03:00 Fri 17 Apr 2020
Begbies Traynor - Latest Red Flag Alert Report for Q1 2020
Coronavirus pushes financially distressed companies over the half-million mark
· Number of businesses in significant distress stands at 509,000 - the highest number measured by the Red Flag Alert research
· Impact of coronavirus lockdown sees the largest quarterly increase since the end of 2017 - 15,000 more businesses in significant distress (3%) since Q4 2019
· Record figure likely to be the tip of the iceberg, as full Covid-19 impact will build through Q2
· Number of critically distressed companies jumps 10% in the last quarter
The latest Red Flag Alert data for Q1 2020 found there were large numbers of
New research from
In just three months, factors including the coronavirus pandemic has pushed more than 15,000 businesses into significant financial distress with the data showing that SMEs have been chiefly affected. Of the 509,000 in distress, 504,000 are businesses with under 250 employees highlighting the vulnerability of smaller businesses. Although the Government has introduced support measures, including the Coronavirus Business Interruption Loan Scheme (CBILS), some firms have struggled to gain access to the government-backed loans.
Of even greater concern is the increase of businesses in critical distress2 - usually a precursor to insolvency - with a 10% increase in the past quarter alone. This figure would have been even higher, but creditors have been held back from taking court action due to the lockdown. There are now 2,289 businesses in critical distress with the most notable increases in the past quarter a 37% increase in bars and restaurants (Q4 2019, 87 to Q1 2020, 119), 21% increase in real estate and property (Q4 2019, 128 to Q1 2020, 155), 11% increase in construction (Q4 2019, 509 to Q1 2020, 563) and 8% increase in both general retail (Q4 2019, 116 to Q1 2020, 125) and manufacturing (Q4 2019, 124 to Q1 2020, 134).
"The coronavirus pandemic is a true 'black swan' event that has decimated short term business financial performance. Although it is still early days and with no end to the lockdown in sight things could get much worse, with the Red Flag research highlighting landmark levels of financial distress already.
"With many SME's yet to access government funding such as CBILS, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding. The Red Flag research demonstrates that many businesses were being cut close to the root before this crisis started to affect the economy and may be left with little option but to cut their losses with the knowledge that they would never be able to pay back a loan, no matter what the terms.
"While the loss of a business is devastating,
Sectors in distress hit hard since 2014
A look back at recorded data since 2014 demonstrates a huge increase for certain sectors. Those sectors which have seen the largest increases in significant distress are utilities (132% Q1 2014, 1,472 to Q1 2020, 3,409 companies), real estate and property services (104% from Q1 2014, 27,658 to Q1 2020, 56,421) and sport and health clubs (86% Q1 2014, 5,124 to Q1 2020, 9,553).
Year-on-year, all but one (printing and packaging) of the 22 sectors monitored by the Red Flag Alert research have seen increases in the number of companies in significant financial distress over the past twelve months. In total, almost 25,000 more businesses slipped into financial distress in the past 12 months, with real estate and property (17% increase from Q1 2019, 48,429 to Q1 2020, 56,421), sport and health (8% from Q1 2019, 8,844 to Q1 2020, 9,553) and food and beverage (7% from Q1 2019, 9,832 to Q1 2020, 10,499) sectors seeing the largest percentage increases.
The hardest hit during the last quarter have been real estate and property (6% increase Q4 2019, 53,159 to Q1 2020, 56,421), hotels and accommodation (5% increase Q4 2019, 5,654 to Q1 2020, 5,914), construction (4% increase Q4 2019, 63,153 to Q1 2020, 65,456) and health and education (4% increase Q4 2019, 28,544 to Q1 2020, 29,650).
"We hope that the concerted effort made by the
"Those businesses with strong balance sheets and access to funding will be able to reorganise their operations and survive the financial shock of this pandemic, while others will unfortunately not have the resources to carry them through this emergency and the uncertainty to follow.
"This latest data from our Red Flag research suggests that
- Ends -
1'Significant' distress is those businesses with minor CCJs (of less than
2 'Critical' distress are those businesses with minor CCJs (of more than
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About Red Flag Alert
Red Flag Alert has been measuring and reporting corporate financial distress since 2004, and over that time has become an industry benchmark of the underlying health of companies across every sector and region of the
Through its unique algorithm, the Red Flag Alert measures corporate distress signals, drawing on factual legal and financial data from a wide range of relevant sources, including intelligence from the
The release refers to the numbers of companies experiencing 'Significant' problems, which are those with minor CCJs (of less than
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. Further information about Red Flag Alert can be found at: www.redflagalert.com
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.
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