Funding Circle : H1 2020 Results Presentation

Results for the six months to 30 June 2020

Information regarding forward-looking statements

This Presentation includes forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties, many of which are

beyond the Group's control and all of which are based on the Group's current beliefs and expectations about future events.

Forward-looking statements are sometimes identified by the use of forward-looking terminology such as "believe", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "aims", "plans", "predicts", "continues", "assumes", "positioned", "anticipates" or "targets" or the negative thereof, other variations

thereon or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Presentation and include statements regarding the intentions, beliefs or current expectations of the Group concerning, among other things, the future results of operations, financial condition, prospects, growth, strategies, and dividend policy of the Group and the industry in which it operates.

These forward-looking statements and other statements contained in this Presentation regarding matters that are not historical facts involve predictions. No assurance can be given that such future results will be achieved; actual events or results may differ materially as a result of risks and uncertainties facing the Group. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed, or implied in such forward-looking statements.

Such forward-looking statements contained in this Presentation speak only as of its date. The Group expressly disclaims any obligation or undertaking to update these forward-looking statements contained in the document to reflect any change in its expectations or any change in events, conditions, or circumstances on which such statements are based unless required to do so by applicable law, the Listing Rules, the Disclosure Guidance and Transparency Rules of the FCA or the Market Abuse Regulation.

2

		Effective		Investor returns
Strong demand from		management of		resilient after
borrowers and		loanbook during		applying Covid-19
investors		extreme period of		credit stress
		stress		scenarios

Instant Decision

lending technology

launched

Strong total income growth and improving free cash flow but AEBITDA impacted by Covid-19

• 5th largest CBILS lender, c.20% market share.
• Approved c.£1.2bn and originated c.£815m of CBILS loans. June to August up 30% YoY.
• Approved c.$1bn and originated c.$500m of PPP loans.

• Following initial spike, number of borrowers missing payments for the first time is below pre- Covid-19 levels.
• More than 90% of UK borrowers are making payments.

• All UK cohorts expected to deliver positive annualised returns.
• All US cohorts expected to deliver positive annualised returns (except 2019).

• Instant Decision lending is already transforming the SME borrowing experience and represents c.40% of CBILS applications.
• 6 min average application time with decision in 9 seconds.

• Total income of £101.2m, up 24%.
• Free cash flow improves to negative £9.6m.
• Robust net assets of c.£217m.
• AEBITDA1 negative £84.1m, primarily due to the impact of Covid-19 on the valuation of investments we held for sale.

1. Adjusted EBITDA represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exceptional items and foreign exchange gains or losses

3

Small businesses can access

fast, affordable finance

• 90,000 borrowers globally
• 11 years trading history
• 7 employees
• ~£1m revenue
• ~£80k loan size
• ~50 months average term

Source: Funding Circle.

Investors can earn attractive,

resilient returns

• Deep and diversified portfolio of loans across sectors, regions and risk bands
• c.100,000 investors globally
• £10bn lent by investors to borrowers

4

Starting the year strongly

JanFeb

• Started the year with clear focus on improving conversion across the platform, keeping net returns attractive and delivering profitable growth.
• Originations at high end of expectations with strong demand for SME loans in UK following Brexit and General Election in Q4 2019.
• Completed initial build of Instant Decision lending platform.
• Jan-Feboriginations: £425m.

2020

Adapting to the Covid-19 crisis

MarchApril

• Significantly tightened credit criteria in response to Covid-19 and brought origination levels down.
• Successfully transitioned all workforce to remote working.
• Increased collections resource and capabilities.
• Accredited for US (PPP) and UK (CBILS) government guarantee programmes.
• Mar-Apriloriginations: £147m.

Playing our part to help SMEs

May June Q3

• Launched PPP loans in the US and CBILS in the UK.
• Closed record levels of funding to meet SME demand.
• Achieved record levels of originations in US and UK. In the UK, June to August continued to show an uplift of more than 30% year-on- year.
• PPP extended to August 8th.
• May-Juneoriginations: £539m.

