11th May 2010 07:00
Southern Cross Healthcare Group PLC
-- Interim Results --
Tuesday, 11 May 2010- Southern Cross Healthcare Group PLC (LSE: SCHE) ('Southern Cross', 'the Group', or the 'Company'), the UK's largest care home provider, announces its interim results for the six months ended 31 March 2010.
Operating Highlights
» Available beds increased to 38,603 at period end (H1 2009 - 37,575 beds)
» Number of homes operated increased to 752 at the period end (H1 2009 - 734)
» Average occupancy in mature estate of 86.9% (H1 2009 - 88.8%)
» Average weekly fee up 3.2% to £553 (H1 2009 - £536) and local authority fee increases from April 2010 expected to be c.1%
» Continued improvement in 2 and 3 star quality ratings, with 81% of homes in England rated as such, up from 77% at the year end
» New Horizons programme on track
» Director of Care appointed
Financial Highlights
» Revenue increased by 4.3% to £480.7m (H1 2009 - £460.8m)
» Home EBITDAR before central costs increased by 4.2% to £140.6m (H1 2009 - £134.9m)
» Home EBITDAR margin, before central costs, 29.2% (H1 2009 - 29.3%)
» Adjusted EBITDA of £28.0m (H1 2009 - £28.5m)
» Profit before tax, IAS 17 charge for future minimum rental increases and exceptional central costs reduced by 6.4% to £13.2m (H1 2009 - £14.1m)
» Adjusted earnings per share down 2.05% to 5.26p (H1 2009 - 5.37p)
» Net debt at period end of £25.7m, down from £33.1m at previous year end
Jamie Buchan, Chief Executive, said:
"Southern Cross has made good progress with the New Horizons business transformation programme which we believe is necessary to improve operating efficiency and capture the economies of scale available to the business.
"However, we are operating within a challenging environment featuring a combination of public sector funding restraint and significant disparity in the commissioning practices of local authority budget holders.
"Given this backdrop, the successful delivery of New Horizons becomes even more imperative as we set about extracting increased value from within our core operations. By the end of 2011, Southern Cross will be a materially better operational business with an improved brand reputation."
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 |
|
Notes:
Home EBITDAR is defined as earnings before interest, tax, depreciation, amortisation, rent, loss on disposal of property, plant and equipment and subsidiary undertakings, onerous contract and impairment of property assets held for resale. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, loss on disposal of property, plant and equipment and subsidiary undertakings, exceptional central costs, onerous contract and charges for future minimum rental increases.
Adjusted earnings per share is defined as earnings before charges for future minimum rental increases, exceptional central costs, loan arrangement fees written off, loss on disposal of property, plant and equipment and subsidiary undertakings and impairment of freehold assets held for sale, onerous contract and the taxation impact thereof, divided by the weighted average number of shares.
Mature occupancy excludes immature beds, newly developed homes or refurbished homes which have been trading for less than 12 months.
Chief Executive's Statement
Overview
During FY 2009 the new management team diagnosed areas of significant operational underperformance and developed a response based on a programme of business transformation which we believe is necessary to improve operating efficiency and capture economies of scale.
We have been consistent in telling shareholders that there are no quick fixes to the legacy issues of the Group and that we are operating within a challenging environment featuring a combination of public sector funding restraint and significant disparity in the commissioning practices of local authority budget holders who currently represent approximately 70% of the Group's revenue.
In our most recent IMS (issued on 9 February 2010) we said that service quality remained a key priority and that, whilst we had achieved satisfactory fee increases of 3.7% from self paying residents, we awaited clarity on the picture surrounding Local Authority fees.
Subsequently, on 29 March 2010, we released a pre-close statement which reported that Local Authority fee settlements would be lower than expected at c1% and that the expected seasonal upturn in occupancy had not yet materialised. As a result, we indicated that the full year outturn would be adversely affected by the fee and occupancy pressure experienced towards the end of H1.
Whilst our H1 outturn Adjusted EBITDA of £28.0m (2009 - £28.5m) is in line with expectation, our H2 outturn will, as indicated in March, be lower than previously expected. As a result, the successful delivery of our New Horizons change programme becomes even more imperative as we set about extracting increased value from within our core operations.
New Horizons
The central philosophy of New Horizons is to re-engineer our delivery of care so that our homes and the communities they serve are placed at the heart of everything we do thereby bringing clarity, focus and operational efficiency to a business where these things were previously lacking. As a result, management is very clear on its medium term objectives and, in late February, announced the following targets to be achieved by the end of 2011:
1. Service Quality will be improved so that a minimum of 85% (currently 81%) of homes are externally assessed as either 2 or 3 star/equivalent. In addition "0" star homes will be reduced to less than 1% of the portfolio (currently 2.5%).
2. Costs will be reduced by 1% of revenue.
3. Self Funding Residents will increase to a minimum of 22% of total residents (currently 18%)
4. Home Manager Turnover will be reduced to no more than 22% (currently 28%)
Management considers that up to £20m of annualised value can be captured from the initiatives contained within New Horizons at a cost of £6m and that, by the end of 2011, Southern Cross will be a materially better operational business with an improved brand reputation.
Progress in implementing the New Horizons programme, which has bedded in well, is as follows:
Organisation
A major restructuring of the business has taken place in order to both decentralise decision-making and to invest in customer relationship management, service quality and training & development.
Effective from October 2009 our 700 homes engaged in the care of older people have been split into four profit and loss accountable regions eliminating three of the previous seven layers of management. The Regional Directors each report to me.
Overall, 35% of our field operations management left the business in the first half of the year as a consequence of the re-structuring an equivalent amount of manpower has been re-allocated to the creation of our service quality team.
The development of effective commercial relationships at local level is central to the Group's strategy. Within each of the four regions, 8-10 Area Managers, each with profit and loss accountability for 20-22 homes have been appointed to drive business performance. Area Manager territories are now aligned with Local and Health Authority boundaries.
To underpin quality assurance, a total of 60 new service quality roles have been created to support Home Managers, comprising an in-house team of Quality Inspectors together with advisory roles responsible for home- specific troubleshooting and development of best practice.
In the critical area of service quality I am pleased to announce that Irene Gray, currently Chief Operating Officer, University Hospitals of Bristol NHS Foundation Trust will become Director of Care. Irene has a first class track record in service delivery within the NHS and will provide clinical leadership to the business, particularly for nursing staff. Irene's appointment completes the formation of my top team.
The re-organisation of Southern Cross represents a significant management intervention and investment in the longer term health of the business.
Service Quality
Every home operated by the Group is now internally inspected on a risk-assessed frequency using methodology which focuses on the resident experience: a similar approach to that used by external regulators.
Since the start of the year the Group has continued to make progress in external quality ratings. 81% of homes in England are now rated as 2 or 3 star compared to 77% at the end of FY2009. Importantly the gap between Southern Cross and the industry in this regard has narrowed to 5% in January 2010 compared to 9% in January 2009.
As a consequence of the speed of improvement the Group has now increased its target of 2 and 3 star homes to 85% by the end of 2011.
However, notwithstanding these improvements, low quality homes, in the balance of the portfolio continue to pose a significant challenge. The removal of embargoes (including "0" star homes of which the Group currently has 19) which lead to a temporary suspension of admissions and which have a fundamental impact on occupancy, will continue to receive the highest priority. Each embargoed home has an assigned Service Quality Adviser who, informed by our inspection process, works with the in-home team and regulatory authorities to achieve the required standards of service quality.
I remain confident that the management changes and new quality assurance processes which have been introduced will ensure that our 2011 targets are met in full.
