Begbies Regulatory News (BEG)

UK corporate financial health deteriorates since Article 50 was triggered

More than 475,000 UK businesses end Q1 2018 in state of 'Significant' distress

New research today reveals that thousands of UK businesses have experienced a deterioration in their financial health since Article 50 was triggered a little over a year ago, with increased levels of financial distress being seen across all sectors and regions of the UK.

According to Begbies Traynor's Red Flag Alert research for Q1 2018, which monitors the financial health of UK companies, 477,210 businesses were experiencing 'Significant' financial distress at the end of March 2018, up 33% compared to when Article 50 was triggered on 29 March last year (Q1 2017: 358,943).

While 'Significant' distress rose across every sector and region of the UK over the past 12 months, the sectors with the largest volumes of businesses in distress were Support Services (115,249 companies, up 40% year on year), Construction (60,541, up 26%), Real Estate & Property (41,624, up 46%) and Telecommunications (32,538, up 47%). Regionally, London saw the largest increase in Significant distress, up 42%, affecting 119,419 businesses in the Capital.

Other sectors that experienced large increases in financial distress over the period included Professional Services (up 46%), Financial Services (up 45%) and Automotive (up 15%); a worrying trend given the importance of these industries in the Government's negotiations over future trade deals.

According to the research, 255,131 UK businesses ended the period in a position of negative net worth1, while 110,266 demonstrated a considerable increase in their working capital deficit; both key indicators of financial distress.

Julie Palmer, Regional Managing Partner at Begbies Traynor, said:

"While uncertainty around the outcome of the Brexit negotiations has undoubtedly had an impact on business confidence across the UK, the economy has also faced a wide range of unexpected headwinds which have dampened progress over the past year. Currency fluctuations, rising interest rates, subdued consumer spending and a cooling property market are just some of the factors that have combined with growing political uncertainty to push nearly half a million UK businesses into financial distress over the past 12 months.

"Should these headwinds continue, they could impact the Government's bargaining power when it comes to negotiating new trade deals after the UK's exit from the European Union, which would be a major concern."

Ric Traynor, Executive Chairman of Begbies Traynor, commented:

"Although the UK economy is still growing, it is now starting to lag behind many other G20 members, with predicted GDP growth during 2018 of around 1.7%. The latest Red Flag figures reflect this slowdown with increased financial distress being felt across every sector and region of the UK.

"The UK's crucial Services sector experienced a major slowdown last month, as the impact of snow disruption, inflation and Brexit-related uncertainty hit output across the sector, while the Automotive industry has also experienced a downward trend, with declining car sales, job cuts and growing fears about restrictive future trade barriers with Europe. At the same time, the UK Construction sector last month suffered its biggest drop in activity since the 2016 Referendum vote, as Brexit concerns and the fallout from Carillion's collapse caused further delays in large infrastructure and construction projects.

"While the recent recovery in Sterling should put UK businesses who import raw materials into a stronger trading position, the biggest positive impact on business confidence is likely to come when we finally receive clarity over how our eventual exit from the EU will look. In the short term however, the most pressing issue is whether or not the Bank of England decides to raise interest rates next month. If they do, it could push many struggling businesses, particularly those with high levels of debt, into formal insolvency."

- 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 / Alice Osborn / Peter Lambie

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 £5k) 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.

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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.

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We provide these services to businesses, professional advisors, other stakeholders, investors and financial institutions, working with all the major UK clearing banks.

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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.