UK firms in ‘significant financial distress’ hits record
A record number of UK firms are fighting for their financial survival as the uncertain economic outlook hits business confidence.
Restructuring specialist Begbies Traynor has reported that there were 632,756 UK businesses in ‘significant’ financial distress in the third quarter of this year – a 32% rise compared with a year earlier.
Significant’ financial distress increased in almost every one of the sectors covered by the latest Red Flag Alert survey.
It rose particularly rapidly among utilities companies (+19.3%), food & drug retailers (+10.4%), financial services (+9.94%) and bars & restaurants (+8.7%).
But, there was a drop 17% year-on-year drop in the number of businesses in ‘critical’ financial distress (close to insolvency).
Julie Palmer, partner at Begbies Traynor, says 2024 has been hard to navigate for companies, which have been hit by high inflation – and could face new taxes in the budget.
“With over 630,000 firms now in significant financial distress, more than thirty per cent higher than this time last year, no section of the country’s economy is immune from the legacy debt built up by many businesses during the pandemic.
“It is also apparent that the toxic effect of high inflation is still filtering down to businesses. The construction sector in particular continues to struggle with the legacy of high materials and labour inflation which have led to some high-profile insolvencies recently. This is a trend that I expect to continue, and I do not believe ISG will be the only major casualty in this sector with the domino effect likely to hit the sub-contractor community in due course.
“For some, the prospect of a change of government was viewed as a potential catalyst for a much-needed economic boost, but there are significant concerns surrounding what the next Budget might hold for the economy and the knock-on effect could be damaging for many businesses teetering on the edge of collapse, as it seems certain many will have to deal with higher employee related taxes.”
Here’s a breakdown of the top sectors for significant financial distress:
-
Support Services: 97,178 companies
-
Construction: 90,375
-
Real Estate & Property Services: 69,111
-
Professional Services: 52,082
-
General Retailers: 46,288
-
Health & Education: 41,222
-
Telecommunications & Information Technology: 40,817
-
Media: 26,389
-
Food & Drug Retailers: 19,260
-
Financial Services: 18,664
Key events
Closing post
With the weekend fast approaching, it’s time to wrap up.
Economic pressures have pushed more UK firms into financial distress.
Restructuring specialist Begbies Traynor has reported that there were 632,756 UK businesses in ‘significant’ financial distress in the third quarter of this year – a 32% rise compared with a year earlier.
There’s also been a sharp year-on-year increase in individuals filing for insolvency.
Demand for safe-haven assets has pushed gold to a new alltime high, over $2.700 per ounce.
Over on Wall Street, shares in Netflix have jumped 10% after it beat estimates for subscriptions last night.
Netflix added around 5.1 million streaming subscribers in the third quarter of the year, over 1 million more than analysts expected.
Kate Leaman, chief market analyst at AvaTrade, says:
“For the third quarter of 2024, Netflix delivered solid quarterly results. The streaming giant slightly beat analyst expectations, while ad-tier membership shot up by 35 percent – a largely unexpected development. This shows that the company is really beginning to make progress in tapping into the ad-based market. Looking ahead, its expansion into Canada and beyond is also exciting and something to monitor.
“Overall, this quarter’s earnings are a good sign that Netflix is adapting and growing, especially in a competitive streaming landscape. It’ll be interesting to see how its ad-based model plays out globally in the coming months and years.”
Auditing group RSM have spotted that today’s insolvency statistics show that the number of accommodation and food service company failures fell 16% month-on-month in August 2024, from 323 to 270.
That’s the lowest monthly figure since January 2024.
Saxon Moseley, partner and head of leisure and hospitality at RSM UK, says:
Hospitality businesses have experienced slow but steady revenue growth over the summer, while staff vacancies, food costs and services inflation have all reduced in recent months, pointing towards an easing of margin pressures which have put operators under significant strain.
“However, already this month businesses have had to factor in the new tipping legislation as well as get to grips with proposed changes to workforce practices under the Employment Rights Bill. There are growing concerns about how the Budget will impact consumer confidence and the cost of employing staff, which could have a detrimental impact on the sector. As an industry that employs a vast number of staff, any employment-related changes risk disproportionately impacting the sector.
Boeing strike pushes supplier Spirit to plan worker furloughs
The ongoing strike at Boeing is causing ructions through the aerospace sector.
