Nestor nurses loss after NHS setback

Nestor healthcare, a supplier of nursing and medical staff for the health sector, warned yesterday that it would miss profit forecasts for next year as it expected fewer government contracts.

The company blamed the expected profit shortfall on "a significant change" in the NHS market in recent weeks. Shares in the company plunged nearly 28 per cent, or 87.25p, to close at 225.25p.

"Difficulties experienced by the group in accessing a major contract secured in September are of such a nature as to reduce its expectations of securing other similar contracts and renewing existing high volume contracts with the NHS," it said.

The major contract is said to have been with Leeds NHS Teaching Hospitals Trust and worth between £7m and £8m a year. Nestor had won the deal in September - away from NHS Professionals, an organisation set up by the Department of Health.

Justin Jewitt, Nestor's chief executive, said: "We'd been looking to implement the contract, ie to have NHS Professionals hand it over to us but they have been less than happy to hand across the staff and organisation to run that contract."

Analysts at Investec said: "The Trust has been put under a lot of pressure to give NHSP another chance and it now looks like the contract may never be implemented. As a result, we don't think that Nestor will win any similar contracts in the short to medium term."

Nestor Healthcare also said that pricing structures implemented under NHS agreements had, as expected, hurt margins but had also, unexpectedly, reduced volumes in recent weeks.

Mr Jewitt said yesterday: "What has surprised us is the lower volumes, and that's what we've seen in the last three to four weeks, which means we're taking a cautious view." He said that some trusts had stopped all external purchases. "That's the case in the South-west, in the Bristol area," he said, adding: "Secondly, some trusts have actually raised their own internal pay rates beyond where the agency rates are."

As a result, the company said it now expected profits in 2004 to show a "modest" increase over the profit that is forecast for the current year of about £26m "but not to the level of the market's current expectations".

The Investec analysts slashed their profit forecasts for the company yesterday and are now looking for a pre-tax profit of £27m next year - some £6m less than previous forecasts.

Mr Jewitt said the company had "obviously taken a cautious view" of recent events but was hopeful that the situation would improve further out.

"More than 60 per cent of our business is outside the NHS but it is still a very important customer to us. We take the view that for the short term - the next 12 months - the NHS will focus on trying to handle their own flexible staffing and we want to be partnering them in the future," he said. "I think everything is cyclical, and flexible staffing is on the increase." Nestor Healthcare also said that it expected to maintain the current level of dividends.