Live-ex kingpin Wellard offers $23m to end share price court case

Investors claimed they were dudded by the company's overly optimistic and misleading expectations and earnings forecasts at the time of the listing.

New shareholders ended up well out of pocket as the shipping and cattle trading company's income and share price tumbled in following months.

Wellard has not admitted any liability as part of the settlement, but is likely to have opted to pay the agreed amount rather than endure big legal expenses associated with a costly, lengthy Federal Court trial.

Its class action costs and settlement payment are set to be covered via insurance contracts protecting the company, senior management and directors from liabilities relating to management decisions.

Back in December 2015 Wellard's newly listed shares kicked off on the Australian Securities Exchange selling for $1.39 each after the prominent West Australian company raised about $300 million by issuing about 215m new shares.

The price began slipping almost immediately, then plunged the following year to sink below 20 cents a share within 18 months.

These days Wellard's share price sits around four cents, and has never managed to climb higher than about 12c a share since early 2022.

Pre-float prospectus forecasts had suggested Wellard's gross profit margins for the 2015-16 year would likely be similar to the previous two years.

However, instead of its predicted $46m profit, Wellard ended that financial year with a much-reduced $14.8m net profit after tax.

In fact, within two months of its listing on the ASX, the company started downgrading full year profit guidance, to about $42m, although it still insisted its cattle export sales prospects were strong.

Then it issued three more profit warnings in June and August.

The June warnings blamed unplanned changes to its shipping schedule and dramatic cattle market rises in Australia to record highs, which effectively dampened buyer interest in its key Vietnam and Indonesia markets.

By August, full-year profit expectations were revised down to $15m, or less, as Wellard made further cost adjustments relating to vessel spares inventories, insurance and tax.

Shareholders had been getting increasingly nervous about the rising cattle price since mid-May when then rival exporter, Elders, in its half-year results to March 31, booked a $3m loss relating to live export activities, compared to a $4.7m profit in the prior year.

Elders reported increased competition and higher supply costs putting pressure on earnings, particularly exports to Vietnam.

A class action was eventually filed in the Federal Court of Victoria in early 2020 by international law firm, Quinn Emanuel Urquhart and Sullivan on behalf of shareholders who invested in Wellard between December 8 2015 and August 31 the following year.

The principal claimant has been a trustee for the E and E Magee Superannuation Fund registered in Victoria, backed by Sydney-based claimant funding service ICP Funding.

No details of the total number of class claimants involved have been released by the court or Quinn Emanuel.

The class action claim argued despite shareholders' understanding that Wellard expected business to be "as usual" for cattle it bought in Australia and sold to Vietnam and Indonesia, the margins were already starting to "compress" by mid-November 2015 when its pre-float prospectus went out.

Quinn Emanuel lawyers claimed cattle prices had risen significantly in the prior six months, and by March, half-year margins for live export services were down at least 90 per cent.

They alleged by the time Wellard listed on the ASX the business was likely to have had a livestock marketing and export gross margin which was significantly less than the 19pc it had expected, and its pro forma net profit would likely have been significantly less than it was flagging.

This week's $23m payment agreement, after pre-trial mediation between Wellard and the class claimants, is still subject to the Federal Court approval.

The company said it was prepared to pay up and has the sum fully covered by its available insurance proceeds.

The payment finalisation process will require the Federal Court to approve the disclosure of the class to the insurer, who in turn will conduct regulatory checks, including sanctions checks, on the class members, before funds are divided up.

The final payment process will also apportion the proceeds between class members and the litigation funder, ICP.

"The settlement will not impact Wellard's cash flow," executive chairman, John Klepec, reported to shareholders.

"We are pleased this matter has been resolved, so we can focus on the operations of the business."

Observers suggested if any trial went ahead it could stretch out for more than a month, possibly dragging the case into the second half of 2024, or even later if an appeal to a court decision was to follow.

Meanwhile Mr Klepec noted, having regard to the period of time which had elapsed since the 2015 share market listing, any further compensation claims attempted to be brought against Wellard in respect of the same circumstances would be statute barred by legislation limitations.