With Britain’s ageing population on the top of many people’s minds the social care industry is set to be a source of fruitful pickings in the future. But it’s not without its problems. Austerity-driven cuts, skills shortages and rising costs mean that making a profit from care homes is not easy.
So perhaps it’s no wonder that Guy Hands’s private equity outfit Terra Firma has felt the need to turn to business royalty in the form of former Sainsbury’s boss Justin King, Britain’s Most Admired Leader 2013, in a bid to get its care home chain Four Seasons back on track.
In an interview with the Observer published this weekend, King (who is Terra Firma’s vice chairman and head of portfolio businesses) admitted the sector is under serious pressure but insisted Four Seasons was in sound financial health and that Terra Firma was investing in future growth.
The company had faced criticism for its debt structure. In typical private equity style it owes £500m and pays £50m in interest each year, but King shrugged this off, insisting ‘the narrative about Four Seasons and Terra Firma’s ownership is deeply inaccurate...we have invested a lot of capital and halved the debt,’ since buying the business.
‘The business is perfectly equipped to pay debt and the rent bill,’ he added. 'I think we can now point to a long list of things moving in the right direction.’
But King admitted there were big challenges ahead that would prevent Terra Firma from making a profit on its investment for some time. Although fees for staying in a care home can be upwards of £800 per week, running costs are high and a squeeze in local authority funding doesn’t help.
Councils take a long time approve social pare patients and some provide as little as £330 a week, says King. ‘At that level you cannot stay in a Premier Inn for a week. Nothing below £400 is viable any more.’ Four Seasons is towards the top end of the market, drawing much of its cash from privately funded residents. But perhaps King is planning to use his mass market experience to net a bigger share of cash from local authorities.
The government has just announced plans to allow councils to increase council tax to pay for social care, but a funding gap is still looming. Without extra support from the state even one of Britain’s most celebrated leaders will struggle to find a solution to the care crisis.