Last checked at 10 Aug 2009 07:00
Q3 2009 Interim Management Statement
Monday, 10 August 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 14 week period ended 5 July 2009 ("Q3").
Highlights for the 14 week period ended 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 occupancy at period end 88.0% (2008: 90.3%)
Average weekly fee up 4.9% to £556 (2008: £530)
Revenue increased by 3.7% to £254.8m (2008: £245.6m)
Adjusted EBITDA down to £22.2m (2008: £24.4m), with the impact of lower occupancy offset by cost savings
Service quality improving ahead of plan, with 73% of homes in the two highest CQC categories at end Q3 compared with 71% at end Q2
Net debt reduced by £3.0m to £71.4m
EBITDA represents earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings. Adjusted EBITDA represents EBITDA after adding back charges for future minimum rental increases.
Occupancy and Quality Initiatives
During Q3, the average occupancy of the mature portfolio was 87.5% (2008: 89.8%). Occupancy for the mature portfolio increased to 88.0% at the period end from 87.8% at the start of Q3. While the Group is benefiting from the expected seasonal increases in occupancy, management continues to take action to address the overall shortfall. Since the end of the period, mature occupancy has continued to increase and now stands at 88.4%, as at 7 August.
In the year to date, the average occupancy of the mature portfolio was 88.4% (2008: 90.5%). The Group currently has 16 immature homes (these include newly developed homes and acquired homes that have been trading for less than 12 months) and 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 of Q3, 73% of homes in England were rated good or excellent by the Care Quality Commission ('CQC'), up from 71% at the half year and already meeting the target for the full year.
The rollout of Southern Cross' new, predictive internal inspection system to every home was completed as planned in July and will help to further accelerate the improvement in quality.
Financial Overview
In Q3, revenues were £254.8m (2008: £245.6m) and Adjusted EBITDA was £22.2m (2008: £24.4m). The Q3 home operating margin was 31.8%, 0.2% lower than during the same period in the prior year. This reflects a 0.7% increase in staff costs as a proportion of revenue (2009: 56.8% of revenue versus 2008: 56.1%) due to lower occupancy, partially offset by a reduction in home running costs (2009: 11.5% of revenue versus 2008: 11.9%).
During Q3, average weekly fee rates were 4.9% higher than during the same period last year at £556 per week (2008: £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 operations in Q3 was £18.5m (2008: £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 £61.8m, has allowed the advanced repayment of 50% (£6.8m) of the Syndicate Property Bridging facility, which has reduced the total facilities available to the Group to £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 £715.6m (2008: £676.8m). This reflects an increase of 4.6% in the average weekly fee to £543 (2008: £519) and the 3.1% increase in average available beds during the year to date (2009: 37,564 versus 2008: 36,425). However, this was partially offset by the 2.1% reduction in year to date mature occupancy. As a result, Adjusted EBITDA for the year to date fell £4.5m to £50.7m (2008: £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 has recently completed its four development projects and will also seek to divest the freeholds of these properties. The home in Bristol (81 beds) has been registered and has accepted its first residents. The remaining three homes (246 beds) are expected to complete the registration process shortly and open for business during September.
The lease assignment from the receiver of the six homes (311 beds) previously operated by Britannia Leased Homes Limited has been completed. These homes have an average occupancy of 75% and are currently classified as immature homes. Three further homes have been leased during the quarter (198 beds), bringing 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 £5.80 per hour from £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.
Occupancy and service quality improvement remain the main focus of the business. It is expected that the trend in occupancy levels for the remainder of the year will continue to follow a similar, improving pattern to last year.
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 the UK's leading care home operator by number of beds, Southern Cross will seek to play an active role in shaping this debate during the consultation period.
There will be a conference call for analysts at 9.30a.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:
| Southern Cross Healthcare Group PLC | +44 (0)1325 351100 |
| Jamie Buchan, Chief Executive | |
| Richard Midmer, Finance Director |
| Financial Dynamics | +44 (0)20 7831 3113 |
| Ben Brewerton/Jonathan Birt/Emma Thompson |
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.