Latest Red Flag Alert Report for Q3 2012

RNS Number : 0314P
Begbies Traynor Group PLC
19 October 2012
 



Begbies Traynor plc                                                                                                                                                                                      19 Oct 2012

 

 

A divided nation

 

Zombie SMEs stagnating natural UK recovery cycle

 

Latest Red Flag Alert Report for Q3 2012

 

The most recent Begbies Traynor Red Flag Alert research, published today (19 October), which monitors the financial health of "Corporate UK", shows a starkly divided nation with marked increases in financial distress amongst businesses based in the North and SMEs, whilst Southern based and larger businesses have shown marked improvements in financial health.  The quarter on quarter increase in 'Significant' distress levels amongst SMEs (up 10.5%) also indicates the growing impact of zombie businesses - those companies who are in debt and are only just generating sufficient cash to survive - and the choking effect they are having on the natural UK recovery cycle.

 

North South divide

 

Relatively stable levels of 'Combined' distress across the UK (categorised as companies experiencing 'Significant' or 'Critical' financial problems), up just 1% in Q3 2012 compared to Q2 2012, mask a clear divide in fortunes between companies in the North compared to the South. While Southern businesses (those based in London, the South East and the South West) witnessed a 7% decrease in 'Combined' distress levels in Q3 to 103,096 (Q2 2012: 111,206), businesses across the rest of the UK experienced a 9% increase in 'Combined' distress to 120,029 (Q2 2012: 110,137).

 

In the South, the improvement in corporate health has been driven primarily by an 18% reduction in 'Combined' distress amongst London based businesses and a strong recovery in the financial services sector (down 33% compared to Q2 2012), media (down 27%) and the consumer facing sectors including bars & restaurants (down 31%), general retailing (down 26%), leisure & culture (down 31%) and sports & recreation (down 26%).

 

The deterioration in the financial health of businesses throughout the rest of the UK was driven by particularly marked increases in 'Combined' distress in the East of England (up 13%), the North West (up 12%), Scotland (up 12%), Yorkshire (up 8%) and the Midlands (up 8%) and in the construction and real estate sectors (up 34% and 135% respectively) and the industrial sectors (transport & logistics up 71%, manufacturing up 28% and print & packaging up 58%).

 

Ric Traynor, Executive Chairman of Begbies Traynor Group, commented: "These figures demonstrate a clear North/South divide in the UK, with the international nature of the London economy, combined with higher employment levels in the South and therefore slowly improving consumer confidence, supporting strong improvements across the important financial services and media industries as well as the key consumer facing sectors.  However, the 9% increase in businesses experiencing 'Combined' distress across the rest of the UK is indicative of the challenges facing the Government in re-balancing the economy by developing growth industries beyond financial services and reducing the inequality that exists between the regions."

 

A twin track economy with SMEs in the slow lane

 

Across the UK, companies experiencing 'Critical' distress (the most severe risk level) were down 17% to 4,107 (Q2 2012: 4,947) compared to the previous three months, indicating a marked reduction in the number of companies with a high propensity to fall into insolvency in the next quarter.  However, this fall in critical distress does not represent an improving picture of corporate health overall.

 

Actions measured within the 'Critical' problems category - such as the issuing of CCJ's and winding up petitions - are typically at their lowest during Q3 due to seasonal factors including Court holidays. This has been exacerbated by both creditor forbearance and the fact that the majority of businesses, by instigating tougher credit control procedures and avoiding transacting with companies with poor credit scores and payment records, have reduced their need to resort to Court actions to recover unpaid bills.

 

However, companies in our 'Significant' problems category are an earlier stage indicator of the trend in the financial health of "Corporate UK" and these show a wide divergence in the health of SMEs compared to larger companies. Within this category, there has been a 10.5% increase in SMEs exhibiting signs of earlier stage distress to 208,067 (Q2 2012: 188,265) compared to a 61% decrease in large companies to 10,951 (Q2 2012: 28,123).

