What next for HCT Group?

Thursday 18th August 2022

HCT Group, the country’s leading social enterprise bus operator, posted an ominous update on its website a few days ago.

It announced last Friday community bus route 812 in the Borough of Islington will cease operation after Friday 26th August.

Although not a headline grabbing seismic development in the grand scheme of current challenges facing the bus industry, the route’s withdrawal coming just a fortnight after the sudden closure of Powells, the Group’s business in South Yorkshire, and CT Plus in West Yorkshire has inevitably led to speculation that parts of the Group’s operations or indeed the Group as a whole are also in financial difficulties.

The Group’s financial accounts for year ended September 2021 are overdue by 19 days according to the Charity Commission website while the previous set of accounts – for an eighteen month period to September 2020 – show a substantial loss of £10,300,000 (on turnover of £123,706,829).

The accompanying text explains “this report covers a period of major organisational change as well as the impact of COVID 19. The planned restructuring of the business was always going to make 2019/20 a difficult period for the Group. The closure and de-merger of operations in Manchester and Derby, and the need to drive operational improvement across the group, have inevitably resulted in significant restructuring costs. These have been exacerbated by the effects of COVID 19 and we have taken the decision to extend our financial year 2019/20 to 18 months, allowing us to place the majority of the impact of the restructuring and the pandemic into one accounting period.”

Accounts for the year previous to that, twelve months ended March 2019, were submitted 193 days late on 12th August 2020 and recorded a loss of £1,570,192 (on turnover of £74,295,422) compared to a surplus, the previous year (ended March 2018) of £838,028 (on turnover of £62,349,719).

It doesn’t take an accountant to spot the significant increases in turnover across those three years (reflecting company acquisitions and contract gains) but worryingly a small profit turning into a substantial loss. One can reasonably conclude from this mostly pre-Covid timeline those acquisitions were somewhat over priced and new contract wins under priced; perhaps significantly so.

Even more worrying is the statement in the 2019/20 accounts under “Reserves Policy: At 28 September 2020 the balance of the Group’s total funds was negative £6.4 million.”

Annual accounts for HCT Group can be found on the company’s website except only up to 2017/18 – coincidentally the last year the business made a surplus. Accounts highlighted above for years 2018/19 and 2019/20 are noticeably absent, as are the overdue 2020/21 accounts.

This isn’t a good look, especially when the 2018/19 report contained disturbing news of a cyber attack leading to “significant permanent data loss, including of financial data…..for an extended period of time, during which the performance of parts of the operation – both existing and new acquisitions – significantly declined.” The report goes on to admit investments in acquisitions that year (and this is pre Covid) “contributed to an in-year loss, that, in turn, has led to a breach of covenants.”

Elsewhere the report records £2 million was invested in Manchester Community Transport before that business faced insolvency and went into liquidation in April 2020 and despite optimism when HCT Group “is delighted to announce it has completed its first commercial acquisition, purchasing Powells Bus for an undisclosed sum on 24th July 2018”; four years later that business also went bust.

Dai Powell, HCT Group’s Chief Executive had excitedly told everyone at the time of Powell’s acquisition “we think this acquisition is a sign of things to come for HCT Group. A social enterprise buying a commercial operator – with a view to turning it into a social enterprise – is a great way of providing public services for public benefit” while Ian Powell (no relation as far as I know), of Powells Bus, said “HCT Group have the resources and expertise to help take Powells Bus to the next level – pursuing new opportunities and growing the organisation.” As we now know, that was perhaps misplaced wishful thinking.

Fast forward 13 months from July 2021 when that £10.3 million loss for 2019/20 was posted to Friday’s announcement regarding route 812 and one can’t help but notice a continuation of stark explanatory wording “the move follows a period where we have been rocked by multiple challenges – a period of difficult trading prior to the pandemic, the financial impact of the pandemic itself, followed immediately by the current surge in fuel prices and the cost-of-living crisis. This has led to commercial losses and we can no longer sustain these services.”

All the more concerning is similar wording was used just a couple of weeks ago as Powells and CT Plus in Yorkshire both ceased trading.

HCT Group is a social enterprise meaning instead of using profits to pay dividends to shareholders, it uses surpluses earned from its diverse range of commercial contract operations (15 TfL bus routes, social services transport, school buses as well as other bus routes, eg in Bristol on behalf of First Bus and on Jersey and Guernsey) to fund an equally diverse range of social projects which HCT calls “impactful transport services or projects in the communities we serve” of which route 812 has been a long standing example.

I know people who rave over such a business model calling for more operations of this nature in the public transport arena. There’s no doubt there’s a persuasive point of view that community services funded out of profitable ventures is more virtuous than seeing profits line the pockets of shareholders. But those shareholders have capital invested in the business and need rewarding for the risks they’re taking. In many cases shareholders are actually pension funds. During tough economic times companies can, and do, cease paying dividends (First Group shareholders can tell you all about that) but a social enterprise can only react to tough financial times by cutting what might be a hugely valued social or community service when the profits that are funding it run dry.

And that seems to be what’s happened with route 812.

