Slater+Gordon and IMF Bentham Limited announce shareholder class action against Brambles after pallet costs don't stack up
SYDNEY, 23 April 2018: Leading class action law firm Slater+Gordon and global litigation funder IMF Bentham Limited have today announced a proposed class action against Brambles (ASX: BXB), after the Australian pallet company ‘cannibalised’ its FY17 growth and allegedly misled investors about its future profits.
Brambles Ltd is an ASX 20 company that operates the CHEP and IFCO logistics brands with a supply chain of reusable pallets, crates and containers across more than 60 countries.
The proposed class action would be open to investors who suffered loss after acquiring shares in Brambles Ltd between 18 August 2016 and 17 February 2017.
Slater+Gordon Senior Associate Andrew Paull said investors lost millions of dollars after Brambles revised its profit guidance in January and February 2017.
“Brambles had been enjoying a steady rate of growth for a number of years, but in FY16 its revenue and earnings grew at double the historical rate,” Mr Paull said.
“This growth occurred after Brambles allowed a large number of its pallets to be used to transport goods to companies outside its regular distribution channels.
Brambles could charge a premium for this, which increased revenue, but they also lost visibility over the whereabouts of their pallets, which significantly increased collection and repair costs.”
Mr Paull said the costs associated with Brambles’ exceptional FY16 growth effectively ‘cannibalised’ the company’s FY17 growth.
“This is not the kind of case where a company has failed to foresee risks that would negatively impact future growth,” Mr Paull said.
“Brambles was telling the market that its FY16 sales growth of 8 per cent and profit growth of 9 per cent was the ‘new normal’ and could be expected into the future.
We are alleging Brambles knew its increased costs would make future growth at the FY16 rate impossible and they failed to account for that in their FY17 forecast.
The company has provided a variety of inconsistent reasons for its surprise guidance miscalculation but, in our view, these excuses just don’t stack up.”
The allegations against Brambles
The proposed claim would allege that Brambles Ltd:
- Did not have reasonable grounds to issue its FY17 Guidance in August 2016;
- Therefore, made misleading and deceptive representations to the market in breach of section 1041H of the Corporations Act 2001 (Cth); and
- Breached its obligations of continuous disclosure by failing to withdraw the FY17 Guidance under ASX Listing Rules 3.1, in contravention of section 674(2) of the Corporations Act.
On 18 August 2016, Brambles released its FY16 results showing:
- 8 per cent sales revenue growth; and
- 9 per cent underlying profit growth.
Brambles included FY17 Guidance in its FY16 results, which forecast:
- Sales revenue growth between 7-9 per cent;
- Underlying profit growth between 9-11 per cent; and
- Continuing sales revenue momentum and profit leverage in FY17.
The FY17 Guidance was reiterated at the first-quarter trading update in October 2016 and at its AGM in November 2016.
On 23 January 2017, Brambles issued its first trading update and withdrew its FY17 guidance, announcing that:
- It was expecting 2017 first half constant-currency sales revenue growth of approximately 5 per cent and underlying profit growth of approximately 3 per cent; and
- Full-year sales revenue and underlying profit growth was expected to be “below its current guidance range”
On 20 February 2017, Brambles made its second trading update and:
- Provided revised FY17 guidance for constant-currency revenue growth in line with 2017 first half (i.e. 5 per cent) and for underlying profit to be flat to FY16 (i.e. 0 per cent growth);
- Undertook not to provide medium-term guidance; and
- Provided further detail around the drivers of the FY17 downgrade.
The proposed action is being conditionally funded by IMF Bentham Limited and participants will not be required to pay any fees unless the class action is successful.
Investors who acquired shares in Brambles Ltd (ASX: BXB) at any time between 18 August 2016 and 17 February 2017 and who suffered a loss as the result of acquiring those shares can register their interest in the class action by visiting: https://www.imf.com.au/brambles