Home Manager Turnover
The reduction in home manager turnover also represents a key area of focus and will generate benefits in both the quality of care delivery and in business development.
Having identified the causes of turnover we have now set about the task of identifying and fully supporting capable home managers to deliver high levels of care and to run a successful and distinctive community business.
The key actions taken in the first half of the year comprise:
- introduction of a personal training and development plan for each home manager. Skills training includes sales techniques, financial management, people development, report writing and complaint handling.
- introduction of an annual personal incentive plan, allowing home managers to benefit from their achievement against a balanced scorecard of measures including service quality, people management and financial performance
- streamlining of internal reporting obligations, freeing up time for care delivery and business development.
- investment in systems. A new staff rostering system will begin roll out in H2 and is expected to generate payroll savings of c1% per annum whilst also reducing unproductive administration at home level by approximately 20%.
Business Definition and Sales
At the end of last year we developed a care home segmentation model, allowing the business to vastly simplify its target setting, management and stewardship of homes.
Our new team of Area Managers have been fully inducted and trained in how to assess the business potential of their homes and all have completed business plans using the new categories and business analysis methodology.
As a result, each home has been placed within one of six operating categories reflecting its inherent potential to drive sales from a balance of Local Authority, Health Authority and self funders.
Up to 200 homes have been identified as having potential for self funder sales of between 30% and 80% of revenue and managers in these homes are undergoing specialist training in sales and marketing to high margin self funding residents.
A further 350 homes have been identified as having the potential to be the most cost effective providers of residential care services to Local Authorities, focusing on occupancy and cost per resident day.
H1 Operating Performance
Revenues in the first half of FY 2010 increased by 4.3% to £480.7m (H1 2009 - £460.8m) reflecting average weekly fees which were 3.2% higher at £553. Average mature occupancy was 1.9% lower due, in part, to disruption caused by the severe winter weather experienced across the UK during December and January.
Even before taking account of the improvements expected to be generated by the New Horizons programme, significant progress has already been made in managing down the cost base.
Home-related cost management initiatives continue and have mitigated the impact of the fall in occupancy. This is reflected in a 4.2% increase in Home EBITDAR before central costs to £140.6m (H1 2009 - £134.9m), resulting in a stable margin of 29.2% (2009 - 29.3%).
Head office costs include exceptional charges of £3.3m in respect of our New Horizons programme. Excluding these exceptional costs head office costs were in line with the prior year.
As a result of the cost management initiatives and other management action taken, the Group has delivered an Adjusted EBITDA of £28.0m (2009 - £28.5m). Considering the fall in occupancy, this was a resilient operating performance.
Following the completion of our portfolio review a robust and targeted approach to capital expenditure has been introduced to support operational improvement. This has resulted in a £3.8m increase in capital expenditure on our underlying portfolio to £14.2m (2009 - £10.4m) and this level of expenditure is expected to continue for the remainder of the year.
The Group has made continued progress in further reducing its bank borrowings ahead of the level anticipated at the time of the refinancing in October 2008. During the first half of FY 2010 bank borrowings have reduced by £32.1m to £31.2m. Net debt at the end of the period was £25.7m, down from £33.1m at the previous year end. Subsequent to 31 March 2010, bank borrowings have reduced by a further £14.0m and currently stand at £17.2m.
Occupancy
Average mature occupancy in the period was 86.9% compared with a figure of 88.8% in the equivalent period of the previous year, a reduction of 1.9%. Spot mature occupancy in the first week of May 2010 was 85.9% compared with a figure of 87.5% in May 2009.
As detailed below, there has been a change in the Group customer mix including a material increase in the proportion of residents fully-funded by the NHS.
|
|
Period to |
Period to |
|
|
March 2010 |
March 2009 |
|
Elderly Care (Local Authority) |
68.6% |
70.0% |
|
Elderly Care (NHS) |
11.1% |
8.7% |
|
Elderly Care (self fund) |
18.1% |
19.0% |
|
Active Care |
2.2% |
2.3% |
In addition, the Elderly Care business has experienced a change in mix of residential / nursing care from a ratio of 38.3% / 61.7% in the period to March 2009 to 38.8% / 61.2% in the period to March 2010.
Average weekly admissions in mature homes have increased by 2% compared with the equivalent period in the previous year. However, this has been largely influenced by an increase in the proportion of residents admitted for short stay respite care (from 29% to 32% of all admissions).
In addition to the increased rate of discharges associated with the higher proportion of short term respite placements, the increased number of higher dependency NHS-funded residents has contributed to a marginal increase in the overall average rate of deaths.
As local authority and NHS commissioners continue to place a greater focus upon service standards, the influence of service quality upon occupancy continues to become more important. Local authorities no longer place residents in "0-star" services, and several are also now extending this policy to cover "1-star" services.
Homes which have either maintained a "3-star" service, or which have improved their "star-rating" have achieved net occupancy gains over the course of the past year averaging between 0.5% and 1%. Conversely, homes which have remained at "0-star" or "1-star" levels, or which have had their "star-rating" reduced have suffered occupancy losses averaging over 5%. Within our "2 star" homes we have seen a decline in occupancy of 1.8% which we are interpreting as a market decline. Whilst the Group's average "star-ratings" have steadily improved, so has the competitor set, albeit at a slower rate.
Fees
The overall Group average weekly fee of £553 represents a 3.2% increase against the £536 reported in the equivalent period of the previous year. This figure comprises like-for-like increases in average fee rates of 4.0%, including a net increase in local authority and self-fund fees of 3.3% and 6.2% respectively. These have been offset by a 0.8% reduction in overall average fee resulting from changes in resident mix including:
·; Increase in the proportion of residential occupancy with the associated reduction in nursing occupancy.
·; Reduction in the proportion of self-fund occupancy (although the effects are counterbalanced by the effects of the increased proportion of NHS-funded residents).
Although annual increases in self funder fees were recently agreed at an average of 3.7%, given the economic pressures within social care we now calculate that the average level of annual fee uplift proposed by local authorities in 2010 will be c1%. We continue to negotiate with many of our local authority customers and anticipate that third party "top-up" payments will become more prevalent in order to subsidise the shortfall in local authority funding.
Dividend
Given that progress in reducing debt will be somewhat slower than expected due to lower anticipated H2 earnings the Board has decided to defer consideration of a dividend until December 2010.
Outlook
We have identified the causes of reduced occupancy, some of which are market related at least in the short term, and we understand what needs to be done to minimise the overall recessionary impact on our business. To that extent, the implementation of our well defined change programme continues to be the right course of action for this business to pursue and we have made good progress in this regard.
Jamie Buchan
Chief Executive
11 May 2010
Financial Review
Basis of Preparation
The financial information on pages 15 to 29 has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs), as adopted by the EU and in accordance with IAS 34 "Interim Financial Reporting".
At the start of the financial year, the Group changed its internal reporting cycles and now reports on a calendar monthly basis (previously the Group reported 13 periods of 4 weeks). The results for the period ended 31 March 2010 are therefore for a period of 185 days (FY2009 - 182 days).
Revenue Statement
The Group's operating performance is summarised in the following table:
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
£'m |
£'m |
|
Revenue |
480.7 |
460.8 |
|
Home EBITDAR |
140.6 |
134.9 |
|
Home EBITDAR margin (%) |
29.2 |
29.3 |
|
Adjusted EBITDA1 |
28.0 |
28.5 |
|
Operating loss |
(21.1) |
(8.6) |
|
Loss before taxation |
(22.9) |
(12.5) |
|
Average number of available beds |
38,460 |
37,515 |
|
Cash generated from operating activities |
9.4 |
26.7 |
1Adjusted EBITDA represents EBITDA after adding back charges for future minimum rental increases and exceptional central costs.
