Agenda

1. The Care Sector in a Changing ClimateMark Ellis ACIBHead of Social Care Banking Lloyds TSB Commercial

2. Agenda Introduction Where do we stand now? Funding Implications A changing landscape Market opportunities LloydsTSB & you Summary

3. Introduction 2.8 million people in the UK receive some form of social care 1.5 million people work in social care Over 36,000 employers Bigger than the NHS Care is a significant SME business contributing c£23bn to the UK economy *Statistics from Social Care institute for Excellence

4. Opportunity or Threat? Ageing population v available funding Private sector solution? Time to review market? (Residential/Nursing/Dementia?) Introduction • Uncertain times • Spending cuts • Health & Social Care Bill/CQC • Failure of Poor performers? • Time for Strong Management

5. Historical development of the market Total gross expenditure on adult social services by Local Authorities and the NHS CAGR: 8% The social care market is robust, significant and has grown rapidly over the last 15 years… Source: Personal Social Services expenditure and unit costs - England, NHS information centre

6. The Crunch - + Pros Cons • The Comprehensive Spending Review (CSR) of October 2010 allocated an additional £2 billion to social care funding by 2014/15, which was not ring-fenced. Consequently there is little certainty as to how this will be spent • The current DH grant to local authorities for social care, the Personal Social Services grant, will increase by £1 billion in real terms by 2014/15 • The Institute for Fiscal Studies reports that government expenditure will (after other commitments) have to fall by 6.7% in real terms (p.a.) from its level of 2010/11 for the years 2011/12 and 2012/13. PSSRU, Impact of a tightening fiscal situation on social care for older people, May 2010 • In the 2011/12 financial year England’s 152 main councils need to find a total of £771m of ‘service efficiencies’, with 23% due to come from adult social care services. Financial Times review of 20 Council’s budget documents, 04/04/11 • 20% of Local Authorities have already cut services for people with learning disabilities as a result of the Emergency Budget and CSR. Learning Disability Coalition Local Authority Survey 2011 The Deficit Reduction Plan had significant implications for the future of social care…

7. A changing landscape (cont.) Growth in the elderly population(a) Growth in the population with learning disabilities(b)(c) CAGR: 3.5% CAGR: 3.4% Funding Demand As funding for social care reduces, demand continues to increase… Source: (a) Laing & Buisson (b) ‘Estimating Future Demand for Adult Social Care Services for People with Learning Disabilities’ (2008), Emerson & Hatton, CeDR University of Lancaster Note: (c) Services provided to new entrants with critical, substantial or moderate needs

8. Increasing Demand In just 10 years time: 12.9m over 65 years of age (16%) 915,000 with some form of dementia 530,000 likely to require residential care (22%)

9. Reducing supply 461,788 Registered bed spaces But only 437,920 rooms (47,773 twin rooms) 203,527 without en-suite facilities Therefore only 234,393 single en-suite rooms 36,760 in homes with fewer than 20 beds

10. Those banks still actively lending Main lending sources: Royal Bank of Scotland. Barclays Bank. Lloyds Banking Group inc(BOS). Abbey/Santander. Marginal Players… Bank of Ireland. Clydesdale/NAG. HSBC Co-operative Bank

11. Summary Funding Implications Looking more to serviceability and experienced management than LTV LTV have reduced from 85% of MV1 to 70/75% of MV1 Interest rate margins have increased-typically 100 basis points 2007 to 300 basis points 2012 London Interbank Ordinary Rate (LIBOR) led lending is more prevalent Term of loans reduced now 5-25 years.

12. Historic Market Data – Base Rate Since 1972 It is important to keep in mind the range of base rate over the last 40yrs. Base Rate peaked at 17% in 1979. • 5yr Historical average – 2.07% • 15yr Historical average – 3.93% • 30yr Historical average – 5.93% Base Rate Since 1972

13. Dilnot commission The Dilnot commission has been asked to explore how care costs can be met in the future, how public funding can best be used to support care needs and how individuals can protect their assets against the cost of care. Estimated cost of implementing proposals £2bn pa Partnership funding between the state and individual A cap on social care bills for individuals, above which the Government would fund care Voluntary insurance More informal, unpaid care An increase in the means-testing limit of £23,250 A changing landscape (cont.) Joint commissioning Joint commissioning between the NHS and local authorities so that the most cost effective care package is commissioned for each individual It is believed that it will take some time before fully integrated joint commissioning is a regular feature of the market Personalisation agenda Encouraging personalisation where individuals take charge of commissioning their own care services Personalisation and the growth of the private pay market, in whatever form, are likely to favour larger operators who have well recognised brands and who have a track record of delivering high quality care Government policy is changing the social care landscape…

