WiseTech faces new battle as shareholders lodge class action over profit downgrade five years ago

The class action, lodged in the Victorian Supreme Court by legal firm Phi Finney McDonald, centres on earnings forecasts made by the company five years ago with the claim alleging that WiseTech engaged in misleading conduct and that it breached its disclosure obligations as it “aggressively acquired companies in pursuit of its global expansion strategy”.

The claim, which involves shareholders who bought an interest in WiseTech between 21 August 2019 and 18 February 2020, notes that the company, which listed on the ASX in 2016, bought about 40 companies in the years preceding the claim period.

Central to the class action is the FY20 earnings guidance provided by WiseTech on 21 August 2019 following these acquisitions, with the company targeting EBITDA of between $145 million and $153 million for the full year, which would have been an increase of between 34 and 42 per cent from the previous year. EBITDA margin was forecast to rise to 33.1 per cent.

But after WiseTech reaffirmed this guidance on 23 October and 19 November 2019, just three months later on 19 February 2020, the company issued a profit downgrade.

WiseTech revised its FY20 EBITDA guidance down to between $114 million and $132 million, its EBITDA growth guidance down to between 5 and 22 per cent and its EBITDA margin down to 28.3 per cent, which was even lower than the margin of 31 per cent recorded in FY19.

The downgrade led to a 27.31 per cent fall in the company’s shares on the day the downgrade was announced and a further 11.78 per cent the following day.

WiseTech blamed the downgrade on the underperformance of several of its newly acquired businesses.

“The class action alleges that WiseTech issued its FY20 guidance without reasonable grounds and that, in truth, its FY20 EBITDA margin was always likely to be below FY19 given the time and investment required to integrate acquired businesses,” says Tania Noonan, principal lawyer at Phi Finney McDonald.

The law firm is alleging that WiseTech assured the market twice that its earnings guidance was “on track”, despite knowing there were delays in integrating its acquired businesses and that they were delivering lower-than-expected profitability.

“For aggressive and high growth companies, pride often comes before a fall,” says Noonan.

“Good corporate governance requires a culture of compliance – not with powerful founders – but with the law.

“Investors are entitled to expect that Australian publicly listed companies have a reasonable basis for their financial forecasts.

“The integrity of the Australian share market requires companies to immediately disclose price sensitive information in accordance with the ASX listing rules so that investors can make informed decisions.”

In a statement to the ASX this morning, WiseTech acknowledges that it has become aware of the class action, but implies that it has yet to be served.

“WiseTech Global Ltd intends to vigorously defend any such proceedings if they are served,” says the company.

WiseTech has faced a tough couple of months following a private court matter between founding CEO Richard White and a former girlfriend, a saga that ultimately led to White’s resignation as CEO on 24 October 2024.

The sensational allegations made in court documents revealed an ugly spat between White and Linda Rogan, a wellness entrepreneur based in Sydney.

The tabloid headlines this created led to a wipeout of more than $10 billion in the market value of WiseTech in a little over a week, with the shares falling below $100 for the first time since August. WiseTech shares were trading at $133.43 at 11.06am (AEDT) today.

While Phi Finney McDonald says the class action filed this week “does not directly engage with recent revelations regarding the conduct and behaviour of former CEO Richard White”, the law firm says it is currently investigating whether its clients could have future claims against WiseTech in relation to this matter.