A KPMG audit has revealed that Wirecard’s core business was lossmaking “for years”, the Financial Times has reported.
According to the audit, which has been seen by the paper, the group’s operating performance in Europe and the Americas was “far worse than previously known”, despite Wirecard portraying itself as a highly profitable business.
According to previous EY-audited financial reports, Wirecard generated operating margins of 22% and almost doubled annual earnings to €439m between 2016 and 2018.
In addition, the payments group also promised investors a “fivefold increase” in profits by 2025.
According to the Financial Times, however, “such profits appear to have existed largely on paper”, as found by a special KPMG audit.
The audit’s figures also revealed that core activities became “increasingly lossmaking” in recent years, despite accounting for half of the company’s reported revenue and almost two-thirds of the transaction volume.
In 2018, for example, direct activities within the group produced €74m in operating losses, against losses of €3m reported the year prior.
These figures were reportedly “masked” by profits attributed to outsourced activities in Asia, with KPMG noting that activities outside Asia failed to generate profit since 2016.
According to the FT, this poor operating performance outside of Asia “highlights the challenges that Wirecard’s administrator Michael Jaffé is facing as he looks for buyers of Wirecard’s remaining business”.
The KPMG report was commissioned by WIrecard last year in response to concerns over its accounting practices.
The report’s revelations now “cast doubt” on the robustness of the parts of the German payments group not directly affected by the ongoing accounting scandal.
Wirecard collapsed into insolvency last month, only a week after it revealed that €1.9bn (£1.7bn) had gone missing from its accounts, after blaming “possibly fraudulent” transactions for the lost funds.
It comes after the Munich-based group was forced to postpone the publication of its financial results for the fourth time this year, after EY, its auditor, refused to sign off its accounts in light of the missing funds.
According to Wirecard, EY informed the group that “no sufficient audit evidence” could be obtained of the missing £1.7bn figure which accounts for approximately a quarter of its consolidated balance sheet total.
At the time, the group said there was a “prevailing likelihood that the bank trust account balances in the amount of €1.9bn do not exist”.