RCS - Begbies Traynor - Latest Red Flag Alert Report for Q1 2021

Begbies TraynorAnnouncement

22/04/2021 07:00

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RNS Number : 2174W  Begbies Traynor Group PLC  22 April 2021

 

 

 

Highest quarterly leap recorded by Red Flag Alert as almost 100,000 additional
businesses drop into significant financial distress in Q1 2021

 

·      723,000 businesses now in 'significant financial distress(1)', a
15% increase from Q4 2020 to Q1 2021 (almost 100,000 increase)

·      42% year-on-year increase in 'significant financial distress(1)'
(213,000 businesses) since Q1 2020

·      Number of businesses in significant financial distress increased
in all 22 sectors analysed by this research in the last quarter

 

The latest Red Flag Alert research for Q1 2021 has recorded 723,000 businesses
in 'significant financial distress(1)' after the largest numerical quarterly
leap (93,000) recorded in the research since its new version was launched in
2014. This 15% increase (from 630,000 in Q4 2020) comes as the UK starts its
exit from lockdown.

 

This newly published research from Begbies Traynor also found that there has
been a 42% increase in significantly distressed companies since Q1 2020
(509,000 - Q1 2020, 723,000 - Q1 2021) with financial distress in the
transportation and logistics sector increasing by 56% (12,191 - Q1 2020,
19,055 - Q1 2021), the real estate and property services sector increasing by
51% (56,482 - Q1 2020, 85,165 - Q1 2021), the financial services sector by 50%
(12,975 - Q1 2020, 19,466 - Q1 2021) and within the construction sector by 47%
(65,564 - Q1 2020, 96,557 - Q1 2021).

 

Every one of the 22 sectors monitored by the Red Flag Alert research exhibited
an increase in significant financial distress, with 19 sectors experiencing
double-digit increases in the first quarter of 2021. This is a very concerning
sign for the UK economy and highlights the deteriorating financial situation
for many companies.

 

Insolvency Numbers Artificially Supressed

 

As reported in the last quarterly numbers the pandemic continues to adversely
affect court action against indebted companies with the number of CCJs(3) and
winding up petitions both substantially below pre-Covid levels, partly due to
a ban on winding up petitions with regard to Coronavirus related debts.

 

Data shows there were 23,325 CCJs lodged against companies during January,
February and March in 2020, with only 9,377 lodged during the same period in
2021, a fall of 60%. The situation is even more acute with regard to more
serious winding up petitions. During January, February and March 2020, 715
were lodged compared to just 15 during the same period in 2021, a fall of 98%.

 

Additionally, the average value of judgements increased from £6,033 in Q4
2020 to £6,127 in Q1 2021.

 

Julie Palmer, Partner at Begbies Traynor, said:

 

"The dam of zombie businesses could be about to break. The last 12 months have
undoubtedly been some of the hardest that many businesses have ever
encountered. We must remember that this is no ordinary recession and while
businesses have had significant assistance from central government, large
parts of the economy have been put on hold with substantially reduced
revenues.

 

"Opening the doors of consumer-facing businesses on April 12(th) may well seem
like a big step in the right direction for many of these companies as they try
to shake off the traumatic trading of the last 12 months. However, our
experience shows that unmanageable levels of debts and subsequent overtrading
are likely to be the hidden icebergs waiting to sink even the highest profile
businesses.

 

"However, businesses that were profitable before the pandemic, have manageable
debt and are still relevant in the post pandemic world could flourish and be
the real winners in this climate. They need guidance and need to act quickly.
In a market that is moving fast dithering companies will be swept away in the
sheer force of distress that is forcing its way across the UK."

 

Sectors

 

The transportation and logistics sector has experienced a very difficult time
despite much of the economy relying on a network of household deliveries to
survive. With many large players dictating the market, there has been a 56%
year-on-year and 23% (15,515 - Q4 2020, 19,055 - Q1 2021) quarter-on-quarter
increase in significant financial distress in this sector, with the new export
rules around Brexit proving a headache for many smaller operators.

 

Despite the booming residential property market, the whole real estate and
property sector - a key indicator of the economy's performance - has seen
another 11,000 businesses enter significant distress in the last quarter and
rise by 15% (73,952 - Q4 2020, 85,165 - Q1 2021), with a leap of 51% since the
same period last year.

 

Construction businesses have also been impacted, despite building activity
continuing even during lockdowns. There are now 96,557 construction businesses
in significant distress, a year-on-year increase of 48% and a quarterly
increase of 21% (80,018 - Q4 2020, 96,557 - Q1 2021).

 

UK Regions

 

London's reliance on both the leisure & hospitality and financial services
sectors has made it particularly vulnerable to the short-term effects of
Covid. Businesses in London experienced a significant 46% year-on-year
increase in significant financial distress, and a 14% quarter-on-quarter
increase (130,262 Q1 2020, 167,591 - Q4 2020, 190,829 - Q1 2021). However,
Northern Ireland (9,822 - Q4 2020, 11,619 - Q1 2021) and the North West
(59,915 - Q4 2020, 70,496 - Q1 2021) showed the most alarming quarterly
increase of 18%.

