Half Year 2021 Results — Funding Circle Holdings plc (9 September 2021)
Summary
Funding Circle Holdings plc announces its results for the six months ended 30 June 2021, embargoed until 7.00am on 9 September 2021. Samir Desai CBE, CEO and Founder, says the company exceeded its previous guidance, with £53.3 million of AEBITDA and £35.5 million of operating profit. Total income was £120.6m, up 19% year-on-year, and loans under management reached £4.93 billion. Net assets were £254.1m, with cash of £168.1m. The release reports that more than 60% of loan decisions are automated through Instant Decision Lending, and it closes with the PricewaterhouseCoopers LLP review report dated 9 September 2021.
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“Half Year 2021 Results — Funding Circle Holdings plc (9 September 2021).”
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Funding Circle Holdings plc
Half Year 2021 Results
Embargoed until 7.00am, 9 September 2021
THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION AS DEFINED IN ARTICLE 7 OF THE
MARKET ABUSE REGULATION NO. 596/2014
Funding Circle Holdings plc (“Funding Circle”), today announces results for the six months ended 30
June 2021.
Samir Desai CBE, CEO and Founder, said:
“This has been another strong period of progress and growth within the business. I am pleased we
have exceeded our previous guidance and delivered £53.3 million of AEBITDA and £35.5 million of
operating profit in the first half of 2021.
We continue to make strong progress with scaling our Instant Decision Lending technology in the UK
with now more than 60% of loan decisions automated. Average loan applications are completed in 6
minutes and decisions follow in just 9 seconds, providing borrowers with an unmatched experience.
I am particularly pleased that we are using this technology to launch new products to help solve more
small business problems. Our API and FlexiPay products are now in beta testing with existing
customers and the wait list is now open for our Card product.
We are seeing an acceleration in the shift towards online in small business lending as a result of
Covid and this has opened up an enlarged opportunity for Funding Circle and we are well placed to
capture this going forward.”
Performance Highlights
H1 2021 H1 2020 H2 2020
£m £m £m
Loans under Management (LuM) 4,933 3,722 4,214
Originations 1,635 1,112 1,630
Fee income (“Operating income”) 94.5 64.8 90.9
Net investment income1 26.1 36.4 29.9
Total income 120.6 101.2 120.8
Fair value gains / (losses) 8.1 (96.1) (22.2)
Net income 128.7 5.1 98.6
AEBITDA2 53.3 (84.1) 20.3
Operating profit / (loss) 35.5 (113.5) 7.2
Profit / (loss) before taxation 35.4 (115.1) 7.0
Cash 168.1 131.2 103.3
Net Assets 254.1 216.9 217.6
Financial Summary:
Total Income of £120.6m (H1 2020: £101.2m) up 19% year-on-year.
Record loans under management of £4.93 billion (H1 2020: £3.72 billion) up 33% and
originations of £1.64 billion (2020: £1.11 billion) up 47% year-on-year.
Adjusted EBITDA of £53.3m (H1 2020: negative £84.1m) with AEBITDA margin3 of 44%.
Operating profit of £35.5m (H1 2020: £113.5m loss) with operating profit margin3 of 29%.
1
Net investment income, represents investment income less investment expense.
2
Adjusted EBITDA (“AEBITDA”) represents operating profit/(loss) before depreciation and amortisation, share based payment charges,
associated social security costs, foreign exchange gains / (losses), and exceptional items. A reconciliation between AEBITDA and operating
profit/(loss) is shown in the Business Review.
3Adjusted EBITDA margin represents AEBITDA divided by total income. Operating profit margin represents operating profit divided by total
income.
1
Net assets of £254.1m, (31 December 2020: £217.6m), including cash of £168.1m (31
December 2020: £103.3m).
