Canva’s Investor Dumpster Fire, Xero’s Shareholder Smackdown, CTM’s Lifesasver Deal and GTA's $3.5bn Bet

23:51Maybe there's – I don't know is the answer to that question. Ask me questions, I know the answer to that. And so – Can someone have a look at that up? And so basically, he was doing work at Sony in the 50s. So you have to think about Sony. Wow, that's early Sony. Sony in the 50s is like, it's 10 years after the atomic bombs fell on. Well, Sony was only started after the war. Maybe like in 47, 48 it started. It started literally from nothing. In war-ridden Japan with no factories. It was one of the most incredible startup stories. In a couple of episodes time, we'll talk more about Sony. We'll write a quiet episode on Sony, actually.

24:24Yes, there is. Was it Leo Asaki? Yeah. Is he the world's oldest? He is, yes. Well, there you go. And also Japan's oldest. Yes. As a subset of the world. So what he invented is quite incredible. He invented this while building like a transistor radio. And what he discovered is something that's used a lot, which is called quantum tunneling, which basically means it seems like when there's an obstacle, it's possible for things to pass through the obstacle because they behave like waves. So that is the basis for a lot of quantum now. And it shouldn't happen based on traditional physics, classical physics.

25:05And so he goes and they award him the Nobel Prize in the 1970s. He's a very amazing guy. And then he, in the 1990s, there's this gathering every year of Nobel science laureates. And then they bring young scientists and they try to kind of mentor them and help them. And he comes up with these five rules. And I think the five don'ts. Actually amazing that a Nobel Prize winner who won a Nobel Prize 55 years ago, roughly, is still alive. It's just incredible. With research that was done in the late 50s. 70 years ago. Yeah. That's pretty incredible. These are his don'ts. I think you'll really like them.

25:42So number one, he says if you want to be – They have coffee after 7 o 'clock. If you want to succeed in your field, these are five don'ts you should be wary of. Any field. Yep. So he was talking about science, but I think this is applicable in any field. Possibly it's a good life advice as well. One, don't allow yourself to be trapped by your past experiences. That's a great rule. Ignore sunk costs is another way to say that. Yeah, or don't fight the last war, which really commonly happens, right? We're all talking about how this is like 1999 in the stock markets, but it's not really. It's got a few similarities to 1999, but that is a bit us being trapped.

26:20I think that's not so funny. That's using history to try and determine if we're in a bubble or not. I'm not sure we're fighting the last war. We're just using history as an analogy. But there's lots of bubbles in history, and we're very, we've got recency bias on the one that we're thinking about because we remember it, right? Well, it's 27 years ago. I think another way to say it is future performance is no indicator of, sorry, past performance, no indication of future performance is another way to say it. So that's number one. Number two, don't, this is a really good one, don't allow yourself to become overly attached to any one authority in your field.

26:50I think that's really important. If you're going to go and disrupt the rules, that's really important. Three, don't hold on to what you don't need. That was kind of the weakest one. Four, don't avoid confrontation. I think you've ticked that box. You're fine with that. But that is true. I'm within here. I mean, you cannot be number one by avoiding confrontation. It's just not possible. And number five, don't forget your spirit of childhood curiosity, which I think Mark Benioff would say, like, maintain the child's mind with that. I think those are five great rules for succeeding in life. So this guy's very interesting.

27:25I'm going to try and find his memoirs, hopefully translated into English. Absolutely. I was listening to the Acquired episode on Disney. They just released a big two-parter on Disney. I listened to the first one, which is actually Walt's life till Walt – well, not just till Walt died, till the Eisner and Katzenberg and Frank Wells' Revolution in 84. I want to talk about that because people can listen to the great Acquired pod, but obviously they talk about powers. I actually don't think they nailed these powers. I don't think they're good at powers. Yeah, I think we have – with great respect to how much we love Acquired, I think we do powers better than they do powers.

27:57He can be even more arrogant than that. How can you be more arrogant than that? And we can say, I don't think Hamilton Helmer really understands the powers that he, like he nails it. His framework is the greatest. I mean, this Seven Powers book is the greatest. But, you know, we already say he doesn't quite get brand power and definitely, definitely. Process power. Process power is like no good. I think process power is being missed. No good. But think about Disney and like where I think the quiet guys, where I differ from. By the way, I just want to interject and say, when we interviewed Ben Ben on the podcast who's incredible and super generous this time I noticed you didn't tell him on the interview that you think he didn't get the powers you were very quiet about that when we interviewed him I was so glad he came on and those guys have gone to potential strength the strength since then but what would you say are Disney's powers because they named one that I was sceptical of and didn't name another one that I thought they had so definitely obviously brand well brand is a straightforward one so you think about Disney as an organisation and brand probably mostly for lower cac rather than higher because I don't think they at Disneyland they charge more so at Disneyland you probably have some pricing power and they have lower cac because when they put out a movie movies have lower cac and it's by Disney people are going to be prepared to go and see it on that basis they trust it so what do I think about scale relative to their competitors I think they have scale they're such a big organisation absolutely have scale you agree well movies are a classic scale business especially the early days of Disney but even now, you've got to spend, back then they spent like$2 -$3 million making Snow White, which in today's language is probably like$300 million.

29:31And you need to have scale to be able to produce the first ever full-length animation film. That's like real scale power. And then once you've produced it and you get it across thousands of theatres, that's classic scale. It's like Netflix scale. Yeah. So after we finish this discussion, I'm going to tell you what I think is possibly the most expensive piece of entertainment ever produced. But we'll come back to that. So now we come to, well, one of the challenges is, I don't know which power this is, but they've got a power which is they can go and take their franchise and push it across every one of their platforms with a single piece of IP.

30:06This is Flywheel. So this is the famous Walt Disney Flywheel. So what do you call that power? They called it network effects. Well, that's not network effects at all. I disagree. I don't think it's network effects. Unfortunately, you're right about that. I think there's an argument. So think of Disney's really got two businesses. They've got an entertainment business and a theme park. Well, we should say why it's not network effects. Because network effect is I use it and it's better for you as a user. Well, that's not that. So network and scale are almost always confused. So think of the scale benefits.

30:33If you can produce a movie and show it across lots and lots of cinemas, that's classic scale benefit because you've got one distributor. If you'd be able to pay lots to the stars, although the animation doesn't have stars, but you get great directors. It might be an example. I mean, the fact that they can go and make a movie about Marvel and then make a cartoon on the same theme and then go and make all the little plushies and push them. That probably is just scale. And a ride. It's probably scale. I think theme parks is a massive scale business. You think of the cost to build a theme. And actually Disney wasn't that expensive when they built it, but that's in Disneyland.

31:06But the scale of theme park is pure. And then to me the flywheel is all about scale and I think they got it wrong calling it network. Because people think about scale as cost reduction and that is true. That is one benefit. But the other benefit is you can, like what Netflix did with scale, when they make their own stuff. Fix costs over more eyeballs, essentially. It's a classic sound. The flywheel is all about scale. And you could argue there's a little bit of network in the theme park in that you want lots of people in the theme park because it creates a better atmosphere. So if I'm the only person on a ride, then it means like…

31:39Yeah, but it caps. In fact, I would say, so I would say this. It's capped out with queues. Well, it's even a bigger issue. So Uber caps network by reaching a size where the incremental user doesn't make a difference. Disney's got the reverse problem. They've got like an inverted U-shaped network effect. You pass a certain point, the queues get longer, it makes it a worse experience for other people. I think to the extent you can build, that's where the scale thing can become confusing because you can build more and more rides so you can create a better experience. But they're in a weird U-shaped network effect graph.

32:09And they can't be counterpositioned because they're the incumbent. So you can forget about that. Well, they were the original counterpositioner but now they're the incumbent. Because they made cartoons. Against live action. But that was, of course you can't, this is a 90-year-old company now, so you're not going to count a position 90 years later. So there's really six powers applicable to these guys. So brand, big tick, scale, the biggest tick. Network, we don't think that's a tick at all. Process power is the interesting one. To me, the guys compared it to Nintendo, which has heaps of process power.

