## Half Year 2024 Results 5 September 2024 15 Grams Coffee House --- # Where small businesses get the funding they need to win £13.6bn need to win We're the UK's leading SME lending platform enabling small businesses to borrow, pay later and spend Spend Daily Pay later Monthly 1 Credit extended includes Term Loan originations and FlexiPay transactions £13.6bn Credit extended 1 c.103,500 Small businesses supported c.95,000 Jobs supported in 2023 Funding Circle UK figures to date --- ## We provide an unrivalled experience powered by data and technology ## Large and underserved market £84bn £84bn Addressable SME loans market £1.3trn SME B2B payment ## Superior customer experience 6min Application time 75 Customer NPS ## Data and tech driven advantage x3 Better risk discrimination than bureau scores 76% Instant decisions ## Robust and attractive returns Future funding in place Annualised term loan returns (above base rate) --- ## A simpler, leaner and profitable business ## US Sale - Sold to iBusiness Funding for a gain on sale of 10m - Completed on 1 July ## Restructuring - Restructuring announced to reduce headcount by c.120 and deliver an annualised benefit of ~£15m in 2025 - Focus included management layers, prioritisation and improved productivity, incl. gen AI tools --- ## Strong growth and profitable in H1 - Strong delivery in H1; on track for H2 o Revenue growth 1 of 12% vs. H2 23 (32% vs H1 23) o Credit extended 2 of £918m vs. £733m in H2 23 (£561m in H1 23) $ \mathrm{P B T}^{1} $ of £0.5m - Continued growth and innovation to support strategic ambitions Evolved customer value proposition to drive increased growth and engagement o Term loans: 17% growth in total originations vs. H2 23 o FlexiPay: £523m FlexiPay transactions to date, 57% growth vs. H2 23 - Go forward business is attractive with healthy revenue and profit growth - Full year guidance: Revenue on track, upgrade to profit - full year Group PBT positive and term loan PBT margin >12% Medium-term guidance unchanged: Group revenue growth of ~15-20% CAGR and PBT margins >15% - Further share buyback o Initial share buyback of up to £25m expected to conclude in Q4 Further share buyback of up to £25m following conclusion of current programme Credit extended 2 £918m £918m £79.1m PBT, excl. exceptionals 1 £164m £0.5m Revenue (Net income) 1 Unrestricted cash --- ## Business update --- ## Our multi product offering enables more businesses to borrow, pay later and spend ## Borrow Term Loan Loan for long term investment purposes to support business growth or long term cashflow management ## Pay later FlexiPay Line of Credit Flexible line of credit for paying bills,supplier invoices and managing short term cashflow using bank transfer or card ## Spend Cashback Credit Card [NEW] Cashback credit card for everyday business spending --- ## Strong growth as we improve and expand our product offering ## British Business Bank Launched the Growth Guarantee Scheme (GGS), successor to the Recovery Loan Scheme, in July to continue supporting a broader range of businesses as they look to invest and grow Marketplace continued to show strong growth accounting for 11% of originations in H12024 with expanded product segments and third-party integrations Continued sponsorship with Premiership Rugby for the upcoming rugby season, driving increased brand metrics --- ## Pay later Growing quickly as we add new features and flexibility £523m in FlexiPay transactions since launch, with £226m in H1 24 FlexiPay Card showing strong momentum with over 13,600 cards issued so far (~7,000 in H124) Increased flexibility of terms and billing allowing small businesses to repay in 1,3,6,9 or 12 months with