Funding Circle Holdings Plc · LSE:FCH
Funding Circle — H1 2020 Earnings Presentation
39 slides from Funding Circle's earnings presentation, September 2020
Slide 1: Results for the six months to 30 June 2020
Results for the six months to 30 June 2020
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: Strong demand from borrowers and investors
Effective Investor returns Strong total income Strong demand from management of resilient after Instant Decision growth and improving borrowers and loanbook during applying Covid-19 lending technology free cash flow but investors extreme period of credit stress launched AEBITDA impacted by stress sc
Slide 4: Small businesses can access fast, affordable finance; investors earn resilient returns
Small businesses can access Investors can earn attractive, fast, affordable finance resilient returns • 90,000 borrowers globally • Deep and diversified portfolio of loans across sectors, regions • 11 years trading history and risk bands • 7 employees • ~£1m revenue • c.100,000 investors globally •
Slide 5: Starting the year strongly, adapting to the Covid-19 crisis
2020 Starting the year strongly Adapting to the Covid-19 crisis Playing our part to help SMEs Jan Feb March April May June Q3 • Started the year with clear focus on • Significantly tightened credit criteria • Launched PPP loans in the US and improving conversion across the in response to Covid-19 an
Slide 6: SME Environment
SME Environment
Slide 7: Borrowers missing payments for the first time
Borrowers missing payments for the first time (Indexed to Jan 2020) Daily % borrowers becoming delinquent (Indexed to Jan 2020 average) 12X 12X 10X 10X 8X 8X 6X 6X 4X 4X 2X 2X 1X 1X X X Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 7
Slide 8: Portfolio breakdown by borrower status
Portfolio breakdown by borrower status • Since the outbreak of Covid-19, we have used a (%£/$) range of tools to support businesses and mitigate 100% Not Paying the potential impact on investors’ portfolio: 90% On Payment Increasing our support capacity to our 80% Holiday Collections and Recoverie
Slide 9: Potential Covid Credit Stress Scenarios for SMEs
Potential Covid Credit Stress Scenarios for SMEs (stress multiplier over benign baseline) Multiplier on baseline probability of default assumption 4X 1 Initial Spike 3X 2 Longer Term Tail 2X 1X 2022-07 2023-03 2023-11 2020-03 2020-05 2020-07 2020-09 2020-11 2021-01 2021-03 2021-05 2021-07 2021-09 20
Slide 10: Central Covid Credit Stress Scenario
Central Covid Credit Stress Scenario (stress multiplier over benign baseline) 4X Multiplier on baseline probability of default assumption • Very sharp initial spike recognising our experience so far. 3X • Longer term tail acknowledges weak economy with some survival effects. • Average stress over th
Slide 11: Projected annualised returns by cohort
Projected annualised returns Projected annualised returns by cohort (mid point estimates) by cohort (mid point estimates) 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% 2015 2016 2017 2018 2019 2020 CBILS 2015 2016 2017 2018 2019 2020 PPP Pre-CBILS Pre-PPP Jan 2020 forecast Q3 2020 forecast 11
Slide 12: Investor breakdown as a % of loans under management
Investor breakdown as a % of loans under management • In 2019 we launched new Bond products to aggregate 7% loans in warehouses (warehouse stage) for sale as bonds (securitisation stage) to widen the universe of 3% 19% investors that could access our loans. Since launching the new Bond products, we
Slide 13: Payment Hierarchy
Investment type Covid-19 Impact Description Vertical Funding Circle is required by regulation to retain a 5% equal Hierarchy Payment 1 securitisation Low impact participation in all classes of bonds issued (vertical) resulting retention in low impact from Covid-19. (required by regulation) Other Oth
