ThinkSmart Limited (AIM: TSL), the specialist digital payments business with a 10%(1) equity shareholding in Clearpay Finance Ltd (“Clearpay”), today announces its results for the year ended 30 June 2021 (the “year” or “FY21”).
Clearpay shareholding revaluation continues to drive material value
· Profit after tax up 35% to £71.7 million (FY20: £53.0 million) driven by a £71.3 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 £125 million(2) at year end (up from £106.6 million at 31 December 2020 and £53.7 million at 30 June 2020). Afterpay Ltd (“Afterpay”) retains the remaining 90% of Clearpay.
· The revaluation is as at 30 June 2021 and therefore prior to the announcement of the proposed takeover of Afterpay by Square Inc. Since then the Afterpay share price has risen from AU$118.17 on 30 June 2021 to AU$133.30 as at 1 September 2021.
· Net assets at period end of £134.5 million are equivalent to 126.20 pence per share (FY20: £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.
· A change of control of Afterpay from the announced Square takeover would give Afterpay the right to exercise its call option anytime following the change of control occurring. As announced by Square and Afterpay, this takeover is expected to complete Q1 calendar 2022. Following a change of control, ThinkSmart will continue to retain its reciprocal put option, exercisable in February 2024. The exercise price for the call option will be determined by the same pre-agreed valuation principles whether or not the option is exercised early. In addition, if the shares of Afterpay are no longer quoted on a recognised stock exchange at the time of the exercise then Afterpay can only elect to pay the exercise price in cash.
· 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 retained 10%(1) shareholding has now generated cumulative accounting profit of £135.1 million (including £124.9 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 £7.1 million at 30 June 2021 (FY20: £8.8 million).
Clearpay trading performance for the year ended 30 June 2021
Figures are as announced to the Australian Stock Exchange by Afterpay Ltd on 25 August 2021 in its full year results to 30 June 2021 and have been extracted from that announcement. All currency figures are in Australian dollars unless otherwise stated. Clearpay is 90% owned by Afterpay. The performance of Clearpay has an impact on the valuation of the Group’s retained 10%(1) shareholding in Clearpay.
· AUS$1.8b(3) underlying sales reflects an increase of 227% on FY20 and equates to c8.5% 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 c5.4% at FY20.
· 2.1 million(3) active customers equates to c13% of Afterpay’s global total and an increase of 104% from FY20. The proportion of Clearpay’s active customers to Afterpay’s global active customer total has continued to increase, having stood at c10.1% at FY20.
· AUS$13.6m(3) EBITDA represents c35% of Afterpay’s EBITDA.
· Top 10% of Clearpay UK customers use Clearpay 32x per year, up 60% of FY20.
· The number of active merchants increased by 501%(3). Merchant acceptance in Clearpay UK continued strongly with more than 5,000 new merchants added during FY21 including Wayfair, Lazy Oaf, Cox and Cox, Lick, Serenata Flowers, Bottle Club, Lucy and Yak, T.M Lewin, Steve Madden, Rat & Boa, and Feel Unique.
· During FY21, Afterpay launched in-store cards across ANZ and the US, with the UK to follow in Q2 FY22.
· Clearpay continues to engage with HM Treasury and the UK Government regarding a proportionate regulatory framework for currently exempted Buy Now Pay Later (BNPL) products.
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, continues to generate positive cashflow through its managed wind down.
· £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 £4.3 million (FY20: £6.3 million) includes £0.9 million (FY20: £0.5 million) from the provision of the outsourced call centre customer support service for Clearpay.
· Optimised cash management with £2.2 million net cash generated from operating activities (FY20: £1.0 million) including £1.45 million from settlement agreement in relation to legal proceedings.
· Operating costs further reduced to £3.4 million (FY20: £4.3 million) and remain controlled, aligned to current volume performance.
Commenting on the results, Ned Montarello, Executive Chairman of ThinkSmart, said:
“Our 10% shareholding in Clearpay gives us significant and material exposure to a rapidly expanding segment of consumer finance and allows us to benefit from the continued shift away from credit card use and into BNPL. Our expectation is for that shift to sustain, given BNPL remains in its early stages of growth penetrating 2% of a US$10 trillion global market. Millennials and Gen Z are key drivers of this shift and their share of spend is set to continue to grow over the next decade.
“We are particularly pleased that Clearpay’s trading performance continues to represent an increasing proportion of the Afterpay group, highlighting both its strategic and financial importance. We believe that the expansion of Clearpay to omni-channel with the roll-out of the UK instore-card in Q1 FY22 together with the announced takeover of Afterpay by Square Inc - which, as announced by Square and Afterpay, is expected to complete in Q1 calendar 2022 - will serve to further accelerate the growth of Clearpay, which has been outstanding to date.
“For shareholders, our investment in Clearpay has now generated over £135 million of profit, and we believe there remains further upside potential. While our focus is on value creation 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 with £7.1 million of cash and no debt.
“Ultimately, we believe ThinkSmart is well placed to continue accruing material value for shareholders, subject to Clearpay’s ongoing progress, and we thank shareholders for their ongoing support of the strategy.”