Financial Overview 2010/11 Despite significant challenges, underlying surplus generated of £0.2m, excluding restructuring costs (2009/10 £2.9m); deficit of £1.5m including restructuring costs Operating income £184.6m v plan £190.0m: –£5.9m (3.3%) increase on 2009/10 –But £5.4m (2.8%) below plan –Year on year income growth down from recent years ~8% levels Operating expenditure £183.3m; £181.6m excl. restructuring costs v plan £180.9m: –£8.9m (5.1%) increase on 2009/10 (excluding £1.7m restructuring costs) –£0.7m (0.4%) above plan Non-operating costs (financing costs) £0.4m lower than 2009/10 and £0.3m lower than plan (reduced public dividend capital payment)

Financial Overview 2010/11 Of total operating income: –£167.4m from directly patient related activities; of which over 80% from Rotherham PCT –£17.2m from non-patient activities; education, training and R&D, charges to other NHS providers, estates recharges, car parking and staff recharges Of total operating expenditure: –£123.3m (68%) employee costs –£26.1m (14%) drug and clinical supply costs –£8.5m (5%) other supplies, services, transport and establishment costs –£6.4m (4%) premises costs –£5.7m (3%) services from other NHS bodies –£6.5m (4%) depreciation and amortisation –£3.3m (2%) clinical negligence claims premium (insurance)

Financial Overview 2010/11 Cash and cash equivalent investments at year end of £14.4m (2009/10 £27.1m, including £13.0m of loan receipts) Circa £8.0m of cash generated from operating activities Continued capital investment in the hospital estate, equipment and technology of £15.4m (2009/10 £16.4m) £5.3m of public dividend capital and loan repayments Borrowings outstanding £22.9m, against a year-end Prudential Borrowing Limit of £32.6m, at year-end Monitor Financial Risk Rating of 2 at year-end

Context: 2010/11 Challenges After 8 consecutive years of real terms funding increases, health service went into recession Despite political reassurances that “front line services” would not be affected: –PCTs challenged with making significant cuts – our main “customer” –Cuts implicit in flat or reducing tariffs and marginal rates for excess non- elective activity –Set against continued increase in demand for emergency / non-elective services –Mechanisms to reduce and cap elective activity levels –Tariff payments did not keep place with inflation, i.e. real terms cuts –Health Service target to take £20bn out over 4 years Wholesale ‘tightening’ of the finances within the system

2010/11 Issues – Income Elective (planned) Growth in activity & income v 09/10 but income 7% below plan Ambitious growth targets in Orthopaedics, ENT and OMFS Flattening / reducing referrals; system pressure; competition; caps (e.g. Sheffield Orthopaedics, Rotherham Urology) – less opportunity to grow Theatre throughput issues – modernisation of booking and pre-op processes (with patient / safety benefits) led to delays during June to September period Non-Elective (non-planned / emergency) Activity 9% above prior year and plan but income 1.5% below Impact of marginal tariff – full impact of ‘health community’ not achieving demand reduction, impact £1m greater than planned Impact of short stay tariff – step change reduction in tariff, additional costs incurred, for same activity income would have been c.£1m higher Under-utilised Special Care Baby Unit, income £0.6m less than plan

2010/11 Issues – Cost 9% increase in NEL activity with no overall additional income Generally increased use of diagnostics, drugs and consumables – acute demand increase (no corresponding income increase) Additional drug, consumable and diagnostic costs associated with reducing LOS in General Medicine (patient benefit, income reduced – Short Stay Tariff) Bed pressures in geriatric medicine, demand not offset by reduced LOS 7-month gap between opening Alternative Level of Care Ward and closing a standard ward Shortage of middle grade doctors in many areas (A&E, Orthopaedics) resulting in inefficient rotas and use of expensive locums Structural issues in certain departments –Child Health: fixed costs of SCBU, utilisation significantly reduced –Healthcare for Older People: demand increases / LOS In-year actions: 15% reduction in ‘back office’ headcount cost, closure of one elderly ward, reorganisation of medical staff ‘job plans’, reduced bank and agency spend, recruitment and overtime controls, cutting non-essential, discretionary spend, improved theatre throughput; offset worst of cost pressure

2010/11 Summary Economic / tariff pressure –Elective activity caps / referral reductions –Non-elective activity and cost increasing significantly, marginal tariff and short stay tariff impact worse than expected = no additional income Previous financial success built on low waiting times, increased productivity, increased tariff and increasing income – not possible in 2010/11 and beyond Plan overly ambitious given current economic environment – previously successful activity growth strategy no longer financially feasible Income growth affected, departments not quickly ‘right-sized’, semi-fixed capacity Costs continuing to increase, substantially outweighed declining income growth – change in focus during 10/11 Snow, swine flu and noro virus outbreaks in addition Switch to cost/efficiency focus during 2010/11 – takes time – 2011/12 plan

2011/12 so far Annual plan with substantial cost reduction plans in place – target to deliver £226m income (including Community Health), £2.1m surplus (£0.1m including restructuring costs) and Monitor FRR3 Monitor reassured by detailed, credible plan and face-to-face discussions ~£9.0m cost pressures forecast in 2011/12: inflation, A4C, NI, VAT, replacement kit, insurance premiums Current position: ~£0.1m below plan for 4 months to July; equates to 0.1% of £76m of income and expenditure; income +0.3%; expenditure +0.4% Good progress with cost reduction plans: 90%+ of acute and corporate plans (£9m+) delivered, Community plans coming to fruition (further £2m+) 60% delivered; elective income slightly below plan but expenditure also Trust is just about on plan… Current issues / emerging risks: –Non-elective admissions > plan; winter; cost impact > marginal income –Cost reduction plans get tougher as we go through the year (FRR3) Further mitigating initiatives under development Cash balance £15.1m; £6.0m ahead of plan; prudent plan assumptions