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Monday 03 September, 2018

Funding Circle Hldgs

Intention to Publish Registration Document

RNS Number : 4952Z
Funding Circle Holdings Limited
03 September 2018
 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT.

This announcement is an advertisement for the purposes of the Prospectus Rules of the Financial Conduct Authority ("FCA") and not a prospectus and not an offer of securities for sale in any jurisdiction, including in or into the United States, Australia, Canada or Japan.

Neither this announcement, nor anything contained herein, nor anything contained in the Registration Document referred to herein shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction. Investors should not subscribe for or purchase any ordinary shares referred to in this announcement or the Registration Document except on the basis of information contained in a prospectus in its final form (the "Prospectus") that may be published by Funding Circle Holdings Limited (the "Company", and together with its subsidiaries and subsidiary undertakings, the "Group" or "Funding Circle") in due course in connection with the possible admission of its ordinary shares to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the main market of the London Stock Exchange plc. A copy of any Prospectus published by the Company will, if published, be available for inspection from the Company's registered office at 71 Queen Victoria Street, London EC4V 4AY and on the Company's website at corporate.fundingcircle.com.

 

 3 September 2018

Funding Circle Holdings Limited

Announcement of Intention to Publish a Registration Document and Potential Intention to Float on the London Stock Exchange

Funding Circle highlights

·     Funding Circle is the leading small and medium enterprise ("SME") loans platform in the UK, US, Germany and the Netherlands1. Funding Circle launched in 2010 to provide borrowers with fast, competitively priced access to finance, and investors with attractive returns.

·      By connecting SMEs looking for finance directly with investors, Funding Circle has facilitated more than £5 billion in loans to over 50,000 SMEs from 80,000 investors - including over £1 billion in the first half of 2018.

·      Funding Circle has opened up small business lending as an investment asset class to a wide range of investors including retail, banks, asset management companies, insurance companies, government-backed entities and funds. Projected investor returns for loans originated in 2017 are expected to range between c.4.6%-7.6% across Funding Circle's geographies.

·      Using cutting-edge technology, proprietary credit models and sophisticated data analytics, borrowers can complete a quick and simple initial application in minutes and typically receive a decision within 24 hours in the United Kingdom and the United States.

·      Funding Circle delivers high customer satisfaction scores with Net Promoter Scores in the 80s for borrowers in both the UK and US. 85% of existing borrowers say they would approach Funding Circle first in the future should their business require external funding.

·     High satisfaction scores drive strong repeat rates - 32% of lending (excluding property loans) in 2017 was to repeat borrowers and approximately 85% of funding came from existing investors. In H1 2018, more than 40% of revenue came from existing customers.

·      By helping SMEs to access finance, Funding Circle is contributing to the growth of the SME lending market, supporting job creation and economic growth. In 2017, loans outstanding contributed £3.9 billion of gross value added to GDP and enabled more than 75,000 jobs.

·      Funding Circle has an experienced founder-led leadership team and fosters a strong entrepreneurial culture exhibited by all permanent employees being shareholders in the Company. Funding Circle was named 16th Best Company to Work for in the UK in The Sunday Times' 2018 annual survey.

·     Funding Circle is a high growth business, with revenue in the year ended 31 December 2017 of £94.5 million, compared to £50.9 million in the year ended 31 December 2016. Excluding property loans, revenue increased by a CAGR of c.78% between 2015 and 2017. Loan originations over the same period grew from £721 million in the year ended 31 December 2015, to £1.7 billion in the year ended 31 December 2017.

·     

 

Samir Desai, CEO and co-founder of Funding Circle said:

"At Funding Circle our mission is to build a better financial world. Today's announcement is the start of the next stage in our exciting and transformational journey. Over the last eight years, we have worked hard to build a platform that is number one in every market we operate in. By combining cutting-edge technology with our own proprietary credit models and sophisticated data analytics, we deliver a better deal for small businesses and investors around the world. I am very proud of the team and culture we have created at Funding Circle, both of which have been integral to our success to date".

 

Potential Offer Highlights

Should the Company proceed with an IPO, it is expected to have the following features:

·     

·     

·     

to further engender trust in the Group's business with investors, borrowers and regulators;

to support the Group in pursuing growth over profitability in the medium term; and

·    

increase the Group's profile and brand awareness;

demonstrate the maturity, transparency and governance of the business to borrowers, investors and employees;

assist in recruiting, retaining and incentivising key management and employees;

provide a stable base of long term shareholders and give the Group access to a wider range of capital-raising options; and

·     

·     

·     

A copy of the Registration Document will be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/NSM once approved by the FCA. A copy of the Registration Document will also be available from the Company's registered office, at EC4V 4AY and online at http://corporate.fundingcircle.com/investors/registration-document, subject to certain access restrictions.

