According to the latest Begbies Traynor Red Flag Alert for Q4 2013, which monitors the financial health of “Corporate UK”, levels of ‘Critical’ financial distress among UK businesses continued to recover during the final quarter of 2013, as improving business confidence drove strong growth across the UK’s core services sectors and encouraged growing numbers of entrepreneurs to incorporate new businesses during the past year.
Across all sectors, UK businesses experiencing ‘Critical’ financial problems reduced 1% from 2,951 in Q3 2013 to 2,933 in Q4 2013. The Hotels sector experienced seasonal reductions in ‘Critical’ distress, falling 24%, fuelled by Christmas trading as well as increased consumer spending due to improving job security and property prices – adding to a discernable “feel good” factor.
Other industries which closed the year stronger than they started it were Bars & Restaurants, Food Retailing, and Automotive.
Julie Palmer, Partner at Begbies Traynor, commented: “Christmas came late for UK retailers in 2013, as consumers more than ever left their festive shopping to the last minute, taking advantage of the growing number of reliable next-day delivery and click-and-collect services offered by the best in class online and high-street retailers. Still, UK consumers refused to scrimp this festive season, resulting in positive increases in sales volumes among food and general retailers compared to the previous quarter.”
Earlier stage ‘Significant’ distress levels at a record high, particularly among SME’s
During the fourth quarter of 2013, the number of UK businesses experiencing earlier stage ‘Significant’ levels of financial distress increased by 3% to 224,579 compared to 218,128 during Q3 2013; the highest level of ‘Significant’ distress reported since at least early 2011. On a quarterly basis, ‘Significant’ distress increased across every sector apart from Print & Packaging and Real Estate.
On an annual basis, the increase in distress was even more significant, rising 16% from a base of 193,592 during Q4 2012, with increases across every sector covered by the research, except construction, which saw a small 3% decrease in ‘Significant’ distress. The sectors experiencing the largest increases over the past year were Real Estate, Hotels, Sports & Recreation, Leisure and Media, which saw 32%, 28%, 23%, 21% and 20% rises in ‘Significant’ distress over the past 12 months.
Growing fragility among small businesses
Julie Palmer commented: “With earlier stage ‘Significant’ distress across all sectors reaching record highs this quarter, we are seeing growing fragility particularly among the small businesses community, as smaller and newer companies struggle to keep up as the economic recovery gathers pace.
“As is common at this stage of any recovery process, businesses with inexperienced management teams or limited credit availability are simply unprepared to step up a gear and fund and execute the business strategies required to remain competitive in a growing market. Such businesses will need to take urgent action to avoid slipping into more critical distress and to ensure they are well placed to take advantage of the economic recovery.
Independent hotels particularly at risk
“Our data shows that independent hotels and gyms are particularly at risk in the current economic climate as ambitious larger chains continue to slash prices and develop lower cost models, forcing smaller independent players to compete through price and operate at unsustainably low margins. With hotel occupancy levels and revenue per room in the last quarter of 2013 falling, the hotels sector is in a difficult position as it enters the lean Q1 trading period.
Critical problems by sector
| Sector | Q4 2012 | Q4 2013 | Percent change | Q3 2013 | Q4 2013 | Percent change |
| Automotive | 95 | 88 | -7% | 83 | 88 | 6% |
| Bars & Restaurants | 150 | 136 | -9% | 120 | 136 | 13% |
| Construction | 571 | 545 | -5% | 494 | 545 | 10% |
| Financial Services | 75 | 59 | -21% | 77 | 59 | -23% |
