Begbies warns over companies on the brink

City A.M. Reporter
The number of British companies in serious financial distress soared in the first quarter with restaurants, professional services businesses and the leisure industry in particular difficulty, a report showed.

Begbies Traynor, a corporate recovery company that helps wind up or restructure firms, said its Red Flag Alert database showed 186,554 UK businesses were facing significant or critical problems in the first three months of this year.

That represents a 15 percent increase on the 161,601 tally recorded a year ago, according to the report which is created from a database of over six million records relating to businesses in the UK and monitors early warning signs of company distress.

"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," Ric Traynor, executive chairman of Begbies Traynor, said in a statement on Wednesday.

The jump in the number of companies in difficulty was even bigger when compared with the final three months of 2010 and Begbies noted that while there is typically always an increase in the first quarter the 26 per cent rise was significantly worse than the 14 per cent quarter-on-quarter increase seen last year.

The company said that while there had been an overall improvement in some sectors less dependent on discretionary spending, such as food and beverage manufacturing, there had been a 68 percent surge year-on-year in the number of businesses showing signs of distress in the bar and restaurants sector.

For the leisure and culture industries there was a 60 per cent increase in problems while sports and culture were also above average at 23 per cent.

Begbies also said it had seen a "rising tide" of professional services companies facing significant or critical problems with a 61 percent increase compared to the first quarter of 2010.

In particular, high levels of legal actions taken against debtors indicated creditors are attempting to maximise cash collection as higher oil prices and VAT make cash flow and credit control essential priorities, the company noted.

"January 2011 marked the beginning of widespread 90-day consultations on job cuts resulting from October's Comprehensive Spending Review," the company said. "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."

The report follows data on Tuesday which indicated British retail sales fell at their fastest annual pace in nearly six years and house prices fell while a surprise easing in inflation reduced pressure for an interest rate hike.