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

Good morning. My name is Peter Corfield. I'm Chief Commercial Officer. Welcome to the presentation of our results for the half year ending 30th of June 2023. This morning's event is a hybrid one again, and a warm welcome to those of you joining on Zoom. [Operator Instructions] Before we start this morning, we'd like to share our 2 new TV ads. These focus on our key driver that we've identified within our research amongst our target audience. Speed of access to high-quality care, so you can get back to the things you love most. These are part of a multimedia campaign that target both Self-pay and PMI while also supporting the attraction of new colleagues to our business. I hope you like them. [Presentation]

So welcome. Thank you for joining us. And that was our new advertising campaign that we're very excited about. More on that later. I'm really delighted to be announcing a strong set of results for which I thank all the teams who've worked very hard to deliver them. I'm going to start with an overview, then Jitesh will talk in more detail about the financials. And then I'll conclude by looking at some other highlights of the half and looking forward a bit to H2. So personally, here is a reminder of our strategy. It underpins everything we do to deliver our purpose, which is making a positive difference to people's lives through outstanding personalized care. Now I'm going to cover our achievements against these pillars a little bit later. But just for now, today's strong results demonstrate that this strategy is working. So turning to the headline figures. In many ways, this is the closest to a normal 6-month trading that we've had for a number of years. So I'm delighted that revenue was up over 13% on the first half at GBP 676 million, and it was the highest H1 revenue ever. It was driven by a record number of patients coming to Spire to receive diagnosis or treatment. We saw strong profit growth with EBITDA and adjusted EBIT, both up significantly on H1 last year, over 11% for EBITDA and over 24% for adjusted EBIT. Profit before tax was GBP 20 million, which is up from GBP 3 million last year. Meanwhile, we are on track to meet our savings goal of at least GBP 15 million in 2023, and these factors are helping us to enhance our margins. I'm also pleased that ROCE for the last 12 months continues to improve to 6.9% from 5.2% prior year. Clearly, there's further to go, but we're satisfied that our continued focus is leading to material improvement. Momentum has continued into H2, and we're confident of hitting our guidance for the full year. Meanwhile, I am proud that we continue to sit at 90% of our inspected hospitals and clinics rated good or outstanding by regulators and patient satisfaction critically remains high. As you can see, we've seen a 1 percentage point year-on-year increase in the proportion of patients agreeing with each of these statements that align with our purpose, with 87% saying our care made a positive difference, 93% saying our care was outstanding and 95% saying our care was personalized, which is a very important message from our patients. Turning to the market environment. We continue to see high demand for private health care from people seeking fast access to high-quality care against the backdrop of well-documented pressures on the NHS. Here, you can see the current status of NHS waiting list. Waiting list continued to climb, with a record 7.6 million weighting in total in June of this year. And we're continuing to see at the bottom there in blue, the number of people waiting more than a year. And the figures for July are due to be released around now, actually, with expectations that they may increase. At the same time, people in our target private market have been feeling increasingly comfortable on their current income over the past year. 59% now feel comfortable or very comfortable, and this rises to 88%, if you take into account, those who say they are coping. It is clearly encouraging to see this level of confidence increasing amongst our insured and self-pay customers. Meanwhile, this high prevalence of COVID, which adversely impacted us in the early months of '22 has not been repeated thus far in '23, which has had a positive impact on our performance. Private revenue was again driven by PMI with PMI revenue up 15.6% year-on-year to GBP 306 million. This reflects accelerating growth in the sector and the increasing number of people covered by PMI. And this is backed up by the strong recent results from a number of the insurers, and our volume growth is also driven by successful partnerships with a number of those insurers. Self-pay revenue was up 2.5% year-on-year, and demand remains at historic highs. This week, we've launched the new television ad, which we showed you a few minutes ago. We're excited about this advertisement and in particular, the integrated cross media campaign, which is launching. And we anticipate this will fuel fresh demand from self-paying patients, and it typically also prompts PMI patients as well. Overall, private revenue was up 10.4% year-on-year, and we continue to manage mix in favor of high-complexity, high-value treatment such as orthopedics and to put lower complexity work into outpatient environment. NHS revenue was up 17% on H1 2022. Now this is largely through choice in the eRS system. And we continue to support local NHS system in treating those patients who've been waiting the longest. We also welcome the conclusions of the government's elective recovery task force, which issued its final report last month. Meanwhile, our nonhospital business continues to perform well. Demand for our Spire GP service is very strong and the integration of the Doctors Clinic Group, which we acquired at the end of last year is progressing well. The number of GP appointments across our in-hospital and Doctors Clinic Group business has gone up year-on-year by 41% like-on-like with revenue up 45% and the number of referrals from Spire GP to appoint -- with hospital consultants has also gone up. And revenue in our occupational health business has also risen by 41% as integration and the generation of synergies continues. So in summary, these are a strong set of H1 results. We are delivering on our strategy of helping to meet the U.K.'s health care needs. And by doing this, we are helping to build a healthier and more productive nation and to strengthen the health care system. As always, and most importantly, I want to thank my brilliant colleagues across the whole of Spire and our consultant partners. It is their hard work, which delivers these results. They make a positive difference to patients' lives every day, and I thank them sincerely. Thank you. At this stage, I will step down, and I will hand over to Jitesh to talk through the numbers in more detail.

