Wednesday 23 October 2019

John Mulligan: 'A raft of questions remain for Datalex board following report'

Meeting: Datalex CEO Aidan Brogan is among the directors who’ll face shareholders when the company holds its AGM in the summer. Photo: Michael Chester
Meeting: Datalex CEO Aidan Brogan is among the directors who’ll face shareholders when the company holds its AGM in the summer. Photo: Michael Chester
John Mulligan

John Mulligan

A huge number of questions remain to be answered by management at Datalex.

Not least is the extent of the exposure now for the stockmarket-listed group to potential action from regulatory bodies following its accounting issues.

There's also the question of why the problems weren't identified until months after the first-half results had been filed.

As late as last November, the company's board still had no inkling of the seismic fault in its results. It said trading for the year to the end of that month was "in line with expectations" and was "confident" it would deliver double-digit adjusted earnings before interest, tax, depreciation and amortisation (ebitda) for 2018.

Just weeks later, the picture had changed dramatically. Datalex said in February that it expected its 2018 performance to be "materially behind expectations", with an adjusted ebitda loss of between $4m and $1m.

The Central Bank is now reportedly investigating that November trading update from the company in light of the events that subsequently unfolded at the firm. It may ultimately not be the only authority that delves into what happened at the software company.

And while the PwC report notes that the board wasn't informed of the revenue recognition issues until January this year, it's simply not good enough that a public group such as Datalex - with a whole raft of responsibilities to shareholders - didn't appear to have the kinds of checks, balances and processes in place that might have prevented the problems ever happening in the first place. In its 2017 annual report, it stated: "The board is satisfied that the group has effective processes in place for identifying and managing the risks faced by the business, and has an effective system of internal controls in place to safeguard the integrity of the business."

Shareholders are right to wonder now if that was indeed the case. Datalex said it has made a number of changes since January as to how it does business.

"The group has drawn up, and is currently implementing, plans to further reorganise its finance function that will involve the creation of a number of new roles to enhance the group's accounting and financial control capability," it said yesterday. "In addition, a process has commenced to procure an outsourced internal audit service."

It also has another headache: a chief financial officer, Donal Rooney, who only started at the firm last December, quit in February. He was no doubt keen to extract himself from the financial turmoil at the firm which he had inadvertently found himself mixed up in. A new CFO will be named shortly.

Datalex now has a journey to rebuild trust in the firm, not only among investors and customers, but its own staff.

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