Member Article

Picture worsening for businesses across Yorkshire and the North East as over a quarter reports sign of distress – R3

Fewer companies in Yorkshire and the Humber and the North East are reporting signs of growth, and more firms in the region say they have recently experienced at least one sign of distress, according to new research by insolvency and restructuring trade body R3.

The research, part of a long-running survey of business distress by R3 and BDRC , indicated that the number of companies across Yorkshire and the Humber and the North East reporting one or more signs of growth fell to 45% in September 2017 (close to the UK-wide figure of 53%), down from 68% in April and 65% in September 2016.

Meanwhile, 24% of firms in the region said they had experienced one or more signs of distress, up from just 8% in April this year but a fall from 33% in September 2016. While the proportion of businesses showing signs of distress increased nationally too, it was a smaller increase from 21% in September last year to 25% this September.

Payment owed on invoices that are over 30 days past due’ was the sign of distress reported by the greatest proportion of businesses in the region surveyed, at 16% - up from 9% last April. The next most common sign of distress was ‘reduction in sales volumes’ – up regionally from 2% in April 2017 to 14%.

Eleanor Temple, chair of R3 in Yorkshire and barrister at Kings Chambers in Leeds, said: “There’s been a very firm increase in distress levels across the UK over the last 18 months, alongside a drop in growth. Businesses have moved on from record high growth levels and record low distress levels, and it looks like a new phase of the economic cycle has started.

“With more firms in the region facing the challenge of slow payment and the knock-on cash flow problems, as well as sales volumes falling for a larger number of companies here, the economic picture is getting murkier. For a lot of companies existing on the edge, just one shock – such as a rise in the cost of borrowing, the failure of a major supplier or customer, or a fall in consumer confidence – could be enough to push them into insolvency. The insolvency practitioners and business advisory experts among R3’s membership are reporting a rise in the volume of enquiries they are receiving from businesspeople who want to get a clear picture of their options.”

Ms Temple adds: “Many companies have seen their fixed costs rise over the past year, whether due to higher business rates, an increase in the National Minimum Wage, inflation’s upward trajectory, higher fuel prices, or the fall in the pound pushing up import prices. Meanwhile the economy’s growth has not been rapid enough to offset these greater outlays, leaving some firms in a precarious position.”

There is some room for optimism, however. The proportion of firms in the region reporting decreased profits have remained stable with 5% of respondents saying this was the case for them. Companies which said they had had to make redundancies continued to make up a tiny fraction of firms in Yorkshire and the Humber and the North East, at just 1%, a figure, a decrease from 3% in April 2017, and which fits in with official labour market statistics from the ONS, showing the unemployment rate sitting at 4.3%, a level last seen in the 1970s.

Of the five signs of growth monitored by R3, all of them experienced a drop compared with April of this year, while only one indicator – whether or not a business was expanding geographically, increasing staff numbers or new areas of businesses – was higher than in September 2016 (25% in Sep 2017; 15% in Sep 2016).

The number of companies in the region saying they are investing in new equipment experienced a sharp drop between April and September, from 34% to 12%. With many business leaders concerned over the prospects for UK plc, company directors may be taking a lead from predictions of trouble ahead and building up cash reserves to take them through tougher times.

Ms Temple commented; “The overall outlook for the UK’s business community is more downbeat than it has been for some time. The question of balancing competing needs – whether to prioritise solidifying their cash position or investing in their businesses – is more urgent than ever for many companies, especially with the economic landscape becoming more unsettled. There are no easy answers as to which choice firms should opt for, although talking any big decisions over with an external advisor may help directors to work out a way forward.”

The number of firms in Yorkshire and the Humber and the North East reporting an increase in sales volume fell from 38% in April 2017 to 14% in the latest round of research, while the number which had seen growth in market share fell from 27% to 20% over the same period. Just 27% reported that they had experienced increased profits, down from 36% in April.

Ms Temple added: “There are always other options for firms which are experiencing distress, and the regulated advisers within the insolvency and restructuring profession can often help directors to make the best choices for their companies. The sooner the directors of a company reach out for expert advice from a regulated professional, the more can be done to provide the best possible outcome for a distressed firm.”

This was posted in Bdaily's Members' News section by Emma Kilmurray .