Primary Health Properties — Update 26 August 2016

Interim results for the six months to 30 June 2016 showed continued progress in assets, rental income, profitability, dividends and net asset value. In April 2016 gross proceeds of £150m were raised from both existing and new shareholders in an oversubscribed issue at 100p per share, a 14% premium to the FY15 EPRA NAV per share, and therefore NAV accretive. The proceeds reduced the interim LTV to 53% and are primarily earmarked for further accretive portfolio growth. H116 saw £54m deployed in immediately income-generating let properties, in addition to investment in asset management initiatives and ongoing development commitments. Management reported a robust pipeline of potential acquisitions in both the UK and Ireland, including its first Irish investment, the contract for which is expected in August 2016. While valuation yields have continued to tighten marginally (asset prices have increased), favourable lending conditions and PHP’s reducing marginal administrative costs have maintained an attractive yield spread. A renegotiation of expensive interest rate swap contracts with a nominal value of £88m will usefully reduce PHP’s ongoing cost of debt with effect from November, albeit substantially offset in cash flow terms by a one-off settlement funded by the NAV premium realised on the April 2016 equity issue. H116 confirmed the return to full dividend cover that was achieved in H215 and while we expect a dip in H216 as the new equity is fully put to work, and interest savings work through, we expect full dividend cover for the year and for FY17. In this report we provide an update on recent developments and forecasts but we also provide a full examination of PHP’s strategy and prospects and the primary healthcare markets in the UK and RoI in which PHP operates.

PHP is a UK real estate investment trust (REIT) and a leading long-term investor in modern, flexible, purpose-built, healthcare facilities. The majority of these are leased to general practitioners (GPs), National Health Service (NHS) organisations, and other associated healthcare providers such as pharmacies and dentists. Investment is targeted at assets that can generate long-term rental income with scope for capital gains. Currently, all portfolio assets are in the UK, however, the company has taken its first steps within the RoI, a market that has very similar characteristics to the UK while offering the potential for enhanced risk-adjusted returns.

PHP has a long-term strategy to grow the portfolio through asset management of the existing properties and selected acquisitions, at all times ensuring the assets are fit for purpose and able to satisfy evolving healthcare needs over the long term. Let properties are acquired from a range of investors, provided the underlying occupational leases and other property fundamentals meet PHP’s investment criteria. Each potential investment is evaluated for its income and asset value growth potential. In particular PHP seeks possibilities for extending the term of the underlying leases and scope to add to the income and value from providing additional space and facilities in the future. In addition to suitable existing let facilities, PHP targets new developments, often funding the development on a pre-let basis and agreeing to acquire them at completion. It is not a developer but works with a range of experienced development partners as well as with healthcare bodies and healthcare professionals to procure newly built premises. The group finances its portfolio with a mix of equity and debt, the proportions of which are kept under regular review to optimise risk-adjusted returns to shareholders over the long term. Debt facilities are varied, accessing both traditional bank lenders and debt capital markets in the form of unsecured retail bonds and secured corporate bonds. Facilities are closely monitored to target a spread of providers and range of maturities to ensure continuity and availability that match the longevity of income streams.

The primary healthcare property sector is a specialist sector alongside the broader mainstream commercial property sub-sectors (offices, retail, industrial). As well as having good growth prospects that are effectively immune to the economic cycle, the key factors that differentiate it from the broad sector are:

The company was founded by the current managing director, Harry Hyman, in 1995 and began operations with the acquisition of a small portfolio of four GP surgeries. It floated on the AIM market of the London Stock Exchange (LSE) in 1996, moved to the Main Market of the LSE two years later, and converted to REIT status in 2007. PHP has a proven record of successfully investing in the sector. By 30 June 2016, the portfolio had reached 292 properties with a value of £1,198m and PHP has delivered 20 years of unbroken dividend growth since launch and an average annual NAV total return (the change in NAV plus dividends) of c 11% since listing in 1996.

The structure of PHP’s external management arrangements has enabled the company to generate one of the lowest EPRA cost ratios in the UK REIT sector. The EPRA cost ratio was 11.5% in H116, unchanged from 2015 as a whole and down from 11.6% in H115.

The board of PHP has retained Nexus Tradeco (Nexus) as the adviser, to provide property advisory and management services, including the services of the managing director and deputy managing director/finance director, Harry Hyman and Phil Holland (see below), as well as administrative and accounting services. Nexus owns c 2.7% of PHP, which contributes to an alignment of interest between the two and PHP shareholders.

