Begbies Regulatory News (BEG)

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 -

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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

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.