Begbies Regulatory News (BEG)

484,000 businesses in significant distress as consumer facing sectors falter

·; Number of businesses in significant distress now 484,000 - 14% of all economically active UK businesses.

·; Average insolvent company debt increases by 122% in past three years to £66,000

·; Businesses in 'critical' financial distress increases 5%

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, leisure and tourism sectors particularly badly affected.

The Red Flag Alert data for Q2 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 June 2019, with the average debt of insolvent companies more than doubling to £66,226 a year, from £29,872 in 2016. There was also a marked increase in the number of businesses in critical financial distress during the same period - often a precursor to formal insolvency - with a rise of 5% year-on-year.

Low consumer spending impacting business

Businesses reliant on the consumer economy continued to be impacted by falling sales which has affected financial performance across a number of key verticals. The latest Red Flag Alert research highlights rising financial distress in the following sectors; hotels & accommodation (8% rise, 5,095 (Q2 2018) to 5,516 (Q2 2019), sport & health clubs (5% rise, 8,481 (Q2 2018) to 8,940 (Q2 2019) and leisure & cultural activities (4% rise, 12,524 (Q2 2018) to 13,069 (Q2 2019). Additionally the online retail sector (sales via mail order or the internet) experienced a 12% increase in significant financial distress from 5,243 in Q2 2018 to 5,871 in Q2 2019.

Additionally, businesses indirectly reliant on the health of the consumer economy continued to be hit hard with real estate and property companies most affected by the weakest consumer spending since records began in the mid-1990s. This sector saw a 15% year-on-year increase in the number of companies in significant financial distress, rising from 43,085 in Q2 2018 to 49,342 in Q2 2019. The property/real estate sector also experienced a 2% quarter on quarter increase in significant distress (Q1 2018 - 48,309 to Q2 2019 - 49,342) - the highest quarterly percentage increase across any sectors measured in the red flag research.

Financial Services Sector

This latest research reveals increasing levels of significant distress within the financial services sector, with 12,666 businesses now affected, an increase of 5% compared to Q2 2018.

Not surprisingly, the increase in significant distress within this sector has negatively impacted the overall performance of London with a substantial 5% year on year rise in significant distress - the highest of any reported region with the Q2 2019 Red Flag Alert research. This deterioration has been exacerbated by the cooling of the real estate sector in the Capital, all which has resulted in more than 5,000 London businesses slipping into significant distress in the last year (117,683 in Q2 2018 to 123,196 in Q2 2019).

Even though the sector has shown some recovery in the last quarter, it continues to be affected by the uncertainty surrounding Brexit. Once a final decision has been agreed, then stability should return as the fundamentals of this sector remain reasonably good, subject to the other macro economic influences.

Julie Palmer, Partner at Begbies Traynor, said:

"This latest Red Flag Alert demonstrates the ongoing impact of economic and political uncertainty within the UK. While consumer spending has historically driven the UK economy, the latest figures demonstrate that falling spending is now clearly having an impact. This economic stagnation is stifling both business and consumer activity and could leave companies vulnerable unless certainty is restored so that consumers and businesses have the confidence to start spending again.

Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented: 

Aside from the ongoing uncertainty surrounding Brexit and rising distress within both the Capital and the property and construction sectors there are other more serious economic headwinds facing UK business. The spectre of protectionist economic policy and trade wars are a real threat to the global economy, with even the most respected economists fearing they could "shipwreck" growth and drive the UK towards recession.

We have already seen this with faltering economic performance within the Eurozone economies -and talk of a cut in interest rates in the US. These are not other countries "problems" but will affect many SME's who trade internationally or simply import goods from abroad.

- 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.