Trading Update and Termination of Offer Period

Trading Update and Termination of Offer Period

14th March 2011 - Southern Cross Healthcare Group plc (LSE: SCHE) (the "Company" or "Southern Cross"), the UK's largest provider of residential and nursing care with over 31,000 residents cared for by 45,000 staff in 750 locations, announces that it has seen a decline in its trading outlook since the issue of the Interim Management Statement on 8 February 2011. This is principally due to lower than expected placements and fee levels from local authorities as they adjust expenditure to take account of budget cuts.

Management is addressing these issues through the implementation of a series of operational and financial restructuring initiatives and has engaged KPMG to advise it both in pursuing the necessary dialogue with lenders and in accelerating negotiations with landlords.

For their part, the Company's lenders are aware of an impending banking covenant breach but remain fully supportive of the actions which the Company is taking to address its problems.

In the light of reduced local authority placements the Company considers its current rent burden to be unsustainable and intends to step up discussions with landlords based on a more radical agenda. The objective of these discussions is to reshape the portfolio and reduce rental costs such that the Company is provided with the time both to address the cyclical and structural challenges posed by the market and to create the conditions under which new capital can be attracted into the business. 

Management continues to implement the New Horizons change programme which will be completed by the end of 2011. Already, the programme has succeeded in reducing staff turnover, increasing self funder admissions and improving standards of care. In addition, the company remains on track to deliver the substantial cost savings outlined in the February IMS from the introduction of a more efficient, consistent staffing model and from new procurement initiatives.

The Company continues to engage with central and local government to shape policy on the funding, commissioning and service delivery of care for older people and believes strongly that it has an important role to play in delivering these front line services. The Company is therefore urging government, landlords and commissioners to work co-operatively in supporting it, together with its employees and residents during this restructuring process.

In the last several months, the Board has received a number of highly preliminary proposals in relation to potential offers for the Company. The Board considers that none of these proposals are likely to result in a meaningful offer being made in the foreseeable future and has decided not to pursue them further. The Board has instructed management to focus all its efforts on the sustainable delivery of care to its residents and the restructuring initiatives. The Company will therefore cease to be in an offer period with immediate effect.

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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 be 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.