4 March 2021
ThinkSmart Limited
("ThinkSmart" or the "Company" which together with its subsidiaries is the "Group")
Interim Results for the six month period ended 31 December 2020
Clearpay holding revaluation drives 237% profit uplift to £53.7m
ThinkSmart Limited (AIM: TSL), the specialist digital payments business with a 10%(1) equity shareholding in Clearpay Finance Ltd ("Clearpay"), today announces its Interim Results for the six months ended 31 December 2020 (the "period" or "H1 2021").
Highlights
Clearpay shareholding revaluation continues to drive material value
| · | Profit after tax up 237% to £53.7 million (H1 2020: £15.9 million) driven by a £52.9 million non-cash fair value gain on the independent valuation(2) of the Group's retained 10%(1) shareholding in Clearpay |
| · | 10%(1) shareholding in Clearpay independently revalued to £106.6m(2) at period end (FY 2020: £53.7 million) |
| · | Net assets at period end of £116.6 million are equivalent to 109.44 pence per share (FY 2020: £66.5 million/62.42 pence per share) |
| · | Put/call option agreement with Afterpay Ltd ("Afterpay"), exercisable in 2023/24, for the remaining 10%(1) shareholding in Clearpay provides a clear and agreed legal mechanism to enable Clearpay shareholding realisation |
| · | Proven delivery of shareholder return with special dividend and capital return of A$6.5 million (6.1 cents per share), equivalent to £3.7 million, paid in December 2020 |
| · | Sale of 90% shareholding in Clearpay to Afterpay and retention of 10%(1) shareholding has now generated cumulative accounting profit of £116.7 million (including £106.5 million(2) of non-cash fair value gains), with the 10%(1) stake offering further upside potential subject to the ongoing performance of Clearpay |
| · | Cash and cash equivalents of £6.9 million at 31 December 2020 (FY 2020: £8.8 million) |
Clearpay trading performance for the six months ended 31 December 2020
Figures are as announced to the Australian Stock Exchange by Afterpay Ltd on Thursday 25 February 2021 in its half year results to 31 December 2020 and the following is extracted from that announcement. All currency figures are in Australian dollars unless otherwise stated. Clearpay is 90% owned by Afterpay.
| · | AUS$800m underlying sales reflects an increase of 288% on H1 2020 and represents 8.2% of Afterpay's global total. The proportion of Clearpay's underlying sales to Afterpay's global sales total has continued to increase, having stood at 5.4% at FY 2020 |
| · | AUS$6.5m EBITDA represents 13.6% of Afterpay's EBITDA |
| · | 1.6 million active customers is 12.2% of Afterpay's global total and an increase of 161% on H1 2020. The proportion of Clearpay's active customers to Afterpay's global active customer total has continued to increase, having stood at 10.1% at FY 2020 |
| · | Contribution from returning customers - i.e. repeat business - increased from 87% at 30 June 2020 to 90% at 31 December 2020 |
| · | The number of active merchants increased by 812%. Strong growth in merchant acceptance has continued into January and February 2021. New merchants include: Superdry UK, Signet Brands (Ernest Jones and H Samuel), Pandora, RIXO, Goop, FaceGym, The Fragrance Shop, Lounge Underwear, and Revolution Beauty |
Managed wind down of legacy operations continues to generate positive cash flow
| · | ThinkSmart's operating business, powered by SmartCheck, a proprietary digital payments platform and credit decision-making engine, is in managed wind down, and options to realise the value of this asset continue to be considered. |
| · | £1.45 million cash receipt and realised gain in the period, as announced on 10 August 2020, from the settlement agreement in relation to the legal proceedings issued by the Group against Carphone Warehouse |
| · | Total revenue of £2.4 million (H1 2020: £3.3 million) includes £0.4 million (H1 2020: £0.2 million) from the provision of the outsourced call centre customer support service for Clearpay |
| · | Optimised cash management with £1.8 million net cash generated from operating activities (H1 2020: £1.0 million) including £1.45 million from settlement agreement in relation to legal proceedings |
| · | Operating costs further reduced to £1.8 million (H1 2020: £2.2 million) and remain controlled, aligned to current volume performance |
Commenting on the results, Ned Montarello, Executive Chairman of ThinkSmart, said:
"The value of our shareholding in Clearpay is underpinned by the rapid consumer acceptance and subsequent compelling growth of the Buy Now Pay Later market coupled with the trading performance of Clearpay. Clearpay's trading in the period has been outstanding, and it has continued to accelerate rapidly. Importantly, Clearpay continues to grow within Afterpay, reflecting its increasing importance to Afterpay's group-wide metrics.
"Our investment in Clearpay has now generated over £116 million of profit for shareholders, with further upside potential for our retained stake from Clearpay's ongoing progress. Our agreement with Afterpay provides shareholders with a clear and agreed legal mechanism for realisation of the value of our Clearpay holding in 2023/24.
"While our strategic efforts are focused on further value creation for shareholders via our holding in Clearpay, the managed wind down of our legacy operations continues to generate positive cash flow as we control costs while rightsizing the operations to lower volumes. This leaves our balance sheet robust. There is inherent, tangible value within our proprietary payments technology and we are continuing to consider how best to optimise the value of this asset.
"Ultimately, the Company is well placed to continue accruing material value for our shareholders, subject to Clearpay's ongoing progress, and we thank them for their ongoing support of the strategy."
For further information please contact:
| ThinkSmart Limited | Via Buchanan |
| Ned Montarello |
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| Canaccord Genuity Ltd (Nominated Adviser and Broker) Sunil Duggal Andrew Potts Tom Diehl
| +44 (0)20 7523 8350
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| Buchanan Giles Stewart Chris Lane Toto Berger
| +44 20 7466 5000 |
(1) A proportion of the 10% retained shareholding (up to 3.5% of the total share capital of Clearpay) will be made available to employees of Clearpay under an employee share ownership plan.