Revenue
During the period, revenue increased by £19.9m to £480.7m. The increase in revenue is attributable to fee rate increases achieved in FY 2009 of 4.0% (£18.8m), the additional 3 days included in the current year's period of accounts (£7.8m) and the impact of acquisitions made in the prior and current year (£6.7m). These increases were offset by reductions in revenue due to lower occupancy (£8.3m) and mix effects (£5.1m), which reduced the weekly fee increase to 3.2% (from £536 to £553).
Home Operating Costs
During the period, home payroll costs increased by £12.4m from £266.9m to £279.3m, of which £4.4m was due to the additional 3 days in the current year's period of accounts and £3.5m was attributable to acquisitions made in the prior and current year. Excluding the above items, home payroll costs increased by £4.5m, driven by wage increases of 1.7% effective in October 2009.
Home running costs for the Group were 12.6% of revenue, compared with 12.8% for the comparable period of 2009.
Rent
The rent charge for the period, including a non-cash charge of £26.3m (2009 - £26.6m) for future minimum rental increases, amounted to £124.0m (2009 - £119.0m). Excluding the non-cash charge and the 3 additional days in the current year's period of accounts, the rental charge for the period increased £3.7m. The increase was driven by new leases entered (£1.5m), leases with average fixed increases of 2.7% (£1.4m), leases with RPI linked average increases of 2.5% (£0.5m) and leases subject to 5 yearly increases of £0.3m.
Central Costs
Central costs for the period, including £3.3m in respect of exceptional central costs, were £18.2m (2009 - £14.0m). Excluding these exceptional costs and the 3 additional days in the current year's period of accounts, costs increased by £0.6m. As a percentage of revenue, central costs (excluding exceptional costs) equated to 3.1% (2009 - 3.0%).
Exceptional Central Costs
During the period the Group incurred non-recurring, exceptional costs of £3.3m due to the internal change programme "New Horizons". Total costs associated with the programme are estimated to be £6m, of which £3.3m has been incurred during the period, with the majority of the remaining costs anticipated to be incurred during the second half of FY2010.
EBITDA
Loss before interest, tax, depreciation and amortisation ("EBITDA") for the period was £1.6m (2009 - £1.9m profit). Excluding the impact of future minimum rental increases under IAS 17 and exceptional central costs, Adjusted EBITDA decreased by £0.5m to £28.0m.
Depreciation
The depreciation charge for the period totalled £13.1m (2009 - £10.2m), the increase reflecting additional capital expenditure during the previous year and ongoing expenditure in the current year, as the Group seeks to improve the quality of its existing portfolio. The depreciation charge for the second half of FY 2010 is anticipated to increase to c£14m.
Onerous Contract
During the period, management took the decision to close Abbeydale, an independent hospital located in North London. As a result of this decision a £6.5m onerous contract charge has been recognised in the period.
Net Finance Costs
Net finance costs for the period amounted to £1.8m (2009 - £3.9m). Excluding the impact of loan arrangement fees and non-cash charge in respect of the fair value of financial instruments, net finance costs were £1.3m (2009 - £3.0m) a decrease of £1.7m due to lower levels of debt.
Taxation
The tax credit on losses before taxation of £5.0m (2009 - £2.8m charge) represents an effective tax rate of 20.0%. The effective rate includes the impact of deferred tax provisions, charged during the period, totalling £1.8m. Excluding these provisions the effective tax rate for the Group was 27.9% (2009 - 27.2%).
During the period the Group paid £0.3m of tax payments relating to prior periods. The Group does not expect to make significant tax payments for the next four years.
Loss per Share
The loss per share for the period was 9.52p (2009 - 8.14p). Adjusted earnings per share for the period before future minimum rental increase charges, onerous contract charge, exceptional central costs and the taxation impact thereof were 5.26p (2009 - 5.37p).
Cash Flow
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
£'m |
£'m |
|
Cash flows from operations |
9.4 |
26.7 |
|
Net interest and taxation |
(1.6) |
6.6 |
|
Investing activities |
(0.4) |
(10.0) |
|
Financing activities |
(32.4) |
3.5 |
|
Net (decrease)/increase in cash |
(25.0) |
26.8 |
Net decrease in cash during the period was £25.0m (2009 - £26.8m increase). Cash inflow from operations for the period was £9.4m (2009 - £26.7m), representing a cash conversion ratio compared to adjusted EBITDA of 33.6% (2009 - 93.7%). The £17.3m reduction in cash generated from operations is primarily due to payroll payments of £14.0m made during the additional 3 days included in the current year's period of accounts.
Net finance charges paid during the period amounted to £1.3m (2009 - £8.8m). Excluding refinance costs paid in the prior year of £5.1m, payments reduced by £2.4m reflecting lower levels of debt during the period. Net tax payments during the period totalled £0.3m (2009 - £15.4m repayment) and related to prior periods.
Net cash used in investing activities amounted to £0.4m (2009 - £10.0m).Included within investing activities are purchases of property, plant and equipment of £17.8m (2009 - £21.3m), of which £1.2m (2009 - £nil) related to leasehold properties, £2.4m (2009 - £10.9m) in respect of development expenditure on new properties and £14.2m (2009 - £10.4m) expenditure on the existing portfolio.
Also included within investing activities are receipts from the sale of subsidiary undertakings, after professional fees, of £11.8m (2009 - £nil) and receipts of £5.6m (2009 - £11.9m) from the sale of freehold properties.
Net cash used in financing activities amounted to £32.4m for the period (2009 - £3.5m cash generated). Further to the sale of the five freehold properties, repayments of £5.4m were made on the Term facility and £9.1m on the Development facility. In addition to these, voluntary repayments of £11.1m were made on the Term facility, £4.5m on the development facility and £1.9m on the acquisition facility. The remaining £0.4m of repayments relate to mortgage debt and finance leases.
Net Debt and Financing
During the period since the 2009 financial year end, the Group's net debt has decreased by £7.4m to £25.7m. Bank borrowings have reduced from £63.3m at the year end to £31.2m at 31 March 2010.
As at 31 March 2010 the Group had committed bank facilities of £77.2m, against which it had loans drawn of £31.2m and guarantees issued of £11.5m, leaving £34.5m of undrawn facilities.
Subsequent to 31 March 2010, the Group's borrowings have reduced by a further £14.0m (being repayment of the remaining £6.2m outstanding on the development facility loan and a voluntary £7.8m repayment on the Term facility) following the sale and long term lease back of two internally developed care homes on 20 April 2010.
Forward-looking Statements
Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Principal Risks and Uncertainties
Southern Cross, like all businesses, faces a number of operating risks and uncertainties. There are a number of risks that could impact the Group's long-term performance and steps are taken to understand and evaluate these in order to achieve our objective of creating long-term sustainable returns for Shareholders.
The Group has a risk management process in place, which is designed to identify, manage and mitigate business risk. Regular reporting of these risks and the monitoring of actions and controls is conducted by the Audit Committee, which reports its findings to the Board.
The most fundamental risks faced by the Group are:
» failure to comply with regulation, possibly leading in extreme cases to the revocation of a care home's registration;
» generatingsevere negative publicity were a serious incident to occur at one of the Group's care homes;
» budgeted occupancy levels are not achieved with negative effects on profit;
» average weekly fee increases do not rise, at least, in line with costs putting profit margins under pressure;
» failure to meet bank covenants;
» failureto attract and retain nursing and other qualified staff, adversely impacting admissions; and
» failure to attract suitable finance could impact on growth and profitability. If current conditions in the banking market continue for a prolonged period of years, a reduction in available finance at sensible margins could restrict capital expenditure and investment in acquisitions.
