TIDMBEG
Begbies Traynor Group PLC
29 April 2019
484,000 Businesses In Significant Financial Distress As
UK Economic Uncertainty Grows
-- Number of businesses in significant distress now 484,000 -
14% of all economically active UK businesses.
-- Businesses in 'critical' financial distress increases 17%.
New research from Begbies Traynor, the UK's leading independent
insolvency firm, reveals there are now 484,000 UK businesses in
significant financial distress, with the property sector
particularly affected, giving rise to concerns that the UK could
suffer a broader economic slowdown.
The Red Flag Alert data for Q1 2019, which monitors the
financial health of UK companies, found that 14% of all UK
businesses were experiencing 'significant' financial distress at
the end of March 2019, while the number of businesses in critical
distress during the same period - often a precursor to formal
insolvency - rose by 17% year-on-year.
Property Sector Woes
For the second quarter running the hardest hit sector was
property, which saw a 13% year-on-year increase in the number of
companies in significant financial distress rising to 48,182 (Q1
2019) from 42,512 (Q1 2018). Within this sector, companies involved
in buying, selling and letting took much of the hit with a 16%
increase in significant distress to 36,018 (Q1 2019) compared to
the same period last year - 30,947 (Q1 2018).
Construction, often considered the "bellweather" of the UK
economy, has also suffered. Compared to the same quarter last year
there are now 10% more companies involved in the development of
building projects in significant financial distress - 13,018 (Q1
2019) vs 11,813 (Q1 2018). This negative trend has also affected
other construction sub sectors with a 5% increase in significant
financial distress for those companies involved in the construction
of commercial buildings 2,451 (Q1 2019) vs 2,328 (Q1 2018). This
trend is also replicated in companies involved in the construction
of domestic buildings, where significant financial distress has
also increased by 5% to 6,209 (Q1 2019) from 5,919 (Q1 2018).
Financial Services Sector
This latest research also reveals increasing levels of
significant distress within the financial services sector, with
12,728 businesses affected, an increase of 5% compared to Q1 2018.
The sector has been particularly affected by the uncertainty
surrounding Brexit with some activity stalling pending clarity on
the final outcome. Once a final decision has been agreed, then
stability should return as the fundamentals of this sector remain
reasonably good.
Leisure Sector
Deterioration in financial performance has also been felt by the
Hotels & Accommodation and Leisure & Cultural sectors with
a 9% and 4% respective year-on-year increase of businesses in
significant financial distress. Both sectors rely heavily on
migrant workers and with net EU migration to the UK falling to its
lowest level since 2009, these businesses are having to deal with a
perfect storm of a reduced labour supply and increasing costs due
to the recent 5% increase in the national living wage.
Julie Palmer, Partner at Begbies Traynor, said:
"Many UK businesses are currently in limbo and deferring major
investment decisions. This combined with consumers holding back on
big ticket purchases has resulted in increasing significant
distress across many sectors.
"This trend is reflected in our latest Red Flag research which
clearly shows that capital intensive sectors - such as construction
and property - are suffering as both business and consumers have
taken a cautious approach and limited their exposure. This is bad
news for the economy as construction accounts for 17% of all UK
businesses, employs almost 2.5m people and contributes 6% of the UK
economic output.
"Worryingly this data shows that this economic malaise is
spreading to the UK's dominant services sector and does need to be
stopped in its tracks by a combination of political certainty and a
commitment to support UK business, particularly SME's which are the
"engine room" of the UK economy."
Ric Traynor, Executive Chairman of Begbies Traynor Group plc,
commented:
"We have heard from businesses that Brexit uncertainty has been
a hindrance to business growth and investment. There has already
been a number of high-profile firms announcing their decision to
invest in other countries, which not only impacts regional
economies, but also the SME supply chain.
"However, the combination of faltering European economies and a
potential trade war between the US and Europe could have a far
wider impact on UK businesses than our domestic issues.
"Yet, with employment currently a record high of 32.7 million
and GDP still growing, the UK's economic foundations remain strong.
If the government is able to right the ship over the next few
months, providing greater certainty to businesses and regaining
consumer confidence, then there is still time to head to calmer
waters and avoid a storm."
- Ends -
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 GBP5k) 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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