Colin Dempster: Scots firms show signs of resilience

EY partner Colin Dempster. Picture: Contributed
EY partner Colin Dempster. Picture: Contributed
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There is little certainty about what Brexit might mean for Scottish businesses. It may even lead to Scotland’s exit from the UK, but we simply don’t know.

Consequently, Scottish companies are facing a new norm of upheaval and transformation which they must adapt to. As such, it is important to assess data as and when it appears but with the understanding that one snapshot of figures does not confirm an overall trend.

Scotland may find some economic comfort in the diversity of our trading partners outside the EU

Colin Dempster

Last week EY released the latest profit warnings report which revealed the total number of warnings issued by UK publicly-quoted companies was the highest for any second quarter since 2008.

In contrast, Scottish headquartered companies recorded a below-average figure for the same period. Scotland’s profit warnings accounted for just 3 per cent of the UK profit warnings by region, which is smaller than in previous years for the second quarter (7 per cent in 2015 and 5 per cent in 2014).

Although it wasn’t the only factor, the European Union referendum had a role to play, with 11 per cent of all profit warnings in the UK attributed, at least in part, to the impact of the uncertainty surrounding it. Arguably, Scotland has been less affected by that economic uncertainty than the rest of the UK in the second quarter of 2016.

READ MORE: Martin Flanagan: Brexit unleashes profit warnings

So what else could have contributed to this quarterly divergence between Scotland and the rest of the UK?

First of all the impact of falling commodity prices on the oil and gas sector, which has now been going on for the past 18 months or so, has perhaps had a more profound impact on the Scottish economy than any potential Brexit-related uncertainty in recent weeks. It is also not just localised to Aberdeen, with many companies in the wider energy supply chain also being affected by the low oil price.

Secondly, Scottish businesses tackled unprecedented uncertainty two years ago at the time of the independence referendum. Many business leaders analysed their business models and assessed how to be agile and expand into other markets.

As a result, it is possible they may have become more resilient in the face of change and were perhaps better prepared for the EU referendum than some businesses in the rest of the UK.

In the future, Scotland may also find some economic comfort in the diversity of our trading partners outside of the European Union. Scottish businesses are less European focused than parts of London and the south-east of England. We have strong trading links with North America, and the Far East is also a key export market particularly for high-end products.

Company operations and business models will be impacted by Brexit but this is just one factor in a bigger picture of disrupted, sluggish and competitive markets. To succeed in this environment business leaders need to identify their priorities, develop their resilience to adversity and seize opportunity as it appears.

• Colin Dempster is partner at EY and head of restructuring at its Scotland practice