Low care advantage is diminishing

The latest Stewart Brown survey shows that the results for low care facilities are trending towards their poorer performing high care counterparts.

The latest aged care financial performance survey from Stewart Brown Business Solutions (SBBS) shows ongoing losses for residential facilities.

Only 40 per cent of the 266 participating homes managed to make a net operating profit in the nine months to March 2009.

In a worrying trend the results in low care have declined again.

Eighty of the 182 low care facilities achieved an operating profit, with a net operating result of -$3.75 per bed per day.

“Low care used to perform so much better than high care but now the results are getting closer to high care,” said the manager of SBBS’s aged care surveys, David Sinclair.

“That’s partly because high care results have been maintained over the past 12 months and also because low care results are continuing to decline.”

The average net operating results for high care facilities was -$7.28 per bed per day and only 27 of the 84 high care homes involved in the survey achieved an operating profit.

This result is an improvement on the previous survey for December 2008 but it is lower than the same period last year.

Although high care facilities have experienced an increase in operating income, costs have risen at an even faster rate.

The main reason for the dramatic rise in costs is non-operating areas such as catering, administration and utilities.

The rise in electricity prices is of particular concern, according to Mr Sinclair.

“It is certainly worrying,” he said. “This last 6-12 months is probably the first time in a number of years that we have seen an increase in those costs and I think it’s a preview of things to come.”

A quarter of the high care facilities and a fifth of the low care facilities had a negative EBITDA [earnings before interest, taxes, depreciation and amortisation] and they are likely to struggle as interest rates continue to fall, Mr Sinclair said.

“EBITDA is not an absolute forecaster of cashflow but it is an indication of what an organisation’s cashflow might be,” he said.

“Those homes [with a negative EBITDA] are likely to have falling deposit levels and on top of that they have falling interest rates so any chance of recovering that is lost to them.

“Falling interest rates will affect everyone in the industry significantly because they rely on that interest income to a large degree.”

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