annual report and accounts 2010
southern cross healthcare
southern cross healthcare annual report and accounts 2010
name chevaun varga
job title care assistant 
our care staff are the frontline troops  
in achieving our aim to make residents feel 
comfortable respected and well cared for  
at all times – in fact to make them feel as  
‘at home’ as possible and allow them to  
carry on with normal life we recognise  
that the professionalism of our staff is the  
most important factor in creating a caring 
environment which meets the needs and 
expectations of residents and their families 
alike we want southern cross to be universally 
recognised for the high quality of our care  
more than any other single factor it is our  
care staff who will achieve that for us
southern cross healthcare group plc
southgate house
archer street
darlington
dl3 6ah
t el 01325 351100
fax 01325 351144
wwwschealthcarecouk annual report and accounts 2010
southern cross healthcare
southern cross healthcare annual report and accounts 2010
name chevaun varga
job title care assistant 
our care staff are the frontline troops  
in achieving our aim to make residents feel 
comfortable respected and well cared for  
at all times – in fact to make them feel as  
‘at home’ as possible and allow them to  
carry on with normal life we recognise  
that the professionalism of our staff is the  
most important factor in creating a caring 
environment which meets the needs and 
expectations of residents and their families 
alike we want southern cross to be universally 
recognised for the high quality of our care  
more than any other single factor it is our  
care staff who will achieve that for us
southern cross healthcare group plc
southgate house
archer street
darlington
dl3 6ah
t el 01325 351100
fax 01325 351144
wwwschealthcarecouk 20102011 financial calendar
interim results – 10 may 2011
financial year end – 30 september 2011
registered office
southern cross healthcare group plc
southgate house
archer street
darlington
county durham dl3 6ah
registered number
05328138
registrars
capita registrars
northern house
woodsome park
fenay bridge
huddersfield
west yorkshire hd8 0ga
brokers
morgan stanley securities limited 
20 bank street 
canary wharf 
london e14 4ad
ubs limited
1 finsbury avenue
london ec2m 2pp
chartered accountants and statutory auditors
pricewaterhousecoopers llp
89 sandyford road
newcastle upon tyne ne1 8hw
solicitors
dla piper uk llp 
princes exchange 
princes square 
leeds ls1 4by
clifford chance llp
10 upper bank street
london e14 5jj
bankers
barclays bank
1 churchill place
canary wharf
london e14 5hp
shareholder enquiries
if you have any enquiries as a shareholder please contact 
david smith group finance director on 01325 351100 
or via email davidsmithschealthcarecouk
website wwwschealthcarecouk
shareholder  
information
our services
we provide an 
extensive range of 
healthcare services 
including
nursing care homes
 nursing care homes offer an additional level of care to residential care homes 
qualified nurses provide 24 hour specialist nursing care for a range of clinical 
needs such services may involve palliative care dementia care postoperative 
care or respite care all tailored to the needs of the individual
residential care homes
southern cross offer a number of residential care homes which are designed 
specifically to cater for the needs of those who find difficulty caring for 
themselves at home but wish to retain their independence all southern  
cross care homes are staffed 24 hours a day by trained carers whose goal  
is to maintain the quality of life of those for whom they care
specialist care
southern cross offers care for people with a variety of special needs in both 
residential and nursing care homes our aim is to provide a safe and supportive 
environment which is sensitive to the everchanging needs of these residents
operating highlights
available beds increased to 38603 at the period •	
end 2009 3812 4 beds
 number of homes operated increased  
•	
to 752 at the period end 2009 7 44
 average occupancy 848 2009 87 7 average 
•	
occupancy restated for marketable beds of 87 8
 average weekly fee increased by 22  
•	
to £558 2009 £546
 significant progress made towards improving 
•	
overall service quality with 82 cqc suspended 
ratings nationally in june 2010 judged excellent 
or good up from 81 in march 2010 77  
in september 2009 and 71  in may 2009
self funding admissions up from 17 of total •	
admissions in march 2 01 0 to 2 0 in september 2 01 0
financial highlights
 home ebitdar before central costs decreased  •	
by 33 to £2809m 2009 £2906m
 adjusted ebitda of £534m 2009 £725m
•	
 adjusted earnings per share for the period  •	
of 7 65p 2009 1 7 65p
net debt at period end reduced by £258m  
•	
to £7 3m
revision to existing banking arrangements 
•	
including an improvement in the fixed charge 
covenant from 123x to 11x
statutory financial highlights
  revenue increased by 23 to £9586m  •	
2009 £93 7 1m
 operating loss £441m 2009 loss of £127m  
•	
after a noncash charge of £513m 2009 £518m 
for future minimum lease increases under ias1 7  
and exceptional charges of £63m 2009 £nil 
excluding these charges operating profit was  
£135m 2009 £391m
basic loss per share for the period of 1951p  •	
2009 1 175p loss
notes
mature occupancy excludes immature beds newly developed homes  
or refurbished homes which have been trading for less than 12 months
home ebitdar represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets held for sale onerous contracts and related 
impairments and rent 
adjusted ebitda represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets onerous contracts and related impairments and 
charges for future minimum rental increases and exceptional central costs
adjusted earnings per share is defined as earnings before charge for future  
minimum rental increases exceptional central costs onerous contracts and  
related impairments loan arrangement fees written off loss on disposal of  
property plant and equipment and subsidiary undertakings and impairment  
of freehold assets held for sale and the taxation impact thereof divided by  
the weighted average number of shares
at the start of the financial period the group changed its internal reporting  
cycles and now reports on a calendar monthly basis previously the group reported  
13 periods of 4 weeks the results for the period ended 30 september 2010 are 
therefore for a period of 368 days 2009 364 days
central 
199 21 active homes
south 
166 18 active homes
scotland and northern ireland 
124 2 active homes
national  
support centre
darlington
head office  
woking
north
214 8 active homes
703
elderly care homes
49
active care homes
our locations 20102011 financial calendar
interim results – 10 may 2011
financial year end – 30 september 2011
registered office
southern cross healthcare group plc
southgate house
archer street
darlington
county durham dl3 6ah
registered number
05328138
registrars
capita registrars
northern house
woodsome park
fenay bridge
huddersfield
west yorkshire hd8 0ga
brokers
morgan stanley securities limited 
20 bank street 
canary wharf 
london e14 4ad
ubs limited
1 finsbury avenue
london ec2m 2pp
chartered accountants and statutory auditors
pricewaterhousecoopers llp
89 sandyford road
newcastle upon tyne ne1 8hw
solicitors
dla piper uk llp 
princes exchange 
princes square 
leeds ls1 4by
clifford chance llp
10 upper bank street
london e14 5jj
bankers
barclays bank
1 churchill place
canary wharf
london e14 5hp
shareholder enquiries
if you have any enquiries as a shareholder please contact 
david smith group finance director on 01325 351100 
or via email davidsmithschealthcarecouk
website wwwschealthcarecouk
shareholder  
information
our services
we provide an 
extensive range of 
healthcare services 
including
nursing care homes
 nursing care homes offer an additional level of care to residential care homes 
qualified nurses provide 24 hour specialist nursing care for a range of clinical 
needs such services may involve palliative care dementia care postoperative 
care or respite care all tailored to the needs of the individual
residential care homes
southern cross offer a number of residential care homes which are designed 
specifically to cater for the needs of those who find difficulty caring for 
themselves at home but wish to retain their independence all southern  
cross care homes are staffed 24 hours a day by trained carers whose goal  
is to maintain the quality of life of those for whom they care
specialist care
southern cross offers care for people with a variety of special needs in both 
residential and nursing care homes our aim is to provide a safe and supportive 
environment which is sensitive to the everchanging needs of these residents
operating highlights
available beds increased to 38603 at the period •	
end 2009 3812 4 beds
 number of homes operated increased  
•	
to 752 at the period end 2009 7 44
 average occupancy 848 2009 87 7 average 
•	
occupancy restated for marketable beds of 87 8
 average weekly fee increased by 22  
•	
to £558 2009 £546
 significant progress made towards improving 
•	
overall service quality with 82 cqc suspended 
ratings nationally in june 2010 judged excellent 
or good up from 81 in march 2010 77  
in september 2009 and 71  in may 2009
self funding admissions up from 17 of total •	
admissions in march 2 01 0 to 2 0 in september 2 01 0
financial highlights
 home ebitdar before central costs decreased  •	
by 33 to £2809m 2009 £2906m
 adjusted ebitda of £534m 2009 £725m
•	
 adjusted earnings per share for the period  •	
of 7 65p 2009 1 7 65p
net debt at period end reduced by £258m  
•	
to £7 3m
revision to existing banking arrangements 
•	
including an improvement in the fixed charge 
covenant from 123x to 11x
statutory financial highlights
  revenue increased by 23 to £9586m  •	
2009 £93 7 1m
 operating loss £441m 2009 loss of £127m  
•	
after a noncash charge of £513m 2009 £518m 
for future minimum lease increases under ias1 7  
and exceptional charges of £63m 2009 £nil 
excluding these charges operating profit was  
£135m 2009 £391m
basic loss per share for the period of 1951p  •	
2009 1 175p loss
notes
mature occupancy excludes immature beds newly developed homes  
or refurbished homes which have been trading for less than 12 months
home ebitdar represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets held for sale onerous contracts and related 
impairments and rent 
adjusted ebitda represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets onerous contracts and related impairments and 
charges for future minimum rental increases and exceptional central costs
adjusted earnings per share is defined as earnings before charge for future  
minimum rental increases exceptional central costs onerous contracts and  
related impairments loan arrangement fees written off loss on disposal of  
property plant and equipment and subsidiary undertakings and impairment  
of freehold assets held for sale and the taxation impact thereof divided by  
the weighted average number of shares
at the start of the financial period the group changed its internal reporting  
cycles and now reports on a calendar monthly basis previously the group reported  
13 periods of 4 weeks the results for the period ended 30 september 2010 are 
therefore for a period of 368 days 2009 364 days
central 
199 21 active homes
south 
166 18 active homes
scotland and northern ireland 
124 2 active homes
national  
support centre
darlington
head office  
woking
north
214 8 active homes
703
elderly care homes
49
active care homes
our locations 01  southern cross healthcare group plc 
annual report and accounts 2010
overview
overview
southern cross healthcare 
continuously striving to provide 
excellent affordable personalised 
care at the heart of the 
communities we serve
overview 
highlights of 2010  ifc
chairman’s statement  02
business review
questions and answers from  
our director of care   06
chief executive’s statement  08 
financial review  16
corporate social responsibility 20
management and governance
directors and officers  24
executive committee   26
directors’ report  28
corporate governance  31
remuneration report  37
consolidated financial statements and notes
independent auditors’ report to  
the members of southern cross  
healthcare group plc group  44
consolidated income statement  45
consolidated balance sheet 46
consolidated cash flow statement  47
consolidated statement of  
changes in shareholders’ equity 48
notes to the consolidated  
financial statements  49
company financial statements and notes 
independent auditors’ report to  
the members of southern cross 
healthcare group plc company 78
company balance sheet  79
company statement of changes 
in shareholders’ equity  79
statement of accounting policies  80
notes to the financial statements 81
other information
threeyear record  83
shareholder information  ibc 02  southern cross healthcare group plc 
annual report and accounts 2010
overview
chairman’s  
statement
ray miles
nonexecutive director and chairman
strategic focus
during the period we maintained a clear strategic focus on the 
group’s new horizons change programme the aim of which is  
to create an organisation capable of providing universally trusted 
levels of care based on the respect and dignity of the individual 
and delivered in modern high quality accommodation to some 
extent the operational imperatives underlying this programme  
– improving the quality of our service delivery investing in the 
development of our people and management systems and 
capturing efficiency savings – have been given more immediacy  
by the need to meet the challenges posed by the macroeconomic 
factors impacting the group
in common with other sectors economic uncertainty was 
prevalent during the period under review the period started 
positively before conditions became more difficult as concerns 
grew about the public deficit and future government policy 
including the significant impact of likely cuts in public spending  
to be announced in the autumn comprehensive spending review 
this was always likely to have a substantial impact on a business 
so reliant on local authority funding
against this backdrop the group experienced lower admissions 
than seen for some time resulting in a fall in occupancy rates  
in addition fee negotiations with local authorities became more 
difficult at the same time cost pressures continued unabated 
including the negative effects of rent escalation rising minimum 
wage and higher utility costs
against this background the need for delivering the new horizons 
programme is clearer than ever its main objectives are to
enhance care delivery so that we are ultimately recognised  •	
as the most trusted care home group in the uk
increase the number of selffunding residents thus reducing •	
our dependence on public funding and improving margins
improve efficiency so that everything is done in a better  •	
more effective and lower cost manner
reorganise our management structure to create a flatter  •	
more responsive and accountable management team 
in all of these we have made substantial progress during the 
period but there is still much to be done
as announced on 25 november 2010 the board has been 
approached by other parties expressing potential interest in the 
group the approaches are still preliminary in nature and the 
board continues to believe it to be in shareholders’ interests to 
continue to hold exploratory discussions
in common with other sectors 
economic uncertainty was 
prevalent during the period  
under review the period started 
positively before conditions became 
more difficult as concerns grew 
about the public deficit and future 
government policy including the 
significant impact of likely cuts in 
public spending to be announced 
in the autumn comprehensive 
spending review this was always 
likely to have a substantial impact 
on a business so reliant on local 
authority funding 03  southern cross healthcare group plc 
annual report and accounts 2010
overview
overview
financials 
the macroeconomic factors described above combined to 
negatively impact group results and in march we lowered market 
expectations for the full year outturn an adjusted ebitda of £534m 
was achieved compared with £725m in 2009 and £781m in 2008 
revenue grew by 23 to £9586m from last year’s £9371m home 
ebitdar margin before central costs has fallen by 17 to 293 
occupancy in our mature homes fell from 884 to 861
net debt fell further by £258m to £73m a significant achievement 
given the underlying trading environment the group continues to 
pursue its policy of further reducing debt and therefore the board 
has decided not to propose a final dividend for fy2010 
on 19 may we announced we had consolidated the group’s 
banking arrangements into a revised amortising £50m revolving 
credit facility rcf this facility replaced all the group’s existing 
bank facilities and reduced the number of syndicate lenders  
from eight banks to two i am pleased to report that following 
recent discussions with the group’s lenders revisions to the 
existing banking arrangements were agreed on 6 december 2010 
the facility now comprises an amortising £45m rcf repayable in 
september 2012 with the fixed charge covenant relaxed from 
123x to 11x 
industry developments
in july 2010 the government launched its commission on the 
funding of care and support known as the dilnot commission  
to examine the future provision and funding of care in the uk 
southern cross fully supports the work of this important body  
and made an early initial submission to it 
we look forward to working with the commission to help it reach  
a balanced view of how our society can provide affordable and 
sustainable care capable of meeting the longterm needs of an 
ageing population in particular we believe the commission should 
play a critical role in encouraging local authorities the nhs and 
care providers such as ourselves to work together in developing  
the services required to meet the future needs of an ageing 
population such collaboration should enhance the care delivered 
to our elderly population whilst generating better value for all 
those who commission care and moving us towards a system 
which pays providers the true cost of care and alleviates current 
imbalances in fee rates around the country
the nhs is changing with gp consortia about to assume 
responsibility for commissioning replacing pcts in this regard  
they will be responsible for organising healthcare and deciding 
which services to buy and from whom while remaining focused 
on our core elderly care services we will continue to respond 
flexibly to changing market demands and take advantage of the 
opportunities presented this will include offering more specialised 
care – for example in dementia palliative and step down care as 
people’s perception of appropriate personalised care for individuals 
evolves this will also involve greater levels of day care provision 
outreach care in the community and shortterm and respite care 
as local authorities seek to encourage and support people to stay 
in their own homes with support for as long as practicable 
at the heart of the 
local community
at southern cross we encourage our residents to enjoy 
as active and independent a lifestyle as possible our 
approach to care is based on treating every resident as an 
individual not only with regard to their specific care and 
nursing requirements but also with an eye to enabling 
them to pursue the interests hobbies and activities they 
have always enjoyed and gained so much from 
one area where this strategy is particularly appreciated 
by residents is relations with the local community in which 
they live there is no reason why they should not continue 
to play a valuable role in the life of their local community 
– just as they have always done that’s why we encourage 
residents and their families to get involved with a wide 
number of community related activities these may 
include for example raising money for the special baby 
unit at the local hospital or making a contribution to a 
local youth sports group or fundraising for local or national 
charities the choice is endless – and any funds raised  
by our individual homes are topped up or matched by  
a central donation from southern cross itself 
we are proud of our residents’ record for helping a wide 
range of deserving causes and see it as a vital part of them 
remaining an active motivated and appreciated section  
of society 
of course community engagement is a twoway process 
as well as reaching out into local communities we also 
encourage others to see our care homes for what they are 
– vitally important local amenities and vibrant communities 
in themselves residents can benefit enormously from 
regular visits from for example local school children and 
theatre groups or others such as crafts and pet therapy 
specialists in this way as wide a range of people as 
possible can see that they have a role to play in the  
wellbeing of elderly people in our communities  05  southern cross healthcare group plc 
annual report and accounts 2010
overview
overview
chairman’s statement 
continued
landlords
during the period the group engaged morgan stanley to review  
its lease arrangements with landlords all leases are subject to 
escalation clauses whilst many are fixed a significant number  
of rents are tied to rpi resulting in rents currently rising faster  
than the fees we charge this work is ongoing and the group has 
entered into a dialogue with some of its landlords to explore ways 
in which rents might be restructured to provide greater stability 
and a stronger covenant
people
the group remains a significant employer with a dedicated team 
of over 43000 people working in homes across the uk i never  
fail to be impressed by the commitment and expertise of our  
staff so often displayed in testing circumstances for most  
their job is more than a way of earning a living – it is a vocation 
increasingly we seek to recognise this in our comprehensive 
training programmes and remuneration packages our people  
are one of the reasons that i am optimistic about the future  
on behalf of the board i thank colleagues throughout the  
business for their outstanding contribution in a difficult year 
in august irene gray joined the company as director of care  
this is an important milestone her appointment is a clear 
demonstration of the group’s commitment to take the lead  
in clinical governance and deliver dependable high quality  
services which are respected by those who commission care  
as well as by residents and their families
notwithstanding we see difficult trading conditions in the short 
term we remain as determined as ever to forge ahead with  
our change programme which we confidently expect to deliver 
longterm industryleading levels of quality and service this will 
put southern cross in a strong position to take advantage of the 
demographic trends that continue to indicate a longerterm 
increase in average age and demand for elderly care services
ray miles 
chairman
name tom spence 
job title activities coordinator 
enabling our residents to be as physically  
and mentally active as they want to be is a 
cornerstone of our holistic approach to care  
in each of our regions we have members of 
staff such as tom whose role is to ensure  
that residents have access to a wide range  
of activities catering to as many tastes  
abilities and hobbies as possible these can 
range from gardening to fundraising for  
worthy local causes from craftwork to  
musical and theatrical performances  
from games such as carpet bowls to  
outings to local places of interest
notwithstanding we see difficult 
trading conditions in the short 
term we remain as determined 
as ever to forge ahead with  
our change programme which 
we confidently expect to deliver 
longterm industryleading 
levels of quality and service 06  southern cross healthcare group plc 
annual report and accounts 2010
business review
questions and answers from irene gray  
– our new director of care
q you recently joined southern cross after a career spent  
in the nhs what persuaded you to join the company
a throughout my career my primary clinical interest has always 
been the care of the elderly after 38 years in the nhs as a 
registered nurse including 24 years as an executive i was looking 
for an opportunity which would draw on my experience and where 
i could make a real difference i was impressed by southern cross’ 
challenging journey to put care at the heart of everything they do 
and to support and influence the national agenda as we care for 
some of the most vulnerable people in society it is critical that care 
providers have the vision and the ability to deliver the best possible 
standards to be able to lead on developments in care is quite 
clearly a privilege
q what do you see as the particular challenges facing the 
industry
a with an expanding elderly population and tight local authority 
budgets the most obvious challenge is how to provide levels of 
personal care which meet the expectations and needs of current 
and future generations whilst at the same time making sure that 
care remains affordable and of the highest quality
without question my priority is  
to develop a strategy for care 
which is enthusiastically adopted 
and ‘owned’ by all our staff and 
which clearly sets out our route 
towards excellence in providing 
care services
q what are the main priorities facing southern cross
a last year we launched our new horizons change programme 
which puts quality of care right at the heart of everything we do  
the aim is simply to make ours the most trusted and sought after 
care experience in the country southern cross is aiming to become 
the industry benchmark for excellence in care provision that means 
creating a strategy for care which demonstrably meets the needs  
of all our residents and provides outstanding and affordable 
personalised care 07  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
q how will you know that you have been successful
a there are four ways in which we will know first and foremost  
it will be evident in the number of our homes rated as good  
and excellent secondly partnerships will be strengthened with  
our commissioners and other key stakeholders and they will 
demonstrably support and engage with us in our future plans 
thirdly staff turnover so often a negative factor in maintaining 
high quality care services will reduce and finally our occupancy 
levels will improve as our name becomes synonymous with 
excellence in addition to that of course we will know simply 
because our residents and their families will tell us how we  
are doing 
q what is your vision of future care provision
a the service of the future will undoubtedly look and feel different 
most importantly it will be of a uniformly high quality more 
responsive to the needs of society and always open to further 
change in order to meet the needs of future generations 
improvements will come through the profession’s responsiveness  
to the needs of the elderly communities we serve with greater 
rehabilitation and domiciliary support allowing elderly people to stay 
longer in their own homes one of the highest expectations i have is 
to see significant improvements in the care of people with dementia
above all the service of the future will be based on individualised 
care our ability to deliver the full range of personal care services to 
the people who need them will be judged on our ability to do so in 
a way which at all times respects and preserves the dignity of the 
people who rely on what we do
success in delivering our strategy for care will lead to southern 
cross becoming a magnet for the highest calibre of staff in the 
industry throughout their career we aim to offer all our dedicated 
staff continuous inpost training and personal development  
this approach will serve to improve job satisfaction and reduce 
staff turnover 
q what do you see as your own main goal for the coming year
a without question my priority is to develop a strategy for care 
which is enthusiastically adopted and ‘owned’ by all our staff and 
which clearly sets out our route towards excellence in providing 
care services the strategy will deliver a framework to strengthen 
and improve standards in care practices and make significant 
inroads to redesigning the way we deliver dementia care and  
end of life care a vital part of this – and it is central to the new 
horizons programme – will be to invest in the fabric and facilities  
in each of our homes over a planned period of time and to 
improve the quality rating of all homes across the group 
q do you believe that the group can achieve its objective of 
becoming the most trusted care provider in the uk
a yes i do everything we do is focused on continuously  
improving the quality of care we offer our residents and their 
families the quality of the care we provide depends on the quality 
and motivation of the staff in our homes we want the best staff  
in the profession so training will continue to be a prime focus  
new horizons is already delivering positive results and i have  
no doubt that we can achieve our goals we want our name to  
be synonymous with the highest levels of care quality available 
anywhere this objective is not out of reach we simply need to 
recognise the challenges agree our approach and week in week 
out focus on delivering continuous improvement but success will 
not come overnight and our priority is to ensure that progress is 
sustainable and therefore delivery must be paced that is why the 
new horizons programme is planned to extend over several years  08  southern cross healthcare group plc 
annual report and accounts 2010
business review
chief executive’s 
statement
jamie buchan 
chief executive
overview
during the period we have made significant progress towards 
transforming the business such that by 2015 we become 
recognised as providing the most trusted and sought after care 
experience in the uk in pursuit of this aim we successfully 
completed the first phase of our internal change programme  
new horizons which i introduced in last year’s report and for 
which the following objectives end calendar year 2011 have  
been communicated
improving service quality such that at least 85 of our  •	
homes are externally judged good or excellent
adding 1200 self funding residents thereby raising their •	
proportion of total residents to 22
reducing home manager turnover to 22 per annum •	
reengineering the group’s cost structure to achieve savings  •	
of at least 1 of revenue
overall we believe that the new horizons programme will generate 
between £15£20m of annualised value to the business by the end 
of 2011 together with a transformed operational capability 
my priorities for the business  
are as follows 
• 	 	 i m p r o v e 	 c a r e 	 d e l i v e r y 	 t o 	 o u r	
residents in a measurable  
and sustainable way 
• 	 	 g r o w 	 o u r 	 s h a r e 	 o f 	 d e m e n t i a 	 
end of life and ‘step down’  
care markets 
• 	 	 i n c r e a s e 	 t h e 	 n u m b e r 	 o f 	 s e l f	
funding and copaying residents 
• 	 	 a c h i e v e 	 r e a l 	 r e d u c t i o n s 	 i n 	 c o s t	 
to serve 
• 	 	 i n v e s t 	 i n 	 o u r 	 c a r e 	 h o m e s 	 a n d	 
in the staff who deliver care
name harry carson 
job title catering manager
if an army marches on its stomach then the 
same can be said of residents in care homes  
a balanced healthy diet is absolutely vital for 
people who are perhaps no longer as active as 
they once were behind the scenes an army of 
catering managers such as harry ensure that 
our residents up and down the country receive 
three good square meals every day catering  
as far as possible to individual preferences and 
requirements harry works closely with southern 
cross’ dedicated experts to ensure that the 
meals we serve are nutritious appetising and 
well cooked business review 10  southern cross healthcare group plc 
annual report and accounts 2010
business review
chief executive’s statement 
continued
new horizons
1 organisation structure
in order to enable the business to meet its objectives  
between february and july of this year we undertook a major 
reorganisation of our field operations and central functions  
we delayered our operations function from seven to four 
management levels exiting 38 of operations staff above  
home manager level and invested the savings in
decentralising operations to four pl accountable regions •	
establishing a care function •	
establishing a full human resources function •	
establishing a sales capability •	
whilst the reorganisation has not been without its challenges  
it is already clear that the new structure has led to improved care 
quality lower number of embargoed homes and a better sales 
mix more self funders whilst empowering home managers to 
develop their businesses for the benefit of the communities which 
they serve 
regional business units
our four new regional directors have fully established their 
regional teams in which 33 area managers each with a team  
of c21 home managers play the central role within each area 
home managers are further supported by a local team of subject 
matter experts covering people management training sales 
development and business analysis in addition each area 
manager team is supported by a dedicated care quality advisor 
responsible for raising standards of care 
care function
our overriding obligation and commitment is to deliver excellent 
affordable personalised care to our residents and we have made 
strong progress in the creation of a care function within the group 
in february we created over sixty new fieldbased roles including 
a national team of service quality inspectors who inspect every 
one of the group’s homes on a riskassessed frequency against  
a set of demanding standards based on individual resident 
outcomes in august the group announced the appointment  
of professor irene gray to lead the function as director of care 
irene’s job is to raise standards of care and clinical governance 
across the portfolio and to act as a champion for the development 
of the nursing and care profession within southern cross 
a revised clinical governance system has also been introduced  
to provide assurance over standards new systems are being 
deployed to analyse key care data with the objective of 
establishing a set of indicators which will allow the group to  
predict homes which are failing and consequently to adopt  
an early intervention approach
we have continued to make good progress against our target  
for improving the quality of care delivered in our homes the table 
below shows that the number of homes in england judged by  
the external regulator as good or excellent had risen 5 to 82  
by q3 of 2010 full year figures are not available as the care quality 
commission discontinued their star rating system in june the 
group is confident however that its internal quality inspection 
process will continue to drive standards up whilst reducing the 
number of poor and adequate homes
 sch sch  
 2010 2009 
 q3 full 
cqc scoring
1
 actual actual
goodexcellent 82 77
pooradequate 18 23
 