Thank you, Justin, and good morning to everyone. So as Justin said, these are a strong set of results and in line with our plans and expectations for the full year. So I'll start by looking in more detail at the performance that Justin has just outlined. We've seen double-digit growth in revenue and EBITDA. Half years can be impacted with one-offs and seasonality, especially when looking at EBITDA margin. So it is better to look at the full year. Our margin in the first half was 17.4%, and I'm confident that at the full year, margin will be improved year-on-year. I'm particularly pleased with the growth below EBITDA, with depreciation and interest costs largely fixed, growth in EBITDA flows through to the bottom line. We've seen adjusted EBIT growth of 24.2% and EBIT margin rise from 9.1% to 10%. I'll cover margins in some more detail shortly. Operational gearing is flowing through to the bottom line and profit before tax growth was up from GBP 8.6 million in the first half last year to GBP 22.3 million this half. PBT in this first half is higher than for the full year last year. H1 profit after tax is GBP 12.7 million, up from a small loss in H1 last year and again, already higher than the full year last year. During H1, we paid a small dividend in respect of 2022, and we look to be well placed to pay a dividend again next year in respect of 2023. Turning now to the balance sheet. We continue to invest in the business with CapEx of GBP 36.1 million in the first half. Justin will talk about some of the key projects later. CapEx In H1 was less than our guidance of 6% to 7% of revenue, but that is due to the timing of particular projects, and we expect full year CapEx investment to be in line with our guidance. Net bank debt is similar to our year-end position. We have taken the option to extend our bank debt facilities by 1 year to 2027. Working capital showed an outflow of GBP 19.2 million as a result of seasonality and growth on our NHS volumes. The NHS pays a fixed amount monthly and trues up the settlement quarterly. The additional NHS volume we have delivered this -- has resulted in a cash flow timing effect in this half. Net debt-to-EBITDA covenant ratio has fallen from 2.2x to 2.1x. Our focus on cash and debt management over the last few years is paying off and leverage continued to fall. We have interest rate hedges in place with 75% hedged to April 2024, then 50% until February '26. We are pleased with the revenue growth of 13.1% with growth across all payor groups and across inpatients, day patients and outpatients. Revenue from private payors represent 72% of total revenue. And because of careful planning, there has been no material impact of the NHS strikes on our business in the first half. We will continue to monitor that situation closely in the months to come. We have seen good year-on-year growth in both consultations and procedures. Outpatient consultations are the start of the patient journey, which then often leads to inpatient, day case and outpatient procedures. Growth in outpatients gives us confidence for the future pipeline of patient procedures. It also partly reflects the movement of low complexity procedures out of theater and into outpatient setting to create more capacity. Looking at PMI. The insurers themselves are publicly saying they have increased demand for cover from private and corporate customers. That is increasing admissions into our hospitals, which are now higher than pre-COVID levels. The long-term contracts with our PMI partners are also driving incremental growth in volumes. Annual price increases in PMI contracts during Q1 this year have resulted in increased ARPC and revenue. As previously explained, most of the price rises with PMI providers kick in from Q2. For instance, this year, our Q2 PMI ARPC increase was 6.6% compared to 3.8% in Q1, resulting in 5.2% for the half. The Q2 ARPC will flow through into H2. We have joined Aviva and Vitality's spinal network, which is performing well. And in inSpire our PMI products in partnership with AXA, which is also performing well. Turning to Self-pay. We have seen continued inquiry and revenue growth in H1, building on the record levels seen in 2022. However, as you can see, admissions were slightly down in H1 compared to last year. Why is this? We have been actively managing our mix to optimize revenue per theater hour by reducing high-volume, low-value activity and replacing it with higher value, lower volume activity. We have also continued to optimize our Self-pay pricing using our digitized pricing engine to manage margins. The combination of these actions has delivered a strong ARPC increase of 8.5%. We expect these trends to continue in H2. We are driving an increase to our NHS work through eRS referrals, which has generated a rise in orthopedic volumes in particular. We are also supporting NHS Trust to treat those waiting the longest. We have seen a year-on-year increase in NHS revenue and ARPC driven by our management of mix and supported by NHS tariff increases. I'm now turning to the progress we are making on margin management. You'll remember from previous presentations that margin improvement at Spire is driven by organic growth, mix management, pricing control and our savings programs and is clearly influenced by inflation. This generates ROCE and EBITDA improvements. In terms of target, our aim is for organic revenue growth of at least 5% per annum, private revenue mix of 70% to 80% and pricing control where we seek to protect margin by beating internal inflation. Our savings were delivered -- we've delivered GBP 15 million last year, and we set a goal of another GBP 15 million this year. And we've set midterm targets for both ROCE and EBITDA margin. We are targeting ROCE in excess of 10% and an EBITDA margin greater than 21%. So how are we doing in H1? We've made good progress. Revenue growth of 13.1% with 5% CAGR target materially. On private mix, which was at 72% is at the lower end of the range of 70% to 80%. We're comfortable with this because we've always said that in an environment with high NHS commissioning with the right type of NHS work, we will see an increase in our proportion of NHS work. On pricing, ARPC has increased by 6.6%, and that number will increase in the second half after the timing of our pricing actions. Our savings program is on track to deliver at least another GBP 15 million this year, and we have concrete plans to deliver further significant savings in the future. After these savings, our internal inflation is less than RPI. ROCE has improved to 6.9% and adjusted EBIT is up 24.2%. And as already mentioned, EBITDA margin is 17.4%, and we are confident that we will remain ahead of last year's full year figure at the end of this year. Delivering these results is not straight forward. Achieving volume growth, margin improvement and strong profit growth requires granular operational management in an environment which is inflationary and where the sector's biggest challenge is workforce availability. Against this backdrop, we continue to provide high-quality care to meet demand and deliver results in line with our expectations for the full year with strong revenue, EBITDA, EBIT and profit before tax growth. With that, I'll hand back to Justin. Thank you.

