Critics urge Ryman Healthcare to repay the $14.2m wage subsidy

Wednesday, 25 November 2020

Retirement villages are in growth mode

New Zealand’s largest retirement village operator Ryman Healthcare is being called on to repay the $14.2 million in wage subsidies it received after paying out $44m of dividends to its shareholders.

Auckland University professor of financial accounting Jilnaught Wong said Ryman taking the wage subsidies and paying out $44m in dividends to shareholders was “appalling”.

Ryman had tried to justify that by saying it had spent three times as much as the $14.2m wage subsidy on PPE gear and other procedures like extra cleaning and extra staff to protect residents and staff.

Wong said they should be spending that anyway. That was part of the service and what was required of Ryman to protect the health and safety of its residents.

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University of Auckland financial accounting professor Jilnaught Wong says Ryman taking a wage subsidy of $14.2m and paying dividends to its shareholders of $44m was “appalling”.

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Ryman chairman Dr David Kerr (at the podium) says Ryman spent three times as much as the wage subsidy on PPE gear for staff and on extra cleaning and more staff to protect the residents of its retirement villages.

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”But, essentially the fact that they are in a position to pay the dividends suggests to me that they do not need the wage subsidy, otherwise all that wage subsidy is tantamount to is a wealth transfer from people like you and me to the shareholders of Ryman.

Most people entering retirement villages are over 75 years old.

”I think the model is Mainfreight where Don Braid the chief executive said that integrity is everything and that morally receiving the wage subsidy did not sit well with them, even though they were legally entitled to it. I think he’s on the right path.

”It’s just unacceptable, in fact it’s disgusting that people like Ryman are now trying to justify that it’s the right thing for them not to pay it back.”

Asked if Ryman should repay the wage subsidy, Wong said “most certainly. Why shouldn’t they. They don’t need it.”

Businesses had to have at least a 30 per cent decline in revenue or have a predicted decline of at least 30 per cent over 30 days, compared with the same period a year before, and it was related to Covid-19, to be eligible for the wage subsidy.

One of the key reasons for the Government funding the wage subsides was to protect jobs at risk of being made redundant.

Ethical investing expert Rodger Spiller of Money Matters says companies like Ryman that are profitable and paying dividends should seriously consider repaying the wage subsidy.

Extra costs was not given as one of the eligibility criteria. Also, businesses had to try to lessen the Covid impact by taking such actions as using their cash reserves (as appropriate) and engaging with their bank.

“My view, as an ethical investment specialist, is that companies, such as Ryman, that are profitable and paying dividends ought to seriously consider repaying the wage subsidy,” Money Matters ethical investing specialist and managing director Rodger Spiller said.

Ryman chairman David Kerr said at its half-year result last Friday that is had “quite a lengthy discussion” over both paying dividends to shareholders and about applying for the wage subsidy. It has 6100 staff and 12,000 residents in New Zealand and Australia.

Its policy for several years has been to pay its shareholders 50 per cent of its “underlying” profit, and it stuck with that for the six months period to the end of September 2020.

“The most responsible action would probably be to repay the subsidy, as many other profitable dividend paying companies have,” Spiller said.

Bupa New Zealand’s managing director Caro Cooper says Bupa did not apply for the wage subsidy because that was the right thing to do. No staff at Bupa were at risk of losing their jobs during lockdowns.

“It is important that businesses make values and ethics an explicit part of management decisions and policies, acknowledging that ethics belong at the core, and not just the periphery,” he said.

Summerset, the second largest retirement village operator, like Ryman, applied for the wage subsidy for all its staff of 1300. It declined to be interviewed on the issue.

Summerset Management Group received $8.63m in wage subsidies and Summerset paid out $13.68m in dividends to its shareholders in September this year for its first half of the year.

New Zealand’s biggest aged care provider Bupa did not apply for the wage subsidy, deciding that was the right thing to do, after looking into it in detail.

“We didn’t feel we would be eligible, and we didn’t feel it was the right thing to do either, so we chose not to apply,” Bupa managing director Caro Cooper said.

All aged care and village operators lost revenue during the lockdowns because they could not take admissions and sell village units, Cooper said. Bupa had about 5000 residents, across 48 care homes and 32 of those had attached retirement villages, and about 4000 staff.

Avida chief executive Bill McDonald says the wage subsidy was designed to save jobs. Arvida did not apply for it for hundreds of care staff in its villages and homes.

Covid-19 cost Bupa in keeping residents and staff safe and in supporting and rewarding staff on the frontline of care, “but applying for that particular wage subsidy was not what we felt was right”, she said. Bupa employed extra staff and paid for that itself.

None of its staff were at risk of losing their jobs, she said.

All aged care providers received a portion of $26m provided by the Government to the sector. Bupa received about 10 per cent of that. Ryman and others would have also received a proportionate share.

There was also leave support for essential workers which all aged care providers could use and Bupa accessed $450,000 for its employees.

Overseas-owned large retirement village operator Metlifecare recently repaid $6.8m in wage subsidies to the Government saying it was “the right thing to do”.

That decision was taken by the Swedish investment fund with global investors which took over Metlifecare in early November. The fund argued several months ago with the previous board of Metlifecare against applying for the wage subsidy saying villages were not entitled to it.

Other large retirement village operators have applied for and received much smaller wage subsidies than Ryman and Summerset, for groups of staff considered at risk of losing their jobs in a long lockdown.

Arvida applied for the wage subsidy for cafe and construction workers, costing taxpayers $400,000, for about 60 workers who could not work from home, out of its 2600 staff.

“We took a very principled and conservative approach to the wage subsidy,” Arvida chief executive Bill McDonald said.

“Rather than some other companies who claimed on all employees, we said we’d only claim where those employees could not work from home and that we would probably otherwise not retain them.”

McDonald said it was a high-trust model the Government had adopted. The fund for the wage subsidies was to save jobs and that’s what it did for Arvida, McDonald said.

Large retirement village operator Oceania Healthcare received a wage subsidy of $1.8m for about 250 staff in its retirement village sales and property development teams. It has about 2800 staff and about 3600 residents.

Oceania chief executive Earl Gasparich said there was no way the elderly were not going to be looked after so there was little risk that staff looking after them would lose their jobs.

“We made the decision we are not going to claim it for our aged care business because those staff were never at risk of losing their roles if the lockdown had continued.

“Our revenue had reduced during the measurement period and that’s because we couldn't sell a retirement unit, so we were eligible for claiming 10 times that, but we chose not to.”

New Zealand Shareholders’ Association chief executive Oliver Mander said businesses needed the subsidy at a certain time to sustain jobs.

“But where they are paying a dividend to shareholders then we have taken the position that while they are legally entitled to do that, certainly it raises an ethical question for investors of whether that’s really the corporate behaviour they would like to see.”

The association was “certainly not supporting the practice”. There was an argument that the best interests of a company were reputational rather than purely financial, Mander said.

Should Ryman pay the subsidy back? Mander wouldn’t go that far.

The wage subsidy was to subsidise wages not the cost of PPE, Dr Michael Gousmett, Adjunct Fellow, School of Humanities and Creative Arts, University of Canterbury, and adviser to charities, said.

Retirement villages still had residents paying fees. If Ryman had to spend money to protect its residents as required under the Health and Disability Act, that was part of their obligations.

But he could not see how Ryman could justify using the wage subsidy to benefit shareholders in paying $44m of dividends.