Funding Circle Holdings Plc · LSE:FCH
Funding Circle — FY2020 Earnings Presentation
49 slides from Funding Circle's earnings presentation, June 2021
Slide 1: 2020 Full Year results presentation
Funding Circle 2020 Full Year results presentation Results for the 12 months to 31 December 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: A year of two halves
• A year of two halves. H1 responding to Covid. H2 • Acceleration in adoption of online small business lending, strong demand with UK H2 originations c.£1.5bn, up and strong demand from investors and borrowers, will 91% year-on year. benefit Funding Circle throughout 2021 and beyond. • Our technolog
Slide 4: Government lending and online demand surge
$700bn borrowed through PPP, £70bn borrowed through CBILS/BBLS1 5x increase in searches for online business loans in the UK2 £2.5bn investor capital raised in 2020 to lend to UK and US SMEs3 40% of SMEs expect to require finance in the next 12 months, primarily for growth or investment4 1. Cumulativ
Slide 5: 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 6: Total Addressable Market
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 6 2. OC&C analysis: Target addressable market in UK and US. Excludes commercial mortgages, loans / debt products <5k and >500k in
Slide 7: Data and experience advantage
10 years of experience Consumer bureau 26m £11.5bn 3x improvement businesses lent to SMEs in data lake c.750m 700,000 repayment applications events 1 1 FC Gini Bureau Gini 7 1. A measurement of the effectiveness of a risk model at predicting likely defaults
Slide 8: Continuous deployment enables us to scale quickly, efficiently and securely
Continuous deployment enables Panoramic contains 2bn data Funding Circle engineers, us to scale quickly, efficiently and points on 26m SMEs and is used product managers, data securely for machine learning risk models scientists and risk managers and highly targeted marketing 8
Slide 9: Borrower application 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 9 1. Average interest rate for Core loans for A+
Slide 10: Instant Decision Lending
80% • IDL leverages the same risk models, developed over 10 years, as non-IDL loans. c.50% • Getting an instant decision can improve borrower c.40% conversion by up to 25%. • H2 2020 UK originations up 91% year-on year, without adding additional headcount. <1% • Begin to launch new products in the n
Slide 11: LTV/CAC by number of loans per borrower
2.6 6.7 2.4 2.2 2 4.1 1.8 1.6 2.1 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 11
Slide 12: Borrower case study: Wild Card Brewery
• 12 years trading history • 8 employees • £1m revenue • £80k loan size Andrew Birkby founder • 50 months average term of Wild Card Brewery 12 Source: Funding Circle data and from the Oxford Economics and Funding Circle 2020 Economic Impact Report
Slide 13: CBILS approvals, brand awareness and NPS versus banks
£3.9bn 87% 83 £3.1bn £2.6bn £2.5bn £2.4bn 49% 17 13% Natwest HSBC Funding Circle Barclays Lloyds Top 4 banks Funding Circle FinTechs Funding Circle Average UK UK borrower Banks NPS NPS 1. Natwest CBILS approvals as at Q4 2020; HSBC CBILS approvals as at Q3 2020; Barclays CBILS approvals as at 12 Feb
Slide 14: Investor mix and funding sources
3% 3% 3% 11% 36% 12% 97% 35% Asset Managers Banks Group LuM excluding FC equity invested (c.£4.1bn) Bond programme Retail FC equity invested (£118m) National entities Funds 14
Slide 15: Platform flywheel
Larger More ecosystem repeat customers New products More data More Better operating machine leverage Better learning borrower models experience 15
Slide 16: Group Financial Performance
Group Financial Performance
Slide 17: Return on equity note
*Return on equity represents the period H2 2020. Go-forward RoE 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 17 loans, will typically earn lower returns but with lower
Slide 18: Group financial summary
H1 2020 H2 2020 2019 2020 £m Loans Under Management (LuM) 3,722. 4,214. 3,731. 4,214. Originations 1,112. 1,630. 2,350. 2,742. Operating income 64.8 90.9 156.9 155.7 Investment income 36.4 29.9 20.4 66.3 Total income¹ 101.2 120.8 177.3 222.0 Fair value (losses)/gains (96.1) (22.2) (9.9) (118.3) Net
