Droneshield Drill Down, Corporate Travel Management Implodes, BOM Laughing Stock, Compaq, Mike's Jet and the Richest New Zealanders

28:19If we don't sell them now, we're stuffed. And that's what they did. They just got greedy, I think. Well, you know, the thing is that, I mean, surely this is going to have to get investigated by someone. Who's going to, like, ASIC never investigates anyone. ASIC, what, like, you could run over the daughter of ASIC chairman and you wouldn't get investigated. I'm not sure that's true. No one gets investigated in this country. No, I'm not sure. If you're poor, they'll go at you if you've been started trading. But if you're rich, you're fine. ASIC is, you know, is under-resourced in fairness. Yeah, that's true.

28:47So we can't be too critical of them. But like, so, you know, the ASX is having a bit of a tricky moment at the moment with various things going on. Yeah. But you think that like there'd be some continuous disclosure questions around this? I'm not encouraging anyone to investigate it. What I'm saying is you can't have a functioning market where investors have trust and let something like this happen that's covering pages and pages of the financial press and not have some investigation. I think it erodes trust in the financial markets. Let's be clear. I've got no sympathy for people who own these shares because you deserve what you had coming if you were a drone shield shareholder.

29:25That doesn't excuse the behaviour of the chairman and the CEO though. I just want disclosure. That's all I want is disclosure. And I also think the cynics, the problem with the lack of disclosure and all of these kind of weasel words subsequently, let's call them, is cynical people, of which you would be very much one of those, might say things like they only released that announcement to try to prop up the share price, for example, while they were selling. Now, we don't know if that's true or not. I'm not even making that allegation. I actually think that was a cock up. Yeah, I agree. I tend to agree with you, right?

29:57But the thing is with the lack of transparency, you get conspiracy theories. And so I just think I can't believe everyone's held onto their roles here. I think they're going to survive, which is unbelievable. I think they're going to survive. and, but I think they should just, I don't think that's going to, I think, you don't think they're going to survive, the CEO and the chairman, what we've seen the last week or so, they already tied the American dude to the train tracks, he's been, the train's gone over the top of him, I mean that might be the only, that might be enough of a body for them.

30:27They'd talked about this guy being, Matt someone being an absolute star of the business, previously, obviously he was going to, I think what killed, so we've seen, this happens every time, we saw it in satire, we saw it like, so the share price gets smashed, and then you get a bit of a short, or the short seller starts selling and you've got some true believer idiots that sort of go back in because nothing ever goes down in a straight line. So I've seen the share price has gone from$1.70 to about$2.05 in the last week. That's about what, almost 20 % jump. I think the share price, not investment advice, goes down to sort of 20, 30 cents at some point.

30:58I think this gets absolutely smashed because the business is not making any profit and I don't think ever will, as in real profit, makes a million bucks or whatever, but actual real profit to justify the multi-billion dollar price tag. I think as the share price drops, they then go. I think the only thing that can save these guys is a high share price and I think it's going to happen. How about they come out and say, we did the wrong thing with market messaging here. We should have been more transparent. We don't think we've breached any rules, but we're making our own commitment that in future, we're going to disclose things in this type of way.

31:35And no one of the three people that just sold down now is going to sell any more shares that we get for the next three years. What about that? That would be a good start, wouldn't it? I don't think. These guys own zero shares now because they sold them. It's different. If you're Richard White, you know, they didn't. Don't they have more performance options? Oh, yeah, but they've got more, but it takes a while to vest. So it's a couple of years of vesting or whatever. Well, why don't they just, they should just say, we are not going to sell future performance options for two or three years after they vest just to demonstrate to the market that we really are in this for the long term and do believe in the long term performance of this business i don't see how peter james the chairman gets another role after this and i and i think he has to leave this role and see i'll take the other side of that bet you think yeah okay i'm happy to take the market has short a short memory and if you can survive the first few weeks of something you generally survive.

32:30This is his, well he's had two businesses collapse. I found the other one that left off his LinkedIn. Only you care about the history. No one else cares about the history. I think people care about the history. They don't. And he's had Nairmap. No one cares. Nairmap was not a disaster but it wasn't a great result in the end. That's a poor result from Nairmap. You had, obviously good from Ansarada, you had a snack which went under, you had Halo that went under and you had this No one cares. I think they care. I think they care more than you think. No one cares. And who cares? Anyway, let's move on.

32:59to something that people do care about. And how much do you reckon it should cost to build a weather website? Oh, I know the answer. How much do I think it should cost? Well, let's say this. If you asked me to build it and I had to get it done, it would cost less than$5 million. Yeah, I thought a fair bit less. Obviously, we're talking about the Bureau of Meteorology, the BOM, which the Australian Bureau of Meteorology, which overhauled its website, launched in October, and was basically criticised by everyone from its rain design, radar layout. uh queen queensland premier who i really like david chris a fully said the website was flawed and it left brisbane residents unprepared for significant storms um when it was launched the bom was flooded with a deluge of complaints and the hashtag change it back went viral uh listen is that your attempt at um can i just call this out please is that your attempt at dad humor that um that the bureau of meteorology was flooded with a deluge of complaints that's what you're That's what we've come down to with your run sheet now, that kind of humour?

33:58I think I got that from some article. That definitely wasn't humour. It wasn't humour. It was me just copy and pasting something from an article. All right, keep going. I'm going to just take some kind of anti-emetic tablet so I don't puke at this kind of comedy. All right, continue. Just to clarify for our listeners, that was absolutely not comedy. My comedy is much fun in that. All right. Well, I think we can all agree with that. Less than 48 hours after launch, the bomb released a list of tips on how to use the new site, and this was further mocked by disgruntled users who once said, terrible, you shouldn't need step-by-step instructions to navigate a site.

34:32Which point? The embarrassment was meant to have cost$4.1 million and Stuart Minchin, who's the new, I can't blame Stuart, he just came in, humiliatingly revealed the cost was actually$96.5 million. I wonder what that includes. Like, I don't even know. How did you get to that? Like, if you look at how much we've spent forever on our Luxury Escapes website, which is a lot more complex than this, it's less than that. And this is over like 15 years. If you came to me and you said, you've got to upgrade the BOM website, I'd say, okay. You say, but there's a prerequisite. You've got to spend$96.5 million.

