RNS Number:4807P
Nestor Healthcare Group PLC
08 September 2003
8 September 2003
Nestor Healthcare Group plc
2003 Interim Results
Summary
2003 2002 2002**
Half Year Half Year Half Year
Restated
Turnover #213.2m #226.7m #245.9m
Operating profit* #12.1m #16.4m #18.1m
Profit before tax* #10.2m #14.6m
Profit before tax (FRS3) #6.2m (#6.5m)
Earnings per share* 9.89p 12.78p
Earnings per share (FRS3) 5.31p (10.67p)
Dividend per share 3.48p 3.48p
Cash flow from operations #19.1m #25.1m
*before goodwill amortisation and exceptional items
**2002 figures restated to 26 weeks
Highlights
* Results in line with expectations and reflect considerable investment
in both operating divisions.
* Strong operating cash generation continues with a further reduction in
working capital of #3.7m.
* The Personnel Division acquired 14 homecare businesses within the
period, generating excellent returns with little evidence of sales
attrition. Growth in the Homecare sector is offsetting reduced
activity within the NHS as underlying margins improve to 7.4%.
* In the Services Division, Primecare Primary Care, as anticipated,
recorded a loss due to the continuing migration of 29 call centres to 2
Clinical Response Centres, but saw turnover grow through price
increases with improving service quality levels.
* In Personnel, two major NHS contracts secured in the last month with an
annual value of #12m.
Antony Beevor, Chairman, commented:
"In July the Board announced that it had received an unsolicited approach
regarding a possible offer for the Company, and warned shareholders that there
could be no assurance that an offer would ultimately be made. That remains the
position. Shareholders will of course be notified of any significant
developments when appropriate.
The AGM statement described 2003 as a transitional year for the Group. Having
achieved our targets at the interim stage, the challenge in the second half of
the year is to deliver profit expectations as both operating divisions complete
major reorganisation projects. Whilst there is a great deal still to be achieved
in this period of change, the Group is currently on track to establish the
platform needed to take advantage of the major long-term opportunities that are
available".
- Ends -
Enquiries:
Justin Jewitt Martyn Ellis Toby Mountford/Seb Hoyle
Chief Executive Group Finance Director Citigate Dewe Rogerson
Tel: 01707 255 467 Tel: 01707 255 467 Tel: 020 7638 9571
Chairman's Statement
Summary
Profit before tax of #10.2m (before goodwill amortisation) is in line with
expectations following the AGM Trading Statement on 3 June 2003. The first half
of the year has seen considerable investment in both operating divisions in
reorganising the Primecare Primary Care business and re-engineering BNA's back
office systems. Both these projects are on track to be completed by the end of
2003. The excellent cash flow performance builds on the progress made in 2002
with a further reduction in working capital of #3.7m.
Change in comparative figures
In order to accommodate better the increasing Services element in our reporting,
Nestor's internal reporting timetable for 2003 has been changed to '4/4/5' week
accounting periods from last year's four-weekly periods. The result of this
change is that this year's Interim figures relate to the 26 weeks to 4 July
2003, whilst the published results for the 2002 Interims covered a 24-week
period to 14 June. In order to aid proper comparisons of performance, references
to '2002 restated' are an estimate of the Group's performance for the equivalent
26-week period in 2002.
Personnel Division
2003 - #m Turnover Operating Profit* Margin
Existing 139.8 10.4 7.4%
Acquisitions 12.0 2.4 20.0%
Total 151.8 12.8 8.4%
2002 restated 155.8 10.6 6.8%
2002 published 143.1 9.7 6.8%
*before goodwill amortisation and exceptional items
The Division has done well to continue to improve profitability despite the
anticipated reduction in NHS turnover. The improvement in underlying margin to
7.4% is an excellent performance with growth in the Homecare sector offsetting
reduced activity with the NHS. Most significantly, against the trend seen in the
first half, the Division has recently secured two major contracts with the NHS,
which are expected to generate #12m annual revenues. These contracts take effect
from the fourth quarter of 2003.
