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Southern Cross Is There a Plan B Mr Cameron?


It is rare these days that I get incensed about anything. Having been around the block a few times I’ve seen most things, at some time or another, but with the Southern Cross debacle my blood is simmering, if not yet at boiling point.

Why?

I frankly don’t care about all the corporate finance crap but will return to the subject below as it underpins the need for a plan B now. My sole concern is for the 30,000 odd residents under the care of Southern Cross and what happens to them should Southern Cross go into administration. We are talking about people here , not pawns in a corporate game. The old, the vulnerable and in the main defenseless and we can’t stand by whilst a macho game of bluff is played out in corporate circles.

Mr Cameron you need to have your political antennae serviced if you can’t see the potential disaster looming in front of your government. I quite accept you didn’t design the ship, you have not captained the various vessels but I’m afraid should Southern Cross hit the rocks then the buck will stop with you.

The City is voting with it’s feet, the shares of the once stock market darling, at one point valued at £6bn, fell again yesterday and the company is now valued at a total of £12m but that value is based on hope rather than expectation.

The Directors remain defiant. If the Directors can bully weak landlords into more affordable deals in the company’s death throws it will be a help for the inevitable restructuring ahead but the good ship Southern Cross appears holed in several places below the waterline whatever the directors are saying. Just consider the following:

  • No outside commentator including me has a clear insight into the “real” balance sheet of Southern Cross and the ability to attract outside investment is nil.
  • The scramble will have been happening behind the scenes for months to gain advantage and no doubt the banks will have advanced their positions at the expense of general creditors. In normal circumstances the banks would have had the administrators in by now and we suspect the hand of government in the background. What is left of the cake, in a carve up, is anybodies guess.
  • Suppliers, the poor old tail end gunners, will be pressing for payment and withdrawing support as why throw good money after bad. We are talking about essentials here with food suppliers for instance insisting on payments up front and no doubt tasty discounts and overrides being lost, leading to increased costs.
  • Staff will start to defect – the best will go first. Often lowly paid, these people are the oil in the engine of care but whilst loyal by nature they would be foolish not to look elsewhere.
  • What right minded third party will place people into Southern Care where occupancy has fallen, according to other commentators, to 86% and Local Authority referrals are down by 15%. The care sector, to use a horrible bit of City speak, when we are talking about people, is all about operational gearing. To you and me that means bums in beds and very few homes will make money on occupancy rates below 90%. So Southern Cross will slowly die.

One piece of perspective is that the whole care sector is struggling financially and this, in part, is due to the actions of Local Authorities demanding better terms and conditions to the point where the terms are marginal. We are all in favour of competition but even if the best operators are making an insufficient return on capital employed the sector will not attract new investment and care of the aged and infirm will revert to the state by default and as we know from past experience public sector management is profligate.

So Mr Cameron, if you wish to avoid a public relations disaster, what is your plan B?

 

Author: Chris Slay

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