Corporate Travel Soars As EY Notes Hedge Fund VGI Report Is Superficial

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Corporate Travel Management

Lifting the trading halt placed on Tuesday, Corporate Travel Management Limited (ASX: CTD) today rushed on ASX after the auditor Ernst & Young noted that “VGI’s report is superficial.” At the time of writing, 8 November 2018 (12:48 PM AEST), CTM’s share price has jumped up 13.35% or $2.670 to trade at $22.670.

Travel company CTM today provided a targeted response to the latest 52-page report issued by the Hedge Fund VGI Partners on Tuesday. In the latest report, the fund beefed up its short position on Corporate Travel Management, betting against the company to get profited only if the CTM’s share price declines. The short position taken by the Hedge Fund VGI is backed by their claim of uncertainty hovering around the CTM’s business model, governance and financial reporting. However, this report come second in a streak. The original report, 176 pages long, was released by VGI on 31 October 2018 which was strongly refuted by CTM on facts and figures front. 

Moreover, after completing the review of VGI’s second report Corporate Travel Management claimed that VGI’s latest report “raises no new substantive issues.” Further, to materially confront the VGI’s regular claims against the company, CTM has appointed the world’s largest professional services company Ernst & Young. The management advised that engagement of EY is driven by its auditing and advisory experience in the travel sector.

See what three main observations have been highlighted by EY:

  • Impairment testing of CTM’s North American business: VGI claimed that CTM’s North American segment is vulnerable to a potential write-down as at 30 June 2018. But CTM refuted the claims on the ground that the methodology applied by the company required no impairment to be made for CTM’s North American CGU in FY18. Meanwhile, EY confirmed that if the higher FY17 discount rate was used in FY18 there would have been no impairment required.
  • CTM accounting disclosures on cash flow and working capital: VGI has questioned the 2H18 employee expenses of $96 million as compared to payments to suppliers and employees of $62 million. On this claim, CTM stated that the amount of $62 million represents net figure and is not the full amount of expenses paid for the period. Further, the company said that “VGI has omitted to consider the movement of payables that reflects either VGI’s lack of understanding of the corporate travel business model or is designed to be deliberately misleading.” The explanation given by the CTM obtained EY confirmation.
  • CTM’s cash and interest income: VGI claimed that CTM’s FY18 interest income of $0.13 million reflects CTM’s very little cash availability during the year. But following the assessment of CTM’s cash account fluctuations and low interest income, EY confirmed that CTM’s low interest income is not reflective of its closing cash balance and CTM’s $84.3 million closing cash balance is consistent with the average monthly balance across the preceding 12 months.

Furthermore, on Office footprint and staff number front, CTM provided that its total FTE headcount as at 5 November 2018 was 2,666 across Europe, North America, Asia, Australia & New Zealand.


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