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RETAILERS MAY STRUGGLE TO COMPLY WITH IMPENDING ACCOUNTANCY RULES

RETAILERS MAY STRUGGLE TO COMPLY WITH IMPENDING ACCOUNTANCY RULES
  • An estimated 90% of UK High Street retailers have yet to capture all their lease data and are potentially living beyond their means
  • New lease accounting standard (IFRS 16, ASC 842), whilst onerous, places lease liabilities in plain sight and provides greater internal and external visibility on future commitments

Britain’s retailers look set to emerge, counter-intuitively, as the most exposed to lease commitments, according to analysis by Aptitude Software, a global financial software specialist.

Aptitude Software estimates that 90% of UK High Street retailers will struggle to comply with the impending new lease accounting standards (IFRS 16) which come into effect in January 2019.  This is in part due to the sheer volume of leased assets across their businesses, including premises, delivery vehicles, machinery and IT equipment.

The new lease accounting standard fundamentally changes accounting for lease transactions and will move hundreds or thousands of lease contracts onto a company’s books and demands a level of data collection, storage and lease accounting that was not previously required.  Based on the new standard, all leases over $5,000 need to be disclosed.

Aptitude Software analysis shows that the new standards are likely to have significant business implications for all companies affected due to the volume of leases on disparate systems. The analysis picks out the retail sector as being particularly impacted as the value of leases compared to their total value is particularly high.

The pressures of the Black Friday and Christmas retail peak season, when the bulk of retailers book most of their profits, will create a perfect storm next Autumn for those CFOs who are already stretched and haven’t yet implemented systems to address the new regulations.

Ross Chapman, Global Marketing Director, Aptitude Software, said: “A later start than January next year is going to stretch retail finance teams.  Given the complexity, it is not surprising that many UK retailers are unsure of their lease liabilities.  For large retailers, who may have more than a thousand outlets, the new leasing standards are a data nightmare.  Finance teams will need to locate and sift through thousands of individual rental agreements, often buried in disparate systems and locations.”

“Struggles faced by the likes of High Street brands BHS, Woolworths and HMV are well known.  We understand from our customers that the cost of a retail store front is enormous, and it is not unusual for 50% of a retailer’s company value to be represented by off-balance-sheet leases.  These ongoing lease liabilities mean that retailers must shift very high volumes of low margin products to break even.  IFRS 16 requires CFOs to place all leases on the books, making liabilities much more transparent and affecting important debt covenants. It is imperative that CFOs gain a deeper understanding of the terms of their global lease portfolios.  IFRS 16, if acted on with appropriate software, will help them to do that.”

Retail complexity is exacerbated by upward only rent reviews on leased property, long considered a scourge of the sector, especially at a time when online trading through virtual store fronts is eating away at High Street on Out-of-town market share.

Lucy Newman, IFRS 16 Audit Partner, Deloitte, said: “IFRS 16 is probably the most significant change in accounting to affect non-financial services companies in the past 20 years. CFOs have so many challenges on their plates right now and profitability is paramount.  I work a lot in the retail sector and the pressure on margins is more than it’s ever been before.  Coupled with the fact that property occupiers are likely some of the most heavily impacted by IFRS 16, means that retail CFOs have a big job on their hands.  We believe that the complex changes now required from an accounting perspective will put the days of relying on Excel spreadsheets firmly behind us.”

The PwC Global Lease Capitalisation study from February 2016 [1] also indicates that the retail industry is likely to be one of the most affected by the new standard, given the significant use of rented premises for retail stores whether this is individual stores, High Street locations or shops within department stores, are likely to qualify as leases.  The PwC study estimated that there would be a median debt increase of 98% for retailers, and 41% median increase in EBITDA.

According to the British Retail Consortium [2], it is not unusual for a large retailer to have between 5,000 and 10,000 leases including assets used within their stores and other properties.  With an estimated minimum of 25 to 80 data points per lease and some contracts dating back decades, the job of harvesting the necessary data is enormous.

Ross Chapman added: “In effect, many retailers are living beyond their means with huge lease liabilities – and this issue isn’t limited to the retail sector.  We’ve recently witnessed the collapse of Monarch Airlines who were leasing multi-million-pound aircraft yet selling tickets at very low cost.  The new standards mean that a company’s lease exposure will be laid bare for everyone to see.  It will show those companies that live close to the knife edge and may have significant business implications for them.”

The Aptitude Lease Accounting Engine offers data capture and complex accounting capabilities which allows companies to comply with IFRS 16 while retaining current lease administration systems.  This enables CFO’s to address the new lease accounting rules, gain more financial control whilst causing minimal disruption to existing software systems.  Aptitude Software is working with many of the world’s largest organisations on their IFRS 16/ASC 842 compliance.

