Southampton: Businesses among the half a million across the UK in 'significant' distress

Financial distress among businesses in Southampton shot up sharply in the final three months of 2017 compared to the same quarter of the previous year, new figures have shown.

2,522 businesses in the city have faced some level of financial distress in Q4 2017 compared to 1,893 during the same period 12 months ago, data released by the UK’s leading independent business recovery specialists Begbies Traynor reveals – an increase of 33%. The research comes from Begbies Traynor's Red Flag Alert for Q4 2017, which monitors the financial health of UK companies.

Nationally, 493,296 firms reported 'significant' financial distress in Q4 – a hike of 36% on the same period last year. In the South East as a whole, 92,725 firms faced 'significant' financial distress in the final quarter of the year, compared to 67,145 the previous year – an increase of some 38%.

The trend was reflected in Southampton, where amongst the sectors faring worst were construction, where numbers went up from 313 to 412, bars and restaurants (up 20% from 87 to 104), media (up to 86 from 69, a hike of 25%), and industrial transportation and logistics (rising from 55 to 83).

Begbies Traynor warns that a number of macro economic pressures last year contributed to this considerable increase in distress, with the combination of rising inflation, stagnant real wage growth, a weak pound, political uncertainty, November’s rise in interest rates, and the ever-tightening credit environment putting increasing financial stress on businesses across the country. As a result, 258,349 UK businesses ended the year in a position of negative net worth*1, while a further 154,251 demonstrated a worrying increase in their working capital deficit.

The data shows that ‘significant’ distress rose across every sector and region of the UK over the past 12 months. Support services was the worst performing sector by volume, with 121,095 businesses showing signs of financial difficulty at the end of 2017, up 43% on last year. Over the same period, financial distress in the UK Construction industry grew 31% impacting 62,294 firms, while ‘significant’ financial distress in the real estate sector increased by 46%, hitting 40,508 companies. These three sectors alone made up 45% of all UK businesses in ‘significant’ financial distress.

However, there was more positive news for businesses with a strong export book who benefitted from the devaluation of the pound, particularly within the manufacturing and engineering sector.

Gavin Savage, partner at Begbies Traynor's Southampton office, said: “The number of UK businesses experiencing ‘significant’ financial distress during Q4 2017 is of real concern, as a perfect storm of macroeconomic headwinds pushed nearly 500,000 firms into significant distress. Our data shows that no region or industry has entered the New Year unaffected, as the whole economy felt the combined drags of the inflationary environment, higher interest rates, growing business uncertainty, tighter credit availability and subdued consumer spending.

“When the overall business environment is so challenging, unfortunately there can be few real winners, however certain sectors of the economy are certainly feeling the pinch more than others. In particular, the vast UK support services sector saw a spike in distress as their stretched customers reined back spending, the construction industry saw the lowest levels of optimism in five years while the real estate sector felt the full impact of the increasingly stagnant UK housing market.”

Ric Traynor, executive chairman of Begbies Traynor, commented: “Prolonged exchange rate weakness undoubtedly hit some businesses hard last year and despite a recent recovery in sterling, this improvement is yet to feed through in terms of any widespread recovery in corporate health. Meanwhile, the impact of continued political and economic uncertainty surrounding the ongoing Brexit negotiations cannot be underestimated.

“Looking forward, UK growth is widely expected to be sluggish again in 2018, so it’s important that companies focus on staff engagement and business efficiency, in line with the Government’s push for productivity this year. For the thousands of businesses now showing signs of financial ill health, prudent cost management, sustained improvements in productivity, and finding innovative ways to stay ahead of the competition will be critical to surviving beyond the next 12 months.”