Australian payments company EML has set aside over €6m to cover likely legal costs arising from its defence of a class action being taken against it by shareholders over issues at its Irish subsidiary, PFS Card Services (PCSIL).
The law suit was lodged in December by Australian based Shine Lawyers, which is seeking compensation on behalf of shareholders who claim they suffered losses after acquiring EML Payments shares.
The proceedings allege that EML did not comply with its disclosure obligations and engaged in misleading and deceptive conduct regarding disclosure.
"The allegations relate to EML's governance arrangements regarding its Irish subsidiary, PFS Card Services (PCSIL), and PCSIL's interaction with the [Central Bank of Ireland] (CBI)," EML said.
"EML strongly denies the allegations and denies any liability. EML has engaged highly experienced, and leading class action defence lawyers and will vigorously defend the proceedings."
It said it was currently premature to determine the impact, if any, of the class action on EML, but because such actions can take an extended period to resolve it has recognised an Aus$10.5m (€6.3m) provision for the likely legal costs it expects to incur defending the claims.
In May of last year, EML announced to the stock market that it had received correspondence from the Central Bank regarding PCSIL's anti-money laundering and counter terrorism financing, risk and control framework and governance.
Shares in EML Payments fell by nearly 50% as a result of the disclosure, wiping significant value off shareholders holdings.
Publishing its first half results today, EML said it has since invested additional resources into the PFS business to meet the regulator’s expectations and address its concerns.
"This led to a significant increase in people, controls and technology overheads in the period," the company said.
"In H1 FY22, underlying overheads increased to $48.5 million, up 24% on the PCP, with PFS accounting for 63% of the increase."
It said the group was impacted by Aus$2.2m in non-recurring costs associated with the Central Bank’s remediation project, as well as the class action led by Shine Lawyers.
PCSIL has since been permitted by the Central Bank to sign new customers and begin new programs.
Established in 2008 by husband and wife team, Noel and Valerie Moran, Prepaid Financial Service was sold to EML in 2020 for AUS$252.3m.
Overall, EML recorded a 20% increase in group first half revenues to Aus$114.4m when compared to the previous comparative period.
Group underlying earnings before interest, tax, depreciation and amortisation was down 4% to Aus$26.9m.