Richard Midmer
Finance Director
11 May 2010
Statement of Directors' Responsibilities
The Directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.
The Directors of Southern Cross Healthcare Group PLC are listed in the Annual Report for 27 September 2009.
By order of the Board
J Buchan
11 May 2010
R Midmer
11 May 2010
Independent Review Report to Southern Cross Healthcare Group PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the period ended 31 March 2010, which comprise the consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated statement of comprehensive income, consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the period ended 31 March 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
Randal Casson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants
Leeds
11 May 2010
Notes:
a) The maintenance and integrity of the Southern Cross Healthcare Group PLC website is the responsibility of the Directors; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Consolidated Income Statement
|
|
|
Period |
26 weeks |
52 weeks |
|
|
|
ended |
ended |
ended |
|
|
|
31 March |
29 March |
27 September |
|
|
|
2010 |
2009 |
2009 |
|
|
|
unaudited |
unaudited |
audited |
|
|
Note |
£'m |
£'m |
£'m |
|
|
|
|
|
|
|
Revenue |
3 |
480.7 |
460.8 |
937.1 |
|
Home payroll costs |
3 |
(279.3) |
(266.9) |
(533.7) |
|
Home running costs |
3 |
(60.8) |
(59.0) |
(112.8) |
|
Home EBITDAR1 before central costs |
3 |
140.6 |
134.9 |
290.6 |
|
Rent |
|
|
|
|
|
Charge for rental amounts currently payable |
|
(97.7) |
(92.4) |
(187.3) |
|
Charge for future minimum rental increases |
|
(26.3) |
(26.6) |
(51.8) |
|
Total rent |
3 |
(124.0) |
(119.0) |
(239.1) |
|
Home EBITDA2 before central costs |
|
16.6 |
15.9 |
51.5 |
|
Central costs |
|
(18.2) |
(14.0) |
(30.8) |
|
Adjusted EBITDA3 before exceptional central costs and charge for future minimum rental increases |
|
28.0 |
28.5 |
72.5 |
|
Exceptional central costs |
4 |
(3.3) |
- |
- |
|
Charge for future minimum rental increases |
|
(26.3) |
(26.6) |
(51.8) |
|
EBITDA |
|
(1.6) |
1.9 |
20.7 |
|
Profit/(loss) on disposal of property, plant and equipment and subsidiary undertakings |
12 |
0.1 |
(0.3) |
(4.1) |
|
Impairment of freehold assets held for resale |
|
- |
- |
(7.7) |
|
Onerous contract |
12 |
(6.5) |
- |
- |
|
Depreciation |
|
(13.1) |
(10.2) |
(21.6) |
|
Operating loss |
|
(21.1) |
(8.6) |
(12.7) |
|
Finance costs |
|
(2.0) |
(4.6) |
(7.9) |
|
Finance income |
|
0.2 |
0.7 |
0.8 |
|
Loss before taxation |
|
(22.9) |
(12.5) |
(19.8) |
|
Taxation credit/(charge) |
5 |
5.0 |
(2.8) |
(2.3) |
|
Loss attributable to ordinary shareholders |
|
(17.9) |
(15.3) |
(22.1) |
|
|
|
Pence per |
Pence per |
Pence per |
|
|
Note |
share |
share |
share |
|
Loss per share attributable to equity Shareholders |
|
|
|
|
|
Basic and diluted |
6 |
(9.52) |
(8.14) |
(11.75) |
All of the above activities relate to continuing operations.
The notes on pages 19 to 29 form part of this financial information.
The Consolidated Income Statement above represents all the gains and losses incurred by the Group during the periods presented and therefore no separate Consolidated Statement of Comprehensive Income has been presented.
1Home EBITDAR is defined as earnings before interest, tax, depreciation, amortisation, profit on disposal of property, plant and equipment and subsidiary undertakings, impairment of freehold assets held for resale, onerous contract and rent.
2EBITDA is defined as earnings before interest, tax, depreciation, amortisation, profit on disposal of property, plant and equipment, onerous contract and subsidiary undertakings and impairment of freehold assets held for resale.
3Adjusted EBITDA represents EBITDA after adding back charges for exceptional central costs and future minimum rental increases.
Consolidated Balance Sheet
|
|
|
As at |
As at |
As at |
|
|
|
31 March |
29 March |
27 September |
|
|
|
2010 |
2009 |
2009 |
|
|
|
unaudited |
unaudited |
audited |
|
|
Note |
£'m |
£'m |
£'m |
|
ASSETS |
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Property, plant and equipment |
12 |
116.5 |
132.4 |
111.4 |
|
Goodwill |
9 |
219.2 |
219.1 |
219.2 |
|
Deferred tax assets |
|
19.6 |
16.8 |
14.7 |
|
Other non-current assets |
|
3.4 |
3.4 |
3.4 |
|
Total non-current assets |
|
358.7 |
371.7 |
348.7 |
|
Current assets |
|
|
|
|
|
Cash and cash equivalents |
8 |
6.8 |
29.0 |
31.8 |
|
Trade receivables |
|
29.5 |
43.6 |
37.7 |
|
Inventories |
|
1.1 |
2.4 |
1.1 |
|
Property assets held for sale |
12 |
29.2 |
24.6 |
46.5 |
|
Other current assets |
|
19.9 |
22.3 |
8.9 |
|
Total current assets |
|
86.5 |
121.9 |
126.0 |
|
Total assets |
|
445.2 |
493.6 |
474.7 |
|
LIABILITIES |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Short-term financial liabilities |
8 |
(0.6) |
(31.9) |
(21.5) |
|
Corporation tax payable |
|
(0.1) |
(2.8) |
(0.4) |
|
Trade and other payables |
|
(86.6) |
(96.9) |
(97.5) |
|
Provisions and similar obligations |
13 |
(1.7) |
(0.6) |
(0.6) |
|
Total current liabilities |
|
(89.0) |
(132.2) |
(120.0) |
|
Non-current liabilities |
|
|
|
|
|
Long-term financial liabilities |
8 |
(30.5) |
(69.9) |
(41.7) |
|
Provisions and similar obligations |
13 |
(16.6) |
(9.2) |
(12.3) |
|
Deferred government grants |
|
(2.6) |
(3.2) |
(2.9) |
|
Future minimum rental increases accrual |
|
(235.8) |
(184.3) |
(209.5) |
|
Total non-current liabilities |
|
(285.5) |
(266.6) |
(266.4) |
|
Total liabilities |
|
(374.5) |
(398.8) |
(386.4) |
|
Net assets |
|
70.7 |
94.8 |
88.3 |
|
Equity |
|
|
|
|
|
Ordinary shares |
10 |
1.9 |
1.9 |
1.9 |
|
Share premium |
|
161.5 |
161.5 |
161.5 |
|
Accumulated deficit |
|
(92.7) |
(68.6) |
(75.1) |
|
Total equity |
|
70.7 |
94.8 |
88.3 |
The notes on pages 19 to 29 form part of this financial information.
