In 2023, the United Kingdom witnessed a substantial rise in the number of companies encountering financial distress, positioning the nation at the forefront of distress levels in Europe. As indicated by a survey conducted by consulting firm Alvarez & Marsal, 9.9% of UK companies experienced distress in the past year, a noteworthy increase from the 8.4% reported in 2022. This surge in distress represents the most significant year-over-year rise in the survey, with only the combined market of Belgium, Netherlands, and Luxembourg surpassing the UK at 10.2%.
The consulting firm attributed this escalation in financial distress to the nation’s stagnant economic conditions, which also resulted in a shallow recession. Furthermore, the UK’s substantial exposure to industries heavily reliant on consumer spending, such as retail, media & entertainment, as well as those with high-cost bases like manufacturing and construction, rendered the country particularly vulnerable.
On a broader scope, Alvarez & Marsal’s analysis disclosed that distress levels across Europe and the Middle East have reached their peak since the height of the pandemic. The region grappled with tighter monetary policies and slower growth, impacting over-leveraged companies. In total, approximately 9.2% of companies across the region were classified as distressed in 2023, based on a study encompassing over 8,200 listed and private firms.
The criteria for classifying firms as distressed encompassed significant deficits in both their financial and earnings situations. The report notably underscored the ongoing unwinding of corporate leverage, with European defaults at their highest levels since 2008, as per data from S&P Global Ratings.
In the UK, the retail fashion sector bore the brunt of a slowdown in consumer spending, with 21% of firms in the industry encountering distress. Notably, Superdry Plc, a prominent clothing brand, revealed intentions to delist from the London Stock Exchange after undergoing debt restructuring.
Nevertheless, the industry most severely affected by distress in the UK was media and entertainment. Alvarez & Marsal accentuated the impact of consumers reassessing subscriptions to services such as streaming platforms, coupled with the disruption caused by the US writers’ strike on film and TV production.
Throughout the continent, chemical companies also contended with heightened levels of distress due to reduced demand and increased competition from other regions, particularly China.
The findings of the survey underscore the challenges encountered by businesses in the UK and Europe, particularly in the aftermath of economic instability and shifting consumer behaviours. As companies navigate these tumultuous times, it is imperative to monitor the evolving landscape and adapt strategies to mitigate financial distress.