RCS - Begbies Traynor - Latest Red Flag Alert Report for Q4 2023

Begbies TraynorAnnouncement

22/01/2024 07:00

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RNS Number : 3723A  Begbies Traynor Group PLC  22 January 2024

 

 

More than 47,000 UK businesses start 2024 on the edge of collapse after
critical financial distress jumps over 25% again

 

·    The levels of 'critical' financial distress jumped dramatically in Q4
2023, up 25.9% on the prior quarter (Q3 2023: 37,772), leaving more than
47,000 businesses near collapse in the UK at the start of 2024.

·    This represents the second consecutive period where critical
financial distress has grown by around a quarter.

·    539,900 UK businesses are now in 'significant' financial distress,
12.9% higher than Q3 2023 and 5.6% higher yoy (Q4 2022: 511,093).

·    Every sector of the 22 covered by Red Flag Alert saw critical
financial distress increase on the prior period, of the 22, 18 saw at least
double-digit growth.

·    In Q4 2023, critical financial distress grew rapidly in the
Construction (+32.6%), Health & Education (+41.3%), Real Estate &
Property Services (+24.7%) and Support Services (+23.6%) sectors.

·    Serious concerns grow over the Construction and Real Estate sectors
which still represent nearly 30% of all businesses in critical financial
distress.

 

As we start 2024, the latest Begbies Traynor "Red Flag Alert" report, which
has provided a snapshot of British corporate health for over 15 years,
highlights the speed at which critical financial distress is growing in the UK
after the second consecutive quarter of c.25% growth.

The rapid growth across every sector in the economy means 47,477 businesses
are starting the new year in a precarious financial position. Historically, a
significant percentage of the businesses identified by Red Flag Alert as being
in critical financial distress will enter insolvency over the course of the
next year.

Across every sector monitored by Red Flag Alert, the levels of critical
financial distress grew quarter-on-quarter in Q4 2023, highlighting how the
current economic backdrop is having a detrimental impact on every corner of
the UK economy. The key sectors driving this increase continue to be the
Construction, Real Estate & Property and Support Services sectors, up
32.6%, 24.7% and 23.6% respectively, alongside Health & Education
(+41.3%).

This worrying picture for UK businesses can also be seen in the growing number
of businesses in significant financial distress, up nearly 13% in Q4 2023
versus the prior quarter. As at 31 December 2023, well over half a million
companies (539,900) were affected. The sectors driving this increase were
Construction (+15.3%), Health & Education (+19.2%), Real Estate &
Property Services (+21.3%) and Support Services (+9.1%).

Julie Palmer, Partner at Begbies Traynor, said: "After a difficult year for
British businesses that was characterised by high interest rates, rampant
inflation, weak consumer confidence and rising and unpredictable input costs,
we are now seeing this perfect storm impacting every corner of the economy.

"Now that the era of cheap money is firmly a thing of the past, hundreds of
thousands of businesses in the UK, who loaded up on affordable debt during
those halcyon days, are now coming to terms with the added burden this will
have on their finances.

"For some, a better-than-expected Christmas may kick these concerns down the
road for a little longer, but the rapid growth in the levels of critical
financial distress point to an economy that is waking up to the danger of debt
ladened businesses in a higher rates environment.

"As we saw in the previous quarter, the strain being placed on companies has
extended well beyond the consumer facing businesses with bellwether sectors,
like construction and real estate, now in serious jeopardy as over 15,000
businesses face high risk of failure.

"Sadly, for tens of thousands of British businesses who should be looking
ahead to 2024 with some degree of optimism, the new year will bring a fight
for survival as the debt storm that has been brewing for years looks like it
is breaking across the country."

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "As we start
the new year, the UK economy is in a difficult position after a challenging 12
months for British businesses who had to grapple with a number of unrelenting
macro-economic pressures that made the lives of business leaders difficult.

"As a result, we are seeing insolvency rates starting to accelerate in the UK
and our own empirical data highlights how this trend is likely to speed up in
2024 as the environment takes its toll on businesses.

"Later this year, we could see some respite for companies as inflation looks
like it may reach more palatable levels which in turn should result in
interest rates starting to climb down from current heightened levels.

"Unfortunately, there are no signs of an easy fix and, with geo-political
uncertainty continuing to rise and a hike in the national wage around the
corner, the backdrop is hardly improving for an economy that is still firmly
in recovery mode post-pandemic.

"For many businesses, I fear soldiering on in this environment will prove to
be one step too far and I expect thousands of debt-laden businesses to start
to fail this year."

 

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

 Distress (Number of Companies in Critical Financial Distress)      Distress (Number of Companies in Significant Financial Distress)

 1.    Construction (7,849)                                         1.    Construction (83,332)

 2.    Support Services (7,096)                                     2.    Support Services (82,431)

 3.    Real Estate & Property Services (6,228)                      3.    Real Estate & Property Services (62,176)

 4.    Professional Services (4,347)                                4.    Professional Services (51,412)

 5.    General Retailers (3,133)                                    5.    Health & Education (35,979)

 6.    Telecommunications & Information Technology (2,830)          6.    Telecommunications & Information Technology (35,475)

 7.    Health & Education (2,719)                                   7.    General Retailers (33,622)

 8.    Media (1,828)                                                8.    Media (21,247)

 9.    Financial Services (1,373)                                   9.    Financial Services (17,180)

 10.  Food & Drug Retailers (1,343)                                 10.  Leisure & Cultural Activities (14,983)
 Critical Distress by Region                                        Significant Distress by Region

 1.    London (14,221)                                              1.    London (154,312)

 2.    South East (7,884)                                           2.    South East (92,819)

 3.    Midlands (5,696)                                             3.    Midlands (66,389)

 4.    North West (4,951)                                           4.    North West (55,928)

 5.    Yorkshire (3,303)                                            5.    South West (39,618)

 6.    South West (3,271)                                           6.    Yorkshire (37,133)

 7.    East of England (2,960)                                      7.    East of England (34,307)

 8.    Scotland (2,245)                                             8.    Scotland (26,082)

 9.    Wales (1,360)                                                9.    Wales (14,591)

 10.  North East (836)                                              10.  North East (9,577)

 11.  Northern Ireland (747)                                        11.  Northern Ireland (9,069)

 12.  Misc (3)                                                      12.  Misc (75)

 

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

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