11th Dec 2006 07:02
Southern Cross Healthcare Grp PLC11 December 2006 Southern Cross Healthcare Group PLC Southern Cross reports strong maiden results following IPO Monday, 11 December 2006 - Southern Cross Healthcare Group PLC (LSE: SCHE)('Southern Cross' or the 'Company'), the UK's largest care home provider, todayannounces its preliminary results for the year ended 1 October 2006, theCompany's first results since listing on the London Stock Exchange in July 2006. Operating Highlights • Ashbourne Healthcare, acquired in November 2005, successfully integrated, adding 10,000 beds to Group capacity. • Other acquisitions added a further 950 beds with another 428 beds added through the Group's development programme. • Available beds increased to 28,917 beds at year end (2005 - 17,000 beds). • Average occupancy of 91.0% (2005 - 91.6%). Underlying occupancy of 91.6% (2005 - 91.6%) • Average weekly fee up 8.0% to £478 (2005 - £443). • Efficient cost control management, post acquisition and integration of new beds, has maintained operating margins. • IPO successfully completed in July 2006, raising £175m. Proceeds of issue were used to refinance the business. Statutory Financial Highlights • Revenue of £610.9m (2005 : 28 weeks - £188.2m). • Operating income of £1.6m (2005 : 28 weeks - £7.5m) after a charge of £30.7m (2005 : 28 weeks - £4.0m) for future minimum lease charges under IAS 17. • Basic loss per share for the year of (9.4)p (2005 - (0.1)p). (6) Other Financial Highlights • Underlying revenues up 10.0% to £385.6m (2005 : annualised - £349.5m).(1) • Home EBITDAR before central costs of £189.6m (2005 : 28 weeks - £60.2m).(2) • Underlying Home EBITDAR before central costs, up 11.0% to £124.3m (2005 : annualised - £111.8m). • Adjusted EBITDA of £48.8m (2005 : 28 weeks - £15.7m). (3), (4) • Home EBITDAR, before central costs, margin of 31.0% (2005 : 28 weeks - 32.0%). The comparative period represents the most profitable part of the calendar year. • Adjusted earnings per share of 10.0p. (5) , (6) • Net cash inflow from operations of £50.6m (2005 : 28 weeks - £15.0m) representing cash conversion of Adjusted EBITDA of 103.7% (2005 - 95.6%). • First dividend of 1.1p per share, representing pro rata dividend for period since IPO. Notes: 1. Underlying results exclude the effect of acquisitions. 2005 (annualised) numbers are calculated using the audited numbers for the 28 weeks ended 2 October 2005, dividing by 28 weeks and multiplying by 52 weeks. 2. Home EBITDAR before central costs is defined as earnings before interest, tax, depreciation, amortisation and rental charges. 3. EBITDA is defined as Home EBITDAR less rental charges, central costs plus other operating income. 4. Adjusted EBITDA is EBITDA before exceptional central costs and charges for future minimum rental increases. 5. Adjusted earnings per share is defined as Loss attributable to ordinary shareholders before exceptional central costs, charges for future minimum rental increases and the taxation impact thereof, divided by the weighted average number of shares. 6. The weighted average number of shares for the 52 week period ended 1 October 2006 is calculated using the capital structure of the Company that existed throughout the period, after taking into account restructuring of the Company's share capital on 7 July 2006. Upon IPO the capital structure was materially changed, as such the weighted average number of shares for the 52 week period ended 1 October 2006, will not be representative of future periods. Philip Scott, Chief Executive of Southern Cross, said: "This has been a year of excellent progress for Southern Cross, with theacquisition and integration of Ashbourne Healthcare, the listing of theCompany's shares on the London market and strong underlying growth and cashgeneration in our existing businesses. Southern Cross is benefiting from thegrowing demand for high quality, value-for-money, long-term care services acrossthe UK and we are confident that we are well placed to achieve further growth inthe current year." Enquiries: Southern Cross Healthcare Group PLC +44 (0)1325 351100Philip Scott, Chief ExecutiveGraham Sizer, Finance Director Financial Dynamics +44 (0)20 7831 3113David Yates/Deborah Scott About Southern Cross Southern Cross is, in terms of number of beds, the largest UK provider of carehome services for the elderly and a major provider of specialist services forpeople with physical and/or learning disabilities. The Company's care homes forthe elderly operate under two distinct brands: Southern Cross Healthcare andAshbourne Senior Living. Both brands provide a range of social and personalcare services and nursing care services for elderly people with physicalfrailties and differing forms of dementia. The Company's specialist servicesoperate under the Active Care Partnerships brand and provide long-term careservices for people with physical and/or learning disabilities and for youngerpeople with complex forms of challenging behaviour. Southern Cross is focused on providing high quality care in well investedfacilities, seeking to be the home of choice in each local community in which itoperates. The Company provides care services for most of the local authoritiesin the UK which, together with the NHS, represent over circa 70% of theCompany's revenues. Its care home portfolio is largely purpose-built with ahigh percentage of single occupancy rooms and rooms with ensuite bathrooms.Occupancy levels in its elderly care segment are consistently in excess of 90%. This announcement includes statements that are, or may