32:40To me, that's one of Disney's hidden, and Pixar even more so, because obviously they bought Pixar in 2000, and I think Ike bought it in 2000. So you think their process power is what maybe you'd call corporate culture? I think Disney's had process power over the journey and it's come and gone. Pixar's ability to smash out, that team of Pete Docter and John Lasseter and Brad Bird, that team of the original incredible team, all came out of the same university, all actually fired by Disney in the 80s, ironically. That ability to create that incredible culture at Pixar, which is unique, and obviously Steve Jobs noticed it and bought it and made his greatest fortune from that, is unique and to me they are the best process power than an HBO with process power what if I said to you I think cornered resource is their biggest asset the IP yep that's their biggest asset I think scale is bigger than cornered resource but I'd give you cornered resource don't they own Marvel yeah they bought Marvel so like if I try and make a Marvel t-shirt but they bought it that's kind of the point is they bought that for a couple billion or whatever fine now they've got it now it's theirs that's a cornered resource So I think that IP, that is the cornerstone of their whole company.

33:53And I think, who was it? I think, like I said, where goes animation? There goes Disney, or so goes Disney. And animation is the key corner resource because it doesn't have people. You don't have to pay actors who get old. Yes, that's true. But you think about this. Everything they have disappears if they lose access to their IP. The entire business disappears. I think it's a cornered resource, but really a scale story. And then the layer in brand – so my third point here is forget counter positioning because that's not really applicable, but they did have it at one point. This is probably a business with six of the seven powers or five of the six powers, if you're going to say.

34:31The only one they don't really have is network. They've got all the others, which is there aren't many businesses that have five of six powers. Which kind of belies that as a business, they've probably – the last 20 years, and this is probably the knock on Bob Iger he's had that great first sort of stanza and has really struggled since coming back they've got these incredible park business that just churns out profitability they've got a okay entertainment business with great IP but the parks do you sell their cruises or not? yep do you sell their cruises? well they don't go out of we used to be our biggest partner and because they stopped going ex-Australia we don't sell much anymore we tend to sell most to Australia I thought they would be very popular out of Australia they were but they just decided to move to Singapore because they could get like better business there but the cruise business is an amazing business that's classic IP because it's just but it's a business can you think of any business that has five or six powers maybe Google like maybe Microsoft but there are many they're such big businesses and they have five billion this is 186 billion US business so it's what 250 Aussie and it's got six five or six powers it feels like this is a long term and underpriced asset so I'm going to tell you about something else that's much more PE of 22 interesting so I'm going to say something I think in the entertainment space that's much more interesting than Disney.

35:45Your story sucks. This is an interesting story but the entertainment is totally passive and you know how I feel about passive entertainment that has no agency. It's too boring for words. You're going to go to gaming, aren't you? Of course. Mike's eyes just lit up. Then I'm going to tell you two unique Australian stories after that that I think you'll really like. So gaming. Mike, biggest game launch coming up in history is? GTA 6. I was going to say GTA. I could have answered that question. We'll pretend you're Adam. Age of Empires 7. Coming up? Age of Empires 7. Yeah, okay. We'll tell you when that comes out.

36:16So, GTA 6, it's taken... It's been delayed six years. Seven years to develop, I think. So, I'm going to give you... We're going to talk a bit about their numbers because you'll find this very fascinating. So, the last game designed... Do you know which studio designs the GTA games? Rock. Yes? Rock something? Rockstar. Very good. It's part of which company? I don't think it was part of it. Take-Two Interactive. Oh, it's own company, right? It's not owned by... Rockstar is a studio that's owned by Take-Two Interactive. It's its own business, right? It's listed somewhere? No, no, no. It's part of Take-Two, yeah.

36:49And so the last mega game they put out, these are called AAA titles. There's no definition for AAA. It just means amazing. Like a Call of Duty or what's the other big ones? Yeah. Pokemon, Age of Empires 2. Age of Empires 2 in its day would have been a AAA title. Absolutely. Civilization 1. And so... Gold 9. You know, we spoke a lot about, GoldenEye was definitely a AAA title. We spoke a lot about the last AAA they put out that was very popular, but you might not remember. I even wore the T-shirt into the office. Red Dead Redemption? Yes. Red Dead Redemption 2. Yes, that was the last one. Absolute gamer, this kid.

37:26Yeah, you're doing very well. It's good. You pay much more attention to me than I pay to you. Below bar. Bar's on the floor. It's falling off the roof. I couldn't actually step over that bar. And so, RDR2 development cost. I'm going to guess what it cost to develop that game. Pre-marketing cost, just developing it. $500 million. That's a great guess. That's what it cost. $540 million. Like a very expensive movie. Are there movies that cost$500 million? No,$300 million. Okay. And so, marketing cost was on top of that. Yes. Okay. What do you think GTA 6 cost to develop? $2 billion. What do you think it cost to develop, Mike?

38:03$1 billion. So it's up to 3.5. Wow. And how many people do you think you buy with$3.5 billion? 10 ,000. It's got 6 ,000 people working on the game. Wow, that is crazy. Yeah. It must be a complex game. It's a very deep game. It's open world, but also the expectations on this game are crazy. Has each GTA gotten better gross? Yes. Has it been misses or they just get better? No, they haven't been misses. This is kind of why it's so revered. That's right. The first one came out in like the 90s, right? I remember playing it. So it was a totally different game. It was a top-down 2D game. Yeah. It's not that anymore?

38:40It's not. It's a 3D open world. What's that mean? Like Fortnite? You look in the first, yes. Well, no, Fortnite's top-down, like, isometric. It's something like that. No, Fortnite's not isometric. Fortnite is fully 3D. But I'd say GTA 6 is much more open and expansive world than Fortnite. When I watch my kids play Fortnite, they're looking top-down isometric. which is the diagonal angle. No, I don't think so. No, I can see their character. It's not first person. It's third person shooter. Not isometric. All right. I don't think so. Okay. And so this one is you look through the eyes. I hope we've got a lot of nerd listeners because I reckon a half hour audience has switched off at this geekdom.

39:21No, it's basically all these different ways that you can look at a character. You have to think about it. Like the first GTA was called Grand Theft Auto. You look directly down. like straight down from the top, bird's eye view. Yeah. And so there's big limitations. That's the last one I played. So there's big limitations. It was a very fun game. Yeah. Very fun. It's like steel stuff with drug dealers and all that kind of stuff. I can't remember if there were drug dealers in the game, but you definitely stole lots of different kinds of cars and drove around like a maniac. And so, but there's limits with that game, which is screen scrolling has to happen pretty quickly when you're driving.

39:52It's a bit seasick. And so gradually games like transition to different and better kinds of views. And this view, there's lots of different ways to look at this, but the main thing about this is it's a very big, completely interactive open world. You can pretty much shoot everything and interact with anything. What do you think the marketing budget is for this? Well, I spent, how much did you say? You spent three and a half billion on the game. You spend a billion on marketing? Half a bill. Yeah. That's their marketing budget. Netflix, my son told me that Netflix paid, do you know this story, that Netflix paid a huge sum of money to have the release of the behind the scenes slash backstory on their platform a few hours before it releases on YouTube or half an hour before.

40:35That's how big this game is. The US military parts of it have used it as a re-signing incentive to say you'll get four days off at the release of GTA 6. So this is going to be absolutely fantastic. Are you going to buy it when it comes out? Well, look, I'm not generally desperate to play games on release. I'll wait until I go on sale. It'll be expensive. I've never really been a fan of GTA. Really? As criminal as that sounds. so no. Yeah, yeah. Yeah, literally. RDR2? Nah. I don't really like not to get nerdy. You're more of Age of Empires man as well. Yeah, I'm more in Age of Empires than a GTA.

