Begbies profit hit by drop in insolvencies
Insolvency firm Begbies Traynor has issued a profit alert after a slump in the number of companies going bust.
Southampton FC: Begbies handles high-profile insolvencies
But it expects insolvencies to be on the rise again soon as the Government public sector cuts kick in, official aid gets withdrawn, and creditors grow less lenient.
The firm's shares fell nearly 8%, or 5.25p to 62.5p, after the profit warning. It said adjusted pre-tax profits for the six months to October 31 were expected to be 16% lower than a year earlier, down £700,000 to £3.6m. Revenues are anticipated to be flat compared with last year.
The Manchester-based company was hit by a 9% reduction in insolvency revenues as the economic recovery saw fewer firms go bust, while Begbies also took £800,000 in restructuring costs.
Government statistics recently showed the number of UK insolvencies in the third quarter of 2010 were 18% lower than the same period the previous year.
Begbies said: 'The numbers of UK insolvencies remain lower than expected and the group believes this fall continues to be due to the combination of lenient creditor attitudes and temporary government support initiatives.
'As the latter begins to unwind and public sector cuts start to impact, we expect some incremental flow in new insolvency engagements through the remainder of the financial year. This would result in an improved performance in the second half.'
Begbies, which claims to be the UK's biggest administrator by cases handled, added the reduction in revenues from this work had been offset by a better performance in its non-insolvency operations.
The firm said it remained 'comfortably within' its banking facilities of £35m. Total net debt, including all sources of finance, was £24.2m at the end of October.
Begbies benefited from the recession in recent years as the number of companies falling into administration soared.
Its adjusted pre-tax profits increased 40% to £9.8m in the year to April 2009, as the number of companies it dealt with as administrator increased by 38% to 1,800.
The number of insolvencies in the UK has fallen since the start of 2009, although Begbies has been growing its share of the market.
The company reported revenues from continuing operations up 11% to £69.1m and adjusted pre-tax profits up 6% to £10.4m in the year to April 2010.
High profile insolvency cases the company has dealt with include Southampton Leisure Holdings, the holding company of Southampton Football Club, in April 2009.
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