RNS Number : 1076E
ThinkSmart Limited
09 March 2022
 

9 March 2022

 

ThinkSmart Limited

 

("ThinkSmart" or the "Company" which together with its subsidiaries is the "Group")

 

Interim Results for the six month period ended 31 December 2021

 

Clearpay holding exchanged for 618,750 shares in Block, Inc (NYSE: SQ)

 

 

ThinkSmart Limited (AIM: TSL), the specialist digital payments business with a shareholding of 618,750 shares in NYSE listed Block, Inc (NYSE: SQ) ("Block"), today announces its Interim Results for the six months ended 31 December 2021 (the "period" or "H1 2022").

 

Financial highlights:

Clearpay shareholding successfully exited, having delivered cumulative accounting profit of £83.7 million, and exchanged for 618,750 shares in Block offering significant upside potential

 

·   

10%(1) shareholding in Clearpay revalued to £73.6m(2) at period end (FY 2021: £125 million) reflecting fall in market value of Afterpay Ltd ("Afterpay") and the announcement on 20 December 2021 of the sale of the Clearpay shareholding for Afterpay shares

·   

Loss after tax of £51.6 million (H1 2021: £53.7 million profit) driven by a £51.4 million non-cash fair value loss on valuation(2) of the Group's retained 10%(1) shareholding in Clearpay, prior to the post period end disposal

·   

Disposal of 10%(1) stake in Clearpay in exchange for 1,650,000 Afterpay shares announced on 20 December 2021, which was after Afterpay's shareholder approval for its share for share sale to Block

·   

Disposal of Clearpay shareholding approved by ThinkSmart shareholders on 14 January 2022

·   

Afterpay sale to Block completed post period end, on 1 February 2022, and the Group's 1,650,000 Afterpay shares were exchanged for 618,750 Block shares

·   

Sale of 90% shareholding in Clearpay to Afterpay and retention of 10%(1) shareholding as at 31 December 2021 (prior to its disposal on 14 January 2022) has generated cumulative accounting profit of £83.7 million to 31 December 2021 (including £73.5 million(2) of non-cash fair value gains).  Based on the Afterpay closing share price on 14 January 2022 of A$69.03, the 1,650,000 Afterpay consideration shares had a fair value of £60.4 million (using 1.885 AUD: 1 GBP) generating a cumulative accounting profit, on the sale of both the 90% and 10% shareholding in Clearpay to Afterpay, of £70.5 million for ThinkSmart shareholders

·   

The Directors believe that the holding of 618,750 Block shares offers significant upside potential.  43 equity research analysts have a target for the Block share price of on average US$182 (range from US$120 to US$250 and a median of US$179) (3)

·   

Proven delivery of shareholder return with capital return and special dividend of A$5.6 million (5.2 cents per share), equivalent to £3.0 million, paid in December 2021

·   

Net assets at period end of £79.8 million are equivalent to 74.89 pence per share (FY 2021: £134.5 million/126.20 pence per share)

·   

Cash and cash equivalents of £4.1 million at 31 December 2021 (FY 2021: £7.1 million)

·   

Fall in value of Block share price since 31 December 2021 to 7 March 2022 of 40% per cent (from US$161.51 to US$97.51) (4)

 

Block trading performance for the year ended 31 December 2021

Figures are as announced to the market by Block on 24 February 2022 in its year end results to 31 December 2021 and the following is extracted from that announcement. All currency figures are in US dollars unless otherwise stated. ThinkSmart owns 618,750 shares in Block. Therefore, ThinkSmart places emphasis on the public market disclosures, financial results, share price, and general overall operational performance of Block. 

·   

For the full year of 2021, total net revenue was $17.66 billion, an increase of 86% from the full year of

2020. Excluding bitcoin, total net revenue for the full year of 2021 was $7.65 billion, up 55% year over year

·   

For the full year of 2021, gross profit was $4.42 billion, up 62% year over year, or 53% on a two-year CAGR basis

·   

Cash App generated $2.07 billion in gross profit, up 69% year over year and 113% on a two-year CAGR basis

·   

The Square ecosystem generated $2.32 billion in gross profit, up 54% year over year and 29% on a two-year CAGR basis

·   

For the full year of 2021, net income attributable to common stockholders was $166 million. Net income was $202 million when excluding the gains on equity investments of $35 million and the impairment losses recorded on investments in bitcoin of $71 million. For the full year of 2021, net income per share was $0.36 and $0.33 on a basic and diluted basis, respectively, based on 458 million basic and 502 million diluted shares outstanding.  Excluding the gains on equity investments and the losses from investments in bitcoin, net income per share was $0.44 and $0.40 on a basic and diluted basis, respectively, for the full year 2021 

·   

As of December 31, 2021, the fair value of Block's investment in bitcoin was $371 million based on observable market prices, which is $222 million greater than the carrying value of the investment

 

Operational highlights:

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

·   

Total revenue of £1.9 million (H1 2021: £2.3 million) includes £0.5 million (H1 2021: £0.4 million) from the provision of the outsourced call centre customer support service for Clearpay

·   

Optimised cash management with £0.1 million net cash generated from operating activities (H1 2021: £1.8 million - including £1.45 million from settlement agreement in relation to legal proceedings)

·   

Operating costs further reduced to £1.4 million (H1 2021: £1.8 million) and remain controlled, aligned to current volume performance

·   

Post period end, and as announced on 3 February 2022, the Group terminated its Operating Agreement with STB Leasing Ltd ("STB") and purchased the portfolio of leases, funded under the Operating Agreement, from STB for £1.2m. In return STB refunded the £2m Credit Support Balance deposit which has resulted in a net £0.8m increase in the Group's cash in February 2022

·   

The lease portfolio purchased has a minimum term gross receivable balance of £1.25m and an average term outstanding of 10 months. ThinkSmart will continue to be entitled to all rental income and revenue from sales of leased equipment following the end of the initial term of the leases, and is managing its cost base accordingly so that its operating business continues to deliver net positive cashflows

 

Commenting on the results, Ned Montarello, Executive Chairman of ThinkSmart, said:

"ThinkSmart has a proven track record of delivering shareholder value by developing proprietary technology, operating and investing within the global payments space. To date our strategy has crystalised material shareholder value to the tune of £83.7m. As a long-term backer of the global payments sector, we are confident that ThinkSmart is well positioned to continue to deliver material shareholder value.

