June 16, 2020 / 9:48 AM / 20 days ago

Breakingviews - Wirecard CEO is approaching his day of reckoning

The headquarters of payments company Wirecard AG in Aschheim near Munich, Germany, April 25, 2019.

LONDON (Reuters Breakingviews) - Wirecard is facing its day of reckoning. Investors in the 12.4 billion euro German payments group that has tried to bat away accusations of financial impropriety for 18 months are hoping for a resolution when it publishes delayed 2019 annual results on Thursday. Yet even if auditor EY gives its seal of approval to the company’s accounts, Chief Executive Markus Braun’s job will be at risk.

The Bavaria-based company, which processes electronic payments for businesses and customers, is due to publish its audited financial statements after several delays. Braun’s company said in May that EY needed more time. A special investigation into older accounts by KPMG concluded in April that Wirecard and its business partners had not provided sufficient documentation to address all allegations of accounting irregularities made by the Financial Times.

There are three possible outcomes this week. First, EY could refuse to sign off on Wirecard’s 2019 accounts due to material misstatements. That would destroy any remaining faith investors have in the company’s numbers and make Braun’s position untenable. Alternatively, the auditors could give a “qualified opinion”, meaning they had found serious but non-pervasive problems. That too would damage Braun, since Wirecard has always denied the accusations and said only last month it was expecting an unqualified opinion - accounting jargon for a clean bill of health.

The third scenario, where EY gives Wirecard’s numbers the thumbs up, would therefore be a vindication. However, it would not change the findings of KPMG’s earlier investigation, which was unable to rebuff a key FT accusation that a substantial proportion of Wirecard’s revenue between 2016 and 2018 was booked through three obscure third-party businesses. The auditor said it was not able to conclude whether all of this revenue did or did not exist, largely because the third parties didn’t cooperate with its investigation. Wirecard said the figures had been verified in its audited accounts, and that information for the period may not have been available to KPMG due to data-protection regulations.

Even if the 2019 results get the auditor’s seal of approval, Chairman Thomas Eichelmann would therefore still face pressure to let Braun’s contract lapse when it ends in December. Top-10 shareholder Deka Investment has already called for the CEO’s removal.

Doubts about the company’s results are reflected in its share price. Wirecard is now valued at just 14 times 2020 EBITDA, using Refinitiv data, compared with 23 times for slower-growing peer Worldline. Whatever happens on Thursday, shareholders may conclude that any turnaround starts with demanding Braun’s head.

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