ThinkSmart AGM Speeches

ThinkSmart AGM Speeches

ThinkSmart Limited:  Annual General Meeting, FY 2007  Friday 23rd May 2008 at 3.00pm Peter Mansell, Chairman, ThinkSmart Limited.

Ladies and gentlemen.  Good afternoon, my name is Peter Mansell and I am the Chairman of ThinkSmart Limited.The Company Secretary has confirmed that we have a quorum present.  Accordingly, I declare this Annual General Meeting open.  The Notice of Meeting was mailed to shareholders on 21st April 2008.  I propose to take the notice as read.The format for today’s meeting is as follows: I will make some high-level remarks and then hand over to our Group CEO, Ned Montarello to update you on operations. We will then move to consider the two resolutions set out in the Notice of Meeting. But first, let me start by introducing the Board of Directors. On my right is Ned Montarello.  Ned is the founder and group CEO of ThinkSmart and remains the largest shareholder. On my far right is Steven Penglis.  Steven has been a Partner at Freehills since 1987 and associated with ThinkSmart since its inception.  He joined the board on 1 July 2000 and stepped down as Chairman on the 6 May 2007. On my left is David Griffiths.  David joined the board on 28 November 2000.  He has over 14 years experience in investment banking, most recently as Division Director of Macquarie Bank Limited and previously as Executive Chairman of Porter Western Limited. And, on my far left is Neil Barker.  Neil is the Group CFO and company secretary. Neil is a Certified Practicing Accountant (Fellow) with over 23 years experience in banking and finance.