 

"Today, we retain a shareholding in what we consider to be a premier global technology and payments business. Block is performing extremely well in the face of a challenging macro-economic environment and is firmly exerting itself as a global leader in payments. Its most recent financial performance was above market expectations, giving us added confidence in its future prospects and ability to continue to successfully execute on its growth strategy.

 

"We look forward to continuing to update shareholders on the progress of Block, alongside the cash generating progress within our ongoing operating business, and thank our shareholders and other stakeholders for their sustained support in ThinkSmart's strategy and direction."

 

 

 

 

For further information please contact:

 

ThinkSmart Limited

Via Buchanan

Ned Montarello

 

 

 

Canaccord Genuity Ltd (Nominated Adviser and Broker)

Sunil Duggal

Andrew Potts

Tom Diehl

 

+44 (0)20 7523 8350

 

 

 

 

Buchanan

Giles Stewart

Chris Lane

Toto Berger

 

 

+44 20 7466 5000

(1)        A proportion of the 10% retained shareholding (up to 3.5% of the total share capital of Clearpay) will be made available to employees of Clearpay under an employee share ownership plan.

(2)        On 20 December 2021 the Group announced that it had agreed terms with Afterpay Ltd ("Afterpay") to sell its retained shareholding in Clearpay in exchange for 1,650,000 shares in Afterpay, subject to the approval of ThinkSmart shareholders.  In addition, the Group agreed with Afterpay that it had no obligation to share any of the 1,650,000 shares in Afterpay with Clearpay ESOP employees, as the ESOP obligations would instead be satisfied by a further issue of new shares by Afterpay. ThinkSmart shareholders approved the sale on 14 January 2022 with the sale completing on 17 January 2022.  Subsequent to the sale agreement of 20 December 2021, the value of the Clearpay holding is derivable from the price of the 1,650,000 shares in Afterpay on 31 December 2021 which were publicly listed.  Further detail is provided in Note 10 to the 31 December 2021 Group interim financial report below.

(3)        Source: www.wsj.com/market-data/quotes/SQ/research-ratings on 7 March 2022.

(4)        Source: www.finance.yahoo.com/quote/SQ/history?p=SQ 

 

 

Notes to Editors

 

About ThinkSmart Limited

 

ThinkSmart's roots are as a specialist digital payments platform business. Following the sale of its remaining 10% shareholding in Clearpay in January 2022, the Group now holds shares in NYSE listed Block, Inc (NYSE: SQ).  The Group also provides an outsourced call centre customer service and support service to Clearpay and is managing the wind-down of its leasing business.

 

 

This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 as amended by regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310. With the publication of this announcement, this information is now considered to be in the public domain.

 

 

 

 

Chairman's Statement

 

Clearpay shareholding exchanged for 618,750 shares in Block

 

The six month period to 31 December 2021 was a challenging time for the market valuations of global technology stocks, depressing the share price of Afterpay. This coincided with a change of control in Afterpay following the takeover by Block, which completed on 1 February 2022 AEDT, in turn enabling Block to choose to effect the early exercise of Afterpay's call option to acquire ThinkSmart's remaining minority shareholding in Clearpay at a price calculated on agreed principles based on market valuations at the time of exercise.

 

Given the depressed valuation of Afterpay and continued market volatility, the Board was keen to retain its ability to negotiate the disposal of its 10% stake in Clearpay ahead of the Block takeover completing, from when the Board would have had no power to negotiate as the value of the 10% holding would have been determined by the pre-agreed, and therefore non-negotiable, principles as set out in put and call option in the August 2018 Clearpay SPA with Afterpay. Therefore, following an approach by Afterpay we engaged in negotiations and agreed to dispose of our remaining holding in Clearpay in exchange for 1,650,000 shares in Afterpay, which were valued at £78.1 million based on the Block closing share price on 17 December 2021, and the agreed ratio of 0.375 Block shares for every Afterpay share (and using 1.3239 USD:1 GBP). 

 

The Directors believed that this represented a compelling outcome, particularly in the circumstances of a volatile market, and this ongoing volatility has certainly proved to be the case given the ongoing market nervousness of the macro economic environment and resultant reduction in valuations of many technology stocks including Block where its share price has fallen from a peak of US$282. ThinkSmart's shareholders approved the disposal on 14 January 2022. Subsequent to this, on 1 February 2022 and following the completion of the Block takeover, the 1,650,000 Afterpay shares were exchanged for 618,750 shares in Block.

 

The Board of ThinkSmart believes that there is significant potential for future value accretion via its holding in Block. It is clear that - from its most recent financial results announcement - Block is performing extremely well and is positioned to be able to mitigate inflationary pressures while executing on its growth strategy. That strategy and financial performance is viewed positively by the wider market, with 43 analysts targeting on average a US$182 share price for Block (range from US$120 to US$250 and a median of US$179) (3).  At the Block share price on 7 March 2022 of US$97.51(4) (using 1.31 USD: 1 GBP) ThinkSmart's holding of 618,750 Block shares has a market value of £46.1 million. If the Block share price were to increase to US$182(3), as targeted on average by analysts, the market value of ThinkSmart's Block shares would increase by £39.9 million to £86.0 million (using 1.31 USD: 1 GBP), an increase of 87%. Given this potential, ThinkSmart will continue to primarily focus its strategy on the delivery of shareholder value via its holding in Block (as it did with Clearpay), while supplementing this with cash generated from the successful execution of the managed wind down of its operational activities and provision of the Clearpay call centre outsourced services.

 

The Board has consistently sought to return capital to shareholders where appropriate and is mindful of maintaining a prudent level of cash reserves in the business. In line with this, the business paid a special dividend and capital return of A$5.6 million (5.2 cents per share), equivalent to £3.0 million (2.8 pence per share), in December 2021.

