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Q3 2011 Red Flag Alert Report - Travel Sector Faces Severe Economic Headwinds - Critical Distress up by 49%

October 17, 2011

Considerable Increase in Critical Financial Distress Across Many UK Sectors

Key findings from the Q3 2011 Begbies Traynor Red Flag Alert statistics include:

• The Travel and Tourism sector is coming under increasing pressure with further insolvencies inevitable; there has been a 49% increase in companies facing ‘critical’ distress compared to Q3 2010 and a 29% increase in companies facing ‘significant’ financial distress when compared with Q2 2011
• Across all sectors there has been a 23% increase in ‘critical’ financial distress during Q3 2011 when compared to Q3 2010
• Companies with critical financial problems have liabilities of £62.5 billion during Q3 2011
• The deteriorating economic conditions, resulting in the evaporation of consumer confidence has resulted in a 7% quarter on quarter rise in significant financial distress in the general retail sector
• Year on year, a range of sectors continue to show increasing levels of ‘critical’ distress: up by 41% in the Construction sector; by 53% in the Property sector;  and by 92% in Support Services

Begbies Traynor Red Flag Alert - the quarterly report, which monitors a series of indicators of company distress, indicates the travel and tourism sector is coming under increasing pressure with a 49% increase in companies facing ‘critical’ distress during Q3 2011 when compared to Q3 2010 and a 29% increase in companies facing ‘significant’ financial distress when compared with Q2 2011.

Julie Palmer, Partner at Begbies Traynor, said:

“Cash reserves at travel and tourism companies are typically at their lowest levels during the 4th quarter so the rise in distress during Q3 is a real warning signal to the industry. Consumers are reining in their spending but this responsible behaviour is actually nullifying any attempts by policymakers to boost spending in the UK.”

In the past quarter, sectors reliant on consumer discretionary spending are bearing the brunt of an increase in levels of ‘significant’ financial distress with a 29% increase hitting the Travel and Tourism sector and the beleaguered retail sector likewise shows signs of financial difficulties, with the number of businesses facing distress up by 7% compared to Q2 2011.

However this economic malaise is rapidly spreading to other sectors; with levels of ‘critical’ distress rising in the past year by 41% in the Construction sector, by 53% in the Property sector and by 92% in  the Support Services sector.

Ric Traynor, Executive Chairman of Begbies Traynor Group said:

“A crisis of confidence did nothing to help retailers improve their prospects in the summer months – and unexpected factors such as the August riots and poor economic data are starting to take their toll. While many retailers will be relieved that the last quarter rent day in September passed almost without incident, the months leading up to Christmas could make or break a number of high street names, leading to insolvency in 2012.

“The levels of ‘significant’ financial distress in the Food and Drugs Retailing sector have risen by 12% in the past quarter – demonstrating that the downward pressure on the consumer is affecting even essential purchases and that consumers are battening down the hatches to protect  against the forthcoming financial storm.”

“We expect factors such as decreasing consumer confidence, fear and uncertainty over job security, the ongoing eurozone crisis and increased web based competition to manifest themselves in further insolvencies in the retail sector,” Traynor added.

Combined problems by Sector:

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