TIDMSCHE
RNS Number : 8832G
Southern Cross Healthcare Grp PLC
19 May 2011
Southern Cross Healthcare Group PLC
-- Interim Results --
Thursday, 19 May 2011 - 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 2011.
Key point summary:
Restructuring
-- Support of Company's lenders maintained with testing of all
financial covenants now being deferred until 30 June 2011
-- Principal landlords discussions ongoing, to reshape the
portfolio and reduce rental costs
Financial
-- Revenue decreased by 3.4% to GBP464.3m (H1 2010:
GBP480.7m)
-- Home EBITDAR before central costs decreased by 11.2% to
GBP124.8m (H1 2010: GBP140.6m)
-- Adjusted EBITDA of GBP7.4m (H1 2010: GBP28.0m)
-- The operating loss before all exceptional items and charge
for future minimum rental increases was GBP6.8m (H1 2010: profit
GBP15.0m)
-- The loss before tax was GBP310.9m (H1 2010: loss GBP22.9m),
of which GBP267.8m was a non-cash accounting charge, comprising the
write-off of goodwill (GBP219.2m) and the impairment of the value
of property, plant and equipment (GBP48.6m)
-- Adjusted loss per share was 21.90p (H1 2010 earnings per
share: 5.26p)
-- Net debt at period end of GBP14.4m, up from GBP7.3m at
previous year end
Operations
-- Labour Effectiveness programme launched with projected annual
savings of GBP20m
-- Self funding admissions up by 14.9%
-- Regulatory embargoes currently down from 27 to 18
-- Staff turnover has reduced from 26.8% to 22.9%
-- Average occupancy in mature estate of 86.9% (H1 2010
restated: 90.0%)
-- Average weekly fee up 1.1% to GBP559 (H1 2010: GBP553) though
with local authority fee decreases from April 2011, expected to be
0.6% based on formal offers received from local authorities
Christopher Fisher, Chairman, commented:
"Southern Cross is a low margin business and the progressive
squeeze on its revenues over the last 12 months, while facing many
upward pressures on its costs, means Southern Cross is now in a
critical financial position and cannot afford to meet its future
rent obligations in full. Reflecting this reality, it has taken a
major book write off of its goodwill and certain other assets
through these interim accounts.
"Southern Cross' stakeholders - landlords, lenders,
shareholders, the various components of government, management and
employees - all give overriding priority to maintaining the quality
of care for Southern Cross' 31,000 residents.
"Over the coming weeks the key stakeholders will need to agree
on a comprehensive package to restructure Southern Cross' financial
affairs so that a new, stable and sustainable corporate and
business model can be developed and introduced to underpin the
continued successful operation of Southern Cross' homes. In the
view of the Directors, there are reasonable grounds for believing
that such an outcome can be secured and it is the responsibility of
all stakeholders to work to that end."
Enquiries:
Southern Cross Healthcare Group
PLC +44 (0)1325 351100
Jamie Buchan, Chief Executive
David Smith, Group Finance Director
Amy Kroviak, Director of Communications
Financial Dynamics +44 (0)20 7831 3113
John Waples/Ben Brewerton
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.
Notes
Home EBITDAR is defined as earnings before interest, tax,
depreciation, amortisation, rent, profit on disposal of property,
plant and equipment, onerous contracts and related impairment,
impairment of assets and charges for future minimum rental
increases.
Adjusted EBITDA is defined as earnings before interest, tax,
depreciation, amortisation, profit on disposal of property, plant
and equipment, exceptional central costs, onerous contracts and
related impairment, impairment of assets 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, profit on disposal of
property, plant and equipment and subsidiary undertakings,
impairment of assets, onerous contracts and related impairment 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.
At the beginning of FY2011, the Group has reclassified 1,303
rooms as single occupancy. In order to present information on a
like-for-like basis, the available beds for FY2010 have been
restated to reflect this adjustment. This has had the net impact of
reducing the number of available beds across the Group in FY10 by
1,303 beds, and increased average occupancy for H1 FY2010 by
2.9%.
Chief Executive's Statement
Overview
Since March we have provided regular updates to the market and
to our stakeholders regarding the very serious financial position
which the Group faces. This is consequent on the trading
deterioration experienced in the face of declining local authority
admissions and significant fee reductions in real terms.
During the last few months, we have secured the continued
support of our lenders and we have also advanced our negotiations
with our landlords in order to seek a restructuring of our rental
obligations. KPMG LLP, Greenhill & Co and Clifford Chance LLP
have been appointed to advise us on securing the appropriate
financial structure between key stakeholders whilst also evaluating
the role which new capital can play.
Whilst there can be no guarantee of success, the Board believes
that there are reasonable prospects of a successful conclusion to
these important discussions, notwithstanding the uncertainty which
remains around the exact form and timing of the restructuring.
I continue to be greatly encouraged by the support which we have
received from all key stakeholders as we seek to resolve Southern
Cross' current financial difficulties. In particular, our 44,000
staff continue to provide high standards of care for our 31,000
residents in a manner which bears testimony both to their
dedication to the caring profession and to their belief in the long
term opportunities for our company.
Business Update
Restructuring
Given the complexity of the financial restructuring which is
being undertaken, we have already announced that we have asked
landlords to provide working capital support through the summer
period so that the Group has sufficient time to develop fully its
proposals for consensual restructuring.
We have commenced discussions with our lenders seeking to modify
our longer term banking arrangements and to agree suitable
financial covenants which better reflect the current and future
expected levels of trading and performance.
We believe that it is in the best interests of all stakeholders
that a carefully orchestrated restructuring takes place which
continues to prioritise the provision of high quality care to our
residents.
New Horizons
Against this rather sombre background, significant progress has
been made in the operational turnaround of the business as we
continue to implement the New Horizons programme of change.
Since the financial year commenced, the Group maintained its
focus on improving care quality, as a result of which the number of
homes subject to regulatory embargo has reduced from 27 to 18.
Significant progress has been made in the development of next
generation services covering dementia, end of life and re-ablement,
all of which are being trialled in co-operation with the NHS and
which feature in our new Care Strategy which was recently
launched.
In May we announced a 4-month programme of engagement with our
42,000 care home staff which is aimed at ensuring we operate more
effectively across our homes. In addition, our time and attendance
system has now been rolled out to over 200 homes and is generating
incremental staff cost savings of 2%. Overall annualised staff
turnover has reduced from 26.8% to 22.9% which is close to the 22%
target which we set for the end of 2011.
The New Horizons programme will be complete at the end of 2011,
as planned.
Trading
Revenues in the first half of FY2011 were GBP464.3m (2010:
GBP480.7m) reflecting continued reductions in local authority
placements and fee pressure. During the first half of FY2011 local
authority admissions were 15.1% lower on a like for like basis and
6.7% lower than the second half of FY2010. This effect was
partially offset by increased NHS admissions of 2.3% and self
funder admissions which were up 14.9%.
As a result, mature occupancy in the first half of FY2011 was
86.9%, 3.1% lower compared to the same period in FY2010.
Overall fee levels have been slightly higher than anticipated
with an average weekly fee rate of GBP559 compared with GBP553 in
the equivalent period of the prior year. Within this mix, the
average local authority fee was GBP521 compared with GBP518 in the
prior year. Following the implementation of budget reductions, as a
consequence of the Comprehensive Spending Review, we anticipate
that overall local authority fee levels will decrease by 0.6% from
1 April 2011, based on formal offers received to date from local
authorities.
Outlook
The Board recognises that in the event it does not reach
agreements with its landlords and lenders, the Group will require
alternative finance in order to continue to trade. If negotiations
with landlords are successful, this is likely to increase the
attractiveness of the Group to further investment, which will
improve growth prospects.
