FINANCE: North East London Foundation Trust predicts its Financial Risk Rating score with Monitor will fall from four to three this year.
The annual plan review submitted to the regulator said: “The plan for 2012-13 gives an FRR of three down from four in 2011-12. Although the uncapped FRR would be a four (3.6 rounded up), with Monitor’s test, if an individual component of the FRR is a two then an FT cannot achieve an overall rating above three and is therefore capped.
“Due to the Earnings Before Interest, Tax, Depreciation and Amortisation falling below 5 per cent to 3.7 per cent in 12-13, NELFT are in this position.
“There are two issues with this: The trust pays rent to PCTs on community health services assets rather than pay capital charges. Although this has no effect on surplus, it does deflate EBITDA as operating leases are above the line in calculating EBITDA when capital charges are not.”
It added: “The acquisition of North East London Community Services and South West Essex Community Services during 2011-12 has led to lower overall surplus margins, mostly because NELCS‟ plan for 12-13 only reflects a 1 per cent surplus target due to the financial risks from that transaction.
“In order to achieve a sufficient EBITDA to keep an FRR of four, an extra £2m of Cost improvement programmes would be required above the plan, and, given the strong liquidity position of the trust such additional CIP is not considered appropriate.
“The planned surplus in 2012-13 is forecast at £5.5m, equivalent to the plan for 2011-12, albeit on a higher turnover (£309m compared to £235m pre-ONELCS). “The surplus assumes utilization of recurrent reserves of £5.9m.”
Annual plan review (attached, right)