Death of a Tyrant, Eucalyptus Riches, Open AI’s Lofty Valuation, Cettire in Tatters, CTM Clinging On and Jacinda Hates NZ

26:45especially Australia. And then after you finish being prime minister and the country suffers from the recession that you delivered them, you move to Australia. And this was the following quote. And I think she spent some time in the US before coming to Australia. This is the – she's going to Sydney, obviously. I would have thought she belongs in Melbourne. Surely Melbourne's a place for a rabid socialist like Jacinda. Shut the doors, Jacinda. She doesn't like a terrible economy. She just creates a terrible economy and then gets the heck out of there. But she loves a lockdown. Loves a lockdown.

27:19Well, Victoria will remind her too much of the New Zealand economy. Yeah, true. And so this was the comment. So she was in the US and this is her comment, her officer's statement about the move. The family has been travelling for a few years now and being based in Australia brought the added bonus of more time back home in New Zealand. You understand the problem with that statement? If you want more time back home in New Zealand, an even better option that puts you even closer to your home in New Zealand is New Zealand. That would be the logical place. Is this not the absurd double speak of politics?

27:57It is so preposterous. She can't just come out and say, I really want to make money and people will pay me tons more money in Australia than in New Zealand. Plus I get the Australian dollar, not the New Zealand dollar. So I'm just going to move to Australia. And do you know how long she's moving here for? I don't think she's too popular in New Zealand, let's be honest. So maybe she just wants to get away from the haters. Well, she'd be popular around the people she hangs out with. Do you know what I mean? Like she wouldn't hang out with the haters. I know. That's why Dan Andrews is a recluse now because he can't go into walking society because too many people hate him.

28:27I know. And we ticked the Dan Andrews box for the podcast. Ding. Got that done. And so this is how long Jacinta Ardern said she's moving to Australia for. It's very specific. For the moment. That's how long she's moving for. So she could leave at any time. So anyway, I just thought that was a great story and I actually felt happy and sorry simultaneously for all of our Kiwi listeners. I felt sorry for them because it's pretty nasty for an ex-prime minister to move to Australia of all places. But I felt happy because now we have to deal with her in Australia and they managed to not have her influence in New Zealand anymore.

29:09So there you go. Now people are going to write in and they're going to say, oh, it's a right-wing commentary on this podcast against Jacinta Arden. I don't think she's too popular. Did you see, we had a great chat last week about eucalyptus and you broke some great news around that. And the business press continues to fawn over the alleged$1.6 billion sale to the embattled US business, him and hers. Street Talk gushed that major backers, including Blackbird, Woolworths, W23 Ventures and Airtree, along with American firm Bond, of course, Mary Meeker's VC firm, and Australia's One Venture, and our friends at Athletic Ventures all stand to make a mozza.

29:45At Blackbird, in particular, there are some eye-popping numbers. The Sydney-based firm is predicting that its 2018 investment in eucalyptus will hit a 34.5 times return once always paid out. That, of course, was our good friend Nick Crocker's investment. I think he put$1.5 million in at an under$10 million valuation. I think at the time. So it was an actually incredible investment. That's 206 million in proceeds on initial$6 million on a total$6 million investment, according to people briefed on the returns who requested anonymity to speak freely. That wasn't their whole investment, by the way.

30:13That was just that funds part of the... That funds. I think it was two separate funds, right, that also invested. My understanding is most of the other returns were very good. One of them a bit less good, but there were a whole lot of different investments in eucalyptus. I think the third one, which is like 2023, was like 1.7 times or something. So still pretty good given the time. But this is obviously assuming they get full whack, and that's a big if. Because if you saw him share price on Friday down 7 % overnight. So there remains real questions on the viability of this as a guy and concern, which continues to bother me.

30:47But obviously, you're right over this story. You know the people involved. Has anything changed in your mind the last week since you broke this story wide open? So I'll tell you four points very quickly. Number one, they produced bad results and then the share price fell and then it fell another 7%. This is HIMSS, not eucalyptus. Yeah, the result was early in the wake. The 7 % wasn't on results. That's right. It fell separately on results. So they were not great results. So that's the negative thing I want to say. Now I want to say three positive things. One is I got a correction sent to me. Well, it was more of an explanation than a correction, but I'll say it was a correction.

31:24So one of our listeners by the name of Zen, he said I could use his first name and I feel calmer as I say it. So Zen is involved in debt and knows all about credit markets and made a great point to me, which is 70 cents doesn't really look like distressed debt. What it looks like is in four years' time, you're going to get your 100 cents in the dollar if you get your money, but let's assume you do. And so pricing at that price just implies a 9 % yield to maturity, which is pretty reasonable. And so I might have been too harsh in saying that that 70 cents was a distressed price. It might be given that you only get your money back and no benefit on top of it.

32:03And you're unlikely, the shares are very unlikely to go to$70 plus because that's the strike price of this note. Really, all you're trying to do is work out what's an acceptable yield to maturity on the 100 cents and a dollar that you're going to get back. So I think that's actually a pretty good explanation for the price. Agreed? I think so. But usually you're usually getting a coupon so i'm trying to think so usually is that why there's no coupon zero percent coupon is that so because you're getting no coupon that's why it's lower because if you're getting coupon it should be 100 or close to 100 that's right and so just to explain this in slightly simpler terms if um and i'll just use um really simple numbers that are not this but if i was going to get if there was a note that i was given and it was a hundred dollars i was going to get paid back a hundred dollars in a year's time and it pays no interest and it was going to give me no benefit other than giving me the$100 back in a year's time, there's no way you'd pay$100 for that note today because then you're just wasting a year and getting that$100 back.

33:00But maybe you'd pay$90 today and then in a year's time you get$100 and you can work out what the implied yield to maturity would be, which would be 11 % in that circumstance. And so I think that I was persuaded by that argument that that actually might be the dynamic going on with that note. What's the duration of these con notes? I'm just having a look. They were issued in 25 and they mature in 23. Yeah. Yeah. Okay. So that's about right. So I think – so we'll take that off the table. The other two things I wanted to say, one is apropos of nothing. Well, both of them are in a sense, not apropos of nothing, but they're speculative.

33:37So I'm going to make two bits of speculation. In fact, I want to make three bits of M &A speculation, two about HIMSS and one about another business that is very popular and we've just talked about so these are my two bits of speculative M &A on HIMSS and eucalyptus I think chemist warehouse should have bought eucalyptus they just announced their results they're called Sigma but we should call them chemist warehouse and um they one of their biggest driver of growth GLP1 like weight loss drugs that is their driver of growth they are currently trading at what 50 or 60 times earnings they're not growing at 50 or 60 percent let's put that out there and so there's a hefty valuation they've got like monopoly money to use i think they should have gone and and also they need international expansion that's part of their big like pitch right of this ipo or this back door and so i look at eucalyptus and i'm like hang on here's a business heavily leveraged to glp ones with a lot of potential beyond that run by a superstar and it's in multiple countries around in the world and doing really well.

34:39And Chemist Warehouse slash Sigma has got super cheap stock right now to buy anything, including raising money and paying cash. And I suspect that they could have done a really great deal here. Now, it's not like their personality to overpay. And I think they would perceive this as being overpaying. But everything would be about relative valuations. I think it's a missed opportunity for Chemist Warehouse. What do you say to that? So, Kempis Warehouse, the system grew 15%, I think, like for like last year. So, it's still really strong growth, but obviously not 100 % growth. Hefty multiple, right?

35:10Hefty multiple. Yeah, obviously very. But it also grew earnings about 20%. So, I've been bearish. Obviously, I've loved the business almost more than any other one in Australia, but I've been very bearish on the valuation, still am. But yeah, it is performing really well. There's no question. But I think you're right. I think it would have been a great purchase. Okay, good. Because I was going to ask you, could I have persuaded you for that? Yeah, I think that would have been a logical purchase. And so that's a missed opportunity. This is my other M &A speculation. Imagine if you had Tim working in the Chemist Warehouse marketing machine.

35:43What a match made in heaven that would be. Yes, although he might not have emotionally survived in that machine, to be honest, in that business. But I think, yeah, that would have been unbelievable. And that, to me, seemed a logical acquisition. The other thing I would say is this. This is a bit of a thesis I've got as well. So HIMSS, as we discussed last week, they've got a pretty big problem with Novo Nordisk, i.e. they're being sued by Novo Nordisk, and it looks pretty bad for him. But Novo Nordisk, I had a bit of a closer look at this. I mean, you know this. They've got their own problems, right?