Whilst there are material uncertainties ahead, an appropriate
financial restructuring of the Group will create a stronger
Southern Cross with a sustainable and profitable future.
Jamie Buchan
Chief Executive
19 May 2011
Financial Review
Given the challenging operating environment which the Group
faces, two key accounting issues have to be addressed in the
preparation of the consolidated financial statements. These are,
firstly, to consider whether or not the business should prepare
accounts on a going concern basis; and secondly, to consider
whether the non-current assets shown on the balance sheet have been
impaired (reduced in value). In summary, the conclusion of the
Board is that the going concern basis is an appropriate basis upon
which to prepare the accounts; however, the carrying value of
assets has been substantially impaired, leading to a non-cash
write-off of GBP293.0m (GBP219.2m of goodwill, GBP48.6m of fixed
assets and GBP25.2m of deferred tax assets). Excluding these
write-downs, the Group would have lost GBP43.1m after tax. Within
this figure, the Group made adjusted EBITDA of GBP7.4m and
generated total positive cash flow from operations of GBP6.1m.
Basis of Preparation - Going Concern
This interim report is prepared on the basis that the Group is a
going concern. In considering the basis on which to prepare this
interim report, the Board has taken into account a decline in new
Local Authority admissions, a lower than originally expected round
of fee increases (and in some cases requests for decreases) from
Local Authorities and as a consequence pressure on its current and
future cash position, coupled with potential breaches of the
covenants attaching to its banking facilities. As a result it is
undergoing intense negotiations with its landlords and lenders with
a view to agreeing both a restructuring of its rents and to ensure
the longer term availability of its banking facilities; the final
outcome remains uncertain.
The Board considers that, whilst it will be difficult, it is
reasonable to anticipate that the Group will be able successfully
to conclude these discussions in both the short term (the Summer
Platform referred to below) and the longer term, but recognises
there is material uncertainty with respect to the timeframe and
achievability of this.
In forming its opinion as to going concern, the Board has
prepared cash flow projections based upon its assumptions as to
trading, as well as the continued availability of its banking
facilities. The Group's cash flow projections and underlying
assumptions reflect the Board's expectation that the Group will
reach agreement on long term rent reductions with its landlords and
the continued availability of banking facilities from its lenders.
The Group has engaged the services of KPMG, Greenhill and Clifford
Chance to assist the Group in its discussions with financial
stakeholders in pursuit of a significant restructuring of its lease
obligations to its landlords and its banking facilities, and the
introduction of new capital.
The Group's existing bank funding arrangements comprise a
Revolving Credit Facility of up to GBP50m. The terms of that
facility include covenants based on operating performance, and a
breach of those covenants could result in withdrawal of the
facility. Because of the likelihood of a covenant breach, in March
2011 the Group requested, and in April 2011 its lenders agreed, to
defer the testing of all financial covenants until 31 May 2011,
subject to weekly review and other conditions.
On 9 May 2011, and in line with the existing agreement, the
Revolving Credit Facility stepped down from GBP50m to GBP45m. The
Group recently requested, as a result of concerns arising from
updated cash projections, that its lenders agree to the facility
limit being restored to GBP50m and the testing of all financial
covenants be deferred, in each case until 30 June 2011. The lenders
have now agreed to this request. The continued availability of the
facility is subject to weekly reviews and the satisfaction of other
conditions.
The Group has commenced discussions with its lenders regarding
the four month Summer Platform and the longer term availability of
its banking arrangements and to agree suitable financial covenants
which better reflect its current and future expected levels of
trading and performance, in the context of the wider
restructuring.
The Group has been engaging its landlords in discussion with
regard to the level of rent payments and other lease terms for some
months and in recent weeks this has been stepped up. Each landlord
has been approached with a proposal to agree concessions which
would assist the Group. Following Group presentations to landlords
in April and May, the Group has made a request for a four month
Summer Platform to allow time to develop further its proposals in
what is a complex situation. As part of the Summer Platform,
landlords have been asked to agree to a four month deferral of 30%
of the current aggregate rent charge with effect from 1 June 2011.
The combination of landlords agreeing to the requested deferral of
rent and the continuation of the restored facility at the GBP50m
level should provide sufficient liquidity for the Group to continue
meeting its obligations until 30 June 2011. Current forecasts
suggest, however, that additional liquidity support will be
required to enable the Group to continue to meet its obligations
over the balance of the four month Summer Platform. The Group's
principal landlords have agreed to the formation of a committee, to
act as an efficient conduit for the restructuring discussions and
to ensure that negotiations continue to progress in a timely
manner.
The Group needs to reach agreements with its landlords and
lenders in support of the Summer Platform. Furthermore, even if a
Summer Platform is agreed, there remains the challenge of
negotiating a longer term restructuring of the rental and other
terms of the Group's lease portfolio.
Other factors that the Board has considered in preparing this
interim report are:
-- The impact of the recent reduction in occupancy levels,
particularly through reduced admissions from Local Authorities,
which have a material impact on cash flow and profitability of the
Group.
-- The downward pressure on average weekly fee rates being paid
by Local Authorities which are reducing the Group's profit margins,
particularly as a large proportion of the Group's costs are subject
to inflationary pressures and that while tight cost control is
critical, the Board does not intend to make reductions to the
quality of care it delivers or to put residents at risk.
The matters set out above indicate the existence of material
uncertainties which cast significant doubt over the Group's ability
to continue as a going concern. In the event that the Group does
not reach agreements with its landlords and lenders, and no
alternative finance is available, the Group is unlikely to be able
to continue to trade. In these circumstances additional liabilities
and provisions may arise and adjustments may be required to the
carrying values of assets. Despite these concerns, the Board
confirms its belief that it is appropriate to use the going concern
basis of preparation for this interim report.
Impairment of Assets
During the period, the Group has conducted an impairment test on
the carrying value of fixed assets and goodwill. The requirements
of IAS36 'Impairment of Assets' require the Group to assess the
value of assets, based on future cash-flows which reflect current
contractual obligations (including current rental agreements),
rather than those terms it is pursuing as part of its exercise to
restructure its property leases. As a result of this review, the
carrying value of goodwill has been fully impaired, resulting in a
charge to the income statement of GBP219.2m. Of this impairment
charge, GBP192.9m related to goodwill arising on the acquisitions
of Highfield, Cannon Capital and Southern Cross Bidco and
subsidiary undertakings, which were made over 5 years ago. This
review has also resulted in the carrying value of property, plant
and equipment being impaired by GBP48.6m and there has been a
write-off of deferred tax assets totalling GBP25.2m. These
impairment charges, which total GBP293.0m, are accounting charges
and do not represent a cash charge.
Trading
Revenue Statement
At the start of the previous 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 2011 are therefore for a
period of 182 days (FY2010 185 days).
At the beginning of the current financial year, the Group has
reclassified 1,303 rooms as single occupancy. In order to present
information on a like-for-like basis, the available beds for FY2010
have been restated to reflect this adjustment. This has had the net
impact of reducing the number of available beds across the Group in
FY2010 by 1,303 beds, and increased average occupancy for H1 FY2010
by 2.9%.
The Group's operating performance is summarised in the following
table:
6 months Period
ended ended
31 March 31 March
2011 2010
GBP'm GBP'm
------------------------------------------ --------- ---------
Revenue 464.3 480.7
Home EBITDAR 124.8 140.6
Home EBITDAR margin (%) 26.9 29.2
Adjusted EBITDA(1) 7.4 28.0
Operating loss (309.4) (21.1)
Loss before taxation (310.9) (22.9)
Average number of available beds (2) 37,242 37,157
Cash generated from operating activities 8.5 9.4
------------------------------------------ --------- ---------
(1 ) Adjusted EBITDA represents EBITDA after adding back charges for future minimum rental increases and exceptional central costs.