35:05I actually wouldn't know how to spend that money. How would you spend it? You couldn't. I don't know how you could. You'd hire a censure is how you could. You'd hire some other. Well, how much will that be? Could you burn 10 mil on that? 5 mil hiring a consultant to do it? Well, clearly you can because I did. so it's but there's got to be there's got to be crazy stuff in here like i just i actually can't figure out how you get to a hundred million a guy called geo george who founded mayflower venture who's done big government contracts for he said even with five to ten years of work 30 to 60 specialist infrastructure security testing cloud compliance and procurement overhead a serious rebuild of a web page plus api platform should cost low to tens low to mid tens of millions so so there's it just it's unconscionable how stupid these people are yeah it's a beggar's belief that agreed this just goes to the point where i just don't like the government should be running about five percent of what they are running like almost everything they do they stuff up and this is a classic example that sure like the army and maybe fixing road there's there's stuff that the government has to do this is this isn't that like if you and you look at when the u.s shut down for So I shut down for like 45 days or something for the last couple of months.

36:19The only thing people really complained about was air traffic control. Like, was there any other real complaints from the US government shutting down? And obviously not everything shut down, but... Well, people not getting paid was a bit of an issue. The people who complain with people not getting paid wasn't end users complaining. It was the people who weren't getting their money for doing nothing that were complaining. But what about the actual end users? Who was really impacted by the shutdown? Well, when you say not... Other than... Like, a lot of people kept working. They just didn't get paid.

36:45They're going to be getting back pay. But listen, let's just – we can both say this is ridiculous. This is yet another example of how unaccountable the bureaucracy has become. You blame government for this, but really you should be saying the bureaucracy. Like no minister is spending$96 million on this stuff. This is the bureaucracy. Which is appointed by the minister, so ultimately it comes back down to that. Yeah, but it's terrible. Do I have any confidence that something like this won't happen again? Not only do I have zero confidence, I'm 100 % sure it will happen again. This will be guaranteed to happen again.

37:24So let's just cry about it and say once you get a certain way down the road in democracy and in capitalism, this is where you end up and this is where we are now. God knows how to fix it. It needs a total overhaul. I'm scared to say this with you because I say it every week. It's like the ABC. You've got to fix it from the inside out. Defund it. I think all these organizations, they need to be fixed from the inside out. It's not just a leadership change. It's a whole cultural change in the organization. And mark my words, in the next five years, we'll be talking about some other$100 million website fix or something as absurd that happens from the bureaucracy.

38:00And as long as politics stays the way it is and bureaucracy stays the way it is, nothing's going to change. So just a little addendum to last week's discussion on New Zealand. I forgot to mention this to you. Do you know who the richest person in New Zealand is and what they did to become so rich? I think I do because a friend of the pod, Jace DeBoer, gave me a quick heads up last week. Can I tell you what I think it is? Who I think it is? Yep. Well, it's not hard to guess because you can just look. Is it Graham Hart? Well, you know, when you search for the richest person in New Zealand, I'm so happy you said that because when you search for the richest person in New Zealand, he's the guy that comes up and he's been the richest person for a long time, right?

38:41Well, he was Burns Philp originally and I think he started as a truck driver or something like that. Yeah, he's a very impressive guy and he's now not the richest person in New Zealand. The richest person in New Zealand is, I think, it's like, I'm going to say it's the Mowbray family. So they're the founders, Nick and Matt Mowbray are the founders of a business. Do you want to guess what industry this business is in? Oh, I think I've heard of these guys. Wasn't it clothing or something? Was it T-shirts or something like that? No, no. It's a much more fun business than that. Oh, toy. It's toys.

39:14Yes. They're toys. Are they the richest now? They are the richest. And do you know what the most famous toy is? I think it's the most famous toy that they have made. Oh, I don't know. I'm looking it up. I don't know what it was. Mike, do you know what them are? I'll give you a hint. It's something that you would have seen in the supermarket, and when you saw it, you would have thought, your first thought would probably be i can't believe people are paying for that isn't that just an advertisement for products and then you would probably think but it is very cute i'm so stumped by that clue but like it's a product it's basically a toy that is you would think is just a promotional material or advertisement or promotional merch for other products in that sense is it something like pokemon cards but that's well pokemon just own thing but imagine like if i said to you the most bizarre i own washing detergent and i would like you to make something that promotes washing detergent so everyone thinks my brand is really cute what would you do you know what you would do a toy or something like that yeah you would make that little thing called mini brands you know there's little miniaturized versions of them yeah that product yeah is off the charts popular that's not worth 20 surely that's not 20 billion dollar business that thing well they got a few other things as well they got some water bomb thing they copied that fills lots of water bombs at the same time robo alive pets alive but the thing you'll most know is this mini brands thing this business has made them the richest people in new zealand with more than 20 billion dollars how is that not crazy i love that story how that's like look at manny stool who's the australian probably australian king of toys well he doesn't have 20 bill but he's probably got he's got many billions he's like on a two bill or something but he's got a massive bit how are these guys 10 times many i don't know you know what house they bought they bought a massive house right they bought the house that kim.com was arrested in remember that guy oh really yeah the fat guy that's what happened he got out of it didn't he i thought he was okay in the end he's still fighting it last i checked i actually looked it up i like him but it was so funny yeah you like him but you probably don't know much about him i don't know much about him either but he's still i do he's still he's still fighting this thing anyway that's my new zealand story that's a good one here's my other story so i'm going to show you a book see this book open it's called open by rod kenyon spelt c-a-n-i-o-n now can you tell what font that low oh you don't want to show you what the book's about you probably saw i can't i can't say what what the book's about.