Consolidated Cash Flow Statement
|
|
|
Period |
26 weeks |
52 weeks |
|
|
|
ended |
ended |
ended |
|
|
|
31 March |
29 March |
27 September |
|
|
|
2010 |
2009 |
2009 |
|
|
|
unaudited |
unaudited |
audited |
|
|
Note |
£'m |
£'m |
£'m |
|
Cash flows from operations |
|
|
|
|
|
Cash generated from operations |
11 |
9.4 |
26.7 |
87.5 |
|
Interest received |
|
0.2 |
0.7 |
0.8 |
|
Interest and bank loan arrangement fees paid |
|
(1.5) |
(9.5) |
(13.1) |
|
Tax (paid)/received |
|
(0.3) |
15.4 |
15.6 |
|
Net cash generated from operations |
|
7.8 |
33.3 |
90.8 |
|
Cash flows from investing activities |
|
|
|
|
|
Purchase of subsidiary undertakings, net of cash acquired |
12 |
- |
(0.6) |
(0.7) |
|
Sale of subsidiary undertakings |
12 |
11.8 |
- |
- |
|
Purchase of property, plant and equipment |
12 |
(17.8) |
(21.3) |
(45.3) |
|
Receipts from the sale of property, plant and equipment |
12 |
5.6 |
11.9 |
20.4 |
|
Net cash used in investing activities |
|
(0.4) |
(10.0) |
(25.6) |
|
Cash flows from financing activities |
|
|
|
|
|
Repayment of borrowings |
8 |
(32.1) |
(41.8) |
(75.9) |
|
New borrowings |
8 |
- |
45.6 |
41.1 |
|
Capital element of finance leases |
8 |
(0.3) |
(0.3) |
(0.8) |
|
Net cash (used in)/generated from financing activities |
|
(32.4) |
3.5 |
(35.6) |
|
Net (decrease)/increase in cash and cash equivalents |
|
(25.0) |
26.8 |
29.6 |
|
Opening cash and cash equivalents |
|
31.8 |
2.2 |
2.2 |
|
Closing cash and cash equivalents |
|
6.8 |
29.0 |
31.8 |
Note:
Included within the purchase of property, plant and equipment are purchases of leasehold properties totalling £1.2m (2009 - £nil) and development expenditure on new properties totalling £2.4m (2009 - £10.9m). Excluding these amounts, expenditure on the underlying portfolio amounted to £14.2m (2009 - £10.4m).
Consolidated Statement of Changes in Shareholders' Equity
|
|
Share capital £'m |
Share premium Account £'m |
Retained deficit £'m |
Total equity £'m |
|
At 29 September 2008 |
1.9 |
161.5 |
(53.3) |
110.1 |
|
Loss attributable to ordinary shareholders |
- |
- |
(15.3) |
(15.3) |
|
At 29 March 2009 |
1.9 |
161.5 |
(68.6) |
94.8 |
|
Share-based payments (including deferred tax of £0.1m) |
- |
- |
0.3 |
0.3 |
|
Loss attributable to ordinary shareholders |
- |
- |
(6.8) |
(6.8) |
|
At 27 September 2009 |
1.9 |
161.5 |
(75.1) |
88.3 |
|
Share-based payments |
- |
- |
0.3 |
0.3 |
|
Loss attributable to ordinary shareholders |
- |
- |
(17.9) |
(17.9) |
|
At 31 March 2010 |
1.9 |
161.5 |
(92.7) |
70.7 |
Notes to the Financial Information
For the period ended 31 March 2010
1 Presentation of Half Year Financial Report
General
Southern Cross Healthcare Group PLC ("the Company") and its subsidiaries (together "the Group") are engaged in the development and operation of care homes for the elderly and the provision of specialist services for people with physical and/or learning disabilities.
The Company is a public company limited by shares, incorporated and domiciled in England and Wales under the Companies Act 2006 (Registered No. 05328138). The address of its registered office is Southgate House, Archer Street, Darlington, County Durham DL3 6AH. The Company has its primary listing on the London Stock Exchange.
Basis of Preparation
The unaudited condensed consolidated half-yearly financial information for the period ended 31 March 2010 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union. This report should be read in conjunction with the annual financial statements for the 52 weeks ended 27 September 2009, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS as adopted by the EU) and International Financial Reporting Interpretations Committee ("IFRIC") Interpretations and the Companies Act 2006, as applicable to companies reporting under IFRS.
At the start of the financial year, the Group changed its internal reporting cycles and now reports on a calendar monthly basis (previously the Group reported 13 periods of 4 weeks). The results for period ended 31 March 2010 are therefore for a period of 185 days (FY2009 182 days).
Statutory Financial Statements
The financial information presented here does not represent statutory financial statements as defined by the Companies Act 2006. The Group's statutory financial statements for the year ended 27 September 2009 were prepared under IFRS as adopted by the EU and filed with the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, reported on those financial statements and their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.
This unaudited condensed consolidated half-yearly information has not been audited by the independent auditors pursuant to the Auditing Practices Board guidance on the "Review of Interim Financial Information".
2 Accounting Policies
The accounting policies are consistent with those of the annual financial statements for the 52 weeks ended 27 September 2009.
During the period, the Group has adopted the requirements of IFRS 8 "Operating Segments". Based on the requirements of IFRS 8, the Directors consider the Group to have two reportable segments, Elderly Care and Specialist, which remain unchanged from those reported at 27 September 2009. Further details are provided in note 3 on page 21.
From 28 September 2009 the following standard, amendments and interpretations became effective and were adopted by the Group:
|
·; IFRS2 |
Amendment - Share-based payments: Vesting conditions and cancellations |
|
·; IFRS7 |
Amendment - Financial Instruments: Disclosures |
|
·; IFRS8 |
Operating segments |
|
·; IAS1 |
Revised - Presentation of financial statements |
|
·; IAS1 |
Amendment - Presentation of financial statements: Puttable financial instruments and obligations arising on liquidation |
|
·; IAS23 |
Amendment - Borrowing costs |
|
·; IAS32 |
Amendment - Embedded derivatives |
|
·; IFRIC12 |
Service concession arrangements |
|
·; IFRIC13 |
Customer loyalty programmes |
|
·; IFRIC14 |
The limit on a defined benefit asset, minimum funding requirements and their interaction |
|
·; IFRIC15 |
Agreements for construction of real estates |
|
·; IFRIC16 |
Hedges of a net investment in a foreign operation |
The adoption of these amendments and interpretations has not had a significant impact on the Group's loss for the period or equity.
Exceptional Central Costs
Exceptional central costs are events or transactions that fall within the activities of the Group and which, by virtue of their size or incidence, have been disclosed in order to improve a reader's understanding of the financial information.
3 Segmental Analysis
During the period, the Group has adopted the requirements of IFRS 8 "Operating Segments". The standard requires the reporting of segmental information in line with the information reviewed regularly by the "Chief Operating Decision Maker" (CODM). The Group has concluded that the CODM is the Executive Committee. The operating segments have been identified as the four geographical segments in the Elderly Care business and the Specialist segment. Management consider the aggregation criteria of IFRS 8 have been met for the operating segments within the Elderly Care business and therefore the reportable segments remain unchanged to those reported at 27 September 2009, being Elderly Care and Specialist.
Revenue, loss before taxation and total equity of the Group are wholly attributable to the operation of care homes and arise solely within the United Kingdom.