(2 ) At the beginning of FY2011, the Group reclassified 1,303 rooms as single occupancy. In order to present information on a like-for-like basis, the available beds for FY2010 have been restated to reflect this adjustment.
Revenue
During the period, revenue decreased by GBP16.4m to GBP464.3m.
Excluding the additional 3 days in the prior year period of
account, revenue decreased by GBP8.7m. An increase in the average
weekly fee rate from GBP553 to GBP559 increased revenue by GBP5.0m
compared to the prior year, however this was offset by a decrease
in average occupancy of 946 residents which reduced income by
GBP13.7m.
Average occupancy in the period was 86.9% for mature homes and
85.8% for the network in total (Q1 2010: restated 90.0% and 88.5%
respectively). During the first half of FY2011, like for like
admissions reduced by 8.6% with a 15.1% reduction in local
authority admissions offset by a 2.3% increase in admissions from
the NHS and a 14.9% increase in self funder admissions. The
reduction in local authority admissions is reflective of cuts in
service provision to older people in direct response to reduced
central government funding.
Home Operating Costs
Home payroll costs decreased GBP1.7m from GBP279.3m to
GBP277.6m. Excluding the additional days in the prior year period
of account, payroll costs increased by GBP2.8m.
Home running costs were 13.3% of revenue, compared with 12.6%
for the comparable period of 2010. In absolute terms, excluding the
additional days in the prior period of account, costs increased by
GBP2.1m. This increase was driven by inflation (including the VAT
increase) of GBP1.1m, and an increase in planned maintenance
(GBP1.0m).
Rent
Rent, excluding the non-cash charge, represents 21.6% of income
(2010: 20.3%).
The rent charge for the period, including a non-cash charge of
GBP23.8m (2010: GBP26.3m) for future minimum rental increases,
amounted to GBP124.2m (2010: GBP124.0m). Excluding the non-cash
charge and the 3 additional days in the prior year's period of
accounts, the rental charge for the period increased GBP4.3m. The
increase was driven by new leases completed in the previous
financial year (GBP1.2m), leases with average fixed increases of
2.6% (GBP1.8m), leases with RPI linked average increases of 4.3%
(GBP1.0m) and leases subject to 5 yearly increases of GBP0.3m.
Central Costs
Central costs for the period, including GBP4.7m (2010: GBP3.3m)
in respect of exceptional central costs, were GBP21.7m (2010:
GBP18.2m). Excluding these exceptional costs and the 3 additional
days in the prior year period of account, costs increased by
GBP2.3m, driven primarily by an increase in HR and training costs.
As a percentage of revenue, central costs (excluding exceptional
costs) equated to 3.7% (2010: 3.1%).
Exceptional Central Costs
During the period the Group incurred non-recurring, exceptional
costs of GBP4.7m. Of this, GBP0.6m related to the "New Horizons"
programme with the majority of the programme now complete. Other
exceptional central costs totalled GBP4.1m, and related primarily
to costs incurred in respect of ongoing restructuring.
EBITDA
Loss before interest, tax, depreciation and amortisation
('EBITDA') for the period was GBP21.1m (2010: GBP1.6m loss).
Excluding the impact of future minimum rental increases under IAS
17 and exceptional central costs, Adjusted EBITDA was GBP7.4m
(2010: GBP28.0m).
Impairment and Other Charges
During the period, the Group has conducted an impairment test on
the carrying value of fixed assets and goodwill. As required by
accounting standards, this review has been conducted based on the
Group's current contractual obligations, rather than the terms it
is pursuing as part of its exercise to restructure its property
leases. As a result of this review, the carrying value of fixed
assets has been impaired by GBP48.6m. If the Group is able to agree
amendments to its lease terms with its landlords, then some or all
of the impairment may be reversed.
This review has also resulted in the carrying value of goodwill
arising upon past acquisitions being fully impaired. The impairment
charge of GBP219.2m is an accounting charge and does not represent
a cash charge.
Impairment of property assets held for sale
During the period, the Directors reviewed the carrying value of
the Group's freehold properties. Following this review, a number of
properties were found to have fair values lower than their carrying
values. As a result, the carrying value of the related freeholds
has been written down by GBP1.3m.
Onerous Contracts and Related Impairments
During the period, management took the decision to close two of
the Group's care homes. Manor Court, situated in South Yorkshire,
was closed in December 2010, and Throckley Grange, a home located
in the North of England, was closed in February 2011. The closure
of the homes was due to the buildings not meeting the minimum
standards required by the Group and other commercial factors. As a
result of these decisions an onerous contract charge of GBP5.0m has
been recognised in the period and included GBP0.3m of related
impairment charges.
Net Finance Costs
Net finance costs for the period amounted to GBP1.5m (2010:
GBP1.8m) with the reduction to prior year of GBP0.3m being due to
lower levels of debt.
Taxation
The Group has not recognised any deferred tax assets in the
current period and has reversed all the deferred tax assets
previously recognised as at 30 September 2010 (totalling GBP25.2m)
as the Group is uncertain as to whether they could be utilised in
the future. The restructuring which the Group is undertaking may
result in the reinstatement of the deferred tax asset if it is
foreseeable that there will be future taxable profits against which
the deferred tax asset can be recovered.
Loss per Share
The loss per share for the period was 178.68p (2010: 9.52p).
Adjusted loss per share for the period before future minimum rental
increase charges, onerous contract charge, exceptional central
costs, impairment of goodwill, freehold assets and property, plant
and equipment, and the taxation impact thereof was 21.90p (2010:
earnings per share 5.26p).
Cash Flow
6 months Period
ended ended
31 March 31 March
2011 2010
GBP'm GBP'm
--------------------------------- --------- ---------
Cash flows from operations 8.5 9.4
Net interest and taxation (1.9) (1.6)
Investing activities (13.7) (0.4)
Financing activities 13.2 (32.4)
--------------------------------- --------- ---------
Net increase/(decrease) in cash 6.1 (25.0)
--------------------------------- --------- ---------
Net increase in cash during the period was GBP6.1m (2010:
GBP25.0m decrease). Cash inflow from operations for the period was
GBP8.5m (2010: GBP9.4m), representing a cash conversion ratio
compared to adjusted EBITDA of 114.9% (2010: 33.6%).
Net finance charges paid during the period amounted to GBP1.9m
(2010: GBP1.3m) and included GBP1.1m (2010: GBP0.2m) relating to
loan arrangement fees in respect of the extension to the Group's
banking arrangements, agreed on 6 December 2010. Excluding these
amounts, payments reduced by GBP0.3m reflecting lower levels of
debt.
During the period, the Group invested in fixed asset additions
totalling GBP13.7m (2010: GBP17.8m) relating to property, plant and
equipment. Within this total expenditure, the improvement of
leasehold properties amounted to GBP1.5m (2010: GBP1.2m),
development expenditure on new properties GBPnil (2010: GBP2.4m),
investment in IT systems GBP2.3m (2010: GBP0.7m) and GBP9.9m on the
underlying portfolio (2010: GBP13.5m).
Net cash generated from financing activities amounted to
GBP13.2m for the period (2010: GBP32.4m cash used in) and included
net new bank borrowings of GBP13.5m.
Net Debt and Financing
During the period since the 2010 financial year end, the Group's
net debt has increased by GBP7.1m to GBP14.4m. Bank borrowings have
increased from GBP7.5m at the year end to GBP21.0m at 31 March
2011.
As at 31 March 2011 the Group had committed bank facilities of
GBP50m, against which it had loans drawn of GBP21.0m, finance lease
obligations of GBP0.7m and guarantees issued of GBP11.8m, leaving
GBP16.5m of undrawn facilities.