41:50That font looks almost like something from Terminator or something, that kind of font. It would be recognisable in the 80s and 90s, that font. Very 80s font. I'm going to hold it up. Look what this is about. Can you see what this is? Oh, Compaq. Yeah, Compaq. How Compaq ended IBM's PC domination and helped invent modern computing. Look at the price of this book. Two bucks. Two dollars. There you go. It's an op shop special. Yeah. This book you can actually buy. It's written in 2015. Oh, it's new. I just want to tell you some things because Compaq is almost a forgotten business. The brand is now gone.

42:21You remember who bought it? Did Lenovo buy it? It merged with HP. Oh, HP bought it. Of course. And the brand was retired. And the brand was a purchase. Yeah, that was Carly Fiorini. Fiorina bought it. Basically cost her job, didn't it? I think she did it right. So basically, I want to tell you something about Compaq. Very quickly, you're going to love what I'm going to say. Because right now you're bored. I know you're bored. Wasn't it the fastest business to like a billion dollars? It was something some sort of stuff like that? Oh, you know what I love and hate about you? I mean, there's a long list of things that fit that.

42:52Mostly the latter. It is. You just know these crazy things. Like, that is absolutely right. Nobody else on earth that didn't work for Comback knows that fact. It was also the fastest business at the time to hit 100 mil of revenue. It hit it in year one. Yeah, it was crazy. There's a lot of very cool things about this business. The founders were not these like computer bros kind of founders in their 20s. It was 80s, right? It was 84, 85. Yeah, they were guys that worked at Texas Instruments. They're in their, I think, late 30s. They left and said, what business should we start? And they eventually figured out nobody was making a portable computer.

43:25So that's how they started. It's very cool. I'm going to tell you some interesting facts about this. By the way, I'm not sure I recommend reading this book. It's got very low entertainment value, this book, because it's the guy. That's one of the founders. He was the first CEO. um he's very big into telling the story of how compact beat ibm in creating an industry standard i'll get to that in a second as a business strategy book it's fascinating as an entertainment book it's quite bad okay but it was only 180 pages so i could read it super quickly right but like um but i'm not sure i recommend it however these are some things about compact they raise money Do you know who their investors were?

44:08Very famous VC. I'm assuming Kleiner Perkins. Oh, nailed it. God, you're really good at this quiz. There weren't many around then. It was just Kleiner and Sequoia back then. At the time, what was their full name? Oh. Coalfield and Buyers? Coalfield and Buyers. Yeah. And so they invested. They put, I think, 5 mil in. Yeah. What percentage of the company do you think they got for 5 mil? This is the early 80s. I reckon they got 30%. 55 %? It just goes to show how much more capital there is in the market. Supply and demand means no VC in the world is trying to get 55 % today. And they all couch it in a narrative, which is we want to leave the founders in control.

44:46Let me tell you how much these founders ended up with. Do you think the three of them ended up with 45 % collectively? This is after funding round one. So they took, so Klein & Perkins took 55%. How much do you reckon the three founders were left with? You might say 45%. Obviously not because you wouldn't be asking the question. I don't know. 20 % allocated for ESOP. Ah, okay. Employee Share Options Plan. They got 25 % to split equally between. But they would have got some ESOP though, right? No, they didn't. So these three founders on day one, they could barely get funded. They got 8 % of the company each.

45:20That was enough to motivate them to build this business. Another very interesting thing about this business is, so its main story is IBM was dominating the market in a way that's hard to imagine today, the PC market. They wanted to compete with IBM, so they competed with portable computers, and they basically had built this reputation. They were great engineers. They built this reputation for incredible robustness, right? Personal computers, like PCs? PCs, yeah. They were the first company to launch the 386. Really, with Intel? They beat IBM to launch the 386, partnered with Intel. Yep, which is pretty – because IBM was trying to build the walled garden back again after – Because, you know, IBM didn't think PC was going to be big.

46:05So they just got these off-the-shelf products to build their first PC. And the problem is that was open architecture, and so everyone could build clones. They were called IBM Compatibles, of which Comback was the leader of the group. That's right. Comback was number three behind IBM and Apple, obviously, which had their own architecture. Apple was separate, yeah. So IBM tried to get the wall garden back and build this thing called the PS2. It wasn't called OS2? No. Well, that was the operating system that Microsoft built for them. So this book is amazing because this guy, Rod, he meets with like Gates.

46:38He meets with like Andy Grove at Intel and Gordon Moore, like Moore's Law. Like what's amazing about this is it's so early. He meets all these people in hotel rooms, right? But basically this story is the story of how I made a consortium come together and put this thing called EISA, E-I-S-A, which is extended industry standard architecture or something. is the reason why you can go and buy any PC today and it's compatible with anything else, which certainly wasn't obviously going to be the case back in the day. And certainly IBM did not want that to be the case. But I'll tell you some interesting things.

47:12So one of the biggest, you'll love this bit of history, one of the biggest makers of PCs, actually they made mostly terminals back at the time, that joined this ESA consortium, was a company called, I'm going to tell you how to spell it, you tell me how to say it, W-Y-S-E. How would you say that? wise wise and wise technologies what would you abbreviate that to wise tech yep run by a guy called philip white oh my god the world just rhymes doesn't it history it's unbelievable i think philip white he wasn't the founder by the way i think he ended up getting securities fraud us at some point anyway this business was a leader and you're going to love where this goes even better so it was bought by a company called channel international it was a company put together a consortium to promote the growth of Taiwanese businesses in the United States.

48:01Who do you think put that together and was chairman of that? Oh, it's got to be the TSMC guy. Yeah, Morris Chan. Morris. And so eventually Channel International bought this wise technologies business. And Morris, while he was building TSMC, was also the chairman of this wise technologies business. I mean, is that not unbelievable? That's unbelievable. I will also say when you look at the management team of Compaq, because they've got some photos, this really was an era where there were just no women. And I couldn't really tell if they were all white males because the printing in the book is not good enough.

