Last checked at 30 Jan 2019 07:00
481,000 businesses in significant financial distress as winter freeze impacts
· Number of businesses in significant financial distress leaps by almost 15,000 in Q4 2018
· Real Estate and Property hardest hit with 7% (3,134) increase from Q3 2018 - Q4 2018 and a 9% (4,013) increase YoY in the number of companies in significant distress
· Businesses now in 'critical' financial distress increases 25% YoY to 2,183
The number of businesses in 'significant' financial distress now stands at 481,000, leaping by 15,000 during Q4 2018, after a winter of uncertainty, according to the latest Red Flag Alert research from Begbies Traynor, the UK's leading independent insolvency firm.
The hardest hit sector was real estate and property, which not only saw a 7% (3,134) increase in the number of companies in significant distress from Q3 2018 to Q4 2018, but a 9% year on year increase, equating to 4,013 extra businesses.
The research data, which monitors the financial health of UK companies, also shows that thousands more companies in support services (4,245, a 4% increase), construction (2,599, a 4% increase) and professional services (1,027, a 4% increase) were plunged into significant financial distress during Q4 2018.
Surprisingly, the figures show that retail was not as badly affected as expected, with only a 2% increase in the number of companies in significant financial distress between Q3 and Q4 2018. This equated to an additional 529 businesses. However, Q4 is typically a strong cash trading period for most retailers, with any underlying problems in this sector likely to appear during Q1 2019.
Such was the impact of the slow end to the year that the number of companies in 'Critical Distress' has risen 25% in comparison to the same time in 2017 to 2,183.
Julie Palmer, Partner at Begbies Traynor, said:
"After a period of relative stability, these figures for Q4 show that UK businesses have experienced a winter of discontent. Customers for traditional shop-front retailers are going online and the ongoing uncertainty surrounding Brexit is having an effect on investment in sectors such as property and construction. It seems, for the last quarter at least, that big business is holding out for a decision on the terms of Brexit in order to see where investment is best placed, which is having a knock-on effect on consumer confidence.
"As such 2018 ended with reduced footfall and a reluctance to spend. Major businesses such as HMV went into administration during the Christmas period and others such as M&S and Debenhams reported poor Christmas trading. While the number of retailers in significant distress only increased slowly year on year since Q4 2017, we expect that this is due to heavy discounting giving retailers more cash and delaying their entry into danger. The industry should be braced for a tough start to 2019. However, others including Next fared better, demonstrating that a mix of quality product as well as developing a good online and offline offering will see retailers thrive.
"With 2019 set to be a year of change, businesses - not only retailers - will need to adapt and rapidly evolve to survive. The UK has awoken to a brave new world, and while businesses need to find out what grows best in their new environment, investors want to find out which fruit isn't poisonous to pick."
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
"The start of the year is always a crucial time for businesses and their shareholders. We are already seeing reports from major supermarkets, retailers, property developers and other sectors indicating the challenges and predictions for the year ahead.
"This Red Flag Alert research shows that while the high street has stolen the headlines, other sectors such as property and construction are facing challenging times. While investment, growth and sales strategies are in place for many businesses, in today's world they need to be able to change direction quickly. Far too many companies have been caught out by an unwillingness to rapidly evolve and adapt to the new climate we are in.
"Ongoing uncertainty surrounding global trade and the risk from protectionist policies is something which will impact most businesses. Combined with a lack of clarity on a final Brexit deal, all this makes for testing times for all businesses, and reinforces the importance of monitoring the bottom line to ensure there is enough working capital to weather the storms ahead."
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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.
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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.