ASH.L Regulatory News (ASH)

Ashley House plc

1 May 2012

Ashley House plc

Trading update and strategy progress

Ashley House plc ("Ashley House" or the "Company") the health and community care property partner, provides an update on trading and implementation of strategy.

·; NHS reform still incomplete

·; Scheme slippage over year end reduces 2012 EBITDA, corresponding increase to 2013

·; Business strengthened through reduced costs and focus on business development

·; Further detail on pipeline demonstrates future growth in new business areas

Background

The Company's core business, namely PCT funded development of infrastructure in the primary and community healthcare sector, has slowed dramatically over the past two years due to the re-organisation of the NHS, which includes the abolition of PCTs in March 2013. Whilst the Health and Social Care Act came onto the statute books at the end of March, the re-organisation is still underway and even when complete, activity levels are likely to take time to return to previous levels. The underlying need for improved primary and community healthcare estate remains, indeed it has probably increased with the passing of the Act, and the Board expects activity in this sector to grow once the new NHS arrangements have settled down.

In the meantime, the Board continues to re-shape the Company to win business in adjacent markets. This strategy has been enacted to protect the Company from the continuing volatility and uncertainty surrounding primary care and to provide growth opportunities in the future.

Ashley House's activities now include healthcare property development for non-PCT clients and extra care housing provision for Local Authorities, as well as maintaining its previous activity in primary and community care. Some tangible success has been achieved to date and this is set out in the Strategy Update below.

Current Trading - Year to 30 April 2012

As indicated in the interim results in January, our core PCT funded healthcare market continues to be slow with NHS reform incomplete and decision making around primary care premises still unclear. However, at the EBITDA level the Company has turned a loss at half year into profitability for the full year. The result will be lower than expected as last minute delays in final NHS approvals for two schemes are likely to make these ineligible for inclusion in the year end results in line with the Company's tighter approach to revenue recognition. The net reduction in this year's EBITDA will lead to a corresponding increase in profitability for the year to 30 April 2013 and indeed should be recognised in the first half of that year.

Strategy Update

We have continued to make changes to improve and position the business to respond effectively to the NHS reforms. The purpose of these changes is to:

·; Diversify revenue streams

·; Improve the operational efficiency of the business

·; Broaden the number of investment partners

·; Maintain effective cash management

Progress in each of these areas is set out below:

Diversifying revenue streams

The Board has actively shaped the Company to establish revenue streams in areas that are not funded by PCTs and further where its activity supports subsidy free improved service provision, reducing costs to taxpayers.

The Company is to close to completing work on its first extra care housing scheme. Extra care housing is an area the Company has actively targeted, as the skill sets required are similar to the work we do in primary care, and the market fundamentals are attractive. Extra care housing is commissioned by Local Authorities with care packages typically provided from a combination of Health and Social Care budgets and provides housing for the most vulnerable in society. Helping people live more independent lives in the community can have enormous benefits for the individuals whilst realising efficiency savings for Health and Social Care budgets. Ashley House has been able to forge a number of important relationships and develop a strong pipeline of niche schemes.

Additionally the Company has focused on developing partnerships with health providers not dependent upon budgetary approval from PCTs. Clients and pipeline projects include work with privately owned health providers who hold contracts with Hospital Trusts. Again, we have been able to generate a strong pipeline of schemes.

Our pipeline at the end of April 2012 can be analysed as follows:

Timing remains the major variable in our business. As a guide, revenues from on site schemes will be recognised over the next 12 months. Schemes where the Company is in a fee protected position will see revenues recognised over the next 24 months. Where the Company is appointed the time frame is likely to be 12 to 36 months and where we are in active discussions 18 to 48 months. The timeframes in our new markets are likely to be shorter and less variable, on average, than our traditional PCT funded primary care business.

The Board takes confidence from the progress in the new markets and believes its strategy is starting to work and should deliver a larger and more diversified income stream in the future.

Operational Efficiency

Although the strategy to diversify income is starting to work the Board continues to take prudent steps to reduce costs in the business, ensure efficiencies and re-focus effort on sales. Action taken in the year has allowed significant new investment in product development, marketing materials and specific skill sets to generate the new pipeline referred to above with a small reduction in overheads. In the year the Board has itself slimmed down with the retirement of two non-executive Directors. The Company is further reducing overhead in the first half of the new year with cost reductions in excess of £500,000 on an annualised basis. This will represent a reduction of some 15% of salary costs. Reflecting these tough decisions, the Chairman, Chief Executive and the remunerated Non-Executive Director have all informed the Board that they will waive a similar proportion of their salaries for the year.

Finding new investment partners

The sale of our sister investment company, AHMP to Assura Group Limited ("Assura") in February 2011 left the Company without a regular investment partner. The Board is pleased to confirm that in the last year it has been able to continue a relationship with Assura but also to establish new trading relationships with three further project investors giving the Company a number of purchasers for the full range of its now more diversified market offerings. This ability to structure, package and sell long term Government backed investments is one of the Company's core skills. The Board is delighted to be establishing long term funding partnerships with some high calibre investment entities.

Cash Management

In the announcement of interim results in January the Company had a net debt position of £1.9m at 31 October 2011. This included the on going development of three schemes on the Company's balance sheet (without debt funding at the time) and half of the share of debt in AH Scarborough Health Park Limited, then a joint venture with Assura.

At the end of April 2012 the Company had a net debt position of £6.6m of which £5.5m related to debt funding for the three schemes and the full liability (guaranteed by the Company but secured on land) relating to the AH Scarborough Health Park Limited business where Ashley House acquired Assura's 50% share on 30 April for a nominal amount. The three specific projects all now have sales exchanged with project investors and they will complete in the coming weeks, removing the relevant debt from the Company's balance sheet and introducing further cash.

As reported in the last update in January, the Group's revolving credit facility with Lloyds Banking Group of £2m expires on 30 September 2012. Positive discussions continue with the bank with a view to renewing the facility, most likely on an overdraft basis, ahead of the announcement of preliminary results in July.

Outlook

Trading in the year to 30 April 2013 will remain tough but the Board has taken strong steps to increase the level and quality of earnings to build a stronger underlying business. Aside from the increase attributable to the slippage of the two schemes from 2012, there is likely to be little growth in underlying profitability in 2013. However, with a continuing progress in New Business areas we expect to see a strong return to growth thereafter, bearing in mind the new areas of activity that are being developed. In the medium term the Board views the company's prospects as encouraging.

Enquiries

Ashley House plc Tel: 01628 600 340

Jonathan Holmes, Chief Executive

Antony Walters, Finance Director

Citigate Dewe Rogerson Tel: 020 7638 9571

Ginny Pulbrook / Jos Bieneman

Numis Securities (Nominated Adviser and broker to Ashley House) Tel: 020 7260 1000

Oliver Cardigan / David Poutney