5

Daily % borrowers becoming delinquent (Indexed to Jan 2020 average)

Borrowers missing payments for the first time

(Indexed to Jan 2020)

12X	12X
10X	10X
8X	8X
6X	6X
4X	4X
2X	2X
1X	1X
Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20	Jan-20Feb-20Mar-20Apr-20May-20Jun-20Jul-20Aug-20

7

• Since the outbreak of Covid-19, we have used a range of tools to support businesses and mitigate the potential impact on investors' portfolio:
• • Increasing our support capacity to our Collections and Recoveries team.
  • Providing short-term flexibility by offering payment plans to borrowers.
  • Facilitating finance through Government- guaranteed schemes.
• The majority of borrowers who requested payment plans in Q2 2020 were well-established, creditworthy businesses and they are re-starting paying.

Portfolio breakdown by borrower status

100%	(%£/$)
			Not Paying
90%
			On Payment
80%
			Holiday
70%				Making Partial
			Repayments
60%				Making Full
				Repayments
50%
40%

30%

20%

10%

0%

UK	US	8

Multiplier on baseline probability of default assumption

Potential Covid Credit Stress Scenarios for SMEs

(stress multiplier over benign baseline)

4X

1 Initial Spike

3X

2 Longer Term Tail

2X

1X
	2022-052022-072022-092022-112023-012023-032023-052023-072023-092023-112024-01
2020-032020-052020-072020-092020-112021-012021-032021-052021-072021-092021-112022-012022-03
Bank of England 2019 Stress Test Scenario	Potential Covid stress scenarios
Benign stress baseline (assumed pre-covid)	9

Central Covid Credit Stress Scenario (stress multiplier over benign baseline)

assumption

4X

• Very sharp initial spike recognising our

Multiplier on baseline probability of default

						experience so far.
3X					• Longer term tail acknowledges weak
						economy with some survival effects.
						• Average stress over the period is 1.4X
2X					in both BoE stress test scenario and our
						central stress test scenario, but front
						loading of stress in our scenario is
						more penalising for amortising loans.
1X
2020-032020-052020-072020-092020-112021-012021-032021-052021-072021-092021-112022-012022-032022-05	2022-072022-092022-112023-012023-032023-052023-072023-092023-112024-01
		Bank of England 2019 Stress Test Scenario			Central FC Scenario

Benign stress baseline (assumed pre-covid)

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Projected annualised returns by cohort (mid point estimates)

Projected annualised returns by cohort (mid point estimates)

8%		8%

6%		6%

4%		4%

2%		2%

0%		0%

-2%					-2%
2015 2016 2017 2018 2019 2020 CBILS	2015 2016 2017 2018 2019 2020 PPP
	Pre-CBILS			Pre-PPP
			Jan 2020 forecast		Q3 2020 forecast

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Investor breakdown as a % of loans under management

7%

3%

19%

20%

51%

• In 2019 we launched new Bond products to aggregate loans in warehouses (warehouse stage) for sale as bonds (securitisation stage) to widen the universe of investors that could access our loans. Since launching the new Bond products, we have introduced 30 new investors to the Funding Circle platform.
• These loans are held in bankruptcy remote warehouses and securitisation vehicles.
• Whilst total loans consolidated on balance sheet for accounting purposes is £759m, Funding Circle's exposure is limited to its investment of £110m (31 Dec 2019: £145m).

• These vehicles are subject to regular assessments of their value.

Retail

Bonds

Institutions

National entities

Funds

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	Investment type		Covid-19 Impact	Description
1	Vertical	Payment Hierarchy		Funding Circle is required by regulation to retain a 5% equal
Retention
	in low impact from Covid-19.
securitisation		Low impact	participation in all classes of bonds issued (vertical) resulting
	(required by regulation)

	Other
				Other Investments comprise seed investments in Private
2	Investments
		Low impact	Funds and investments in the UK CBILS programme. Both
	(Private Fund and			vehicles purchase equal participation in all loans resulting in
	Govt SME
				low impact from Covid-19.
	investments)
					In warehouses we deploy our equity and bank debt to
3	Warehouses	Bank debt	Medium impact	aggregate loans temporarily prior to securitisation. The debt is
senior which means the equity is more exposed to changes in
					valuation of loans. When Covid-19 hit the UK warehouse was
			FC Equity		100% of capacity. The US warehouses were 30% of capacity.

