Chancellor’s sop on care costs may not be enough, says FT

Posted On 28 Nov 2015 at 5:21 pm

Concerns about the care home owner Four Seasons have emerged again in an article in the Financial Times.

The FT acknowledged the Chancellor’s announcement in the autumn statement of an extra 2 per cent on council tax bills to fund adult social care.

But the newspaper’s analysis pondered whether it would come too late for Four Seasons, which runs two care homes in Brighton and Hove – Dane House, in Dyke Road Avenue, Brighton, and Bon Accord, in New Church Road, Hove.

Dane House - Google streetview

Dane House – Google streetview

The care home company – Britain’s biggest – is ultimately owned by the private equity firm Terra Firma, which is run by Guy Hands.

The FT said: “Guy Hands may have been hoping for a lifeline for his Four Seasons care home business from Chancellor George Osborne this week.

“But despite little relief for the industry in the autumn statement, he remains confident in the future of Britain’s largest care home provider.

“Bought by Terra Firma, Mr Hands’ private equity firm, three years ago, Four Seasons’ debt has been under sharp focus in recent months.

George Osborne

George Osborne

“But Terra Firma does not consider a major restructuring necessary over the next two years and believes the company can continue to pay interest on its debt in the meantime, people familiar with the matter said on Friday. Terra Firma declined to comment.

“Industry sources were less convinced. ‘Four Seasons is fine until Christmas,’ said one. ‘But after that all bets are off. They will run out of money and Hands won’t want to bail them out. I can’t see it being around in its current form in a year’s time.’“

The FT pointed out that Four Seasons, like other care home operators, “has been hit by a combination of cuts to local authority fees, which pay for state-funded residents, and higher staff costs as a result of a nursing shortage, rising energy and food costs and the new national living wage”.

And it added that “Four Seasons’ problems are magnified by its high debts”.

Terra Firma has previously said, though, that it owns about 60 per cent of its homes. This makes it less vulnerable to rising rents, the problem that caused the collapse of Southern Cross four years ago.

Southern Cross was the biggest care home operator in the country at the time. It owned two homes locally, one of which, Bon Accord, was bought by Four Seasons.

Bon Accord - Google streetview

Bon Accord – Google streetview

Four Seasons told Brighton and Hove News recently that it had a sensible strategy to deal with the challenging financial landscape.

But this week the worries about its future were reignited when it reported further losses even before having to fund the higher costs associated with the living wage.

The third-quarter pre-tax loss of £25.4 million is up more than 50 per cent on the same quarter a year ago. And turnover fell 4 per cent in the quarter to £173 million.

The FT said: “With the Chancellor failing to deliver a substantial increase in funding in the autumn statement, the industry is claiming that as many as half of Britain’s care homes could go bust next year.”

Councillor Warren Morgan

Councillor Warren Morgan

The newspaper said that Four Seasons was selling 53 care homes. Nine properties have changed hands. Fourteen more are still for sale. And buyers will be sought for 30 homes which are run by Four Seasons in properties owned by others.

The company indicated to Brighton and Hove News that the current tranche of disposals was unlikely to include the two local homes.

Although Four Seasons told investors it meet its next half-yearly interest payment of £26 million, the credit rating agency Moody’s has downgraded its credit rating to junk status. Another big rating agency, Standard and Poor’s, has also downgraded Four Seasons’ status recently.

Social care chiefs at Brighton and Hove City Council are aware of concerns about Four Seasons. They have contingency plans in place to deal with care home closures.

Council leader Warren Morgan said that the Chancellor’s announcement that councils could add 2 per cent to council tax bills for social care would raise about £2 million locally.

It would still leave the council about £500,000 short of the cost of meeting its responsibilities, Councillor Morgan said.

As in many areas, people are living longer in Brighton and Hove. And the number of over-85s in particular are growing.

While Four Seasons and its owners continue to offer reassurance, some are keeping a watching brief on the company and others in a fragile but vital sector.

Leave a Reply


This site uses Akismet to reduce spam. Learn how your comment data is processed.