deemed to be, "forwardlooking statements". These forward looking statements can be identified by theuse 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 comparableterminology. These forward looking statements include matters that are nothistorical facts and include statements regarding the Company's intentions,beliefs or current expectations concerning, among other things, the Company'sresults of operations, financial condition, liquidity, prospects, growth,strategies and the outlook on the care home industry. By their nature, forwardlooking statements involve risk and uncertainty because they relate to futureevents and circumstances. CHAIRMAN'S STATEMENT Introduction It is with great pleasure that I welcome all new Southern Cross Healthcare ("Southern Cross") shareholders following the Initial Public Offering ("IPO") ofshares earlier this year. The last 12 months have seen the Company growsignificantly to a position where it is now the UK's leading provider of carehome services for the elderly and also a major provider of specialist servicesfor people with physical and/or learning-disabilities. As the market leader, and primary consolidator in the UK care home servicessector, Southern Cross has benefited from the growing demand for high-quality,value-for-money, long-term care services across the UK. The success of ourstrategy of acquiring and developing modern, purpose-built care homes in areasof high demand is reflected in the financial results for the 52 weeks to 1October 2006. Results and Dividends Turnover for the 52 weeks ended 1 October 2006 increased by 75% on an annualisedbasis to £610.9m, primarily as a result of the acquisition of AshbourneHealthcare completed in November 2005. Average fees per occupied bed alsoincreased during the year by 8.0% and a number of individual new homes wereacquired and developed from the Company's pipeline of growth opportunities. Adjusted earnings before interest, tax, depreciation, exceptional charges andcharges for future minimum rental increases ("Adjusted EBITDA") was £48.8mrepresenting an increase of 67.1% compared to the prior year on an annualisedbasis. The loss before taxation was £17.4m, reflecting the impact of the IFRSadjustment for charges for future minimum rental increases of £30.7m,exceptional charges relating to the IPO which amounted to £3.1m, and thefinancing costs of the capital structure pre-IPO. Basic loss per ordinary share was 9.4p after a UK corporation tax credit of£5.3m. Adjusted earnings per share before charges for future minimum rentalincreases, exceptional charges and the taxation impact thereof were 10.0p. Had the Company been listed for the whole of the financial 52 weeks ended 1October 2006, the Board considers that it would have recommended a dividend of4.8 pence per ordinary share. Taking into account the 82 days for which theCompany was listed prior to the financial year end, the Board is recommending apro rata dividend of 1.1 pence per ordinary share. Going forward the Companyexpects to grow dividends from this level to reflect the growth prospects andcash flow generation of the business, while maintaining an appropriate level ofdividend cover. Management and Staff The Board, on behalf of all shareholders, would like to thank all the dedicatedstaff working in our homes and also those supporting the homes, as well as themanagement team who oversee the entire national operation. Their hard work andcommitment have enabled us to build Southern Cross to become market leader inthe sector. Outlook Care home services are playing an increasingly important role in the overallhealthcare provision across the UK. The combination of an ageing population andthe reduction in overall bed numbers within the NHS and the long-term caresector have resulted in the growing demand for quality care services. Looking ahead to the next 12 months, we believe Southern Cross is well placed toachieve further progress in both revenue growth and profitability. We havesecured £300m of landlord funds to enable us to continue our acquisition plansand we have a significantly expanded development pipeline which will add afurther 1,000 beds to our portfolio by December 2007. At the same time, we shallcontinue our drive for growth in fee and occupancy rates, as well as maintainingtight cost control. The Board remains confident that there will be a growing demand for our servicesand remains firmly committed to ensuring that all our homes provide the bestpossible levels of care for all of our valued clients. William ColvinChairman CHIEF EXECUTIVE STATEMENT Overview I am delighted to confirm another excellent year for the Southern Cross Group. During a year in which we have successfully listed the Company's shares on theLondon Stock Exchange, we have continued to grow our market presence, by addingvolume to both of our principal business streams and expanding our developmentpipeline. Our funding strategy and business model ensures that we can continueto increase shareholder returns without recourse to additional shareholderequity, as the last 12 months' activity has demonstrated. Strategically, the Group remains committed to the long-term care market,targeting further growth in both core and specialist divisions. The demand forlong-term care services is anticipated to increase substantially over the next25 years. On the basis that the percentage of elderly people currently living inresidential care homes in each of the age groups 65 years to 74 years, 75 yearsto 84 years and over 85 remains unchanged, then the application of thosepercentages to