 

Investment highlights

·      

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·     2

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Data quality and availability: SME credit-related data is not as widely and readily available as information relating to consumers. Funding Circle has built proprietary SME data sets over eight years, which combine publicly available data with performance data, and continuously uses these sets for improving its credit scoring models and credit assessment efficiency and effectiveness

Competitive environment: Given the challenges which relate to credit data quality and availability, there are typically fewer SME lenders than consumer lenders

Repeat dynamic: Relative to consumers, SMEs generally have a more natural propensity to seek repeat financing throughout their lifetimes, to maintain their balance sheet debt gearing ratio and optimise returns. This is evidenced by Funding Circle's high volume of repeat borrowers. 32% of all originations in 2017 (excluding property loans) were made to repeat borrowers

·      3

Superior value proposition for both borrowers and investors, driving high satisfaction and repeat rates

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Experienced management team and entrepreneurial values-driven culture

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Notes:

1    By Q1 2018 originations for the United Kingdom and the Netherlands, and cumulative originations for the United States and Germany, according to OC&C analysis and estimates.

2     Based on the amount of loans outstanding as at 31 December 2017.

3     Except for (1) an initial holding period (typically of two days) in the United States, and (2) any loans that may be purchased by Funding Circle.

4     In geographies and cohorts with sufficient ageing and maturity, where sufficient data is available. Based on historical performance.

 

Supplemental information for bona-fide, unconnected sellside research analysts

A presentation in person by Funding Circle for unconnected sellside research analysts will be held on 6 September 2018 and the presentation and related information will be made available via a link to unconnected research analysts today. Please contact Peter Glover ([email protected]) at Funding Circle if you would like to attend the presentation and/or access information on Funding Circle.

 

Enquiries David de Koning - Director of Group Communications ([email protected] / +44 203 667 2245)

Notes to Editors

About Funding Circle

Funding Circle (corporate.fundingcircle.com

Please refer to the Registration Document, which will be available in electronic form from Funding Circle's website corporate.fundingcircle.com for further details on Funding Circle.

About Heartland

Heartland is the private holding company of Anders Holch Povlsen, containing all the group's activities and investment holdings outside of its fashion activities. The company has a dedicated team focused on actively nurturing investments in selected companies in their portfolio, examples of which include Klarna, Zalando and ASOS.

 

Funding Circle Key Performance Indicators and Financial Information

The following key operating and financial metrics are monitored by Funding Circle both at operating segment and Group levels.

 

 

 

 

(1) Audited for the three years ended 31 December 2015, 2016 and 2017 and H1 2018.

 

·     

·     

·     

·     

·     

·      . Represents the total cost of third-party marketing expenditure in any particular period divided by the revenue earned in that period. The Directors consider marketing spend as a percentage of revenue to be a useful measure because it demonstrates the proportion of revenue that is required to be spent attracting borrowers and investors to the Group's platform.

 

Consolidated income statement data

 

 

 

 

 

 

(unaudited)

 

 

 

Consolidated balance sheet data

 

As at 31 December

As at 30 June

 

 

 

 

 

 

35.1

41.4

41.3

41.5

4.2

11.7

16.2

17.9

4.6

5.1

4.7

5.0

 

45.7

59.4

62.5

64.6

 

 

 

 

4.6

1.3

3.1

5.1

8.6

11.8

13.4

19.5

 

99.5

56.4

105.4

 

 

 

 

 

 

 

 

 

10.6

10.5

12.0

1.1

0.7

2.1

 

11.7

11.2

14.1

 

 

 

 


 

 

 

 

0.2

0.2

0.2

195.9

196.0

278.0

4.3

15.2

13.3

2.8

9.5

13.9

 

Condensed consolidated cash flow statement data

 

Year ended 31 December

Six months ended 30 June

 

 

 

 

 

 

(unaudited)

 

 

 

               

 

Other Financial Data

The Directors consider the following metrics to be the non-IFRS financial measures used by the Group to help evaluate growth trends, establish budgets and assess operational performance and efficiencies. The Directors believe that these non-IFRS performance measures, in addition to IFRS measures, provide an enhanced understanding of the Group's results and related trends, therefore increasing transparency and clarity into the core results of the business. The Directors believe the following metrics are useful in evaluating the Group's operating performance:

Each metric is described more fully below.

