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A third of UK care homes facing threat of insolvency

Written by: James Liddiment on Sunday 01/11/2015

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According to recently released research from Company Watch, almost one third of care home operators in the UK are struggling financially.

In fact, over 400 care homes are in danger of declaring insolvency altogether, the report reveals. The risk management group looked at the financial reports of the UK’s 5,500 care home operators, and based on the findings estimate that as many as 1,650 companies are struggling money-wise. Of those, it projects that a quarter – accounting for 1,500 sites in total – will fall into insolvency.

Nick Hood, business risk advisor at insolvency group Opus Restructuring, says that blame lies with the current business model of many care homes, as it is both unprofitable and unsustainable. “The slight improvement in the financial health of the sector since last year is encouraging, but a business model that dictates 75% gearing, and delivers a profit margin of less than 1%, is simply not sustainable,” he said. “We all know that local authorities cannot afford to pay higher fees and that the minimum wage is expected to rise by 3% in autumn. When you add in rising energy costs and the strong likelihood of interest rate rises in 2015, the first since 2008, this creates even more pressure on poorly performing homes.”

Financial trouble beleaguers Britain’s largest operator

Rising interest rates, increasing costs associated with staff, and cuts made by local authorities are all factors that have attributed to the financial difficulties that many care homes are experiencing.

Four Seasons Health Care is the UK’s largest care home operator with 470 homes, but according to credit rating agency Standard & Poor, they could default on loans and run out of funds by as early as the first half of 2016. “The negative outlook reflects our view that FSHC will face a liquidity shortfall in the next six months absent any restructuring of its capital structure, which we consider will become unsustainable over the short term,” they said of the findings. As a result, Four Seasons is reportedly aiming raise £60 million in a fire sale, and is though to have appointed specialist bankers to restructure its financing. However, a great deal of restructuring would indeed need to take place as the company faces a mountain of £500 million in debt, incurred when the firm was acquired in a buyout in 2012. With annual interest payments along totalling £50 million, Four Seasons faces an enormous struggle to rectify the situation.

Four Seasons, alongside other care home operators, wrote to Chancellor George Osborne to warn him of the repercussions that closure would have, along with the difficulty other homes will face if fees remain the same and the minimum wage increases. Nick Hood affirms that the issue of Britain’s financially-failing care homes is not something that can continue to be ignored. “Government austerity measures have slashed top line income, while labour and other essential costs are rising all the time through factors that are mostly outside the control of care home operators,” he said. “Something has to give if major problems are to be avoided and if capacity is to be increased to house the escalating number of the elderly and the vulnerable in society.”

Written by: James Liddiment on Sunday 01/11/2015

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