The Group's existing bank funding arrangements comprise a
Revolving Credit Facility of up to GBP50m. The terms of that
facility include covenants based on operating performance, and a
breach of those covenants could result in withdrawal of the
facility. Because of the likelihood of a covenant breach, in March
2011 the Group requested, and in April 2011 its lenders agreed, to
defer the testing of all financial covenants until 31 May 2011,
subject to weekly review and other conditions.
On 9 May 2011, and in line with the existing agreement, the
Revolving Credit Facility stepped down from GBP50m to GBP45m. The
Group recently requested, as a result of concerns arising from
updated cash projections, that its lenders agree to the facility
limit being increased to GBP50m and the testing of all financial
covenants be deferred, in each case until 30 June 2011. The lenders
have now agreed to this request. The continued availability of the
facility is subject to weekly reviews and the satisfaction of other
conditions.
The Group has commenced discussions with its lenders regarding
the four month Summer Platform and the longer term availability of
its banking arrangements and to agree suitable financial covenants
which better reflect its current and future expected levels of
trading and performance, in the context of the wider
restructuring.
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. Notwithstanding discussions outlined above
relating to going concern, 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 meet bank covenants;
-- failure to negotiate reduced rental agreements with the
Group's landlords;
-- budgeted occupancy levels are not achieved with negative
effects on profits;
-- failure to comply with regulations, possibly leading to
revocation of registrations;
-- failure to achieve quality standards, possibly leading to the
suspension of admissions to our homes;
-- severe negative publicity for the Group;
-- average weekly fee increases do not rise, at least, in line
with costs putting profit margins under pressure; and
-- failure to attract and retain nursing and other qualified
staff, adversely impacting admissions.
David Smith
Finance Director
19 May 2011
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
on page 26.
By order of the Board
J Buchan
19 May 2011
D Smith
19 May 2011
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
six months ended 31 March 2011, which comprises the Consolidated
Income Statement, the Consolidated Balance Sheet, the Consolidated
Cash Flow Statement, the Consolidated Statement of Changes in
Shareholders' Equity and the 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
group are prepared in accordance with IFRSs 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 six months ended 31
March 2011 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.
Emphasis of matter - going concern
In arriving at our review opinion, which is not qualified, we
have considered the adequacy of the disclosures made in the basis
of preparation note (note 1) within the condensed set of financial
statements concerning the Company's ability to continue as a going
concern. These disclosures indicate the existence of material
uncertainties which cast significant doubt on the Company's ability
to continue as a going concern.
Randal Casson (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
19 May 2011
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
For the 6 months ended 31 March 2011
6 months Period Period
ended ended ended
31 March 31 March 30 Sept
2011 2010 2010
unaudited unaudited audited
Note GBP'm GBP'm GBP'm
------------------------------------ ----- ---------- ---------- --------
Revenue 3 464.3 480.7 958.6
Home payroll costs 3 (277.6) (279.3) (557.8)
Home running costs 3 (61.9) (60.8) (119.9)
------------------------------------ ----- ---------- ---------- --------
Home EBITDAR(1) before central
costs 3 124.8 140.6 280.9
Rent
------------------------------------ ----- ---------- ---------- --------
Charge for rental amounts currently
payable (100.4) (97.7) (197.0)
Charge for future minimum rental
increases (23.8) (26.3) (51.3)
------------------------------------ ----- ---------- ---------- --------
Total rent 3 (124.2) (124.0) (248.3)
------------------------------------ ----- ---------- ---------- --------
Home EBITDA(2) before central costs 0.6 16.6 32.6
Central costs (21.7) (18.2) (36.8)
------------------------------------ ----- ---------- ---------- --------
Adjusted EBITDA(3) before
exceptional central costs and
charge for future minimum rental
increases 7.4 28.0 53.4
Exceptional central costs 4 (4.7) (3.3) (6.3)
Charge for future minimum rental
increases (23.8) (26.3) (51.3)
------------------------------------ ----- ---------- ---------- --------
EBITDA (21.1) (1.6) (4.2)
Profit/(loss) on disposal of
property, plant and equipment - 0.1 (0.2)
Impairment of assets - goodwill 10 (219.2) - -
- property, plant and equipment 5 (48.6) - -
- freehold assets held for sale 5 (1.3) - (1.1)
Onerous contracts and related
impairments 5 (5.0) (6.5) (11.5)
Depreciation (14.2) (13.1) (27.1)
------------------------------------ ----- ---------- ---------- --------
Operating (loss)/profit before all
exceptional items and charge for
future minimum rental increases (6.8) 15.0 26.1
Exceptional costs including
impairments (278.8) (9.8) (18.9)
Charge for future minimum rental
increases (23.8) (26.3) (51.3)
------------------------------------ ----- ---------- ---------- --------
Operating loss (309.4) (21.1) (44.1)
Finance costs (1.5) (2.0) (3.7)
Finance income - 0.2 0.4
------------------------------------ ----- ---------- ---------- --------
Loss before taxation (310.9) (22.9) (47.4)
Taxation (charge)/credit 6 (25.2) 5.0 10.7
------------------------------------ ----- ---------- ---------- --------
Loss attributable to ordinary
shareholders (336.1) (17.9) (36.7)
------------------------------------ ----- ---------- ---------- --------
Pence Pence Pence
per per per
Note share share share
Loss per share attributable to
equity shareholders
Basic and diluted 7 (178.68) (9.52) (19.51)
All of the above activities relate to continuing operations.
The notes on pages 15 to 25 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.
1 EBITDAR represents earnings before interest, tax,
depreciation, amortisation, profit on disposal of property, plant
and equipment, impairment of assets, onerous contracts and related
impairments, and rent.
2 EBITDA represents earnings before interest, tax, depreciation,
amortisation, profit on disposal of property, plant and equipment,
impairment of assets, and onerous contracts and related
impairments.
3 Adjusted EBITDA represents EBITDA after adding back
exceptional central costs and the charge for future minimum rental
increases.
Consolidated Balance Sheet
As at 31 March 2011
31 March -31 March 30 Sept
2011 2010 2010
unaudited unaudited audited
Note GBP'm GBP'm GBP'm
------------------------------------- ----- ---------- ---------- --------
ASSETS
Non-current assets
Property, plant and equipment 5 68.6 116.5 118.4
Goodwill 10 - 219.2 219.2
Deferred tax assets 6 - 19.6 25.2
Other non-current assets 3.4 3.4 3.4
------------------------------------- ----- ---------- ---------- --------
Total non-current assets 72.0 358.7 366.2
------------------------------------- ----- ---------- ---------- --------
Current assets
Cash and cash equivalents 9 7.3 6.8 1.2
Trade receivables 36.0 29.5 32.6
Inventories 1.1 1.1 1.1
Property assets held for sale 5 12.7 29.2 14.0
Other current assets 11.9 19.9 21.3
------------------------------------- ----- ---------- ---------- --------
Total current assets 69.0 86.5 70.2
------------------------------------- ----- ---------- ---------- --------
Total assets 141.0 445.2 436.4
------------------------------------- ----- ---------- ---------- --------
LIABILITIES
Current liabilities
Short-term financial liabilities 9 (0.6) (0.6) (0.6)
Trade and other payables (94.6) (86.7) (93.7)
Provisions and similar obligations 13 (9.0) (1.7) (2.3)
------------------------------------- ----- ---------- ---------- --------
Total current liabilities (104.2) (89.0) (96.6)
------------------------------------- ----- ---------- ---------- --------
Non-current liabilities
Long-term financial liabilities 9 (18.7) (30.5) (6.0)
Provisions and similar obligations 13 (15.8) (16.6) (18.7)
Deferred government grants (2.1) (2.6) (2.4)
Future minimum rental increases
accrual (284.6) (235.8) (260.8)
------------------------------------- ----- ---------- ---------- --------
Total non-current liabilities (321.2) (285.5) (287.9)
------------------------------------- ----- ---------- ---------- --------
Total liabilities (425.4) (374.5) (384.5)
------------------------------------- ----- ---------- ---------- --------
Net (liabilities)/assets (284.4) 70.7 51.9
------------------------------------- ----- ---------- ---------- --------
Equity
Ordinary shares 11 1.9 1.9 1.9
Share premium 161.5 161.5 161.5
Accumulated deficit (447.8) (92.7) (111.5)
------------------------------------- ----- ---------- ---------- --------
Total (deficit)/equity (284.4) 70.7 51.9
------------------------------------- ----- ---------- ---------- --------
The notes on pages 15 to 25 form part of this financial
information.
