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10 Aug 2009 07:00
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Q3 2009 Interim Management Statement
Monday, 10Β August 2009Β -Β Southern Cross HealthcareΒ Group PLC (LSE: SCHE) ('Southern Cross' or the 'Group'), the UK's largest care home operator, today issues an Interim Management Statement for the 14 week period ended 5 July 2009 ("Q3").Β
Highlights for theΒ 14Β week period endedΒ 5 July 2009:
Number of available beds at period end 37,820 (2008: 37,270)
Average mature occupancy during the period 87.5% (2008: 89.8%)
Mature occupancyΒ at period endΒ 88.0% (2008:Β 90.3%)
Average weekly fee up 4.9% to Β£556Β (2008: Β£530)Β
Revenue increasedΒ by 3.7%Β to Β£254.8mΒ (2008: Β£245.6m)
Adjusted EBITDA down to Β£22.2m (2008: Β£24.4m), withΒ the impact ofΒ lower occupancyΒ offsetΒ by cost savings
Service quality improvingΒ ahead of plan, with 73% of homes inΒ theΒ twoΒ highestΒ CQCΒ categories at end Q3 compared with 71% atΒ end Q2
Net debt reduced by Β£3.0m to Β£71.4mΒ
EBITDA represents earnings before interest, tax, depreciation, amortisation,Β lossΒ on disposal of property, plant and equipment and subsidiary undertakings.Β Adjusted EBITDA represents EBITDA after adding back charges for future minimum rental increases.
Occupancy and Quality InitiativesΒ
During Q3, the average occupancy of the mature portfolio was 87.5% (2008: 89.8%). Occupancy for the mature portfolio increasedΒ to 88.0% at the period endΒ from 87.8% at the start of Q3. While theΒ Group is benefiting fromΒ the expectedΒ seasonal increasesΒ in occupancy,Β management continues to takeΒ actionΒ to address theΒ overallΒ shortfall. Since the end of the period,Β mature occupancy has continued to increase and now stands atΒ 88.4%, as atΒ 7 August.
In the year to date,Β theΒ average occupancy of the mature portfolio was 88.4% (2008: 90.5%). The Group currently has 16 immature homes (these includeΒ newly developed homes and acquired homes that have been trading for less than 12 months)Β andΒ average occupancy was 66.6%. Average occupancy across all homes during the year to date period was 87.7% (2008: 89.4%).
The focus on improving service quality has produced positive results. By the end ofΒ Q3, 73% of homes inΒ EnglandΒ were rated good or excellent byΒ the Care Quality CommissionΒ ('CQC'), up from 71% at the half year and already meeting the target for the full year.
The rollout ofΒ Southern Cross'Β new, predictiveΒ internal inspection system to every home was completedΒ as planned inΒ July and will help to further accelerate the improvement in quality.
Financial Overview
In Q3,Β revenues were Β£254.8m (2008: Β£245.6m)Β and Adjusted EBITDAΒ wasΒ Β£22.2m (2008: Β£24.4m). The Q3 home operating margin was 31.8%, 0.2% lower than during theΒ same period in theΒ prior year.Β Β This reflects aΒ 0.7% increase in staff costs as a proportion of revenueΒ (2009:Β 56.8%Β of revenue versusΒ 2008: 56.1%) due to lower occupancy,Β partially offset by a reduction in home running costs (2009: 11.5% of revenue versus 2008: 11.9%).Β
During Q3, average weekly fee rates were 4.9% higher than during the same period last year at Β£556 per week (2008: Β£530 per week). Fee negotiations have now been completed with 95% of Local Authorities and Primary Care Trusts and this has led to an average fee increase of 2.8% per week with effect from April 2009.
Cash flow from operationsΒ in Q3Β was Β£18.5m (2008: Β£16.9m) representing a cash conversion of Adjusted EBITDA of 83.3% (2008: 69.3%). The reduction in net debt, which on 7 August was Β£61.8m, has allowed the advanced repayment of 50%Β (Β£6.8m)Β of the Syndicate Property Bridging facility, which has reduced the total facilities available to the Group to Β£117.0m. The Group continues to comply with all financial covenants associated with its banking facilities.