 

The increase in SMEs experiencing distress has been driven primarily by marked increases in specific sectors including; construction and real estate (up 41% and 148% respectively), transport & logistics (up 70%), print & packaging (up 52%) and hotels (up 66%). The regions showing the greatest increases in 'Significant' distress amongst SMEs include Scotland (up 22%), East of England (up 20%) and the North West (up 20%).  This increase may also reflect the considerable increase in the number of newly incorporated companies registered in the 2011/12 year, many of which have been formed by individuals pushed into starting their own businesses due to unemployment but, unaware of the risks involved in starting a new business, many are unfortunately already showing 'Significant' financial distress.  

Julie Palmer, Partner at Begbies Traynor, commented: "These figures demonstrate that an increasing number of SMEs are bearing the brunt of the current challenging credit and trading conditions. It is evident that larger businesses are exploiting their scale by enforcing lengthier payment terms on SME's. This, together with the disproportionate impact of higher energy prices and the limited availability of funding support, is combining to form a perfect storm for the UK's SME sector."

 

Julie Palmer continued: "Unfortunately the outlook for many of these SME's is poor. These zombie companies are only just generating sufficient cash to pay the interest on their debts and keep creditors at bay. Whilst many of these SMEs may survive with the benefit of low interest rates and creditor forbearance, they are in no position to deal with unexpected costs, lost orders or bad debts or to fund increases in working capital and invest in growth.  At a time when the hopes for a UK recovery are pinned on the private sector delivering growth and investment, it is clear that the Government needs to act quickly to ensure that credit conditions for SMEs are improved or risk choking off a recovery before it really gets started."

 

<ends>

 

 

Notes to editors:

About Begbies Traynor Group

Begbies Traynor Group plc is a specialist professional services consultancy providing independent professional advice and solutions to businesses, financial institutions, the accountancy and legal professions and individuals in the areas of recovery, corporate finance, investigations and risk management.  It is listed on AIM (Ticker: BEG).  Further information can be found at: www.begbies-traynorgroup.com

About Red Flag Alert

Red Flag Alert measures corporate distress signals through a comprehensive and complex methodology, drawing on factual legal and financial data from a wide range of relevant sources for companies that have been trading for over a year.

The survey monitors the numbers of companies experiencing difficulties in two categories: 'Significant' problems and 'Critical' problems.   Companies with 'Significant' problems 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.  Companies with 'Critical' problems are those with CCJs totalling over £5,000 within a three month period or winding-up petitions against them or which have entered Corporate Voluntary Arrangements.

'Combined' problems provide an overall picture of business distress and represent an aggregation of 'Significant'and 'Critical' problems

Following in-depth research and substantial development of Red Flag Alert the latest statistics now produced by the system cover a broader range of stress indicators and provide a much stronger indication of the propensity to fail, amongst the UK's corporate community.  Our research has shown that a wider range of aspects of a company's trading history can be utilised in determining their likely decline and need to be included in the measurement of 'Significant' corporate stress across all regions and industry sectors.  This change to the screening for 'Significant' problems means that we are unable to provide prior year comparatives at this time (and until we have collated a year's data under the new system).

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

 

For further information contact:

MHP Communications

Katie Hunt / Jade Neal                                                                                                                                        0203 128 8100

Begbiescorporate@mhpc.com 

 

'Combined' problems broken down by South and the Rest of the UK


South (including London)

