Funding Circle Holdings Plc: Full Year Results

DJ Funding Circle Plc: Full Year Results

Funding Circle Plc (FCH) Funding Circle Plc: Full Year Results 02-March-2023 / 07:00 GMT/BST

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Funding Circle Holdings plc

Full Year 2022 Results

Embargoed until 7.00am, 02 March 2023

THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION AS DEFINED IN ARTICLE 7 OF THE MARKET ABUSE REGULATION NO. 596/2014

Funding Circle Holdings plc ("Funding Circle") today announces results for the year ended 31 December 2022.

Lisa Jacobs, CEO at Funding Circle, says:

"We've made good progress against our medium-term strategy, expanding our reach in distribution and depth in products. We introduced lending as a service in the US, and expanded our product set through the launch of super prime loans in the US and near prime loans in the UK. We have continued to see strong engagement with FlexiPay - so our customers can now not only borrow, but pay and spend with Funding Circle for the first time.

"I'm really pleased with how the business reacted to the evolution of the economic environment and transitioned back to commercial lending, with government schemes phasing out in 2022. Overall we delivered a solid financial performance. We were prudent in our lending in 2022, and will continue to be whilst conditions remain challenging - as expected in the UK in 2023, where we have pushed out our 2025 income targets by a year. We're confident in the US and are excited about new FlexiPay growth over the medium term. Having built strong foundations to deliver against the plan, we expect to double Group income over the next three years."

Executive Summary:

-- Following a period of significant market uncertainty, Funding Circle has proven resilient through change,delivering a solid financial performance in FY 22 as government loan schemes were phased out.

-- Loan returns remained robust and attractive with upgraded returns for several cohorts.

-- Continued institutional investor demand to fund loans with new forward flow agreements in the UK and US.

-- In 2022, lending through Funding Circle contributed GBP6.9bn to UK GDP, supported 106,000 jobs andcontributed tax revenues of GBP1.4bn to the UK economy.[1]

-- Customer satisfaction remained strong with Group NPS at 77 and a UK Trustpilot score of 4.6. In the UK ittakes only six minutes to complete an online application with an instant decision for 70% of applications.

-- Good early progress made against the three strategic pillars of our medium-term plan:? Attract more businesses: two Lending as a Service ("LaaS") partnerships in the US; - Say yes to more businesses: expanded customer segments to super prime in the US and near prime in theUK; - #1 in new products: tripled FlexiPay transactions from H1 to H2; launched FlexiPay card in beta.

-- Our balance sheet remains a strategic asset, with net assets of GBP284m, including cash of GBP178m.

-- We have introduced guidance for 2023 and medium-term guidance is updated.? UK Loans reflects the challenging economic environment in 2023 pushing back 2025 targets by one year. - US Loans guidance for 2023 shows strong momentum and medium-term guidance is unchanged. - The significant progress we've made on FlexiPay means we have outlined our expectations for the firsttime, including a step up in investment in 2023.

-- Now including FlexiPay, we target a doubling of Group total income by 2025.

Financial Performance:

2022  2021 
                GBPm   GBPm 
Originations          1,481 2,296 
Loans under Management (LuM)  3,743 4,457 
Operating income        131.4 165.5 
Net investment income[2]    17.3  41.4 
Total income          148.7 206.9 
Fair value gains        4.8  28.6 
Net income           153.5 235.5 
AEBITDA[3]           6.8  91.8 
Operating (loss)/profit    (14.7) 64.2 
(Loss)/profit before taxation (12.9) 64.1 
Cash              177.7 224.0 
Net assets           284.0 288.0 

1 Funding Circle research in partnership with Oxford Economics.

2 Net investment income comprises investment income less investment expense.

3 Adjusted EBITDA ("AEBITDA") is an alternative performance measure and represents operating profit/(loss) before depreciation and amortisation, share based payment charges, associated social security costs, foreign exchange gains / (losses), and exceptional items. A reconciliation between AEBITDA and operating profit/(loss) is shown in the Business Review.

Financial Summary:

-- Originations of GBP1.5bn (2021: GBP2.3bn) down 35% year-on-year but in line with expectations following thepeak of the government-guaranteed loan schemes in H1 21.

-- Both H1 and H2 22 originations up on H2 21, but reduced in H2 22 from H1 22 following credit tighteningin response to the more challenging UK economic environment.

-- Loans under management of GBP3.7bn (31 December 2021: GBP4.5bn) down 16% following anticipated earlyrepayments of CBILS loans in UK and PPP loan forgiveness in US.

