Care home fee hike lifts profits

May 13 2008 Evening Gazette

DARLINGTON-BASED Southern Cross Healthcare, the UK’s biggest care home group with more than 730 homes nationwide, has pushed up fees on more than 85% of its beds this year by a forecasting beating 5%. The move helped boost profits and sent the group’s share price up 6%.

Underlying weekly fees, which strip out the impact of acquisitions and new care homes, rose 6% to £515 in the six months to March 30.

The company admitted the increase was ahead of expectations.

News of the fee increases came as Prime Minister Gordon Brown pledged fundamental reform to social care of the elderly and disabled amid Government warnings that the system is facing a £6bn funding gap within 20 years.

Local authority care accounts for the bulk of Southern Cross’s income.

The group, which is able to negotiate fee increases every October and April, announced interim revenues up 28% to £431.1m and underlying earnings up 41% to £30.8m. But the traditionally weaker first half, which does not benefit from the yearly round of fee increases, saw pre-tax losses widen to £8.6m from £600,000 the previous year.

Southern Cross said the latest charge increases will help improve margins in the second half.

Bill Colvin, chief executive of Southern Cross, said: “Fee increases have been agreed ahead of our expectations, landlords continue to show interest in financing our properties and costs remain under control.”

The group said it had kept tight control of staffing costs - its most significant cost - thanks to the influx of European workers.

The group, which employs more than 40,000 people, has also fixed food and energy costs in advance to help protect itself from the volatility in gas and electricity bills and the soaring cost of food.

Southern Cross said that underlying occupancy rates had dipped from 91.1% to 90.4% over the six months, reflecting a large number of new home openings and the impact of last winter’s “norovirus” stomach bug.

The winter is traditionally a lower occupancy period as the number of deaths increase in the cold months of the year.

Southern Cross said it had continued its strategy of growing by acquisition, adding 14% more beds, to boost its total portfolio to more than 37,000 at the end of March.

In the wake of results yesterday, shares rose a further 21.5p to 383p.