Great. Thank you, Jitesh. So what I'm going to do now is just talk through our strategic pillars and give you some highlights of progress in the first half. So our first pillar is to drive performance across our existing hospital estate, which is, of course, the vast majority of our business. And as you have seen, delivery in H1 was strong. The key element of that is to increase utilization, which has allowed us to deliver an additions increase of 7.4%. And the highlight of H1 has been the coming to fruition of a number of CapEx projects which serve to enhance our capacity and drive volume, such as those at Cambridge and Yale, new scanners, all of which you can see here. Other projects to increase utilization have included deploying innovation and technology to improve flow, things like robots and reconfiguring space within our hospitals. An example of this has been the creation of a single administrative hub serving our 3 East London and Essex hospitals. That has freed up space for clinical use in these 3 sites, but it also reduces administration costs, and this is now a proven model for the estate. We continue to launch new services. I'm particularly pleased that at Spire Nottingham and Spire Manchester, we've begun to deliver cardiac surgery. That constitutes an investment of GBP 6 million across both hospitals and it takes a number of hospitals where we offer cardiac surgery to 5. The first patients have received their surgery in the past few weeks, feedback has been excellent. And this investment and all the investments we're making is a reflection of our confidence in the business. So we've kept a relentless focus on mix across all payors in those procedures where we have a strategic lead. And I'm pleased to say that we continue to have the highest market share around 1/4 of the market in terms of hip and knee procedures, as you can see here. Our next pillar is to expand into new services, which meet people's health care needs. Now behind the weighting this crisis, there is a broader health crisis. You may have read that the ONS has reported recently that over 2.5 million people are now economically inactive, which is an increase of nearly 500,000. 1.35 million of those have an MSK condition, second only to mental health as a pressing health need. Our occupational health business has an important role to play in addressing this along with our hospital business. So we welcome the government's 2 consultations published in July, which contain a range of proposals designed to incentivize employers to offer occupational health support to their employees. And revenue in our occupational health business is up 41% year-on-year. As I mentioned earlier, our private GP service continues to flourish with like-for-like revenue up year-on-year by 45%. We opened a new GP center and moved to a larger location for another one in London in H1. And then in August, we opened another 3 GP centers in London, which shows the real potential of primary care out of hospital services. Meanwhile, we've started construction work at 2 clinics in Abergele and Harrogate, which are the first 2 new clinic sites. They will open by the end of the year. And further sites have been scoped for 2024 will be opened by the end of the year to have opened another 3 towards our target of opening at least 10 in the medium term. So Spire is now present across the patient journey with much room to expand. We're present at the start of the patient journey through our GP services. We work with NHS GPs to signpost choice for NHS patients. And of course, you can book direct with our health care professionals in our hospitals. We're present when you choose how to access your treatment, whether you use the NHS, insurance, Self-pay or access occupational health through your employer. And we're present now across the treatment there from outpatient treatments, health care in the community through to complex surgeries, such as cardiac and cancer. And we are continually looking to add services to our in-hospital and out-of-hospital offering through organic growth, investment or potentially disciplined M&A, as you've seen, where we feel that there's a lack of presence that there are attractive market