36:12Their share price is way down on two years ago. I don't think they're even number one anymore in the GLP-1 category. Oh, no, not at all. LL is smashing them in GLP-1s. They're smashing them, right? So the most recent sort of tests they've both done saw I think Novo had sort of 23 % weight loss and Eli was 25. So it sounds not that much in it, but that is important. That 1 % or 2 % is really important in what doctors prescribe. And also their pipeline, like when I did a bit of research, it seems like Novo's pipeline is worse as well, their pipeline of drugs. You mean outside GLP-1s or are you talking about GLP-1s?

36:52Well, inside GLP ones. Okay, so just GLP ones. Because, you know, this – yeah, that's right. They've got a worse pipeline. And so I'll give you the bull case. So just – it's super quick. Just if you look at the last half fiscal results, they're up 10 % revenue. So revenue was – that's decent without being a shortening. Operating profit was up 6%. Net profit was pretty much flat. Margin dropped from 85 to 81 just because with the pricing pressure. Not just like some hims and herds, just general sort of competition across the board. So they're seeing some real margin pressure. Obviously, there's still a very high margin business at this point.

37:26Obviously, this doesn't take into account the R &D of decades of R &D to get here. That's right. Yeah, so that's clearly, it's super competitive. They've lost a lot of market share to Zep Bound and Majaro, which is Eli Lilly's business, Eli Lilly's drug. So I think Novo's market share dropped from 68 % to 51%. So they're still, well, they've pretty much lost leadership now. And I think if you look at the drugs, I think they're both releasing an oral version of, call it, Monjaro or Zambik, whatever you want to call it. So that's really going to massively open the market up as well. And I think Novo's oral version could be out and Eli's is coming out soon.

38:08It might, although the oral version is daily and it's not as good. So it'll be interesting to see if people move to the oral if they stick to the injectables. I think Eli, interestingly, I think this could be what you're talking about, Eli's working on a GLP-1 that actually has a protein improver there. So that was the big problem with GLP-1s now is you lose muscle, essentially, and you can look a bit, sometimes can look a bit weird, especially in the face. But the new drugs that Eli's working on actually improves your protein level. So it gets over that big problem with current GLP-1s. A very sophisticated bit of information that I didn't know.

38:43I didn't go into that level of deal. So there you go. That's part of the pipeline problems that I think Novo has. So let's see if I can convince you of the bull case and that we should make HIMSS a buy. Okay, I'm going to try and convince you of this as follows. So HIMSS, they sell a lot of GLP-1, but they sell compounded GLP-1, which Novo hates. But they sell a lot and they've got a lot of customers. And they also sell some other drugs, like their profitability probably comes through hair drugs and other types of things. They just buy eucalyptus. eucalyptus is probably the fastest growing business in the world at selling glp ones they sell on-brand glp ones especially novo i think and so and their revenue is big like it's half a bill plus and so or their run rate what if i said to you if i'm um novo i change my attitude towards hymns now they're this huge machine in so many countries and i say instead of suing them for the next two and a half years and trying to push them into oblivion, which may help me or may not.

39:47I just use them as an amazing channel to market to start winning back market share. And I signed an exclusive deal with them that I'm not going to sue them anymore, but they only can sell Novo products or 80 % of what they sell has to be Novo or whatever it might be. That to me feels like an interesting play by Novo. And I think that's probably... Well, that will triple him's share price. I think that's highly likely that happens. Well, it's certainly a possibility that's how the settlement plays out. My question on this business, and this has always been my issue with eucalyptus somewhat, I think clearly that operational excellence is off the charts.

40:26I can't think of any strategic advantages these guys have. Maybe a competitive power these guys have, apart from maybe some counterposition brand. Well, not really. The brand's Nova Nordisk. It's Elo, Lily, and Nova Nordisk have the brands. It's not eucalyptus. They're just the outlet of Who sells it? What if I say something to you that's a massive cop out and it'll make you love me a bit less? I know how much you love me and I'm prepared to drop one percentage point on this by saying the following. I know what one of their competitive advantages is, but it was told to me commercial in confidence and I don't want to breach that confidence.

40:58And you might say it's part of process excellence. Process power. Yeah, processing power. And you might be right, but there is some magic that Eucalyptus has in their business that's even better than hims and I think that that might be one of the reasons they've been able to grow so fast and spend so much money on marketing and still be when they say we're on the verge of profitability or whatever it is that's true and so I think that there is some magic in there where they can't just be displaced. Oh so you're talking this is the age-old question that we always argue about and you take the other position every time it's process power versus operational excellence and at what point does operational excellence tip over into process power?

41:38I don't think a business that's been around five years has process power. You need like 40 years of that. Yeah, you might be right. All I can say is I know the thing that happens in that business and the best way I can describe it is part of process power. The reason why I'm very confident it's not is take Tim out and maybe one other marketing person out and suddenly they're not that great. So that's exactly why it's not process power. That's true. That's why it's operational excellence or operational brilliance. That's true. You could argue maybe Tim's a cornered resource as a founder. Potentially, that's probably your best bet.

42:06He definitely is for the next two to three years, right? Because he's got a fair bit riding on it. Yeah, that's what Hamilton talks about as a corner of resources, a gun founder. So maybe that's the competitive advantage they have, as I say, for three or four years. But I don't know. Like, I don't think HIMSS has it. I'm not talking to you about HIMSS five years in the future. You agree with me. If we wake up tomorrow and that kind of deal has been done by Novo, that HIMSS share price rockets. You agree with that? It might. I think it gets better. I'm not sure how much it rockets. I think it rockets.

42:36I think they've got a heavy discount for that lawsuit because people don't know if it succeeds, if it's 400 mil or a bill or what it is. And you've got a founder at HIMSS who has a special class of shares. That's a Schwab favourite, the different class. The voting and non-voting. Yeah, and so no one is getting rid of this founder. This is his business. And so I think that he can play the cards that he wants to play. And I've got some issues with the founder, with some comments he's maybe made in the past about wars in Gaza and stuff. But I think as a founder and an operator, he's very good. Well, the market doesn't seem to agree.

43:11The market's just smashed this business. So I'm not sure that's the case. Because there's a lawsuit from one of the biggest companies. No, I don't think it's just because. But no, but the lawsuit has been around for a while and it's still been continually smashed since then. This lawsuit's been around for months now. So it's not just that. It's dropped. Yes, it dropped when announced the lawsuit, but it's been doubly smashed. I think the market just doesn't like this guy. And I think the market's very worried about the dilution that's coming down the top. There's like ridiculous dilution. And every time the share price drops, the sort of democles just drops further and further towards the neck of this business.

43:41And so what price would it need to be for you to say it's worth the risk? Or are you too scared of losing your money to zero? I don't love, I think we know our views on dilution differ. I hate dilution. You seem to be more understanding of it. But this business, let's say it's got to pay$1.6 billion to buy eucalyptus, and it has negative$300 million now in cash. So I just don't know how this possibly gets there. Because, yes, you mean. Forget the lawsuit aside. Lawsuit devastates it, but I think they'll find a way to settle it, I think. I think there's just bigger problems with the HIMSS business.

44:17So you know we've diverged on contrarianism because you agree with the market about this and I'm trying to think maybe the market's got this wrong somehow and the best example I can think of is a settlement with Novo resetting people's perceptions of this business. Well, it depends on what you think. It's still valued at$3.3 billion or whatever it is. So, I could say that's still optimistic by the markets. I think the market - Should Novo just give them five bill and take it out? Why would Novo do that? Because they need - I think Novo needs channels to market. They've lost market share. I'm not sure, Novos.

44:49I'm not sure you can pay for a channel to market. That seems strange. Let me tell you one other M &A thesis that's not on HIMSS. It's on Canva. You're going to like this. Okay. You might think I'm a maniac. The bell of the ball of Australian startups, yeah. That they might have some significant problems being a workflow simplification business competing with workflow simplification in the form of a prompt in a chat bot. Like they've got some AI challenges. Well, the other problem is just the market doesn't like SaaS at the moment. So they've got a couple of problems. And the SaaS thing has nothing directly to do with them.

45:26That's just a market golden window issue. I don't know if this is on your run sheet. It possibly is. I might be segwaying into it. So there's a business that just got a trillion dollar valuation this week. No, it's not on my run sheet. I can't think of what this business is. This is OpenAI. So OpenAI just raised money and they cracked a trillion dollars. That's right. Monopoly dollars. And so that's the most absurd valuation of all times. Oh, sorry. Second most after Tesla. And so what happens when you're sitting on a trillion dollar valuation, which I can't even say that. I wanted to say billion and I'm like, no, it's actually a trillion.

45:59And so you're sitting on a trillion dollar valuation and, but really your business is not great and doesn't have any inherent competitive advantage against your competitors and probably is quite a bit weaker than your competitors. And he's losing$8 billion a year and needs to fund all his build out and has all sorts of problems. and is a consumer-focused business but would really like to sell some stuff to business if it could because at the moment it's got a problematic strategy. So you're a trillion. What is 60 billion as a percentage of a trillion? That's not the issue. How much did they raise though?

