ThinkSmart AGM Speeches

22 May ThinkSmart AGM Speeches

Chairman’s Address: Peter Mansell

I am pleased to be able to report that for the Financial Year ended 31^st December 2008, ThinkSmart delivered a record full-year EBITDA (pre IPO and U.S. costs) of $11.3 million,  growth of 36% on the previous corresponding period.  Customer demand for our products was the strongest it has ever been, with 53,225 contracts processed,  growth of 11% on 2007.  Total revenue rose 7% to $38.9 million, with gross margin increasing 7%.  This was a very solid result given the global economic challenges experienced throughout last year and it underscored the resilience of our business model through these times. Our model wins on two clear fronts:  Firstly, during difficult economic times, small businesses – our target customers – increasingly look to solutions such as ours to help them sustain their cash flow when sourcing new office technology.  This was evidenced for us in markets like the UK where, despite our retail partner’s sales being in double digit decline, we experienced a 10% like-for-like (LFL) growth in demand during 2008. Secondly, the way we have established our business model sees us receive income not only at the commencement of a customers’ contract, but on a monthly basis through its life, thanks to the attachment of insurance to customer contracts, and at the end of term through our inertia strategies.  We had 75,000 live contracts at 31st December 2008, which, alone, should contribute around $60m in revenue from  insurance and inertia over the next 4 years. Operationally, we are net debt free; we have managed our cost base; and we are looking to expand our distribution channels in key markets within our European territories. Our strategy is to align with market leading, international retailers to meet the finance needs of small businesses buying technology in their stores.  It’s a niche that we believe we are leading globally.  We have exclusive distribution agreements with some of the world’s leading electrical retailers in six countries across Europe and Australasia.  In addition, we have strong partnerships with a number of leading banking institutions.  Most of these partnerships are contracted through to 2011 or beyond. We finished off 2008 with strong underlying EBITDA growth and, although we expect 2009 to be flat with regard to customer acquisition, we reiterate our expectation of a positive outlook for EBITDA in 2009, moderately weighted to the second half of the year. While we have not scheduled to expand into any new territories during 2009, our clear strategy is to continue to grow our existing markets, both organically and through the establishment of new retail partnerships. We have delivered an earnings per share of 8.7 cents before amortisation and US costs;  we paid an interim dividend of 2.0 cents per share franked at 40% in October 2008; and we paid a fully-franked final dividend of 1.5 cents per share on 14th April 2009.  As at 21 May 2009 this represented a 7.2% dividend yield for the full year just completed. This is a robust business model, performing exceptionally well in unprecedented economic conditions, and delivering a very solid shareholder return.  Your board is disappointed in the current share price which is presently at about 4 times underlying EBITDA multiple in a sector that averages 8 times.  We remain committed to seeing that the Group’s strong performance receives the recognition it deserves.  I thank you for your ongoing support and will now hand over to Ned Montarello to expand on our global operations strategies.

CEO’s Address: Ned Montarello Thank you Peter. In order to continue to position this business for strong, continued growth, based on the improvement of global economic conditions, we have aligned our business strategies to  three governing principles:

• We will grow through cash flow not debt;
• The pace of our expansion will be governed by our performance; and
• We will continue to align with market leading retailers and funders in the territories in which we operate.

Operationally, we have positioned the business to be net debt free and geared to grow cash reserves. 

