The Bon Secours chain of private hospitals needs to double its return on turnover in order to sustain its development, its chief executive has said.

The largest private health operator in the State, Bon Secours Health Systems Ltd, recorded a surplus for 2005 of €3.88 million on income of €144 million, according to accounts just filed. The surplus is down from €7.43 million in 2004.

Chief executive Pat Lyons said the group is hopeful the 2006 figure will be up on that of 2005.

He said that given the level of turnover and the fact that the group's assets have a replacement value in the region of €400-€500 million, "you would expect a level of return twice what we are making at the moment, to sustain what is being acheived".

The group operates approximately 40 per cent of the private bed capacity in the State and has been shortlisted for the construction of four new private facilities on public hospital campuses.

It has recently completed major developments at its Dublin and Galway hospitals costing €70 million and is planning for improvements at its Cork and Tralee hospitals.

The directors in their report state that the drop in the size of the surplus reflected disruption from development work in the group's Dublin and Galway hospitals.

It was also due to the fact that "the costs of providing care to patients and of running the hospitals increased at a faster rate than the level of income increases negotiated with the private healthcare insurers."

Mr Lyons said that with medical inflation running at 12 per cent, keeping up was a "constant challenge". The group was always looking at its cost base and seeking to grow in order to achieve economies of scale.

Bon Secours Health System Ltd runs hopitals in Dublin, Cork, Galway and Tralee. The company has charitable status and the majority of the board are sisters with the Bon Secours Province, which leases health facilities to the company. It does not pay dividends but rather reinvests surpluses produced. Mr Lyons said the group's strategy was to develop existing sites and look to expanding where appropriate. A declining membership in the religious order did not mean the hospitals or their mission could not go forward into the future.

"The sisters have decided the hospitals are there to stay and are setting up a governance structure for the 21st century," he said.

The group has been shortlisted by the Health Service Executive for possible new private hospitals on existing public hospital sites in Dublin, Waterford, Cork and Limerick. It is now awaiting the required specifications from the executive. "We see ourselves as well-positioned given our size," said Mr Lyons.

The group would see itself as sole operator for any such "co-located" hospital but would not exclude getting involved in a joint venture arrangement with a property developer or negotiating equity participation.

Total reserves at the end of 2005 were €57.7 million, up from €46.8 million the previous year. The increase in the reserves included a €6.99 million capital contribution from the province.

Operating expenses in 2005 were €120 million, up from €107 million the previous year. Staff costs increased to €82.7 million from €72.58 million in 2004, while staff numbers increased to 2,122 from 1,928.

There were nine members of the board during the year, the majority being members of the order. The non-religious members included Prof John Horgan and David Kennedy. Total directors emoluments were €54,000.

Land and buildings, at €49 million, included €14.69 million which were subject to a sale and lease back arrangement. Bank loans were €28 million and loans advanced by the province were €12.5 million.