Southern Cross says fees talks with councils 'critical' as losses double

Britain's biggest care homes group signalled that it will get tough in negotiations over fees with cash-strapped councils as it reported a more than doubling in full-year losses.

Southern Cross Healthcare, which operates 752 care homes across the UK and has 43,000 employees, slumped into the red by 47.4 million in the year to 30 September against 19.8m in pre-tax losses the year before.

The group has suffered as councils and primary care trusts, which pay for more than 70 per cent of its customers, have demanded rate reductions while rents have risen.

Its outlook since the UK government's spending review has worsened, with many council budgets cut by 26 per cent and no protection for social care funding.

Southern - which is holding ongoing talks with potential takeover suitors - said forthcoming negotiations with councils over fees would be "critical".

Jamie Buchan, Southern Cross chief executive, said: "Given the cost pressures facing our industry, including the reasonable expectations of the people who work within it and the increasing acuity of residents placed in its care, it is very clear that no local authority can justify reductions in fee levels at this time."

The firm said its troubles had been compounded by its lowest admissions for some time, with a 2.3 per cent decline in like-for-like occupancy.

Added to this, it saw local authority fees rise by a below-inflation 1.3 per cent as rents, the minimum wage and utility costs have risen.

The Darlington-based group, which owns the Ashbourne Senior Living brand, had been in talks over a sale to private equity group Towerbrook, but its suitor pulled out last month.

It is now holding "exploratory" talks with other potential acquirers after receiving highly preliminary approaches.

Yesterday's results showed operating profits of 13.5m on an underlying basis, down 65 per cent.

Buchan said he would forge ahead with his New Horizons turnaround plan designed to improve standards and find efficiencies. But he admitted results could be hit again in the current year as fees and occupancy remain under pressure.

His recovery plan aims to deliver between 15m and 20m in annual cost savings by the end of next year.