(2) The Group engaged a third party global professional services firm to independently value its retained shareholding in Clearpay at 31 December 2020 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). This valuation has been undertaken based on publicly available information, reflecting the Afterpay call option (exercisable from 23 August 2023) and ThinkSmart put option (exercisable from 23 February 2024) and including a discount for the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10%(1) shareholding in Clearpay from which the Group has taken at two thirds of the range. Under either the call or put option, the sale of the 10%(1) shareholding in Clearpay to Afterpay will be at a price calculated on agreed valuation principles at the time. Further detail is provided in Note 10(i) to the 31 December 2020 Group interim financial report below.
Notes to Editors
About ThinkSmart Limited
ThinkSmart is a specialist digital payments platform business. It offers investors unique exposure to the UK 'Buy Now Pay Later' payments sector which is undergoing exponential growth, driven by ongoing digital transformation of consumer shopping habits and financial services.
This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.
Chairman's Statement
Clearpay Drives Significant Value for Shareholders
Our six month period to 31 December 2020 has been beneficial for our shareholders. Our business was founded on a deeply entrepreneurial mindset and culture, always ready to move quickly, in particular in relation to how digital transformation has and continues to reshape consumer behaviour in the core retail markets and the way in which retailers have needed to adapt their offerings to stay relevant. Accordingly, in 2017/18 we developed and launched Clearpay in the UK, taking first mover advantage in the nascent 'Buy Now, Pay Later' market. Our decision in 2018 to sell 90% of Clearpay to Australian listed Afterpay, a highly capitalised, well-funded global financial technology business, has delivered - and I'm confident will continue to deliver - material value for shareholders.
Our results for the half year reflect record profitability, with profit after tax of £53.7m, driven by the revaluation gains attributable to our remaining 10%(1) holding in Clearpay as a result of the exceptional underlying performance of that business. Our Net Asset Value stood at £116.6 million at the period end, or 109.44 pence per share. On a per share basis this is an uplift of 82 pence per share in the last 12 months, in addition to the 3.4 pence per share capital return and special dividend paid to shareholders in December 2020. All in all, the sale of 90% of the Clearpay business and our retained 10%(1) shareholding has now generated cumulative profit of £116.7 million (including £106.5(2) million of non-cash fair value gains), with the 10%(1) stake offering further upside potential subject to the performance of Clearpay.
As part of the agreement with Afterpay, made at the time of the Clearpay sale, there is a put/call option mechanism which gives an agreed, clear legal mechanism to a realisation of the stake in 2023/24. The price will be calculated on agreed principles based on market valuations at that time. These principles are reflected in the carrying valuation of the asset on our balance sheet.
The Board has consistently sought to return capital to shareholders where appropriate and is mindful of maintaining a prudent level of cash reserves in the business. In line with this, the business paid a special dividend and capital return of A$6.5 million (6.1 cents per share), equivalent to £3.7 million (3.4 pence per share), in December 2020.
Turning to our legacy retail consumer and business finance offerings, shareholders will be aware that this has been in managed wind-down, reflecting our strategic focus on delivering value to holders via the Clearpay asset, together with providing the outsourced call centre customer support service for Clearpay. As announced on 10 August 2020 we reached a settlement with Carphone Warehouse for £1.45 million and as a result have now ceased writing any new business. We are managing the wind-down by adjusting the cost base accordingly and are continuing to deliver net positive cash flows. Therefore, we expect our cash reserves to continue to build over the next few years.
We do see tangible value, however, in the investment made in our proprietary, highly robust credit origination and decision engine, SmartCheck, which powers point-of-sale lease finance payments solutions. The Board will continue to consider how best to optimise the value of this asset.
The Group has a robust financial position, with net cash of £6.9 million at 31 December 2020 (after the payment of £3.7 million special dividend/capital return in December 2020 and including receipt of the £1.45 million settlement amount in August 2020).
I'm very pleased to be reporting this level of value accretion to our shareholders.
Operating Business Performance
As expected, leasing volumes fell 62% to £0.5 million (H1 2020: £1.3 million) in the period, and we expect this volume reduction to continue as we manage the division's wind down. Revenues were consequently 27% lower for the period at £2.4 million (H1 FY20: £3.3 million) as the lower volumes in the period are partially offset by the majority of revenue for the period being derived from higher volumes in previous years.
As announced on 10 August 2020, ThinkSmart reached a settlement agreement of £1.45 million in relation to the legal proceedings issued by the Group against Carphone Warehouse. As part of the settlement, the Group has agreed with Dixons Carphone ("DC") to the orderly winding up of all of its agreements with DC including Flexible Leasing, SmartPlan and Upgrade Anytime. In the period to 31 December 2020, all of ThinkSmart's new business volumes were generated from its existing agreements with DC. The Group will continue to service its existing customer base ensuring the fair treatment of customers, along with any new volumes generated during the orderly winding up of the three products and will continue to benefit from cash generation in the meantime.
The Group continues to have a good mix of consumer and business customers, in addition to being diversified by region and demography. The quality of the Group's underwriting procedures, as well as the small value of debt per customer and its high-quality credit customer portfolio, continues to mitigate the risk to any adverse impact on its existing customers' financial positions. As at 31 December 2020, lease receivables under management were £4.5 million, with approximately 9,800 active customer contracts.
Operating costs decreased further to £1.8 million (H1 2020: £2.2 million) over the period and remain controlled, aligned to the volume performance of the division.