Included below is segmental analysis of average occupancy and income statement items:
|
|
Elderly Care |
Specialist |
Total |
|
Total period ended 31 March 2010 |
Number |
Number |
Number |
|
Available beds |
|
|
|
|
Acquisitions |
176 |
- |
176 |
|
Continuing operations |
37,355 |
929 |
38,284 |
|
Segment available beds |
37,531 |
929 |
38,460 |
|
Occupied beds |
|
|
|
|
Acquisitions |
39 |
- |
39 |
|
Continuing operations |
32,116 |
737 |
32,853 |
|
Segment occupied beds |
32,155 |
737 |
32,892 |
|
|
Elderly Care |
Specialist |
Total |
|
|
% |
% |
% |
|
Occupancy |
|
|
|
|
Acquisitions |
22.2 |
- |
22.2 |
|
Continuing operations |
86.0 |
79.3 |
85.8 |
|
Segment occupancy |
85.7 |
79.3 |
85.5 |
|
|
|
|
|
|
|
£ |
£ |
£ |
|
Average weekly fee |
|
|
|
|
Acquisitions |
582 |
- |
582 |
|
Continuing operations |
541 |
1,094 |
553 |
|
Segment average weekly fee |
541 |
1,094 |
553 |
|
|
Elderly Care |
Specialist |
Total |
|
Total 26 weeks ended 29 March 2009 |
Number |
Number |
Number |
|
Available beds |
|
|
|
|
Acquisitions |
221 |
- |
221 |
|
Continuing operations |
36,362 |
932 |
37,294 |
|
Segment available beds |
36,583 |
932 |
37,515 |
|
Occupied beds |
|
|
|
|
Acquisitions |
74 |
- |
74 |
|
Continuing operations |
32,248 |
771 |
33,019 |
|
Segment occupied beds |
32,322 |
771 |
33,093 |
|
|
Elderly Care |
Specialist |
Total |
|
|
% |
% |
% |
|
Occupancy |
|
|
|
|
Acquisitions |
33.5 |
- |
33.5 |
|
Continuing operations |
88.7 |
82.7 |
88.5 |
|
Segment occupancy |
88.4 |
82.7 |
88.2 |
|
|
|
|
|
|
|
£ |
£ |
£ |
|
Average weekly fee |
|
|
|
|
Acquisitions |
572 |
- |
572 |
|
Continuing operations |
522 |
1,092 |
534 |
|
Segment average weekly fee |
522 |
1,092 |
536 |
Primary Reporting Format - Reporting Segments
The following tables present income statement information regarding the Group's reporting segments for the period ended 31 March 2010 and the period ended 29 March 2009.
|
|
Elderly Care |
Specialist |
Total |
|
Total period ended 31 March 2010 |
£'m |
£'m |
£'m |
|
Revenue |
|
|
|
|
Acquisitions |
0.6 |
- |
0.6 |
|
Continuing operations |
458.8 |
21.3 |
480.1 |
|
Segment revenue |
459.4 |
21.3 |
480.7 |
|
Home payroll costs |
|
|
|
|
Acquisitions |
(0.7) |
- |
(0.7) |
|
Continuing operations |
(265.3) |
(13.3) |
(278.6) |
|
Segment Home payroll costs |
(266.0) |
(13.3) |
(279.3) |
|
Home running costs |
|
|
|
|
Acquisitions |
(0.1) |
- |
(0.1) |
|
Continuing operations |
(58.5) |
(2.2) |
(60.7) |
|
Segment Home running costs |
(58.6) |
(2.2) |
(60.8) |
|
Home EBITDAR before central costs |
|
|
|
|
Acquisitions |
(0.2) |
- |
(0.2) |
|
Continuing operations |
135.0 |
5.8 |
140.8 |
|
Segment Home EBITDAR before central costs |
134.8 |
5.8 |
140.6 |
|
Home EBITDAR before central costs (%) |
|
|
|
|
Acquisitions |
(33.3) |
- |
(33.3) |
|
Continuing operations |
29.4 |
27.2 |
29.3 |
|
Segment Home EBITDAR before central costs (%) |
29.3 |
27.2 |
29.2 |
|
Total rent |
|
|
|
|
Acquisitions |
(0.9) |
- |
(0.9) |
|
Continuing operations |
(118.9) |
(4.2) |
(123.1) |
|
Segment rent |
(119.8) |
(4.2) |
(124.0) |
|
Home EBITDA before central costs |
|
|
|
|
Acquisitions |
(1.1) |
- |
(1.1) |
|
Continuing operations |
16.1 |
1.6 |
17.7 |
|
Segment Home EBITDA before central costs |
15.0 |
1.6 |
16.6 |
Other expenses:
|
Profit on disposal of property, plant and equipment and subsidiary undertakings |
- |
0.1 |
0.1 |
|
Depreciation |
(12.4) |
(0.7) |
(13.1) |
|
Onerous contract |
- |
(6.5) |
(6.5) |
|
Central payroll costs |
(9.5) |
(0.5) |
(10.0) |
|
Exceptional central costs |
(3.3) |
- |
(3.3) |
|
Unallocated expenses: |
|
|
|
|
Central costs |
|
|
(4.9) |
|
Operating loss |
|
|
(21.1) |
|
|
|
|
|
|
Segment assets |
416.5 |
28.7 |
445.2 |
The analysis includes the charge in the period for future minimum rental increases. Excluding the impact of this charge, Home EBITDA before central costs is as follows:
|
|
Elderly Care |
Specialist |
Total |
|
|
£'m |
£'m |
£'m |
|
Home EBITDA before the charge for future minimum rental increases and central costs: |
|
|
|
|
Acquisitions |
(0.5) |
- |
(0.5) |
|
Continuing operations |
40.9 |
2.5 |
43.4 |
|
Segment Home EBITDA before the charge for future minimum rental increases, central costs and exceptional central costs |
40.4 |
2.5 |
42.9 |
|
|
Elderly Care |
Specialist |
Total |
|
Total 26 weeks ended 29 March 2009 |
£'m |
£'m |
£'m |
|
Revenue |
|
|
|
|
Acquisitions |
1.1 |
- |
1.1 |
|
Continuing operations |
437.8 |
21.9 |
459.7 |
|
Segment revenue |
438.9 |
21.9 |
460.8 |
|
Home payroll costs |
|
|
|
|
Acquisitions |
(1.1) |
- |
(1.1) |
|
Continuing operations |
(251.7) |
(14.1) |
(265.8) |
|
Segment Home payroll costs |
(252.8) |
(14.1) |
(266.9) |
|
Home running costs |
|
|
|
|
Acquisitions |
- |
- |
- |
|
Continuing operations |
(56.5) |
(2.5) |
(59.0) |
|
Segment Home running costs |
(56.5) |
(2.5) |
(59.0) |
|
Home EBITDAR before central costs |
|
|
|
|
Acquisitions |
- |
- |
- |
|
Continuing operations |
129.6 |
5.3 |
134.9 |
|
Segment Home EBITDAR before central costs |
129.6 |
5.3 |
134.9 |
|
Home EBITDAR before central costs (%) |
|
|
|
|
Acquisitions |
- |
- |
- |
|
Continuing operations |
29.5 |
24.2 |
29.3 |
|
Segment Home EBITDAR before central costs (%) |
29.5 |
24.2 |
29.3 |
|
Total rent |
|
|
|
|
Acquisitions |
(0.6) |
- |
(0.6) |
|
Continuing operations |
(114.9) |
(3.5) |
(118.4) |
|
Segment rent |
(115.5) |
(3.5) |
(119.0) |
|
Home EBITDA before central costs |
|
|
|
|
Acquisitions |
(0.6) |
- |
(0.6) |
|
Continuing operations |
14.7 |
1.8 |
16.5 |
|
Segment Home EBITDA before central costs |
14.1 |
1.8 |
15.9 |
|
Other expenses: |
|
|
|
|
Loss on disposal of property, plant and equipment and subsidiary undertakings |
(0.3) |
- |
(0.3) |
|
Depreciation |
(9.7) |
(0.5) |
(10.2) |
|
Central payroll costs |
(9.6) |
(0.4) |
(10.0) |
|
Unallocated expenses: |
|
|
|
|
Central costs |
|
|
(4.0) |
|
Operating loss |
|
|
(8.6) |
|
|
|
|
|
|
Segment assets |
463.6 |
30.0 |
493.6 |
The analysis includes the charge in the period for future minimum rental increases. Excluding the impact of this charge, Home EBITDA before central costs is as follows:
|
|
Elderly Care |
Specialist |
Total |
|
|
£'m |
£'m |
£'m |
|
Home EBITDA before the charge for future minimum rental increases and central costs: |
|
|
|
|
Acquisitions |
(0.4) |
- |
(0.4) |
|
Continuing operations |
40.2 |
2.7 |
42.9 |
|
Segment Home EBITDA before the charge for future minimum rental increases and central costs |
39.8 |
2.7 |
42.5 |
4 Exceptional Central Costs
|
|
Period ended 31 March 2010 unaudited £'m |
26 weeks ended 29 March 2009 unaudited £'m |
52 weeks ended 27 September 2010 audited £'m |
|
Restructuring costs |
3.3 |
- |
- |
Restructuring costs relate to the internal change programme "New Horizons", which was announced at the end of the previous financial year. Of the total cost, £3.0m has been incurred to date, with a further £0.3m being provided at 31 March 2010, in accordance with IAS 37 (note 13). The total costs associated with the programme are expected to be £6m, of which £3.3m, has been incurred during the period, with the majority of the remaining costs anticipated to be incurred during the second half of FY2010.
