Australia’s leading provider of integrated logistics, Wiseway Group Limited (ASX: WWG) has revised its FY 2019 pro forma EBITDA, driven by lower than anticipated freight volume growth on the back of subdued Chinese economy in H2 FY 2019. As per today’s announcement, the company is expecting its FY19 EBITDA to be around $3.0 million as compared to the pro forma forecast of around $8.5m in the Company’s recent IPO Prospectus.
WWG’s shares were down by over 18% during today’s trading session.
The revised pro forma EBITDA outlook includes expected EBITDA losses of around $0.5-$0.6 million related to the start-up. These initiatives were implemented post the IPO and their costs were not contemplated in Prospectus forecasts.
One of the main reasons behind the variance between pro forma EBITDA and pro forma Prospectus EBITDA was lower than forecast outbound freight revenues and volume. The company was expecting strong volumes to persist after the Chinese New Year peak season. However, due to the current trade tensions between China and the United States and economic slowdown, the company is expecting that it wont be able to achieve the forecast outbound freight revenues and volume. The company is expecting full year outbound air freight volumes to be in between 70,000-72,000 tonnes.
Lower than forecast gross profit and margins are also the major reasons behind the variance between pro forma EBITDA and pro forma Prospectus EBITDA. The margins were affected by lower than expected ULD (aircraft unit loading devices) packaging rates that have been impacted by the introduction of RACA across the business that diverted management attention. Further, the margins were also affected by the operational changes from airlines that have required the introduction of smaller pallets, more suitable for aircraft unit packaging.
The company is expecting that the variance in gross margins will improve in the future, driven by the positive contribution from RACA as well as higher anticipated rates of ULD packaging with the introduction of new, smaller pallets.
The Pro forma operating expenses for FY19 are expected to be in between $16-17 million which is higher than IPO forecasts. The increase in the operating expenses are driven by the investment in new growth initiatives including China, New Zealand and expanded Australia operations, increased staff numbers to support the identified growth opportunities and higher occupancy costs associated with new and expanded facilities.
As at 30 April 2019, the company had net debt of 4.4 million.
Unaudited Net Cash / Debt Position (Source: Company’s Report)
Despite the disappointing revision, the company is very confident in the outlook for the business and its strategic expansion into the Chinese outbound air freight market to Australia and New Zealand.
At the time of writing, i.e., on 14 May 2019, the stock of the company was trading at a price of A$0.245, down 18.333% during the day’s trade with the market capitalisation of ~A$36.32 Mn.