41:08I did put the offer out to play Age of Empires, and nobody replied to me. I'm still waiting for our LAN party. Oh, Will is saying, you should say that in a microphone, because that is astonishing. So the detail I've been sat on for the last 10 minutes is I went to school with Sam and Dan Hauser, who are the founders of GTA. Really? That's crazy. Were they still a lot of cars at school or not? I haven't seen them for... Any chance of getting one on the pod, perhaps? I haven't seen them for... 20, 30 years. One of them was close friends with my second eldest brother. They were both quirky guys, quite close.

41:41There's been lots of reporting subsequently that they are extreme, that there's lots of temper tantrums in the office. They run the business still? They run Take-Two or whatever? They sold Rockstar, right? Yeah, they sold Rockstar to Take-Two. But they're... Still involved. Each worth hundreds of millions. And so did they steal a lot of cars at school? Mostly prostitution, I think. Privilege to us for this. That is comedy. Delivered in a flat English time. Let's not get Take-Two Interactive suing us. They probably would be supportive of us. I know the CEO of Take-Two listens a lot to us. Actually, I met the CEO of Take-Two Interactive as it happens because he's got a separate business.

42:19Who owns Take-Two? That's an investment. It's publicly listed. Oh, he's publicly listed. Yeah. In fact, on a separate episode, not now, We can talk about the CEO of Take-Two Interactive did possibly one of the best deals for himself in the history of self-dealing that actually benefited shareholders as well. It was an incredible deal. It's almost a record high. Other than the market's anticipating, this is going to be the greatest. $44 billion US share price. It took three days to sell a billion of GTA V. Yeah. It's the last one. Three days. Crazy. Let me say something very quickly. So there's a business that I happen to come across, which is a private Australian business.

43:00Did you see this piece in the financial review? Eureka Petco? No. I think you'll like this. So someone decided, this is a company that sells pet food, which is very popular at the moment. Very popular. Now, it's not that big at the moment. In 2026, this is what was reported in Street Talk, They basically made$16 million of revenue, so pretty small as a pet business, and lost$2.8 million. However, they are not allowing that to slow their ambition. And so their forecast for 2028, so this had no forecast for 2026 or 27, or actuals for 26. It just had 28 and 29. So they think that in 28 they're going to be doing$79 million.

43:47That's pretty impressive growth. We're 105 mil the next year. And they're going to rise to EBITDA of 10 mil in FY28 and 21 mil in FY28. That sounds amazing considering they're a$14 million revenue business in 2016 losing$2.8 million. And so someone's leaked this into the Fin Review, obviously, and seems like they're trying to push El Cattaton to make an offer for them, which is, I'm not sure if they're still connected to LVMH, are they? I think they are. Okay, I think they might be. And so what kind of price do you think is being bandied around? By the sellers or by the... By whoever's decided to leak this.

44:27Usually when you leak these fantastical numbers, they tend to get a... I reckon they're probably trying to get$100 million for this. So impressively, they're only talking about$40 million. Okay. For a$16 million revenue business losing$3 million. I'd also take$40 million for that business on the sell side. You'd take$10 million, I reckon, if you could. I mean, I'm kind of surprised that this is written up in this. I mean, I'd be very cynical about these kind of numbers. Probably not much news that day and they need to write something up. Could be quite. But I thought also what was interesting is to look at, they've got a pretty detailed breakdown of their key metrics.

44:58So I thought it might be interesting to ask you what you think about this. So I'll just do FY28 as a number. So their gross sales, I'm just going to call that revenue, yeah? Their revenue is 80 mil. I'm just going to round it, 80 mil. And their contribution margin is 35 mil. So what's that, 40 %? This is the two-year forecast, right? This is FY2, 40%. How do you feel about a 40 % contribution margin? Pretty low. I think it's good. I think it's good? Very good. But you're right that it's low because they haven't included something inside - Oh, so this is post-COG. Sorry, I know that's not too bad.

45:34Post-COG, post-contribution margin is - I'm thinking a percentage of gross profit, not of top line. No, their cost of goods is 35 mil on 80 mil. Yep. So - You wouldn't like that. I don't love that. You want a 70 % plus gross margin. Yeah, that's much too high for me. But their contribution margin of 40 % I'm very happy about that. They're not spending much on marketing it sounds like. Yeah, well this is the problem. They've decided that their contribution margin it doesn't only it isn't just a number that's pre-staff costs which is fine. Like I think contribution margin is the number before all your fixed costs.

46:08They've decided that contribution margin also doesn't include the$13 million of marketing costs. So their contribution margin sits above the market. So that's not a real contribution margin. Their real contribution margin in their forecast is more like 22 mil on 80 mil of sales, which is below 30%. So that to me is like not a business performing as well as it should. Either that's not scale or they're just not going to have the margins. I'm not sure if they're sold through third parties or not, but I think if we assume that forward numbers two years out are ambitious and probably don't get hit, I think these are surprisingly unambitious for numbers two years ahead.

46:50And I think it would be hard for me, even if I believe these, would you pay four times EBITDA on an FY28 forecast when FY26 was 16 million minus three? No, because there's no evidence they're going to get close to those numbers. So I think, I found this a very bizarre thing to appear in the Fin Review. It's also very small. So maybe you're right, it was a slow news day. Can I pivot quickly? there was some awesome positive news in victoria last week with ben carroll a new premier announcing by the way can i say before you go into that pets everything's with pets you know it's been a massive tailwind since covet yeah i mean people bought a lot of pets 60 of this country has a dog in their house it feels like that whole pet mania is not coming to an end but the growth i think is i think so you can only get so many people who are owning pets i think we'll probably come close to that level and it can't and like every time you grow the next year's growth is a percentage is harder right because the base rises i expect it starts really flattening let alone not growing i think we've sort of hit peak pet um which is and it's expensive it's expensive which is you know we spoke about pet circle some time ago i mean it's not the greatest news for pet circle that like you're starting to lose momentum in this industry we love alistair i think he's a great ceo but that's a tough gig tough business um i want to pivot to just to victoria our our favorite uh friend of the pod state um and there was some positive news last week with new premier ben Carol announcing that the$130 ,000 statue to Victoria's most hated man, Daniel Andrews, will now not be built.

48:20His disgraced predecessor, Jacinta Allen, have been pushing full steam ahead for the statue against the wishes of the vast majority of Victorians. Carol has also actually hit the ground running. He's also delayed the work from home laws and hopefully abandons these monstrosity laws completely. But the one area that is probably the biggest gaping wound for Victoria's embattled Labor government is the crime wave continuing unabated in this state. And I thought this was pretty interesting. I'm not sure. The Herald Sun reported last week that the first test of Victoria's adult crime for adult time, sorry, adult time for adult crime laws was tested last week.

48:54Which is the New South Wales catchphrase. I think it's Queensland. Yeah. Sorry, that's what I meant, Queensland. You're right. So this is a story of a 16-year-old girl who obviously can't be named. She was arrested in Melbourne, southeast. This is 27 hours after Sintour Allen announced these new laws to much fanfare. and in a completely bizarre judgment, Judge Scott Johns refused to jail the team, claiming there was a host of mitigating factors in her favour, including her youth, obviously she's under 18, lack of prior convictions, guilty plea, and the fact she had not re-offended while on bail, which in Victoria is somewhat of a miracle, I should say.

49:25Yeah, I agree. Also, the lack of prior convictions is because she hadn't been convicted on all of the other things that she'd done. I saw that article. She's got a long criminal history. You and I are both very sympathetic for young people that come from terrible backgrounds and the difficulties they have. But saying she's had no convictions is because no judge has convicted her on all the crimes she's committed in the past. And you see, actually what happened in this case is pretty horrific. So the girl and a 16-year-old male accomplice approached the victim, he's a taxi driver, 2.45am as he waited in his cab trying to earn a decent living, this guy, the balaclava-clad duo climbed the back seat, pulled a knife, pointed it at the driver's throat, can't get much worse than this, and demanded he get out of the car and leave the keys behind.