 

 

Operating Business Performance

 

The Board is also focused on ThinkSmart's legacy retail consumer and business finance offerings, which have been in managed wind-down, together with providing the outsourced call centre customer support service for Clearpay. We ceased writing any new business in February 2021 in our legacy retail consumer and business finance offerings, as previously reported, and are managing the wind-down by adjusting the cost base accordingly and are continuing to deliver net positive cash flows. Therefore, we expect our cash reserves to continue to build.

 

As expected, leasing volumes were nil (H1 2021: £0.5 million) in the period following the cessation of new business and revenues were consequently 21% lower for the period at £1.9 million (H1 2021: £2.4 million) as the lower volumes in the period were partially offset by the majority of revenue for the period being derived from higher volumes in previous years together with the increased revenue in the period of £0.5 million from the provision of the outsourced call centre customer support service for Clearpay.

 

The Group will continue to service its existing customer base ensuring the fair treatment of customers during the orderly winding up of its legacy leasing business and will continue to benefit from cash generation in the meantime.

 

Post period end, and as announced on 3 February 2022, the Group terminated its Operating Agreement with STB Leasing Ltd ("STB") and purchased the portfolio of leases, funded under the Operating Agreement, from STB for £1.2m.  In return STB refunded the £2m Credit Support Balance deposit which has resulted in a net £0.8m increase in the Group's cash in February 2022.

 

The lease portfolio purchased has a minimum term gross receivable balance of £1.25m and an average term outstanding of 10 months.  ThinkSmart will continue to be entitled to all rental income and revenue from sales of leased equipment following the end of the initial term of the leases, and is managing its cost base accordingly so that its operating business continues to deliver net positive cashflows.

 

The Group continues to have a good mix of consumer and business customers, in addition to being diversified by region and demography. The quality of the Group's underwriting procedures, as well as the small value of debt per customer and its high-quality credit customer portfolio, continues to mitigate the risk to any adverse impact on its existing customers' financial positions. As at 31 December 2021, lease receivables under management were £1.3m million, with approximately 5,000 active customer contracts.

 

Operating costs decreased further to £1.4 million (H1 2021: £1.8 million) over the period and remain controlled, aligned to the volume performance of the business.

 

Group Financial Position

 

While the Group's 10%(1) holding in Clearpay was revalued to £73.6(2) million at 31 December 2021 (FY 2021: £125 million) based on the Afterpay closing share price on that day, the Group agreed terms with Afterpay to sell it in exchange for 1,650,000 shares in Afterpay, subject to the approval of ThinkSmart shareholders. ThinkSmart shareholders approved the sale on 14 January 2022 with the sale completing on 17 January 2022. Subsequent to the sale agreement of 20 December 2021, the value of the Clearpay holding is derivable from the price of the 1,650,000 shares in Afterpay which were publicly listed at 31 December 2021.  Further detail is provided in Note 10 to the 31 December 2021 Group interim financial report below.

 

The Group held cash and cash equivalents of £4.1 million at 31 December 2021 (£7.1m at 30 June 2021), after the £3.0 million payment of the special dividend/capital return in December 2021.

 

Current Trading Update

 

ThinkSmart anticipates its cash reserves will continue to build as the Group's operating division continues to service its existing customer base alongside providing an outsourced call centre customer support service for Clearpay.

 

At the Block share price on 7 March 2022 of US$97.51(4) (using 1.31 USD: 1 GBP) ThinkSmart's holding of 618,750 Block shares has a market value of £46.1 million. If the Block share price were to increase to US$182(3), as targeted on average by analysts, the market value of ThinkSmart's Block shares would increase by £39.9 million to £86.0 million (using 1.31 USD: 1 GBP), an increase of 87%.

 

Looking ahead, the business is well positioned to further benefit from the expected future growth in the value of its shareholding in Block, subject to the ongoing performance of Block and the valuation of technology stocks generally, and therefore to continue creating value for shareholders.

 

 

Key Performance Indicators:

 

 

 

6 Months to

31 December 2021

 

6 Months to

31 December 2020

 

 

 

 

 

Revenue (Total)

£1.9m

£2.4m

-21%

 

 

 

 

Net (loss)/profit after tax

£(51.6)m

£53.7m

n/a

 

 

 

 

Basic EPS in pence

(48.43)

50.39

n/a

 

 

 

 

 

 

As at

31 December 2021

As at

30 June 2021

 

 

Lease Receivables Under Management (Closing)

£1.3m

£2.6m

-50%

 

 

 

 

Active Customer Contracts (000)

5.0

6.9

-28%

 

 

 

 

Cash and Cash Equivalents

£4.1m

£7.1m

-42%

 

 

 

 

Net Assets

£79.8m

£134.5m

-41%

 

 

 

The following results have been extracted from the interim financial statements

 

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the six months ended 31 December 2021

 

 

 

 

31 December 2021

31 December 2020

 

Notes

£,000

£,000

 

 

 

 

Revenue

6(a)

1,875

2,342

Other revenue

6(b)

4

45

Total revenue

 

1,879

2,387

 

 

 

 

Customer acquisition costs

6(c)

(60)

(175)

Cost of inertia asset sold

6(d)

(150)

(191)

Other operating expenses

6(e)

(1,440)

(1,832)

Depreciation and amortisation

6(f)

(467)

(864)

Impairment gains

6(g)

5

39

(Losses)/gains on financial instruments

6(h)

(51,367)

52,867

Other gains

6(i)

-

1,450

(Loss)/Profit before tax

 

(51,600)

53,681

Income tax (cost)

7

(6)

(10)

Net (loss)/profit after tax - attributable to owners of the Company

 

(51,606)

53,671

 

 

 

 

 

 

 

 

Other comprehensive profit/(loss)

 

 

 

Items that may be reclassified subsequently to profit or loss (net of income tax):

 

 

 

Foreign currency translation differences for foreign operations

 

(27)

62

Total items that may be reclassified subsequently to profit/(loss), net of income tax

 

(27)

62

Other comprehensive (loss)/profit for the period, net of income tax

 

(27)

62

Total comprehensive (loss)/profit for the period, net of income tax

 

(51,633)

53,733

 

 

 

 

 

 

 

 

(Loss)/Profit per share (pence)

 

 

 

Basic (pence per share)

24

(48.43)

50.39

Diluted (pence per share)

24

(47.67)

49.57

 

 

 

 

 

The attached notes form an integral part of these consolidated financial statements.

