Ann: Initial Director's Interest Notice, page-13

The issues raised in the VGI report were satisfactorily explained and or not material to the business success. VGI acknowledged in its report that CTD had supernormal profitability and promptly overcomplicated the analysis. In their almost obsessive desire to prove those profits could not be real or even maintained they looked at everything except the obvious. The Business Model. Its not mentioned in their report. What a major blunder. Its so common to over complicate analysis and miss the obvious.
As I have said many, many times the model is buying low TTV conversion to EBITDA businesses and applying their IT to significantly improve EBITDA return.
You can bet the Texas business has a lousy conversion rate on solid TTV.
The benchmark for TTV to EBITDA margins for last FY 19 is ANZ at 3.9% followed by Europe at 3.6%, USA (NA) at 3% and Asia right down the back of the pack at 1%.
Asia drags the group average down to 2.3%. LOTUS had a great TTV business but manual systems brought the margin right down.
So when the Asia situation passes we could see some massive growth in the Region. Potential over time to double plus returns. Add to that organic growth.
Asia is so low that even some improvement in client IT use will offset some volume declines.
BREXIT will see a flurry of activity in Europe where our returns are already good.
There are many, many good TTV generating businesses out there with low TTV/EBITDA margins due to use of manual systems. The Texas acquisition is one of them.
Until the latest acquisition CTD had a break from acquisitions for a year or so. The review due to the VGI business plus no acquisitions have given CTD plenty of time to review and improve business processes and their business model.
CTD will come out of this stronger than ever.
The model should continue to provide CTD with new businesses for a good few years to come providing continued growth.
The number of shares on issue is reasonably low and being a market favourite for some time has meant that we were purchasing businesses with shares valued at 30 plus PE multiples to buy businesses at 10 to 15 PE multiples with lousy TTV/EBITDA conversion. What a steal - many times over..
Now with interest rates so low we can fund acquisitions with debt and maintain EPS levels with minimal shares issued. We have also had exchange rates in our favour for a while.
When attempting to prove CTD's super returns could not be true they neglected to consider how the business model works as very briefly outlined above.
Summary:
Buy high TTV but low TTV EBITDA conversion businesses at low valuations compared to CTD
Pay for them by issuing CTD shares valued at 30 plus PE.
Apply CTD tech to significantly improve TTV/EBITDA margins.
Now with interest rates so low and the SP down use manly debt to buy businesses to maintain EPS and improve ROE at the same time.
All above is what VGI failed to consider during their analysis.
We have had some bad luck with the Asian situation but that will pass leading to rapid growth in that Region. We have had some luck with low interest rates and a favourable exchange rate. The positive is that CTD is nimble enough to deal with the (fortune) cookies no matter how they crumble.