5 Taxation
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
£'m |
£'m |
|
Current tax |
|
|
|
- Current period |
- |
- |
|
- Prior period (realisation of taxable losses) |
(0.1) |
(21.4) |
|
Deferred tax |
|
|
|
- Current period |
(4.6) |
(3.4) |
|
- Prior period (realisation of taxable losses) |
(0.3) |
21.4 |
|
- Prior period (reversal of deferred tax asset) |
- |
6.2 |
|
Taxation (credit)/charge |
(5.0) |
2.8 |
The current period tax credit for the period ended 31 March 2010 represents an effective tax rate of 20.0%. The effective rate is lower than the average standard rate of corporation tax in the United Kingdom (28.0%) due to the impact of deferred tax provisions, charged during the period, totalling £1.8m.
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
£'m |
£'m |
|
Loss before taxation |
(22.9) |
(12.5) |
|
Loss before taxation multiplied by the average standard rate of corporation tax in the United Kingdom of 28% (2009 - 28%) |
(6.4) |
(3.5) |
|
Effect of: |
|
|
|
- Additional provision of deferred tax assets |
1.8 |
6.2 |
|
- Adjustments in respect of prior years |
(0.4) |
- |
|
- Other |
- |
0.1 |
|
Tax (credit)/charge for the period |
(5.0) |
2.8 |
The tax charge is expected to be in line with the standard rate in future periods.
6 Loss per Ordinary Share
Basic loss per share is calculated by dividing the loss for the period attributable to ordinary equity holders of the parent, by the weighted average number of ordinary shares outstanding during the period.
Diluted loss per share is calculated by dividing the loss for the period attributable to ordinary equity holders of the parent, by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
Number |
Number |
|
Basic weighted average number of shares (excluding treasury shares) |
188,067,377 |
188,067,377 |
|
Dilutive potential ordinary shares: |
|
|
|
Employee share options |
Nil |
Nil |
|
Diluted weighted average number of shares |
188,067,377 |
188,067,377 |
The Group presents exceptional items and future minimum rental increases on the face of the income statement. Items that are considered exceptional, by virtue of their size or incidence, are disclosed in order to improve a reader's understanding of the financial information. To this end, additional basic and diluted earnings per share information is also presented on this basis. Reconciliations of earnings and the weighted average number of ordinary shares used are set out below:
|
|
Period ended 31 March 2010 |
26 weeks ended 29 March 2009 |
||||
|
|
Earnings |
Basic per share amount |
Diluted per share amount |
Earnings |
Basic per share amount |
Diluted per share amount |
|
|
£'m |
P |
p |
£'m |
p |
p |
|
Loss attributable to ordinary Shareholders |
(17.9) |
(9.52) |
(9.52) |
(15.3) |
(8.14) |
(8.14) |
|
Charge for future minimum rental increases |
26.3 |
13.98 |
13.98 |
26.6 |
14.14 |
14.14 |
|
Exceptional items |
|
|
|
|
|
|
|
- restructuring costs |
3.3 |
1.75 |
1.75 |
- |
- |
- |
|
- onerous contract |
6.5 |
3.46 |
3.46 |
- |
- |
- |
|
Taxation impact of above |
(8.3) |
(4.41) |
(4.41) |
(1.2) |
(0.63) |
(0.63) |
|
Profit attributable to ordinary Shareholders before charges for future minimum rental increases, exceptional items and taxation impact thereof |
9.9 |
5.26 |
5.26 |
10.1 |
5.37 |
5.37 |
The taxation impact in the prior year includes the impact of losses not recognised as a result of preparing financial statements under IFRS.
7 Dividends paid and declared
The Directors have decided not to recommend an interim dividend (2009 - £nil).
8 Bank Overdrafts and Loans
|
|
As at 27 September 2009 £'m |
Cash flow £'m |
As at 31 March 2010 £'m |
|
Cash |
31.8 |
(25.0) |
6.8 |
|
Bank loans due within one year |
(21.8) |
21.8 |
- |
|
Finance leases due within one year |
(0.6) |
- |
(0.6) |
|
Bank loans due after more than one year |
(41.5) |
10.3 |
(31.2) |
|
Finance leases due after more than one year |
(1.0) |
0.3 |
(0.7) |
|
|
(64.9) |
32.4 |
(32.5) |
|
Net debt |
(33.1) |
7.4 |
(25.7) |
Note: Long-term financial liabilities of £30.5m disclosed within the balance sheet are presented net of loan arrangement fees totalling £1.4m.
During the period bank loans totalling £32.1m were repaid. Mandatory repaymentsof £5.4m were made on the Term Facility, £9.1m on the development facility and £0.1m of mortgage debt. Furthermore, voluntary repayments of £11.1m were made on the Term Facility, £4.5m on the development facility and £1.9m on the acquisition facility.
Bank loans outstanding at 31 March 2010 include £1.5m of mortgage debt (2009 - £1.6m), which is secured upon freehold property to which it relates. The debt is repayable on disposal of the property.
9 Goodwill
|
Group |
£'m |
|
At 29 September 2009 and 31 March 2010 |
219.2 |
Impairment Test for Goodwill
Goodwill arising on acquisitions, as noted above, is not being amortised but tested annually for impairment. The date elected for impairment testing is 31 March unless there is a clear indication of impairment.
The Group conducts an annual impairment test on the carrying value of goodwill, based on the recoverable amount of cash generating units ('CGUs') to which goodwill has been allocated. The recoverable amounts of CGUs are determined from in-house calculations. The key assumptions in the value-in-use calculations are the discount rate applied, the long-term operating margin and the long-term growth rate of net operating cash flows. In all cases, the Group prepares cash flow forecasts derived from the approved budgets and extrapolates cash flows on an estimated growth rate of 3%, excluding inflation.
The pre-tax rate used to discount the forecast cash flow for all CGUs is 9%. This rate represents a pre-tax rate that reflects the market value of money at the balance sheet date and the risks specific to the CGU. The growth rate applied does not exceed the growth rate for the industry and country in which it operates.
The long-term operating margin assumed for a CGU's operations is primarily based on past performance at home level except where management have a strong belief that a different profit margin can be achieved.
At 31 March 2010 and 29 March 2009, no impairment charge to goodwill has been required.