conditions, which are synergistic to our business. So let me turn to quality, which, as you know, we have devoted so much focus to in recent years. As you've seen, 98% of our hospitals are rated good or outstanding. One of our key quality initiatives this year is the NHS England Patient Safety Incident Response Framework, which is a long phrase for something very important. It builds on our sector-leading Freedom to Speak Up program. It's about a learning culture. It's about sharing learnings across teams. It's a fundamental patient safety and colleague program. I've been very involved in it, and it will strengthen both our quality credentials and our quality improvement credentials. We are, of essence, a people business. That's why we invest in our workforce. That's why we aim to recruit and retain the best in a tough market where we know there's a shortage of key professionals. So it's a priority for us. I'm really pleased that we have seen a material fall in our colleague turnover rate in the past year. So retention is going up. We've completed the in-sourcing of our recruitment and our onboarding process. And we've got a better experience for new colleagues, and it's also more cost effective. We've also got an increase in the number of people whom we are recruiting and this has allowed us to be efficient in our use of agency, which is well controlled, although cost pressures in agency remain. Underpinning this has been a 5.5% pay rise for most of our colleagues, which follows on from a 5% pay rise, which we implemented last year, and we have continued to pay all our colleagues at least the real living wage. We're soon going to be welcoming another 25 nurse apprentices onto our sector-leading nurse apprenticeship, which we're particularly proud of. And in the next few months, we're also launching a new exciting professional development initiative for all of our existing nursing colleagues. And our final pillar is around championing sustainability. There's a lot of work going on here. We're making good progress with multiple initiatives as you can see on this slide, as we work towards being carbon neutral by 2030. So that's a quick overview of our progress against our strategy in H1. And it felt like a real acknowledgment of all the progress we've made in recent years when we were honored to receive the Transformation of the Year Award at the Plc awards earlier this year. So these strategic pillars, of course, are designed and are contributing to our long-term financial objectives, which I'm just reminding you on here. So Jitesh has talked you through some of the key levers in these long-term financial objectives and the progress we're making. I hope it is clear that these are at the forefront of our thinking as we execute our strategy. So let me turn then to the outlook for the second half. We expect to make further good progress and continued delivery of the group's strategy. We'd anticipate ongoing momentum in top line growth, margin and ROCE improvement on a full year basis. So we're confident because it's shaped by a number of factors. Demand remains strong. We expect to see continued PMI growth and Self-pay performance, stimulated in part by the new marketing campaign. We also anticipate an increase in NHS activity as patient choice takes hold following the task force recommendations. Workforce remains and will always be our key focus, and we anticipate further positive progress in H2. We will continue to pursue savings and efficiencies and to actively manage our pricing. So in summary, therefore, we're really pleased that we've delivered strong financial and operational performance in H1, and we're in line with full year expectations. Momentum has continued into H2, and we are laying strong foundations for the full year and beyond. We're really looking forward to reporting back to you on our full year results in early 2024. Meanwhile, thank you for being so attentive. I'm now going to open the floor to questions. I've got the whole of the executive team, but we've got a few of them joining us out the front. So I think Cathy is joining us, John and Peter, but we're all available for questions, and I will try and chair the questions. Thank you.

