TIDMBEG
Begbies Traynor Group PLC
17 January 2018
Half a million UK businesses start 2018 in 'Significant'
financial distress
New research from Begbies Traynor, the UK's leading independent
insolvency firm, reveals that nearly half a million businesses
across the country ended 2017 in a state of 'Significant' financial
distress, as potentially 2018 looks set to be another challenging
year for the UK economy.
According to Begbies Traynor's Red Flag Alert research for Q4
2017, which monitors the financial health of UK companies, 493,296
businesses were experiencing 'Significant' financial distress at
the end of the 2017, up 36% compared to the same period last year
(Q4 2016: 361,856) and 10% higher than the previous quarter (Q3
2017: 448,011).
Begbies Traynor warns that a number of macro-economic pressures
last year contributed to this considerable increase in distress,
with the combination of rising inflation, stagnant real wage
growth, a weak Pound, political uncertainty, November's rise in
interest rates, and the ever-tightening credit environment putting
increasing financial stress on businesses across the country. As a
result, 258,349 UK businesses ended the year in a position of
negative net worth1, while a further 154,251 demonstrated a
worrying increase in their working capital deficit.
The data shows that 'Significant' distress rose across every
sector and region of the UK over the past 12 months. Support
Services was the worst performing sector by volume, with 121,095
businesses showing signs of financial difficulty at the end of
2017, up 43% on last year. Over the same period, financial distress
in the UK Construction industry grew 31% impacting 62,294 firms,
while 'Significant' financial distress in the Real Estate sector
increased by 46%, hitting 40,508 companies. These three sectors
alone made up 45% of all UK businesses in 'Significant' financial
distress.
However, there was more positive news for businesses with a
strong export book who benefitted from the devaluation of the
Pound, particularly within the manufacturing and engineering
sector.
Geographically, the region with the most affected businesses was
London, where 121,528 companies ended the period in a state of
'Significant' financial distress, up 13% on Q4 2016; representing
25% of businesses in distress nationally.
Julie Palmer, Partner at Begbies Traynor, said:
"The number of UK businesses experiencing 'Significant'
financial distress during Q4 2017 is of real concern, as a perfect
storm of macroeconomic headwinds pushed nearly 500,000 firms into
significant distress. Our data shows that no region or industry has
entered the New Year unaffected, as the whole economy felt the
combined drags of the inflationary environment, higher interest
rates, growing business uncertainty, tighter credit availability
and subdued consumer spending.
"When the overall business environment is so challenging,
unfortunately there can be few real winners, however certain
sectors of the economy are certainly feeling the pinch more than
other. In particular, the vast UK support services sector saw a
spike in distress as their stretched customers reined back
spending, the construction industry saw the lowest levels of
optimism in five years while the real estate sector felt the full
impact of the increasingly stagnant UK housing market."
Ric Traynor, Executive Chairman of Begbies Traynor,
commented:
"Prolonged exchange rate weakness undoubtedly hit some
businesses hard last year and despite a recent recovery in
Sterling, this improvement is yet to feed through in terms of any
widespread recovery in corporate health. Meanwhile, the impact of
continued political and economic uncertainty surrounding the
ongoing Brexit negotiations cannot be underestimated.
"Looking forward, UK growth is widely expected to be sluggish
again in 2018, so it's important that companies focus on staff
engagement and business efficiency, in line with the Government's
push for productivity this year. For the thousands of businesses
now showing signs of financial ill health, prudent cost management,
sustained improvements in productivity, and finding innovative ways
to stay ahead of the competition will be critical to surviving
beyond the next 12 months."
- Ends -
1. 'Negative net worth' occurs when a company's liabilities
exceed its assets. The company does not necessarily need to declare
bankruptcy if they can service their debt in instalments. These are
often referred to as 'zombie' companies.
For further information, contact:
MHP Communications
Katie Hunt / Giles Robinson / Calum MacDougall / Alice Osborn /
Peter Lambie
Tel: 0203 128 8570
Email: Begbiescorporate@mhpc.com
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 GBP5k) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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