9th Jan 2015 08:48
LONDON (Alliance News) - Shares in Circle Holdings PLC are trading down 27% Friday morning, after it said that it is in discussions to withdraw from its contract to operate Hinchingbrooke Health Care NHS Trust, as it has determined it is no longer sustainable.
The company cited a cut in funding for the hospital, and the upcoming report from the Care Quality Commission, as reasons for why operating the franchise is no longer viable.
Funding for Hinchingbrooke has been cut by 10% for the year, and Circle said that to maintain standards it would have to put in a substantial investment in the franchise on top of the GBP5 million it is contractually obligated to provide. Circle has the right to terminate the franchise if it is required to make support payments to Hinchingbrooke of over GBP5 million. It has made payments of GBP4.84 million to date, it said.
Circle noted that there have been "significant changes" in the operational landscape for NHS hospitals since it originally procured the contract, citing unprecedented increases in accident and emergency attendances and funding levels that "have not kept pace with demand." Conditions have recently worsened, and Circle said it is highly likely it would be obliged to make further support payments that would exceed the GBP5 million cap.
Additionally, it expects to find the CQC's report to be "unbalanced", and to disagree with many of its conclusions. "We are not the only hospital to find their process problematic, and believe that inconsistent and conflicting regulatory regimes compound the challenges for acute hospitals in the current environment," the company said.
Under the contract, Circle could be required to make a final support payment of around GBP160,000 to Hinchingbrooke, and it is also obliged to cover termination and re-procurement costs incurred by Hinchingbrooke capped at GBP2 million.
Shares in Circle are trading down 27% at 48.72 pence.
Numis has placed its rating and price target for the stock under review in light of the announcement. Numis says that whilst the elimination of the contract has no impact on pretax profit for 2015 and 2016, it brings down 2017 and 2018 by GBP3 million to GBP4 million. It notes that the NHS hospital franchises had contribute around 30% of its previous 79 pence per share price target.
"Given the evident clinical and financial improvement at Hinchingbrooke under Circle's management, we do not expect this decision to affect the company's other NHS work, and believe that it can still win new NHS business," Numis says.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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