Funding Circle Holdings Plc · LSE:FCH
Funding Circle — H1 2021 Earnings Presentation
45 slides from Funding Circle's earnings presentation, Jun 30, 2021
Slide 1: Results for the 6 months to 30 June 2021
Results for the 6 months to 30 June 2021
Slide 2: H1 2021 highlights
• Record Loans under Management of c.£5bn and • Acceleration in adoption of online small business lending, originations of £1.6bn, helping thousands of will benefit Funding Circle going forward. businesses - UK originations up 109% year-on-year. • Our technology platform is transforming the SME • Op
Slide 3: Our mission
Our mission: How we do it: Build the piace where smaii businesses get the funding they need to win. We deiiver an amazing experience for smaii businesses powered by machine jearning and technoiogy.
Slide 4: UK loans under management growth
4500 4000 • 3500 3000 • 2500 £m 2000 1500 • 1000 500 • 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Jun-21 UK LuM 4
Slide 5: Total Addressable Market £305bn
50-70% £305bn Total Addressable Market 2 <2% 1 SME loans as a % of banks' balance SMEs as a % of GDP and employment sheets 1 1. OECD SME and Entrepreneurship Outlook 2019 5 2. OC&C analysis: Target addressable market in UK and US. Excludes commercial mortgages, loans / debt products <5k and >500k in
Slide 6: Data advantage and risk model improvement
2bn data 10 points in years of data lake experience Consumer bureau 26m £13bn 3x improvement businesses lent to SMEs in data lake c.750m 850,000 repayment applications events 1 1 FC Gini Bureau Gini 6 1. A measurement of the effectiveness of a risk model at ranking likely defaults
Slide 7: Fast application and approval experience
Get started Answer a few questions to check Good news – you have been if you’re eligible in seconds. approved for your loan! This check does not affect your credit score £ £100,000 You can borrow from £5,000 to £500,000 c.6 minutes 9 seconds 24 hours 7 1. Average interest rate for Core loans for A+
Slide 8: Instant Decision Lending
c.80% • IDL leverages the same risk models, developed over 10 years, as non-IDL loans. c.60% c.50% • Getting an instant decision can improve borrower c.40% conversion by up to 25%. • H1 2021 UK originations up 109% year-on year, without adding additional headcount. <1% • FlexiPay beta testing launch
Slide 9: LTV/CAC by number of loans per borrower
2.6 2.4 5.6 2.2 4.3 2 1.8 2.7 1.6 1.4 1.2 1 0 12 24 36 48 60 72 84 96 108 120 1 2 4 1. LTV/CAC by number of loans per borrower 9
Slide 10: c.4% UK market share and brand strength
£4.1bn 87% 83 49% c.4%1 market share 17 13% UK LuM Top 4 banks Funding Circle FinTechs Funding Circle Average UK UK borrower Banks NPS NPS 1. Target addressable market in UK based on OC&C analysis. Excludes commercial mortgages, loans / debt products <5k and >500k in local currency and loans with AP
Slide 11: Customer example: typical borrower profile
12 years •• 12 years trading trading history history •• 88 employees employees £1m revenue •• £1m revenue £80k loan •• £80k loan size size Mike Turner co-founder and MD 50 months •• 50 months average average term term of Bird and Blend 11 Source: Funding Circle data and from the Oxford Economics and
Slide 12: Sources of funding for loans
2% 2% 7% 6% 7% 46% 32% 98% Asset Managers Banks Group LuM excluding FC equity invested (£4.8bn) Retail Bond programme National entities Funds FC equity invested (£105m)* * Absolute equity invested at Jun-21 within year-end 2020 guardrails (Jun-21: £105m, Dec-20: £118m) 12
Slide 13: Annualised returns by cohort
7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% 2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 H1 H1 H2 2019 forecast H1 2020 forecast H2 2020 forecast H1 2021 forecast UK and US annualised returns by cohort show mid-point estimates. H1 2020 forecast as at 30 June 2020
Slide 14: Typical yield and equity investment returns
¹ 1. Typical Yield may vary depending on government schemes and marketplace mix. 2. Go-forward yield will depend on the nature of where Funding Circle's equity is invested e.g. investments such as ABS typically yield higher returns but with higher volatility. Co-investments in loans, will typically
