Funding Circle Holdings plc Half Year 2024 Results THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION AS DEFINED IN ARTICLE 7 OF THE MARKET ABUSE REGULATION NO. 596/2014 STRONG HALF YEAR PERFORMANCE AND DELIVERY AGAINST STRATEGIC OBJECTIVES SIMPLER, LEANER AND PROFITABLE BUSINESS WITH HIGH GROWTH Funding Circle Holdings plc (“Funding Circle” or the “Group”) today announces results for the six months ended 30 June 2024. Commenting on the results, Lisa Jacobs, Funding Circle CEO, says: “We are delivering on the plan I laid out in March to be simpler, leaner and profitable whilst continuing to show strong growth. In May, we simplified and streamlined the business to deliver £15m annualised savings in 2025 and in July we completed the sale of our US business for a gain of £10m. The first half was stronger than our expectations with annual revenue growth of over 30%; 12% up on H2 2023. We were profitable a half earlier than we set out in our guidance in March and are today upgrading our guidance to be profitable for the full year (versus prior guidance of H2 profitable). We are reaffirming our medium-term guidance of 15-20% revenue growth and PBT margins of more than 15% and continue to be excited about the long-term growth and profitability of the business as we execute against our plan. We will commence a further share buyback of up to £25m following the conclusion of the existing £25m share buyback.”
Financial Summary: For the Continuing Group, UK Term Loan (“Term Loan”) originations grew to £692m (H1 2023: £471m) and FlexiPay transactions scaled to £226m (H1 2023: £90m) underlining the strength of the business. Net income (“Revenue”) was £79.1m, 32% growth on H1 2023 and 12% on H2 2023. PBT pre-exceptionals was £0.5m (H2 2023: PBT negative £2.5m and H1 2023: PBT negative £7.4m) reflecting the profitable growing Term loans business funding the planned investment in FlexiPay. Term Loans increased profitability with PBT pre-exceptionals of £9.2m (H2 2023: £5.1m and H1 2023: £1.4m). Exceptional items of £2.6m related to the simplification and streamlining of the business announced in May 2024, led to a Loss before tax of £2.1m (H1 2023: £7.4m loss). Unrestricted cash remained healthy at £164.4m (31 December 2023: £169.6m). Robust and attractive returns across all products with continued institutional investor demand; c.£2bn of future funding in place. Operational & Strategic Summary: Executed against our plan for a simpler, leaner and profitable business: Successful sale of US business to iBusiness Funding for a gain on sale of £10m. Progressed cost-efficiency actions, to deliver c.£15m of annualised benefit in 2025 and, together with the US sale, reduced total headcount to c.760 (Dec 2023: c.1,100). Continued to drive growth and innovate across all our products to support our strategic ambitions: Term Loans: launched the government’s Growth Guarantee Scheme (GGS); expanded product segments and third-party integrations within our Marketplace offering. This offering now accounts for 11% of term loan originations to provide the widest possible support to small businesses. FlexiPay: 57% growth in transaction value on H2 2023 to £226m (H2 2023: £144m and H1 2023: £90m); continued enhancement of proposition, including increased flexibility of repayment terms. Cashback Credit Card: beta launched in Q3 with full roll-out in H2 2024.
1 The comparative financial information has been re-presented to exclude the US business which is presented as discontinued operations. 2 Net income is also referred to as “Revenue”. 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. £23.1m of cash at 30 June 2024 relates to the US business and is held in a disposal Group. Outlook: Attractive, growing and profitable business Term Loans revenue growth guidance remains at greater than 10% year on year growth. We expect PBT margins to be ahead of our previous guidance. FlexiPay guidance remains unchanged. FlexiPay revenue growth will be 3X that of the prior year and FlexiPay losses will be similar to that of the prior year. Building on the H1 2024 performance, the Group will be PBT profitable for the Full Year vs H2 2024 in previous guidance. Over the Medium Term we expect revenue growth of 15-20% CAGR with PBT margins of >15%.
