ThinkSmart First Half in Line With Guidance and Well Positioned For Growth

22 Aug ThinkSmart First Half in Line With Guidance and Well Positioned For Growth

Key highlights for the six months ended 30 June 2012:

• Loss after tax of $1.5 million, ahead of guidance provided in May.
• ThinkSmart expects to return to profit in the six months to 31 December 2012 but to post a loss for the full 2012 year.
• ThinkSmart expects to return to profit in the 2013 year due to the benefits of lease accounting and continued traction of new product volumes. Profit for the 2013 year is expected to be below previous guidance (which was for record annual profits in 2013) due to the slower than expected take-up of new products.
• Record results from the UK business with highest ever levels of new originations and profit.
• A record level of new originations in the UK was offset by the impact of a challenging retail sector in Australia; Assets Under Management broadly flat at $121 million.
• Fido, a new payment plan product, launched in February, has built steadily so that Fido now represents over 20% of all new originations in Australia.
• Good operational progress, particularly in Australia, with the completion of the transition to a securitisation funding platform and significant improvements in asset quality.
• Strong operating cash generation of $5.9m in the six months to 30 June 2012.

The Group’s first-half loss after tax of $1.5 million resulted from the introduction of lease accounting in Australia, which spreads the profit of each new contract over the contract term, lower originations from the Australian rental business and the cost of launching two new products in the period. ThinkSmart expects to return to a profit in the second half of the year.

“The first-half financial result masks significant progress, which has positioned ThinkSmart for growth from the second half of 2012 in both assets under management and financial returns,” said ThinkSmart’s Chairman and CEO Ned Montarello.

The UK business, which started trading in 2003, recorded its highest ever level of new originations, with new business sales of £7.2 million, up 63% on the same period in 2011. As a result, Assets Under Management in the UK increased by 10% to $39 million.

Consumers continue to respond positively to, in particular, the Infinity product, which is available exclusively from Dixons, the leading electrical retailer in the UK.  The success of this bundled product (which allows a consumer to rent a tablet or computer and receive discounted services from the retailer) illustrates what can be achieved, even in a challenging economic environment.

ThinkSmart launched a new product, ThinkSmart Business Leasing (TBL), in the UK during the first half of the year. While the take-up of this product has been disappointing, the market and prospects for TBL remain promising.

“Overall, the UK business has performed exceptionally in the first half, recording record levels of new originations and profit. The issues contributing to TBL’s lacklustre performance are being resolved and the product will be re-launched in coming months,” said Mr Montarello.

“The successes with our established products in the UK indicate the potential of the business model – creating products which resonate with both consumers and businesses and which, through strong retail partnerships, build sufficient scale to provide attractive returns.”

Assets Under Management in Australia fell by 6% to $82 million, driven by a reduction in new originations. RentSmart, ThinkSmart’s rental product, has been adversely impacted by difficult trading conditions for electronic retailers in Australia.

While margins have not been adversely impacted, deep discounts have reduced both the volume of rental transactions and the average value of each transaction. Volumes have recovered slightly from a low point in April and new RentSmart originations for the 2012 year are expected to be around 20% below 2011.

ThinkSmart’s new payment plan product, Fido, launched at the end of February. The period post launch was dominated by the acquisition and training of retailer partners. Volumes are building steadily; new approvals in the last four weeks totalled $0.8 million.

“Our new payment plan product in Australia, Fido, represents an important strategic development as it provides diversification of both our product offering and our available markets,” said Mr Montarello. “Fido is building good momentum and the results of the last month have, in particular, been pleasing for such a new product.”

During the first half, ThinkSmart completed the transition to a securitisation model, providing a more profitable funding platform with greater access to funds. The quality of assets being written has improved significantly as a result of investment in underwriting capability. As a result, arrears on new originations have continued to improve – declining by 32% from 2011.

“In the past six months we have transformed the ThinkSmart business, with the completion of the move to a securitisation platform and the launch of key new products. The first half financial result includes the costs of achieving this progress as well as the impact of the difficult times being faced by electronic retailers in Australia”, Mr Montarello said.

Also, ThinkSmart has entered into a new service agreement with Mr Montarello. The previous fixed term employment contract expired on 28 August 2012 and has been replaced by a new rolling agreement.