50:10So this is, you can't think of a sort of more perfect example of someone who should go to jail. This is like a violent, like the worst possible. And if we focused on the story of the victim's life from that day onwards, there would be a lot more anger about this. But because no one really talks about the victim, they talk about the perpetrator, it's like, well, nothing happened to him. He got a knife pulled and he goes and lives his life. That's not what his life story will be. I don't know who can, he might not be able to work again. Exactly. The judge who obviously completely ignored these new laws, like I said, the parliament on the will of the people created these new laws.

50:49Of course, you'd be shocked to know he was appointed by the far left Andrews government. And prior to becoming a judge, he was shockingly a public defender in the criminal law division of Victoria and a solicitor advocate for the North Australian Aboriginal Legal Aid Service. Obviously very worthy jobs, both those jobs, but when you've got these far left judges and these far left politicians appointing them, doesn't matter what the laws are they just ignore them and we've got brutal violent criminals almost killing people and pulling knives on innocent people and just walking the streets to do it again like victoria is a hellhole and these people are shameless and disgraceful well i think we talked about disney before let me tell you one thing i feel like the marvel universe has taught people i don't watch any marvel movies really i'm shocked i watched dr strange and is Deadpool and Marvel movie.

51:34I watched that as well. That was quite entertaining. And so what we've learned is that it reinforces nobody looks in the mirror and sees the villain. Like every villain has got this backstory where they're also a human being that went through all this hardship and that is why they became the way they did. And there are some psychopaths in society, but there aren't that many that are perpetrating these things. Mostly it's these kind of sob stories, but I don't say that, you know, like I'm not being dismissive of it. I mean there really is a tragic backstory to most people that end up doing terrible things.

52:11But the thing is this, it has to be stopped because it's unfair to the people that are the victims of these crimes and it ruins society. And so I think the challenge is in a courtroom, like I think the reason I couldn't be a judge is that I'm too much of a bleeding heart and I would feel too bad for these people with their terrible backstories but I don't really think you can be that way in these circumstances or else you get society falling apart. And maybe that is what has fundamentally gone wrong. I'm more, I wouldn't say I'm more sympathetic to you, maybe I'm more empathetic to it, which is I understand why the judge didn't want to jail that girl.

52:53I also wouldn't want to jail her, but that is why I shouldn't be a judge because I think in this situation messages need to be sent. and like the society is still greater than the endless second chances of an individual. It was a question like judges are meant to be upholding to an extent the will of the people and enacting the laws of parliament set and this guy just ignored, this is my issue is parliament changed the rules because people demanded it and so Chinsen Allen with much fanfare said adult crime, adult time essentially and the judge who is a vessel of the state, we pay these people, we pay for the court system, the reason we pay for the court system this is to prosecute someone costs tens and hundred thousand dollars we go through this whole process hundreds we want to create a deterrent and we want to keep people safe and I don't like jailing people either and I think we need to use it sparingly but where it's beyond doubt and it doesn't it's not as if this person this person pleaded guilty so it's not as if there was contested facts well I think she got you know benefits for pleading guilty because the courts like people pleading guilty 100 % because it saves a lot of money I get that but if you're pleading guilty and then completely escaping ramification at all then that's too much of a benefit.

54:03My issue with this guy, this judge, isn't that he's a bad judge or a bad person. Clearly, I'm sure he's a lovely person, but Parliament has enacted a law. It's not for judges to act... But it's not mandatory sentencing. It shouldn't need to be mandatory sentencing. I don't love mandatory sentencing. I don't either. But this was, certainly for facts that we've seen, guilty plea seems to imply that the facts were agreed, was that this was a horrific violent. This isn't sort of a contested, no witnesses no one's admitted to it like this is non contested which is the problem and we can't jail somebody who ruins someone's life and holds a knife to their throat in the most horrific violent crime who are we going to jail you know what the court system would say to that they would say if someone pleads guilty and we jail them the next one is going to plead not guilty we'll be jailed for less time instead of 10 years you have 5 years that's the benefit you get so since you got me worked up about something political I want to raise this point there was a terrible disaster in Nepal there are more than 40 Australians that are missing in Nepal and probably thousands of Nepalese people have tragically died I agree but I want to talk about the Australians you know I was in Kathmandu a couple of years ago obviously it didn't affect Kathmandu so it wasn't like I was in that area but like I know Nepal to some degree that's a country that has really quite terrible infrastructure and it is not a developed country in the way that Australia is and there's more than 40 Australians I think it's close to 50 that are missing in Nepal .

55:28. . . How much money do you think the government has spent trying to help those 50 Australians? I presume not a huge amount. $5 million. Yeah. I just want to – I feel very infuriated by this, okay? Since – I'm going to draw a bit of a long bow, but I just want to draw this as a comparison of numbers. Between the 7th of October massacre in Israel and today, how much money do you think of taxpayer money? They're taking money from you and me and Mike and everyone in this room and they're giving that money away. It's Penny Wong. How much money given to Gaza and also Lebanon, which we can call Hezbollah?

56:05How much money do you think? Hundreds and hundreds of millions. $130 million. One Australian killed in Gaza. Very tragically, I've spoken extensively about it. One. Almost 50 Australians in Nepal. Yeah. $5 million. Like, the job of this government is to help Australians and save Australians. He's not the Prime Minister of Palestine or Lebanon. And what about the costs of policing these protests? Like 130 billion structures of service. The problem with the Nepalese is that that's lovely people. They should have killed some Jews. They would have got way more money. Well, I don't know if I would say to that, but maybe.

56:39But, like, the thing is this. I'll juxtapose this. Like, so the number one, this is, again, no one is protesting and saying this. The number one country in the world to send aid is actually Israel, as it happens. and so there's an organisation in Israel called Israel Aid that just helped. I don't know, do you see this? They went to the Northern Territory and did a big project for Indigenous people in the Northern Territory. You know how many Israelis are missing? One. On Friday, four people landed on the ground in Nepal from Israel. They're like, oh, we know that country because we helped them with the earthquakes a decade ago.

57:13I don't know if Australia has landed anyone on the ground in Nepal. We should be sending lots of people to go and find these Australians. Hopefully they're alive. They might not be. Whatever the case is, this is the job of the government. And posting a check for$5 million to buy hygiene kits, I mean, it's an outrage, and I just cannot believe that this is not what the media is worked up about. It is a horrendous government and a horrendous major in media. So they're both good bedfellows in that regard. Like, this is what Penny Wong should be spending her time on, saving Australian citizens from a disaster in Nepal.

57:48Yeah. On that very sad note, we'll go to a super quick break. Back with some big business stories just in a moment.

58:03And we're back. We've got three big business stories to chat about. What's happening in the business world with obviously announcements, results announcements. But probably the biggest tech story that's been just brewing in Australia for the last month is Canva. who we talked about a lot in the last few weeks, and it's more from Australia's tech darling to a scorched-earth battlefield in literally a matter of weeks. I feel a bit badly for them at this point in time. Well, this is about Canberra's investors more than the business, but it's obviously linked to the business. But one of Canberra's earliest backers, Airtree, who's done incredibly well from Canberra, appears to have gone to war with its current managing partner and friend of the pod, who's great guy Craig Blair, at loggerheads with CGT Maxxer Daniel Petrie.

58:43The AFI reported that Petrie claimed investors were understandably angry because of the weak justification given by Airtree for locking up their overdue funds for another 20 months. Petrie stated that while Blackbird has done a great job crafting opportunities for its early investors to exit some of its scam beholding, while still wanting to let some ride through an IPO, Airtree has not been as proactive, presenting only one opportunity for investors to sell down in 2023, which to me kind of belies this entire point, given an opportunity. Of course, Petrie famously no longer holds an operational role at Airtree.

