EML Payments stems cash bleed by liquidating Irish subsidiary PCSIL

Global card payments provider EML Payments (ASX: EML) has decided to stem the bleeding from its European operations with plans to wind down its troubled Irish division after declaring it to be no longer commercially viable.

The liquidation of PFS Card Services (Ireland) Limited (PCSIL), a distributor of pre-paid Mastercard cards and Visa cards, has already begun with the division ceasing business operations from 17 January.

The news has been warmly welcomed by investors who pushed the Brisbane-based company’s shares more than 33 per cent higher to a peak of 99.5c in early trading. The shares were trading almost 20 per cent higher at 89c at 11.27am (AEDT).

EML says a liquidator has been provisionally appointed to PCSIL by the High Court of Ireland with ‘immediate effect’ to oversee the winding down of the business which burns about $20 million a year in cash.

EML says the impact of the liquidation will comprise $20 million of cash outflow, being the repayment of intercompany balances related to the cash burn in FY24, and a $25 million non-cash impairment to the company’s FY24 financial accounts.

“Following a detailed analysis, the PCSIL board has made the decision to wind down PCSIL with the support of the EML board,” says EML chairman Luke Bortoli.

“We have determined this is in the best interests of the broader EML Group and our shareholders, given our focus to simplify the EML business and focus on our core businesses.

“PCSIL is not commercially viable for future investment, and this decision will allow EML to redirect management resource and capital to our core businesses”.

The decision to wind up the Irish subsidiary was made by the new PCSIL board after it examined several options to turn the business around and it has been made despite the board concluding that the business is presently solvent.

The new board was approved late last year by the Central Bank of Ireland (CBI), which over the past two years has been concerned over progress by PCSIL in remediating its anti-money laundering and counter terrorism financing control framework.

EML Payments acquired the Irish business in 2019 for $423 million.

The liquidation of the division comes on the heels of the company announcing in November that it may have a buyer for its European business Sentenial and its open banking product Nuapay, which it acquired in 2021 for $109 million.

EML Payments cites several reasons for its decision to liquidate PCISL, not least the sustained earnings losses and ‘substantial’ cash burn by the company.

The company says there has also been a deteriorating trading performance by its few key customers which account for about 70 per cent of revenues.

PCISL also is facing challenges in attracting and retaining employees amid its deteriorating financial performance, while also facing tough conditions in attracting new clients.

Interpath Advisory has been appointed as provisional liquidator and is now in control of PCISL’s day-to-day operations and the wind-down process.

EML reveals that its cash exposure of $20 million to PCISL relates to inter-company balances for the projected cash burn of its subsidiary in FY24 alone if the business was to continue operating.

“Whilst the intercompany balances are at call, it is expected that repayment of this amount will occur towards the end of the liquidation in nine to 12 months,” the company says.

“As a result of the liquidation process, EML is no longer exposed to PCSIL’s cash burn, which was likely to continue over the midterm beyond FY24.”

EML says PCSIL has been deconsolidated from the group, effective from 16 January.

“The EML board considers that the wind-down of PCSIL is in the best interests of its shareholders” the company says.

“EML’s other businesses, including its European Gift and Incentive business and UK general purpose reloadable business are unaffected by this decision.”

The UK reloadable business is in the process of being structurally separated from PCSIL and will operate on a standalone basis. 

EML says the winding down of PCSIL is not expected to impact the company’s current FY24 guidance of a ‘break-even or better’ result announced in November.