RCS - Begbies Traynor - Latest Red Flag Alert Report for Q3 2023

Begbies TraynorAnnouncement

31/10/2023 08:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231031:nRSe7573Ra&default-theme=true

RNS Number : 7573R  Begbies Traynor Group PLC  31 October 2023

 

 

25% Rise in Critical Financial Distress Pushes Almost 40,000 UK Companies
Towards Insolvency

 

·    There has been a marked increase in the number of businesses in
'critical' financial distress since Q2, up nearly 25% to 37,722 in Q3 2023.

·    Almost 480,000 businesses across the UK in 'significant' financial
distress, 8.7% higher than Q2 and 4.7% higher than the same period in 2022 (Q3
2022: 456,949).

·    18 of the 22 sectors covered by Red Flag saw a double digit increase
in companies in critical financial distress compared to the prior quarter.

·    Serious concerns regarding the outlook for the Construction and Real
Estate & Property Services sectors as critical financial distress jumps
46% and 38% respectively on Q2.

·    Critical financial distress also rose considerably in the retail
sector, with Food & Drug Retailers up 33% and General Retailers up 14%,
compared to the previous quarter.

 

The latest Begbies Traynor "Red Flag Alert" report, which has provided a
snapshot of British corporate health for the past 15 years, paints a worrying
picture for UK businesses as nearly 40,000 companies are revealed to be in a
critical financial situation as the pressure of higher interest rates,
resilient inflation and weaker consumer confidence take their toll. These
pressures are now clearly being seen beyond consumer facing sectors and are
becoming widespread, particularly within the construction and property
sectors.

With many UK companies accustomed to years of near zero interest rates and
access to Government-backed Covid support loans, the new world of elevated
interest rates will continue to push many businesses the very edge of failure.

Evidence of the stress in the UK economy can be seen in the rapid
quarter-on-quarter growth in the number of companies in critical financial
distress, up 24.9% to 37,722. The sectors driving this increase were the
Construction, Real Estate & Property Services and Support Services, up
46%, 38% and 28% respectively.

The Construction and Real Estate companies now account for almost 30% of all
companies in critical financial distress as the slowdown in the residential
housing market continues to bite. Rises in the retail sector, with Food &
Drug Retailers up 33% and General Retailers up 14% quarter on quarter also
contributed to the overall uplift in critical financial distress.

Additionally, there has also been a marked acceleration in the number of
companies experiencing significant financial distress with 478,176 businesses
now affected, up 8.7% on the prior quarter (Q2 2023: 439,815). The
Construction and Support Services sectors accounted for nearly 50% of the
quarter-on-quarter rise, as they were up by 17.4% or 10,741 companies, and
11.1% or 7,584 companies, respectively.

Julie Palmer, Partner at Begbies Traynor, said: "Tens of thousands of British
companies are now in financial dire straits now that the era of cheap money is
firmly behind us.

"Businesses that had loaded up on debt at rock-bottom rates, and were only
able to cling on during the pandemic thanks to Government support, must now
deal with a financial reality check as higher interest rates hit working
capital for the foreseeable future.

"Taken together with stubbornly high inflation and weak consumer confidence,
many of these businesses will inevitably head towards failure.

"The construction industry, which has long been a bellwether for the health of
the economy, looks particularly vulnerable with over 70,000 firms now in
significant financial distress and circa 6,000 in much more serious critical
financial distress - often a precursor to formal insolvency.

"These businesses must now struggle through a period of inflation-eroded
margins, weak demand and a looming recession. It is likely to be an
insurmountable task for many.

"This latest data highlights how the debt storm, which has been brewing for
years, but had been held off by several measures to provide breathing space
for companies, may very well break. Something that will send shockwaves
through the whole economy."

Ric Traynor, executive chairman of Begbies Traynor, commented: "The current
combination of macro-economic risks is piling on the pressure and really
starting to take its toll on UK businesses, as evidenced by the latest
research data from Red Flag Alert.

"I am hopeful that stabilising inflation and interest rates will start to slow
the rising levels of distress in the economy in due course, but history
dictates that this will take some time and insolvencies often peak long after
a recovery has started. Unfortunately for many businesses, time is not on
their side.

"The ongoing geo-political uncertainty, which is particularly affecting
commodity and energy prices, coupled with high interest rates, weak consumer
demand, sticky levels of inflation and an anticipated recession over the
coming year, may simply prove too much for many of these distressed
businesses.

"So, given the challenges the economy still faces, the outlook remains pretty
bleak, and I expect many more 'zombie' companies to continue to fail for some
time to come as the impact of this economic backdrop makes them increasingly
unviable."

  Top 10 Sector Ranking - Critical Financial Distress (Number of Companies in   Top 10 Sector Ranking - Significant Financial Distress (Number of Companies in
 Critical Financial Distress)                                                   Significant Financial Distress)

 1.    Construction (5,919)                                                     1.    Support Services (75,589)

 2.    Support Services (5,741)                                                 2.    Construction (72, 257)

 3.    Real Estate & Property Services (4,994)                                  3.    Real Estate & Property Services (51,240)

 4.    Professional Services (3,032)                                            4.    Professional Services (44,491)

 5.    General Retailers (2,759)                                                5.    Telecommunications & Information Technology (32,234

 6.    Telecommunications & Information Technology (2,264)                      6.    General Retailers (30,177)

 7.    Health & Education (1,924)                                               7.    Health & Education (30,176)

 8.    Media (1,481)                                                            8.    Media (18,921)

 9.    Food & Drug Retailers (1,222)                                            9.    Financial Services (15,123)

 10.  Bars & Restaurants (1,073)                                                10.  Other Manufacturing (13,535)

 Significant distress by region                                                 Critical distress by region

 1.    London (137,515)                                                         1.    London (12,146)

 2.    South East (83,598)                                                      2.    South East (6,233)

 3.    Midlands (58,053)                                                        3.    Midlands (4,242)

 4.    North West (49,856)                                                      4.    North West (4,007

 5.    South West (34,332)                                                      5.    Yorkshire (2,495)

 6.    Yorkshire (32,837)                                                       6.    South West (2,405)

 7.    East of England (30,462)                                                 7.    East of England (2,261)

 8.    Scotland (22,839)                                                        8.    Scotland (1,783)

 9.    Wales (12,613)                                                           9.    Wales (953)

 10.  North East8480                                                            10.  North East (658)

 11.  Northern Ireland (7,526)                                                  11.  Northern Ireland (538)

 12.  Misc (65)                                                                 12.  Misc (1)

 

--ENDS--

For further information, contact:

 MHP Communications:

 Katie Hunt           07595 461 231

 Charles Hirst        07827 662 831

 Matthew Taylor       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 (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.

 

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 (http://www.ir.begbies-traynorgroup.com)

 

This information is provided by Reach, the non-regulatory press release distribution service of RNS, part of the London Stock Exchange. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  NRAQBLFXXBLXFBQ