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Down Under Trucking: Wisetech Denies J Capital Claims Of Financial Trickery


The last couple of days took a dramatic turn with U.S. short seller J Capital making explosive allegations that global logistics software behemoth, WiseTech – a A$9 billion (US$6.2 billion) company, has been seriously misleading investors. WiseTech has robustly denied these claims.

Pictured: WiseTech founder and CEO Richard White. Photo: supplied by WiseTech.

In other news CTI Logistics pulls in A$212 million of revenues and, meanwhile, trucking industry association NatRoad says that truck rest stops are "desperately needed". 

WiseTech Hits Back at Allegations of Financial Trickery

Global logistics and productivity software provider WiseTech Global (ASX: WTC), which has offices and customers around the world and in North America, has rejected allegations of financial impropriety made by short-sellers J Capital Research. WiseTech shares dropped by about 10% to A$30 (US$20.56) on the release of the J Capital allegations. One Australian dollar equals about 69 U.S. cents.

WiseTech is a major logistics software company. The software company has a market cap of about A$9.5 billion and has over 12,000 logistics company customers in more than 150 countries. Its main product, CargoWise One, executes over 51 billion data transactions annually.

In reporting on the story, it is necessary to summarize the allegations made by J Capital and WiseTech's response. We do not ourselves make, or support, any allegation against either company or any of the individuals involved.

J Capital's Allegations

In an aggressive note and research report, J Capital makes an estimation in which it alleges that WiseTech overstated profit by up to 178$ in the three years since the company listed. It also alleged that the company's underlying organic growth was 10% and not 25% as stated by the company. J Capital claimed the estimated 80% of the top line growth was from purchased revenue. J Capital makes a variety of further allegations namely that European revenues were overstated, that subsidiaries are shielded from audit; that the auditors "aren't looking at the numbers closely enough"; that the increase of profit growth post-IPO is "suspect"; that its core product "is held in low regard" by clients; that the company is manipulating its accounts and that "insiders are cashing in on the story that WiseTech is pushing out to investors".

WiseTech Fires Back

Referring to the J Capital report, WiseTech responded late yesterday with a detailed denial of the allegations made against it. WiseTech stated that the J Capital report "contains many claims and allegations that are untrue. WiseTech rejects entirely the allegations of financial impropriety and irregularity contained in the [J Capital] document. The Report was published without prior inquiry to WiseTech".

The software company noted that J Capital is a short seller and that it had disclosed it could benefit from a decline in the WiseTech share price.

"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. 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," the software company said in a statement.

The company added that it supports investigations by Australian regulators into attempts by overseas domiciled short sellers to target Australian Stock Exchange-listed companies. It also supports prosecuting unconscionable conduct. 

WiseTech's Detailed Response

The software company said there had been no overstatement of profit, growth or revenue and that results had not been inflated. WiseTech said J Capital's estimates for revenue growth were incorrect, adding that the software company's disclosures between organic and acquired revenue growth had been made in full. It noted that J Capital had made allegations that capitalizing costs of software development had exaggerated profits and revenues. WiseTech then stated it has complied with Australian and international accounting standards, explaining that it had "appropriately" expensed software efforts including maintenance, bug fixes and other software investments not likely to be commercialized.

WiseTech added that European revenues had not been overstated as revenues are allocated to region, which is based on the customer's invoicing location. WiseTech points out that some of the company's biggest customers, such as DHL, are based in Europe and so WiseTech revenues from such customers are allocated to that region. WiseTech added that J Capital also excluded six of WiseTech's largest European acquisitions. "This has a significant impact."

The software company added J Cap's allegations about WiseTech's growth may mislead as J Capital appears to have compared operating profit in financial year 2016 with net profit after tax in financial year 2019. WiseTech also pointed out that pre-IPO accounting is "not unusual" and that it made investor materials "on a pro forma basis excluding one-off IPO costs as well as in the statutory form... WTC's approach is consistent with other business that IPO".

WiseTech also noted that all of its subsidiaries are required to maintain detailed accounting transaction records to support group auditing. The software company also stated that auditors include the companies Grant Thornton and KPMG. WiseTech adds that, in the 2017 financial year, one of the audit partners "necessarily changed to accommodate her maternity leave and the reviewing partner took on the role". WiseTech added that KPMG has released an unqualified independent auditor's report for each year since becoming the company's auditor.

Finally, WiseTech denied the allegation that the company's report is designed to facilitate insider "cash in". The company noted that the two founders, Richard White and Maree Isaacs, currently own over 154.1 million shares with a value of over A$4.6 billion.

"Richard sold only 5.8m shares for a total value of $73m. Maree has sold no shares. In the period since listing, long-term directors and shareholders, Charles Gibbon and Mike Gregg have sold a combined 5.7m shares, which they have held since 2006, for a total value of $106m. The same two directors continue to hold 31.2m shares with a total value of $936m", the company states.

CTI Reports Revenues of A$212 Million

Road transport company CTI Logistics (ASX: CLX) reported its annual results late last night after market close. Revenues from operations were A$212 million and profits before income taxes were A$1.79 million. Profits after tax were A$788,074.

Meanwhile, revenues from other income were A$945,728. Profit before income taxes stood at A$1.79 million and the profit for the year, after all taxes and costs, was A$788,074.

Total revenues of A$212 million represented a 15.92% increase on the previous year. Most of that increase was driven by a boost in transport revenues, which were the biggest revenues generated by the company. Transport revenues stood at A$121.05 million, which accounted for about 57% of the company's revenues. It's a big increase from the previous year. In 2018 the company's transport revenues stood at A$94.41 million. So the company has increased its transport revenues by A$26.64 million, a 28.21% increase.

The boost in transport revenues was driven by the acquisition of Jayde Transport and Stirling Freight Express. Both acquisitions are reported by the executive chairman, David Watson, to be "complete" and they are are operating under the CTI Logistics branding.

Logistics revenues accounted for another A$84.4 million, which was 39.83% of the total revenues generated. Security services generated another A$6.13 million of revenues.

The two biggest costs, by a wide margin, were employee benefits (at A$70.14 million) and subcontractor expenses (A$68.39 million). The third biggest cost was motor vehicle and transport cost. A further large cost was property cost at A$17.19 million.

The company also expanded its warehousing capabilities and technologies. It now offers third party warehousing to national clients.

"All of the above came with some cost, including non-recurring moving and establishment costs. In addition, as a services business in a difficult economic environment, we are still seeing significant reductions in activity and increased margin pressure across a wide range of clients," Watson wrote in the Chairman's Statement.

CTI Logistics is a Western Australia based company working in the business to business and business to consumer segments. Its operations include couriers,taxi trucks, fleet management, warehousing, biosecurity services, logistics (warehousing, distribution centers, cold supply chain) and freight forwarding, among other things. The company operates a fleet of over 750 vehicles, including but not limited to semi-trailers extendable trailers and truck mounted cranes.

Rest Areas "Desperately Needed"

Australian trucking industry association, NatRoad, has declared that there is a desperate need for heavy truck rest areas in the capital of Australia, Canberra, and the associated Australian Capital Territory.

"The road transport industry is crying out for facilities essential to supporting improved road safety and professional driver fatigue management," Nat Road has said in a statement following the release of a survey conducted in July and August 2019.

The key findings are that the "overwhelming majority" of professional drivers park on the road when taking breaks. The facilities wanted by truck drivers are parking away from traffic and light vehicle parking; fresh drinking water; rubbish bins; toilets; showers and shade. Drivers also want healthy food instead of food from a major food chain.

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