48:36But I think they probably were the vast majority. There were no women anywhere to be found in senior management at this time. In the 80s. Yeah, there really wasn't. And I will say about this book, the most interesting, not the most, but probably one of the best parts of this whole book is actually the last six pages where rod finishes with this what's the end one called an epilogue right basically an epilogue where in 2015 he says this is how apple has become the dominant player in the computer industry and he's got these six pages of analysis which end kind of with the iphone 2 real like 3g maybe right you're talking mobile because obviously they're not the leader in PCs.

49:19Yes, how Apple became exactly the dominant player in the shift to mobile computing. So this is 2015. It is the most insightful six pages on Apple I think I've ever read. What was the reason they did it? Basically one of their huge advantages, so they were doing what other people were doing with, so they did iPod. There's a lot of amazing things about this. Like for example, Apple with the iPod was able to have such a market advantage because they essentially tied up all of the supply of these tiny hard drives oh yeah and so nobody else could get the same capacity on a small device cornered resource yeah so that's right they just cornered this resource which which compact did as well with like with tiny devices tiny hard drives before i mean people forget with these early compacts like they had much bigger hard drive capacity because they cornered these tiny hard drives and invested in the company and got first rights of all of the capacity and they built a tape drive into i mean it's all forgotten technology but i'm actually very excited reading this book although it becomes a bit of a slog at times so one is apple cornered that resource two is apple when they shifted from the ipod to the ipad because it was like the technological evolution look lots of people had done these tablets before and they'd all failed the advantage that apple had is they were often underestimated because they're a bit of a shitty business still and so the first iphone had it had problems yeah the first i found the 2g of the iPhone was shit.

50:44It was pretty bad. It was the 3G iPhone that was a really good one. Right. And now Apple puts out all of these things and people take one look at it. And whether it's good or bad, people say, oh, my God, we should get into that because Apple's amazing and they always get it right. But back then people thought now Apple often gets it wrong. They're kind of hopeless a bit. And so no one paid much attention to it. And then they brought in the next one and they brought the App Store in. And they still – people had done App Stores before. Like no one really paid attention to it. but what apple basically did is and i think we know this and it just goes into much more detail but this incredible fixation on the user interface was dramatic and he gave gives this example which is at compact they had a belief that the minimum screen size of a laptop was like a certain size seven inches or whatever it is yeah and below that you can't see it and what apple managed to do is nail this multi-touch interface on a screen.

51:38And that meant you could instantly zoom in any part of the screen with two fingers. And it totally changed the understanding of how small the screen could be and still be functional for a user. I thought that was just this incredible insight into like what every business can say to themselves, what assumptions do we make that we base our whole business on and like no one really thinks about those very clearly in general but that's a good question to ask and one of them that all of these laptop makers had were um was that a screen had to be a minimum size to be able to be seen and apple totally flipped that on its head by doing this multi-touch pinch to zoom approach i'd question a bit like i'm not saying that's wrong because like apple did a great job with the iphone 3 but like samsung had a phone that was pretty similar um nokia had a the e51 which predated it which had a pretty good screen to me i think that but could you could you do could you multi-touch pinch to zoom no because that was an apple technology yeah but samsung was pretty quick i think the the difference where apple really solidified their advantage in court the 2009 2015 years which is where they really sort of built the business that that tim cooks financialized but what i think the difference was was the apple store i think as scott gallow says the apple store is probably the greatest commercial value unlock in the history of business in terms of dollar terms and that is what brought together this ecosystem and made it accessible to people yes i agree with you maybe i should be clear and say this guy's very much a technologist so he focuses heavily on the technology i will say this part in common about compact you know do you remember like there like what do you call a laptop do you call it a laptop remember there used to be something called so remember that for a period It was called a notebook computer.

53:25It was. It was a small laptop. So Compaq invented that. And the reason they called it a notebook is the screen was the size of a letter piece of paper, letter-sized piece of paper. And so they invented that term. And actually, it took them a long time to get into laptops. They had these portable computers, which people that haven't seen them, just go online and Google Compaq portable. It was like a computer you lugged around like a briefcase. briefcase, but Compaq always had this philosophy, which is we will never make a computer that is less functional than a desktop. And so until they could make a laptop fully functional, they did not build a laptop.

54:03And anyway, it's a very amazing story. As I said, not an easy read, but for real tech nerds, I would highly recommend the book. And for people that are very into corporate strategy, you know, this moment in time where you had a very dominant player, It was hard to believe that anybody would ever be able to usurp IBM in the PC market. It's a very fascinating insider's view of the strategy and tactics that we use to ultimately destroy IBM's PC business over time. You could say they counter-positioned IBM. They definitely counter-positioned. Absolutely, they counter-positioned IBM. And they built scale.

54:40They had great scale economies because they got pretty big pretty quick. And they had that corner. They had some pretty good powers. But it proves that those powers don't last forever because Dell came and went bang and knocked them off. Well, I think the problem that happened is that they created this open standard because really Compaq was the driver of this open standard. I don't know if you remember, but if you're a genuine nerd, and I was, I went to swap meets and sold stuff, right? The boards changed from ISA to EISA, E-I-S-A, and that was when 32-bit, a bus is basically a way to say, it's a way for devices inside a computer to communicate with each other.

55:18It's called a bus. And so like PCIE is the bus that's most commonly used now, but like USB is a kind of bus as well. It's just a common way for computers to communicate. And so these were all open buses, this ESA, and it meant that anybody could build compatible PCs. And that's what IBM was trying to stop. They were trying to create a bus that was called the micro channel, which was in their PS2, which meant if you wanted to use that bus and if you wanted to make a card that went in a PS2, you would have to license the technology from IBM and they would get a 5 % royalty, which was ridiculous because people weren't even making 5 % margins.

55:54And so the problem is that Compaq nailed this and they managed to overcome IBM and build this consortium with this open architecture and open bus. But the problem is when you have open architecture, anybody can build it. And what you have is commoditization and a race to the marginal cost. And so Dell was a bit different. and remember Gateway 2000 because they had a different mechanism for selling. They sold direct to the customer. But once you open it up and you run commoditization, it's very hard to maintain brand power and pricing power when you're running this commoditization. And ultimately, that was Compaq's undoing.

