Scotland is key to the future for care-home giant Southern

Published on Monday 12 May 2008 21:47

SCOTLAND is to play a pivotal role in the drive by Britain's largest care-home operator to add thousands of beds over the next five years.

Southern Cross Healthcare, which already operates about 100 of its 700-plus nursing homes north of the Border, is benefiting from an ageing population and the closure of hundreds of publicly-funded establishments.

The group's Scots-born chief executive, Bill Colvin, said he did not have an absolute target on growth but felt that, over a five-year term, the number of beds UK-wide could be increased from 37,000 to about 50,000.

"Scotland is a real focus area for us," he said. "We're building at the moment and looking to acquire more homes in Scotland. The Scottish Government is looking to become a commissioner of care rather than a provider."

Colvin was speaking to The Scotsman after the firm unveiled market-beating interim profits, sending its shares up 21.5p, or 6 per cent, to 383p. Adjusted earnings before interest, tax, depreciation and amortisation rose 41 per cent to 30.8 million on the back of a 28 per cent hike in revenues to 431.1m. Local authority care accounts for the bulk of Southern's turnover.

The group said it had managed to hammer out average fee increases of about 5 per cent, ahead of forecasts.

Scotland is the only part of the UK where fees for nursing and residential care are negotiated centrally. The increase north of the Border was pegged at 4.4 per cent, negotiated with the SNP government and the Convention of Scottish Local Authorities (Cosla).

"We would like to have got a bit more," Colvin said, "but we understand that the new administration made a commitment not to increase council tax this year, so the industry was willing to work with the SNP and with Cosla to reach what we think is a fair settlement for both sides.

"However, we are fully expecting to get a significantly enhanced settlement next year."

He added that the "joined-up thinking" in Scotland regarding healthcare was one of the main reasons that Darlington-based Southern was ploughing resources into building and acquiring homes north of the Border, where the company has a 15 per cent market share.

Yesterday's first-half statement also drew attention to improved inspection ratings.

Since the end of September, the number of homes scored as "poor" has fallen from 44 to 26, while the number of homes rated "excellent" has increased from 51 to 70. Colvin said the board was pleased with the progress being made.

Southern is understood to be one of a number of operators casting an eye over Craegmoor Healthcare, the UK's fifth-largest care home firm, which has been put up for sale by LGV Capital, the private equity arm of Legal & General.

Stockbroker Brewin Dolphin raised its 2008 earnings per share forecast on Southern by 3 per cent and by 4 per cent for 2009 in an "add" note with a 430p price target on the shares.