46:31I don't think they raised that much as part of this round. So they raised – I thought – oh, you have to check it. I thought it was maybe some tens of billions, maybe even 100 billion. Wouldn't it be interesting if OpenAI said, what we want is the world's best distribution on a specific use case for AI, like a Gen AI in the consumer market that's also pushing into the corporate market, like Anthropic has just launched all of these industry specific applications, like the legal application it's launched. Don't you think Canva would be like the ultimate acquisition for an open AI right now? It's a great use of its valuation.

47:14So it raised$110 billion notionally. Well, that's a lot of money. Well, but the problem is these raises, it's very rarely they just get$110 billion cash. Usually it's, you can, we'll invest in you, but you've got to give us the money straight back, so we won't give you the money. It's always round-robin things. It's just these things are complete fraud, let's be honest. But hang on. No, I always tell you, it's not a fraud because it's too transparent. It has to be huge to be a fraud. It was a transparent fraud. It's still a fraud. Yeah, it's not a fraud. No, it's just, you know, maybe – because they're not dishonest about what they're doing.

47:42You and I just think it's absurd. And usually the Amazon money isn't coming straight away. It's contingent on hitting like a level of intelligence. Yeah, so it's not – they're not getting$110 billion in their bank account. So if you're a Canva shareholder right now and someone says, I'll buy you out at a$60 billion US dollar valuation, how much of that needs to be cash versus OpenAI script for you to take it? Oh, you might not. I wouldn't be taking OpenAI script. Hang on. But you would take the amount of cash equal to the valuation you thought was reasonable and then the rest is just upside, right?

48:20Because if OpenAI IPOs and you can dump that script, then that's perfectly fine. And a lot of people are believers in OpenAI. Like we are very cynical, but there's$1 trillion on the valuation. That means there are a lot of people who are believers in OpenAI. Well, let's look at the three. So Amazon's giving$50 billion, of which only$15 billion is upfront, and that's not all cash. Some of that's credits. The rest is a second tranche contingent on OpenAI achieving AGI or an IPO. NVIDIA is giving$30 billion. That's compute capacities. That's no cash at all. And then you've got SoftBank, those idiots out of Japan, who are giving$30 billion, and that's actual cash.

48:57So it's probably like$40 billion cash. They're losing$10 billion a year. and they're obviously spending a huge amount on infrastructure. They can't even afford 10 doing for Canva, let alone 30 or 40 or 50 or 60. They could raise the money for that Canva acquisition in the blink of an eye. Everybody knows the Canva business. It is a great use case for AI. Maybe pre-SaaS catastrophe they could have, but I'm not sure now investors are going to be doling over cash to open AI to buy a SaaS business. Well, I think that's the wrong way of looking at it from the investor pitch perspective. I think the way of looking at it is saying there's going to be winners in this Gen AI world.

49:38And OpenAI, we really want to be one of the winners. And you think we can be. That's why we've got a$1 trillion valuation. And if you want to increase our likelihood of being a winner by 5 % or 6%, then we can get an incredible use case with massive distribution and a very well-known brand for$60 billion. And not even all of it has to be paid in cash. I think that is the easiest pitch going around to an investor that believes that OpenAI is worth a trillion dollars. Well, if you look at the latest round, this alleged latest round, the only people really putting in cash was SoftBank. Everybody else is kind of in kind or you give me the money back or whatever it is.

50:16So SoftBank, these are the guys who put a$47 billion valuation on WeWork. They're the only guys still in this hunt. So I think we know when SoftBank's the only person bidding for your stock, well, you're about to go to zero, I think. And so what about one of the other GenAI is buying them? What about, I mean, Microsoft would have problems buying them. That would be a super logical buyer, but they can't buy them. Google, like Gemini application? Yeah, that makes sense. I don't know if they could, though. I think they'd have the same antitrust issues that Microsoft has, to be honest. When I look at Canva, I see problems from AI.

50:47Apple, maybe. But again, I think all these companies have the same issue. I don't think any of them would be able to buy it. Salesforce, or they're not quite big enough to buy it, really, are they? Yeah, they're not big enough. That would be the logical buyer. And I mean Adobe, but they get antitrusted as well. Adobe won't be able to. No, no way. Couldn't invite Figma. But you agree. That's a good point. But you agree that Canva might have some AI slash sass. What's it called? Sasspocalypse or something ridiculous. Yeah, sass crash, sass catastrophe, sasspocalypse. Yeah. Yeah. They got those headwinds, right?

51:18They got real headwinds. Yeah. The sentiment around, and this is nothing to do with Canva. I think Canva's still shooting the lights out, but just the sentiment around the sector they're in has gone from being everybody's favorite sector six months ago to now being hated. It's been just the most remarkable transition. It's gone from sort of, I think, over, like, in my view, SaaS was massively overpriced, and now it feels like it's probably been taken to the wall shed too much. And so I think if some AI, like one of the frontier models, or frankly the Chinese, offer them a great price for that business today, and by great I just mean the last valuation they raised at, I reckon that would be a good offer for investors and a ton of them would be interested in taking it.

52:00Oh, mate, if you could get$60 billion now, if you get$60 billion for Canva now, given the SaaS apocalypse, that's an amazing result. Like, that'd be one of the most valuable Australian businesses ever. So if I'm running Canva, I'm going to visit every, you know, they've already got good relationships with Anthropic and OpenAI. And so I'm just going to visit all of them and trying to say, you know, for the right price. So yeah, that's my M &A view. Let's go to a super quick break, back with lots more great stories. just in a sec.

52:35And we're back. And in one of the more bizarre ASX spectacles, rapidly spiraling corporate travel business, CTM went to bizarre lengths this week and announced into the market their unaudited first half 2026 results. It was pretty perplexing given CTM are yet to release their audited results for the prior half, which are now more than six months late. CTM's unaudited numbers alleged reported revenue and other income of$349 million for the half, an underlying EBITDA of$77.7 million at a margin of 22%. Cash was$121 million down on the$124 million of June 2025. And we'll get to that in a moment. Obviously, this is reflective of working capital arrangements, some other stuff which I'll talk about.

53:14CTA confirmed that it paid$15 million to impacted UK customers as part of their remediation program, where of course, they basically stole refunds that were due to customers. CTM's underlying EBITDA number is, of course, utterly meaningless, given it ignored$12 million in what it calls non-recurring losses,$19 million in CapEx, $4.5 million in lease costs, and$15 million in refunds, with a lot more to come. Its cash, as we said, went backwards by$3 million, and that's why we're paying only$15 million of $160 million owed. And it's become very clear that CTM are incapable of paying all the money retained and will be insolvent if its customers demanded immediate repayment.

53:52Perhaps most bizarrely, CTM claimed that its customer churn was only 3%. Conveniently, the same churn level that was reported every year for the past six years. Meanwhile, Flight Center, which operates the dominant corporate platform in Australia, reported sales growth of$600 million, with most people suspecting that some of that came from CTM. Adir, what do you make of this almighty mess? Well, I know you love this because it's your industry and et cetera, but none of this changes my views on anything. I mean, it is bizarre to report period two before you've reported period one. That's intriguing.

54:28And to report unaudited. And why report unaudited numbers? What's the point of that? Well, what are you doing tomorrow? Don't worry about that. Let's talk about what I'm doing on the weekend. Don't worry about anything that's going on between. Hang on, but isn't that the bit when we're catching up? Don't worry about that. So, yeah, it's very weird. This is what I think. Everything that you said is right. Also, we can also talk about the absurdity of we made this much profit, but if you take out a whole lot of our expenses, we actually made this much profit. That's good. Why don't you take them all out and then you make as much profit as your revenue?

54:58We made a loss. Our cash went backwards. It's actually bizarre, right? Like where do you – like which expenses do you take out? Like non-recurring expenses. Okay. That shouldn't come out. Refunds. Well, we know about those. and then there were some other ridiculous things that you said in the room, CapEx and so presumably leases. Presumably CapEx is going to end up coming through the depreciation amortization line at some point. So that is all. So basically your little story here is about as intriguing as it always is. I don't say that in a negative way. Like it's always a bit of a laugh to see what this company is doing unless you're a shareholder, I'd be crying.

55:37But it's all a bit absurd. but it doesn't change my overarching view which is this if you're a creditor i.e someone that was owed refunds and didn't get refunded then why would you call in a receiver and push this into receivership if you're the uk government because then you're going to get next to nothing back or not much and so your best chance of um getting the money back that you're owed is probably to let these guys somehow keep trading if they can make any money you can always push them into receivership later if you want to and do that. Can't you say the same for every business that isn't as critical?

