Editorial Friday 21 October 2011: EXCLUSIVE DH writes value of its shareholding in Dr Foster Intelligence down by £3 million
The DH Annual Accounts 2010-11 is a compelling read, obviously.
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It's particularly worth reading pages 100, 102, 127 and 134, which all shed some further light on the ongoing saga of the DH's shareholding in Dr Foster Intelligence.
In August 2010, it was announced that DFI is intended to be sold. Health Investor revealed in August that a proposed sale to private equity firm Palamon Capital Partners broke down.
Longstanding Health Policy Insight readers will recall our exclusive revelation that the NHS Information Centre sold its shareholding in DFI to the Department of Health in 2010; that a 'put' option had been agreed whereby Dr Foster LLP's shareholders could compel DH to buy out their stake at market value until 31 December 2013; and that the independent arms-length body NHS Information Centre asserted that it was part of the DH.
So far, so historical.
The current situation is that DH and Dr Foster LLP each own shares worth an equal amount.
PwC valued Dr Foster Intelligence at £12 million on 31 March 2010 (page 50 of the IC Annual Report 2009-10). And as the IC’s 2009-10 Annual Report states, ”the joint venture contract includes a put option whereby, if anytime from 1 January 2009 to 31 December 2013, Dr Foster LLP shareholders wish to sell their shares in the joint venture, the IC would be obliged to buy out their share of the business, at market value, if no other buyer can be found”.
On page 100 of the DH 2010-11 accounts, under the heading 'Financial Assets – Investments', we find the DH shareholding in Dr Foster Intelligence valued at £4.9 million. The notes on page 102 add that regarding DFI, "The Department has additionally recognised an impairment of £3.1 million, further reducing the value of the investment to £4.9 million.". (Dr Foster Intelligence's own latest accounts at Companies House put their share of the impairment just under £3 million: it's close enough.)
On page 102, we find that DFI's net assets at 31 March 2010 were valued at £22,148,000. Its turnover in 2009-10 was £25,523,000. And it made a profit of £1,280,000.
We also find that DFI's net assets at 31 March 2011 were valued at £16,213,000. Its turnover in 2010-11 was £20,320,000. And it made a loss of £1,469,000.
The decline in the company's net assets between the two financial years largely reflects the return of £4 million cash to each shareholder prior to the sale of the IC shareholding to the DH.
The degree of impairment booked by the DH on the company's value is significant, even given the drop from a £1.3 million profit in 2010 to a nearly £1.5 million loss this year. The move from profit to loss may be unsurprising in an NHS of clustered PCTs and SHAs coming to terms with austerity, although in policy terms, nothing of significance has changed since the publication of 'Equity And Excellence'.
Given the policy priority on commissioning and outcomes, it is interesting that a company which has driven significant improvements in the NHS use of data (albeit at times with controversy over methodology) is perceived to be losing value to such a degree.
And it has the inevitable consequence that if the Dr Foster LLP shareholders chose or were obliged to exercise the 'put' option in the current absence of any willing purchaser, the DH financial obligation to Dr Foster LLP would be very much less.