Warning of lower profits hits TC shares

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The Independent Online
Shares in TC Group, Britain's largest nursing home operator, sank to their lowest level for eight years yesterday after the company warned that continuing difficulties in filling new homes would hit profits.

The 25p slide in the shares to 114.5p comes just four months after TC was created from the merger of Takare with Court Cavendish to combat increased competition in the market.

Analysts were dismayed by the latest news, particularly as TC issued a statement in November claiming that trading and occupancy for the enlarged group had been maintained at levels set out at the time of the merger announcement in September.

The new chief executive, Dr Chai Patel, who moved over from Court Cavendish, said: "The underlying business, the established homes, are continuing to do well and at the time we made that statement, that was what we were indicating."

He denied there were difficulties with the merger and blamed the problem on acquired homes, particularly Greenacre, acquired by Court Cavendish last April, along with 13 newer Takare homes built in the past two years.

All had been filling more slowly than budgeted for in the last three months of the year, but the main impact would be in the current year, he said. "We are starting 1997 with less beds filled than would have liked."

Although no new homes will come on stream after May, following a change of strategy last year, there are still 400 new beds in the pipeline.

Massey Lopes of Kleinwort Benson said the profits warning was very disappointing. "The problems don't stem from the merger. They stem from the company's position in the market and its weighting towards newer homes." Every 1 per cent fall in occupancy hit the bottom line by about pounds 2m, he said. He has nudged down his forecast for the year just ended from pounds 19.7m to pounds 18.5m and from pounds 27.9m to pounds 23m for 1997.

The whole nursing home sector has been hit by the continuing squeeze on the budgets of local authorities, the principal source of financing for nursing home residents since the 1993 Community Care Act.

Dr Patel said the continued crisis in local authority funding was at the heart of the issue, with a number of councils warning they were about to run out of money, notably Sefton in Lancashire. But analysts said Takare, whose shares have slid from a high of 289p three years ago, has suffered from its own problems. Forecasts were cut last June after the company warned of problems in filling newer homes.

Paul Saper of independent nursing home analysts Laing & Buisson said TC was suffering from two years of very tight central government budget settlements, but part of its difficulties lay with the Takare product which was "not good". He said the group had been operating 150-bed units when the rest of the sector had 50-bed homes, while they also tended to lack the sort of luxuries such as en suite bathrooms and carpets now demanded by the market.

Mr Patel said occupancy in its established homes remained at the 90 per cent for the old Court Cavendish business and 92 per cent for Takare outlined in September. He refused to specify levels for the problem units.