EML Payments has tried to make a virtue of its run-in with the Central Bank of Ireland last year, saying the attention of the regulator has helped it strengthen its management, systems and governance, but the costs and restrictions involved in the CBI’s intervention could not have come at a worse time for a company absorbing high acquisition and restructuring costs.
In May last year, the CBI wrote to EML’s Irish-based European subsidiary PFS Card Services, to raise concerns about the risk of money laundering and terrorism financing within the business, as well as concerns about the company’s risk management framework and governance.
PFS, which EML acquired in 2019, is a provider of white label payments and banking-as-a-service technology, The CBI imposed “material growth restrictions” on the company as part of its regulatory intervention.
Costs of A$12.6 million relating to the CBI matter in the December half-year contributed to EML reporting a net loss of $12.1 million for the period. The company booked a number of other one-off costs, most of them related to acquisitions.
EML also faces higher ongoing expenses, as it has had to beef up its compliance and governance teams in Ireland.
In its interim results briefing the company focused on an underlying profit of $13.1 million, after making a series of adjustments (it would hard for a reader of the investor briefing notes to know the company actually made a loss).
The best way to get a handle on the rather convoluted financial report might be to focus on the cash flow statement. After generating cash of $34.8 million from operating activities in the six months to December 2020, the company had a cash outflow of $39.2 million in the latest half.
The company has other PFS-related problems to deal with. In December last year, Shine Lawyers filed group proceedings in the Supreme Court of Victoria, alleging that EML did not comply with its disclosure obligations and engaged in misleading and deceptive conduct regarding disclosure.
EML said it denies the allegations and will defend the proceedings. It has recognised a $10.5 million provision for legal costs.
For the six months to December, the company reported a 20 per cent increase in revenue to $113.4 million, based on gross debit volume of $31.6 billion (up 209 per cent on the previous corresponding period).
Debit volumes and revenues increased in all business segments – general purpose reloadable cards, gift and incentive cards and digital payments.