It's Victoria Lambert from Berenberg. My first question is just on input cost inflation. You guys have done a really good job. You've hedged energy until -- energy costs until next year. What is the outlook for 2024 and 2025? And then my second question is just on -- has there been any change in your relationship with Mediclinic now that they're privately owned and how committed they are to their stake in Spire?

I'll answer the second one first. It continues to be very positive. They're very engaged and supportive shareholder as we always say because it's always true. Jitesh, input inflation.

So as you said, our inflation hedges are in place for another 12 months. So there is plenty of time. At the moment, what we're doing is giving guidance for this year and confidence where we are this year. And we've got -- I talked about the midterm targets, and we're absolutely on track facing our midterm targets rather than giving specifics around. It's quite early to be giving specifics around '24 and '25. Those mid-term targets are...

And I think we can say we watch that very closely, and we feel very on top of it as that begins to unwind.

Sebastien Jantet with Liberum. Three questions, if I could. First of all, just trying to get a kind of sense of how you're progressing in terms of both the PMI and the Self-pay referrals coming directly to you rather than coming via consultants and whether that trend that you've seen has continued? Secondly, just going on to the cost savings. You talked about hitting GBP 15 million this year or even slightly more than GBP 15 million. Can you give us a sense of how much you actually saw benefit from those cost savings in the first half of the year? And then the third question is around trying to disaggregate Self-pay a little bit and understand what's happening there. So obviously, within Self-pay, you've clearly got some actions you're taking to change the mix, which is affecting your kind of growth in terms of volumes in Self-pay. Presumably, we're also seeing some Self-pay patients becoming insurance patients. And I'm wondering whether you can give us any sense of how much of the Self-pay has gone to PMI, how much you've backed away from in Self-pay, just to get a sense of what's actually going on there?

Okay. Thank you very much. So why don't we do -- John, why don't we do savings first and then Peter take the other 2 questions as a bundle.

Yes. In terms of savings, we're confident from our performance last year, we delivered the savings. We're on track this year. I think we said at the full year presentation, the savings will be more weighted into the second half. They are, and we're on track to deliver the GBP 15 million. That's just in terms of implementation. There's further work to be done. All of those changes require a lot of operational change, a lot of business change. And therefore, they need to be well managed to be delivered. So confident that it is second half weighted.

So Peter, direct booking, PMI, Self-pay in the future...

So on the controlling patients, making good progress, not only with Self-pay obviously, by developing the website and making sure that we make it easier for patients to book online. But also with insurers, we continue to work with insurers to make sure that the bookings coming directly into us. So we've opened up new APIs so that the insurers can book directly into our systems, and that's helped to improve the amount of direct bookings coming into the business. So work continues and we'll continue to make sure that we control those patients coming into the business as much as we can. In terms of the crossover between Self-pay and insurance, essentially, they're the same customer base. So as Jitesh alluded to, I think Justin did as well, what we're seeing is deepening of lives covered under PMI. So I've talked about this before. The insurers are expanding their propositions. They're seeing more people coming into the market. Of course, they're picking up people who would potentially have been Self-pay had they not had insurance cover. So there is inevitably some crossover. I don't have an exact figure. It's quite difficult to work out exactly how many are. That's why we go back to looking at the overall private business. So we're looking at trying to make sure we focus on driving private growth, hence, the 10% plus private growth is a positive result.

And just -- because I think underneath this, it's almost a philosophical point about how we're running the business. So point number one, we're running it quality first, patient first; outcome second. That's [ plank ] number one. Number two is, if we wanted much more volume, we could easily have it, by the way. We could stimulate Self-pay load transactions. You could do the same thing in PMI, and we could take a lot more NHS work. What we're looking to achieve here is a mix which worked for us as a complex acute provider and then building clinics and moving into more of the primary care environment. So over time, we can move the less complex work into clinics. So over time, some of the work that we're sort of giving up in hospitals you're going to see reappearing in clinics. But we're also looking at price and margin because we need to improve margins in ROCE. So we are able to and constantly managing that overall mix to achieve -- creating as many patients in the right way the hospitals are possible and the right economic outcome. So that's what we're working on and what you're seeing as a blend of all that. Thank you. Well, so I have -- well, we'll work along the line.

It's Kane Slutzkin from Numis. Just quickly following on from Seb, just maybe asking it a little bit differently on the Self-pay, the conversion rates. I know in the past, Peter, you never really sort of disclosed those numbers, but you did say, I think, at the same, you kind of would highlight if there was a material change. So do we just assume there hasn't really been a material change?

No material change.

Just on NHS, I mean, you're still obviously benefiting from the sort of mix that ortho is 50%. I'm just wondering how long can that sort of party last before you sort of may be inundated with work you don't want to do? And how do you sort of manage the capacity in that respect? And then just finally, staffing retention. You mentioned all of that. The agency staff comment in the release sort of suggests that's moderating or falling. Where are we on that? And can you potentially in time be a sort of zero agency staff type hospital? And how long would it take to sort of get there?

Okay. So why don't we start with the people and Cathy, do you want to talk about our use of agency, how we manage it, where the trajectory is on that?