Rest of UK

Total*

Sector

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

Automotive

2273

2383

-5%

3935

3583

10%

6,282

6,036

4%

Bars & Restaurants

3392

4926

-31%

4321

5616

-23%

7,839

10,674

-27%

Construction

9777

7395

32%

13168

9834

34%

23,190

17,456

33%

Financial Services

2057

3075

-33%

1571

1763

-11%

3,673

4,904

-25%

Food & Bevg Mfrg

312

295

6%

523

483

8%

848

789

7%

Food & Drug Retail

747

840

-11%

1163

1402

-17%

1,943

2,266

-14%

General Retail

3653

4938

-26%

4860

5792

-16%

8,625

10,868

-21%

Hotels & Accommodation

1366

1125

21%

1834

1164

58%

3,259

2,354

38%

Ind'l Transport & Logistics

1272

993

28%

2836

1663

71%

4,160

2,691

55%

Leisure & Culture

1960

2852

-31%

1894

2084

-9%

3,924

5,032

-22%

Media

3345

4570

-27%

2041

2352

-13%

5,470

7,028

-22%

Manufacturing

2380

2499

-5%

5080

4221

20%

7,551

6,796

11%

Others

8230

11231

-27%

8969

9775

-8%

17,400

21,267

-18%

Printing & Packaging

495

447

11%

714

452

58%

1,228

907

35%

Professional Services

6592

7133

-8%

6640

6411

4%

13,379

13,720

-2%

Real Estate & Property Services

17770

9340

90%

17608

7479

135%

35,959

17,262

108%

Sports & Recreation

1246

1693

-26%

1816

1812

0%

3,108

3,547

-12%

Support Services

8566

8949

-4%

9054

7783

16%

17,873

16,992

5%

Telecoms & IT

5895

6371

-7%

4441

4414

1%

10,486

10,908

-4%

Travel & Tourism

1444

1605

-10%

1919

1670

15%

3,386

3,334

2%

Uncoded

19086

26858

-29%

20858

25250

-17%

40,505

52,947

-23%

Utilities

98

41

139%

76

72

6%

176

115

53%

Wholesaling

1140

1647

-31%

1679

1760

-5%

2,861

3,450

-17%

All Sectors

103096

111206

-7%

117000

106835

10%

223,125

221,343

1%

 

* Total includes 3,029 companies in Q3 2012 which were uncoded and, therefore, could not be categorised within a given region (Q2 2012: 3,302)

 

'Combined' problems broken down by individual regions:

Region

Q2

2012

Q3

2012

%

change

East of England

17,475

19,743

13%

London

37,542

30,810

-18%

Midlands

26,643

28,838

8%

North East

5,067

5,327

5%

North West

20,577

23,019

12%

Nrthn Ireland

3,867

3,972

3%

Scotland

12,559

14,034

12%

South East

55,535

53,961

-3%

South West

18,129

18,325

1%

Uncoded

3,302

3,029

-8%

Wales

6,767

7,072

5%

Yorkshire & Humberside

13,880

14,995

8%

All Regions

221,343

223,125

1%

 

 

 

'Significant' problems broken down by Large and SME**:


Large companies

SMEs

Total

Region

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

East of England

582

1,370

-57%

18,831

15,749

20%

19,413

17,119

13%

London

3,320

9,950

-67%

26,865

26,901

0%

30,185

36,851

-18%

Midlands

1,131

2,598

-56%

27,152

23,384

16%

28,283

25,982

9%

North East

260

528

-51%

4,947

4,271

16%

5,207

4,799

9%

North West

902

1,999

-55%

21,652

17,995

20%

22,554

19,994

13%

Nrthn Ireland

193

375

-48%

3,675

3,373

9%

3,868

3,748

3%

Scotland

689

1,458

-53%

13,088

10,691

22%

13,777

12,149

13%

South East

2,654

5,998

-56%

50,423

48,527

4%

53,077

54,525

-3%

South West

723

1,246

-42%

17,340

16,552

5%

18,063

17,798

1%

Uncoded

211

660

-68%

2,810

2,642

6%

3,021

3,302

-9%

Wales

207

529

-61%

6,702

6,086

10%

6,909

6,615

4%

Yorkshire & Humberside

586

1,487

-61%

14,075

12,027

17%

14,661

13,514

8%

All Regions

10,951

28,257

-61%

208,067

188,139

11%

219,018

216,396

1%

 


