Funding Circle

Half Year Results Q&A

9 September 2021

Samir Desai: Good morning and thank you for joining us for our H1 2021 results. Today, you have me Samir Desai, Founder and CEO, Oliver White, CFO and Lisa Jacobs, CEO Designate, joining the call. We are here to talk about our H1 2021 results, I will introduce the results and talk to the first section on our model, Oliver will cover the financials, and Lisa will talk to our priorities and future growth initiatives.

I have decided that after 12 years I will step back from being CEO from the first of January 2022 and move to a new role as a Non-Executive Director on our Board. Lisa Jacobs, our UK Managing Director, will become our new CEO. I have made this decision at a time when I believe, as you will see from these results, the business is in the strongest position it has ever been. Lisa and I have worked closely together for 9 years, and she has done an amazing job running our largest business.

H1 2021 Results

2021 has seen us continue the strong momentum we experienced in the second half of 2020. Our Loans under Management reached a record level of approximately £5bn in H1 and we recorded originations of £1.6bn. In the UK, originations were up 109% year-on-year. Our technology platform is continuing to revolutionise the small business borrowing experience and now 60% of loan applications receive an instant decision, up from 50% at the end of the year.

We have increased our expectations of loan returns on our platform for the second consecutive time. Covid was an unprecedentedly severe recession for small businesses, and the improving loan performance expectations demonstrate the quality and resilience of the loans we generate on our platform.

The group delivered total income of £120.6m, up 19% year-on-year. We reached profitability for the first time in H2 2020 and I’m pleased to say we exceeded expectations in H1 2021 to deliver £53.3m of AEBITDA and £35.5m operating profit, and have now been profitable for a full 12 month period. This all results in strong growth in net assets to £254.1m.

Looking Ahead

Looking ahead, we are seeing a number of exciting structural trends that really benefit Funding Circle. We have continued to see the acceleration in the adoption of online small business lending, which will benefit Funding Circle not just through the second half of 2021 but beyond.

We will continue to roll out our Instant Decision Lending platform with a long-term target of 80% of loan decisions automated. We are also leveraging our technology platform to launch a number of exciting new solutions including embedded finance via an API, our new Flexipay product, and we are opening up a waitlist for our Charge Card product.

Our Mission

Our mission at Funding Circle is to build the place where small businesses get the funding they need to win. We do this by delivering an amazing experience for small businesses, powered by machine learning and technology.

At Funding Circle we have a long term strategy. Additionally, there are a number of structural trends that have accelerated as a result of Covid and we stand to benefit from going forward. Small businesses are underserved by traditional lenders, representing less than 2% of bank balance sheets, despite being 50% of GDP and 70% of employment.

Technology Platform Revolution

Our technology platform is revolutionising small business lending. Borrowers can apply in 6 minutes, and 60% of loan applications get a decision within 9 seconds and are funded within 24 hours. Instant Decision Lending delivers a number of benefits to customers, and we are using the same risk models developed over the past 10 years. Getting an instant decision can improve borrower conversion by up to 25%.

The great experience we deliver leads to stable repeat rates and attractive unit economics. Over 48% of operating income in the UK came from existing customers in H1 2021. We are reaching a level of scale, brand awareness and customer satisfaction that is unmatched by other Fin Techs.

Economic Impact

Since 2010, we have originated £13 billion of loans to over 120,000 small businesses. Our Economic Impact Report showed that the lending through our platform in 2020 alone created and sustained 135,000 jobs and added £10 billion to GDP. Typical Funding Circle borrowers have been trading for an average of 12 years, have 8 employees, and £1 million of revenue.

Oliver White's Insights

Oliver White: The diversification of our investor base is of strategic importance to Funding Circle. Our largest sources of funds are asset managers and banks. We see the ability to do this as a source of competitive advantage.

The right-hand pie chart shows the proportion of the Loans under Management provided by Funding Circle’s balance sheet. Funding Circle deploys its equity where it makes its platform stronger. Our borrowers continue to be resilient, and loan quality continues to be strong. We continue to see an improving outlook for Funding Circle loans.

In the UK, Loans under Management grew to over £4bn, with strong origination levels in H1. Originations are at £1.381b, up 109% year-on-year.

Performance Summary

In the half, the US is AEBITDA positive for the first time, primarily driven by the investment AEBITDA of £20.9m including a £7.8m Fair Value gain. Putting this together for Funding Circle, H1 of 2021 saw record loans under management of close to £5bn, up 33% year-on-year, with total income of £120.6m, up 19%. Operating profit grows to £35.5m up from £7.2m in H2 of 2020.

Looking Forward

Lisa Jacobs: Today’s results are another example of the strength of the Funding Circle business model. We were the first FinTech platforms to be accredited to the Recovery Loan Scheme.

The Funding Circle Flywheel drives significant competitive advantage. New products will help support small businesses to manage cashflow challenges. Our new API will allow us to natively embed our Instant Decision Lending technology into partners' websites.

FlexiPay, our new payment finance product, is now live and in beta testing for our existing customers.

Conclusion

We are excited about our future. Funding Circle today is the strongest it has ever been, but our best days are certainly still to come.