RCS - Begbies Traynor - Latest Red Flag Alert Report for Q3 2019

Begbies TraynorAnnouncement

17/10/2019 07:05

RNS Number : 1451Q
Begbies Traynor Group PLC
17 October 2019
 


 
489,000 businesses in significant financial distress - a 40% increase since the EU referendum
 
·      Number of businesses in significant distress now 489,000 - an increase of 22,000 since Q3:2018
·      Numbers of businesses in significant distress has risen by 139,000  since the 2016 EU referendum
·      Businesses in 'critical' financial distress increased 8% year-on-year
 
New research from Begbies Traynor, the UK's leading independent insolvency firm, reveals that numbers of businesses in significant1 financial distress has increased 40% in the three years since the EU referendum, affecting 489,000 UK businesses with the real estate and property, construction, retail and travel sectors the most severely affected.   
 
The latest data for Q3 2019 found there were large numbers of UK trading businesses experiencing significant financial distress at the end of September 2019. Over the past year significant financial distress has increased in 20 out of the 22 sectors monitored by this research, demonstrating that this deteriorating financial performance is affecting a broad spectrum of companies. There was also a marked increase in the number of businesses in critical2 financial distress during the same period - often a precursor to formal insolvency - with a substantial 8% year-on-year rise, a worrying figure compounded by political and economic uncertainty.   
 
Julie Palmer, Partner at Begbies Traynor, said:
 
"Three years on from the referendum and the latest Red Flag research highlights just how businesses are struggling as a result of uncertainty and a lack of investment. With a considerable increase in the number of businesses suffering significant financial distress in the last three years there is growing frustration among businesses that they cannot plan for the future and the whole economy is lagging as a result."
 
Real Estate and Construction
 
The real estate and property sector, often considered a bellwether of the UK economy, has been particularly badly affected with a 16% increase in the number of businesses in significant financial distress from Q3 2018, the highest year-on-year percentage increase across any sectors measured in the Red Flag Alert research (Q3:2018 - 43,942: Q3:2019 - 51,051). However, this deterioration has been even more marked since the EU referendum with a 78% increase in significant distress (Q3:2016 - 28,633).
 
Specifically, the report found property investors (businesses involved in "the buying and selling of their own real estate") experienced a 35% increase (Q3:2018 - 10,288: Q3:2019 - 13,876) in significant distress compared to the same period last year as falling residential and commercial property prices combined with reduced consumer and business confidence impacted the sector. What's more, the drop in demand has resulted in significant financial distress for businesses involved in "the construction of domestic buildings", increasing by 8% (Q3:2018 - 5,825: Q3:2019 - 6,305).
 
Indeed, the construction sector has also fallen victim to the current economic conditions, with falling investment in the sector resulting in 11% more companies involved in "the development of building projects" suffering from significant financial distress when compared to Q3 2018 (Q3:2018 - 12,043: Q3:2019 - 13,395), and the trend extended to businesses involved in "the construction of commercial buildings" with a 5% increase in significant distress (Q3:2018 - 2,271:  Q3:2019 - 2,394).
 
Leisure & Travel
 
The latest research also highlights that financial distress is now affecting a number of key consumer facing sectors. The failure of Thomas Cook is symptomatic of broader malaise as consumers tighten their belts due to current economic uncertainty. The data highlights there are 5,599 hotels and accommodation businesses in significant financial distress, an increase of 7% from 5,230 in Q3:2018. 
 
Retail
 
Elsewhere, the tough trading conditions for high street retailers has now spread to the e-commerce retail sector. Often viewed as immune to the travails of the sector, the latest figures demonstrate that online retailers have experienced a 10% increase in significant distress since Q3:2018 (Q3:2018 - 8,154: Q3:2019 - 9,024), showing that these issues are not isolated to the high-street and this reinforces the need for firms to have a unique and competitively priced offering. Indeed, the overall increase in retailers in financial distress since Britain voted to leave the EU has been considerable with more than 31,000 retailers now in significant distress up by 28% since Q3:2016 (28,633).
 
Other sectors also reliant on consumer spending have been hit by reduced consumer confidence, including sport and health clubs which experienced a rise of 8% in significant financial distress, rising from 8,408 in Q3:2018 to 9,040 in Q3:2019, and leisure & cultural activities by 4% to 13,047 (Q3:2019) from 12,488 (Q3:2018), according to this research.
 
Julie Palmer, Partner at Begbies Traynor, said:
 
"Much investment is on hold as businesses have their hands tied by not knowing what the state of play will be post-Brexit and whether the agreements or contracts they currently have in place will still be valid following the expected withdrawal, which is contributing to stifled growth nationwide.
 
"What's clear is that until businesses and consumers alike are given clarity on the economic situation post-Brexit, stagnation will remain the norm and productivity will continue to suffer.
 
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented: 
 
"This is a worrying assessment of the UK economy, with nearly 500,000 businesses now in significant financial distress - almost 150,000 more than three years ago.
 
While the latest GDP figures has seen growth of 0.3%, we should not under estimate the extent of the problems on the horizon.
 
"The broader macro economic environment is a real concern and could ultimately have a much greater impact on UK business than the specific terms of any Brexit deal. The growth in protectionist trade policies, combined with faltering consumer demand in both the US and Europe are a real concern. Add to this the concerns surrounding China's debt, which now stands at three times its GDP and we could be in for the perfect economic storm. 
 
"With productivity falling at home and investment stifled, the UK needs to regain its confidence and start moving forward positively in order to get out of the economic malaise it's currently finding itself in."
 
- Ends -
 
1'Significant' distress are 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
3UNTWO Tourism Statistics
 
For further information, contact:
McCann PR & Social
Ian Stanley / Tom Chaplin
Tel:       0121 713 3566 / 07974 266458
Email:   Begbies@mccann.com
 
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 
 
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
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 through two complementary operating divisions.
 
Business recovery and financial advisory services
Begbies Traynor is the UK's leading independent business recovery practice, handling the largest number of corporate appointments, principally serving the mid-market and smaller companies.
 
BTG Advisory is a boutique practice, providing commercial, strategic and partner-led advice, offering the broad range of professional services necessary to provide viable and effective solutions to businesses.
 
We provide these services to businesses, professional advisors, other stakeholders, investors and financial institutions, working with all the major UK clearing banks.
 
Property services
Eddisons is a national firm of chartered surveyors, delivering advisory and transactional services to owners and occupiers of commercial property, investors and financial institutions. The division includes Pugh & Co, the largest regional firm of commercial property auctioneers by number of lots.




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