Corporate Travel Management strikes back

Written on the 8 November 2018 by Matt Ogg

Corporate Travel Management strikes back

After 11 days under siege from a short selling attack, Corporate Travel Management ('CTM', ASX: CTD) is taking its defence up a notch with a review from Ernst & Young (EY) that "has not identified any issues or concerns" with its North American business and has sought to explain alleged discrepancies in cash flow and expenses. 

At 11:25am AEDT CTM's shares were up 10.85 per cent at $22.17.

Earlier this week hedge fund VGI Partners accused CTM of "further misleading investors" at its AGM, prompting a trading halt for the Brisbane-based travel agency which will end before the market opening today.

The company founded by current CEO Jamie Pherous (pictured) engaged EY due to its experience with Flight Centre (ASX: FLT) and other global players the travel sector; an industry CTM claims VGI has fundamentally misunderstood.

"CTM's view is that VGI's latest report raises no new substantive issues. CTM's response to VGI's original report addressed all claims by VGI," the company said.

"VGI may continue to make mischievous and misleading claims about issues that CTM believes have no consequence for the financial performance of the business and execution of CTM's successful business model.

"The Board will continue to ensure shareholders are fully informed about the fundamental performance of the business and does not intend to have the business distracted by baseless and self-serving claims."

Response to VGI claims

While VGI questioned the success of CTM's North American business, the review concluded its impairment assessment for the operation was "consistent with standard market practice", while the post-tax discount rate applied was only lower due to a change in the US federal corporate income tax rate.

In responding to the contentious issue of declining cash flows being inconsistent with strong organic growth, the review reiterated previous CTM claims that it all had to do with timing.

VGI had questioned why 2H18 employee expenses were listed as $96 million but payments to suppliers and employees were only reported as $62 million.

The company highlights the $62 million is just a net figure, and claims it is lower as 30 June 2018 fell on a Saturday, meaning a substantial payment of $48 million to suppliers for airline and rail payments was made in the first week of July.

After the EY review, the company now states the $62 million figure should really have $55.8 million added to it for an increase in client payables for the period, taking adjusted payments up to $117.8 million.

CTM believes this figure is a more accurate comparison to the $128 million for operating expenses in the income statement. It claims the $10.2m difference also relates to timing issues.

"For VGI to omit the movement in payables reflects either VGI's lack of understanding of the corporate travel business or is designed to be deliberately misleading," the company said.

CTM also contends with VGI's claim its working capital position is not trending in the same direction as total transaction value (TTV), and has produced a graph to show the alignment in gross values over recent years.

EY confirmed this was the case, claiming the net capital position continues to trend in line with TTV as a true measure of CTM's market activity, and it stated VGI's report did not accurately reflect the full extent of CTM's payments and receipts over the reference period.

"CTM has consistently delivered approximately 100% operating cash conversion over time," CTM said.

"CTM provides guidance about its expectations for cash flow conversion for the upcoming half year period. Most recently in August 2018, CTM flagged that 1H19 operating cash conversion would be below 100% but that over the full year CTM still expects to deliver approximately 100%."

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Author: Matt Ogg

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