59:13The AFR reporter has spent considerable time engaging with the Airtree since the extension note went out to try and craft something to be more acceptable to investors. Whether Airtree extends the life of its fund or not, this week has highlighted anger amongst investors about Airtree's handling of its Canva stake. Interestingly, Craig was quoted on a webinar saying, Airtree had been limited in its ability to sell down Canva because of the company's stranglehold on the share register. Attendees subsequently told the AFR that they recall Craig saying something along those lines. Petrie then engaged in some real commercial gymnastics, claiming, my personal view is that Canva will work through this tough period and come out the other side stronger and is still a super impressive company.

59:53But two things can be true. Canva is an amazing company that will likely go on to greater success and early Airtree investors may want the opportunity to sell down or help their kids' family undertake philanthropic work. So, dear, this is a complete mess. We've got Petrie sort of obviously shooting from the hip, from the cheap seats. Craig obviously still in there doing his best to get returns for shareholders. This is a pretty unedifying fight at one of Australia's luminaries. Well, you know, I like Daniel. I like Craig. I really like Craig. I don't know Daniel. Yeah, it's no secret that they had a big falling out as part of Airtree.

1:00:31The media loves falling outs. And they love Canva. It's like the perfect mix. And they love Canva. the weirdest part about this story, well, there's a few different things playing out in this story. Number one, people that invested in venture capital were sold the story, which I think was believed at the time by the VCs, that your money is going to be tied up for between probably five and seven years. Yeah, up to 10. At the outlier 10. Yeah. And so one of the things that fund managers, and VCs are just fund managers, one of the things fund managers do in order to free up money is they create these follow-on funds and they get new investors' money that's fresh.

1:01:11Continuation funds. Yeah, exactly. What did I say? Follow-on. Yeah, continuation funds. And they get new investor money and they will buy the shares in the old vehicles. Which feels a lot like a Ponzi scheme, to be honest. Well, if you believe in the company... It's a more honest Ponzi scheme. If Zoox would have done that, people would have been happier. We're going to have a hundred billion dollar gain now. But basically, you've got these investors in an earlier fund They need to get their money back, and you want to still, as a VC, hold the stock. Well, they want to get that. They don't need to.

1:01:40They want to get their money back. It's a difference. You can just keep it locked up. If you think it's a great investment, then you... Yeah, but some investors might need the money. Especially if they put in$250 ,000, and it's worth a million dollars now, maybe they need the million dollars. Who knows? But the thing is, there's been this kind of moral commitment to returning the money. I think it seems quite debatable how contractual the commitment is. Well, the fact that they need a shareholder approval to extend it. The other question is what happens if they don't get – they need 75%. They're at 70.

1:02:09They don't get the 75%. They have to somehow liquidate this position. I know. I don't know how they do that. So one is you've got investors that are not getting what they were promised. Yeah. And then you've got a situation where there's a company that everyone is scared is having either a moment or a permanent status of going backwards. Yeah. And so those two things are meaning. But we shouldn't forget this. When Canva was rocketing in value, no one was having these complaints. Oh, my money's locked up. The price is rocketing. That's the thing that happens. When things go well, nobody complains.

1:02:41And don't forget, Petrie's whole argument is we haven't had liquidity opportunities. They had one in 2023 in the peak golden window. They could have sold down at a great price. Did everyone have a liquidity opportunity? I presume the whole fund had a liquidity opportunity. And the people chose not to. They had their chance. I'm not sure that argument holds any water at all. But then you have the question of this. it's very rare to me for one of the leading VCs in Australia to have investments without the clauses that give them the right to sell down. I find that very unusual that they need Canva's permission to sell down.

1:03:14Strangled hold. Yeah, that seems very strange to me. I'd say a lot of companies, like we had a, it was pretty common, and I'm sure you've said in your company, often there's an exit investigation, right? So you can say, if the majority of the board or shareholders or however it's structured said, say, we want to explore an exit, they have the ability to hire an investment bank, you speak to some people, but you can't force someone to sell. But you're talking about private equity investors, but this is venture capital. It's not the same, right? They're coming in early, they've got a seven-year window.

1:03:48Like, usually I'd expect a clause that says, we have a right to sell our stock after seven years if we find a counterparty to buy it and you need to approve it. Like you have to go. And so that's what I would have expected which would mean as long as Airtree found a buyer at some price, Canva had to approve it. It may be easy on the business of Canva scale but it's pretty hard to sell a stake in a business if you don't have management slash the board helping you. It's quite like the buyer doesn't have access to information you don't have access to management. Like it's hard. If it's a hundred million dollar business.

1:04:21Yeah. But even if it's already a multi-billion dollar business let alone tens of billions yeah you'll find a buyer yeah there is an active secondary market for canva yeah and so then you look at it from canvas perspective why why might they not want this it creates a terrible mark yes that's i think their main concern understandably i'd be concerned as well at the moment at this at even at you know it's shocking timing for this yeah they've had a write down of 20 from some australian investors pretty generous like we think it could be like an 80 % write down if you had to really take it to market.

1:04:53But let's say you have a price of 30 bill. Yeah. Like US dollars. Because it hit 42 US dollars as a peak value. Drop to 22, come up to 40, back to 40. But let's say even 30. Yeah. You presume the number of sellers vastly exceeds the number of buyers at that price. And so you know what? It's pretty - Your stampede. It's economics 101. Yeah. That drives prices down, right? And so I think they're going through a moment where it is possible this is the worst moment that they're going to face. I don't think that's the narrative, but I could easily be wrong. They might find a way to reinvigorate growth and get through this stronger.

1:05:28And if that's the case, they just want to ride this through. I've got no doubt the founders believe that's the case. It's a bit of a flip of the coin. Either they can sort this AI thing out and they can get the model cheap enough. The problem, as we talked about a couple of weeks ago, is this is a business that was based on this massive free tier, the tier that cost them pretty much nothing. And that's a free acquisition for them. And then 1 % or 2 % convert or 5 % convert, it's a great way to lower your CPA. That free tier is now really expensive for Canva. They're trying to bring the cost down, but it's still a cost.

1:05:59Well, I've asked 20 people, 20, in the last four weeks, who I know have Canva subscriptions. Yeah. I would say three quarters of them have cancelled their Canva subscription. Am I in that three quarters? You're in my 20 people. Do you guys subscribe to Canva? No, I don't. Never have that. These are more, and I know most of their customers are prosumers. Small enterprise. Yeah, these are more business customers, but like three quarters of a pound of their subscription. And so I think, I mean, it's obvious. And that we were not posted on LinkedIn. That was, I wrote the article in that, so it's worth having a look at every listener.

1:06:34But that was the prevailing comments were, I used to pay Canva, and now it's just like I use other stuff. Yeah. It's better or whatever. This would be a terrible moment for Canva inside the company, especially for the founders. Like they've spent their whole lives from day dot. It's hard for them to raise the initial money. But like they're such good operators and they've spent, they were one of the most loved software businesses on planet Earth. Absolutely. Everyone loved them. Yeah. And now everyone's turned on them. Yeah. Like so fast, right? Yeah, it's happening real quick. And so it would be a terrible moment.

1:07:09I almost don't recall, because even like two months ago we were saying how good Campbell, I don't recall seeing a company being turned on as quickly as ever. So fast. And so the thing I'd say about the investors is the time to sell is when people are buying. I know that sounds ridiculous, but it's the time that people least want to sell, generally speaking. But like if the price is X and people are buying, most people have got this loss aversion. Like if I sell now, it goes to 5X. I'll be a moron, right? But the problem now is it's very hard to sell and you're not going to be selling at X now.