Slide 14: If investments were held to maturity we would expect future cash flow of c.£149m
If investments were held to maturity we would expect future cash flow of c.£149m Investment AEBITDA negative £60m £36m (£96m) £34m (£9m) £34m £159m £134m £145m1 (£9m) £110m Dec 19 Additions / Investment Fair value Cash extracted June 20 Withdrawals income from vehicle 14 1. The difference between th
Slide 15: Payment Hierarchy: principal invested and valuation
Investment type Principal invested Balance sheet valuation H1 Investment AEBITDA Vertical Hierarchy Payment 1 securitisation retention £18m £18m - (required by regulation) Other Investments 2 (Private Fund and Govt SME £16m £16m - investments) 3 Warehouses Bank debt £80m £66m -£20m (£15m Investment
Slide 16: Investments of £110m
As at 30 June As at 31 2020 December 2019 Trading Warehouses Securitisations1 Other Total Total business £m £m investments £m £m £m Investment in SME loans 1.8 321.8 419.4 15.6 758.6 723.5 Cash & cash equivalents 74.3 22.9 34.0 - 131.2 164.5 Other assets - - 13.3 - 13.3 8.4 Borrowings/bonds (0.3) (2
Slide 17: Group Financial Performance
Group Financial Performance
Slide 18: Loans under Management and Originations
Growth (1) Growth (1) Loans under Management (£m) 5% YoY Originations (£m) (7%) YoY 3,722 1,192 3,540 1,112 252 2% 83 1,043 40 244 82 904 3% 311 (52%) 2,584 848 410 249 153 28% 549 2,448 2,566 5% 798 712 662 1,882 (17%) H1 18 H1 19 H1 20 H1 18 H1 19 H1 20 United Kingdom United States Developing Mark
Slide 19: Total income
Transaction yield 5.2% 4.5% Growth (2) Growth (2) YoY Servicing yield 0.9% 0.7% YoY 101.2 24% 101.2 3.9 81.7 (39%) 81.7 36.4 N/A 6.5 38.0 1.3 63.0 63.0 22.2 67% 5.2 15.0 80.4 12% 63.0 64.8 (19%) 59.3 53.0 42.8 H1 18 H1 19 H1 20 H1 18 H1 19 H1 20 United Kingdom United States Developing Markets Operat
Slide 20: AEBITDA and Free Cash Flow
AEBITDA1 (£m) Free Cash Flow2 (£m) AEBITDA impacted by lower trading months in March Free cash flow continues to improve and April and investment income impacted by Covid-19 Margin (24%) (8%) (83%) Margin (34%) (22%) (9%) 1.0 9.5 (20.7) (17.3) H1 19 H2 19 H1 20 (24.4) (9.6) (59.7) (21.3) (28.1) (19.
Slide 21: Operating expenses fell 10%
(10%) Growth (1) YoY 112.7 • Overall operating expenses fell 10% (excluding 101.7 exceptional costs) from £112.7m to £101.7m. 15.7 12.6 (19%) • Fall in operating expenses driven by marketing 39.0 35.4 (9%) dropping significantly to 22% of total income (H1 2019: 43%). • Operating expenses in H2 expec
Slide 22: Income statement and exceptional items
Six months to 30 June 2020 Six months to June 2019 Before exceptional Exceptional items items Total Total £m £m £m £m Transaction fees 47.8 - 47.8 62.5 Servicing fees 13.8 - 13.8 15.2 Exceptional items related Other fees 3.2 - 3.2 2.7 to: Fee income 64.8 - 64.8 80.4 Investment income 49.8 - 49.8 2.2
Slide 23: Markets Update
Markets Update
Slide 24: SME borrowing during lockdown
$520bn borrowed by SMEs during lockdown in the US; £50bn borrowed by SMEs in the UK1 2x increase in search terms for business loans during lockdown in the UK2 £1.25bn investor capital raised since beginning of Covid to lend to UK and US SMEs on the Funding Circle platform3 55% of SMEs expect to requ
Slide 25: CBILS: c.£1.2bn approved, c.£815m originated
• CBILS has 80% guarantee for loans above £50k Lending by region • c.£1.2bn approved and c.£815m originated at 20 East Anglia September across all sectors and regions London Midlands • Since joining the scheme we are the 5th largest North East CBILS lender after HSBC, Natwest, Barclays and North Wes
Slide 26: US business and Payment Protection Programme
