Funding Circle Holdings Plc · LSE:FCH
Funding Circle — FY2018 Earnings Presentation
45 slides from Funding Circle's earnings presentation, Mar 7, 2019
Slide 1: Full Year Results Presentation
Full Year Results Presentation Year ended 31 December 2018 7 March 2019
Slide 2: Highlights
Highlights Delivering on IPO guidance and continuing our strategy of investing for growth Platform Financials Growth in loans under management in 55% Growth in revenue in 2018 to £141.9m 55% (2017: £94.5m)3 2018 to £3.15bn (2017: £2.11bn)1 40% Growth in originations in 2018 to 5% Positive segment ad
Slide 3: Funding Circle's platform model
Funding Circle’s platform model
Slide 4: Platform Model
Platform Model Our model enables SME borrowers to access finance directly from investors Small businesses access fast, Investors earn attractive returns affordable finance 85,000+ investors globally 10 years’ trading history 5-8% projected returns across all 8 employees geos1 £950k revenue 58% of fu
Slide 5: Better For Borrowers
Better For Borrowers A better borrower experience leads to repeat behaviour Market leading customer UK: Average # of loans taken per satisfaction scores lead to repeat SME vs months after first loan behaviour by cohort1 2.2 Net Promoter Score between 80-90 in UK and 2.0 US 1.8 On average borrowers t
Slide 6: Better For Investors
Better For Investors A better investor experience leads to repeat behaviour Attractive returns to Existing investors continue to investors across all markets grow their investments over time 2,500 A number of new lending commitments Projected annual returns of 5-8% across all signed in H2 2018, incl
Slide 7: Group Financial Performance
Group Financial Performance
Slide 8: Loans under Management (LuM) and Originations
Loans under Management (LuM) and Originations LuM exceeded £3 billion Originations exceeded £2 billion Growth1 Growth1 Loans under Management (£m) 55% YoY Originations(£m) 40% YoY (excl. Property) (excl. Property) 3,148 25 204 111% 111% 736 2,107 63% 54% 95 96 427 1,362 163 47 2,183 288 47% 32% 1,48
Slide 9: Revenue
Revenue Revenue growth of 55%1 exceeded IPO Revenue by type guidance of c.50% £m Transaction yield (1) 4.6% 4.9% Growth (1) Growth (1) YoY Revenue (£m) 55% YoY Servicing yield 1.0% 0.9% (excl. Property) (excl. Property) 141.9 141.9 0.4 195% 0.4 11.2 37.1 66% 94.5 94.5 80.2 46% 3.8 3.1 3.1 22.3 50.9
Slide 10: Segment Adjusted EBITDA and Margin
Segment Adjusted EBITDA and Margin Steady improvement in all geos as the Overall Segment Margin of 5% after another business scales with the Group recording a year of 41% of revenue invested in marketing Segment Adjusted EBITDA for the first time spend Segment Result (£m) Change Segment Margin (£m)
Slide 11: United Kingdom
United Kingdom Existing customers now represent almost half of UK revenue Revenue (£m) Segment Margin – 2018 (%) 93.6 Growth YoY (excl. Property) 0.4 43% 68.4 3.1 47.6 33% 64% 39.3 35.9 4.6 23% 19.6 55% 45.6 29.4 15.1 (16%) 2016 2017 2018 Existing New Property Existing New Combined Existing as a % o
Slide 12: United States
United States Improvement in segment loss margin and strong revenue growth Revenue ($m) Segment Margin – 2018 (%) Growth YoY 49.1 70% 32% 28.9 31.9 53% (20%) 20.8 (48%) 13.8 9.4 17.2 112% 4.4 8.1 2016 2017 2018 2018 Existing New Existing New Combined Existing as a % of revenue Marketing spend % of r
Slide 13: Developing Markets
Developing Markets Significant growth in scale with revenues trebling year-on-year Revenue (€m) Growth Segment Margin – 2018 (%) YoY (19%) 195% (66%) (82%) 157% 433% Existing New Combined Existing as a % of revenue Marketing spend % of revenue 25% 114% 3.2 14% 68% 12% 41% 0.6 0.2 13 2016 2017 2018 2
Slide 14: Adjusted EBITDA and Free Cash Flow