forecast census figures from 2006 to 2031 suggests a need for anaverage of 14,000 new beds per annum just to satisfy emerging demand. Given the ongoing contraction of supply in the marketplace - as a consequence ofsmall providers selling their properties to realise the land value which isoften greater than the care home business value, occupancy levels over the nextfew years are likely to reach capacity in excess of the current level of 91%, afigure which includes a portfolio of immature development homes. We believe that the typical dependency levels of persons living in care homestoday are such that 24-hour care is required to meet the range of social andnursing care needs presented. Whilst supportive of Government's strategy ofensuring elderly people have options for home care if possible, we remainconvinced that the residential care model continues to offer "best economicvalue" for 24-hour care services. At current average weekly fee rates of £465for Elderly Care, this equates to a price of just over £2.75 per hour. We will therefore continue to pursue our strategy of increasing capacity viaacquisition and organic growth programmes in anticipation of the growing demandfor our services. As the UK's largest provider, we still have only a 6% share ofa £12 billion revenue market, and consequently have resourced our developmentand acquisition teams to ensure that we continue to add capacity and increaseour market penetration over the next five years. Group Branding With two business streams (elderly care and specialist services), we haveredefined our marketing strategy this year to create an additional brand,targeted specifically at clients who are funding their own placement. Ratherlike the hotel sector, we now offer - via our Ashbourne Senior Living brand -facilities with higher accommodation standards and those additional servicesoften requested by self-funding residents. Southern Cross Healthcare The largest of the branded portfolios with 466 homes and 24,027 beds, SouthernCross provides services for clients predominantly funded by local authoritypayers. The facilities are in modern purpose built homes, with the majority ofbeds being in single ensuite rooms. The Southern Cross branded homes are located throughout the United Kingdom,albeit with greater penetration in Scotland, and the North of England. Theaverage home size is 55 beds and typically of a two storey construction. Over the last year we have sustained good levels of occupancy whilstexperiencing the usual seasonality, that being a marginal increase in occupancypost April of each year as local authorities enter a new budget year. That gainis in part offset by a slight reduction in occupancy over winter months asmortality rates increase and commissioners of service have extended periods ofvacation, thus slowing referrals. Homes operating under the Southern Cross brand seek to cater predominantly forhigh dependency residents with specific nursing or social care needs. Averagelength of stay for this client group is 11 months. Average occupancy levels of 93% in our mature homes are in line with last year'sperformance. Group average occupancy remains stable at 91%. Ashbourne Senior Living Currently 72 homes with 3,974 beds have been rebranded under the AshbourneSenior Living brand. Recognising that a number of our clients self fund theircare placement and often want additional services and perhaps a higher standardof accommodation, homes operating under this brand will in time be able to meetthe demand for such. Presently, any client (except in Scotland) with a net worth in excess of £21,000has to fully fund his or her own care placement. Given the push towards homeownership in the 1970's and 1980's combined with such a low qualifying thresholdand an increasing demand for long term care services, this will inevitably leadto more and more clients having to fund their own care. On that basis, ratherlike the hotel sector, service users will price differentiate on the basis ofaccommodation and service standards. Occupancy performance is in line with group average of 91% and average fee ratesare some 15% higher than those paid by local authorities. Active Care Partnerships With 42 homes and 916 beds Active Care Partnerships provides social andhealthcare support services for clients with a range of learning disabilities.All homes, whilst registered with the Commission for Social Care Inspection,tend to be much smaller and discreetly located within residential communities.The care model is much more socially focussed with an emphasis on promoting anddeveloping a range of skills to live as independently as possible. Over the last year we have added two developments to the Active portfolio,Moorpark Place and the Green Door Clinic, both located in Scotland. These twounits are modern purpose built in design providing the much needed spacerequired by the respective client groups. Average fees are £873 per week, reflecting the fact that pricing is negotiatedon a case by case basis after a careful assessment of need and costing ofresource package required to meet that need. The Southern Cross brand will continue to predominantly cater for residents whoare funded by local authorities. Those placements are generally procured on anagreed service specification linked to client dependency and price. Active CarePartnerships is our specialist services brand providing younger people with asmuch support as required to maximise their ability to lead active andindependent lives. Acquisition Activity During the year we acquired the Ashbourne Group adding a