• Business started strongly in 2020 with January 1. Payment Protection Programme (PPP) and February highest months for originations for - Extension of PPP has the support of both 12 months. Democrats and Republicans. • In response to Covid-19 the US Government introduced its Paycheck Protection Prog
Slide 27: Instant Decision lending technology
c.1M apps since FC Multi launched 10 years channel acquisition of experience 5 year • 40% loans processed by instant decision Personalisation: data loan terms lending technology decision orientated 300+ c.90 architecture Engineering NPS team Data Pipeline • 6 minute average application time 200+ Ris
Slide 28: Customer testimonials
Debbie Leon set up Fashionizer in 1993 when she noticed a gap in the market for Set up by Alex Ratcliffe, Konk Furniture produces handmade, sustainable and luxury and bespoke uniform design. bespoke pieces of furniture. "The whole process was insanely easy. I was amazed at how quick the “Since I’d p
Slide 29: H2 outlook and guidance
The economic environment remains very uncertain. H2 expectations are predicated on there being no further prolonged national lockdowns across our geographies and includes the expectation of ongoing government support for SMEs in the UK. We are reinstating previous guidance of close to AEBITDA break-
Slide 30: Q&A
Q&A
Slide 31: Appendices
Appendices
Slide 32: Investment AEBITDA impact: £60m
Investment as shown on Balance Sheet (“Committed Capital”) Estimated Dec-19 Additional Net income Fair value Jun-20 future cash investment / retained in adjustment flows withdrawals vehicles Vertical securitisation retention 13 5 - - 18 19 Other investments 13 3 - - 16 18 Warehouses 94 (3) 10 (35) 6
Slide 33: Investments: principal and fair value
Principal 2019 2020 Fair value Committed Net interest Total Additional Total Cash extracted Net position at Jun-20 Capital earned and original principal original from vehicle retained in cash investment / cash vehicle invested withdrawals invested Vertical securitisation retention 13 - 13 5 18 - 18
Slide 34: Revenue and Adjusted EBITDA
Revenue Adjusted Operating Revenue Adjusted Operating Revenue Adjusted Operating EBITDA loss EBITDA loss EBITDA loss 59.3 (22.1) (29.2) 38.0 (54.1) (70.7) 3.9 (7.9) (13.6) 15.9 43.4 20.5 17.5 3.9 (3.3) (13.2) (7.9) (8.7) (18.8) (4.9) (29.2) (58.7) (40.9) (12.0) Margin (37%) (49%) (142%) (186%) n/m n
Slide 35: Segment profit H1 2020
Segment profit H1 2020 H1 2019 H2 2019 United United Developing United United Developing United United Developing Total Total Total Kingdom States Markets Kingdom States Markets Kingdom States Markets £m £m £m £m £m £m £m £m £m £m £m £m Segment adjusted (10.5) (48.4) (6.7) (65.6) 14.0 (6.7) (6.1) 1.
Slide 36: Free cash flow reconciliation
H1 2020 H2 2019 H1 2019 AEBITDA (84.1) (7.8) (19.7) Payment of Lease Liabilities (3.5) (4.3) (2.8) Purchase of intangible assets (5.5) (8.6) (5.9) FV movements 96.1 9.6 0.3 Working Capital (14.0) (10.2) 1.8 Other 1.4 - (1.8) Free Cash Flow1 (9.6) (21.3) (28.1) 1. Free Cash Flow represents net cash f
Slide 37: Annualised returns by cohort, UK and US
Cohort 2015 2016 2017 2018 2019 2020 UK 6.9 - 6.9% 4.3 - 4.6% 2.3 - 2.8% 0.9 - 1.9% 1.2 - 2.7% 5.4 - 6.0% US 2.6 - 2.8% 4.1 - 4.9% 3.0 - 3.9% 0.8 - 1.8% (1.8) - 0.2% 1.0 - 3.0% Source: Funding Circle. Annualised lifetime returns ranges are show as net returns, which is calculated as gross yield minu
Slide 38: 2012 Q1 2012 Q2 2.4 2012 Q3 2012 Q4 6.1 2013 Q1 2013 Q2
2012 Q1 2012 Q2 2.4 2012 Q3 2012 Q4 6.1 2013 Q1 2013 Q2 2.2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 3.8 1.8 2015 Q3 2015 Q4 2016 Q1 2016 Q2 1.6 2016 Q3 2016 Q4 2017 Q1 2.0 2017 Q2 1.4 2017 Q3 2017 Q4 2018 Q1 2018 Q2 1.2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 1 2019 Q3 1 2 4 0 1 2
Slide 39: Funding Circle
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