Group Financial Position
The Group's 10%(1) holding in Clearpay Finance Limited was revalued to £106.6(2) million at 31 December 2020 (FY 2020: £53.7 million). An asset valuation exercise was performed by an independent third-party valuer, a leading global professional services firm. The sale of the Group's holding is subject to a put/call arrangement with Afterpay in 2023/24, based on agreed valuation principles using the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. These valuation principles are the same principles that the independent third-party valuer used to determine the £106.6(2) million valuation of the Group's 10%(1) stake in Clearpay as at 31 December 2020.
The Group held cash and cash equivalents of £6.9 million at 31 December 2020, after the £3.7 million payment of the special dividend/capital return in December 2019 and including receipt of the £1.45 million settlement amount in August 2020. This is down from £8.8m at 30 June 2020.
Current Trading Update
ThinkSmart anticipates its cash reserves will continue to build over the next few years, as the Group's operating division continues to service its existing customer base alongside any potential new volumes generated during the orderly winding up of its existing agreements. ThinkSmart also provides an outsourced call centre customer support service for Clearpay. As announced in August 2020, following the settlement agreement with DC, the Group has now ceased writing any new business.
Looking ahead, the business is well positioned to further benefit from future growth in the value of its shareholding in Clearpay subject to the ongoing performance of Clearpay, and therefore to continue creating material value for shareholders.
Key Performance Indicators:
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6 Months to 31 December 2020
| 6 Months to 31 December 2019 |
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| Business Volumes (ex VAT cost of equipment acquired in period and leased to customers)
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| · SmartPlan | £0.5m | £1.0m | -50% |
| · Upgrade Anytime | - | £0.2m | -100% |
| · Flexible Leasing | - | £0.1m | -100% |
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| Total | £0.5m | £1.3m | -62% |
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| Revenue (Total) | £2.4m | £3.3m | -27% |
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| Net profit after tax | £53.7m | £15.9m | +237% |
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| Basic EPS in pence | 50.39 | 14.95 | +237% |
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| As at 31 December 2020 | As at 30 June 2020 |
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| Lease Receivables Under Management (Closing) | £4.5m | £6.5m | -31% |
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| Active Customer Contracts (000) | 9.8 | 15.4 | -36% |
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| ATV (Average Transaction Value) | £1,461 | £1,216 | +20% |
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| Cash and Cash Equivalents | £6.9m | £8.8m | -22% |
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| Net Assets | £116.6m | £66.5m | +75% |
The following results have been extracted from the interim financial statements
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the six months ended 31 December 2020
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31 December 2020 | 31 December 2019 |
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| Notes | £,000 | £,000 |
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| Revenue | 6(a) | 2,342 | 3,052 |
| Other revenue | 6(b) | 45 | 272 |
| Total revenue |
| 2,387 | 3,324 |
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| Customer acquisition costs | 6(c) | (175) | (384) |
| Cost of inertia asset sold | 6(d) | (191) | (345) |
| Other operating expenses | 6(e) | (1,832) | (2,188) |
| Depreciation and amortisation | 6(f) | (864) | (1,006) |
| Impairment gains | 6(g) | 39 | 4 |
| Gains on financial instruments | 6(h) | 52,867 | 16,555 |
| Other gains | 6(i) | 1,450 | - |
| Profit before tax |
| 53,681 | 15,960 |
| Income tax (cost) | 7 | (10) | (35) |
| Net Profit after tax - attributable to owners of the Company |
| 53,671 | 15,925 |
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| Other comprehensive profit/(loss) |
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| Items that may be reclassified subsequently to profit or loss (net of income tax): |
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| Foreign currency translation differences for foreign operations |
| 62 | (105) |
| Total items that may be reclassified subsequently to profit/(loss), net of income tax |
| 62 | (105) |
| Other comprehensive profit/(loss) for the period, net of income tax |
| 62 | (105) |
| Total comprehensive profit for the period, net of income tax |
| 53,733 | 15,820 |
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| Profit per share (pence) |
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| Basic (pence per share) | 24 | 50.39 | 14.95 |
| Diluted (pence per share) | 24 | 49.57 | 14.95 |
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The attached notes form an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
as at 31 December 2020
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| 31 December 2020 |
30 June 2020 |
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| Notes | £,000 | £,000 |
| Current Assets |
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| Cash and cash equivalents |
| 6,886 | 8,805 |
| Trade receivables |
| 44 | 129 |
| Finance lease receivables | 8 | 97 | 431 |
| Other current assets | 9 | 461 | 924 |
| Total Current Assets |
| 7,488 | 10,289 |
| Non-Current Assets |
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| Finance lease receivables | 8 | 2 | 15 |
| Plant and equipment | 13 | 421 | 460 |
| Intangible assets | 14 | 878 | 1,433 |
| Financial assets at fair value through profit and loss | 10 | 106,600 | 53,733 |
| Contract assets | 11 | 1,149 | 1,430 |
| Other non-current assets | 12 | 2,119 | 2,147 |
| Total Non-Current Assets |
| 111,169 | 59,218 |
| Total Assets |
| 118,657 | 69,507 |
| Current Liabilities |
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| Trade and other payables | 15 | (612) | (1,195) |
| Lease liabilities | 16 | (98) | (94) |
| Contract liabilities | 17 | (543) | (648) |
| Provisions | 15 | (234) | (255) |
| Total Current Liabilities |
| (1,487) | (2,192) |
| Non-Current Liabilities |
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| Lease liabilities | 16 | (98) | (148) |
| Contract liabilities | 17 | (507) | (679) |
| Total Non-Current Liabilities |
| (605) | (827) |
| Total Liabilities |
| (2,092) | (3,019) |
| Net Assets |
| 116,565 | 66,488 |
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Equity |