56:12But often they're tipped into receivership. No, but I think the two reasons – so we should just touch on this and say there's lots of different ways to say that a business has got problems operating and one of those is called receivership, which means a person that's owed money or a company that's owed money says – Secured creditors. Secured creditors, exactly. a creditor, you owe money to them. They say, well, the time has come to pay us. And since you're not willingly paying us, we're going to appoint our own consultant called a receiver. And they're going to go and figure out how to get my money back for me.

56:49What generally happens is the directors usually would appoint administrators because they think the company is insolvent, which means they can't pay debts when they fall due. And as soon as the administrators are appointed, if you've got secured creditors, which is banks, the banks go, oh, hold on guys, we actually rank above you in the stack, our receivers take precedence over the administrators. They can, but they can also appoint receivers if there's no administrator, if the board of directors is not getting real. Yeah, they can. It's rare. Yeah, it's rare. The minute that that happens, the board is going to appoint an administrator anyway.

57:22And so I'm just going to explain some terms because I think it's, I'm going to say it's interesting because every industry has all of these arcane words around the industry. I know it from medicine. like they're often in Latin in medicine. And part of the reason that there are arcane words is because it's easier to have some shorthand word to mean something that everybody understands. And another reason is to keep people who are not in the industry out of the industry and confused about what you're talking about. That's the honest truth about every industry, right? And so, and to sound more sophisticated.

57:51And so this administrator, as you just said, like a board can appoint the administrator if they think, oh, we think we might be insolvent. That means we're not going to be able to pay bills when they fold you. and that would be a voluntary administrator, but you can also end up with involuntary administrators as well if like this would be an example. And so I can finish off and say, and so that if you've got an administrator, especially a voluntary administrator, it doesn't mean that business is going to die. It just means it might have to be reorganized. In the US, they've got chapter 11, which gives you a whole lot of options as an administrator to renegotiate debts and commitments.

58:29They call it bankruptcy, but it's different to our bankruptcy. it basically means you agree on a package of things and if you do those things then you can go back to being a normal company in australia we don't have that you don't necessarily you're not going to go into bankruptcy necessarily with an administrator it can be reorganized but if you do go into bankrupt if you if the administrator says i can't salvage this business then they're going to go through some other process i.e trying to sell off the assets and liquidate which means turn things into cash and so that's the process and so i think i would not Well, it's interesting that the board of directors, I'm a bit lost on this.

59:04Is there an administrator appointed to this business? No, not at all. There's no administrator, right? It's not trading, but there's definitely no administrator appointed. So the board is basically saying, we are not worried about solvency risk. And boards take this very seriously because if you're trading while insolvent, then apart from being a crime, the directors start becoming liable for the debts that are being incurred. And so directors take this very seriously. They're saying, we don't think there's a solvency risk, i.e. we're still able to pay our debts when they fall due. I suspect we're going to talk more about solvency risks a bit later on this podcast.

59:36And so, yeah. A few minutes. The reason that no one is moving here is that everybody thinks It is still possible that if we run this business, it might be able to make some money and actually pay us back the money that we're owed. Whereas if we shut it down, there simply isn't the cash available to this business to pay us anything that maybe we would consider a meaningful repayment as part of our – and that's my guess. They just, maybe the creditors, which are government, maybe they're still deciding what to do because government, it's slow, right? Or maybe they've decided if we send this thing into receivership, we're going to get like 20 cents in the dollar.

1:00:19We're better off just waiting and seeing if we can get more than that. Yeah. Obviously, part of the challenge they have is there's no real assets in this business because it's a virtual business in many ways. So I think that's what they've been looking at. They definitely will be looking at it going, oh, we kind of stuffed either way. Yeah. So I think it will – well, my view was I think it's going to trade. Your view is I'm crazy. And so, by the way, those two things are not necessarily mutually exclusive. And so I think it's still going to come back because of the reasons that I said. But I could very much be wrong.

1:00:53I don't really know this industry. We obviously have a bet riding on this. So there's obviously high stakes. I did a post about this on LinkedIn and I had a cadre of people insulting me about it, attacking me about it. They all work at CTM. So you've got to remind these guys, they're certainly going down with the shit. But I've found that whenever that happens, like whenever you get insulted by people in a company, that company's dead. So there's no greater indication. You're the Novak Djokovic of business commentary. The more people turn against you, like the better you perform. and I think that like when these people are turning against you, you're like, yeah, that just fires me up even, makes me even more sure that what I'm saying is right.

1:01:36Well, I feel like it's like some Stockholm syndrome here. So you've got these guys working in and they're all sort of 55-year-old, rich white guys or wealthy white guys have done pretty well over the last few years. But they're all like they're going down with the ship, these guys. Jamie's gone and Laura's gone, but these guys are hanging tough and shooting from the hip. Well, they might not have many options. Like what are they going to do? Oh, but it's bizarre. I think they should be spending less time on LinkedIn insulting me, more time brushing up their resume, I would have thought. Well, they might be doing both.

1:02:05I mean, it might not be coincidental that they find you on LinkedIn and that's where they're engaging with you. I suspect they might be looking for other jobs. They sound pretty confident, these guys. Anyway, time will tell on this one. But in my view, nothing has changed my mind that these guys are going to get out of this. I just don't know how they survive, audited or non-audited results aside. So let's move on to our infamous deep dive. of course brought to you by our good friends at Terram Capital. They acquire technology companies to grow sustainably over decades. Thinking of selling idea, of course, we go to scott.terram.capital.com.

1:02:39And what better muse to move on to from CTM to our favorite muse? Well, either this or Temple and Webster, I think are probably our two all-time favorites on the pod, although we do really like the Temple guys. What about Atlassian? You can't stop talking about Atlassian. Yeah, but Lassie is still worth, I don't know,$20 billion US. So, it's not delving in these murky pastures that we're about to talk about with our good friends at Satire. And of course, we saw last week that Satire's auditor says there is material uncertainty over whether the luxury online retailer can stay afloat after months of falling sales pushed the one-time share market, darling, deep into the red.

1:03:16Shares crashed more than 26 % to close at 33 cents on Thursday after Sentai disclosed poor sales in its biggest market, of course, the US. It pushed it to a net loss of$1.1 million in the six months to December 31 compared with a profit of$4.7 million last year. This business capitalizes$8 million in IT spend, of which I don't think any of this should be capitalized. So that's really a loss of$9 million. Obviously, there's a little bit of depreciation, but this is a business that's bleeding money in what is by far the better half, given the Christmas half. I can't believe you've let them off the hook with the loss of a million.

1:03:50If you look at it a little bit more closely, it's a loss of$2 million before tax, and they got a$1 million tax credit. You should talk about it as a loss of$2 million. Yeah. So it looks like, I'm just looking here, the non-current assets went up$4 million. So add another$4 million to that loss. So it's a loss of$6 million when you factor in tax and obviously capitalization. So that's a big loss. Active customers were smashed down from$695 ,000 in the first half last year, only$613 ,000 this year. And while the company had been wildly popular with small cut managers and investors, its shares surged from$0.50 when it listed up to$5 and now obviously languishes back at $0.33.

1:04:28Set-hires and battled board claim the struggling business had other levers to pull, including raising fresh capital and cutting costs such as marketing. Based on the forecast and other achievable information, the directors are satisfied the group will be able to meet its obligations as they fall due. Chief Financial Officer Tim Hume, whose options remain heavily out of the money, claimed that the order statement was merely a technical accounting point. It appears that shareholders disagreed with Tim. Comically, Setai's presentation claimed it had a cash balance of$61 million and nil financial debt.

1:04:57But conveniently, Setai neglected to add it also had$128 million in current liabilities. And we should add that this should be a golden period for satire with luxury brands desperate to offload excess stock despite yet despite these tailwinds the business lost money and is barreling towards embarrassing insolvency event adir your views on one of our favorite businesses well i've got a couple of things to say and then i'll give you the adir disclaimer on something this is the first thing i want to say when they say there's other levers to pull to dealing like gusinelli who runs the athlete's foot parent.

1:05:31Accent group, I think it's called. Accent group. He found another lever to pull. He pulled the eject lever. He wasn't on the line. He was on the line for what, six months or a year or something? It was not long, right? So he got out of there. So I'll give you a disclaimer and I'm going to ask Mike something. This is my disclaimer. I've actually started reading the bit of the run sheet that deals with this deep dive because I thought I should probably read the document with at least a P &L and a balance sheet before we talk about it. So I actually know the numbers of this business. so that's confession number one i don't look at any other parts of the run sheet though so that says pure now my second confession is this the chairman of this business stephen fisher i think he's an absolute gun i'm involved with him on something else he was the ex-chair of breville i think he's one of the smartest and best retailers full stop you kind of wonder what he's doing in this thing is a complicated answer to that question but i just want to say as we talk through this, I do feel conflicted about the fact that he's good enough in my eyes that I would bring him into my own retail businesses for his sophistication and his experience.