monthly billing --- ## FlexiPay spotlight ## Attractive growth and unit economics ## 151% growth in transactions YoY Businesses have FlexiPayed more than 140,000 times Active customers 2 FlexiPaying more than once a month ## Attractive unit economics with 12-18m payback - Upfront costs of marketing and ECL in line with expectations - Strong recurring revenue ## Strong recurring revenue dynamics Transactions by half year cohort, $ \mathrm{f m}^{1} $ 1. Transactions by half year cohort show transactions grouped by the half year of first transaction, excludes card transactions before they flip into FlexiPay line of credit 2. FlexiPay account is active when there is an outstanding balance on the account in the last month --- ## Financial performance --- ## Go-forward UK business PBT positive in H1 ## Group financial performance, before exceptional costs 1 | £m | H123 | H223 | H124 | | --- | --- | --- | --- | | Total income | 59.7 | 70.0 | 78.9 | | Fair value gains | 0.4 | 2.7 | 2.8 | | Cost of funds | (0.4) | (2.3) | (2.6) | | Net Income(“Revenue”) | 59.7 | 70.4 | 79.1 | | Operating expenses | (67.1) | (72.9) | (78.6) | | Profit/(loss)before tax continued operations | (7.4) | (2.5) | 0.5 | | Discontinued operations(US)loss before tax | (9.2) | (14.1) | (10.1) | | Profit/(loss)before tax | (16.6) | (16.6) | (9.6) | | £m | H123 | H223 | H124 | | --- | --- | --- | --- | | Unrestricted Cash | 173 | 170 | 164 | | Net Asset Value | 264 | 247 | 229 | 1 Continuing operations includes the UK Loans business and FlexiPay but excludes exceptional items of £2.6m --- ## Group financial performance ## Continuing operations 1; £m Strong growth in both Loans and FlexiPay Loans profitable. Investment in FlexiPay growth continues,in line with guidance. Overall Group profitable Unrestricted cash Robust balance sheet and cash position 1 Continuing operations includes the UK Loans business and FlexiPay but excludes exceptional items of £2.6m 2 NAV includes the US business which was subsequently sold on 1 July 2024 --- ## Term Loans profit momentum continues ## AEBITDA and PBT profitable; £m ## Loans under Originations Continued growth in originations Loans under Management LuM stabilised as Covid scheme LuM amortisation is offset by new originations Continuing top line growth Operational leverage demonstrated with margins up to 26% Consistently PBT positive and growing with margins above 12% 1 The legacy "other" business segment (Central Europe) is immaterial and has been included in the Term Loans segment in H124. Prior period comparatives have not been restated 2 Presented before exceptional costs. PBT was £6.9m after exceptional items --- ## FlexiPay top line growth £m ## End of month Transactions Momentum in transaction growth End of month balances ## PBT 1 balances Grew strongly, in line with transactions Increased in line with transactions and yield Ongoing investment in FlexiPay as product scales, with up-front costs for marketing and expected credit loss provision 1 Presented before exceptional costs. PBT was a loss of £9.0m after exceptional items --- ## Focused cost management Continuing group, £m ## Continuing group, £m ## Term Loans • £78.6m Clear operational leverage demonstrated - Clear operational leverage demonstrated - H1 24 vs H2 23: revenue up 7% , costs up 1% ## FlexiPay - Product scaling - H1 24 vs H2 23: revenue up 127% , costs up 49% ## Total Costs - Staff costs flat, and Other costs up £1.6m, primarily share based payments - Growth in Marketing investment (up £2.8m) and FlexiPay Expected Credit Loss (up £1.3m) 1 The legacy "other" business segment (Central Europe) is immaterial and has been included in the Term Loans segment in