1
  cqc no longer update their quality scores following the implementation of the 
new standards under the health and social care act 2008
people management
ours is a people business and i am very pleased indeed with  
the progress which has been made in delivering a comprehensive 
set of people management services to our care homes
during the period the group introduced a full suite of processes 
covering staff recruitment induction performance appraisal and 
training a national hr support hub was created to act as a one 
stop shop for all internal people processes and enquiries covering 
our 43000 staff in addition a national training organisation 
embedded within our regional business units has been created  
to act as the delivery vehicle for statutory clinical and management 
training across all staff groups in particular our home managers 
have received training in business management and finance 
people management and sales which has already paid dividends 
in reducing staff turnover by 3 and in increasing the numbers  
of self funding residents within our homes overall i am confident 
that an improved level of staff engagement has been achieved
we are committed to further developing and refining training 
opportunities for everybody in the business having the best trained 
staff in the sector is not only the right and responsible thing to do 
for our people it is absolutely central to our business model high job 
satisfaction and motivation levels will lead directly to better quality 
service delivery which will enhance our reputation  11  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
during the period the group invested in the creation of a human 
resources database which will go live in early 2011 and which will 
capture all staff records thereby enabling a wide range of people 
management and efficiency programmes to be undertaken
a time and attendance rostering system is being rolled out across 
all homes indications from the first 60 homes to use this system 
are that labour costs are reduced by more than 1 as a result  
of greater control and accuracy of rostering the system will also 
enable the set up of internal staff bank groups which the group 
believes will lead to a reduction in agency costs
sales 
one of the priorities we have set ourselves is to improve the 
group’s penetration of the self funding market during the period 
the average weekly fee for self funding residents was £668 versus 
£534 for residents whose care was funded by local authorities 
the group has developed a new sales process supported by an 
online enquiry management system and a small national sales 
call centre following a successful pilot in the south of england 
which showed an increase in self funder admissions of up to  
50 250 home managers across the uk have been fully trained  
in our new sales process in order to support home managers  
in achieving sales targets we recruited experienced sales 
development professionals within each regional business unit  
in addition the group’s website has been updated with improved 
functionality and an enhanced ability to drive sales enquiries 
2 segmentation and cost management 
during the period we introduced an internal business segmentation 
model in order to help drive performance simplify management 
communication and inform capital investment decisions
each home has been classified within one of five segments 
according to its sales opportunity and cost structure each segment 
has distinct operating characteristics and margin potential 
‘premium’ •	 capable of over 60 of self funder penetration  
at premium prices
‘plus’ •	 capable of over 30 self funder penetration
‘la major’ •	 large cost efficient homes focused on local  
authority provision
‘la minor’ •	 less efficient homes focused on local  
authority provision
‘cosy’ •	 small less than 35 bed homes
in turn homes are also accorded the following status
‘mover’ capable of moving into a more attractive segment •	
‘improver’ capable of improvement within the  •	
existing segment
‘trend’ operating at an acceptable level within the  •	
existing segment 
the group believes that approximately 200 homes can be 
positioned in the ‘premium’ and ‘plus’ segments and that  
over 300 homes have ‘mover’ or ‘improver’ potential 
in may of this year each area manager used the segmentation 
model in preparing area business plans collaboratively with home 
managers this process has further enabled the development of 
simple focused plans for each home and improved stewardship
during the period the group invested £303m in maintaining  
and improving the portfolio more than meeting its commitment 
from last year a director of property services was hired to lead  
the investment programme and to ensure that its execution 
optimised returns according to the segmentation methodology 
progress has been made in reengineering the cost base the 
group began a comprehensive review of central procurement  
and this work is two thirds complete with approximately £2m  
of annualised savings already captured in telecommunications 
utility supply and food a review has also been undertaken in 
repairs renewals and improvements where the group spends 
approximately £70m per annum labour and materials as a result 
i am very pleased to announce the appointment of bovis lend 
lease as our strategic partner for the provision of maintenance 
and refurbishment services across our national network of 752 
homes we believe the partnership with bovis lend lease will  
lead to improved standards of service to our home management 
teams and therefore our residents greater operational integrity 
and a more efficient use of the group’s cash resources the group  
is also in the process of reviewing its catering arrangements where it 
spends c£80m per annum labour and materials in order to improve 
both the quality and cost effectiveness of this important service
industry 
during the period the increase in fees paid by local authority 
commissioners fell materially below the rate of inflation in addition 
older people placed into the group’s care are increasingly frail  
on admission and have increasingly acute needs often involving 
dementia which require higher levels of personal attention by  
our nurses and carers 
the care industry is largely dependent on state funding through 
either local authorities or the national health service it is our  
view that this funding model is not sustainable in the future as  
the proportion of elderly people with acute care needs continues 
to increase the group has recognised this in its twin objectives of 
improving standards of care and in attracting a higher proportion 
of selffunding and copaying residents that said the provision  
of services to public commissioners will remain our key market  
for some considerable time and consequently we have actively 
raised our industry profile during the lead in to the government’s 
comprehensive spending review csr  13  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
chief executive’s statement 
continued
our objective in engaging with government was to gain 
recognition of the proper economic and social value of care 
services such as those delivered by the group to that end  
the group highlighted
the value for money provided by residential care versus  •	
the true cost of providing other forms of care for example  
‘extra care’ and domiciliary care
continued inefficient local authority provision and •	
commissioning conflict
the opportunity for care homes to provide a wider range  •	
of services to the nhs at significantly lower cost
the outcome of the csr was disappointing local authorities  
face reductions in their budgets of 26 over the four years 
commencing april 2011 and social care is not ring fenced we remain 
deeply concerned that local authorities will reduce expenditure  
on care for older people by increasing eligibility criteria thereby 
leaving vulnerable people without the access to appropriate forms 
of care and by depressing fees to increasingly unsustainable levels
the group welcomes the setting up of the dilnot commission  
into the funding of long term care this development gives  
the industry in general the opportunity to influence the future 
funding of appropriate elderly care provision in the uk and to 
debate the benefits of different models of care provision with  
a clear understanding of the true costs of each model we will 
continue to work closely with the commission which will report  
next summer
portfolio
southern cross operates 752 homes across the uk during the period 
the group added 479 new beds at the beginning of fy2011 the 
group took the decision to recategorise 1303 rooms previously 
marketed as twin bedded rooms for single occupancy at premium 
rates this will reduce the number of available beds being marketed 
across the group to 37300 representing a 102 share of the uk 
market for independently provided residential care source laing 
 buisson
caring for older people 
historically the group has operated under two brands southern 
cross healthcare and ashbourne following the work done on 
internal business segmentation and the classification of homes 
into five segments premium plus la major la minor and cosy 
the historical classification under southern cross and ashbourne 
has been discontinued
the group is currently undertaking a major review of its elderly 
care marketing proposition and branding
specialist services 
active care
active care is one of the country’s largest independent mental 
health and learning disability care providers operating 49 homes 
and 930 beds in the period under review active care generated 
revenue of £419m 2009 £438m a decrease of 43 due primarily 
to the closure of abbeydale it attracted average weekly fees of 
£1086 2009 £1097
name clare macpherson 
job title dining room assistant
for people of all ages a good meal can  
often be the highlight of the day clare and  
her colleagues know this and aim to ensure  
that for the residents in their care meal times 
are something to be looked forward to whether 
it’s assisting people in need of a helping hand or 
just making sure that meals are well presented 
and nicely served our dining room assistants 
play a vital role in the happiness of our homes  
and in the health of all of our residents
the group welcomes the  
setting up of the dilnot 
commission into the  
funding of longterm care  14  southern cross healthcare group plc 
annual report and accounts 2010
business review
operating performance
during the period the macroeconomic climate has materially 
worsened leading directly to a like for like decline in mature 
occupancy of 23 in particular the group experienced  
a reduction in local authority admissions in the second half  
of the period in contrast to the recovery normally seen over  
the summer months 
the average local authority settlement during the period  
was 13 versus rpi of 44 we continued to see restrictions  
on eligibility criteria and movement towards the provision  
of domiciliary care to elderly people with acute social needs
overall average weekly fees increased by a net 22 while  
home payroll costs increased by 34 excluding the additional  
4 days in the current period of account and home running costs 
increased by 52 the results were negatively impacted by falling 
occupancy average occupancy in mature homes fell by 23  
to 861 although the market generally also fell the net effect 
was that operating margin reduced by 17 to 293
the operating performance is summarised below
    
 h1 h2 total 
 2010 2010 2010 
 £’m £’m £’m
revenue 4807 4779 9586 
home ebitdar before central costs 1406 1403 2809 
margin  292 294 293 
rent – charge for amounts currently payable 977 993 1970 
rent cover – times 144 141 143 
adjusted ebitda 280 254 534 
adjusted ebitda profile 524 476 100 
average mature occupancy  869 853 861
fee rates
in the period under review the group achieved a net increase  
in average weekly fee rates of 22 to £558 2009 £546 fees 
charged to private clients were reviewed and an overall increase  
of 37 was agreed effective from february 2010 over the period 
local authority fee rate increases differed from authority to 
authority in england an average increase of 10 was achieved 
while in scotland and northern ireland the increase was 2 while 
for wales it was 16 resulting in an overall average increase  
of 13 
people
as i wrote last year in my first report as chief executive  
i am constantly struck as i go round the business by the 
professionalism enthusiasm and dedication of colleagues 
throughout the country our people – home managers carers 
nurses chefs housekeepers administrators and maintenance 
staff – take the lead in fostering relationships with our residents 
their families and the local community along with regional and 
head office staff they are our route to achieving our ambition  
to deliver the highest levels of care in the uk they are vital to  
our success once again i am delighted to express my thanks  
to all of them for the contribution they make to the business
outlook 
the long term demographics for our business remain positive and 
we are clear that significant opportunities exist for the group in the 
provision of dementia and end of life services in addition we are 
developing a range of step down and reablement services which 
we believe will be attractive to nhs commissioners
in the short term however we will face continued pressure on 
occupancy levels and on margin as a direct consequence of local 
authority budget reductions and the lack of current definition  
from central government on long term funding for the care of  
older people
despite these challenges the group enters 2011 with a very clear 
sense of purpose in its first year the achievement of the new 
horizons programme has been to lay the foundations for turning 
southern cross into a significantly improved national operator of 
care homes as we enter the second year of the programme we 
now have the management capability to create benefit in the 
following three areas 
further improvement in care standards •	
capture of a higher margin resident mix •	
achievement of further cost efficiencies •	
to that extent i believe that we are creating a valuable operating 
brand which will stand the company in very good stead for the future
jamie buchan 
chief executive
name betty hannah 
job title domestic supervisor
more often than not it’s the front line nursing 
staff who steal the limelight in care homes  
but without the behindthescenes work carried 
out by dedicated staff like betty every care 
home in the country would very soon grind  
to a halt we have them to thank for the 
cleanliness and hygiene of residents’ private 
rooms as well as all the public spaces inside  
our homes and with almost 33000 residents  
in 752 homes the length and breadth of the 
country it is impossible to overstate the scale  
of the daily laundry operation needed to keep 
things going smoothly 
chief executive’s statement 
continued business review 16  southern cross healthcare group plc 
annual report and accounts 2010
business review
financial review
richard midmer  
group finance director
revenue statement
at the start of the financial period the group changed its internal 
reporting cycles and now reports on a calendar monthly basis 
previously the group reported 13 periods of 4 weeks the results 
for the period ended 30 september 2010 are therefore for a period 
of 368 days 2009 364 days
the group’s operating performance is summarised in the  
following table
    
