Clearpay shines for ThinkSmart as it prepares to sue Carphone Warehouse

Digital payments provider ThinkSmart described a “transformational year” on Friday, as its shareholders gathered for the company’s annual general meeting.

The AIM-traded firm said the sale of 90% of its Clearpay business to Australia-based Afterpay Touch Group in August 2018 was a “significant positive point” for the group and its shareholders, delivering a profit on sale of £7.9m as well as a further £1.6m gain on the sale of the one million Afterpay shares received as consideration.

Executive chairman Ned Montarello noted that in March, the company returned AUD 8m to shareholders and, subject to shareholder approval, would be returning a further AUD 6m to shareholders in December, which would still leave the company with a “healthy and growing” cash balance of around AUD 14.5m.

“ThinkSmart retains a 10% share of the UK Afterpay business, inclusive of 3.5% being made available to the Afterpay UK employee share ownership scheme, which continues to trade as Clearpay allowing leading retailers to offer a 'buy now, receive now, pay later' service that does not require customers to enter into a traditional loan or pay any upfront fees or interest to Clearpay,” Montarello said in his statement.

“We are encouraged by the early growth of the Clearpay business in the UK which Afterpay recently announced has transacted over AUD 100m of underlying sales in the four months to 31 October, growing its active customer base to over 400,000 - numbers which are higher than the US Afterpay business at the equivalent stage of development and which has since grown to 2.6 million active customers in just over 17 months.

“Following the transaction, Clearpay chose ThinkSmart to provide its outsourced UK call centre customer support service from launch.”

Ned Montarello said ThinkSmart's remaining holding in Clearpay provided shareholders with future upside profit potential through the five-year call option for Afterpay to purchase its remaining holding any time after August 2023, at a price calculated based on market valuations at the time of exercise.

ThinkSmart had a reciprocal put option six months later to sell its remaining holding in Clearpay to Afterpay.

“Clearly, ongoing growth in Clearpay is beneficial for ThinkSmart shareholders,” Montarello said.

“In our core leasing business, volumes from our SmartPlan and Flexible Leasing products remain disappointing, with Flexible Leasing being significantly below the numbers targeted within the contract with Carphone Warehouse.

“Our discussions with Carphone Warehouse in relation to the low volumes being generated have proved unsuccessful.”

That, he said, had left ThinkSmart with "no alternative" but to issue formal legal proceedings for their breaches under the Upgrade Everytime and Flexible Leasing agreements.

“We have therefore issued a claim against The Carphone Warehouse Ltd for damages for losses estimated at £20m, while we continue to fulfil our obligations under the same.

“In the meantime, we have aligned our cost base with our current volumes and continue to review the ongoing strategy of our leasing business.

“ThinkSmart will continue to service its existing end user customer base and the new volumes that are generated from the relationship and will continue to benefit from the cash generated from this business.”

Ned Montarello said the company had seen its share price grow by 150% in the last five months, adding that the board believed the business was “well positioned” to increase shareholder value in the years to come.

At 0834 GMT, shares in ThinkSmart were down 29.27% at 14.5p.