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13 Feb 2009 07:00
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Q1 2009Β Interim Management Statement
Friday, 13 February 2009Β -Β Southern Cross HealthcareΒ Group PLC (LSE: SCHE) ('Southern Cross'Β orΒ the 'Group'), the UK's largest care homeΒ operator, todayΒ issues anΒ Interim Management StatementΒ for theΒ 16Β weekΒ periodΒ endedΒ 18Β January 2009Β ("Q1").Β
Average weekly fee up 3.7% to Β£531 (2008: Β£512)Β
Revenue increased Β£20.5m to Β£283.1m (2008: Β£262.6m)
AdjustedΒ EBITDAΒ down toΒ Β£16.4mΒ (2008: Β£18.2m)
Torrwood freehold sold for Β£7.8m during the period andΒ Pitkerro freehold sold for Β£4.5mΒ afterΒ period end
Β£16.9m tax repayment receivedΒ afterΒ period endΒ
Since the year end net debtΒ reduced byΒ Β£23.6mΒ to Β£73.9m as atΒ 12Β February 2009
Earnings, cash flowΒ and occupancy
Revenue increased by 7.8% to Β£283.1m (2008: Β£262.6m), reflecting the higher number of occupied beds and an increase in average weekly fee of 3.7% to Β£531 (2008: Β£512). Home level EBITDA marginΒ remained firm atΒ 28.7%Β against a strong comparative prior yearΒ (2008: 29.4%).Β Β Average staffΒ payΒ increased by 4.4% from October 2008, driven by increases in the national minimum wage and changes to the working time directive. This resulted inΒ home payroll costs, as a percentage of revenue, increasing 1.3% to 58.7% (2008: 57.4%). Whilst payroll costs have increased, the Group hasΒ benefited from lower home running costs that averaged 12.6% ofΒ revenue, a decrease of 0.6% on the same period last year.Β Taking theseΒ variousΒ factors into account,Β adjusted EBITDA for the periodΒ fell Β£1.8m toΒ Β£16.4m (2008: Β£18.2m).
CashΒ flow from operations was Β£18.1m (2008: Β£20.3m), representing a cash conversion of adjusted EBITDA of 110.4% (2008: 111.5%).
During the periodΒ averageΒ occupancy of the mature portfolio was 89.5%Β (2008: 90.3%).Β Β Occupancy for the mature portfolioΒ reduced fromΒ 90.5% at the start of the periodΒ toΒ 88.1% at the period end.Β TheΒ expectedΒ seasonal declineΒ acceleratedΒ inΒ DecemberΒ and early January,Β during a period of aΒ wide-spreadΒ fluΒ virus.Β AdmissionsΒ remained at expected levels throughout this period.Β Occupancy levelsΒ haveΒ remained stableΒ afterΒ period end.
The Group currently hasΒ 11Β immature homes (newly developed homes orΒ acquiredΒ homes that have been trading for less than 12 months) withΒ 714Β beds.Β Average occupancy within these homes wasΒ 48.0%.Β Β AverageΒ Group occupancyΒ across allΒ homesΒ during the periodΒ wasΒ 88.9%Β (2008: 89.8%).
Fee rate negotiations
Local and Health Authorities representedΒ 81%Β of the Group's occupied beds andΒ 77% of the Group's revenue during the period. OfΒ theseΒ beds, approximatelyΒ 9%Β wereΒ subject toΒ interimΒ fee reviewsΒ inΒ OctoberΒ 2008Β that were agreed at an average increase ofΒ 3.25%.Β All Local and Health Authority beds, including thoseΒ with interim reviews inΒ October 2008,Β are currently subject to reviewΒ with rates beingΒ effective from April 2009.Β The Group will have greater clarityΒ onΒ this by the time ofΒ its Interim Results announcement in May.
Privately funded residents represented 19% of the Group's occupied beds andΒ 23% of revenue during the period.Β An average price increase of 8% hasΒ been agreed andΒ isΒ effective from February 2009.