1:06:36I think he's really, really good. I sat next to him at a function recently, a Goldman Sachs function, as it happens. And so I just, I'm saying that because it's not a real conflict. It's just that I really like him and think he's great. And I'm going to feel a bit bad about what we're going to be talking about with this. And so this is my question. Mike, have you ever used satire? Never. Never in my life. Oh, that's a short conversation. Do you buy luxury goods or no? Nah. I think similar to what Adam said in the past, I'm really skeptical about luxury goods. But that being said, it's probably just because I can't afford them.

1:07:11Well, the whole picture of this is that it's cheaper, right? So, all right. So I think there's a whole lot of things that we could talk about and we have talked about in the past about satire and and the service and you know how you know what comes whether what comes is real and if you get refunds versus credits I think we can push all that to the side because there's so much to talk about with respect to what's happened to this business and these results and if you look at so I did a couple of interesting things as well as looking at the um half yearly statements I read they quickly just browsed it in investor presentation and I also did something that I think not enough investors do this is the first half of FY26 I just went back and got the identical investor presentation for the first half of 2025 just to compare how things went compared to how they said things were going to go and really how I would summarize this business is as follows I mean you were harsh you said they had like I think you said their their customer numbers were crushed but they fell 10%.

1:08:12It's not good news, right? More than 10%. 6.95, 6.13. They still have a lot of customers. But the story is this. This is something that was written in their own documentation. Actually, let me begin by saying the best-looking part of their Appendix 4D, which is a half-yearly report, is the front cover that has a super stylish person decked out in what I assume you can sell on satire, and then the general mood of the document probably diminishes from there. Okay, so listen to this statement. The removal of the de minimis duties exemption impacted demand from the end of August 2025, excluding the US, sales revenue increased by 13 % versus PCP, evidencing continued market share gains.

1:08:57So forgetting about the last bit of fluff that they put on the end of that. You want to explain what that means, Adam? Because that is kind of the story of a lot of these results. Yeah. So Trump, as part of his whole sort of tariff thing, everybody sort of forgot about in the wake of Liberation Day, what Trump also did, which actually makes perfect sense actually, was the US used to have this de minimis exemption where you didn't have to pay, I think, duties or some other stuff if it was below$1 ,000. And what Satire would do was often split packages to get under that order. We would just avoid paying duties because they claimed it was under$1 ,000.

1:09:29So because of that, they were able to basically give cheaper prices to US customers. As soon as Trump got rid of the de minimis exemption, and they had to pay duties on everything. Suddenly their pricing went up, they weren't as competitive and their US business has been smashed. Yeah, so that's bad news and the consequences of that is it really hollowed out the US business, which is a very significant part of this company and it went from$194 million of revenue in the same half last year to$158 million. That is a massive drop. Australia was flat at 21 mil. That gives you an idea of relativities and the rest of the world went from 178 to 204.

1:10:09And so ultimately revenue went backwards by 3%, although when you take out the US, it went forward by 13%. And so I'll come back. There are like a couple of good, I don't want to say good news stories, but there's some silver linings in this document, but there are definitely not only silver linings in this document. There's a lot of problems. There's a lot of black linings in this document. Yeah, there's a lot of problems with this document. So let me talk about less about the financial performance for a second in this business and more about the cash performance. So did you see their cash result?

1:10:44I was going to talk about the cash result. I'll let you go first. No, you can open up with her if you like. We'll talk about the cash bridge. Is that what you mean? Yeah, but starting at the top of how much cash they... I'll start and then you jump in, okay? Okay, you go. Yeah. So the good news story about this business that was presented was that cash rose from... 37? There's a$24 million increase in cash from$37 million to 61 mil. The operating cash flow was what? Positive what? 37 or something? Allegedly. That excludes payments for intangibles of 8.4. Well, we'll talk about it. Exactly. We'll talk about this.

1:11:18But you might say, how can a business that loses$2 million before tax increase their cash and cash equivalents by$24 million? and I think inside that story is a lot of what you might want to worry about with this business. Absolutely. Beyond the profit and loss. That's the story and that's why the auditors weren't willing to sign off a clean bill of health. And so what do you want to say about this story that people might want to consider? If you look at the bridge, they actually did a pretty good cash bridge here and so you see$37 million opening cash, a surplus of 5.6 million, whatever that is.

1:11:58And they've got 8.4 million in CapEx and then EBT purchases, which I'm not sure what that is. It could be share purchases, something like that. And they had$30 million in what they call working capital. So that's, I'm presuming what you're talking about. So that's their working capital, inverted commas, improving by$30 million. But of course, we know why that happened. So let's talk about some changes that happened that turned a business that lost$2 million into a business that put another$24 million of cash in the bank. The first thing that happened is that they became really good at collecting outstanding payments.

1:12:34Now, remember, this is a business whose sales went backwards by 3%. In a business where sales are rising, you might expect things like accounts receivable, money that you're owed by people to go up a bit, and you might expect accounts payable, money you owe to your suppliers to go up a bit as well because you've got a bigger revenue base that you're working on. Keep in mind, there's a business that has gone backwards by 3 % in terms of its revenue for the half. And so basically, you have a line called trade and other receivables, which means money that you're owed by other people. And that went from$20 million down to just a bit under$9 million.

1:13:14Let's call it$9 million. And so$11 million that was owed to them in the last period has been collected and put in the bank and net$11 million. So they are owed$11 million less than they were owed the same time six months ago. So that accounts for$11 million in there. But on the flip side, in fairness, like their inventories went up by$3 million. So they're holding$3 million more stock than they were previously. So this is a business that got really good at collecting money. Well, there's a little bit of an asterisk there. which I'm assuming you're about to say, there was a slight shift in trade receivables from current assets to non-current assets.

1:13:53Is that what you're about to talk about? Well, we'll definitely get to that, right? Absolutely. This is like a Hitchcock film. It looks like from this balance sheet that they got very good at collecting their money, but not really that good at paying their money that they owe other people because that went from$73 million to$110 million. And so that's$37 million of cash that they've got in their bank account that maybe would be expected to be in their supplier's bank account. But if we compare that year on year, because instead of comparing like two different halves, we can compare the same half.

1:14:30And so the easiest thing is let's compare year on year, same time. And so I think this is the more noteworthy thing. The trade receivable, the trade payables last year were$115 million in December 2024. And this year they were$110 million. The big difference is that June 2024 was$90 million. So they increased 25 mil from June 24 to December 24. But this year from June 25 to December 25, they went from 69 to 110. So it's not the end. 23, yeah. Yeah, so it's not the end number that is so dramatic in terms of the money they owe others. It's the huge increase in the dollar value. And that no doubt had a big impact on cash.

1:15:20And I think if we compare period on period before we go to the point you want to raise, which I think is the most surprising point, we should just compare cash with cash in equivalent periods year on year. So the 31st of December 2024 compared to the 31st of December 2025. And the reason we compare the same period is because they're very seasonal business, like all retail because of Christmas. And it doesn't really make a lot of sense comparing the June six months or the June 30 versus December 31. So let's compare December 31, December 31. So this year, at the end of the 31st of December 2025, they had$61 million of cash and cash equivalents.

1:16:01last year on the 31st of December 2024, they had$101 million of cash and cash equivalent. So that is a pretty dramatic drop. And it always surprises me that people don't go back to the same period a year ago and look at the same presentation and compare those numbers and these numbers and they rely on this period of six months, which is not really equivalent in the retail industry. Yeah, I think if you look at, and I think your year on year is a really great comparison. So if you look at, and we're about to talk about the negative working capital online shortly, but even before we get to that, if you look at last year, and let's look at real assets, and let's include non-current stuff like intangibles and deferred tax, because intangibles, in a going concern worry situation, intangibles were zero and so were deferred tax assets.

1:16:47So let's look at real assets. So you should say, you should just touch on those and say, intangibles means assets you can't touch, they're not tangible. In this case, it's their capitalized IT pretty much. It's their software, right? Well, it could be your business at someone's board, but in this case, it's software. And I think trademarks. Like they've registered a ton of trademarks as well. Which is all worth. It's all worthless. So let's ignore that stuff. They've got$39 million of that stuff sitting on their asset base. And the other one you said is deferred tax assets. This is last year. This is December 2025.

1:17:23Oh, sorry. If you look at December 2025. Oh, so you're just talking about just intangibles. I'm talking about, sorry. Yeah, yeah. So that's intangibles this year, end of December. And they're deferred tax assets. Do you want to explain what a deferred tax asset is? It's basically a tax loss. So you've lost money in previous periods and you can then offset that loss against having to pay tax in the future. Or it could be an R &D tax incentive might sit there as well that you can claim subsequently. So these are various forms of tax benefits that you might be able to claim in the future. A liquidator can't sell those.