Large companies

SMEs

Total

Sector

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

Q3

2012

Q2

2012

% change

Automotive

317

404

-22%

5,844

5,505

6%

6,161

5,909

4%

Bars & Restaurants

231

390

-41%

7,408

10,061

-26%

7,639

10,451

-27%

Construction

504

967

-48%

21,831

15,501

41%

22,335

16,468

36%

Financial Services

722

1,983

-64%

2,875

2,835

1%

3,597

4,818

-25%

Food & Bev Mfrg

142

214

-33%

673

549

23%

815

763

7%

Food Retailing

74

131

-43%

1,811

2,071

-13%

1,885

2,202

-14%

General Retail

265

499

-47%

8,170

10,125

-19%

8,435

10,624

-21%

Hotels

384

601

-36%

2,854

1,715

66%

3,238

2,316

40%

Ind'l Transport & Logistics

221

309

-29%

3,845

2,267

70%

4,066

2,576

58%

Leisure

238

544

-56%

3,642

4,451

-18%

3,880

4,995

-22%

Media

204

700

-71%

5,209

6,241

-17%

5,413

6,941

-22%

Manufacturing

570

1,360

-58%

6,697

5,190

29%

7,267

6,550

11%

Others

1,301

3,416

-62%

15,947

17,546

-9%

17,248

20,962

-18%

Printing & Packaging

73

130

-44%

1,128

743

52%

1,201

873

38%

Professional Services

144

618

-77%

13,132

12,944

1%

13,276

13,562

-2%

Real Estate

1,476

3,111

-53%

34,237

13,825

148%

35,713

16,936

111%

Sports & Recreation

229

426

-46%

2,837

3,088

-8%

3,066

3,514

-13%

Support Services

1,843

4,064

-55%

15,803

12,664

25%

17,646

16,728

5%

Telecoms & IT

289

1,093

-74%

10,094

9,691

4%

10,383

10,784

-4%

Travel & Tourism

260

391

-34%

3,070

2,883

7%

3,330

3,274

2%

Uncoded

1,965

6,197

-68%

37,535

45,544

-18%

39,500

51,741

-24%

Utilities

26

26

3%

141

86

63%

167

112

49%

Wholesaling

245

683

-64%

2,512

2,614

-4%

2,757

3,297

-16%

All Sectors

11,691

28,257

-57%

207,327

188,139

10%

219,018

216,396

1%

**SMEs are defined as having less than 250 employees  

'Critical' problems by region and by sector:

Region

Q2

2012

Q3

2012

%

change

East of England

356

330

-7%

London

691

625

-10%

Midlands

661

555

-16%

North East

268

120

-55%

North West

583

465

-20%

Nrthn Ireland

119

104

-13%

Scotland

410

257

-37%

South East

1,010

884

-12%

South West

331

262

-21%

Uncoded

0

8

-

Wales

152

163

7%

Yorkshire & Humberside

366

334

-9%

All Regions

4,947

4,107

-17%

 

Sector

Q2

2012

Q3

2012

%

change

Automotive

127

121

-5%

Bars & Restaurants

223

200

-10%

Construction

988

855

-13%

Financial Services

86

76

-12%

Food & Bev Mfr
Beverage Mfrg

26

33

27%

Food Retailing

64

58

-9%

General Retail

244

190

-22%

Hotels

38

21

-45%

Ind'l Transport & Logistics

115

94

-18%

Leisure

37

44

19%

Media

87

57

-34%

Other Mfrg

246

284

15%

Others

305

152

-50%

Printing & Packaging

34

27

-21%

Professional Services

158

103

-35%

Real Estate

326

246

-25%

Sports & Recreation

33

42

27%

Support Services

264

227

-14%

Telecoms & IT

124

103

-17%

Travel & Tourism

60

56

-7%

Uncoded

1,206

1,005

-17%

Utilities

3

9

200%

Wholesaling

153

104

-32%

All Sectors

4,947

4,107

-17%

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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