TSL.L Regulatory News (TSL)

10 November 2021

ThinkSmart Limited

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

2021 AGM Statement and Business Update

ThinkSmart Limited (AIM: TSL), a specialist digital payments platform business, will hold its Annual General Meeting at 8.30am (GMT) today Wednesday 10 November 2021 at which the Chairman will make the following statement:

"Ladies and Gentlemen, I am very pleased to report that our financial year ended 30 June 2021 has again been one marked by significant value accretion for our shareholders.

Our 10% shareholding in Clearpay UK continues to give 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 buy now pay later ("BNPL"). Consumers are increasingly viewing and utilising BNPL as an alternative and more preferable form of consumer finance. Our expectation is for that shift to become increasingly prevalent, given BNPL remains in its early stages of growth, currently penetrating just 2% of a US$10 trillion global market. This gives us confidence that ThinkSmart is strategically positioned with an investment in a business that operates within a structurally growing area of consumer finance.

The movement from consumers of credit to BNPL is being compounded by another structural shift in the market: that of ecommerce. It has become apparent that the consequential restrictions on social activity because of Covid-19 have served to accelerate this pre-existing trend. In turn that has further driven the growth in BNPL, from which Clearpay has been a beneficiary. We also believe that the launch of the Clearpay in-store card is complementary and allows for the business to benefit from the return to in store physical retail while continuing to capitalise on the shift into ecommerce. Millennials and Gen Z are key drivers of this shift - which we believe to be permanent - and their share of spend is set to grow significantly over the next decade.

Before I go into more detail about Clearpay's performance, we must recognise the strategic importance of the announcement on 2 August 2021 (after our year end) of the proposed acquisition of Afterpay by Square Inc ("Square"). We note from this, and the subsequent announcements made by Afterpay and Square, that the combination will enable Afterpay to further accelerate its growth in the US and globally, offer access to a new category of in-person merchants, and provide a broader platform of new and valuable capabilities and services to its merchants and customers. We therefore believe Clearpay, as part of the Square and Afterpay combined business, will accelerate its growth and in time accrue further material value. In its Scheme Booklet published on 5 November 2021, Afterpay outlined the anticipated Implementation Date (by which we understand a change of control in Afterpay will formally occur) of the Scheme to be 18 January 2022.

Turning to Clearpay and its outstanding trading performance during the year to 30 June 2021. Clearpay forms a substantial and growing part of the Afterpay Group of companies. In the year to 30 June 2021, it represented c35% of Afterpay's EBITDA, c13% of its global active customer base, and c8.5% of its underlying sales. We would expect the contribution from Clearpay to the Afterpay Group to continue to increase in both real and percentage terms, as it matures and repeat business flows through.

ThinkSmart is carrying the Clearpay shareholding on its balance sheet at a value of £125 million as at 30 June 2021. This asset valuation, carried out by an independent leading global accounting firm, is informed by the market valuation of the Afterpay business. The independent valuation grew by £71.3 million in the year, reflecting the significant growth of the Clearpay business, both standalone and as a proportion of the Afterpay Group, combined with the 100% growth in the market value of Afterpay - to A$34 billion - in the year to 30 June 2021.

ThinkSmart, as a result of the 90% sale of Clearpay to Afterpay and its 10% stake retention, has already delivered significant shareholder value with cumulative accounting profit generated to 30 June 2021 of £135.1m, including £124.9 million of unrealised fair value gains. We believe there remains future upside profit potential for shareholders through the agreed call option for Afterpay to purchase ThinkSmart's retained holding. This option can be exercised any time after August 2023 at a price calculated on the same pre-agreed principles with which the independent valuation is conducted. ThinkSmart has a reciprocal put option six months later to sell its retained holding in Clearpay to Afterpay on the same valuation principles.

A change of control of Afterpay from the announced Square takeover would give Afterpay the right (but not the obligation) to exercise its call option anytime following the change of control occurring. As explained above, this is expected to complete at the Implementation Date, which the Afterpay Scheme Booklet states will be on 18 January 2022. 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. Following a change of control, ThinkSmart will continue to retain its reciprocal put option, exercisable in February 2024.

While our strategic focus is on delivering value to shareholders via our Clearpay asset, and the provision of the outsourced call centre customer support service for Clearpay, we are pleased to report our legacy retail consumer and business finance offerings are continuing to deliver net positive cashflows. Shareholders will be aware that we are no longer originating any new business and, as such, these offerings are in managed wind-down. We are managing this by adjusting the cost base accordingly and we expect our cash reserves to continue to build over the next few years.

With net cash of approximately A$13 million at 14 October 2021 the Group has a robust financing position.

During the year, we delivered to shareholders a special dividend and capital return of A$6.5 million (6.1 cents per share), equivalent to £3.7 million, paid in December 2020. Subject to shareholder approval, we will return a further A$5.6m this December.

We thank our Board, management and employees for their continued hard work and commitment to the business. Most of all, we thank our shareholders for their sustained support. Our share price has grown by over 70% in the 12 months to 9 November 2021, and we fundamentally believe further value will accrue as we execute on our strategy."

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Notes to Editors

About ThinkSmart Limited

ThinkSmart is a specialist digital payments platform business. It offers investors unique exposure to the UK 'Buy Now Pay Later' payments sector undergoing exponential growth, driven by ongoing digital transformation of consumer shopping habits and financial services.