FY 2024
Term Loans
FlexiPay
Revenue
>10% growth vs. 2023
3x growth vs 2023
Profit before tax1
>12% margins (25% AEBITDA margins)
Continued investment, with losses at a similar level to FY23
Profit before tax1
The UK businesses (Term Loans and FlexiPay) will be PBT positive for 2024
1 Pre-exceptional items Share buyback We announced a share buyback programme of up to £25m in March 2024 which is expected to complete in Q4 2024. We intend to do a further share buyback of up to £25m once the existing programme completes and will announce this programme separately before it commences. Board changes As we announced in May, Oliver White, Executive Director and CFO, will be standing down from his role. He will begin his transition to Tony Nicol, currently Director of Finance and Investor Relations, today and step down from the Board on 1 January 2025. We are hugely grateful to Oliver for his contribution to Funding Circle and the important role he has played in putting the Company in a strong position to grow in the coming years. Analyst presentation: Management will host a presentation and conference call for institutional investors and analysts at 9:30am UK time (BST), on Thursday 5 September 2024. 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 Results’ 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 Tony Nicol ir@fundingcircle.com Funding Circle Media Relations Angeli Everitt (+44 20 3830 1325) press@fundingcircle.com Headland Consultancy Stephen Malthouse and Jack Gault (+44 20 3805 4822) 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. We operate in a large, attractive and growing market, with over £80bn of outstanding debt in the UK SME market and £1.3trn of B2B SME payments each year. In the UK, Funding Circle has extended £13.6bn in credit to c.103,500 businesses. We provide an unrivalled customer experience, powered by data and technology. This advantage is clear in our credit assessment process, with our models 3x better at discriminating risk than traditional bureau scores. It also delivers superior results for our customers. 76% of applicants receive an instant decision, we have a strong NPS of 75 and see strong repeat usage, especially with FlexiPay. We are constantly looking at ways to innovate our product offering which enables customers to borrow, pay later and spend with Funding Circle and serve more small business needs. In Q3, we commenced a beta roll out of a new Cashback Credit Card for everyday business spending. We were pleased with the strong operational and strategic performance in H1 2024, with strong growth from both of our continuing business units compared to H2 2023 and H1 2023. The Group comprises two ongoing trading business units, each at differing stages of maturity. The US business was sold on 1 July 2024 and is therefore treated as discontinued in the period.
Originations and transactions
H1 2024 2024
H2 2023
H1 2023
£m
£m
£m
Continuing operations
UK Term Loan originations
692
589
471
FlexiPay transactions
226
144
90
Discontinued operations
US Term Loan originations
164
186
210
Term Loans The Term Loans business originations were progressively up against H1 and H2 2023. We saw growth through our commercial loans, our participation in the third iteration of the Recovery Loan Scheme (“RLS”), as well as more originations through our marketplace of third party lenders where we refer SMEs to other finance providers if we are unable to lend to them directly. Through our suite of products we are able to support as many SMEs as possible by providing access to financing. Originations were £692m in H1 2024, increasing from £471m in H1 2023, and were higher than the £589m in H2 2023. Originations were funded through forward flow agreements with institutional investors and, as at 30 June 2024, we had forward flow agreements in place totalling £1.8bn. In July 2024, we gained accreditation to participate in the longer term government guaranteed programme, the Growth Guarantee Scheme (“GGS”). This will allow us to help provide finance to SMEs in parts of the market we otherwise would not. FlexiPay Our line of credit product, FlexiPay, has demonstrated significant growth to date and we continue to invest in this business unit. Transactions continue to grow, more than doubling since H1 2023 to £226m, and we are experiencing strong customer engagement. FlexiPay customers can choose to pay later via bank transfer or through a FlexiPay card with approximately 90% of transactions via bank transfer. FlexiPay is funded by Funding Circle capital and a senior debt facility of £150m.