The Personnel Division's acquisition strategy has continued in the first half
with the purchase of a further 14 businesses in the Homecare market. In the
last twelve months 25 such acquisitions have been made at a cost of #23.2m with
purchase prices typically equivalent to 4 or 5 times historical operating
profit. These businesses are generating excellent returns with little evidence
of sales attrition.
Review of Market Sectors
Total NHS turnover declined by 15% from #87.3m (2002 restated) to #74.4m as the
impact of NHS Professionals continued to be evident with the loss of a limited
number of high volume, low margin contracts. Despite the turnover reduction,
gross profit from the NHS was only 1% down on the previous year.
However, pricing remains competitive and is increasingly subject to regional
framework agreements with PASA (the NHS Purchasing and Supplies Agency).
BNA has been most affected by these issues, but with the completion of the
project to reduce transaction costs and administration workload, with all back
office functions being centralised, branches will be more focused on sales and
marketing and so more able to address the changing market dynamics. To date 56
from the total of 150 BNA branches have completed the move to the revised
system, with the remainder scheduled to be transferred by the end of 2003.
In Homecare, the Division grew its turnover by 16%, from #42.6m (2002 restated)
to #49.3m and increased its regional coverage through the homecare businesses
acquired in the last twelve months.
In the Nursing Homes sector, turnover was down 10% to #13.2m, with margins
unchanged, reflecting the financial difficulties experienced by nursing home
operators that continue to hinder progress in this sector.
Turnover in other sectors increased by 32% to #14.9m (2002 restated: #11.3m)
with strong growth in the Forensic Health and Private Hospital markets. The
Medic Group, which specialises in the provision of temporary doctors and other
professionals allied to medicine, increased turnover substantially to #11.5m
reflecting underlying organic growth of 6% as well as the contribution from
Cornelle, a business acquired in 2002.
Services Division
2003 - #m Turnover Operating Profit* Margin
Existing 61.4 (1.5) (2.4)%
MAP Contract 0.0 0.8
Total 61.4 (0.7)
2002 restated
Existing 61.3 1.7 2.8%
MAP Contract 28.8 5.8 20.1%
Total 90.1 7.5 8.3%
2002 published
Existing 57.1 1.7 3.0%
MAP Contract 26.5 5.1 19.2%
Total 83.6 6.8 8.1%
*before goodwill amortisation and exceptional items
As anticipated the Services Division recorded a loss in the first half as
Primecare Primary Care establishes the platform required to provide its
out-of-hours GP service from two Clinical Response Centres.
Turnover for the period was #61.4m compared to #90.1m (restated 2002) when the
Division benefited from turnover of #28.8m from the MAP contract, which
terminated in October 2002. The published pre-tax profit for 2002 included #5.1m
contribution from the MAP contract (2002 restated #5.8m). The Division's result
in the first half of 2003 is enhanced by the release of a #0.8m balance sheet
provision established at the end of 2002 in respect of the MAP contract. This
provision is now released as all remaining material issues connected with the
contract have been finalised.
Primecare Primary Care
The Government's declared strategy of outsourcing key aspects of healthcare
provision was central to Nestor's acquisition of Healthcall in 2001. The recent
publication of the new GP contract, which enables GPs to contract out their
out-of-hours service, provides real impetus to our strategy, as few enterprises
will be capable of meeting the exacting standards imposed.
Most encouragingly turnover increased by 12% to #35.3m (2002 restated: #31.6m)
through the implementation of price increases, the acceptance of which not only
reflects the escalation in the cost of the doctors who deliver the service, but
also the improving quality levels being delivered by the business. However,
turnover growth in the first half was outstripped by the cost of the investment
in both people and technology required to comply with the quality requirements
of the Carson Standards.
17 of the original 29 call centres have been successfully transferred to the two
new Clinical Response Centres. The substantial completion of the migration by
the end of this year will establish a stable cost base and a platform from which
to drive the quality of service and the most efficient use of our clinical
resource. With the appropriate quality standards in place, the business should
establish a position of significant competitive advantage to encourage PCTs to
outsource their responsibility for out-of-hours primary care.
