RCS - Begbies Traynor - Latest Red Flag Alert Report for Q1 2024

Begbies TraynorAnnouncement

26/04/2024 07:00

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RNS Number : 1094M  Begbies Traynor Group PLC  26 April 2024

 

26 April 2024

 

Over half a million UK businesses fighting for survival as UK economy
stagnates

 

·    The level of 'significant' financial distress leapt 30.8%
year-on-year in Q1 2024 with 554,554 companies affected (Q1 2023: 424,041).

·    Each of the 22 sectors covered by Red Flag Alert research experienced
a double-digit growth in financial distress over the last year.

·    The Construction, Food & Drug Retailers and General Retailer
sectors in particular drove the increase in 'significant' financial distress,
up 38.6%, 40.8% and 38.7% respectively in Q1 2024.

·    40,174 UK businesses are in 'critical' financial distress - a 20.1%
increase compared to Q1 2023 (33,449) making them especially vulnerable to
failure over the next 12 months.

 

The latest Begbies Traynor "Red Flag Alert" research, which has provided a
snapshot of British corporate health for over 15 years, highlights the speed
at which financial distress has accelerated over the last 12 months, with
554,554 UK businesses now in 'significant' financial distress - a 30.8% rise
compared to Q1 2023. This deterioration now affects all 22 sectors covered by
this latest research.

 

Additionally, the much more serious 'critical' financial distress has leapt
20.1% compared to Q1 2023, with 40,174 UK businesses affected. Despite a 15.4%
fall in critical financial distress compared to Q4 2023 company insolvencies
remain at historically elevated levels as servicing debt at higher interest
rates takes its toll.

 

With many companies in 'critical' financial distress expected to enter
insolvency over the course of the next 12 months, the picture in the
Construction, Real Estate, Financial Services and Support Services sectors is
particularly concerning as nearly 50% (c.20,000 businesses) of the companies
in 'critical' financial distress are represented by these sectors.

 

Additionally, Red Flag Alert's historic data indicates that a large percentage
of the businesses currently in 'significant' financial distress are likely to
progress towards 'critical' financial distress and potential insolvency if the
economic backdrop does not improve.

 

Julie Palmer, Partner at Begbies Traynor, said: "Despite some optimism as we
entered the new year, 2024 has so far been characterised by a continuation of
the same pressures that plagued companies in the UK throughout 2023.

 

"Since the pandemic, hundreds of thousands of UK businesses depleted their
financial reserves and loaded their balance sheets with increasingly
unaffordable debt which for many may simply be too great to bear.

 

"As with the prior quarter, the picture is particularly concerning in the
consumer facing sectors. We are starting to see this translate into larger
companies entering insolvency, a trend that I expect to continue while
consumer confidence remains uncertain. On top of that, the higher levels of
financial distress in bellwether sectors such as real estate and construction
point to a troubled UK economy.

 

"Right now, many companies will be pinning their hopes on a meaningful cut to
interest rates later this year, but the Bank of England continues to be
hawkish, so it is unlikely to make a cut in the near-term given inflation is
still higher than expected.

 

"All of this means that these pressures are here to stay, and I fear this will
result in thousands of businesses failing in the coming months as the constant
pressures will become too great for many."

 

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "We are three
months into 2024 and the considerable economic challenges facing many
companies up and down the UK show no immediate sign of abating. The
macroeconomic conditions that made last year so difficult have continued to
exert unrelenting pressure on corporate balance sheets.

"Consequently, our own red flag data shows a marked increase in British firms
moving towards insolvency compared to the same period last year.

"Growing geopolitical instability is compounding this problem and impairing
the UK economy's ability to pick up some much-needed momentum post-pandemic.
The UK economy is in a precarious enough position as it is, and further
instability could cause fuel prices to rise markedly, increasing inflation and
slowing the appetite for the predicted cuts to interest rates.

"Unfortunately, there's no quick fix for our economy and with inflation
falling slower than expected, hope of the Bank of England cutting interest
rates significantly in the near future seems to be fading.

"Sadly, the pressing issues facing businesses today will simply push many over
the edge and contribute to the current high level of UK corporate
insolvencies."

 

 

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

 Financial Distress
 1.         Construction                                     6,141                 1.                   Support Services                                 84,066
 2.         Support Services                                 5,795                 2.                   Construction                                     83,559
 3.         Real Estate & Property Services                  5,396                 3.                   Real Estate & Property Services                  61,344
 4.         General Retailers                                3,027                 4.                   Professional Services                            48,680
 5.         Professional Services                            2,693                 5.                   General Retailers                                38,542
 6.         Telecommunications & Information Technology      2,295                 6.                   Telecommunications & Information Technology      36,702
 7.         Health & Education                               2,247                 7.                   Health & Education                               35,542
 8.         Food & Drug Retailers                            1,662                 8.                   Media                                            22,479
 9.         Media                                            1,497                 9.                   Financial Services                               15,995
 10.        Bars & Restaurants                               1,479                 10.                  Food & Drug Retailers                            15,646

 

 Critical Distress by Region                   Significant Distress by Region
 1.          London            12,089          1.           London            157,156
 2.          South East        6,406           2.           South East        95,018
 3.          Midlands          4,822           3.           Midlands          68,327
 4.          North West        4,526           4.           North West        58,599
 5.          Yorkshire         2,777           5.           South West        39,259
 6.          East of England   2,415           6.           Yorkshire         37,952
 7.          South West        2,385           7.           East of England   35,587
 8.          Scotland          2,065           8.           Scotland          27,936
 9.          Wales             1,187           9.           Wales             15,408
 10.         North East        776             10.          North East        10,258
 11.         Northern Ireland  718             11.          Northern Ireland  8,991
 12.         Misc              8               12.          Misc              63

 

--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 have been improved and updated for the
latest report, 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://url.avanan.click/v2/___http:/www.redflagalert.com/___.YXAxZTpzaG9yZWNhcDphOm86MGJmODI5NjIzNjdiOWRlMzE2ZTdlODVkZjBhYTQ1NGY6Njo3MDU5OjQyYzgyMGM3MTJjYjdlMjAxNTRjNGJkYWE4ZmZkMjIyZjIxM2QyYWE4ZTU0ZjhkZjAyODZkMzNiN2UzZWM5M2E6cDpU)

 

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 professional services consultancy,
providing services from a comprehensive network of UK and off-shore locations.
Our professional team include licensed insolvency practitioners, accountants,
chartered surveyors, bankers and lawyers. We provide the following services to
our client base of corporates, financial institutions, the investment
community and the professional community:

·

·      Insolvency

o  Corporate and personal insolvency

·      Financial advisory

o  Business and financial restructuring; debt advisory; forensic accounting
and investigations

·      Transactional support

o  Corporate finance; business sales agency; property agency; auctions

·      Funding

o  Commercial finance broking; residential mortgage broking

·      Valuations

o  Commercial property, business and asset valuations

·      Projects and development support

o  Building consultancy; transport planning

·      Asset management and insurance

o  Commercial property management; insurance broking; vacant property risk
management

Further information can be accessed via the group's website at
www.ir.begbies-traynorgroup.com
(https://url.avanan.click/v2/___http:/www.ir.begbies-traynorgroup.com/___.YXAxZTpzaG9yZWNhcDphOm86MGJmODI5NjIzNjdiOWRlMzE2ZTdlODVkZjBhYTQ1NGY6Njo0MTdjOjBlMGRmZDMyZDU1MzI3NDBlZDNhMzVhNzc5MTkxNDI0MzI5NWVkNDJlNzgyYjdlNTlhMDc4MmY5NzVmMGNhYTQ6cDpU)

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