In late 2008, we took the decision to cease to write any new business in the U.S., in line with our aim to continue to grow business through cash flow, not debt.  The U.S. operations will not incur any costs in 2009.  Our relationships there remain open with a view to re-engaging when trading conditions improve.  This action has enabled us to fully focus our resources on our more profitable, accessible territories and partnerships in Europe and Australasia where we see opportunities to expand our distribution channels and grow our existing markets through this downturn. Our 13 year old Australian business delivered an exceptional growth result last year, with revenue increasing 13% and EBITDA growing 29%. Key drivers have been the continued stability of volume, with key retail partners JB Hi-Fi and Dick Smith notably continuing to outperform; margin improvements from customer repricing and increased insurance attachment; and the recognition of a new line of revenue through the Warranty Services Product delivered in the Dick Smith stores.  Inertia performance has also continued to increase, further contributing to a strong EBITDA performance. Through 2009, the Australasian business expects to build on this base and has a significant focus on driving operational efficiencies and an improved customer experience through the launch of its new “QuickSmart” application system which is currently being rolled out in JB Hi-Fi and Dick Smith. The QuickSmart system significantly reduces the time taken to transact in store; removing the need for manual identity checks; and improving the accuracy and banding of approval limits that are set through the use of strong predictive credit scorecards.  It is further expected to see an increase in customer approval rates, as well as a reduction in future credit losses. We commenced the role out of QuickSmart last month and are already achieving measurable performance improvements at the front end of our business.  I look forward to updating you in more detail on this in the near future. In the United Kingdom we delivered a 44% growth on 2007 EBITDA from a 15% lift in revenue.  Insurance and inertia revenues continued to deliver strong growth with a low cost of delivery. This achievement, set against a backdrop of an evolving recessionary environment, is significant.  The UK is now in the midst of a fully fledged recession, and although we have seen a continued deterioration in retail conditions and a drop in store footfall, we are sustaining our EBITDA targets, and working with PC World to deploy new products and operating efficiencies  to continue to build our businesses together. PC World continues to be the clear computer retail market leader and it is now nearly a year into a comprehensive Business Renewal and Transformation Plan which is gearing the business for growth. As a part of this plan, DSG International, the owners of PC World stores, has created a store within a store trial concept, seeing the PC World format integrated within a giant Currys mixed electrical store.  Our performance to date in trialing in this test store is proving to be very promising and we are looking at ways to make our products more widely available for B2B customers in the Currys network. As a testament to the strength of the future we see together with the DSGi group, we have extended our contract with PC World to 31 December 2013, effectively extending the existing five-year contract by more than two years.  This extension, our third, is a strong endorsement of the synergies between our two businesses, effectively extending our relationship over a ten-year period. Our Spanish business illustrates both the certainty of our Inertia model and also the continued uniqueness of our proposition. Spain has been one of the worst hit of all Western European economies and we saw a corresponding decline in front-end volume as the recession bit, with a $2.5m negative impact to our 2008 EBITDA.

Yet despite this, the maturity of our product in the Spanish market has seen us benefit from a solid contribution from the commencement of our Inertia and Insurance channels seeing EBITDA margin grow 7% to 27% and delivering an EBITDA of $0.7m. Notwithstanding the challenging retail market conditions, we see some upside in Spain through 2009 / 2010 as we look to expand our distribution channels significantly so that we can capitalise on this market when trading conditions improve. To this end, yesterday we announced the signing of an agreement in Spain with Phone House. Phone House is the Spanish arm of the Best Buy Europe Joint Venture between the U.S. electrical retailer, Best Buy, and Europe’s leading mobile phone retailer, Carphone Warehouse.  The Phone House business in Spain is commencing a new B2B programme and while this is at its formative stages, this agreement is a significant milestone in the evolution of our European territories as Spain becomes the first to embark on a multi-channel environment which gears us well for the future recovery of that market. In Italy, PC City has undergone a significant restructuring programme which has seen the business move to implant its stores as the computer zone within the larger UniEuro mixed electrical stores.  There are 96 UniEuro stores across Italy, 14 of which now have PC City implant stores.  It is forecast that as many as 40 new implants may be created over the next 18 months which provides significant scope for increasing ThinkSmart’s footprint in that market.  As with Spain, we see some upside from a low cost base.

And our new business in France also holds significant opportunity for emulating the Australian business and establishing a multi-channel environment from day one.  We are continuing our trial with the giant German group Media-Saturn, and looking to sign new agreements in the coming months. On the funding front, across the Group our arrears continue to be well managed and are consistently running at around 5-6% of the book, with Australian consumer levels sitting slightly higher at 8%.  Given the relatively low monthly rental commitment most customers continue to honour their rental contract rather than risk the loss of their highly valued computer equipment. Our relationships with both Bendigo Adelaide Bank and Lloyds / Halifax Bank of Scotland have stood up well through the transitions for those businesses in their respective mergers.  Communication is strong and the relationships are positive.  In Europe, where we transact with Banco Santander in Spain and Italy, we are also looking to broaden our strategic funding relationships over the next 12 months, to develop additional pan-European strategic partnerships to sit alongside that of Santander and support our ambitions in this region.  The establishment of  new funding relationships in the current market, while still maintaining the principles of our current model, may require flexibility from our traditional funding. So in summary, ThinkSmart is well placed in this current environment: We have solid, long-term relationships with our partners; our product is right for these economic times;  and we have a high degree of certainty proven via our Inertia income lines. Operationally, we maintain tight control over portfolio credit performance; we are net debt free; and we are geared to grow our markets through 2009. We are pleased to report that our year to date EBITDA performance is in line with the previous corresponding period in 2008, and to this end we remain on track to achieve a positive outlook for EBITDA in 2009, moderately weighted to the second half of the year. Before I hand back to Peter, I’d just like to take this opportunity to thank him for his Chairmanship through our transition to being a publicly listed company.  I am looking forward to taking on the role of Executive Chairman and CEO and am delighted that Peter’s experience and skill sets remain on the board. We have a committed Board that is clearly focused on delivering the best outcomes for all shareholders. We thank all our staff for their continued hard work and enthusiasm and, notwithstanding the current environment, we remain confident that the opportunities we take this year will position us strongly for continued growth.