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| Issued Capital | 18 | 10,407 | 13,164 |
| Reserves |
| (2,770) | (2,832) |
| Accumulated profits |
| 108,928 | 56,156 |
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| 116,565 | 66,488 |
The attached notes form an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the six months ended 31 December 2020
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| Fully paid ordinary shares | Foreign currency translation reserve | Accumulated Profit | Attributable to equity holders of the parent |
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| £,000 | £,000 | £,000 | £,000 |
| Balance at 1 July 2019 |
| 15,211 | (2,978) | 4,242 | 16,475 |
| Profit for the period |
| - | - | 15,925 | 15,925 |
| Exchange differences arising on translation of foreign operations, net of tax |
| - | (105) | - | (105) |
| Total comprehensive profit for the period |
| - | (105) | 15,925 | 15,820 |
| Transactions with owners of the Company, recognised directly in equity |
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| Distributions to owners of the Company |
| (2,047) | - | (1,158) | (3,205) |
| Recognition of share-based payments |
| - | - | 9 | 9 |
| Balance at 31 December 2019 |
| 13,164 | (3,083) | 19,018 | 29,099 |
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| Balance at 1 July 2020 |
| 13,164 | (2,832) | 56,156 | 66,488 |
| Profit for the period |
| - | - | 53,671 | 53,671 |
| Exchange differences arising on translation of foreign operations, net of tax |
| - | 62 | - | 62 |
| Total comprehensive profit for the period |
| - | 62 | 53,671 | 53,733 |
| Transactions with owners of the Company, recognised directly in equity |
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| Distributions to owners of the Company |
| (2,757) | - | (899) | (3,656) |
| Balance at 31 December 2020 |
| 10,407 | (2,770) | 108,928 | 116,565 |
The attached notes form an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
for the six months ended 31 December 2020
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| 31 December 2020 |
31 December 2019 |
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| £,000 | £,000 |
| Cash Flows from Operating Activities |
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| Receipts from customers |
| 2,310 | 2,746 |
| Payments to suppliers and employees |
| (2,374) | (2,353) |
| Receipts in respect of lease receivables |
| 431 | 1,867 |
| Proceeds/(Payments) from other interest bearing liabilities, inclusive of related costs |
| 23 | (1,608) |
| Interest received |
| 35 | 65 |
| Interest and finance charges |
| (86) | (215) |
| Receipts/(payments) from security guarantee |
| 26 | (17) |
| Income tax (payment)/repayment |
| (10) | 506 |
| Receipts from settlement of legal proceedings |
| 1,450 | - |
| Net cash provided by operating activities |
| 1,805 | 991 |
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| Cash Flows from Investing Activities |
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| (Payments)/proceeds for plant and equipment |
| (16) | 3 |
| Payments for intangible assets - software |
| (68) | (61) |
| Receipts from realisation of investing financial instruments |
| - | 3,806 |
| Net cash (used in)/generated from investing activities |
| (84) | 3,748 |
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| Cash Flows from Financing Activities |
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| Payment of lease liabilities |
| (46) | (42) |
| Dividends paid |
| (899) | (1,158) |
| Return of capital |
| (2,757) | (2,047) |
| Net cash used in financing activities |
| (3,702) | (3,247) |
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| Net (decrease)/increase in cash and cash equivalents |
| (1,981) | 1,492 |
| Effect of exchange rate fluctuations on cash held |
| 62 | (86) |
| Cash and cash equivalents from continuing operations at beginning of the financial period |
| 8,805 | 7,099 |
| Total cash and cash equivalents at the end of the financial period |
| 6,886 | 8,505 |
| Restricted cash and cash equivalents at the end of the financial period |
| (62) | (58) |
| Net available cash and cash equivalents at the end of the financial period |
| 6,824 | 8,447 |
The attached notes form an integral part of these consolidated financial statements.
1. General Information
ThinkSmart Limited (the "Company" or "ThinkSmart") is a limited liability company incorporated in Australia. These consolidated interim financial statements ("interim financial statements") as at and for the six months ended 31 December 2020 comprise the Company and its subsidiaries (the "Group"). The Group is a for profit entity and its principal activity during the period was the provision of lease and rental financing services in the UK. The consolidated annual financial statements of the Group as and for the year ended 30 June 2020 are available upon request from the Company's registered offices at Suite 5, 531 Hay Street Subiaco, West Perth, WA 6008 or at www.thinksmartworld.com.
2. Basis of Preparation
(a) Statement of compliance
The Company is listed on the Alternative Investment Market ("AIM"), a market of the London Stock Exchange. The financial information has been prepared in accordance with the AIM Rules for Companies and in accordance with this basis of preparation, including the significant accounting policies set out below. The interim results are unaudited but have been reviewed by the auditors and their review statement is on page 21.
The consolidated financial statements are general purpose financial statements which have been prepared and approved by the Directors in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (AASB) adopted by the International Accounting Standards Board (AASB) as well as International Financial Reporting Standards as adopted by the EU (''Adopted AASBs'').
The consolidated financial statements were authorised for issue by the Board of Directors on 3 March 2021.
This interim report does not include all the notes of the type normally included in annual financial statements. Accordingly, these statements should be read in conjunction with the most recent annual financial report, but additional notes have been included where such notes are deemed relevant to the understanding of the half-year financial report.
(b) Basis of measurement
The financial report has been prepared on the basis of historical cost, except for financial instruments measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in British Pounds ("GBP") unless otherwise noted.
(c) Functional and presentation currency
These consolidated financial statements are presented in British Pounds, which is the Group's functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191b and in accordance with that instrument, amounts in the consolidated financial statements and directors' report have been rounded off to the nearest thousand pounds, unless otherwise stated.
