Over 6,700 Yorkshire firms face significant financial problems

There was brighter news for investors in FTSE 100 companies, with research suggesting that UK dividends have defied the recent market turbulence.

Yorkshire’s reliance on public- sector jobs is helping to create a North-South economic divide, according to an influential survey released today.

The Red Flag Alert study by business recovery specialists Begbies Traynor found that levels of “distress” among Yorkshire firms rose faster than the national average during the third quarter of 2011.

In Yorkshire, there was a 10 per cent quarterly rise in levels of business distress, which is much higher than the UK average rise of two per cent.

Across the UK, 101,341 companies showed instances of “significant” or “critical” financial problems in the third quarter.

Of these, 6,704 are based in Yorkshire.

David Wilson, joint regional managing partner, of Begbies Traynor in Leeds, said yesterday: “As the threat of public sector job cuts became a reality in the past few months, a North-South divide has begun to emerge, with the South East and London showing much greater economic resilience than areas such as Yorkshire.

“With our heavy dependence on the public sector, it is not surprising that the region is witnessing financial distress growing at a faster rate than in other parts of the UK.”

Companies involved in “business to business” support services accounted for 20 per cent of the number of businesses in distress in Yorkshire, up from 17 per cent, year-on-year.

Julian Pitts, joint regional managing partner at Begbies Traynor’s Leeds office, said: “We are starting to see a knock-on effect on consumer spending with sectors such as hospitality and retail being hit by the reduction in discretionary spend.

“Unfortunately, the loss of contracts and jobs resulting from the public sector spending cuts will be felt for some time to come.”

On a more positive note, figures compiled by professional services firm Baker Tilly have revealed a year-on-year decrease in corporate administrations in Yorkshire of 24 per cent.

There were 62 appointments recorded between July and September, compared with 86 in the same period in 2010.

The figures, compiled from advertised administration appointments in The London Gazette, show that administrations in Yorkshire have increased by 10.7 per cent on the last quarter, with 56 recorded in the second quarter of 2011.

Across the UK, the number of administrations has remained static year-on-year at 596 appointments.

According to Baker Tilly, many firms are surviving because of the low cost of borrowing.

Phil Pierce, partner at Baker Tilly Restructuring and Recovery, said: “The insolvency figures, while positive for the region, demonstrate that businesses continue to have little room for manoeuvre either with growth or profit.”

UK dividends topped £20bn in the third quarter, according to the latest Dividend Monitor from Capita Registrars, which is based on data provided by Exchange Data International. This is a 15.9 per cent increase year on year.

For the first nine months of 2011, the £55bn distributed to shareholders only just fell short of the total payout for the whole of 2010.

Charles Cryer, Capita Registrars’, chief executive, said: “Dividends are growing faster than we expected as UK firms shrug off the worst stock market conditions since 2008 and continue to increase payouts to shareholders.

“In real terms they still have some way to go to top previous highs, but investors will be grateful that at least one asset class is providing a solid, inflation-proof income.

“A yield this high relative to bonds is very rare indeed, but risks to capital are great, and the market may be judging that earnings, and therefore dividends, are vulnerable to a renewed economic slowdown.

“The jury is out on whether dividends can sustain this momentum next year.

“Capita still expects dividends to grow, but the headline rate is likely to be somewhat slower.

“Investors can at least take comfort that firms are well capitalised, more so than at the time of the last major financial crisis, and are better able to withstand renewed turmoil.”

Grim reading in Red Flag figures

The quarterly Red Flag statistics compiled by recovery specialists Begbies Traynor make grim reading, with many sectors feeling the pinch.

Fifteen per cent of the total firms in distress in Yorkshire in the third quarter were in the construction sector, an increase of two per cent on the previous year.

Retail saw a rise in “significant” problems from five to seven per cent compared with the previous year, and there was also a one per cent increase in “critical” problems in the hotels sector.