 

 

 

 

Consolidated Statement of Financial Position

as at 31 December 2021

 

 

31 December 2021

 

30 June

2021

 

Notes

£,000

£,000

Current Assets

 

 

 

Cash and cash equivalents

 

4,078

7,067

Trade receivables

 

67

55

Finance lease receivables

8

13

38

Other current assets

9

261

380

Total Current Assets

 

4,419

7,540

Non-Current Assets

 

 

 

Plant and equipment

 13

221

302

Intangible assets

 14

355

590

Financial assets at fair value through profit and loss

10

73,633

125,000

Contract assets

11

545

777

Other non-current assets

 12

2,031

2,069

Total Non-Current Assets

 

76,785

128,738

Total Assets

 

81,204

136,278

Current Liabilities

 

 

 

Trade and other payables

 15

(607)

(728)

Lease liabilities

16

(98)

(103)

Contract liabilities

17

(318)

(410)

Provisions

15

(179)

(202)

Total Current Liabilities

 

(1,202)

(1,443)

Non-Current Liabilities

 

 

 

Lease liabilities

16

-

(46)

Contract liabilities

17

(180)

(332)

Total Non-Current Liabilities

 

(180)

(378)

Total Liabilities

 

(1,382)

(1,821)

Net Assets

 

79,822

134,457

 

Equity

 

 

 

Issued Capital

18

7,862

10,413

Reserves

 

(2,902)

(2,875)

Accumulated profits

 

74,862

126,919

   

 

79,822

134,457

 

The attached notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statement of Changes in Equity

for the six months ended 31 December 2021

 

 

 

Fully paid ordinary shares

Foreign currency translation reserve

Accumulated

 Profit

Attributable to equity holders of the parent

 

 

£,000

£,000

£,000

£,000

Balance at 1 July 2020

 

13,164

(2,832)

56,156

66,488

Profit for the period

 

-

-

53,671

53,671

Exchange differences arising on translation of foreign operations, net of tax

 

-

62

-

62

Total comprehensive profit for the period

 

-

62

53,671

53,733

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

Distributions to owners of the Company

 

(2,757)

-

(899)

(3,656)

Balance at 31 December 2020

 

10,407

(2,770)

108,928

116,565 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 July 2021

 

10,413

(2,875)

126,919

134,457

Loss for the period

 

-

-

(51,606)

(51,606)

Exchange differences arising on translation of foreign operations, net of tax

 

-

(27)

-

(27)

Total comprehensive profit for the period

 

-

(27)

(51,606)

(51,633)

Transactions with owners of the Company, recognised directly in equity

 

 

 

 

 

Share options exercised

 

8

-

-

8

Distributions to owners of the Company

 

(2,559)

-

(451)

(3,010)

Balance at 31 December 2021

 

7,862

(2,902)

74,862

79,822

 

The attached notes form an integral part of these consolidated financial statements.

 

 

Consolidated Statement of Cash Flows

for the six months ended 31 December 2021

 

 

 

 

 

 

31 December 2021

31 December 2020

 

 

£,000

£,000

Cash Flows from Operating Activities

 

 

 

Receipts from customers

 

1,672

2,310

Payments to suppliers and employees

 

(1,622)

(2,374)

Receipts in respect of lease receivables

 

34

431

Proceeds/(Payments) from other interest bearing liabilities, inclusive of related costs

 

-

23

Interest received

 

48

35

Interest and finance charges

 

(1)

(86)

Receipts/(payments) from security guarantee

 

7

26

Income tax (payment)/repayment

 

(6)

(10)

Receipts from settlement of legal proceedings

 

-

1,450

Net cash provided by operating activities

 

132

1,805

 

 

 

 

Cash Flows from Investing Activities

 

 

 

(Payments)/proceeds for plant and equipment

 

(41)

(16)

Payments for intangible assets - software

 

-

(68)

Net cash (used in)/generated from investing activities

 

(41)

(84)

 

 

 

 

Cash Flows from Financing Activities

 

 

 

Payment of lease liabilities

 

(51)

(46)

Dividends paid

 

(451)

(899)

Proceeds from share issue net of costs

 

8

-

Return of capital

 

(2,559)

(2,757)

Net cash used in financing activities

 

(3,053)

(3,702)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(2,962)

(1,981)

Effect of exchange rate fluctuations on cash held

 

(27)

62

Cash and cash equivalents from continuing operations at beginning of the financial period

 

7,067

8,805

Total cash and cash equivalents at the end of the financial period

 

4,078

6,886

Restricted cash and cash equivalents at the end of the financial period

 

(59)

(62)

Net available cash and cash equivalents at the end of the financial period

 

4,019

6,824

 

 

The attached notes form an integral part of these consolidated financial statements.

 

1.         General Information

 

ThinkSmart Limited (the "Company" or "ThinkSmart") is a limited liability company incorporated in Australia. These consolidated interim financial statements ("interim financial statements") as at and for the six months ended 31 December 2021 comprise the Company and its subsidiaries (the "Group"). The Group is a for profit entity and its principal activity during the period was the provision of lease and rental financing services in the UK. The consolidated annual financial statements of the Group as and for the year ended 30 June 2021 are available upon request from the Company's registered offices at Suite 5, 531 Hay Street Subiaco, West Perth, WA 6008 or at www.thinksmartworld.com.

 

2.         Basis of Preparation

 

(a)    Statement of compliance

The Company is listed on the Alternative Investment Market ("AIM"), a market of the London Stock Exchange. The financial information has been prepared in accordance with the AIM Rules for Companies and in accordance with this basis of preparation, including the significant accounting policies set out below. The interim results are unaudited but have been reviewed by the auditors and their review statement is on page 21.

