Healthcare Locums plc AGM Statement
Healthcare Locums plc AGM Statement
Healthcare Locums plc held its Annual General Meeting yesterday where Peter Sullivan, Chairman said,
On 25 January 2011, the Company announced the suspension of its shares from trading on AIM with immediate effect. The announcement stated that the Board had strong reason to believe that the financial performance of HCL for the year ended 31 December 2010 would be materially below expectations. Serious accounting irregularities had been brought to the attention of the Board as a result of which the Company announced that it would be carrying out an immediate investigation to consider the financial implications.
On that date, Kate Bleasdale, Executive Vice-Chairman, and Diane Jarvis, Chief Financial Officer, were suspended. Subsequently, Alan Walker, Diane Jarvis, Alasdair Liddell and Mo Dedat resigned from the Board. Kate Bleasdale also resigned from the Board on 23 February 2011 and was later dismissed as an employee.
I was appointed to your Board as Chairman on 18 February 2011 together with David Henderson as senior independent director. We were pleased to have been joined in May by Stephen Burke as Chief Executive Officer, Colin Whipp as Interim Chief Financial Officer and by Andy McRae, who is Managing Director of Healthcare Australia Holdings Pty Limited ("HCA").
The lifting of the suspension of trading in the Company's shares and the production of the 2010 audited accounts have regrettably taken longer than we would have hoped. I will be taking this opportunity to explain to shareholders the main reasons for the delay.
We have made good progress over the past few months in the face of many challenges and I am hopeful that the 2010 accounts can be published and trading in the Company's shares resumed, soon.
Accounting irregularities and corporate governance
Upon suspension of the shares in January, the Board launched an immediate internal investigation into the serious accounting irregularities, the circumstances surrounding their existence and the financial implications for the Group. To support the internal investigation, Grant Thornton was brought in to assist with the forensic examination of the accounts. The Board believes, in the light of these investigations, that there was a breakdown in controls within the Group and that previous accounts were misstated.
One area of focus of the investigation is the use of what your current Board consider to be aggressive accounting practices regarding revenue recognition, capitalisation of costs and impairment of fixed assets. We are in discussions with our advisers over the appropriateness of these practices and the way they should be dealt with in the accounts for 2010. A further area of focus is whether the breakdown in controls led to any other accounting issues. Whilst the investigation and the audit of the 2010 accounts are both unfinished your Board considers it likely that there will be a restatement of prior year figures, but at this stage it would not be appropriate to comment on the extent of that restatement. Clearly, all of this has made the process of producing audited accounts for 2010 far more complex than originally anticipated.
When I first became Chairman of HCL, I was struck by the extremely poor levels of corporate governance. For example, there was a lack of normal business policies and procedures, insufficient management of costs and the level of record keeping surrounding major decisions taken by the Board was well below the standard shareholders would expect from a publicly listed company.
Our investigations have revealed many cases where the accounting treatments adopted by the Company were incorrect. In light of the investigations to date and a review of appropriate accounting treatment, your Board is of the opinion that it is probable that a material amount of profit which the Company recognised over recent years will need to be written back. When published, the 2010 accounts will quantify this for each of the affected years.
I am sure that the results of the investigations to date will come as a shock to Shareholders - as the situation has to the current Board, the Company's advisers and the Group's lenders, National Australia Bank, Commonwealth Bank of Australia and Ares Capital (the "Banks"). The Banks lent a substantial sum of money to the Group in December 2010 before finding out just a month later that the Group's true financial position was materially different from that which had been represented to them. However, the Banks remain supportive and the Board is in constructive, ongoing dialogue with them.
Against this backdrop, it remains the Board's priority to stabilise the Group's financial situation and reduce its levels of debt.
Despite these difficulties, there are certain matters which have provided comfort to the new Board.
We believe that the HCA business in Australia, which was acquired in December 2010 shortly before the financial year end, is fundamentally a good business and is capable of sustainable growth. We are also of the view that synergies can be achieved over time by owning both the UK and Australian healthcare recruitment businesses.
The majority of HCL's operations in the UK are sound, where our dedicated employees deliver an excellent service to our customers. I would like to emphasise that despite the recent difficulties we remain in the top three locum providers to the NHS. HCL is a well established business in the UK and is capable of earning substantial profits by delivering a high level of service to the NHS and private sector customers on competitive terms.
Your Board believes that it is a priority to further develop our productive long term relationship with NHS customers. As you will be aware, the NHS is under substantial pressure to reduce costs. This is a mixed blessing for HCL. On the one hand it encourages the need for flexibility of resource which temporary staff can provide. On the other hand it has led to substantial pressure on NHS Trusts to reduce the margins paid to locum providers. This has resulted in an increased focus upon framework contracts with preferred providers. These frameworks carry lower margins, but can benefit locum providers by giving greater revenue volumes. Until recently, HCL had focused insufficiently on framework contracts which now apply to a much larger share of the temporary staff recruitment of the NHS.
Your new executive team is committed to re-engineering the business, where needed, to address these changing market dynamics. We are paying particular attention to stabilisation, the integration of previous acquisitions, realising synergies and improving business efficiencies and productivity.
The Board has been pleased with the trading performance of HCA in Australia since it was acquired in December 2010. In the UK, the situation is more challenging but we are encouraged by the opportunities as we adapt the shape of our business model.
On 27 June 2011, we were pleased to announce the sale of the Homecare Division of HCA for A$34 million (approximately GBP22.2 million). The transaction is expected to complete during July 2011 and the net proceeds will be used to reduce the Company's debt.
Finally, we are currently considering a number of refinancing alternatives to stabilise the capital structure of the Group. We will keep you appraised of further developments at the appropriate time.
In the light of the above, I must therefore ask you to bear with us a little longer. I assure you that we are doing all we can to restore the fortunes of the Company.
Thank you for your patience.