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 England, Wales, Scotland and Northern Ireland.
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:
- 1,659 – around 30% of care home operators – are in the Company Watch Warning Area (the average for the whole economy is 25%)
- 14.9% of care home companies are Zombies (companies with the commercial equivalent of ‘negative equity’), up from 14.2% in August 2014. 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 £277m, an increase of 27.6% since August 2013
- The average amount of negative equity per Zombie care home company is £335k, up 7% from August 2013
- One piece of good news: the average debt per care home company has fallen by 12% from £812k to £714k, but this means that the care home sector still has almost 70% 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 a combined net liabilities of £277m. 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 £4bn of borrowings, even a small increase in interest costs could be a hammer blow.”
About Company Watch
Company Watch rates and predicts the financial health of companies worldwide. It provides in-depth analysis of companies by applying its unique H-Score® methodology to published financial data. Since its launch in 1998, the H-Score® has identified nine out of ten corporate insolvencies or restructurings in advance. The Company Watch service is used by major international blue chip corporations, banks, fund managers, insurance companies, public sector bodies, accountancy firms, restructuring practices and other professional organisations throughout the world.