Other Services businesses
Primecare Forensic Medical, the provider of healthcare services to secure
establishments and Police authorities, continued to grow with turnover up 6% to
#6.8m (2002 restated: #6.4m). Operating margins have also exceeded expectations
with a number of new contracts added and the business currently has a strong
sales pipeline to continue its progress in the second half.
NDA's turnover reduced by 8% to #15.8m (2002 restated: #17.2m) but had little
impact on profitability with the continuing low margin, before allocation of
central overheads, of 2.5%.
Cash flow
Closing net borrowings were #67.8m (year-end 2002: #59.8m), with cash flow from
operations in the first half amounting to #19.1m (2002: #25.1m) and interest
cover of more than six times.
Working capital reduction produced a net cash in-flow of #3.7m as the ongoing
concentration on debtor management continued to reduce days outstanding.
Outflows included #12.9m in respect of acquisitions which, with the continuing
strategy, are expected to increase to approximately #30m by the end of the year.
Net capital expenditure of #3.4m relates largely to the equipping of the
Clinical Response Centres and will likely total #12m by the year-end, as the
project is completed.
Taxation
The tax charge for the period was #1.6m (2002: #2.8m), a rate of 15.6% (2002:
23.7%), before exceptional charges and goodwill amortisation. The Group
reorganised its legal structure in 2002 to achieve efficiencies in
administration, accounting, audit and compliance work. The reorganisation was
undertaken in a tax efficient way such that the tax charge for the half-year was
reduced by approximately #1.5m. Excluding this credit the tax rate, before
goodwill amortisation, would have been 30%. No further tax credits are expected
to arise from the reorganisation. Therefore the effective tax rate in the second
half of the year is expected to be 30%.
Dividends
The Board has approved an interim dividend of 3.48 pence per share which is
maintained at the same level as last year.
Market opportunities
Long-term opportunities for the Group continue to emerge as the Government seeks
to achieve its healthcare delivery targets with increased input from the private
sector. The Government has committed itself to substantial increases in
healthcare spending in the coming years with 75% of expenditure to be channelled
through PCTs from 2004 onwards. With a scarcity of suitable resource, leading to
rising demand for overseas clinicians, and an increasingly onerous regulatory
environment, it is inevitable that greater reliance will be placed on the
private sector. Nestor's market leadership position and quality standards mean
we are very well placed to service these opportunities in the future.
Chairmanship
In June, I signalled my desire to relinquish my role as non-executive Chairman
in order to reduce my overall level of commitments. I shall step down once a
successor has been appointed. The Company, through its Nominations Committee,
has worked with a leading firm of recruitment consultants and established a high
calibre shortlist of candidates from which an appointment can be made.
Outlook
In July the Board announced that it had received an unsolicited approach
regarding a possible offer for the Company, and warned shareholders that there
could be no assurance that an offer would ultimately be made. That remains the
position. Shareholders will of course be notified of any significant
developments when appropriate.
The AGM statement described 2003 as a transitional year for the Group. Having
achieved our targets at the interim stage, the challenge in the second half of
the year is to deliver profit expectations as both operating divisions complete
major reorganisation projects. Whilst there is a great deal still to be achieved
in this period of change, the Group is currently on track to establish the
platform needed to take advantage of the major long-term opportunities that are
available.
