EY Care Homes Sector Forum 2016

The UK care homes industry has undergone a period of constant change from the turbulence surrounding the unwinding of the pre-financial crisis structures, the change in the regulatory environment, nurse staffing shortages, and more recently the announcement of the ational Living Wage. Owners and investors have been kept constantly on th eir toes as th ey understand and adap t to ch ang es in th e industry.

EY recently hosted the Care Home Forum 2016, which featured a discussion of the key changes currently impacting th e sector, and h ow th ose in th e industry are navig ating today s uncertain environment. We are pleased to summarise the key messages here, and invite you to contact us should you wish to discuss any of the issues raised.

Is there light at the end of the tunnel?

Government spending cuts are of h istoric p rop ortions b ut l ocal l y th e largest cuts have already been made

UK economic outlook over the worst? Two key issues: NLW and nursing supply Transaction environment uncertainty, but appetite remains

There are better prospects for h ouseh ol ds ab il ity to p ay p rivatel y as h ouseh ol d w eal th increases

Residential care will be the most affected sector in the UK by NLW with 51% of employees impacted resulting in a 2.8% wage bill increase by 2020

Estimated 24,000 nursing vacancies in the UK today

Short term trading outlook and N L W introduced uncertainty in th e transactions market

However, lending banks, op p ortunistic and w el l cap ital

buyers remain engaged, w ith strateg ic international interest

stimulating demand

156bn175bn 150bn

2014/152009/102014/15

2020/212020/21

27.8bn* 27.7bn* ?

*applies to GB only

Local authority spending

Social care spending Largely driven by forecasted 12%

h ouse p rice g row th

ursing supply impacted by . . .

7,000 fewer nurses coming to the UK compared to 10 years ago

However,

10,000 additional training places are to be provided through replacing grants with loans

Ageing workforce

with 37% of nurses aged over

50

9.7trn18.8trn

The Government recognises further action must be taken to help the sector, b ut it is too earl y to tel l w h eth er recent ch ang es announced w il l make a real impact at home level

Joe OConnor, E Y

L ocal auth ority b udg ets are stil l under p ressure, but the largest cuts may already have been made

Colin Edwards, E Y

Th roug h introducing payment of the real l iving w ag e w e reduced staff turnover and increased staff attendance and morale

Jane Ashcroft, CBE,Chief Executive, Anchor

Underlying demographics indicate a positive long term investment outlook

Andrew Ovey, Healthcare, AXA IM Real Assets

CQC has raised the b ar, increasing care standards

Paul Birley, Head of Healthcare, B arcl ays p l c

The key in portfolio valuation has shifted from EBITDA multiple to what sustainable EBITDA really is, post LW

Mathieu Roland-Billecart,E Y

Contacts

Joe OConnorPartner, RestructuringTel : + 4 4 0 2 0 7 9 5 1 2 2 5 2M ob : + 4 4 0 7 7 1 1 2 6 1 2 8 4E m ail : j oconnor@ uk . ey. com

Mathieu Roland-BillecartPartner, Corporate FinanceTel : + 4 4 0 2 0 7 9 5 1 5 2 0 6M ob : + 4 4 0 7 7 9 9 3 4 2 6 8 2E m ail : m rol andb il l ecart@ uk . ey. com

EY | Assurance | Tax | Transactions | Advisory

About EYE Y is a g l ob al l eader in assurance, tax, transaction and advisory services. Th e insig h ts and q ual ity services we deliver help build trust and confidence in the capital markets and in economies the world over. W e devel op outstanding l eaders w h o team to del iver on our p rom ises to al l of our stak eh ol ders. I n so doing , w e p l ay a critical rol e in b uil ding a b etter w ork ing w orl d f or our p eop l e, f or our cl ients and f or our com m unities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited b y g uarantee, does not p rovide services to cl ients. F or m ore inf orm ation ab out our org aniz ation, p l ease visit ey. com .

Ernst & Young LLPThe UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

Ernst & Young LLP, 1 More London Place, London, SE1 2AF.

2016 Ernst & Young LLP. Published in the UK. All Rights Reserved.

E D N one

1401531.indd (UK) 02/16. Artwork by Creative Services Group Design.

I n l ine w ith E Y s com m itm ent to m inim ise its im p act on th e environm ent, th is docum ent h as b een p rinted on p ap er w ith a h ig h recycl ed content.

I nf orm ation in th is p ub l ication is intended to p rovide onl y a g eneral outl ine of th e sub j ects covered. I t sh oul d neith er b e reg arded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no resp onsib il ity f or any l oss arising f rom any action tak en or not tak en b y anyone using th is m aterial .

ey.com/uk