Business

Return to work: Flexibility, preparation and communication are key

Return to work: Flexibility, preparation and communication are key 1

By Matt Weston, Managing Director, Robert Half UK

As lockdown restrictions ease for the foreseeable future, conversations across the business world are starting to turn to how employers can safely and seamlessly prepare for their workforce to return to the office.

Research from Robert Half has found that over half (54%) of employees are worried about working in close proximity to their colleagues, while a similar proportion are eager to return to the office due to loneliness working from home (45%) or concerns about missing out on career opportunities (30%).

Unsurprisingly, after everything companies and their employees have done to successfully adapt their operations and working practices to social distancing rules over the last few months, immediately returning to the old ways of working will likely neither be sensible or practical. With safety being the key priority for the ‘new normal’ of office life – communication, flexibility and preparation should be the main focus areas for employers.

With this in mind, what are the challenges and opportunities that employees anticipate as they prepare for the return to work, beyond government and industry supplied health and safety best practice? Furthermore, how can employers best support their staff during this period?

Keep people at the heart of change

It is important to recognise that your workforce has been working through an intense period of uncertainty and change for months, which can be incredibly unsettling. On top of this, working for weeks in isolation without the usual physical interactions with team members could be potentially detrimental to employee engagement and mental wellbeing.

Having adjusted to keep staff connected with one another from a distance with virtual team building exercises, video calls and daily check-ins, as teams begin working in hybrid models with some in the office and others remote, staff engagement will need to adapt again.

Managing people with greater sensitivity and maintaining positivity throughout will be crucial. To help instil a sense of normality and engagement, encourage maximum collaboration between individuals (in accordance with social distancing rules), and make sure teams feel part of company goals and opportunities through regular meetings and communication – no matter their location.

Continuing to invest in technology and offering flexibility will also be important to ensuring that people can continue to work remotely or on-site, either in accordance with their own wishes or as part of your staggered return-to-office plan.

Communicate, communicate, communicate (and listen)

Reassuring staff that they are able to safely return to the office will require continuous communication. From expectations of the physical office, to expectations of how to operate within hybrid teams, these new expectations and new workplace requirements should be communicated to all staff clearly to avoid confusion.

Regular email updates, updates on the company’s intranet and social media channels, as well as frequent town hall meetings (either online or in a smaller setting) could be key elements of an effective communications approach.

Also, consider a feedback channel to allow staff within the team to offer thoughts on their experience of returning to the office and any suggestions on improving the process. Whether on a company-wide basis or a team-by-team approach, schedule regular check-ins to engage with employees’ questions and concerns.

Maintaining open communication channels with your team will be essential for keeping up employee morale and ensuring clarity. For example, if some employees aren’t comfortable with coming to the office every day, then they should have plenty of opportunities to voice their concerns and have them dealt with promptly, respectfully and fairly.

Staggered return-to-office planning

Depending on the size of business and density of office space, maintaining home working arrangements across teams on an alternating basis could make it easier to implement safe social distancing. This involves select teams working remotely while others work on-site on any given day.

An alternating approach to remote working might also reduce the risk of staff feeling pressured or overwhelmed by an immediate return to the office five-days-a-week. After all, some families might be juggling temporary disruptions to childcare arrangements and public transport systems will likely become crowded again. So, a transitionary period will help everyone adjust to post-lockdown office working.

Finally, if you have developed your technology infrastructure to facilitate remote working, you would do well to continue to leverage these new capabilities as in all probability, a mixture of remote and at-office work will be needed for some time.

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Business

Contis enters RBS Capability and Innovation Fund bid seeking £35 million for disruptive SME growth strategy  

Contis enters RBS Capability and Innovation Fund bid seeking £35 million for disruptive SME growth strategy   2

Leading payments provider, Contis, has applied for two grants from the RBS & BCR Alternative Remedies Package, totalling £35 million.  

Unlike most applicants who will deploy funds through a single brand, Contis is taking a completely different approach. The funding will be used to drive fintech innovation in the UK by developing an off the shelf, B2B electronic and card payment technology platform for SMEs. With Contis’ powerful tech stack and regulated status, this will empower hundreds of fintechs to support the SME market with groundbreaking technologies, payments and lending capabilities. Contis today services over 800,000 consumer accounts, 14,500 business accounts and processes £4bn in transactions per year, demonstrating a proven track record.   

UK businesses are facing a challenging economic environment with the impacts of Covid-19 and Brexit. As large corporations and entire sectors are affected, SMEs will play a vital role in the recovery. Contis’ approach is completely disruptive, offering three channels to maximise support for SMEs and sole traders, through three unique brands, all powered by APIs from Contis’ modular and configurable engine. 