Yes. So as we've already said, we manage our use of agency extremely carefully. That's obviously partly cost, but also from a quality perspective, that we manage those staff carefully. We are reducing the amount of agency we use consistently. And all of the work that we're doing on recruitment and retention is enabling us to do that. Unfortunately, the agency market, the costs per hour have increased, so we are managing within that. You're absolutely right that ultimately we would like to reduce our agency levels to the minimum. The benefit of having some agency gives us the ability to flex our staff base according to the amount of work that we have on a week-by-week, day-by-day basis. We use bank staff as well. So actually having a bit of flex is helpful. So zero agency might not be the right answer, but we're absolutely focused on improving our retention and recruitment so we can reduce our agency to the right level.

And I think, generally, everyone always says it's a tough workforce environment. So in those circumstances, what do you do? You find out a solution that means it's not tough for you. And I think we're in a place now where we can never be complacent, but we really feel we've got the right culture, the right leaders in place. There's more to do. But I think we are doing well. And I have to emphasize investing in training and those apprenticeships. It's not just about the apprentices, it's also about the message that it gives as an organization that we're investing in the future. They bring incredible energy. We have 500 apprentices, okay? So it's 5%. The impact is 100%. So I think the whole cultural piece here is we just intend to be a great place to work to retain people so that workforce shortages is not something for us, and I think we can achieve that. When it comes to the NHS, I think I might answer that and pass it on. So we could easily have a lot more NHS work, okay? So the question is what's appropriate for us. And you know the way it works and choices you make services available. We are focusing, in particular, on more complex work, which is an important part because that's our mission. We've opened 2 cardiac centers. We provide cardiac services in 3 of our 5 cardiac centers for the NHS, and we'd be delighted to take more NHS cardiac work, and I very much hope that Manchester and Nottingham will become providers of that. So I think we will see more NHS work. It is choice by patients and commissioners and it will be choice by us. I do think it will go up, but I think it's important to remember, we've always said we would rather have a complex orthopedic NHS treatment than a low complexity Self-pay treatment, and we manage that mix. Because there's always a relationship between commissioners and [indiscernible] balance, but I think we're getting that right. Anything to add on that?

No. I just [indiscernible] our NHS is now 50% orthopedics and there's volume out there. I haven't seen the waiting list data that's come out since we've been presenting, but I suspect I know where that might be heading.

David Adlington, JPMorgan. Following on from that NHS chat, I mean, obviously, in previous general election cycles, we've seen governments get quite active in terms of bringing the waiting lists down. Do you expect the same appetite through this general election cycle in the next 12 months? Secondly, on Self-pay, I just wanted to double check that you haven't seen any deterioration through the first half and what you're seeing early on in the second half? And then finally, just any thoughts you might have on the change in ownership of one of your larger competitors?

So the last one, you'd have to ask them. Of course.

Actually, the question was, do you see any opportunities from that?

[indiscernible] news I read about it like you do. We focus on our own business. We see lots of opportunities for our business. The simple answer to that. As regards to second half, Self-pay, we'll show you the numbers when we get to the second half. The business overall continues to have momentum. We'll break it down when we get there. We're very confident about the second half overall. As regards government. So the first thing is there is political consensus about the use of the independent sector. This is an important statement. If you look back in time, that was in question. I get lots of questions about what happens if there's a different type of government. There is consensus. I think that's very positive. So how that would exactly play out if there is a change of government, I don't know. Waiting this will have a focus. You can see it in our numbers. It's up 17%, okay? We have always thought choice was the right answer to this, and we continue to think choice is the right answer. And I don't see any change of focus on that because it's a mechanism that works and I think, generally, what you're seeing is a market trend here, is that wherever they can, patients are starting to think, you know what, I can have a choice. I can go to different places privately. I think you have a choice on PMI. I can have a choice on the NHS. I think that's a trend which will be quite hard to change actually because it's sort of how we live the rest of our lives and our mission is to lean into that. Other questions?

Charles Weston from RBC. Three questions, please. First of all, on margins, first half. The volumes were up strongly. ARPC was up. Costs were up less than inflation. Savings were started to be delivered, but margins were down. And I can't quite square that. So if you could just perhaps unpick that, that will be helpful. Secondly, on the savings, if they're largely back-end weighted, does that mean we should be thinking about a big annualization effect potentially at the same scale in 2024, just mathematically? And then lastly, on the guidance, it is -- it remains very vague. You've had 6 months. You've probably got good insight into the last 2 months and presumably you have fairly good insight into what the bookings look like over the next few months. So if it's vague and presumably, you continue to see some risks around the second half. So if you could just perhaps unpick where you think the key risks are in the next 3 or 4 months of trading, that would be helpful.

