Funding Circle Holdings Plc · LSE:FCH
Funding Circle — FY2021 Earnings Presentation
41 slides from Funding Circle's earnings presentation, Mar 10, 2022
Slide 1: Full Year 2021 Results Presentation
Full Year 2021 Results Presentation 10 March 2022 10 March 2022 1 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: 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
Slide 3: Funding Circle | Small business lending powered by machine learning, technology and data
• • • • • • • • • • • • • • • • 3 Funding Circle | Small business lending powered by machine learning, technology and data 1. https://www.ey.com/en_gl/banking-capital-markets/the-five-step-journey-to-sme- banking-transformation
Slide 4: Borrower example: Just Strong
• 11 years trading history • 8 employees • £1m revenue • £80k loan size • 50 months average term Mark Robinson Founder, Just Strong Source: Funding Circle data and from the Oxford Economics and Funding Circle 2021 Economic Impact Report
Slide 5: Yearly Monthly Daily
Yearly Monthly Daily 5 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 6: SME loans as a % of banks' balance sheets
SME loans as a % of banks’ balance sheets1 <2% SMEs as a % of GDP and employment1 50-70% 1. % of banks’ balance sheets: Bank of England, US Federal Reserve, FDIC. SMEs as a % of GDP and employment: OECD SME and Entrepreneurship Outlook 2019. 6 2. OC&C and Frontier Economics analysis: Target addressa
Slide 7: Funding Circle | Small business lending powered by machine learning, technology and data
7 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 8: Application in minutes, decision in seconds, money in 24 hours
► Application in 6 minutes ► Decision in 9 seconds ► Money in borrower’s account in 24 hours 8 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 9: Instant Decision Technology and growing data lake
Instant Decision Growing data lake Technology with over 2bn data points Machine learning Leading statistical and and AI predictive models Decision Engine Ten years of proprietary platform learning 9 Funding Circle | Small business lending powered by machine learning, technology and dat
Slide 10: High NPS scores lead to stable repeat rates
82 High NPS scores lead to stable repeat rates amongst customers: ► UK borrowers take out approximately 2 Funding Circle loans every 5 years. ► 54% of UK operating income came from existing borrowers and investors in 2021. 15 Funding Circle UK borrower NPS Average UK Bank's NPS 10 1. Net Promoter Sc
Slide 11: Financial Performance
Financial Performance
Slide 12: Typical yield and investment returns
¹ 12 1. Typical Yield may vary depending on core 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 earn lower
Slide 13: Group financial summary
H1 20 H2 20 H1 21 H2 21 FY20 FY21 £m • H1: operated PPP scheme in the US and CBILS in the UK H2: returned to core lending/RLS in UK & core lending in US Loans Under Management (LuM) 3,722 4,214 4,933 4,457 4,214 4,457 Originations 1,112 1,630 1,635 661 2,742 2,296 • High levels of investor demand to
Slide 14: Group originations and operating income FY19-FY21
3,944 2,111 1,972 159.4 3,271 152.9 2,583 1,556 111.6 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 H1 798 662 1,381 H1 53.0 59.3 98.8 H2 758 1,449 591 H2 58.6 93.6 60.6 14 1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value gains/loss
Slide 15: UK AEBITDA and margin
Margin 10% 4% 39% (2)% (5)% 28% 44.3 61.9 (2.0) 11.0 6.5 (7.9) FY19 FY20 FY21 FY19 FY20 FY21 H1 1.5 (22.1) 41.0 H1 (5.0) (29.2) 31.2 H2 9.5 28.6 20.9 H2 3.0 21.3 13.1 15 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-base
Slide 16: US originations and income
882 619 759 581 63.0 52.4 44.8 425 316 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 3 H1 311 410 247 H1 22.2 38.0 20.2 H2 308 171 69 H2 30.2 25.0 24.6 1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value gains/losses. PPP transaction f
Slide 17: US AEBITDA and margin
Margin (42)% (99)% 63% (57)% (133)% 41% 28.4 18.5 (29.9) (22.0) (83.6) (62.4) FY19 FY20 FY21 FY19 FY20 FY21 H1 (13.0) (54.1) 11.8 H1 (17.1) (70.7) 3.8 H2 (9.0) (8.3) 16.6 H2 (12.8) (12.9) 14.7 17 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisa
Slide 18: Loans under management, originations and income
222.0 206.9 177.3 155.7 4,457 165.5 2,742 4,214 156.9 2,350 2,296 3,731 66.3 41.4 20.4 FY19 FY20 FY21 FY19 FY20 FY21 FY19 FY20 FY21 Investment Income Operating Income H1 1,192 1,112 1,635 H1 81.7 101.2 120.6 H2 1,158 1,630 661 H2 95.6 120.8 86.3 18 1. Total income is defined as fee income and invest
Slide 19: Group AEBITDA and margin
Margin (16)% (29)% 44% (48)% (48)% 31% 91.8 70.0 64.2 10.5 21.8 (11.8) (38.0) (52.0) (27.5) (63.8) (84.6) (106.3) FY19 FY20 FY21 Operating Investment FY19 FY20 FY21 H1 (19.7) (84.1) 53.3 H1 (31.3) (113.5) 35.5 H2 (7.8) 20.3 38.5 H2 (53.3) 7.2 28.7 19 1. Adjusted EBITDA represents EBITDA (Earnings be
Slide 20: Operating expenses
Movement 17% (12)% (12)% 217.8 42% 191.3 167.4 30% 28% FY19 FY20 FY21 FY19 FY20 FY21 H1 112.7 101.7 89.3 H1 44% 35% 29% H2 105.1 89.6 78.1 H2 41% 27% 27% 20 1. Operating expenses are shown before exceptional items.