		Payment Hierarchy		Once loans are securitised, we temporarily hold the residual
4	Horizontal		High Impact	horizontal tranches with the intention to sell once seasoned. As
securitisation			at June, we had horizontals in 3 securitisations (UK: H2 19, US:
				H2 19 and H1 20).
				13

If investments were held to maturity we would expect future cash flow of c.£149m

			Investment AEBITDA negative £60m
				£36m	(£96m)
	£34m	(£9m)	£34m
	£159m
£134m		£145m1
						(£9m)	£110m
		Dec 19	Additions /	Investment	Fair value	Cash extracted	June 20
			Withdrawals	income		from vehicle
							14

1. The difference between the £145m balance sheet view and the £134m principal invested is that interest has been reinvested.

Investment type

	Vertical			Payment Hierarchy
1	securitisation
Retention
	(required by regulation)
	Other
2	Investments
(Private Fund and
	Govt SME
	investments)

3	Warehouses	Bank debt
		FC Equity

4	Horizontal	Payment Hierarchy
	securitisation

Total

Principal invested	Balance sheet valuation	H1 Investment AEBITDA
£18m	£18m	-

£16m

£16m

-

£80m	£66m	-£20m
(£15m Investment Income

minus £35m Fair Value adj)

£45m	£10m	-£40m
		(£21m Investment Income
		minus £61m Fair Value adj)
£159m	£110m	-£60m15

					As at 30 June	As at 31
					2020	December 2019
	Trading	Warehouses	Securitisations1	Other	Total	Total
	business	£m	£m	investments
				£m	£m	£m
Investment in SME loans	1.8	321.8	419.4	15.6	758.6	723.5
Cash & cash equivalents	74.3	22.9	34.0	-	131.2	164.5
Other assets	-	-	13.3	-	13.3	8.4
Borrowings/bonds	(0.3)	(279.1)	(438.0)	-	(717.4)	(614.5)
CASH & INVESTMENTS	75.8	65.6	28.7	15.6	185.7	281.9
Other assets	102.0	-	-	-	102.0	99.1
Other liabilities	(70.8)	-	-	-	(70.8)	(62.0)
NET ASSETS	107.0	65.6	28.7	15.6	216.9	319.0

Investments of £110m

Our intention remains to sell elements of the warehouses and securitisations investments when appropriate

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1. Securitisations include vertical tranche of £18m and horizontal tranche of £10m

Loans under Management (£m)

5%

3,722

3,540

Growth (1)

YoY

Originations (£m)	(7%)	Growth (1)
YoY
	1,192
	1,112

244

2,584848

153

549

252

904

2%

3%

1,043	83	40
82	311	(52%)
249		410

28%

2,4482,566

1,882

H1 18		H1 19		H1 20
		United Kingdom		United States		Developing Markets

5%

712	798
662

(17%)

H1 18		H1 19		H1 20
		United Kingdom		United States		Developing Markets

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1. Geo segment growth stated in local currency to eliminate FX variations

Growth (2)	Transaction yield	5.2%	4.5%	Growth (2)
YoY	Servicing yield	0.9%	0.7%	YoY

	101.2	24%			101.2
	3.9
81.7		(39%)		81.7
				N/A
6.5	38.0			1.3	36.4
63.0			63.0
22.2		67%
5.2
15.0
		12%		80.4
	59.3	63.0		64.8	(19%)
53.0
42.8