  2010 2009 
 £’m £’m
revenue 9586 9371
home ebitdar before central costs 2809 2906
home ebitdar margin  293 310
adjusted ebitda before exceptional central costs  
and charge for future minimum rental increases 534 725
operating loss 441 127
loss before taxation 474 198
average number of available beds 38531 37664
cash generated from operating activities 334 875
revenue
as at the period end the group had increased the number of 
available beds by 479 13 to 38603 2009 38124 the growth 
was attributable to the completion of two inhouse developments 
156 beds an extension to an existing home 23 beds and the 
acquisitions of four leasehold homes 300 beds
the average number of available beds increased by 867 23 
during the period to 38531 2009 37664
revenue increased by £215m to £9586m 2009 £9371m  
an increase of 23 excluding the additional 4 days in the current 
period of account revenue increased by £112m the increase  
in revenue is due to the net impact of fee increases being 25 
during the period and contributing additional revenue of £238m 
the impact of acquisitions made in the prior and current period 
which contributed £127m offset by a reduction in average 
occupancy of £224m and mix effects of £29m overall the 
average weekly fee rate increased by a net 22
home operating costs
home payroll costs increased £241m from £5337m to £5578m  
of which £59m was due to the additional 4 days in the current 
period of account and £88m was attributable to acquisitions made 
in the current and prior period excluding these home payroll costs 
increased by £94m driven primarily by wage increases of 17 
effective in october 2009
home running costs for the current period were 125 of revenue 
2009 120 in absolute terms excluding the additional 4 days  
in the current period of account home running costs increased  
by £59m 52 the increase was driven by cost of inflation of  
3 £34m and increases in planned repairs and maintenance 
£25m
revenue increased by £215m  
to £9586m 2009 £937 1m  
an increase of 23 17  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
rent
the rent charge for the period including the noncash charge  
of £513m 2009 £518m under ias17 was £2483m 2009 
£2391m excluding the noncash charge and the additional  
4 days in the current period of account the rental charge  
increased by £77m the increase was driven by new leases  
entered into £33m leases with average fixed increases of  
27 £30m leases with rpi linked average increases of 25 
£10m and leases subject to 5 yearly increases £04m
central costs
total central costs including £63m in respect of exceptional central 
costs were £368m excluding exceptional central costs and costs 
for the 4 additional days in the current period of account central 
costs decreased by £07m as a percentage of revenue central costs 
excluding exceptional central costs equated to 32 2009 33
exceptional central costs
exceptional central costs relate to the internal change programme 
‘new horizons’ and other exceptional costs during the period 
£53m was incurred in respect of new horizons the total costs  
of the programme are expected to be £6m with the majority  
of the remaining costs anticipated to be incurred during the first  
half of fy2011 other exceptional central costs totalled £10m  
the majority of which related to costs incurred in respect of a review 
of the group’s operating lease portfolio
segmental results
the group continued to have two distinct segments within its 
operations namely elderly care which incorporates southern 
cross healthcare and ashbourne senior living and specialist 
being the active care partnership business
elderly care
average available beds within the elderly care portfolio increased 
by 867 to 37601 2009 36734 the total number of available beds 
within the elderly care portfolio at the period end was 37673 
2009 37195
fee revenue in the elderly care segment increased by £234m 
26 to £9167m excluding the additional 4 days in the current 
period of account revenue increased by £135m the key driver  
of revenue growth was the increase in average weekly fee £233m 
and acquisitions completed in the prior and current period £127m 
these increases were offset by a reduction in occupancy £204m 
and mix effects £21m
total home ebitdar before central costs decreased by £97m 
35 to £2696m home ebitdar margin before central costs  
for elderly care reduced to 294 2009 313
specialist care
available beds in the specialist segment remained at 930 and 
included 53 beds in respect of abbeydale a centre that was closed 
during the period and which will reopen during fy2011 under the 
elderly care segment
during the period revenues in the specialist segment decreased by 
£19m 43 to £419m 2009 £438m due primarily to the closure 
of abbeydale
home ebitdar before central costs for the period remained at 
£113m with home ebitdar margin before central costs increasing 
from 258 to 270
ebitda
loss before interest tax depreciation and amortisation loss  
on disposal of property plant and equipment and subsidiary 
undertakings onerous contracts and related impairments and 
impairment of freehold assets held for sale ‘ebitda’ for the  
group decreased by £249m to a £42m loss 2009 £207m profit 
excluding the impact of future minimum rental increases under 
ias 17 and exceptional central costs adjusted ebitda decreased 
by £191m 263 to £534m
depreciation
depreciation has increased from £216m in 2009 to £271m in the 
current period reflecting the higher spend incurred during the prior 
period
disposal of freehold assets
during the period the group disposed of freehold assets for a net 
cash consideration totalling £312m the related assets had a net 
book value of £314m resulting in a loss on disposal of £02m 
further freehold assets were sold for deferred consideration of 
£06m being equal to the book value of the assets
during the period the directors reviewed the carrying value of the 
group’s freehold properties following this review a number of 
properties were found to have fair values lower than their carrying 
value as a result the carrying value of the related freeholds has 
been written down by £11m
onerous contracts and related impairments
during the period management took the decision to close two  
of the group’s homes as previously reported abbeydale an 
independent hospital located in north london was closed in  
the first half of the financial period ferngrove a home located  
in lancashire was closed in september 2010 due to the building  
not meeting the standard required by the group as a result  
of these decisions an onerous contract charge of £115m has  
been recognised in the period and included £09m of related 
impairment charges 18  southern cross healthcare group plc 
annual report and accounts 2010
business review
net finance costs
the net financing costs for the period amounted to £33m  
2009 £71m representing a decrease of £38m due to lower 
levels of debt across the period
included within net finance costs are interest charges of £22m 
2009 £60m in relation to interest payable on bank borrowings 
and amortisation of loan arrangement fees of £11m 2009 
£07m the lower interest charge was due to lower levels of debt 
held by the group with net debt at 30 september 2010 of £73m 
2009 £331m amortisation of loan arrangement fees increased 
as a result of costs associated with the consolidation of the group’s 
banking facilities which was completed on 18 may 2010
taxation
the tax credit on earnings before taxation of £107m 2009 £23m 
charge consists of a current tax credit of £03m and a deferred tax 
credit of £104m and represents a headline rate of 226 2009 
116 negative the deferred tax credit includes a current period 
credit of £82m a prior period credit of £31m and a charge of 
£09m attributable to a change in the rate of taxation the current 
period deferred tax credit is significantly impacted by £80m of 
trading losses arising in the period which cannot be recognised  
due to the uncertainty of their future economic benefit this is 
offset by a £53m credit of which £25m relates to prior periods
furthermore the current period tax credit is impacted by  
future minimum rental increases onerous contracts and related 
impairments impairment charges of freehold assets held for sale 
losses on disposal of property plant and equipment and subsidiary 
undertakings and the rate change on the recognition of deferred 
tax assets from 28 to 27 the corporation tax rate change is 
effective from april 2011 and it is anticipated that all deferred tax 
assets will reverse after this date
the reconciliation below shows the effective rate of tax after 
consideration of the above items
   taxation 
  credit 
  charge 
 £’m £’m
loss before taxation 474 107
future minimum rental increases 513 143
onerous contracts and related impairments 115 32
impairment of freehold assets held for sale 11 –
loss on disposal of property plant and equipment  
and subsidiary undertakings 02 –
trading losses arising not recognised – 80
impact of prior period items – 34
other – 28
rate change on deferred tax assets – 09
total 167 41
after consideration of the above items the current tax charge  
of £41m represents an effective tax rate of 246 2009 258 
before charges for future minimum rental increases onerous 
contracts and related impairments losses on disposal and 
impairment charges
the group expects the effective future tax rate to remain  
at or slightly below the standard rate of corporation tax  
in future periods
dividends
total dividends paid during the period amounted to £nil 2009 
£nil and the directors have decided not to recommend a final 
dividend for the period ended 30 september 2010
loss per share
the loss per share for the period was 1951p 2009 loss of 1175p 
earnings per share for the period before future minimum rental 
increase charges exceptional central costs and the taxation 
impact thereof was 255p 2009 808p a decrease of 68 
excluding the impact of losses recognised in respect of freehold 
properties impairment charges and charges in respect of onerous 
contracts and related impairments adjusted earnings per share 
was 765p 2009 1765p
balance sheet
noncurrent assets
property plant and equipment
property plant and equipment increased from £1114m to  
£1184m due to the net impact of additions to property plant  
and equipment of £358m offset by depreciation charges of 
£271m and other asset disposals and impairments of £17m
deferred tax
deferred tax assets have increased by £105m from £147m  
to £252m the movement is primarily due to the increase  
in capital allowances available to the group
property assets held for sale
at the start of the current period the group held 20 freehold property 
assets for resale with a value totalling £465m during the period  
6 were disposed of with a value of £314m following a review by 
the directors of the carrying values of the remaining 14 freehold 
property assets held for sale an impairment charge of £11m  
was made
the property assets held for sale at the period end relate to  
14 freehold properties amounting to £140m all of which are  
being actively marketed
financial review 
continued 19  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
cash flow
  2010 2009 
 £’m £’m
cash flows from operations 334 875
net interest and taxation 37 33
investing activities 39 256
financing activities 564 356
net decreaseincrease in cash 306 296
net decrease in cash during the period was £306m 2009 £296m 
increase with cash inflow from operations of £334m 2009 £87 5m 
cash inflow from operations represents a cash conversion ratio of 
adjusted ebitda after exceptional items of 743 2009 1207 
the current period cash conversion ratio has been reduced due to 
the impact of 5 quarterly rent payments £146m being made as  
a result of the extended period excluding the impact of these items 
the cash conversion ratio after exceptional items was 102
finance charges paid during the period amounted to £37m  
2009 £131m and included £11m relating to loan arrangement 
fees and costs in respect of the consolidation of the group’s 
banking facilities in may the remaining payments relate to 
standard charges incurred in accordance with the group’s banking 
facilities tax payments during the period totalled £02m 2009 
£156m repayment and related to prior periods
net cash outflow from investing activities amounted to £39m 
2009 £256m included within net cash outflow from investing 
activities are purchase of property plant and equipment of £351m 
and receipts from the sale of subsidiary undertakings and the sale 
of property plant and equipment and other assets of £255m and 
£57m respectively
purchase of property plant and equipment totalled £351m and 
included £21m of development expenditure £303m of 
maintenance and improvement capex on the group’s homes and 
other capital expenditure of £27m
the net cash used in financing activities for the period amounted 
to £564m 2009 £356m and included net repayment of bank 
borrowings totalling £558m
net debt and financing
during the period the group’s net debt reduced by £258m to 
£73m 2009 £331m with bank borrowings reducing by a net 
£558m on 18 may 2010 the group consolidated its existing 
banking arrangements into a revised £50m revolving credit facility 
interest on drawn amounts is charged at margins between 275 
and 325 above libor at 30 september 2010 the group had 
loans of £75m drawn on the facility
as at the period end the group had committed bank facilities of 
£50m against which it had loans drawn of £75m finance lease 
obligations of £10m and guarantees issued of £118m leaving 
£297m of undrawn facilities
the group holds agreements to limit its exposure to interest rate 
movements at the period end the group had £136m of interest 
rate caps outstanding at 462 and £210m of interest rate collars 
outstanding with cap rates of 450 and floors of 257 the 
notional amount hedged under these agreements reduces over 
their term and both expire on 30 june 2011
following recent discussions with the group’s lenders revisions  
to the existing banking arrangements were agreed on 6 december 
2010 the group’s facility now comprises an amortising £45m  
rcf repayable in september 2012 with the fixed charge covenant 
relaxed from 123x to 11x the first amortisation of £33m takes 
place on 1 october 2011
available beds
following a review of double occupancy rooms the group has 
reclassified 1303 rooms as single occupancy as at the beginning 
of fy11 this will have the net impact of reducing the number of 
available beds across the group by 1303 beds to 37300 for fy10 
this amendment to available beds would have had the effect of 
increasing average occupancy for the group from 848 to 878
richard midmer 
group finance director 20  southern cross healthcare group plc 
annual report and accounts 2010
business review
corporate social 
responsibility 
the group’s csr objective remains unchanged we want to deliver 
sustainable improvements in our business in a way that aligns as far 
as is possible our core business needs with the wider interests and 
concerns of our stakeholders we understand that alongside the 
business’s economic drivers we have a responsibility for improving 
the lives of our residents their families our staff and the wider  
local community 
marketplace
care standards and quality of care
southern cross is committed to becoming the most trusted and 
sought after care experience in the uk to this end in 2010 we 
recruited irene gray a highly experienced director of care to 
ensure leadership of the highest quality in this area
each region of the uk has its own regulatory body that undertakes 
its own inspection process and the group monitors these 
inspections closely we are pleased to report that the percentage 
of homes rated good and excellent improved by 54 to 822
until june of this year the regulator in england where most of our 
homes are based operated a star rating system this rating 
scheme was predicated upon care standards contained in previous 
legislation and consequent on new standards being introduced by 
the health and social care act 2008 this system was discontinued 
the ratings shown below have not been updated since june when 
the star rating system was frozen it is planned to introduce a new 
system in 2011 but as yet there is no clarity about that system
inspection rating 20089 200910
excellent blue 146 146
good green 622 676
adequate amber 210 148
poor red 22 30
the figures above are based on the external inspection scores  
of our homes in england which represent 79 of our total estate 
homes in scotland wales and northern ireland are graded on  
a different basis by their respective inspection agencies and 
therefore direct comparison is not possible however in addition  
to external inspections we apply a thorough inspection process  
to our own homes and based on this inspection we would expect 
our homes in the remainder of the uk to achieve scores similar to 
our english homes 
sometimes homes can experience temporary problems slipping to 
a lower status while the quality of our homes overall improved in 
the year an additional 2 homes were judged as poor at the period 
end during the year the group upgraded its internal inspection 
system in a drive to eliminate poorly performing homes and raise 
the standards of all homes to a consistent and sustainable level  
as this new system becomes more embedded we will be able to 
identify the signs that a home’s care quality is slipping thereby 
allowing for early intervention to prevent for example an admissions 
embargo voluntary or otherwise from being placed upon it
it is our vision and wish that our inspection regime will become so 
trusted that the regulatory bodies will feel able to rely upon it
the board continues to review the status of inspection quality 
scores at each of its meetings 
the group also continues to maintain iso 9001 accreditation  
at many of its homes as a result of the effort that went into the 
group’s operational restructure progress in this area was slower 
this year however we now have 225 homes accredited
customers
obtaining feedback from residents families and professionals 
associated with the group’s homes is very important to us each  
of the homes has in place measures to gather and act upon this 
feedback this includes resident and family meetings open days 
and surveys 
for most of the year the group operated a ‘stand alone’ customer 
satisfaction unit which sat outside the operational structure and 
conducted satisfaction surveys amongst residents their families 
and professionals following the closure of the group’s glasgow 
office where this unit was based the group has taken the 
opportunity to develop a new methodology for canvassing and 
reporting on the views of all stakeholders and this will be rolled  
out during the course of 2011
the group recognises that it has a duty to deliver its services to  
its residents in a safe and responsible manner – a duty of care  
that we take extremely seriously it is true to say that as an 
organisation individually and collectively we have a zero tolerance 
to any form of abuse we continue to work with the charity action 
on elder abuse registered charity number 1048397 who provide 
a confidential whistle blowing helpline this helpline is manned by 
the charity and is available to anyone associated with a southern 
cross home who suspects any form of abuse or inappropriateness 
in the delivery of a service calls to this helpline are assessed by the 
charity and if necessary appropriate action is taken by them to 
resolve the situation
we also continue to promote the government’s ‘dignity in  
care campaign’ we employ more than 800 registered ‘dignity 
champions’ whose role is to ensure that the rights of individuals  
in our homes are respected at all times 
workplace
people continue to be the group’s most valuable asset their 
performance is critical if we are to deliver the groups demanding 
objectives considerable progress has been made this year to 
create the framework structure and support required to enable 
our people to both fulfil their potential and deliver a high quality 
service to our residents
to enable this during 2010 we expanded the human resources 
function so that it and therefore the group is better placed to 
address all aspects of the employee lifecycle
key staff information
measure 20072008 20082009 20092010
staff numbers 42845 44711 43099
 of workforce female 839 825 82
 of senior management female 68 67 75
 of workforce from noneu countries 85 97 68
average age of employees 40 40 40 21  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
this year approval was given to implement a new hr and payroll 
system which will go live during 20102011 a new time and 
attendance system that will transform rostering which todate 
has been an immensely timeconsuming rota for home managers 
improve payroll cost control and save administration time is 
currently being rolled out to all homes these systems will be  
key in supporting people management providing information for 
decision making and identifying opportunities for improvement  
in such areas as staff retention turnover and absence 
staff engagement
the results of our staff survey last year gave us insight into how 
engagement with the group’s objectives relate to our team’s  
daily experience this insight was reenforced with the findings  
of workshops and site visits
one of the key findings was that staff told us that they needed to 
know what is expected of them at work they needed greater role 
clarity and definition in addition home managers wanted to be 
given additional tools and support to enable them to develop the 
full potential of their team 
during the year we created a hr hub to provide the additional hr 
support that our people were looking for 
in the current year we intend to launch a new people management 
framework which will provide
a framework to guide our decisions around policies processes •	
and approach
consistency in how we manage our people processes •	
a foundation to enable us to become an ‘employer of choice’ •	
an expression of our corporate values and business ethos and •	
a basis for engendering respect amongst every employee in  •	
the organisation
we believe this people management framework will help us to 
reduce staff turnover and manage our recruitment more 
effectively whilst creating an engaged and motivated workforce 
we will continue actively to seek feedback from our staff and 
ensure that all initiatives address and reflect staff input and 
feedback 
staff recognition and reward
we believe it is important that staff feel recognised and rewarded 
for the work that they do 
we ensure our staff are appropriately remunerated for the work that 
they do we benchmark our salaries and benefits against our key 
competitors and the local market in difficult economic conditions 
the group intends to use such funds as are available to address 
attraction and retention issues within business critical roles 
we will continue to investigate ways of rewarding employees who 
successfully complete our in house education programs offering 
attractive career progression and raising the capability of our 
organisation 
we estimate that 25 of our staff are members of a trade union  
or similar type of organisation a recognition agreement is in place 
between southern cross and the gmb union and both parties are 
committed to working in partnership the group will continue to 
consult with employee representatives on major issues and 
developments within the organisation 
this year we will relaunch our employee benefits package and 
employee assistance program and a new occupational health 
service for our staff
people who contribute through their skills talents and experience 
will in return benefit from development opportunities and financial 
rewards
the southern cross care awards are held every two years where 
excellence across the country is celebrated in november 2009 
each of the regions held local events to recognise their regional 
winners with the grand final being held in march 2010 these 
awards are about recognising the work that people do day in  
day out in the group’s homes 
the group is proud of the fact that our staff are often honoured in 
the local regional and national care awards 
staff training
   managers 
 carers with 
 with registered 
 nvq manager 
 level 2 award
20062007 55 52
20072008 74 62
20082009 73 91
20092010 82 84
our emphasis remains on developing the skills of our care workers 
to enable them to gain relevant work based qualifications it is  
of great credit to our carers that 82 now have the level 2 nvq 
qualification our inhouse training staff delivered courses in core 
subjects covering everything from infection control to customer 
care more specialist training such as the alzheimer’s society’s 
‘tomorrow is another day’ training was delivered in our homes 
specialising in dementia care as well as a general dementia 
awareness course in all other homes  22  southern cross healthcare group plc 
annual report and accounts 2010
business review
during the year just ended more than 700 staff went through the 
group’s apprenticeship scheme we are working with our training 
partners to extend this scheme to 1618 year olds
to support all our staff training activity a new learning and 
development function was created during the year to provide a 
more centralised approach to development for all staff and put in 
place key programmes of development to drive up the capability  
of our staff regional based training teams were created and are 
responsible for ensuring that each home has access to appropriate 
and timely training 
values
underlying all these hr activities is a set of group values these 
values shape how we do business and how we treat our colleagues 
our residents their relatives and our partners 
these values are the southern cross way ‘in action’ and influence 
behaviours and corporate culture and contribute towards 
optimum business delivery
we are continuing to develop the way we articulate our values and 
intend to consult further with our people to redefine refocus and 
agree a set of values that is in keeping with our business ethos and 
will support the group in meeting its objectives in the years ahead
health and safety
it is critically important from both a moral and reputational 
perspective that we provide an injuryfree working environment  
for our staff residents and their guests 
the board continues to lead and is committed to the health and 
safety agenda while our chief executive has overall responsibility 
for health and safety policy development and monitoring of 
performance is undertaken by the group’s health and safety 
committee which is chaired by irene gray director of care  
the board recognises that there are three main strands to its 
responsibility namely to its residents through the care function  
to its staff through the hr function and to all stakeholders 
through its estates function
the health and safety committee which meets at least quarterly 
reports to the group’s executive committee the board receives 
reports on health and safety issues at each board meeting  
the committee is charged with ensuring that group policy is 
implemented and it does this by monitoring performance by  
way of a series of key performance indicators the committee’s 
minutes are cascaded down through the operational structure  
to each home these minutes form part of each home’s health 
and safety group agenda any issues arising for the attention  
of the group health and safety committee are passed back up  
the operational structure this enables a full circle of clear 
communication within the group
further communication channels include ‘the weekly briefing’ 
which includes hazard alerts guidance on areas of best practice 
and changes to policy hazard alerts are also emailed directly to 
the homes a quarterly newsletter summarises recent initiatives  
to ensure staff are well informed
the group recognises that an effective risk management system is 
crucial to it meeting its health and safety objectives the group is 
currently working to further develop its risk management system 
and has recently appointed a head of governance to lead the 
group in all aspects of risk management 
this year 129 home managers completed the level 3 health and 
safety training programme this programme is based on southern 
cross health and safety policies and procedures and is validated by 
the chartered institute of environmental health 
community
one of our key objectives is to ensure that our homes play a part in 
the life of the communities they serve we believe it is important 
that we bring people of all generations together as each has 
something to learn from the other it is for this reason that we 
organise various events both in the homes and out in the 
community that facilitate the meeting of people 
the group has a number of programmes in place to help the homes 
bolster this position as in previous years the group supported local 
youth teams through its kit sponsorship programme which donates 
kit to a variety of sports in exchange the teams are encouraged to 
work closely with their local home the young people make regular 
visits and spend time in the group’s homes this has enormous 
benefits in terms of greater understanding and learning between 
the generations in those communities
the group also has a fund matching programme whereby the 
homes are encouraged to raise funds for the benefit of their 
residents which the group will then match homes also raise 
money for local charities and again the group matches those 
donations the total committed by southern cross on kit 
sponsorship and matching funds in the last year was £135267
 no of teams 
 homes supported
 2008  2009 
programme 2009  2010 
kit sponsorship 78  43
fund matching 280  341
corporate social responsibility  
continued 23  southern cross healthcare group plc 
annual report and accounts 2010
business review
business review
we remain totally committed to our partnership with action on 
elder abuse the principal charity we supported in 20092010  
this year we donated £22620 to the charity
environment
energy consumption
 co
2
 tonnes co
2
 tonnes 
 produced produced 
source of energy 20082009 20092010
electricity 76720 76243
natural gas 62345 59609
oil 5610 5373
lpg 1196 1166
total 145871 142391
per bed equivalent figure 387 369
we remain committed to reducing the group’s energy consumption 
while maintaining a consistent service for our residents
we have increased our emphasis on identifying and improving our 
environmental impact this work has been controlled and directed 
by the newly formed property services department which has 
reviewed our policies for procurement of products and services 
design of new properties and operation of homes
we plan to provide environmental and energycarbon reduction 
training and awareness at all our locations to ensure we receive 
committed and informed staff engagement
the carbon reduction commitment energy efficiency scheme 
crc began on 1 april 2010 and we have had in place since late 
2009 a detailed plan to manage the impact of this changes to  
the scheme announced in october 2010 which may increase 
utility costs by some 69 heighten our need to reduce our 
qualifying emissions we continue to install additional metering 
that complies with cibse tm 39 guidelines to allow the careful 
monitoring of performance acting upon the information  
gathered remains key to reducing our carbon footprint
a large proportion of our energy is consumed by lighting and  
we have conducted a series of trials on energy saving fittings  
to replace low efficacy systems once the results of the savings 
and their suitability are confirmed we plan to roll out a 
replacement programme
waste management continues to be important for the group
absolute figures
    
 2006 2007 2008 2009 
 2007 2008 2009 2010 
type of waste tonnes tonnes tonnes tonnes
landfill 13313 10543 7685 8082
recycling – – 1579 892
clinical 12562 13677 11384 12611
per bed equivalent figures
    
 2006 2007 2008 2009 
 2007 2008 2009 2010 
type of waste tonnes tonnes tonnes tonnes
landfill 039 028 020 021
recycling – – 004 002
clinical 037 037 029 033
clinical waste presents particular challenges the group continues 
to seek ways to deal with this waste in an environmentally efficient 
way while ensuring all sites are managed in line with statutory 
requirements
suppliers
at southern cross we value our supplier relationships while  
we look to obtain products and services at a competitive price 
balanced with good service we recognise that this is only 
sustainable when our suppliers also make a fair return equally  
it is important that we honour our agreed terms of business with 
them when awarding new contracts or reviewing existing supplier 
arrangements we seek through our due diligence process to 
understand our suppliers environmental policies and ensure  
these are aligned with our own commitment to environmental 
best practice 
our high volume suppliers use our eprocurement system ehipo 
though work continues to find ways of further streamlining  
the number of suppliers we use and hence the volume of paper 
generated
priorities for the year ahead
while the general backdrop to trading remains challenging we 
anticipate that our efforts to develop our csr programme may be 
constrained our key priorities are to develop our staff engagement 
for the benefit of all stakeholders and reduce our carbon emissions 
while remaining firm on our commitment to our chosen principal 
charity action on elder abuse 24  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
3
4
6
5
directors  
and officers
1
2
committees
audit committee
nancy hollendoner chairman
baroness morgan of huyton
christopher fisher
nomination committee
ray miles chairman
christopher fisher
nancy hollendoner
baroness morgan of huyton
jamie buchan
remuneration committee
christopher fisher chairman
baroness morgan of huyton
nancy hollendoner
ray miles
quality assurance committee
baroness morgan of huyton 
chairman
nancy hollendoner
jamie buchan 25  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
1 ray miles 66
nonexecutive director and chairman
ray miles became a nonexecutive director of the company in 
june 2006 and served as the senior independent director until  
he was appointed chairman on 1 january 2008 mr miles has  
spent most of his career in the shipping industry from 1988 until 
december 2005 he was chief executive officer of cp ships limited 
he was also the senior independent director of stelmar shipping 
limited from 2004 to 2005 and deputy chairman of international 
personal finance plc from july 2007 when it demerged from 
provident financial plc until may 2010 mr miles joined the 
advisory board of stena ab in 2006 he is a trustee of country 
holidays for inner city kids
2 jamie buchan 51
chief executive
jamie buchan was appointed as an executive director of the 
company on 1 january 2009 between 2002 and may 2008  
mr buchan backed by a malaysian private fund led the successful 
turnaround and subsequent sale of the excel exhibition and 
conference centre in london prior to that mr buchan held leading 
roles in hospitality at whitbread in customer service and brand 
development at centrica in logistics at ocean group and for 14 
years retail service station operations in esso which he joined  
as a graduate trainee in 1981
3 richard midmer 56
group finance director
richard midmer joined the company as group finance director  
on 1 july 2008 he previously worked in the oil and gas sector as 
finance director of britishborneo oil  gas plc he joined nhp plc 
a quoted care home company as group finance director in 
november 2000 where he worked until its acquisition by private 
equity in february 2005 
4 christopher fisher 57
senior independent nonexecutive director
christopher fisher joined the board in june 2006 and became  
the senior independent nonexecutive director in january 2008 
he is a partner in penfida a firm providing independent financial 
advice to pension fund trustees a director of bank of ireland uk 
plc and is also president of the council of reading university he 
spent most of his career at lazard the investment bank where he 
was a managing director and has also served as vice chairman 
corporate finance at kpmg and as a nonexecutive director of 
keldayorkshire water
5 baroness morgan of huyton 51
nonexecutive director
baroness morgan of huyton became a nonexecutive director  
of the company in june 2006 a former teacher baroness morgan 
worked as a senior aide to the british prime minister from 1997  
to 2005 in 2001 she was made a peer and served as a minister  
in the cabinet office from 2001 to 2005 she was director of 
government relations downing street working closely with the 
prime minister baroness morgan is now working as an adviser to  
a children’s charity serving on the board of the olympic delivery 
authority a member of the advisory committee to the board of 
virgin group holdings limited and is a nonexecutive director of 
carphone warehouse plc
6 nancy hollendoner 55
nonexecutive director
nancy hollendoner joined the board in january 2008  
ms hollendoner is a senior adviser on the healthcare market to 
hawkpoint partners limited she previously worked as an equities 
analyst specialising in the healthcare market and was employed  
by ubs investment bank resigning from that position in 2002  
ms hollendoner served as a nonexecutive director of nhp plc 
between 2003 and 2005
company secretary 
william mcleish was appointed as company secretary on 25 may 
2006 and is a chartered accountant on 1 august 2007 he was 
elected an associate of the institute of chartered secretaries and 
administrators
notes
kamma foulkes resigned as an executive director on 31 december 2009 26  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
executive 
committee
1 5
2
3 7
4
6 27  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
1 mark cash 51
regional director – south
mark cash joined the group in september 2009 from 2004 to  
2009 he was uk operations director for sunrise senior living ltd 
overseeing its organic growth in the premium private pay assisted 
living and care home sector prior to that he held a variety of 
management roles within exxonmobil which he joined as a 
graduate trainee in 1981 until 2004 he led exxon’s company 
owned uk and ireland service station network
2 pam finnis 41
regional director – central
pam finnis joined the executive committee following her 
appointment as regional director in september 2009 prior to  
that mrs finnis was the managing director of the midlands division 
she has 27 years experience within the independent care sector 
she is a registered general nurse and previously held senior 
management positions with ashbourne healthcare and highfield 
care before joining southern cross in 2004
3 irene gray 56
director of care 
having trained as a nurse in the early 1970’s irene subsequently 
spent 7 years working as a ward sister in elderly care irene has 
held a number of executive roles including senior civil servant 
within the nhs over a period of 24 years and joined the company 
from the university hospitals bristol nhs foundation trust where 
she was chief operating officer in 1997 she was awarded a msc 
from nottingham university and currently holds honorary chairs  
in nursing at three universities a ‘change leader’ irene has been 
involved in policy development and delivery at a national level  
and therefore brings significant experience to her role
4 michael macintosh 36
regional director – scotland and northern ireland
michael macintosh joined the group in march 2009 as managing 
director of the scottish division and subsequently joined the 
executive committee mr macintosh joined from four seasons 
health care as director of public private partnerships previously 
he has worked for barchester healthcare westminster health 
care the nhs and highlands and islands enterprise
5 david smith 36
director of finance and support services
david smith joined the group as group finance manager in march 
2006 was appointed group financial controller in march 2008 and 
director of finance and support services on 1 september 2010 he 
previously spent 10 years at pwc working in various roles including 
secondments to riyadh saudi arabia and the united states
6 phil whitaker 48
regional director – north
prior to his appointment to the executive committee phil whitaker 
was responsible for southern cross’ north eastern division having 
joined the group in june 2007 mr whitaker has over 15 years 
experience in the independent health and social care sector and has 
previously held senior positions within bupa and takare plc prior to 
this he managed services at the department of employment
7  patricia williamson 57
group human resources director 
patricia williamson was appointed as group hr director on 1 july 
2009 patricia previously worked at trader media group part of  
the guardian media group as group hr director ms williamson 
has considerable experience in leading and delivering business 
transformation gained across banking and services industries  
she has held many senior positions including chief operating 
officer for barclays asset  sales finance 
notes
executive directors jamie buchan and richard midmer are also members of the 
executive committee their biographies can be seen on page 25 28  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
directors’ report
the directors present their report and the audited financial statements for the period ended 30 september 2010
activities of the group
the group’s principal activity is the operation of care homes for the elderly it is also involved in the development of new homes  
and the provision of specialist services for people with physical andor learning disabilities the principal activity of the company  
is a holding company
a detailed review of the group’s activities development of its business and future plans is provided in the chief executive’s report and  
in the financial review
results and dividends
the consolidated income statement showing the results for the period is set out on page 45 a detailed review of the group’s results  
is provided in the financial review
the directors recommend that no final dividend 2009 £nil be paid the company did not pay an interim dividend during the year  
2009 £nil 
directors
the names of the directors who held office during the year and up to the date of signing of the financial statements together with the 
biographical details of the current directors are given on page 25
the beneficial interests of directors in the shares of the company details of service contracts and remuneration are shown in the report  
of the remuneration committee on pages 37 to 43
employment
the group seeks to recruit develop and employ throughout the organisation suitably qualified capable and experienced people irrespective 
of age race religion or sexual orientation employee involvement in the business is encouraged the group communicates with its employees 
through the use of the group’s intranet its regular newsletter and conferences and seminars for home and regional managers it obtains 
employee feedback through employee surveys and formal focus groups full and fair consideration is given to applications for employment 
from disabled persons having regard to their particular aptitudes and abilities efforts are made to continue the employment of those who 
become disabled during their employment retraining of newly disabled employees is provided where appropriate and fair consideration is 
given to all employees in terms of their career development and promotion prospects
supplier payment policy
it is group policy to pay suppliers in accordance with agreed terms and conditions provided that suppliers also comply with all relevant 
terms and conditions at 30 september 2010 the group’s supplier payment period was 43 days 2009 46 days the company is a holding 
company and does not have trade suppliers
financial instruments
information on the group’s financial risk management objectives policies and on the exposure of the group to relevant risks in respect  
of financial instruments is set out in note 22 to the consolidated financial statements
key performance indicators
the key performance indicators kpis that are regularly used by the group to monitor progress against its strategy are shown below and 
discussed in the highlights section and the financial review on page 16 of the report
kpi description
quality outcome the number of homes judged to be either good or excellent expressed as a percentage of total homes 
average occupancy the average occupancy of available beds expressed as a percentage 
average weekly fee the average weekly fee achieved per occupied bed 
home ebitdar before central costs  home ebitdar earnings before interest tax depreciation amortisation rent and loss on disposal  
of property plant and equipment and subsidiary undertakings onerous contracts and related 
impairments impairment of property assets held for resale and exceptional central costs before 
central costs
adjusted ebitda  ebitda earnings before interest tax depreciation amortisation loss on disposal of property plant 
and equipment and subsidiary undertakings onerous contracts and related impairments impairment 
of freehold assets held for resale and exceptional central costs after adding back the charge for future 
minimum rental increases
ebitdar margin home ebitdar before central costs expressed as a percentage of revenue
rent cover home ebitdar before central costs divided by the cash rent cost 29  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
principal risks and uncertainties
southern cross like all businesses faces a number of operating risks and uncertainties
there are a number of risks that could impact the group’s longterm performance and steps are taken to understand and evaluate these 
in order to achieve our objective of creating longterm sustainable returns for shareholders
the group has a risk management process in place which is designed to identify manage and mitigate business risk regular reporting 
of these risks and the monitoring of actions and controls is conducted by the audit committee which reports its findings to the board
this process is described in the corporate governance section
the most fundamental risks faced by the group are
failure to comply with regulation possibly leading in extreme cases to the revocation of a care home’s registration •	
failure to achieve quality standards possibly leading to the suspension of admissions to our homes •	
generating severe negative publicity were a serious incident to occur at one of the group’s care homes •	
budgeted occupancy levels not being achieved with negative effects on profit •	
average weekly fees do not rise at least in line with costs putting profit margins under pressure •	
failure to meet bank covenants and •	
failure to attract retain and motivate nursing and other qualified staff adversely impacting admissions •	
takeover directive
the company has one class of share capital ordinary shares there are no special control rights in relation to the company’s shares the 
rules governing the appointment and replacement of board members and changes to the articles of association accord with usual english 
company law provisions the board has power to purchase its own shares and is seeking renewal of that power at the forthcoming agm 
within the limits set out in the notice of that meeting there are no significant agreements to which the company is party which take 
effect alter or terminate in the event of change of control of the company there are no agreements providing for compensation for 
directors or employees on change of control
events after the balance sheet date
events which happened after the balance sheet date are set out in note 33 to the financial statements
substantial shareholdings
at 3 december 2010 the company had been notified of the following interests which exceed 3 of the company’s issued share capital
         
