Southern strategy increases Hallmark's profits
Hallmark Care Homes Group reported a 6.5% rise in revenues from £52.4m to £56.3m for the year ended 31 March 2017. Cost of sales stood at £32.2m (2016: £29.m) and administrative expenses were £13.3m (2016: £16.6m), leaving an operating profit £10.8m, a 72.2% increase on the previous year’s £6.3m. With no income from shares in group undertakings (2016: £1.7m), and interest changes of £1.1m (2016: £1m), Hallmark recorded a £9.8m pre-tax profit on its 15 homes (with a total number of 1,114 beds) compared to £7.1m in 2016, when it had the same number of homes and beds.
The directors said: ‘The opening of new homes in previous years has helped to increase turnover and the full benefit to reported operating profit is starting to be felt. There continues to be an improving trend, reflecting natural growth arising from established homes and improved occupancy rates for homes opened in previous financial years.
‘The cash generated from operations amounted to £12.7m (2016: £12.4m). The group continues to benefit from historically low bank interest rates. This has resulted in a bank interest charge of £1.1m (2016: £1m) and this benefit has continued since the balance sheet date.
‘The investment in new care homes during the year has been funded from operating cash flows, together with new bank facilities. Since the reporting date, the group has renegotiated its banking facilities and a new facility totalling £65m has been put in place, incorporating all existing bank loans across the group. The new facility will provide long term funding for the investment in new care homes.’
Since the end of the report period, Hallmark has opened a new 72-bed home in Tunbridge Wells and acquired an existing 81-bed home in Porth, South Wales for £3.6m. Its strategy of focusing its expansion on the south of England, targeting land parcels of between one and two acres in and around the M25, has led to sites under development in Cambridge, Hutton in Essex and Banstead in Surrey.
Turnover from Hallmark’s property development activity amounted to £232,000 (2016: £1.2m) and operating profit was £27,000 (2016: loss £947,000).
Care markets: March 2018
Four Seasons reaches debt standstill agreement with H/2
Four Seasons and H/2 Capital Partners have agreed a debt standstill agreement which will see the operator default on its December interest payments. Described as the ‘first step toward a successful restructuring’ the move comes after months of speculation that Four Seasons could go into administration.
The agreement includes several required milestones to be met on or before specific dates during the restructuring process, including long-stop dates for agreement on a restructuring plan by 7 February 2018 and approval of the restructuring by 2 April 2018. If given the green light, Four Seasons would then present the restructuring plan to all holders of Senior Secured Notes and Senior Notes. The parties currently expect that the restructuring plan would be subject to approval by 75% of both the Senior Secured Notes and the Senior Notes, respectively. Investment funds affiliated with H/2 own less than 75% of the Senior Secured Notes and more than 75% of the Senior Notes.
Next week Four Seasons is to present an interest deferral proposal to all holders of its Senior Secured Notes and Senior Notes, subject to approval by 90% of both the Senior Secured Notes and the Senior Notes, respectively, and conducted via a consent solicitation of its creditors by Four Seasons.
Four Seasons chairman Robbie Barr, Chairman of Four Seasons, said: ‘the Board and I look forward to working closely with H/2 and their advisers on delivering a restructuring that will provide the right capital structure for the Company’s long-term needs. The standstill gives a period of stability for the Company and its stakeholders but most importantly for our residents, patients, their families and our employees.’
‘The standstill is the first step toward a successful restructuring to secure the long-term future of this vitally important care provider’, added Spencer Haber, chairman of H/2 Capital Partners.
In October, Four Seasons announced its intention to launch a financial restructuring and outlined a proposal, which would see owners Terra Firma adding 24 care homes to the Four Seasons estate, rebasing selected leasehold rents and refinancing its debts to bondholders. Following this,H/2 Capital made a counter proposal with ‘significant new equity and a lower level of leverage’, according to Barr. He told CM at the time: 'We want to move away from a business that is absorbing cash every year to one that is generating cash every year.'
Care markets: December 2017
AMBEA FLOATS IN STOCKHOLM
Ambea has become the latest care provider to successfully float on the Nasdaq Stockholm Stock Exchange with a total offering raising SEK 2,291bn (£202.8m) priced at SEK 75 (£6.60) per share, corresponding to a free float of 45.2% of the shares, and a market cap of SEK 5.071bn (£449m). This is expected to provide Ambea with gross proceeds of just SEK 200m (£17.7m).
At the time of going to press the stock had traded up and the price per share was SEK 88 (£7.80) with a market cap of SEK 5.83bn (£516.2bn).
Following the flotation at the end of March, chief executive Fredrik Gren said: ‘There has been a big interest among new, long-term and professional investors. We are indeed very proud over Ambea and are excited to move into this next phase. We welcome approximately 6,500 new shareholders and are of course also pleased with the interest among our employees to become shareholders.