H124. Prior period comparatives have not been restated --- ## Robust levels of net assets and cash Unrestricted cash £m ## Movement driven by: - Trading profits/losses, including the drag of the US in H1 - Shares bought back (and subsequently cancelled) - Term Loans cash generative and covers investment in FlexiPay - US legacy loan monetisation offsets operating outflows - Shares bought back of £8.2m of the initial £25m programme --- ## Capital Allocation Available cash ## Capital allocation framework Deliver growth strategy ## Future growth initiatives Share buyback Future growth initiatives Invest to make platform stronger Distributions to shareholders --- ## 2024 Outlook: Revenue in line, upgrade to profit | | Term Loans | | FlexiPay | | Group | | | --- | --- | --- | --- | --- | --- | --- | | | Previous | Revised | Previous | Revised | Previous | Revised | | Revenue growth | >10% | >10% | 3x vs 2023 | 3x vs 2023 | - | - | | Profit before Tax¹ | 8-12% | >12% | Loss similar to 2023 | Loss similar to 2023 | H2 Positive¹ | Full Year Positive¹ | 1Presented before exceptional costs. --- ## Looking ahead --- ## Strong execution in H1 - Simpler, leaner, streamlined business - Strong delivery in H1 with >30% revenue growth (12% vs H2 23) and £0.5m PBT - Continued innovation and product expansion - On track for revenue guidance, upgrade to profit guidance --- ## Leading UK online SME lender with attractive growth and profitability Borrow Longer term Pay later Monthly Medium term outlook: growth and profitability ~15-20% Revenue growth CAGR >15% PBT margins (>25% AEBITDA margin) Spend Daily Simple, hassle-free business finance As business finance specialists, we've made it fast and efficient for you to get funding for cash flow, stock, equipment, growth and much more. --- ## Appendices --- ## Borrow Term Loan Loan for long term investment purposes to support business growth or long term cashflow management. - Funding Circle loans; Government guaranteed loans and marketplace (third party loans) - Six months to six years - £10,000 to £500,000 ## Pay later FlexiPay Line of Credit Flexible line of credit for paying bills supplier invoices and managing short term cashflow using bank transfer or card. - Repay over 1,3,6,9 or 12 months - Flat fee on each transaction - Credit limit of £1,000 to £250,000 ## Spend Cashback Credit Card [NEW] Cashback credit card for everyday business spending. - Credit Card with cashback - Credit limit of £1,000 to £250,000 --- | Multi-product view | Borrow Term Loan | Pay later Line of credit (“FlexiPay”) | Spend Cashback Credit Card [New] | | --- | --- | --- | --- | | Product type | Funding Circle loans Government guaranteed loans Marketplace(3rd party loans) | Rolling line of credit | Credit card with cash back | | Average size&draw | £75k loan c.5 year term | £15k credit limit c.£3k draw per transaction Paid back over 3-12 months | TBC | | Funding | Forward flow from institutional investors | Funding Circle with senior banking facility | Funding Circle with senior banking facility | | How our products make money | Transaction fee(c.6% on originations)Servicing fee(c.1% p.a on LuM) | Drawdown fee(varying on transactions) | Interchange fee(1.75% on transaction)Interest income(on credit levels) | | | | | | --- ## How we make money 92% of income from fees ## 92% of income from fees | | Revenue stream | Term Loans | FlexiPay | Typical yield | Drivers | % of H1 24 total income | | --- | --- | --- | --- | --- | --- | --- | | Fees | Transaction fees | √ | | c.6% | OriginationsH1 24:£692m | 53% | | Fees | Servicing fees1 | √ | | c.1% | LuMH1 24:£2,777m | 27% | | Fees | Drawdown fees | | √ | c.4.9% | TransactionsH1 24:£226m | 12% | | Other | Bank interest | √ | √ | Variable | Cash balances&base rates | 6% | | Other | Investment income | √ | | Variable | Invested capitalH1 24:£52m | 2% | --- # Illustrative-FlexiPay unit economics |Lifetime|||Upfront customer| |---|---|---|---| |revenue||Lifetime value|acquisition (CPA reducing over time) Upfront expected credit losses| |Cost of|||Stable repeat usage| |funding|Operating costs||Payback period 12-18 months Wider portfolio benefits with| |Customer Expected|||high engagement and| |acquisition credit losses||Compelling|marketing efficiencies| |||unit economics|| --- ## Segmental view of Income and Profit £m | | H12024Continuing Operations | | | | H12023Continuing Operations | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | United Kingdom | | Total | United Kingdom | | Total | OtherTerm Loans | Total | | | Term Loans | FlexiPay | Total | Term Loans | FlexiPay | Total | OtherTerm Loans | Total | | Transaction fees | 41.8 | 0.3 | 42.1 | 29.6 | - | 29.6 | - | 29.6 | | Servicing fees | 18.6 | - | 18.6 | 20.2 | - | 20.2 | 0.2 | 20.4 | | Interest Income | 4.3 | 9.8 | 14.1 | 2.8 | 2.3 | 5.1 | - | 5.1 | | Other fees | 2.5 | - | 2.5 | 2.8 | - | 2.8 | 0.1 | 2.9 | | Net investment income | 1.6 | - | 1.6 | 1.7 | - | 1.7 | - | 1.7 | | Total income | 68.8 | 10.1 | 78.9 | 57.1 | 2.3 | 59.4 | 0.3 | 59.7 | | Fair value gains / (losses) | 2.8 | - | 2.8 | 0.4 | - | 0.4 | - | 0.4 | | Cost of funds | - | (2.6) | (2.6) | - | (0.4) | (0.4) | - | (0.4) | | Net income | 71.6 | 7.5 | 79.1 | 57.5 | 1.9 | 59.4 | 0.3 | 59.7 | | | | | | | | | | | | Adjusted EBITDA | 18.3 | (7.3) | 11.0 | 8.8 | (7.8) | 1.0 | (0.2) | 0.8 | | Discount unwind on lease liabilities | (0.3) | - | (0.3) | (0.1) | - | (0.1) | - | (0.1) | | Depreciation, amortisation, impairment and modification gains/(losses) | (5.8) | (0.7) | (6.5) | (5.5) | (0.5) | (6.0) | - | (6.0) | | Share-based payments and social security costs | (3.5) | (0.7) | (4.2) | (1.8) | (0.3) | (2.1) | - | (2.1) | | Exceptional items | (2.3) | (0.3) | (2.6) | - | - | - | - | - | | Foreign exchange gains/(losses) | 0.5 | - | 0.5 | - | - | - | - | - | | Profit / (loss) before tax | 6.9 | (9.0) | (2.1) | 1.4 | (8.6) | (7.2) | (0.2) | (7.4) | 1. Period to 30 June 2024 has presented 'Other' term loans within the UK business segment on the basis that the central European operations included within Other are. The comparative period has not been re-presented on this basis 2. Transaction fees include Marketplace --- ## Cash, net assets and invested capital £m | Cash utilisation | | | | --- | --- | --- | | Dec'23 | | 221 | | Free cashflow¹ | (37) | | | Investment / funding cashflows | 23 | | | FlexiPay net funding | (7) | | | Share buyback | (8) | | | Other | 0 | | | Mov't | | (29) | | Jun'24 | | 192 | | Net Assets | Dec 23 | Mov’t | Jun 24 | | --- | --- | --- | --- | | Unrestricted | 170 | (6) | 164 | | Restricted² | 52 | (23) | 28 | | Cash | 221 | (29) | 192 | | Equity invested | 64 | (12) | 52 | | Other | (38) | 23 | (15) | | Total | 247 | (18) | 229 | | Invested capital movement | Dec 23 | Mov't | Jun 24 | | --- | --- | --- | --- | | Legacy securitisation, warehouse and other loans at fair value | 19 | (11) | 8 | | CBILS / RLS / Commercial co-investments | 25 | (6) | 19 | | Private funds | 2 | (1) | 1 | | | | | | | Subtotal | 46 | (18) | 28 | | Flexipay lines of credit | 18 | 6 | 24 | | Total | 64 | (12) | 52 | 1. Free cashflow of £(37)m includes (£25m) relating to cash paid to the British Business Bank (BBB) for guarantee fees collected from institutional investors under the CBILs and RLS schemes. 2. Restricted cash of £28m primarily relates to £21m cash held in the funding vehicle for FlexiPay.