legal and general group plc       22920058 1219
j o hambro capital management group limited       17300000 920
deutsche bank ag       16797232 893
ubs investment bank       15182728 807
lloyds banking group plc       9325487 496
breeden european ventures llc       8250244 439
jp morgan asset management       6422964 342
ing bank nv       6310483 336
standard life investments limited       6289756 334
credit suisse sec europe limited       6221178 331
charitable and political donations
during the period the group made donations to charities totalling £85464 2009 £156300 no political donations were made further 
information on the group’s charitable donations is disclosed in the corporate social responsibility report on pages 22 and 23
directors’ indemnities
the company maintains liability insurance for its directors and officers the company also provides an indemnity for its directors and the 
secretary which is a qualifying third party indemnity provision for the purposes of the companies act 2006
annual general meeting
the notice convening the annual general meeting of the company together with explanatory resolutions is included in a separate 
document sent to shareholders 30  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
statement of directors’ responsibilities in respect of the annual report the directors’ remuneration report  
and the financial statements
the directors are responsible for preparing the annual report the directors’ remuneration report and the financial statements in 
accordance with applicable law and regulations
company law requires the directors to prepare financial statements for each financial year under that law the directors have elected to 
prepare the group and parent company financial statements in accordance with international financial reporting standards ifrss as 
adopted by the european union under company law the directors must not approve the financial statements unless they are satisfied 
that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that 
period in preparing these financial statements the directors are required to
select suitable accounting policies and then apply them consistently •	
make judgements and accounting estimates that are reasonable and prudent •	
state whether applicable ifrss as adopted by the european union have been followed subject to any material departures disclosed •	
and explained in the financial statements and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue  •	
in business
the directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions 
and disclose with reasonable accuracy at any time the financial position of the company and the group and enable them to ensure that  
the financial statements and the directors’ remuneration report comply with the companies act 2006 and as regards the group financial 
statements article 4 of the ias regulation they are also responsible for safeguarding the assets of the company and the group and hence 
for taking reasonable steps for the prevention and detection of fraud and other irregularities
the directors are responsible for the maintenance and integrity of the company’s website legislation in the united kingdom governing 
the preparation and dissemination of financial statements may differ from legislation in other jurisdictions
each of the directors whose names and functions are listed in the directors and officers section confirm that to the best of their knowledge
the group financial statements which have been prepared in accordance with ifrss as adopted by the eu give a true and fair view  •	
of the assets liabilities financial position and loss of the group and
the directors report together with the chief executive’s report and financial review include a fair review of the development and •	
performance of the business and the position of the group together with a description of the principal risks and uncertainties that  
it faces
disclosure of information to auditors
each person who is a director at the date of approval of this report confirms that
so far as the director is aware there is no relevant audit information of which the company’s auditors are unaware and •	
he has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information •	
and to establish that the company’s auditors are aware of that information
this confirmation is given and should be interpreted in accordance with the provisions of s418 of the companies act 2006
by order of the board
william mcleish
company secretary
7 december 2010
directors’ report continued 31  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
corporate governance
southern cross is committed to achieving the highest standards of corporate governance possible the board’s code of ethics which is 
subscribed to by all directors sets the tone for corporate behaviour the principles of corporate governance set out in the combined code 
on corporate governance issued by the financial reporting standards council in june 2008 ‘the combined code’ are fully supported by 
the board
this statement describes how the principles of the combined code have been applied to the group in the current financial year
the board
the board currently comprises three nonexecutive and two executive directors in addition to the nonexecutive chairman biographical 
details of the current directors are given on page 25
the roles of the chairman and chief executive are clearly defined approved by the board and separate the chairman’s primary responsibility 
is for leading the board and ensuring its effectiveness the chief executive is responsible for the executive management of the group’s 
operations and daytoday business activities
the board of southern cross healthcare group plc is collectively responsible for the success of the group
its role is to
provide entrepreneurial leadership of the group within a framework of prudent and effective controls which enables risk to be •	
continually assessed and managed
set the group’s strategic aims and to ensure that the necessary financial and human resources are in place for the group to meet  •	
its objectives
continually review the processes in place for monitoring and evaluating risk and the effectiveness of the group’s system of internal •	
control risk management and operational effectiveness keeping in mind the importance of the group’s reputation and public image
ensure that appropriate operating budgets and longer term plans are in place and monitor management’s performance against these •	
set the group’s values and standards and ensure that its obligations to its shareholders and other stakeholders are understood and •	
met including reporting to shareholders on the board’s stewardship
establish a culture based on integrity openness trust and robust and constructive challenge which motivates management to be •	
successful and
ensure that the group meets its objectives and consequently increases shareholder value •	
specific responsibilities are reserved to the board certain of which may be delegated in the first instance to board committees the policies 
and procedures adopted by the board are documented in a manual which sets out the roles and delegated authorities applying to the 
board this manual is reviewed and updated whenever necessary
to assist the board in the stewardship of the group a comprehensive set of documents which detail financial and operational 
performance tracked against budgets and key performance indicators together with reports on personnel developments acquisitions 
risk management and compliance matters are provided to the board the board has a formal schedule of matters reserved for its 
approval these matters include approval of
the annual strategic plan and budgets •	
the group’s risk management and treasury policies •	
major operating and capital expenditure proposals •	
substantial contracts •	
changes to the structure size and composition of the board •	
group policies including the health and safety policy and •	
corporate communications •	
the company secretary is responsible for ensuring board procedures are complied with the removal from office of the company 
secretary is a matter reserved for the whole board
the board meets formally bimonthly and additional meetings are arranged as necessary to consider urgent business the chairman 
also meets with the nonexecutive directors when no executive directors are present the table below summarises the total number  
of formal board audit committee nomination committee remuneration committee quality assurance and executive committee 
meetings held during the year and the attendance by each director at those meetings 32  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
    board audit nomination remuneration quality executive
total number of meetings   7 3 1 2 2 12
attendance at meetings
ray miles   7 – 1 2 – –
jamie buchan   7 1 1 2 2 12
richard midmer   7 3 – – – 11
kamma foulkes resigned 31 december 2009   1 – – – – 3
baroness morgan of huyton   7 3 1 2 2 –
christopher fisher   7 3 1 2 – –
nancy hollendoner   7 3 1 2 2 –
 by invitation
 due to diary constraints the board and the audit and remuneration committees met in early october 2010 rather than september as they had done previously
in addition to the above meetings a number of meetings were held by telephone to deal with urgent business which arose between  
the formal meeting dates
on 2 october 2009 the company announced that kamma foulkes planned to retire from the company with effect from  
31 december 2009
the induction process for new directors is the responsibility of the chairman the process includes industry specific presentations from 
third parties and management presentations as well as visits to the group’s operations the process is supported with a board induction 
pack which is designed to provide new directors with background documentation about the group it contains information on its history 
operations policies and procedures and details their duties under the companies act as well as explaining the additional dealing and 
disclosure obligations arising from the company’s stock exchange listing directors can take independent advice on matters relating to 
their duties at the expense of the company and have access to the advice and services of the company secretary
the board considers baroness morgan of huyton christopher fisher and nancy hollendoner to be independent nonexecutive directors 
in the view of the board they are independent of management and free from any relationship business or otherwise which could 
materially interfere with the exercise of their independent judgement
currently one third of the directors are subject to retirement from the board at the company’s annual general meeting details of the 
retiring directors and of those individuals nominated for office are set out in the notice calling that meeting the board has resolved  
to adopt the recommendation contained in the uk corporate governance code that all directors stand for reelection annually 
each year the board carries out a formal evaluation of its own performance and of individual directors the evaluation covers all aspects 
of board behaviours and processes including its composition the performance of its committees directors and secretary and its 
interaction with its stakeholders external advisers on corporate governance linstock limited facilitate the evaluations this year’s 
evaluation process is underway the results of the last evaluation were considered by the board at its meeting in february the issues 
identified included the need
to improve board access to management beyond the executive directors •	
to expand the group’s corporate strategy •	
to adopt a consistent approach to risk management across the whole business •	
to develop an integrated human resources strategy •	
the board considers that it has made significant progress in all these areas in the course of the year
the nonexecutive directors led by the senior independent nonexecutive director are responsible for evaluating the performance of the 
chairman and the executive directors resources are available to support directors in addressing any identified training needs that arise 
out of performance evaluations
conflicts of interest
under the companies act 2006 a director must avoid a situation where he has or can have a direct or indirect interest that conflicts  
or possibly may conflict with the company’s interests the requirement is very broad and could apply for example if a director becomes 
a director of another company or a trustee of another organisation the companies act 2006 allows directors of public companies to 
authorise conflicts and potential conflicts where appropriate the company’s articles contain provisions which allow the board to 
authorise directors’ conflicts of interest at each board meeting directors are invited to
declare the nature and extent of their interests direct or indirect in any proposed or existing transaction or arrangement with the •	
company and
update any declaration of interests which has become inaccurate or incomplete •	
board minutes evidence any conflicts that are authorised
corporate governance continued 33  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
committees of the board
the board has constituted a number of committees specifically audit remuneration nomination quality assurance and executive 
committees the roles and terms of reference of each committee are summarised below
audit committee
the audit committee is comprised of the three independent nonexecutive directors nancy hollendoner the committee’s chairman  
was previously an equity analyst specialising in the healthcare market with the investment bank ubs and is currently a senior adviser on 
the healthcare market to hawkpoint partners limited the other members of the committee are christopher fisher and baroness morgan 
of huyton in the view of the board both nancy hollendoner and christopher fisher bring recent and relevant financial expertise to the 
committee
the committee meets formally at least four times a year and otherwise as required the external auditors group finance director 
director of finance and support services and head of internal audit are invited to attend audit committee meetings at each meeting  
an opportunity is given for the nonexecutive directors and the external auditors to meet in private as a matter of course the chair  
of the audit committee communicates with the audit partner outwith formal committee meetings 
the committee has clearly defined terms of reference these are set out on the group’s website its responsibilities include assisting  
the board in the effective discharge of its duties in respect of corporate governance financial reporting risk management and  
internal control
the committee is responsible for making recommendations to the board in relation to the appointment reappointment any matters 
relating to the resignation or dismissal of the external auditors as well as the approval of external auditor’s fees consideration is given  
to the desirability of rotating both the audit firm and partner
the independence and objectivity of the external auditors is reviewed by the audit committee with specific consideration given to the 
level of nonaudit fees information on nonaudit fees is given in note 6 to the consolidated financial statements in general nonaudit 
fees paid to the external auditors are not allowed to exceed the audit fee the committee approves each appointment and does not 
consider the nonaudit fees paid to the external auditors to have affected their independence or objectivity
the committee receives an annual independence confirmation from the external auditors
the board through its audit committee receives regular reports from the internal audit department deloitte llp provided support to  
the internal audit department during the year the work of that department presented during the course of the year was summarised  
in its annual report to the committee the audit committee also receives regular reports from the group risk management committee on 
the policies and processes in place to control and mitigate risks these risks are continually reassessed the findings of the internal audit 
department and the committee’s assessment of the risks facing the group were used to create the group’s 2011 internal audit plan which 
has been agreed by the audit committee the committee will monitor progress against the plan
the chair of the audit committee is in regular communication with the head of internal audit outwith formal committee meetings in 
addition during the year the chair of the audit committee attended 4 out of 5 group risk management committee meetings as an observer
other work of the committee includes evaluating the performance and effectiveness of both the external and internal audit functions 
this year lintstock limited a corporate advisory firm assisted with the review of the internal audit function
the committee also has responsibility for reviewing the group’s procedures by which employees may in confidence raise concerns about 
improprieties in matters of financial reporting matters affecting the daytoday care of residents or other matters and for ensuring 
these arrangements allow for independent investigation and appropriate follow up in particular the committee approved arrangements 
with two external agencies for telephone ‘hotlines’ that staff can use to report concerns
during the year the work undertaken by the committee included the review of
the appropriateness of accounting policies estimates and judgements used in the financial statements •	
the annual and half year financial reports and quarterly management statements prior to recommending same for board approval •	
internal audit reports and significant findings •	
financial risks and internal controls •	
director and officer expenses and related party transactions •	
external and internal auditor performance •	
external and internal audit plans and the scope of audit work •	
the impact of potential new or anticipated legislation including but not limited to changes affecting accounting policies and to pensions •	
whistleblowing arrangements •	
business continuity plans •	
treasury functions and •	
the approval of audit fees and terms of engagement •	
the committee’s terms of reference are set out on the group’s website 34  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
corporate governance continued
remuneration committee
the composition and role of the remuneration committee is described in the remuneration report on pages 37 to 43 full details of 
directors’ remuneration and shareholdings are also given in that report
nomination committee
the nomination committee comprises ray miles christopher fisher baroness morgan of huyton nancy hollendoner and jamie buchan 
the chairman of the committee is ray miles the committee meets formally as required
the committee assists the board in discharging its responsibilities relating to the composition and make up of the board it is responsible  
for evaluating the balance of skills knowledge and experience on the board identifying potential candidates to be appointed as directors  
as the need may arise and determining succession planning for the chairman and chief executive during the year the committee met once
the committee’s terms of reference are set out on the group’s website
quality assurance committee
the quality assurance committee assists the board in its desire to deliver the highest possible quality of care to its residents the quality 
assurance committee’s responsibilities include monitoring the group’s compliance in relation to the obligations imposed on it by statute 
and by the various regulatory authorities assessing the effectiveness of internal quality reporting and of applicable internal controls 
identifying any patterns or trends evident from its review of inspection reports received from regulators monitoring staff turnover 
reviewing feedback obtained from internal surveys of residents regulators and staff and identifying appropriate corrective actions  
when required
the committee comprises baroness morgan of huyton nancy hollendoner and jamie buchan as well as senior management and is 
chaired by baroness morgan the committee met twice this year
the committee’s terms of reference are set out on the group’s website
executive committee
in 2009 the board established an executive committee as well as the executive directors the committee comprises irene gray director 
of care david smith director of finance and support services patricia williamson group human resources director and the four 
regional directors namely phil whitaker pam finnis michael macintosh and mark cash
terms of reference for the committee have been agreed and these are set out on the group’s website the duties of the committee 
include monitoring group performance in all areas and directing improvements in efficiency quality and profitability the committee  
also monitors and influences group strategy and is responsible for business planning processes in summary its role is to support the 
strategy of the board and direct the daytoday business of the group
meetings are held monthly
internal control and risk management
the board has overall responsibility for the group’s system of internal control and risk management the system includes an ongoing 
process for identifying evaluating and managing significant risks faced by the group the process is designed to manage rather than 
eliminate the risk of failure to achieve business objectives as with any system of internal control it can only provide reasonable but not 
absolute assurance against material misstatement or loss
the board has reviewed the key risks faced by the group and the effectiveness of the group’s internal control system for the year under 
review and up to the date of approval of the annual report and accounts
the group’s risk management system is described below
risk management
the board has put in place a documented organisational structure with clearly defined and understood roles and responsibilities 
documented policies and procedures at both home and head office level have been established the board remains responsible  
for the company’s system of internal control and for reviewing its effectiveness however it has delegated daytoday responsibility  
for risk management to its group risk management committee ‘grmc’ the grmc meets every three months or more frequently  
if circumstances dictate
the grmc is chaired by the group finance director and comprises representatives of the major functions of the group namely finance 
operations human resources estates health and safety and information technology  35  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
the grmc is responsible for setting group policy and strategy for risk management identifying assessing and managing risks facing the 
group and communicating educating and training employees on the risks facing the group a risk manager is assigned to each category 
of risk identified within the business
the risk management policy provides the framework for managing risk and aims to meet the requirements of good corporate 
governance the management of the risks identified in our business in an appropriate way is fundamental to our approach
the following definitions are included within the policy
risk events that may prevent the achievement of the strategic objectives of the group
risk management the process of identification and treatment of risks facing the group so that strategic objectives may be met and
risk assessment the systematic process of analysing risk
policy objectives
southern cross is committed to effective risk management the objectives in respect of risk management are as follows
to set group policy and strategy for risk management •	
to identify threats to the achievement of the group’s business objectives •	
to assess manage and control the group’s exposure to risk •	
to educate and train risk managers in risk management •	
to ensure risk management culture is embedded within the organisation and •	
to ensure timely communication of risks to both internal and external sources •	
reporting
it is the responsibility of risk managers to report any newly identified risks which are then considered by the grmc at its next meeting 
reports will include findings from the selfaudit tools issues identified by internal audit and risks identified as a result of specific incidents 
that occur unexpectedly in the normal course of business the grmc filters these as appropriate and reports on them to the main board 
through the audit committee a group risk register is maintained in respect of all major risks
internal audit
throughout the year the internal audit department carried out a number of audits at the group’s homes and of head office functions 
deloitte llp were also engaged to carry out audits of head office functions the results of these audits were reported to the audit 
committee which communicated any significant concerns to the board operational management also performed regular audits of the 
homes which considered compliance with regulations and group policies health and safety legislation and other operational matters  
to help ensure compliance the group has a quality assurance department that assists in training operational management on internal 
compliance techniques and ensures that a uniform approach is adopted across the group
management information systems
the group has a comprehensive management information system for regular and timely reporting into the board every month the 
financial reporting system produces reports on the results for the year and the period to date together with key performance indicators 
comparing them against budgeted performance working capital movements and detailed cash flow information the management 
reporting system also includes information on internal external regulatory and compliance audits health and safety and other 
operational matters the board reviews this information at each of its meetings
effectiveness of internal controls
an assessment is made of the financial operational compliance and risk management controls internal audit assisted the board in its 
review in addition to its other work internal audit tests the mitigating controls identified by the grmc in relation to the group’s key risks 
in order to give assurance as to their effectiveness the committee also requires risk managers to certify the effectiveness of the controls 
identified as mitigating the risks they are responsible for
there were no significant control failures during the year
the board confirms that it has reviewed the effectiveness of the system of internal controls in accordance with the guidance ‘internal 
control revised guidance for directors on the combined code’ and is satisfied that the group complies with that guidance 36  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
corporate governance continued
investor relations
the board supports the view that effective communications with its shareholders the ‘sell side’ research analysts and the wider 
investment community is a critical element of corporate governance the chairman has overall responsibility for ensuring effective 
communication with the group’s shareholders and to ensure the board develops an understanding of the views of major shareholders
the group’s annual and interim reports are the primary method by which information is communicated to our shareholders in addition 
there is also regular dialogue with individual institutional shareholders in accordance with the eu transparency directive the group issues 
quarterly interim management statements and presentations for analysts and institutional shareholders are held after the announcement 
of interim and preliminary results these presentations are recorded and can be accessed via the group’s website all nonexecutive directors 
are given the opportunity to attend these meetings and receive copies of any briefings on the group produced by analysts or brokers the 
chairman and the senior independent director are available to meet with major shareholders at any time and a number of such meetings 
took place during the year
the group’s annual general meeting is used as an opportunity to communicate with private investors and to give all ordinary shareholders 
the opportunity to ask questions of the directors
in an effort to communicate more readily with its shareholders the group’s website has been developed to incorporate an investor 
relations section a profile of the group statutory financial statements all announcements and the corporate calendar are included
going concern
after making enquiries the directors have a reasonable expectation that the group and company have adequate resources to continue 
operations for the foreseeable future for this reason the financial statements continue to be prepared on the going concern basis
compliance statement
the board confirms that for the year under review the company has been in compliance with the provisions set out in section 1 of the 
2008 combined code
by order of the board
william mcleish
company secretary
7 december 2010 37  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
remuneration report
introduction
the remuneration committee presents its annual report which is unaudited except for those parts which are stated as being audited
the following principles were applied by the committee in setting remuneration policy
our remuneration packages should be
competitive the remuneration packages should be sufficiently competitive to recruit and retain the correct calibre of individual while 
endeavouring to balance total reward towards performancelinked elements
linked to performance a significant proportion of senior management rewards are determined by the group’s success over the medium 
to longterm
aligned to shareholders a large part of the total reward package is to be paid in shares and is related to share price performance
key elements of remuneration executive directors
element objective how much conditions
base salary to reflect status and responsibilities benchmarked to peer group none
benefits to support executives’ wellbeing car allowance and insurance benefits none
annual bonus to align executives with business objectives up to a maximum of 100 of salary  70 based on group 
performance 30 based 
on personal objectives
pension dc to provide for retirement 15 of salary none
longterm incentives    
share options to align total reward with shareholder objectives  current awards are disclosed below various as disclosed below 
future awards up to a maximum of  
100 of salary will be made under  
the approved pspcsop scheme 
assessing what is ‘competitive’
in order to understand the marketplace for senior executives the group regularly asks its remuneration advisers to benchmark directors’ 
remuneration packages against those of a peer group as the peer group is small packages are also benchmarked against ftse 250 
constituent companies when considering the appropriate cohort for comparison purposes the committee considers both the size and 
complexity of the business and thus comparison against companies in the lower half of the ftse 250 is considered appropriate
balance of remuneration
in setting remuneration policy the committee also considered the need to balance reward for shortterm performance with the objective 
of delivering shareholder value over the medium term and the board’s desire to see sustainable improvements in results over the medium 
to longterm
other senior executives
the committee also recognises that the top executives below board level have an important influence in the group’s ability to achieve its 
objectives accordingly the committee also reviews the remuneration packages for the executive committee to ensure that they remain 
competitive and that in relative terms the correct balance is struck between the board and the rest of the employees
the committee believes that appropriate rewards are available to those below board level to recognise and retain our best employees
linking reward to group performance
the group’s strategy is described by the chairman and by the chief executive in their reports on pages 2 and 8 the board measures  
its progress towards achievement of its business objectives by identifying key performance indicators kpis which are detailed on page 
28 setting targets for these and monitoring their achievement the executive directors bonuses are designed to reflect their personal 
accountability for achievement of objectives within their area of responsibility
long term incentives
at its agm in february 2009 shareholders approved share option agreements for jamie buchan and richard midmer these oneoff 
agreements were proposed to address the particular circumstances faced by the group following its refinancing in 2008 otherwise 
awards have been made to executive directors under the group’s approved psp plan combined with awards under the approved 
company share option plan csop  38  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
remuneration report continued
environmental social and governance issues
the committee is able to consider environmental social and governance issues in setting performance targets for executive directors 
although no direct link between these issues and directors’ remuneration has been made to date notwithstanding this the committee 
believes that the current incentive structure does not present any risk in these areas
share ownership
the group believes that the awards granted to executive directors help ensure considerable alignment of interest between the directors 
and shareholders the group maintains a policy under which executive directors should acquire and hold shares in the company equal  
in value to one and a half times their basic salary two times in the case of the chief executive – this shareholding to be built up over a 
period of time not longer than five years other executive committee members should acquire shares in the company equal in value  
to one times their basic salary
the remuneration committee and its role
during the year the remuneration committee comprised four nonexecutive directors namely christopher fisher baroness morgan  
of huyton nancy hollendoner and ray miles
the committee has clearly defined terms of reference these are set out on the group’s website its responsibilities include
making recommendations to the board on the group’s framework of remuneration for executive management •	
reviewing the ongoing appropriateness and relevance of the remuneration policy and •	
determining on behalf of the board specific remuneration packages for each of the executive directors and the chairman of  •	
the board
the committee meets formally at least twice a year and otherwise as required during the year the committee’s work included the 
following items
reviewing the competitiveness of executive director reward structures the committee takes advice from hewitt new bridge street hnbs •	
reviewing executive directors’ and senior executives’ salaries •	
determining awards under share option plans •	
determining awards under the performance share plan •	
reviewing the style and content of the remuneration report to shareholders •	
setting targets for the executive bonus plan and determining outcomes and •	
determining and agreeing the group’s executive shareholding policy •	
remuneration policy
the group’s overall policy on remuneration is to attract develop motivate and retain individuals at all levels pay competitive salaries and 
align remuneration arrangements with the group’s strategy and objectives
basic salary and benefits
the committee reviews basic salary and benefits each year taking into consideration group financial performance individual 
responsibilities skills and experience consideration is also given to the salaries and benefits paid to executives by other companies of 
similar size and standing the last such review took place during 2009 directors’ salaries for the 2011 financial year remain unchanged 
since the dates of their appointments
annual performancerelated bonus
subject to attainment of certain performance targets based on adjusted ebitda executive directors are entitled to receive a bonus of 
up to 70 of basic salary the directors are also eligible to receive a further bonus equal to 30 of basic salary subject to achievement  
of agreed personal objectives
in respect of the 2010 financial year the committee determined that no bonuses were payable to executive directors
a bonus plan for the 2011 financial year has been agreed and personal objectives have been set and agreed with the executive directors
performance share plan
the southern cross healthcare group 2006 performance share plan ‘the psp’ was adopted by the company in june 2006 awards under 
the plan are generally made annually based on an allocation of notional ordinary shares – equivalent in value to a maximum of 100  
of annual basic salary as at the award date however if the remuneration committee decides that exceptional circumstances exist in 
relation to the recruitment or retention of an employee then the maximum award will be equivalent to 200 of annual basic salary  
on 24 march 2009 the committee approved an amendment to the plan which had the effect of adding an hmrc approved section to  
the plan the approved csop section allows parallel awards to be made which can benefit from beneficial tax treatment to the extent 
that the group’s share price at the time of exercise has increased by comparison to the price at the date of award the gross value of 
awards under the amended plan is the same as it would have been under the original plan 39  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
2008 awards under original psp plan
on 17 january 2008 3719808 awards were granted with an exercise price of £nil a further grant of 370970 awards with an exercise 
price of £nil was made on 14 may 2008
the company failed to achieve the performance conditions applicable to these awards and consequently the awards under this grant 
have now lapsed 
2009 awards under combined pspcsop plan
on 29 may 2009 options over 2365000 shares were granted with an exercise price of £nil further options over 150000 and 130000 
shares both with an exercise price of £nil were made on 1 july 2009 and 5 october 2009 respectively on like dates parallel awards were 
made under the approved section of the plan being respectively 732282 21897 and 23622 the exercise price for these csop options  
is 127p 137p and 127p respectively
a summary of the vesting conditions for these options follows
options can be exercised under the plan at the expiry of the threeyear period following the date of the grant and are subject to 
attainment of agreed performance targets which for these awards will be tested at the end of the 2011 financial year
100 of the options can be exercised on attainment of a performance target based on adjusted ebitda specifically the condition is that 
adjusted ebitda as defined on page 28 for the 2011 financial year is required to be £904m for full vesting to occur at adjusted ebitda 
of £814m 10 of the award will vest there is straightline vesting between these points in terms of the approved option the option  
can be exercised to the extent that the share price on the exercise date exceeds the option price at the time of vesting to the extent that 
there is a gain on the option granted under the approved section psp options will be forfeited to the same value thus maintaining the 
gross value of the award at the same level as it would have been had no csop award been made
2010 awards under combined pspcsop plan
on 18 january 2010 options over 1735903 shares were granted with an exercise price of £nil parallel awards over 375398 shares were 
also made under the approved section of the plan the exercise price for the csop options is 152p
a summary of the vesting conditions for these options follows
options can be exercised under the plan at the expiry of the threeyear period following the date of the grant and are subject to 
attainment of agreed performance targets which for these awards will be tested at the end of the 2012 financial year
100 of the options can be exercised on attainment of a performance target based on adjusted eps specifically the condition is that 
adjusted eps as defined for the 2012 financial year is required to be 2413pps for full vesting to occur at adjusted eps of 2223pps 20 
of the award will vest there is straightline vesting between these points in terms of the approved option the option can be exercised to 
the extent that the share price on the exercise date exceeds the option price at the time of vesting to the extent that there is a gain on 
the option granted under the approved section psp options will be forfeited to the same value thus maintaining the gross value of the 
award at the same level as it would have been had no csop award been made
general
in the event of a takeover the normal position is that shares would vest on a prorata basis subject to application of the performance 
conditions however the rules allow the remuneration committee to increase the number of shares to such higher number as it decides 
provided that such number does not exceed the number of shares determined by reference to the performance conditions
the remuneration committee considered the targets for each award to be appropriate at the date of award targets for future awards 
will be considered in the context of the group’s performance at the time of the award
share option plans
at the agm on 16 february 2009 shareholders approved share option plans for both the chief executive and the group finance director 
the options were granted on 17 february 2009
the plans are similar in design but differ in specific clauses relating to the exercise date number of shares under option exercise prices 
and performance conditions reflecting the different timing and circumstances of each director’s appointment no payment is required  
for the grant of the options the options are not transferable except on death and they are not pensionable
the committee can decide to satisfy the options by the payment of a cash amount or the transfer of shares equal in value to the gain 
made on the exercise of the option the chief executive’s options will lapse on 1 january 2019 while the group finance director’s options 
will lapse on 1 july 2018 both to the extent that they have not been exercised
in both cases the options are exercisable three years after the date of appointment other than option 4 of the group finance director’s 
plan which is not exercisable until after 1 january 2012 40  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
remuneration report continued
the chief executive’s share options are subject to the following performance conditions the options will only be exercisable provided the 
share price is in excess of 130p at the time of exercise and adjusted eps has grown by 5 compound between the 2008 financial year 
adjusted eps 1960p and the financial year ending on 30 september 2011 this eps performance condition also applies to option 4 of the 
finance director’s share option award if the eps performance condition is not satisfied the committee may allow up to one third of the 
options affected to be exercised in the period up to 31 march 2012 if it is their opinion acting fairly and reasonably that the underlying 
financial performance of the group satisfies allowing such exercise
in the event of a takeover to the extent that the performance conditions are satisfied the options may be exercised within one month  
or such longer period as the committee may permit 
saye
at its 2009 agm shareholders approved an all employee sharesave plan no invitations to participate in the plan were issued in the year 
under review
amendment of share plans
no share plan can be amended unless shareholder approval is obtained except for minor alterations to benefit the administration of the 
plan to take account of a change in legislation or to obtain or maintain favourable tax exchange control or regulatory treatment for 
participants or any group member
pension benefits
executive directors are entitled to money purchase benefits equal to 15 of annual salary bonuses and awards made under any share 
plans are not pensionable
service contracts
the executive directors’ service agreements provide that the notice required to terminate their employment is 12 months given either by 
the director or the company in the event of termination directors are expected to seek to mitigate their loss and the committee looks to 
apply this principle as rigorously as possible
the company also has the right to terminate the employment of an executive director without notice or with less than 12 months’ notice 
by making a payment in lieu of notice equal to the base salary and contractual benefits the executive director would be entitled to receive 
during any unexpired part of the notice period
under the current terms of the executive directors’ service agreements jamie buchan is entitled to receive a basic salary of £430000 per 
annum whilst richard midmer is entitled to receive a basic salary of £385000 per annum richard midmer is also entitled to a car 
allowance all executive directors are entitled to life and healthcare insurance
kamma foulkes left the company and resigned from the board on 31 december 2009 in compensation for the unexpired portion of her 
service agreement she received a cash payment of £393000 under the terms of her compromise agreement the committee also agreed 
within the rules of the psp plan to consider her a ‘good leaver’ in respect of her 2008 psp award
a summary of the specific terms of the executive directors’ service agreements is included in the table below
     effective unexpired notice 
director     date term period
j buchan     1 january 2009 indefinite 12 months
r midmer     1 july 2008 indefinite 12 months
outside appointments
executive directors are permitted to accept or retain preexisting a nonexecutive appointment outside the group subject to permission 
from the committee and provided there are no conflicts of interest such appointments can enhance directors’ experience and add value 
to the group fees for such appointments are normally retained by the individual director in the period to 30 september 2010 jamie 
buchan and richard midmer retained £30000 and £62834 respectively in respect of nonexecutive appointments kamma foulkes did 
not receive any fees for nonexecutive appointments
nonexecutives
the nonexecutive directors have letters of appointment with the company the terms of the letters of appointment for the nonexecutive 
directors are subject to the provisions of the articles all such appointments are for an initial term of three years from the date of the first 
agm following appointment following recommendations from the nomination committee the board resolved to reappoint ray miles 
christopher fisher and baroness morgan of huyton to serve for a further three years from 31 january 2010 
the remuneration committee makes recommendations on the level of fees payable to the nonexecutive directors which are set by the 
board as a whole under his letter of appointment the chairman receives an annual fee of £125000 the other nonexecutive directors 
receive an annual fee of £45000 in addition the chairmen of the audit remuneration and quality committees receive an annual fee of 
£7500 all nonexecutive directors receive reimbursement of business expenses incurred in the proper performance of their duties fees 
for the chairman and other nonexecutive directors remain at the level set at the time of the flotation in 2006 41  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
the appointment of each of the nonexecutive directors is terminable on one month’s notice is subject to the retirement by rotation 
provisions in the articles and does not give rise to any entitlement to compensation in respect of their termination
directors’ remuneration audited
     compensation  total   pension 
 salary annual benefits for loss  emoluments   contributions  
 or fees bonus in kind of office 2010  2009 2010  2009 
 £’000 £’000 £’000 £’000 £’000  £’000 £’000  £’000
executive
j buchan 430 – 2 – 432 539 64 48
r midmer 385 – 15 – 400 585 58 58
nonexecutive
r miles 125 – – – 125 170 – –
c fisher 53 – – – 53 53 – –
baroness morgan of huyton 53 – – – 53 53 – –
n hollendoner 53 – – – 53 53 – –
previous directors
b colvin – – – – – 22 – –
j murphy – – – – – 128  52
k foulkes 85 – 4 393 482 448 – 41
 1184 – 21 393 1598 2051 122 199
 appointed 1 january 2009
 kamma foulkes salary comprises £75000 in respect of salary and £10000 taken in lieu of pension
directors’ interests
the directors of the company had the following shareholdings in the company at each of the balance sheet dates
        2010 2009 
       number of number of 
       ordinary ordinary 
       shares of shares of 
       1p each 1p each
j buchan       200307 135579
r midmer       80344 59173
r miles       163837 163837
c fisher       100000 70000
baroness morgan of huyton       2222 2222
n hollendoner       15919 15919
share plans audited
as at 30 september 2010 the interests of directors in share plans are
        earliest  
      exercise vesting expiry 
 opening lapsed vested granted closing price date date
psp
k foulkes 39130 39130 – – – nil na na
share options
r midmer 1000000 – – – 1000000 £084 10711 10718
r midmer 500000 – – – 500000 £126 10711 10718
r midmer 500000 – – – 500000 £168 10711 10718
r midmer 500000 – – – 500000 £250 10112 10119
j buchan 1800000 – – – 1800000 £100 10112 10119
j buchan 600000 – – – 600000 £150 10112 10119
j buchan 600000 – – – 600000 £200 10112 10119
the company’s closing share price on 30 september 2010 was 31p whilst the highest and lowest during the period was 155p and 17p 
respectively 42  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
remuneration report continued
executive committee remuneration
in 2009 as part of the restructuring of management responsibilities associated with the new horizons programme an executive 
committee compromising the group’s senior management team was formed it has been progressively strengthened over the last 
financial year and now comprises four regional directors and three functional directors responsible for care hr and finance and other 
central services as well as the two executive directors
the remuneration of the executive committee in aggregate excluding executive directors is shown in the table below
     compensation  total   pension 
 salary annual benefits for loss  emoluments   contributions  
 or fees bonus in kind of office 2010  2009 2010  2009 
 £’000 £’000 £’000 £’000 £’000  £’000 £’000  £’000
executive committee excl executive directors 1007 63 65 144 1279 882 131 51
as at 30 september 2010 the interests of executive committee members excluding executive directors in share plans are
        earliest  
      exercise vesting expiry 
 opening lapsed vested granted closing price date date
psp
2008 award 94363 94363 –   nil na na
2009 award 1120000 119270   1000730   
2010 award  74103  497566 423463   
executive committee excl executive directors 1214363 287736  497566 1424193   
dilution
the current intention is to use newly issued shares to satisfy the exercise of all employee awards and executive options
in accordance with abi guidelines the company can issue a maximum of 10 of its issued share capital in a rolling 10 year period to 
employees under share plans an additional guideline of 5 applies to discretionary or executive plans as the major awards to executive 
directors were specifically approved by shareholders the committee may not observe this guideline in future the table below shows the 
potential dilution if shares were issued to satisfy all current commitments
         