‘Ambea has achieved strong growth in combination with high quality and today has around 200 Swedish municipalities as clients. The need for care is large and growing, and we want to contribute to solve this challenge for society. We therefore view the listing, with broadened ownership and clear transparency requirements, as essential in our ambition to contribute to the development of care in our community and have a positive view of the growth opportunities which have been made available by the IPO. The management and the board of directors look forward to our journey as a listed company and create value for both current and new shareholders.’
Ambea offers services within disabled care, individual and family care and elderly care, with a focus on residential care and own management. As of 31 December 2016, Ambea’s operations included more than 6,200 beds and 1,300 placements at approximately 460 units in Sweden and Norway, with around 14,000 employees.
Through its Nytida brand, which cares for people with disabilities, as well as individuals and family care, with approximately 2,600 beds and 1,300 placements at approximately 343 units. It’s Vardaga operation for older people comprises 3,500 beds within 75 homes. Ambea also provides disabled services in Norway.
On top of this, it operates a staffing solutions business in Sweden that recruits doctors and nurses. Its prospectus stated: ‘Our commitment to provide high quality care is supported by Ambea scoring higher results than the average for both municipal and private nursing homes in the yearly surveys “Brukarundersökningen” and “Enhetsundersökningen” carried out by The National Board of Health and Welfare.’
Since the 2014 financial year, Ambea has increased its total income from SEK 4,195m (£371.4m) to SEK 5,409m (£478.9m) for the 2016 financial year. During the same period, adjusted EBITA increased from SEK 192m (£17m) to SEK 456m (£40m) . Ambea’s total sales and adjusted EBITA, according to pro forma for the 2016 financial year amounted to SEK 5,775m (£551.3m) and SEK 485m (£42.9m). Ambea’s net debt amounted to SEK 2,003m (£177.3m) as of 31 December 2016.
Carnegie and Nordea were global coordinators and joint bookrunners for the deal. Danske Bank was joint bookrunner. Sundling Wärn Partners is financial advisor to the company and principal owners Triton and KKR. Vinge and Latham & Watkins are legal advisors to the company and the principal owners and White & Case is legal advisor to the joint bookrunners.
In Sweden the number of people receiving assisted living services has grown from 59,000 in 2013 to 63,000 in 2015, increasing the value of this market from SEK 29bn (£2.6bn) to SEK 36bn (£3.2bn). The private part of this market grew at 8% CAGR from 2011 to 2015.
The elderly care market in the country was valued at SEK 71bn (£6.3bn), growing at 3% CAGR since 2011. A rising birth rate between 1934 to 1944 is expected to affect growth in this area in the short term. According to Statistics Sweden, in 2014 there were 499,000 people over the age of 80. This number is set to grow to 826,000 by 2030.
The private market share with the Swedish care market has risen from 11% to 17% between 2005 to 2015. This is due to municipalities’ lack of resources, an increased need for specialised healthcare, increased requirements in quality and the rise in demands for freedom of choice. The proportion still remains very low when compared with the UK, where independent providers account for 90% of the market.
Care markets: JUNE 2017
CMA to look into Cambian deal
Following its investigation of Acadia’s acquisition of the Priory Group and the launch of an inquiry into the care home market, the Competition and Markets Authority (CMA) is now looking at Cygnet Health Care’s acquisition of Cambian’s adult services division.
The CMA served an initial enforcement order on Cygnet and its parent company Universal Health Services (UHS) on 28 December, the day after the £377m acquisition had been completed.
The deal saw 81 facilities with a total of 1,193 beds transferred to Cygnet, which are expected to produce revenues of £142m and adjusted EBITDA of £35m in 2016, according to UHS.
Cambian told its shareholders that the disposal amount represented an enterprise value of 2.9x on the £129.5m turnover achieved by its adult services division in the last financial year. The acquired division comprises Care Aspirations Developments Limited, Cambian Healthcare Limited and Cambian Care Services Limited.
The deal has allowed Cambian to repay its debts of £298m and provide a £40m return of capital to shareholders in the first half of 2017.
Acadia Healthcare agreed the sale of 22 former Priory and Partnerships in Care facilities to BC Partners for £320m (approximately $390m) in order to fend off an in-depth CMA Phase 2 investigation into its £1.3bn acquisition of Priory Group in January 2016.
At the end of last year CMA launched a review of care homes for the elderly, following concerns about breaches in consumer law.
The study – the final recommendations of which are expected at the end of next year – will cover how well the market works and whether people are treated fairly. Crucially, it will not assess any need for more public funding but will look at local authority procurement and commissioning practices.
Care markets: January 2017
HC-One to sell off 70 homes to reduce £200m DEBT
HC-One is to sell off around 70 homes under a sale-and-leaseback arrangement to pay off £200m of debt. The care home provider has appointed CBRE and Gleacher Shacklock to facilitate the deal, which is designed to strengthen HC-One’s balance sheet.
A spokesman for HC-One said: ‘All the proceeds will go towards reducing our debt and making sure we have a prudent long term financial future.
‘Ensuring our care homes are stable and sustainable is always a top priority, and we will be working with long term investors and pension funds to achieve this.