(d) Going Concern
The consolidated interim financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of these consolidated interim financial statements). In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the statement of financial position, future projections of profitability, cash flows and resources and the longer term strategy of the business. The Directors have assessed the impact of COVID-19 on the current and forecast position of the Group. As the Group has only been minimally impacted the Directors are satisfied that the Group has more than adequate resources to meet its liabilities as they fall due even when stressed to reasonable worst case scenarios.
3. Significant accounting policies
The accounting policies applied by the consolidated entity in this interim financial report are consistent with those disclosed in the consolidated annual financial report for the year ended 30 June 2020 other than as detailed below.
New accounting policies adopted in the financial year
The Group has adopted all new or amended Australian Accounting Standards that are mandatory for adoption in the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.
4. Critical accounting estimates and judgements
The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing the consolidated interim financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those disclosed in the consolidated annual financial report for the year ended 30 June 2020.
5. Financial risk management
The consolidated entity's financial risk management objectives and policies are consistent with those disclosed in the consolidated annual financial report for the year ended 30 June 2020.
6. Consolidated Statement of Profit or Loss
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| Profit/(loss) is arrived at after crediting/(charging) the following items:
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| 6 months to 31 December 2020 |
6 months to 31 December 2019 |
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| £,000 | £,000 |
| a) Revenue |
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| Extended rental income |
| 775 | 1,102 |
| Commission income |
| 620 | 1,284 |
| Outsourced services |
| 409 | - |
| Income earned from sale of inertia equipment |
| 355 | 363 |
| Services revenue - insurance commission |
| 136 | 198 |
| Interest revenue - other entities |
| 35 | 65 |
| Fee revenue - customers |
| 12 | 40 |
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| 2,342 | 3,052 |
| b) Other revenue |
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| Finance lease income |
| 45 | 74 |
| Other revenue |
| - | 198 |
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| 45 | 272 |
| Total Revenue |
| 2,387 | 3,324 |
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All revenue is generated in the UK from the following products: |
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| SmartPlan |
| 1,817 | 2,618 |
| Upgrade Anytime |
| 75 | 334 |
| Flexible Leasing |
| 51 | 108 |
| Other/non-product specific |
| 444 | 264 |
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| 2,387 | 3,324 |
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c) Customer acquisition costs |
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| Customer acquisition costs relate to commissions payable to our retail partners together with sales and marketing expenses incurred during the ongoing promotional activity of the finance contracts to new and existing customers.
| |||
| d) Cost of inertia asset sold | |||
| Cost of inertia assets sold is the write-off of inventory, including that transferred from PPE Operating Lease when end customer terminates their lease agreement during secondary period, upon sale of inertia equipment.
| |||
| 6. Consolidated Statement of Profit or Loss (continued)
|
| 6 months to 31 December 2020 |
6 months to 31 December 2019 |
|
|
| £,000 | £,000 |
| e) Other operating expenses |
|
|
|
|
|
|
|
|
| Employee benefits expense |
|
|
|
|
|
|
|
|
| - Payments to employees |
| (871) | (921) |
| - Employee superannuation costs |
| (53) | (43) |
| - Share-based payment expense |
| - | (9) |
|
|
| (924) | (973) |
|
|
|
|
|
| Occupancy costs |
| (81) | (88) |
| Lease interest charge |
| (11) | (15) |
| Professional services |
| (432) | (355) |
| Finance charges |
| (86) | (215) |
| Credit losses arising from financial guarantee contract |
| (54) | (183) |
| Other costs |
| (244) | (359) |
|
|
|
|
|
|
|
| (1,832) | (2,188) |
|
|
|
|
|
| f) Depreciation and amortisation |
|
|
|
|
|
|
|
|
| Depreciation |
| (242) | (383) |
| Amortisation |
| (622) | (623) |
|
|
|
|
|
|
|
| (864) | (1,006) |
| g) Impairment gains |
|
|
|
|
|
|
|
|
| Impairment gains on finance leases and receivables |
| 39 | 4 |
|
|
|
|
|
|
|
| 39 | 4 |
| h) Gains on financial instruments |
|
|
|
|
|
|
|
|
| Realised gains |
| - | 162 |
| Unrealised gains |
| 52,867 | 16,393 |
|
|
|
|
|
|
|
| 52,867 | 16,555 |
In the period to 31 December 2020 unrealised gains arose from the revaluation of the Group's investment in 10% of ClearPay Finance Limited (see note 10(i)). In the period to 31 December 2019 realised gains arose on disposal of the remaining holding of 125,000 shares in APT at a share price of AUD $27.73 per share. Unrealised gains arose from the revaluation of the Group's investment in 10% of ClearPay Finance Limited (see note 10(i)). These amounts are shown above.
| i) Other gains |
|
|
|
| Fair value gain on financial asset through profit and loss |
| 1,450 | - |
|
|
|
|
|
|
|
| 1,450 | - |
In the period to 31 December 2020 other gains arose on the settlement of legal claims against Carphone Warehouse as announced on 10 August 2020.