        additional 
       current total dilution  
share dilution       dilution during year
all share plans maximum 10       488 156
discretionary share plans maximum 5       488 012 43  southern cross healthcare group plc 
annual report and accounts 2010
management and governance
management and governance
tsr chart of southern cross healthcare group plc
the above chart shows the group’s relative tsr performance compared against the tsr performance of the ftse small cap index 
constituents excluding investment trusts
christopher fisher 
chairman of the remuneration committee
7 december 2010

150
100
50
0
50
100
 southern cross healthcare group plc ftse small cap health care equipment services
sep 06
dec 06
mar 07
jun 07
sep 07
dec 07
mar 08
jun 08
sep 08
dec 08
mar 09
jun 09
sep 09
dec 09
mar 10
jun 10
sep 10 44  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
independent auditors’ report to the 
members of southern cross healthcare  
group plc
we have audited the group financial statements of southern cross healthcare group plc for the period ended 30 september 2010 which 
comprise the consolidated income statement the consolidated balance sheet the consolidated cash flow statement the consolidated 
statement of changes in shareholders’ equity and the related notes the financial reporting framework that has been applied in their 
preparation is applicable law and international financial reporting standards ifrss as adopted by the european union 
respective responsibilities of directors and auditors 
as explained more fully in the directors’ responsibilities statement set out on page 30 the directors are responsible for the preparation  
of the group financial statements and for being satisfied that they give a true and fair view our responsibility is to audit the group 
financial statements in accordance with applicable law and international standards on auditing uk and ireland those standards  
require us to comply with the auditing practices board’s ethical standards for auditors 
this report including the opinions has been prepared for and only for the company’s members as a body in accordance with chapter 3  
of part 16 of the companies act 2006 and for no other purpose we do not in giving these opinions accept or assume responsibility for 
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed  
by our prior consent in writing
scope of the audit of the financial statements 
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable 
assurance that the financial statements are free from material misstatement whether caused by fraud or error this includes an 
assessment of whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied  
and adequately disclosed the reasonableness of significant accounting estimates made by the directors and the overall presentation  
of the financial statements
opinion on financial statements 
in our opinion the group financial statements 
give a true and fair view of the state of the group’s affairs as at 30 september 2010 and of its loss and cash flows for the period  •	
then ended 
have been properly prepared in accordance with ifrss as adopted by the european union and •	
have been prepared in accordance with the requirements of the companies act 2006 and article 4 of the las regulation •	
opinion on other matters prescribed by the companies act 2006 
in our opinion
the information given in the directors’ report for the financial year for which the group financial statements are prepared is consistent •	
with the group financial statements and
the information given in the corporate governance statement set out on pages 31 to 36 with respect to internal control and risk •	
management systems and about share capital structures is consistent with the financial statements 
matters on which we are required to report by exception 
we have nothing to report in respect of the following 
under the companies act 2006 we are required to report to you if in our opinion •	
certain disclosures of directors’ remuneration specified by law are not made or •	
we have not received all the information and explanations we require for our audit or •	
a corporate governance statement has not been prepared by the parent company •	
under the listing rules we are required to review 
the directors’ statement set out on pages 28 to 30 in relation to going concern and •	
the part of the corporate governance statement relating to the company’s compliance with the nine provisions of the june 2008 •	
combined code specified for our review 
other matter 
we have reported separately on the parent company financial statements of southern cross healthcare group plc for the period ended 
30 september 2010 and on the information in the directors’ remuneration report that is described as having been audited 
randal casson senior statutory auditor
for and on behalf of pricewaterhousecoopers llp
chartered accountants and statutory auditors
newcastle upon tyne
7 december 2010 45  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
consolidated income statement
for the period ended 30 september 2010
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
      note £’m £’m
revenue      3 9586 9371
home payroll costs      3 5578 5337
home running costs      3 1199 1128
home ebitdar
1
 before central costs      3 2809 2906
rent
charge for rental amounts currently payable       1970 1873
charge for future minimum rental increases       513 518
total rent      3 2483 2391
home ebitda
2
 before central costs       326 515
central costs       368 308
adjusted ebitda
3
 before exceptional central costs and
charge for future minimum rental increases       534 725
exceptional central costs      4 63 –
charge for future minimum rental increases      21 513 518
ebitda       42 207
loss on disposal of property plant and equipment and subsidiary undertakings    5 02 41
impairment of freehold assets held for sale      5 11 77
onerous contracts and related impairments      5 115 –
depreciation      11 271 216
operating loss      36 441 127
finance costs      7 37 79
finance income      7 04 08
loss before taxation       474 198
taxation creditcharge      8 107 23
loss attributable to ordinary shareholders of the company      367 221
        pence pence 
      note per share per share
loss per share attributable to equity shareholders of the company
basic      10 1951 1175
diluted      10 1951 1175
all of the above activities relate to continuing operations
the consolidated income statement above represents all the gains and losses incurred by the group during the periods presented and 
therefore no separate consolidated statement of comprehensive income has been presented
1  ebitdar represents earnings before interest tax depreciation amortisation loss on disposal of property plant and equipment and subsidiary undertakings impairment of 
freehold assets held for sale onerous contracts and related impairments and rent
2  ebitda represents earnings before interest tax depreciation amortisation loss on disposal of property plant and equipment and subsidiary undertakings impairment of 
freehold assets held for sale and onerous contracts and related impairments
3 adjusted ebitda represents ebitda after adding back exceptional central costs and the charge for future minimum rental increases 46  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated balance sheet
as at 30 september 2010
        30 sept 27 sept 
       2010 2009 
      note £’m £’m
assets
noncurrent assets
property plant and equipment      11 1184 1114
goodwill      12 2192 2192
deferred tax assets      23 252 147
other noncurrent assets      14 34 34
total noncurrent assets       3662 3487
current assets
cash and cash equivalents      15 12 318
trade receivables      16 326 377
inventories      17 11 11
property assets held for sale      13 140 465
other current assets      16 213 89
total current assets       702 1260
total assets      3 4364 4747
liabilities
current liabilities
shortterm financial liabilities      19 06 215
trade and other payables      18 937 979
provisions and similar obligations      20 23 06
total current liabilities       966 1200
noncurrent liabilities
longterm financial liabilities      19 60 417
provisions and similar obligations      20 187 123
deferred government grants       24 29
future minimum rental increase accrual      21 2608 2095
total noncurrent liabilities       2879 2664
total liabilities      3 3845 3864
net assets      3 519 883
equity
share capital      24 19 19
share premium       1615 1615
accumulated deficit       1115 751
total equity       519 883
the financial statements on pages 45 to 77 were approved by the board of directors on 7 december 2010
j buchan   r midmer
chief executive  finance director
registered number 05328138 47  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
consolidated cash flow statement
for the period ended 30 september 2010
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
      note £’m £’m
cash flows from operations
cash generated from operations      25 334 875
interest received       02 08
interest and bank loan arrangement fees paid       37 131
tax paidreceived       02 156
net cash generated from operations       297 908
cash flows from investing activities
purchase of subsidiary undertakings net of cash acquired       – 07
sales of subsidiary undertakings      5 255 –
purchase of property plant and equipment       351 453
receipts from the sale of property plant equipment and other assets     5 57 204
net cash used in investing activities       39 256
cash flows from financing activities
repayment of borrowings       888 759
new borrowings       330 411
capital element of finance leases      27 06 08
net cash used in financing activities       564 356
net decreaseincrease in cash and cash equivalents       306 296
opening cash and cash equivalents       318 22
closing cash and cash equivalents      15 12 318
note included within the purchase of property plant and equipment is development expenditure on new properties totalling £23m 2009 £181m 48  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated statement of changes  
in shareholders’ equity
for the period ended 30 september 2010
      share share accumulated total 
     capital premium deficit equity 
     £’m £’m £’m £’m
at 28 september 2008     19 1615 533 1101
loss attributable to ordinary shareholders     – – 221 221
sharebased payments including deferred tax of £01m     – – 03 03
at 27 september 2009     19 1615 751 883
loss attributable to ordinary shareholders     – – 367 367
sharebased payments including deferred tax of £01m note 31    – – 03 03
at 30 september 2010     19 1615 1115 519 49  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
1 general information
southern cross healthcare group plc ‘the company’ and its subsidiaries together ‘the group’ are engaged in the operation of care 
homes for the elderly and the provision of specialist services for people with physical andor learning disabilities
the company is a public limited company incorporated and domiciled in the united kingdom whose shares are listed and traded on the 
london stock exchange registered number 05328138 the address of its registered office is southgate house archer street darlington 
county durham dl3 6ah
the group prepares its financial information for the financial year ending on 30 september of a given calendar year
the consolidated financial statements of the group represents the following
period ended 30 september 2010
the consolidated financial information of southern cross healthcare group plc including 
the consolidated financial information of southern cross healthcare group plc and its subsidiaries for the period from 28 september •	
2009 to 30 september 2010
52 weeks ended 27 september 2009
the consolidated financial information of southern cross healthcare group plc including
the consolidated financial information of southern cross healthcare group plc and its subsidiaries for the period from 29 september •	
2008 to 27 september 2009
the principal subsidiaries within the group are disclosed in note 34
2 accounting policies
the principal accounting policies applied in the preparation of these consolidated financial statements are set out below these policies 
have been consistently applied to all the periods presented unless otherwise stated
21 basis of preparation
the consolidated financial statements have been prepared in accordance with international financial reporting standards ‘ifrss’  
as adopted by the european union and international financial reporting interpretations committee ‘ifric’ interpretations and the 
companies act 2006 as applicable to companies reporting under ifrs 
the consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain 
financial assets and financial liabilities including derivative instruments at fair value through profit or loss 
at the start of the financial period the group changed its internal reporting cycles and now reports on a calendar monthly basis 
previously the group reported 13 periods of 4 weeks the results for the period ended 30 september 2010 are therefore for a period  
of 368 days 2009 364 days
the following new standards amendments and interpretations which are in issue at the balance sheet date but not yet effective have 
not been applied in these financial statements
effective for periods commencing on or after
ifrs9 ‘financial instruments’ 1 january 2013 •	
ias24 revised ‘related party disclosures’ 1 january 2011 •	
amendment to ifrs7 ‘financial instruments disclosures’ 1 july 2011 •	
amendment to ifric14 ‘prepayments of a minimum funding requirement’ 1 january 2011 •	
ifric18 ‘transfer of assets from customers’ 30 october 2009 •	
ifric19 ‘extinguishing financial liabilities with equity instruments’ 1 july 2010 •	
annual improvements 2010 1 january 2011 •	
it is considered that the above standards amendments and interpretations will not have a significant effect on the results or net assets  
of the group but may increase the level of disclosure to be made in the financial statements
notes to the consolidated  
financial statements
for the period ended 30 september 2010 50  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
2 accounting policies continued 
from 28 september 2009 the following standards amendments and interpretations became effective and were adopted by the group
ifrs8 ‘operating segments’ •	
ias1 revised ‘presentation of financial statements’ •	
ias23 revised ‘borrowing costs’ •	
ias27 revised ‘consolidated and separate financial statements’ •	
ifrs1 revised ‘first time adoption of ifrs’ •	
ifrs3 revised ‘business combinations’ •	
ifric13 ‘customer loyalty programmes’ •	
ifric14 ‘the limit on a defined benefit asset’ •	
ifric15 ‘agreements for the construction of real estate’ •	
ifric16 ‘hedges of a net investment including foreign operations’ •	
amendment to ias39 ‘financial instruments recognition and measurement’ and ifrs7 ‘financial instruments disclosures’ on the •	
reclassification of financial assets
amendment to ifric9 and ias39 regarding embedded derivatives •	
amendment to ifrs1 ‘first time adoption of ifrs’ and ias27 ‘consolidated and separate financial statements’ on the cost of an •	
investment in a subsidiary jointly controlled entity or associate
annual improvements to ifrss 2008 •	
amendment to ias32 ‘financial instruments presentation’ and ias1 ‘presentation of financial statements on puttable financial •	
instruments and obligations arising on liquidation’
amendment to ifrs2 ‘sharebased payments’ on vesting conditions and cancellations •	
annual improvements 2009 •	
amendment to ifrs2 ‘sharebased payments – group cashsettled sharebased payment transactions’ •	
amendments to ifrs1 for additional exemptions •	
amendments to ias32 ‘financial instruments presentation on classification of rights issues’ •	
amendment to ias39 ‘financial instruments recognition and measurement’ on eligible hedged items •	
ifric17 ‘distribution of noncash assets to owners’ •	
the adoption of these standards amendments and interpretations has not had a significant impact on the group’s result for the year  
or equity
22 significant accounting judgements estimates and assumptions
in order to prepare these consolidated financial statements in accordance with the accounting policies below management has used 
estimates and judgements to establish the amounts at which certain items are recorded critical accounting estimates and judgements 
are those which have the greatest impact on the consolidated financial statements and require the most difficult subjective and complex 
judgements about matters that are inherently uncertain and are set out below
a goodwill
goodwill represents the excess of the cost of an acquisition over the fair value of the group’s share of the net identifiable assets of the 
acquired subsidiary at the date of acquisition goodwill represents the goodwill for a portfolio of homes which have been allocated to  
a group of cash generating units which are split on a segmental basis
the group determines whether goodwill is impaired on at least an annual basis this requires an estimation of the value in use of the 
segment to which the goodwill is allocated estimating the value in use amount requires management to make an estimate of the 
expected future cash flows from the segment and to select a suitable discount rate to calculate the present value of those cash flows 
further details are given in note 12 impairment losses on goodwill are not reversed
b property assets held for sale
property assets are freehold properties acquired through acquisitions or developed by the group that are expected to be sold within one 
year all property assets held for resale are measured at the lower of carrying value and fair value less costs to sell determining the fair 
value of the property assets requires valuation and estimation techniques to be used when assessing the fair value of each property 
management consider a number of factors including estimated sale price internal valuations and future expected yields any impairment 
charges are recognised in the income statement
c onerous leases and contracts
provisions are made for future operating lease payments of vacant care homes for the full remaining lease term or up to the point at 
which the lease is expected to be sublet and for amounts in respect of an onerous contract in calculating provisions for future lease 
payments of vacant care homes the group has estimated future lease payments and other associated costs over the remaining period  
of the lease and the best estimate of amounts required to settle the contract furthermore a suitable discount rate to calculate the 
present value of the future cash flows has been selected
notes to the consolidated  
financial statements continued 51  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
2 accounting policies continued 
d leases
judgement is required in the initial classification of leases as either operating leases or finance leases assets held under finance leases 
which transfer to the group substantially all the risks and benefits incidental to ownership of the leased item are capitalised at inception  
of the lease with a corresponding liability being recognised for the value of the leased asset or if lower the present value of the minimum 
lease payments assets held under finance leases are depreciated over the shorter of the estimated useful economic life or the lease term
all other leases are considered to be operating leases the land and buildings elements of a lease of land and buildings are considered 
separately for the purpose of lease classification with the lease of land classified as an operating lease operating leases and rentals 
payable are charged in the income statement on a straightline basis over the lease term the total committed cost is determined and 
amortised on a straightline basis over the lease term the charge for rentals currently payable is the actual amount payable in the 
period by the group for its operating leases the charge for future minimum rental increases reflects the impact of recognising rental 
increases on a straightline basis over the lease term
sale and leaseback transactions
when a sale and leaseback results in a finance lease any gain on the sale is deferred and recognised as income over the lease term  
any loss on the sale is immediately recognised as an impairment loss when the sale occurs
if the leaseback is classified as an operating lease any gain is recognised immediately if the sale and leaseback terms are demonstrably 
at fair value otherwise the sale and leaseback are accounted for as follows
if the sale price is below fair value any profit or loss is recognised immediately except that if the loss is compensated for by future •	
lease payments at below market price it is deferred and amortised in proportion to the lease payments over the period for which  
the asset is expected to be used
if the sale price is above fair value the excess over fair value is deferred and amortised over the useful life of the asset •	
if the fair value of the asset is less than the carrying amount of the asset at the date of the transaction the difference is recognised •	
immediately as a loss on the sale
23 consolidation
the consolidated financial statements incorporate the financial statements of the company and entities controlled by the company  
its subsidiaries made up to 27 september 2009 and 30 september 2010 control is achieved where the company has the power to 
govern the financial and operating policies of an entity so as to obtain benefits from its activities the existence and effect of potential 
voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity
the purchase method of accounting is used to account for the acquisition of subsidiaries by the group on acquisition the assets and 
liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition where the fair values of net 
assets acquired are based on provisional assessments pending final determination of certain assets and liabilities provisional goodwill  
is recorded intangible assets in acquired companies which concern resident contracts are recognised and amortised over periods of up  
to three years any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is capitalised as goodwill 
goodwill is not amortised instead impairment tests are undertaken annually and any impairment is charged to the income statement 
any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired ie discount on acquisition is credited 
to the income statement in the period of acquisition
the results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective 
date of acquisition or up to the effective date of disposal as appropriate
24 revenue recognition
revenue comprises the fair value of fee income relating to the provision of care services net of price reductions directly related to sales 
fee income comprises care home fees which are recognised when delivery of service is completed
the group recognises revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will 
flow to the group
25 home payroll costs
home payroll costs represent payroll costs directly incurred at home level including costs incurred in respect of the use of agency labour
26 home running costs
home running costs represent costs of items directly incurred at home level including food and kitchen supplies medical supplies 
utilities maintenance and other running costs of the home
27 home ebitdar before central costs
home ebitdar before central costs represents profitability at home level after taking account of home payroll and home running costs 
but before rental charges on operating leases central costs and depreciation on home assets
28 central costs
central costs represent costs of head office support functions including central payroll costs other costs not directly attributable to 
homes and certain other payroll costs 52  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
2 accounting policies continued 
29 ebitda and adjusted ebitda
ebitda represents earnings before interest tax depreciation amortisation loss on disposal of property plant and equipment and 
subsidiary undertakings onerous contracts and related impairments and impairment of freehold assets held for sale adjusted ebitda 
represents ebitda after adding back exceptional central costs and the charge for future minimum rental increases
the group believes that ebitda and adjusted ebitda and measures derived therefrom including home ebitdar before central costs  
and home ebitda before central costs facilitate operating performance comparisons from period to period and company to company  
by eliminating potential differences caused by variations in capital structures affecting finance income and costs tax positions the  
age and book depreciation of property plant and equipment affecting relative depreciation expense and intangible assets identified 
affecting amortisation expense
210 exceptional costs 
exceptional costs are events or transactions that fall within the activities of the group and which by virtue of their size or incidence  
have been disclosed in order to improve a reader’s understanding of the financial information
211 segmental reporting
during the period the group has adopted the requirements of ifrs 8 ‘operating segments’ based on the requirements of ifrs 8 the 
directors consider the group to have two reportable segments elderly care and specialist which remain unchanged from those reported 
at 27 september 2009 further details are provided in note 3 on page 56
212 sharebased compensation
the cost of equitysettled transactions with employees is measured by reference to the fair value at the date at which they are granted 
and is recognised as an expense over the vesting period which ends on the date on which the relevant employees become fully entitled 
to the award fair value is determined by an external valuer using an appropriate pricing model in valuing equitysettled transactions  
no account is taken of any vesting conditions other than conditions linked to the price of the shares of the company market conditions
no expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon a market condition 
which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance 
conditions are satisfied
at each balance sheet date before vesting the cumulative expense is calculated representing the extent to which the vesting period has 
expired and management’s best estimate of the achievement or otherwise of nonmarket conditions number of equity instruments that 
will ultimately vest or in the case of an instrument subject to a market condition be treated as vesting as described above the movement 
in cumulative expense since the previous balance sheet date is recognised in the income statement with a corresponding entry in equity
213 derivative financial instruments
the group uses derivative financial instruments such as interest rate caps and collars to hedge its risks associated with interest rate 
fluctuations such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is 
entered into and are subsequently measured at fair value
derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative fair value movements  
are recognised in the income statement
214 property plant and equipment
property plant and equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses cost 
includes the original purchase price of the asset and costs attributable to bringing the asset to its working condition for its intended  
use borrowing costs attributable to assets under construction are recognised as an expense as incurred no depreciation is charged  
on assets under construction
depreciation is provided on all property plant and equipment at rates calculated to write off the cost less estimated residual value  
based on prices prevailing at the balance sheet date of each asset on a straightline basis over its estimated useful life as follows
freehold buildings – 2 per annum •	
short leasehold property – over life of lease •	
motor vehicles – 25 per annum •	
fixtures and fittings – 14 per annum •	
computer equipment – 33 •	
1
⁄3 per annum
the assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date impairment reviews •	
are carried out at a cash generating unit level except where management become aware of a specific asset that is impaired within a 
cash generating unit
an asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its 
estimated recoverable amount gains and losses on disposals are recognised in the income statement
notes to the consolidated  
financial statements continued 53  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
2 accounting policies continued 
215 intangibles
other intangibles
intangible assets are carried at cost less accumulated amortisation and impairment charges
an intangible asset acquired as part of a business combination is recognised outside of goodwill if the asset is separable or arises from 
contractual or other legal rights and its fair value can be measured reliably 
216 employee benefit costs
staff costs comprise salaries wages and pensions for the group’s staff as well as other staff costs the group operates defined contribution 
pension plans which are plans under which the group pays fixed contributions into a separate entity the group has no legal or constructive 
obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee 
service in the current and prior periods contributions are recognised as employee benefit expenses as they fall due
217 inventories
inventories are stated at the lower of cost and net realisable value cost is determined using the firstin firstout fifo method  
where necessary impairment is made for obsolete slow moving and defective stocks
218 taxation including deferred tax
the tax credit or expense represents the sum of the tax currently payable and deferred tax the tax currently payable is based on taxable 
profit for the period taxable profit differs from net profit as reported in the income statement because it excludes items of income or 
expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible the group’s 
liability for current tax is calculated using tax rates that have been in force during the period
deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the 
financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance 
sheet liability method deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are 
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be 
utilised such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition other 
than in a business combination of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit
deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the group is able 
to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future
the carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable 
