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Current Position

Turnaround Management Association: East Midlands Region A Focus on Healthcare – Presented by: Berryman and Fennell Financial. Welcome from John Roddy John Roddy Strategy and Funding DD 0115 945 3731 M 07540 737848 E john.roddy@berryman.co.uk. Current Position.

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Current Position

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  1. Turnaround Management Association: East Midlands Region A Focus on Healthcare – Presented by: Berryman and Fennell Financial

  2. Welcome from John RoddyJohn RoddyStrategy and FundingDD 0115 945 3731M 07540 737848E john.roddy@berryman.co.uk

  3. Current Position • Large increase in numbers of distressed homes • Banks responding with sector specialists • Very mixed bag of specialist turnaround capability

  4. What do lenders require? • Clear picture of issues and operator • Already a problem  -  but caused by what  -  management • Opinion required on management before financial clarity • Support or exit

  5. Determinants of decision • Security position/operator ability • Secured + good operator      = Support • Unsecured + good operator  =  Support • Unsecured + poor operator   =  Support (BUT) • Secured + poor operator       =  Exit

  6. Valuation Metrics • EBITDA multiples 5.5x - 10.00x • FMT valuation • Discount for period to reach FMT • Closed value (usually a disaster for lenders} -Compliant home. 60% of FMT -Non-compliant home. B&M / Alt use

  7. Lenders Actions • Up to date valuation + operational review • Decision - support or exit • If support. Can operator achieve turnaround? • If not. What support / who from?

  8. Berryman Healthcare Operational Support • Former group ops director of 30 home group. 65% 3 Star • Full range of experience in developing this group • Latest case -Operational review + action plan -Investment case -Ongoing close support -Budgetary control • Operational capacity enhanced via Fennell Financial

  9. Turning Around Distressed Care Homes Presenter: John Fennell

  10. Contents Introduction Methodology Case Study 1 Case Study 2 Questions

  11. Introduction • Financial Intelligence • Intelligent Marketing • Compliance Reviews • Consultancy • Operational Management Over 650 Beds

  12. Methodology

  13. Methodology

  14. Methodology Virtual Head Office Accounts Team [90% Care Homes] Integrated Forecasts Regular Visits Detailed Reporting

  15. Case Study 1 • Group of 3 Care Homes Midlands • 1 Elderly • Old Conversion • 22 Reg – 17 Bedrooms • Owner Operator • 2 LD • Recent Conversion • 12 Reg and 6 Reg • Mangers In Place

  16. Case Study 1 cont. Business moved to Business Support in August 2009 Could not service debt Regular Overdraft Excesses No MI Not paying Crown

  17. Case Study 1 cont. Approached in February 2010 by Hazelwoods to assist operators with Financial Management First Bank Meeting (March 2010) IBR as Bank had lost confidence in the operators Phase 1 Short Term Cash Phase 2 Medium Term Forecasts Appointed 1st April 2010

  18. Case Study 1 cont. • Income • Funded Residents • Private Residents • Staffing Costs • Owners increased hours worked • Weekly Payroll Reporting • Creditors • HMRC

  19. Case Study 1 cont. Phase 1 • 13 Week Cash flow • 1 Expected Excess – Bank Agreed Temp Facility • Creditors Identified • No bounced cheques during phase 1

  20. Case Study 1 cont. Gas Supplier £25k+ Previous Bank Overdraft £5k+ HMRC £100k+ Finance Agreement £40k+

  21. Case Study 1 cont. Phase 2 • Medium Term Forecasts • Integrated Model • Financial Restructuring

  22. Case Study 1 Conclusion Forecasts Exceeded HMRC repaid in Full Creditors Paid Additional Funding will be repaid within 5 years Businesses have been returned to relationship manager

  23. Case Study 1 conclusion • Why was this a success • Provided Clarity • Worked Closely with Owners • Sector Knowledge

  24. Case Study 2 • Group of 3 Care Homes – Midlands • 42 Registration – Home A • 24 Registration – Home B • 19 Registration – Home C • Unable to service debt • Low Occupancy • High Cost Base • NO CONTROL • £2.5 Million Debt (Hedged) + £150,000 “Top-Up Loan”

  25. Case Study 2 cont. • Why was the home failing? • Homes Registrations • Home A - 42 Reg – 13 Double Rooms • Home B - 24 Reg – 3 Double Rooms • Home C - 19 Reg – 3 Double Rooms • Financial Records • Knowledge About Own Business

  26. Case Study 2 cont. Temporary Funding Required Bank Taken Double Interest In Error Overdraft put in place to allow time for plan Why aren’t homes trading to valuations?