Slide 19: Group total income and growth
2,111 3,271 152.9 2,583 2,566 1,556 1,449 111.6 93.6 662 59.3 Dec-19 Jun-20 Dec-20 H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 YoY 17% 5% 27% (17)% 91% 2% 36% 12% 60% 19% 37% growth 1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value
Slide 20: UK AEBITDA and margin
28.6 21.3 11.0 6.5 (7.9) (2.0) (22.1) (29.2) H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 Margin (37)% 31% 10% 4% (49)% 23% (2)% (5)% 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exceptional items and for
Slide 21: US total income and growth
882 904 619 581 63.0 759 52.4 410 38.0 25.0 171 Dec-19 Jun-20 Dec-20 H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 YoY 67% (15)% 36% 20% 24% 3% (11)% 28% (43)% 0% (7)% growth 1 1. Geo segment growth stated in local currency to eliminate FX variations 2. Total income is defined as fee income and invest
Slide 22: US AEBITDA and margin
(8.3) (12.9) (22.0) (29.9) (54.1) (62.4) (70.7) (83.6) H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 Margin (142)% (33)% (42)% (99)% (186)% (52)% (57)% (133)% 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, e
Slide 23: Developing Markets AEBITDA and margin
0.0 (13.6) (14.8) (7.9) (7.9) (1.2) (16.5) (52.8) H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 Margin (203)% 0% (124)% (130)% (349)% (55)% (397)% (243)% 1. Adjusted EBITDA “AEBITDA” represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, except
Slide 24: Operating and investment income
1 222.0 177.3 155.7 120.8 2,742 4,214 101.2 3,731 3,722 2,350 156.9 1,630 90.9 64.8 1,112 66.3 36.4 29.9 20.4 Dec-19 Jun-20 Dec-20 H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 Investment Income Operating Income YoY 19% 5% 13% (7)% 41% 3% 17% 24% 26% 25% 25% growth 1. Total income is defined as fee in
Slide 25: AEBITDA by operating and investment
20.3 7.7 12.6 10.4 7.2 (11.8) (24.4) (37.9) (52.0) (59.7) (27.5) (84.7) (63.8) (113.5) (106.3) (84.1) H1 20 H2 20 2019 2020 Operating Investment H1 20 H2 20 2019 2020 Margin (83)% 17% (16)% (29)% (112)% 6% (48)% (48)% 1. Adjusted EBITDA represents EBITDA (Earnings before Interest, Tax, Depreciation
Slide 26: Operating expenses
400.0 70% 350.0 60% 300.0 50% 250.0 40% 200.0 (12)% 30% 150.0 20% 42% 217.8 100.0 191.3 35% 30% 27% 50.0 101.7 10% 89.6 - 0% H1 20 H2 20 2019 2020 H1 20 H2 20 2019 2020 YoY (10)% (15)% 17% (12)% growth 1. Operating expenses are before exceptional items and include the following cost areas: people; m
Slide 27: Loan repayment status by country
100% 0.9% 90% 0.8% 80% 0.7% 70% 0.6% 60% 0.5% 50% 0.4% 40% 0.3% 30% 0.2% 20% 0.1% 10% 0% 0.0% 01/20 02/20 03/20 04/20 05/20 06/20 07/20 08/20 09/20 10/20 11/20 12/20 01/21 UK US Not Paying On Payment Holiday Making Partial Repayments Making Full Repayments 27
Slide 28: UK and US annualised returns by cohort
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 UK and US annualised returns by cohort show mid-point estimates. H1 forecast as at 30 June 2020; H2 forecasts as at 31 December 2020 28
Slide 29: Funding Circle equity deployment
• Funding Circle deploys its equity where it makes the 400.0 platform stronger. This may include limited co-investment 350.0 H1 reduction driven and investment in new products. by FV adjustment 300.0 • We see the ability to do this as a source of competitive 250.0 advantage. We don't deploy capital
Slide 30: Looking ahead
Looking ahead
Slide 31: UK and US product plans
• Core loans for borrowers that do not • Expand Core loans once PPP finishes. require a guarantee. • Operate Recovery Loan Scheme for • Originate government guarantee loans other borrowers once CBILS ends. through the SBA on behalf of banks. • Launch new products using • Continue to operate our refe
Slide 32: Evolution of loan application process
2010-2015 Auction model. 2-3 weeks loan application to pay- out. Risk models primarily utilizing 3rd party data. 2015-2019 Fixed rate loans. 48-72 hour application to pay-out. Risk models incorporate historical applicant data and 3rd party data. 2020 6 minute application, fully automated. 24-48 hour
Slide 33: API launch and partnerships