further 193 leaseholdcare homes and over 10,000 beds to group capacity. Integration of that portfoliois now complete and I am pleased to report that occupancy has increased in thatportfolio by 2% since acquisition in November 2005. In addition to the Ashbourne purchase, we have added a total of 950 beds viasmall bolt on transactions. This includes, post-flotation, the "United A" portfolio that added 270 beds tothe Group. All beds, except for the "United A" portfolio, were funded utilisinglandlord facilities in line with our current funding strategy. We will shortlyexchange contracts for the on-sale of the "United A" freeholds to one of ourlandlord funds. Development Pipeline Our development pipeline has expanded significantly and we currently have inexcess of 2,000 beds in various stages of planning and construction. A further1,000 beds will be delivered and open for business by the end of December 2007.Particular areas of focus continue to be Northern Ireland (NI) and Scotland (SC)where demographic pressure is increasing demand for elderly care services. During the year we have opened a 64-bedded facility in Enniskillen (NI), 90 bedsin Wishaw and 85 beds in Renfrew (both SC). We have also added an 80-bedded unitin York and a further 66 beds by way of extensions to existing facilities. In addition we have added two specialist units in Scotland under the Active CarePartnerships brand. Disposal Programme The Group continues to review the long-term sustainability of particular homesacquired as part of material acquisitions. In the last 12 months we haveassigned the leasehold interest for three homes that did not meet our tradingperformance expectations and were unlikely to do so in the long term. As part ofthe Ashbourne acquisition, we acquired a number of unencumbered freeholds. Twoof these have been sold and a further five will be marketed for sale given theage and limitations of the properties. We are likely to achieve a small profiton the disposal of these businesses. Sale and Leaseback Financing The Group has funded its growth using sale and leaseback financing sinceincorporation in 1996. That funding mechanism remains at the core of ourfinancing strategy and I am delighted to report that we have secured £300m oflandlord funds available for a two-year period at a fixed initial yield, toenable us to continue our acquisition plan unabated. These funds give us realvisibility over forward rents and over the last year we have as a consequence ofour covenant strength, continued to access new funding sources with relativelylow yield expectations. Market Outlook With the anticipated demographic pressures compounded by the continuedcontraction in supply and the ongoing burden of legislation (such as the CareStandards Act and National Minimum Wage) pushing up operating costs, we expectthat fee rates will continue to rise in excess of inflation. That is essentialto reduce the number of beds leaving the market, to encourage new development tomeet the anticipated emerging demand and to provide full cost recovery inrespect of increased legislation. Given the quality of our modern, well-invested, purpose-built portfolio and thefact that we are now compliant with most of the legislative requirements thatrequired material capital expenditure, we expect our operating costs to remainrelatively stable. Home payroll costs account for the largest proportion of ouroperating cost base. However, we have a recognition agreement with the GMB unionand therefore continue to have real visibility over likely cost increases, asnegotiation and agreement of pay awards precede fee reviews. In addition, wecontinue to recruit personnel directly from overseas and as a consequence ourreliance on agency personnel has continued to reduce during the year. Acquisition and development opportunities continue to present themselves and weexpect to participate in the ongoing consolidation of the sector. We are oncourse to exceed our annual target of adding 1,200 beds in 2007 and thereforeour efforts are now focused on adding to the 2008 development pipeline. Philip ScottChief Executive FINANCIAL REVIEW Acquisition and Development Activity This has been another year of significant growth and development for the Group.November 2005 saw the acquisition of the Ashbourne portfolio, increasing thesize of the Group by 193 homes and over 10,000 beds. Outside of that majoracquisition, the Group has continued to grow through its development programme(428 through new homes and extensions) and through bolt-on acquisitions (950 newbeds via eight transactions). It is the Group's intention to continue with thistwo-pronged strategy and the completion of dedicated landlord funds totalling£300m will enable us to facilitate this growth. Initial Public Offering ("IPO") On 12 July 2006, the shares of the Company were admitted to the Official List ofthe London Stock Exchange. The primary share offer raised £175m which was usedto refinance debt, redeeming shareholder deep discounted bonds and loan notesand reducing bank indebtedness. Approximately £20m of the proceeds were used tomeet the costs of flotation. In September 2006, the Company entered the FTSE 250 list. The IPO hasstrengthened our financial position, simplified our capital structure and giventhe Group a solid base to further consolidate the UK care home sector. Integration and Restructuring During the year we have completed the integration of the operations andback-office support systems of Highfield (acquired in late March 2005) andAshbourne (referred to above). These two acquisitions added