 

Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:

 

"With the UK insolvency rate estimated to rise by more than 50% in 2021 these
latest red flag figures make for grim reading.

 

"Despite the unprecedented central government support offered to UK businesses
it is now clear that many companies are struggling under the weight of
increased debt combined with poor revenue streams.

 

"The termination of this support will leave many businesses exposed to the
true scale of their debt, and in many cases this will be simply unsustainable,
with research indicating that some companies will be unable to even meet their
interest repayments. This rise of insolvencies will not just be the well
documented "Zombie" businesses but credible businesses who have suffered
disproportionately because of the pandemic.

 

"The availability of Credit Insurance is also likely to be a factor as cover
is either withdrawn, restricted or simply becomes too expensive for companies.

 

"Additionally, the re-opening of the economy also presents hidden risks for
many companies. Overtrading will be a real risk for many and companies should
monitor their cashflow very carefully - especially as credit lines have been
stretched to breaking in many cases.

 

"However, the longer-term worry for the UK businesses are the structural
changes the pandemic has brought to many aspects of our life. While some might
say that the changes to the retail landscape were long overdue, with a move to
online trading, other sectors will be impacted longer term by changing
customers' needs. All businesses should take seriously these threats, examine
their model and adapt if they are going to survive."

 

- ENDS -

 

1'Significant' distress is those businesses with minor CCJs (of less than
£5k) filed against them or which 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.

2 'Critical' distress are those businesses with minor CCJs (of more than
£5k) filed against them

3 In England and Wales, County Court Judgments (CCJs) are legal decisions
handed down by the County Court. Judgments for monetary sums are entered on
the statutory Register of Judgments, Orders and Fines, which is checked by
credit reference agencies to assess the credit-worthiness of individuals and
businesses.

 

For further information, contact:

McCann PR & Social

Ian Stanley

Tel: 07974 266458

Email:  Begbies@mccann.com (mailto:Begbies@mccann.com)

 

Notes to Editors:

 

About Red Flag Alert

Red Flag Alert has been measuring and reporting corporate financial distress
since 2004, and over that time has become an industry benchmark of the
underlying health of companies across every sector and region of the UK.

 

Through its unique algorithm, the Red Flag Alert measures corporate distress
signals, drawing on factual legal and financial data from a wide range of
relevant sources, including intelligence from the UK's leading insolvency
business, Begbies Traynor. Please note that the Red Flag Alert algorithm was
refreshed in Q3 2017 to enhance the risk factors analysed in the data. The
reported results have been backdated to ensure consistency of comparative
data.

 

The release refers to the numbers of companies experiencing 'Significant'
problems, which are those with minor CCJs (of less than £5k) filed against
them or which have been identified by Red Flag'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
prepare them for the future. Further information about Red Flag Alert can be
found at: www.redflagalert.com (http://www.redflagalert.com)

 

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.

 

Begbies Traynor Group

Begbies Traynor Group plc is a leading business recovery, financial advisory
and property services consultancy, providing services nationally from a
comprehensive network of UK locations. The group has more than 900 staff and
partners and the professional staff include licensed insolvency practitioners,
accountants, chartered surveyors and lawyers.

 

The group's services include:

Business recovery and financial advisory

Corporate and personal insolvency - we handle the largest number of corporate
appointments in the UK, principally serving the mid-market and smaller
companies.

Corporate finance - buy and sell side support on private company transactions.

Financial advisory - forensic accounting and investigations, debt advisory,
business and financial restructuring, due diligence and transactional support.

 

Property advisory and transactional services

Valuations - valuation of property, businesses, machinery and business assets.

Property consultancy, management and planning - building consultancy,
commercial property management, specialist insurance and vacant property risk
management, transport planning and design.

Transactional services - sale of property, machinery and other business assets
through physical and online auctions; business sales agency; commercial
property agency focussed on northern and eastern England.

 

Further information can be accessed via the group's website
at www.begbies-traynorgroup.com/investor-relations
(https://urldefense.proofpoint.com/v2/url?u=http-3A__www.begbies-2Dtraynorgroup.com_investor-2Drelations&d=DwQGaQ&c=Ftw_YSVcGmqQBvrGwAZugGylNRkk-uER0-5bY94tjsc&r=4c8-e7ZulPluCjuukCUl3Blcpa7AxNK9t_fq5q12Rio&m=gniKH13HovPYCUqh05hwVKc1DJGxkZ3dwvoxVs_lHHc&s=awSgXTvfyTjgcykSM9Qoz7ojnpEf1ZCJd21_xLbjAkI&e=)

 

 

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