Loans under Management (LuM)
30 June 2024 £m
31 December 2023 £m
30 June 2023 £m
Continuing operations
Loans under management
UK Term Loans
2,777
2,853
3,021
Other
n/a
11
22
Total
2,777
2,864
3,043
FlexiPay balances
81
56
34
Discontinued operations
US Term Loans
438
420
398
Loans under management from continuing operations declined in the period by 3% to £2,777m. This was principally driven by continued repayment on the government loan schemes, CBILS and RLS, offset by growth in loans under management from commercial lending and the participation in the third iteration of RLS. As at 30 June 2024 UK government-guaranteed loans represented £1,315m compared to £1,462m commercial loans (31 December 2023: £1,555m government-guaranteed and £1,298m commercial loans). Segmental highlights
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)
Foreign exchange gains/(losses)
0.5
-
0.5
-
-
-
-
-
Profit/(loss) before tax and exceptional items
9.2
(8.7)
0.5
1.4
(8.6)
(7.2)
(0.2)
(7.4)
Exceptional items
(2.3)
(0.3)
(2.6)
-
-
-
-
-
Profit/(loss) before tax
6.9
(9.0)
(2.1)
1.4
(8.6)
(7.2)
(0.2)
(7.4)
UK Term Loans business The Term Loans business delivered operating income of £67.2m in H1 2024, compared with £55.4m in H1 2023, primarily through origination growth. Investment income of £1.6m decreased slightly from £1.7m in H1 2023 following continued amortisation of invested capital. Term Loans generated AEBITDA of £18.3m in H1 2024 compared to £8.8m in H1 2023, with AEBITDA margin improvement. Despite slightly lower net investment income, we benefitted from favourable fair value movements, primarily from investment in trusts and co-investments, which were sold earlier than originally anticipated, thereby accelerating the receipt of future cash flows which were valued at a discount. Profit before tax and exceptional items was £9.2m in H1 2024, up from £1.4m in H1 2023 primarily due to the growth in AEBITDA, and after exceptional items was £6.9m. 4 The comparative financial information has been re-presented to exclude the US business which is presented as discontinued operations. 5 As the Other segment is immaterial this has been absorbed into the UK Term Loans segment for 2024. FlexiPay FlexiPay generated operating income of £10.1m (H1 2023: £2.3m) with the increase driven by transaction and fee growth. The fee charged on FlexiPay for each drawdown against lines of credit averaged 5.0% (H1 2023: 3.4%) which is paid in equal instalments along with the repayment of each drawdown balance. Longer payment terms of up to 12 months have also been introduced in H1 2024 for a higher fee, which contributed to the increased fee growth. Where transactions are made using the card we also earn an interchange fee of c.1.75% FlexiPay is funded through Funding Circle invested capital and a senior debt facility with Citibank. The interest payable on this facility is shown in “cost of funds” and is based on SONIA plus a margin. This facility is for £150m with the ability to upsize further. AEBITDA for the period was negative at £7.3m (H1 2023: negative £7.8m). The principal costs incurred are staff-related costs, marketing costs and expected credit losses. This product is a lifetime product which benefits from repeat business from customers with marketing incurred up front to onboard customers as well as the up-front recognition of expected credit losses. As the business continues to build, we anticipate there to be continuing investment with a resultant growth in the cost base, principally marketing and ECL. US Term Loans business As was previously announced, the Group signed an agreement in June 2024 to sell the US business to iBusiness Funding, LLC (“iBF”). The sale was completed on 1 July 2024, and as a result the US business will not be deconsolidated until H2 2024. The operations of the US business are presented in a single line as discontinued operations within the financial statements with the assets and liabilities on the balance sheet presented as a disposal group. Originations declined in H1 2024 to £164m compared with £186m in H2 2023 and £210m in H1 2023. Total income for the US was £14.0m (H1 2023: £16.9m). Operating income fell to £13.3m (H1 2023: £14.5m) comprising a reduction in transaction fees as a result of lower originations, but growth in servicing fees as LuM improved. Net investment income and fair value reduced as the legacy loans held at fair value through profit and loss continued to amortise steadily. Further details regarding the sale of the US can be found under subsequent events. Profit and loss
