Begbies Traynor Group PLC Latest Red Flag Alert Report for Q2 2017

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Begbies Traynor Group PLC

31 July 2017

BIGGEST INCREASE IN FINANCIAL DISTRESS AMONG UK COMPANIES IN THREE YEARS

'Significant' financial distress up 25% year on year; the biggest annual increase since 2014

New research from Begbies Traynor, the UK's leading independent business recovery practice, shows that 329,834 UK companies were experiencing "Significant" financial distress at the end of Q2 2017, a 25% increase from Q2 2016 (263,517 companies), representing the largest annual increase since Q2 2014 and the largest number of corporates experiencing significant distress in at least 5 years*.

The Red Flag Alert research for Q2 2017, which monitors the financial health of UK companies, showed that SMEs made up the majority of this increase, with 'Significant' distress rising 26% to 308,423 businesses, while large companies saw distress rise by just 12% year-on-year to 21,411 businesses at the end of Q2 2017.

Among the sectors facing the largest increases in 'Significant' financial distress, property and construction saw substantial rises of 32% and 22% respectively, with 28,259 real estate businesses (Q2 2016: 21,373) and 40,495 construction companies (Q2 2016: 33,222) finishing the period in a state of 'Significant' financial distress, providing further evidence of a slowdown in the UK housing and construction markets.

Meanwhile, the research shows that the UK sectors most reliant on consumer spending have been hit particularly hard during the second quarter, with volumes of financial distress increasing year-on-year by 22% among leisure businesses (Q2 2017: 8,206 vs. Q2 2016: 6,700), 17% for general retailers (Q2 2017: 25,598 vs. Q2 2016: 21,939), 17% for automotive companies (Q2 2017: 10,741 vs. Q2 2016: 9,161) and 16% among bars & restaurants (Q2 2017: 13,635 vs. Q2 2016: 11,793).

Ric Traynor, Executive Chairman of Begbies Traynor, commented:

"Our Red Flag research shows that a recent loss of momentum in the economy is putting increased financial pressure on UK businesses, with SMEs bearing the brunt of this rising distress, as businesses contend with uncertainty over Brexit negotiations and an inconclusive election result, alongside rising costs.

"These significant increases in financial distress also point to a slowdown in business investment at a time when the overall growth rate of the UK economy remains stubbornly sluggish."

Julie Palmer, Partner at Begbies Traynor, says:

"While we are seeing rising levels of distress across all corners of the UK economy, the quarterly deterioration in the property and construction sectors is particularly concerning, raising doubts over whether they have strong enough foundations to cope with upcoming headwinds, from Brexit and the rising cost of imported goods to the widening skills gap and its impact on labour cost inflation.

"In the UK's consumer facing industries, weak real wage growth and rising levels of personal debt continue to put a strain on the retail, bars, restaurants and leisure sectors, where many businesses have been reluctant to fully pass on the inflationary impact of the weakened pound and higher staff costs from the National Living Wage, for fear of losing customers on price in an increasingly competitive marketplace.

"As the second half of 2017 begins, it's worrying that so many businesses, particularly SMEs, are facing such instability. These businesses, which are the backbone of our economy, need to be as robust as possible to fuel the UK's growth post-Brexit, yet these figures indicate that many will struggle to fund increases in working capital and invest in growth."

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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.

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

* The Red Flag Alert system was updated in 2012 to cover a broader range of stress indicators and provide a much stronger indication of the propensity to fail, amongst the UK's corporate community. As such, the data is only comparable going back to Q3 2012.

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 Financial Consulting provides transactional support, valuations and advisory services.

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

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July 31, 2017 02:01 ET (06:01 GMT)