people who can't get access to the NHS are prepared to pay out of their own pocket. But I think it -- little premature to see numbers on -- which are hard to get anyway on private insurance penetration. Anything to add, Andy?

No, I think that pretty much covers it. There's strong interest from patients of all groups to access care. That's the kind of the early signs that we're seeing.

Yes. Great. Okay. I did have a question for Martyn, just on the synergies and the use of the word regardless of the CMA process. So that would -- am I interpreting that correctly that, that's the minimum synergies. I mean I know you said at least. But I'm trying to understand what you mean by regardless. If the CMA process didn't require divestiture, I mean, can we get some sort of indication as what sort of upside that might represent?

Yes, I was going to point you to the words of -- at least. So we are very limited with what we can say in the documents with regard to CMA processes, et cetera. So we put in the numbers that we believe can be delivered regardless of the CMA process. We don't want to be putting out numbers that will be subject to the CMA process but be reassured that the synergies we believe are there and are at least GBP 26 million.

Yes. So to be clear, the GBP 26 million would include some assumption around having to divest some of the assets as part of the CMA review.

No.

No. I can't say that. I just can't preempt what the CMA process will be. So I need to respect that process.

Yes. But I'm just trying to understand how you get to a net least number without knowledge of how the CMA prices is going to evolve?

Well, if you think of the delisting costs, for example, that will happen regardless. And then the extent of the numbers that we've put in there, we believe we'll be there regardless of the CMA process.

So procurement and capacity utilization would have an assumption around the volumes that you're doing which would -- you see what I'm getting at?

We just can't comment on it, Steve. Unfortunately. We're very limited with what we can say, and we do want to respect the CMA process.

And the takeover panel rules.

Yes.

Yes. Okay. With managing the leverage then, there's obviously some strategic review that gets done. Would that -- is that strategic review of U.K. assets or across the whole Ramsay group?

The whole Ramsay group. So we'll consider all options available to us, whether it be properties, whether it be other forms of real estate, whether it be investments, et cetera. So there's a lot of options available to us. On the capital management side, there's lots of options as well in hybrids [indiscernible], equity raises, et cetera. So plenty of options that we're considering, and we'll be discussing those with the Board in due course.

And sale leaseback?

That's the possibility. We're not rolling anything in. We're not rolling anything out.

Your next question comes from Chris Cooper with Goldman Sachs.

Martyn, a follow-up on the synergy question. So GBP 26 million, you've outlined a few different drivers there. Could you just share us roughly on the relative contribution of each? We could assume roughly sort of a quarter from each of those 4 drivers? Or is that sort of disproportionately coming from one of the sources?

I'm sorry, Chris, we can't give you the allocation. We're not able to do that.

Okay. And just so I'm clear. So the hope and expectation all being well is to consolidate this fully 8 weeks from now. In terms of disclosure going forward, this is going to be held separate through the length of the CMA process, just to be clear. So if I'm looking at your fiscal '22 numbers, Spire is going to be reported as an entirely different business. It's going to be -- it's going to be unique segment, it's not going to be part of a U.K. segment?

Where we can consolidate it, we haven't said what the segments will look like going forward.

Okay. But it will be held separate from an operational perspective, not necessarily [indiscernible].

Absolutely, completely separately.

Yes. Okay. Right. Okay. And look, obviously, on CMA, I know you can't give any details at all. Just mechanically, can I just confirm that primary consideration is geographic overlap rather than anything around sort of operations or case mix?

Just can't make any comment, Chris. Sorry.

Your next question comes from John Deakin-Bell with Citigroup.

I'll start with a couple of easy ones that you might be able to comment on. In the EPS accretion numbers, just confirming the tax rate that you're using? I know Spire said in their result that corporate tax rates going from 19% to 25% in April 2023. So are you using 25% tax in the U.K. for all your businesses beyond '23?

Well that is going to be the tax rate, so yes.

