This week’s topics:
Are we facing a cashless future?
The outlook for business travel
Restructuring outlook as the roadmap unfolds
The European IPO market
Are we facing a cashless future?
As shops, pub gardens and salons reopened this week, it's likely the reliance of cards and digital payments will continue so what will become of cash tender?
Isabelle Jenkins, Head of Financial Services at PwC UK, said:
There is no doubt that the pandemic and subsequent lockdowns have accelerated our use of cards and digital methods as a way of paying for goods and services. It's clear that the UK economy is moving to a place where cash is no longer king.
However, research by the PSR (Payment Services Regulator) showed that 80% of consumers still pay for something using cash each week. In addition, while cards are now the most frequently used payment method in the UK, there is a significant minority who, for a range of reasons, remain reliant on paying in cash.
Cash also remains a key feature of our economic system with over 70 billion pounds worth of notes in circulation according to the Bank of England and its usefulness cannot be overlooked. Cash is a fast and often convenient way to pay, is largely accepted and can be helpful for budget management.
Nevertheless, card payments overtook cash for the first time in 2018, according to the IPPR, and forecasts suggest fewer than 1 in 10 payments will be made using cash by 2028. For most of us this may be not only inevitable but welcomed, however those at greater risk of financial vulnerability and exclusion, use of cash remains key.
If the current trajectory remains, the demand for cash may fall so it's critical that firms continue to demonstrate not only the consistency we've seen but also attempt to make use of data and technology to best meet the needs of all consumers. While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon. Cash will still exist, it just may not matter as much.
The outlook for business travel
Sarah Mullen, global mobility director at PwC, said:
Prior to the pandemic, business travel was growing at 5% a year with business travellers accounting for a significant proportion of airlines’ revenue before the onset of Covid-19 inevitably caused a sharp contraction.
While business travel has been severely hit by the pandemic, it is expected to recover. Travellers are keen to return to the skies and the value of business travel facilitating face-to-face meetings remains strong.
The recovery will be phased and will be at a slower rate than leisure travel. It will largely be determined by the progress of countries’ vaccination programmes and the associated consumer confidence.
We expect geographic and industry variations. Domestic and regional travel will see a quicker recovery than international while some sectors, such as manufacturing and constriction, which require more physical presence, will see more travellers initially than those that don’t, such as financial services and technology.
Growth is also expected to be higher in emerging markets such as Eastern Europe, which was starting from a lower base and seeing growth in delivery hubs, and Asia than in more established markets such as Western Europe which was already a saturated travel market.
Many organisations have plans to review travel approvals to support sustainability targets, prioritising trips that will add value to the business over trips for purely internal purposes.
Increased complexity as a result of regulatory changes, such as Brexit, and heightened focus on employee wellbeing means it is more important than ever for businesses to have a well managed travel programme that supports sustainable and compliant travel.
Back to business: roadmap, recovery, restructuring and real estate
After a year of flux, many businesses across the UK are emerging from lockdown - in many cases leaner - primed to meet the expected surge in consumer demand. The significant economic pressures have accelerated restructuring activity as costs and store footprints have been put into sharp focus by the impact of lockdown and the continuing shift to online consumption.
Claire Fox, operational restructuring partner at PwC, said:
Many companies face the ultimate balancing act over the next few months- reviewing cost base where necessary while still maximising revenues.
It’s not as simple as closing down a store because there are still inventory and back office considerations to factor in. Less outlets relieves costs on one front but it doesn't necessarily mean a significant drop in activity for the support teams, or in the delivery centres.
For pubs and restaurants, especially smaller outlets, difficult decisions will be made around the cost benefit of operating a smaller proportion of their businesses while social distancing remains.
Looking forward, any business that decides to remain closed until restrictions are lifted further will be considering the impact of those limited revenues as they restock for opening and aim to buffer the effects of government support being unwound. In general, further restructuring is highly likely.
Mark Addley, real estate restructuring partner at PwC,said:
Our analysis of Local Data Company statistics shows the amount of consumer-related real estate opened by chain outlets across Great Britain in 2020 was close to 49m square feet, equivalent to 25 times the size of North East England’s Metrocentre complex, the largest shopping centre in Europe. However almost 99m sq ft of retail space closed - a record amount equivalent to almost 1,300 football pitches - reflecting the pressures on chain outlets, and by extension their landlords and wider stakeholder community.
We’re working with a number of businesses to reduce or repurpose their physical store portfolio. Landlords are willing to negotiate and support the financial sustainability of occupiers but they are dealing with liquidity issues built up over five quarters of rent arrears in some cases. Legal moves to recover rent- which actually have teeth- are a possibility from July. Also the costs and risks of repurposing remain prohibitively high for many landlords, who include local councils and universities alongside institutional landlords, banking groups and transport operators. In some cases it could be more cost effective to demolish and rebuild.
Europe’s IPO market records unprecedented momentum in terms of growth, with Q1 2021 marking the best first quarter since 2000
Top five IPOs in 2021 - InPost, Vantage Towers, AUTO1 Group, Deliveroo & Dr Martens - were all over €1bn
London continues to be the top exchange in Europe for IPOs and further offerings (FOs)
Amsterdam gaining momentum with IPOs and SPACs in Q1 2021
Mark Hughes, Capital Markets leader at PwC UK, said:
This has been a strong start to the year for IPOs in Europe, with Q1 2021 delivering the strongest first quarter since 2000. Improved market confidence driven in part by the ongoing vaccination programmes across Europe, continued government support programmes and supportive macroeconomic data provided a positive backdrop.
There are positive signs that momentum in the IPO market will continue throughout 2021. Given that backdrop, concerns around the pace of economic recovery and a hot IPO market in Q1, we anticipate that investors will focus on differentiated equity stories and challenge the overall quality of issuers.
Richard Spilsbury, Capital Markets partner at PwC UK, added:
We have seen a significant deal flow in Europe across a broad range of sectors from technology and telecoms to consumer products and industrials. However, what stands out in particular is the flurry of European tech, online and e-commerce new listings. This has largely been driven by increased investor appetite for digital companies that have benefited from the lockdowns and broader shift towards online by consumers and companies, as well as increasing focus on sustainable businesses strategies.
Another area to watch is increasing European activity around SPACs in Amsterdam, Frankfurt and other jurisdictions, seeking to capitalise on the M&A recovery.
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