Funding Circle Plc: Half Year 2023 Results

Funding Circle Holdings plc

Half Year 2023 Results

Embargoed until 7.00am, 7 September 2023

HALF YEAR PERFORMANCE IN LINE WITH EXPECTATIONS

GOOD PROGRESS EXECUTING ON MEDIUM-TERM PLAN

Funding Circle Holdings plc (“Funding Circle”) today announces results for the six months ended 30 June 2023.

Lisa Jacobs, Funding Circle CEO, says:

"We delivered a solid set of results in the first half of the year, in line with our expectations, and once again demonstrated the resilience of the business and our aptitude at responding to the changing economic environment.

“Our UK Loans business is profitable, we’ve seen good growth in US Loans and FlexiPay is showing great momentum as we expand our offering to access a larger market and serve more of our customers' needs. FlexiPay transactions have more than doubled to £90 million in the half, with more than £150 million transactions since launch. We have also extended our track record of delivering robust and attractive loan returns for our investors.

“We're making good progress towards our medium-term targets and are in a strong position to grow as the economic backdrop recovers.”

Executive Summary:

• We delivered another solid financial performance in H1 2023:
  • Total originations and transactions of £771m, up 14% on H2 2022 (£678m) with growth in all business units.
  • Total income of £76.6m ahead of H2 2022 (£73.2m).
  • UK Loans business profitable (AEBITDA of £8.8m and PBT of £1.4m).
  • Group AEBITDA of negative £3.0m reflects planned investment in attractive growth opportunities across US Loans business and FlexiPay.

• We are managing the business through the changing economic environment:
  • Loan returns remain robust and attractive.
  • Continued institutional investor demand to fund loans, with three new forward flow agreements in the UK and US in H1 2023. In August we launched the third iteration of the Recovery Loan Scheme (‘RLS’) with Allica Bank as a new bank investor. Our first FlexiPay funding partnership is also providing senior debt funding, with FlexiPay having reached sufficient maturity and scale.
  • Customer satisfaction remained strong with Group NPS at 76 and a UK Trustpilot score of 4.6.

• And we continue to execute against the three strategic pillars of our medium-term plan:
  • Attract more businesses: strengthening existing distribution channels and expanding into new embedded and intermediated channels to enable more businesses to reach us.
  • Say yes to more businesses: serving more businesses through an expanded set of Funding Circle products and further integration with third party lenders.
  • #1 in new products: using our capabilities to enter new markets where we can develop market-leading products. FlexiPay transactions more than doubled on H2 2022 and our customers continue to show strong engagement.

• The guidance provided in March 2023 for FY 2023 and FY 2025 is unchanged.

Performance Highlights

Financial Summary:

• Originations and transactions of £771m up on H2 2022 following the continued growth in commercial lending and FlexiPay. H1 2022 originations of £803m included the UK government loan scheme, RLS (second iteration), which ceased in May 2022.
• LuM reduced to £3.5bn (H1 2022: £4.1bn) with commercial LuM growing but at a slower rate than government scheme loans are repaying.
• Operating income grew to £72.5m up on H1 and H2 2022 (£66.9m and £66.8m respectively) following origination yield increases, income from FlexiPay and improved interest on cash.
• Net investment income was £4.1m (H1 2022: £10.9m) and, in line with expectations, continues to reduce each half as investments amortise down.
• Fair value gain of £3.4m (H1 2022: £1.5m) reflects continued positive revaluations for improved underlying credit performance.
• AEBITDA of negative £3.0m (H1 2022: £11.2m) reflects planned investment in both the US Loans business and FlexiPay with UK Loans business AEBITDA positive at £8.8m and profitable at a PBT level at £1.4m.
• Loss before tax was £16.6m (H1 2022: profit before tax £1.6m).
• Net assets remain robust at £264.2m but decreased as we continue to invest in the US Loans business and FlexiPay. Group cash is £203.5m (31 December 2022: £177.7m), of which £172.5m (31 December 2022: £165.6m) is unrestricted[3]. 

To improve clarity and to better reflect our evolving business, we have made certain changes to the presentation of our financial results. All interest earned is now shown within Total Income (and consequently AEBITDA), where previously interest earned on cash was presented below operating profit. With no meaningful other items between operating profit and profit before tax we no longer present an operating profit line item. Comparative financial information has been re-presented with further detail provided in Note 2.

Outlook:

FY 2023 and FY 2025 guidance provided in March 2023 is unchanged, as shown below.

 1 The comparative financial information has been re-presented to include interest income on cash and cash equivalents within ‘Operating Income’. Refer to Note 2 within the financial statements

2 For definitions of non-GAAP measures refer to Glossary section

3 Unrestricted cash refers to total cash less cash that is restricted in use. The restricted cash is cash that is not available for general use by the company as it is held within investment vehicles and generally payable to third parties.

Analyst presentation:

Management will host an analyst and shareholder presentation and conference call at 9:30am UK time (BST), on Thursday 7 September 2023, including an opportunity to ask questions.

To watch and listen to the webcast, with the opportunity to submit written questions, please use this link to register and gain access to the event.

For conference call access, with the opportunity to ask live questions, please dial +44 33 0551 0200 or +1 786 697 3501. Quote Funding Circle Half Year when prompted by the operator.

