Distress levels fall amid construction lift

The number of businesses in the region facing critical problems such as the issuing of winding up petitions and CCJs dropped by 21% in Q4 2012, new figures show.

A Begbies Traynor Red Flag Alert report published today shows that the North East reflected the situation in much of the UK in the last three months of 2012, with substantial decreases in distress in key sectors such as construction and real estate.

This was despite a rapid deterioration in the financial health of consumer facing industries, which Begbies says points to the emergence of a twin-track economy.

The number of companies in the region with ‘critical’ problems fell by 21% from 120 in the third quarter of 2012 to 95 in Q4.

A number of sectors in the North East showed substantial improvements during the final quarter, particularly construction which saw a 40% fall in companies with significant problems, while real estate saw a 54% fall in distressed business levels.

While much smaller in terms of the volume of businesses, the most significant improvements among other sectors were seen in industrial transportation and logistics, with a 50% decrease in distress, and printing and packaging, which also decreased by 50% quarter on quarter.

In contrast, consuming-facing sectors saw continuing distress with significant problems in bars and restaurants rising by 44% in Q4; the leisure and culture sector rising by 19%; and retail by 8%.

This deterioration in the financial health of most consumer facing sectors is also evident in the national picture.

Overall, the UK experienced a 12% decrease in the level of ‘combined’ distress across the UK (categorised as companies experiencing ‘significant’ or ‘critical’ financial problems) from 223,125 in Q3 2012 to 196,636 in Q4 2012, indicating the first tentative signs of recovery for parts of the economy.

Factors driving this decrease include continued low interest rates, a reduction in actions taken by creditors and their increased forbearance.

Andy Haslam, partner of Begbies Traynor in the North East, said: “The figures demonstrate an improvement in the financial health of the construction sector, which we believe reflects the fact that those construction firms that have survived the crisis are now benefitting from improving margins on a lower cost base.

“It is also evident that some construction firms have purchased land banks at substantially discounted prices following the financial crisis which, combined with a material improvement in the sector’s output towards the end of 2012, are encouraging signs.

“In addition large infrastructure projects such as the construction of HS2 rail link should have a considerable positive impact on the sector in the medium to long term while, in the nearer term, the sector is benefitting from decreased competition since the onset of the crisis and continued creditor forbearance, with our analysis showing increased liabilities across the sector.