Consolidated Cash Flow Statement
For the 6 months ended 31 March 2011
6 months Period Period
ended ended ended
31 March 31 March 30 Sept
2011 2010 2010
unaudited unaudited audited
Note GBP'm GBP'm GBP'm
------------------------------------- ----- ---------- ---------- --------
Cash flows from operations
Cash generated from operations 12 8.5 9.4 33.4
Interest received - 0.2 0.2
Interest and bank loan arrangement
fees paid (1.9) (1.5) (3.7)
Tax paid - (0.3) (0.2)
------------------------------------- ----- ---------- ---------- --------
Net cash generated from operations 6.6 7.8 29.7
------------------------------------- ----- ---------- ---------- --------
Cash flows from investing activities
Sale of subsidiary undertakings - 11.8 25.5
Purchase of property, plant and
equipment 5 (13.7) (17.8) (35.1)
Receipts from the sale of property,
plant and equipment - 5.6 5.7
------------------------------------- ----- ---------- ---------- --------
Net cash used in investing
activities (13.7) (0.4) (3.9)
------------------------------------- ----- ---------- ---------- --------
Cash flows from financing activities
Repayment of borrowings 9 (41.5) (32.1) (88.8)
New borrowings 9 55.0 - 33.0
Capital element of finance leases 9 (0.3) (0.3) (0.6)
------------------------------------- ----- ---------- ---------- --------
Net cash generated from/(used in)
financing activities 13.2 (32.4) (56.4)
------------------------------------- ----- ---------- ---------- --------
Net increase/(decrease) in cash and
cash equivalents 6.1 (25.0) (30.6)
Opening cash and cash equivalents 1.2 31.8 31.8
------------------------------------- ----- ---------- ---------- --------
Closing cash and cash equivalents 7.3 6.8 1.2
------------------------------------- ----- ---------- ---------- --------
Note
Included within the purchase of property, plant and equipment
are improvements to leasehold properties totalling GBP1.5m (2010:
GBP1.2m), development expenditure on new properties totalling
GBPnil (2010: GBP2.4m) and investment in new IT systems GBP2.3m
(2010: GBP0.7m). Excluding these amounts, expenditure on the
underlying portfolio amounted to GBP9.9m (2010: GBP13.5m).
Consolidated Statement of Change in Shareholders' Equity
For the 6 months 31 March 2011
Share Total
Share premium Retained (deficit)/
capital account deficit equity
GBP'm GBP'm GBP'm GBP'm
---------------------------------- -------- -------- --------- -----------
At 27 September 2009 1.9 161.5 (75.1) 88.3
Loss attributable to ordinary
shareholders - - (17.9) (17.9)
Share-based payments - - 0.3 0.3
---------------------------------- -------- -------- --------- -----------
At 31 March 2010 1.9 161.5 (92.7) 70.7
---------------------------------- -------- -------- --------- -----------
Loss attributable to ordinary
shareholders - - (19.1) (19.1)
Share-based payments (including
deferred tax of GBP0.1m) - - 0.3 0.3
---------------------------------- -------- -------- --------- -----------
At 30 September 2010 1.9 161.5 (111.5) 51.9
---------------------------------- -------- -------- --------- -----------
Loss attributable to ordinary
shareholders - - (336.1) (336.1)
Share-based payments - - (0.2) (0.2)
---------------------------------- -------- -------- --------- -----------
At 31 March 2011 1.9 161.5 (447.8) (284.4)
---------------------------------- -------- -------- --------- -----------
Notes to the Financial Information
For the 6 months ended 31 March 2011
1 Presentation of Half Year Financial Report
General Information
Southern Cross Healthcare Group PLC ('the Company') and its
subsidiaries (together 'the Group') are engaged in the operation of
care homes for the elderly and the provision of specialist services
for people with physical and/or learning disabilities.
These financial results do not comprise statutory accounts
within the meaning of Section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 September 2010 were
approved by the Board of directors on 7 December 2010 and delivered
to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter
paragraph and did not contain any statement under Section 498 of
the Companies Act 2006.
The Company is a limited liability company incorporated and
domiciled in the UK. The address of its registered office is
Southgate House, Archer Street, Darlington, Co Durham DL3 6AH
(Registered No. 05328138).
The Company is listed on the London Stock Exchange.
The Group consolidated half-yearly financial information was
approved for issue by the Board of directors on 19 May 2011.
Basis of Preparation
This condensed consolidated half-yearly financial information
for the half-year ended 31 March 2011 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. The half-yearly
condensed consolidated financial report should be read in
conjunction with the annual financial statements for the year ended
30 September 2010, which have been prepared in accordance with
IFRSs as adopted by the European Union.
At the start of the previous 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 2011 are therefore for a
period of 182 days (FY 2010 185 days).
Going concern
Introduction
This interim report is prepared on the basis that the Group is a
going concern. In considering the basis on which to prepare this
interim report, the Board has taken into account a decline in new
Local Authority admissions, a lower than originally expected round
of fee increases (and in some cases requests for decreases) from
Local Authorities and as a consequence pressure on its current and
future cash position, coupled with potential breaches of the
covenants attaching to its banking facilities. As a result it is
undergoing intense negotiations with its landlords and lenders with
a view to agreeing both a restructuring of its rents and to ensure
the longer term availability of its banking facilities; the final
outcome remains uncertain.
The Board considers that, whilst it will be difficult, it is
reasonable to anticipate that the Group will be able successfully
to conclude these discussions in both the short term (the Summer
Platform referred to below) and the longer term, but recognises
there is material uncertainty with respect to the timeframe and
achievability of this.
Discussions with Landlords and Lenders
In forming its opinion as to going concern, the Board has
prepared cash flow projections based upon its assumptions as to
trading, as well as the continued availability of its banking
facilities. The Group's cash flow projections and underlying
assumptions reflect the Board's expectation that the Group will
reach agreement on long term rent reductions with its landlords and
the continued availability of banking facilities from its lenders.
The Group has engaged the services of KPMG, Greenhill and Clifford
Chance to assist the Group in its discussions with financial
stakeholders in pursuit of a significant restructuring of its lease
obligations to its landlords and its banking facilities, and the
introduction of new capital.
The Group's existing bank funding arrangements comprise a
Revolving Credit Facility of up to GBP50m. The terms of that
facility include covenants based on operating performance, and a
breach of those covenants could result in withdrawal of the
facility. Because of the likelihood of a covenant breach, in March
2011 the Group requested, and in April 2011 its lenders agreed, to
defer the testing of all financial covenants until 31 May 2011,
subject to weekly review and other conditions.
On 9 May 2011, and in line with the existing agreement, the
Revolving Credit Facility stepped down from GBP50m to GBP45m. The
Group recently requested, as a result of concerns arising from
updated cash projections, that its lenders agree to the facility
limit being restored to GBP50m and the testing of all financial
covenants be deferred, in each case until 30 June 2011. The lenders
have now agreed to this request. The continued availability of the
facility is subject to weekly reviews and the satisfaction of other
conditions.