Adjusted EBITDA and Free Cash Flow Central costs1 broadly flat at 25% of revenue as Decrease in Free Cash Outflow margin to 30% increase in technology investment expensed. from improving adjusted EBITDA margin Adjusted EBITDA margin improvement from geo segment result Adjusted EBITDA2 (£m) (27%) (20
Slide 15: Profit and Loss
Profit and Loss Of the £15m cash IPO costs, £5.9m were booked Marketing expenditure of ~£58m included as exceptional items, with the balance recorded above the line spend of ~£13m against equity Segmental View 2016 2017 2018 Income Statement View 2016 2017 2018 £m £m £m £m £m £m Transaction revenue
Slide 16: Cash and Balance Sheet
Cash and Balance Sheet Increase in net cash of £244m including free cash Total equity in excess of £400m outflow of £42m and net IPO proceeds of £285m Balance Sheet 2016 2017 2018 £m £m £m Goodwill 41.4 41.3 42.3 Cash and cash equivalents (£m) Intangible assets 11.7 16.2 21.5 Property, plant and equ
Slide 17: Market Analysis
Market Analysis
Slide 18: Large Target Market
Large Target Market There is a large opportunity for growth within all of our existing geographies Current TAM across 4 geographies2 ~£470bn ~£220bn Target ~£140bn Addressable ~£85bn Market by ~£20bn geography1 US DE UK NL Estimated share of TAM ~0.3% ~0.1% ~2.6% ~0.4% by geography2 1. Source: OC&C
Slide 19: Global Online SME Lending
Global Online SME Lending Loans under management significantly higher than online competition Loans under management as of Q4’18 (£ billion) 3.1 1.4 0.9 Funding Circle Leading Captive Network Leading Specialist Lender Source: Funding Circle 19 Based on 1 USD - 0.77 GBP FX
Slide 20: UK SME Net Lending in 2018
UK SME Net Lending in 2018 Funding Circle lent more to UK SMEs in 2018 than all UK high street banks Rolling four quarters net lending (£ billion1) 4.0 EU Referendum 3.5 3.0 2.5 2.0 1.5 1.0 723 0.5 515 - Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018
Slide 21: US SME Loans under Management in 2018
Billions ($) $0 $5 $10 $15 $20 $25 $30 $35 Bank of America American Express Wells Fargo Bank JPMorgan Chase Bank U.S. Bank Capital One Bank (USA) Citibank Ally Bank Bank of Montreal Branch Banking and Trust… PNC Bank Wintrust Bank BNP Paribas Citizens Financial M&T Bank Keycorp TCF Financial People'
Slide 22: Lending Trends
Lending Trends Over-supply of UK consumer credit compared to SME lending Outstanding loans to UK consumers and small businesses (£ billion) 250 • Steady increase in consumer 200 borrowing since 2013 as wages struggle to keep up 150 with the cost of living • We haven’t seen this 100 replicated in the
Slide 23: Market Trends
Market Trends Business insolvencies are below pre-2008 recession UK consumer credit is experiencing stress levels across all geographies Small business insolvencies (as at Q3 20181, indexed to Q1 2008) Consumer insolvencies (as at Q2 20181 indexed to Q1 2008) 250 250 200 200 150 150 100 100 50 50 0
Slide 24: Attractive Returns Across all Geographies
Attractive Returns Across all Geographies Funding Circle continues to deliver attractive returns across all markets Projected annual returns and bad debt rate for loans originated in 2018, by geography Projected annualised investor returns 6.4 – 8.4% 5.8 – 7.8% 5.3 – 7.3% for loans 5.1 – 6.0% origin
Slide 25: Strategy
Strategy
Slide 26: 2020 Strategy
2020 Strategy FC2020: Our three year strategic plan Drive a better borrower experience Invest in Diversify Build a data, tech funding highly scalable, and analytics sources global business 26
Slide 27: Technology, Data and Analytics
Technology, Data and Analytics Our sophisticated technology, data and analytics is driving a superior customer experience Global Marketplace Unlocking bank account data Expansion of SME data lake Consumer Consumer bureaux bureaux Bank data Publicly available company financials Private company Compan
Slide 28: UK Autumn Brand Campaign