 

The consolidated financial statements are general purpose financial statements which have been prepared and approved by the Directors in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (AASB) adopted by the International Accounting Standards Board (AASB) as well as International Financial Reporting Standards as adopted by the UK (''Adopted AASBs'').

 

The consolidated financial statements were authorised for issue by the Board of Directors on 8 March 2022.

 

This interim report does not include all the notes of the type normally included in annual financial statements. Accordingly, these statements should be read in conjunction with the most recent annual financial report, but additional notes have been included where such notes are deemed relevant to the understanding of the half-year financial report.

 

(b)           Basis of measurement

The financial report has been prepared on the basis of historical cost, except for financial instruments measured at fair value. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are presented in British Pounds ("GBP") unless otherwise noted.

 

(c)           Functional and presentation currency

These consolidated financial statements are presented in British Pounds, which is the Group's functional currency. The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191b and in accordance with that instrument, amounts in the consolidated financial statements and directors' report have been rounded off to the nearest thousand pounds, unless otherwise stated.

 

(d)           Going Concern

The consolidated interim financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future (which has been taken as 12 months from the date of approval of these consolidated interim financial statements). In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including the current state of the statement of financial position, future projections of profitability, cash flows and resources and the longer term strategy of the business. The Directors have assessed the impact of COVID-19 on the current and forecast position of the Group. As the Group has only been minimally impacted the Directors are satisfied that the Group has more than adequate resources to meet its liabilities as they fall due even when stressed to reasonable worst-case scenarios.

 

3.         Significant accounting policies

 

The accounting policies applied by the consolidated entity in this interim financial report are consistent with those disclosed in the consolidated annual financial report for the year ended 30 June 2021 other than as detailed below.

 

New accounting policies adopted in the financial year

The Group has adopted all new or amended Australian Accounting Standards that are mandatory for adoption in the current reporting period.  Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. 

 

4.         Critical accounting estimates and judgements

 

The preparation of interim financial reports requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing the consolidated interim financial report, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those disclosed in the consolidated annual financial report for the year ended 30 June 2021.

 

5.         Financial risk management

 

The consolidated entity's financial risk management objectives and policies are consistent with those disclosed in the consolidated annual financial report for the year ended 30 June 2021.

 

6.         Consolidated Statement of Profit or Loss

 

 

 

 

Profit/(loss) is arrived at after crediting/(charging) the following items:

 

 

 

 

 

6 months to

31 December 2021

6 months to

31 December 2020

 

 

£,000

£,000

a)      Revenue

 

 

 

Extended rental income

 

713

775

Commission income

 

309

620

Outsourced services

 

461

409

Income earned from sale of inertia equipment

 

290

355

Services revenue - insurance commission

 

48

136

Interest revenue - other entities

 

48

35

Fee revenue - customers

 

6

12

 

 

1,875

2,342

 

b)      Other revenue

 

 

 

Finance lease income

 

4

45

Other revenue

 

-

-

 

 

4

45

Total Revenue

 

1,879

2,387

 

All revenue is generated in the UK from the following products:

 

 

 

SmartPlan

 

1,318

1,817

Upgrade Anytime

 

48

75

Flexible Leasing

 

4

51

Other/non-product specific

 

509

444

 

 

1,879

2,387

 

c)     Customer acquisition costs

 

 

 

 Customer acquisition costs relate to commissions payable to our retail partners together with sales and marketing expenses incurred during the ongoing promotional activity of the finance contracts to new and existing customers.

 

d)    Cost of inertia asset sold

 Cost of inertia assets sold is the write-off of inventory, including that transferred from PPE Operating Lease when end customer terminates their lease agreement during secondary period, upon sale of inertia equipment.

 

 

6.     Consolidated Statement of Profit or Loss (continued)

 

 

6 months to

31 December 2021

 

6 months to

31 December 2020

 

 

£,000

£,000

e)     Other operating expenses

 

 

 

 

 

 

 

Employee benefits expense

 

 

 

 

 

 

 

-       Payments to employees

 

(780)

(871)

-       Employee superannuation costs

 

(56)

(53)

 

 

(836)

(924)

 

 

 

 

Occupancy costs

 

(77)

(81)

Lease interest charge

 

(16)

(11)

Professional services

 

(247)

(432)

Finance charges

 

(1)

(86)

Credit losses arising from financial guarantee contract

 

(62)

(54)

Other costs

 

(201)

(244)

 

 

 

 

 

 

(1,440)

(1,832)

 

 

 

 

f)     Depreciation and amortisation

 

 

 

 

 

 

 

Depreciation

 

(232)

(242)

Amortisation

 

(235)

(622)

 

 

 

 

 

 

(467)

(864)

g)    Impairment gains

 

 

 

 

 

 

 

Impairment gains on finance leases and receivables

 

5

39

 

 

 

 

 

 

5

39

h)    (Losses)/Gains on financial instruments

 

 

 

 

 

 

 

Unrealised (losses)/gains

 

(51,367)

52,867

 

 

 

 

 

 

(51,367)

52,867

 

Unrealised gains or losses arose from the revaluation of the Group's investment in 10% of Clearpay Finance Limited (see note 10). These amounts are shown above.

 

i)     Other gains

 

 

 

 

Fair value gain on financial asset through profit and loss

 

-

1,450

 

 

 

 

 

 

-

1,450

 

In the period to 31 December 2020 other gains arose on the settlement of legal claims against Carphone Warehouse as announced on 10 August 2020.

