-3x Short China Regulatory News (SCHE)

13 Feb 2009 07:00



Q1 2009 Interim Management Statement

Friday, 13 February 2009 - Southern Cross Healthcare Group PLC (LSE: SCHE) ('Southern Cross' or the 'Group'), the UK's largest care home operator, today issues an Interim Management Statement for the 16 week period ended 18 January 2009 ("Q1"). 

Average weekly fee up 3.7% to £531 (2008: £512) 

Revenue increased £20.5m to £283.1m (2008: £262.6m)

Adjusted EBITDA down to £16.4m (2008: £18.2m)

Torrwood freehold sold for £7.8m during the period and Pitkerro freehold sold for £4.5m after period end

£16.9m tax repayment received after period end 

Since the year end net debt reduced by £23.6m to £73.9m as at 12 February 2009

Earnings, cash flow and occupancy

Revenue increased by 7.8% to £283.1m (2008: £262.6m), reflecting the higher number of occupied beds and an increase in average weekly fee of 3.7% to £531 (2008: £512). Home level EBITDA margin remained firm at 28.7% against a strong comparative prior year (2008: 29.4%).  Average staff pay increased by 4.4% from October 2008, driven by increases in the national minimum wage and changes to the working time directive. This resulted in home payroll costs, as a percentage of revenue, increasing 1.3% to 58.7% (2008: 57.4%). Whilst payroll costs have increased, the Group has benefited from lower home running costs that averaged 12.6% of revenue, a decrease of 0.6% on the same period last year. Taking these various factors into account, adjusted EBITDA for the period fell £1.8m to £16.4m (2008: £18.2m).

Cash flow from operations was £18.1m (2008: £20.3m), representing a cash conversion of adjusted EBITDA of 110.4% (2008: 111.5%).

During the period average occupancy of the mature portfolio was 89.5% (2008: 90.3%).  Occupancy for the mature portfolio reduced from 90.5% at the start of the period to 88.1% at the period end. The expected seasonal decline accelerated in December and early January, during a period of a wide-spread flu virus. Admissions remained at expected levels throughout this period. Occupancy levels have remained stable after period end.

The Group currently has 11 immature homes (newly developed homes or acquired homes that have been trading for less than 12 months) with 714 beds. Average occupancy within these homes was 48.0%.  Average Group occupancy across all homes during the period was 88.9% (2008: 89.8%).

Fee rate negotiations

Local and Health Authorities represented 81% of the Group's occupied beds and 77% of the Group's revenue during the period. Of these beds, approximately 9% were subject to interim fee reviews in October 2008 that were agreed at an average increase of 3.25%. All Local and Health Authority beds, including those with interim reviews in October 2008, are currently subject to review with rates being effective from April 2009. The Group will have greater clarity on this by the time of its Interim Results announcement in May.

Privately funded residents represented 19% of the Group's occupied beds and 23% of revenue during the period. An average price increase of 8% has been agreed and is effective from February 2009.

Development portfolio and lease commitments

During the period, the Group increased the number of available beds by a net 150. A total of 293 beds were added to the portfolio, including two new own-developed homes; one in Portsmouth, the other (Torrwood) in Wells, Somerset, together adding 151 beds.  In addition, two new homes built by a third party, in Darlington and Norfolk, were brought into the portfolio on an "agreement to lease" basis, adding a further 142 beds. 

A total of five homes with 143 beds were closed during the period. Following the opening of Torrwood, residents from two nearby existing homes were transferred to Torrwood and the two homes closed. In addition, a further three homes, including one daycare centre, were closed. The Group continues to review its portfolio to ensure all its homes meet the required standards. The Group now operates 734 care homes with 37,575 available beds.

Freehold sales

As previously announced, the Group sold the freehold interest in Torrwood Care Centre for £7.8m, being its net book value, on 13 November 2008. The proceeds were used to reduce the Group's borrowings. 

Since the period end, the Group has sold the freehold interest in its Pitkerro care home for £4.5m, representing a profit on disposal of £0.7m.  

Southern Cross continues to hold discussions with potential purchasers regarding the remaining nine freehold property assets currently held for resale and the four freeholds that are being developed by the Group. The four developments are all expected to be completed by June 2009. 

Tax repayment

Since the period end the Group has received a repayment of £16.9m, reflecting the return of cash taxes paid in 2007 and 2008.  Following the Group's decision to prepare its subsidiary accounts under International Financial Reporting Standards ("IFRS"), tax computations for 2007 and 2008 incorporating the future minimum rental charges were resubmitted to HM Revenue & Customs ("HMRC"). 2007 taxes paid and all payments on account for 2008 were repaid to the Group and no further payments are expected to be made in respect of 2009. However, the taxation position of the subsidiary accounts, prepared under IFRS, has not been agreed with HMRC.  

Financing

Due to the strong cash flow generated from operations during the period, the seasonal facility of £12m, negotiated as part of the Group's refinancing in October 2008, has not been required and this facility has now been cancelled. Throughout the period the Group has operated well within the headroom of its renegotiated facilities.

Since the period end the Group's net debt has been reduced to £73.9m by the proceeds from the £4.5m sale of Pitkerro and the £16.9m tax repayment referred to above.

Operational review

Following the appointment of Jamie Buchan as CEO on 1 January 2009, a thorough home-by-home review has commenced. The focus of the review will be to improve the quality and reputation of the Group's care services in order to optimise local market fee rates and occupancy, and also to realise cost savings where possible. 

Jamie Buchan, CEO of Southern Cross, commented: "There is a clear link between high quality and profitability in the provision of elderly care services. We have already identified a number of areas where we can enhance our services and are confident that we can significantly improve the quality of care we provide for our residents and ultimately therefore the Group's revenue growth and profitability."

There will be a conference call for analysts at 9.00a.m. today.  Please call Juliet Edwards at Financial Dynamics for dial-in details on +44(0)20 7269 7125 or email her at Juliet.edwards@fd.com.

Enquiries: 

About Southern Cross

Southern Cross is, in terms of number of beds, the largest UK 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: Southern Cross Healthcare 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 the UK which, together with the NHS, represent circa 77% of the Group's revenues. Its care 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.