Bloomberg are reporting that Spirit AeroSystems Holdings will start furloughing workers later this month in response to the walkout at its biggest customer.
Spirit will implement a 21-day furlough for about 700 workers supporting Boeing’s 777 and 767 jetliner programs beginning on 28th October, Spirit spokesman Joe Buccino said. If the strike at Boeing, soon to enter its sixth week, continues past November, Spirit will need to extend unpaid leave and begin layoffs, he said.
Buccino explained:
“These furloughs are in combination with a series of other cost savings measures, including a hiring freeze and travel and overtime restrictions.”
Airline bosses expressed concern earlier this week that the Boeing strike will lead to delays to aircraft deliveries.
Gold hits $2,700 for the first time
Gold has broken through the $2,700 barrier for the first time.
Bullion hit a new alltime high of $2,717.37 per ounce today, helped by forecasts of interest rate cuts.
Demand for safe havens as the Middle East conflict continues, and ahead of the US presidential elections, also boosted gold.
Samer Hasn, senior market analyst at XS.com, says:
Gold’s gains come amid renewed geopolitical uncertainty from the Middle East, with growing question marks over the course of the conflict in the region following the killing of Yahya Sinwar.
Gold’s gains in the Asian session also coincided with data from China showing further slowdown in economic growth and shrinking house prices.
The US home construction sector appears to have cooled a little in September.
Housing starts decreased 0.5% last month to an annualised rate of 1.35m new projects.
Requests for building permits, giving permission for a new house construction, slowed more sharply; they were down 2.9% to an annual rate of 1,428,000 in September.
🏡 Housing starts were mostly stable in Sep, down just -0.5% MoM and slightly higher than the consensus expectations. Building permits saw a larger decline of -2.9% MoM which was below expectations.
Single-family activity was positive with starts up 2.7% MoM and permits up 0.3%… https://t.co/6R7sZ3Wm0P pic.twitter.com/v3RsDkMxh7
— MTS Insights (@MTSInsights) October 18, 2024
Tesla’s ‘Full Self-Driving’ faces US defect probe
The U.S. auto safety regulator has opened an investigation into Tesla’s Full Self-Driving software after reports of four collisions, including one fatal crash, involving its driver-assistance technology in low-visibility conditions.
The preliminary probe will cover 2.4 million Teslas, the National Highway Traffic Safety Administration said, and examine how FSD copes with reduced roadway visibility conditions, such as sun glare, fog, or airborne dust.
Over on Wall Street, consumer goods maker Procter & Gamble has missed sales forecasts, due to weakening demand in China.
P&G has posted a 1% drop in net sales in the last quarter, to $21.7bn. It has reported volume declines in Greater China for Hair Care (shampoo) and Oral Care (toothpaste) products.
The iPhone 16 may be supporting retail sales in China, as well as in the UK.
Apple’s newest iPhone 16 is selling much faster in China than its predecessor, a new report from Counterpoint Research shows.
Sales of Apple’s iPhone 16 have been 20% higher in the People’s Republic of China in the first three weeks of its launch compared to sales of its iPhone 15 in the equivalent period, Marketwatch reports.
Debt advice charity National Debtline is urging anyone struggling with their debts to contact them for free, independent advice.
Following the rise in individual insolvencies last month, Matt Hartley, director of engagement at the Money Advice Trust, the charity that runs National Debtline, says:
“We’re continuing to see record levels of people getting Debt Relief Orders, and with personal insolvencies up more widely, it shows the ongoing impact high costs have had on people’s finances.
“It’s vital people with unaffordable debts are able to access the right debt option for them. However, findings from the Insolvency Service show this sadly isn’t always the case, with some people being pushed towards IVAs that weren’t right for them.
“This risks pushing people further into financial difficulty, so our message to anyone who is struggling is to always seek free, independent advice from a service like National Debtline. Our advisers can help find the right next steps, whatever the circumstances.”
Boohoo boss to step down as retailer launches brand review that could spark breakup
Mark Sweney
Boohoo’s chief executive is stepping down as the online fashion retailer launches a strategic review of its brands, which include Debenhams, Karen Millen and PrettyLittleThing, that could result in a breakup of the company.
John Lyttle, who joined from Primark in 2019, has agreed to remain in post until a successor is found.
Shares plunged more than 9% in early trading as investors reacted to the surprise news, but later recovered most of their losses.