Okay. You start on margins.

Well, let me try and go through. I think I can cover most of those questions. So on the margins, I tried to tackle it head on in my presentation. I think when you're comparing this year with last year, it's really hard with all the moving parts to look at one half and the second half, where there was a lot of movement and compare this half with the same half last year. I think we're going to look at the full year number, and we're confident on the full year number. So I think the timing differences and the seasonality that we get and the one-offs that we have distort the exact comparison between this year and last year we have COVID and other impacts. I won't go into all the details of that. On the savings and should that be back loaded? They are backloaded, but is there an impact on that? I think that links in with our guidance as well. because you can talk about differences in lots of things. Our salary increases also in the second half. So should that be backloaded? Do we give you the detail on each of the components? And again, looking at the full year numbers and on the guidance side, what we've tried to do, is say that we've got confidence on our full year numbers. We publish what analysts' guidance are at. And clearly, if they were very different from where -- where we thought we will get up, we'd have to announce that. So we're feeling pretty confident. And actually, most of the comments I've seen from analysts this morning, as I have just said that, the H1 numbers are giving confidence for the full year. So I'm pretty comfortable with that. The other thing I'd just highlight when we're looking at comparisons, Justin started his presentation by saying, this is the first period post COVID that we've had no COVID for years. So if you do want to do comparisons and look at things, I would go much further back and -- but the world has changed significantly. So it's really hard to go back period by period for the comparison.

Just 2 points to add on. In terms of annualization looking forward. So we have set a medium-term target of 21%, which is out there. So we're going to -- we're currently at 17.4%. So we're going to have to get there at some point. So I think it's fair to conclude, you have to have some annualization of improvement if we're going to get there. And we have said we're sticking with our medium-term targets, right? And I think it's also just worth pointing out that as we keep saying, particularly with PMI, we have this look back pricing arrangement so that next year's prices will be set on in relation to this year's inflation. Okay. So if we live in the world where inflation does come down next year, we will be benefiting from this year's inflation in our pricing arrangements. So that we put that out there, and we're very specific. So it gives you something to think about that. But you specifically said what risks are we worried about? Well, you can have a long list of risks and the fact that there's a very long and comprehensive list of risks. So our biggest risk, as always, is workforce, and our biggest focus is workforce. And I think we're making good progress. And I do think if you look at full year guidance, which is how we run things, it is quite specific about what we expect to happen on a full year basis. So I think you can work out why we're confident, hopefully.

Can I just clarify the half-to-half margin point. I get that there's always going to be seasonality in the business. But it seemed like the seasonality would have actually created tailwinds half-on-half because you did have much higher COVID costs last year. So higher volume type pricing, less COVID costs plus some savings would equal higher margin. But obviously, margins come down. So presumably, there were some headwinds as well on the seasonality basis to H1. So what were they?

Well, I'll get back to last year, again, to look at H1 and H2 last year and what happened between H1 and H2 last year in the U.K. and the U.K. market and what changed in terms of inflation, interest rates increasing, workforce challenges. Take your -- we're confident on the full year numbers.

Let's also remember in the second half, we had our biggest COVID impact. So margin was at 16.4% last year in the second half. So it works both ways. So if you look at where the headwinds were, a lot of them were in the second half. A lot of them were in the second half, particularly July, if you remember, I remember it well. The other thing I'd just point out, by the way, was the last half, everyone was pointing out to me that it's not flowing through, but it looks good at the EBITDA level, but what about PBT and PAT. And I think PAT is up 577% and EBIT margins are up. EBIT margins and actually PAT margins are up. So I think the glass is almost completely full actually. I think there's just a little bit at the top to have a look at, which we've explained, but it's a pretty full glass, which I hope will be recognized by everybody. And it's an important point. It's starting to flow through in a material way, which we're very pleased about.

Miles Dixon from Peel Hunt. If I could just ask a bit more on the coronavirus costs. You -- I think it was 2021, you described GBP 50 million of costs sticking to the business for that. How much of it is still left in the business? And have you changed processes so that you expect some of that to stay in permanently? And if not, is it different to the GBP 15 million savings that you expect for the full year?

So the answer to the second one of GBP 15 million is different to that. The GBP 15 million is structural changes of a long-term plan. So it's a different set of numbers. The answer on COVID costs, generally is, there's not much impact anymore.