Slide 15: Group Financial Performance
Group Financial Performance
Slide 16: Group financial performance summary
H1 2020 H2 2020 H1 2021 £m Loans Under Management (LuM) 3,722 4,214 4,933 Originations 1,112 1,630 1,635 • Total income: £120.6m Operating income 64.8 90.9 94.5 Investment income 36.4 29.9 26.1 up 19% year-on-year Total income¹ 101.2 120.8 120.6 Fair value (losses)/gains² (96.1) (22.2) 8.1 • Profit:
Slide 17: UK: LuM, originations and income
4,072 98.8 1,449 93.6 1,381 3,271 2,566 59.3 662 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 YoY 5% 27% 59% (17)% 91% 109% 12% 60% 67% growth 1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value gains/losses 17
Slide 18: UK AEBITDA and margin
41.0 31.2 28.6 21.3 (22.1) (29.2) H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 Margin (37)% 31% 41% (49)% 23% 32% 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exceptional items and foreign exchange gains or losse
Slide 19: US: income and growth
410 904 38.0 759 733 247 25.0 20.2 171 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 YoY 3% (11)% (9)% 28% (43)% (34)% 67% (15)% (42)% growth³ 1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value gains/losses. PPP deferred reve
Slide 20: US AEBITDA and margin
3.8 11.8 (8.3) (12.9) (70.7) (54.1) H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 Margin (142)% (33)% 58% (186)% (52)% 19% 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exceptional items and foreign exchange gains
Slide 21: Group LuM, originations and income
120.8 120.6 101.2 90.9 94.5 4,933 64.8 4,214 3,722 1,630 1,635 1,112 36.4 29.9 26.1 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 Investment Income Operating Income YoY 5% 13% 33% (7)% 41% 47% 24% 26% 19% growth 1. Total income is defined as fee income and investment income less investment e
Slide 22: Group AEBITDA and operating profit
53.3 20.3 34.2 35.5 7.7 12.6 19.1 7.2 (24.4) (59.7) (113.5) (84.1) H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 Operating Investment Margin (83)% 17% 44% (112)% 6% 29% 1. Adjusted EBITDA represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exception
Slide 23: Operating expenses
70% 140.0 60% 120.0 50% 100.0 40% 80.0 30% 60.0 101.7 89.6 89.3 20% 40.0 35% 27% 29% 20.0 10% - 0% H1 20 H2 20 H1 21 H1 20 H2 20 H1 21 YoY (10)% (15)% (12)% decrease 1. Operating expenses are before exceptional items and include the following cost areas: people; marketing; depreciation, amortization
Slide 24: Deployment of equity and net assets
400.0 350.0 • Funding Circle deploys its equity where it makes the +£37m¹ platform stronger. This may include limited co-investment 300.0 and investment in new products. 250.0 • We see the ability to do this as a source of competitive 200.0 advantage. We don't deploy capital with the sole purpose of
Slide 25: Looking ahead
Looking ahead
Slide 26: Flywheel of growth
Larger More ecosystem repeat customers New products More data More Better operating machine leverage Better learning borrower models experience 26
Slide 27: Core loan strategy in the UK and US
• Core loans for borrowers that do not • Core loans for borrowers that do not require a guarantee. require a guarantee. • Operate Recovery Loan Scheme for • Originate permanent government other borrowers. guarantee loans on behalf of banks. • Launch new products using • Continue to operate our refer
Slide 28: Embedded finance API launch
• Application Programming Interface (API) beta launched in Q3 • Sandbox launched and working with 5 initial partners in finance broking sector • Beta launch will enable embedded offers in partner environments. Plan to on-board new partners and optimise API from 2022 28
Slide 29: Business Charge Card
• Using Funding Circle to settle monthly payments and Yearly for daily spend requirements brings us into more frequent part of customers’ lives. Monthly • Reinforces usage by existing customers and enables Funding Circle to accept more customers who in time graduate to longer term core loan product.
