Over a year since Company Watch first investigated the financial health of UK care home companies, its latest research shows that there has been no improvement in the sector’s parlous overall financial health.
Company Watch, specialist assessors of corporate financial health, looked at the finances of 5,547 care home companies, which are responsible for most of the estimated 20,000 care homes operating in the UK.
Companies with an H-Score® of 25 or less are particularly vulnerable, approximately 50 times more likely to suffer financial distress than a typical company outside the Warning Area.
The main findings were:
• About 30 per cent of care home operators are in the Company Watch ‘Warning Area’ (the average for the whole economy is 25 per cent).
• 14.9 per cent of care home companies are Zombies (companies with the commercial equivalent of ‘negative equity’). These companies are particularly vulnerable to the rise in interest rates widely expected next year.
• The combined net liabilities of Zombie care home companies rose to £277 million, an increase of 27.6 per cent since August 2013.
• The average amount of negative equity per Zombie care home company is £335,000 – up seven per cent from August 2013.
• One piece of good news – the average debt per care home company has fallen by 12 per cent from £812,000 to £714,000, but this means that the care home sector still has almost 70 per cent gearing, an uncomfortably high level.
• For the sector as a whole, the average Health Score hasn’t changed (still 52 out of 100) which is above average for the economy as a whole. This is a deeply polarised sector, with more strong companies than others, as well as the abnormally high number of vulnerable ones.
Nick Hood, business risk analyst at Company Watch, said: “It’s well over a year since we first raised concerns about the financial health of one of the UK’s most important sectors. Sadly, there has been no overall improvement in the financial strength of care home companies. Almost one in three remain in our ‘Warning Area’, indicating their heightened vulnerability.
“But what worries us most is the large number with negative balance sheets, where liabilities exceed assets. This has shot up by nearly a fifth to 828 companies with combined net liabilities of £277 million. What this means is that almost one in seven care home companies is a Zombie, only able to continue with the support of its creditors. With the care home sector carrying almost £4 billion of borrowings, even a small increase in interest costs could be a hammer blow.”