 

7.     Income tax expense

 

Amounts recognised in profit and loss:

 

 

6 months to

31 December 2021

    6 months to

31 December 2020

 

 

£,000

£,000

Current income tax expense

 

 

 

 

Current income tax (charge)

 

(6)

(10)

 

 

 

 

Total income tax (charge)

 

(6)

(10)

 

 

 

 

 

 

 

 

Accounting (loss)/profit before tax

 

(51,600)

53,681

 

 

 

 

Statutory corporation rate

 

30%

30%

 

 

 

 

Tax (charge) at the statutory income tax rate

 

15,480

(16,104)

 

 

 

 

Effect of tax rates in foreign jurisdictions

 

(5,676)

5,905

 

 

 

 

Non-deductible (expenses)

 

(1)

(11)

 

 

 

 

Non-taxable (losses)/gain (Substantial Shareholdings Exemption)

 

(9,760)

10,042

 

 

 

 

Deferred tax asset not recognised

 

(43)

163

 

 

 

 

Irrecoverable withholding tax

 

(6)

(5)

 

 

 

 

Total income tax (charge)

 

(6)

(10)

 

 

 

 

 

 

 

 

 

 

 

 

8.     Finance lease receivables

 

 

31 December 2021

30 June     2021

 

 

£,000

£,000

Current (no later than 1 year)

 

 

 

Gross investment in finance lease receivables

 

10

29

Unguaranteed residuals

 

3

24

Unearned future finance lease income on finance leases

 

-

(6)

Net lease receivable

 

13

47

Allowance for losses

 

-

(9)

 

 

13

38

 

 

 

 

Balance at 1 July

 

38

446

Receipts in respect of lease receivable

 

(34)

(511)

Finance lease income

 

4

62

Impairment gain/(loss)

 

5

41

 

 

13

38

All finance leases detailed above have a minimum lease term at inception of the lease of 2 years.

 

9.     Other current assets

 

 

31 December

2021

 

30 June

2021

 

 

£,000

£,000

Prepayments

 

159

222

Insurance prepayments

 

1

4

Accrued income - insurance commission (i)

 

101

154

 

 

261

380

 

i)      Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of leaseholders and is net of a clawback provision.

 

10.  Financial assets at fair value through profit or loss

 

 

31 December

2021

 

30 June

 2021

 

 

£,000

£,000

Investment in Clearpay Finance Ltd

 

73,633

125,000

 

 

73,633

125,000

 

 

10.  Financial assets at fair value through profit or loss (continued)

 

On 23 August 2018 the Group sold 90% of Clearpay Finance Limited to Afterpay Ltd (formerly Afterpay Touch Group Ltd) (ASX:APT).  The Group retained a 10% shareholding in Clearpay which is held as an investment at fair value through profit or loss under AASB 9. On 20 December 2021 the Group announced that it has agreed terms with Afterpay for ThinkSmart's subsidiary, ThinkSmart Europe Ltd, to sell its 10% holding in Clearpay in exchange for 1,650,000 shares in Afterpay, subject to the approval of ThinkSmart shareholders. ThinkSmart shareholders approved the sale at a General Meeting on 14 January 2022 with the sale completing on 17 January 2022. At both 31 December 2021 and 30 June 2021 the financial asset held by the Group is the 10% shareholding in Clearpay. For the year ended 30 June 2021 the investment in Clearpay was a level 3 financial instrument with the value of the Clearpay shares at a price calculated on the agreed valuation principles specified under the call and put options included in the sale agreement of 23 August 2018. The valuation at 30 June 2021 also provides that a proportion of the 10% shareholding (up to 35%) will be made available by the Group to employees of Clearpay under an employee share ownership plan ("ESOP"). For periods up to 30 June 2021 the Group engaged a third party global professional services firm to value its retained shareholding in Clearpay for accounting purposes under AASB 9 in accordance with AASB 13 (Fair Value Measurement). The independent valuation process, in accordance with the agreed valuation principles, used the same valuation metrics, multiples and methodologies, including those used by market participants and with regard to sell-side analysts, to value the Clearpay business within the Afterpay listed group. This valuation was undertaken based on publicly available information, reflecting the above and including a discount of 20% to be applied for minority holding and the lack of marketability of Clearpay as a privately owned company. As the Group had limited control over the setting of the price that it will receive for the transfer of the ESOP shares to the Clearpay employees, the Group further discounted the valuation by 35% to determine the accounting fair value of its retained shareholding in Clearpay to give a fair value at 30 June 2021 of £125m. Subsequent to the sale agreement of 20 December 2021, the investment in Clearpay is a level 2 financial instrument at 31 December 2021 with the value of the holding derivable from the price of the 1,650,000 shares in Afterpay which are publicly listed and represent the price that would be paid to transfer the asset in an orderly sale at the measurement date. The sale agreed on 20 December 2021 removes the obligation for the Group to make any shares available to Clearpay employees under the ESOP. At 31 December 2021 the closing share price of Afterpay was AUD $83.01 and the closing AUD/GBP foreign exchange rate was 0.5376 giving a fair value for the Group's 10% holding in Clearpay of £73.6m.

 

11.  Contract assets

 

 

31 December

2021

30 June

 2021

 

 

£,000

£,000

Brought forward

 

777

1,430

Recognised as revenue in period (i)

 

91

370

Recognised as customer acquisition cost (ii)

 

(41)

(110)

Transferred to Plant & Equipment Operating lease additions

 

(282)

(913)

 

 

545

777

 

 

 

 

Contract asset revenue to be recognised less than 1 year

 

137

215

Contract asset revenue to be recognised between 1 and 2 years

 

32

71

Contract asset revenue to be recognised between 2 and 3 years

 

2

10

Contract asset revenue to be recognised between 3 and 4 years

 

-

-

 

 

171

296

 

 

 

11.  Contract assets (continued)

(i) A contract asset is recognised where the Group act as agent for the lessor (STB) during the minimum lease term and have a contractual right to the inertia asset at the end of the minimum lease term. Contract assets are recognised as revenue accruing over the minimum lease term building up inertia asset (non-cash consideration) over the minimum lease term.

 

(ii) Customer acquisition costs are capitalised as an asset where such costs are incremental to obtaining a contract between the funder and the end customer, for which the Group receives commission under the funder contract, and are expected to be recovered. Customer acquisition costs are amortised on a straight line basis over the term of the contract.

