New research into the UK care home sector has found that almost one in four care home companies are financially “vulnerable”.
A survey conducted by business intelligence provider Company Watch of 5,037 companies, responsible cumulatively for the operation of approximately 20,000 UK care homes, found 1,185 (23.5%) were in danger of needing a financial rescue of some type.
The level of financially vulnerable care homes has improved 18% over the last six months, up from 1,449 (29.7%) in August 2013.
Nick Hood, business risk analyst at Company Watch, said: “The slight improvement in the financial health of the sector since last year is encouraging, but a business model which dictates 75% gearing and delivers a profit margin of less than 1% is simply not sustainable.
“We all know that local authorities cannot afford to pay higher fees and that the minimum wage is expected to rise by 3% in the autumn. When you add in rising energy costs and the strong likelihood of interest rate hikes in 2015, the first since 2008, this creates even more pressure on poorly performing homes.
“On this basis, it’s unclear how the sector can be expected to invest in sufficient extra capacity to meet the predicted major rise in demand to the 600,000 beds needed to cope with the ageing Baby Boomer generation.”
The research also found 682 care home ‘zombie’ companies, with a total negative net worth of £199m.
Company Watch found that the average UK care home company has total assets of £2.4m, net worth of just over £1m and borrows £784k.
According to figures from accountancy firm Wilkins Kennedy, the number of care homes becoming insolvent in the UK rose 12% between 2011 and 2012 – despite overall corporate insolvencies levels falling by 5%.
67 care homes entered administration during 2012, with 60 the year before going the same way. In 2008 that figure stood at just 28.