Adjusted EBITDA and Adjusted EBITDA Margin

The Group defines Adjusted EBITDA as profit or loss before depreciation and amortisation, finance income, income tax, share-based payments and associated social security costs, foreign exchange and exceptional items. The Group defines Adjusted EBITDA Margin as the ratio of Adjusted EBITDA to revenue, expressed as a percentage. The Directors view Adjusted EBITDA as a useful measure because it is used to analyse the Group's operating profitability, and shows the results of normal, core operations exclusive of non-cash charges, share-base payment charges and items that the Group considers to be non-recurring and not part of the Group's core day-to-day business. The Directors view Adjusted EBITDA Margin as a useful measure because it assists in evaluating the Group's operating performance. The Directors believe that Adjusted EBITDA and Adjusted EBITDA Margin should, therefore, be made available to assist securities analysts, investors and other stakeholders in their assessment of the performance of the business of the Group. The following table provides a reconciliation from loss for the year / period to Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated.

 

Year ended 31 December

Six months ended 30 June

 

 

2015

2016

2017

2017

2018

 

 

 

 

(unaudited)

 

 

(£ million)

 

Loss for the year / period

(39.6)

(46.6)

(35.3)

(19.2)

(27.0)

Depreciation and amortisation

1.4

4.2

6.8

3.7

4.1

Finance income

(0.2)

(0.7)

(0.6)

(0.2)

(0.3)

Income tax

0.1

(0.6)

(1.0)

-

-

Share-based payments

2.8

6.7

4.4

2.1

1.9

Social security costs on share-based payments

-

-

-

-

2.8

Foreign exchange

-

(3.9)

0.6

0.4

0.3

Exceptional items

-

-

-

-

1.9

Adjusted EBITDA

(35.5)

(40.9)

(25.1)

(13.2)

(16.3)

Adjusted EBITDA Margin

(111%)

(80%)

(27%)

(32%)

(26%)

                   

 

Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin

The Group defines Segment Adjusted EBITDA as Adjusted EBITDA excluding product development and corporate costs that are incurred for the benefit of all geographic operating segments. The Directors view Segment Adjusted EBITDA as a useful measure because it allows better interpretation of the underlying performance of the business by geography. The Group defines Segment Adjusted EBITDA Margin as the ratio of Segment Adjusted EBITDA to revenue, expressed as a percentage. The following table provides a reconciliation from Adjusted EBITDA to Segment Adjusted EBITDA and Segment Adjusted EBITDA Margin for the periods indicated.

 

Year ended 31 December

Six months ended 30 June

 

 

2015

2016

2017

2017

2018

 

 

 

 

(unaudited)

 

 

(£ million)

 

Adjusted EBITDA

(35.5)

(40.9)

(25.1)

(13.2)

(16.3)

Product development

10.1

9.0

13.6

6.7

12.2

Corporate costs

3.3

5.4

7.6

3.5

5.0

Segment Adjusted EBITDA.

(22.1)

(26.5)

(3.9)

(3.0)

0.9

United Kingdom

(6.8)

1.7

16.9

9.2

9.8

United States

(14.3)

(19.1)

(10.9)

(7.0)

(5.1)

Developing Markets

(1.0)

(9.1)

(9.9)

(5.2)

(3.8)

Segment Adjusted EBITDA Margin

(69%)

(52%)

(4%)

(7%)

1%

United Kingdom

(29%)

4%

25%

29%

23%

United States

(186%)

(187%)

(49%)

(84%)

(34%)

Developing Markets

(200%)

(650%)

(261%)

(578%)

(73%)

             

 

Free Cash Flow and Free Cash Flow Margin

The Group defines Free Cash Flow as the sum of net cash flow from operating activities and net cash flow from investing activities. The Directors view Free Cash Flow as a key liquidity measure, as this measure represents the amount of cash required to operate and develop the Group's platform during a particular period. The Group defines Free Cash Flow Margin as the ratio of Free Cash Flow to revenue, expressed as a percentage. The Directors view Free Cash Flow Margin as a key measure of cash conversion efficiency. The following table provides the information used to calculate Free Cash Flow for the periods indicated.