56:31Yeah. On that note, we've got a super quick break. Be back with more in a second.

56:45And we're back. And controversial corporate travel business, CTM, corporate travel management, is facing an existential threat after a shocking announcement last week that would have to reverse almost$160 million in revenues that have been recorded in the past three years. That includes$117 million from the 2023 and 2024 financial years, and then another 20 million pounds this financial year. Company flagged that customers would have to be refunded, but has not spelled out how much cash is required. The matter was serious enough that the head of the European operations has been stood down. In a very frustrating call with investors, the company refused to reveal how the money was taken from customers and refused to confirm which customers have been impacted, although we all know that the UK government is one of those customers, not someone you want to be dudding.

57:32RBC Capital Markets analyst and friend of the pod, Wee Wang Chan, said in a report to investors that the impact was worse than initially expected and up to one third of European revenues may need to be restated, while possible refunds could lead to significant cash impacts. The most likely explanation for the refunds is that CTM purchased travel products for customers and the customers would later cancel the planned travel and CTM would illegally retain some or all of this money. This seems plausible given most businesses that CTM work with and governments would be utterly inept at checking this sort of stuff.

58:03Of course, one of CTM's largest customers, as you said, is the UK government. oh dear what do you make of this mess well i only know about this from what i've read i mean the shorts have been after these these guys 2016 yeah it was famously doug tynan when he was at what was his previous business i can't remember uh sold to regal they were shorting it for years like for many years and i saw someone said they've someone has got some metrics they put together for the likelihood of fraud in a business and they said this is like their highest rated business for the likelihood of problems in the accounts.

58:39I think Anthony Bood, 2016, called it its own hearts and minds. So that was almost 10 years ago. Well, that was the wrong call, right? Because, I mean, it might be - VTI was Doug Tynos' business. That's right. It might be right, but the timing was wrong. Well, you say timing's wrong. The problem is, as we saw with Wirecard, if this is a fraud, I'm not saying it's a fraud, but if this does turn out to be a fraud, it could just be complete incompetence, one of the two. But if it was a fraud, frauds can last a long time. That's the problem with trying to short a fraud. I think - Well, even incompetence can last a long time if you don't know what's happening.

59:06I saw one. I'm just going to say things that I read and you can tell me what you think about this. The margins in the UK were much, much, much better than the margins anywhere else in all of the reporting that CTM did. Well, there was that and there was just in general, CTM had margins two and a half times everyone else in the whole industry. And Jamie Ferris, the founder, tried to claim it was because they had better technology, which is a complete joke because they didn't. Yeah, so I think, I'll tell you an analogous story. I can tell this now because much time has passed. So when I was involved in the search marketing business and I had an agency, basically it turned out, and so I sold out of that agency, and it turned out afterwards that I discovered Google at the time refunded a whole lot of money each month to customers in click fraud refunds.

59:57I don't think that the guy running that agency passed that money back to the customers. Totally, I think that often happens. I think that the agencies just retain that money. And I would say as a customer of a search agency, you should go to your agency and say, can I please have my click fraud money back? Because I doubt that's being forwarded on. I think a lot of good agencies definitely do it, but there's definitely some that wouldn't. Yeah, well, it's a good question, right? DMG would always forward it back to us, by the way. We had four visibility, so they were very good, but other agencies don't.

1:00:26So if this is incompetence, there's two sides to this incompetence. There's the company side, I'm not reimbursing. But also, once again, I've been slamming bureaucracy quite a bit recently. What in the hell is going on for these organisations not to know that they are owed, what, hundreds of millions of dollars, tens of millions, whatever it is. It's a lot of money. What is the cost control going on in these organisations? This is the UK government, the home of the NHS. Let's be honest. These guys are not socialists. It's also corporate clients though, isn't it, or not? Yeah, of course. But UK government seems like it.

1:01:00Remember they had the BB barge that was housing refuges? That's right, yeah. And they were running it. And also, CTM was founded, of course, by, as I said, colourful Brisbane entrepreneur Jamie Ferris, who originally worked at Flight Centre. It was a mainstay of the rich list, had Jimmy Barnes perform at his 50th birthday party a few years ago, and the AFR pinned his net worth at$623 million back in 2019. I love the precision on these valuations. Well, this was a public listed company, so it was actually… But he must have money out. Obviously not. He sold stock, isn't he? Yeah, he sold a bit of stock.

1:01:28Not masses of stock. So he's a believer in his own business. He has definitely. I mean, we sold some stock and gave it to his two IC who had, I think, potentially cancer at the time. Oh, that's right. That's right. There was that. But so his CDM share price was$31 at one point and it's last traded at$16. And when it trades again, this could go down to like three or four bucks. Like this is... Would you buy this business? As in the whole business? Yeah, if you could afford it. Absolutely. I wouldn't pay any... I would pay$0 for this business. As in would luxury escapes buy is the question. Well, let's say you had all this money just sitting there and you know the travel space very well.

1:02:02Which is corporate travel. We've got a small corporate travel business. But would you as an individual, like say, I don't know, you don't have to buy the whole thing. Would I pay a peppercorn for it? Well, let's start with that. I mean, that's a very low bar. Well, I think the problem is at the moment, it's really hard to try. I'm about to give you another big challenge I've got in a minute. Because you think the refunds might bankrupt them. Well, they've got$148 million in cash in the bank and they've got obviously deadlines. They can do a capital raise, but the question is at what price is the capital raise?

1:02:31This might be a GFC style rights issue. This was the only takeout private companies like us of all the public companies pretty much every single one did a capital raise during COVID except for corporate travel management. They somehow got through COVID no capital raise which was itself like baffling and like it's hard to know what the hell's going on here because this is they need to somehow pay these they can't be left with zero dollars they've got to either raise debt or raise equity. Yeah. Are they going to be able to get debt? Well the term's going to be pretty onerous i think they go to equity well potentially but what's the cost of that equity if the uk business performed like every other uk business what do you how much profit do you think this business would be making give me a ballpark of like what did they report as their profit so in terms of what they reported they obviously haven't reported for fy25 yet so you have to go back to they're not reporting for a while right next year exactly god they'll ever report but But I think go back to their half-year report for FYI, so let's call it six months earlier.

