Source - LSE Non-Regulatory
RNS Number : 7573R
Begbies Traynor Group PLC
31 October 2023
 

Contact | Begbies Traynor Group - The UK



 


 

25% Rise in Critical Financial Distress Pushes Almost 40,000 UK Companies Towards Insolvency

 

·    There has been a marked increase in the number of businesses in 'critical' financial distress since Q2, up nearly 25% to 37,722 in Q3 2023.

·    Almost 480,000 businesses across the UK in 'significant' financial distress, 8.7% higher than Q2 and 4.7% higher than the same period in 2022 (Q3 2022: 456,949).

·    18 of the 22 sectors covered by Red Flag saw a double digit increase in companies in critical financial distress compared to the prior quarter.

·    Serious concerns regarding the outlook for the Construction and Real Estate & Property Services sectors as critical financial distress jumps 46% and 38% respectively on Q2. 

·    Critical financial distress also rose considerably in the retail sector, with Food & Drug Retailers up 33% and General Retailers up 14%, compared to the previous quarter.

 

The latest Begbies Traynor "Red Flag Alert" report, which has provided a snapshot of British corporate health for the past 15 years, paints a worrying picture for UK businesses as nearly 40,000 companies are revealed to be in a critical financial situation as the pressure of higher interest rates, resilient inflation and weaker consumer confidence take their toll. These pressures are now clearly being seen beyond consumer facing sectors and are becoming widespread, particularly within the construction and property sectors.

With many UK companies accustomed to years of near zero interest rates and access to Government-backed Covid support loans, the new world of elevated interest rates will continue to push many businesses the very edge of failure.

Evidence of the stress in the UK economy can be seen in the rapid quarter-on-quarter growth in the number of companies in critical financial distress, up 24.9% to 37,722. The sectors driving this increase were the Construction, Real Estate & Property Services and Support Services, up 46%, 38% and 28% respectively.

The Construction and Real Estate companies now account for almost 30% of all companies in critical financial distress as the slowdown in the residential housing market continues to bite. Rises in the retail sector, with Food & Drug Retailers up 33% and General Retailers up 14% quarter on quarter also contributed to the overall uplift in critical financial distress.

Additionally, there has also been a marked acceleration in the number of companies experiencing significant financial distress with 478,176 businesses now affected, up 8.7% on the prior quarter (Q2 2023: 439,815). The Construction and Support Services sectors accounted for nearly 50% of the quarter-on-quarter rise, as they were up by 17.4% or 10,741 companies, and 11.1% or 7,584 companies, respectively.

Julie Palmer, Partner at Begbies Traynor, said: "Tens of thousands of British companies are now in financial dire straits now that the era of cheap money is firmly behind us.

"Businesses that had loaded up on debt at rock-bottom rates, and were only able to cling on during the pandemic thanks to Government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future.

"Taken together with stubbornly high inflation and weak consumer confidence, many of these businesses will inevitably head towards failure.

"The construction industry, which has long been a bellwether for the health of the economy, looks particularly vulnerable with over 70,000 firms now in significant financial distress and circa 6,000 in much more serious critical financial distress - often a precursor to formal insolvency.   

"These businesses must now struggle through a period of inflation-eroded margins, weak demand and a looming recession. It is likely to be an insurmountable task for many.  

"This latest data highlights how the debt storm, which has been brewing for years, but had been held off by several measures to provide breathing space for companies, may very well break. Something that will send shockwaves through the whole economy."

Ric Traynor, executive chairman of Begbies Traynor, commented: "The current combination of macro-economic risks is piling on the pressure and really starting to take its toll on UK businesses, as evidenced by the latest research data from Red Flag Alert.

"I am hopeful that stabilising inflation and interest rates will start to slow the rising levels of distress in the economy in due course, but history dictates that this will take some time and insolvencies often peak long after a recovery has started. Unfortunately for many businesses, time is not on their side.

"The ongoing geo-political uncertainty, which is particularly affecting commodity and energy prices, coupled with high interest rates, weak consumer demand, sticky levels of inflation and an anticipated recession over the coming year, may simply prove too much for many of these distressed businesses.

"So, given the challenges the economy still faces, the outlook remains pretty bleak, and I expect many more 'zombie' companies to continue to fail for some time to come as the impact of this economic backdrop makes them increasingly unviable."

