A couple of weeks ago the latest accounts for Cairngorm Mountain (Scotland) Ltd (CMSL), Highland and Island Enterprise’s wholly owned subsidiary, were published (see here). They are a charade but confirm it is not just the financial liabilities created by the funicular which are the problem.

While CMSL describes its principal activity as “the operation of snow and mountain leisure facilities in the Cairngorms” the accounts confirm (see above) little snow sport activity took place. This is attributed to the breakdown of the funicular when the truth is (see here) and (here) that the funicular has always been a handicap to snowsports, whether it has been operating or not.  The real reason for the collapse in skier days at Cairn Gorm and CMSL’s loss of market share has been HIE’s focus on the funicular at the expense of all else, including other uplift infrastructure which is sorely needed.

 

Cairngorm Mountain – an unviable business in its current form

The profit and loss (income and expenditure account) account is little surprise, more activity and revenue as lockdown was eased which resulted in a very much smaller operating (“gross”) loss:

More significant is the fact that while turnover increased by over £1.5m, almost half of that income went in increased costs of sales (running costs).  Add adminstrative expenses into that and the company would have gone bust were it not for the “other operating income”.  The notes in the accounts show this other income was mostly government grants.

The statement of Going Concern clarifies that the revenue grant came from HIE.  It also provides a useful summary of how their funding of CMSL has changed since HIE set up the company at the end of 2018 as a result of the collapse of Natural Retreats.

HIE’s initial funding for CMSL was provided in the foolhardy expectation that it was a viable business and was thus in the form of a repayable grant (£600k), loans (£400k) and shares (£1,060,952).  With the funicular forecast to lose up to £73.09m over thirty years when back up and running (see here), there is no hope of HIE ever getting any of that money back. This has stored up accounting challenges for HIE in the future as it will have to justify writing off the grant and loan and explain the collapse in value of its shares.

Hence the move to revenue funding, but in the form of a grant to maintain the pretence that CMSL bears some resemblance to independent companies funded by HIE.  No other ski centre of course would be awarded anything like the financial assistance CMSL has had, whatever their need and circumstances.

 

Fergus Ewing steps in to save HIE

The Going Concern statement in the accounts is, however, only partially true when it reports “the company is reliant on continuing support from its parent company, HIE”.  “Reliant on continuing support”, yes, but not from HIE.

In August there was media coverage of the response to a Freedom of Information request (see here) which showed that, since the approval of the Full Business Case to repair the funicular by Fergus Ewing when he was minister, it is no longer HIE but the Scottish Government which has assumed responsibility for meeting the annual operating losses of CMSL.

The FOI also shows that the new Minister Ivan McKee was not just concerned about the capital and running costs associated with repairing the funicular, which became public at the beginning of May (see here), but with the commitment Fergus Ewing had made that the Scottish Governments should meet any other operating losses incurred before 2024/25.  (SBR = Spring Budget Revision)

This extract suggests that Mr McKee decided that instead of the Scottish Government paying HIE annually on the basis of the losses they forecast at CMSL – a blank cheque –  he would wait to see the actual losses and use any HIE underspends in other areas to offset them.  In other words he appears to have tried to passed some of the responsibility back to CMSL.

While central government has been known to bail out losses and budget shortfalls incurred by public authorities (as it did in Covid), a commitment to do so in advance and for several years must be almost unprecedented. If that is not enough to raise eyebrows, many of the beneficiaries of this largesse are likely to be residents in Mr Ewing’s own constituency.  I am referring here not just to the staff at CMSL but those at HIE headquarters in Inverness.

Interestingly, the FOI response includes notes from a meeting with HIE on 27th January 2022 attended by Kate Forbes, Cabinet Secretary for Finance and Mr McKee’s boss, which is almost entirely redacted apart from the following statement:

“The Cabinet Secretary commented that Mr McKee was leading on the funicular given her constituency interests”.

If Kate Forbes felt and declared she had a conflict of interest in respect to decisions relating to Cairn Gorm, what about Mr Ewing whose constituency is just next door?

 

What is HIE really spending at Cairn Gorm?

The extract from the FOI response quoted above shows Mr McKee was told the “actual requirement for 2020/21 was £2.1m”.  If true, one might expect this £2.1m subsidy towards operating costs to appear in CMSL’s accounts for 2020/21.  There is a figure of £1,941,082 under operating costs in the accounts and note 3 to the accounts breaks this down as follows:

The 2021 accounts then go on to explain under note 13:

However you look at this, it doesn’t add up to £2.1m.  This suggests either that Mr McKee was given the wrong figure or the difference between £2.1m and the money received by CMSL was kept by HIE.

This points to a much wider problem when accounting for what is being spent at Cairn Gorm, with some costs being met by HIE and some by CMSL.  This together with the minimalist accounts (“entirely within the rules you understand”) make it almost possible to establish what is being spent at Cairn Gorm. A few good people have been trying to reconcile the responses on expenditure provided in FOI responses with the accounts and other financial information provided by HIE and suspect it will need a forensic accountant to get to the truth.

With their operation at Cairn Gorm entirely dependant on funding from themselves and the Scottish Government, it suits HIE to maintain CMSL as a separate company as it helps conceal what is going on.  The 2021-22 accounts for CMSL hide as much as they reveal.  If Mr McKee is still minded to keep the pressure on HIE he could do worse than insist there is far greater transparency on expenditure at Cairn Gorm and ask his officials to stop redacting financial information from responses to FOIs.