Datalex's new chief executive told a shareholder meeting on Thursday that its former auditors, Ernst & Young (EY), were "conspicuous" by their absence as they didn't show up to explain why they declined to give an opinion on the beleaguered travel retail software company's 2018 accounts.
EY said in Datalex’s annual report, published in early September after months of delays, that it had disclaimed an audit opinion, in a highly unusual move, due to a breakdown in controls last year that lead to an accounting scandal.
This has caused problems for Datalex's new management team, such as making it more difficult for them to secure a resumption of trading in the company's stock. The shares have been suspended since the end of April, after Datalex missed a regulatory deadline to file accounts for last year.
"[EY] are conspicuous, it has to be said, by their absence here this morning," said Sean Corkery, who was named as Datalex's permanent chief executive on Thursday. "We're disappointed with that. And we're obviously disappointed with the audit process."
A spokeswoman for EY, which resigned as Datalex’s auditors last month, declined to comment.
Accounting irregularities
Mr Corkery joined the board in April as deputy chairman as the company grappled with the fallout of accounting irregularities that emerged three months earlier. The new management team, including chief financial officer Niall O’Sullivan, had argued in the annual report they had “exercised strict diligence to ensure that the directors’ report was consistent with the financial statements”.
Datalex first warned of suspected accounting irregularities in January, sending its shares tumbling by almost 60 per cent in one day. A subsequent independent report carried out by PwC confirmed there was a weak internal control environment in Datalex, and that revenues and earnings for the first half of last year had been overstated.
Much of Datalex's accounting issues relate to its booking of service revenue on a project to overhaul the digital commerce offering of Lufthansa, which was agreed in 2016 but had gone over budget and missed key deadlines last year.
Datalex reported a record net loss of $50 million (€45.3 million) last year, as $27 million of expenditure on deployment and product investment put enormous strain on the business, and it took an impairment charge of $20 million against research and development (R&D) costs that it had previously been converted into assets.
New appointment
While Datalex held its annual general meeting on September 17th, 11 days after the 2018 report was published, it adjourned a vote on the directors’ report and financial statements to give shareholders a legally necessary 21 days to consider the accounts. That vote took place in Dublin on Thursday, with shareholders opting to receive the report by a majority of almost 91 per cent.
Meanwhile, Datalex has appointed former chief executive of both Cityjet and Flybe, Christine Ourmières-Widener, as a non-executive director, adding greater aviation depth to the board.
The French native, whose appointment also begins to address a previous lack of women on the board, led Dublin-based Cityjet between 2010 and 2015 before joining UK regional carrier Flybe in 2016, where she became chief executive the following January. She left that company in July after overseeing its sale to a consortium including Virgin Atlantic and Stobart Air.
