Red flag raised as more Welsh firms ‘in distress’
BUSINESSES across Wales saw an increase in financial distress across the majority of sectors in the first three months of 2017, according to a report from independent business recovery specialists Begbies Traynor.
The latest Red Flag Alert from Begbies Traynor found 9,312 firms were in “significant” financial distress during the first three months of 2017 – up 7% on the previous quarter (8,677 firms),
The Red Flag Alert research for Q1 2017, which monitors the financial health of UK companies, shows that in Cardiff itself 1,530 businesses reported “significant” financial distress in the first quarter of 2017, compared to 1,438 in the last three months of 2016 – an increase of 6%.
Looking at the picture across the UK, 296,054 businesses were experiencing “significant” financial distress in the first three months of 2017, an increase of 7% on the previous quarter (276,518 businesses), and an increase of 8% on the same period last year (the first three months of 2016, when 274,595 businesses were in distress).
David Hill, partner at Begbies Traynor’s Cardiff office, said: “Given the scale of the increases in distress during Q1, it would appear that food suppliers, logistics firms and wholesalers are yet to fully pass on rising costs to their customers. But it is only a matter of time before we start to see this coming through, especially given the added margin pressures associated with the new National Living Wage.
“Once those costs ultimately feed through to consumers, we’d expect further pressure on sectors exposed to discretionary spending such as retail, bars and restaurants, travel and leisure.”
Among the worst-hit sectors in Cardiff in terms of “significant” financial distress were industrial transportation and logistics (climbing 21% from 33 to 40), bars and restaurants (up 17% from 66 to 77), and construction firms, which showed an increase, going up 14% from 154 to 175.
Sectors to buck the trend, showing a fall in financial distress levels, included automotive firms (down 19% from 31 to 25).
Ric Traynor, executive chairman of Begbies Traynor, added: “These figures show that rising energy and food prices, combined with the devaluation of sterling, have undoubtedly put a strain on the much of the UK’s supply chain. As we wait to see what a future UK trade agreement with Europe might look like, these suppliers face continued uncertainty, not just in terms of their European distribution channels but also with regards to staffing, given their higher reliance on European migrant workers.
“It is clear that UK suppliers, wholesalers and manufacturers can’t afford to adopt a ‘wait and see’ approach – they’ll need to rapidly invest to improve their efficiency or renegotiate prices with customers to avoid the risk of falling into more severe financial distress in the coming months.”