7. Income tax expense
The consolidated entity's consolidated effective tax rate in respect of continuing operations for the six months ended 31 December 2020 was 0.02% (31 December 2019: 0.22%).
|
|
| 6 months to 31 December 2020 | 6 months to 31 December 2019 |
|
|
| £,000 | £,000 |
| Current income tax expense |
|
|
|
|
Current income tax (charge) |
| (10) | (35) |
|
|
|
|
|
| Total income tax (charge) |
| (10) | (35) |
|
|
|
|
|
|
|
|
|
|
| Accounting profit before tax |
| 53,681 | 15,960 |
|
|
|
|
|
| Statutory corporation rate |
| 30% | 30% |
|
|
|
|
|
| Tax (charge) at the statutory income tax rate |
| (16,104) | (4,788) |
|
|
|
|
|
| Effect of tax rates in foreign jurisdictions |
| 5,905 | 1,756 |
|
|
|
|
|
| Non-deductible (expenses) |
| (11) | (161) |
|
|
|
|
|
| Non-taxable gain |
| 10,042 | 3,113 |
|
|
|
|
|
| Deferred tax asset not recognised |
| 163 | 45 |
|
|
|
|
|
| Irrecoverable withholding tax |
| (5) | - |
|
|
|
|
|
| Total income tax (charge) |
| (10) | (35) |
|
|
|
|
|
|
|
|
|
|
|
| |||
8. Finance lease receivables
|
|
| 31 December 2020 | 30 June 2020 |
|
|
| £,000 | £,000 |
| Current (no later than 1 year) |
|
|
|
| Gross investment in finance lease receivables |
| 67 | 207 |
| Unguaranteed residuals |
| 58 | 331 |
| Unearned future finance lease income on finance leases |
| (14) | (43) |
| Net lease receivable |
| 111 | 495 |
| Allowance for losses |
| (14) | (64) |
|
|
| 97 | 431 |
| Non-current (later than 1 year, no later than 5 years) |
|
|
|
| Gross investment in finance lease receivables |
| 1 | 7 |
| Unguaranteed residuals |
| 1 | 11 |
| Unearned future finance lease income on finance leases |
| - | (1) |
| Net lease receivable |
| 2 | 17 |
| Allowance for losses |
| - | (2) |
|
|
| 2 | 15 |
|
|
|
|
|
| Balance at 1 July |
| 446 | 3,445 |
| Receipts in respect of lease receivable |
| (431) | (3,244) |
| Finance lease income |
| 45 | 247 |
| Impairment gain/(loss) |
| 39 | (2) |
|
|
| 99 | 446 |
| All finance leases detailed above have a minimum lease term at inception of the lease of 2 years.
| |||
9. Other current assets
|
|
| 31 December 2020
| 30 June 2020 |
|
|
| £,000 | £,000 |
| Prepayments |
| 195 | 233 |
| Insurance prepayments |
| 18 | 55 |
| Accrued income - insurance commission (i) |
| 207 | 290 |
| Sundry debtors |
| 41 | 346 |
|
|
| 461 | 924 |
|
| |||
| i) Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of leaseholders and is net of a clawback provision. | |||
10. Financial assets at fair value through profit or loss
|
|
| 31 December 2020
| 30 June 2020 |
|
|
| £,000 | £,000 |
| Investment in ClearPay Finance Ltd (i) |
| 106,600 | 53,733 |
|
|
| 106,600 | 53,733 |
| 10. Financial assets at fair value through profit or loss (continued)
|
| i) On 23 August 2018 the Group sold 90% of Clearpay Finance Limited to Afterpay Ltd (formerly Afterpay Touch Group Ltd)(ASX:APT). The Group retains a 10% shareholding in Clearpay which is held as an investment at fair value through profit or loss under AASB 9. A proportion of the 10% shareholding (up to 35%) will be made available by the Group to employees of Clearpay under an employee share ownership plan ("ESOP"). Afterpay has a call option to purchase the remaining shares held by the Group, exercisable at any time after 23 August 2023. The Group has a reciprocal put option to sell the remaining shares held by the Group to Afterpay, exercisable after 23 February 2024. Under either the call or put option, the sale of the Clearpay shares to Afterpay will be at a price calculated on agreed valuation principles. The Group engaged a third party global professional services firm to value its retained shareholding in Clearpay at 31 December 2020 for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). The independent valuation process, in accordance with the agreed valuation principles, uses the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. This valuation has been undertaken based on publicly available information, reflecting the above and including a discount of 20% to be applied for minority holding and the lack of marketability of Clearpay as a privately owned company, and has produced a range of values for the Group's 10% shareholding in Clearpay. Reducing the discount for lack of marketability to 10% would increase the fair value by £13.3m; increasing the discount for lack of marketability to 30% would reduce the fair value by £13.3m. Since March 2020 the Afterpay share price has been on an upward trajectory which has continued since the half year end indicating continued growth in the value of the Group's 10% shareholding. Further, the Afterpay FY20 accounts reflect that initial growth in active customers is followed by increases in the transaction value and underlying sales metrics as the customer base matures and repeat spend increases. In FY20 Afterpay's Australia and New Zealand business, which is their most mature market, represented 59.5% of underlying sales but only 33.3% of active customers. For the same period, the US market represented 36% of underlying sales but 57% of active customers, and the UK market represented 5.4% of underlying sales but 10% of active customers. To reflect the relationship between maturity of customer base and underlying sales the Directors believe that greater weighting should be assigned to active customers. In line with this the Group has taken the valuation of the 10% shareholding at two thirds of the range produced by the independent valuation. As the Group has limited control over the setting of the price that it will receive for the transfer of the ESOP shares to the Clearpay employees, the Group has further discounted the valuation by 35% to determine the accounting fair value of its retained shareholding in Clearpay to be £106.6m at 31 December 2020. The investment in Clearpay is a level 3 financial instrument.
|
11. Contract assets
|
|
| 31 December 2020 | 30 June 2020 |
|
|
| £,000 | £,000 |
| Brought forward |
| 1,430 | 2,032 |
| Recognised as revenue in period (i) |
| 299 | 858 |
| Recognised as customer acquisition cost (ii) |
| (53) | (145) |
| Transferred to Plant & Equipment Operating lease additions |
| (527) | (1,315) |
|
|
| 1,149 | 1,430 |
|
|
|
|
|
| Contract asset revenue to be recognised less than 1 year |
| 349 | 479 |
| Contract asset revenue to be recognised between 1 and 2 years |
| 132 | 180 |
| Contract asset revenue to be recognised between 2 and 3 years |
| 29 | 42 |
| Contract asset revenue to be recognised between 3 and 4 years |
| 1 | 2 |
|
|
| 511 | 703 |
11. Contract assets (continued)
(i) A contract asset is recognised where the Group act as agent for the lessor (STB) during the minimum lease term and have a contractual right to the inertia asset at the end of the minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term building up inertia asset (non-cash consideration) over the minimum lease term.
