Corporate Restructuring, Turnaround and Recovery

SME FINANCIAL DISTRESS BAKER TILLY Despite the economic boost of London 2012, the signs of long-term improvement in the UK economy are still uncertain. Come in WE'RE OPEN The results from the latest Baker Tilly / Company Watch SME Distress Monitor show that growth for many companies is very precarious. Small to medium-sized enterprises (SMES) need to keep a close eye on their working capital to be in a position to capitalise on any future opportunities. A gradual healing The SME Distress Monitor aggregates the latest accounts filed by businesses across the UK with sales of between and The results, drawn from 25,804 small to medium-sized SMES, show that the number of businesses suffering material declines in sales and/or profitability is falling, but sales figures are proving more resilient than profits. Although improving slowly, the economic climate is still incredibly tough Sales holding up Fewer SMES are reporting material reductions in sales figures (Fig 3). Overall, 14% of businesses saw a fall in sales of at least 10%, with 7% seeing sales fall by 20% or more. Again, these are a small improvement on last year's results. Total SMES with declining sales >10% >20% 14% Profits remain under pressure 36% of businesses have seen a 10% drop in profits where as 14% of businesses have seen a 10% fall in sales 14% 36% Total SMES with declining profit before tax 36% 32% 28% >10% >20% >30% 25% 21% >40% >50% Decline in profit before tax by sector >10% Agriculture Media & technology Professional services Retail Construction Leisure & hospitality Manfacturing Natural resources & utilities 32% 34% 35% 36% 37% 38% 39% Debt problems remain Almost one-quarter of businesses (24%) have a current ratio below one, which indicates potentially insufficient resources to meet their short-term debts. This is a crucial indicator of a business's financial health and so SMES cannot afford to be complacent. 24% of SMES surveyed are unable to pay down their short-term debts as they fall due Working capital is crucial For many businesses, the next six months will be critical to their long-term survival. The recent 1% rise in GDP (Oct 2012) caught many commentators by surprise and is a clear indication of the current economic unpredictability. Working capital is scarce, which will make it very difficult to fund any future growth opportunities Risk of financial distress According to the survey, 24% of businesses are in the warning zone of the Company Watch H-Score, where a score of 25 or below signals potential financial distress. The vast majority of companies that fail are in this range immediately before their failure. 1 in 39 of SMES surveyed are at risk of financial restructuring or formal insolvency As things very slowly start to improve, there's a real risk of overtrading within the next 12 months 1111 111111 Produced in association with Company Watch TRACKING CORPORATE FINANCIAL HEALTH CONTACT US Tony Wright Partner, Restructuring and Recovery [email protected] T: +44 (0)20 3201 8000 www.bakertilly.co.uk Matt Haw Partner, Restructuring and Recovery [email protected] BAKER TILLY National average across all sectors