The Group has commenced discussions with its lenders regarding
the four month Summer Platform and the longer term availability of
its banking arrangements and to agree suitable financial covenants
which better reflect its current and future expected levels of
trading and performance, in the context of the wider
restructuring.
The Group has been engaging its landlords in discussion with
regard to the level of rent payments and other lease terms for some
months and in recent weeks this has been stepped up. Each landlord
has been approached with a proposal to agree concessions which
would assist the Group. Following Group presentations to landlords
in April and May, the Group has made a request for a four month
Summer Platform to allow time to develop further its proposals in
what is a complex situation. As part of the Summer Platform,
landlords have been asked to agree to a four month deferral of 30%
of the current aggregate rent charge with effect from 1 June 2011.
The combination of landlords agreeing to the requested deferral of
rent and the continuation of the restored facility at the GBP50m
level should provide sufficient liquidity for the Group to continue
meeting its obligations until 30 June 2011. Current forecasts
suggest, however, that additional liquidity support will be
required to enable the Group to continue to meet its obligations
over the balance of the four month Summer Platform. The Group's
principal landlords have agreed to the formation of a committee, to
act as an efficient conduit for the restructuring discussions and
to ensure that negotiations continue to progress in a timely
manner.
The Group needs to reach agreements with its landlords and
lenders in support of the Summer Platform. Furthermore, even if a
Summer Platform is agreed, there remains the challenge of
negotiating a longer term restructuring of the rental and other
terms of the Group's lease portfolio.
Other factors that the Board has considered in preparing this
interim report are:
-- The impact of the recent reduction in occupancy levels,
particularly through reduced admissions from Local Authorities,
which have a material impact on cash flow and profitability of the
Group.
-- The downward pressure on average weekly fee rates being paid
by Local Authorities which are reducing the Group's profit margins,
particularly as a large proportion of the Group's costs are subject
to inflationary pressures and that while tight cost control is
critical, the Board does not intend to make reductions to the
quality of care it delivers or to put residents at risk.
Conclusion
The matters set out above indicate the existence of material
uncertainties which cast significant doubt over the Group's ability
to continue as a going concern. In the event that the Group does
not reach agreements with its landlords and lenders, and no
alternative finance is available, the Group is unlikely to be able
to continue to trade. In these circumstances additional liabilities
and provisions may arise and adjustments may be required to the
carrying values of assets. Despite these concerns, the Board
confirms its belief that it is appropriate to use the going concern
basis of preparation for this interim report.
2 Accounting Policies
Changes in accounting policy
Other than as described below, the accounting policies adopted
are consistent with those of the annual financial statements for
the year ended 30 September 2010, as described in those annual
financial statements.
Adoption of new and revised International Financial Reporting
Standards
The following standards, interpretations, and amendments to
standards were effective during the period to 31 March 2011 and
have been adopted in this financial information.
Annual improvements to IFRSs (2009) (effective 1 January 2010).
This is a collection of amendments to 12 standards as part of the
IASB's programme of annual improvements. The standards impacted
are:
-- IFRS 2, "Share based payment"
-- IFRS 5, "Non current assets held for sale and discontinued
operations"
-- IFRS 8, "Operating segments"
-- IAS 1, "Presentation of financial statements"
-- IAS 7, "Statement of cash flows"
-- IAS 17, "Leases"
-- IAS 18, "Revenue"
-- IAS 36, "Impairment of assets"
-- IAS 38, "Intangible assets"
-- IAS39, "Financial instruments: Recognition and
measurement"
-- IFRIC 9, "Reassessment of embedded derivatives"
-- IFRIC 16, "Hedges of a net investment in foreign
operation".
Most of the amendments are effective for annual periods
beginning on or after 1 January 2010; early adoption is permitted,
subject to EU endorsement. At the date of approval of this
consolidated half-yearly information, the following new standards,
interpretations and amendments were issued but not yet mandatory
for the Group and early adoption has not been applied.
International Financial Reporting Standards ("IFRS")
-- IFRS 9, "Financial Instruments: Classification and
Measurement"
International Financial Reporting Interpretations Committee
("IFRIC") interpretations
-- IFRIC 19, "Extinguishing Financial Liabilities with Equity
Instruments"
Amendments to existing standards
-- Amendment to IFRS 1, "First Time Adoption: Financial
Instrument Disclosures"
-- Amendment to IFRS 1, "First Time Adoption: On Fixed Dates and
Hyperinflation"
-- Amendment to IAS 12, "Income Taxes' on Deferred Tax"
-- Amendment to IFRS 7, "Financial Instruments: Disclosures' on
Derecognition"
-- Amendment to IFRIC 14, "Prepayments of a Minimum Funding
Requirement"
-- Annual Improvements to IFRSs 2010.
All the IFRSs, IFRIC interpretations and amendments to existing
standards are endorsed by the EU at the date of approval of this
consolidated half-yearly financial information with the exception
of IFRS 9, the amendment to IFRS 1, "First Time Adoption: On Fixed
Dates and Hyperinflation", the amendment to IAS 12 and the
amendment IFRS 7.
There is no material impact of the adoption of this standard in
this half-yearly financial information. The future financial effect
of the adoption of this standard will be dependent on the
circumstances surrounding the future transactions to which they
will apply, that are at present unknown.
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.
Seasonality
Previously, trading results of the Group have been subject to
seasonal fluctuations, with stronger financial performance in the
second half of the financial year, reflecting Local Authority fee
increases in April and seasonal increases in occupancy. However, in
line with the previous financial year and due to financial
constraints within Local Authorities, significant uncertainty
exists in respect of the seasonal variations.
3 Segmental Analysis
Included below is segmental analysis of average occupancy and
income statement items for the two operating segments - Elderly
Care and Specialist.
Elderly
Care Specialist Total
6 months ended 31 March 2011 Number Number Number
------------------------------ -------- ----------- --------
Segment available beds 36,370 872 37,242
------------------------------ -------- ----------- --------
Segment occupied beds 31,221 725 31,946
------------------------------ -------- ----------- --------
Elderly
Care Specialist Total
% % %
------------------------------ -------- ----------- --------
Segment occupied beds 85.8 83.1 85.8
------------------------------ -------- ----------- --------
GBP GBP GBP
------------------------------ -------- ----------- --------
Segment average weekly fee 547 1,061 559
------------------------------ -------- ----------- --------
Elderly
Care Specialist Total
Period ended 31 March 2010 Number Number Number
---------------------------- -------- ----------- -------
Available beds - restated
Acquisitions 176 - 176
Continuing operations 36,052 929 36,981
---------------------------- -------- ----------- -------
Segment available beds 36,228 929 37,157
---------------------------- -------- ----------- -------
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 - restated
Acquisitions 22.2 - 22.2
Continuing operations 89.1 79.3 88.8
---------------------------- -------- ----------- ------
Segment occupancy 88.8 79.3 88.5
---------------------------- -------- ----------- ------
GBP GBP GBP
---------------------------- -------- ----------- ------
Average weekly fee
Acquisitions 582 - 582
Continuing operations 541 1,094 553
---------------------------- -------- ----------- ------
Segment average weekly fee 541 1,094 553
---------------------------- -------- ----------- ------
Note: At the beginning of FY2011, the Group has reclassified
1,303 rooms as single occupancy. In order to present information on
a like-for-like basis, the available beds for FY2010 have been
restated to reflect this adjustment. This has had the net impact of
reducing the number of available beds across the Group in FY2010 by
1,303 beds, and increased average occupancy for H1 FY2010 by
2.9%.