(ii) Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight line basis over the term of the contract.
12. Other non-current assets
|
|
| 31 December 2020
| 30 June 2020 |
|
|
| £,000 | £,000 |
| Insurance prepayments |
| 1 | 5 |
| Accrued income - insurance commission (i) |
| 88 | 86 |
| Deposits held by funders (ii) |
| 2,030 | 2,056 |
|
|
| 2,119 | 2,147 |
|
|
|
|
|
| (i) Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of lessee's and is net of a clawback provision. The clawback provision for each reporting period has been estimated to be 30% based on historical experience and is calculated on the gross commission receivable. | |||
| (ii) Deposits held by funders for the servicing and management of their portfolios in the event of default. The deposits earn interest at market rates of return for similar instruments. See note 19 for further information. | |||
13. Plant and Equipment
|
| Plant & Equipment (UK) £,000 | Plant & Equipment Right of Use Lease Asset £,000 | Plant & Equipment Operating Lease £,000 | Total £,000 |
| Gross Carrying Amount |
|
|
|
|
| Cost or deemed cost |
|
|
|
|
| Balance at 30 June 2020 | 152 | 690 | 360 | 1,202 |
| Transferred from contract assets | - | - | 527 | 527 |
| Transferred to inventory/cost of inertia assets sold | - | - | (2) | (2) |
| Additions | 16 | - | - | 16 |
| Disposals | - | - | (534) | (534) |
| Balance at 31 December 2020 | 168 | 690 | 351 | 1,209 |
|
|
|
|
|
|
| Accumulated Depreciation |
|
|
|
|
| Balance at 30 June 2020 | (102) | (506) | (134) | (742) |
| Depreciation expense | (19) | (35) | (188) | (242) |
| Disposals | - | - | 196 | 196 |
| Balance at 31 December 2020 | (121) | (541) | (126) | (788) |
|
|
|
|
|
|
| Net Book Value |
|
|
|
|
| At 30 June 2020 | 50 | 184 | 226 | 460 |
| At 31 December 2020 | 47 | 149 | 225 | 421 |
14. Intangible Assets
|
| Contract rights £,000 | Software £,000 | Intellectual Property £,000 | Total £,000 |
| Gross carrying amount |
|
|
|
|
| At cost |
|
|
|
|
| Balance at 30 June 2020 | 441 | 4,369 | 359 | 5,169 |
| Effect of movement in exchange rate | - | - | 4 | 4 |
| Additions | 5 | 63 | - | 68 |
| Balance at 31 December 2020 | 446 | 4,432 | 363 | 5,241 |
|
|
|
|
|
|
| Accumulated amortisation and impairment |
|
|
|
|
| Balance at 30 June 2020 | (75) | (3,303) | (358) | (3,736) |
| Effect of movement in exchange rate | - | - | (5) | (5) |
| Disposals | - | - | - | - |
| Amortisation expense | (74) | (548) | - | (622) |
| Balance at 31 December 2020 | (149) | (3,851) | (363) | (4,363) |
|
Net book value |
|
|
|
|
| At 30 June 2020 | 366 | 1,066 | 1 | 1,433 |
| At 31 December 2020 | 297 | 581 | - | 878 |
15. Trade, other payables and provisions
|
| 31 December 2020 | 30 June 2020 |
|
| £,000 | £,000 |
| Trade and other payables | 110 | 220 |
| VAT/GST payable | 146 | 92 |
| Other accrued expenses | 356 | 883 |
|
| 612 | 1,195 |
| Provisions |
|
|
| Annual leave | 138 | 159 |
| Long service leave | 89 | 86 |
| Risk Transfer cancellation and claims | 7 | 10 |
|
| 234 | 255 |
16. Lease liabilities
|
| 31 December 2020 | 30 June 2020 |
|
| £,000 | £,000 |
| Balance brought forward | 242 | 330 |
| Rental paid in period | (57) | (114) |
| Interest charged | 11 | 26 |
|
| 196 | 242 |
|
|
|
|
| Lease liabilities due within 12 months | 98 | 94 |
| Lease liabilities due greater than 12 months | 98 | 148 |
|
| 196 | 242 |
|
|
|
|
16. Lease liabilities (continued)
| Undiscounted maturity analysis |
|
|
| Lease liabilities due up to 1 year | 113 | 113 |
| Lease liabilities due between 1 and 2 years | 103 | 113 |
| Lease liabilities due between 3 and 5 years | - | 47 |
|
| 216 | 273 |
17. Contract liabilities
|
| 31 December 2020 | 30 June 2020 |
|
| £,000 | £,000 |
| Balance brought forward | 1,327 | 1,993 |
| Recognised as revenue in period | (277) | (666) |
|
| 1,050 | 1,327 |
|
|
|
|
| Contract liabilities due within 12 months | 543 | 648 |
| Contract liabilities due greater than 12 months | 507 | 679 |
|
| 1,050 | 1,327 |
18. Issued capital
| Fully Paid Ordinary Shares | 31 December 2020 | 30 June 2020 | ||
|
| Number | £,000 | Number | £,000 |
| Balance at beginning of financial period | 106,509,994 | 13,164 | 106,509,994 | 15,211 |
| Issue of ordinary shares | - |
| - | - |
| Return of capital to shareholders | - | (2,757) | - | (2,047) |
| Balance at end of the financial period | 106,509,994 | 10,407 | 106,509,994 | 13,164 |
|
|
|
|
|
|
19. Commitments and contingent liabilities
|
|
| 31 December 2020
| 30 June 2020 |
|
|
| £,000 | £,000 |
| Leases where Group acts as agent (off statement of financial position) |
| 4,389 | 6,029 |
| Deposits held by funder |
| 2,030 | 2,056 |
Under the terms of the UK current funding agreement with Secure Trust Bank (STB), the Group is obliged to purchase delinquent leases (contracts in arrears for 91 days) from the funder at the funded amount. The Group has entered into a financial guarantee contract with STB for which the Group has provided a deposit to support future delinquent leases.