1:17:55They might say... Can't sell them. Maybe someone will buy this as a going concern. If the businesses are similar enough, they can utilize them. No, you can't use it. They're very hard to utilize, right? Yeah. They're very hard to utilize. So most people, any sort of half-smart investor just ignores this stuff in terms of looking at it. So let's look at the real assets. If you look at last year, cash, real assets, trade, pretty real, inventory, we'll give them credit for the inventory. So they had$140 million of real assets last year. Of which most was cash. 100 of mostly cash, so clean. I'll give it 140 credit.

1:18:29And then they had$136 million in liabilities. So that's a surplus. So that's good. They had some issues last year, but at least they had up$4 million. Look at this year, they've got$77 million in real assets. That's giving full credit for inventory and receivables. I'm going to ignore the non-current for now. We can talk about the big trade receivable in there. They've got liabilities of$128 million. They've gone from having a surplus of$3 million to a deficit of, what's that,$51 million. That is a catastrophic turnaround. That is disaster. And so what's the primary driver of that enormous drop?

1:19:06So there's two drivers. One is just poor performance, but the other big one is they've put$37 million of current receivables in the non-current receivables section. So that is a big switch and you want to explain what happened there well as best as i can understand number six yeah the best i can understand with this is that so we should say this caveat first which is they they explicitly state that they will get this money they explicitly state this that it's collectible recoverable in full there's just a timing question and so by moving it into the non-current assets, it means it's going to take more than a year to collect it.

1:19:51Yeah. So what they've said is management exercise judgment in the classification and measurement of VAT receivables, totaling 41.4 million, arising primarily for operations in Italy, while the full amount is considered recoverable, delays inherent in the Italian government's refund process has created uncertainty regarding the timing of this receipt. As a result, a proportion, pretty much the whole thing, of this receivable has been classified as non-current. Or 90 % of it, right? Yeah, which, as you said, means I don't think it's coming back in the next year. That's a real problem. That is a huge problem.

1:20:19What this is, like, as best as I can understand, they're saying the Italian government owes us$41 million in effectively their version of GST repayments, and we are sure they're going to pay us. We're just not really sure when they're going to pay us. And it would be interesting to know why they're sure it's going to get paid, but maybe that's reasonable. I have no idea. But what it does mean is it's hard to know what to do with that because I don't really agree with you that you should scrub that entirely from their balance sheet because I don't know enough about it, right? I don't know what it is.

1:20:57And there are, I said to you, like, there's at least one smart person involved in this. And so I assume there's been smart thinking about how to treat this. But I will say that if this business suddenly needed cash, and it probably won't because it's got$61 million. It's probably not going to suddenly need cash, but it can't get its hands on this non-current receivables because it's non-current. They don't think it's coming in the next year. And so it's challenging how to classify that on a balance sheet. Can I just pick you up on that cash point because it's a really critical point here. This is what we call negative working capital business, which is like a travel business.

1:21:37So what happens is they get paid by their customers And of course, the December half is usually the bigger half for them. It was a worse, not a great half this year, but it's the bigger half. Clearly, they drop off in the June half because it doesn't include Christmas. So what happens in the negative working capital business is while you're growing your sales, you're getting more and more cash in. So what happens is customer buys a Christmas, you buy, Mike, a fur coat for Christmas, and you pay Satire$1 ,000 for that fur coat. Satire owes the fur coat supplier in Italy$70. They'll pay that$70 probably in like, I don't know, February or March after this cutoff of this, certainly after 31 December, which is when the cutoff of their financials obviously was.

1:22:18So what happens is they've got the cash from you for the fair coat, but they don't have to pay the supplier till sometime in January or February. So that's why their cash looks really good in this report and their trade payables is really high because they've got to pay, they've got to suddenly pay all these creditors in the next few months while they have the quieter month of sales. That's why you see this half is a good half and while their working capital went up$30 million this half, if you look what happens in the second half, not so good. You see the reverse impact. You see the cash drop.

1:22:48So if you look at what happened last year, the cash dropped massively. So it dropped from$78 million to$37 million in that sort of equivalent period. So you see a massive working capital unwind as trade creditors drops and cash drops. So you see the reverse. So while$61 million sounds really great now, they've got all these creditors to pay and they've got to pay these guys. It is, but they're not going to, I think it's exceedingly unlikely that they're going to churn through all of that$61 million in the next half. It's not that kind of unwind, but I take your point. There's no doubt. By the way - Well, they've got payables of$115 million.

1:23:28I'm not sure how that's possible. They're not paying them to zero. And if you look at where it ended up last time, it ended up at 69. That's where they ended the previous half. And before that, it was at 90 the year before. And so they're not going to be paying that down to zero. Let's be realistic about that. Yeah, but let's say they take 40 million bucks off there. That goes to - Okay, then they've got 20 to go. Yeah, but that's not much cash. They've got other stuff. That's true. So I'm not saying to you they've got an abundance of cash. I'm saying to you I don't think this half is going to be the problem half that's going to burn through that cash and then the question is they'd want to provide more certainty around the Italian tax stuff at that point in time because they will be burning through a chunk of cash and this is what the auditor is worried about so the auditor puts something in their audit report in their letter the an auditor in this case Grant Thornton has to provide a letter that is like the independent an auditor's review report.

1:24:28I've been through this a lot. It's occasionally stressful. Generally, I've been lucky with Catapult, like it's not stressful. But one of the things they need to write is, do they think the business can be classified as a going concern, which means, is it solvent? Can it continue to trade and pay its bills as they fall due? And so people pay a lot of attention to this. And the headline in the audit report that Grant Thornton has attached to this, that you can work out their views based on the headline, material uncertainty related to going concern. So that's not a great headline. And I don't want to suggest that this business is insolvent.

1:25:08I don't think it is. And I don't want to suggest it's not a going concern. I don't, look, that's not my view. But I want to say that they've basically flagged, there's these concerns about it being a going concern based on a$51 million shortfall in the group's current assets versus its current liabilities. There's all of these notes in note two in the report where the company has explained why it still is a going concern. And then they finish this paragraph with our conclusion is not modified in respect to this matter, which could kind of be paraphrased as we weren't convinced by note two. So they are worried.

1:25:51Now, I want to point this out because I don't want to throw Steve or anyone in this business under a bus. Auditors are conservative. Grant Thornton is a well-respected auditor. They will be conservative about going concern. And when they say material uncertainty, what they're not saying, it's not a going concern. They would have to put that in the actual audit report. But they're saying, we are worried about whether or not they're going to continue to be able to pay their bills. They say they are and you should look at note two and take comfort from them rather than from us. That's what this means.

1:26:25And so, look, I don't think they're going to run out of cash next half, but I think this is a – I'll tell you what the silver lining of this business is. You want to comment on what I just said before I tell you what the silver lining is because I'm sure you'll be firing shots at me over my silver lining. I think what you said is fine. I don't have any issue with that. I think, I think I, Grant, don't forget Grant Thornton has been extremely understanding here. They've allowed this absurd capitalization level. So this is a business that has certainly used to have an off the shelf Shopify website and they were capitalized.

1:26:54So you should never, like it's illegal to capitalize Shopify development costs. They used to do it. They think they've moved off Shopify potentially recently in the last couple of years. But for them to capitalize what appears to be virtually all their tech spend is just like absurd. Like no one, in private world, you can never get away with this. Like these guys being able to get sign off on this is remarkable. So I'm not sure that all of – I know what your assumption is. They may well be capitalizing all of their tech spend. I don't know that they are but what I know is – They used to. They definitely used to.

1:27:23I don't know if they still are. Yeah, I don't think – this is not a software developer, this business. It's a retailer that uses software. Maybe they built their own software. It's hard to know what should be capitalized and what shouldn't. Like companies that capitalize software generally say we're building software for someone else to use, i.e. customers, and it's got a lifespan and therefore expensing it all this year doesn't reflect what the lifespan of the software is. It's probably a bit shakier ground if you're capitalizing stuff that's only for your own use. I don't mind if they capitalize a bit of it.

1:27:57To capitalize basically all of it, that's where the issue is. That's always been the issue here. I want to tell you. They're not even based in Australia. They're based in China to make it matter even worse. Well, so I want to finish my assessment of this with a silver lining. Before you get to your silver lining, can I just get to my quick little dark lining for you? Oh, it gets worse than this? Well, no. This is just a side point because one of the things that the board said was we have levers we can pull, one of which is we can cut cost like marketing. Well, let's look at the last profit and loss statement.

