Care home insolvency fears will spook suppliers

Plenty of UK kitchen houses rely on care homes for work, but a new report has put question marks over just how safe a customer they may be.

One in four care homes are currently at risk of going bust, according to marketing research analyst Company Watch, which claims the sector is in a “serious state of crisis”.

After examining the financial figures of of 5,037 UK care home companies, it concluded that almost 25% were in a “worrying financial situation”.

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Although the number of care home companies at risk has actually fallen 6% since August last year, the firm said that alarm bells were still ringing in the sector, which may make suppliers nervous.

The average borrowing level of care home companies is 75% of their assets, which is known as gearing. According to Company Watch, gearing of this level is unusually high and means that care homes are financially vulnerable to unbudgeted interest rate rises.

Nick Hood, business disk Analyst at Company Watch, said: “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.

“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.”

There are an estimated 20,000 care homes operating in the UK.

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