1:07:44I suspect you'll be selling at one third X if you want to get out of this business. Which is why Craig clearly doesn't want to sell. It feels like Daniel's doing some real gymnastics. On one hand saying, we need to sell, we need to sell. And I'm saying, I think the company's amazing. Like clearly he doesn't think the company's gone that well. That's why he's so desperate to sell. He thinks probably like we do, the company's worth single digit billions and he wants to get out before this happens. Also, if you had$200 million of personal capital tied up in a business and you are unsure about its future, even if you thought it was a really good business, it's not unreasonable to say, I want to liquidate 50 or 100 mil of my stake.

1:08:22Like, I'd also do that. My point is he had the chance to do this three years ago. He didn't take it. And what's changed? What has changed now is the market hates this business now. Customers hate it. And there is a chance they get through. I wouldn't say hate. Like, I actually think people still love the company. they're just no longer enamoured with the product. I don't think, like people used to love the Canva product, myself included. I want to separate company product. So I think the vibes around the company, people really feel good about the brand, they just don't love the product anymore.

1:08:54I think the brand has also lost a lot of loss. You think so? Yeah, clearly the product, but as we say, where goes animation, there goes Disney. Where goes the Canva product, there goes Canva. And I think what problem is, because the product has sort of really just become now and also ran, it used to be the cool counter positioning Adobe, Adobe is this big corporate thing. We're the cool young upstart. We're so much better. We're really cheap. It's free for most people. Like that narrative is dead. They just got counter-positioned, basically, Canva. The counter-positioner got counter-positioned is the problem.

1:09:21That's what happened. And so we – And we say they were super unlucky because they had this golden window, and the golden window just became black a window because AI just came from nowhere. These guys are almost the biggest saspocalypse victims out there. Yeah, I think that's true. But, you know, we're contrarians, so we didn't jump on this bandwagon. and we talked about this ahead of other people. And so what's the... We weren't super quick though. I think we were probably too slow on this to be fair. Maybe, maybe. But no, I think we talked about both this, our three that we thought were going to get hit were this Atlassian.

1:09:56You were more negative on Atlassian than I was, but you're closer to it in fairness. And Figma. Now Figma has totally bucked this, at least in year one. And I think there are actually arguments that maybe I got it wrong with Figma and they're more resilient. But I think this was pretty obvious. The question is, what's a contrarian view? Like, how could they emerge stronger? The steel man. Double contrarian. Yeah, what is it with this? Get the AI cost to really close to nothing using their own models. That's the bull view. It would be... And they effectively have another premium model again that competes really well with Claude Design.

1:10:37Claude Design isn't the panacea that some people might think it is. Well, that's the thing. So Claude Design has not killed Figma. I thought the thing that was going to damage is Figma. Canva customers are less sticky than Figma customers because they're prosumer customers, I'd call them. You know, they're not professional. Yeah, there's much less friction in cancelling Canva. I'll just cancel it, whatever. It's easy. Yeah. So it's possible that Claude does not keep doubling down on Claude Design. We don't know what their plans are. It's possible they don't. It's possible that people give it a go and then they say, actually, we're not going to take another look at Canva.

1:11:15Wow, the stuff they've done over the last three months is really good. Like, I don't think that's out of the question at all. And so there definitely is a bull case for Canva. But this price is not cheap. So that's the problem. The problem is it wasn't cheap to start with. I think if I could, like, if Canva was 10 bill, then you'd start looking at it and saying, well there is a contrarian bull case. Totally. At 10 billion like you'd give it a crack. Like there's enough upside there to give it a crack but it's 40 bill and maybe go even 32 the latest mark. Yeah. That's a real lie. Yeah. But this is a business that made 25 mil.

1:11:48I mean the other thing I don't like is they're so slow to release their numbers. Like what are you trying to hide guys? Like get the numbers out. Like you're going to have to disclose it at some point especially if you want an IPO. Like they've had so many they really as you said they should have sold the business to Adobe two or three years ago for 30 billion It would have been the greatest success story ever in Australian history. They didn't. And now we're sitting here talking about this. Yeah, one of the challenges, last thing I'll say is this. One of the things I've loved, I mean, I posted about this.

1:12:15People teased me about launching Tansu and they're like. Who teased you? As in like, not in the nasty way. Just in like, oh, see what it's like now being in like the hell of startups. But the thing is, like, I love the hell of startups. Yeah, you relished this. You know that, like Albert Camus, the French philosopher, he was like the thing about Sisyphus the boulder I've told you this before is the way you have to find happiness in life is you have to be Sisyphus enjoying pushing the boulder up the mountain that's me right like I like pushing the boulder up the mountain you know and so um and one of the beautiful things about being in such a small business like there's a startup is you make a decision and you can do something today and it has effect today or tomorrow yeah and when you have 600 people or a thousand people or 5 ,000 people you as a founder as a leader you just can't have that level of impact on the business.

1:13:02And I know that Cliff at Canva has gone deep into the team and he's gone into a shed or something. He's even working from the office, heaven forbid. Yeah, he's from the office. And that is very admirable that he's done that. But the ability of a founder to make such a meaningful difference in a company at this scale, it's quite limited. Yeah, great. Let's move on. And there was an epic investor revolt at another former market, darling, now turned cartoon villain almost zero. and shareholder frustration at Xero's appalling share price and recent controversial share sales by malign CEO Sukinda Singh Cassidy crystallised in a whopping 71 % against a vote at the admittedly non-binding remuneration report.

1:13:44This marked a huge increase on the already 49 % against vote last year. This is one of the all-time great slaps from a shareholder base who are clearly furious at the Xero board's horrific handling of Cassidy's pay packet and the company's despicable share price. One shareholder, AGM, captured the mood, bluntly noting, I do not understand why on earth would the chief executive sell all her shares if she believes the company is doing well. The CEO's disposal of her entire shareholding is a significant concern, said proxy advisor CGI Glass Lewis and Investor Reports. People and REM committee chair Susan Peterson claimed from the vote to have received today against the voluntary resolution around remuneration report is clear that the poor share price performance from last year has materially influenced the vote outcome to say the least.

1:14:31We respect and understand the strength of this feedback although I'm not sure they really do. So the argument that argument is if the share price was going well you wouldn't care. Yeah. That's a summary. I mean I think that is a good summary of business in general. When you're making money for us we're broadly happy yeah when things are going badly and then you go and pay the person who's making them go badly a huge amount of money that makes us sad you know hadiple just had its agm last week and we did something that was also quite non-standard although it was like an order of magnitude less than this you know will our ceo is u.s based yeah and so we gave him like a retention incentive that i think was four million dollars over three years or something like that USD and I had to go around to every investor and have a conversation with him about that because it was unusual.

1:15:20And every investor bar one who I won't name, a very small investor, they were all completely supportive. The proxies were overwhelmingly supportive. It was like 90 % vote in favour. And so the reason I say that is not to pat myself on the back because it took a lot of time and ultimately it's up to the shareholders. it's because shareholders are very open to the idea that US that needing US talent costs different amounts of money I just think this is such a ridiculous situation like you look at this situation number one there's a controversial acquisition what's the biggest one that's the biggest thing the whole Mellio thing was a disaster where at best we could say the jury is out and it's not yet proven that this is going to drive shareholder value.

1:16:07It seemed highly overpriced in a market that never had any penetration in and should probably be leaving, not double down. Let's look at this from a bull's perspective of zero, okay? So let's say I'm a real believer in zero. Okay, I like that they made that acquisition, but it's definitely not proven that that's going to drive shareholder growth. In the meantime, the share price is massively down. Now, if I'm a long-term believer, I'm okay with that. But then we've got a CEO that I believed in as a bull, let's say and um i support but she's gone and sold all of the shares that she owns in the company and if i'm a bull i'm still holding my shares and now she just wants to be replaced with 30 million dollars of additional stock like i just think it is very hard um to to not be unhappy about that and then you've got someone inside the company that says yeah but you'd all be fine if the share price was i mean come on and so the worst it's actually literally gaslighting the shareholder base this person.

