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UK-listed companies issued 75 profit warnings in Q1 - Industry roundup: 26 April

European Payments Initiative gets acquisitive, announces instant payment solution

The European Payments Initiative (EPI) has welcomed four additional shareholders and announced two acquisitions. EPI Company has confirmed its planned acquisition of payment solution iDEAL and payment solutions provider Payconiq International (PQI). Together, they will set up a unified European payment solution.

Currently, iDEAL is a Dutch payment scheme, and PQI is a Luxemburg-based payment solutions provider that serves iDEAL in the Netherlands, Bancontact Payconiq Company in Belgium and Payconiq in Luxembourg. Agreement with the shareholders of these companies has been reached, and the acquisition is planned to proceed, subject to approval by the competent national and European authorities. 

The EPI shareholders - BFCM, BNP Paribas, BPCE, Crédit Agricole, Deutsche Bank, DSGV, ING, KBC, La Banque Postale, Nexi, Société Générale and Worldline - welcome four new shareholders: Belfius and DZ Bank, who joined at the end of 2022, and ABN Amro and Rabobank, two more Dutch banks, who are now coming on board alongside existing Dutch shareholder ING. 

The EPI solution is described as being built for Europe by European payment industry leaders. It leverages the instant, account-to-account payment scheme widely available in the region. EPI should enable European banks and acquirers to join forces, delivering greater customer efficiency and value through direct and instant payments between bank accounts. 

EPI says it is positioning itself as the common solution and innovation platform of the European payment ecosystem. It will serve as a foundation for fulfilling the European Commission’s and European Central Bank/Eurosystem’s pan-European retail payments strategy and a catalyst to enhance Europe’s position as a global leader in payment innovation. 

The EPI product will be a multi-faceted digital wallet solution and an instant, account-to-account payment means under one brand, unified across European countries. The company’s product roadmap addresses a range of use cases. EPI will initially enable person-to-person (P2P) and person-to-professional (P2Pro) payments, followed by online and mobile shopping payments and then point-of-sale payments. A range of transaction types will be supported, including one-off payments, subscriptions, instalments, payments upon delivery and reservations. Additionally, value-added services will be incorporated into the solution over time, including responsible ‘buy now, pay later’ (BNPL) financing, digital identity features and integration of merchant loyalty programmes.

The EPI digital wallet with P2P payment functionality will be launched for the first users in a pilot phase by the end of 2023 across France and Germany. A broader market launch in Belgium, France and Germany will happen in early 2024. These markets together represent more than half of all non-cash payments in the Euro area. Expansion to other European countries will then follow. 


Soaring ACH driving rise of non-cash payments in the US - Fed 

The 2022 Federal Reserve Payments Study (FRPS) has found that the value of core non-cash payments in the United States grew faster from 2018 to 2021 than in any previous FRPS measurement period since 2000. Having increased at a rate of 9.5% per year since 2018, non-cash payments value reached US$128.51 trillion in 2021. This rate of increase was more than twice the growth rate in the previous three-year period (2015 to 2018) and more than three times the rate of increase from 2000 to 2018. The 2018 to 2021 increase reflects, in part, growth in the average value of each component of core non-cash payments (ACH, cheque, and card payments).

The increase in the value of ACH transfers accounted for more than 90% of the rise in non-cash payments value from 2018 to 2021. By number and value, the rate of increase in ACH transfers accelerated to 8.3% per year and 12.7% per year, respectively, over the period. Since surpassing cheques as the highest-value non-cash payment method in 2009, ACH transfers have grown to US$91.85 trillion, 72% of core non-cash payments value in 2021.

The average value of cheque payments increased substantially from 2018 to 2021. The value of cheque payments increased slightly (0.6% per year) despite a significant drop in cheque payments. As a result, the average value of cheque payments increased from US$1,908 in 2018 to US$2,430 in 2021. By number, cheques declined 7.2% per year since 2018, dropping to 11.2 billion. In 2021, the value of cheque payments stood at US$27.23 trillion, approximately 21% of non-cash payments value.

The value of card payments grew faster from 2018 to 2021 than in any previous FRPS measurement period. Rising 10.0% per year since 2018, card payments value reached US$9.43 trillion in 2021, accounting for approximately 7% of non-cash payments value in that year. Among the card types, prepaid debit card payments grew at the most significant rate by value since 2018, 20.6% per year, and reached US$0.61 trillion in 2021, but remained a relatively small part (6.5%) of the value of all card payments.

The number of core non-cash payments grew larger from 2018 to 2021 than in any previous FRPS measurement period since 2000. Specifically, the number of non-cash payments rose by 30.7 billion, increasing to 204.5 billion in 2021. The growth rate, at 5.6% per year, was smaller than the growth rate from 2015 to 2018 (6.6%).

