ThinkSmart AGM Speech

16 May ThinkSmart AGM Speech

Chairman’s Address Annual General Meeting

Monday, 16 May 2011 at 3.30pm

In 2010 ThinkSmart established the cornerstones for continued growth and success. The level of this growth will be determined by the customer penetration rates our new products can achieve together with the prevailing economic conditions and the speed of recovery in both Australia and the UK. We remain well positioned for continued growth in 2011.

We have implemented an innovative new services-based Consumer product for the UK market, further enhanced our QuickSmart web based application and approval system and created funding capacity to support new business growth well into the future. The $16 million of new equity raised in 2010 supports $160 million of additional funding capacity.

The UK Consumer offer materially expands ThinkSmart’s market opportunity; system developments improve the sales experience by reducing approval and contract execution time to a few minutes which benefits customers and sales staff while reducing the cost of delivery; and the consumer has the convenience of a rental payment plan with a fully supported suite of services for the computer user complemented by an easy upgrade path to new technology at the completion of the 2 year contract.

Increased funding capacity provides certainty as we seek to expand the distribution base and provides an opportunity to improve margins.

As a result, for the Financial Year ended 31st December 2010, ThinkSmart delivered a record full-year net profit after tax of $6.8 million, up 31% on 2009.

Cash NPAT, determined by adding back the post tax impact of amortisation, depreciation and foreign exchange revaluations, grew 19% to $8.9m.

EBITDA margins continue to improve with an uplift of 5% in 2010, following a 26% improvement in the previous year. Operating efficiencies delivered through the QuickSmart system delivered a 17% reduction in the cost of doing business in 2010. These efficiencies are sustainable and with proven scalability there is an opportunity to further leverage volume growth to improve margins.

On a territory level, our 15 year old Australian business once again delivered exceptional growth with a 34% increase in EBITDA following a 61% increase in 2009.

In the UK, where the retail trading environment remains subdued, we posted a 5% reduction in EBITDA as a result of additional costs to support the introduction of our Consumer offering and flat revenue.

Mainland Europe remains a challenged economic environment. Our Spanish and Italian territories represent only 3% of Group revenue and the prospects for meaningful growth in the short to mid term are low. We have taken a passive, low cost base approach to operating these territories in 2011/2012 whereby we service existing customers and not seek to promote our offering with staff on the ground rather explore the online route to the same.

ThinkSmart paid a final dividend of 3.5 cents per share partly-franked to shareholders last month, which represents 54% of undiluted earnings per share.

All in all, 2010 was a strong year in which we delivered a record profit.  The model continues to prove its resilience through the challenges of the global economic downturn, and confirms that ThinkSmart is, and continues to be, a growth company across geographically diversified Territories.

THE PATH TO GROWTH FOR 2011 AND BEYOND

We have a clear path towards our objective of continued profitable growth.

Expand Accessible Market through Consumer Rental

ThinkSmart launched consumer rental in the UK market in November 2010 with the Infinity product. This services based product is a compelling value proposition for customers providing a complete computer service proposition with an easy upgrade option at the conclusion of the 2 year fixed rental payment plan. A similar move into Consumer in Australia over 5 years ago has seen consumer volumes increase at a compound annual growth rate of around 50% and this segment of the market now accounts for 75% of new business volumes in Australia.

Consumer rentals in the UK represent a material growth opportunity for 2011 and beyond. This is evidenced by the relative size of the currently available Business segment across Dixons Retail Plc, our long-standing electrical partner in the UK, and the Consumer segment which is 4 times larger.

Grow Distribution in New and Existing Territories

ThinkSmart currently originates 32% of new business volumes in Australia online where the customer applies through ThinkSmart’s website and once approval is notified the customer can execute the rental agreement and collect the rental equipment in store. In addition to expanding distribution through traditional channels, ThinkSmart is looking to increase its customer acquisition through Internet sales.

Recent technology developments in the UK market have seen ThinkSmart’s systems integrated with Dixons’ point of sale systems. When a customer is approved for rental finance at home they can print out an approval confirmation that carries a unique barcode. This document can be scanned by any Dixons’ point of sale terminal to authenticate the approved application and allow the customer to select equipment up to the pre-approved limit. Equipment details are automatically captured by Dixons’ point of sale process and added to the rental contract prior to execution by the customer.

The next phase of this evolution will deliver electronic signature technology to the application and approval process creating the opportunity for ThinkSmart to offer rental finance to customers choosing to purchase technology products through the Internet without visiting a traditional retail store. This innovative and leading edge development will allow ThinkSmart to expand the distribution reach with existing retail partners in addition to creating new relationship opportunities with participants in the online retail space. ThinkSmart’s opportunity to expand distribution into new territories using online capability will reduce establishment costs and operating risks of expanding the Group’s international footprint.

ThinkSmart is exploring new geographic territories that have the scale and potential to position it for significant future growth.

Grow Revenue Lines and Continue to Diversify Income

ThinkSmart’s existing territories create opportunities to diversify the revenue base and grow total income. The RentSmart business in Australia was established in 1996 and generates income from brokerage (Commercial and Consumer rental finance), insurance, inertia and warranty services. In contrast, UK operations were established in 2003 and generated no income from Consumer rental finance until November 2010. Consumer finance currently accounts for 75% of Australia’s new business so the scope for growth in the UK is significant. As each territory matures the opportunity to grow revenue lines increases as demonstrated by the UK business.

Improve Delivery and Customer Experience

ThinkSmart has transitioned from a telephone based applications and approval process to a web portal that allows the customer to apply for rental finance from in store or from the comfort of their home or office. This innovative approach has seen the time to complete the end to end process reduced to a few minutes thereby delivering a significantly improved experience for customers and retailers alike.

The QuickSmart system has been developed in house and has recently been granted an Australian Innovation Patent. Further developments including e-signature technology will further improve efficiency and the overall experience for customers and retailers. The process establishes ThinkSmart as a global leader in this niche and strengthens its competitive advantage in the markets it chooses to operate in.

To effectively capture the growth opportunities it has created, ThinkSmart has negotiated material increases in funding capacity. Delivering increased funding facilities at a lower overall cost was achieved by ThinkSmart developing, in conjunction with banks, an alternate funding model that can co-exist with the traditional funding structures. In Australia, ThinkSmart is well advanced in the implementation of a Master Trust Multi Funder Securitisation Program that doubles existing capacity.

MANAGEMENT APPOINTMENTS

Last year we appointed Anthony Baum to the role of Chief Operating Officer and Anthony has spent a considerable amount of time in his first 6 months bringing new funding opportunities to completion. Neil Barker, Group CFO and Company Secretary, has announced his retirement effective from July 2011 after 6 years with ThinkSmart. The Board and I would like to take the opportunity to thank Neil for 6 outstanding years of service. There has been no greater contributor to ThinkSmart over the years than Neil Barker. Jan Ferreira, who has held the position of Australasian CFO for the last 4 years will initially act in the Group CFO and Company Secretary role.

Before I conclude my presentation, I’d finally like to thank all our staff across Australia, New Zealand and Europe for their continued hard work and enthusiasm.  We remain confident that the strategies we are pursuing this year will position this business strongly for continued growth.

I’d also like to thank our shareholders for their continued support.  We remain committed to driving value for shareholders and believe the strategies that are in train will contribute significantly to realising the full value in this business.