some 380 care homesand 18,000 beds to the Group. This has resulted in significant synergy savingsfor procurement at home level but in particular we have reduced the level ofcentral costs required to manage the enlarged Group. These savings are onlypartly reflected in the current financial year. A full year impact will berecorded in 2007. International Financial Reporting Standards (IFRS) As a listed group, the financial statements have been prepared in accordancewith applicable IFRS and are effective at 1 October 2006. The primary effects ofthe transition to IFRS on the Group were in relation to rental charges, inrespect of operating leases, in accordance with IAS17. The application of IAS 17meant that rental charges, included in the income statement, increased by £30.7mand £4.0m in the periods to 1 October 2006 and 2 October 2005, respectively,representing an incremental charge for future minimum rental increases. Trading Activities During the 52 weeks ended 1 October 2006, we have experienced strong businessgrowth through acquisitions combined with improvements in revenue and earningsof the underlying business. Both factors contributed to the Group's strongoperating performance, which is summarised in the table below: 52 weeks 28 weeks Underlying growth3 Ended Ended Growth2 % 1 October 2 October % 2006 2005 £'m £'mRevenue 610.9 188.2 75 10Operating income 1.6 7.5 (89) -Adjusted EBITDA1 48.8 15.7 67 11Loss before taxation (17.4) (2.4) (287) -Average number of available beds 27,008 16,575 63 3Cash generated from operating activities 50.6 15.0 - - 1 Adjusted EBITDA before exceptional central costs and charge forfuture minimum rental increases. 2 Growth and underlying growth has been calculated based upon theannualised results of 2005. 3 Underlying growth excludes the impact of acquisitions. The impact of acquisitions upon the Group's revenue and Home EBITDA beforecentral costs in the year amounted to £225.3m and £65.3m respectively. The Group results show a decrease of £5.9m of operating income, but an increasein earnings before interest, tax, depreciation and amortisation of goodwill ("EBITDA") from £10.6m to £12.9m. Excluding the charge for future minimum rentalincreases under IAS 17 and exceptional central costs, Adjusted EBITDA increasedby 67.0% on an annualised basis, from £15.7m to £48.8m. The loss for the yearbefore taxation amounted to £17.4m (2005 - £2.4m). Earnings per Share Basic loss per share for the year was (9.4)p (2005 - (0.1)p). Earnings per sharefor the 52 week period ended 1 October 2006, before future minimum rentalincrease charges, exceptional costs and the taxation impact thereof, was 10.0p(2005 - 0.0p). This adjusted measure excludes non-recurring and non-cash-basedcharges, however it does not reflect a full year impact of the new capitalstructure of the Company. Segmental Results The Group has two distinct segments within its operations, namely Elderly Careand Specialist. Both segments noted significant growth in the year primarilythrough acquisitions. Elderly Care Elderly Care recorded an increase in average available beds from 15,874 beds to26,109 beds and revenue on an annualised basis from £321.1m to £575.6m. Thegrowth in this segment was predominantly as a result of acquisition activitywith associated average available beds and revenue of 10,606 beds and £218.8mrespectively. The average weekly fee for Elderly Care increased by £41.3 perweek (9.7%) to £465.1 per week. The operating margin of Elderly Care decreasedslightly from 31.8% to 31.4%, for the period ended 1 October 2006. However, thedecrease is predominately due to the comparative period being the mostprofitable part of the calendar year. Total Home EBITDAR before central costs onan annualised basis increased from £102.3m to £181.0m. Specialist Care The Specialist segment also recorded an increase in available beds, increasingfrom 701 beds to 899 beds. Revenue for the segment increased from £28.4m on anannualised basis to £35.3m for the 52 weeks ended 1 October 2006. The averageweekly fee for this segment was in line with expectations at £872.6. Acquisitionactivity within this sector accounted for increased average available beds andrevenue of 206 beds and £6.5m respectively. Total Home EBITDAR before centralcosts on an annualised basis decreased from £9.5m to £8.6m. Rent The rent charge for the year amounted to £146.8m (2005 : 28 weeks - £40.5m).Excluding the non-cash charge under IAS17 for leases with fixed or minimumannual increases, the rental charge for the year was £116.1m giving a rent coverof Home EBITDAR before central costs: cash rent of 1.63 times (2005 - 1.65times). Central Costs Total central costs for the year amounted to £30.8m, an increase of £12.8m on anannualised basis compared to central costs of £9.7m for the 28-week period ended2 October 2005. The increase is a reflection of increased central overhead as aresult of the acquisition of the Ashbourne Group. Also included within totalcentral costs for the current year are exceptional costs of £5.2m. Excludingthese non-recurring charges, central costs amounted to £25.6m. This adjusted central cost charge is still in excess of current recorded levelson an annualised basis, as it does not incorporate a full year's cost savings asa result of synergy and restructuring, relating to the acquisitions completedthroughout the year. The central support function of the Group has beenrelocated to a new purpose-built head office in Darlington. The transitionincluding the integration of Ashbourne's central support function was completedbefore the year