The segment results for the 6 months ended 31 March 2011 were as
follows:
Elderly
Care Specialist Total
6 months ended 31 March 2011 GBP'm GBP'm GBP'm
--------------------------------------- -------- ----------- --------
Revenue 444.3 20.0 464.3
Home payroll costs (265.2) (12.4) (277.6)
Home running costs (59.5) (2.4) (61.9)
--------------------------------------- -------- ----------- --------
Home EBITDAR before central costs 119.6 5.2 124.8
Home EBITDAR before central costs (%) 26.9 26.0 26.9
Total rent (120.1) (4.1) (124.2)
--------------------------------------- -------- ----------- --------
Home EBITDA before central costs (0.5) 1.1 0.6
--------------------------------------- -------- ----------- --------
Other expenses:
Impairment of assets - goodwill (204.0) (15.2) (219.2)
- property, plant and equipment (46.3) (2.3) (48.6)
- freehold assets held for sale (1.3) - (1.3)
Onerous contracts and related impairments (5.0) - (5.0)
Depreciation (13.6) (0.6) (14.2)
Central payroll costs (6.5) (0.4) (6.9)
Exceptional central costs (4.7) - (4.7)
Unallocated expenses:
Central costs (10.1)
------------------------------------------- -------- ------- --------
Operating loss (309.4)
------------------------------------------- -------- ------- --------
Segment assets and liabilities:
Segment assets 131.4 9.6 141.0
Segment liabilities (385.7) (20.3) (406.0)
------------------------- -------- ------- --------
Net segment liabilities (254.3) (10.7) (265.0)
Unallocated liabilities (19.4)
------------------------- -------- ------- --------
Total net liabilities (284.4)
------------------------- -------- ------- --------
Other segmental items:
Capital expenditure
- Property, plant and equipment 10.0 0.5 10.5
Unallocated capital expenditure 2.8
Total 13.3
--------------------------------- ----- ---- -----
Unallocated liabilities comprise non-current borrowings of
GBP18.7m, current borrowings of GBP0.6m and derivatives of
GBP0.1m.
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
GBP'm GBP'm GBP'm
------------------------------------------ -------- ----------- ------
Home EBITDA before the charge for future
minimum rental increases, central costs
and exceptional central costs 22.2 2.2 24.4
All of the above activities relate to continuing operations.
The segment results for the period ended 31 March 2010 were as
follows:
Elderly
Care Specialist Total
Period ended 31 March 2010 GBP'm GBP'm GBP'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 contracts and related impairments - (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 and liabilities:
Segment assets 416.5 28.7 445.2
Segment liabilities (331.8) (17.5) (349.3)
------------------------- -------- ------- --------
Net segment assets 84.7 11.2 95.9
Unallocated liabilities (25.2)
------------------------- -------- ------- --------
Total net assets 70.7
------------------------- -------- ------- --------
Other segmental items:
Capital expenditure
- Property, plant and equipment 14.7 0.7 15.4
- Development expenditure 2.4 - 2.4
------------------------------------- ----- ---- -----
Total segmental capital expenditure 17.1 0.7 17.8
------------------------------------- ----- ---- -----
Unallocated capital expenditure 1.0
------------------------------------- ----- ---- -----
Total 18.8
------------------------------------- ----- ---- -----
Unallocated liabilities comprise non-current borrowings of
GBP24.1m, current borrowings of GBP0.7m and derivatives of
GBP0.4m.
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
GBP'm GBP'm GBP'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 and central
costs 40.4 2.5 42.9
---------------------------------------------- -------- ----------- ------
All of the above activities relate to continuing operations.
4 Exceptional Central Costs
6 months Period Period
ended ended ended
31 March 31 March 30 Sept
2011 2010 2010
unaudited unaudited audited
GBP'm GBP'm GBP'm
Restructuring costs 4.7 3.3 6.3
--------------------- ---------- ---------- --------
During the period the Group incurred non-recurring, exceptional
costs of GBP4.7m. Of this, GBP0.6m related to the "New Horizons"
programme with the majority of the programme now complete. Other
exceptional central costs totalled GBP4.1m, and related primarily
to costs incurred in respect of the ongoing restructuring.
5 Impairment of Property, Plant and Equipment, Onerous Contracts
and Related Impairments and Additions
Impairment of Property, Plant and Equipment
During the period the Group has conducted an impairment test on
the carrying value of fixed assets and goodwill. As required by
accounting standards, it has performed this review based on its
current contractual obligations (including current rental
agreements), rather than those terms it is pursuing as part of its
exercise to restructure its property leases. As a result of this
review, the carrying value of fixed assets has been impaired by
GBP48.6m, of which GBP46.3m related to the Elderly Care segment and
GBP2.3m to the Specialist segment. If the Group is able to agree
amendments to its lease terms with its landlords, then some or all
of the impairment of fixed assets may be reversed.
The impairment review has also resulted in the write off of the
Group's goodwill. Further details are given in note 10.
During the period the Group has reviewed the carrying values of
its freehold properties. Following this review, a number of
properties were found to have a fair value less than their carrying
value. As a result the carrying value of the related freeholds has
been written down by GBP1.3m.
As at 31 March 2011, the carrying value of freehold assets held
for sale was GBP12.7m (2010: GBP29.2m) and related to thirteen
freehold properties which the Group expects to sell in the near
future.
Onerous Contracts and Related Impairments
During the period, management took the decision to close two of
its care homes. As a result, a charge of GBP5.0m has been
recognised in respect of onerous contracts. Included within the
GBP5.0m charge are related impairments of GBP0.3m. Further
disclosure is included in note 13.
Property, plant and equipment
During the period, the Group had fixed asset additions totalling
GBP13.3m (2010: GBP18.8m) relating to property, plant and
equipment. Within this total expenditure the improvement of
leasehold property amounted to GBP1.5m (2010: GBP1.2m), development
expenditure on new properties GBPnil (2010: GBP2.4m), investment in
IT systems GBP2.3m (2010: GBP0.7m) and GBP9.5m on the underlying
portfolio (2010: GBP14.5m).
6 Taxation
6 months Period
ended ended
31 March 31 March
2011 2010
GBP'm GBP'm
---------------------------------------------------- --------- ---------
Current tax
- Prior period (realisation of taxable losses) - (0.1)
Deferred tax
- Current period - (4.6)
- Prior period (reversal/(realisation) of deferred
tax assets) 25.2 (0.3)
---------------------------------------------------- --------- ---------
Taxation credit 25.2 (5.0)
---------------------------------------------------- --------- ---------
The current period tax charge for the period ended 31 March 2011
represents an effective tax rate of nil. The effective rate is
lower than the average standard rate of corporation tax in the
United Kingdom (27.0%) due to the trading position of the Group and
the inability to recognise any losses arising in the period as a
deferred tax asset prior to any restructuring of its operating
lease portfolio.
6 months Period
ended ended
31 March 31 March
2011 2010
GBP'm GBP'm
------------------------------------------------- --------- ---------
Loss before taxation (310.9) (22.9)
Loss before taxation multiplied by the average
standard rate of corporation tax in the United
Kingdom of 27% (2010: 28%) (83.9) (6.4)
Effect of:
- Expenses not deductible for tax purposes 74.4 -
- Additional provision of deferred tax assets - 1.8
- Adjustments in respect of prior years 25.2 (0.4)
- Loss arising in the period not recognised 9.5 -
------------------------------------------------- --------- ---------
Tax charge/(credit) for the period 25.2 (5.0)
------------------------------------------------- --------- ---------
Ongoing negotiations with landlords regarding rent reductions
give rise to uncertainty over the going concern of the Group, and
accordingly the deferred tax asset has been written off within
these interims. If a rent reduction is agreed then this may have an
effect on the future minimum rental increase accrual. Given that
the Group received a tax deduction for this accrual if any
reduction in the accrual is agreed as a result of the rent
negotiations, the Group could be liable to a tax charge.
