THE future of Four Seasons Health Care, Britain’s largest care homes operator, has been cast into further doubt after it unveiled quarterly losses of more than £25m and launched a review of its finances.
According to statements sent to bondholders last week, Four Seasons made a £25.6m loss between April and June as profits were wiped out by interest payments on its £500m debt pile and mounting staff costs. That continues a turbulent run of results for the company, which made a loss of £17m in the same period last year.
The chief executive, Ian Smith, told lenders that profits had plummeted at Four Seasons, which looks after 20,000 patients, because of an unusual surge in winter deaths at care homes across the country, coupled with rising costs. Smith said the sector was “in urgent need of government attention”.
Four Seasons, which is controlled by Guy Hands’ buyout firm Terra Firma, makes interest payments of more than £50m a year on its loans. Before deductions such as interest, tax and maintenance expenses, it made just £51.5m in the past 12 months. In the three months to June it paid interest of £27.5m. Turnover fell to £172.9m over the period, as occupancy dropped to 84.9%.
An upturn in financial performance is “unlikely” in the third quarter, according to its chief financial officer Ben Taberner.
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Last year Four Seasons hired advisers at Blackstone in a bid to refinance its debt. But the company was unable to do so and parted with Blackstone. In December, it gained a small reprieve on the terms of its loans, agreeing a covenant waiver.
More pressure is set to be heaped on Four Seasons next year with the introduction of the minimum “living” wage. Smith said the pay rise would hit the operator’s profits by a further £10m next year. Along with other care home bosses, he has begged George Osborne for emergency funds for the sector.
Bondholders are increasingly concerned, with one pointing to a state of “continued deterioration” at Four Seasons. “The scary part is the living wage could have a £40m effect on profits over the next five years. It is untenable.”
City sources said hedge funds had already made tentative inquiries about buying into the company’s junior debt.
Four Seasons will shortly begin the emergency review, with Taberner telling bondholders that “all options” will be considered. It has already begun selling a portfolio of properties it lets to other care home operators, and has shut down some loss-making homes.
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Insiders said Four Seasons could have to go cap in hand to Terra Firma for more money. The firm provided an extra £50m last year, but a source described a further cash injection as “throwing good money after bad”. A sale and leaseback of some of its properties could also be considered.
Terra Firma declined to comment.