1:17:02Well, the worst thing about this from a shareholder point of view, so I don't love these remuneration votes as a chairman, because I think that any grievance that a company has - Yeah, they materialise other issues. But they're not binding though, so they can't - But you know zero is even less - Because New Zealand. Yeah, so they've had two strikes. Australian company would have to get rid of the whole board and have them re-elected. Spill the board, yeah. They have no consequences. Yeah. None. Zero. I actually reckon if this board, like usually the board gets spilled and they just get re-elected as it laid out and said.

1:17:32I reckon this board might struggle to get re-elected given how bad that, but this has been a disastrous board. And we also question how much they respect the feedback in better comments given they increased in Cassidy's remuneration from$18 million US to, from$15 to$18 million US this year. So not only are they paying her too much, they've actually just said to the shareholders, stuff you, we're going to pay her even more money despite this bad performance. So let me ask you this very hypothetical question. What do you think happens to the share price if you wake up one morning and they're fired her.

1:18:03Goes up. You think so? Absolutely. I agree with you. I agree. And Battle Chairman David Thodey, who is a friend of yours who I've never met and is really struggling here, claimed the optics weren't great, but there were considerations behind it. I will take that on myself. I could do better next time. I will do. I think you can do a lot better next time, David. Thodey had previously tried to argue that Cassidy's pay rise was done to provide alignment with relevant benchmarks in consultation with major shareholders. Clearly that's not the case because they had a 70 plus percent. So I don't know what David's smoking here, but he's clearly not speaking to his shareholders properly.

1:18:34They're telling him one thing, he's ignoring them. The whole board really needs to go here. I think the board and CEO need to go. They need to reset this whole thing. This is a disaster. If I was David, as I said to you, I don't know him super well, but my impression of him has been overwhelmingly positive. If I was him, I'd be looking for a very, you know, he's a guy who could orchestrate kind of good-looking exits. I'd be looking for a good-looking exit out of this thing. And at University of Sydney as well, I think it's the other place he probably should exit. I think these are not good for him personally.

1:19:02And so he's a guy whose personality and ethics are very different to what's going on at the University of Sydney and Zero. And I think there are better things for him to do. And I think that's much more indicative. And of all the people that you might meet in these upper echelons of corporate Australia, he cares at least as much about Australia and the outcomes for Australia as anyone I've ever met. so I just think this is not the right place for him is he too nice for this role he's a very nice guy is he being played by this Cyn Cassidy character he's a very nice guy yeah I've got a feeling some I think footy clubs and maybe companies you can't be too nice and I think this could be the case of killing by kindness this is a like shareholders have said we don't think this company's on the right track and the board just and the REM person just like completely ignoring them like this it's a pretty easy solution here you reduce her salary you don't increase it and if she leaves let her leave like I don't think anybody's gonna be disappointed when this person who's really done it, the only thing she's done is a disastrous acquisition leaves.

1:20:01I've had a period of an ASX listed company where I had no CO for six months. I was hated, hated by shareholders. Not by all of them, but by enough. I told you, like, Jeropol ran a campaign against it. And basically, you can get through it. It's survivable. You just have to make sure you learn the lessons. I can tell you I learned a lot of lessons. Like we made a lot of mistakes. I learned a lot of lessons and got better. And I think that Xero might have to go through this moment personally. Yeah. Let's move on. Speaking of Jared Pol, and let's move to corporate travel management. Another great friend of the pod.

1:20:43And a move that many, including myself, doubt it would ever happen. It appears that the embattled travel agent, CTM, may be preparing for relisting on the ASX after being suspended for basically a year. Incredibly, the business, a year late, released its FY25 order numbers, which showed a loss of$347 million, albeit that was mostly goodwill impairments of$360. Auditors Deloitte even gave the business a going concern sign-off for that year. This came after the business miraculously managed to pull off one of the, I've got to say, given credit for this, this was a remarkable deal. Pep Credit, which is Pep's credit, invested, well, lended$175 million to the business.

1:21:20This was pretty incredible. So you thought no one was ever going to lend money to this business again? I did. And clearly almost nobody did, except for Pep. They obviously got a private equity credit firm who's pretty high on the risk curve. I said no bank would, and no bank did. So I actually didn't think that they would be able to get these guys. And can you imagine what those terms look like? We know what the terms are. Well, we know. And that said, given that it basically saved the business, the terms could be worse. So the big kicker of the term is it's a 4 % fee based on market cap. So if they hit a billion dollars market cap somehow, they pay like a$40 million fee.

1:21:53So how much is the loan? 175. Okay. It's one of the most serious loans in the history of trade business, but it's a business that would have died otherwise. Is that the only fee for this money? And then there's obviously interest rate. Oh, so it's on top of interest. Yeah. So there'll be a high interest rate. Oh, absolutely. Probably 12 plus percent, I would have thought. Plus, what did you say, 10 % of - 4 % of the market cap at the time that's repaid. Right. So the longer it takes to repay, they go, well, that goes up and up. We're recording this Monday. It could be releasing any day, but they haven't released the FY26 yet, which is the blocker.

1:22:23They've got to release that as well. So this kind of deal, so you know Partners for Growth, PFG? Yes, yes. So they're a venture debt lender. They were kind of the original venture debt lender that came to Australia. Now there are heaps. Often these kind of venture debt lenders will lend you money. Yep. Generally, they won't secure your life, unlike banks, which is very good. they'll charge not a small interest rate, but they'll have warrants. Which is like equity. Points of equity. Yeah. And so, and the PFG just sold down warrants, bought them in Koala recently. And so, this feels to me like a warrant-like investment.

1:23:03Exactly. It might not be warrants, but like it's the same kind of thing, right? Yeah. It means that, look, they're saying, we want all of the protection of debt and we want the interest of debt, but also, since you've kind of got your backs against the wall, we want to get the upside as if we were a shareholder as well. We'll go back to that in a second. Interestingly, this whole thing came after Chairman Ewan Crouch, who, to his credit, has done a pretty good job here in the end. Obviously not initially, but to get this done, Anna Peterson, the CEO, the CFO, James Spencer, my hat's off to these guys.

1:23:34These guys didn't create, they inherited this mess. They've actually done an unbelievable job here. Because you thought they were almost certainly dead. I think everybody did. Without this, like this Hail Mary. Not everyone. Present company excluded, obviously. But you and Crouch claimed they'll be able to trade their way out. So he basically lied to the market actually to buy them more time. Well, I don't think he was lying. I think he was just wrong. Wow. Like they were clearly working on these deals in the background. But to his credit, they got it done. So big tick for that. And that is like a pretty impressive deal to get this.

1:24:06If you look at – they basically have to refund something like$270 million or something like this. There's a massive amount of refunds still. So that's a big hit they've got to take. And so I think the presentation had a bunch of different data points, but even with this$175 million, they've only got$100 million cash left after this. But presumably one part of this deal that – who was the private equity firm? I already forgot. PEP Credit. PEP. PEP's Credit Arm. Yeah. So presumably one of the things they managed to do is to get all of the senior bank lenders not to get their money repaid. This money is not...

1:24:41I think it does repaid the banks. This repays the senior lenders? Really? I think it does. It's all a bit unclear. Because this is a lot of money. 1.75 is a lot of debt to take out. Hang on. And who was their main bank lender? I don't know. So let's say... I think CPA is in there. I forget exactly. Do you think they would have gotten 100 cents in the dollar back on their loans? Well, not that one bust. No way. No, but under this deal... Oh, I reckon they would have. So that would be astonishing because like to have a lender come in and to repay existing debt holders. Well, it's going to concern.

