Pre-Close Trading Update

Company news

Sep 26, 2006

The Board of Care UK is pleased with the progress the Company has made during the year operationally as well as with new project implementations, acquisitions and contract awards. The Board anticipates that trading for the year will be in line with market expectations and that the outlook for future years is enhanced by the new contracts and developments that are being announced today.

Residential Care
Our Residential Care Services division has successfully transferred services from Poole Borough Council and the London Borough of Redbridge in accordance with contracts that have previously been announced. For the Poole Borough Council contract, we have now identified a potential replacement site and have submitted a planning application to construct a new care facility with in excess of 100 beds. Good progress also continues to be made with the construction of Lennox House, a new care home being built in Islington and due to open as planned in Summer 2007.

We are pleased to have been awarded two further contracts. First, the Royal Borough of Windsor & Maidenhead has awarded us a ten-year management contract for the operation of a newly built 76-bed care home. This contract commenced on 11 September 2006. Second, we have been awarded a ten-year management contract, from West Berkshire Council, for the operation of a newly built 60-bed care home. Services under this contract are expected to commence in the second half of the 2007 financial year. These contracts involve the provision of residential, nursing and continuing care dementia services and in each case the Council has constructed the homes in partnership with Housing Associations.

Our pipeline of opportunities continues to support our growth expectations for this division.

Community Care
Strong progress continues to be made in Homecare with further new contract awards and an exceptionally high rate of organic growth. We are pleased with the progress made this year by C J Homecare, acquired in August 2005, and Ravencare, acquired in January 2006. In the second half of the financial year we completed the acquisitions of Select Care in Birmingham, a provider of over 1,000 hours of care per week, and Quality Care in Surrey, a provider of over 3,000 hours of care per week, for a combined investment of around £2.7m. Both Select and Quality Care operate principally under Local Authority contracts.

Homecare has strong support from Government and Social Services and we are delighted with our continuing good performance in this area.

Specialist Care
In Specialist Care we have made a number of strategic additions within the existing areas of mental health, learning disabilities and children's services.

We recently completed the acquisition of two independent hospitals in Greater Manchester, providing specialist psychiatric and rehabilitation services to a range of service users, including a specialist female personality disorder unit. The total investment is just over £6m. Once we have fully integrated this acquisition we will look for opportunities to replicate the service model as part of the strategy to increase the acuity of services provided.

In learning disabilities we are pleased to announce the award of a new contract valued at over £2m pa for the provision of services for 31 service users in Glasgow, The contract award was part of a wider re-provision of services by Glasgow City Council with services being transferred to us in July 2006.

In children's services we have completed two acquisitions in the second half of the financial year as part of our strategy to expand geographic coverage and develop an improved mix of urban and rural locations. Promoting Positive Lives is based in the North West and comprises ten beds in five homes and Little Islands is based in Bristol and Wales and comprises twenty-four beds in thirteen homes. The total level of investment in these two acquisitions is around £5.2m.

Clinical Care
The Department of Health remains committed to its strategy to transform health care services, with increasing emphasis on locally led reform. We believe that this will maintain a significant flow of opportunities for Care UK during the coming years and we are pleased to announce a number of new contract wins for Care UK in the Clinical Care division in the period:

• A five-year contract (jointly with Alliance Medical) to provide diagnostic services on behalf of the NHS in North-East England, due to commence by Summer 2007;
• A five-year contract for the provision of GP services and a walk-in centre in Barking & Dagenham, procured under the Department of Health's pilot programme to secure improved primary care services in currently under-served areas. Services commenced in July 2006 and we are pleased with the progress made in the start-up period;
• An initial three-year contract in Luton and Bedfordshire for the provision of unscheduled care, through an urgent care centre, and out of hours GP services, due to commence shortly;
• An initial three-year contract for the provision of GP services with Her Majesty's Prison Wellingborough, due to commence shortly;
• A ten-year contract for the provision of GP services with the Heart of Birmingham Primary Care Trust, due to commence in late 2007.

Following some initial delays, the NHS commuter primary care walk-in centre in Newcastle-upon-Tyne commenced services in May 2006 and the London Victoria centre is due to open shortly.

Including the two commuter walk-in centres, the total annual value of new contracts awarded to the Clinical Care division this year amounts to over £12m.

Partnership Health Group ("PHG"), our 50% owned joint venture, is shortly due to open and manage on behalf of the NHS its third treatment centre as planned, in Maidstone. The fourth treatment centre, at the Goodmayes Hospital in North East London, is progressing satisfactorily towards completion in early 2007.

Patient demand and satisfaction levels continue to be consistently good at the two operational treatment centres at Barlborough Links and Plymouth and the financial performance in the second half of the financial year has continued to be at the level we anticipated for these projects.

Both PHG and Care UK, bidding directly for primary care related projects, are actively involved in the Department of Health's wave 2 ISTC procurement programme. A number of bids have been submitted and we are optimistic about our prospects for success.

As reported at the time of the interim results, the bidding costs associated with this substantial and complex range of projects will exceed original expectations for the 2006 financial year. However, the level of success being achieved in these development opportunities justifies the previously indicated short-term impact that this will have on the group's results.

Financial
The Group has completed the extension to its syndicated borrowing facilities as indicated at the time of the interim results. Total facilities available to the Group now amount to £183m comprising £145m of term debt, a £15m revolving credit facility, a £20m performance bond facility and a £3m overdraft facility. All facilities, with the exception of the annually renewable overdraft, run to February 2015. The Group has the option to transfer headroom between the term and performance bond facilities for a limited period dependent on the specific needs of the business.

Care UK's property portfolio is held on the balance sheet at original cost with no policy of revaluation. To best inform investors of the inherent value of the Group's property assets a review of current market value is being conducted and we anticipate providing further information with the release of the Group's preliminary results in November.

As previously indicated, we expect to recognise an impairment of goodwill in relation to our recruitment businesses in the Group's 2006 financial statements, reflecting the structural changes in that market.

The first of two disposals of surplus land arising from our Residential Care contract in Richmond was completed in September, generating proceeds to Care UK in excess of £2m.

Commenting on the outlook, Mike Parish, Chief Executive of Care UK said:

"The number of new contract awards during the year represents a strong endorsement of Care UK's strategy and service quality.

"Together with our substantial new business pipeline and carefully targeted acquisition activity, our growth momentum supports market expectations and our own strategic aspirations over the medium and longer term."