Development portfolio and lease commitments
During the period, the GroupΒ increased the number of available beds by a net 150. A total ofΒ 293 bedsΒ were addedΒ to the portfolio, includingΒ two newΒ own-developedΒ homes; one inΒ Portsmouth,Β the otherΒ (Torrwood)Β in Wells,Β Somerset,Β togetherΒ adding 151 beds.Β Β In addition, two new homesΒ built by a third party, in Darlington andΒ Norfolk,Β wereΒ brought intoΒ the portfolio on anΒ "agreementΒ to lease" basis, addingΒ a furtherΒ 142 beds.Β
A totalΒ ofΒ five homes with 143 beds were closed during the period. Following the opening of Torrwood,Β residents from twoΒ nearbyΒ existing homesΒ were transferred to Torrwood and the two homes closed.Β InΒ addition, a furtherΒ threeΒ homes, including oneΒ daycareΒ centre,Β were closed.Β The GroupΒ continues to review its portfolio to ensureΒ all itsΒ homes meetΒ theΒ requiredΒ standards.Β The GroupΒ 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 Β£7.8m, being its net book value,Β on 13 November 2008. The proceeds were used to reduce theΒ Group's borrowings.Β
Since the period end,Β the Group hasΒ soldΒ the freehold interest in itsΒ PitkerroΒ care homeΒ for Β£4.5m,Β representing aΒ profitΒ on disposalΒ ofΒ Β£0.7m.Β Β
Southern CrossΒ continues to hold discussions with potential purchasers regarding theΒ remainingΒ nineΒ freehold property assetsΒ currentlyΒ held for resale and the fourΒ freeholdsΒ that are being developed by the Group.Β The fourΒ developments areΒ allΒ expectedΒ to beΒ completed by June 2009.Β
Tax repayment
Since the period end the Group has received a repayment ofΒ Β£16.9m, reflectingΒ the return ofΒ cash taxesΒ paid in 2007Β andΒ 2008.Β Β Following theΒ Group'sΒ decisionΒ to prepareΒ itsΒ subsidiary accounts underΒ International Financial Reporting StandardsΒ ("IFRS"), tax computationsΒ for 2007 andΒ 2008Β incorporating the future minimum rental charges were resubmitted to HMΒ Revenue &Β 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.Β However, the taxation position of the subsidiary accounts, prepared under IFRS,Β has not been agreed withΒ HMRC.Β Β
Financing
Due to the strong cash flow generated from operations during the period, the seasonal facility of Β£12m, negotiated as part of the Group's refinancing in October 2008, has not beenΒ requiredΒ andΒ this facilityΒ hasΒ nowΒ been cancelled.Β Throughout the period the Group has operated well within the headroom of its renegotiated facilities.
Since the period end theΒ Group's net debt has been reduced to Β£73.9m by the proceeds from theΒ Β£4.5mΒ sale of Pitkerro and theΒ Β£16.9mΒ tax repayment referred to above.
OperationalΒ review
Following the appointment ofΒ Jamie BuchanΒ as CEO on 1 January 2009, a thoroughΒ home-by-home reviewΒ has commenced.Β The focus ofΒ theΒ reviewΒ will be toΒ improve the quality and reputation of theΒ Group's careΒ servicesΒ in order to optimiseΒ local marketΒ fee rates andΒ occupancy,Β and also to realise cost savings where possible.Β
Jamie Buchan, CEO of Southern Cross, commented:Β "There is a clear link betweenΒ highΒ quality and profitability in theΒ provision ofΒ elderly careΒ services. We have already identified a number of areasΒ whereΒ we can enhance ourΒ servicesΒ andΒ are confident thatΒ we can significantly improve theΒ quality of care we provide forΒ ourΒ residents and ultimately thereforeΒ the Group'sΒ revenue growthΒ and profitability."
There will be a conferenceΒ call for analysts at 9.00a.m.Β today.Β Β Please callΒ Juliet EdwardsΒ at Financial Dynamics for dial-in details on +44(0)20 7269 7125Β or email her atΒ Juliet.edwards@fd.com.
Enquiries:Β
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Southern Cross HealthcareΒ Group PLC |
Β +44 (0)1325 351100 |
|
Jamie Buchan, Chief Executive |
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Richard Midmer, Finance DirectorΒ |
|
Financial DynamicsΒ |
+44 (0)20 7831 3113 |
|
David Yates/Emma Thompson/Ben BrewertonΒ |
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. TheΒ 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. TheΒ 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. TheΒ GroupΒ provides care services for most of the local authorities in theΒ UKΒ which, together with the NHS, represent circa 77% of theΒ 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 theΒ Group's intentions, beliefs or current expectations concerning, among other things, theΒ 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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