Slide 21: Simplified balance sheet and net assets
In FY21, we have: +£70.4m¹ • Simplified the balance sheet with securitisation vehicles paying down and warehouse loans sold for £70m cash. • Funding Circle equity invested is now 288.0 £70m, within our capital guardrails. 254.1 216.9 217.6 • £288m net assets including cash of £224m (up from £103m at
Slide 22: Cohort return expectations
7% 8% Covid affected cohorts Covid affected cohorts 6% 7% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% 2016 2017 2018 2019 2020 2021 2016 2017 2018 2019 2020 (excl. PPP 2021 (excl. PPP) PPP) Pre-Covid expectations Immediate Covid impact Most recent expectations 22 (H2 2019) (H1 2020) (H2 2021)
Slide 23: Funding sources by investor type
1% 2% 3% Retail platform 8% now closed 5% for new investments 48% 35% 98% Asset Managers Banks Group LuM excluding FC equity invested (£4.4bn) Retail Bond programme National entities Funds FC equity invested (£70m) 23 Funding Circle | Small business lending powered by machine learning, technology an
Slide 24: Looking ahead
Looking ahead
Slide 25: Funding Circle | Small business lending powered by machine learning, technology and data
25 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 26: UK growth priorities
► Natively embed in partner environments via our API. ► Leverage expertise in digital channels to take advantage of acceleration in online. ► Personalised customer journeys, pricing and proposition. ► Deepen and broaden marketplace offers. ► Expand term loan credit range to support a broader risk sp
Slide 27: US opportunity and capabilities
Over 8 years we have built powerful capabilities The US has a fragmented SME lending market 1% 5% 10% 11% ► Since 2015, approximately $4bn originated. 17% ► Run-rate originations of $1bn annually pre-pandemic. Top 10 banks 64% Other banks Specialty finance Other 67% ► 5th generation risk model. ► Al
Slide 28: Lending as a Service partnership programme
► Launch Lending as a Service (LaaS) partnership programme with banks and other large SME providers who are looking to leverage our technology platform to provide small business loans to their customers. ► Continue to add new referral partners. ► Launch new prime risk segments funded by new lenders,
Slide 29: Yearly Monthly Daily
Yearly Monthly Daily 29 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 30: Funding Circle | Small business lending powered by machine learning, technology and data
• • • 30 Funding Circle | Small business lending powered by machine learning, technology and data
Slide 31: Outlook and guidance
The business is in the strongest position it has been and we have proven the resilience of our model over the last two years. The economic environment is uncertain and, as previously highlighted, the market continues to be distorted as a result of Covid Government loan schemes. However, as demand re
Slide 32: Summary: inflection point to multi-product platform
► We are now at an inflection point – we are becoming a multi-product platform ► We have a proven business model and a leadership position in the UK ► Our world class technology delivers superior customer experience and a deep moat ► Our financials are strong with a healthy balance sheet ► We have a
Slide 33: Q&A
Like the new version Q&A
Slide 34: Financial appendices
Financial appendices
Slide 35: 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 36: Income statement by period
H1 2021 H2 2021 2020 2021 Before Before Before exceptional Exceptional Before Exceptional exceptional Exceptional exceptional Exceptional items items Total exceptional items items Total items items Total items items Total £m £m £m £m £m £m £m £m £m £m £m £m Transaction fees 70.5 - 70.5 44.5 - 44.5 1
Slide 37: Segment income and AEBITDA
H1 2020 H2 2020 H1 2021 H2 2021 Operating Investment Total 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 71.0 15.3 86.3 Group AEBITDA (24.4) (59.7) (84.1) 12.6 7.7 20.3 19.1 34.2 53.3 2.7 35.8 38.5 Income 43.3
Slide 38: Investment AEBITDA impact
Investment as shown on Balance Sheet (“Committed Capital”) Downside/upside on valuation Estimated Additional Additional Additional Investment Fair value Investment Fair value Investment Fair value future cash Dec-19 investment / Dec-20 investment / Jun-21 investment / Dec-21 Downside Upside 1 Upside
Slide 39: Investments of £70m
As at 31 December As at 31 December 2021 2020 Trading Investments in Securitisations1 Investments in Other² Total Total business PPP loans trusts and coinvestments £m £m £m £m £m £m £m Investment in SME loans 5.8 71.6 148.1 39.1 9.2 273.8 558.8 Cash & cash equivalents 208.3 1.3 14.4 - - 224.0 103.3
Slide 40: Statement in equity changes
Statement in equity changes £m H1 20 H2 20 H1 21 H2 21 2020 2021 Net Assets b/f 319.0 216.9 217.6 254.1 319.0 217.6 Profit/(Loss) for year (115.2) 6.9 33.4 27.8 (108.3) 61.2 FX 8.7 (7.0) (0.4) 1.8 1.7 1.4 Share awards 4.4 0.8 3.5 4.3 5.2 7.8 Net Assets c/f 216.9 217.6 254.1 288.0 217.6 288.0 40
Slide 41: Strong cash position at 31 Dec 21
1 Strong cash position at 31 Dec 21 following monetisation of UK and US warehouses H1 2021 H2 2021 £m Operating Investment Operating Investment AEBITDA 19.1 34.2 2.7 35.8 Payment of lease liabilities (3.8) - (4.1) - Purchase of tangible/intangible assets (4.6) - (4.8) - Fair value adjustments - (8.1
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