| Food & Bev Mfr Beverage Mfrg |
14 | 15 | 7% | 12 | 15 | 25% |
| Food Retailing | 42 | 29 | -31% | 37 | 29 | -22% |
| General Retail | 132 | 153 | 16% | 165 | 153 | -7% |
| Hotels | 19 | 26 | 37% | 34 | 26 | -24% |
| Ind Transport & Logistics | 61 | 68 | 11% | 61 | 68 | 11% |
| Leisure | 21 | 29 | 38% | 30 | 29 | -3% |
| Media | 44 | 51 | 16% | 62 | 51 | -18% |
| Other Mfrg | 206 | 194 | -6% | 216 | 194 | -10% |
| Others | 109 | 118 | 8% | 122 | 118 | -3% |
| Printing & Packaging | 20 | 27 | 35% | 23 | 27 | 17% |
| Professional Services | 77 | 68 | -12% | 86 | 68 | -21% |
| Real Estate | 207 | 232 | 12% | 238 | 232 | -3% |
| Sports & Recreation | 32 | 27 | -16% | 16 | 27 | 69% |
| Support Services | 181 | 161 | -11% | 167 | 161 | -4% |
| Telecoms & IT | 95 | 84 | -12% | 95 | 84 | -12% |
| Travel & Tourism | 47 | 47 | 0% | 35 | 47 | 34% |
| Uncoded | 730 | 662 | -9% | 659 | 662 | 0% |
| Utilities | 5 | 4 | -20% | 5 | 4 | -20% |
| Wholesaling | 111 | 110 | -1% | 114 | 110 | -4% |
| All Sectors | 3,044 | 2,933 | -4% | 2,951 | 2,933 | -1% |
Critical problems by Region:
| Region | Q4 2012 | Q4 2013 | Percent change | Q3 2013 | Q4 2013 | Percent change |
| East of England | 277 | 240 | -13% | 232 | 240 | 3% |
| London | 498 | 475 | -5% | 523 | 475 | -9% |
| Midlands | 410 | 407 | -1% | 394 | 407 | 3% |
| North East | 95 | 81 | -15% | 67 | 81 | 21% |
| North West | 386 | 325 | -16% | 335 | 325 | -3% |
| Nrthn Ireland | 58 | 56 | -3% | 41 | 56 | 37% |
| Scotland | 95 | 157 | 65% | 146 | 157 | 8% |
| South East | 695 | 645 | -7% | 642 | 645 | 0% |
| South West | 202 | 188 | -7% | 210 | 188 | -10% |
| Uncoded | 21 | 17 | -19% | 29 | 17 | -41% |
| Wales | 93 | 103 | 11% | 118 | 103 | -13% |
| Yorkshire & Humberside | 214 | 239 | 12% | 214 | 239 | 12% |
| All Regions | 3,044 | 2,933 | -4% | 2,951 | 2,933 | -1% |
Significant problems by Sector:
| Sector | Q4 2012 | Q4 2013 | Percent change | Q3 2013 | Q4 2013 | Percent change |
| Automotive | 6,216 | 7,491 | 21% | 7,239 | 7,491 | 3% |
| Bars & Restaurants | 11,450 | 12,942 | 13% | 12,497 | 12,942 | 4% |
| Construction | 14,720 | 14,221 | -3% | 13,862 | 14,221 | 3% |
| Financial Services | 3,797 | 4,074 | 7% | 3,931 | 4,074 | 4% |
| Food & Bev Mfr Beverage Mfrg |
662 | 733 | 11% | 703 | 733 | 4% |
| Food Retailing | 2,483 | 2,878 | 16% | 2,766 | 2,878 | 4% |
| General Retail | 11,409 | 13,051 | 14% | 12,644 | 13,051 | 3% |
| Hotels | 2,552 | 3,256 | 28% | 3,128 | 3,256 | 4% |
| Ind Transport & Logistics | 2,396 | 2,507 | 5% | 2,443 | 2,507 | 3% |
| Leisure | 5,071 | 6,133 | 21% | 6,003 | 6,133 | 2% |
| Media | 6,820 | 8,154 | 20% | 7,817 | 8,154 | 4% |
| Other Mfrg | 5,953 | 6,347 | 7% | 6,273 | 6,347 | 1% |
| Others | 18,452 | 21,645 | 17% | 21,043 | 21,645 | 3% |
| Printing & Packaging | 780 | 871 | 12% | 880 | 871 | -1% |
| Professional Services | 13,397 | 16,865 | 26% | 16,243 | 16,865 | 4% |
| Real Estate | 15,136 | 19,954 | 32% | 19,900 | 19,954 | 0% |
| Sports & Recreation | 3,698 | 4,533 | 23% | 4,350 | 4,533 | 4% |
| Support Services | 15,019 | 17,592 | 17% | 16,957 | 17,592 | 4% |
| Telecoms & IT | 10,499 | 12,564 | 20% | 12,211 | 12,564 | 3% |
| Travel & Tourism | 3,177 | 3,215 | 1% | 3,122 | 3,215 | 3% |
| Uncoded | 36,918 | 42,121 | 14% | 40,818 | 42,121 | 3% |
| Utilities | 121 | 133 | 10% | 126 | 133 | 6% |
| Wholesaling | 2,866 | 3,299 | 15% | 3,172 | 3,299 | 4% |
| All Sectors | 193,592 | 224,579 | 16% | 218,128 | 224,579 | 3% |
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.
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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 release refers to the numbers of companies experiencing ‘Critical’ problems which 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.
The release also refers to the numbers of companies experiencing ‘Significant’ problems, which 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.
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.
For more information about Red Flag Alert click here