Southern Cross feels the pinch as councils cut care home funds

SOUTHERN Cross, the UK's biggest care homes operator, yesterday revealed it is feeling the pinch from public sector cuts, as local authorities begin to reduce the number of publicly-funded places for elderly residents.

In a trading update for the three months to the end of June, the firm said the number of council-assisted places had begun to drop off in the third quarter, when average occupancy in its estate fell to 85.4 per cent from 87.5 per cent in the same period the previous year.

But the firm said its Scottish business had not been as hard hit as other parts of the UK due to a more generous payment plan from the Scottish Government - and a stronger focus on homes with higher revenue nursing facilities, rather than standard elderly care.

The firm, which is headquartered in Darlington, said it expected the trend to continue into the fourth quarter, adding that earnings before interest, taxes, depreciation and amortisation for the full year, would be likely to be around 53 million - down from 72.5m in 2009. The reduced figure comes after earnings fell to 12.1m in the third quarter, down from 19.9m in the same period a year earlier.

The company said: "Whilst the longer-term fundamentals for residential care remain positive, the short-term outlook is challenging as pressure grows to reduce overall public sector spending.

"As a result of this pressure, the group has continued to experience a reduction in admissions from local authorities during the third quarter."

The sector is the latest to be affected by public sector cuts, with social housing and education already hit hard.

Southern Cross said it wanted to increase the number of self-funding residents in its homes from the current level of 17.4 per cent.

The company, which has increased its number of homes north of the Border to more than 100 in the past few years, also revealed it is to lobby the Dilnot Commission into funding of social care as it looks to prove that residential care by the private sector represents the lowest cost to the taxpayer and best experience for those requiring care.

However, the firm admitted it faced "challenges" posed by "inadequate service delivery in a limited number of homes", saying it had introduced monthly inspections and conducted an external review of governance to combat the problems.

The number of its homes rated as "zero star" by the Care Quality Commission, the industry watchdog in England, increased from 12 to 16.

Southern Cross reduced net debt by 3.6m, from 25.7m as of 31 March to 22.1m at the end of June and just 13.1m by 6 August. It also consolidated its banking arrangements into a revised 50m revolving credit facility, repayable in September 2013.

In the third quarter, it sold the freehold interests in its two remaining internally developed properties for a net cash consideration of 14m and added that eight freehold assets with a net book value of 15.1m still remain for sale and are under discussion with potential buyers.

Southern, which has 730 care homes across the UK and 37,000 beds, was floated by previous owner Blackstone four years ago.