1.       Canvas for Business 

Contis is a super-vendor in the world of fintech, offering payments through proven banking rails and card scheme capabilities including issuing pre-paid, debit and virtual cards. They’re linked to digital delivery like Apple Pay and Google Pay, and a trusted tech stack that boasts 99.99% uptime.  

With funding from the Capability and Innovation Fund (CIF), Contis’ technology and regulated services will be made available to the whole fintech community, enabling them to provide dedicated SME accounts with the latest leading-edge capabilities delivered via Contis’ wholly owned, secure, cloud-based technology and apps. Contis’ solution has a firm eye on the need for SMEs to compete internationally, particularly after Brexit, and offers FX integration as standard.  

Canvas for Business will increase competition by providing fintechs serving the SME market with technology that outstrips the big banks. Contis will also provide credit referencing capabilities and empower fintechs to lend to their SME client base through Contis’ own credit licence. Without the constraints of legacy systems, it will enable simple connectivity to accounting and payments solutions, as well as to unlimited future innovations.  

2.       Engage for Business 

Over 150 Credit Unions currently use Contis’ Engage service and technology, and hold an estimated £400 million in undeployed cash reserves. Developed with CIF funding, Engage for Business will enable Credit Unions to launch business accounts and payments products for the first time, and allow excess funds to be redeployed in the SME sector through business support loans. This will revolutionise access to funding for sole traders and small businesses. 

3.       Freedom for Business 

With CIF funding, Contis will also offer large scale SMEs a direct-to-market solution where Contis holds the relationship and provides a bespoke offer to meet the business’ exact needs. 

Contis’ application to the Capability and Innovation Fund is focused on creating the widest possible impact for UK SMEs by fulfilling their accounts & payments needs and driving innovation in SME financial services. 

Through the grant, Contis will empower over 200 fintechs and Credit Unions to provide credit, simplify payments integration into everyday business needs, offer digital credit referencing, provide budgeting tools to SMEs, enable automated payments, give predictive insight on cash flow, provide rewards to SMEs on spending, and much more. 

Peter Cox, Founder and Executive Chairman of Contis said: “Our mission is to democratise payments and financial services for all SMEs, so they’re spoilt for choice with innovative and affordable solutions that meet their exact needs. Our approach, based upon proven technologies, will broaden and disrupt the services available to SMEs far beyond the capabilities of existing providers such as the big banks.  

“By driving competition and innovation, while improving the availability of funding, our approach will increase the services on offer to SMEs and make them more affordable, therefore becoming easier for every entrepreneurial person with vision to run their own businesses.” 

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Business

Four years of digital transformation in four weeks: UK lockdown puts pressure on brands to digitally deliver

Four years of digital transformation in four weeks: UK lockdown puts pressure on brands to digitally deliver 3

Nearly a third (32%) of consumers would switch providers if a brand’s website is unavailable for more than 24 hours

A study released today reveals the scale of omni-channel pressure brands now faced as a result of the Covid-19 pandemic, as consumers flock to apps and websites to as the priority destination to transact with brands.

The UK has experienced a huge leap in use of online services thanks to lockdown, with the public appearing to have less concern for the availability of a brand’s physical location. Research by Sungard Availability Services (Sungard AS) uncovers a “window of availability” that UK businesses now have before consumer loyalty changes:

  • If a brand’s website is down for 24 hours – 32 percent of consumers would switch provider
  • If a brand’s app is down for 24 hours – 28 percent of consumers would switch provider
  • If a physical store is closed for 24 hours – 20 percent of consumers would switch provider

The results by industry paint an interesting picture of the availability timeframes brands are expected to adhere to:

  • For online retailers, excluding grocery retailers – 23 percent of consumers would switch provider if they could not access online services for 12 hours, rising to over a third (34 percent) after 24 hours
  • For financial services and entertainment streaming platforms – 21 percent of consumers would switch provider after 12 hours, rising to 33 percent after 24 hours
  • In the case of online grocery shopping – 20 percent would switch provider after 12 hours, rising to one third 33 percent after 24 hours

The findings also highlight that as digital reliance increases, so will consumer expectations towards availability in the future. Over the coming two years, a third (33 percent) of consumers expect online financial services to always be available, rising to 35 percent for streaming services.

“UK consumers have become reliant on the constant availability of online services, and lockdown has only served to heighten this,” comments Chris Huggett, SVP, EMEA at Sungard AS. “What used to be a choice between physical and digital has now firmly accelerated into digital environments across various industries. As online worlds continue to outpace bricks and mortar as the face of businesses, ensuring constant availability and clear communications on downtime will be key for brands to build trust and loyalty.

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