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Begbies Traynor
The number of UK companies rated as being in ‘significant financial distress’ during Q3 2018 has increased by 5% compared to the same quarter last year, according to the latest Red Flag Alert research data from Begbies Traynor, the UK’s leading insolvency firm.
The research data, which monitors the financial health of UK companies - shows that during Q3 2018, 469,006 companies across the UK were in significant financial distress – an increase of almost 21,000 on Q3 2017. However, significant distress has fallen 1% since Q2 2018 indicating that UK business health may be showing some signs of stability.
In Birmingham, the trend was reflected with a 4% increase in significant financial distress after the number of businesses with problems rose from 6,749 to 7,050 between Q3 2017 and Q3 2018. Between Q2 2018 and Q3 2018, the number of businesses facing significant financial distress was broadly flat (7,064 - 7,050). Across the wider Midlands, there were a total of 55,924 businesses in trouble, up 2% from 54,866 during the same 12-month period.
Quarterly financial performance has been lifted by a strong summer for some sectors, with food & drug retailers down 2% (Q2: 12,269, Q3: 12,084), construction down 2% (Q2: 60,132, Q3: 59,111), general retail down 2% (Q2: 30,762, Q3: 30,123), printing and packaging down 2% (Q2: 2,228 , Q3: 2,188) and professional services down 2% (Q2: 26,497, Q3: 26,066).
However, the research also reveals this improvement in quarterly performance is not consistent across all sectors, with real estate up 2% (Q2: 42,748, Q3: 43,505) and hotels & accommodation up 2% (Q2: 5,076, Q3: 5,196).
Worryingly, significant business distress increased considerably year-on-year with real estate up 16% (Q3:17: 37,519, Q3:18: 43,505), utilities up 13% (Q3:17: 2,799, Q3:18: 3,153), hotels & accommodation up 10% (Q3:17: 4,717, Q3:18: 5,196) and financial services up 9% (Q3:17: 11,018, Q3:18: 12,049).
In Birmingham, general retailers (437 - 476, 9%) and real estate & property services (551 - 623, 13%) have experienced worrying rises in significant financial distress during the 12 months between Q3 2017 and Q3 2018. At a regional level, real estate & property services witnessed a 15% increase in the number of businesses facing problems from 4,183 to 4,803.
Gareth Prince, Partner at Begbies Traynor in Birmingham, said:
“Whilst there is a long-term trend of rising distress levels, there are signs that the economy has stabilised and this may in part be due to the barbecue summer and the World Cup. However, the question this prompts is are we seeing a lull before the economic storm which might result out of the UK’s departure from the EU next spring. Certainly, the worrying rises in distress amongst estate agents across the Midlands suggests that people in our region are holding back on moving house, for fear of exposing themselves to a double whammy of rising interest rates and a large mortgage at a time when the future is so uncertain,” he said.
Ric Traynor, Executive Chairman of Begbies Traynor Group plc, commented:
“While the year-on-year increase in the number of businesses in significant financial distress is disappointing, the fall in distress between Q2 and Q3 2018 is particularly welcome.
“This combined with strong wage growth demonstrates that the widely anticipated economic meltdown ahead of Brexit has yet to materialise. However, both investor and consumer confidence is fragile. An escalation of the trade war between the US and China and EU could have a detrimental impact on the UK, particularly amongst sectors which are heavily reliant on export, such as automotive and manufacturing.
“Businesses with a strong product offering in growing markets will always do well, however, all businesses need to focus on the fundamentals – innovation, sales and financial management, as these will be key to staying ahead of both domestic and international competition.
“Those businesses that are quick to adapt in changing times will be the ones that thrive.”
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