Richard Curran: ‘Datalex not quite cleared for take-off after accounting scandal’

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Richard Curran: ‘Datalex not quite cleared for take-off after accounting scandal’


'Datalex had incorrectly recognised about $3.5m (€3.1m) of service revenue associated with a Lufthansa contract in the first six months of 2018, which has subsequently been corrected by the group.' Stock image
‘Datalex had incorrectly recognised about $3.5m (€3.1m) of service revenue associated with a Lufthansa contract in the first six months of 2018, which has subsequently been corrected by the group.’ Stock image

Airline software group Datalex will hope the findings of a PwC probe into accounting irregularities will draw a line under the whole episode.

The report found that while there had been significant accounting irregularities, something which will draw the attention of bodies like the ODCE, the direct financial damage was not deeper than previously thought.

Datalex had incorrectly recognised about $3.5m (€3.1m) of service revenue associated with a Lufthansa contract in the first six months of 2018, which has subsequently been corrected by the group.

It also noted that about $2.9m (€2.5m) of other services and platform revenue was incorrectly recognised in the period, of which $700,000 is not recoverable.

Findings saying there needed to be better internal controls within the finance function of the group, are troubling for investors, and the board.

How come internal controls were so deficient right under their noses?

Longstanding shareholder Dermot Desmond is keeping the faith with the firm having stepped in earlier this month with €3.8m for new shares issued at €1 a share. He now owns 29.9pc.

He followed up with a €6.2m credit facility which is secured on assets in the business.

The Datalex share price was down to around 76c after announcing the outcome of the PwC probe.

Desmond was down around €900,000 on paper on the fresh money he put into the group.

Datalex said Desmond’s IIU will receive 10pc interest on the 18-month credit facility which should yield him around €1.2m.

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The bigger issue is that he has agreed to tie up a total of €10m of his money in a firm which he obviously believes can put this mess behind it.

The PwC findings and the corrective actions of the board suggest it can.

But the market might be slow to forgive. The shares were ticking back up to over 80c last week but on very thin volumes.

 

Full details of any Quinn/IBRC settlement should be published

Confusion reigned supreme back in 2008 when news first broke that entrepreneur Sean Quinn had lost what he called “more than €1bn” on Anglo Irish Bank CFDs. The actual figure ended up being €3bn and a load of the money had come from Anglo loans backed up by guarantees from Quinn’s children.

It became even more confusing shortly after the bank collapsed, when the Quinn children decided to sue the bank for giving the money – and not their father who had essentially lost their money.

Confusion returned this week – nearly a decade later – when the legal action taken by the children against IBRC (formerly Anglo Irish Bank) took an unusual twist shortly after it got going. The Quinns applied to amend their statement of claim. They wanted to claim they were under undue influence from their father when they signed the loan guarantees.

Justice Garret Simons declined to allow the Quinns to materially change their claim against IBRC during the week.

IBRC argued such a shift would compromise its ability to fight the case. Justice Garret Simons said there had been no claim of undue influence from Sean Quinn in their pleadings. Quite quickly after the initial determination of this issue, both sides entered settlement talks.

There is a lot to discuss.

Not only are the Quinns suing IBRC, but the bank is countersuing them back for the enforcement of €450m in loan guarantees and conspiracy to put assets beyond the bank’s use.

Mediation had been tried several times in this dispute, right up to days before this case began. But it yielded nothing. Settlements on the IBRC side are tricky, especially where it involves any kind of forbearance on the issue of putting assets beyond the reach of the bank. The Quinns were hit with a legal setback in the Supreme Court in 2015 when it ruled they could not pursue IBRC on the grounds that the loans amounted to unenforceable lending. These claims had to be dropped from the case.

This left them with a set of claims around how the bank handled the loan process and the guarantees they signed.

Their range of arguments has narrowed. But if a comprehensive settlement is reached between both sides on all of these issues, will it be published in full?

Given that it is a State bank and the significant public interest issues involved in the Quinn case, surely all the details of any settlement should be made public.

 

Tony Smurfit’s 40pc pay rise

Smurfit Kappa chief executive Tony Smurfit got a nice little pay rise last year. Well, a 40pc increase in remuneration to €3.4m to be precise.

Based on the performance criteria set by the board it was a good year for the company, and therefore for Tony.

Revenues were up 4pc to €8.9bn. Ebitda was up 25pc to €1.5bn and pre-exceptional profit before tax was up 56pc to €938m.

But it is hard to identify the complete performance in a year when the company turned down a takeover offer of €38.80 per share, when the shares are now languishing at €24.20.

Smurfit’s remuneration was made up of a basic salary of €1.1m and a bonus of €1.6m. He also received the equivalent of 20pc of his salary as a pension payment. Throw in the LTIP share awards and the whole package came to €3.4m. He now owns 1.19 million shares in the group valued at €28.8m.

The 40pc remuneration increase has to be seen in the context of what his predecessor, Gary McGann, earned.

The annual report made the comparison very easy by including details of McGann’s remuneration package all the way back to 2009 in one easy-to-read page. Surely not a coincidence.

McGann bagged €5.2m in 2013, €7.2m in 2014 and €3.8m in 2015 although he retired in August of that year.

Tony Smurfit has received total remuneration of €9.3m in three-and-a-half years. McGann picked up €19.3m in the three-and-half years before his retirement from the job. However, McGann did toil away on less money during some tougher years before then.

Smurfit Kappa will be a long time justifying the International Paper takeover rebuttal on financial grounds given that its current market capitalisation is €3.4bn lower than the offer valuation.

The board did say at the time it believed shareholders were better off going it alone in the long run.

Sunday Indo Business

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