Q1 2011 Red Flag Alert Report

15% Increase in Financial Distress Across All Business Sectors

Sectors dependent on discretionary spending suffer particularly badly

Key findings from the Q1 2011 Red Flag Alert Report:

186,554 UK businesses are experiencing ‘significant’ or ‘critical’ financial problems compared with 161,601 in Q1 2010
A 15% year on year increase when compared to Q1 2010
A 26% increase in financial distress compared to Q4 2010 - although financial distress typically increases in Q1, this increase is materially above the 14% increase between Q4 2009 and Q1 2010
Overall improvement in selected sectors, less dependent on discretionary spending – such as Food and Beverage Manufacturing
Year on year, the number of businesses showing signs of distress is up by 68% in the Bar & Restaurant sector; by 60% in the Leisure & Culture sector; and by 23% in the Sports and Recreation sector
The numbers show a rising tide of Professional Services firms facing significant or critical problems – this has risen by 61% compared with Q1 2010
Red Flag Alert, which monitors a series of indicators of company distress, shows a 15% increase to 186,554 companies which experienced ‘significant’ or ‘critical’ financial distress in Q1 2011 compared to 161,601 companies in Q1 2010.

The total number of businesses facing ‘critical’ problems in Q1 2011 compared with Q1 2010 has increased by 11%. In particular it is the sectors which rely almost solely on consumer discretionary spending which are beginning to show the affects of anticipated job losses.

Compared with Q1 2010 the level of combined distress (Significant and Critical) in the Bar & Restaurant sector was up by 68%. Businesses in the Leisure & Culture sector were faced with a 60% rise from Q1 2010. Figures for the Sports & Recreation sector show a 23% rise from Q1 2010.

January 2011 marked the beginning of widespread 90-day consultations on job cuts resulting from October’s Comprehensive Spending Review. A significant number of public sector staff will have received formal notification of impending redundancies which will have had an impact on discretionary consumer spending.

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

“The figures for Q1 2011 show the number of UK companies facing ‘critical’ problems has risen year on year with significant increases across the leisure sector in particular.

“Compared with our figures for food retail which show little change, it seems likely that a fall in consumer confidence and spending power driven by anticipated job losses lies at the core of the leisure sector’s troubles.

“Another marked increase was evident in the professional services sector where the number of firms showing signs of distress was up by 61% compared with Q1 2010.”

Traynor commented:

“Over 15,000 firms in the professional services sector are showing signs of significant or critical problems – partly driven by a stale property and corporate deals market – often the drivers for an active professional services community. Compared with the Q1 2010 figure of 9,620 it seems that firms which operate with a high fixed cost base are finding the current market conditions increasingly difficult as their revenues fail to recover and the scope for further cost reductions becomes more limited.”

Traynor added:

“High levels of legal actions taken against debtors indicate that creditors are attempting to maximise cash collection right across their customer base. The hike in oil prices and January’s VAT increase has made cash flow and credit control essential priorities for most businesses with some seeking payments through the courts.”

Sector
Q1 2010
Q4 2011
Percentage
Change
Q4 2010
Q1 2011
Percentage
Change
Automotive
4,178

3,296

-21%

3,826

3,296

-14%

Construction

22,990

25,031

9%

19,167

25,031

31%

Food & Beverage
Manufacturing

894

502

-44%

860

502

-42%

Print & Packaging

2,322

1,978

-15%

2,211

1,978

-11%

Other Manufacturing

8,057

6,559

-19%

7,747

6,559

-15%

Financial Services

3,037

3,658

20%

2,887

3,658

27%

Property Services

16,385

15,720

-4%

13,982

15,720

12%

Professional Services
9,620

15,526

61%

8,293

15,526

87%

Support Services
36,169

52,862

46%

36,430

52,862

45%

Media
4,209

3,598

-15%

3,854

3,598

-7%

Hotels &
Accommodation

2,141

1,169

-45%

1,878

1,169

-38%

Bars & Restaurants

2,677

4,505

68%

2,347

4,505

92%

Sports &
Recreation

1,606

1,977

23%

1,408

1,977

40%

Leisure &
Culture
1,874

3,006

60%

1,644

3,006

83%

Travel & Tourism

2,141

1,893

-12%

1,878

1,893

1%

Food & Drugs
Retailing

2,796

2,390

-15%

2,358

2,390

1%

General Retailing

9,360

7,897

-16%

7,893

7,897

0%

Wholesaling

6,236

5,664

-9%

6,520

5,664

-13%

Haulage &
Logistics
2,997

2,358

-21%

2,672

2,358

-12%

Telecoms & IT
11,201

15,231

33%

10,587

14,926

41%

Utilities
538

400

31%

470

705

50%

Others
10,173

11,331

11%

8,924

11,334

27%

All Sectors

161,601

186,554

15%

147,836

186,554

26%