Funding Circle Holdings Plc · LSE:FCH
Funding Circle — H1 2022 Earnings Presentation
35 slides from Funding Circle's earnings presentation, Sep 8, 2022
Slide 1: Half Year 2022 Results Presentation
HALF YEAR Full Year 2021 2022 RESULTS Results Presentation 8 September 2022 10 March 2022 Funding Circle | Small business lending powered by machine learning, technology and data Funding Circle | Small business lending powered by machine learning, technology and data
Slide 2: 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 3: Building the place where small businesses get the funding they need to win
Building the place where small businesses get the funding they need to win £14.5bn lent to 130,000 small businesses since 2010 “ We had a great experience when we used Funding Circle previously, so decided to go back. They ticked all our boxes and everything was clear and easy. We’ve got loads of th
Slide 4: Well positioned and executing on growth potential
Well positioned and executing on growth potential • Market-leading technology continues to deliver a superior customer experience World-class • 70% of UK applications receive an instant decision technology • Borrower application in 6 minutes, decision in 9 seconds, money in account in 24 hours • Net
Slide 5: Financial Performance
Financial Performance Financial Performance
Slide 6: Revenue model: Fee based income model with equity invested where it makes platform stronger
Revenue model: Fee based income model with equity invested where it makes platform stronger H1 2022 Driver Typical yield %¹ % of H1 2022 Total income Transaction Originations fee2 £0.8bn c.5% 55% Operating LuM c.1% Servicing fee £4bn 31% per annum 1. Typical yield may vary depending on core and mark
Slide 7: Key financial metrics
Key financial metrics • LuM: at £4.1bn, down 8.7% on H2 2021 following early expected H1 21 H2 21 H1 22 repayment of CBILS loans and PPP loan forgiveness £m • Originations: £0.8bn, up 21% on H2 2021, but down 51% on H1 2021 Loans Under Management (LuM) 4,933 4,457 4,071 when the UK and US govt lendi
Slide 8: UK originations reduced from H1 2021 at peak of government schemes; up 8% on H2 2021
UK originations reduced from H1 2021 at peak of government schemes; up 8% on H2 2021 LuM at £3.6bn Originations at £641m 4,072 3,944 1,381 3,632 591 641 H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 Funding Circle | Small business lending powered by machine learning, technology and data 8
Slide 9: UK operating income and operating AEBITDA growing from H2 21 as investment income declines
UK operating income and operating AEBITDA growing from H2 2021 as investment income declines 2 £61.9m total income1 £7.6m AEBITDA £0.5m operating profit Margin 41% 34% 12% 32% 22% 0% 41.0 31.2 98.8 60.6 61.9 20.9 13.1 7.6 0.5 H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 Op
Slide 10: US originations down from H1 2021 at peak of government schemes
US originations down from H1 2021 at peak of government schemes; more than double H2 2021 LuM at £371m Originations at £145m 733 247 425 145 371 69 H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 LuM (PPP) £333m £125m £48m LuM (commercial) £400m £300m £323m Funding Circle | Small business lending po
Slide 11: US underlying operating income and operating AEBITDA improving from H2 2021
US underlying operating income and operating AEBITDA improving from H2 2021 as investment income declines 2 £14.2m total income1 £1.9m AEBITDA (£0.1m) operating loss Margin 58% 67% 13% 19% 60% (1%) 16.6 14.7 24.6 20.2 11.8 14.2 3.8 1.9 (0.1) H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 H1 2021 H2
Slide 12: Operating expenses in line with H2 2021
Operating expenses in line with H2 2021¹ Costs remained flat on H2 2021 Marketing costs expected to remain below 30% of operating income going forward Movement 0% (13)% (1)% 29% 89.3 27% 78.1 77.3 26% H1 2021 H2 2021 H1 2022 H1 2021 H2 2021 H1 2022 1. Operating expenses are shown before exceptional
Slide 13: Net assets of £299m, up £45m since H1 2021
Net assets of £299m, up £45m¹ since H1 2021. This includes unrestricted cash of £183m • Net assets of £299m predominantly made up of unrestricted cash of £183m, restricted cash of £18m and equity invested in our loans of £92m +£45m¹ • Unrestricted cash of £183m has reduced by £16m since Dec 2021 dri
Slide 14: Capital allocation hierarchy
We have ample cash to support business investment and growth as we execute our medium-term plan Going forward, cash will be used for the following: Stresses and • Cash retained for prudential stress and covenants, totalling c.£75m covenants CAPITAL ALLOCATION HIERARCHY • UK continues to be cash gene
Slide 15: Loan performance shows the quality and resilience of portfolio
Loan performance shows the quality and resilience of portfolio with improvement in most cohorts since Dec 2021 Projected annualised returns by cohort Projected annualised returns by cohort 8% 8% +15bps +100bps +100bps +60bps -30bps +30bps +70bps +100bps +100bps +10bps 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2
Slide 16: Actively managing the business through the uncertain macro environment
Actively managing the business through the uncertain macro environment Long-term focus on diversification ensures Maintaining robust and attractive investor returns: supply of funding 2% 1% • Credit model refinement to sustain a prudent approach to originations 4% 5% • Borrower price adjustments in
Slide 17: Forward guidance
Forward guidance • The business is in a good position and we are well prepared to manage through the challenging macro environment • We are taking a prudent approach to the macro environment in the UK and the US in H2 2022 with a £15m reduction to income outlook now £140m - £155m • We reaffirm that
Slide 18: Looking ahead
Looking ahead Financial Performance