At the end of 2015, the Nexus property and admin team employed 25 members of staff, including nine chartered surveyors and five chartered accountants.

Nexus receives a property advisory fee payable based on the gross net assets of PHP’s portfolio, calculated on a sliding scale as shown in Exhibit 2. Importantly, incremental asset growth lowers the average fee, which in combination with fixed administration costs (see below) means that the cost ratio should continue to decline as the portfolio grows further.

In addition, Nexus receives a fixed annual fee in respect of administrative and accounting services, c £904k from 1 May 2016. This fixed fee may be adjusted (up or down) by up to 5% pa subject to movements in RPI.

Nexus is also entitled to a performance incentive fee (PIF), which is set at 11.25% of annual IFRS NAV total return in excess of 8%. Where total performance has fallen short of 8% in any one year, the “deficit” must be made up in subsequent years before any PIF is paid. As at 1 January 2016, there was a deficit of £12.5m that must be made up in the net asset value before any PIF becomes payable.

PHP is governed by an eight-member board consisting of two executive and six independent non-executive directors: the two executive directors are Harry Hyman and Phil Holland. Harry Hyman is the managing director and the founder of both PHP and Nexus Tradeco. Phil Holland, the finance director and deputy managing director, is similarly employed at Nexus. PHP contracts for the services of Harry Hyman and Phil Holland with Nexus under the advisory agreement for which Nexus receives the directors’ fees. Alun Jones became the independent non-executive chairman in April 2014, having been appointed to the board in 2007. He is a chartered accountant and has previously served on PwC’s UK and global supervisory boards as well as the financial reporting review panel. The five additional non-executive directors (Steven Owen, Mark Creedy, Nick Wiles, Geraldine Kennel and Dr Ian Rutter) all bring a wealth of property, financial and management experience to the board.

Brief biographies are provided on page 16.

In both the UK and the RoI, primary care is the foundation of the healthcare system and GPs act as the “gatekeepers” or first point of access to healthcare services. There are more than 1.3 million GP visits daily in the UK (source: Royal College of Practitioners, January 2015), representing c 90% of all NHS contacts with patients. The NHS and its RoI equivalent, the HSE, face increasing pressures from population growth and an ageing population, living longer with more medical conditions. The UK population is expected to grow from 64.6 million in 2014 to 74.3 million in 2039 (source: ONS), with the share of those aged 65 and over growing from 17.7% to 24.3% (11.4 million to 18.0 million). The Irish Central Statistics Office (CSO) forecasts a rise in total population of 13.4% between 2011 and 2031 (4.6 million to 5.2 million) and for the share of over-65s to rise from 11.6% to 19.1%.

In addition to simply meeting this expected additional demand for healthcare services, both the NHS and the HSE seek to increase the range of services that GPs are able to provide, outside the hospital sector, in local community settings, integrated with other healthcare services. In addition to improved and more convenient access to services for patients, the shift in delivery is expected to achieve overall cost efficiencies and ease the burden of budgetary constraints on the system as a whole. It has been estimated that every £1 increase in GP spending has the potential save £5 in other areas of the NHS, including the cost of hospital admissions (source: Royal College of GPs/Deloitte, 2014).

An obstacle to change and an opportunity for long-term investors in modern, purpose-built premises like PHP’s is that a large share of the current primary care estate, in both the UK and the RoI, is incapable of adapting to meet the new demands. Much remains owned directly by GPs, often residential conversions, with little or no investment in recent years, and with little or no opportunity to adapt or expand. It has been estimated that more than 50% of the primary care estate is more than 30 years old (source: Savills/EC Harris) and in a 2014 survey by the BMA, 70% of GPs stated their premises are too small to be able to deliver enhanced and additional services, 52% said their premises had seen no investment or refurbishment in the past 10 years, and the majority said that their premises are too small to be able to deliver training and education. Aside from being physically inadequate, such premises are simply unable to accommodate the trend to GP practice consolidation or multi-practice accommodation, both ways of allowing GPs to adapt to the new service demands, nor of accommodating the extra 5,000 GPs planned between 2015 and 2020 as part of the drive to 24/7 GP delivery. Modern, flexible premises of the type that PHP and others invest in will be key to the successful delivery of expanded, locally delivered and integrated services. According to the BMA, there were c 9,800 GP practices in the UK (c 43,000 GPs) as of July 2014. PHP estimates that these GPs operate from c 10,000 premises. Of those, less than 800 larger, modern, purpose-built premises are owned by the three listed primary care investment companies (PHP, MedicX Fund and Assura). Even allowing for ongoing consolidation of smaller GP practices into larger groups, the implied future demand for investment is very significant. However, if the NHS commitment to this investment is restricted to rent reimbursement with capital provided by long-term investors, the financial burden on the NHS, in the form of rent, would be a much more manageable 5-6% of the capital investment required.