Okay. And the cost of debt you're assuming in the numbers, can you give us a rough sense of what that would be?

We haven't disclosed that, no. [indiscernible].

Okay. And 1 is a bit more confusing for me, having spoken to Andy and every one there for a long time. And then talking to the Spire guys. Spire had a specific strategy to focus on the private health and not-for-profit market because they thought that was -- that would be better for their business. And you had the same, but the opposite for the NHS for a long time. You could have focused on that market because you've owned the business for nearly 15 years. I'm just a bit confused as to what you're saying now that you actually want a business that's got a different mix. What's changed?

It's the locations, the markets in which those facilities are situated. So if you're in a higher insured market, you can focus more on private. And so our portfolio has a bit towards lower insurance markets and sole concentration on NHS. So I don't think there are odds with each other at all.

[Operator Instructions] Your next question comes from David Bailey with Macquarie.

You've mentioned increasing capacity utilization as part of the synergies. Just how do you go about doing that? And to the extent you do see utilization pick up, should we start to think about potential capital deployment of brownfields projects in the U.K. over the next couple of years?

Yes, I'll answer the second one first. I mean as the volume increases, we always get efficiencies in utilization of capacity. And it's what we do right across our portfolio of business in all our markets. And so there is that opportunity. That's the first question. Second question is the platform that we have will make brownfields available to us going forward as the existing Ramsay U.K. has -- we've had reasonable brownfield investment in that over the years. The opportunity that the combined platform gives us as a greater opportunity for brownfield investment going forward.

And the same return metrics or return hurdles apply?

Yes. Yes. Yes.

Okay. And just in terms of backlog, I mean, obviously, the NHS has been well flagged, but just maybe you can talk a little bit about the private patient backlog, how you positioned the combined business to best participate in that? And what are some of the considerations for patients coming on the private side into the combined entity?

Yes. I mean, like NHS patients, the capacity restrictions through the last year have met a significant deferral of private patient activity. So that is a backlog that has to be addressed in the U.K. Spire obviously has a greater private exposure. So there's certainly an opportunity for them to continue to grab that market share, which they've been increasing over the last few years. Andy, any other specifics you'd like to add?

No, I think that pretty much covers it. The -- in a practical sense, patients are now gaining in confidence with the vaccination program in the U.K. So they're now presenting to their GPs to get referrals. And then patients are booking -- using their private medical insurance to book treatment through the contact center. So we are seeing a slow return back to normality.

Your next question comes from David Stanton with Jefferies.

Perhaps we could talk a little bit about the private insurers in the U.K. can you outline the private insurance market for us in terms of corporate -- increases in corporate pay or corporate payers within that space, the major players and really the average premium increases that we've seen over the past 5 years.

Andy?

Yes. Thanks. So as you probably know, there's a number of leading private medical insurance players here in the U.K. certainly 2 big players that have a pretty decent market share between them. In terms of dimensions, there's been a steady shift, probably a decade, more than 5 years as this kind of the self-funded book has retreated slightly, and that book has been replaced by corporately paid private medical insurance through the workplace. I think through the pandemic, the small and medium enterprise is pretty much held pretty consistently. In terms of the long run, probably the biggest impact has been taxation on PMI-funded policies, which has slightly restricted that market. I think it would be fair to say. But in terms of growth going forward, there's a lot of interest in pathway management, digital tools. There's a very significant proportion of consultations that now take place online to avoid the trip to hospital with a growth in digital GPs and that kind of thing. So I think there's a degree of optimism amongst private medical insurers around being able to treat patients, and we'll wait to see how that impacts, hopefully, as the pandemic recedes in the U.K.

And my second and final question. If you look at Slide 12 of your presentation here, you can see the combined network of hospitals and clinics across the U.K. between Spire and the U.K., would it be reasonable to assume that the CMA would geographically may have issues in terms of the overlap towards the southwest of London -- Southwestern, including London of the U.K.?

