Funding Circle looking to Canada for future growth

The FTSE 250 company said revenue rose to £141.9m in the year ended 31 December, from £94.5m 12 months earlier, with that year-on-year growth of 55% excluding property exceeding its guidance of 50% which was stated at IPO.

Segment-adjusted EBITDA totalled £7m, swinging from a loss of £3.9m in 2017, with the firm’s margin reaching a positive 5% from a negative 4%.

Funding Circle made an adjusted EBITDA loss of £28.5m, slightly wider than the £25.1m reported a year earlier, with the company’s margin improving to a negative 20% from a negative 27%.

Its basic losses per share were 18.2p, compared to 14p year-on-year, while its loss before tax was £50.7m, widening from £36.3m a year earlier.

Free cash outflow rose to £42m from £35.3m.

Cash totalled £333m at year-end, which was £244.1m higher than at the end of 2017, including initial public offering proceeds of £300m before expenses of £15m.

On the operational front, Funding Circle said loans under management totalled £3.15bn, rising 55% year-on-year excluding property.

Originations were £2.29bn during the year, up 40% on the prior year excluding property.

In the UK, net lending of £723m to small-to-medium enterprises through Funding Circle in 2018 was higher than all UK high street banks combined, which was said to have been £515m.

The board said that in its US operations, loans under management recently passed $1bn, which was larger than around 98% of FDIC-insured banks in 2018 at $939m.

If Funding Circle was a bank, its directors said it would be among the 50 largest for SME loans in the US.

The company reported “strong” repeat dynamics from existing investors and borrowers, with 43% of group revenue originating from existing customers, representing year-on-year growth of 67% excluding property.

A total of 74% of lending was from existing investors in 2018.

Funding Circle had more than 85,000 investors at the end of 2018, earning projected annual returns of between 5% and 8% across all geographies.

New lending commitments were signed with institutional investors in 2018, including Waterfall Asset Management at £1bn, Alcentra at $1bn, and the British Business Bank at £150m.

Funding Circle said it maintained its market-leading customer satisfaction scores for borrowers, with more than 60,000 small businesses having accessed funding through its platform as at the end of 2018.

Its net promoter score was between 80 and 90 for borrowers in the UK and the US, with 85% of borrowers reportedly saying they would approach Funding Circle first in the future for finance, rather than their bank.

Marketing spend as a percentage of revenue was stable year-on-year at 41%.

Looking at its strategic plan, Funding Circle said it was looking to drive a better borrower experience, maintain its marketing spend at consistent levels in 2019, and continue to invest in UK television brand advertising to drive higher awareness and engagement amongst UK small-to-medium enterprises.

It said it would invest in data, technology and analytics, with more than 150 of its engineers working on delivering the company’s global platform, as well as implementing its goal of 50% of all loan applications being fully-automated by 2020.

Funding Circle also wanted to diversify its funding sources, and was launching two new institutional investor products in the first half of 2019 - a US asset-backed bond product, and a private direct lending fund in continental Europe.

The board said the new products, together with its existing range of investor products, would increase the total investor addressable market by four times to approximately £2.5trn.

It said it was working to build a “highly scalable” global business, by expanding international operations into Canada in the second half, opening up a £45bn small-to-medium addressable market and help creditworthy Canadian businesses to access the finance they needed to grow and stimulate job creation.

“2018 was another record-breaking year for Funding Circle,” said co-founder and chief executive officer Samir Desai.

“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% with revenue of £141.9m and a positive segment adjusted EBITDA of £7m.”

Desai said the company’s focus had always been on delivering an “exceptional” customer experience to both borrowers and investors, leading to strong and consistent repeat behaviour, saying he was “proud” that 43% of group revenue came from existing customers in 2018.

“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.”