H1 18

H1 19

H1 20

H1 18

H1 19

H1 20

United Kingdom

United States

Developing Markets

Operating

Investment

Operating income

H1 18

H1 19

H1 20

Transaction fees

£50.3m

£62.5m

£47.8m

1. Total income is defined as fee income and investment income less investment expense and before non-cash fair value gains/losses

Servicing fees

£11.3m

£15.2m

£13.8m

2. Geo total income growth stated in local currency to eliminate FX variations

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Other fees

£1.4m

£2.7m

£3.2m

AEBITDA1 (£m)

AEBITDA impacted by lower trading months in March and April and investment income impacted by Covid-19

Margin

(24%)

(8%)

(83%)

	1.0	9.5
(20.7)		(17.3)	(24.4)

(59.7)

(19.7)	(7.8)	(84.1)
H1 19	H2 19	H1 20
	Operating	Investment

Free Cash Flow2 (£m)

Free cash flow continues to improve

Margin

(34%)

(22%)

(9%)

H1 19

H2 19

H1 20

(9.6)

(21.3)

(28.1)

1. Adjusted EBITDA represents EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) excluding share-based payments, exceptional items and foreign exchange gains or losses. Investment AEBITDA refers to net

investment income (being investment income, investment expense and fair value adjustments) as previously reported and operating AEBITDA represents AEBITDA excluding investment AEBITDA

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2. Free cash flow represents Adjusted EBITDA after the payment of lease liabilities, purchase of tangible and intangible assets, working capital and non-cash movements including fair value adjustments

(10%)

112.7

Growth (1)

YoY

• Overall operating expenses fell 10% (excluding

exceptional costs) from £112.7m to £101.7m.

15.7

101.7

12.6

(19%)

• Fall in operating expenses driven by marketing

39.0

35.4

58.0	53.7

H1 19

H1 20

UK US DM

(9%)

(8%)

dropping significantly to 22% of total income (H1

2019: 43%).

• Operating expenses in H2 expected to decline c.15%

compared to H1 following the restructure of

Developing Markets and US businesses.

1. Geo segment growth stated in local currency to eliminate FX variations

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	Six months to 30 June 2020		Six months to June 2019
	Before
	exceptional	Exceptional
	items	items	Total	Total
	£m	£m	£m	£m
Transaction fees	47.8	-	47.8	62.5
Servicing fees	13.8	-	13.8	15.2
Other fees	3.2	-	3.2	2.7
Fee income	64.8	-	64.8	80.4
Investment income	49.8	-	49.8	2.2
Investment expense	(13.4)	-	(13.4)	(0.9)
Total income	101.2	-	101.2	81.7
Fair value gains/(losses)	(96.1)	-	(96.1)	(0.3)
Net income	5.1	-	5.1	81.4
People costs	(44.5)	(3.8)	(48.3)	(45.5)
Marketing costs	(22.4)	-	(22.4)	(35.2)
Depreciation, amortisation and impairment	(8.2)	(12.4)	(20.6)	(7.1)
Loan repurchase charge	(5.5)	-	(5.5)	(4.2)
Other costs	(21.1)	(0.7)	(21.8)	(20.7)
Operating expenses	(101.7)	(16.9)	(118.6)	(112.7)
Operating loss	(96.6)	(16.9)	(113.5)	(31.3)

Exceptional items related to:

• Costs associated with restructuring in Developing Markets as previously announced.
• Non-cashwritedown of US Goodwill driven by the restructure of the US business.

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1. Cumulative PPP data published by the SBA; cumulative CBILS and BBLS lending data published by HMT
2. Google trends
3. Funding Circle institutional capital raised accredited to CBILS and PPP
4. Funding Circle borrower survey

$520bn borrowed by SMEs during lockdown in the US; £50bn borrowed by SMEs in the UK1

