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Wirecard CEO Resists Calls to Quit, Plans Business Overhaul

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(Bloomberg) -- Germany’s Wirecard AG plans to regain the confidence of investors with sweeping measures to improve compliance and control, said Chief Executive Officer Markus Braun, dismissing calls to step down.

The payment processing company will reveal details of nine projects to improve “global internal control systems including how it reports and punishes compliance violations and dealings with business partners,” Braun told Bloomberg News late on Sunday.

It follows an independent KPMG audit of Wirecard that caused its shares to fall more than 30% last week. KPMG said it was unable to obtain the data it needed and criticized the company for internal “shortcomings” and an unwillingness by its third-party partners to contribute to the report.

Wirecard managers had hoped the KPMG probe would resolve lingering concerns around the Munich-based firm’s third-party business, merchant payments and business activities in India and Singapore, after a series of articles by the Financial Times accused it of fraud in those areas.

However, the report was repeatedly delayed and KPMG said evidence provided for revenues of 1 billion euros ($1.1 billion) in transactions with third parties was sufficient for reporting purposes but insufficient for the forensic probe. It said Wirecard has an “accumulation of software contracts without economic substance.”

Braun renewed a previous commitment to improve compliance and move away from doing business with third-party business partners, which process payments in countries where Wirecard has no license to operate. Such contracts represented about half of its transaction volumes last year.

“We will massively cut back our third-party business and replace it with our own licenses within the next two years,” Braun said by phone. He said the measures won’t affect revenue and profit margins.

Rating Cuts

The KPMG report has stirred concern among some of the longest-running Wirecard backers, with analysts from Kepler Cheuvreux, HSBC and Morgan Stanley each cutting or suspending their long-term buy ratings.

Wirecard’s shares were down another 4.6% as of 10:39 a.m. in Frankfurt.

While Braun acknowledged there’s more to be done, he said progress has already been made, pointing to a project launched in mid-2019 to strengthen internal controls in Singapore that was rolled out worldwide and has improved standards.

He said the company is boosting staff in its compliance department to 160 from 100. Chairman Thomas Eichelmann last week said it would add compliance and sales specialists to its management board.

Braun rejected a call from billionaire activist investor Chris Hohn of TCI Fund Management Ltd. last week for him to step aside. The CEO said he brings “substantial value-enhancing potential to Wirecard, with a clear plan to boost its revenues and profits by multiple times” within the next ten years.

“We are on course to meet our financial targets for 2020 and keep our long-term guidance,” Braun said.

He said the coronavirus crisis has weighed on the firm’s business with airlines but helped in other areas such as online retail.

“All growth drivers are intact and will be strengthened by the digitalization trend and accelerated by corona,” Braun said. Wirecard is due to present first-quarter earnings on May 14 and its long-awaited, audited annual report on June 4.

(Updates to add latest analyst rating cuts in eighth paragraph. An earlier version of this story was corrected to fix the date of first-quarter earnings in final paragraph)

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