The company, which has cut jobs amid widening losses and falling sales in the face of competition from rivals such as the Chinese online fast fashion retailer Shein, also said that it had agreed a new £222m debt facility with its bankers.
Russ Mould, investment director at AJ Bell, says:
“The starting gun has been fired on the break-up of Boohoo. A review of each division to ‘unlock and maximise shareholder value’ is code for corporate restructuring and that points to a sale or demerger of some of its assets.
“Selling Karen Millen and Debenhams is the obvious starting point, leaving Boohoo with a sharper focus on a younger target market.
“The company is under pressure to stop the rot with its disastrous share price since 2021. It has suffered from heightened competition, changing consumer buying habits, cost pressures and regularly falling short with meeting earnings expectations. These issues have weighed on the company’s valuation.
“When Boohoo talks about unlocking shareholder value, it means getting someone to put a fairer price on certain divisions by separating them from the parent group. In doing so, they wouldn’t carry the stigma and valuation discount that comes with being part of a flagging retail group.
Here’s Noble Francis, economics director at the Construction Products Association, on the insolvency data:
4,310 UK construction firms went into insolvencies in the year to August 2024, which is 1.5% lower than in the year to July but it is 1.1% higher than a year earlier, according to the latest data from the Government’s Insolvency Service. (1/n) #ukconstruction #ukhousing pic.twitter.com/yT3zs3xSb6
— Noble Francis (@NobleFrancis) October 18, 2024
Taking out the monthly volatility, the number of UK construction firms going out of business continued to broadly flatline in the year to August 2024 but flatline at their highest levels since the financial crisis more than a decade ago. (2/n)#ukconstruction #ukhousing pic.twitter.com/a9UDQAKiu5
— Noble Francis (@NobleFrancis) October 18, 2024
The number of UK construction firms going out of business in the year to August was 36.0% higher than in January 2020 due to double-digit downturns in the 2 largest sectors; private housing new build & repair, maintenance & improvement (rm&i). (3/n)#ukconstruction #ukhousing pic.twitter.com/YVrdUWBdGI
— Noble Francis (@NobleFrancis) October 18, 2024
UK construction has lost 11,025 firms since the start of 2022. Note the construction insolvencies in August don’t include ISG (the 6th largest UK contractor, £2.2bn turnover) that went into administration (rather than insolvency) in September. (4/n)#ukconstruction #ukhousing pic.twitter.com/ucmEcyiGa7
— Noble Francis (@NobleFrancis) October 18, 2024
Frasers trying to engage with Challice over Mulberry deal; backs N Brown takeover
Mike Ashley hasn’t given up his chase for fashion brand Mulberry, it seems.
Ashley’s Frasers Group has told the City that it has not yet received formal feedback from the board of Mulberry on its sweetened takeover offer, made last week.
Frasers also “notes” that Challice, the group which owns 56% of Mulberry, said last weekend it had no interest in selling its shares, adding:
Accordingly, Frasers has sought to engage with Challice directly.
Frasers owns a third of Mulberry.
It also owns 20% of online retailer N Brown, which yesterday announced it is being taken private in a £191m takeover by a member of its founding family, Joshua Alliance.
Frasers says it has signed an irrevocable undertaking to vote in favour of the deal.
And, in a notably cheerful regulatory statement, Frasers wishes Alliance and his team all the best:
Frasers wishes Joshua Alliance and the N Brown management team every success for the future, and although Frasers will have divested of its shareholding in full, Frasers looks forward to a strategic relationship with Joshua Alliance and the N Brown team post-Acquisition.
Frasers would also like to take the opportunity to thank N Brown and Joshua Alliance for the fulsome engagement ahead of the Acquisition Announcement.
The number of companies failing across England and Wales also rose last month.
According to the Insolvency Service, there were 1,973 registered company insolvencies in September, 2% higher than in August.
However, that’s still 7% lower than a year ago; there were 2,130 insolvencies in September 2023.
Individual insolvencies jump by 44%
Newsflash: There’s been a sharp increase in the number of people falling into insolvency in England and Wales.
Individual insolvencies jumped by 44% year-on-year in September, to 10,651, new data from the Insolvency Service shows. That’s also a 6% increase compared with August.
This consists of 567 bankruptcies, 4,032 debt relief orders (DROs) and 6,052 individual voluntary arrangements (IVAs).
