High insolvency risk steadies in Scotland's 'resilient' hospitality sector

Scotland’s hospitality businesses are showing “notable resilience” to industry challenges as the risk of business failure in the sector holds steady, new research suggests.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard, said the figures 'should provide some sunshine' for the hospitality sector. Picture: Renzo Mazzolini

Hotels, pubs and restaurants in Scotland have overcome rising costs and Brexit-related headwinds to see levels of elevated insolvency risk either dip or remain flat compared with the start of the year.

It comes as Scotland recorded the UK’s lowest percentage of high-risk companies across all industries.

Research by insolvency and restructuring trade body R3 showed that the proportion of Scottish hotels deemed at “greater than usual” risk of failure in the next 12 months fell marginally to 36.8 per cent in June, edging 0.4 per cent lower since January.

The restaurant sector saw a gentle decline of 0.8 per cent to 33.2 per cent, while pubs remained flat at 31.2 per cent.

Of all nations and regions in the UK, Scotland demonstrated the lowest overall proportion of firms experiencing elevated insolvency risk, at 35.4 per cent.

This compares to a 42.6 per cent UK-wide average, with companies in the South-east recording the highest risk, at 46.6 per cent.

Tourism operators and travel agents in Scotland, however, saw a slight rise as 37 per cent of businesses were judged to be at higher than usual risk, up by 1 per cent from January.

R3 pointed to seasonal variations in the tourism industry as a driver of this increase, adding that continued weakness in the British pound and last year’s warm summer are likely to entice tourists from overseas and across the UK as the peak season approaches, giving the sector a welcome boost.

Overseas visitors to Scotland spent more than £2.2 billion in 2018.

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.

“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.”

The risk tracker measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.

Cooper added: ”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.”