Britain’s biggest care home operator has paid out more than £48.5m in dividends in the past two years despite warning that local authority funding cuts have brought the sector to the brink of a financial crisis.
The payout by HC-One will add to concerns over the role of private equity in delivering care for the elderly, which have resurfaced in recent weeks after Four Seasons, the second-largest UK care home chain, was taken over by creditors and put up for sale.
HC-One, which has about 22,000 beds and 340 care homes, was founded in 2011 from the collapse of Southern Cross — then Britain’s biggest care home operator. The company was formed by Dr Chai Patel, a former owner of the Priory hospitals chain and Labour donor who was dragged into the cash-for-peerages scandal. It is owned by a consortium of investors including Formation Capital, Safanad, and Court Cavendish, a management company run by Mr Patel.
Although care home owners complain that the industry has been hit by the rise in the minimum wage, higher costs for nurses and real term cuts in residents’ fees by local authorities, the dividends show this is far from the full picture.
“This shows that the issue is not just how much public and private funding goes into adult care, but where the money ends up,” said Nick Hood, analyst of advisory firm Opus Restructuring.
“Like some other major care home operators, this company is ramping up its debt and paying high interest rates and huge management charges to facilitate financial gains for its owners, while leaving the risk with residents, employees and the state.”
An analysis of the accounts filed at Companies House shows that HC-One paid its investors two cash dividends of £42.3m in 2017 and £6.2m in 2018.
HC-One appears to have declared a loss every year except one since its creation in 2011. It has paid no UK corporation tax in that time, and instead received net tax credits of £6.5m since a reorganisation in 2014.
The highest paid senior director of HC-One received £2.5m since 2011. Dr Patel, along with his management team, received £30m for a stake sale in 2014. Court Cavendish, which is 90 per cent owned by Dr Patel, with the remaining 10 per cent owned by his family trust, has also received £25m of management fees.
Tracing the flow of money is difficult as HC-One has a complex corporate structure, with 50 companies, six of which are registered offshore either in the Cayman Islands or Jersey and a further five in the UK as foreign entities. This means investors and executives are likely to have received much greater sums as only one of its subsidiaries files consolidated accounts — the top UK company, FC Skyfall Upper Midco Limited.
Mr Hood said the dividend payouts were “completely inappropriate for a business dependent on taxpayers through its many local authority funded residents”.
HC-One said: “We are proud to have a financially strong future ahead of us — despite the very challenging public funding climate we operate within — and we are currently finalising exciting plans with our owners to further invest in upskilling and professionalising our colleagues, as well as introducing new technologies to our homes.”
The company was put up for sale with a £1bn price tag last year, though Dr Patel was understood to be keen to retain a stake in the company.
Three of Britain’s other biggest care home chains have been up for sale in the past year, including Barchester, Care UK and Four Seasons. All have struggled to find buyers amid a Brexit-induced slowdown in the investment market, caused by concern over currency exchange rates.
Until its demise, Southern Cross looked after 31,000 residents in 750 homes. The company, which had undergone rapid expansion funded by selling its leases before the credit crunch of 2008, collapsed in 2011 when it faced an increase to its annual rent bill and a cut in fees paid by local authorities. The business was broken up and sold to other buyers including HC-One.