WiseTech suffers another attack from J Capital

Written on the 19 November 2019 by Matt Ogg

WiseTech suffers another attack from J Capital

"While there are those who seek to distract, we will not be deterred," says WiseTech founder and CEO Richard White.

Besieged short sell victim and Australian logistics technology giant WiseTech (ASX: WTC) has today lost most of its recent gains on the sharemarket in the wake of yet another critique from China-based J Capital.

WiseTech founder and CEO Richard White (founder) appeared to have inspired confidence from investors after dismissing J Capital's claims as "self-serving and misleading", with shares rising almost 10 per cent over three weeks to hit $29.17 each on 15 November.

J Capital issued another report to coincide with the company's AGM today, prompting a 6 per cent slide in the share price to just over $27.

"Investors need to ask some key questions at the annual general meeting on Tuesday," the report said.

The short seller questioned why WiseTech's corporate counsel Katharine Lowe left the company after just three months in the position, and also raised concerns about the resignation of non-executive director Christine Holman.

"Christine Holman, the director responsible for the audit committee, resigned, effective the date of our first report," J Capital said.

"The company has failed to provide an explanation for either departure."

J Capital also called on shareholders to ask WiseTech's board why the CEO charges the company for 21 per cent of its leased office space.

"Richard White and his co-founder, Maree Isaacs, the director responsible for invoicing, earned about $1.5 million in 2019 from property rents paid by WiseTech," J Capital said.

"This amounts to 21 per cent of the company's total lease expenses of $7.3 mln. The pair earned $2.3 mln providing services to WTC in FY2019.

"WTC leases office space and procures data center services from companies controlled by Richard White and Maree Isaacs, and payments to these companies rose in 2019 compared with 2018."

In his previous rebuttal, White had emphatically denied the allegation Wisetech's acquisitions were revenue roll-ups, but J Capital is still not convinced.

"WTC's "organic revenue" includes revenue from acquisitions that has been "transitioned" on to the WTC platform. In other words, if a customer of an acquired company is billed by CargoWise, that customer is "organic", the short seller said.

"In 2019, the company reported that the total of this "untransitioned" revenue from all previous years was just $3.2 million.

"WTC's "Untransitioned" revenue growth from previous years contributed $3.2 mln in FY2019. Based on our research and method we estimate more than $45 million."

J Capital alleges WiseTech inadvertently undermined its own story in its response to its report.

"The company said that, in FY2019, non-CargoWise One revenue in China was 55 per cent, or about $4.29 million, and acquired revenue from South Africa was $5.72 million.

"That is a total of $10 million from two countries. With all the acquisitions globally, this number would be several times higher. Clearly WiseTech has a flawed method for calculating acquisition revenue from prior years."

J Capital also seems to have a problem with WiseTech, an Australian company founded by Australians, paying its fair share of tax in Australia.

The short seller complains of Australia being "the world's most expensive tax jurisdiction", and asks whether it remains here to sustain an "audit-light" structure it enjoys in Australia.

"The company reports an average tax rate of 29 per cent, compared with an average for Microsoft of 10.2 per cent," J Capital said.

"Most tech companies domicile services in low-tax countries like Ireland. Google, a U.S. corporation, will bill an Australian or other foreign company via Ireland to reduce tax paid.

"So why does WiseTech invoice customers out of Australia, which has one of the highest corporate tax rates in the world?"

In the chair's address released to the ASX this morning, WiseTech chairman Andrew Harrison thanked shareholders for "messages of support and encouragement in recent weeks as we necessarily rebutted the misleading claims in short-seller reports".

"Be assured the Board, WiseTech leadership and our global teams remain steadfast and focused on delivery of the strategy and building shareholder value."

Harrison noted revenues were up 57 per cent in FY19 at $348.3 million, while net profit after tax (NPAT) rose by around a third to $54.1 million.

"These results were fuelled by significant organic growth in revenues across our global business, plus the development of hundreds of product enhancements and features for our CargoWise One technology platform, and the acquisition of many strategic assets in new geographies and adjacent technologies," Harrison said.

"During FY19, we continued our focus on innovation, investing over 32 per cent of our revenue and over 47 per cent of our people in product development.

"We further expanded our pipeline of commercialisable innovations and delivered over 830 product upgrades seamlessly across the CargoWise One platform to our customers across 150 countries."

In his address, White reconfirmed FY20 guidance for revenue between $440-460 million and EBITDA of $145-153 million.

"With the addressable market in technology for global logistics in the hundreds of billions, and the spend on digital transformation itself hundreds of millions more again, we are moving fast to leverage these components and build out our technology lead," he said.

"We are driving hard on all our levers of growth and at speed.  We do this because we can, and because our ambition is significant and the opportunity vast.

"While there are those who seek to distract, we will not be deterred. We know the work we do is important for the world and it is worth our relentless efforts."

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Author: Matt Ogg

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