Q2 2011 Red Flag Alert Report

RNS Number : 9217K

Begbies Traynor Group PLC

25 July 2011

 



25 July 2011

Q2 2011 Red Flag Alert Report

12% Quarter on Quarter Increase in UK Business 'Critical' Financial Problems

A fall in 'significant' financial problems indicate vulnerable businesses are making the transition from 'significant' to 'critical' problems

Key findings from the Q2 2011 Red Flag Alert Report:

·     A 12% increase in businesses facing 'critical' financial problems when compared to last quarter  

·     A total of 5,179 companies facing 'critical' problems in Q2 2011, representing liabilities of almost £60 billion

·     A 48% quarter on quarter fall in the amount of 'significant' financial problems across all sectors, indicative of:

o  Many distressed companies making the transition from 'significant' to 'critical' financial problems

o  Seasonal factors: 'significant' problems are materially higher in Q1 because of the volume of overdue accounts due to be filed by 31 December

o  However year on year "significant" problems are relatively unchanged at 94,015 (+1%)

·    Substantial variation in sector performance with an improvement in year on year critical problems in Utilities (- 36%), Print and Packaging (- 37%) and Other (Non Food) Manufacturing (- 13%)

·    Worsening outlook for sectors dependent on discretionary spending with the following sectors experiencing a rise in quarter on quarter 'critical' distress

o  Travel & Tourism: + 31%

o  Hotels & Accommodation: + 47%

o  General Retailing: +17%

·    The Property Services sector shows no sign of improvement with critical distress up by 42% quarter on quarter

·     A 41% quarter on quarter rise in critical problems in the Haulage and Logistics sector reflect the impact of rising fuel prices.

·     Food and Beverage Manufacturing figures demonstrate a 24% year on year increase in 'critical' problems - the first real increase in this sector.

Red Flag Alert, which monitors a series of indicators of company distress, shows a 12% increase to 5,179 companies which experienced 'critical' financial distress in Q2 2011 compared to 4,620 companies in Q1 2011.

Julie Palmer, partner at Begbies Traynor commented:

"Many struggling companies made use of the Revenue's Time to Pay Scheme yet a high proportion of businesses have failed to achieve a full turnaround and are now trying to seek time to pay arrangements for a second time - or else apply for the scheme whilst using dividends as a form of remuneration rather than paying HMRC.

"The austerity measures mean the Government is finding it difficult to give second chances or extend its support to business owners that have chosen to use their money for another purpose and as a result, the number of winding up petitions issued by HMRC in Q2 2011 has more than doubled since Q1."

Although banks remain supportive of struggling customers there are an increasing number of companies that cannot continue without significant new investment as costs cannot be reduced any further and sales demand weakens.

Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

"The figures for Q2 2011 show the number of UK companies facing 'critical' problems has increased since last quarter.  The fall in 'significant' problems is an apparent glimmer of good news, but we believe this is indicative of weaker businesses actively moving from 'significant' to 'critical' financial problems - and ultimately to insolvency, as well as seasonal factors which typically impact on the Q1 figures.

"In addition HMRC is taking a more robust stance. As the level of support from the Revenue is gradually decreased, it is increasingly evident that businesses using the scheme are now struggling to cope with current trading conditions."

Traynor concluded:

"The increased costs being placed upon consumers is likely to have an impact on non food retailers and recent weeks have seen the effect of reduced high street demand with a number of well known retailers entering administration. We believe this distress is likely to continue ahead of the pre-Christmas shopping period, which traditionally starts in early October."

Sector Analysis

The financial distress across sectors is variable, with clear winners and losers, with Other (Non Food) manufacturing, utilities and print and packaging all showing an improving picture.

However sectors reliant on discretionary spending such as Travel & Tourism have faced a steady increase in critical distress in Q2 2011, despite the long Easter break and extra bank holidays which would have usually been beneficial to trading.  A significant proportion of the population are being squeezed by inflationary pressures and concerns over the security of their employment and are therefore being extremely cautious with their spending - which is beginning to have a real impact on travel and tourism related businesses, particularly the UK hotel market which has seen a 47% increase in critical problems since the last quarter.

Consumer spending is already depressed and the impact of significant utility bill rises, combined with the increasing cost of fuel, is likely to have further serious consequences for any businesses dependent on discretionary spending.

The malaise within the property sector shows no sign of improvement with quarter on quarter critical problems up by a substantial 42%. This distress is affecting both residential and commercial real estate, with recent surveys predicting that property prices will not return to 2007 prices until the next decade.

