Re Contract
Tribal Group PLC
18 February 2004
18 February 2004
Tribal Group plc
Mercury Health: update on NHS treatment centre contracts
Tribal Group announces that, as a result of a failure to agree commercial terms,
negotiations with the NHS to provide a chain of treatment centres (the Spine
chain) have been terminated. In parallel, Tribal Group, through its wholly owned
subsidiary Mercury Health, has today been confirmed as preferred bidder on a
separate NHS contract to provide new treatment centres in the South East region.
Spine chain
It was announced on 12 September 2003 that Mercury Health had been appointed
likely preferred bidder on a national chain of treatment centres (referred to as
the Spine chain). Following this appointment, significant changes were proposed
by the NHS to the levels of guaranteed volumes and the nature of the case mix.
As a result of these changes, and despite extensive negotiations, it has not
proved possible to agree a solution that both provides Tribal Group with an
acceptable economic return and retains the financial, implementation and
delivery integrity of Mercury Health's proposal. Following termination of
negotiations on the Spine chain, the Department of Health (DoH) has agreed to
reimburse a substantial proportion of Mercury Health's post-preferred bidder
implementation costs.
South East regional treatment centres
Following parallel negotiations, Mercury Health has today been confirmed by the
NHS as the preferred bidder on a separate five year contract under the NHS
Independent Sector Treatment Centre initiative. The pricing and principal
commercial terms of this agreement have now been agreed but remain subject to
contract.
The new contract will involve setting up and operating a regional network of
five treatment centres in support of the NHS. The centres (referred to as the
South East chain) will be located in Wycombe, Haywards Heath, Portsmouth (plus
interim services contract), Havant and Medway and are scheduled to open from
Spring 2005. The contract will guarantee a minimum caseload over the five year
period and is expected to generate aggregate revenue from the NHS of
approximately £190 million.
A further announcement covering the financial details and funding arrangements
will be made in due course.
Trading update and bid costs
Overall, the Board is pleased with progress in the Group's underlying trading
performance in the second half of the year and intends to provide a pre-close
update in early April. There have been strong performances from the consultancy,
HR and IT divisions which account for over 70% of revenue but in some other
areas there has been some softness in trading. Organic sales growth and cash
generation remain strong.
The accounting treatment of the Mercury Health bid and post-preferred bidder
implementation costs will be in accordance with UITF 34. As a result of the
termination of negotiations on the Spine chain and the consequent agreed
reimbursement of implementation costs by the DoH, Tribal Group expects to report
an exceptional net write-off of bid and implementation costs of less than £2
million in this financial year (a figure that includes the £1 million expensed
in the interim accounts for the six months ended 30 September 2003).
Looking ahead, the Group remains very positive about its prospects and market
positioning. In the light of this, during the next financial year the Group is
planning to increase its investment in developing its infrastructure; in further
strengthening its central and divisional management; and in accelerating its
integration programme. Higher levels of bid costs are also likely to be
incurred as the Group's tendering activity increases. These investments, which
will support the continuing expansion of the Group, are likely to affect
progress somewhat for 2005.
Henry Pitman, Chief Executive of Tribal Group, commented:
'We are pleased to have concluded pricing and commercial negotiations with the
NHS and to have been confirmed as the preferred bidder on the South East chain.
This is a major success for the group and represents an outstanding opportunity
to develop a substantial healthcare delivery business, alongside our strong
consultancy and support services offering. The South East chain will give
Mercury more than a 10% share of the independent treatment centre market, which
currently accounts for only 3% of NHS elective workload. This proportion is
expected to rise to at least 15% over the next 10 years.'
'We are disappointed not to have closed the Spine contract but were unable to
agree terms which would give our shareholders an acceptable return. We remain
committed to partnering Tribal's expertise and skills with the needs of the NHS
for the benefit of patients and shareholders.'
'Tribal Group will now move forward to financial close on the South East chain.'
A spokesman for the NHS commented:
'We are pleased that Mercury Health have been appointed as preferred bidder on
the South East chain and we look forward to developing a long term relationship
with them.'
For further information contact:
Henry Pitman, Chief Executive, Tribal Group plc Tel: 01285 886020
Simon Lawton, Group Finance Director, Tribal Group plc Tel: 01285 886020
Editors' note:
Mercury Health draws on Tribal Group's extensive experience in planning and
designing healthcare facilities in the UK and has entered into a strategic
partnership with Ascent Health, a leading US treatment centre services provider.
Ascent Health has commissioned over 150 treatment centres and currently
manages some 30 centres undertaking over 100,000 surgical procedures annually.
Mercury Health has also established relationships with a number of leading UK
surgeons, anaesthetists and radiologists who will provide specialist clinical
input alongside Ascent Health.
Tribal Group plc, a main market listed company, provides a range of consultancy
and support services to the UK public sector. The group's core markets are in
education; local government, housing and regeneration; health and social care;
and central government. The group employs 1,700 staff in 60 locations in the
UK, including over 400 staff in healthcare.
Links: Tribal Group plc website: www.tribalgroup.co.uk
Health Inventures, LLC (US trading name for Ascent Health) website:
www.healthinventures.com/
DoH Treatment Centre website:
www.diagnosticandtreatmentcentres.com/home.asp
End
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