Slater and Gordon has filed a class action against Spotless Group Holdings Limited (SPO.AX) (Spotless) in the Federal Court of Australia on behalf of persons that acquired SPO securities between 25 August 2015 and 1 December 2015 (inclusive).
The class action issued by Slater and Gordon, and backed by litigation funder Therium Australia Ltd, alleges that shareholders have claims against Spotless in relation to losses following the company’s announcement on 2 December, 2015 that:
- the company’s earnings before interest, depreciation, taxation and amortisation (EBITDA) for the financial year ending 30 June, 2016 (FY16) would be flat year on year; and
- the company’s FY16 net profit after tax (NPAT) would be 10% below the prior year, (together, the FY16 Profit Downgrade).
The claim alleges that Spotless engaged in misleading or deceptive conduct in providing its FY16 Guidance on 25 August 2015, and that it was also in breach of its continuous disclosure obligations from this date.
All investors who acquired shares in Spotless between 25 August, 2015 and 1 December, 2015 (inclusive) are invited to contact Slater and Gordon to receive information on how to register their interest in participating in the class action.
To register your interest and to receive further information regarding the class action and funding arrangements, please email firstname.lastname@example.org noting ‘Spotless Class Action’ in the subject line, and including your contact details.
Background to Claim
In August 2012, Spotless was acquired for approximately $720 million by a private equity consortium led by Pacific Equity Partners (PEP).
Under PEP, the company returned $302 million in equity to its shareholders, before relisting on the ASX in April 2014 with a valuation of approximately $2 billion.
On 25 August 2015, Spotless released its results for the financial year ending 30 June 2015. These results (EBITDA of $316.4m, reported NPAT of $142.8m) were consistent with the April 2014 prospectus forecasts.
In giving guidance for the coming year, Spotless stated that it expected its FY16 results to “materially exceed” its FY15 results (across revenue, EBITDA and NPAT) and endorsed market consensus expectations for FY16 NPAT of $161.5m, implying year on year growth of 7.5% compared to FY15 (the FY16 Guidance).
On 26 August 2015, PEP sold down its remaining shares in the company through a block trade worth approximately $374 million.
On 22 October 2015, Spotless held its Annual General Meeting (AGM). Spotless’ Chair, Margaret Jackson, stated at the AGM that Spotless was “well placed to continue delivering value for shareholders” and repeated the FY16 Guidance.
In late November 2015, Bruce Dixon stepped down as CEO and was replaced by former KPMG partner Martin Sheppard.
On 2 December 2015, Spotless withdrew the FY16 Guidance, issuing the FY16 Profit Downgrade (the First Trading Update).
In the days following, Spotless responded to an ASX price query, and issued a market update on 9 December 2015 (the Second Trading Update) which sought to explain the FY16 Profit Downgrade. The Second Trading Update attributed the causes of the FY16 Profit Downgrade to expensing previously capitalised bid costs, acquisition integration issues and underperformance and a slowdown in new business and market conditions.
The market’s reaction to the FY16 Profit Downgrade was severe, with Spotless’ share price falling by approximately 50% in the days following. The Second Trading Update did not lead to a material recovery in Spotless’ share price.
Slater and Gordon’s class action alleges that, at the time of giving the FY16 Guidance on 25 August 2015, Spotless was or ought to have been aware that:
- the FY15 Results did not provide a reliable base from which to forecast future earnings growth in FY16;
- the matters outlined in Spotless’ Second Trading Update on 9 December 2015 (which sought to explain the FY16 Profit Downgrade) were always likely to impact earnings in FY16;
- in particular, that businesses acquired by Spotless in FY15 were underperforming, and the integration plan for those businesses in FY16 was overly optimistic, such that the company was unlikely to deliver the earnings growth necessary to meet the FY16 Guidance; and
- further, it would be required to expense pre-contract bid costs in FY16 which has been capitalised in FY15, such that at all times during and after the claim period, Spotless was highly unlikely to be able to achieve its FY16 Guidance.
We consider that the above matters support allegations that, during the claim period:
- Spotless engaged in misleading or deceptive conduct in contravention of section 1041H of the Corporations Act 2001 (Cth), by providing and maintaining the FY16 Guidance without reasonable grounds;
- Spotless contravened its obligations of continuous disclosure of price sensitive information under section 674 of the Corporations Act, by failing to withdraw the FY16 Guidance or to disclose the matters which made achieving that guidance highly unlikely, prior to 2 December 2015; and
- Spotless’ FY15 financial statements did not give a true and fair view of its financial position and performance in contravention of section 297 of the Corporations Act.