Last checked at 25 Oct 2018 07:00
25 October 2018
469,000 Businesses In 'Significant' Financial Distress
5% Increase compared to Q3 2017, however slowing Corporate Distress since Q2 2018
The number of UK companies rated as being in 'significant financial distress' during Q3 2018 has increased by 5% compared to the same quarter last year, according to the latest Red Flag Alert research data from Begbies Traynor, the UK's leading independent insolvency firm.
The research data, which monitors the financial health of UK companies - shows that during Q3 2018, 469,006 companies across the UK were in significant financial distress - an increase of almost 21,000 on Q3 2017. However, significant distress has fallen 1% since Q2 2018 indicating that UK business health may be showing some signs of stability.
Quarterly financial performance has been lifted by a strong summer for some sectors, with food & drug retailers down 2% (Q2: 12,269, Q3: 12,084), construction down 2% (Q2: 60,132, Q3: 59,111), general retail down 2% (Q2: 30,762, Q3: 30,123), printing and packaging down 2% (Q2: 2,228 , Q3: 2,188) and professional services down 2% (Q2: 26,497, Q3: 26,066).
However, the research also reveals this improvement in quarterly performance is not consistent across all sectors, with real estate up 2% (Q2: 42,748, Q3: 43,505) and hotels & accommodation up 2% (Q2: 5,076, Q3: 5,196).
Worryingly, significant business distress increased considerably year-on-year with real estate up 16% (Q3:17: 37,519, Q3:18: 43,505), utilities up 13% (Q3:17: 2,799, Q3:18: 3,153), hotels & accommodation up 10% (Q3:17: 4,717, Q3:18: 5,196) and financial services up 9% (Q3:17: 11,018, Q3:18: 12,049).
Julie Palmer, Partner at Begbies Traynor, said:
"The UK's barbeque summer - coupled with major events such as the World Cup - provided a feel good bubble for the UK economy. However, the fading of the summer sun has been accompanied by a reality check as consumers tighten their purse strings, with a 0.8% drop in retail sales from August to September, which included the largest decline in food sales since October 2015.
"This change, coupled with falling house prices and higher inflation across key essentials such as energy and fuel, have made UK consumers cautious, particularly as economic certainty around the details of the Brexit deal remain stubbornly elusive.
"While there has been a recent spate of positive company results - particularly those with a strong online offering - there have also been a series of very high profile collapses and profit warnings. While the headlines have focused on the high street, other "bellwether" sectors such as property and financial services, as highlighted in these figures, are showing worrying signs of increasing distress that needs to be addressed if we are to avoid a spiral towards static economic growth.
"With an early budget on the horizon, businesses will be waiting to see what measures the Chancellor can implement to arrest this decline, however the greatest domestic issue remains Brexit uncertainty which is the biggest elephant in the economic room."
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
"While the year-on-year increase in the number of businesses in significant financial distress is disappointing, the fall in distress between Q2 and Q3 2018 is particularly welcome.
"This, combined with strong wage growth, demonstrates that the widely anticipated economic meltdown ahead of Brexit has yet to materialise. However both investor and consumer confidence is fragile. An escalation of the trade war between the US and China and EU could have a detrimental impact on the UK, particularly amongst sectors which are heavily reliant on export, such as automotive and manufacturing.
"Businesses with a strong product offering in growing markets will always do well, however all businesses need to focus on the fundamentals - innovation, sales and financial management, as these will be key to staying ahead of both domestic and international competition.
"Those businesses that are quick to adapt in changing times will be the ones that thrive."
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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
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.