‘This process will put us in a strong financial position, with almost double rent cover and long term tenancies. We will continue to own half of all our care homes.’
In the year ended 30 September 2015 HC-One experienced a 7.3% drop in revenues from £314.6m to £291.5m. Cost of sales stood at £302.5m (2014: £319.2m) including £13.1m of exceptional costs (2014: £10.1m) arising from restructuring costs, impairment on fixed assets, closure costs and onerous leases. After taking into account administrative expenses of £9.4m (2014: £9m) and other operating income at £0.5m (2014: £3.1m) HC-One was left with an operating loss of £21m (2014: £16.7m).
Subtracting £11.7m (2014: £0.4m) in losses on the disposal of fixed assets and interest charges of £2.5m (2014: £21.3m), largely arising from interest payable on intercompany loans, left HC-One with a pre-tax loss of £35.3m (2014: loss £21.3m).
The directors noted that the company’s gross profit on ordinary activities for the year ended 30 September 2015 amounted to £2.1m (2014: £5.5m) included £18.9m (2014: £18.3m) of depreciation. They said: ‘Excluding depreciation gross profit on ordinary activities was £21m (2014: £23.8m) the reduction resulting from decreased revenues of £23.1m, reduced payroll costs of £13m, reduced home running costs of £3.8m and reduced management charge of £2.6m.’
At the end of the report period, HC-One had net assets of £34.2m compared to £31.6m in net liabilities at the same time in 2014. Occupancy levels rose slightly to 89% from 88.6% and average weekly fees rose from £587 to £604. The number of non-compliant homes identified through regulatory and internal inspection dropped from 50 to 45 of HC-One’s homes.
A programme started in 2015 to invest more than £100m over five years to continue improving its estate and services. At the same time HC- One recapitalised to remove the loan balance that existed at 30 September 2014 of £83.6m relating to a £77m loan with fellow group companies plus accrued interest of £6.6m.
In November 2014, HC-One was acquired along with its parent company NHP Holdco 1 Limited by Formation Capital and Safanad in partnership with Court Cavendish from Libra No.2 Limited. The directors said: ‘The change in ownership removed the uncertainty and financial risk connected with the indebtedness of Libra No.2 Limited. The new structure properly funds the company and its plans for future development.
‘The new partnership has been created with the view to consolidating HC-One’s transformation and is planning to acquire further homes and diversify the care provided to include retirement villages, residential, nursing and homecare. In doing so, becoming an integrated health and social care provider working in collaboration with public sector commissioners delivering high quality and cost effective services.’
COMMunity care market news: July 2016
Aurelius Group acquires Allied Healthcare for £19m
After almost a year on the market, pan-European investor Aurelius Group has acquired Allied Healthcare, the UK’s largest domiciliary care provider, for £19m.
Under the deal, owners Saga plc will make a one-off contribution of around £10m to the Allied pension fund, which will be transferred as part of the transaction. At the beginning of this year Saga wrote down the value of the business to zero, but in a statement to the London Stock Exchange it said it now ‘expects to recognise a small net profit on the sale’.
Saga, however, will remain in the homecare market, but only offering domiciliary care services to self-paying clients. Announcing its intention to sell the businesses relying on public funding, the directors said ‘the parts of the Allied Healthcare business focussed on local authorities and the NHS do not fit with the Saga business model and the decision has been taken to divest this part of the business’.
As a result of challenging market conditions arising from government austerity measures the financial performance of the public sector facing Allied Healthcare business deteriorated and in January 2015 Saga announced its decision to exit the homecare sector with the exception of a small residual private pay business. By that time revenue from what was now classed as ‘discontinued operations’ had fallen to £283.2m for the year ending January 2015 with trading EBITDA of £9m.
Aurelius, which has offices in the UK and Germany, has bought three of the businesses under the Allied Healthcare brand. The largest, Visiting Care provides state-funded service users with complex care services in their homes. These services are commissioned by both local authorities and Clinical Commissioning Groups (CCGs).
It’s healthcare business Primecare provides outsourced primary healthcare services such as out-of-hours GP services, walk-in centres and dental practices, mainly on behalf of CCGs and acute NHS trusts. This also includes Allied Nursing, which supplies temporary clinical/medical staff. Allied also hold a majority interest in Homecare Independent Living, which provides homecare and other housing and support services in Northern Ireland and the Republic of Ireland. This will also now transfer to Aurelius.
Managing director of Aurelius in the UK, Tristan Nagler said: ‘The enormous pressures facing vital UK care service providers like Allied Healthcare as a result of cuts to local authority funding and the impending introduction of the National Living Wage are well known. Aurelius’ operationally engaged approach means it is well positioned to give Allied the actively managed operational backing required to weather these challenges and ultimately build a strong and sustainable business in a sector that continues to grow year on year.
‘This is the second complex carve-out transaction that Aurelius has made in the UK in Q4 2015; the deal further evidences our relevance for major UK corporates, such as Saga, seeking investment solutions for non-core assets.