New research from Company Watch, the corporate financial health monitoring specialists, into the financial health of UK care home companies, has found almost a third are in its ‘Warning Area’. This indicates an above average risk of financial failure.
Company Watch looked at the finances of 4,872 care home companies, which are responsible for the estimated 20,000 care homes operating in England, Wales, Scotland and Northern Ireland.
Out of this sample, 1,449 care home companies had a financial health rating (H-Score®) of 25 or less out of a maximum of 100. Over the past 15 years, companies in this Warning Area have had a 1 in 4 chance of needing a financial rescue of some type.
Company Watch also reported there were 693 ‘zombies’, which are companies with negative net worth. Collectively, these zombies had a total negative net worth of £217 million.
Most care home operators are smaller businesses. Company Watch found that the average UK care home company has total assets of £2.4 million, net worth of just under £1 million and borrows £812.000.
The average gearing of care home companies was 82 per cent. Gearing of this level is unusually high, reflecting the fact that the principal asset for most care home businesses is likely to be property. High levels of gearing make companies financially vulnerable to unbudgeted interest rate rises.
In May, the Care Quality Commission announced that it was implementing a series of financial checks on up to 60 of the largest care home operators, in order to avoid a repeat of Southern Cross care home crisis, which collapsed in 2011 and affected around 30,000 elderly residents.
On the brighter side, Company Watch noted that the average H-Score® for the sector of 52 is significantly above that for the economy as a whole (between 43 and 44). This indicates a higher than average concentration of financially healthy care home operators.
Nick Hood, Business Risk Analyst at Company Watch, said: “With the demand for care home beds rising to around 600,000 as people live longer, and with demand from Baby Boomers for better quality care homes when they need them, the pressure is on the government to ensure the sector meets people’s needs. With almost a third of care home companies currently in our Warning Area, it is clear the sector has some financial issues that need attention.”