TIDMBEG
Begbies Traynor Group PLC
17 April 2020
Coronavirus pushes financially distressed companies over the
half-million mark
-- Number of businesses in significant distress stands at
509,000 - the highest number measured by the Red Flag Alert
research
-- Impact of coronavirus lockdown sees the largest quarterly
increase since the end of 2017 - 15,000 more businesses in
significant distress (3%) since Q4 2019
-- Record figure likely to be the tip of the iceberg, as full
Covid-19 impact will build through Q2
-- Number of critically distressed companies jumps 10% in the last quarter
The latest Red Flag Alert data for Q1 2020 found there were
large numbers of UK businesses experiencing significant financial
distress at the end of March 2020, with the overall figure now
exceeding half a million for the first time.
New research from Begbies Traynor Group, the UK's leading
independent insolvency and advisory firm, finds the largest
quarterly increase in the number of businesses in significant(1)
financial distress since the end of 2017 to 509,000 - the highest
number recorded by this research.
In just three months, factors including the coronavirus pandemic
has pushed more than 15,000 businesses into significant financial
distress with the data showing that SMEs have been chiefly
affected. Of the 509,000 in distress, 504,000 are businesses with
under 250 employees highlighting the vulnerability of smaller
businesses. Although the Government has introduced support
measures, including the Coronavirus Business Interruption Loan
Scheme (CBILS), some firms have struggled to gain access to the
government-backed loans.
Of even greater concern is the increase of businesses in
critical distress(2) - usually a precursor to insolvency - with a
10% increase in the past quarter alone. This figure would have been
even higher, but creditors have been held back from taking court
action due to the lockdown. There are now 2,289 businesses in
critical distress with the most notable increases in the past
quarter a 37% increase in bars and restaurants (Q4 2019, 87 to Q1
2020, 119), 21% increase in real estate and property (Q4 2019, 128
to Q1 2020, 155), 11% increase in construction (Q4 2019, 509 to Q1
2020, 563) and 8% increase in both general retail (Q4 2019, 116 to
Q1 2020, 125) and manufacturing (Q4 2019, 124 to Q1 2020, 134).
Julie Palmer, Partner at Begbies Traynor, said:
" The coronavirus pandemic is a true 'black swan' event that has
decimated short term business financial performance. Although it is
still early days and with no end to the lockdown in sight things
could get much worse, with the Red Flag research highlighting
landmark levels of financial distress already.
"With many SME's yet to access government funding such as CBILS,
many will simply run out of cash, particularly with the April pay
run approaching and payment for furloughed staff still outstanding.
The Red Flag research demonstrates that many businesses were being
cut close to the root before this crisis started to affect the
economy and may be left with little option but to cut their losses
with the knowledge that they would never be able to pay back a
loan, no matter what the terms.
"While the loss of a business is devastating, UK business owners
are talented entrepreneurs and after coronavirus will find
opportunities. At this moment, we just have to anticipate what
those opportunities are."
Sectors in distress hit hard since 2014
A look back at recorded data since 2014 demonstrates a huge
increase for certain sectors. Those sectors which have seen the
largest increases in significant distress are utilities (132% Q1
2014, 1,472 to Q1 2020, 3,409 companies), real estate and property
services (104% from Q1 2014, 27,658 to Q1 2020, 56,421) and sport
and health clubs (86% Q1 2014, 5,124 to Q1 2020, 9,553).
Year-on-year, all but one (printing and packaging) of the 22
sectors monitored by the Red Flag Alert research have seen
increases in the number of companies in significant financial
distress over the past twelve months. In total, almost 25,000 more
businesses slipped into financial distress in the past 12 months,
with real estate and property (17% increase from Q1 2019, 48,429 to
Q1 2020, 56,421), sport and health (8% from Q1 2019, 8,844 to Q1
2020, 9,553) and food and beverage (7% from Q1 2019, 9,832 to Q1
2020, 10,499) sectors seeing the largest percentage increases.
The hardest hit during the last quarter have been real estate
and property (6% increase Q4 2019, 53,159 to Q1 2020, 56,421),
hotels and accommodation (5% increase Q4 2019, 5,654 to Q1 2020,
5,914), construction (4% increase Q4 2019, 63,153 to Q1 2020,
65,456) and health and education (4% increase Q4 2019, 28,544 to Q1
2020, 29,650).
Ric Traynor, Executive Chairman of Begbies Traynor Group plc,
commented:
"We hope that the concerted effort made by the Treasury to stand
behind UK businesses through its package of measures proves to be
successful so that the business community and, ultimately the UK
economy can withstand the huge pressures placed upon it during this
time. The truth is that this crisis has hit all business owners by
complete surprise. They weren't ever expecting to face such a drop
off in activity or footfall, and few can be prepared for such a
cliff edge in revenue.
"Those businesses with strong balance sheets and access to
funding will be able to reorganise their operations and survive the
financial shock of this pandemic, while others will unfortunately
not have the resources to carry them through this emergency and the
uncertainty to follow.
"This latest data from our Red Flag research suggests that UK
businesses continued to struggle as the economy slowed last year,
and that is before the full effects of COVID-19. Consequently, we
expect these numbers to be the "tip of the iceberg" and as the year
progresses we expect to see the number of organisations falling
into significant and critical financial distress and ultimately
insolvency to materially increase. With finite resources to bail
out companies, the government has difficult choices to make
concerning which companies to save based on which have the
strongest footing to thrive long-term. As with the collapse of
Flybe and Thomas Cook, there are going to be tough decisions ahead
which must be based on sound economic principals if the money is to
be recovered."
- Ends -
1 'Significant' distress is those businesses with minor CCJs (of
less than GBP5k) filed against them or which have been identified
by Red Flag Alert'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.
2 'Critical' distress are those businesses with minor CCJs (of
more than GBP5k) filed against them
For further information, contact:
McCann PR & Social
Ian Stanley / Tom Chaplin
Tel: 0121 713 3566 / 07974 266458
Email: Begbies@mccann.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
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.
Notes to editors
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.
The group has 735 staff and partners and the professional staff
include licensed insolvency practitioners, accountants, chartered
surveyors and lawyers.
The group's services include:
Business recovery and financial advisory
Corporate and personal insolvency - we handle the largest number
of corporate appointments in the UK, principally serving the
mid-market and smaller companies.
Corporate finance - buy and sell side support on private company
transactions.
Financial advisory - forensic accounting and investigations,
debt advisory, business and financial restructuring, due diligence
and transactional support.
Property advisory and transactional services
Valuations - valuation of property, businesses, machinery and
business assets.
Property consultancy, management and planning - building
consultancy, commercial property management, specialist insurance
and vacant property risk management, transport planning and
design.
Transactional services - sale of property, machinery and other
business assets through physical and online auctions; business
sales agency; commercial property agency focussed on northern and
eastern England.
Further information can be accessed via the group's website at
www.begbies-traynorgroup.com/investor-relations
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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