7 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.
6 months Period
ended ended
31 March 31 March
2011 2010
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:
6 months ended 31 March Period ended 31 March
2011 2010
Basic Diluted Basic Diluted
per per per per
share share share share
Earnings amount amount Earnings amount amount
GBP'm p p GBP'm p p
--------------- --------- --------- --------- --------- ------- --------
Loss
attributable
to ordinary
shareholders (336.1) (178.68) (178.68) (17.9) (9.52) (9.52)
Charge for
future
minimum
rental
increases 23.8 12.65 12.65 26.3 13.98 13.98
Exceptional
items
- exceptional
central
costs 4.7 2.50 2.50 3.3 1.75 1.75
- onerous
contracts and
related
impairment 5.0 2.66 2.66 6.5 3.46 3.46
- impairment
of goodwill 219.2 116.53 116.53 - - -
- impairment
of property,
plant and
equipment 48.6 25.84 25.84 - - -
- impairment
of freehold
assets held
for sale 1.3 0.69 0.69
Taxation
impact of
above (7.7) (4.09) (4.09) (8.3) (4.41) (4.41)
--------------- --------- --------- --------- --------- ------- --------
(Loss)/profit
attributable
to ordinary
shareholders
before
charges for
future
minimum
rental
increases,
exceptional
items and
taxation
impact
thereof (41.2) (21.90) (21.90) 9.9 5.26 5.26
--------------- --------- --------- --------- --------- ------- --------
8 Dividends Paid and Declared
The Directors have decided not to recommend an interim dividend
(2010: GBPnil).
9 Bank Overdrafts and Loans
As at As at
30 Sept Cash 31 March
2010 flow 2011
GBP'm GBP'm GBP'm
Cash 1.2 6.1 7.3
-------------------------------- -------- ------- ---------
Finance leases due within one
year (0.6) - (0.6)
Bank loans due after more than
one year (7.5) (13.5) (21.0)
Finance leases due after more
than one year (0.4) 0.3 (0.1)
(8.5) (13.2) (21.7)
-------------------------------- -------- ------- ---------
Net debt (7.3) (7.1) (14.4)
-------------------------------- -------- ------- ---------
Bank loans due after one year relate to drawings on the
Revolving Credit Facility, repayable in September 2012. Due to the
likelihood of an impending covenant breach the Group has agreed
terms with its lenders by which the testing of all financial
covenants has been deferred until 30 June 2011. Upon any covenant
breach, loans may become immediately repayable.
Note
Long-term financial liabilities of GBP18.7m disclosed within the
balance sheet are presented net of loan arrangement fees totalling
GBP2.4m.
10 Goodwill
Group GBP'm
---------------------------------------- --------
At 31 March 2010 and 30 September 2010 219.2
Impairment charge (219.2)
---------------------------------------- --------
At 31 March 2011 -
---------------------------------------- --------
Impairment Test for Goodwill
Goodwill arising on acquisitions, as noted above, is not being
amortised but tested annually for impairment. The Group tests for
impairment at the 30 September and 31 March, unless there is a
clear indication of impairment.
The Group conducts impairment tests 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. As
required by accounting standards, it has performed this review
based on its current contractual obligations (including current
rental agreements), rather than those terms it is pursuing as part
of Its exercise to restructure Its property leases.
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 for the next 5 years following which it extrapolates cash
flows on an estimated growth rate of 3%, excluding inflation. The
growth rate applied does not exceed the growth rate for the
industry and country in which the Group operates.
The pre-tax rate used to discount the forecast cash flow for all
CGUs is 12%. This rate represents a pre-tax rate that reflects the
market value of money at the balance sheet date.
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.
During the period, the impairment review has resulted in the
write off of all of the Group's goodwill, of which GBP204.0m
related to the Elderly Care segment and GBP15.2m related to the
Specialist segment.
11 Share Capital
31 March 31 March
2011 2010
Number Number
------------------------------- ------------ ------------
Allotted, called up and fully
paid:
Ordinary shares of 1p each 188,067,377 188,067,377
------------------------------- ------------ ------------
GBP'm GBP'm
------------------------------- ------------ ------------
Ordinary shares of 1p each 1.9 1.9
------------------------------- ------------ ------------
12 Cash Flows from Operating Activities
Reconciliation of operating loss before taxation to net cash
flow from operating activities:
6 months Period
ended ended
31 March 31 March
2011 2010
GBP'm GBP'm
---------------------------------------------------- --------- ---------
Operating loss (309.4) (21.1)
Adjustments for:
Profit on disposal of property, plant and
equipment and subsidiary undertakings - (0.1)
Impairment of goodwill 219.2 -
Impairment of property, plant and equipment 49.9 -
Depreciation 14.2 13.1
Share based payments (0.2) 0.3
Increase in future minimum rental payable 23.8 26.3
Increase in provisions 3.8 5.4
Changes in working capital (excluding effects
of acquisitions of subsidiaries):
Decrease/(increase) in trade and other receivables 6.0 (2.8)
Increase/(decrease) in payables 1.2 (11.7)
---------------------------------------------------- --------- ---------
Cash flows from operating activities 8.5 9.4
---------------------------------------------------- --------- ---------
13 Provisions and Similar Obligations
Vacant Onerous Other
Properties Contracts Provisions Total
GBP'm GBP'm GBP'm GBP'm
---------------------------- ------------ ----------- ------------ -------
At 30 September 2010 7.5 13.3 0.2 21.0
Additions 5.0 - 0.2 5.2
Utilised in the period (0.8) (0.4) (0.2) (1.4)
---------------------------- ------------ ----------- ------------ -------
At 31 March 2011 11.7 12.9 0.2 24.8
---------------------------- ------------ ----------- ------------ -------
Analysis of total
provisions at 31 March
2011:
Current 1.5 7.3 0.2 9.0
Non-current 10.2 5.6 - 15.8
---------------------------- ------------ ----------- ------------ -------
11.7 12.9 0.2 24.8
---------------------------- ------------ ----------- ------------ -------
The provisions for vacant properties relates to rents payable on
leased properties. During the period, GBP5.0m was charged to the
income statement In respect of two vacant properties. Of the
GBP11.7m provision relating to vacant properties, GBP1.5m is
expected to be utilised within one year with the remaining GBP10.2m
to be utilised in more than one year.
The provision in respect of onerous contracts was GBP12.9m at 31
March 2011. Of this, GBP7.3m is expected to be utilised within one
year, with the remaining GBP5.6m to be utilised in more than one
year.
At 30 September 2010, the Group had GBP0.2m of other provisions,
which have been fully utilised in the period. A further provision
of GBP0.2m has been recognised in the period relating to
exceptional central costs in accordance with IAS17. It is expected
this will be fully utilised within one year.
14 Related Party Transactions
In the opinion of the Directors, there is no ultimate
controlling party.
15 Events after the Balance Sheet Date
The Group has taken the decision to close Sefton Park Care Home
in Lanarkshire because the building is no longer fit for purpose.
The residents of Sefton Park, their families and staff have all
been informed of the decision to close the home and have been given
12 weeks' notice.
Southern Cross Healthcare is working very closely with Social
Care Social Work Improvement Scotland (SCSWIS) and South
Lanarkshire Council - as well as relatives and friends of Residents
- to ensure that the relocation of the 35 affected Residents is
managed carefully and in an orderly manner over the coming
months.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGURUAUPGUUB
-3x Short China (LSE:SCHE)
Gráfica de Acción Histórica
De Nov 2024 a Dic 2024
-3x Short China (LSE:SCHE)
Gráfica de Acción Histórica
De Dic 2023 a Dic 2024