10 Called Up Share Capital
|
|
31 March 2010 Number |
29 March 2009 Number |
|
Authorised: Ordinary shares of 1p each |
300,000,000 |
300,000,000 |
|
|
£'m |
£'m |
|
Ordinary shares of 1p each |
3 |
3 |
|
|
Number |
Number |
|
Allotted, called up and fully paid: Ordinary shares of 1p each |
188,067,377 |
188,067,377 |
|
|
£'m |
£'m |
|
Ordinary shares of 1p each |
1.9 |
1.9 |
11 Cash Flows from Operating Activities
Reconciliation of operating loss before taxation to net cash flow from operating activities:
|
|
Period |
26 weeks |
|
|
ended |
ended |
|
|
31 March |
29 March |
|
|
2010 |
2009 |
|
|
£'m |
£'m |
|
Operating loss |
(21.1) |
(8.6) |
|
Adjustments for: |
|
|
|
(Profit)/loss on disposal of property, plant and equipment and subsidiary undertakings |
(0.1) |
0.3 |
|
Depreciation |
13.1 |
10.2 |
|
Share based payments |
0.3 |
- |
|
Changes in working capital (excluding effects of acquisitions of subsidiaries): |
|
|
|
Increase in trade and other receivables |
(2.8) |
(11.2) |
|
(Decrease)/increase in payables |
(11.7) |
9.7 |
|
Increase in future minimum rental payable |
26.3 |
26.6 |
|
Increase/(decrease) in provisions |
5.4 |
(0.3) |
|
Cash flows from operating activities |
9.4 |
26.7 |
12 Acquisitions, Disposals and Onerous Contract
Freehold disposals
On 10 November 2009, the Group completed the sale and long term leaseback of the internally developed care home at Taunton, for net cash consideration of £4.8m, which is equal to the book value of the property. The annual rent payable in respect of the property is £0.4m. The proceeds from the sale were used to part repay the drawings on the Group's development facility.
On 20 and 23 November 2009, the Group completed the sale of Wookey Hole and Cathedral View respectively, two homes which were closed following the opening of the Group's new home in Wells. The homes were sold for a net cash consideration of £0.9m, which was equal to the book value of the assets. The proceeds from the sale were used to part repay the drawings on the Group's term loan.
Further freehold assets were sold for a deferred consideration of £0.6m, being equal to the book value of the assets.
Sale of subsidiary undertakings
On 13 November 2009, the Group completed the sale of Southern Cross (Paisley) Propco Limited and freehold interest for net cash consideration of £4.6m, realising a profit on disposal of £0.1m. The proceeds from the sale were used to part repay the drawings on the Group's term loan.
On 13November 2009, the Group completed the sale of Portishead Fundco Limited, Portishead Newco Limited and freehold interest for net cash consideration of £7.4m, which was equal to the book value. The proceeds were used to part repay the drawings on the Group's development facility.
Included in the above are fees associated with the disposals totalling £0.3m.
Property, Plant and Equipment
During the period, the Group had fixed asset additions totalling £18.8m (29 March 2009 - £21.3m), relating to property, plant and equipment within the Group's care homes. Within this total expenditure, the purchase of leasehold property amounted to £1.2m (2009 - £nil), development expenditure on new properties was £2.4m (2009 - £10.9m) and £15.2m (2009 - £10.4m) was incurred on the underlying portfolio.
Property Assets Held for Sale
Property assets held for sale consist of fifteen freehold properties with a carrying value of £29.2m (29 March 2009 - £24.6m) which the Group expects to sell in the near future.
Onerous Contract
During the period, management took the decision to close Abbeydale, an independent hospital located in North London. As a result of this decision a £6.5m charge has been recognised in respect of an onerous contract. Further disclosure in included in note 13 below.
13 Provisions and Similar Obligations
|
|
|
Total |
|
|
|
£'m |
|
At 28 September 2009 |
|
12.9 |
|
Charged to the income statement |
|
6.8 |
|
Utilised in the period |
|
(1.4) |
|
At 31 March 2010 |
|
18.3 |
|
|
|
|
|
Analysis of total provisions: |
31 March 2010 £'m |
29 March 2009 £'m |
|
|
|
|
|
Current |
1.7 |
0.6 |
|
Non-current |
16.6 |
9.2 |
|
|
18.3 |
9.8 |
Provisions relate to amounts provided in respect of vacant properties, onerous contracts and restructuring costs.
During the period £6.5m was charged to the income statement in respect of an onerous contract. Of this amount £1.1m has been utilised in the period, with £0.9m expected to be utilised within the next year and the remaining £4.5m to be utilised in more than one year.
A further provision of £0.3m has been recognised in the period being direct expenditures arising from the "New Horizons" change programme, in accordance with IAS 37 (note 4). The provision is expected to be fully utilised within one year.
14 Related Party Transactions
In the opinion of the Directors, there is no ultimate controlling party.
15 Seasonality
Trading results of the Group are subject to seasonal fluctuations, with stronger financial performance in the second half of the financial year. This is due to a seasonal fall in occupancy over the winter months and proportionately higher payroll costs in the first half of the financial year due to the timing of annual wage increases. The second half of the year includes annual fee rate increases in April.
16 Events after the Balance Sheet Date
On 20 April 2010, the Group completed the sale of its freehold interests in two internally developed care homes for a total cash consideration of £14.0m, which is equal to the gross asset value of the freehold interests divested.
The proceeds from the sale were used to repay the remaining £6.2m outstanding on the development facility and to make a £7.8m voluntary repayment on the Term facility.
Shareholder Information
|
Directors |
|
|
Ray Miles (Chairman) |
Christopher Fisher |
|
Jamie Buchan |
Baroness Morgan of Huyton |
|
Richard Midmer |
Nancy Hollendoner |
|
|
|
|
Secretary |
|
|
William McLeish |
|
|
|
|
|
2009/2010 financial calendar |
|
|
Financial year end |
30 September 2010 |
|
Full year results announced |
7 December 2010 |
|
|
|
|
Registered office |
Registrars |
|
Southern Cross Healthcare Group PLC |
Capita Registrars |
|
Southgate House |
Northern House, Woodsome Park |
|
Archer Street |
Fenay Bridge |
|
Darlington |
Huddersfield |
|
County Durham DL3 6AH |
West Yorkshire HD8 0GA |
|
|
|
|
Registered number |
|
|
05328138 |
|
|
|
|
|
Brokers |
|
|
Morgan Stanley Securities Limited |
UBS Limited |
|
20 Bank Street |
1 Finsbury Avenue |
|
Canary Wharf |
London EC2M 2PP |
|
London E14 4AD |
|
|
|
|
|
Independent Auditors |
Bankers |
|
PricewaterhouseCoopers LLP |
Barclays Bank PLC |
|
89 Sandyford Road |
1 Churchill Place |
|
Newcastle Upon Tyne NE1 8HW |
Canary Wharf |
|
|
London E14 5HP |
|
|
|
|
Solicitors |
|
|
DLA Piper UK LLP |
Clifford Chance |
|
Princes Exchange |
10 Upper Bank Street |
|
Princes Square |
London E14 5JJ |
|
Leeds LS1 4BY |
|
Shareholder Enquiries
If you have any enquiries as a Shareholder, please contact:
Richard Midmer, Group Finance Director, on 01325 351100
or via email: [email protected].
Website: www.schealthcare.co.uk
Southern Cross Healthcare Group PLC
Southgate House
Archer Street
Darlington
DL3 6AH
Tel: 01325 351100
Fax: 01325 351144
www.schealthcare.co.uk
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