 

12.  Other non-current assets

 

 

31 December

2021

 

30 June

 2021

 

 

£,000

£,000

Accrued income - insurance commission (i)

 

17

48

Deposits held by funders (ii)

 

2,014

2,021

 

 

2,031

2,069

 

 

 

 

 (i)     Accrued income reflects brokerage commission earned from making insurance arrangements on behalf of lessee's and is net of a clawback provision.  The clawback provision for each reporting period has been estimated to be 30% based on historical experience and is calculated on the gross commission receivable.

(ii)     Deposits held by funders for the servicing and management of their portfolios in the event of default. The deposits earn interest at market rates of return for similar instruments. See note 19 for further information.

 

13.   Plant and Equipment

 

Plant & Equipment (UK)

£,000

Plant & Equipment Right of Use Lease Asset

£,000

Plant & Equipment Operating Lease

£,000

Total

£,000

Gross Carrying Amount

 

 

 

 

Cost or deemed cost

 

 

 

 

Balance at 30 June 2021

91

690

283

1,064

Transferred from contract assets

-

-

283

283

Transferred to inventory/cost of inertia assets sold

-

-

31

31

Additions

41

-

-

41

Disposals

-

-

(399)

(399)

Balance at 31 December 2021

132

690

198

1,020

 

 

 

 

 

Accumulated Depreciation

 

 

 

 

Balance at 30 June 2021

(59)

(575)

(128)

(762)

Depreciation expense

(17)

(35)

(180)

(232)

Disposals

-

-

195

195

Balance at 31 December 2021

(76)

(610)

(113)

(799)

 

 

 

 

 

Net Book Value

 

 

 

 

At 30 June 2021

32

115

155

302

At 31 December 2021

56

80

85

221

 

 

 

14.   Intangible Assets

 

Contract rights

£,000

Software

£,000

Intellectual Property

£,000

Total

£,000

Gross carrying amount

 

 

 

 

At cost

 

 

 

 

Balance at 30 June 2021

408

1,729

348

2,485

Additions

-

-

-

-

Balance at 31 December 2021

408

1,729

348

2,485

 

 

 

 

 

 

Accumulated amortisation and impairment

 

 

 

 

Balance at 30 June 2021

(173)

(1,374)

(348)

(1,895)

Disposals

-

-

-

-

Amortisation expense

(72)

(163)

-

(235)

Balance at 31 December 2021

(245)

(1,537)

(348)

(2,130)

 

 

Net book value

 

 

 

 

At 30 June 2021

235

355

-

590

At 31 December 2021

163

192

-

355

 

 

15.  Trade, other payables and provisions

 

31 December 2021

30 June

 2021

 

£,000

£,000

Trade and other payables

(50)

(79)

VAT/GST payable

(116)

(132)

Other accrued expenses

(441)

(517)

 

(607)

(728)

Provisions

 

 

Annual leave

(88)

(111)

Long service leave

(87)

(86)

Risk Transfer cancellation and claims

(4)

(5)

 

(179)

(202)

 

16.  Lease liabilities

 

31 December 2021

30 June

 2021

 

£,000

£,000

Balance brought forward

(149)

(242)

Rental paid in period

67

112

Interest charged

(16)

(19)

 

(98)

(149)

 

 

 

Lease liabilities due within 12 months

(98)

(103)

Lease liabilities due greater than 12 months

-

(46)

 

(98)

(149)

 

Undiscounted maturity analysis

 

 

Lease liabilities due up to 1 year

(103)

(113)

Lease liabilities due between 1 and 2 years

-

(47)

 

(103)

(160)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17.  Contract liabilities

 

31 December 2021

30 June

 2021

 

£,000

£,000

Balance brought forward

742

1,327

Recognised as revenue in period

(244)

(585)

 

498

742

 

 

 

Contract liabilities due within 12 months

318

410

Contract liabilities due greater than 12 months

180

332

 

498

742

 

18.  Issued capital

Fully Paid Ordinary Shares

31 December

 2021

30 June

2021

 

Number

£,000

Number

£,000

Balance at beginning of financial period

106,542,814

10,413

106,509,994

13,164

Issue of ordinary shares

45,000

8

32,820

6

Return of capital to shareholders

-

(2,559)

-

(2,757)

Balance at end of the financial period

106,587,814

7,862

106,542,814

10,413

 

 

 

 

 

 

 

 

 

19.  Commitments and contingent liabilities

 

 

31 December

2021

 

30 June

 2021

 

 

£,000

£,000

Leases where Group acts as agent (off statement of financial position)

 

1,326

2,583

Deposits held by funder

 

2,014

2,021

 

 

Under the terms of the UK current funding agreement with Secure Trust Bank (STB), the Group is obliged to purchase delinquent leases (contracts in arrears for 91 days) from the funder at the funded amount. The Group has entered into a financial guarantee contract with STB for which the Group has provided a deposit to support future delinquent leases.

 

The deposit held by funders is recognised as an asset on the Group's statement of financial position within other non-current assets (see note 12).

 

 

20.  Fair value of financial instruments

 

The carrying amounts of financial assets and financial liabilities recorded in the financial statements are not materially different to their fair values.

 

Fair value hierarchy

The financial instruments carried at fair value have been classified by valuation method.

 

The different levels have been defined as follows:

 

-       Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

-       Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

-       Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

 

Key assumptions in the valuation of the instruments were limited to interpolating interest rates for certain future periods where there was no observable market data. The majority of the financial instruments are measured at amortised cost. At 31 December 2021 the Group held one financial instrument at fair value through profit or loss:

 

·      10% holding in Clearpay Finance Limited with a fair value of £73,633,190 (30 June 2021: £125,000,000). At 31 December 2021 the holding in Clearpay is a Level 2 financial instrument. At 30 June 2021 the holding in Clearpay was a Level 3 financial instrument. See Note 10.