The squeeze on marketing budgets and the structural changes in the media sector are showing through in terms of increased levels of critical problems - up 33% year on year and 21% quarter on quarter. At the heart of this is overcapacity, particularly in the printed media sector - where publications are chasing shrinking advertising revenues. The move towards online and social media channels has accelerated the problems, as advertisers typically benefit from lower costs.

A surprising increase of 24% in year on year critical problems within the food and beverage manufacturing sector, are indicative of reduced margins within supermarket supply chains, combined with higher input costs which cannot be passed on to customers.

ENDS

Q2 2011 Red Flag Alert Statistics

'Critical' problems by sector:

Sector	Q2 2010	Q2 2011	Percentage change	Q1 2011	Q2 2011	Percentage change
Automotive	104	124	19%	120	124	3%
Construction	1,250	1,181	-6%	1,202	1,181	-2%
Food & Beverage Mfrg	29	36	24%	30	36	20%
Printing & Packaging	75	47	-37%	53	47	-11%
Other Mfrg	297	259	-13%	306	259	-15%
Financial Services	108	118	9%	120	118	-2%
Property Services	414	408	-1%	288	408	42%
Professional Services	150	173	15%	138	173	25%
Support Services	972	1,048	8%	934	1,048	12%
Media	69	92	33%	76	92	21%
Hotels & Accommodation	54	66	22%	45	66	47%
Bars & Restaurants	180	214	19%	212	214	1%
Sports & Recreation	66	48	-27%	49	48	-2%
Leisure & Culture	35	40	14%	44	40	-9%
Travel & Tourism	55	68	24%	52	68	31%
Food & Drugs Retailing	61	69	13%	57	69	21%
General Retailing	210	218	4%	186	218	17%
Wholesaling	220	232	5%	210	232	10%
Haulage & Logistics	112	114	2%	81	114	41%
Telecoms & IT	216	245	13%	194	245	26%
Utilities	14	9	-36%	20	9	-55%
Others	443	370	-16%	203	370	82%
All Sectors	5,134	5,179	1%	4,620	5,179	12%

'Significant' problems by sector:

Sector	Q2 2010	Q2 2011	Percentage change	Q1 2011	Q2 2011	Percentage change
Automotive	1,805	1,769	-2%	3,176	1,769	-44%
Construction	11,417	11,194	-2%	23,829	11,194	-53%
Food & Beverage Mfrg	277	318	15%	472	318	-33%
Printing & Packaging	595	505	-15%	1,925	505	-74%
Other Mfrg	3,491	3,268	-6%	6,253	3,268	-48%
Financial Services	1,792	1,797	0%	3,538	1,797	-49%
Property Services	7,380	7,159	-3%	15,432	7,159	-54%
Professional Services	7,218	6,886	-5%	15,388	6,886	-55%
Support Services	21,274	22,709	7%	51,928	22,709	-56%
Media	1,931	1,934	0%	3,522	1,934	-45%
Hotels & Accommodation	494	553	12%	1,124	553	-51%
Bars & Restaurants	2,228	2,340	5%	4,293	2,340	-45%
Sports & Recreation	936	1,041	11%	1,928	1,041	-46%
Leisure & Culture	1,221	1,233	1%	2,962	1,233	-58%
Travel & Tourism	948	993	5%	1,841	993	-46%
Food & Drugs Retailing	1,136	1,228	8%	2,333	1,228	-47%
General Retailing	3,836	4,096	7%	7,711	4,096	-47%
Wholesaling	2,903	3,112	7%	5,454	3,112	-43%
Haulage & Logistics	1,233	1,121	-9%	2,277	1,121	-51%
Telecoms & IT	7,164	7,166	0%	15,037	7,166	-52%
Utilities	143	167	17%	380	167	-56%
Others	13,271	13,426	1%	11,131	13,426	21%
All Sectors	92,693	94,015	1%	181,934	94,015	-48%

For further information please contact Twentyfour7 PR:

Bob Bion                                                              Christina Savage                                             

0161 212 7436                                                    0161 212 7435                                                   

[e-mail]                       [e-mail]        

About Begbies Traynor 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 either a court action and/or poor, very poor insolvent or out of date accounts.

Companies with "Critical Problems" are those with CCJs totalling £5,000 or more and/or Wind-Up Petition related actions.

Red Flag Alert is now 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

From Q2 2011 revised figures will be shown for corresponding quarters in 2010. This measure ensures more accurate comparisons can be made with 2011 figures, using the same qualification and evaluation methodologies.

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, specialist taxation advice, corporate finance, investigations and risk management.  It is listed on AIM (Ticker: BEG).  Further information can be found at: www.begbies-traynorgroup.com

 

END

 

 

NRALLFVVDTIFFIL