Q4 2009 Red Flag Alert Statis

RNS Number : 6654F

Begbies Traynor Group PLC

18 January 2010

 



Press release 

18 January 2010

BEGBIES TRAYNOR RED FLAG ALERT

OVER 140,000 COMPANIES SHOW REAL SIGNS OF FINANCIAL DISTRESS IN Q4 2009 DESPITE GOVERNMENT SUPPORT MEASURES

A RISE IN CORPORATE INSOLVENCIES IS EXPECTED DURING H2 2010

Red Flag Alert is a monitor of early warning signs of company distress by Begbies Traynor, the UK's leading business rescue, recovery and restructuring specialist. The latest report focussing on Q4 2009 released today contains the following headlines:

• Over 140,000 companies experienced Significant and Critical financial problems in Q4 2009; 6% higher than in Q3 2009 but 14% lower than the same period in 2008, reflecting:

  • High levels of corporate distress, despite the positive effects of government fiscal stimulus, such as quantitative easing and the 2.5% VAT decrease, as well as other short term support initiatives, such as the HMRC's much needed Business Payment Support Service (through which over 242,000 'time-to-pay' arrangements have been agreed, totalling over £4.2bn in deferred tax liabilities).

  • A new trend emerging, which indicates that a higher number of business failures are occurring at an earlier stage of deterioration than in previous recessions.

  • A more lenient approach amongst creditors, compared to the near panic to recover debts and preserve cash amidst the chaos, a year ago when Lehman Bros and other major failures almost stalled world financial markets. However, HMRC remains one of the principal creditors in many insolvencies and we fear that when the current 'time-to-pay' scheme, which provided a lifeline to many businesses, is finished there will be a significant rise in company failures - most probably from Q3 2010 onwards.

  • Improved business confidence, witnessed by the ICAEW's Business Confidence Monitor which showed that 60% of companies surveyed indicated more confidence in the economic outlook for their business, a reversal of the findings of the Q4 2008 survey when 63% of respondents were less confident.  This is offset by indications that the rise in consumer confidence may have stalled.

• An analysis by sector shows that: 

  • The Automotive sector saw the largest quarter on quarter increase in Critical actions (up 26% on Q3 2009) as well as one of the highest year on year rises (up 20% on Q4 2008), despite the extension of the car scrappage scheme.  

  • The service sectors suffered more than the non-service sectors, with a 22% increase in Significant and Critical actions in Q4 2009 compared to Q3 2009.  

  • The Retail sector saw a significant improvement with a 32% decline in Critical actions, compared to Q3 2009, or a 21% decline on Q4 2008 as improved consumer confidence, reduced capacity and the 2.5% VAT decrease culminated in increased sales over the Christmas period, as reported by some major multiple retailers.  In addition, the traditional seasonal pattern shows relatively low levels of adverse actions in the retail sector in Q4, as creditors hold off from taking action while retailers realise cash during the important Christmas trading period. 

  • Although the construction sector witnessed an improvement in Significant and Critical actions compared to Q4 2008, it remains particularly vulnerable as it has benefitted more than any other sector from HMRC's time-to-pay scheme.

  • Companies heavily dependent on a public sector customer base are also expected to be particularly vulnerable, as the well documented public sector spending cuts become evident post the general election during 2010.

• A regional analysis of the figures shows that Scotland, for the second quarter running, stands out as the only region showing a year on year increase of both Significant and Critical categories of adverse actions (up 2% and 41% respectively).

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

"Government support measures are providing welcome relief to the UK's struggling companies in the short term but they may exacerbate problems for some businesses as the need to repay debt catches up with them later in the year.

"Experience of the last four recessions tells us that unemployment levels and corporate and personal insolvencies have lagged behind technical recession by 1 to 2 years. With tax and interest rates certain to rise, as well as increasing pressure on consumer spending, there is every reason to suggest that the insolvency peaks of this recession remain some way off.

"While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound."

  Q4 09 release tables

Significant problems by Region

	Year on Year			Quarter on Quarter
Region	Q4 2008	Q4 2009	Percentage change	Q3 2009	Q4 2009	Percentage change
Scotland	8,497	8,630	2%	7,637	8,630	13%
North East & Yorkshire	13,672	12,253	-10%	12,135	12,253	1%
North West & North Wales	18,646	15,880	-15%	15,509	15,880	2%
East Midlands	8,850	7,774	-12%	7,643	7,774	2%
West Midlands	13,611	12,628	-7%	11,292	12,628	12%
South East & East Anglia	74,930	61,805	-18%	56,991	61,805	8%
South West & South Wales	20,832	18,517	-11%	18,135	18,517	2%
All Regions	159,038	137,487	-14%	129,342	137,487	6%

Critical problems by Region

	Year on Year			Quarter on Quarter
Region	Q4 2008	Q4 2009	Percentage change	Q3 2009	Q4 2009	Percentage change
Scotland	127	179	41%	164	179	9%
North East & Yorkshire	458	359	-22%	394	359	-9%
North West & North Wales	606	494	-18%	602	494	-18%
East Midlands	248	239	-4%	228	239	5%
West Midlands	401	342	-15%	376	342	-9%
South East & East Anglia	2,108	1,827	-13%	1,811	1,827	1%
South West & South Wales	661	600	-9%	597	600	1%
All Regions	4,609	4,040	-12%	4,172	4,040	-3%

Significant problems by Sector

	Year on Year			Quarter on Quarter
Sector	Q4 2008	Q4 2009	Percentage change	Q3 2009	Q4 2009	Percentage change
Automotive	4,171	3,905	-6%	3,830	3,905	2%
Construction	17,920	16,794	-6%	17,098	16,794	-2%
Engineering	2,114	1,839	-13%	1,741	1,839	6%
Manufacturing	6,968	5,885	-16%	5,615	5,885	5%
Retail	10,929	9,987	-9%	9,510	9,987	5%
Services	49,738	44,517	-10%	36,345	44,517	22%
Transport & Communications	6,082	5,264	-13%	5,050	5,264	4%

  Critical problems by Sector 

	Year on Year			Quarter on Quarter
Sector	Q4 2008	Q4 2009	Percentage change	Q3 2009	Q4 2009	Percentage change
Automotive	97	116	20%	92	116	26%
Construction	1,103	942	-15%	991	942	-5%
Engineering	90	95	6%	127	95	-25%
Manufacturing	276	226	-18%	242	226	-7%
Retail	270	212	-21%	310	212	-32%
Services	1,019	958	-6%	938	958	2%
Transport & Communications	246	185	-25%	181	185	2%

ENDS

For further information: Media enquiries:
Elaine Bartleet/Katie Hunt/ Stewart Harris	020 7360 4900
Sales enquiries: Mark Halstead	0161 837 1700

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 average, poor, very poor insolvent or out date accounts.

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

Since November 2009, Red Flag Alert has been 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. 

About Begbies Traynor Group

Begbies Traynor Group plc is a specialist professional services organisation providing independent professional advice and solutions to businesses, financial institutions, the accountancy professions and individuals in the areas of corporate finance, recovery, investigation, risk management, commercial finance and specialist tax advice. It is listed on AIM (Ticker: BEG).

 

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