14. Emerging markets and opportunities Who will win in the current market place? Value for money Quality Care providers need to maintain high quality care yet provide services at a lower cost. The big winners in the market will have: • A defensible niche • Exposure to a growth market • Strong & robust margins • Economies of scale • Buy-in from the local healthcare economy • Strong management and motivated workforce Market leading advantage (not an ‘also-ran’)…

15. Emerging markets and opportunities (cont.) Dementia • National Dementia Strategy launched in 2009 • 17 recommendations focusing on: • Raising awareness and understanding • Early diagnosis and support • Living well with dementia • An extra £150 million provided to support local services to delivery strategy Private pay marketForecast cost to the state and individuals for residential care services • The proportion of private pay care home residents varies across the country (Southern Home counties circa 54% versus North West circa 34%) • Increase in long term care insurance and other LTC financial products will help drive the private pay market 2010 (m) 65-74 0.1 75-84 0.3 85+ 0.3 95+ 0.033 2031 (m) 65-74 0.2 75-84 0.5 85+ 0.6 95+ 0.1 CAGR 5.0% 3.2% Source: Dementia UK, Laing & Buisson, Department of Health, Alzheimer's Society Source: Impact of changes in length of stay on the demand for residential care services in England – PSSRU

16. Emerging markets and opportunities (cont.) Consolidation of the LD space • The LD market is more fragmented than the elderly market for residential care • Lessons can be learnt from the rapid consolidation of the elderly residential care market: • Risks of the opco propco model • Quality and nature of facilities is crucial Domiciliary care • Still a fragmented market – top ten providers operate only 10% of the market • Remains cost effective (threshold of elderly domiciliary care vs. residential care ranges from 5.0hrs in the South West to 6.4 hrs in Scotland(a)(1)) • Perceived to be cheaper as it does not include any ‘hotelling’ costs • By 2030 it is estimated there will be 4.8m people over the age of 80, with approximately 0.6m requiring home care(2) • Continued move towards greater independence for vulnerable individuals The top ten providers operate 11% of the total number of learning disability residential care beds Note: Includes only for profit providers Source: KPMG analysis, Laing & Buisson Note: (a) Based on daytime, weekday care and assumes residential single room provided by independent sector Sources: (1) KPMG analysis, Laing & Buisson (2) Jagger et al. BMC Geriatrics 2011

17. Emerging markets and opportunities (cont.) Healthcare IT • Two keys areas of growth are: • Telecare • Telehealth • Both aimed at reducing hospital visits, admissions to residential care and the number of domiciliary care hours provided • The Department of Health is running a large ‘Whole System Demonstrator programme’ project, which is expected to generate a strong business and clinical case for telehealth during 2011 • Operators who can integrate these technologies within their services are expected to be well placed to pick up contracts Primary care • Since the launch of the NHS Plan (2000), primary care has been emphasised by the government • Significant investment in GP infrastructure • The number of primary care consultations p.a. has grown from 217m in 1995 to 300m in 2008. Further growth is underpinned by: • Increasing demand from ageing population • Government policy favouring care in the community and cost efficient commissioning of care out of an acute setting, and • Increased patient expectations and knowledge which are increasing the demands patients place on the health and social care sectors • GPCC’s receiving future funding – at heart of NHS • Highly fragmented market • Multiple investment routes to invest

18. Technology in social care SOCIAL CARE MAY APPEAR TO LAG BEHIND IN THE TECHNOLOGY RACE, BUT WORK IS BEING DONE THAT COULD TRANSFORM THE PROFESSION IN THE MONTHS AND YEARS AHEAD

19. Lloyds TSB and You Our message to customers remains positive: We are a bank with a strong heritage and track record in working with customers. We are here for the long-term We continue to support credit proposals that fulfil our usual criteria of risk / return and structure Healthcare Banking Specialist teams

20. Summary Tough at present – and will be for the next 12 months plus Long term trends remain very favourable Opportunities available now to grow in the market Investors remain keen on healthcare (one of top two sectors in recent survey) Focus on a high quality business meeting care needs

21. Healthcare Market Thank you for listening. Any questions?

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