Failures up 20% year-on-year
18 February 2009
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The number of companies rated a high risk of financial distress or failure in 2009 is up 12% on the previous year and 26% on 2007 figures, according to new research released today by Dun & Bradstreet. The research comes on the back of newly released figures which reveal a 20% year-on-year increase in the number of firms entering insolvency and a 28% increase on 2006 figures. Meanwhile additional D&B data reveals a 40% increase in debt referrals in the past two months and a sharp increase in payment terms which takes debtor days to the highest level since 2001. |
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Almost 6,000 Australian firms failed during 2008, with smaller (5-19 employees) and younger (0-4 years) firms, those based in Western Australia and those working in the mining industry experiencing the most significant increase in failures. According to Christine Christian, D&B's CEO, the rise in business failures during 2008 and the significant increase in business risk and collections referrals provides a pertinent reminder to Australian executives that further challenges lie ahead. "D&B's research examines the cumulative effects of lagging trade payments and adverse situations such as court actions and collections to demonstrate the risks they pose to the sustainability of Australian businesses," said Ms Christian. "The sharp increase in risk is expected given the current economic climate and it is a sign that the challenges of 2008 will continue throughout the year. |
Business failures 2006-2008 |
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"Credit and financial risks have increased markedly since the global financial crisis fully erupted in October 2008 and with the economy set to weaken further during 2009, cash flow and debt refinancing problems are becoming a significant burden for Australian firms. "The impact of these trends will continue to flow through to other areas of the economy in 2009, causing late payments to become increasingly frequent and bankruptcies to continue rising. The less favourable trade terms that were evident during Q4 2008 will also continue. All of these factors will add further pressure to businesses which are already feeling the strain of global and local conditions" Industry The Finance, Insurance & Real Estate sector has the highest number of firms at risk of financial distress in 2009 however the Electric, Gas & Sanitary Services sector saw the biggest year-on-year increase (up 34%) in the number of firms rated a high risk of failure. The Manufacturing sector accounted for the second highest jump, up 15% on last year. Further adding to the risk profile of the Electric, Gas & Sanitary sector is a recent jump in payment terms. This sector was the slowest to pay in the December 2008 quarter (63.5 days) at more than double the standard term, following an increase of one week on the previous quarter. Meanwhile the Mining sector saw the biggest jump in business failures. Rising by close to 200%, this sector's increase was significantly higher than any other industry. The Electric, Gas & Sanitary Services and Communications sectors accounted for the next highest percentage increase, both up 50% year-on-year. Commander Communications Limited, one of the 2008 casualties in the Communications sector, was categorised by Dun & Bradstreet as a very high risk of failure in the five months prior to it entering receivership. D&B also put the more recently failed Strathfield Group on watch in October 2008. |
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Size The two larger employee categories (50-499 and 500+) had the most significant increase in the number of firms rated a high risk of financial distress or failure this year, with the 500+ category up by close to 50% and the 50-499 group up 17%. However despite a smaller increase (up just 4%), the 1-4 employees group is expected to have the greatest number of firms facing financial distress, with more than 2,100 companies rated a high risk. Larger firms are also the slowest to pay their bills, with a 4.3 day increase over the past 12 months taking terms to 61.5 days. This was the biggest jump in terms across all business sizes. The 5-9 employees group saw the most significant increase in business failures, more than doubling its figures year-on-year - the 500+ employees category followed with a 53% increase. Meanwhile the 1-4 employees group had the smallest increase, up by just 3.8% as compared to 2007. |
% increase in the no. of firms rated a high risk of failure (by business size) |
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Company Type The increase in the number of public and private firms rated a high risk of failure in 2009 is almost on par, with public firms rising 7% and private firms 8%. However due to the significantly larger portion of private companies operating in Australia, this group has a much larger number of companies at risk of failure. Examining business failures figures reveals that public companies had a 45% year-on-year increase in liquidations while private companies experienced a 21% increase. Age Companies that have been operating for less than five years and those that have been in business for between 20-49 years saw the biggest increases in the number of firms rated a high risk of failure, both rising 11% year-on-year. Young companies (0-4 years) also experienced a significant rise in business failures during 2008, more than doubling figures from the previous year. This equates to an additional 1100 failures for this category. The percentage increase in the number of failures trended down as the companies got older however the 50+ age bracket was the only group to reduce the number of failures (down 28% y/y). State The Australian Capital Territory had the biggest increase in the number of firms rated a high risk of failure, rising 16% year-on-year. It is also one of the worst paying states (behind Victoria and on par with New South Wales), averaging 58.0 days to settle accounts. New South Wales and South Australia followed closely behind in the risk categorisations, both with increases of 12%. However due to the large proportion of businesses based in New South Wales, this state outweighs the others in terms of the actual number of firms at risk of failure. Meanwhile Tasmania had the smallest increase, with the number of firms at risk of failure rising by just 5%. New South Wales accounted for the largest number of failures in 2008 however their increase year-on-year was relatively low compared to other states. Western Australia had the highest increase, with failures rising by 50% year-on-year - Queensland was just behind with a 45% increase in failures. According to Ms Christian the latest trends reveal the extent of the cashflow problem that many Australian firms are battling. "Proper cash flow management is undoubtedly the most important factor for businesses to avoid insolvency," said Ms Christian. "Many companies have been relying on cheap funding from banks and they have taken their eye off the basic fundamentals of business - managing cash flow is the single biggest part of that. "However for businesses whose fundamental are strong - effective risk assessment and cash flow management - the door is open to new opportunities. These businesses should be able to weather the slow down due to the strength of their cash position and pursue opportunities through acquisitions as prices come down and industries look to consolidate." For further information please contact:
Danielle Woods
About D&BD&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies. |
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