TSM Announces UK Consumer Launch and $16m Fully Underwritten Equity Raising to Accelerate Growth

30 Sep TSM Announces UK Consumer Launch and $16m Fully Underwritten Equity Raising to Accelerate Growth

ThinkSmart today announced that it will raise approximately $16 million in equity to fund new growth opportunities.

The fully underwritten capital raising will be undertaken through a $9.8 million accelerated non-renounceable entitlement offer and $6.2 million institutional placement.

The proceeds of the capital raising will be deployed within the business to fund:

• the launch of ThinkSmart’s UK consumer proposition; and
• new growth opportunities in the Australian business.

The equity raised will provide the initial capital commitment required to support the establishment of new funding structures to enable ThinkSmart’s expansion into the UK consumer market and new Australian initiatives. The decision to raise equity to support these new funding structures highlights the depth of organic growth opportunities available to ThinkSmart.

“The opportunity to launch a consumer proposition in the UK has been something that ThinkSmart has been working towards for some time,” said Executive Chairman and CEO, Ned Montarello. “We have waited patiently for the right opportunity, and we said at our half year results announcement that we were on track to enter the market in time for the Christmas trading period. Today’s capital raising, coupled with the significant investment we have made in developing and marketing the UK consumer proposition, will ensure that we are well positioned to capture the value created by this exciting proposition.”

Funding update

ThinkSmart is pleased to announce the successful progress of the expansion of its funding facilities necessary to take advantage of these new opportunities. ThinkSmart’s existing Australian funder has agreed to increase the size of ThinkSmart’s Australian funding facility from $80 million to $100 million. Additionally, ThinkSmart has agreed indicative terms and is in advanced discussions for a new $100 million Australian funding facility to be provided by one of the major Australian banks.

In the UK, ThinkSmart has signed a term sheet and is in advanced discussions with its existing UK B2B funder, Secure Trust Bank, to finalise the establishment of a £20 million facility to fund ThinkSmart’s expansion into the UK consumer market. Terms have been approved for the facility by Secure Trust Bank. Completion will require an investment of £2 million in a coupon paying regulatory capital instrument into Secure Trust Bank. The terms of the facility are broadly consistent with the existing facility provided by Secure Trust Bank.

ThinkSmart is also in discussions with a major UK Bank and has received a term sheet for a revolving credit facility of up to £35 million for the UK B2C business. The proposed structure of the funding will be based on a predetermined advance rate agreed by ThinkSmart and the funder, and will require ThinkSmart to contribute the first loss piece to the structure.

UK consumer proposition

In May 2010, ThinkSmart executed a 5 year, exclusive agreement to launch a consumer rental product with Dixons Retail in the UK. ThinkSmart recognised this as a unique opportunity to emulate its highly successful Australian consumer rental business in the UK market. ThinkSmart’s existing relationship with Dixons in the B2B space, coupled with its experience in offering side by side B2B and B2C products in the Australian market, provides the understanding and capabilities necessary for the establishment of a successful consumer proposition in the UK.

“The UK consumer proposition represents an exciting opportunity for us,” said Mr. Montarello. “It provides us with a presence in more than 680 stores across the UK, which last year generated nearly £1.4bn in sales of computing equipment. Based on an estimated penetration rate of around 1%, we believe the new proposition is worth up to £15 million in additional annual volumes for ThinkSmart.”

Following the implementation of the proposed financing arrangements, ThinkSmart expects the EBITDA margin on the UK B2C proposition to be consistent with that achieved by the existing UK B2B business.

New Australian growth opportunities

Whilst ThinkSmart’s existing Australian B2B and B2C business continues to perform very strongly, a number of new opportunities have emerged to accelerate growth in the business. The growth in the Australian business, both organic and from new opportunities, will be funded through the $20 million increase in the existing Australian funding facility, as well as a new $100 million facility with a major Australian bank with whom ThinkSmart is currently in advanced discussions.

Trading update and dividend reinstatement

The Australian and New Zealand businesses are currently benefiting from strong trading conditions, with settled value up 34% on pcp for July and August to $5.6 million, and September trading expected to be at a similar level. In the UK, settled value is up 1% on pcp for July and August to £1.0 million with an increase in penetration and average transaction value offsetting lower B2B volumes. ThinkSmart re-affirms its FY10 guidance of EBITDA growth of 8-12%.

Earlier this year, ThinkSmart’s Board determined not to pay an interim FY10 dividend in order to retain funds to support strong growth opportunities in the UK. Following the completion of the equity raising, ThinkSmart will have sufficient capital to fund ongoing growth opportunities in both Australia and the UK. As a result, the Board reiterates its intention to reinstate dividends for 2H10. Going forward, the Board expects to return to a normalised dividend payment ratio in line with historical levels, subject to the availability of franking credits.