Four Seasons closes homes as losses widen

Company is calling for boost to social care budgets – but says it can survive with Autumn Statement support

Elderly woman
(Image credit: Matt Cardy/Getty Images)

Four Seasons has once again been forced to deny it is on the brink of collapse, after its latest results revealed widening losses and it was forced to close seven lossmaking homes.

The UK's largest care homes operator has been in the spotlight for some time, after ratings agencies downgraded its £500m debt pile to 'junk' status. It is backed by private equity group Terra Firma and operates 470 care homes, with 20,000 beds across the country.

Yesterday it reported a pre-tax loss of £25.4m for the third quarter, which the Financial Times says is 53 per cent more than its loss in the same period a year ago. Revenues were down by 4 per cent year on year to £172.5m.The company has to make annual interest payments on its debt of £50m in two instalments in December and June. It says it has the funds to meet a payment of £26m due next month and that it has "medium-term finances for our needs".

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Ian Smith, the chief executive, yesterday reiterated his call for the government to provide more funding for councils to help care operators meet the costs of an increasing minimum wage. But he stressed the company's funding position "is not contingent on there being an uplift in social care spending announced in the Autumn statement".

It is thought that a £2bn shortfall in the care sector could be met by the government giving local authorities the right to increase their own council tax rates by up to an additional two per cent.

S&P previously said Four Seasons would have as little as £20m left by the end of the year and that it faces debt and rental costs of £110m early next year.

The company has indicated that it will seek to close or sell underperforming homes to cut costs and raise funds. Today it confirmed that it was closing seven homes in Northern Ireland that are no longer economically viable, the BBC reports.

The care home closures will affect 254 patients and 393 staff. A 12-week consultation means no home will close before the end of February 2016 and Four Seasons will still operate 62 homes in the country.

Four Seasons cash crunch threatens 470 care homes

3 November

Four Seasons, the UK's largest care home provider, could run out of cash in a matter of weeks unless a substantial injection of funding is found, according to a report from the ratings agency Standard & Poor's (S&P).

Elli Investments, which owns Four Seasons and is itself owned by the private equity firm Terra Firma, will have as little as £20m left at the end of the year, S&P estimates. It will then be faced with bills for debt interest payments and rent on property totalling £110m, plus other ongoing overheads and capital expenditure related to its current refurbishment programme, The Guardian says.

Four Seasons has hit back at the claims. It insists it will be able to pay the £26m interest bill that's due in December and has appointed advisers to review its finances before a potential restructuring. In a statement the company added that it has "financial flexibility well beyond S&P's projections" and for the "medium-term" future.

Elaborating on the issue of 'financial flexibility', Four Seasons says it can adjust the speed of its capital expenditure in order to renovate homes, adding that S&P has not factored in "the ongoing programme of disposals of selected homes that are no longer core to the business". The care home operator says it "cannot envisage any scenario that would have any effect on the quality of care for residents".

S&P has admitted it did not consider the sale of care homes as a way of raising money but points out that "disposing of underperforming sites to stabilise profitability over the medium term" will mean "short-term profitability will likely be impacted by a temporary loss of occupancy".

Four Seasons is currently struggling under the weight of a £500m debt pile that generates an annual interest bill of £50m with the added problem of high rental costs. It operates 470 care homes with 20,000 beds across the country and the Financial Times notes it reported a pre-tax loss of £25m for the second quarter. This was up from a £17m loss at the same time last year.

The collapse of Britain's largest care home operator would be the worst in the sector since the failure of the 750-home strong Southern Cross in 2011, which was also in part due to rental expenses as a result of a controversial 'sale and leaseback' strategy deployed to fund expansion.

Care homes are generally under intense financial pressure as a result of the difficulties councils face in funding patients who aren't in a position to pay for their own care, as well as a wage bill that is set to spiral upwards as a result of the new national living wage. Experts have said the government needs to provide additional funding to plug a £2.9bn annual shortfall by 2020.

To continue reading this article...
Continue reading this article and get limited website access each month.
Get unlimited website access, exclusive newsletters plus much more.
Cancel or pause at any time.
Already a subscriber to The Week?
Not sure which email you used for your subscription? Contact us