)
Shares in global payment solutions company EML Payments (ASX: EML) have fallen again on the back of the business announcing it has identified up to $7.9 million of losses from fraudulent activity.
The Brisbane-headquartered business identified a fraudulent set of merchants within the direct debit processing division of its Irish subsidiary Sentenial, which it purchased last September for €70 million ($108.6 million at the time).
EML Payments is in the process of investigating the circumstances surrounding the fraud and has commenced steps to recover any losses but is confident it will not exceed $7.9 million and may be lower depending on the success of recovery actions.
The incident poses an early test for the recently appointed new managing director and CEO, Emma Shand, who took control of the business in July after spending 10 months as a non-executive director.
It also follows an update from the Central Bank of Ireland in July that EML Payments would be required to carry out more work to dispel significant regulatory concerns regarding another Irish subsidiary, PFS Card Services (Ireland) Limited (PCSIL).
The Irish regulator’s update led to EML shares dropping from $1.20 to $0.93, with remediation work ongoing since May 2021 following the discovery of issues relating to the governance, resourcing, reporting, risk methodologies, controls and risk frameworks, capital adequacy, safeguarding and transaction monitoring of the business.
Since stepping into the CEO role, Shand has visited EML offices across Australia, Europe, the UK and North America and spoken with various stakeholders.
“This includes our engagement with the Central Bank of Ireland (CBI) and the continued remediation of our Irish subsidiary PFS Card Services (Ireland) Ltd (PCSIL),” confirmed Shand in the company's Annual Report released on Monday.
“It would be inappropriate to pre-empt any conclusions from the CBI; however, recent discussions with the regulator have been appreciated and very constructive.
“We will continue to take onboard the many learnings from this programme to strengthen our future operational, regulatory and compliance processes.”
Professional fees related to the CBI matter and litigation increased from $11.3 million in FY21 to $16.8 million in FY22, with EML retaining a provision of $8.1 million.
In December 2021, EML was hit with a class action lawsuit from Shine Lawyers in Victoria on behalf of shareholders, alleging the company did not comply with its disclosure obligations and engaged in misleading and deceptive conduct.
EML strongly denies the allegations; however, a provision of $10.5 million was recognised during the year for the likely legal costs which may be incurred in defence of the claims.
The group expects to recover a portion of the costs associated with the class action through their insurance policy.
Outside of regulatory and litigation matters, EML announced overall revenue rose 21 per cent to $234.1 million during FY222, although underlying EBITDA dropped 4 per cent.
Europe remained one of the company's top performing jurisdictions, with revenue increasing by 30 per cent to $148.1 million; however, the CBI restrictions impacted the launch of new programmes during the period, reducing establishment income.
Shares in EML Payments (ASX: EML) have today dropped 15.58 per cent as of 12.23pm AEST.
)
)
)
)
)
