EML Payments announces Resolution of Regulatory Action
- Regulatory action was instigated in February 2018
- The amount of the fine is around GBP920,000
- The fine will have no financial impact on EML
EML Payments (ASX:EML) has announced the resolution of regulatory action taken by the Payment Systems Regulator (PSR) of the United Kingdom against Prepaid Financial Services (PFS) Limited, a subsidiary of EML operating in Ireland.
The regulatory action was instigated against PFS in February 2018 with the investigation stating that it was looking into possible anti-competitive conduct in relation to a minor part of its business. Crucially, this occurred before EML acquired PFS, which was announced in 11 November 2019, almost 2 years since the start of the investigation.
Because of the ongoing investigation at the time, the Sale and Purchase Agreement signed by both companies explicitly stipulated that any fines ultimately imposed as a result of the investigation would be paid by the Vendors. In practice, this means that EML withheld GBP5 million for the purpose of settling any financial penalties that might arise.
In its announcement, EML reiterated that the fine had no financial impacts to themselves and stated that the vendors have accepted full responsibility to resolve the issue. The vendors have been fully cooperating with EML and the PSR since the acquisition.
The PSR advised on the same day as the announcement that while the investigation is still ongoing, PSR and PFS had both agreed to settle the matter by paying a maximum fine of approximately GBP920,000. Since the fine is to be paid with the funds withheld by EML and the penalty is below the amount held, EML will return to the remaining funds to the vendor, less any legal costs, by 30 June 2021.
Despite the fact that the investigation has been ongoing for years, it impacts only a small part of EML’s overall operations. In fact, PFS, the subject of the investigation, has reported strong results that have exceeded expectations in EML’s half-yearly report. The group reported earnings before interest and tax of $28.1 million for the half year ended 31 December 2020, this represents a 42 per cent increase over the previous corresponding period (pcp).
EML has reported an overall strong start to the year with record highs in key indicators such as Gross Domestic Volume (GDV) growing by 54 per cent over the pcp to $10.2 billion. GDV is a measure of the total debit volume processed using EML’s proprietary processing platforms. Record high revenues of $95.3 million and $28.1 million in Earnings Before Interest Tax Depreciation and Amortization (EBITDA) were also reported representing growth of 61 per cent and 42 per cent respectively over the PCP.
The report ends on a positive note with EML’s forecasts for the full year predicting overall growth of about 60 per cent to maintain the company’s track record of year on year growth of EBITDA.