It's an environment that we're living with. And we're getting with, I think -- Cathy probably gives a better feel.

So we have got fairly well-established procedures and protocols now for dealing with impact, but actually really a different world now. So we've moved into -- actually COVID is just one of the seasonal variations like flu or all of the other things. And so we're dealing with it as part of our way in which we operationally closely and tightly manage the business rather than think about it as a completely separate thing. It's just part of the world that we're in at and that's how we manage it.

In fact, we learned a lot during the COVID processes that we now take into everyday operation, so there's been a dividend there.

Got it. And if I could just go to the GP side of the business. So you talked about the revenue growth there, I think, 40-odd percent. Is it also profitable on a stand-alone basis? And what's going on with the referrals? You might have mentioned it, but are you getting much better at GP referral to Spire services?

So we're seeing good growth in revenue, good growth in appointments, just to give you a bit more flavor on that. We're heading towards 10,000 appointments a month now. So it's becoming a sizable operation. In terms of profitability, we obviously are continuing to work on London Doctor Clinic to make sure that it delivers a positive contribution in the last quarter. I'm on track to do that, and I expect that to happen. In terms of referrals coming through, Spire GP continues to deliver good downstream referrals. London Doctor Clinic, we've just introduced the ability for the doctors to now start referring it to our hospitals. The good news is we've seen an uptick in referrals into both London East, Bushey and Harpenden as well. So we're now actually tracking those referrals, and we'll continue to monitor that and see what actual revenue that starts to generate. So the London Doctor Clinic will be a stand-alone profitable business whereas the Spire GP embedded in the hospitals are much more about delivering the downstream revenue. But I think there's more to come. What's also exciting is we can take more of the work out some of the hospitals to free up more space for John to do complex work. So I can take Dermatology into London. I can take some other, the Gynecology procedure into London as well. So there's some really nice ways in which we can start to look at the portfolio and manage the patient with the best setting for them and most importantly, to free up more areas of complex work for John.

Another thing is asked about it that the occupation health business is profitable and growing. And I think it's really worth looking at that as a template to the future. This is a sector which we've invested in and our general approach to entering new sectors is are they high growth? Are they synergistic? Do they have an overlap with corporate customers and can we support them with our core hospital business? And obviously, that applies to GPs, but it actually also applies to occupational health. So I think you're going to hear more about occupational health in the future, and that business is going very well.

And lastly, if I can, to follow on from Kane's question. NHS tariff, it's clearly gone up. Is there any talk of tariff plus for certain procedures?

Not at this point. Any other questions? Do we have any online questions?

[Operator Instructions] And the first question comes from Blanka Porkolab from Barclays. Blanka, if you'd like to unmute your microphone and go ahead?

I have a few, please. So the first one is following on from a previous question on margins. Do you see room for a sequential improvement in margins from H1 into H2? I guess we're all trying to figure out how we should think about the less summer months, more savings benefits, lower COVID headwinds and increased wages in H2 and how that all plays out. My second question is, do you see double-digit revenue growth in PMI as possible in H2 based on what you've seen in July and August? And then my third question is, how should we be thinking about the growth potential in the NHS business into the second half, given you have tougher comps here?

So there is a whole -- can we give guidance for each 2 questions all of which I'm delighted to have, and I don't want to be difficult, but we're really not giving guidance on a granular basis in the second half. What I can say is, we've said we've got momentum. So momentum means that the trends that we're seeing look like trends which are going to continue, okay? That's basically what we're saying. So we have to force a projection from that. We've given you a sense of how our savings play out in the second half, which I think should help you. I think I've been quite clear that the NHS is likely to commission more. So that will give you a sense about [indiscernible] as regards to that. We've talked about TV advertising campaign, which we think will support Self-pay and PMI. And we've said on a full year basis that we will have margins at the EBITDA level, which have improved on prior year. So hopefully, with all of that and our sense of medium-term objectives, we haven't given you enough. We're not going to start because we're getting into H1, H2 guidance. But hopefully, we have given enough detail in here. We've even given you a sense of what PMI pricing is likely to be in the second half based on the run rate in the second quarter. So I appreciate the questions, but I think probably that's as much as we'll give at this stage. I think there's quite a lot in here to mail through. I hope that is a little bit helpful.

Blanka, thank you very much for the question. If there are any more questions from the webinar, then please do click the Raise Hand icon, and we will come to you, and there are no more questions from the webinar at this stage.

Any more in the room? Thank you, so much. Thank you as ever for your attendance, your attention and your very interesting questions. And we'll see you in 6 months. Thank you.