-- Operating income was GBP131.4m (2021: GBP165.5m) down 21% against the high levels of income fromgovernment-guaranteed loan schemes in 2021. 2021 also included GBP2.1m of deferred PPP revenue.

-- Investment income was GBP17.3m (2021: GBP41.4m) down by 58%, as expected, as investments have either beensold or amortised down.

-- Fair value gain of GBP4.8m (2021: GBP28.6m gain) reflects continued positive revaluations for improvedunderlying credit performance.

-- AEBITDA of GBP6.8m (2021: GBP91.8m) and operating loss of GBP14.7m (2021: profit of GBP64.2m) reflect thereduction in net income following the closure of the government-guaranteed loan schemes.

-- Net assets remain healthy at GBP284.0m (31 December 2021: GBP288.0m), including cash balance of GBP177.7m (31December 2021: GBP224.0m), of which GBP165.7m (31 December 2021: GBP199.4m) was unrestricted[4].

Operating and Strategic Summary:

-- We are delivering against our medium-term plan which brings significant growth opportunities in a largeaddressable market:? In March 2022, we announced our medium-term plan to transform Funding Circle into a multi-productplatform, serving a direct and embedded audience. - We are focused on enabling SMEs to borrow, pay and spend. - A year into this plan, we are delivering against our strategic pillars: -- Attract more businesses: strengthening existing distribution channels and expanding into newembedded and intermediated channels to enable more businesses to reach us? Launched two Lending as a Service pilot partnerships, with Pitney Bowes and DreamSpring inthe US. - Developed our distribution partnerships in UK and US. - Launched our first sports sponsorship with Premiership Rugby to drive brand awareness andconsideration.

-- Say yes to more businesses: serving more businesses through an expanded set of personalisedFunding Circle products and further integration with third party lenders? Expanded US Loans proposition to serve super prime businesses. - Expanded UK Loans proposition to include near prime lending. - Increased Marketplace originations with lending up 24% y-o-y.

-- #1 in new products: using our capabilities to enter new markets where we can developmarket-leading products? SME B2B payments represents a new major market opportunity. - FlexiPay rolled out to additional customer segments during 2022, with strong growthtrajectory and high customer engagement: >3x growth in cumulative transaction value H1 22 to H2 22;GBP60m total transactions in FY 22 (GBP3.5m FY 21); > 2,000 active accounts at end FY 22 (c.250 FY 21); >20,000 transactions to date; 1.4 transactions per month per active customer. - FlexiPay card launched in beta at the end of 2022.

4 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 is payable to third parties. Outlook:

We have introduced guidance for FY 23, updated our medium-term guidance for FY 25 and included FlexiPay guidance for the first time, as shown below.

FY 23                                  Medium Term (FY 25) 
                                            Group to double total income by 
       Expectation of challenging UK economic environment in FY 23       FY 25 (incl. FlexiPay); 
                                            Prior UK medium-term guidance 
                                            delayed by one year[5] 
       UK and US Loans     FlexiPay                    UK Loans5  US Loans FlexiPay 
                                            At least 
       GBP150m - GBP160m                              GBP175m 
Total income              Over GBP10m                          At least At least 
       Continued momentum in                                 GBP70m   GBP50m 
       US, broadly flat in UK 
 
                    GBP(10-20)m 
AEBITDA    GBP0-10m                                  Margins of  AEBITDA  AEBITDA 
                    FY 23 investment into FlexiPay, AEBITDA loss  25-30%    positive positive 
                    dependent on speed we choose to scale 

Analyst presentation:

Management will host an analyst and shareholder presentation and conference call at 9:30am UK time (GMT), on Thursday 2 March 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 [phone] or [phone]. Quote Funding Circle Full Year Results if prompted.

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 ([phone])

[e-mail]

Funding Circle Media Relations

Abigail Whittaker ([phone])

[e-mail]

Headland Consultancy

Mike Smith / Stephen Malthouse ([phone])

About Funding Circle:

Funding Circle (LSE: FCH) is a lending platform for SME borrowers. Established in the UK in 2010, and now the leading lending platform to SMEs, the Group also has a material and growing presence in the US. Globally, Funding Circle has extended more than GBP15bn in credit to c.135,000 businesses.

For SME borrowers, Funding Circle provides an unrivalled customer experience, delivered through its technology and data, coupled with a human touch. Its solutions continue to help customers access the funding they need to succeed.

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

5 Previous UK FY 25 guidance of total income GBP220m and AEBITDA margins of 30-35%.

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.