Operating and Strategic Summary:
Our machine learning and technology platform continues to revolutionise the small business
borrowing experience:
o Funding Circle leverages machine learning risk models, built over the last 10 years, to
provide instant decisions for small businesses.
o This year we have continued to scale our Instant Decision Lending technology and
now c.60% of loan decisions are fully automated. This figure is up from c.50% at our
Full Year results in March, and we are well on our way to our long-term target of
c.80%.
o Instant Decision Lending delivers significant benefits for Funding Circle, including
lowering processing costs as well as significantly improving the borrower experience.
Instant Decision Lending technology is already providing us with opportunities to launch
new solutions to help SMEs:
o Over the next 12 months we are leveraging this technology to launch new funding
solutions in the UK to help small business owners solve more problems.
API: a new Application Programming Interface (API) to help embed Funding
Circle into partners’ websites and platforms. Sandbox testing environment
launched in Q3 2021 with 5 initial partners in the finance broking sector. We
anticipate on-boarding new partners and optimising the API during H2 2021
and throughout 2022.
FlexiPay: payment finance product for SMEs. FlexiPay helps businesses
spread the cost of paying invoices offering borrowers the ability to settle
invoices for a one-off 3% fee and then spread the repayment over 3 months,
interest free. Beta launched in Q3 2021 for existing borrowers
Card: SME card providing 1% cashback and nothing to pay for one month.
Opportunity to settle the balance in full at the end of the month or spread the
repayment with FlexiPay. Wait list now open for existing borrowers.
SMEs have remained resilient during Covid:
o We continue to see impressive performance from small businesses who have
responded to the pandemic with agility and resilience.
o Despite the subsequent waves of the pandemic, the flow of borrowers missing
payments for the first time has remained low and stable.
o This strong performance by SMEs was reflected in a fair value gain on the loans we
hold for sale in H1 2021.
Demand from investors to fund loans remains high:
o Approximately £5 billion of loans under management have been funded by a diverse
mix of investors.
o We continued to see high demand from investors to fund loans during H1 2021 and
we have signed a number of lending agreements with institutions, including Atom
Bank in the UK and Congressional Bank in the US, to fund loans in H2 2021 and
beyond.
o We are well funded to meet any level of demand we anticipate seeing in H2 2021.
Loan performance demonstrates quality of portfolio:
o All cohorts of loans are performing inline, or ahead of, our expectations and on track
to deliver positive returns to investors.
We are well-positioned to take advantage of the structural changes that are
currently reshaping the SME lending market; Covid has led to a rapid
acceleration in the shift towards online in small business lending that will
benefit Funding Circle.
2
There has been strong demand from investors looking for attractive risk-
adjusted returns despite the economic downturn.
Whilst government support has been significant over the past 18 months,
many SMEs expect to continue to have ongoing financing needs.
Since the start of the pandemic, Governments have stepped in to support
SMEs, demonstrating their strategic importance to the economic recovery
and future growth.
Full year outlook:
The business performed strongly in H1 2021 and the financial performance was above
expectations.
We remain mindful of the uncertain economic environment. In line with our expectations,
there has been an initial reduction in lending as we have transitioned to operating our core
loan product alongside government guarantee programmes in the UK and the US.
As the economic environment becomes clearer we anticipate an acceleration in lending and
are well placed to capture this going forward.
We continue to expect AEBITDA will be skewed towards H1 with an expectation of H2
AEBITDA profit in the low single digit millions.
CEO transition:
As announced in a separate release today, Lisa Jacobs, Managing Director of Funding Circle
UK will succeed Samir Desai CBE as Chief Executive Officer from January 1st 2022. After 12
years as CEO, Samir has decided to step back from day-to-day activities at the end of this
year and transition to a new role as Non-Executive Director.
3
Analyst presentation:
A presentation for analysts will be held today via webcast at 9:30am. Please contact
ir@fundingcircle.com if you wish to attend. An on-demand replay will also be available on the Funding
Circle website following the presentation.
