Southern Cross future unclear after losses

Southern Cross’s future remains unclear following the release of its full-year results on Tuesday, as the struggling care home group continues its discussions with potential private equity buyers and its negotiations with landlords over its high rent bills.

The company confirmed that its lenders had agreed to change the terms of its banking covenants, which analysts had said Southern Cross could have breached in the near future.

Jamie Buchan, chief executive, said the group has entered talks with 10 of its largest landlords, seeking cuts in its rents and an end to agreements that link rent increases with inflation.

Southern Cross posted a pre-tax loss of £47.4m, up from £19.8m, for the year ending September 30. Revenue increased by 2 per cent to £958.6m, but the company took a a £51.3m charge for future minimum lease increases.

Richard Midmer, finance director said: “It’s in nobody’s interest to see our business become unstable.”

The company, in need of capital to invest in the business, has confirmed it is in talks with potential bidders.

Government spending cuts are expected to hit Southern Cross hard, as local authorities and the NHS fund 80 per cent of its residents. The average occupancy rate for the company’s 752 homes fell for the year from 87.7 per cent to 84.8 per cent as those authorities became reluctant to fund care.

Southern Cross is asking residents’ families for “top-up” payments to help to cover the full cost of care, Mr Buchan said. The fees are not means-tested and families can decline to pay, but the company can refuse to accept the patient.

To compensate for local council cuts, the group is looking to attract more self-funded payers, who last year paid on average more than £100 per week more for their care than local authority-funded patients. Some 20 per cent of residents are self-funded, up from 17 per cent in March.

But to increase business from NHS and private payers, the company needs to raise capital.

Its shares fell 1.5 per cent to close at 16¾p. In the year to date, the shares have dropped nearly 88 per cent.