The percentage of hotel businesses in the South East at a greater than normal risk of insolvency has shown the largest increase (28%) in the last 12 months out of 12 sectors monitored, according to new research by restructuring and insolvency trade body R3.
Of over 1,300 hotel companies in the South East, Bureau Van Dijk’s Fame database shows 36.8% are currently at a greater than normal risk of insolvency, up from 28.7% in February 2018, and higher than the UK figure of 33.4%. Following closely behind were pubs and retail with increases of 18% between February 2018 and the same month in 2019.
Professional services remains the sector (of those monitored by R3) with the highest percentage of businesses at a greater than normal risk of insolvency, at 51.7%. It is followed closely by technology at 50.8%, with construction completing the top three at 49.1%. It is worthwhile noting however that professional services and technology were the South East sectors with the least rapid increases in their proportions of companies at elevated risk over the last 12 months, with rises of 8.1% and 8.5% respectively.
The proportion of companies at greater than normal risk (46.9%) equates to over 254,000 businesses out of nearly 541,000 active companies in the region, and is higher than the figure for the UK overall (43%).
Mike Pavitt, Chair of R3's Southern Committee and partner and head of the corporate restructuring and insolvency group at solicitors Paris Smith LLP, says:
“Whilst hotel businesses in the South East overall are still faring better than in some other areas, the sharp regional rise in the reported risks in the sector over the past year is significant. Slow UK economic growth and the long squeeze on real incomes, which is only just showing signs of easing, have put pressure on hotel companies reliant on tourism and business travel. Inbound travel trends aren’t particularly solid and Brexit uncertainty must be playing a part in that.
“End of year metrics tell us that the number of people choosing to take staycations in the UK due to the heatwave and other factors last year provided a boost to the sector. Indeed Whitbread, the owners of Premier Inn, announced last summer that due to the overall rise in staycations and a general increase in demand in coastal locations it planned to bring 1,000 new Premier Inn bedrooms to seaside locations ready for Summer 2019. However, the recent rise in reported risk factors suggests that perhaps that optimism might be starting to wane, and it remains to be seen whether the long-term squeeze on consumer spending power and Brexit-related fears for inbound tourism from the continent will dampen the sector's spirits this year."
Business owners and directors across all sectors are advised by R3 to continue to monitor their finances carefully, plan for all foreseeable eventualities (with a particular eye on the likely effect of Brexit in the spring), and keep careful records of their decision-making processes including the evidence upon which those decisions are based. It is vital to remain alert to signs of trouble, which requires high quality data to be available to management, and to be ready to adapt to the changing economic landscape.
If in doubt, receiving and acting upon professional advice from qualified and regulated restructuring specialists as early as possible will help to maximise the options for a business, increasing its chances of future survival and prosperity, whilst also mitigating the potential downsides for directors, should the business enter insolvency.