that sufficient taxable profits will be available against which the temporary differences can be utilised deferred tax is calculated at the 
average tax rates that are expected to apply in the period when the liability is settled or the asset is realised
deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to reserves  
in which case the deferred tax is also dealt with in reserves
219 cash and cash equivalents
cash and cash equivalents includes cash and balances in accounts at no or short notice
220 finance costs
finance costs include interest and amortisation of loan arrangement fees loan arrangement fees are amortised evenly using the 
effective rate method
221 finance income
finance income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable
222 receivables
trade receivables defined in accordance with ias 39 are recorded initially at fair value and subsequently measured at amortised  
cost using the effective interest method less provision for impairment for any doubtful amounts a provision for impairment of trade 
receivables is established when there is evidence that the group will not be able to collect all amounts due according to the original  
terms of the receivables the amount of the provision is the difference between the assets’ carrying amount and the present value  
of future cash flows discounted at the effective interest rate the movement in the provision is recognised in the income statement
any other receivables are recognised at their original amount less an allowance for any doubtful amounts an allowance is made when 
collection of the full amount is no longer considered probable 54  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
2 accounting policies continued 
223 other payables
other payables primarily comprise holiday pay liabilities other taxes and interest payable which are measured at the best estimate of the 
expenditure required to settle the obligation
224 government grants
grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and 
the group will comply with all attached conditions government grants relating to property plant and equipment are included in non
current liabilities as deferred government grants and are credited to the income statement on a straightline basis over the expected  
lives of the related assets
225 trade payables
trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method
226 borrowings
borrowings are recognised initially at fair value net of transaction costs incurred borrowings are subsequently stated at amortised cost 
any difference between the proceeds net of transaction costs and the redemption value is recognised in the income statement over the 
period of the borrowings using the effective interest method
227 share capital
ordinary shares are classified as equity incremental costs directly attributable to the issue of new shares or options are shown in equity 
as a deduction net of tax from the proceeds
228 dividend distribution
final dividend distribution to the company’s shareholders is recognised as a liability in the group’s financial statements in the period in 
which the dividends are approved by the company’s shareholders interim dividends are recognised when paid
financial risk management
229 financial risk factors
the group’s activities expose it to a variety of financial risks market risk including cash flow interest rate risk liquidity risk and credit risk 
the group’s overall risk management strategy focuses on the unpredictability of financial markets and seeks to minimise potential 
adverse effects on the group’s financial performance
risk management is monitored by the group risk management committee under policies approved by the board of directors
230 market risk
cash flow interest rate risk
the group’s interest rate risk arises from longterm borrowings which are issued at variable rates that expose the group to cash flow 
interest rate risk
the interest exposure of the group is managed within the constraints of the group’s business plan and the financial covenants under its 
facilities the group aims to reduce exposure to the effect of interest rate movements by hedging an appropriate amount of interest rate 
exposure the impact of movements in interest rates is managed where considered appropriate through the use of floating rate debt 
and interest rate caps and collars
the group has performed calculations to analyse its interest rate exposure taking into consideration refinancing renewal of existing 
positions and alternative financing based on these scenarios the group calculates the impact on profit and loss of a defined interest  
rate shift the scenarios are run only for liabilities that represent the major interestbearing positions
the impact on post tax profit of a 1 shift would be a maximum increase of £08m 2009 £06m or decrease of £08m 2009 £06m 
respectively
231 liquidity risk
the policy of the group has throughout the period been to maintain a mix of short and longterm borrowings with shortterm flexibility 
achieved through overdraft and revolving credit facilities
notes to the consolidated  
financial statements continued 55  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
2 accounting policies continued 
232 credit risk
credit risk is managed on a group basis credit risk arises from cash and deposits with banks and financial institutions as well as credit 
exposures to residents including outstanding receivables for banks and financial institutions only institutions with a shortterm credit 
rating as determined by moody’s of p1 are accepted
233 capital risk management
the group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide 
returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital  
in order to maintain or adjust the capital structure the group may adjust the amount of dividends paid to shareholders return capital  
to shareholders issue new shares or sell assets to reduce debt
the group’s shortterm objective is to reduce its debt during the period the group has continued to pursue its policy of reducing debt by 
disposing of freehold assets making repayments of bank loans and not proposing to pay a final dividend further information regarding 
the group’s financial liabilities and undrawn facilities are set out in note 22 and the movement in net debt position is shown in note 27
234 fair value estimation
interest rate cap and collar contracts have been marked to market to produce fair value figures
the carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values the fair value  
of longterm borrowings approximate to the carrying value reported in the balance sheet as the majority are variable rate borrowings
235 operating lease rental increases
the majority of the group’s homes are subject to operating rental lease agreements which incorporate future increases to rental amounts 
currently payable the group’s longerterm cash position depends upon it continuing to increase adjusted ebitda ahead of future 
increases to rental amounts currently payable 56  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
3 segmental analysis
during the period the group has adopted the requirements of ifrs 8 ‘operating segments’ the standard requires the reporting of 
segmental information in line with the information reviewed regularly by the ‘chief operating decision maker’ codm the group has 
concluded that the codm is the executive committee the operating segments have been identified as the four geographical segments 
within the elderly care business and the specialist segment management consider the aggregation criteria of ifrs 8 have been met for 
the operating segments within the elderly care business and therefore the reportable segments remain unchanged to those reported at 
27 september 2009 being elderly care and specialist revenue loss before taxation and total equity of the group are wholly attributable 
to the operation of care homes and arise solely within the united kingdom
period ended 30 september 2010
       elderly care specialist total 
      number number number
available beds – average
acquisitions      238 – 238
continuing operations      37363 930 38293
segment available beds      37601 930 38531
occupied beds
acquisitions      81 – 81
continuing operations      31864 734 32598
segment occupied beds      31945 734 32679
       elderly care specialist total 
        
occupancy – average
acquisitions      340 – 340
continuing operations      853 789 851
segment occupancy      850 789 848
       £ £ £
average weekly fee
acquisitions      587 – 587
continuing operations      545 1086 558
segment average weekly fee      545 1086 558
average occupancy for the group’s mature homes excluding new developments or refurbished homes that have been trading for less 
than 12 months was 861 2009 884
acquisitions relate to four homes acquired during the period through agreements to lease
following a review of double occupancy rooms the group has reclassified 1303 rooms as single occupancy as at the beginning of fy11  
this will have the net impact of reducing the number of available beds across the group by 1303 beds to 37300 for fy10 this amendment  
to available beds would have had the effect of increasing average occupancy for the group from 848 to 878
notes to the consolidated  
financial statements continued 57  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
3 segmental analysis continued 
52week period ended 27 september 2009
       elderly care specialist total 
      number number number
available beds – average
acquisitions      370 – 370
continuing operations      36364 930 37294
segment available beds      36734 930 37664
occupied beds
acquisitions      178 – 178
continuing operations      32080 768 32848
segment occupied beds      32258 768 33026
       elderly care specialist total 
        
occupancy – average
acquisitions      481 – 481
continuing operations      882 826 881
segment occupancy      878 826 877
       £ £ £
average weekly fee
acquisitions      616 – 616
continuing operations      532 1097 545
segment average weekly fee      533 1097 546 58  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
3 segmental analysis continued 
primary reporting format – business segment results for the period ended 30 september 2010 were as follows
       elderly care specialist total 
      £’m £’m £’m
revenue
acquisitions      25 – 25
continuing operations      9142 419 9561
segment revenue      9167 419 9586
home payroll costs
acquisitions      20 – 20
continuing operations      5297 261 5558
segment home payroll costs      5317 261 5578
home running costs
acquisitions      03 – 03
continuing operations      1151 45 1196
segment home running costs      1154 45 1199
home ebitdar before central costs
acquisitions      02 – 02
continuing operations      2694 113 2807
segment home ebitdar before central costs      2696 113 2809
home ebitdar before central costs 
acquisitions      80 – 80
continuing operations      295 270 294
segment home ebitdar before central costs       294 270 293
total rent
acquisitions      21 – 21
continuing operations      2378 84 2462
segment rent      2399 84 2483
home ebitda before central costs
acquisitions      19 – 19
continuing operations      316 29 345
segment home ebitda before central costs      297 29 326
other expenses
loss on disposal of property plant and equipment and subsidiary undertakings    02 – 02
impairment of freehold assets held for sale      – 11 11
onerous contracts and related impairments      24 91 115
depreciation      257 14 271
central payroll costs      200 09 209
exceptional central costs      63 – 63
unallocated expenses
central costs        96
operating loss        441
segments assets and liabilities
segment assets      4089 275 4364
segment liabilities      3582 195 3777
net segment assets      507 80 587
unallocated liabilities        68
total net assets        519
other segmental items
capital expenditure
 property plant and equipment      290 15 305
 development expenditure      15 – 15
total segmental capital expenditure      305 15 320
unallocated capital expenditure        38
total        358
notes to the consolidated  
financial statements continued 59  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
3 segmental analysis continued 
unallocated liabilities comprise noncurrent borrowings of £60m current borrowings of £06m and derivatives of £02m
the analysis above includes the charge in the period for future minimum rental increases excluding the impact of this charge  
home ebitda before central costs is as follows
       elderly care specialist total 
      £’m £’m £’m
home ebitda before the charge for future minimum rental increases and central costs
acquisitions      10 – 10
continuing operations      803 46 849
segment home ebitda before the charge for future minimum rental increases and central costs   793 46 839
the segment results for the 52week period ended 27 september 2009 were as follows
       elderly care specialist total 
      £’m £’m £’m
revenue
acquisitions      57 – 57
continuing operations      8876 438 9314
segment revenue      8933 438 9371
home payroll costs
acquisitions      40 – 40
continuing operations      5018 279 5297
segment home payroll costs      5058 279 5337
home running costs
acquisitions      02 – 02
continuing operations      1080 46 1126
segment home running costs      1082 46 1128
home ebitdar before central costs
acquisitions      15 – 15
continuing operations      2778 113 2891
segment home ebitdar before central costs      2793 113 2906
home ebitdar before central costs 
acquisitions      263 – 263
continuing operations      313 258 310
segment home ebitdar before central costs       313 258 310
total rent
acquisitions      24 – 24
continuing operations      2278 89 2367
segment rent      2302 89 2391
home ebitda before central costs
acquisitions      09 – 09
continuing operations      500 24 524
segment home ebitda before central costs      491 24 515
other expenses
loss on disposal of property plant and equipment and subsidiary undertakings    35 06 41
impairment of freehold assets held for sale      51 26 77
depreciation      204 12 216
central payroll costs      218 08 226
unallocated expenses
central costs        82
operating loss        127 60  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
3 segmental analysis continued 
segments assets and liabilities
       elderly care specialist total 
      £’m £’m £’m
segment assets      4380 367 4747
segment liabilities      3310 130 3440
net segment assets      1070 237 1307
unallocated liabilities        424
total net assets        883
other segmental items
capital expenditure
 property plant and equipment      266 17 283
 development expenditure      167 – 167
total segmental capital expenditure      433 17 450
unallocated capital expenditure        19
total        469 
unallocated liabilities comprise of noncurrent borrowings of £410m current borrowings of £06m current tax of £04m and derivatives  
of £04m
the analysis above includes the charge in the period for future minimum rental increases excluding the impact of this charge home ebitda 
before central costs is as follows
       elderly care specialist total 
      £’m £’m £’m
home ebitda before the charge for future minimum rental increases and central costs
acquisitions      01 – 01
continuing operations      990 44 1034
segment home ebitda before the charge for future minimum rental increases and central costs   989 44 1033
4 exceptional costs
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
exceptional costs       63 –
exceptional costs relate to the internal change programme ‘new horizons’ which was announced at the end of the previous financial  
year and other exceptional costs in respect of new horizons £53m has been incurred to date with a further £02m being provided at  
30 september 2010 in accordance with ias 37 note 20 the total costs associated with new horizons are expected to be £6m with the 
majority of the remaining costs anticipated to be incurred during the first half of fy2011 other exceptional costs of £10m were incurred 
during the period the majority of which related to costs incurred in respect of a review of the group’s operating lease portfolio
5 sale of subsidiary undertakings property plant and equipment impairment of freehold assets held for sale and onerous 
contracts and related impairments
during the period the group disposed of subsidiary undertakings for net cash consideration totalling £255m the related assets had a  
net book value of £257m resulting in a loss on disposal of £02m
during the period the group disposed of freehold assets for net cash consideration totalling £57m which was equal to the book value of 
the assets
further freehold assets were sold for a deferred cash consideration of £06m being equal to the book value of the assets
impairment of freehold assets held for sale
the group has reviewed the carrying values of its freehold properties following this review a number of properties were found to have  
a fair value less than their carrying value as a result the carrying value of the related freeholds has been written down by £11m
onerous contracts and related impairments
during the period management took the decision to close two of its homes as a result a charge of £115m has been recognised in respect 
of onerous contracts and included £09m of related impairment charges further disclosure is included in note 20 below
notes to the consolidated  
financial statements continued 61  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
6 operating loss
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
the following items have been included in arriving at operating loss
staff costs note 28       5645 5482
operating lease rentals – land and buildings       2483 2391
depreciation of property plant and equipment – owned assets note 11      265 210
depreciation on assets held under finance leases note 11       06 06
consumables expenses through home running costs       120 119
depreciation of property plant and equipment includes £05m in relation to amortisation of government grants 2009 £05m
auditors’ remuneration
during the period the group obtained the following services from its auditors at costs detailed below
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
fees payable to the group’s auditor for the audit of the group’s annual financial statements 
 including the consolidated financial statements       02 02
fees payable to the group’s auditor for other services
– the auditing of financial statements of undertakings of the group pursuant to legislation    01 01
– all other services       01 01
other services related to fees in respect of advice on the group’s tax affairs
7 finance costs and finance income
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
interest payable on bank borrowings       22 60
amortisation of loan arrangement fees       11 07
movement on fair value of financial instruments       – 05
other finance costs       04 07
finance costs       37 79
interest received on tax repayment       02 06
movement on fair value of financial instruments       02 –
bank interest receivable       – 02
finance income       04 08
finance costs – net       33 71 62  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
8 taxation
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
current tax
– current period       – –
– prior period realisation of taxable losses       – 214
– prior period other       03 28
deferred tax note 23
– current period       82 39
– impact of rate change       09 –
– prior period realisation of taxable losses       – 214
– prior period reversal of deferred tax asset       03 97
– prior period other       28 07
taxation creditcharge       107 23
the tax for the period is higher than the average standard rate of corporation tax in the united kingdom 28 2009 28 the differences 
are explained below
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
loss before taxation       474 198
loss before taxation multiplied by the standard rate of corporation tax in the united kingdom of 28 2009 28  133 55
effects of
amounts in respect of prior periods       34 62
expenses not deductible for tax purposes       07 02
impairment – other       03 22
loss on disposal – other       01 08
tax losses arising not recognised       80 –
rate differences       09 –
utilisation of tax losses       03 04
other       37 12
tax creditcharge for the period       107 23
there are trading losses of £286m tax effected £80m arising in the period that cannot be recognised due to the uncertainty of their 
economic benefit
the tax charge is expected to be lower than the standard rate of tax in future periods due to the availability of tax losses furthermore  
the tax charge will be impacted by the change in the standard rate of corporation tax from 28 to 27 from april 2011
9 dividends paid and proposed
the directors declared an interim dividend of £nil 2009 £nil per ordinary share totalling £nil 2009 £nil
the directors have decided not to recommend a final dividend for the period ended 30 september 2010
10 loss per ordinary share
loss per share is calculated by dividing the loss for the period attributable to ordinary equity holders of the parent by the weighted average 
number of ordinary shares outstanding during the period
diluted loss per share is calculated by dividing the loss for the period attributable to ordinary equity holders of the parent by the weighted 
average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be 
issued on the conversion of all the dilutive potential ordinary shares into ordinary shares
notes to the consolidated  
financial statements continued 63  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
10 loss per ordinary share continued
the following reflects the share data used in the basic and diluted earnings per share calculations
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
basic weighted average number of shares excluding treasury shares    188067377 188067377
dilutive potential ordinary shares
employee share options       nil nil
diluted weighted average number of shares       188067377 188067377
the group presents exceptional items and charges future minimum rental increases on the face of the income statement items that  
are considered exceptional by virtue of their size or incidence are disclosed in order to improve a reader’s understanding of the financial 
information to this end additional basic and diluted earnings per share information is also presented on this basis reconciliations of 
earnings and the weighted average number of ordinary shares used are set out below
     period ended   52 weeks ended 
    30 sept 2010   27 sept 2009 
     basic diluted  basic diluted 
    per share per share  per share per share 
   earnings amount amount earnings amount amount 
   £’m p p £’m p p
loss attributable to ordinary shareholders   367 1951 1951 221 1175 1175
exceptional central costs   63 335 335 – – –
charge for future minimum rental increases   513 2727 2727 518 2754 2754
taxation impact of above   161 856 856 145 771 771
profit attributable to ordinary shareholders before exceptional  
central costs and charges for future minimum rental increases  
and taxation impact thereof   48 255 255 152 808 808
11 property plant and equipment
     fixtures short  assets  
   freehold fittings and leasehold motor under  
   properties equipment property vehicles construction total 
   £’m £’m £’m £’m £’m £’m
cost
at 28 september 2008   90 988 292 53 218 1641
additions   – 252 18 05 194 469
transfers   44 20 26 – 348 346
disposals   – 03 03 – 02 08
at 27 september 2009   46 1257 333 58 62 1756
additions   – 295 44 04 15 358
transfers   – 30 22 – 52 –
impairment   – 01 08 – – 09
disposals   06 – – 02 – 08
at 30 september 2010   40 1581 391 60 25 2097
accumulated depreciation
at 28 september 2008   02 376 26 24 – 428
charge for the period   – 195 11 10 – 216
disposals   – 01 01 – – 02
at 27 september 2009   02 570 36 34 – 642
charge for the period   – 246 15 10 – 271
at 30 september 2010   02 816 51 44 – 913
net book amount
at 30 september 2010   38 765 340 16 25 1184
at 27 september 2009   44 687 297 24 62 1114 64  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
11 property plant and equipment continued
the net book value of assets held under finance leases totalled £10m at 30 september 2010 2009 £16m the assets related to motor 
vehicles and other fixtures and fittings
following management’s decision to close abbeydale the associated fixed assets were impaired by £09m see note 20 the impairment 
has been recognised within onerous contracts and related impairments in the income statement
transfers of assets under construction of £52m relates to the completion of three leasehold homes during the period and an extension  
of one home with their associated costs being transferred to leasehold additions £22m and fixtures and fittings £30m 
12 goodwill
group        £’m
cost
at 28 september 2008        2185
other acquisitions        07
at 27 september 2009 and 30 september 2010        2192
other acquisitions represent professional costs and associated fees in respect of acquisitions completed in the previous financial year
impairment test for goodwill
goodwill is allocated to the group’s two business segments as shown below
        30 sept 27 sept 
       2010 2009 
       £’m £’m
elderly care       2040 2040
specialist       152 152
services relating to corporate finance and acquisitions       2192 2192
goodwill arising on acquisitions as noted above is not being amortised but tested annually for impairment the date elected for impairment 
testing is 30 september unless there is a clear indication of impairment
the group conducts an annual impairment test on the carrying value of goodwill based on the recoverable amount of the group of  
cash generating units ‘cgus’ to which goodwill has been allocated the recoverable amounts of the grouped cgus are determined from 
inhouse calculations the key assumptions in the valueinuse calculations are the discount rate applied the operating margin which is 
driven by occupancy assumptions and the longterm growth rate of net operating cash flows in all cases the group prepares cash flow 
forecasts derived from the approved budgets for the next 5 years following which it extrapolates cash flows on an estimated growth  
rate of 3 excluding inflation the growth rate applied does not exceed the growth rate for the industry and country in which the  
group operates
the pretax rate used to discount the forecast cash flows for all cgus is 12 this rate represents a pretax rate that reflects the market 
value of money at the balance sheet date and the risks specific to the cgu 
the longterm operating margin assumed for a cgu’s operations is primarily based on past performance at home level except where 
management have a strong belief that a different profit margin can be achieved
as at 30 september 2010 and 27 september 2009 no impairment charge to goodwill has been required
sensitivity to changes in assumptions
for the elderly care segment the value in use exceeds the carrying value of goodwill by approximately £53m the following changes  
in assumptions would cause the following changes in the recoverable amount
1 change in average annual occupancy would change the value in use by £108m •	
1 change in the longterm growth rate would change the value in use by £25m •	
1 change in the discount rate would change the value in use by £33m •	
for the specialist segment the value in use exceeds the carrying value of goodwill by approximately £1m the following changes  
in assumptions would cause the following changes in the recoverable amount
1 change in average annual occupancy would change the value in use by £2m •	
1 change in the longterm growth rate would change the value in use by £2m •	
1 change in the discount rate would change the value in use by £2m •	
notes to the consolidated  
financial statements continued 65  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
13 property assets held for sale
        no of 
       homes £’m
cost
at 28 september 2008       11 361
transfer from assets under construction       4 302
transfer from freehold assets       8 44
disposals       3 165
impairment       – 77
at 27 september 2009       20 465
disposals       6 314
impairment       – 11
at 30 september 2010       14 140
property assets held for sale consists of 14 freehold properties with a carrying value of £140m which the group expects to sell in the near 
future four of the homes are included within the elderly care segment and ten homes within the specialist segment
the group has reviewed the carrying value of properties held for sale on an individual property basis following this review a number of 
properties were found to have a fair value lower than their carrying value as a result the carrying value of the properties has been 
impaired by £11m 2009 £77m
14 other noncurrent assets
        30 sept 27 sept 
       2010 2009 
       £’m £’m
other noncurrent assets       34 34
other noncurrent assets relate to landlord rental security deposits
15 cash and cash equivalents
        30 sept 27 sept 
       2010 2009 
       £’m £’m
cash at bank and in hand       12 318
16 trade receivables and other current assets
        30 sept 27 sept 
       2010 2009 
       £’m £’m
trade receivables       406 458
less provision for impairment of receivables       80 81
trade receivables – net       326 377
other receivables       12 17
prepayments and accrued income       201 72
other current assets       213 89
the carrying value of trade receivables and other current assets is stated after a provision for impairment of receivables has been made 
the provision for impairment for trade receivables is calculated on an individual account by account assessment based on past and 
current credit history there is no concern over the credit quality of amounts past due not impaired since most relate to local government 
and for the remainder the risk is spread over a number of unrelated counterparties the directors consider that the carrying value of trade 
receivables and other current assets approximates to their fair value 66  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
16 trade receivables and other current assets continued
movement on the group provision for impairment of trade receivables is as follows
        30 sept 27 sept 
       2010 2009 
       £’m £’m
opening       81 60
provision for receivables impairment       16 36
receivables written off during the period as uncollectible       17 15
closing       80 81
the other classes within trade and other receivables do not contain impaired assets
the maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above the group 
does not hold any collateral as security
ageing of trade receivables
the ageing analysis of trade receivables and the associated provision for impairment is shown below
   