The structure of the NHS in England has gone through a number of significant changes in recent years. In 2013 Clinical Commissioning Groups (CCGs), led by GPs, replaced Primary Care Trusts as the regional authorities responsible for delivering primary care. At the same time, NHS Property Services was created to manage, maintain and improve the NHS property estate. The CCGs assumed greater control of NHS budgets, able to spend any savings they make in one field in others of their own choosing. The direction of travel of NHS changes is extremely positive in terms of future investment in the modernisation of the primary healthcare estate, although as new structures were bedding down, as plans were made and financial resources garnered, NHS approvals for new schemes have been unusually slow to come through. This now appears to be changing.

NHS England published its Five Year Forward Review (NHS Review) in October 2014, a strategic plan for the development of UK healthcare services. Significantly, it reiterated that “the foundation of NHS care will remain list-based primary care” (NHS emphasis) and set out plans for additional investment in primary care in England to provide more services within a local community setting.

CCGs were asked to submit Strategic Estate Plans (SEPs) by 31 December 2015, for review by 31 March 2016.

The government supports the aims of the NHS Review and has also stated its objective to improve patient access to GPs, moving to a 24/7 service. These ambitions have been supported with increased resources, and the November 2015 Spending Review allocated an additional £10bn of investment funding to NHS England (£6bn to be provided by the end of the 2016/17 financial year). In return the NHS is tasked with generating internal cost savings of £22bn pa under the NHS Review, a target that increased emphasis on cost-effective community-based primary care should be able to contribute to.

In April 2016 NHS England published its General Practice Forward View (GP Review), which provides details of its strategic plans for delivering on this agenda for general practice, including plans for investment in staff, technology and premises. These include an increase of 25% in the GP budget, the recruitment of an additional 5,000 GPs over five years, and a commitment to out of hours care, developing clinical hubs and urgent care services.

Separately, the government has established an Estates and Technology Transformation Fund (ETTF) specifically to improve primary care infrastructure. It will disburse £900m this autumn and both CCGs and GPs submitted bids by the end of June 2016. While this fund will not have a direct impact on PHP, the awards will support approvals where PHP capital will be invested along with ETTF funds. We believe it demonstrates the political will to improve the primary care estate and therefore supports the view that once SEPs have been reviewed, CCGs, the NHS more generally and wider government will support their implementation. This in turn bodes well for PHP, whose tenants have submitted 28 proposals for funding from the ETTF, which will see PHP invest capital totalling £15.4m, generating additional rent of £1.02m and adding a weighted average of 13.4 years to the unexpired leases on the relevant properties.

Meanwhile, drafts of some SEPs are becoming available and lead us to expect an increase in primary care developments in England over the next 18 months. As a result of SEPs being implemented, most likely from mid-2016 onwards, we anticipate a rise in approvals for new primary care developments. As an example, three CCGs in Nottinghamshire had assessed their collective estate by November, noting that “the strategic direction for premises for a number of years has been for the NHS to support larger developments for financial and clinical service reasons. In larger practices there is potential for a greater range of services to be offered to patients, a greater range of clinical expertise, more opportunities for peer review and economies of scale which present opportunities for wider clinical multi-disciplinary teams. In addition, larger buildings provide more opportunities for moving services from secondary care to primary care.” They specifically identified at least one health centre that needed to be replaced and have named that as the CCGs’ top priority.

Ireland’s HSE faces similar challenges to the NHS and the Irish Department of Health (DoH) has launched a strategy to meet the future needs of the population. Until recently, primary care in Ireland was provided privately by GPs. In late 2012 the HSE introduced a new healthcare strategy, a key element of which was the establishment of a single tier primary care service, free and universal. So far, only those under six and over 70 have been given access to primary care paid for by the state. By 2019 it is planned that it will be available to all.