• Launching Application Programming Interface (API) in 2021. • Focus on partnering with finance brokers, accounting software providers, payments companies. • Integrating with partners can increase distribution of Funding Circle’s products. 33
Slide 34: Launching new solutions: Borrow, Pay, Spend
Launching new solutions in the next 12 months to help solve more small business funding problems Borrow Pay m Spend _ We've got a great offer for you! Keep your business moving and bills paid Your loan offer Loan en £50,000 3 years Expansion and growth and hiring a new Yearly Monthly Daily 34
Slide 35: Full year outlook
Covid-19 has changed the SME lending landscape. Over the past 12 months we have seen an acceleration in the adoption of online borrowing. Through the use of our machine learning and technology platform, which is transforming the small business borrowing experience, we are well-placed to capture this
Slide 36: Business outlook by UK, US and new products
• UK: represented 70% of Group total income in 2020. 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 US is
Slide 37: Q&A
Q&A
Slide 38: Financial appendices
Financial appendices
Slide 39: Government guarantee 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 40: Group income statement
H1 2020 H2 2020 2020 2019 Before Exceptional Before Exceptional Total Total exceptional items items Total exceptional items items Total £m £m £m £m £m £m £m £m Transaction fees 47.8 74.7 122.5 - 122.5 121.2 - 121.2 Servicing fees 13.8 16.4 30.2 - 30.2 30.4 - 30.4 Other fees 3.2 (0.2) 3.0 - 3.0 5.3 -
Slide 41: Segment adjusted EBITDA
H1 2020 H2 2020 2019 (Restated) 2020 £m United United Developing United United Developing United United Developing United United Developing Total Total Total Total Kingdom States Markets Kingdom States Markets Kingdom States Markets Kingdom States Markets £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m
Slide 42: Income and AEBITDA by segment
H1 2020 H2 2020 2019 2020 Operating Investment Total Operating Investment Total Operating Investment Total Operating Investment Total Income 64.8 36.4 101.2 90.9 29.9 120.8 156.9 20.4 177.3 155.7 66.3 222.0 Group AEBITDA (24.4) (59.7) (84.1) 12.6 7.7 20.3 (37.9) 10.4 (27.5) (11.8) (52.0) (63.8) Inco
Slide 43: Probability of default stress multiplier
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 the period is 1.4X 2X in both BoE stress test scenario and our central stress te
Slide 44: Annualised lifetime returns by cohort
Cohort 2015 2016 2017 2018 2019 2020 UK 6.6% - 6.7% 4.5% - 4.9% 2.8% - 3.3% 1.3% - 2.3% 1.2% - 2.7% 4.5% - 5.5% US 2.2% - 2.4% 4.1% - 4.9% 3.4% - 4.4% 1.1% - 1.9% (0.2%) - 0.8% 1.0% - 3.0% Source: Funding Circle. Annualised lifetime returns ranges are show as net returns, which is calculated as gros
Slide 45: Investment types and Covid-19 impact
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 46: Committed capital and investment AEBITDA impact
Investment as shown on Balance Sheet (“Committed Capital”) Estimated Dec-19 Additional Investment Fair value Jun-20 Additional Investment Fair value Dec-20 future cash investment / income adjustment investment / income adjustment flows withdrawals withdrawals Vertical securitisation 13 5 - - 18 (6)
Slide 47: Investments of £118m
As at 31 As at 30 June As at 31 December 2020 2020 December 2019 Trading Investments Warehouses Securitisations1 Other2 Total Total Total business in PPP £m £m £m £m £m £m Investment in SME loans 0.7 24.3 221.8 279.8 32.2 558.8 758.6 723.5 Cash & cash equivalents 64.4 - 18.9 20.0 - 103.3 131.2 164.5
Slide 48: Operating free cash flow
1 Positive operating FCF in H2 2020 once CBILS payment H1 2020 H2 2020 received from UK government Operating Investment Operating Investment AEBITDA (24.4) (59.7) 12.6 7.7 (paid quarterly in arrears). Payment of lease liabilities (3.5) - (4.3) - 2 Purchase of tangible/intangible assets (5.9) - (4.4)
Slide 49: Financing and committed capital movements
H1 20 H2 20 H1 20 H2 20 Financing outflow: B/F committed capital 145 110 Investment in bonds 34 - Investment in bonds 34 - Investment income used to pay down debt/bonds 33 26 Investment income used to pay down debt/bonds 33 26 Partial disposal of horizontal securitisation - (4) Partial disposal of h
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