The hits just keep on coming for EML, with its Sentenial business identifying recent fraudulent activity relating to an identified set of fraudulent merchants within its direct debit processing business. This has sent the share price down to 84 cents, which is the lowest EML has been since 2015.

EML has said that it is taking steps to investigate and understand the circumstances surrounding the fraud, and has commenced steps to recover any losses. EML is confident that the maximum amount of any losses will not exceed €5.5m (AUD7.9m) but may be lower depending on the success of recovery actions.

The fraudulent activity is said to have occurred in August 2022 and came to EML’s attention on Tuesday 23 August. A meeting of the Board was convened early this morning for the purposes of informing the market. 

EML has dropped over 17% this morning, to under $1, after providing the market an update on the Central Bank of Ireland.

EML’s Irish subsidiary, PFS Card Services (Ireland) Limited (‘PCSIL’), has been undertaking a remediation programme at the direction of Central Bank of Ireland since July 2021, with the assistance of external expert advisors. Whilst PCSIL has undertaken and completed significant work, there is more to do. The Central Bank has constructively engaged with PCSIL and identified shortcomings in components of the remediation programme, principally the sequencing and approach taken to the risk assessment of its distributors, corporates and customers.

PCSIL will adopt a revised approach to these components and completion of this work may result in additional controls being embedded into the internal control framework. Many activities in preparation for third party assurance have already commenced and it is anticipated that the adjustments to the remediation programme will result in assurance being finalised in 2023.  

PCSIL has been operating under a material growth limitation over its total payment volumes which is due to expire in early December 2022. While a further regulatory direction or limitation is unknown, EML’s new Managing Director and Group CEO Emma Shand and the Boards of both PCSIL and EML are actively engaging with the Central Bank of Ireland.  

EML has welcomed the European Central Bank’s decision on 21 July to raise the cash rate by 50 basis points which is expected to immediately benefit their European business by approximately $4M on an annualised basis. EML expects a favourable interest rate environment to partially offset the elevated cost base in Europe due to the remediation programme. EML is wholly committed to full compliance with its regulatory obligations. EML are confident that a best-in-class internal control environment provides enhanced customer and stakeholder value and positions EML well for scalable and sustainable growth in Europe and beyond. 

EML Payments, has this morning announced Ms Emma Shand, as the new Managing Director and CEO effective immediately. This follows the resignation of Mr Tom Cregan.

Peter Martin, EML’s Chairman said ‘This is an exciting time of opportunity for EML, and Emma has an ideal set of attributes to lead the company into the future. Emma will provide highly professional leadership through a period of very rapid change.’ 

Ms Shand is a very successful executive with 25 years’ global experience in technology, capital markets and diversified financial services across 30 different countries. This includes over 16 years in senior management roles with US based market leader Nasdaq. 

Ms Shand has deep executive experience in a broad variety of operating and technology environments and diverse cultural settings. She has worked with highly regulated markets, governments and disruptive companies across a variety of sectors. In light of EML Payment’s significant European business, Ms Shand will dedicate substantive time and presence in Europe.

Mr Martin added, ‘Emma has served as a member of the EML Board of Directors since September 2021. She brings a deep appreciation of the exciting growth opportunities ahead for EML in a world rapidly transitioning to digital payments. Importantly, she has a very impressive track record initiating and overseeing complex, transformational change.’

Ms Shand said ‘I have been very impressed by the dedication and commitment of the EML team and am incredibly excited to lead EML’s pursuit of payments innovation, integrity and delivery of outstanding payment experiences to our global customers.’ 

Mr Martin said, ‘We all owe a real vote of thanks to Tom Cregan who has been an integral part of the EML growth story for over a decade. He has tirelessly led the Company from a small technology business in Australia to a diversified payments leader operating in 32 countries. 

EML has been an exciting growth story of rapid international expansion, not without its challenges. Without Tom’s deep payments knowledge, drive and commitment, EML would not be what it is today.

Mr Cregan will receive his contractual entitlements and his equity will be treated in accordance with the terms of grant. No termination benefits will be provided. Ms Shand’s employment terms will be announced in due course.

