Begbies Traynor Red Flag Alert research: Q1 2017

RNS Number : 4826C

Begbies Traynor Group PLC

18 April 2017

 

FUEL & FOOD INFLATION PUTTING SIGNIFICANT PRESSURE ON UK SUPPLY CHAIN

·     Levels of 'Significant' financial distress up 26% across key supply industries

·     Cost pressures expected to increase still further following latest National Living Wage increase

·     Sectors dependent on discretionary spending such as retail and leisure most exposed to further price rises

With growing uncertainty surrounding the UK's future trade links with Europe, combined with rising inflation, businesses within Britain's vital supply chain are starting to feel the pinch, with more companies showing increased signs of stress, new research from Begbies Traynor, the UK's leading independent insolvency firm, reveals.

According to Begbies Traynor's Red Flag Alert research for Q1 2017, which monitors the financial health of UK companies, levels of 'Significant' financial distress within key sectors of the UK supply chain have risen by 26% on average over the past year following increased cost pressures from rising inflation in both fuel and food prices. This follows the news that UK inflation rose to 2.3% in March, its highest level since September 2013, with transport costs being the biggest contributor, increasing 6.6% over the past 12 months.

Of all the sectors covered by the research, Industrial Transportation & Logistics businesses experienced the largest increase in 'Significant' distress, up 46% year-on-year (Q1 2017: 7,539 companies), with a 16% increase in the Wholesale sector (Q1 2017: 7,706 companies) and a 15% increase in the Food & Beverage Manufacturing sector (Q1 2017: 6,405 companies).

Worryingly, these negative findings are yet to reflect the recent increase to the National Living Wage that came into effect on 1 April 2017, which is likely to add even more pressure to the margins of these key sectors in the UK supply chain, which have a relatively high reliance on lower paid and temporary workers.

Julie Palmer, Partner at Begbies Traynor, said:

"Levels of financial distress have increased significantly over the past year, and nowhere more so than in the Transportation and Logistics sector, which continues to be severely hit by ongoing fuel price inflation.

"Given the scale of the increases in distress during Q1, it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on these rising costs to their customers. But it is only a matter of time before we start to see this coming through, especially given the added margin pressures associated with the new National Living Wage. Once those costs ultimately feed through to consumers, we'd expect further pressure on sectors exposed to discretionary spending such as retail, bars and restaurants, travel and leisure."

Ric Traynor, Executive Chairman of Begbies Traynor, added:

"These figures show that rising energy and food prices, combined with the devaluation of Sterling, have undoubtedly put a strain on the much of the UK's supply chain. As we wait to see what a future UK trade agreement with Europe might look like, these suppliers face continued uncertainty, not just in terms of their European distribution channels but also with regards to staffing, given their higher reliance on European migrant workers.

"It is clear that UK suppliers, wholesalers and manufacturers can't afford to adopt a 'wait and see' approach - they'll need to rapidly invest to improve their efficiency or renegotiate prices with customers to avoid the risk of falling into more severe financial distress in the coming months."

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For further information, contact:

MHP Communications

Katie Hunt / Giles Robinson / Hannah Winter / Peter Lambie

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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 £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.

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 operates from over 40 UK locations through two operating divisions: 

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. We provide a range of specialist professional services primarily to businesses, their professional advisors and the major banks covering insolvency, restructuring and risk management activities.

Eddisons is a leading UK firm of chartered surveyors, offering a wide range of specialist services to banks, insolvency practitioners, and owners and occupiers of commercial property. The core services offered are valuation and disposal of property including fixed charge property receiverships; valuation and disposal of machinery and business assets; auctions; insolvency insurance brokerage; property and facilities management; and building consultancy and ratings valuations.

Information on Begbies Traynor Group can be accessed via the Group's website at www.begbies-traynorgroup.com

 

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