end. Exceptional Central Costs The Group incurred significant, non-recurring, exceptional costs during theyear, primarily as a result of restructuring following the acquisition ofAshbourne (£1.8m) and costs incurred in relation to the Listing of the Company'sshares on the London Stock Exchange (£3.1m). Finance Income and Costs Total net financing costs for the year amounted to £19.0m and predominantlyrelated to charges based on the financing structure prior to flotation. Of thetotal charge, £7.0m related to interest payable upon deep discount bonds and£5.1m related to bank term loans in issue prior to refinancing during July 2006.The charge for amortisation of loan arrangement fees, on bank facilities repaidin the period, amounted to £3.2m. Taxation The tax credit on earnings before taxation of £5.3m (2005 - £1.0m charge)represents a headline rate of 30.5% (2005 - 41.6%). However, this headline rateis significantly affected by the tax effect, amounting to £8.1m credit oftranslation adjustments to IFRS. Such effects predominantly relate to the futuretax benefit of the additional rental charge under IAS17. This amounts to £9.2m. The pre-exceptional, pre-goodwill amortisation tax charge under UK GAAP of £4.2m(2005 : 28 weeks - £3.1m) represents an effective tax rate of 25.6% (2005 : 28weeks - 55.7%) of earnings before goodwill amortisation and exceptional costs.Excluding the tax impact of prior year credits, predominantly a credit of £0.8marising from enhanced capital allowance claims, the effective rate is 30.5%. Thecause of the variance of the effective rate to the standard rate of 30.0% is thedisallowance of non-qualifying depreciation. Going forward, the Group expects the pre-exceptional, pre-goodwill UK GAAPeffective tax rate to remain below the standard rate of tax. Dividends Total dividends paid during the year amount to Nil (2005 - Nil). The Group hasproposed a dividend of £2.1m, being 1.1p per ordinary share at 1 October 2006,to be paid on 9 February 2007, to those Shareholders on the register of members,at close of business on 12 January 2007. Non-current Assets Non-current assets increased by £126.8m over the year to £310.1m, predominantlyas a result of goodwill increasing to £196.0m through acquisitions. Property,plant and equipment increased by £57.4m primarily as a consequence ofacquisitions over the year. However, the balance at 1 October 2006 included£27.9m of freehold property which will be disposed after the year end. Financing The Group renegotiated its borrowing facilities as part of the refinancingprocess. It currently has a £60.0m term loan facility, £50.0m developmentfacility and £30.0m revolving credit facility plus a £8.3m mortgage facility.The Group used the revolving credit facility to issue £15.1m of guarantees tolandlords and loan note holders. At 1 October 2006, the total unutilised portionof these facilities amounted to £48.5m. Group net debt decreased during the year by £91.0m to £67.6m, as a consequenceof refinancing through the Listing process when proceeds from the primary issueof shares plus new bank funding were used to repay deep discount bonds, plusaccrued interest amounting to £107.1m, existing bank loans amounting to £121.3mand £1.7m of management loan notes. Group borrowings at 1 October 2006 consist of £60.0m of bank term loans, £18.1mof bank development loans and £6.5m of mortgage debt. The development loan isexpected to be repaid shortly after the year end through the sale of freeholdproperties to which it relates. In addition to bank borrowings the Group had£6.7m of loan notes and £0.4m of finance lease borrowings in issue at the yearend. In July 2006 the Group entered into a three-year interest rate swap for £30.0m,at a fixed rate of 5.07%. Under the Group's treasury policy, this position willbe reviewed on a regular basis. Equity As part of its public offering process, the Group completed a bonus issue of 240shares: one share followed by a primary issue of 77.8m shares. The processraised £175.0m. Issued share capital increased to £1.9m with a share premiumaccount of £173.1m. In addition, £11.6m of legal and professional costs directlyattributable to the primary issue of shares have been offset against the sharepremium account. Cash Flow 52 weeks ended 28 weeks ended 1 October 2 October2006 2005 £'m £'mCash flows from operating activities 50.6 15.0Interest and taxation (28.7) (7.0)Investing activities (72.0) 30.4Financing activities 67.8 (34.2) Net increase in cash 17.7 4.2 Net cash inflow from operations was £50.6m (2005 - £15.0m), representing a cashconversion ratio compared to Adjusted EBITDA1 of 103.7% (2005 - 95.6%). Net cash flow from investing activities amounted to £72.0m outflow (2005 -£30.4m inflow). Gross investing activities amounted to £123.9m, being £94.8minvestment on acquisition of subsidiaries, £14.2m representing developmentcapital, predominantly freeholds, and £14.9m representing maintenance capital.Excluding the acquisition of Ashbourne, the Group invested £55.4m on newsubsidiaries. Disposal proceeds relating to the disposal of subsidiaryundertakings and freehold properties amounted to £51.9m (2005 - £97.3m). Thisfrequency of acquisition and disposal of subsidiary entities is consistent withour sale and leaseback funding model. The net cash outflow from interest charges amounted to £27.1m (2005 : 28 weeks -£5.7m). The increase was primarily due to settlement of £11.0m of accruedinterest upon the redemption of shareholder deep discount bonds and £6.5m uponloan notes. The remainder relates to increased bank borrowings for the