Hall of Shame
WiseTech Global (WTC AU)
Wisetech Global Limited, an Australian company, designs and develops cloud-based logistics software solutions. The Company offers forwarding, custom clearance, liner and agency, warehousing and land transport solutions. Wisetech Global operates worldwide. It was listed on the ASX in April 2016 raising A$167M. Between 2017 and 2019 three further share offerings raised $A444M; Dec. 2017 - A$73M, Mar. 2019 - A$300M and May 2019 - A$71M.
On 16 October, short-seller J-Capital issued its first report on the company, Part 1: The Wizard of WiseTech - The Illusion of Success, in effect, accusing the company of fraud. On 20 October, J-Capital published the second part of the report, Part 2: The Closer You Look the Uglier It Gets, which summarised a survey it commissioned on the success of some of WiseTech’s recent acquisitions. The issues raised in these reports were :-
1. Overstated profit by up to A$116m in the last 3 years.
2. Overstating organic growth by 15%.
3. European revenues overstated by as much as A$48m in FY 2018.
4. WiseTech subsidiaries have been shielded from audit scrutiny.
5. Concerns over the departure of director, CFO and audit partner.
6. WiseTech is manipulating its accounts to make growth and profit appear higher than they really are.
7. Insiders are cashing in on the story that WiseTech is pushing out to investors.
8. Acquired companies have performed poorly, with weak revenue growth, falling profitability and customer losses.
Oct. 28, 2019 - GMT Research, in its review of WiseTech and the J-Capitlal's report, was unconvinced that fraud was involved by the allecgations stated. Rather it believed that the issue was aggresive accounting. GMT Research had concerns :- "So far, we have attempted to show that some of J-Capital’s most important allegations can be refuted, or do not appear to be supported by sufficient evidence. Despite this, we agree that WiseTech’s track record appears too good to be true. In our view, it is unusual for a company to grow seamlessly though a large number of acquisitions. However, in contrast to J-Capital, we believe profit growth has not been achieved by fraud, but through aggressive acquisition accounting and excessive capitalisation of self-developed software costs."
On Feb, 20th, 2020, following WiseTech publishing of half year results for 2020, GMT Research followed up with a short report. It noted that :-
- Underlying performance deteriorated in 1H20
- Cash flow remains poor
- Failure to impair goodwill questions credibility of financial statements
It stated that GMT think underlying performance was even weaker than headline levels, with declining EBITDA and operating cash flow obscured by increasingly aggressive accounting. An even greater concern is management’s failure to impair goodwill following the failure of recent acquisitions to meet earnout milestones. While this resulted in a write-down of deferred consideration, which was credited to the income statement as a one-off gain, there was no corresponding write-down of goodwill. This accounting treatment questions the integrity of financial statements and flags the aggressive accounting practices employed by WiseTech
J-Capital: WiseTech: Part 1 - The Wizard of WiseTech - The Illusion of Success - Oct. 16, 2019
J-Capital: WiseTech: Part 2 - The Closer You Look the Uglier It Gets - Oct. 20, 2019
J-Capital: WiseTech: Questions for Management - Nov. 18, 2019
GMT Research: WiseTech : Accounting concerns, but fraud allegations unconvincing - Oct. 24, 2019
GMT Research: WiseTech : Slowdown exposes aggressive accounting - Feb. 20, 2020