1:28:26So what happened is they – Oh, that was going to be one of my silver linings and you're turning it into a black line. Who is it? How is this a silver lining for you? You go and show me how this is a silver lining. You say how it's black cloud and I'll tell you how it's a silver lining. Last year, they spent$31 million on marketing. They've already cut that back to$17.8. They've already slashed and diced up this marketing spend massively. Yet what happens to gross profit? A drop from$70 million to$54 million. So, their gross profit dropped by basically how much they cut their – actually more than what they cut their marketing spend.

1:28:56So, usually what happens is you cut marketing spend and there's usually some inefficient marketing spend. So some of the marketing spend, maybe it's some brand spend, maybe it's some sort of over-the-top Google spend or meta spend. You cut the sort of experimental stuff and you don't lose that much GP and you maybe make a bit of extra. What you do is you potentially hurt growth in future periods, but you goose up your profit in your current period. You've got rid of some short-term spend that wasn't sort of LTV positive in the long term. These guys did that and dropped GP. So what this shows is they dropped marketing more.

1:29:27That actually hurts their GP even more. So there's no marketing lever to pull here, guys. The marketing lever has been pulled and you pulled it real bad. All right. So I'm going to tell you the silver lining and then you just reminded me of my own dark cloud that I thought you'd love to hear. So the silver lining is you could argue they took a razor blade to marketing, like they cut close to 50 % of their marketing expense in the half and only dropped revenue by 3%. That to me would be the silver lining headline of the marketing cut, notwithstanding what you just said. I was talking about gross profit, not sales.

1:29:58I know. So now let me talk about gross profit, which I think is much more problematic than you've given it credit for. So the loss of gross profit is not due to the loss of revenue. So you might, the loss of gross profit, so gross margin, which they call delivered margin, and I'll tell you why I would not call it delivered margin. I think that, but I think the gross profit includes revenue that they charge for postage and the cost of postage. I think that's all in there. so it was 18 % last year or last period 18 % and it was 14 and a bit percent this year and so that's not good I'm going to tell you some even worse things about this but that's not good and what's even worse because I tell you nobody looks at the year before but the year before they talked about gross profit and they said delivered margin, 18 % of sales revenue, reflecting heightened promotional environment.

1:30:57To say that in English, we had a depressed gross margin of 18 % because we had to run discounts and promotions. So they thought 18 % was not good. And they're now down in the vicinity of 14%. Yeah, it's gone to zero. That is really a worrying situation. And the reason I wouldn't call it delivered profit is this. So there is an expense that they don't include in this delivered profit slash gross margin line that I would include in there, in my delivered margin. And that is paying the credit card company for the cost of charging the money, also known as a merchant fee. And the problem with merchant fees is that you don't pay them on your profits, you pay them on your sales.

1:31:46And so they can represent a very small percentage of total sales, but turn out to be a very large percentage of your gross profit, especially if you're running 14 % gross margins. And it's obviously as your gross profit drops, it becomes more meaningful, right? A bigger percentage. And here, the$55 million of gross profit, so-called delivered profit as well, that has a chunk of$13.5 million taken out of it by merchant fees. So 25 % of this gross profit slash delivered margin is immediately consumed just by the credit card merchant fees of processing the orders. That is very dramatic and it is the reason why low gross margin businesses are so hard to run because all these little costs, like they had$383 million of sales revenue and 13 mil of merchant fees.

1:32:43That's pretty good. It's like a few percent. That's normal. The problem is that the gross margins are so low that it is such a big chunk of that gross profit. And so I think that's very bad. That's very problematic. And that's why I wouldn't call it delivered profit. And remember my thesis, we talked about this business on our old pod. on my old pod probably three or four years ago. Oh, how could I forget that you talk about this business every day? And one of the biggest issues we had was a way we couldn't understand how they were getting the stock. They seem to have managed to get the stock out of Italy because I think the market's changed.

1:33:19But we couldn't understand how nobody's been able to make money off this business. Margins were always compressed to near zero essentially because you're selling a commoditized product and you just have more competitors. And every other competitor this business has ever had has basically gone under. And we could never understand why this business was making all this inverted commas huge profit, yet nobody else was able to. So it's just something about this business stunk to high heaven. This share price has dropped now 94 % off its highs. This is only 18 months ago. So it's a 94 % drop off. And we've been skeptical of this business for four years.

1:33:52There's been so many red flags around this. It shocks me that someone is highly regarded as Stevens coming within 100 miles. It shocked me that Bob East was chairman of this as well, who's a great guy and an oracle of travel. I don't know how Dean's able to get these great directors and chairpersons on what is just a business that stinks to high heaven, has always stunk to high heaven, and is barreling towards insolvency, clearly. Well, let's not forget, it made a ton of cash and reported profits for a few years, a couple of years. Well, when you say ton, I think it hit – I think its best ever year was like high 20s EBITDA.

1:34:28So it always promised the world. But that high 20s EBITDA was laden with a bunch of capitalizations that you really need to take off. So its EBITDA was always sort of high teens. That's not great. Like it was never that – and remember this is a business that was valued at$2 billion. It's now down at$133 million. So we'll finish with that point with what I'm going to say. So I tell you two, one little and one maybe bigger silver lining, okay? The little silver lining is year on year, their average order value per customer went from$821 to$961. I love how you're trying to find those little silver linings here.

1:35:08Well, what's a bit confusing about that is despite the increase in AOV, average order value, the delivered margin, so-called delivered margin, dropped from 18 % to 14.3%. Like I'm a bit surprised at the increase. Well, you know what's happened here. Remember there was all those, and we could never work it out. When we eventually it became apparent that they're running this sort of refund thing. Remember they were charging for refunds and charging all this money for people to sort of return stuff. And there was a whole duties. There was all this stuff they were doing around duties and refunds. So you think the stuff around the core business might have been contributing significantly to the gross margin?

1:35:43Maybe. Totally. And that's how they get this arbitrage. And then between the de minimis coming off and the refunds being – remember this whole when they were exposed on this refund thing a few years ago? I remember the AFB, Johnny Shapiro did the whole refund thing and he bought something and sent it back and they kind of had to change their refund policy. They changed a few things a couple – about 18 months ago, I think it was. And I think it's fundamentally changed just the whole sort of commercial profile of this business. And it was – when it was making 20 – sort of call it$20 million a year, it had these things in its favor.

1:36:12And when they had to get rid of them and they had to get rid of de minimis and they couldn't get that arbitrage, that tax arbitrage essentially. Now they're running effectively a level playing field to all these other businesses that went under. So remember Farfetch and all these other businesses couldn't survive and now these guys are facing exactly the same peril as all those other ones. So I want to – okay, I agree with that. And so now I want to say the thing that I think might be the real silver lining of all of this. I'm hesitant because I wanted to say a bit of a weak one to just get your, you know, fire out of the way, yeah, and just take your hits on that stuff.

1:36:47And now I think I might have a better. Just fiendish from you. I might have a better one for you. The US business, that's going terribly. You're going to talk about the Asian business, right? It's not Asian. The Australian business. I thought it was, yeah. That's as flat. I thought there was an Asian or is it European business that you're going to talk up. So it's as flat as a pancake, the Australian business. It's irrelevant. It's 20 million bucks. It's irrelevant. Okay. but the other category went from 178 mil of revenue to 204 mil of revenue that's the bulk of revenue and it has that's it's been consistently growing and so I was like what is other oh that seems like a pretty big number it's the single biggest revenue geography what does that mean other and so I read about it and it wasn't super helpful but what it basically means is other the other segment comprises more than 50 markets none of which represented greater than 10 percent of group revenue i.e 35 or 37 or 39 million dollars sub 40 mil so they're all under 40 mil there's 50 markets probably 10 of them are consequential let's say 20 percent of it and so i think those markets might be much happier with the offering that satire is pumping out and maybe more profitable.

1:38:09We know nothing about the profitability. There's no breakdown. Well, I strongly suspect those markets don't have a de minimis exemption at the moment. So US has put the de minimis in and those markets probably don't have it, which is why they're more profitable than the US and growing. You mean the opposite? You mean they still have a de minimis exemption? Yeah, sorry. They have exemptions so they can get around and they could be doing some duty stuff. Who knows? Whereas US has cleaned up. Yeah, so we can put that in our risks section. but I think that if you want to know what the opportunity is, like what could beat the thesis here of like this is a one-way street downwards, it could be this other thing.

1:38:46If they don't go, we don't know anything about it. I'm trying to finish on a positive note, right? And so this is the positive note. I'm trying to finish on a negative note. Well, yeah, this is the positive note I can find. I tell you the most positive note but only for a select individual. So you know our little game, we've got to give this metric a name which is the numerator, how much did insiders in dollars take off the table? The denominator. Isn't it called the Shiffman Index? What's the current market price of this company? So what's the current market value of Satire today? 133 million from memory.

