RCS - Begbies Traynor - Latest Red Flag Alert Report for Q2 2024

Begbies TraynorAnnouncement

Today 07:00

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RNS Number : 1860X  Begbies Traynor Group PLC  22 July 2024

 

22 July 2024

 

Over 600,000 UK firms face financial strain amidst challenging economic
climate

 

·    The level of firms in 'significant' financial distress rose by 8.5%
to 601,950 in Q2 2024 (Q1 2024: 554,554), considerably higher than Q2 2023
(439,815), up by 36.9%

·    In Q2 2024, 'significant' financial distress rose particularly
rapidly in the following sectors: Travel & Tourism (+20.1%), Hotels &
Accommodation (+16.4%), Health & Education (+12.4%) and Bars &
Restaurants (+12.2%)

·    Levels of 'significant' financial distress increased in 20 of the 22
sectors covered by Red Flag Alert in Q2 2024 versus Q1 2024

·    40,613 UK businesses are in 'critical' financial distress, up 1.1% on
the prior quarter (Q1 2024: 40,174) and 34.5% higher than Q2 2023 (30,186)

·      Serious concerns remain over the state of the Construction, Real
Estate and Support Services sectors which represent over 40% of the companies
in 'critical' financial distress

 

The latest Begbies Traynor "Red Flag Alert" research, which has provided a
snapshot of British corporate health for almost two decades, reveals a
particularly worrying picture as the number of UK companies in 'significant'
financial distress jumped by nearly 10% in Q2 2024 to 601,950 businesses (Q1
2024: 554,554).

 

The marked acceleration in the number of companies entering 'significant'
financial distress was driven significantly by the Travel & Tourism
(+20.1%), Hotels & Accommodation (+16.4%) and Bars & Restaurants
(+12.2%) sectors. The growth in financial distress among these sectors
reflects the ongoing weakness of consumer confidence in the UK, which is
putting a huge amount of pressure on these consumer-facing sectors in the
country.

 

During Q2 2024, 'critical' financial distress increased by 1.1% to 40,613
companies in the UK. This followed noticeable increases in the Automotive
(+13.2%), Industrial Transportation & Logistics (+12.2%), Health &
Education (+8.4%) and Bars & Restaurants (+7.3%) sectors.

 

With a large number of the businesses in 'critical' financial distress
expected to enter insolvency over the next 12 months, the state of the
Construction, Real Estate, Hospitality, Financial & Support Services
sectors continue to be of concern as companies from these sectors account for
nearly 50% of the businesses in 'critical' financial distress.

 

Julie Palmer, Partner at Begbies Traynor, said: "It looks like 2024 will prove
to be another tough year for UK businesses. Six months in, and we're seeing
clear signs that financial distress is growing across almost every sector.

 

"It is a particularly difficult situation for businesses in consumer facing
sectors, such as hospitality. While a fall in inflation to more palatable
levels will likely provide some relief, consumers simply aren't behaving like
they used to and these businesses, who are still grappling with higher costs
pushed up by higher wages, are really struggling.

 

"This, combined with one of the wettest summers on record, continues to
significantly impact trading.

 

"Additionally, the situation for the consumer remains very precarious. The
latest figures from the Bank of England highlights how more than three million
households will come off their fixed rate mortgages over the next two years -
resulting in substantially higher repayments for many - which will in turn act
as a drag on disposable incomes.

 

"In a climate like this one, many businesses who were supported through the
pandemic and its aftershocks by the Government, will be hugely concerned by
the very real prospect of a prolonged period of higher interest rates.

 

"Many businesses who loaded up on cheap debt prior to the pandemic are simply
not equipped to survive the current pressures and the financial burdens they
face may ultimately prove too much.

 

"Indeed, HMRC, which has been fairly lenient on companies repaying pandemic
funding to date, will eventually tighten its grip and I expect this to push a
considerable number of companies into insolvency over the next 12 months."

 

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "We are a
little over halfway through the year and the macro-economic environment for UK
companies remains extremely testing.

"There might be a greater sense of optimism in certain corners of the economy,
but this is yet to translate into anything meaningful for the hundreds of
thousands of businesses fighting for survival.

"The situation for many British firms remains grave, with the latest Red Flag
Alert data highlighting a substantial increase in the number of businesses in
significant financial distress in comparison to this time last year.

"The good news is that we now have some political certainty after the recent
elections, which should result in some momentum starting to build this summer.
A continuation of falling inflation levels will be especially helpful for
businesses, particularly if interest rates begin to inch backwards later this
year.

"Beyond these small glimmers of hope, all eyes are now on our new Government
as we ask ourselves what they can do to kickstart economic growth in the UK.

"Sadly, the reality is that the Government may not be able to act fast enough
to stop many struggling businesses from succumbing to the economic pressures
with which they are currently grappling.

"In short, the prevailing economic situation means that we still expect to see
heightened levels of company insolvencies extend into 2025 and beyond."

