Begbies Regulatory News (BEG)

20 July 2015

UK FOOD SUPPLY CHAIN ON THE BRINK AS SUPERMARKETS TIGHTEN BELTS STILL FURTHER

Number of UK food suppliers experiencing 'Significant' financial distress increases 54% in 12 months

As the UK's largest supermarkets up their game in the race to win back customers from the German discounters, their means of slashing prices and delaying payments to suppliers means that the food retail industry has never been tougher for the UK's smallest food suppliers, independent grocers and farmers, warns business recovery specialists Begbies Traynor.

According to Begbies Traynor's Red Flag Alert research for Q2 2015, which monitors the financial health of UK companies, the UK's food retailers continue to experience rising 'Significant' financial distress, increasing 38% to 5,258 struggling businesses over the past year (Q2 2014: 3,804), 97% of which (5092) are SMEs. However in reality the UK's food supply chain that keeps these stores stocked is by far the biggest loser.

During Q2 2015, the UK Food and Beverage Manufacturers, which include many of the food suppliers and farmers that supply the major UK headquartered supermarkets, witnessed the highest year on year increase in 'Significant' distress of all sectors monitored by the Red Flag research, rising 54%, with 1,622 companies now struggling to make ends meet; up from 1,052 at the same stage last year.

Within this sector, 1,436 SME food suppliers are bearing the brunt of the supermarkets' drastic turnaround strategies and the new savage landscape in the UK retail food industry, representing 89% of all struggling companies within this sector.

Julie Palmer, Partner and retail expert at Begbies Traynor, said:

"With Tesco recently hailing the success of its Q1 performance after four rounds of price cuts since January and even Waitrose now joining the sector's discounting foray, clearly the novelty of a bargain continues to resonate with consumers. Unfortunately the retail environment is set to become even bleaker for the UK's small food suppliers who are facing the harsh reality that price slashing is not just a short term pain but something that's here to stay.

"The supermarkets have managed to successfully rebase their own models by reducing product ranges, moving away from bulk-buy offers and squeezing supplier margins still further, while failing to clean up their act on late payments, taking more than a month longer than agreed terms to settle debts with suppliers. Some are even looking into launching their own food manufacturing facilities to give them even tighter control over costs and the ability to offer still more aggressive pricing - signalling yet another nightmare scenario on the horizon for the UK food supply chain.

"While it's a welcome development that the Groceries Code Adjudicator now has the power to fine supermarkets up to one percent of their UK turnover if found to be in breach of the Code, this is unfortunately unlikely to have a major positive impact for the supply chain, as a recent sector study found that almost one in five suppliers to the UK's 10 biggest retailers are reluctant to raise any issues with the industry regulator for fear of retribution from their largest source of income."

- Ends -

For further information contact:

MHP Communications

Katie Hunt / Jade Neal / Giles Robinson / Jennifer Iveson / Charlie Bristow

Tel: 0203 128 8100

Email: Begbiescorporate@mhpc.com

Notes to editors:

Levels of 'Significant' financial distress (Q2 2014 vs Q2 2015)

About Begbies Traynor Group

Begbies Traynor Group plc operates from 43 UK locations through two operating divisions.

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. We provide a range of specialist professional services primarily to businesses, their professional advisors and the major banks covering insolvency, restructuring and risk management activities.

Eddisons is a leading UK firm of chartered surveyors, offering a wide range of specialist services to banks, insolvency practitioners, and owners and occupiers of commercial property. The core services offered are valuation and disposal of property including fixed charge property receiverships; valuation and disposal of machinery and business assets; auctions; insolvency insurance brokerage; property and facilities management; and building consultancy and ratings valuations.

Begbies Traynor Group is listed on AIM (Ticker: BEG). Further information on Begbies Traynor Group can be accessed via the Group's website at www.begbies-traynorgroup.com.

About Red Flag Alert

Red Flag Alert measures corporate distress signals through a comprehensive and complex methodology, drawing on factual legal and financial data from a wide range of relevant sources for companies that have been trading for over a year.

The release refers to the numbers of companies experiencing 'Critical' problems which are those with CCJs totalling over £5,000 within a three month period or winding-up petitions against them or which have entered Corporate Voluntary Arrangements.

The release also 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