Antony Beevor
Chairman
Summary consolidated profit & loss account
for the 26 weeks ended 4th July 2003
26 weeks 26 weeks 26 weeks 24 weeks Year
to to to to to
4.7.03 4.7.03 4.7.03 14.6.02 31.12.02
Before Goodwill Total
goodwill amortisation
amortisation
#000 #000 #000 #000 #000
Turnover (note 2)
Existing 208,390 - 208,390 226,688 482,695
Acquisitions 4,770 - 4,770 - -
Continuing operations 213,160 - 213,160 226,688 482,695
Operating profit/(loss) (note 2)
Existing 10,965 (3,802) 7,163 (4,644) 11,506
Acquisitions 1,155 (215) 940 - -
Continuing operations 12,120 (4,017) 8,103 (4,644) 11,506
Exceptional gain on disposal of - - - - 800
subsidiary undertaking
Profit/(loss) on ordinary activities 12,120 (4,017) 8,103 (4,644) 12,306
before interest
Net interest payable (1,896) - (1,896) (1,816) (4,169)
Profit on ordinary activities before
taxation and goodwill amortisation 10,224 - 10,224 14,627 33,131
Goodwill amortisation - (4,017) (4,017) (3,937) (7,694)
Exceptional items - - - (17,150) (17,300)
Profit/(loss) on ordinary activities
before taxation 10,224 (4,017) 6,207 (6,460) 8,137
Taxation (note 4) (1,596) 5 (1,591) (2,826) (6,181)
Profit/(loss) on ordinary activities 8,628 (4,012) 4,616 (9,286) 1,956
after taxation
Equity minority interest 30 - 30 (14) (48)
Profit/(loss) attributable to 8,658 (4,012) 4,646 (9,300) 1,908
shareholders
Dividends (3,046) - (3,046) (3,043) (8,413)
Retained profit/(loss) for the period 5,612 (4,012) 1,600 (12,343) (6,505)
Earnings per share (note 5)
FRS 3 basis - basic 9.89p (4.58)p 5.31p (10.67)p 2.18p
Adjusted for goodwill amortisation and
exceptional loss - basic 9.89p - 9.89p 12.78p 29.83p
FRS 3 basis - diluted 9.86p (4.57)p 5.29p (10.60)p 2.18p
Adjusted for goodwill amortisation and
exceptional loss - diluted 9.86p - 9.86p 12.69p 29.78p
Dividends per share (note 6) 3.48p - 3.48p 3.48p 9.62p
Statement of total recognised gains and losses
for the 26 weeks ended 4th July 2003
26 weeks to 24 weeks to Year to
4.07.03 14.06.02 31.12.02
#000 #000 #000
Profit/(loss) for the period 4,646 (9,300) 1,908
Total recognised gains and losses 4,646 (9,300) 1,908
Reconciliation of movements in shareholders' funds
for the 26 weeks ended 4th July 2003
26 weeks to 24 weeks to Year to
4.07.03 14.06.02 31.12.02
#000 #000 #000
Profit/(loss) attributable to 4,646 (9,300) 1,908
shareholders
Dividends (3,046) (3,043) (8,413)
Shares issued during the period 92 731 763
Net increase/(decrease) in equity 1,692 (11,612) (5,742)
shareholders' funds
Opening equity shareholders' funds 87,535 93,277 93,277
Closing equity shareholders' funds 89,227 81,665 87,535
Summary consolidated balance sheet
as at 4th July 2003
4.07.03 14.06.02 31.12.02
#000 #000 #000
Fixed assets
Intangible fixed assets 149,509 133,570 139,243
Tangible fixed assets 13,189 12,603 12,741
Investments 1 28 1
Total fixed assets 162,699 146,201 151,985
Current assets/(liabilities)
Debtors 50,835 60,627 57,530
Cash at bank and in hand 2,380 668 9,196
Creditors - amounts falling due within one year (48,485) (59,188) (62,162)
Net current assets/(liabilities) 4,730 2,107 4,564
Total assets less current liabilities 167,429 148,308 156,549
Creditors - amounts falling due after more than one year (70,037) (60,369) (60,051)
Provisions for liabilities and charges (8,294) (5,947) (8,642)
Net assets 89,098 81,992 87,856
Capital and reserves
Share capital 8,752 8,743 8,747
Share premium account 43,109 42,994 43,022
Other reserves 864 864 864
Profit and loss account 36,502 29,064 34,902
Equity shareholders' funds 89,227 81,665 87,535
Equity minority interests (129) 327 321
89,098 81,992 87,856
Summary cash flow statement
for the 26 weeks ended 4th July 2003
26 weeks to 24 weeks to Year to
4.07.03 14.06.02 31.12.02
#000 #000 #000
Net cash inflow from continuing operating activities 19,074 25,068 54,144