Chairman’s address: Peter Mansell As you will be aware, ThinkSmart listed on the ASX in June 2007 and I am pleased to be able to report that it exceeded its full-year prospectus forecasts at the close of December 2007, achieving a record EBITDA (pre IPO costs) of $8.3 million; a Net Profit After Tax (pre amortisation and IPO costs) of $5.1 million; and total revenue of $36.3 million.  We achieved like-for-like growth in settled volumes of 28 percent compared with the previous corresponding period thanks to a solid performance from existing markets in the UK and Spain and a notably strong performance from the Australian business. Despite softer trading conditions in the second half of the year, and the reverberations of the global credit crunch, ThinkSmart’s product and positioning within our niche is strong and has proven resilient.  We find that during periods of tighter customer spending and economic pressure, our retail partners’ focus on ThinkSmart’s margin enhancing products becomes greater than ever.  This has been evidenced in Europe with our like-for-like growth outstripping that of PC World by a factor of four. As each transaction is financed on terms agreed at the time of settlement of the rental contract, there is no refinancing risk accepted by ThinkSmart.  That provides us with a solid funding platform. Our focus globally on the B2B market and strong management of bad debts has seen us differentiate our business clearly in the market. Our existing territories are continuing to expand and we are leveraging our infrastructure and expertise within those regions to deliver new income opportunities.  The demand for ThinkSmart’s product globally is also seeing us achieve economies of scale in that our regional processing centres are used to expand into new greenfield markets. We currently have access to a total market outside Australia of 240 million people and 17 million small businesses with the recent commencement of business in New Zealand, Italy and in one defined market in the United States.  By 2009, we expect this to be 522 million people and 38.2 million small businesses with full roll-out across the United States. Our geographic growth is measured, and well practiced.  Utilising our two regional processing hubs, one here in Perth, Western Australia, and the other in Manchester, England, we are able to add new territories at a relatively low cost of establishment. Importantly, this increasing globalization of our business also reduces our dependency on any one market. We are targeting our Italian operations to begin to be EBITDA positive in this second half of 2008, and have previously stated that we expect a negative $1.6m impact to EBITDA from the US establishment for full trading across Florida. Excluding the adverse foreign exchange movement and allowing for the cost of setting up in the USA, we remain on track to meet or exceed our full year forecast for 2008.  An increasingly strong foreign exchange headwind, the full dollar impact of which at 48p stands currently at a negative $2.4m,  is significant, especially in a softening economy. However,  with the introduction of new revenue lines such as the Warranty Services programme in Australia as well as the increased trading volumes from our start-up territories in 2008 we believe we have the components to help us offset most, if not all, the impact of the strong Australian dollar. Global demand, a stable financial lending model,  and a product that meets the needs of both the end user small business and retail partner are the three factors that give us confidence in the continued growth of the ThinkSmart business both within existing territories and in new markets. To reflect our internationalization and future growth aspirations the Board has undertaken the task of identifying an additional Board member who will be based in either the US or the EU and with a financial markets background.  We envisage this appointment to occur in 2009. Your board remains committed to building the ThinkSmart vehicle into an exceptional growth business and disappointingly, we believe the current market share price does not reflect the current or future value in your business.  We thank all our staff for their continued hard work and enthusiasm and we look forward to continuing to grow this business for the future. CEO’s Address: Ned Montarello Thank you Peter. As Peter highlighted,  ThinkSmart is a growth vehicle.  We are an international business that has created a niche in the provision of B2B finance through the computer retail store environment.  We are choosing to grow organically, creating our own niche and beginning to own an exciting space amongst leading retailers around the world.  This path we have chosen will have its challenges but with a proven resilient model, we feel confident that the value that we are creating will reward our shareholders’ patience and confidence in the future. We are partnered with some of the largest retailers, and largest banking institutions in the world and continue to prove to be the conduit for small business customers to easily and conveniently get the finance they need to spend at the retailer of their choice. This expertise means that although we are an Australian headquartered vehicle, the bulk of our business now and in the future will be generated across a range of overseas markets. To this end, 2008 will be a pivotal year in laying the foundation for this continued growth in what are undoubtedly testing times. Last month we commenced operations in the United States launching with the world’s second-largest office supplies retailer, Office Depot, whose focus on the B2B small business market make it a natural partner for us to grow with both in the US and internationally. A staged roll-out sees us currently trading in 21 stores in the Tampa region of Florida.  A  further 45 stores are scheduled for June 15th  and then the remaining 71 on July 8th which will see ThinkSmart trading in all 137 Florida stores .  Trading in Florida alone will see us exposed to a market roughly the size of Australia with 1.9 million small business and 18 million people and a store network roughly the same size as that of the Officeworks group.  We currently plan to commence expansion into all 1,191 stores across the US from Q1 2009.  Our learning’s in these first few months of trade with Office Depot will be important to shaping this roll-out nationwide.  The timing of this is to accommodate further systems automation enhancements that will be carried out by both parties which we collectively expect to drive strong efficiencies for our businesses prior to roll out across 50 states. It’s important to note that despite the economic pressures in the US at present, both our funding partner – which is a top 20 US bank – and our retail partner, see significant upside for our product specifically in these softer trading times. These early days of trade with Office Depot remain consistent with our experiences of other international markets, and present an exciting vision for the future. There will undoubtedly be challenges but we feel well versed to navigate these.  In Europe, we have three operations at varying stages of our product lifecycle.  The UK business is now in its sixth year of trade, and despite the pressures clearly evident in the UK market, it continues to increase penetration into the PC World business and remains on track to meet its end of year forecasts.  During 08, brokerage will continue to build from increasing sales, the new insurance model is hitting its stride and we will feel the full effect of our Inertia model which is now in its second full year of trading. We note that the recent Business Review announcement by DSGi, saw a reaffirmation of its strategy for its PC World stores, and the commitment to a customer focus strategy that is now more closely aligned with our own. The Spanish business by comparison has borne the strongest impact of lower technology prices driven by the stronger Euro relative to the US dollar and a challenging domestic economy. Yet despite these pressures on average transaction values, total sales for the Spanish business grew by 26% in 2007, with 21% growth in revenue to €2.3m and an increase in gross margin to 31%.  We achieved a 6.5% increase in penetration on a like-for-like basis, continuing to prove that in an environment of pressure on sales, the ThinkSmart product gains traction. The Spanish business is entering an important phase of income growth for ThinkSmart with this year seeing the first streams of income from our Inertia channel as well as income from the new insurance programme which commenced in January.  However, a prolonged environment of slow sales will not be the desired outcome for anyone.  We expect trading for Spain to continue to be tough for the remainder of this year and meeting our forecast numbers for applications in Spain will therefore be difficult. Expansion into Italy has mirrored the low-cost entry model successfully launched in Spain three years ago.  A fully online in-store process as per the US model is expected to yield future operating cost reductions as PC City expands its store count in the country and we note that the first “store within in a store” concept moving PC City stores into UniEuro outlets commenced this month.  With DSG focusing strongly on its UniEuro channel, we would look to this approach providing a simple platform for the targeted expansion of PC City in Italy. As you are aware, our operations in France have been dormant since PC City’s withdrawal from the market in April 2007.  We are targeting a re-opening of France before the end of the year Domestically, our mature Australian business is continuing to evolve. We have achieved renewed growth from partnerships with our top retailers being the Dick Smith Group and JB Hi-Fi group, while the re-signed Officeworks partnership has taken longer than anticipated for ThinkSmart to benefit from their new ownership and management structure.  However, we are now beginning to see the agreed new initiatives deployed for this second half of the year which make us optimistic that it can deliver on the enormous potential that the group offers. Like our European operation, we have started to leverage our infrastructure to undertake a low cost entry into new markets, launching in New Zealand at the end of 2007.  New Zealand presents as a comparatively small market, but we have the opportunity to cement the existing relationship and leverage new ones in that territory.  The Australian business has also been a test case for us in leveraging our existing partner relationships and core competencies recently winning a joint tender with US multinational The Warranty Group to deliver warranty products and services to Woolworths’ consumer electronics stores.  The product, as well as the associated administration and customer service, is provided by The Warranty Group with ThinkSmart responsible for the training of in-store staff, only.  Warranty revenue in Australia commenced in March 2008 and is expected to be material for Australian EBITDA growth.  We are now in discussions globally to broaden this offer to other retail partners.  Australia’s LFL growth continues to be strong. However it too has experienced retail softness over the last few months.  In summary, ThinkSmart is a low-risk, high cash generation, low capital intensive business model.  We have strong, long-term secure funding and retailer relationships in place.  A combination of growing mature businesses in Australia and the UK, together with Spain reaching the early stages of maturity, and emerging businesses in Italy, France and USA will deliver strong and continuing profit growth over the coming years. I thank you for your ongoing support of this business.


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