The mainstay of primary care in Ireland, as in the UK, is the GP, but in Ireland they have been fee charging and their rents and rates have not been reimbursed by the government. As a result, private investment in primary care has been inhibited.

The new strategy has established a number of state-funded Primary Care Teams, each responsible for a different geographic area and comprising a range of services such as community and public health nursing teams, home helps, mental health services, social workers and dental care. Currently, these providers are not necessarily all co-located but there are opportunities to improve efficiency and service delivery if this can be achieved. To that end the DoH has a Primary Care Centre (PCC) building programme with specific goals: nine PCCs were delivered in 2015 and 28 are planned for 2016 and the first half of 2017. When the targets were published at the end of 2014, there were around 30 centres under construction with a further 50 planned. The HSE will be the anchor tenant in each one, occupying 60-75% of the building on a 25-year lease, with GPs and pharmacies taking the remainder. Planned PCCs range from 1,500 to 5,000sqm, which is large compared to most of PHP’s portfolio (average size 1,227sqm; the average size of new assets in 2015 was 1,651sqm). Although the rental covenant will not be as strong as in the UK, where the government underpins 91% of rents, the tenant mix should provide a secure income stream albeit with slightly more risk of vacancy than in the UK. We note that HSE rent reviews will be every five years rather than every three as is standard in the UK. At 30 June PHP had €14m of Irish transactions agreed and in solicitors’ hands and €40m under offer, which includes the €6.7m Irish commitment made since.

At 30 June 2016 PHP had portfolio of 292 properties, all in the UK (PHP entered into its first conditional contract to acquire a primary care centre under development in the RoI after the period end), with a total value of £1.2bn (an average of £4.1m per property), of which three were under development (two since completed). The contracted rent roll was £66.9m with 91% of the rents being paid directly (c 21%) or indirectly (via GP reimbursement, c 69%) by the NHS, with the balance coming mainly from pharmacies co-located with GPs’ surgeries (and thereby provided with a consistent stream of revenues). As is common in the sector, there is effectively no vacancy with 99.7% of space let at 30 June. Lease terms are long, typically 20-25 years at inception, and PHP has an average unexpired term across the portfolio of 14.1 years.

The portfolio is geographically diverse with assets well spread throughout the mainland UK. We look to the average age of the portfolio (11 years compared with 65% of the primary care estate in the UK being more than 20 years old and 50% more than 30 years old), together with the average size of the assets (and low proportion of small sized assets) as evidence of management’s focus on generating sustainable long-term returns from flexible, modern properties.

Rent reviews in the UK are effectively upwards-only and take one of three forms: fixed uplifts (c 6% of rents), RPI-linked (c 19%) and open market (at the option of the landlord, c 75%). The majority of reviews are on a three-year basis (77%), with the balance on either one-year (10%) or five-year (13%) cycles. In the RoI, the HSE has indicated that it will enter into 20-25 year leases with five-yearly reviews set by reference to CPI, but rents may go down as well as up.

The weighted average rent increase on completed rent reviews in H116 was 1.0%, down on the 1.1% seen in H115 but up on the average for FY15 as a whole. Rental growth has declined in recent years due to the impact of low inflation on RPI-linked growth, and due to muted growth of open market rents.

In H116 the weighted average increase on fixed uplift lease reviews completed was 2.65%, similar to the level seen in FY14 and FY15. RPI uplifts averaged 1.65%, similar to FY15 but lower than FY14. Open market reviews saw a c 0.7% increase, very slightly ahead of FY15 but well down on recent years. Open market reviews aim to set the rent at current market level, defined as what would be paid by a free and willing tenant to a landlord in that area. The decision is that of the district surveyor, allowing for a range of factors including the size, condition, amenity and location of the premises as well as terms of the lease itself. The reorganisation of the NHS structures in 2014 has slowed the decision making process that would sanction the development of new primary healthcare facilities, and this has restricted the opportunity for land and building costs, to be reflected in the rents set for modern, well equipped buildings. As the pace of new development gradually increases there is a widespread expectation that this will support market rent growth. If not, there is a risk that the private investment that is needed to support the modernisation of the healthcare estate could become restricted.

