Insolvency risk level in Scotland’s hospitality sector holding steady – R3

Tim Cooper

The proportion of hotel companies based in Scotland deemed by R3’s research to be at greater than usual risk of insolvency in the next 12 months has fallen back marginally from 37.2 per cent in January to 36.8 per cent in June. The restaurant sector also saw a gentle decline in elevated risk levels (34 per cent in January to 33.2 per cent in June). Meanwhile, the levels of companies at elevated risk in the pub sector stayed flat over the first half of the year (31.3 per cent to 31.2 per cent).

Tourism operators and travel agents in Scotland saw a slight rise in the percentage of businesses in their sector judged to be at higher than usual risk over the same period, going from 36 per cent in January to 37 per cent in June.

Looking across all companies in Scotland, from all sectors, the percentage at above-average risk of insolvency was 35.4 per cent, the same as the previous month (May: 35.5 per cent), and flat when compared with December 2018, six months prior (35.4 per cent). Scotland had the lowest percentage of companies at higher than normal risk of anywhere in the UK. The UK average for elevated risk levels among all companies was higher, at 42.6 per cent, while the South East was the UK region with the highest proportion of companies at elevated insolvency risk in June, at 46.6 per cent.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard, said: “As Scottish hospitality and tourism companies gear up for the busy summer period, R3’s research should provide some sunshine, as it shows a notable level of resilience so far this year for some of our country’s most important industries.

“Scotland has much to offer domestic or foreign visitors, with an unbeatable mix of dramatic landscapes and stunning mountain ranges, spectacular national parks and nature reserves, world-famous arts and music festivals, and our fascinating museums, galleries, and historic buildings. Add in Scotland’s thriving food scene and diverse range of leisure activities, from salmon fishing to whisky tasting, and it’s easy to see why tourists flock to our country.

“Visitors to Scotland from overseas spent over £2.2 billion in 2018, while our country is highly popular as a holiday and leisure destination for people from elsewhere in the UK, too.

“Hospitality and tourism businesses are facing some headwinds, however, with the recent rises in the minimum wage, and the increase in pension auto-enrolment payments adding to many companies’ staff costs.

”It’s hard to say what effect Brexit will have on tourist levels, although the pound’s relative weakness is encouraging overseas visitors, whose money will go further, and by the same token encouraging people from the UK to holiday nearer to home. Memories of last summer’s glorious sunshine may also help to swing people’s decisions – let’s hope this year isn’t a wash-out.

“Hospitality businesses are more dependent on seasonal visitors than most, which often leads to problems in the off-season. Any company which encounters cash flow difficulties, or a structural change in its trading environment, should seek advice from a qualified and professional source as soon as possible.”

The figures are from R3’s latest insolvency risk tracker. The tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.