Business failures up 17.5% as credit squeeze takes hold

News release

Contact:
Stephanie Watson
Press Relations Manager, Information Solutions
+44 (0)115 992 2515 Tel
stephanie.watson@uk.experian.com Email

Business failures up 17.5% as credit squeeze takes hold

• Banking, Property, Post and Telecoms all see hikes in failures, while the hotel and leisure sector shows signs of stress
• Only two regions escape with a decrease in business failures
• Experian expects failures in wholesaling and non-food retailing to accelerate significantly

Nottingham, UK, 24 July 2008 - Experian^®, the global information services company, today revealed that 10,512 UK businesses failed in the first half of the year, a 17.5% increase compared to the same period in 2007.
 

According to Experian’s Insolvency Report and Distress Index, over half of these were recorded in quarter two. Between 1 April and 30 June, 5,413 businesses went under, a 19.7% increase compared to quarter two 2007, which saw 4,521 failures.
 

Twenty one of the 34 sectors Experian monitors saw increases in business failures over the year to date compared to the same period in 2007.  Key sectors impacted are Property (up 80.6%), Banking and Financial Services (up 57.7%), Post and Telecommunications (up 45.7%) and Agriculture (up 36.4%).
 

In terms of absolute numbers, the Business Services sector has seen the largest number of failures in the year to date at 2,235, an increase of 15.1% on the first six months of 2007. Meanwhile, the Building and Construction sector saw over 1,000 businesses fail compared to 867 in the same period last year.
 

Tony Pullen, Managing Director of Experian’s Business Information division, comments: “Insolvencies are currently running at their highest level since the final quarter of 2006 and the indications are that the credit squeeze is taking hold across more industry sectors. On top of this, it is also the second quarter-on-quarter increase in failures we have seen. All these factors drive home the need for businesses to look to minimise their exposure to risk and, therefore, the risk of failure themselves.”
 

Economic impact
Matthew Sherwood, senior global economist with Experian, comments: “The numbers for financial and banking services are not surprising given that the credit crunch has plagued the economy for the last year. The bursting of the property bubble is also having the expected impact. However, given the major fault lines in the consumer sector, we would expect failures in wholesaling and non-food retailing, currently running at increases of 18% and 8.5% respectively, to accelerate significantly. Things are going to get worse before they get better."
 

Top ten sectors by year to date percentage increases in business failures (January – June 2008):

Companies failing in Q2 2008
High profile business failures over the last quarter have included Silverjet, which went into administration with the loss of 420 jobs. Silverjet is the third business airline to go bust in recent months after MaxiJet and Eos, underscoring the challenges facing business carriers who are losing out to budget airlines as organisations increasingly watch their travel costs.
 

Other failures, including Lancashire-based Sleep Depot, and MKOne, highlight the pressure that already exists on the retailing sector, which has seen 535 insolvencies so far this year, as consumer confidence continues to slide and both high street retailers and out of town shopping centres see a decline in footfall.
 

Regional overview
All but two of the 14 regions monitored by Experian saw an increase in insolvencies to date in 2008 compared to the first half of 2007.  Northern Ireland (up 74.8%), North East (up 46.7%) and the East Midlands (up 41%) are the three regions bearing the brunt of the increased number of failures. Only the South West (down 2.1%) and Scotland (down 16.7%) have seen a decrease in failures in the year to date.

Outside of the South East and London, business failures in volume terms are running at their highest in the North West and Yorkshire and the Humber.  Failures in the North West increased by over a third to 1,451, while in Yorkshire and the Humber failures rose by a fifth to 1,033.
 

The outlook: Experian’s Commercial Delphi Distress Index
Analysing key industry sectors using the Commercial Delphi Distress Index further highlights sectors on the critical list. Commercial Delphi is a risk assessment tool that uses a blend of integrated consumer and business data and sophisticated scoring technology to derive a single score that predicts the likelihood of business failure within the subsequent 12-month period.
 

According to the Index, twelve sectors are showing clear signs of distress, displaying average industry Commercial Delphi scores of between 25 and 50 indicating an above average risk of failure for businesses in these sectors as a whole in the next 12 months. Sectors feeling the stress include Post and Telecommunications, Hotels and Leisure and Retail Trade – all areas that would be impacted by any further decrease in consumer confidence.
 

Businesses can visit www.experianbi.co.uk for information on how to avoid becoming an insolvency statistic.
 

ENDS

CORPORATE FAILURES – QUARTER TWO 2008

Key

Key

NOTES TO EDITORS:
Company failure has been derived from analysis of adverse notices received from Companies House that indicate that companies have little or no chance of recovering to a normal status in the future.  These notices comprise voluntary liquidations, compulsory liquidations, administration orders, receiverships and voluntary arrangements.