More than 145,000 businesses have seen their risk profiles downgraded in the March quarter, the latest Dun & Bradstreet Corporate Health Watch report reveals, with longer payment terms and weak forecasts for sales and profits putting all industries under pressure.
It means the number of risk downgrades in the March quarter doubled the amount recorded at the height of the financial crisis.
The report is the latest in a string of economic results that show many individual sectors are suffering despite the macroeconomic situation remaining quite strong, leading analysts to believe the RBA will refrain from raising rates for several months.
“I think what surprises everyone here is that the macroeconomic numbers remain quite robust,” D&B marketing affairs manager Damian Karmelich says. “But there are a number of industries that are under pressure.
“It’s important to remember that business failures are possible both in good times and bad.”
The latest D&B report, which measures the likelihood of a firm experiencing financial distress over the next 12 months, shows a rising number of companies under stress. In fact, the latest data shows the number of downgrades in the March quarter 2011 was 75% higher than the same time last year.
It is also 125% higher than the number of downgrades that occurred during the global financial crisis. D&B says the result coincides with data that shows payment terms are now at three-year highs.
The forestry and manufacturing industries were hit hardest, suffering the highest number of downgrades. The forestry industry saw 17% of companies suffering a drop in their risk profile, while manufacturing firms recorded a 16% drop.
The number of construction companies recording a downgrade rose to 13.7% in the March quarter, compared to just 8% a year ago. And transport companies were also hit hard, with downgrades rising from 9% to 13%.
Retail downgrades rose from 7% in the first quarter of 2010 to 12%.
The report shows 16% of businesses aged between 20 and 49 years saw their risk rating fall, while 15% of businesses aged over 50 years were also downgraded. The number of older businesses that have had their risk ratings downgraded has tripled in the past year.
The Northern Territory, Victoria and South Australia are the worst performing states, according to the report, while downgrades in Western Australia rose minimally. The gas and electricity industries have remained stable.
“You also have the retail environment here which is suffering, and that has a flow-on effect to manufacturers and other companies,” Karmelich says. “On that side the activity is being driven by consumer sentiment, and of course that’s being placed under pressure as well.”
Even the mining sector is under pressure. According to the D&B report: “In recent months it has been the mining sector that has experienced a deteriorating risk outlook, with the number of firms suffering a downgrade…jumping to over 11% compared to just 3.5% in May last year.”
Karmelich says even areas of strong growth can be a great risk for many start-ups.
“If you take BHP and Rio out of the picture, you have a sector dominated by a lot of smaller firms which have a very high capital outlay as they start-up. In many cases it’s years before they see a return.
“We’re going to continue to see a number of sectors put under pressure.
“Manufacturing is one in particular that will be affected, and these firms that are exposed to global markets in exporting are likely to see pressure on their profiles as well.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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