Demand for attractive primary healthcare properties has remained strong, which is continuing to compress yields. While revaluations have helped increase NAV, yield compression continues to make it more expensive to acquire assets and new income streams, particularly in the UK. Much of the competition comes from institutional investors seeking larger assets and portfolios, which some market participants indicate are being bought at yields below 5%. PHP has continued to be selective in its acquisitions, with access to transactions doubtless supported by its track record and established market relationships, and it has extended its investment universe to the RoI where risk-adjusted yields compare favourably. Meanwhile a combination of good funding conditions and PHP’s reducing incremental administrative costs are maintaining a healthy spread between property yields and costs. By way of illustration for the UK, taking the current 5.21% net initial yield on the portfolio, the incremental management fee of 0.325% for PHP and adjusting for funding costs (the 10-year Libor swap rate and PHP’s incremental margin on current facilities), there is a positive spread of 2.185%. With Irish net initial yields higher at c 7% and the 10-year Euribor swap rate at 0.25%, the illustrative spread is nearer 4.6%.

We have updated our forecasts for the FY16 interim results that were recently released, as well as the April equity issue that was partly deployed in H116 property acquisitions.

The £54m invested in property additions in H116 was ahead of the rate that we had expected and it was all into immediately income-generating assets (as opposed to development funding commitments). We had assumed £32.5m of new commitments in H116 (of which £7.5m immediately income generating) and £65.0m for the year (£15.0m immediately income generating). We have maintained our investment commitment assumptions for H216, increasing the full year total from £65m to £86.3m and have also maintained FY17 at £95.0m. Both assumptions include a higher share of immediately income generating assets (£17.5m up from £10m in H216 and £17.5m up from £15m in FY17). PHP has indicated a current pipeline of opportunities of £82.1m in the UK and €91.4m (c £79m) in Ireland. Of those roughly 40% are in very advanced stages (in solicitors’ hands or shortly to be).

We have made no change to our assumption of average rent increases of 1.0% in FY16 and 1.5% in FY17. The FY17 increase reflects the expectation of accelerated NHS development, also evident in our forecast commitments.

Our forecasts for revaluation movements are based on our expectation of rental growth at an unchanged valuation yield. The H116 revaluation gain was above that assumed in our forecasts as a result of the further H116 tightening yields. We have adjusted for this but continue to make no assumption on yield movements.

As a result of the capital raising our forecast for net debt is lower than previously. Allowing for property investment our forecasts point to £664m of net debt at the end of FY16 (down from £757m previously) and £757m at the end of FY17 (down from £853m). FY16e EPRA earnings are increased from £23.3m to £27.1m and FY17e EPRA earnings from £24.2m to £32.3m. For FY16, estimated EPRA EPS is lower, reflecting the increase in the average number of shares and the delay in fully deploying the proceeds; our FY17 EPRA EPS forecast is unchanged. Although FY16e EPRA EPS is below the headline dividend, the new shares do not qualify for the first two quarterly dividends and this is why the total cash dividends paid that we forecast in the year are covered by forecast earnings.

Management actively manages the liability side of the balance sheet as well as the asset side. PHP is funded through a blend of equity and external debt, balanced with the aim of enhancing shareholder returns. A key objective for management is to ensure the group maintains access to appropriate debt facilities to be able to maintain growth. The group had total debt facilities of £749.8m at 30 June 2016 and the principal value of drawn debt was £634.8m leaving £115m undrawn (or £109.8m after development commitments and allowing for cash). The debt is diversified by source, substantially fixed or hedged against interest rate increases, and relatively long term. In addition to bank facilities, debt facilities include a £70m secured bond maturing in 2025, a £75m retail bond due in July 2019, and £82.5m (nominal value) convertible bonds due in May 2019 with a conversion price of 97.5p. Around 75% of the drawn debt is secured and the balance is unsecured, providing additional funding flexibility.

More than half of the debt is at fixed interest rates. The company’s policy is to maintain floating rate interest exposure between 20% and 40% of total debt, which it manages using interest rate swap contracts to hedge floating rate exposure. At 30 June, £126m of swaps were in effect and a further £60m came into effect in July and August. This swap protection covers nearly 80% of the 30 June variable rate debt with the effect that c 94% of all debt is fixed or hedged. The weighted average swap rate at 30 June was c 4%, although this will change in future as the new swaps come into force and as swaps covering £88m of debt are re-couponed in November to 0.87% from 4.79%.