 

Year ended 31 December

Six months ended 30 June

 

2015

2016

2017

2017

2018

 

 

 

 

(unaudited)

 

 

(£ million)

Net cash from operating activities

(35.4)

(40.0)

(22.6)

(17.2)

(16.8)

Net cash from investing activities

(10.1)

(6.1)

(12.7)

(3.9)

(7.4)

Free Cash Flow

(45.5)

(46.1)

(35.3)

(21.1)

(24.2)

Free Cash Flow Margin

(142%)

(91%)

(37%)

(52%)

(38%)

 

Board of Directors

 

57

35

45

53

50

54

67

54

67

 

Samir Desai CBE (Co-founder, Chief Executive Officer)

Sean Robert Glithero (Chief Financial Officer)

Catherine Jane Keers (Non-Executive Director)

Edward James Wray (Non-Executive Director)

Hendrik Willem Nelis (Non-Executive Director)

John Eric Daniels (Non-Executive Director)

Neil Alexander Rimer (Non-Executive Director)

Robert King Steel (Non-Executive Director)

 

Important legal information

The contents of this announcement, which has been prepared by and is the sole responsibility of the Company, has been approved by Merrill Lynch International, Goldman Sachs International and Morgan Stanley & Co. International plc solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 (as amended).

The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed by any person for any purpose on the information contained in this announcement or its accuracy, fairness or completeness.

This announcement is not for publication or distribution, directly or indirectly, in or into the United States (including its territories and possessions, any State of the United States and the District of Columbia), Australia, Canada, Japan or any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for, or otherwise invest in, securities to any person in the United States, Australia, Canada, Japan or in any jurisdiction to whom or in which such offer or solicitation is unlawful. The Shares referred to herein may not be offered or sold in the United States unless registered under the United States Securities Act of 1933 (the "Securities Act") or offered in a transaction exempt from, or not subject to, the registration requirements of the Securities Act. The possible offer and sale of Shares referred to herein has not been and will not be registered under the Securities Act or under the applicable securities laws of Australia, Canada or Japan. Subject to certain exceptions, the Shares referred to herein may not be offered or sold in Australia, Canada or Japan or to, or for the account or benefit of, any national, resident or citizen of Australia, Canada or Japan. There will be no public offer of the Shares in the United States, Australia, Canada, Japan, or elsewhere.

In any member state of the European Economic Area ("EEA") outside of the United Kingdom (each, a "Relevant Member State"), this announcement and any offer if made subsequently is, and will be, directed only at persons who are "qualified investors" ("Qualified Investors") within the meaning of the Prospectus Directive (Directive 2003/71/EC and any amendments thereto, including Directive 2010/73/EU), and any implementing measures in each Relevant Member State (the "Prospectus Directive").

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's business, results of operations, financial position, liquidity, prospects, growth and strategies. Forward-looking statements speak only as of the date they are made.

Each of the Company, Merrill Lynch International, Goldman Sachs International, Morgan Stanley & Co. International plc and Numis Securities Limited and their respective affiliates as defined under Rule 501(b) of Regulation D of the Securities Act ("affiliates"), expressly disclaims any obligation or undertaking to update, review or revise any forward looking statement contained in this announcement whether as a result of new information, future developments or otherwise.

Any subscription or purchase of Shares in the possible Offer should be made solely on the basis of information contained in the Prospectus which may be issued by the Company in connection with the Offer. The information in this announcement is subject to change. Before subscribing for or purchasing any Shares, persons viewing this announcement should ensure that they fully understand and accept the risks which will be set out in the Prospectus if published. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. Neither this announcement, nor anything contained in the Registration Documented referred to herein, shall form the basis of or constitute any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any Shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor.

The Company may decide not to go ahead with the IPO and there is therefore no guarantee that Admission will occur. You should not base your financial decision on this announcement. Acquiring investments to which this announcement relates may expose an investor to a significant risk of losing all of the amount invested.

Persons considering making investments should consult an authorised person specialising in advising on such investments. Neither this announcement, nor the Registration Document referred to herein, constitutes a recommendation concerning a possible offer. The value of shares can decrease as well as increase. Potential investors should consult a professional advisor as to the suitability of a possible offer for the person concerned.

None of Merrill Lynch International, Goldman Sachs International, Morgan Stanley & Co. International plc and Numis Securities Limited or any of their respective affiliates or any of their or their affiliates' directors, officers, employees, advisers or agents accepts any responsibility or liability whatsoever for/or makes any representation or warranty, express or implied, as to the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to the Company, its subsidiaries or associated companies, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of the announcement or its contents or otherwise arising in connection therewith.

Each of Merrill Lynch International, Goldman Sachs International, Morgan Stanley & Co. International plc and Numis Securities Limited is acting exclusively for the Company and no-one else in connection with the possible Offer. They will not regard any other person as their respective clients in relation to the possible Offer and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for providing advice in relation to the possible Offer, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

Each of Merrill Lynch International, Goldman Sachs International, Morgan Stanley & Co. International plc is authorised by the Prudential Regulation Authority and regulated by the Prudential Regulation Authority and the Financial Conduct Authority in the United Kingdom and Numis Securities Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.


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