UK Autumn Brand Campaign Our strategy in the UK was to reach, engage and influence SMEs 28
Slide 29: Positive Early Results
Positive Early Results In the UK we are now bigger than the business loan search category Weekly search volumes for business loans 120 Number of searches (thousands) 100 80 60 40 20 0 01/01/17 01/03/17 01/05/17 01/07/17 01/09/17 01/11/17 01/01/18 01/03/18 01/05/18 01/07/18 01/09/18 01/11/18 business
Slide 30: International Expansion
International Expansion We plan to enter Canada in H2 2019, further Canada ranks highly on our key expanding our addressable market criteria for assessing new markets: Market attractiveness (SME borrowing) Launch 2010 2013 2015 2019F ~£140bn ~£45bn2 TAM ~£85bn1 ~£220bn1 ~£20bn1 Investor sentiment Da
Slide 31: Increasing Funding Diversification
Increasing Funding Diversification In 2019 we are launching two new products to widen the universe of potential investors Our Investor Products Estimated increase in investor TAM *NEW* 2019 Bonds (ABS) Private Fund 2015 Listed Fund ~4x increase ~£2.5trn Future investor TAM 2013 Whole Loans ~£657bn C
Slide 32: New Investor Products
New Investor Products Key features of new investor products Bonds (ABS) Private Fund Funding Circle will launch a sponsored securitisation Funding Circle will launch a private direct lending fund in product in the US in H1 2019. Continental Europe in H1 2019. o Provides access to investors who can o
Slide 33: Bonds (ABS) – Mechanics
Bonds (ABS) – Mechanics Year End Year End Illustrative timeline • SME loans are originated into a 5 - 7 months 5 - 7 months 5 - 7 months warehouse in a given period, funded through FC working capital (approx. 25%) and a 1st Issuance banking partner • Once accumulated, loans are Bank debt packaged in
Slide 34: Private Funds – Mechanics
Private Funds – Mechanics Illustrative timeline 3 year investment period 5 year distribution period • Funding Circle will invest own capital upfront • This will attract additional investors over 12-18 months Private Funds • The fund will continue to grow for a 3 year period through new funds and re-
Slide 35: Outlook
Outlook Medium term outlook (to 2020) outlined at IPO remains unchanged: pursuing a strategy of growth over profitability 2019 – Outlook prior to New Investor Products & IFRS16 • Revenue above £200 million. Transaction yields remaining at 2018 exit levels will provide a year-on-year revenue benefit
Slide 36: Q&A
Q&A
Slide 37: Appendices
Appendices
Slide 38: Disclaimer
Disclaimer Information regarding forward-looking statements This Presentation includes forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond the Group’s control and all of which are based on the Group’s current belief
Slide 39: Financial statement impact: Bonds & Private Fund
Financial statement impact: Bonds & Private Fund Bonds (ABS) Private Fund Stage / Treatment Warehouse Post Securitisation Seed Investment Stage Residual Risk Stage Treatment in Funding Circle Holdings 100% consolidation of warehouse Recognition of 5% residual risk held by (FCH) Financial statements
Slide 40: Adoption of IFRS16 Leasing
Adoption of IFRS16 Leasing Adoption of the new leasing standard (IFRS16) from 1st January 2019. For the 2019 Financial Statements, the 2018 comparative will be restated using the full retrospective application Statement of Financial Position Prior to implementation Impact of IFRS 16 Post implementat
Slide 41: Cash Flow Statement
Cash Flow Statement Cash Flow Statement 2016 2017 2018 Reconciliation of cash 2016 2017 2018 £m £m £m £m £m £m Loss before taxation (47.2) (36.3) (50.7) Cash and cash equivalents at the beginning of the year 86.3 43.3 88.9 Depreciation 1.4 1.6 2.1 Net increase/(decrease) in cash and cash equivalents
Slide 42: Notes
Notes 42
Slide 43: Notes
Notes 43
Slide 44: Notes
Notes 44
Slide 45: Slide 45
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