1:03:27And it was revenue from – it's December half, FY24 is going back a while now. It was revenue – so this is not TTV, this is revenue. It's what they kept of$339 million. Profit before tax of$38 million. And compare that to the prior year, they were profitable tax of – so the profits got smashed last year, 67 down to 38. That's for the half. So you think before that, they're making 150 million bucks net a year. So it was a business that was notionally making like significant profitability. Revenue-wise, it's smaller than I thought though. That's the half. So double that. So 600 million revenue. I thought it's smaller than I thought.

1:04:05But TTB at probably three, four billion. That's like, that's a luxury escapes business, isn't it? 600 million revenue? No, we're more like 220 revenue and 1.3 TTV. So they're probably three, two to three. Actually, no, because we've got a high margin. but also we're much more much more profitable business certainly now so I'm looking at their their actual EBITDA so I forget was 100 million EBITDA for December 23 down to 77.4 so that's why they were worth so much yeah back in the day yeah but we don't so tell me if I'm wrong about this so it was like 15 times EBITDA we're not so we're definitely not alleging that they've engaged in fraudulent activity and if they haven't like we're not hoping that this turns out badly right like hopefully they survive this whatever happens happens we've got no real no real view yeah they go on continuing to be a company that makes money and employs people and whatever like yeah well there's not a but but maybe the thing we can say about this is it might be a very unfortunate coincidence it's possible but people have been warning about this business for a long time and so whether that's unlucky in like just coincidental all people were right about it will come out when we see what's actually happened it is bizarre though that a business so let's say it was confined to the uk they've just fired this uk person yeah it is bizarre although there was also something in australia i said 20 million bucks in australia as well obviously much less but still but it would be bizarre that the uk was performing so well and the board and ceo didn't start asking questions about why it was performing like disproportionately well compared to the rest of the industry.

1:05:44And so I'm not suggesting that anyone was being deliberately misled. Although it does show you how easy it would be to... When you're an executive, lying to the board is pretty straightforward. Like, it takes a while for the board to catch on. Because they're not in the business. Yeah. But it is bizarre that nobody asked questions earlier about this. So you and Crouch, the chairman, had a pretty torrid time. He was at Westpac board. He wasn't the chairman. He was at Westpac. That was before the Royal Commission. So he sort of left that board. Well, you shouldn't join bank boards, would be my general advice.

1:06:14The upside is nowhere near what the downside is. So there's an issue with the chairman, clearly. I think he's probably not one for this world. I think this is his thing. Jamie's obviously the founder. He owns, I think, 8 % or 10 % of the business. I'm not sure how tenable his position is. I wouldn't want to get – I mean, if I could do it – if I was a shareholder and I could do anything to avoid him going, assuming it wasn't fraudulent. Even if it's not – it may not be fraudulent. It could be incompetence. How is that much better? I would just put more controls around him. You know founders, like this guy knows how this business works, how to grow it, how to run it.

1:06:48I don't know. Like it would have to be, to me, the default position. It's very different getting rid of a hired CEO who you've got issues with versus a founder CEO. If it's a hired CEO, he'd be gone for sure. I agree. I think the other issue, there's one really big one I'm about to give you in a second, but one issue you sort of had was this company has been essentially aligned to shareholders for months now. So their first announcement, when they announced, it was like in August they first announced that basically there'll be no cash impact it's a historical thing don't worry guys it might not be a lie it might have taken a while for them to realise what was going on clearly they didn't know what was going on but the level of incompetence that's been shown here that's not lying we're clearly misleading why?

1:07:31because they told them something that wasn't true there's no cash impact there's more cash impact than they actually have cash well what if they what if they didn't no but lying there's an intent behind lying, and they may have been misled themselves and what they thought... By whom? Internally in the business. Yeah. So I'm talking about, like Jamie. So I think the thing is this. I'm talking about the board at this point. I don't think that shareholders were deliberately lied to. I think this has been an evolving situation and probably no one is more shocked than the board. It'll be interesting to see how shocked the CEO is.

1:08:10Could be as shocked as the board. I think this has just been getting progressively worse for them over the last few months. It's been a nightmare for them, right? Yeah. I think there's a real chance that this business, if it trades again, is trading at like low single, like$1,$2,$3. Is there any chance that there's like$300 million of payments required? Well, the amount they've claimed is already more than the cash. Plus, there's going to be massive penalties and interest. So you think how much revenue they're going to lose from people who go, If you rip me off, I'm not going to use... Sorry? There's no penalties.

1:08:40If you rip off the UK government, they could fine you. Absolutely, they could fine you. They're the government. They can do what they want. This reminds me a lot of fee-for-no-service. This is much worse than that. Well, it's like we cancelled it and you're re-fundered lost in the system to be charitable. The fee-for-no-service thing, that was like some dead people and stuff. I actually have sympathy for that. It didn't cancel there. Yeah, but there's still work happening there. They're still managing an account. This case, they got a refund that should have been paid. This is like a lawyer stealing money out of a trust fund.

1:09:12And gambling it away. That's exactly what the comparison is. No one, I don't think it's that comparison because the thing is this. Oh, I think it is. My guess is that there were massive system failures that went on here. That's my guess. Because you know, if you're doing 600 mil of revenue, what's the TTV you said? Oh, times it by probably... 20. Probably on 12 % margin. Oh, okay. Times it by 10. Let's just keep it simple. Well, that's because corporate business is... Six bills. Five to six bill. Okay. And so you've got five to six billion dollars of transactions flying around. That means there'll be a lot of cancellations, right?

1:09:43That's just how the business works. And so if your systems are not very robust, there are a lot of things that are going to slip through the cracks. At this point in time, I probably would just give them the benefit of the doubt and say they just do not have the systems and processes that they need. I don't know. Maybe that's a sackable offense for the CEO. I'm just hesitant when it's a founder. When it's that bad, so here's the biggest issue. So I don't know this because of our business. So on the 30th of September every year, we have to run around, our finance team has to run around like headless jokes getting our financial statements done.