The increase in the number of card payments accounted for more than 84% of the growth in the number of non-cash payments from 2018 to 2021. Despite a temporary drop in 2020, card payments grew by 25.9 billion from 2018 to 2021. Nevertheless, the rate of increase in card payments from 2018 to 2021, at 6.2% per year, was lower than the growth of approximately 9.9% per year recorded from 2000 to 2018. With 157.0 billion payments in 2021, card payments accounted for about 77% of non-cash payments by number.

The number of non-prepaid debit card payments increased the most of all card types. Non-prepaid debit cards reached 87.8 billion payments, or approximately 56% of all card payments in 2021. Credit card payments experienced the second largest increase, rising to 51.1 billion, or about one-third of all card payments in 2021. Prepaid debit card payments had the greatest growth rate by number (9.6% per year), reaching 18.1 billion payments in 2021.

The number of ATM cash withdrawals dropped substantially from 2018 to 2021. ATM cash withdrawals declined at a rate of 10.1% per year, falling to 3.7 billion in 2021. By value, ATM cash withdrawals also reduced, but at a slower pace, reflecting an increase in the average value of an ATM cash withdrawal from US$156 in 2018 to US$198 in 2021.


UK-listed companies issued 75 profit warnings in Q1

UK-listed companies issued 75 profit warnings between January and March 2023, the highest first-quarter total since the early stages of the pandemic in 2020, according to EY-Parthenon’s latest Profit Warnings report. 

The report reveals that the number of warnings issued in the first quarter of 2023 exceeded the 72 issued in Q1 2022 and that quarterly profit warnings have remained above the 10-year quarterly average, excluding 2020, for five consecutive quarters. The highest number of Q1 warnings was in 2020 when 305 were issued.

Persistent economic uncertainty has played a significant role in many of these profit warnings. More than a third (35%) of profit warnings cited delayed, reviewed, or cancelled contracts, up from 21% in the same period in 2022, as customers paused or cut spending amid volatile and unreliable demand.

The report found that since the start of 2022, 98 companies have issued at least two profit warnings. A significant cohort of UK companies has faced particularly challenging conditions after entering the three warning ‘danger zone’. Of the 31 companies that have issued three warnings since the start of 2022, 29% have since delisted or are in the process of being sold. This marks a greater-than-average market dropout rate, as typically just one-in-five companies delist within a year of their third warning, most due to insolvency.

“Economic forecasts may have seen some improvement in recent months, however the extraordinary strength of headwinds over the last two years has left some businesses facing recession-like conditions,” commented Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader. “This has taken its toll on business confidence and, as pressures move through the supply chain, we’ve seen a higher number of companies warning of delayed or cancelled contracts in comparison to the last quarter. 

“This economic uncertainty risks prolonging recovery, even as forecasts improve. Many companies may struggle to build momentum as they contend with increased working capital demands and finance costs.

“We would normally expect to see insolvency activity peak nine to twelve months after a profit warning peak, so the coming year will be crucial. While the UK economy appears to be turning a corner, recovery is not guaranteed. Businesses should continue scenario planning and building solid operational and financial foundations to withstand further shocks and capitalise on growth.

One-in-five (22%) of Q1 profit warnings were issued by UK-listed companies in the technology and telecommunications sectors, with warnings almost tripling year-on-year to 16 in total. 

FTSE Software and Computer Services companies issued nine profit warnings in total, the sector’s highest level of warnings since Q2 2020, while warnings from telecoms sectors were the highest since 2018. These sectors have been particularly vulnerable to cost-cutting and uncertain demand, with contract issues cited in over two-thirds (69%) of technology and telecommunication sector warnings. 

Many technology companies have also faced difficulties in accessing capital, as increased interest rates, recent turbulence in the global banking markets and other external headwinds create a challenging fundraising environment. 

“Significant disruption and uncertainty, particularly in consumer-facing markets, is having a knock-on effect on the TMT sector as businesses revaluate their cost bases and delay purchasing decisions,” revealed Will Fisher, EY UK Strategy and Transactions TMT Leader. “The result is short-term revenue growth challenges for TMT companies, many of which are also trying to prioritise profitability and cash flow as they face a tighter and more expensive lending environment. 

He continued: “To navigate these revenue growth and profitability challenges, TMT companies need to look at how they can manage costs and pricing, reduce supply chain vulnerabilities, focus on talent retention and recruitment, and continue to adapt to their customers’ needs – including those on sustainability. Given the uncertain timetable, they may need to take tough decisions about whether they cut costs to protect their funding position, potentially at the expense of their ability to quickly capitalise on the return of revenue growth opportunities.” 