 Top 10 Sector Ranking - Critical Financial Distress (Number of Companies in Critical Financial Distress)

1.    Construction (5,919)

2.    Support Services (5,741)

3.    Real Estate & Property Services (4,994)

4.    Professional Services (3,032)

5.    General Retailers (2,759)

6.    Telecommunications & Information Technology (2,264)

7.    Health & Education (1,924)

8.    Media (1,481)

9.    Food & Drug Retailers (1,222)

10.  Bars & Restaurants (1,073)

Top 10 Sector Ranking - Significant Financial Distress (Number of Companies in Significant Financial Distress)

1.    Support Services (75,589)

2.    Construction (72, 257)

3.    Real Estate & Property Services (51,240)

4.    Professional Services (44,491)

5.    Telecommunications & Information Technology (32,234

6.    General Retailers (30,177)

7.    Health & Education (30,176)

8.    Media (18,921)

9.    Financial Services (15,123)

10.  Other Manufacturing (13,535)

 

Significant distress by region

1.    London (137,515)

2.    South East (83,598)

3.    Midlands (58,053)

4.    North West (49,856)

5.    South West (34,332)

6.    Yorkshire (32,837)

7.    East of England (30,462)

8.    Scotland (22,839)

9.    Wales (12,613)

10.  North East8480

11.  Northern Ireland (7,526)

12.  Misc (65)

Critical distress by region

1.    London (12,146)

2.    South East (6,233)

3.    Midlands (4,242)

4.    North West (4,007

5.    Yorkshire (2,495)

6.    South West (2,405)

7.    East of England (2,261)

8.    Scotland (1,783)

9.    Wales (953)

10.  North East (658)

11.  Northern Ireland (538)

12.  Misc (1)

 

--ENDS--

For further information, contact:

MHP Communications:

Katie Hunt

Charles Hirst

Matthew Taylor

 

 

07595 461 231

07827 662 831

BegbiesCorporate@mhpgroup.com

 

Notes to Editors

About Red Flag Alert

 

Red Flag Alert has been measuring and reporting corporate financial distress since 2004. It has become a benchmark on the underlying health of companies across every sector and region of the UK. 

Red Flag Alert's algorithm measures corporate distress signals, drawing on company accounts and factual, legal and financial data from a wide range of relevant sources, including intelligence from the UK's leading insolvency business, Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance the risk factors analysed in the data. The reported results have been backdated to ensure the consistency of comparative data.

Algorithms which drive Red Flag Alert have been improved and updated for the latest report, with companies now measured against a new scorecard of indicators to give greater insight and accuracy into the health of businesses. Two years of work by data scientists analysing eight years of data, taking into consideration pre, during and post-pandemic insights to find signals and patterns indicating businesses in distress, combined with AI tools, means that Red Flag Alert aims soon to be able to predict how many companies in trouble will go on to fail.

The release refers to the number of companies experiencing "Significant" or "Critical" problems, which are those that 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.

 

Red Flag Alert is commercially available to all businesses, on an annual subscription basis, to help them better understand risk and exposure and help subscribers to plan 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 plc

 

Begbies Traynor Group plc is a leading professional services consultancy, providing services from a comprehensive network of UK and off-shore locations.  Our professional team include licensed insolvency practitioners, accountants, chartered surveyors, bankers and lawyers. We provide the following services to our client base of corporates, financial institutions, the investment community and the professional community:

 

·      Insolvency

Corporate and personal insolvency

 

·      Financial advisory

Business and financial restructuring; debt advisory; forensic accounting and investigations

 

·      Transactional support

Corporate finance; business sales agency; property agency; auctions

 

·      Funding

Commercial finance broking; residential mortgage broking

 

·      Valuations

Commercial property, business and asset valuations

 

·      Projects and development support

Building consultancy; transport planning

 

·      Asset management and insurance

Commercial property management; insurance broking; vacant property risk management

 

Further information can be accessed via the group's website at www.ir.begbies-traynorgroup.com

 

This information is provided by Reach, the non-regulatory press release distribution service of RNS, part of the London Stock Exchange. 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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
NRAQBLFXXBLXFBQ
Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account. AJ Bell logo

Related Charts

Begbies Traynor Group PLC (BEG)

-1.00p (-0.92%)
delayed 16:30PM