(Note 7)
Payments in respect of exceptional items (1,243) (1,230) (2,300)
Returns on investments and servicing of finance (1,599) (1,468) (3,896)
Taxation (2,950) (1,629) (6,240)
Net cash flow before investing activities and dividends 13,282 20,741 41,708
paid
Net capital expenditure (3,395) (1,886) (6,743)
Acquisitions (note 3) (12,911) (4,594) (13,173)
Disposal of subsidiary undertaking 260 - 533
Equity dividends paid (5,373) (4,460) (7,499)
Financing:
Issue of shares 92 731 763
Capital element of finance lease payments (321) (675) (1,425)
Increase/(decrease) in loans 4,315 (12,170) (8,979)
(Decrease)/increase in cash (4,051) (2,313) 5,185
Notes
1. The interim financial information for the 26 weeks ended 4th July 2003
has been reviewed by PricewaterhouseCoopers LLP in accordance with guidance
issued in July 1999 by the Auditing Practices Board. Figures shown for the year
to 31st December 2002 are extracted from the published accounts for the year
which have been delivered to the Registrar of Companies. The Auditors' Report on
these accounts was unqualified and did not require a statement under section 237
(2) or (3) of the Companies Act 1985.
The Group continues to follow the accounting policies applied in the statutory
accounts for the year ended 31st December 2002.
2. For reporting purposes, the Group has been analysed between Personnel
(comprising British Nursing Association, the Grosvenor Group, the Medic Group,
Carewatch, CM2000 and Healthcall Business Communications) and Services
(comprising Primary Care, Nestor Disability Analysis, Forensic Medical Services
and Healthcall Optical Services).
The UK was the origin and destination of all the Group's turnover in both 2002
and 2003.
The operational analysis of turnover and operating profit is as follows:
26 weeks 24 weeks Year
to to to
4.7.03 14.6.02 31.12.02
#000 #000 #000
Turnover
Personnel 151,760 143,090 309,680
Services 61,400 83,598 173,015
Total 213,160 226,688 482,695
26 weeks 26 weeks 26 weeks 24 weeks Year
to to to to to
4.7.03 4.7.03 4.7.03 14.6.02 31.12.02
Before Goodwill Total Total
Goodwill Amortisation
Amortisation
#000 #000 #000 #000 #000
Operating profit before goodwill
amortisation and exceptional items
Personnel 12,843 - 12,843 9,659 22,919
Services (723) - (723) 6,784 14,381
Total 12,120 - 12,120 16,443 37,300
Total Operating profit
Personnel 12,843 (1,294) 11,549 8,848 20,869
Services (723) (2,723) (3,446) (13,492) (9,363)
Total 12,120 (4,017) 8,103 (4,644) 11,506
3. During the first half of 2003, the Group acquired fourteen businesses
at a cost of #14,251,000 of which #2,006,000 is deferred and contingent on post
acquisition performance. In addition, the Group acquired the remaining 49% of
the shares of Cleveland Healthcall Services Limited for #666,000. Total
goodwill arising on acquisitions was #14,283,000.
4. The corporation tax charge is based upon a tax charge of 30% on profit
for the period and is stated after a credit of #1,472,000 in respect of tax
relief claimable on the amortisation of goodwill arising from the Group
reorganisation in 2002 that resulted in an effective tax rate of 15.6% before
exceptional charges and goodwill amortisation. Following a change in the
legislation in June 2003, no further tax relief will be available in respect of
the amortisation of goodwill. The estimated effective tax rate on profit before
goodwill amortisation and exceptional items for the second half of 2003 and for
future years is 30%.
5. Basic earnings per share is calculated by dividing the earnings
attributable to ordinary shareholders by the weighted average number of ordinary
shares in issue during the period.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted to assume conversion of all dilutive potential ordinary
shares, which comprise employee share options.