The remaining sectors with the most warnings in Q1 2023 were FTSE Retailers (5), FTSE Travel & Leisure, and FTSE Electronic & Electrical Equipment, FTSE Pharmaceuticals & Biotechnology, and FTSE Media (all with 4). 

The five warnings from FTSE Retailers mark a decrease from the nine issued in both Q4 2022 and Q1 2022, representing the sector’s lowest quarterly total since Q4 2020. However, persistent inflation, high interest rates and tightening consumer spending will challenge an already delicate sector. 

Almost a third of listed retailers (30%) have issued two or more profit warnings since the start of 2022, well above the 8% all-sector total. Of the consumer sector companies that moved into the ‘three warning’ danger area since the beginning of 2022, 30% have gone into administration or have been put up for sale.


ESAs call for vigilance in the face of mounting financial risks

The three European Supervisory Authorities (European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Infrastructure (ESMA) - the ESAs) have issued their Spring 2023 Joint Committee Report on risks and vulnerabilities in the EU financial system. While noting that EU financial markets remained broadly stable despite the challenging macro environment and recent market pressure in the banking sector, the three Authorities are calling on national supervisors, financial institutions and market participants to remain vigilant in the face of mounting risks.

The second half of 2022 witnessed a worsening of the macro environment due to high inflation and tighter financial conditions, and the economic outlook remains uncertain. Although recent growth forecasts no longer point to a deep recession and inflation shows signs of moderation, price growth may remain elevated longer than expected. Recent market pressure on banks following the collapse of a few midsize banks in the US and the emergency merger of the distressed Credit Suisse with the Union Bank of Switzerland (UBS) highlighted continued high market uncertainty, the sensitivity of the European financial system to exogenous shocks and potential risks related to the end of over a decade of very low interest rates.

Asset prices have been highly volatile over the past months, with market liquidity fragile. Sharp price movements triggered sizeable margin calls and put some market participants under liquidity strains, notably non-financial corporations and non-bank financial institutions. High levels of uncertainty and imbalances in the supply and demand of liquidity are a drag on the financial system’s resilience against further external shocks. In addition to these risks, geopolitical tensions, environmental threats, and an increase in the frequency and sophistication of cyberattacks further complicate the risk landscape.

Against the backdrop of these risks and vulnerabilities, the Joint Committee of the ESAs advises national supervisors, financial institutions and market participants to take the following policy actions:

  • Financial institutions and supervisors should remain prepared for a deterioration in asset quality, and supervisors should keep a close eye on loan loss provisioning.
  • The broader impact of policy rate increases and sudden rises in risk premia on financial institutions and market participants should be considered and accounted for in (liquidity) risk management.
  • Liquidity risks arising from investments in leveraged funds and the use of interest rate derivatives should be monitored closely.
  • Financial institutions and supervisors should closely monitor the impacts of inflation risk. Inflation can have an impact on asset valuation and asset quality as borrower debt servicing is affected. Inflationary trends should be considered in product testing, product monitoring and product review phases, and investors should be made aware of the effects of inflation on real returns.
  • Banks should pursue prudent capital distribution policies to ensure their long-term financial resilience given the uncertain medium-term outlook for profitability.
  • It is essential to maintain a robust regulatory framework to maintain the financial sector’s resilience, including to faithfully implement the finalisation of Basel III in the EU without delay and with as little deviation as possible, and by avoiding further deviations from EIOPA’s advice on the Solvency II review.
  • Risk management capabilities and disclosures for environmental, social and governance (ESG) risks should be enhanced as these risks are increasingly becoming a source of financial risk.
  • Financial institutions should allocate adequate resources and skills to ensure the security of their information and communication technology (ICT) infrastructures and adequate ICT risk management.


MISC Berhad scores US$527m sustainable-linked term loan financing

Through its Singapore-based subsidiaries, MISC Berhad (MISC) entered into a US$527m syndicated loan facility to finance six very large ethane carriers (VLECs), with Standard Chartered playing a lead role as structuring bank, sustainability coordinator, and hedge coordinator. The Korea Development Bank, Sumitomo Mitsui Banking Corporation, Labuan Branch, DBS Bank Ltd, Export-Import Bank of Malaysia Berhad, MUFG Bank Ltd., Singapore Branch, and an undisclosed lender acted as mandated lead arrangers.

The 11-year sustainable-linked non-recourse term loan is MISC’s debut sustainability-linked loan (SLL) and is structured to align with its long-term business strategy and sustainability aspirations. MISC has committed to achieving net-zero greenhouse gas emissions by 2050 and aims to contribute to a carbon-neutral economy by transitioning to low-carbon, and eventually zero-carbon, emissions transport solutions.

