TIDMBEG
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
significant(1) 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 critical(2)
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 GBP5k) 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 GBP5k) filed against them
(3) UNTWO 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 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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