Ashbourneacquisition (see below). As described earlier, the capital structure has now been changed and futureinterest payments will be significantly reduced as a result. The net cash flow from financing for the year amounted to £67.8m inflow (2005 :28 weeks - £34.2m outflow). In November 2005, the Group initially increased bankborrowings by £40.7m and issued deep discount bonds amounting to £32.3m as partof the Ashbourne acquisition. Existing loan notes within Ashbourne amounting to£18.0m were repaid as part of the acquisition. As part of the Listing upon the London Stock Exchange, £175.0m was raisedthrough a primary issue of shares and £67.2m through new bank loan finance whichwas used to redeem £96.1m of deep discount bonds in issue plus associatedaccrued interest of £11.0m. Existing bank loan finance amounting to £121.3m andmanagement loan notes of £1.7m were also repaid. The increase in cash and cash equivalents during the year was £17.7m (2005 : 28weeks - £4.2m) resulting in a year-end cash of £21.9m (2005 - £4.2m). Conclusion 2006 has been another strong year for Southern Cross Healthcare. The integrationof acquisitions is complete and we have seen strong underlying growth and cashgeneration in our existing businesses. Refinancing as part of the Listing on theLondon Stock Exchange has strengthened our balance sheet and we have new bankingfacilities in place. The Group is well positioned for future growth. Graham SizerGroup Finance Director Consolidated Income Statement - IFRS 52 weeks 28 weeks ended ended 1 October 2 October 2006 2005 Note £'m £'m Revenue 610.9 188.2Home payroll costs (343.0) (104.8)Home running costs (78.3) (23.2) _____ _____ Home EBITDAR before central costs Rent 189.6 60.2 _____ _____ Charge for rental amounts currently payable (116.1) (36.5)Charge for future minimum rental increases (30.7) (4.0) _____ _____Total rent (146.8) (40.5) _____ _____ Home EBITDA before central costs 42.8 19.7Central costs (30.8) (9.7)Other operating income 0.9 0.6 _____ _____ Adjusted EBITDA before exceptional central costsand charge for future minimum rental increases 48.8 15.7Exceptional central costs (5.2) (1.1)Charge for future minimum rental increases (30.7) (4.0) _____ _____ EBITDA 12.9 10.6Profit on disposal of property, plant and equipment and 0.4 0.4subsidiary undertakingsDepreciation (10.1) (2.6)Amortisation (1.6) (0.9) _____ _____ Operating income 1.6 7.5Finance costs (19.3) (9.9)Finance income 0.3 - _____ _____ Loss before taxation (17.4) (2.4)Taxation 2 5.3 (1.0) _____ _____ Loss attributable to ordinary shareholders (12.1) (3.4) _____ _____ Pence Pence Note per share per share Loss per share attributable to equity shareholdersBasic 4 (9.35) (0.05) Diluted 4 (9.35) (0.05) All of the above activities relate to continuing operations. Consolidated Balance Sheet - IFRS 1 October 2 October 2006 2005 Note £'m £'m ASSETSNon-current assetsProperty, plant and equipment 96.3 38.9Goodwill 196.0 136.3Other intangible assets 2.4 4.0Deferred tax assets 12.9 4.0Other non-current assets 2.5 0.1 _____ _____ Total non-current assets 310.1 183.3 _____ _____ Current assetsCash and cash equivalents 21.9 4.2Accounts receivable 28.8 22.3Inventories 1.1 0.4Other current assets 12.8 8.1 _____ _____ Total current assets 64.6 35.0 _____ _____ Total assets 374.7 218.3 _____ _____ LIABILITIESCurrent liabilitiesShort-term financial liabilities (25.9) (33.8)Trade and other payables (65.4) (37.2) _____ _____ Total current liabilities (91.3) (71.0) _____ _____ Non-current liabilitiesLong-term financial liabilities (63.6) (129.0)Provisions and similar obligations (8.1) (1.1)Future minimum rental payable (63.7) (20.6) _____ _____ Total non-current liabilities (135.4) (150.7) _____ _____ Total liabilities (226.7) (221.7) _____ _____ Net assets/(liabilities) 148.0 (3.4) _____ _____ Ordinary shares 1.9 -Share premium 161.5 -Retained deficit (15.4) (3.4) _____ _____ Shareholders' equity/(deficit) 5 148.0 (3.4) _____ _____ Consolidated Cash Flow Statement - IFRS 52 weeks 28 weeks ended ended 1 October 2 October 2006 2005 Note £'m £'m Cash flows from operating activitiesCash flows from operations 50.6 15.0Interest received 0.3 -Interest and bank loan arrangement fees paid (27.4) (5.7)Tax paid (1.6) (1.3) _____ _____Net cash from operating activities 21.9 8.0 _____ _____ Cash flows from investing activitiesPurchase of subsidiary undertakings net of cash acquired (94.8) (51.2)Sales of subsidiary undertakings 47.9 0.4Proceeds from sale of freehold properties - 93.9Purchase of property, plant and equipment (29.1) (15.7)Receipts from the sale of property, plant and equipment 4.0 3.0 _____ _____ Net cash (used)/generated (in)/from investing activities (72.0) 30.4 _____ _____Cash flows from financing activitiesRepayment of borrowings (332.2) (197.5)New borrowings 236.4 163.4Capital element of finance leases (0.2) (0.1)Proceeds from share issues 163.8 - _____ _____ Net cash generated/(used) from/(in) financing activities 67.8 (34.2) _____ _____ Net increase in cash and cash equivalents 17.7 4.2Opening cash and cash equivalents 4.2 - _____ _____ Closing cash and cash equivalents 21.9 4.2 _____ _____ Note: Included within the purchase of property, plant and equipment are purchaseof freehold properties totalling £6.1m (2005 - £10.0m) and developmentexpenditure on new properties totalling £7.1m (2005 - £1.8m). NOTES TO THE PRELIMINARY RESULTS 1. Accounting policies The financial statements have been prepared in accordance with applicableInternational Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion (EU) and effective at 1 October 2006. Comparative information has beenrestated on an IFRS basis. Details of the IFRS policies applied together with reconciliations ofcomparative figures between UK GAAP and IFRS can be found in the Group'sconsolidated financial statements for the 52 week period ended 1 October 2006. 