      30 sept 2010   27 sept 2009
       provision  provision 
     gross for gross for 
     value impairment value impairment 
     £’m £’m £’m £’m
not yet due     118 – 159 –
past due 060 days     172 02 177 02
past due 61119 days     34 02 46 05
past due 120 days     82 76 76 74
     406 80 458 81
17 inventories
        30 sept 27 sept 
       2010 2009 
       £’m £’m
consumables       11 11
the replacement cost of inventory does not differ materially from the costs stated above there were no writedowns of inventory in the 
period ended 30 september 2010 or the 52 weeks ended 27 september 2009
18 trade and other payables – current
        30 sept 27 sept 
       2010 2009 
       £’m £’m
trade payables       154 166
other tax and social security payable       126 148
other payables       256 304
accruals       401 357
corporation tax payable       – 04
       937 979
the directors believe that the carrying value of the current trade and other payables approximates to their fair values as a result of the 
short maturity period of the amounts as at the balance sheet date
notes to the consolidated  
financial statements continued 67  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
19 financial liabilities – borrowings
a shortterm borrowings
        30 sept 27 sept 
       2010 2009 
       £’m £’m
bank loans secured – net of arrangement fees totalling £nil 2009 £09m     – 209
obligations under finance leases       06 06
       06 215
b longterm borrowings
        30 sept 27 sept 
       2010 2009 
       £’m £’m
bank loans secured – net of arrangement fees totalling £19m 2009 £08m     56 407
obligations under finance leases       04 10
       60 417
bank loans
on 18 may 2010 the group consolidated its existing banking arrangements into a revised £50m revolving credit facility interest on drawn 
amounts is charged at margins between 275 and 325 above libor at 30 september 2010 the group had £75m drawn on the facility 
all of which is due for repayment after one year unamortised arrangement fees were £19m
at 30 september 2010 the group had the following interest rate instruments in place
a  interest rate caps which cap the interest paid on £136m of the group’s variable rate debt at 462 plus margin and which expire  
in june 2011
b  interest rate collars which mean that the group will pay a maximum of 45 plus margin and minimum of 257 plus margin  
on £143m of the group’s variable debt and which expire in june 2011
finance leases
as at 30 september 2010 the group had finance leases due in less than one year of £06m 2009 £06m due in one to two years  
of £04m 2009 £05m and due in three to five years of £nil 2009 £05m
20 provisions and similar obligations
      vacant onerous other 
     properties contracts provisions total 
     £’m £’m £’m £’m
at 29 september 2008     51 43 – 94
additions     11 29 – 40
utilised in the period     05 – – 05
at 27 september 2009     57 72 – 129
additions     24 91 07 122
utilised in the period     06 30 05 41
at 30 september 2010     75 133 02 210
    
analysis of total provisions at 27 september 2009    
current     06 – – 06
noncurrent     51 72 – 123
     57 72 – 129
    
analysis of total provisions at 30 september 2010    
current     13 08 02 23
noncurrent     62 125 – 187
     75 133 02 210 68  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
20 provisions and similar obligations continued
the provision for vacant properties relates to rents payable on leased properties during the period £24m was charged to the income 
statements in respect of a vacant property of the £75m provision £13m is expected to be utilised within one year with the remaining 
£62m to be utilised in more than one year
during the period £91m was charged to the income statement in relation to an onerous contract of the provision £30m was utilised in 
the period with £08m due to be utilised within one year and £125m in more than one year
a further provision of £07m has been recognised in the period being direct expenses arising from the ‘new horizons’ change programme 
and has been charged to exceptional central costs in accordance with ias 37 of this provision £05m has been utilised in the period with 
the remaining £02m due to be fully utilised within one year
21 future minimum rental increase accrual
        30 sept 27 sept 
       2010 2009 
       £’m £’m
future minimum rental increase accrual       2608 2095
the future minimum rental increase accrual represents the cumulative difference between operating lease charges under ifrs and the 
amounts actually payable up to the period end
an analysis of the movement during the period is given below
        30 sept 27 sept 
       2010 2009 
       £’m £’m
opening balance       2095 1577
charged to income statement       513 518
closing balance       2608 2095
22 financial instruments
numerical financial instruments disclosures are set out below additional disclosures are set out in the accounting policies relating to risk 
management
in accordance with ias 39 ‘financial instruments recognition and measurement’ management has reviewed contracts for embedded 
derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard no such 
embedded derivatives were found
financial instruments
the group’s financial instruments other than derivatives comprise borrowings cash and liquid resources and various items such as trade 
receivables and trade payables that arise directly from its operations the main purpose of these financial instruments is to manage the 
financing of the group’s operations the group also enters into derivative transactions the purpose of such transactions is to manage the 
interest rate risks arising from the group’s operations and its sources of finance
it is and has been throughout the period under review the group’s policy that no trading in financial instruments shall be undertaken 
the main risks arising from the group’s financial instruments are interest rate risk and liquidity risk the board reviews and agrees policies 
for managing each of these risks and they are summarised below these policies remained unchanged throughout the periods presented
currency risks
the group is based in the united kingdom with its operations entirely within the united kingdom it does not hold any investment in 
overseas operations and consequently the balance sheet is not exposed to movements in currency exchange rates the group does not 
have sales or purchase transactions in currencies other than the unit’s functional currency and consequently does not have transactional 
currency exposures
notes to the consolidated  
financial statements continued 69  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
22 financial instruments continued
numerical disclosures
interest rate risk
the group has both interest bearing assets and liabilities interest bearing assets comprise only cash balances which earn interest at a 
floating rate of interest linked to uk bank base rate the group’s policy and processes for managing interest rate risk are explained in the 
accounting policies note 229
after taking into account interest rate caps and collars entered into by the group the interest rate profile of the group’s financial liabilities is
       30 sept 27 sept 
       2010 2009 
sterling       £’m £’m
floating rate borrowings
bank borrowings       75 633
fixed rate liabilities
finance leases       10 16
total borrowings       85 649
fixed rate weighted average interest rate excluding no interestpaid items      805 814
fixed rate weighted average interest period excluding no interestpaid items years     22 30
the floating rate financial liabilities have comprised
sterling denominated bank borrowings and overdrafts that bear interest at rates between 275 and 325 above uk bank base rates
maturity of financial liabilities and undrawn commitments
the maturity profile of the group’s financial liabilities is as follows
        30 sept 27 sept 
       2010 2009 
       £’m £’m
within one year       987 1234
in more than one year but less than two years       112 436
in more than two years but less than five years       150 121
more than five years       40 41
       1289 1832
included within the above is £31m of expected future interest charges 2009 £50m 70  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
22 financial instruments continued
the group’s undrawn commitments expiry date profile is as follows
        30 sept 27 sept 
       2010 2009 
       £’m £’m
within one year       – –
in more than one year but less than two years       – 345
in more than two years but less than five years       297 –
       297 345
financial instruments by category
the accounting policies for financial instruments have been applied to the line items below
         2010 
        loans and 
        receivables 
        £’m
assets as per balance sheet
cash and cash equivalents        12
trade receivables        326
other current assets        12
other noncurrent assets        34
        384
        2010  
      liabilities at   
      fair value   
      through other  
      profit financial  
      and loss liabilities total 
      £’m £’m £’m
liabilities as per balance sheet
shortterm financial liabilities – borrowings      – 06 06
longterm financial liabilities – borrowings      – 79 79
trade and other payables      – 679 679
derivative financial instruments – interest rate cap and collar     02 – 02
      02 764 766
          
        2009 
        loans and 
        receivables 
        £’m
assets as per balance sheet
cash and cash equivalents        318
trade receivables        377
other current assets        17
other noncurrent assets        34 
        746
notes to the consolidated  
financial statements continued 71  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
22 financial instruments continued
        2009  
      liabilities at   
      fair value   
      through other  
      profit financial  
      and loss liabilities total 
      £’m £’m £’m
liabilities as per balance sheet
shortterm financial liabilities – borrowings      – 224 224
longterm financial liabilities – borrowings      – 425 425
trade and other payables      – 694 694
derivative financial instruments – interest rate cap and collar     04 – 04
      04 1343 1347
the directors consider that the carrying amount of financial assets and financial liabilities recorded at amortised cost in the financial 
statements approximate their fair values
the interest rate cap and collar is included within accruals note 18
interest rate cap and collar contracts have been marked to market to produce fair value figures all other fair values shown above have 
been calculated by discounting cash flows at prevailing interest rates for floating rate bank loans fair values closely approximate to  
book values
the fair value of shortterm loans and overdrafts approximate to the fair carrying value because of the short maturity of these 
instruments the fair value of longterm borrowings approximate to the carrying value reported in the balance sheet as the majority  
are floating rate
23 deferred tax
deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 27 2009 28
the movement on the deferred tax account is as shown below
        30 sept 27 sept 
       2010 2009 
       £’m £’m
opening balance       147 412
income and expense creditcharge note 8       104 266
tax charged directly to equity       01 01
closing balance       252 147
deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets where 
it is probable that these assets will be recovered at the period end deferred tax assets of £397m 2009 £333m were not recognised
a number of changes to the uk corporation tax system were announced in the june 2010 budget statement the finance no 2 act 2010 
which was substantively enacted on 20 july 2010 includes legislation reducing the main rate of corporation tax from 28 to 27 from  
1 april 2011 further reductions to the main rate are proposed to reduce the rate by 1 per annum to 24 by 1 april 2014
the proposed reductions of the main rate of corporation tax by 1 per year to 24 by 1 april 2014 are expected to be enacted separately 
each year the overall effect of the changes from 27 to 24 if these applied to the deferred tax balance at 30 september 2010 would  
be to reduce the deferred tax asset by approximately £28m being £243m recognised in 2012 £233m recognised in 2013 and £224m 
recognised in 2014
the movements in deferred tax assets and liabilities prior to the offsetting of balances within the same jurisdiction as permitted by 
ias12 during the period are shown below
deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle  
the balances net 72  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
23 deferred tax continued
deferred tax assets
       accelerated   
      tax   
      depreciation other total 
      £’m £’m £’m
at 28 september 2009      161 14 147
income and expense creditcharge      79 06 73
tax charged directly to equity      – 01 01
prior period adjustments      25 06 31
at 30 september 2010      265 13 252
24 share capital
       30 sept  27 sept 
      2010  2009 
      number  number
authorised
ordinary shares of 1p each      300000000  300000000
       £’m  £’m
ordinary shares of 1p each      3  3
       number  number
allotted called up and fully paid
ordinary shares of 1p each      188067377  188067377
       £’m  £’m
ordinary shares of 1p each      19  19
25 cash flows from operations
reconciliation of operating loss before taxation to net cash flow from operating activities
        30 sept 27 sept 
       2010 2009 
       £’m £’m
operating loss       441 127
adjustments for
loss on disposal of property plant and equipment and subsidiary undertakings     02 41
impairment of freehold assets held for sale       11 77
depreciation       271 216
sharebased payments       03 02
changes in working capital excluding effects of acquisitions and sale of subsidiaries and other businesses
decrease in inventories       – 02
increasedecrease in trade and other receivables       73 60
decreaseincrease in payables       33 91
increase in future minimum rental accrual       513 518
increasedecrease in provisions       81 05
cash generated from operations       334 875
notes to the consolidated  
financial statements continued 73  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
26 reconciliation of net cash flow to movement in net debt
        30 sept 27 sept 
       2010 2009 
       £’m £’m
net decreaseincrease in cash for the period       306 296
cash outflow from decrease in debt       564 356
        258 652
noncash items
new finance leases       – 04
rolledup interest       – 04
movement in net debt       258 644
opening net debt       331 975
closing net debt       73 331
27 analysis of net debt
       at 28 sept cash at 30 sept 
      2009 flow 2010 
      £’m £’m £’m
cash      318 306 12
bank loans due within one year      218 218 –
finance leases due within one year      06 – 06
bank loans due after more than one year      415 340 75
finance leases due after more than one year      10 06 04
       649 564 85
net debt      331 258 73
28 staff costs
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
staff costs for the group during the period
wages and salaries       5236 5085
social security costs       399 389
other pension costs       10 08
        5645 5482
staff costs for the group by function
home payroll costs – excluding agency and other staffrelated costs      5436 5257
central payroll costs       209 225
       5645 5482
home payroll costs as disclosed on the face of the income statement include agency and other staffrelated costs agency and other 
staff related costs totalled £142m and £80m for the periods ended 30 september 2010 and 27 september 2009 respectively
average monthly number of people including executive directors employed
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       number number
by activity
care and ancillary       35760 35222
management and administration       2103 2107
       37863 37329 74  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
28 staff costs continued
directors’ remuneration
a detailed analysis of directors’ remuneration including salaries performancerelated bonuses and share option schemes is provided in 
the remuneration report on pages 37 to 43 under the heading directors’ remuneration which form part of these financial statements
the total remuneration of the directors comprises
        period 52 weeks 
       ended ended 
       30 sept 27 sept 
       2010 2009 
       £’m £’m
aggregate emoluments       12 19
compensation for loss of office       04 01
company contributions to money purchase pension schemes      01 02
       17 22
details of the highest paid director are given in the remuneration report under the heading directors’ remuneration audited
compensation for loss of office relates to termination benefits
the key management of the group are deemed to be the board of directors who have authority and responsibility for planning and 
controlling all significant activities of the group
29 contingent liabilities
the group has provided guarantees to certain of the group’s landlords and holders of loan notes as at 30 september 2010 these 
guarantees totalled £118m 2009 £115m
30 financial commitments
at 30 september 2010 and 27 september 2009 the group had total commitments under noncancellable operating leases as follows
        30 sept 27 sept 
       2010 2009 
       £’m £’m
within one year       2504 2466
within one to five years       10016 9864
over five years       45243 46942
       57763 59272
the majority of operating leases provide for fixed annual increases at 25 or 275 or annual rent increases based on the retail price 
index ‘rpi’ subject to negotiated caps and floors
financial commitments due within one year under noncancellable operating leases and analysed by nature of lease terms are included 
below
        30 sept 27 sept 
       2010 2009 
       £’m £’m
annual rental increases based on rpi subject to cap and floor arrangement     632 611
fixed annual rental increases       1443 1428
fiveyearly fixed rental increases       340 339
annual rental increases based on rpi       89 88
       2504 2466
31 sharebased payments
the total charge for sharebased payments was £03m 2009 £02m all of which relates to equitysettled transactions
2006 performance share plan
the southern cross healthcare group 2006 performance share plan the ‘psp’ was amended on 24 march 2009 by adding an hmrc
approved section to the plan the psp is available to executive directors and approximately 1000 members of management annual 
grants are made under the psp with a value of up to 100 of an individual’s salary vesting of shares is subject to performance conditions 
based on earnings per share and in respect of the 2008 awards total shareholder return further details of the vesting conditions are 
given in the remuneration report on page 39
notes to the consolidated  
financial statements continued 75  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
31 sharebased payments continued
a reconciliation of option movements during the period is given below
  period ended 52 weeks ended
   30 sept 2010   27 sept 2009
       weighted  weighted 
      average  average 
      exercise  exercise 
     number price number price 
     ’000 p ’000 p
outstanding
beginning of period     5139 £nil 5010 £nil
granted     1866 £nil 2515 £nil
lapsed     3334 £nil 2386 £nil
end of period     3671 £nil 5139 £nil
the fair value per option granted and the assumptions used in the calculation are as follows
   january october july may may january 
grant date   2010 2009 2009 2009 2008 2008
share price at grant date   £155 £127 £148 £130 £383 £455
exercise price   £nil £nil £nil £nil £nil £nil
number granted   1735903 130000 150000 2365000 370970 3719808
vesting period years   3 3 3 3 3 3
expected volatility   na na na na 2900 2900
contracted life years   3 3 3 3 3 3
risk free rate   na na na na 426 426
dividend yield   na na na na 216 216
fair value per option   £155 £127 £148 £130 £696 £696
january and may 2008 awards
options were valued using the monte carlo optionpricing model
expected volatility is based on historical volatility of shares in the same sector over the past four years the riskfree rate of return is the 
yield on zerocoupon uk government bonds of a term consistent with assumed option life
the weighted average remaining contractual life of options outstanding at the end of the period was 3 months
no options were exercisable at 30 september 2010
may july and october 2009 awards
the options will become exercisable on attainment of a performance target based on adjusted ebitda as such the expected volatility  
is not applicable and the fair value per option is the share price at the grant date
the weighted average remaining contractual life of options outstanding at the end of the period was 20 months
no options were exercisable at 30 september 2010
january 2010 award
the options will become exercisable on attainment of a performance target based on adjusted eps as such the expected volatility is  
not applicable and the fair value per option is the share price at the grant date
the weighted average remaining contractual life of options outstanding at the end of the period was 27 months
no options were exercisable at 30 september 2010
share option plans
share option plans are available to the chief executive and group finance director the plans are similar in design but differ in specific 
clauses reflecting the different timing and circumstances of each director’s appointment further details are given in the remuneration 
report on page 39  76  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
31 sharebased payments continued
a reconciliation of the chief executive and group finance director option movements during the period is given below
  period ended 52 weeks ended
   30 sept 2010   27 sept 2009
       weighted  weighted 
      average  average 
      exercise  exercise 
     number price number price 
     ’000 p ’000 p
outstanding
beginning of period     5500 136 – na
granted     – na 5500 136
end of period     5500 136 5500 136
the fair value of the options granted and the assumptions used in the calculation are as follows
         
