Pictured: R3 Midlands Chairman Matthew Hammond 

Private companies in the Midlands have experienced increases in 11 of the 13 key signs of business distress in the three months to October, according to insolvency trade body R3.  The quarterly R3 Business Distress Index also highlights that a business-led economic recovery is still some way off, with more than one in four (26%) Midlands businesses regularly using their maximum overdraft facility. The statistics also show that more than half of local companies (54%) are experiencing decreased profits over the previous quarter.

For the first time, the R3 report also asked regional respondents if they are experiencing a number of growth indicators. The results, which mirror the distress signals, found that only 26% are experiencing increased profits, compared to the 54% experiencing a decrease in profitability.

The R3 growth index also found that less than one in ten (9%) Midlands businesses have seen their market share expand, which is the lowest regional growth figure in Great Britain. Almost one third (31%) have experienced a decrease in market share. The results also highlight that local companies operating in the services sector are more likely to be experiencing growth than those in the manufacturing sector.

R3 Midlands chairman Matthew Hammond, a partner at PwC in the Midlands, said: "These latest quarterly statistics show that businesses are not out of the woods yet, with signs of distress increasing in most key indicators compared to the previous quarter. This worrying trend largely mirrors the slowdown in GDP growth the UK economy experienced last quarter.

"While current economic and corporate challenges may not be severe enough to push businesses over the edge, prolonged periods of distress will trigger an increase in formal insolvencies, compounded by the fact that more companies are being forced to utilise their maximum overdraft facilities. The first few years after a recession are historically difficult as it is some time before businesses can rebuild their reserves sufficiently to support expansion."

The R3 research also found that in spite of the growth of some local businesses, other key indicators of health remain low with only 2% of Midlands companies confirming an increase in export orders and only 16% increasing the size of their workforce. 

Matthew Hammond continued: "The private sector has some way to go before it can deliver the kind of expansion the Government yearns for to drive the economy forward. Whilst it is encouraging that a fifth of Midlands businesses are growing, important measures such as increasing exports and employment register poorly and do not bode well for immediate regional recovery."