Slide 19: In March, we said we were at an inflection point and set out our medium-term plan
In March, we said we were at an inflection point and set out our medium-term plan Borrow Yearly Pay A combination of our strong Monthly financial position, world class technology and superior customer experience provides a platform to become multi- Spend Daily product, serving a direct and embedded
Slide 20: Our technology is revolutionising SME lending and delivering a superior borrower experience
Our technology is revolutionising SME lending and delivering a superior borrower experience ü Platform strength ü High repeat rates enables us to offer new with c.130k products customers ü Predictive marketing ü 10+ years of models and automation acquiring 2bn drives margins up data points ü Strong
Slide 21: Today, 70% of UK applications receive an instant decision
Today, 70% of UK applications receive an instant decision • Application in 6 minutes • Decision in 9 seconds • Money in borrower’s account in 24 hours Funding Circle | Small business lending powered by machine learning, technology and data 21
Slide 22: Six months into our medium-term plan, we are delivering against the three strategic pillars
Six months into our medium-term plan, we are delivering against the three strategic pillars 1 Attract more businesses: • Leveraged platform to launch two Lending as a Service pilot partnerships, with Pitney Bowes and DreamSpring in US • Continued to refine our embedded finance solution in UK Say yes
Slide 23: Attract more businesses: Our end-to-end SME lending solution for partners is unique
1 Attract more businesses: Our end-to-end SME lending solution for partners is unique to the market Funding Circle Lending as a Service: full embedded offering Customers Other LaaS providers Other LaaS providers only offer only offer Digital Loan offer and Marketing Sales Underwriting Operations Ser
Slide 24: Attract more businesses: LaaS launched with two pilots and positive early feedback
1 Attract more businesses: LaaS launched with two pilots and positive early feedback Pitney Bowes and DreamSpring are now offering Pilot learnings will help us refine Seamless co-branded application their borrowers the ‘Funding Circle’ experience our capability as we scale Our partnership with Fundi
Slide 25: #1 in new products: Helping SMEs manage their cashflow
2 #1 in new products: Helping SMEs manage their cashflow, increasing engagement and tapping into a large new market Borrow Yearly Pay Monthly Spend Daily Funding Circle | Small business lending powered by machine learning, technology and data 25
Slide 26: #1 in new products: Strong momentum in FlexiPay
2 #1 in new products: Strong momentum in FlexiPay • FlexiPay enables businesses to spread the £30m cost of paying suppliers over three months Drawdowns (Cumulative)1 for a one-off 3% fee £25m • 1.5 transactions per month for an average £20m active customer, with the most being 30 £16m • Continuing t
Slide 27: CEO conclusion
CEO conclusion • Financial performance in line with expectations with a healthy balance sheet • Robust and attractive investor returns through the platform • Continued demand on both sides of the platform • Well prepared to manage the business through the challenging macro environment • Our technolo
Slide 28: Financial appendices
Financial appendices Financial Performance
Slide 29: Group income statement
Group income statement H1 2021 H2 2021 H1 2022 Before Before Before exceptional Exceptional exceptional Exceptional exceptional Exceptional items items Total items items Total items items Total £m £m £m £m £m £m £m £m £m Transaction fees 70.5 - 70.5 44.5 - 44.5 40.7 - 40.7 Servicing fees 21.9 - 21.9
Slide 30: Segment profit split
Segment profit split Operating and investment income¹ and AEBITDA² (£m) H1 2021 H2 2021 H1 2022 Operating Investment Total Operating Investment Total Operating Investment Total Income 94.5 26.1 120.6 71.0 15.3 86.3 66.4 10.9 77.3 Group AEBITDA 19.1 34.2 53.3 2.7 35.8 38.5 (1.8) 12.4 10.6 Income 85.8
Slide 31: Cash, capital and net assets
Cash, capital and net assets Unrestricted cash £183m Equity invested of £92m Net assets of £299m Unrestricted cash utilisation Equity invested movement Dec '21 Mov't Jun '22 Net Assets Dec '21 Jun '22 Dec '21 199 Securitisations Cash Free cashflow (2) Horizontal 16 (2) 14 Unrestricted 199 183 Invest
Slide 32: Net assets and investment in vehicles
Net assets and investment in vehicles As at 30 Jun As at 30 Dec 2022 2021 Operating business Investments business Investment in Trading Investment in New Securitisation Investment in core PPP loans trusts and co- Other investments Total Total business Products SPVs loans investments £m £m £m £m £m £
Slide 33: Funding Circle's investment in vehicles
Funding Circle’s investment in vehicles Estimated Additional Additional future cash investment / Investment Fair value investment / Investment Fair value flows Jun-21 Dec-21 Jun-22 Downside Upside income adjustment income adjustment withdrawals withdrawals Securitisations Horizontal 13 (16) 9 10 16
Slide 34: AEBITDA to FCF reconciliation and cash flow
AEBITDA to FCF reconciliation and cash flow H1 2021 H2 2021 H1 2022 £m Operating Investment Total Operating Investment Total Operating Investment Total AEBITDA 19.1 34.2 53.3 2.7 35.8 38.5 (1.8) 12.4 10.6 Payment of lease liabilities (3.8) - (3.8) (4.1) - (4.1) (3.0) - (3.0) Purchase of tangible/int
Slide 35: Loan performance shows the quality and resilience of portfolio
Loan performance shows the quality and resilience of portfolio with improvement in most cohorts since Dec 2021 Projected annualised returns by cohort Projected annualised returns by cohort 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% 2017 2018 2019 2020 2021 2022 2017 2018 2019 2020
Funding Circle Holdings — H1 2022 Earnings Presentation on 6ix