With both environmental and governance key performance indicators (KPIs), the environmental KPI is benchmarked to go beyond the emissions target outlined in International Maritime Organisation’s (IMO) 2050 decarbonisation trajectory and the Poseidon Principles. This includes measuring the carbon intensity of MISC’s Gas Assets & Solutions fleet by using the annual efficiency ratio (AER). MISC will benefit from the annual adjustments of the interest rate benchmarked by meeting the pre-agreed KPIs.

“We at MISC believe that integrating ESG principles into our long-term strategy and decision-making is key to shaping a sustainable future,” commented Raja Azlan Shah Raja Azwa, MISC’s Vice President of Finance. “Securing this landmark SLL for our VLECs reflect our continued commitment to accelerating the drive to improve our ESG performance by tying our financing with our decarbonisation strategy. We will progressively implement our plan to achieve Net-Zero GHG emissions by 2050 and this includes fostering strategic collaborations with our stakeholders including the ship financing sector.”


Centre for Digital Trade and Innovation taps Arqit for data security expertise

The UK’s Centre for Digital Trade and Innovation (C4DTI) and Arqit Quantum have partnered to deliver digitally secure, globally interoperable trade solutions.

Coordinated by the International Chamber of Commerce (ICC) United Kingdom, C4DTI is industry-led and government-supported, working to create an open digital trade system based on common, internationally recognised standards. The centre was recently formally launched at its location at Teesside University and is funded by the Tees Valley Combined Authority (TVCA).

This partnership will focus on security, with Arqit collaborating on developing digitally secure and interoperable solutions that facilitate adopting digital trading processes. With the UK government expected to enact legislation recognising transferable electronic documents, electronic trade document systems must fully comply with the Model Law on Electronic Transferable Records (MLETR) provisions for electronic record security and integrity. Data security adoption will be a central pillar of the partnership.

“International trade is undergoing a massive digital transformation that will make processes more efficient, transparent and secure, thereby lowering transaction costs for businesses,” commented Dominic Broom, SVP Working Capital Technology lead at Arqit. “Fundamental to this innovation is ensuring the security and integrity of these digital processes, which malicious actors will undoubtedly target.


Cash management platform targets Indian SMEs and emerging corporates

Daulat has announced the launch of Cash+ to provide cash management solutions for SMEs and emerging corporates in India. In a statement, the firm notes that companies tend to keep substantial sums of their short-term cash (<12 months) in a current account or fixed deposit because they are often unaware of better alternatives. Cash+ aims to improve that by providing customised liquidity products to help the backbone of the Indian economy – MSMEs – save and invest better.

Cash+ invests in debt/arbitrage funds that hold a portfolio of high-quality, short-term securities like certificates of deposits, commercial papers and bonds issued by AAA-rated issuers like central/state government.

Since Cash+ portfolios are investment products investing in debt securities, it is primarily exposed to two key risks a) interest rate risk and b) credit risk. By investing only in shorter duration funds and the highest-rated instruments, Daulet says these portfolios can effectively mitigate those risks. Liquidity is at the heart of Cash+ portfolios. There is no lock-in period or premature withdrawal penalties, and invested cash is instantly redeemable with money credited directly into the bank account in T+1 working day. 

The returns provided by Cash+ portfolios are a function of risk appetite and investing time horizon. In the current interest-rate regime, these portfolios can provide 7-8% returns a year for a recommended investment period of 3-12 months.


Wise launches interest feature for US multi-currency account customers

Global technology company Wise is now offering its US-based business and personal customers the opportunity to opt-in to receive 3.92% APY on their USD balances. This feature of the Wise Account will allow customers to earn interest on USD balances while keeping the flexibility to send, spend and receive money internationally with instant access to their funds. 

Business and personal customers that hold USD can utilise this feature while managing global business growth and operations or personal international financial needs. Additionally, those who opt-in to receive interest are eligible for FDIC pass-through insurance up to US$250,000 through Wise’s programme bank, JPMorgan Chase.

Wise’s interest feature isn’t a checking or savings account. There are no additional limits to the amount customers can hold in the account and no balance minimums or fees involved.

Wise stores customer funds with programme banks, which generates interest. As rates have improved, Wise can provide this interest option for its US customers with USD balances.

All Wise US customers — new and existing — can now access the interest option in their accounts. Customers must verify their SSN/EIN to be eligible, and new customers can sign-up for Wise through the website or app and opt-in to the interest feature immediately. The interest rate being offered for USD balances may fluctuate, and any changes will be communicated to customers directly.

In addition to this feature in the US, Wise offers interest options globally, having recently launched Balance Cashback in Europe and Interest Assets in some European countries. 

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