1:25:14So they would have had to get repaid. Like they wouldn't take a haircut. Anyone will take anything. It depends what the loan is worth on their own books, right? Like if, let's say it's Combank. I don't know who it is. If Combank had written down the loan by 50%, then they can take a 50 % haircut and no one in the bank gets in trouble. The debt amount wasn't, this is a one point. This business was capped at a couple of billion dollars. Relative to that, the debt was pretty small. So I think they would have got the debt repaid. But it's debatable if it went into liquidation. If there was anything to sell.

1:25:43They would have sold to Flight. They could have sold something to Flight. I reckon they could have got the debt repaid with the sale to Flight. For sure. That's my gut feel. Let's talk about the business, though, because this is relevant. I want to go back to you and say, did PEP make a good or a bad deal, is the interesting thing. But the business claimed it generated underlying EBITDA of$83 million in FI25, which is the numbers they released. It was audited. and$113 million in FY26. But the financials are a pretty big mess and EBITDA is a frankly ridiculous metric to use here. If you look at obviously FY25, take out the$370 million impairment, the real profit after tax was$6 million.

1:26:18So they allegedly made some sort of profit in FY25. And so look at that$83 million EBITDA number. It's really completely irrelevant because they actually capitalized $40 million of software spend. So forget about EBITDA. Do you want to hear a really crazy number? Yeah. For every dollar of TTV, how much profit do you reckon this business made? So that means for every$1 of airline ticket they sell. Well, not just airline, they do the hotels, but yeah. Just to keep it simple. Oh, gosh. Well, let me try and work it out for one second. What do they mostly sell? International airline tickets? Oh, airline tickets, full stop.

1:26:56International airline tickets. So what will I make on that? On a business class ticket? 7, 8%. Okay. And they make hotel. They should be marking a 10 % plan. So the$1 I'll keep 10 cents. And that's actually my revenue is 10 cents, right? But I'm talking about, the question is 10, do they? Yeah. And so what margin do I think they get on their revenue? They're probably operating on a 2 % margin at the moment. So 0.02, like 2 cents out of every dollar? No, they get half a cent. That's what I mean, sorry. Half a cent. Yeah, I was going to say 0.2 of a cent. Yeah, they get half a cent for every dollar.

1:27:30two and a half times better than I expected. Think about it. A business, you take a hundred bucks in, you get five cents. Like it's just crazy. The way to think about that is they run on a, is that, you mean EBIT on that number? That's, and profit after tax. Okay. So that means they run on a 5 % margin because if you assume they keep 10 % Yeah, of the revenue number. Yeah, yeah, yeah, exactly. And then they keep half a cent of that 10 cents. Even for a travel business, that's pretty bad. Look at Flight Center and they're also sold mostly air and they got a corporate business as well. they're about 2 % of net profit.

1:28:01So they're four times better than these guys. Well, they're much more than four times better operators. Yeah, clearly. So another really interesting thing from their presentation, they did a massive data dump. It was really annoying. I had to go through all these different annual reports and press statements. They actually booked 62, of the profits they booked, 62 million bucks relates to pending income tax refunds, which is basically saying, well, the money we made, that was fraudulent. We want to get a refund based on that fraudulent profit, which is pretty audacious. And that money, they said, isn't going to get paid back till the end of 2027.

1:28:35From which government? I presume the UK government. The other sort of point to note is Flight Centre also announced their financials last week, and they were okay, like a lot better than these, but it's a tough market for international travel. But Flighties mentioned that corporate travel business picked up in the last half$1.6 billion. Well, we know where that's come from. Almost all of it would have come from CTM. If not, maybe not 100%, but a good chunk of it. So let's go back to the PEP deal. Why is it a tough market for international travel? Well, just because you've got the Middle East war.

1:29:07It's not higher fuel costs making higher. I see. Travel's elastic. If people can avoid travelling and spending 30 grand going to London, they will. So have ticket prices gone up materially? They came down, but not to what they were. I see. So ticket buys are relatively expensive. Not historically wartime expensive, but more than they were pre-conflict. But let's go back to that PEP point. So PEP's got, let's say, 10 % interest, 4 % warrants. Do you reckon that will be a good deal for PEP? Having heard the financials and how the business is going, it's basically a break-even because business is best.

1:29:44I think it depends what they're secured against and what they think the assets are. So if they've wiped out all debt... Oh, this business trades massively under. The liability is way higher than the assets in this business. Because they've got a whole bunch of the tangibles on there. Yeah. No, but I'm thinking about, forget about the balance sheet. Yeah. Balance sheet's cooked. Yeah, forget about that. Like, they put in$175. You think Flight Centre would pay$175 or more for this business or not? Because my view is, if the answer to that is, yeah, there's a margin of safety. Potentially. Then I think it's a good deal.

1:30:16Yeah. Because they're basically secured across an entire business. Yeah. Let's say zero everything out, they could get their money back on a sale probably. There probably is enough synergies there because these guys pay a heap of staff costs, like a massive, they make 640 million bucks in real cash margin, as in revenue. So there's plenty of cash there to play with. They just have 500 million bucks in employee costs. I think it's a good deal. And if somehow CTM turns around and is a billion dollar business, like over a five-year period, they could... for a credit fund, which is not an equity fund.

1:30:51Double their money on this investment? It's like an equity-like return? I mean, yeah, they could do that. Yeah. The downside risk feels somewhat mitigated by the underlying asset that could be sold. Yeah, give the CTM team credit. Obviously, Jamie, the founder, has gone, humiliated six months ago, left. And this CFO has done a mountain of work. Credit to this guy. He's very experienced. And Anna, the new CEO, has done a great job. So hats off to these guys. This is amazing. The fact that they've been able to, like there's still plenty played out. The fact they're not dead, that is a huge win. And so why do you think that I owe you a lunch?

1:31:27We said we had to be back by 30 June, didn't we? I don't recall that. We should put that in there. We'll call this a stalemate then because frankly I thought they'd die and they haven't died. So I certainly can't claim victory here. I was, well, that is a very political. Nor can I, no one can give you victory. Why are you not giving me credit? Because we're back by 30 June. All right, but hang on. The fundamental argument. Being early is as bad as being wrong. You tell me this all the time. It's only September. It's not two years later. The fundamental argument was I said, I think they're going to go back on the thing because they're too big for people to let them go broke.

1:31:58Yeah, basically. And I thought IATA didn't want them to fail. Nobody wanted them to fail, basically. And you correctly said, but this business is not a business. It should just go into liquidation. And so that was the debate. I feel like it came out on my side of the debate. I don't know if we can get to win. You certainly came out better than the Richard Goyder debate, which was an abject failure for you. You know, this is what people do when they don't like the outcome of a discussion. They try to return to other discussions that we've had previously. Other glorious victories I still get to claim.

1:32:30We'll call it a, we'll net them off against each other. I certainly can't claim victory here because this is a credit to the team of CTM for keeping alive. And to be blunt, I did not know how this would play out. I was just confident that too many people had too much of a vested interest to let it die. Hagel was Doug Tynan for selling his steak at like 16 cents as well. They'll obviously come back on, well, they'll presumably come back on the next week. They'll drop a lot, but I don't think they'll drop to 16 cents. I think they'll drop to a couple hundred million bucks, market cap or whatever it is, or very little, but it won't drop to zero.

1:33:01There's some going concern value there by the looks of it. So congratulations for the CTM team. Credit where credit's due. This is a rabbit out of the hat if I've ever seen one. Agree. By the way, you know what's going to happen. any fund manager that is still holding this will have written it down to zero. You're close to it. And so they'll all... Well, no, some only wrote it down in like three or five. There'll be some that will still have to write it down more. But if you took the pain and you wrote it down to zero, you're going to record a fantastic game in this month, right? Incredible. Assuming they come back on and everything goes all right.

1:33:32So we'll bid farewell. Great episode. Thank you, gents, for sitting through. Don't forget listening on Saturday to our fabulous Saturday episode. We've got some great business stuff coming on Saturday as well. So thank you, I dear. We'll see you soon. Absolutely.