  27. Case Study 2 cont. • Valuations for Security • Home A – 85% Occupancy – Wage Costs £290,500 [Actual 13] • Home B – 95.83% Occupancy – Wage Costs £202,600 [Actual 14] • Home C – 98.5% Occupancy – Wage Costs £157,500 [Actual 17] • Total Value – £3.35 Million • Fair Maintainable Trade - £460,000

  28. Case Study 2 cont. • Action Plan • Reduce Doubles • Home A – 30 Available Spaces • Home B – 21 Available Spaces • Home C – 17 Available Spaces • Occupancy/Fees • Increase Occupancy • Increase Average Fees

  29. Case Study 2 cont. • Cost Base • Payroll Reporting? • Creditors? • HMRC? • Budgets • Cost per Residents per week

  30. Case Study 2 cont. • Detailed Forecast for 3 Homes • P&L • Income Sequences • Payroll Budgets Applied • Balance Sheet • Cash Flow • What needs to be done to achieve the plan?

  31. Case Study 2 cont. • Refinanced (1 Year Interest Only) • Implemented Plan • Paid off “Top-Up” Loan in fall by month 9 • Full Debt Servicing • Home A • Valuation x2 • Average Fee £650+ [Gold Standard]

  32. Case Study 2 cont. • Conclusion • Normal Banking Conditions • Top-Up Loan Paid off 4 years early • Capital and Interest serviced • Group Value Increased • Planning Permission at Home C for extra 6 rooms (£120k Net Profit and double value)

  33. Fennells Financial Control Operational Expertise Hands On Support

  34. Care Home Turnaround Presenter: Fred Fennell

  35. The interesting parts • Researching the case-prior. • Getting the complete picture. • The full story from the inspectors and L/A. • Are there any Safeguarding issues? • Any complaints orwhistle blowing?

  36. What exactly are the problems? • Start with the owners/directors. • Then the managers. • Then work through the staff as needed to find out • Liaise with the L/A’s and CQC • What is the quality like? • Does it need closing?

  37. All this may only take one visit and some time in preparation and preparing a report • It may take a couple of visits + o/work • It could need a weekly visit + • We may need to take over immediately if the Registered Manager walks out • I may need to become the Nominated Individual

  38. Once we know the problem/s we decide on a plan to bring a swift conclusion • Report on the options • Take immediate action and turn it around • Let’s look at some real examples

  39. Real life example 1: • 100 bed care home (+-) Midlands • Second Poor rating – Low occupancy – Complaints & Safeguarding issues – preclusion on placements from Local Authorities – Whistle blowing issues • The owners (small group) called us in

  40. Real life example 1: 100 bed – Midlands • De-brief with owners • De-brief with Registered Manager • 4 weeks CQC inspection & LA Monitoring • 12 weeks CQC inspection & LA Monitoring • New Manager • Ex Manager- Tribunal

  41. Real life example 1: 100 bed – Midlands End Result • New Manager • Good rating • Good occupancy – good EBITDA • AQA • Not Essential Standards – not financial up to now

  42. Real life example 2: • Midlands Care Home, one of a small group of three. • This was a medium sized home but 50% occupancy, It was loss making and a real problem. It needed to be closed due to HMRC and effect on the group • Will have two homes left in same LA’s area

  43. Real life example 2: • My first visit - Break time • Liaised with: • Manager • Staff • Service Users Families/advocates • LA’s • CQC

  44. Real life example 2: Result: • Home closed in 10 days • Every service user found accommodation • No deaths • CQC & LA’s delighted • No animosity with the two other homes • These two homes now using John Fennell - Equivalent of their own Financial Director • First month considerable savings

  45. Real life example 3: • A small to medium sized Care Home was about to be wound up by HMRC for typical non payment of NIC etc in the Midlands. • FF closed the home in just over a week • All the service users were found suitable accommodation, nobody died ! • LA’s & CQC were happy and it is fair to say the Bank ended up better off. • Interesting reasons for failure.

  46. Real life example 4: • Two very profitable care homes run by the owner with one rated Good and one Adequate at the moment, but does not have a registered manager (application in) • On paper nothing is wrong and they are trading full with a waiting list • But the owner is now ill

  47. Thank youAny questions?

  48. Berryman Park House Friar Lane Nottingham NG1 6DN T 0115 945 3700 F 0115 948 0234 W www.berryman.co.uk

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