TIDMBEG
Begbies Traynor Group PLC
23 July 2018
UK corporate health deteriorates 9%, leaving 472,000 businesses
in financial distress
While financial distress remains at relative highs, the rate of
declining health has slowed
According to Begbies Traynor's Red Flag Alert research for Q2
2018, which monitors the financial health of UK companies, 472,183
businesses were experiencing 'Significant' financial distress at
the end of June 2018, up 9% compared to the same stage last year
(Q2 2017: 434,492) but down 1% compared to the previous three
months of the year (Q1 2018: 477,183).
Following a spate of positive economic updates over recent
weeks, the Red Flag Alert data also reveals that levels of
financial distress are increasing at a slower rate year on year
than during the previous four quarters (Q1 2018: +33%, Q4 2017:
+36%, Q3 2017: +27%, Q2 2017: +25%), which could be a tentative
sign of returning stability across the economy.
The sectors with the highest number of businesses in distress
year on year were Support Services (112,434, up 10%), Construction
(60,208, up 4%), Real Estate (42,254, up 19%), Telecoms (31,770, up
9%) and General Retailers (30,574, up 4%). However, on a quarterly
basis, levels of 'Significant' distress across these key sectors
appear to have stabilised, fluctuating between -2% and +1% compared
to the first quarter of 2018.
Regionally, businesses in the South of England continued to see
the biggest deterioration in their financial health, with London
being the UK's worst performing region, where 'Significant'
distress impacted 118,367 companies in the Capital alone (up 17%
year on year, but down 1% compared to Q1 2018).
According to the research, 251,495 UK businesses ended the
period in a position of negative net worth1, while 109,717
demonstrated a considerable increase in their working capital
deficit; both key indicators of financial distress.
Julie Palmer, Partner at Begbies Traynor, said:
"After a significant jump in financial distress during the first
quarter of 2018, a period marred by weak consumer confidence,
growing political uncertainty and the fallout from the 'Beast from
the East', we may now be seeing tentative signs of stability
returning to the UK economy in recent months.
"Although the volume of businesses in 'Significant' financial
distress remains at relative highs after four consecutive quarters
of accelerating distress, the rate of deterioration in UK corporate
health has slowed during Q2 2018, supported by recovering business
and consumer confidence, higher levels of employment, and continued
interest rate stability.
"Looking forward, while there's a chance this positive trend
could continue, the outlook for certain industries is looking
increasingly uncertain. The problems facing high street retail have
been well documented of late, with the recent epidemic of CVAs and
store closures being just the tip of the iceberg. However, the UK
Automotive sector looks to be most at risk in our view, facing job
cuts and a slowdown in production output and investment, as
industry pundits question how it will be able to compete with
European competitors post Brexit."
Ric Traynor, Executive Chairman of Begbies Traynor,
commented:
"With snow grinding thousands of UK businesses to a halt back in
March, the return of warmer weather in Q2 and a timely boost from
the royal wedding in May helped the UK bounce back to growth in
June, as our research and other key economic indicators point to a
steadying business environment across the country.
"Stronger growth in the UK's service sector, boosted by
increased demand for financial services, combined with a surprise
rebound in construction activity in June, which increased at its
fastest level in seven months, are both clear bellwethers for a
rebounding economy.
"However, with manufacturing growth down on last year, continued
inflationary pressure, slowing wage growth and potential rate rises
on the horizon, we're not out of the woods yet. There still remains
a heightened level of distress among UK businesses and the slight
improvement in the second quarter could yet prove to be
temporary."
- Ends -
1. 'Negative net worth' occurs when a company's liabilities
exceed its assets. The company does not necessarily need to declare
bankruptcy if they can service their debt in instalments. These are
often referred to as 'zombie' companies.
For further information, contact:
MHP Communications
Katie Hunt / Giles Robinson / Calum MacDougall / Pete Lambie /
Florence Mayo
Tel: 0203 128 8570
Email: Begbiescorporate@mhpc.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
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.
Corporate Finance
Springboard Corporate Finance, part of BTG Advisory, provides
high quality and professional corporate finance advice to dynamic
entrepreneurs, management teams and corporates across the UK
seeking to sell, buy or raise finance for their business.
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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