The largest twenty provider organisations studied in this project have income of £1.54 billion, an increasing proportion of the spending by local authorities on fostering, children’s homes, and other social care services including residential school places and leaving care.
Aggregate profits measured using the popular EBITDA method (Earnings before Interest, Depreciation and Amortisation) amount to £265 million at an EBITDA margin of 17.2%.
On a like-for-like basis compared to the first study, there is evidence of continued growth of income, profits and EBITDA margin amongst the largest of provider organisations.
The increased clarity of insight gained into performance from the new information shows that, after the largest acquisitions the sector has ever experienced, the consolidation and integration of the largest groups is a strong factor in this growth. Acquisition activity is continuing despite the impact and concerns related to Covid-19.
Private Equity ownership and funding models stand out amongst the providers studied. Although the impact is to introduce additional risk into the sector, we are not to date experiencing corporate failures as a result of the funding models used. The report investigates this further and illustrates how, despite record high debt levels in the sector, there is also growth and a continued appetite for investment.
The smaller organisations in both this study and those that disclose their performance via the Independent Children’s Homes Association State of the Sector survey report results that are more mixed with lower growth and lower profitability.
Across the sector there is recognition amongst providers of the fragility of the income from local authorities that report severe budget deficits in children’s services and the substantial impact of Covid-19 on council income.
The challenges arising from this study are therefore how policy makers and commissioners, armed with an improved understanding of provider financial dynamics, can work more strategically together in stewarding the sector in a more harmonious and effective manner for the benefit of children and young people who rely on the services provided.
Representativeness of the sample
This study is particularly concerned with the services that local authorities purchase from social care budgets. The fostering and children’s homes sectors are therefore the primary target areas, areas where children’s social care budgets have reported the highest levels of overspending in the last 2-3 years.
Reported spending by local authorities on children’s services for 2019-20 has been delayed until February 2021 from the Department for Education. In the first report of this series, we indicated that spending on independent sector fostering and children’s homes services by councils in England was £778 million and £1,021 million respectively in 2018-19. In addition, councils spent £881 million on placements in SEN/Special schools in the non-maintained and independent sectors in 2018-19 from social care budgets.
The total annual fee income for children’s services of all types of the twenty groups included in this update study is £1,537 million (£1,373 million for the smaller sample in the first report). This aggregate income includes income for special schools’ services that may be funded from non-social care budgets, leaving care services and services provided to local authorities outside of England. Hence the aggregate income of the sampled providers is not directly comparable to England-only spending reported by councils but provides an indicator of relative scale.
Since the first report Ofsted have also published data on the makeup of the provider sector using data in relation to registered children’s homes’ and independent fostering agencies’ capacity and ownership: