RCS - Begbies Traynor - Latest Red Flag Alert for Q3 2024

Begbies TraynorAnnouncement

18/10/2024 07:00

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RNS Number : 6583I  Begbies Traynor Group PLC  18 October 2024

 

18 October 2024

Uncertain outlook for the UK economy pushes a record number of businesses into
significant financial distress

 

·    632,756 UK businesses are in 'significant' financial distress, up
5.1% on the prior quarter (Q2 2024: 601,950) and 32.3% higher than Q3 2023
(478,176)

·    'Significant' financial distress increased in 21 of the 22 sectors
covered by Red Flag Alert in Q3 2024 versus Q2 2024

·    In Q3 2024 'significant' financial distress rose particularly rapidly
in Utilities (+19.3%), Food & Drug Retailers (+10.4%), Financial Services
(+9.94%) and Bars & Restaurants (+8.7%)

·    The number of businesses in 'critical' financial distress fell
quarter on quarter by 23.2% to 31,201 in Q3 2024 (Q2 2024: 40,613), 17.3%
lower than Q3 2023 (37,772)

·    This trend was seen in the Hotels & Accommodation (-33.5%),
Construction (-28.5%) and Real Estate & Property Services sectors
(-26.5%), in particular, with all experiencing a reduction in 'critical'
financial distress versus Q2 2024.

·    The sectors experiencing the highest numbers of companies in
'critical' financial distress were Support Services (4,860), Construction
(4,324) and Real Estate & Property Services (4,099).

 

The latest Begbies Traynor "Red Flag Alert" research, which has provided a
snapshot of British corporate health for almost two decades, highlights the
challenging conditions UK businesses continue to face, with the number of
companies facing 'significant' financial distress up c.5% in Q3 2024 to
632,756 businesses (Q2 2024: 601,950).

 

The steady increase in companies experiencing 'significant' financial distress
was driven by noticeable increases in distress in the Utilities (+19.3%), Food
& Drug Retailers (+10.4%), Financial Services (+9.94%) and Bars &
Restaurants (+8.7%) sectors.

 

With 21 of the 22 sectors monitored by Red Flag Alert reporting the level of
'significant' financial distress increasing in Q3 2024 versus the prior
quarter, the latest data highlights how the heightened level of economic
uncertainty is impacting businesses in almost every corner of the economy
across the UK and pushing another 30,000 companies into financial distress.

 

Julie Palmer, Partner at Begbies Traynor, said: "With the end of the year now
in sight, many British companies must be looking ahead to the finish line with
a cautious degree of optimism for what 2025 has to offer after a difficult
year. So far, there is no hiding from the fact that 2024 has been hard to
navigate for companies and the final quarter looks no different as a high
degree of uncertainty weighs on the UK economy.

 

"With over 630,000 firms now in significant financial distress, more than
thirty per cent higher than this time last year, no section of the country's
economy is immune from the legacy debt built up by many businesses during the
pandemic.

 

"It is also apparent that the toxic effect of high inflation is still
filtering down to businesses. The construction sector in particular continues
to struggle with the legacy of high materials and labour inflation which have
led to some high-profile insolvencies recently. This is a trend that I expect
to continue, and I do not believe ISG will be the only major casualty in this
sector with the domino effect likely to hit the sub-contractor community in
due course.

 

"For some, the prospect of a change of government was viewed as a potential
catalyst for a much-needed economic boost, but there are significant concerns
surrounding what the next Budget might hold for the economy and the knock-on
effect could be damaging for many businesses teetering on the edge of
collapse, as it seems certain many will have to deal with higher employee
related taxes.

 

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "As we move
into the final quarter of 2024, the decline we have seen in 'critical'
financial distress is a welcome surprise after a challenging year. That said,
it is too early to say if this is a trend that will continue into the autumn -
traditionally a busy period for corporate insolvencies.

"While there are tentative signs of a recovery, uncertainty continues to loom
over UK businesses. In response, many business leaders are holding their
breath as they await clarity over what the forthcoming Budget will bring.

"So far, the mood music in the lead up to the Budget has led many business
leaders to expect companies and investors to bear the brunt of changes to the
tax regime.

"On top of this, the government's Employment Rights Bill could cause further
pain, making it more difficult and more expensive to employ staff at a time
when businesses are seeking flexibility through an uncertain period, whilst
they grapple with an array of other issues.

"Companies must also contend with considerable geopolitical risks that could
derail any domestic policy, including the escalating conflict in the Middle
East, which could at the very least result in a spike in energy prices and
bring back the spectre of high inflation. Added to this is the upcoming
election in the US, which has the potential to impact both foreign and
economic policy.

"Against this backdrop, the only certainty is uncertainty, and we know this is
bad for both business and investment alike. Combine this high level of
uncertainty with the expectation of higher business costs post the Autumn
Budget and it is clear that the UK economy is far from being out of the
woods."

