Wisetech Global hits back at short sellers, calls for them to be stopped

WiseTech has blasted the short sellers that hit its share price, calling for action to stop them targeting others.

WiseTech CEO Richard White has attacked the short sellers that targeted his company this week. Picture: John Feder

WiseTech Global has categorically rejected the attack on its business by short-selling hedge fund J Capital Research.

The logistics software maker’s founder and CEO Richard White has asked

regulators to step in and take action.

WiseTech’s shares took a 13 per cent hit on Thursday, and were subsequently put in a trading halt, after a scathing report from J Capital, which labelled the software maker a “clunker” and alleged the company’s reported profit could be overstated by as much as $116 million, or 178 per cent, over the past three years.

In the company’s rebuttal on Friday, Mr White said the allegations made in the report were untrue and highlighted the danger that overseas short sellers posed to ASX-listed companies.

“We would ask the relevant regulators and government, not just for ourselves but for the many listed Australian corporations regularly subjected to similar attacks, to consider the complex issues raised and damage caused by reports of this type issued by a US or overseas short seller,” Mr White said.

“While we and other Australian listed corporations are subject to stringent external audit, validation and verification, no such standard applies to these types of actors.

“Many of these attacks may largely be beyond the reach of our market regulators and operate in ways that are clearly at odds with our system of laws, our market, culture and society.

“We are very concerned that the allegations in the document may mislead and manipulate the market to the detriment of WiseTech’s business and its shareholders, large and small,” he said.

“Our financials, our revenue, our profit, our growth rates and our product have all been verified comprehensively and form part of the external independent audits conducted annually,” Mr White said in a statement.

‘Complete, utter garbage’

Earlier on Friday, Evans & Partners analyst Paul Mason dismantled J Capital’s report, labelling the benchmarking used by the short seller “complete, utter garbage”.

“Typically for revenues to be overstated, there should be a mismatch between cash receipts from customers on the cash flow statement vs reported revenues,” Mr Mason said.

“WiseTech does not show this in their financials at all,” he said.

He added that contrary to J Capital’s allegations, customer feedback on WiseTech’s core product CargoWise One remained consistently positive.

“The customer feedback on CargoWise One that I have experienced personally, and that has been reported to me by clients I have spoken with, is profoundly positive,” he said.

J Capital’s 31-page report, titled “Part 1: The Wizard of WiseTech — The Illusion of Success”, took aim at the company’s acquisition strategy, claiming that its organic growth was in much worse shape than appeared.

“Using the company’s own numbers, we estimate WiseTech’s underlying, organic growth rate at 10 per cent, not the 25 per cent claimed. That means an estimated 80 per cent of the company’s top-line growth is from purchased revenue,” report author and co-founder of the firm Anne Stevenson-Yang said.

She also pointed out that WiseTech’s growth-through-acquisition strategy, which has seen it absorb 34 customs and logistics software companies since its $170m IPO in 2016, wasn’t delivering the promised growth.

“We have spent months analysing the company and concluded that WiseTech is manipulating its accounts to make growth and profit appear higher than they really are,” Ms Stevenson-Yang said.

‘Ample evidence’

However, WiseTech has hit back at the assessment, saying there was ample evidence available to debunk J Capital’s claims.

“The J Capital commentary appears to suggest the information on organic growth and acquisition revenues is unclear,” the company responded.

“In fact, WiseTech’s disclosures provide the split of revenue between organic and acquired for FY17 to FY19 and articulate the drivers for organic revenue growth, which support our indicated average organic growth range of 20 per cent — 30 per cent per annum.”

“Information on integration and the transition of acquired revenue to organic is also provided in FY19 Investor Briefing Materials, Results webcast and 2019 Annual Report.”

One particular point of interest for J Capital is WiseTech’s European revenue, which the fund has called out as a means to “hide” the firm’s “exaggerated revenues”, amounting to as much as $48m in the 2018 financial year.

The report claims to have obtained financial filings of European subsidiaries that show declines in revenue that don’t align with WiseTech reporting, along with reports from former employees in two of its EMEA companies and key executives in its South African company that line up with its assertions.

It notes that the group’s accounts for the 2017 financial year were issued a few months after it entered into a “deed of cross guarantee” that “shields subsidiaries from audit scrutiny” and promptly changed auditors, a year after it had replaced its CFO.

WiseTech, in its riposte, said there was no overstatement of revenues from its overseas operations.

“Our revenue by geographic location and the financial statements clearly state that it is based on our customer’s invoicing location, based on billing address.”

“This approach was adopted in FY16 as the billing model for the business was largely centralised in corporate headquarters in Australia, thus regional centres, including the UK, became support centres.”

“Internal revenues are eliminated in the group consolidation, as is required by accounting standards.

WiseTech is no stranger to analysts raising red flags about its growth strategy, with lingering concerns about how much real value the acquired companies delivered to WiseTech’s bottom line.

The company hit a speed bump last year after a poorly received full-year guidance, with shares falling 40 per cent from a then record $16.27 to as low as $9.49. However, it subsequently recovered to hit a record high of $38 in September this year.

Mr White has been consistent in his message that the company is using the acquisitions to build a global operating system for the logistics industry.

Valued at $9.5bn, WiseTech posted revenue of $348.3m for fiscal 2019.