Slide 30: FlexiPay buy now pay later
NEW • Unique BNPL1 product for spreading the cost of paying invoices • Instant ability to settle invoices, one-off 3% fee and then spread the repayment over 3 months interest free • Running in beta phase for existing borrowers 1. Buy Now Pay Later 30
Slide 31: Early FlexiPay customer feedback
Early customer feedback highlights the attraction of FlexiPay Early FlexiPay customers are located across the UK Livity, Intrit Facilities Management “FlexiPay is a brilliant idea which will help me bridge the gap between supplier payments and to negotiate better with my suppliers. The application w
Slide 32: Business Charge Card
NEW • 1% cashback and nothing to pay for one month • Opportunity to settle the balance in full at the end of the month or spread the repayment FlexiPay • Wait list now open, roll out in 2022 32
Slide 33: Full year outlook
Full year outlook: • The business performed strongly in H1 2021 and the financial performance was above expectations. • We remain mindful of the uncertain economic environment. In line with our expectations, there has been an initial reduction in lending as we have transitioned to operating our core
Slide 34: Medium-term outlook by region and new products
• UK: represented c.80% of Group total income in H1 2021. The business continues to offer operational leverage, is AEBITDA and Operating Profit profitable (and has been AEBITDA profitable since 2018), and cash generative. • Strong growth opportunities in core market over the medium term. • US: The U
Slide 35: Q&A
Q&A
Slide 36: Financial appendices
Financial appendices
Slide 37: UK government loan schemes: CBILS and RLS
• CBILS started in March 2020. Loans available up to £5 million, available on repayment terms of up to six years. No personal guarantees for facilities under £250,000. • The scheme provides the lender with an 80% government-backed guarantee against the outstanding balance of the finance. The borrowe
Slide 38: Income statement
H1 2020 H2 2020 H1 2021 Before Total Total exceptional items Exceptional items Total £m £m £m £m £m Transaction fees 47.8 74.7 70.5 70.5 Servicing fees 13.8 16.4 21.9 21.9 Other fees 3.2 (0.2) 2.1 2.1 Operating income 64.8 90.9 94.5 - 94.5 Investment income 49.8 39.2 33.5 33.5 Investment expense (13
Slide 39: Segment income and AEBITDA
H1 2020 H2 2020 H1 2021 Operating Investment Total Operating Investment Total Operating Investment Total Income 64.8 36.4 101.2 90.9 29.9 120.8 94.5 26.1 120.6 Group AEBITDA (24.4) (59.7) (84.1) 12.6 7.7 20.3 19.1 34.2 53.3 Income 43.3 16.0 59.3 80.6 13.0 93.5 85.8 13.0 98.8 UK AEBITDA (3.3) (18.8)
Slide 40: Annualised lifetime returns by cohort
Cohort 2015 2016 2017 2018 2019 2020 2021 UK 6.6% - 6.7% 4.7% - 5.1% 3.3% - 3.8% 2.0% - 3.0% 2.1% - 3.1% 4.5% - 5.5% 5.1% - 6.1% US 2.6% - 2.8% 4.0% - 4.2% 4.1% - 4.6% 1.7% - 2.7% 1.6% - 2.7% 2.5% - 3.1% 2.3% - 2.5% Source: Funding Circle. Annualised lifetime returns ranges are show as net returns,
Slide 41: Investment AEBITDA impact and valuation scenarios
Investment as shown on Balance Sheet (“Committed Capital”) Downside / upside on valuation1 Additional Additional Estimated Investment Fair value Investment Fair value Dec-19 investment / Dec-20 investment / Jun-21 future income adjustment income adjustment Downside Upside 1 Upside 2 withdrawals with
Slide 42: Balance sheet: investments of £105m
As at 31 As at 30 As at 30 June December June 2021 2020 2020 Investments in Trading Investments in Securitisations Warehouses 1trusts and co- Other² Total Total Total business PPP investments £m £m £m £m £m £m £m £m £m Investment in SME loans 0.7 226.5 108.8 207.1 37.0 9.7 589.8 558.8 758.6 Cash & c
Slide 43: Net assets movement
£m H1 20 H2 20 H1 21 Net Assets b/f 319.0 216.9 217.6 Profit/(Loss) for year (115.2) 6.9 33.4 FX 8.7 (7.0) (0.4) Issue of share capital 0.3 - 0.3 Employee share schemes 4.1 0.8 3.2 Net Assets c/f 216.9 217.6 254.1 43
Slide 44: Free cash flow
1 Positive operating FCF in H2 2020 once CBILS payment received from UK government H2 2020 H1 2021 Operating Investment Operating Investment (paid quarterly in arrears). AEBITDA 12.6 7.7 19.1 34.2 Payment of lease liabilities (4.3) - (3.8) - Purchase of tangible/intangible assets (4.4) - (4.6) - Fai
Slide 45: Information regarding forward-looking statements
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 beliefs and expec
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