Interim Management Statement

Q1 2010 Interim Management Statement

Tuesday 9th February 2010 - Southern Cross Healthcare Group PLC (LSE: SCHE) ('Southern Cross' or the 'Group'), the UK's largest care home operator, today issues an Interim Management Statement for the period 28 September to 31 December 2009 ("Q1"). 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). Comparatives for FY2009 have been restated so as to present information on a like-for-like basis.

·; Revenue increased £7.4m to £248.3m (2009 restated: £240.9m)

·; Average weekly fee up 4.0% to £552 (2009: £531)

·; Fee increases for privately funded residents agreed at average increases of 3.7% effective from February

·; Home level EBITDAR margin increased to 29.4% (2009 restated: 29.0%)

·; Adjusted EBITDA £14.9m (2009 restated: £15.0m)

·; Service quality improving ahead of plan, with 79% of homes in the highest CQC categories at end of Q1 compared with 77% at end of FY09.

·; Average occupancy rate for the period in mature business of 87.6% (2009 restated: 89.8%) trending in line with seasonal fluctuations

Quality and Occupancy

Further progress has been made towards improving the service quality, with 79% of homes in England rated as good or excellent at the end of December 2009, up from 77% at the end of the previous financial year.

The number of income generating beds has increased from 38,124 as at 27 September 2009 to 38,452 beds at 31 December 2009.

Two new homes were added to the Group's portfolio on a "direct to lease" basis, adding 149 beds to the Group. The Group also opened two new developments; one in Sussex and one in Somerset, which, along with the completion of an extension to a home in Wales, added 179 beds. The Group now operates 750 care homes with 38,452 available beds.

During the period the average occupancy of the mature portfolio was 87.6% (2009 restated: 89.8%). Over the period, occupancy of the mature portfolio reduced from 88.4% to 87.3% a decrease of 1.1%. In the corresponding period of the previous year, mature occupancy decreased by 1.4%.

The Group currently has 25 immature homes (newly developed homes or acquired homes that have been trading for less than 12 months) with 1,555 beds. Average occupancy within these homes was 54.1%. Average Group occupancy rate across all homes during the period was 86.4% (2009 restated: 89.2%).

Freehold sales

As previously announced, during the period the Group completed the sale and long term leaseback of two internally developed care homes and one acquired care home. The total cash consideration was £16.8m and resulted in a profit on disposal of £0.1m.

The Group also completed the sale of Wookey Hole and Cathedral View, the two homes which were closed following the opening of the Group's new home in Wells. The cash consideration was £0.9m, equal to the book value of the assets.

Discussions continue with potential purchasers regarding a number of the remaining fifteen freehold property assets currently held for sale which have a combined book value of £29.2m.

Financial Overview

Revenue increased by 3.1% to £248.3m (2009 restated: £240.9m) reflecting an increase in average weekly fee of 4.0% to £552 (2009: £531).

Home level EBITDAR margin increased from 29.0% in Q1 2009 to 29.4%. Payroll costs as a percentage of revenue decreased from 58.2% for the same period last year to 58.1%. In absolute terms payroll costs increased £4.0m. Excluding the increase from acquisitions, payroll costs increased by 1.6% due to wage increases effective in October 2009. Home running costs as a percentage of revenue were 12.5% (2009 restated: 12.8%).

The cash rental charge increased to £50.2m (2009 restated: £47.9m) giving a rent cover of Home EBITDAR before central costs to cash rent of 1.45 times (2009 restated - 1.46 times). The cash charge per available bed for the period was £5,028 (2009 restated: £4,912) an increase of 2.4%.

Taking into account the above, adjusted EBITDA for the period was £14.9m (2009 restated: £15.0m). During the period the Group incurred exceptional costs of £1.3m in respect of the internal change programme "New Horizons". Further exceptional costs will be incurred, primarily during FY2010, and the total expected costs associated with the programme will be quantified within the interim report.

Net finance costs for the period were £1.1m, a decrease of £0.9m over the same period in the prior year due to lower debt levels.

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. 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.

Cash outflow from operations for the period was £4.5m (2009 restated: £14.1m inflow). The outflow is a result of two quarterly rent payments being made during the first quarter of the financial year and timing effects of payroll cycles. The movement to the prior year cash inflow is due to the timing effect of payroll cycles and other payments.

In total the Group repaid £32.0m of bank borrowings in the period, reducing the Group's committed bank facilities from £113.9m to £78.8m, against which the Group had loans drawn of £32.8m and guarantees issued of £11.5m, leaving £34.5m of undrawn facilities as at the period end. Net debt at the period end was £29.5m, which is £3.6m lower than at the year end.

Outlook

The Group's internal change programme, New Horizons, is underway. Effective 1 February the Group decentralised its operations and set up 4 regional business units with a remit to deliver a series of improvements to the overall experience of its care home residents and to deliver associated margin increases. Service quality remains the key priority and the Group has invested in setting up its own internal team of service quality inspectors in order to accelerate the programme and to ensure that improvements are sustained.

Fee increases for privately funded residents, representing 18% of total residents and 22% of revenue, have been agreed at average increases of 3.7% effective from February. Fee negotiations with Local Authorities and Health Authorities, representing 82% of total residents and 78% of revenue, are in progress and a further update on this subject will be given at the time of the Group's interim statement in May.

Enquiries:

About Southern Cross

Southern Cross is, in terms of number of beds, the largest UK provider of care home services for the elderly and a major provider of specialist services for people with physical and/or learning disabilities. The Group's care homes for the elderly operate under two distinct brands: Southern Cross Healthcare and Ashbourne Senior Living. Both brands provide a range of social and personal care services and nursing care services for elderly people with physical frailties and differing forms of dementia. The Group's specialist services operate under the Active Care Partnerships brand and provide long-term care services for people with physical and/or learning disabilities and for younger people with complex forms of challenging behaviour.

Southern Cross is focused on providing high quality care in well invested facilities, seeking to be the home of choice in each local community in which it operates. The Group provides care services for most of the local authorities in the UK which, together with the NHS, represent circa 78% of the Group's revenues. Its care home portfolio is largely purpose-built with a high percentage of single occupancy rooms and rooms with ensuite bathrooms.

This announcement includes statements that are, or may deemed to be, "forward looking statements". These forward looking statements can be identified by the use of forward looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or " should" or, in each case, their negative or other variations or comparable terminology. These forward looking statements include matters that are not historical facts and include statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies and the outlook on the care home industry. By their nature, forward looking statements involve risk and uncertainty because they relate to future events and circumstances.