1:10:18Obviously, Catapult, you get it done earlier because you got reporting by August. But private businesses don't have that, so we could do it later. But we get our financials done by sort of mid-September and have it ready because we have to give it to something called IATA, which is the international. It's the airline union, essentially. If you want to sell air tickets, you've got to have IATA authorization. Otherwise, forget about it. You're basically dead as a business. And for us, air was never our major thing. We came late in the piece. But if you're a corporate travel agent and you can't sell air, you're dead.

1:10:48There's no business. There's no business. They haven't got audited financials. IATA should have booted them out. Like it appears they're still operating. It appears IATA have given them some sort of state of execution here. They may have required a big guarantee. We don't know. This is actually breaking news. Nobody's reported this. We are, as usual, the first to report this. but I happen to run a travel business. It's the only reason I know about it. But this could kill this business overnight if IATA pulls this license, which they actually should have. But for some reason, there's some sweetheart deal going on with IATA and corporate travel management for now.

1:11:18You say they should have. I think it's good they didn't. Well, what's not good is why we have to run around like headless chooks and get our financials to IATA. But these guys who are clearly acting in some way inappropriately haven't had to. They may have given extra security. I don't know how because they've got no cash. No, but you have to run – so they would have had to run around the same way as you did. And so now – And they've missed it by months. I know, but the consequence of this system of people having to report in this way is that when something goes wrong, it gets picked up and dealt with.

1:11:51And I think this is the right way to deal with it. In what sense? Well, if they pulled it and shut the business down, then it's massive value destruction and unemployment. That's not a good outcome. They have a rule that you have to get your finance, and you have to qualify upon some certain things. Or else. Or else you cannot sell air tickets. That's the rule. Either have a rule or don't have a rule. Why have a rule for these guys, not these guys? Well, the rule probably has, but it's at our discretion. That's probably the rule, right? That's my guess. No doubt there's some discretion there. No, I'm supportive of them not shutting them down.

1:12:23It's not a good outcome to shut them down. Here's the problem. The reason why I ought to have these rules, and it's much more pertinent for a corporate traveler. For us, so let's say you bought flights through us. Yeah. and obviously we're not planning on going bankrupt anytime soon, but let's say we went under for some, whatever reason. COVID too. COVID too. Well, we've survived COVID and prospered, but let's say there's a much worse COVID. Yeah. And you could get a chargeback on your credit card and you'd be fine. Yeah. Corporate clients often don't pay on credit card. They generally pay on account.

1:12:54In course, yeah. This business goes under. Airlines are taking a multi-billion dollar bath. Yeah. IATA is literally existing to protect against that. They would need, so I think they've got$3 billion turnover. Because the airline takes a bath because effectively this is one of those industries where there are prepayments from customers that do not have to be held in trust the way real estate agents, for example, or lawyers have to hold money in trust. So it relies on the goodwill. Some countries have trust requirements, but others don't. But in Australia it relies on the goodwill of the industry, which has worked fine.

1:13:26Until this happens. And so they're going to drag everybody down, potentially into the mire if they do go down here. So I don't - They won't go down. Well, the best hope is somebody buys them for very - Like flights and buys them for a dollar. Let's say - It could be the - If this - Think about - Just think about how much - If they did give a guarantee, what kind of guarantee is needed? So they're doing - Let's say they're doing three - Let's say they're doing four billion TTV a year, and let's say 2.5 billion's air. So 2.5 billion in air, so that's$200 million in air sales per month. They've got to come up with a pretty big guarantee, pretty quick to cover those air sales.

1:14:02That's significant. I don't have the cash. Do you think they're using that 200 mil as working capital to run their business? I don't think they are. So looking at balance sheet, it's a pretty ugly balance sheet. So this is December 24th and they've got more cash now, but they had cash of 75, receivables of 368, that's money owned by customers. Payables of 280. So total liabilities of 254 and cash of only 75. And they've got this big outstanding receivable. So they definitely, yeah. So how can they have so little cash if they're holding customer payments? That's a great question. We've got more cash than these guys.

1:14:41So I don't know how they've got so little cash given that they were a$3 billion business. It doesn't actually make a huge amount of sense why they've got so little cash. But it was reported they had$148 million of cash currently. So that's obviously increased since December 24. But even Senna, it's still very little cash. It is weird though, because do you think that the average delay for a booking would be a month or not? I'd say less for corporate travel. Right. Could be. Could be. It's just all very bizarre. I don't know. We'll watch this play out. I don't think they're going broke. So I'll say that.

1:15:11Look, I don't think they're going broke. I don't think they are recovering as business as usual. I tend to agree with you. It's either going to be a cut price equity raise. I think they'll get money at a cut price. I think that's the most likely outcome. If this is$150 plus, then... $150... Of liability, cash liability. They've already said that's how much it is. $150? Yeah, it's more than$150. And plus penalties and interest, because there's interest as well. Why? Three years ago, some of these... Who are they paying the penalties and interest to? To the customers, presumably. I don't reckon they'll be paying...

1:15:43You don't reckon they're paying... No. No, I think it is what it is. And so... A customer... If you're a big... If you're a big enough customer, you can definitely sue for interest, because they're breached. As a result of the breach, there's damage. Damage is the image of interest. I know, but let's say they are. I think they're paying interest. Let's say they owe you a million dollars. No, but if it's the UK government, 100 million, that's potentially 20 million bucks in interest. Well, that's true. That would be problematic. But like - And I'm pretty sure a big chunk is the UK government. So what's their share price when it was - Is it suspended, the stock, right?