Originally subsidised by the Borough of Islington and marketed as PlusBus (no relation to the nationwide PlusBus ticket scheme) it used bright yellow minibuses on a complex route circuit along back roads unserved by TfL bus routes linking Hoxton with Angel and a one way circle taking in Finsbury and Clerkenwell, which it still does today. It became route 812 in 2007 when there was a threat to its future but luckily funding was secured.

The route faced another threat of withdrawal when Islington stopped funding it in 2011 but TfL stepped in with £200,000 to keep the route alive for the next two years on condition Islington Council did the same for a further two years. At that time Hackney Community Transport (as HCT was then known) paid a subsidy of £53,000 per annum towards the service. The frequency was reduced from every 20 minutes to half hourly at the same time.

The route continued pretty much unchanged over the ensuing decade other than for new buses and a new white based livery arriving in 2017 until it was withdrawn in March 2020 due to the pandemic, returning earlier this year, initially on an hourly frequency, reverting back to half hourly in June.

Islington Council issued a statement on Friday’s news of the route’s imminent withdrawal explaining it “helps to fund the Route 812 and will review how it can best help and support users now and in the future. We know this will have a direct impact on local people, and we will review how best we can help and support users now and in the future.”

It goes on to explain “Islington Council cannot run the Route 812 bus service itself from Friday, 26 August, as the council does not have a Transport for London operating licence, appropriate vehicles, or drivers.” That statement implies it will be seeking another partner to operate the route on its behalf, but presumably without HCT Group’s financial contribution, Islington will either have to stump up more cash (which I doubt it has) or reduce the costs by cutting the frequency to hourly utilising one bus instead of two. Certainly TfL are in no position to help with funding at this time.

I’ve ridden the route a couple of times over the years to enjoy its quirkiness. I reckon its has the most left and right turns per mile of any route not only in London but across the UK as well as the most road humps. It also has more bus priority through the otherwise cul-de-sac residential side roads around Islington which are protected for permit holders and buses on route 812.

The route has a flat fare of just £1 for passengers without concessionary passes but when I rolled up on Tuesday for perhaps one last ride before withdrawal the driver explained it was now free until next Friday’s final day.

I travelled on the 10:50 departure from Hoxton’s Bridport Place and we soon picked up three passengers travelling to the shops at Angel. It’s the only bus route that provides a direct link between the two locations, although TfL route 394 passes nearby in Hoxton, and on board there was much talk about the distress its withdrawal is going to cause for many regulars including one elderly lady boarding with her shopping trolley.

As those three alighted at Angel’s large Sainsbury’s supermarket another boarded who travelled home to Clerkenwell.

And that was it until we got back to Sainsbury’s at Angel where one of the three who’d alighted half an hour earlier had done his shopping and was ready to return home to Hoxton.

We passed the second bus both times at Sainsbury’s. It was carrying just one passenger back towards Hoxton but five were on board towards Clerkenwell.

Where the bus shares a bus stop with TfL bus routes the number 812 is shown on the bus stop flag and a timetable in the case below, but most of the route is on a hail and ride basis with no bus stops at all, so it’s presence is probably a bit of a secret with most residents.

Even the terminal point in Bridport Place, Hoxton is bus stop less.

Although, when I took a ride in 2016 there was a properly designated stop in place.

It’ll be interesting to see if Islington Council find another community operator to run the service, or whether this time, the withdrawal becomes a reality. If so, it will be much missed by the regulars who’ve got used to travelling over the last 15 years or so.

Islington Council notes HCT Group also provides a Scootability service which provides the loan of mobility scooters and powered wheelchairs to Islington and Camden residents via a scheme managed by Camden Council. Camden are taking over operation of this service from HCT from Saturday through until March 2023 and Islington is “discussing the future of this service with Camden”.

So, after all that, as this blog title asks: what next for HCT Group?

From my assessment, admittedly without seeing any financial information for two years since September 2020, it’s not looking good.

The Group which began life in 1982 as Hackney Community Transport providing transport services for local voluntary organisations, charities and community groups and has since metamorphosed through various phases including CT Plus to become HCT Group.

It’s first contract win with TfL was in 2001 operating route 153 and it now operates 10 routes out of Ash Grove (a garage it shares with Arriva) and another five routes from a garage in Walthamstow.

In Bristol it runs the Metrobus branded route m1 on behalf of First West of England as well as some routes for Bristol Community Transport. All bus routes on the islands of Guernsey and Jersey are also operated by HCT Group with the latter trading as Liberty Bus.

The Group’s long standing chief executive Dai Powell retired in September 2020 after 27 years service, during which time he oversaw significant expansion of the Group both geographically and its range of activities. He wrote in an article in The Guardian in 2011 “the business aims to double in size every five or so years for the foreseeable future” explaining he saw scale as “crucial. The better we do commercially, the more we can do for the communities we serve as a social enterprise”, and that the strategy is “maximising the good that we do… to be as bold as a commercial firm, but to the benefit of our communities, not to the owners of capital. It also has the advantage of keeping our social mission absolutely central to our approach.”

He went on to contrast the HCT approach to many third sector organisations “where risk is to be mitigated at worst and eliminated at best. This is simply hopeless for rapid growth.”

The problem with rapid growth and risk taking is it can sometimes come back and bite you.

And sometimes a very big bite too.

Roger French

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