Revenue for the year to date increased by 5.7% to Β£715.6m (2008: Β£676.8m). This reflects an increase of 4.6% in the average weekly fee to Β£543 (2008: Β£519) and theΒ 3.1%Β increase inΒ averageΒ available bedsΒ during the yearΒ to dateΒ (2009: 37,564 versus 2008: 36,425). However, thisΒ wasΒ partially offset byΒ the 2.1%Β reduction inΒ year to dateΒ mature occupancy.Β As a result,Β Adjusted EBITDA for the year to date fell Β£4.5m to Β£50.7m (2008: Β£55.2m).
Freehold Sales and Estate
Southern Cross continues to hold discussions with potential purchasers regarding the freehold property assets currently held for resale.
The Group hasΒ recentlyΒ completed its four development projects and will also seek to divest the freeholds of these properties. The home inΒ BristolΒ (81Β beds) has been registered and has accepted its first residents. The remaining three homes (246Β beds)Β are expected to complete theΒ registration processΒ shortlyΒ and open for business during September.
The lease assignment from the receiver of the six homes (311 beds) previously operated by BritanniaΒ Leased Homes LimitedΒ has been completed. These homesΒ have anΒ averageΒ occupancy ofΒ 75%Β and are currently classified as immature homes. ThreeΒ furtherΒ homes have been leased during the quarter (198 beds),Β bringingΒ the total number of homes currently operated by the Group to 742.
Outlook
In May 2009, the UK Government announced that the National Minimum Wage will increase to Β£5.80 per hour from Β£5.73 per hour from October 2009, an increase of 1.2%. The 7p increase compares favourably to the 21p increase that came into effect in October 2008 which, when combined with the introduction of the second stage of the Working Time Directive, resulted in a 4.4% increase in home payroll costs.
OccupancyΒ and serviceΒ quality improvementΒ remain the main focus of the business. It is expected thatΒ the trend inΒ occupancyΒ levelsΒ for the remainder of the yearΒ willΒ continue to follow a similar, improvingΒ pattern to last year.Β
Green Paper
The Group notes the Government's recent Green Paper on the future of adult social care and welcomes the encouragement of a broad debate on this crucial issue. As theΒ UK'sΒ leading care home operator by number of beds,Β Southern CrossΒ willΒ seekΒ to play an active role in shaping this debate during the consultation period.
There will be a conference call for analysts atΒ 9.30a.m.Β today. Please callΒ Juliet EdwardsΒ at Financial Dynamics for dial-in details on +44(0)20 7269 7125 or email her at Juliet.edwards@fd.com.
Enquiries:Β
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Southern Cross HealthcareΒ Group PLC |
Β +44 (0)1325 351100 |
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Jamie Buchan, Chief Executive |
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Richard Midmer, Finance DirectorΒ |
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Financial DynamicsΒ |
+44 (0)20 7831 3113 |
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Ben Brewerton/Jonathan Birt/Emma Thompson |
About Southern Cross
Southern Cross is, in terms of number of beds, the largestΒ UKΒ provider of care home services for the elderly and a major provider of specialist services for people with physical and/or learning disabilities. The Group's care homes for the elderly operate under two distinct brands:Β Southern Cross HealthcareΒ and Ashbourne Senior Living. Both brands provide a range of social and personal care services and nursing care services for elderly people with physical frailties and differing forms of dementia. The Group's specialist services operate under the Active Care Partnerships brand and provide long-term care services for people with physical and/or learning disabilities and for younger people with complex forms of challenging behaviour.
Southern Cross is focused on providing high quality care in well invested facilities, seeking to be the home of choice in each local community in which it operates. The Group provides care services for most of the local authorities in theΒ UKΒ which, together with the NHS, represent circa 77% of the Group's revenues. Its careΒ home portfolio is largely purpose-built with a high percentage of single occupancy rooms and rooms with ensuite bathrooms.
This announcement includes statements that are, or may deemed to be, "forward looking statements". These forward looking statements can be identified by the use of forward looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or " should" or, in each case, their negative or other variations or comparable terminology. These forward looking statements include matters that are not historical facts and include statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies and the outlook on the care home industry. By their nature, forward looking statements involve risk and uncertainty because they relate to future events and circumstances.
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