UK: Southern Cross secures higher prices

The UK’s biggest care home group said today it had agreed fee increases averaging 5% on more than 85% of its beds this year.

Southern Cross Healthcare said the figure was ahead of expectations and followed negotiations with local authorities. Underlying weekly fees, which strip out the impact of acquisitions and new care homes, rose 6% to £515 (€652) in the six months to March 30.

It said its size, with 37,000 beds and more than 720 homes, had given it the competitive advantage to increase fees for private customers and local authorities.

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 £6 billion funding gap within 20 years.

Local authority care accounts for the bulk of Southern Cross’s revenues and the group is able to negotiate fee increases every October and April.

Southern Cross said it had also retained tight control on staffing costs – its most significant cost base – thanks to the influx of European workers in the UK.

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 current 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 saw shares leap more than 9% as the market welcomed news that fees had gone up by more than management expectations.

The firm reported interim revenues up 28% to £431.1m (€546m) and underlying earnings up 41% to £30.8 million. 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 (€10.9m) from £600,000 (€760,000) the previous year.

Southern Cross said the latest charge increases will help it improve profit 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.

“With many opportunities to improve the quality of our portfolio, increase market share and with demand for our services increasing as the UK population ages, we are confident that Southern Cross is well placed to make further progress.”

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.