Profit margins and investment returns in Australia’s aged care sector have shrunk so far that an industry expert has believes the entire sector’s viability is in doubt.
Heath Shonhan, director of leading national accounting association Bentleys, says his firm’s 15th annual study of the aged care sector shows profit margins have shrunk to just 4.46%, below the crucial 5% benchmark that the industry has used for many years.
“In reality this means those organisations that look after our seniors are now far less viable than others within health-related industries.”
“For example, vets achieve much better margins, so those who look after our pets are more financially viable than those who care for our elderly.”
Shonhan is also concerned with the industry benchmark for return on assets, which has fallen to just 1.99%.
Low returns mean that aged care operators will continue to be squeezed by growing demand and an inability to invest in new infrastructure and services.
“It seems the ability of this capital-intensive sector to provide sufficient returns for investors is questionable. Lack of investment will mean the sector will struggle to encourage capital injection and meet growing demand for services.”
The last year has seen a number of aged care providers placed in administration as operators teetered under the weight of large debts.
However, that experience appears to have led to something of a change in the sector, with Bentley’s survey showing gearing levels has fallen and financing provided by accommodation bonds (a refundable amount that residents pay upfront when they enter a home, to help finance the development of facilities) now stands at 27.12%.
Shonhan says the sector’s great hope could be further development in the area of emerging health technologies, which could help providers get more a better return on their capital.
“Increased research and capital investment in initiatives like electronic health records and self-diagnosis technology could help aged care providers to better leverage their capital and workforce.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