 

 Top 10 Sector Ranking - Critical                                                      Top 10 Sector Ranking - Significant Financial Distress

 Financial Distress
 1.      Construction                                          6,043                   1.           Construction                                        89,824
 2.      Support Services                                      5,758                   2.           Support Services                                    89,763
 3.      Real Estate & Property Services                       5,575                   3.           Real Estate & Property Services                     65,919
 4.      General Retailers                                     3,113                   4.           Professional Services                               50,683
 5.      Professional Services                                 2,770                   5.           General Retailers                                   42,992
 6.      Health & Education                                    2,436                   6.           Health & Education                                  39,933
 7.      Telecommunications & Information Technology           2,256                   7.           Telecommunications & Information Technology         39,659
 8.      Food & Drug Retailers                                 1,696                   8.           Media                                               24,831
 9.      Bars & Restaurants                                    1,587                   9.           Food & Drug Retailers                               17,443
 10.     Media                                                 1,467                   10.          Financial Services                                  16,977
 Critical Distress by Region                                                  Significant Distress by Region
 1.                        London            12,560                           1.       London                                 169,442
 2.                        South East        6,216                            2.       South East                             102,288
 3.                        Midlands          4,918                            3.       Midlands                               75,144
 4.                        North West        4,527                            4.       North West                             63,454
 5.                        Yorkshire         2,738                            5.       South West                             42,111
 6.                        South West        2,546                            6.       Yorkshire                              41,858
 7.                        East of England   2,373                            7.       Scotland                               40,435
 8.                        Scotland          2,031                            8.       East of England                        38,594
 9.                        Wales             1,214                            9.       Wales                                  17,463
 10.                       North East        743                              10.      North East                             11,329
 11.                       Northern Ireland  741                              11.      Northern Ireland                       9,756
 12.                       Misc              6                                12.      Misc                                   76

 

--ENDS--

For further information, contact:

 

 MHP Communications:                       07595 461 231

 Katie Hunt Charles Hirst Matthew Taylor   07827 662 831

                                           BegbiesCorporate@mhpgroup.com (mailto:BegbiesCorporate@mhpgroup.com)

 

Notes to Editors

About Red Flag Alert

 

Red Flag Alert has been measuring and reporting corporate financial distress
since 2004. It has become a benchmark on the underlying health of companies
across every sector and region of the UK.

Red Flag Alert's algorithm measures corporate distress signals, drawing on
company accounts and factual, legal and financial data from a wide range of
relevant sources, including intelligence from the UK's leading insolvency
business, Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance
the risk factors analysed in the data. The reported results have been
backdated to ensure the consistency of comparative data.

Algorithms which drive Red Flag Alert were improved at the end of 2023, with
companies now measured against a new scorecard of indicators to give greater
insight and accuracy into the health of businesses. Two years of work by data
scientists analysing eight years of data, taking into consideration pre,
during and post-pandemic insights to find signals and patterns indicating
businesses in distress, combined with AI tools, means that Red Flag Alert aims
soon to be able to predict how many companies in trouble will go on to fail.

The release refers to the number of companies experiencing "Significant" or
"Critical" problems, which are those that have been identified by Red Flag
Alert'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
subscribers to plan for the future. Further information about Red Flag Alert
can be found at: www.redflagalert.com
(https://protect.checkpoint.com/v2/___http:/www.redflagalert.com/___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzo4ZTc5ODZlN2FkODQwNmI1YzQ5OTYxZjk5MzM0NDBkMjo2OjJmOGM6ZTY4ZTBlN2IyMzYzZDI0MTVmYzgwMmEyYjhiN2E4MTYwZWI3NTcxNzk2OThkNTgyYWY1NTk4YmUyYzA0ZjhkOTpwOlQ6Tg)

 

Economically active businesses exclude those that are flagged by Companies
House as being, Non-trading, Listed for Strike off / Strike off pending,
Insolvent or Dissolved. Companies where there is insufficient information
available for RFA to assign a health rating are also excluded.

 

About Begbies Traynor Group plc

 

Begbies Traynor Group plc is a leading UK advisory firm with expertise in
business recovery, advisory and corporate finance, valuations, asset sales and
property consultancy.

We have over 900 fee earners operating from 45 locations across the UK,
together with four offshore offices. Our multidisciplinary professional teams
include insolvency practitioners, accountants, lawyers, funding professionals
and chartered surveyors.

·    Business recovery

o  Corporate and personal insolvency; business restructuring and turnaround;
contentious insolvency; creditor services

·    Advisory and corporate finance

o  Debt advisory and finance broking; corporate finance; special situations
M&A; financial advisory

·    Valuations

o  Property, business and asset valuations

·    Asset sales

o  Property, plant and machinery auctions; property and business sales agency

·    Property consultancy

o  Building consultancy; transport planning; commercial property management;
insurance and protection

Further information can be accessed via the group's website at
www.ir.begbies-traynorgroup.com (https://ir.begbies-traynorgroup.com)

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