1:39:20Sorry, 122 million. I stand corrected. And you would know this back to front and inside out. How much has founder Dean Mintz sold down? I think Dean sold about 330 million, give or take. He did pump a little bit back in, so let's call it 300 million. $300 pre-tax, okay? And so that is 2.5x, a bit more then? 2.5x? The pre-tax, yeah. The total value of the business today. Now, Adore Beauty, the other contender for this title. Well, that's had a great week in terms of the Shiffman Index this week. They also had a plummeting, didn't they? They got absolutely smashed this week. It makes my recommendation that they should have taken the$1.20 offer look pretty good.

1:40:01I think your recommendation is looking very good now. So Adore Beauty. They're at$0.60 maybe as a share price? They've had an absolute mare in the last couple of weeks. The market did not like their result at all. It did bounce back 11 % on Friday, but they have in the last month dropped a lazy 58%, which is not great. They're trading down at$0.48. They actually dropped to$0.41. As you know, we obviously had a great relationship with the previous CEO to this business. don't know the current one, Sasha Lang, who seems to be having a bit of a mare. So this business was trading at not that long ago.

1:40:36It was trading at$1.20. And we thought, oh, I thought they'd done the right thing, knocking back that takeover. They're now trading at$0.48. So what's the market? So that's down to$45 million. You can almost pay for this with the value of your latest couple of cars and house, I reckon. So$45 million is the denominator. I think the numerator, it's got to be close to like – I can't remember exactly how much because it's not just the founders. It's also Quadrant took a chunk of money off the table. But wasn't it a$600 million IPO? Because Quadrant took money out as well. Yeah. Oh, they sold heaps.

1:41:08They sold maybe$200 or something, I think, at the time. It was$650, I think, at the time. They didn't sell down. But even if we say$200, that's close to 5X. That is the undisputed champion, in my guess. I mean, there might be little ones. I don't know. But that has got to be a contender for the title right now. Yeah, but they didn't sell like 50 % or 60 % though. They sold like a quarter or a third, yeah. So if you look at individually, Kate and James are still behind Dean. They're 2X and Dean's almost 3X. Yeah. So this is my last request and I'm going to use your – I'm going to hoist you by your own petard.

1:41:44You know what that means? It means the bomb that you throw to blow open a door in ancient times and you stood too close to it so it hoisted you, not with a good ending. and so I'm going to do this to you and say you absolutely destroy me when I keep talking about businesses with low market caps so for goodness sake can we please never talk about setire ever again unless it returns to a billion dollars in market cap when do I destroy you for talking about low market cap businesses oh my gosh I talked about step one god forbid I talked about them the third time you churned me for that oh god but setire is just a favorite of the pod so We can't talk about them when they're barreling towards going out of business.

1:42:23It's a favourite of mine, hence the pod. It's your favourite because you called it so early and rightly so. And you said it was a short at the very top of its valuation. And so I know you love it. Let's forget when I got abused by the CFO on the phone for daring question of these capitalisations, he started mouthing off at me, this guy. God knows how this guy still has his CFO. Give him credit for hanging around. He's been loyal. We know the direction of this business. We know what's going on. I think we should put it to bed on the contrarians. I think there could be one more revisiting if and when they do go into administration, which I think could be happening.

1:43:02Mike, what's your vote? I look at this negative working capital unwind. I think this negative working capital is going to unwind really quickly. So they need a miracle. How about these parameters, Mike? You can make a call on these parameters. will say no satire discussion unless it passes 500 mil of market cap or goes into administration. How about that? That's a good deal. Or next results. Oh, no, that's a terrible thing. Mike, don't let him get away with that. You want to hear more satire? Mike loves satire. As the chief content officer of the show, I'm approving this. Approving what? Approving the deers' request or approving my request?

1:43:42approving the conditions that the deer put in what about my condition next results we know about your conditions or i'll tell you one condition you can add you can say we'll talk about it if mike purchases with his own money even from satire even if in fact i was going to say even if he gets it refunded i think we'll especially talk about it if he tries to get it refunded good luck there yeah i bought a hat i was trying to work out there everybody tried to buy stuff from satire a few years ago and i bought this the cheapest thing i could find was a ralph loren hat it cost like 90 bucks and if to return it would have been like 40 bucks i just chucked it out so it was just such a ridiculous situation uh but we'll see it's been a it's been an absolute favor of the pod and maybe we'll talk about one more time hopefully but can we agree on this if i know we say this every time but just to reiterate a founder that sells down at the top of the market that is a smart founder it might not be very nice for other shareholders but i don't begrudge anyone unless they are like deliberately lying to the market about stuff like remember a lot of the selldown of satire was to regal that's a very smart organization and so if a founder wants to sell down at the top of the market as long as they're being transparent about it go nuts yeah i think i think my question always was has this business been fully transparent and that remains a question with the refund stuff the minima stuff we've seen the performance recently compared to what it was three or four years ago, allegedly.

1:45:07I'm just not sure that was the case. Like I'm not saying this is a crime ring. I'm just saying I'm not sure if it was fully transparent. But it was sold to very sophisticated investors. That's true. Very sophisticated investors. It was. And so – But there was also some mums and dads in the stock exchange buying this. It was a bit up to$2 billion at one point. That wasn't just regal. I know. But I think my view is when very smart people buy stock off you, like sophisticated traders, it kind of provides you with some cover to say like, you know, I wasn't just selling this behind the pub. Like I was part of markets with smart people.

1:45:39I just say that, I'm not saying that to be specifically defensive, but I'm saying that because, you know, we've got this fun index, but ultimately if the founders are taking money off the table and going and doing stuff with them, like that's their right to do it. I think it's just interesting to figure out who got the timing perfect, I guess, in a business that wasn't going to hold up. I mean, I think everyone knew Adore Beauty wasn't going to hold up. I was always shocked it got away at that valuation. Well, that was a prime COVID valuation. Yeah. I think there's always been – I think satire should never have gone public.

1:46:12I think it should just like realistically always stay private. It's been – all it's done is just a transformed Dean's stake into this huge amount of cash and burned everybody else along the way, not just Regal, a bunch of fairly foolish speculators who put money in. I've got no great pity for these people either, but realistically it should never have been listed. It doesn't burn everyone though because some people wrote it up. Like it went up, right? And so a whole lot of people bought it cheap. Well, I use that word cheap, like low, let's call it, not cheap. And so a lot of people bought it low and some of them would have sold high and that is how markets work.

1:46:45And so I think, by the way, with the door, like you're picking on Seto and I'm picking on a door. I'm not trying to pick on them, but like I know two brokers that claim to me that they passed on that IPO because of the price. so it wasn't like everybody wanted to push it out at this price some were not prepared to put it out at that price so it's pretty clear i mean we talked about the time personally pre-pod that it was just a ridiculous price but it was a covet price and that was what people were throwing money at at the time and the way i think about um kate and james who are the founders of adore is um they have every right to harness their golden window and to maximize it and i know that there was some commentary about the investors that were attracted to it, especially like the big pitch to Adore Beauty customers being attracted to it.

1:47:32And like Joe Astin pointed out that point, I'm probably more benign on that topic. Like I think it was IPO'd and it is the founder's right. And I don't think that those found, I think they believed in the business and they didn't think it was going to crash to 45 cents. They just wanted to take a ton of money off because it was a very, very, very full valuation. I think it was definitely opportunistic. There was definitely a lot of sort of hype going on there. But I think in their defense, they didn't actually sell a huge portion. They kept a lot. So I think their best defense is as opposed to Dean who sold a heap of his.

1:48:05Like Dean's remaining shareholding is worth like 20, 30 mil, like stuff all, whereas Kate James is much larger. So I care more about – like I would be extremely sympathetic to Dean if he had sold 10 or 15 % of his stake. I don't know what he sold. From memory, it was a lot higher than that. That would make me – Like 50 plus percent. Right. Well, I don't know, but that would make me sympathetic. And so I think – I just keep like reiterating. The markets are fear and greed and founders – founders really – I mean, you know this. Founders have this fundamental irrational belief in the potential of their own business and a business that's flying in COVID.

1:48:47and IPOing for 600 mil, it is very, very easy to see how those founders would have thought this business is going to pass a billion dollars and the party is going to continue post-COVID. I remember that COVID period. It was not even conceivable in my view that it would tank post-COVID the way it tanked, like the retail market. So I think we have to be careful. We can talk about these things and they're kind of fun and we joke about them, but it is easier in retrospect to identify some things. And one of those things was the post COVID slump. Cause I remember during COVID, I definitely didn't pick the magnitude of that post COVID slump.

1:49:26I think on that note, we will probably slightly agree to disagree on this one. Thank you, Mike, for sitting through this. It's been a great episode as always. We'll be back on Saturday for our Ask Us Anything episode. Keep those questions coming in, our smartest listeners in the world. We love you. We love your questions. And thank you again for listening in. We'll see you next week. Thank you.