The deposit held by funders is recognised as an asset on the Group's statement of financial position within other non-current assets (see note 12).
20. Fair value of financial instruments
The carrying amounts of financial assets and financial liabilities recorded in the financial statements are not materially different to their fair values.
Fair value hierarchy
The financial instruments carried at fair value have been classified by valuation method.
The different levels have been defined as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
Key assumptions in the valuation of the instruments were limited to interpolating interest rates for certain future periods where there was no observable market data. The majority of the financial instruments are measured at amortised cost. At 31 December 2020 the Group held one financial instrument at fair value through profit or loss:
· 10% holding in ClearPay Finance Limited with a fair value of £106,600,000 (2019: £16,453,125). The holding in Clearpay is a Level 3 financial instrument. See Note 10(i).
21. Segmental information
The Group currently has one reportable segment which comprise the Group's core business unit (UK). Head office and other unallocated corporate functions are shown separately. For the segment, the Board and the CEO review internal management reports on a monthly basis. The composition of the reportable segment is as follows:
UK:
- ThinkSmart Europe Ltd
- RentSmart Ltd
- ThinkSmart Insurance Services Administration Ltd
- ThinkSmart Financial Services Ltd
- ThinkSmart UK Ltd
Corporate and unallocated:
- ThinkSmart Limited
- ThinkSmart Finance Group Limited
- ThinkSmart Inc
| 21. Segmental information (continued)
Operating Segments |
|
|
|
|
| |
| Information about reportable segments
| UK | Corporate and unallocated | Total | |||
| For the six months ended: | December 2020 |
December 2019 | December 2020 | December 2019 | December 2020 |
December 2019 |
|
| £,000 | £,000 | £,000 | £,000 | £,000 | £,000 |
|
|
|
|
|
|
|
|
| Revenue | 2,342 | 3,032 | - | 20 | 2,342 | 3,052 |
| Other revenue | 45 | 272 | - | - | 45 | 272 |
| Total revenue | 2,387 | 3,304 | - | 20 | 2,387 | 3,324 |
| Customer acquisition cost | (175) | (384) | - | - | (175) | (384) |
| Cost of inertia assets sold | (191) | (345) | - | - | (191) | (345) |
| Other operating expenses | (1,517) | (1,800) | (315) | (388) | (1,832) | (2,188) |
| Depreciation and amortisation | (864) | (1,006) | - | - | (864) | (1,006) |
| Impairment losses | 39 | 4 | - | - | 39 | 4 |
| Gain on Financial Instruments | 52,867 | 16,555 | - | - | 52,867 | 16,555 |
| Other gains | 1,450 | - | - | - | 1,450 | - |
| Reportable segment profit/(loss) before income tax | 53,996 | 16,328 | (315) | (368) | 53,681 | 15,960 |
|
|
|
|
|
|
|
|
|
| December 2020 |
June 2020 | December 2020 | June 2020 | December 2020 | June 2020 |
|
| £,000 | £,000 | £,000 | £,000 | £,000 | £,000 |
| Reportable segment current assets | 5,132 | 6,162 | 2,357 | 4,127 | 7,488 | 10,289 |
| Reportable segment non-current assets | 111,168 | 59,218 | - | - | 111,169 | 59,218 |
| Reportable segment liabilities | 1,845 | 2,695 | 247 | 324 | 2,092 | 3,019 |
| Capital expenditure | 84 | 509 | - | - | 84 | 509 |
22. Related party disclosures
As at 31 December 2020 the following were Key Management Personnel of the Group:
Executive Chairman
N Montarello
Executive Directors
G Halton (Chief Financial Officer)
Non-Executive Directors
P Gammell
D Adams
R McDowell (resigned 11 November 2020)
22. Related party disclosures (continued)
The Key Management Personnel remuneration included in 'employee benefits expense' in Note 6(e) is as follows:
|
|
31 December 2020 | 31 December 2019 |
|
| £,000 | £,000 |
| Short-term employee benefits | 228 | 220 |
| Post-employment benefits | 7 | 8 |
| Other long-term benefits | 1 | - |
| Share-based payments | - | 6 |
|
| 236 | 234 |
23. Events occurring after the reporting date
There has not arisen, in the interval between the end of the financial period and the date of this report, any other item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.
24. Earnings per share
|
|
| 31 December 2020 |
31 December 2019 |
|
|
| £,000 | £,000 |
| Profit after tax attributable to ordinary shareholders |
| 53,671 | 15,925 |
|
|
|
|
|
|
|
| 31 December 2020 Number | 31 December 2019 Number |
| Weighted average number of ordinary shares (basic) |
| 106,509,994 | 106,509,994 |
| Weighted average number of ordinary shares (diluted) |
| 108,267,346 | 106,509,994 |
|
|
|
|
|
| Earnings per share |
| 31 December 2020 |
31 December 2019 |
| Basic earnings per share (pence) |
| 50.39 | 14.95 |
| Diluted earnings per share (pence) |
| 49.57 | 14.95 |
|
|
|
|
|
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