Sorry, David, I can't make any comment. Just we have to respect the CMA process.

Your next question comes from Lyanne Harrison with Bank of America.

[indiscernible] have already been asked. But I just got 1 on, I guess, I know you can't share the quantum. But directionally, can you provide some color on Ramsay's margin with -- in terms of the work you provide for the NHS compared to private and self-pay? And then also, how might this compared to Spire, again, directionally.

I didn't get all of the question. You're very quiet. But in terms of margin differences between the NHS and private patients, we don't disclose that. It really -- depending on what the private pricing is, cost basis is not dissimilar. So it depends on what deals with health insurance, but we don't disclose the differentiation in margin.

What's the second part of that question as well, Lyanne?

Well, the second part of the question was how -- if you could share how your margins might compare to actually to Spire. But I appreciate that given the first part of the question, you might not be able to share that as well.

No. no.

Your next question is a follow-up from David Low with JPMorgan.

Just on the private insurance. And I mean if you look at the [ LD ] market, there's obviously a benefit of being a bigger player we would presume Ramsay has a better margin than a stand-alone hospital. Just wondering whether there's significant opportunity on that front when you compare what Spire generates from private insurers versus Ramsay's rates given the market share?

No. I mean, again, same answer. We had to be cognizant of the CMA process. I can't give you any detail, sorry.

Okay. Apologies for hitting up against that one as well.

We'd love to help you but.

No, no, I understand, who's going to run the Spire business through this period? And maybe if you could talk more generally about the management team at Spire and what the expectations are on that front, please?

Yes. Look, the as you can appreciate, we've had limited engagement with the Spire management team. But the intention is that through the whole separate period that they are operated independently and both executive terms or management teams continue.

Okay. So through this process, effectively, the business just continues on as is. It's a process that runs on for months, at least it would seem [indiscernible]?

[ Not much. There is a limit ].

So much you can do. I mean, I think through that sort of process, you'd be wary that the people might decide they don't want to be there if they're not certain of their future? Is there much that Ramsay can do through this period?

Yes. Look, I mean, a good parallel, you may recall the affinity transaction back in 2005. It's a very similar structure and rationale, to be honest. Being the smaller operator, taking out of the larger operator. And the whole separate period we had in Affinity, there's lots of lessons we take out of that. Some of us have been around long enough to remember those. There are -- you've got to respect the CMA process. Again, I sound like a broken record. And so the independence of the Spire management to be able to get on with business as usual is paramount. That will be done within a framework that the CMA approves. And we'll work with that. But there are -- there's certainly limitations on what you can do. You don't have freedom to do what you do otherwise.

And [ tell me ], the due diligence that Ramsay has been able to do that? I mean are we talking -- I mean, as much as there is a full commitment from the existing owners and management team. How is the due diligence process been? Is it all purely external?

No, no. So remembering that picking up my comments earlier that we've been in this market for a long time. We understand this market intimately. We have had Spire as an interested target for a considerable period of time, and we understand its business. I -- as I said, I personally have seen many of the sites, probably the majority of the Spire sites. So we started from a good background of an outside-in perspective. Now we've had access to diligence. We've been able to confirm the assumptions we've made to get to a position where we're comfortable.

Yes. Okay. Look, no, I must have presumed this deal would have happened about 10 years ago as well.

The financial discipline we've held for that 10 years.

Now I do remember them telling me that you were the natural buyer, but that was a long time ago.

There are no further questions at this time. I'll now hand back to Mr. Mcnally for closing remarks.

Okay. Thanks, everybody. It is an exciting opportunity for us. Certainly, we've got to get through the next couple of months to get the Spire shareholders to accept the offer. And having done that, we think it's a great opportunity. And again, I reflect back on sort of personally the transformation that the Affinity transaction did for the Australian business. And I can see exactly the same sort of strategic positioning for the U.K. business going forward. Thank you.