2x increase in search terms for business loans during lockdown in the UK2

£1.25bninvestor capital raised since

beginning of Covid to lend to UK and US SMEs on the Funding Circle platform3

55% of SMEs expect to require finance in the next 6 months4

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• CBILS has 80% guarantee for loans above £50k
• c.£1.2bn approved and c.£815m originated at 20 September across all sectors and regions
• Since joining the scheme we are the 5th largest CBILS lender after HSBC, Natwest, Barclays and Lloyds
• Market share of c.20%1 of all CBILS loan approvals since becoming accredited
• £1bn + raised from institutional investors
• Fully funded to meet CBILS capacity
• Funding agreements signed with multiple institutional investors, including banks and asset managers

1. Market share as a proportion of cumulative approvals since 04 May

Lending by region

Lending by sector

East Anglia

London

Midlands

North East

North West

Northern Ireland

Scotland

South East

South West

Wales

Agriculture

Arts & Entertainment

Automative

Consumer Services

Education & Training

Finance

Healthcare

I.T. and Telecommunications

Leisure & Hospitality

Manufacturing and Engineering

Other

Professional and Business Support

Property and Construction

Retail

Transport and Logistics25

Wholesale

• Business started strongly in 2020 with January and February highest months for originations for 12 months.
• In response to Covid-19 the US Government introduced its Paycheck Protection Program loan scheme ("PPP").
• $1bn of PPP loans approved and c.$500m originated at 20 September.
• Changes to operating model introduced in July in response to Covid-19 will accelerate profitable growth.

1. Payment Protection Programme (PPP)
2. • Extension of PPP has the support of both Democrats and Republicans.
3. Restart lending and help more borrowers
4. • Aim to relaunch core product when conditions allow and expand our marketplace to add other lenders including SBA 7(a) guaranteed loan providers.

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c.1M

• 40% loans processed by instant decision lending technology
• 6 minute average application time
• 9 seconds on average to make an instant decision

Multi

channel

acquisition

data

Personalisation:

decision orientated

architecture

Cloud based

apps since FC

launched

5 year

loan terms

300+

Engineering

team

200+

Risk &

Analytics

team

10 years

of experience

c.90

NPS

Data Pipeline

Mass distributed

data streaming

	Proprietary data lake
8th generation of AI	containing data on
26m businesses and
powered credit models
2bn data points

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Debbie Leon set up Fashionizer in 1993 when she noticed a gap in the market for luxury and bespoke uniform design.

"Since I'd previously had a Funding Circle loan, I knew the service was fast

and efficient, and I was delighted when I found out they were offering CBILS loans.

Set up by Alex Ratcliffe, Konk Furniture produces handmade, sustainable and bespoke pieces of furniture.

"The whole process was insanely easy. I was amazed at how quick the decision was after completing the online application. Getting a decision quickly was important. It gave us a lot of reassurance during difficult

times and allowed us to plan ahead for the future."

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The economic environment remains very uncertain. H2 expectations are predicated on there being no further prolonged national lockdowns across our geographies and includes the expectation of ongoing government support for SMEs in the UK.

We are reinstating previous guidance of close to AEBITDA break-even in H2.

We remain committed to delivering profitable growth and generating long-term value for shareholders.

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	Investment as shown on Balance Sheet ("Committed Capital")
Dec-19	Additional	Net income	Fair value	Jun-20		Estimated
	future cash
	investment /	retained in	adjustment
			flows
	withdrawals	vehicles

Vertical securitisation retention	13	5	-	-	18		19
Other investments	13	3	-	-	16		18
Warehouses	94	(3)	10	(35)	66		90
Horizontal securitisation retention	25	29	17	(61)	10		22
Invested	145	34	27	(96)	110		149
Net income extracted in 2020			9
			36	(96)

Investment AEBITDA

impact: £60m

Note that the fair value was significantly impacted by Covid-19. The fair value adjustment in Q1 i.e. before Covid-19 struck, was c.£11m.