The weighted average number of shares used in the calculations are set out
below:
26 weeks to 24 weeks to Year to
4.7.03 14.6.02 31.12.02
#000 #000 #000
Weighted average number of shares - basic 87,507 87,171 87,337
Weighted average number of shares - diluted 87,826 87,773 87,492
Supplementary basic and diluted earnings per share have been calculated to
exclude the effect of goodwill amortisation of #4,017,000 (interim 2002:
#3,937,000, final 2002: #7,694,000) in respect of the subsidiaries acquired by
the Group, exceptional losses of #nil (interim 2002: #17,150,000, final 2002:
#18,100,000) and exceptional gain on the disposal of subsidiary undertaking of
#nil (interim 2002: #nil, final 2002: #800,000) less the tax effect of these
adjustments of #5,000 (interim 2002: #645,000, final 2002: #846,000).
6. A dividend per share of 3.48p (interim 2002: 3.48p, final 2002: 6.14p)
will be paid on 17th October 2003 to shareholders on the register at the close
of business on 19th September 2003.
7. Notes to the cash flow statement
26 weeks to 24 weeks to Year to
4.07.03 14.6.02 31.12.02
#000 #000 #000
Reconciliation of operating profit/(loss) to net cash inflow
from operations
Operating profit/(loss) from continuing operations 8,103 (4,644) 11,506
Exceptional items - 17,150 18,100
Amortisation of goodwill 4,017 3,937 7,694
Depreciation 2,925 2,792 7,237
Net profit on sale of tangible fixed assets 370 3 149
Utilisation of provisions (474) (299) (1,778)
Decrease in debtors 8,516 5,397 11,563
(Decrease)/increase in creditors (4,383) 732 (327)
Net cash inflow from operating activities 19,074 25,068 54,144
Reconciliation of net cash flow to movement in net debt
(Decrease in cash and increase in overdraft)/increase in cash
and decrease in overdraft (4,051) (2,313) 5,185
Decrease in finance leases 321 675 1,425
Cash (inflow)/outflow from (increase)/decrease in debt (4,315) 12,170 8,979
(8,045) 10,532 15,589
Opening net debt (59,761) (75,350) (75,350)
Closing net debt (67,806) (64,818) (59,761)
8. Contingent liability
In 1993, CCHP (a partner in the Cross Country Staffing ("CCS") partnership)
commenced a programme of providing tax-free meal and lodging benefits ("Travel
Benefits") to the travelling nurses it employed. Such benefits were also
provided to nurses employed by CCS following the establishment of the CCS
partnership by CCHP and MRA Staffing Services Inc. (a former subsidiary of the
Group) on 1st July 1996. The portion of the programme providing meal
reimbursements was terminated on 1st June 1999 and applied to all contracts with
nurses entered into prior to 1st June 1999.
In November 1998, the Internal Revenue Service of the US (the IRS) issued a
payroll tax assessment of US$21.8 million for unpaid payroll tax in relation to
the Travel Benefits provided to nurses for the 1993 to 1995 tax years of CCHP
which were in the process of being reviewed by the IRS. On 23rd March 1999, CCHP
filed a claim against the IRS in the United States Court of Federal Claims
protesting this assessment.
CCHP and the Company have received advice from legal advisers in the United
States that CCHP should succeed in opposing this assessment, or be able to
settle the case for a significantly lower sum in relation to all tax years
during which the programme operated. The Company's liability for such settlement
would be limited to amounts relating to the period since 1st July 1996 (being
the date of establishment of the CCS partnership) and, taking this into account,
the Company's share of any liability would be approximately 22%, with W R Grace
& Co. being liable for substantially all of the remaining share.
Based upon the advice received, the directors do not believe it is appropriate
to make any provision in the interim statements.
9. This announcement is being sent to all shareholders and is available at
the Company's registered office: The Colonnades Beaconsfield Close, Hatfield,
Hertfordshire AL10 8YD.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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