        february 
grant date        2009
share price at grant date        £092
exercise price weighted average        £136
number granted        5500000
vesting period years        3
expected volatility        39
contracted life years        3
risk free rate        na
dividend yield        na
fair value per option weighted average        £018
options were valued using the binomial lattice model
expected volatility is based on historical volatility of shares in the same sector over the past four years the riskfree rate of return is  
the yield on zerocoupon uk government bonds of a term consistent with assumed option life
the weighted average remaining contractual life of options outstanding at the end of the period was 130 months
no options were exercisable at 30 september 2010
32 related party transactions
except for transactions with subsidiary undertakings there were no related party transactions during the period ended 30 september 
2010 details of principal subsidiary undertakings are given in note 34
33 events after the balance sheet date
revisions to banking facilities
following recent discussions with the group’s lenders revisions to the existing banking arrangements were agreed on 6 december 2010 
the group’s facility now comprises an amortising £45m rcf repayable in september 2012 with the fixed charge covenant relaxed from 
123x to 11x the first amortisation of £33m takes place on 1 october 2011
notes to the consolidated  
financial statements continued 77  southern cross healthcare group plc 
annual report and accounts 2010
consolidated financial statements and notes
consolidated financial statements and notes
34 principal subsidiary undertakings
the principal subsidiary undertakings as at 30 september 2010 all of which have a period end of 30 september 2010 and 100 of the 
ordinary shares are owned and registered in england and wales unless otherwise stated sc  registered in scotland and have been 
consolidated in the group financial statements are as follows
care home operating companies  intermediate holding companies
apta healthcare uk limited  apta healthcare limited
ashbourne eton limited  ashbourne holdings limited
ashbourne group uk limited sc  ashbourne limited
ashbourne homes limited sc  ccsx holdings limited
exceler health care group limited  ccsx limited
exceler healthcare services limited  ccsx ventures limited
southern cross bc opco limited  southern cross highfield holdco limited
southern cross cymru limited  southern cross sx holdco limited
southern cross care homes no2 limited  southern cross bidco limited
southern cross focus limited  southern cross care homes holdings limited
southern cross healthcare services limited  southern cross care homes limited
southern cross home properties limited  southern cross finance limited
southern cross lsc limited  southern cross healthcare investments no1 limited
southern cross opco limited  southern cross healthcare investments no2 limited
trinity care limited  southern cross healthcare limited 78  southern cross healthcare group plc 
annual report and accounts 2010
company financial statements and notes 
we have audited the parent company financial statements of southern cross healthcare group plc for the period ended 30 september 2010 
which comprise the company balance sheet company statement of changes in shareholders’ equity and the related notes the financial 
reporting framework that has been applied in their preparation is applicable law and international financial reporting standards ifrss as 
adopted by the european union and as applied in accordance with the provisions of the companies act 2006
respective responsibilities of directors and auditors 
as explained more fully in the directors’ responsibilities statement set out on page 30 the directors are responsible for the preparation  
of the parent company financial statements and for being satisfied that they give a true and fair view our responsibility is to audit the 
parent company financial statements in accordance with applicable law and international standards on auditing uk and ireland  
those standards require us to comply with the auditing practices board’s ethical standards for auditors 
this report including the opinions has been prepared for and only for the company’s members as a body in accordance with chapter 3  
of part 16 of the companies act 2006 and for no other purpose we do not in giving these opinions accept or assume responsibility for 
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed  
by our prior consent in writing
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable 
assurance that the financial statements are free from material misstatement whether caused by fraud or error this includes an 
assessment of whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently 
applied and adequately disclosed the reasonableness of significant accounting estimates made by the directors and the overall 
presentation of the financial statements
opinion on financial statements 
in our opinion the parent company financial statements 
give a true and fair view of the state of the company’s affairs as at 30 september 2010 •	
have been properly prepared in accordance with ifrss as adopted by the european union and as applied in accordance with the •	
provisions of the companies act 2006
have been prepared in accordance with the requirements of the companies act 2006 •	
opinion on other matters prescribed by the companies act 2006 
in our opinion 
the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the companies act 2006 •	
and 
the information given in the directors’ report for the financial year for which the parent company financial statements are prepared is •	
consistent with the parent company financial statements 
matters on which we are required to report by exception 
we have nothing to report in respect of the following matters where the companies act 2006 requires us to report to you if in our opinion 
adequate accounting records have not been kept by the parent company or returns adequate for our audit have not been received •	
from branches not visited by us or 
the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with •	
the accounting records and returns or 
certain disclosures of directors’ remuneration specified by law are not made or •	
we have not received all the information and explanations we require for our audit •	
other matter 
we have reported separately on the group financial statements of southern cross healthcare group plc for the period ended 30 september 
2010
randal casson senior statutory auditor
for and on behalf of pricewaterhousecoopers llp
chartered accountants and statutory auditors
newcastle upon tyne
7 december 2010
independent auditors’ report  
to the members of southern cross  
healthcare group plc company 79  southern cross healthcare group plc 
annual report and accounts 2010
company financial statements and notes 
company financial statements and notes 
        30 sept 27 sept 
       2010 2009 
      note £’m £’m
assets
noncurrent assets
investments      2 – –
other receivables – amounts due from subsidiary undertakings     3 2382 2324
total noncurrent assets       2382 2324
total assets       2382 2324
liabilities
current liabilities
other payables      4 26 32
total current liabilities       26 32
noncurrent liabilities
provisions and similar obligations      5 68 71
total noncurrent liabilities       68 71
total liabilities       94 103
net assets       2288 2221
equity
share capital      6 19 19
share premium       1615 1615
retained earnings       654 587
total equity       2288 2221
the financial statements on pages 79 to 82 were approved by the board of directors on 7 december 2010 and signed on their behalf by
j buchan   r midmer
chief executive  finance director
company statement of changes  
in shareholders’ equity
for the period ended 30 september 2010
       share retained total 
     share capital premium earnings equity 
     £’m £’m £’m £’m
balance at 28 september 2008     19 1615 535 2169
profit attributable to ordinary shareholders     – – 52 52
balance at 27 september 2009     19 1615 587 2221
profit attributable to ordinary shareholders     – – 67 67
balance at 30 september 2010     19 1615 654 2288
registered number 05328138
company balance sheet
as at 30 september 2010 80  southern cross healthcare group plc 
annual report and accounts 2010
company financial statements and notes 
the company’s accounting policies are the same as those set out in the statement of accounting policies of the group financial 
statements except as noted below
cash flow statement
the company is a holding company and does not hold any bank accounts transactions such as dividend payments to shareholders are 
paid by subsidiary companies and charged through intercompany accounts therefore no cash flow statement has been presented
fixed asset investments
fixed asset investments are included at cost less any provision for impairment
statement of accounting policies 81  southern cross healthcare group plc 
annual report and accounts 2010
company financial statements and notes 
company financial statements and notes 
1 income statement
southern cross healthcare group plc company has not presented its own income statement as permitted by section 408 of the companies 
act 2006 the profit attributable to ordinary shareholders for the financial period dealt with in the accounts of the company is £67m  
2009 £52m
the audit fee in respect of the company was £7000 2009 £7000 the company has no employees 2009 none directors are remunerated 
by other group companies in the current period and prior period
2 investments
company        £’000
at 30 september 2010 and 27 september 2009        3
the principal subsidiary undertakings as at 30 september 2010 all of which have a period end of 30 september 2010 and 100 of the 
ordinary shares are owned and registered in england and wales sc  registered in scotland unless otherwise stated and have been 
consolidated in the group financial information are given in note 34 of the group financial statements
all investments are held indirectly via the intermediate holding company southern cross bidco limited with the exception of southern 
cross healthcare investments no1 limited and southern cross healthcare investments no2 limited
the directors believe that the carrying value of the investments is supported by their underlying net assets
3 other receivables
amounts due after more than one year
        30 sept 27 sept 
       2010 2009 
       £’m £’m
amounts due from subsidiary undertakings       2382 2324
amounts due from subsidiary undertakings are unsecured interest is charged at a rate of 4 2009 5
the fair value of trade and other receivables is equal to the amounts shown above
4 other payables
        30 sept 27 sept 
       2010 2009 
       £’m £’m
corporation tax       26 32
5 provisions and similar obligations
         provisions 
        £’m
at 27 september 2009        71
utilised in the period        03
at 30 september 2010        68
provisions relate to amounts provided in respect of an onerous contract which is expected to be settled in more than one year
notes to the financial statements
for the period ended 30 september 2010 82  southern cross healthcare group plc 
annual report and accounts 2010
company financial statements and notes 
6 share capital
       30 sept  27 sept 
      2010  2009 
      number  number
authorised
ordinary shares of 1p each      300000000  300000000
       £’m  £’m
ordinary shares of 1p each      3  3
       number  number
allotted and fully paid
ordinary shares of 1p each      188067377  188067377
       £’m  £’m
ordinary shares of 1p each      19  19
7 dividends paid and proposed
the directors declared an interim dividend of £nil 2009 £nil per share totalling £nil 2009 £nil
the directors have decided not to recommend a final dividend for the period ended 30 september 2010 2009 £nil
8 related party transactions
transactions with subsidiary undertakings for the period ended 30 september 2010
      movement in tax relief interest amounts 
     provisions received received owed to 
     £’m £’m £’m £’m
subsidiary undertakings     03 32 93 2382
transactions with subsidiary undertakings for the period ended 27 september 2009
      movement in dividend interest amounts 
     provisions received received owed to 
     £’m £’m £’m £’m
subsidiary undertakings     – 45 113 2324
notes to the financial statements continued 83  southern cross healthcare group plc 
annual report and accounts 2010
other information
other information
the following table shows the most recent threeyear record under ifrs
       period 52 weeks 52 weeks 
      ended ended ended 
      30 sept 27 sept 28 sept 
      2010 2009 2008 
      £’m £’m £’m
revenue      9586 9371 8894
home payroll costs      5578 5337 5006
home running costs      1199 1128 1131
home ebitdar
1
 before central costs      2809 2906 2757
rent
charge for rental amounts currently payable      1970 1873 1711
charge for future minimum rental increases      513 518 505
total rent      2483 2391 2216
home ebitda
2
 before central costs      326 515 541
central costs      368 308 265
adjusted ebitda
3
 before exceptional central costs and charge for future minimum rental increases  534 725 781
exceptional central costs      63 – –
charge for future minimum rental increases      513 518 505
ebitda      42 207 276
loss on disposal of property plant and equipment and subsidiary undertakings    02 41 96
impairment of freehold assets held for sale      11 77 45
depreciation      271 216 176
amortisation      – – 11
onerous contract and related impairments      115 – –
operating loss      441 127 52
finance costs      37 79 112
exceptional finance costs      – – 69
total finance costs      37 79 181
finance income      04 08 04
loss before taxation      474 198 229
taxation creditcharge      107 23 49
loss attributable to ordinary shareholders      367 221 180
1  ebitdar represents earnings before interest tax depreciation amortisation loss on disposal of property plant and equipment and subsidiary undertakings impairment  
of freehold assets held for sale onerous contracts and related impairments and rent
2  ebitda represents earnings before interest tax depreciation amortisation loss on disposal of property plant and equipment and subsidiary undertakings impairment  
of freehold assets held for sale and onerous contracts and related impairments
3 adjusted ebitda represents ebitda after adding back exceptional central costs and the charge for future minimum rental increases
threeyear record 84  southern cross healthcare group plc 
annual report and accounts 2010
other information
notes 20102011 financial calendar
interim results – 10 may 2011
financial year end – 30 september 2011
registered office
southern cross healthcare group plc
southgate house
archer street
darlington
county durham dl3 6ah
registered number
05328138
registrars
capita registrars
northern house
woodsome park
fenay bridge
huddersfield
west yorkshire hd8 0ga
brokers
morgan stanley securities limited 
20 bank street 
canary wharf 
london e14 4ad
ubs limited
1 finsbury avenue
london ec2m 2pp
chartered accountants and statutory auditors
pricewaterhousecoopers llp
89 sandyford road
newcastle upon tyne ne1 8hw
solicitors
dla piper uk llp 
princes exchange 
princes square 
leeds ls1 4by
clifford chance llp
10 upper bank street
london e14 5jj
bankers
barclays bank
1 churchill place
canary wharf
london e14 5hp
shareholder enquiries
if you have any enquiries as a shareholder please contact 
david smith group finance director on 01325 351100 
or via email davidsmithschealthcarecouk
website wwwschealthcarecouk
shareholder  
information
our services
we provide an 
extensive range of 
healthcare services 
including
nursing care homes
 nursing care homes offer an additional level of care to residential care homes 
qualified nurses provide 24 hour specialist nursing care for a range of clinical 
needs such services may involve palliative care dementia care postoperative 
care or respite care all tailored to the needs of the individual
residential care homes
southern cross offer a number of residential care homes which are designed 
specifically to cater for the needs of those who find difficulty caring for 
themselves at home but wish to retain their independence all southern  
cross care homes are staffed 24 hours a day by trained carers whose goal  
is to maintain the quality of life of those for whom they care
specialist care
southern cross offers care for people with a variety of special needs in both 
residential and nursing care homes our aim is to provide a safe and supportive 
environment which is sensitive to the everchanging needs of these residents
operating highlights
available beds increased to 38603 at the period •	
end 2009 3812 4 beds
 number of homes operated increased  
•	
to 752 at the period end 2009 7 44
 average occupancy 848 2009 87 7 average 
•	
occupancy restated for marketable beds of 87 8
 average weekly fee increased by 22  
•	
to £558 2009 £546
 significant progress made towards improving 
•	
overall service quality with 82 cqc suspended 
ratings nationally in june 2010 judged excellent 
or good up from 81 in march 2010 77  
in september 2009 and 71  in may 2009
self funding admissions up from 17 of total •	
admissions in march 2 01 0 to 2 0 in september 2 01 0
financial highlights
 home ebitdar before central costs decreased  •	
by 33 to £2809m 2009 £2906m
 adjusted ebitda of £534m 2009 £725m
•	
 adjusted earnings per share for the period  •	
of 7 65p 2009 1 7 65p
net debt at period end reduced by £258m  
•	
to £7 3m
revision to existing banking arrangements 
•	
including an improvement in the fixed charge 
covenant from 123x to 11x
statutory financial highlights
  revenue increased by 23 to £9586m  •	
2009 £93 7 1m
 operating loss £441m 2009 loss of £127m  
•	
after a noncash charge of £513m 2009 £518m 
for future minimum lease increases under ias1 7  
and exceptional charges of £63m 2009 £nil 
excluding these charges operating profit was  
£135m 2009 £391m
basic loss per share for the period of 1951p  •	
2009 1 175p loss
notes
mature occupancy excludes immature beds newly developed homes  
or refurbished homes which have been trading for less than 12 months
home ebitdar represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets held for sale onerous contracts and related 
impairments and rent 
adjusted ebitda represents earnings before interest tax depreciation amortisation  
loss on disposal of property plant and equipment and subsidiary undertakings 
impairment of freehold assets onerous contracts and related impairments and 
charges for future minimum rental increases and exceptional central costs
adjusted earnings per share is defined as earnings before charge for future  
minimum rental increases exceptional central costs onerous contracts and  
related impairments loan arrangement fees written off loss on disposal of  
property plant and equipment and subsidiary undertakings and impairment  
of freehold assets held for sale and the taxation impact thereof divided by  
the weighted average number of shares
at the start of the financial period the group changed its internal reporting  
cycles and now reports on a calendar monthly basis previously the group reported  
13 periods of 4 weeks the results for the period ended 30 september 2010 are 
therefore for a period of 368 days 2009 364 days
central 
199 21 active homes
south 
166 18 active homes
scotland and northern ireland 
124 2 active homes
national  
support centre
darlington
head office  
woking
north
214 8 active homes
703
elderly care homes
49
active care homes
our locations annual report and accounts 2010
southern cross healthcare
southern cross healthcare annual report and accounts 2010
name chevaun varga
job title care assistant 
our care staff are the frontline troops  
in achieving our aim to make residents feel 
comfortable respected and well cared for  
at all times – in fact to make them feel as  
‘at home’ as possible and allow them to  
carry on with normal life we recognise  
that the professionalism of our staff is the  
most important factor in creating a caring 
environment which meets the needs and 
expectations of residents and their families 
alike we want southern cross to be universally 
recognised for the high quality of our care  
more than any other single factor it is our  
care staff who will achieve that for us
southern cross healthcare group plc
southgate house
archer street
darlington
dl3 6ah
t el 01325 351100
fax 01325 351144
wwwschealthcarecouk


Summary:
 02  southern cross healthcare group plc 
annual report and accounts 2010
overview
chairman’s  
statement
ray miles
nonexecutive director and chairman
strategic focus
during the period we maintained a clear strategic focus on the 
group’s new horizons change programme the aim of which is  
to create an organisation capable of providing universally trusted 
levels of care based on the respect and dignity of the individual 
and delivered in modern high quality accommodation to some 
extent the operational imperatives underlying this programme  
– improving the quality of our service delivery investing in the 
development of our people and management systems and 
capturing efficiency savings – have been given more immediacy  
by the need to meet the challenges posed by the macroeconomic 
factors impacting the group
in common with other sectors economic uncertainty was 
prevalent during the period under review the period started 
positively before conditions became more difficult as concerns 
grew about the public deficit and future government policy 
including the significant impact of likely cuts in public spending  
to be announced in the autumn comprehensive spending review 
this was always likely to have a substantial impact on a business 
so reliant on local authority funding
against this backdrop the group experienced lower admissions 
than seen for some time resulting in a fall in occupancy rates  
in addition fee negotiations with local authorities became more 
difficult at the same time cost pressures continued unabated 
including the negative effects of rent escalation rising minimum 
wage and higher utility costs
against this background the need for delivering the new horizons 
programme is clearer than ever its main objectives are to
enhance care delivery so that we are ultimately recognised  •	
as the most trusted care home group in the uk
increase the number of selffunding residents thus reducing •	
our dependence on public funding and improving margins
improve efficiency so that everything is done in a better  •	
more effective and lower cost manner
reorganise our management structure to create a flatter  •	
more responsive and accountable management team 
in all of these we have made substantial progress during the 
period but there is still much to be done
as announced on 25 november 2010 the board has been 
approached by other parties expressing potential interest in the 
group the approaches are still preliminary in nature and the 
board continues to believe it to be in shareholders’ interests to 
continue to hold exploratory discussions
in common with other sectors 
economic uncertainty was 
prevalent during the period  
under review the period started 
positively before conditions became 
more difficult as concerns grew 
about the public deficit and future 
government policy including the 
significant impact of likely cuts in 
public spending to be announced 
in the autumn comprehensive 
spending review this was always 
likely to have a substantial impact 
on a business so reliant on local 
authority funding 03  southern cross healthcare group plc 
annual report and accounts 2010
overview
overview
financials 
the macroeconomic factors described above combined to 
negatively impact group results and in march we lowered market 
expectations for the full year outturn an adjusted ebitda of £534m 
was achieved compared with £725m in 2009 and £781m in 2008 
revenue grew by 23 to £9586m from last year’s £9371m home 
ebitdar margin before central costs has fallen by 17 to 293 
occupancy in our mature homes fell from 884 to 861
net debt fell further by £258m to £73m a significant achievement 
given the underlying trading environment the group continues to 
pursue its policy of further reducing debt and therefore the board 
has decided not to propose a final dividend for fy2010 
on 19 may we announced we had consolidated the group’s 
banking arrangements into a revised amortising £50m revolving 
credit facility rcf this facility replaced all the group’s existing 
bank facilities and reduced the number of syndicate lenders  
from eight banks to two i am pleased to report that following 
recent discussions with the group’s lenders revisions to the 
existing banking arrangements were agreed on 6 december 2010 
the facility now comprises an amortising £45m rcf repayable in 
september 2012 with the fixed charge covenant relaxed from 
123x to 11x 
industry developments
in july 2010 the government launched its commission on the 
funding of care and support known as the dilnot commission  
to examine the future provision and funding of care in the uk 
southern cross fully supports the work of this important body  
and made an early initial submission to it 
we look forward to working with the commission to help it reach  
a balanced view of how our society can provide affordable and 
sustainable care capable of meeting the longterm needs of an 
ageing population in particular we believe the commission should 
play a critical role in encouraging local authorities the nhs and 
care providers such as ourselves to work together in developing  
the services required to meet the future needs of an ageing 
population such collaboration should enhance the care delivered 
to our elderly population whilst generating better value for all 
those who commission care and moving us towards a system 
which pays providers the true cost of care and alleviates current 
imbalances in fee rates around the country
the nhs is changing with gp consortia about to assume 
responsibility for commissioning replacing pcts in this regard  
they will be responsible for organising healthcare and deciding 
which services to buy and from whom while remaining focused 
on our core elderly care services we will continue to respond 
flexibly to changing market demands and take advantage of the 
opportunities presented this will include offering more specialised 
care – for example in dementia palliative and step down care as 
people’s perception of appropriate personalised care for individuals 
evolves this will also involve greater levels of day care provision 
outreach care in the community and shortterm and respite care 
as local authorities seek to encourage and support people to stay 
in their own homes with support for as long as practicable 
at the heart of the 
local community
at southern cross we encourage our residents to enjoy 
as active and independent a lifestyle as possible our 
approach to care is based on treating every resident as an 
individual not only with regard to their specific care and 
nursing requirements but also with an eye to enabling 
them to pursue the interests hobbies and activities they 
have always enjoyed and gained so much from 
one area where this strategy is particularly appreciated 
by residents is relations with the local community in which 
they live there is no reason why they should not continue 
to play a valuable role in the life of their local community 
– just as they have always done that’s why we encourage 
residents and their families to get involved with a wide 
number of community related activities these may 
include for example raising money for the special baby 
unit at the local hospital or making a contribution to a 
local youth sports group or fundraising for local or national 
charities the choice is endless – and any funds raised  
by our individual homes are topped up or matched by  
a central donation from southern cross itself 
we are proud of our residents’ record for helping a wide 
range of deserving causes and see it as a vital part of them 
remaining an active motivated and appreciated section  
of society 
of course community engagement is a twoway process 
as well as reaching out into local communities we also 
encourage others to see our care homes for what they are 
– vitally important local amenities and vibrant communities 
in themselves residents can benefit enormously from 
regular visits from for example local school children and 
theatre groups or others such as crafts and pet therapy 
specialists in this way as wide a range of people as 
possible can see that they have a role to play in the  
wellbeing of elderly people in our communities  05  southern cross healthcare group plc 
annual report and accounts 2010
overview
overview
chairman’s statement 
continued
landlords
during the period the group engaged morgan stanley to review  
its lease arrangements with landlords all leases are subject to 
escalation clauses whilst many are fixed a significant number  
of rents are tied to rpi resulting in rents currently rising faster  
than the fees we charge this work is ongoing and the group has 
entered into a dialogue with some of its landlords to explore ways 
in which rents might be restructured to provide greater stability 
and a stronger covenant
people
the group remains a significant employer with a dedicated team 
of over 43000 people working in homes across the uk i never  
fail to be impressed by the commitment and expertise of our  
staff so often displayed in testing circumstances for most  
their job is more than a way of earning a living – it is a vocation 
increasingly we seek to recognise this in our comprehensive 
training programmes and remuneration packages our people  
are one of the reasons that i am optimistic about the future  
on behalf of the board i thank colleagues throughout the  
business for their outstanding contribution in a difficult year 
in august irene gray joined the company as director of care  
this is an important milestone her appointment is a clear 
demonstration of the group’s commitment to take the lead  
in clinical governance and deliver dependable high quality  
services which are respected by those who commission care  
as well as by residents and their families
notwithstanding we see difficult trading conditions in the short 
term we remain as determined as ever to forge ahead with  
our change programme which we confidently expect to deliver 
longterm industryleading levels of quality and service this will 
put southern cross in a strong position to take advantage of the 
demographic trends that continue to indicate a longerterm 
increase in average age and demand for elderly care services
ray miles 
chairman
name tom spence 
job title activities coordinator 
enabling our residents to be as physically  
and mentally active as they want to be is a 
cornerstone of our holistic approach to care  
in each of our regions we have members of 
staff such as tom whose role is to ensure  
that residents have access to a wide range  
of activities catering to as many tastes  
abilities and hobbies as possible these can 
range from gardening to fundraising for  
worthy local causes from craftwork to  
musical and theatrical performances  
from games such as carpet bowls to  
outings to local places of interest
notwithstanding we see difficult 
trading conditions in the short 
term we remain as determined 
as ever to forge ahead with  
our change programme which 
we confidently expect to deliver 
longterm industryleading 
levels of quality and service