 Top 10 Sector Ranking - Critical                                                  Top 10 Sector Ranking - Significant Financial Distress

 Financial Distress
 1.         Support Services                                 4,860                 1.                   Support Services                                 97,178
 2.         Construction                                     4,324                 2.                   Construction                                     90,375
 3.         Real Estate & Property Services                  4,099                 3.                   Real Estate & Property Services                  69,111
 4.         Professional Services                            2,280                 4.                   Professional Services                            52,082
 5.         General Retailers                                2,212                 5.                   General Retailers                                46,288
 6.         Telecommunications & Information Technology      1,858                 6.                   Health & Education                               41,222
 7.         Health & Education                               1,666                 7.                   Telecommunications & Information Technology      40,817
 8.         Media                                            1,354                 8.                   Media                                            26,389
 9.         Bars & Restaurants                               1,188                 9.                   Food & Drug Retailers                            19,260
 10.        Food and Drug Retailers                          1,108                 10.                  Financial Services                               18,664

 

 Critical Distress by Region                   Significant Distress by Region
 1.          London            10,448          1.           London            185,494
 2.          South East        4,704           2.           South East        105,083
 3.          Midlands          3,517           3.           Midlands          76,902
 4.          North West        3,296           4.           North West        65,777
 5.          Yorkshire         2,096           5.           Yorkshire         43,827
 6.          South West        1,900           6.           South West        43,757
 7.          East of England   1,787           7.           Scotland          31,338
 8.          Scotland          1,504           8.           East of England   39,613
 9.          Wales             851             9.           Wales             19,261
 10.         Northern Ireland  569             10.          North East        11,643
 11.         North East        525             11.          Northern Ireland  9,985
 12.         Misc              4               12.          Misc              76

 

--ENDS--

For further information, contact:

 

 MHP Communications:                       07595 461 231

 Katie Hunt Charles Hirst Matthew Taylor   07827 662 831

                                           BegbiesCorporate@mhpgroup.com (mailto:BegbiesCorporate@mhpgroup.com)

 

Notes to Editors

About Red Flag Alert

 

Red Flag Alert has been measuring and reporting corporate financial distress
since 2004. It has become a benchmark on the underlying health of companies
across every sector and region of the UK.

Red Flag Alert's algorithm measures corporate distress signals, drawing on
company accounts and factual, legal and financial data from a wide range of
relevant sources, including intelligence from the UK's leading insolvency
business, Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance
the risk factors analysed in the data. The reported results have been
backdated to ensure the consistency of comparative data.

Algorithms which drive Red Flag Alert were improved at the end of 2023, with
companies now measured against a new scorecard of indicators to give greater
insight and accuracy into the health of businesses. Two years of work by data
scientists analysing eight years of data, taking into consideration pre,
during and post-pandemic insights to find signals and patterns indicating
businesses in distress, combined with AI tools, means that Red Flag Alert aims
soon to be able to predict how many companies in trouble will go on to fail.

The release refers to the number of companies experiencing "Significant" or
"Critical" problems, which are those that have been identified by Red Flag
Alert's proprietary credit risk scoring system which screens companies for a
sustained or marked deterioration in key financial ratios and indicators
including those measuring working capital, contingent liabilities, retained
profits and net worth.

 

Red Flag Alert is commercially available to all businesses, on an annual
subscription basis, to help them better understand risk and exposure and help
subscribers to plan for the future. Further information about Red Flag Alert
can be found at: www.redflagalert.com
(https://protect.checkpoint.com/v2/___http:/www.redflagalert.com/___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzo4ZTc5ODZlN2FkODQwNmI1YzQ5OTYxZjk5MzM0NDBkMjo2OjJmOGM6ZTY4ZTBlN2IyMzYzZDI0MTVmYzgwMmEyYjhiN2E4MTYwZWI3NTcxNzk2OThkNTgyYWY1NTk4YmUyYzA0ZjhkOTpwOlQ6Tg)

 

Economically active businesses exclude those that are flagged by Companies
House as being, Non-trading, Listed for Strike off / Strike off pending,
Insolvent or Dissolved. Companies where there is insufficient information
available for RFA to assign a health rating are also excluded.

 

About Begbies Traynor Group plc

 

Begbies Traynor Group plc is a leading UK advisory firm with expertise in
business recovery, advisory and corporate finance, valuations, asset sales and
property consultancy.

We have over 900 fee earners operating from 45 locations across the UK,
together with four offshore offices. Our multidisciplinary professional teams
include insolvency practitioners, accountants, lawyers, funding professionals
and chartered surveyors.

·    Business recovery

o  Corporate and personal insolvency; business restructuring and turnaround;
contentious insolvency; creditor services

·    Advisory and corporate finance

o  Debt advisory and finance broking; corporate finance; special situations
M&A; financial advisory

·    Valuations

o  Property, business and asset valuations

·    Asset sales

o  Property, plant and machinery auctions; property and business sales agency

·    Property consultancy

o  Building consultancy; transport planning; commercial property management;
insurance and protection

Further information can be accessed via the group's website at
https://ir.begbies-traynorgroup.com/ (https://ir.begbies-traynorgroup.com/)

 

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