An on-demand replay and transcript will also be available on the Funding Circle website following the presentation.

Investor relations and media relations:

Funding Circle Investor Relations

Morten Singleton (+44 7736 297 929)

ir@fundingcircle.com

Joint corporate brokers

Investec: Mark James / Bruce Garrow (+44 20 7597 4000)

Numis: Stephen Westgate / Jamie Loughborough (+44 20 7260 1000)

Funding Circle Media Relations

Abigail Whittaker (+44 7989 876 136)

press@fundingcircle.com

Headland Consultancy

Mike Smith / Stephen Malthouse (+44 20 3805 4822)

About Funding Circle:

Funding Circle (LSE: FCH) is the UK’s leading SME lending platform, with a material and growing presence in the US. Its mission is to build the place where small businesses get the funding they need to win.

Funding Circle enables small businesses to access funding – offering an unrivalled customer experience powered by data and technology.

For institutional investors, Funding Circle provides access to an alternative asset class in an underserved market, with robust and attractive returns.

Globally, Funding Circle has extended more than £16bn in credit to c.140,000 businesses.

Forward looking statements and other important information:

This document contains forward looking statements, which are statements that are not historical facts and that reflect Funding Circle’s beliefs and expectations with respect to future events and financial and operational performance. These forward looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors, which may be beyond the control of Funding Circle and which may cause actual results or performance to differ materially from those expressed or implied from such forward looking statements.  Nothing contained within this document is or should be relied upon as a warranty, promise or representation, express or implied, as to the future performance of Funding Circle or its business. Any historical information contained in this statistical information is not indicative of future performance.

The information contained in this document is provided as of the dates shown.  Nothing in this document should be construed as legal, tax, investment, financial, or accounting advice, or solicitation for or an offer to invest in Funding Circle. 

Business Review

Funding Circle is the UK’s leading SME lending platform, with a material and growing presence in the US. Our mission is to build the place where small businesses get the funding they need to win.

We enable small businesses to borrow, pay and spend – offering an unrivalled customer experience powered by data and technology. We give institutional investors access to an alternative asset class in an underserved market, with robust and attractive returns. We have now helped more than 140,000 SMEs to access more than £16 billion.

We have an attractive and proven business:

• Leading SME lending platform in a large and underserved market
  • £330bn SME lending and £1.3trn SME B2B payments market opportunity.
• Technology and data drive a superior customer experience and sustained competitive advantage
  • Group Net Promoter Score (NPS) of 76 and Trustpilot score of 4.6 stars.
  • 3x better risk discrimination than traditional bureau scores, delivering high conversion and robust and attractive loan returns.
• Strong financial profile and proven business model, demonstrated through the cycle
  • Robust balance sheet and cash position.
  • Established and profitable UK Loans business.
• Executing on attractive growth opportunities to help more small businesses win
  • Our medium-term plan is focused on expanded distribution, increased conversion, and an expanded product set.
  • Significant medium-term opportunities in US Loans business and FlexiPay.

We are delivering against our medium-term plan which brings significant growth opportunities:

• In March 2022, we announced our medium-term plan to transform Funding Circle into a multi-product platform, serving a direct and embedded audience.
• 18 months into this plan, we are delivering against our strategic pillars:
  • Attract more businesses: strengthening existing distribution channels and expanding into new embedded and intermediated channels to enable more businesses to reach us
    • FlexiPay extends our product range so customers can now borrow, pay and spend with Funding Circle.
    • Completed first year of sports sponsorship with Premiership Rugby driving increased brand metrics.
    • Expanding distribution channels with new partnerships in the UK and US.
  • Say yes to more businesses: serving more businesses through an expanded set of personalised Funding Circle products and further integration with third party lenders
    • New customer segments launched in 2022 continued to deliver growth, with H1 UK near prime making up 12% of UK Loans business volume and US super prime contributing 32% of US Loans business value. 
    • Marketplace (where we refer businesses we cannot support to other lenders) showing strong momentum in UK and US, accounting for 13% of originations.
  • #1 in new products: using our capabilities to enter new markets where we can develop market-leading products
    • FlexiPay transactions more than doubled in H1 2023 to £90m, with >£150m FlexiPay transactions since launch.
    • >40,000 transactions since launch as at end H1 2023.
    • Following a successful beta phase, we are now moving into launch phase which will see FlexiPay card available to new and existing customers.
    • Secured senior debt funding from Citibank, with FlexiPay having reached sufficient maturity and scale.

Overview of the six months ended June 2023

The performance in H1 2023 was in line with our expectations, with growth from each of our business units compared to H2 2022. The Group comprises three trading business units each at differing stages of maturity.

As expected, UK Loans business originations were down against H1 2022, when it was operating under the second iteration of the UK government-guaranteed RLS. Since we reported in March 2023, the UK economic recovery has been slower than we anticipated.

The US Loans business showed good growth on H2 2022 with LuM increasing in H1 2023 and we will continue to invest in its cost base as it scales.

Our line of credit product, FlexiPay, has demonstrated significant growth to date and we are investing in this opportunity. Its transaction levels continue to grow (more than doubled in H1 2023 to £90m) and we are experiencing strong customer engagement as we open up to new segments and launch new features.