FY2022 – Updated Financial Guidance

• EBITDA guidance for FY22 reduced by approximately 8% to $52m-$55m.
• Prior affirmation of the guidance range was driven by our confidence in the success of the inactivity fee project.
• Australian and North American businesses performing in line with expectations.
• Operational execution issues in Europe and a more risk averse approach to new programs impacted the launch of new programs. We now anticipate continued challenges through Q4 which has led to a reduction in the guidance range.
• H2 FY2022 Establishment income expected to be down $4m vs H2 FY2021.
• H2 FY2022 below expectations by approximately $1m-$2m due to delayed regulatory approvals for EUR bond investments. 
• Deterioration in current FX forecast rates from the prevailing rates in mid February are driving approximately $1.5m of the guidance reduction.
• Overheads spend in H2 towards higher end of expectations.

Injection of funds into Prepaid Financial Services UK safeguarding accounts

EML PAYMENTS LIMITED (ASX: EML) (“EML”) wishes to advise that we have identified what we consider to be historical deficiencies relating to periods prior to EML’s acquisition with respect to the accelerated conversion into cash of funds in dormant and expired emoney accounts. This cash would otherwise be retained in safeguarding accounts until six years post expiry of the accounts. The historical treatment is inconsistent with EML’s understanding of the correct application of the electronic money regulations.

Subject to audit, there is not expected to be an impact to EML’s profit and loss account as the issues related to the period prior to acquisition.

These deficiencies are historical in nature and pre-date the acquisition of Prepaid Financial Services Limited (‘PFS UK’) by EML on 31 March 2020. In line with our regulatory obligations, EML has proactively reported these historical issues to the Financial Conduct Authority (‘FCA’). PFS UK is an authorised eMoney Institution under UK law, its relevant regulator therefore being the FCA. Our notification to the FCA was appreciated and we will be providing further details to the FCA next week in relation to the issues. EML expects that the issue will require the injection of up to approximately £14.1 million (AUD 26.6 million) into safeguarded funds held by PFS UK. The injected funds may be released back to EML over an extended period, consistent with relevant regulatory requirements which allow conversion of dormant or expired eMoney. This is expected to be reflected in the FY22 to FY27 financial years.

Subject to audit, EML’s consolidated Group financial statements for the year ended 30 June 2021, will reflect the £14.1 million (AUD 26.6 million) as a liability through an adjustment to the acquisition balance sheet. As at 30 June 2021, EML’s unaudited cash balances exceed AUD 140 million. As noted above, there is not expected to be an impact to EML’s profit and loss account as the issues related to the period prior to acquisition.

EML considers that, as the issues relate wholly to the period prior to its acquisition, any and all financial consequences are the responsibility of the previous owners of the PFS group. EML has the benefit of various warranties and indemnities under the Share Purchase Agreement entered into in March 2020 and we are assessing our position.

8common Announces CardHero Launch Following the Signing of EML Agreement

• 8common has signed a 3-year agreement with EML Payments Limited to issue prepaid Mastercards through the company’s CardHero platform
• The agreement with EML enables the launch of 8common’s CardHero solution via two products: CardHero and CardHero+
• The core product CardHero, will be released as both a virtual and physical prepaid card combined with travel and expense management solutions. CardHero is targeted at government entities and large enterprise clients
• CardHero+ provides an additional fund disbursement platform which aims to support not for profit organisations and educational institutions

FY20 Highlights

• Record underlying EBITDA of $32.5m (excludes acquisition costs) up 10% from $29.7m in FY19
• Incurred one-off restructure costs of $0.6m in March 
• June (included in EBITDA) for $1.5m recurring savings (FY21 onwards) 
• Record NPATA of $24.0m up 17% from $20.6m in FY19
• Group underlying cash conversion of EBITDA at 110.1% with $118.4m of cash on hand at 30 June
• Strong financial performance during the first 8 months of the year before COVID-19 impacted trading conditions 
• The Group has a strong balance sheet with significant cash reserves and no senior secured debt ensuring the Group has the resources to successfully execute on our Strategy and be positioned to take advantage of opportunistic M&A
• Acquired and commenced integration of Prepaid Financial Services (Ireland) Limited ('PFS'), which pivots the group to generating the majority of Revenues from the General Purpose Reloadable ('GPR') segment, a long term strategic priority
• Reviewed the Group Strategy post acquisition of PFS in April 2020 and launched Project Accelerator to drive the Group's growth over the next three years
• Signed and launched major new customers in all verticals with sales pipeline momentum evident in all markets
• Post COVID-19 sales momentum strengthened by companies seeking digital payment solutions as part of a global trend to move away from cash payments