Southern Cross Healthcare Group

Occupancy rates and local authority fee settlements have both fallen below management expectations, warns Southern Cross Healthcare.

The fully-listed company, Britain’s largest care home operator, has issued a gloomy trading update for its first half year to the end of this month. Steered by chief executive Jamie Buchan, Southern Cross, which lost a reduced £19.7m in the year to last September, says average occupancy between 1 October and 25 March was 85.7% across the whole group and 87% in mature homes, against 90.4% in 2008 and 91.1% in 2007.

Meanwhile ‘recent discussions and correspondence’ suggest local authorities will accept average annual fee increases for occupants of Southern Cross’s homes of 1%, half the 2% which the company had expected. Southern Cross has increased private fees 3.7% and has taken action to pare its costs, but warns the occupancy and fee disappointments have produced ‘a degree of downside risk which could adversely affect the full year outturn’.

Shares in Southern Cross plummeted from 634p in 2007 to 47.75p in 2008 after the company missed the repayment date on £46m of banking facilities — and after previous boss Bill Colvin and colleagues had sold large chunks of shares at more than £5 in a phase of cheerful management statements.

Growth Company Investor highlighted their possible recovery potential at 86.25p in October 2008, but recommended a reduction in holdings after a 34% gain to 130.5p a year later. Today’s warning sent them shuddering downwards by 33p to 97p this morning. The best course is to sell out and take another look later this year.