PHP returned to full dividend cover in H215, and this increased further in H116. Our forecasts indicate full cover through the FY16 and FY17 forecast period.

As a UK REIT, PHP is required to pay distributions of at least 90% of the group’s rental profit (calculated by reference to tax rules rather than accounting standards). In addition to a high pay-out ratio, PHP has grown the dividend in each of the 20 years since listing.

High and growing dividends are supported by long-term cash flows underpinned by long leases to the UK government, via the NHS, being the underlying tenant of 90% of the UK portfolio. For the current year consensus forecasts indicate 5.125p per share in dividends, subject to unforeseen circumstances, a 2.5% increase on 2015. This represents a yield of 4.7% on the current share price, versus 3.9% for the FTSE All Share and 0.57% on a 10-year gilt. PHP’s yield premium versus the EPRA NAREIT sector is broadly in line with its long-term average and has been reducing in recent months as investors have become more cautious about the prospects for the broader UK commercial property sector. Net rental income is a significant element of commercial (and healthcare) property returns over time (c 75%). However, because healthcare property is less economically sensitive, displays consistently high levels of occupancy and is less susceptible to speculative development, returns tend to show much less volatility than the commercial sector as a whole.

Net asset value per share was 90.4p on an EPRA basis (82.5p on an IFRS basis) at the end of June 2016, up 3.1% (6.5%) from the end of 2015. The EPRA NAV is adjusted for the fair value liability of interest rate swaps and changes in the fair value of the convertible bond. At a share price of 112p, the shares trade at a 24% premium to EPRA NAV, slightly above the 10-year average of 16%. We note that the current yield on the UK 10-year gilt yield (0.57%) is well below its 10-year average of 3.0%.

As shown in Exhibit 15 above, net initial yield on valuation has declined over the last five years and tightened further by 11bp to 5.21% in H116. It is our standard practice not to include an assumption of yield changes in our forecasts (our forecast revaluation gains are derived from rent increases on an unchanged yield) but further compression is entirely possible despite increased nervousness in the broad core UK commercial property market since the EU referendum vote. Primary healthcare property assets have traditionally showed much less price/yield volatility than the broad commercial market over the cycle, with yields moving between c 5.0% and c 6.25% over the past 10 years (source: IPD data). Although the current yield on PHP’s portfolio is not much above the historical floor, we note strong appetite for such assets, especially larger assets where institutional investors are keen to lock in long-term RPI linked growth in this low interest rate environment. We estimate that a further 5bp tightening to 5.16% would increase EPRA NAV of the portfolio as at 30 June 2016 by 2p and a reduction to 5% would add 8.8p per share to 30 June EPRA NAV.

During H116 PHP generated a total return on its property assets (net rental income plus valuation movements) of 4.2% and, with the benefit of gearing, the NAV total return was 6.0%. For the FY15 year as a whole, the returns were 9.7% and 16.3% respectively. Net revaluation gains in 2015 were £39.8m and in the first half of 2016 were £15.5m. Exhibit 16 gives a longer-term perspective on PHP’s property returns and those for the sector as a whole for various periods up to the end of 2015, the last period for which we have data available. The nine-year data begin at the end of 2006. Over this period Primary Healthcare returns have exceeded those of the mainstream commercial property market, both as measured by IPD. More striking is that within this period commercial property returns have been significantly more volatile. The broad sector saw values decline by c 42% from the pre-financial crisis peak in 2007 to the trough in March 2009. It has seen a significant upswing since. As expected, healthcare property values were much more defensive in the downturn and have been lagging the broader sector in the post-2009 upswing.

While net rental income is a significant element of commercial (and healthcare) property returns the reason for this difference in volatility is the much lower economical sensitivity of healthcare property, with consistently high levels of occupancy and almost no speculative development. Over the last five years PHP’s property return has performed similarly to the IPD Primary Healthcare Index, and the benefits of gearing mean that the total NAV return generated by PHP’s assets has been higher.

As a long-term investor (not developer) operating in a sector with long leases, predominantly government backed, with minimal vacancy and (in the UK) upwards only lease adjustments, supported by predominantly fixed-cost debt, we view PHP as relatively low risk. There are nevertheless a range of factors that could impact the business, especially over the longer term, including structural changes in the markets in which the group operates, changes to government health and fiscal policies, general economic and monetary conditions, and operational performance.