Pictured above: John Kelly
Birmingham businesses struggling to beat the recession are
facing a tough time ahead, with more rated with "critical"
problems, according to the latest Red Flag Alert report produced by
corporate recovery specialists Begbies Traynor.
Nationally, Red Flag Alert, which monitors a series of
indicators of company distress, shows a 12 per cent increase to
5,179 companies which experienced "critical" financial distress in
Q2 2011 compared to 4,620 companies in Q1 2011.
The Midlands region had 12,124 significant problems in the
second quarter against 11,473 in the same period a year ago, a 5.7
per cent increase. The equivalent for critical problems was 693
(720), down 3.8 per cent. This compared to 23,509 significant
problems and 652 critical in the first quarter of this year.
Birmingham had 1,797 significant problems against 2,988 for the
first quarter, down 40 per cent. It was up 11 per cent on critical
problems - 95 against 105.
John Kelly, regional managing partner in Begbies Traynor's
Birmingham office, said: "It looks as if Birmingham businesses are
in for a rough ride this autumn."
He pointed out: "Many struggling companies made use of the
Revenue's Time to Pay Scheme yet a high proportion of businesses
have failed to achieve a full turnaround and are now trying to seek
time to pay arrangements for a second time but are finding the
Revenue's attitude is less generous as they are under pressure to
collect outstanding revenue debts.
"The austerity measures mean the Government is finding it
difficult to give second chances or extend its support to business
owners that have chosen to use their money for another purpose and
as a result, the number of winding up petitions issued by HMRC in
Q2 2011 has more than doubled since Q1."
Although banks remain supportive of struggling customers there
are an increasing number of companies that cannot continue without
significant new investment as costs cannot be reduced any further
and sales demand weakens.
Ric Traynor, executive chairman of Begbies Traynor Group, said:
"The figures for Q2 2011 show the number of UK companies facing
'critical' problems has increased since last quarter.
"The fall in 'significant' problems is an apparent glimmer of
good news, but we believe this is indicative of weaker businesses
actively moving from 'significant' to 'critical' financial problems
- and ultimately to insolvency, as well as seasonal factors which
typically impact on the Q1 figures.
"In addition HMRC is taking a more robust stance. As the level
of support from the Revenue is gradually decreased, it is
increasingly evident that businesses using the scheme are now
struggling to cope with current trading conditions.
"The increased costs being placed upon consumers is likely to
have an impact on non food retailers and recent weeks have seen the
effect of reduced high street demand with a number of well known
retailers entering administration. We believe this distress is
likely to continue ahead of the pre-Christmas shopping period,
which traditionally starts in early October," he said.
The financial distress across sectors is variable, with clear
winners and losers, with Other (Non Food) manufacturing, utilities
and print and packaging all showing an improving picture.
However sectors reliant on discretionary spending such as Travel
& Tourism have faced a steady increase in critical distress in
Q2 2011, despite the long Easter break and extra bank holidays
which would have usually been beneficial to trading.
A significant proportion of the population are being squeezed by
inflationary pressures and concerns over the security of their
employment and are therefore being extremely cautious with their
spending - which is beginning to have a real impact on travel and
tourism related businesses, particularly the UK hotel market which
has seen a 47 per cent increase in critical problems since the last
quarter.
Consumer spending is already depressed and the impact of
significant utility bill rises, combined with the increasing cost
of fuel, is likely to have further serious consequences for any
businesses dependent on discretionary spending.
The malaise within the property sector shows no sign of
improvement with quarter on quarter critical problems up by a
substantial 42 per cent. This distress is affecting both
residential and commercial real estate, with recent surveys
predicting that property prices will not return to 2007 prices
until the next decade.
The squeeze on marketing budgets and the structural changes in
the media sector are showing through in terms of increased levels
of critical problems - up 33 per cent year on year and 21 per cent
quarter on quarter.
At the heart of this is overcapacity, particularly in the
printed media sector - where publications are chasing shrinking
advertising revenues. The move towards online and social media
channels has accelerated the problems, as advertisers typically
benefit from lower costs.
A surprising increase of 24 per cent in year on year critical
problems within the food and beverage manufacturing sector, is
indicative of reduced margins within supermarket supply chains,
combined with higher input costs which cannot be passed on to
customers.
For more information about Begbies Traynor, please visit their
website here: www.begbies-traynorgroup.com