2. Taxation 52 weeks 28 weeks ended ended 1 October 2 October 2006 2005 £'m £'m Current tax- current period (0.3) 1.0- prior period 0.1 -Deferred tax- current period (4.2) -- prior period (0.9) - _____ _____ Taxation (5.3) 1.0 _____ _____ Corporation tax is calculated at 30% (2005 - 30%) of the estimated assessableprofit for the period. 3. Dividends Paid and Proposed On 11 December 2006 the Board of Directors of Southern Cross Healthcare GroupPLC recommended the payment of a final dividend of 1.1 pence per ordinary sharein respect of the 52 weeks ended 1 October 2006. The Company in its prospectusindicated that it would not propose a dividend for the period ended 1 October2006. However the Board subsequently decided that it would be appropriate torecommend a final dividend because of strong trading and healthy cash flows inthe last quarter of the financial year. If approved by shareholders at theCompany's Annual General Meeting to be held on 30 January 2007, the finaldividend will be paid on 9 February 2007 to those members on the register on 12January 2007, with the associated ex-dividend date being 10 January 2007. 4. Earnings per Ordinary Share Basic earnings per share is calculated by dividing the loss for the periodattributable to ordinary equity holders of the parent, by the weighted averagenumber of ordinary shares outstanding during the period. Diluted earnings per share is calculated by dividing the loss for the periodattributable to ordinary equity holders of the parent, by the weighted averagenumber of ordinary shares outstanding during the period plus the weightedaverage number of ordinary shares that would be issued on the conversion of allthe dilutive potential ordinary shares into ordinary shares. The following reflects the share data used in the basic and diluted earnings pershare calculations and incorporates the impact of the bonus issue made to allshareholders on 5 July 2006. 52 weeks 28 weeks ended ended 1 October 2 October 2006 2005 Number Number Basic weighted average number of shares(excluding treasury shares) 128,879,343 74,043,101Dilutive potential ordinary shares:Employee share options - - _____ _____ Diluted weighted average number of shares 128,879,343 74,043,101 _____ _____ The Group presents exceptional items and future minimum rental increases on theface of the income statement. Items that are considered exceptional, by virtueof their size or incidence, are disclosed in order to improve a reader'sunderstanding of the financial information. To this end, additional basic anddiluted earnings per share information is also presented on this basis.Reconciliations of earnings and the weighted average number of ordinary sharesused are set out below: 52 weeks ended 28 weeks ended 1 October 2006 2 October 2005 Earnings Basic Diluted Earnings Basic Diluted £'m per share per share £'m per share per share amount amount amount amount p p p p Loss attributable to ordinary (12.1) (9.35) (9.35) (3.4) (0.05) (0.05)shareholdersCharge for future minimum rental 30.7 23.82 23.82 4.0 0.05 0.05increases Exceptional central costs:- Flotation costs 3.1 2.37 2.37 - - -- Restructuring and integration 1.8 1.37 1.37 0.9 0.02 0.02costs- Other 0.3 0.27 0.27 0.2 - -Taxation impact of above (10.8) (8.39) (8.39) (1.5) (0.02) (0.02) _____ _____ _____ _____ _____ _____ Profit attributable to ordinary 13.0 10.04 10.04 0.2 - -shareholders before charges for _____ _____ _____ _____ _____ _____future minimum rental increases, exceptional central costs and thetaxation impact thereof 5. Shareholders' Funds and Statement of Changes in Shareholders' (Deficit)/Equity Share Profit Share premium and loss capital account equity TotalGroup £'m £'m £'m £'m On incorporation - - - -Loss attributable to ordinary shareholders - - (3.4) (3.4) _____ _____ _____ _____ At 2 October 2005 - (3.4) (3.4) Loss attributable to ordinary shareholders - - (12.1) (12.1)Share-based payments - - 0.1 0.1Issue of ordinary share capital 1.9 173.1 - 175.0Costs incurred in relation to issuance of - (11.6) - (11.6)ordinary share capital _____ _____ _____ _____ At 1 October 2006 1.9 161.5 (15.4) 148.0 _____ _____ _____ _____ 6. Statutory Accounts The financial information included in this document for the 52 week period ended1 October 2006 has been derived from the audited consolidated financialstatements of the Group for the 52 week period ended 1 October 2006. This financial information does not constitute statutory consolidated financialstatements for the 52 week period ended 1 October 2006 or the 28 week periodended 2 October 2005 (as restated for IFRS), which will be filed with theRegistrar of Companies for the 52 week period ended 1 October 2006, followingthe Company's annual general meeting. The comparative financial information has been prepared on an IFRS basis. Thecomparative figures for the 28 week period ended 2 October 2005 are not thestatutory consolidated financial statements of the Group for the 28 week periodended 2 October 2005. Those accounts, which were prepared under UK GAAP, havebeen reported on by the company's auditors and delivered to the Registrar ofCompanies. The report of the auditors was unqualified and did not containstatements under section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
-3x Short China