1:16:11I mean, it's suspended for months. Yeah. What's the share price? The last traded market cap was about 1.6 billion. Yeah, so what's the price? 16.07 was the last price in August. All right. So what if I said to you, they'll do... So if this was the financial crisis, you know what price they would do a rights issue at? $4. Yeah, or less. If it was a financial crisis, that's what they'd have to do,$4. And so worst case, I would say they do a raise at$4. I'd say this is worse than the financial crisis. So 1.6 bill is$16. Yeah,$100 million. So that would be a$400 million valuation. Yeah. I think they'll get money at that price for a business like this, but maybe not.

1:16:53$2. The point is, but the problem is you start downloading 50 % of the company, right? Yeah, exactly. So you kind of can't do it. That's the truth. That's exactly the problem. But then what do you do? But I think the biggest issue is if IATA says you guys need to give us $500 million security, which I don't have, which is probably not unreasonable if I had to ask, then they have to basically sell to Flight Center. I don't know who, or Apex. Would Flight Center love to buy this business? I reckon that would. Well, Flight Center is the dominant corporate travel business. Really globally. Would they get antitrusted in Australia by the ACCC on this?

1:17:27The ACCC, I mean, firstly, they have to approve. If you go and buy a box of Smarties or something, ACCC has to approve it. The question is, if a business is either dying or gets acquired, what happens? It's a really good question. It's a tough call because... Would customers start getting ripped off because there's no other options? If I'm the ACCC, I think if I let them buy it, they get all of that market share. If I let it go broke, the market share... They get the market share anyway. Well, no, I think it fragments. another player will come yeah and so i think if i'm the a triple c unfortunately i'll rather see that business go broke maybe it's a tough call right maybe or maybe you find another maybe maybe a nivan buys it maybe a yeah amex buyer amex travel buy there there probably are other buyers who can step in maybe andrew burns comes back he sold a business andrew berns burns sold a business to um corporate travel about 170 million bucks he could buy the whole thing back 170 million bucks Or less.

1:18:19Which would be pretty amazing. So I think there would be a buy. A flight center would love to buy this. And it'd be just a dream acquisition for them. That would be the dominant corporate travel business globally. A bit ironic given Jamie was at flight center. He grew up under screws. So my, again, we don't compete with these guys. We have a tiny corporate travel business. Sell shares. When the business is going well, sell shares. Yeah, well, ultimately he did. And he gave it to his footnote, Laura Ruffles, number two, who hopefully she's okay now. But that was sort of$10 million. bucks but yeah this is this is a pretty diabolical situation here i don't recall seeing something like this before that a company is owes more than its cash balance after ripping off customers is basically unprecedented in australian corporate history could be that was a unbelievably jam packed episode idea thank you for coming in i've got two things to say at the end of this episode one is my daughter i'm a very good parent and so it's a school day but my daughter's here in the studio.

1:19:14So she's just going to tell us a couple of words about these mini shops that I talked about. I'm going to ask you a quick question and you're going to tell us. Where are you? Eden? Hello. That's the microphone. You know how he accuses me of not talking to the microphone? You don't have to look at me. I'm next to you. You can look at me if you like. Here, I'll turn this. There you go. Well, you need to talk into the microphone. So did you buy mini shops? Well, I should say, did I buy mini shops? Mini Brands? Mini Brands. No. I didn't buy them. Why not? Because Coles did Little Shops first. That's right.

1:19:51And then Mini Brands came during COVID. So answer this question, because I know you were listening to the recording before. Were you shocked that it's so popular? No, because it's all over my YouTube for you. Is it? Aren't you banned from YouTube? I know you're old enough to get past that. Are you 16? Yeah. I don't think YouTube is even part of the ban anymore. YouTube is. It is. It is part of it. It's hard to get track. All right, so that wasn't a surprise to you that that was so popular? No. Okay, well, that guy's the richest guy in New Zealand. So there you go. Okay, thank you. That was good.

1:20:22And this is the next thing I want to say. I don't often do a lead-in to coming up next week. Ooh, yes. But I'm going to say coming up next week. Well, actually, you often do a coming up next week. Do I? Yeah, you do. I don't think I do. I think you do. You don't think I do? You talk about the book thing two weeks ago, maybe foreshadowed the best episode ever. Oh, that's true. That's true. That's true. Anyway, go on. Mike said I don't do it. I think you do it off air. I'm sick of how often Mike agrees with you these days. Well, that is the price to pay for being wrong. As frequently as you're wrong, you're going to run into those problems periodically.

1:20:55Listen, there is a certain amount that you can pay people and they'll say whatever you want to say, but it's more than you're paying Mike. All right. So I've spent a lot of time this week trying to understand, because we talk about AI so much. And so I've gone and just really gone down the rabbit hole to understand the full supply chain of the current AI boom all the way from Google all the way up to Carl Zeiss, let's say. And so next week I want to share with you what I've learned about that, what's undervalued, what's overvalued, where are the dependencies, why I'm so bearish on open AI, so much more bearish.

1:21:40You're jumping on my bandwagon. Yeah, I'm... Oh, it's a digital AI bandwagon. You know what? I am firmly on your bandwagon. I'm driving that bandwagon. You're like in the passenger seat holding a shotgun, brandishing it. I might be on your bandwagon about Sam Altman as well. Not fully. Sam Altman. Not fully, but there is... The more I've looked at it, the more I can see a bit of Adam Newman in some of the sales pitching. Not the really negative stuff, but just in the sales pitching. I'll talk about how I feel about NVIDIA, data centers. Like, I've really gone deep on it. I'm looking forward to it.

1:22:08What I'm also looking forward to is we got a massive deep dive emergency episode on Temple and Webster. Obviously one of our muses at the Contrarian. So we got a special, so listen up on Thursday, two days time, you'll see a very, very special episode drop with a very, very special guest. We go deep, deep, deep into Temple and Webster. You will be loving it guys. I'm going to share my, I'm going to shockingly, just to keep it interesting, share my bull case on Temple and Webster. And even more shockingly, you've done hours of research for this. I did a good 20 minutes in your time hours so that'll be an unbelievable episode so make sure you hit that on Thursday at a very special deep dive so thank you Joel and Mike for sitting through this very very long episode and thank you I dear we'll see you on Thursday everyone fantastic