A DRO allows borrowers to write off personal debts they cannot repay (as long as they owe less than £50,000 and don’t have significant savings or an expensive car). They have been more popular since the £90 application fee was abolished in April.
An IVA is a court-approved agreement that stops a creditor charging interest on a debt or chasing the borrower, as long as they repay it.
London holds the greatest number of firms in ‘significant financial distress’, according to Begbies Traynor’s data.
There were 185,494 firms in this condition in the capital in the last quarter, the Red Flag Alert report shows, followed by 105,083 in the South East, and 76,902 in the Midlands.
UK firms in ‘significant financial distress’ hits record
A record number of UK firms are fighting for their financial survival as the uncertain economic outlook hits business confidence.
Restructuring specialist Begbies Traynor has reported that there were 632,756 UK businesses in ‘significant’ financial distress in the third quarter of this year – a 32% rise compared with a year earlier.
Significant’ financial distress increased in almost every one of the sectors covered by the latest Red Flag Alert survey.
It rose particularly rapidly among utilities companies (+19.3%), food & drug retailers (+10.4%), financial services (+9.94%) and bars & restaurants (+8.7%).
But, there was a drop 17% year-on-year drop in the number of businesses in ‘critical’ financial distress (close to insolvency).
Julie Palmer, partner at Begbies Traynor, says 2024 has been hard to navigate for companies, which have been hit by high inflation – and could face new taxes in the budget.
“With over 630,000 firms now in significant financial distress, more than thirty per cent higher than this time last year, no section of the country’s economy is immune from the legacy debt built up by many businesses during the pandemic.
“It is also apparent that the toxic effect of high inflation is still filtering down to businesses. The construction sector in particular continues to struggle with the legacy of high materials and labour inflation which have led to some high-profile insolvencies recently. This is a trend that I expect to continue, and I do not believe ISG will be the only major casualty in this sector with the domino effect likely to hit the sub-contractor community in due course.
“For some, the prospect of a change of government was viewed as a potential catalyst for a much-needed economic boost, but there are significant concerns surrounding what the next Budget might hold for the economy and the knock-on effect could be damaging for many businesses teetering on the edge of collapse, as it seems certain many will have to deal with higher employee related taxes.”
Here’s a breakdown of the top sectors for significant financial distress:
-
Support Services: 97,178 companies
-
Construction: 90,375
-
Real Estate & Property Services: 69,111
-
Professional Services: 52,082
-
General Retailers: 46,288
-
Health & Education: 41,222
-
Telecommunications & Information Technology: 40,817
-
Media: 26,389
-
Food & Drug Retailers: 19,260
-
Financial Services: 18,664
Moody’s Analytics: Budget tax rises may slow growth
Here’s Moody’s Analytics economist Andrew Hunter on the rise in UK retail sales last month:
“The volume of U.K. retail sales rose 0.3% month-on-month in September, slower than the 1% gain in August but still rounding off a solid quarter of growth. Sales were boosted by big gains in spending at department stores and computing and telecoms stores, offsetting a slump in spending on groceries.
There isn’t much sign in the data that pre-Budget uncertainty is causing consumers to cut back on spending. Nevertheless, alongside slowing real wage growth and the still-restrictive level of interest rates, the likelihood of further tax rises being unveiled later this month is another reason to expect the U.K. economy to slow over the remainder of the year. “
Future shares dive as CEO steps down
Mark Sweney
Jon Steinberg, the former senior Mail Online and Buzzfeed executive who heads Marie Claire to Techradar owner Future, has resigned from the £1bn London-listed group after 18 months.
Steinberg, who joined in April last year replacing Zillah Byng-Thorne, has said he is resigning to relocate back to the US with his family.
Richard Huntingford, chair of London-listed Future, says:
“I would like to thank Jon for the significant contribution he has made to the Group. Whilst we are disappointed that he will be departing next year, we respect Jon’s decision to return to the US.
Steinberg will serve out his one-year notice period while a successor is found.
Shares in Future, which is valued at £1bn, fell over 10% following the news of Steinberg’s resignation, to the bottom of the FTSE 250 leaderboard.
Steinberg previously served as chief executive of Mail Online in North America, and was previously chief operating officer at Buzzfeed.
Before joining Future he held the role of president at cable operator Altice USA, which he joined when the company bought his digital news business Cheddar.