2nd Apr 2007 07:01
Southern Cross Healthcare Grp PLC02 April 2007 Pre-Close Trading Update -- Management agreement with Focus Healthcare Group adds 1,313 beds -- Monday, 2 April 2007 - Southern Cross Healthcare Group PLC (LSE: SCHE)('Southern Cross' or the 'Company'), the UK's largest care home operator, todayprovides a pre-close trading update, for the half year period ended 1 April2007, in advance of the interim results announcement on 14 May 2007 . TheCompany also announces today that it has entered into a management agreement tooperate 29 care homes previously operated by the Focus Healthcare Group ('Focus'). Adjusted EBITDA Operating performance is ahead of our original expectations, principally drivenby the expansion in bed numbers and effective control of running costs. The half year Adjusted EBITDA will reflect the normal seasonal pattern ofearnings. This seasonality is caused by higher payroll costs in the first halfof the year (resulting from the timing of National Minimum Wage and publicsector pay awards) and lower occupancy rates during the Winter period. Inaddition, the half year numbers include only five weeks of the operating resultsof the Life Style acquisition completed on 26 February 2007. The second half of the year is characterised by fee rate increases in April withhistorically higher occupancy levels during Spring and Summer and marginalunderlying cost increases. Occupancy Occupancy remained strong at 91.0% in the first half despite the anticipatedseasonal fall during the winter period. Excluding the impact of immature homes(which are new developments or refurbished homes that have been trading for lessthan 12 months), the occupancy rate in the mature business was 91.8%. We havestarted to see the usual trend of improving occupancy during the past few weeks. Annual fee reviews It is currently too early in the annual fee review cycle to provide full detailsof fee increases. However, given the disclosed rates for a number of areascombined with actual fee gains for self funded clients, management are confidentof achieving increases for April 2007 in line with their expectations. Combinedwith the normal incremental fee rate improvements across the remainder of theyear, overall fee increases will remain above RPI. National Minimum Wage In March 2007 the Low Pay Commission announced an increase in the adult minimumwage from £5.35 to £5.52 per hour, effective 1 October 2007, an increase of3.2%. This increase, together with additional staff holiday entitlements setout in the Working Time Directive, will form the basis of our payroll reviews inOctober 2007. With public sector pay effectively capped, we believe there isnow good visibility over forthcoming payroll cost increases. Interim Management agreement to operate homes for Focus Healthcare The Company has entered into an interim management agreement to operate 29 carehomes with 1,313 beds, previously operated by the Focus Healthcare Group. Theleasehold interest of these homes is currently being assigned to the Group for anominal cost. Re-registration of the homes has been granted and Managementexpect the final legal matters to be completed within the next few days. At thatpoint the interim management agreement terminates and leasehold title transfersto the Group. Expansion of bed portfolio Since the start of the current financial year, the Group has added 35 highquality homes and 2,190 beds, in addition to the Focus beds above. Thesecomprise 28 acquired homes with 1,899 beds, seven new developments with 351 bedsand the disposal of two homes with 60 beds that were part of our divestmentprogramme. The Group now operates 640 homes with 32,420 beds. This expansion ofthe Company's bed portfolio by 3,503 significantly exceeds the growth target setfor the current year and FY08 combined. Organic development plan Management expects a further eight homes comprising 400 beds will open by theend of this financial year, with a further 1,000 beds expected by September2008. Our attention is now focused on the expansion of our development pipelinefor 2009 and 2010. Acquisition opportunities We see many opportunities to continue to consolidate the sector and add to ourbed capacity with the acquisition of high quality, modern, purpose built carehome facilities. The purchase of Life Style Care has demonstrated our ability toimplement our operating model on both small and larger scale acquisitionopportunities. There is still significant landlord appetite for this sector andwe are confident that we will continue to be at the forefront of theconsolidation activity in what remains a fragmented industry. Enquiries: Southern Cross Healthcare Group PLC +44 (0)1325 351100Philip Scott, Chief ExecutiveGraham Sizer, Finance Director Financial Dynamics +44 (0)20 7831 3113Deborah Scott/David Yates 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 core elderly 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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