Funding Circle Holdings plc (LON:FCH), the leading small and medium enterprise loans platform in the UK, US, Germany and the Netherlands, today announces results for the year ended 31 December 2018 (“2018”).
Financial Highlights:
· Strong Group performance delivering IPO guidance whilst continuing our strategy of investing for growth
· Revenue of £141.9 million (2017: £94.5 million). Year-on-year growth of 55%1 (excluding property2) exceeding c.50% guidance stated at IPO
· Segment adjusted EBITDA3 of £7.0 million (2017 loss: £3.9 million) with margin of 5% (2017: negative 4%)
· Adjusted EBITDA4 loss of £28.5 million (2017 loss: £25.1 million) with margin improving to negative 20% (2017: negative 27%)
· Basic loss per share of 18.2 pence (2017 loss: 14.0 pence)
· Loss before tax £50.7 million (2017 loss: £36.3 million)
· Free cash outflow5 of £42.0 million (2017 outflow: £35.3 million)
· Cash of £333.0 million, £244.1 million higher than at the end of 2017 (£88.9 million), including IPO proceeds of £300.0 million, before expenses of £15.0 million
Operating and Strategic Highlights:
· Leading lending platform in UK, US, Germany and the Netherlands:
o Loans under management of £3.15 billion (2017: £2.11 billion). Year-on-year growth of 55% (excluding property6)
o Originations of £2.29 billion (2017: £1.74 billion). Year-on-year growth of 40% (excluding property7)
o In the UK, net lending (£723 million) to SMEs through Funding Circle in 2018 was higher than all UK high street banks combined (£515 million)8
o In the US, loans under management recently passed $1 billion and was larger than ~98% of FDIC-insured banks9 in 2018 ($939 million); if Funding Circle were a bank it would be among the 50 largest for SME loans in the US
· Strong repeat dynamics from existing investors and borrowers:
o 43% of Group revenue from existing customers, year-on-year growth of 67% (excluding property)
o 74% of lending from existing investors in 2018
· Deep and diverse investor base:
o More than 85,000 investors at the end of 2018 earning projected annual returns of 5-8% across all geographies10
o New lending commitments signed with institutional investors in 2018, including Waterfall Asset Management (£1 billion) Alcentra ($1 billion) and the British Business Bank (£150 million)
· Market-leading customer satisfaction scores for borrowers:
o More than 60,000 small businesses have accessed funding through the Funding Circle platform as at the end of 2018
o Net Promoter Score between 80-90 for borrowers in the UK and US; 85% of borrowers would approach Funding Circle first in the future for finance11, rather than their bank
· Marketing spend as a percentage of revenue maintained at 41% (2017: 41%)
Continuing to execute our three year strategic plan – FC2020:
· Drive a better borrower experience: maintaining marketing spend at consistent levels in 2019 and continuing to invest in UK TV brand advertising to drive higher awareness and engagement amongst UK SMEs
· Invest in data, technology and analytics: more than 150 of our engineers are working on delivering our global platform, as well as implementing our goal of 50% of all loan applications fully automated by 2020
· Diversify funding sources: launching two new institutional investor products in H1 2019: a US asset-backed bond product and a private direct lending fund in Continental Europe. These new products, together with our existing range of investor products, will increase the total investor addressable market by four times to approximately £2.5 trillion
· Build a highly scalable global business: expand international operations into Canada in H2 2019, opening up a ~£45 billion SME addressable market and helping creditworthy Canadian SMEs to access the finance they need to grow and stimulate job creation
Samir Desai CBE, CEO and co-founder, said: “2018 was another record-breaking year for Funding Circle. The business delivered against the guidance set out at the time of our IPO and it is especially pleasing to report revenue growth of 55%1 with revenue of £141.9 million and a positive segment adjusted EBITDA of £7 million.”
“Our focus has always been on delivering an exceptional customer experience to both borrowers and investors, leading to strong and consistent repeat behaviour, and I am proud that, in 2018, 43% of our Group revenue came from existing customers.”
“As we look ahead to the rest of 2019, we remain focused on continuing our strategy of investing for growth and building on our number one market positions across the UK, US, Germany and the Netherlands.”
“We have exciting plans to enter the Canadian market later this year and to launch two new institutional investor products in 2019 that will significantly increase the universe of investors who can access Funding Circle loans.”
“Funding Circle is in a strong position financially and operationally, and we are confident of meeting our growth expectations for the year.”
Brexit
We recognise the increasing economic uncertainty caused by Brexit and we remain vigilant and prepared for the possible outcomes. Our international operations represent approximately 30% of our overall business and our UK business is not directly affected on a day-to-day operational basis by the prospect of the UK leaving the EU. However, we continue to monitor macroeconomic indicators for any possible impact on UK SMEs. Whilst current business insolvencies remain low, we regularly stress test the loanbooks in each of our geographies to ensure that investor returns would remain resilient in an economic downturn.
Outlook
In 2019, we expect to report revenues above £200 million with transaction yields remaining at 2018 exit levels, providing a year-on-year revenue benefit as lower average 2018 yields are lapped. Segment adjusted EBITDA margin (including costs associated with organic expansion into Canada) will approximately double with marketing spend as a percentage of revenue remaining broadly flat year-on-year.
Adjusted EBITDA losses will reduce from 2018 as a result of central costs falling to 20%+ of revenue, including investment in product development and a full year of plc related expenditure. Capitalised development spend, recorded as intangible fixed assets, will grow modestly.
This guidance is pre-new investor products and IFRS16. We expect additional incremental impact from new investor products and IFRS16 in 2019. New investor products are expected to add c.£2-3m to both revenue and adjusted EBITDA in 2019, and IFRS16 is expected to add a further c.£5m to both segment adjusted EBITDA and adjusted EBITDA, but minimal impact on loss before tax.
