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

[e-mail] 

'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%

 

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