 

21.  Segmental information

 

The Group currently has one reportable segment which comprise the Group's core business unit (UK). Head office and other unallocated corporate functions are shown separately. For the segment, the Board and the CEO review internal management reports on a monthly basis. The composition of the reportable segment is as follows:

 

 

UK:

- ThinkSmart Europe Ltd

- RentSmart Ltd

- ThinkSmart Insurance Services Administration Ltd

- ThinkSmart Financial Services Ltd

- ThinkSmart UK Ltd

 

Corporate and unallocated:

- ThinkSmart Limited

- ThinkSmart Finance Group Limited

 

 

21.  Segmental information (continued)

 

Operating Segments

 

 

 

 

 

Information about reportable segments

 

 

UK

Corporate and unallocated

Total

For the six months ended:

December

2021

 

 

December

2020

December

2021

 December

2020

December

2021

 

December

2020

 

£,000

£,000

£,000

£,000

£,000

£,000

 

 

 

 

 

 

 

Revenue

1,875

2,342

-

-

1,875

2,342

Other revenue

4

45

-

-

4

45

Total revenue

1,879

2,387

-

-

1,879

2,387

Customer acquisition cost

(60)

(175)

-

-

(60)

(175)

Cost of inertia assets sold

(150)

(191)

-

-

(150)

(191)

Other operating expenses

(1,144)

(1,517)

(296)

(315)

(1,440)

(1,832)

Depreciation and amortisation

(467)

(864)

-

-

(467)

(864)

Impairment gains

5

39

-

-

5

39

Gain on Financial Instruments

(51,367)

52,867

-

-

(51,367)

52,867

Other gains

-

1,450

-

-

-

1,450

Reportable segment profit/(loss) before income tax

(51,304)

53,996

(296)

(315)

(51,600)

53,681

 

 

 

 

 

 

 

 

December

2021

 

 

June

2021

December

2021

June

2021

December

2021

June

2021

 

£,000

£,000

£,000

£,000

£,000

£,000

Reportable segment current assets

4,094

4,181

325

3,359

4,419

7,540

Reportable segment non-current assets

76,785

128,738

-

-

76,785

128,738

Reportable segment liabilities

1,152

1,575

230

246

1,382

1,821

Capital expenditure

41

139

-

-

41

139

 

 

22.  Related party disclosures

 

As at 31 December 2021 the following were Key Management Personnel of the Group:

 

Executive Chairman

N Montarello

 

Executive Directors

G Halton (Chief Financial Officer)

 

Non-Executive Directors

P Gammell

D Adams

 

 

 

22.  Related party disclosures (continued)

 

The Key Management Personnel remuneration included in 'employee benefits expense' in Note 6(e) is as follows:

 

 

 

31 December 2021

31 December

 2020

 

£,000

£,000

Short-term employee benefits

208

228

Post-employment benefits

7

7

Other long-term benefits

1

1

 

216

236

23.  Events occurring after the reporting date

 

Disposal of Clearpay 10% shareholding in exchange for 1,650,000 Afterpay shares

On 14 January 2022 ThinkSmart shareholders voted to approve the sale by ThinkSmart Europe Ltd (ThinkSmart's wholly owned subsidiary) ("ThinkSmart Europe") of its 10% holding in Clearpay Finance Ltd ("Clearpay") in exchange for 1,650,000 shares in ASX listed Afterpay Ltd ("Afterpay") (ASX: APT) ("Disposal").  The Disposal completed on 17 January 2022 at which point ThinkSmart Europe received 1,650,000 shares in Afterpay. On 1 February 2022 Block, Inc ("Block")(NYSE: SQ) acquired Afterpay per a Scheme of Arrangement ("Scheme") which was announced on 2 August 2021. Under the terms of the Scheme Block has acquired all of the issued shares in Afterpay in exchange for common stock in Block. As a result of this acquisition the 1,650,000 Afterpay shares received by ThinkSmart Europe as a result of the Disposal have been exchanged for 618,750 Block shares.

 

On 14 January 2022 the Group de-recognised the 10% holding in Clearpay and simultaneously recognised the 1,650,000 shares in Afterpay. The shares in Afterpay are a level 1 financial instrument. On 1 February 2022 the Group de-recognised the 1,650,000 shares in Afterpay and simultaneously recognised 618,750 shares in Block. The Block shares are a level 1 financial instrument. At 31 December 2021 the closing share price of the Block shares was USD $161.51 per share, and at 7 March 2022 the closing price of the Block shares was USD $97.51.

 

 

Purchase of leases from STB

On 31 January 2022 the Group purchased from STB Leasing Ltd ("STB") the portfolio of Hiring Agreements held by STB as specified in the Operating Agreement of 16 February 2011 (the "Operating Agreement"). Under the terms of the Operating Agreement the Group was required to purchase the portfolio once the value of the portfolio had fallen below £2m, being the floor value of the credit support balance placed by the Group with STB, and a specified termination event. The purchase price of the portfolio was the amount equal to the balance of primary period rentals for the portfolio at the date of transfer and payable up to the minimum term for each Hiring Agreement in the portfolio discounted to their net present value ("NPV") using the NPV formula and applicable interest rate used to calculate the transaction fee for each of the Hiring Agreements in the Portfolio. On the transaction date the Group recognised a Finance Lease Receivable for the purchased portfolio and simultaneously de-recognised the deposits held by funder with the difference between the portfolio price and credit support balance being settled in cash. The Group will continue to collect the rentals due under the Hiring Agreements and recognise finance lease income over the remaining term of the Portfolio.

 

There has not arisen, in the interval between the end of the financial period and the date of this report, any other item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.

 

24.  Earnings per share

 

 

31 December 2021

 

31 December 2020

 

 

£,000

£,000

(Loss)/profit after tax attributable to ordinary shareholders

 

(51,606)

53,671

 

 

 

 

 

 

31 December 2021

Number

31 December 2020

Number

Weighted average number of ordinary shares (basic)

 

106,567,787

106,509,994

Weighted average number of ordinary shares (diluted)

 

108,267,346

108,267,346

 

 

 

 

Earnings per share

 

31 December 2021

 

31 December 2020

Basic (loss)/earnings per share (pence)

 

(48.43)

50.39

Diluted (loss)/earnings per share (pence)

 

(47.67)

49.57

 

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