Construction sector woes as Scottish businesses face escalating advanced financial distress

Scotland’s construction firms are once again on the front line as one of the sectors worst affected by growing advanced or ‘critical’ distress in the country in the first quarter of 2019 compared with the same period the previous year, according to the latest data from insolvency specialist Begbies Traynor.

The latest quarterly Red Flag Alert data released today shows that in the first three months of 2019, across all sectors, the total number of Scottish businesses in ‘critical’ distress (which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them) was 136 per cent higher than in the first three months of 2018. This compares with a year on year rise in ‘critical’ distress of just 17 per cent across the UK as a whole.
Looking at the sectors, construction in Scotland saw the most dramatic leap in year on year ‘critical’ distress in the first quarter of 2019, increasing by 560 per cent, with 33 building companies now affected compared with just five in Q1 2018.

In contrast, advanced distress across the UK as a whole grew by just 13 per cent over the same period. Travel and tourism in Scotland also saw an increase in this type of distress, growing by 100 per cent since the previous year (50 per cent rise UK-wide), along with financial services which also jumped by 100 per cent (1 per cent rise UK-wide).
The rate of increase in ‘critical’ distress across all sectors had slowed since the previous quarter, with levels growing by just 3 per cent in Scotland and by 6 per cent across the UK.
Ken Pattullo, who leads Begbies Traynor in Scotland, said: “It appears that the trend of escalating advanced distress among businesses in Scotland which began last year is continuing although at a more modest rate. Unfortunately, businesses need certainty in order to plan effectively and to prosper, and the ongoing lack of clarity about the future is having a very negative impact on businesses here.
“Once again, the construction industry is bearing the brunt of the slowdown with building companies in Scotland faring worse than in the rest of the UK; this is particularly worrying as the sector often acts as a barometer for the overall health of the economy.
“While the latest ONS figures for the final quarter of 2018 show that the Scottish unemployment rate hit a record low, there are concerns that we are seeing growing redundancies as more businesses fail, and this too will have a negative impact on the economy.”
Looking at levels of ‘significant’ or early distress (ie businesses with minor decrees against them and those showing a marked deterioration in key financial ratios), 25,664 businesses in Scotland were affected in Q1 2019, a 2 per cent increase compared with Q1 2018. This type of early distress grew by only 1 per cent in Scotland in the first quarter of 2019 compared with the last quarter of 2018. This exactly reflects the UK-wide picture.