The Corporate Travel Management Ltd (ASX: CTD) share price is trading lower on Monday.
At one stage today the corporate travel agent's shares were down 10% to a 52-week low of $12.54.
They have recovered in afternoon trade and are down 3.5% to $13.42 at the time of writing.
Why did the Corporate Travel Management share price crash 10% lower?
Investors were selling the company's shares this morning after VGI Partners released another report.
VGI Partners holds a short position in the company and has been targeting it for almost 18 months.
This morning Corporate Travel Management hit back at the report, releasing a response which refutes all of VGI's claims.
What did VGI claim?
Here's a summary of the claims and Corporate Travel Management's responses.
1: VGI claimed that the company had blamed its half year result on the coronavirus.
Management has refuted this and feels VGI has chosen to ignore the macro and economic challenges experienced during the half. These include Brexit, the Hong Kong unrest, and the US/China Trade war. It notes that coronavirus was only referred to in the context of FY 2020 guidance which related to second half impacts.
2: VGI's report claimed that volume-based revenue is in decline.
The company notes that VGI's report highlights a 6% ($3 million) decline in volume-based revenue, but appears to ignore the 9% ($14 million) increase in transactional revenue. It also advised that it has clearly indicated that in Asia it successfully executed a supplier revenue strategy to de-risk the volume-based overrides. This strategy resulted in a movement from volume-based to transactional revenue.
3: VGI claimed the company produced negative free cash flows to equity in first half and is unable to reconcile its cash flow movements.
Management advised that it has presented its cash flow consistent with accounting standard requirements and past practice. Operating cash flow was positive in the first half.
4: VGI's report claimed the company has been increasingly capitalising software development, and amortisation of previously capitalised costs are an increasing drag on profits.
The company responded by advising that it has been very clear with the market about its tech strategy. This includes development in-region, for-region. The assets that these activities create are a key point of differentiation for the company and continue to drive the relative business outperformance in all regions. It added that software capitalisation is expected to amount to $22.5 million in FY 2020 as it seeks to maintain its market-leadership position in technology. Management expects to continue to increase the amount capitalised as the company grows.
5: VGI's report raised questions about intra-period borrowings, and raised the prospect of using credit cards to pay bills while repaying debt. VGI also raised what appeared, to them, to be very high rates of interest paid and low levels of interest received.
The company advised that it records, in its statement of cash flows, all repayments and borrowings on a gross basis. The characterisation of the large intra-period balances is incorrect. If a $20 million maturity is rolled for another 3 months, that will show both a $20 million repayment and $20 million proceeds from borrowings. It also notes that credit cards and borrowings are not as closely linked as suggested by VGI. The card facilities are primarily used for the benefit of clients via virtual credit cards. This is in accordance with normal industry practice for corporate clients. Finally, it added that VGI appears to have overlooked the impact of the voluntarily disclosed borrowing costs on page 18 of its interim financial report.