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				Principal
		2019		2020
	Committed	Net interest	Total	Additional	Total	Cash extracted	Net position		Fair value
		at Jun-20
	Capital	earned and	original	principal	original	from vehicle
		retained in	cash	investment /	cash
		vehicle	invested	withdrawals	invested
Vertical securitisation retention	13	-	13	5	18	-	18		18
Other investments	13	-	13	3	16	-	16		16
Warehouses	94	(7)	87	(3)	84	(4)	80		66
Horizontal securitisation retention	25	(4)	21	29	50	(5)	45	10
Invested	145	(11)	134	34	168	(9)	159	110

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Revenue	Adjusted	Operating	Revenue	Adjusted	Operating	Revenue	Adjusted	Operating
	EBITDA	loss		EBITDA	loss		EBITDA	loss
59.3	(22.1)	(29.2)	38.0	(54.1)	(70.7)	3.9	(7.9)	(13.6)

	15.9
	43.4		20.5
			17.5		3.9
	(3.3)		(13.2)
			(7.9)	(8.7)
	(18.8)	(29.2)		(58.7)		(4.9)
	(40.9)
				(12.0)
Margin	(37%)	(49%)	(142%)	(186%)	n/m	n/m

Operating

Investment

Exceptional items

Pre-exceptional items

33

Segment profit		H1 2020						H1 2019					H2 2019
	United	United Developing		Total	United		United		Developing	Total		United	United		Developing	Total
	Kingdom	States	Markets		Kingdom		States			Markets		Kingdom	States			Markets
	£m	£m	£m		£m	£m		£m	£m	£m	£m	£m	£m	£m
Segment adjusted	(10.5)	(48.4)	(6.7)	(65.6)	14.0	(6.7)			(6.1)	1.2	20.0	(3.6)			(6.4)	10.0
EBITDA
Product	(7.5)	(4.0)	(0.8)	(12.3)	(8.3)	(4.4)			(1.6)	(14.3)		(6.9)	(3.8)			(1.4)	(12.1)
development
Corporate costs	(4.1)	(1.7)	(0.4)	(6.2)	(4.2)	(1.9)			(0.5)	(6.6)		(3.6)	(1.6)			(0.5)	(5.7)
Adjusted EBITDA	(22.1)	(54.1)	(7.9)	(84.1)	1.5	(13.0)			(8.2)	(19.7)		9.5	(9.0)			(8.3)	(7.8)
Depreciation and	(4.1)	(3.4)	(0.7)	(8.2)	(4.0)	(2.3)			(0.8)	(7.1)		(4.0)	(2.9)			(0.9)	(7.8)
amortisation
Share-based
payments and	(3.0)	(1.2)	(0.1)	(4.3)	(2.5)	(1.8)			(0.2)	(4.5)		(2.5)	(0.9)			(0.1)	(3.5)
social security
costs
Exceptional items	-	(12.0)	(4.9)	(16.9)	-	-			-	-		-	-			(34.3)	(34.3)
Operating loss	(29.2)	(70.7)	(13.6)	(113.5)	(5.0)	(17.1)			(9.2)	(31.3)		3.0	(12.8)			(43.6)	(53.4)

34

H1 2020	H2 2019	H1 2019

AEBITDA	(84.1)	(7.8)	(19.7)
Payment of Lease Liabilities	(3.5)	(4.3)	(2.8)
Purchase of intangible assets	(5.5)	(8.6)	(5.9)
FV movements	96.1	9.6	0.3
Working Capital	(14.0)	(10.2)	1.8
Other	1.4	-	(1.8)
Free Cash Flow1	(9.6)	(21.3)	(28.1)

1. Free Cash Flow represents net cash flows from operating and investing activities, including the payment of lease liabilities, but excludes net investment in new products and is stated before financing activities

35

Cohort	2015	2016	2017	2018	2019	2020
UK	6.9 - 6.9%	4.3 - 4.6%	2.3 - 2.8%	0.9 - 1.9%	1.2 - 2.7%	5.4 - 6.0%
US	2.6 - 2.8%	4.1 - 4.9%	3.0 - 3.9%	0.8 - 1.8%	(1.8) - 0.2%	1.0 - 3.0%

Source: Funding Circle. Annualised lifetime returns ranges are show as net returns, which is calculated as gross yield minus servicing fee and bad debt (actual and forecast)

36