Enquiries:
Investor Relations
David de Koning - Director of Investor Relations and Communications (0203 927 3893)
Media Enquiries
Natasha Jones (07956 057161)
Mike Smith / Stephen Malthouse (020 3805 4822)
About Funding Circle:
Funding Circle (LSE: FCH) is a small and medium enterprise (“SME”) loans platform. Since launching
in 2010, investors and lenders across Funding Circle's geographies - including retail investors, banks,
specialty finance companies, asset management companies, insurance companies, government-
backed entities and funds - have lent approximately £13 billion to c.120,000 businesses globally.
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.
4
Business Review
At Funding Circle we deliver an excellent customer experience for small businesses powered by our
machine learning and technology.
A great customer experience is built on exceptional fundamentals and seamless technology. Since
our launch, we have built a technology platform that is revolutionising SME lending. A decade of
research and development has created an inflection point for Funding Circle. 8th Generation machine
learning risk models using Open Banking data and over 10 years of proprietary data underpin our
Instant Decision Lending platform in the UK. This enables SME owners to receive a decision in
minutes, from the start of an application to receipt of approval.
Today, as the leading global platform for small business loans we have helped approximately 120,000
small businesses to access more than £13 billion. Our investment in technology has resulted in
strong customer satisfaction scores and high repeat rates, helping us to grow alongside our small
businesses.
We believe that as we get bigger and help more small businesses access the finance they need
to grow, we will create a stronger platform that drives significant competitive advantage. This creates
a virtuous circle that will enable us to continue to help thousands of small businesses and drive
market share.
2021 overview
H1 2021 was a strong half year building upon the good performance in the second half of 2020. The
SME government guarantee schemes in both the UK and US were extended further, allowing the
Group to deliver record levels of lending to support SME businesses.
The Coronavirus Business Interruption Loan Scheme (“CBILS”) in the UK ended on 31 March 2021
with applications received by that date continuing to be processed until June 2021 and the Paycheck
Protection Program (“PPP”) through the Small Business Administration (“SBA”) in the US closed on 4
May 2021. From June 2021 the UK moved to relaunching our core product alongside the Recovery
Loan Scheme, the 80% government guarantee scheme introduced post CBILS, and the US relaunching
its core product.
As a result, originations in H1 2021 totalled £1,635 million. This compared to £1,112 million in H1
2020 which had comprised two months of strong trading in January and February 2020 prior to the
pandemic, followed by lower trading volumes in March and April as the Group became accredited to
operate under the SME government guarantee programmes in the UK and US. Originations rebounded
strongly from May onwards and in the second half of 2020 originations were £1,630 million.
Originations (half year ended 30 June) Originations (half year ended 31 December)
2021 2020 Change 2020
£m £m £m
United Kingdom 1,381 662 109% 1,449
United States 247 410 (40%) 171
Developing Markets 7 40 (83%) 10
Total 1,635 1,112 47% 1,630
5
Loans under management grew in the period by 17% to £4,933 million. This includes loans under the
PPP scheme of £333 million which borrowers can apply to be forgiven by the US government
providing certain conditions of use are satisfied.
Loans under Management
30 June 31 December
2021 2020 Change
£m £m
United Kingdom 4,072 3,271 24%
United States 733 759 (3)%
Developing Markets 128 184 (30%)
Total 4,933 4,214 17%
Geographic highlights
Net income/(loss) 30 June 2021 30 June 2020
United United Developing United United Developing
Kingdom States Markets Total Kingdom States Markets Total
£m £m £m £m £m £m £m £m
Total income 98.8 20.2 1.6 120.6 59.3 38.0 3.9 101.2
Fair value gain/(loss) 0.3 7.8 - 8.1 (34.8) (61.3) - (96.1)
Net income/(loss) 99.1 28.0 1.6 128.7 24.5 (23.3) 3.9 5.1
Segment profit 30 June 2021 30 June 2020
United United Developing United United Developing
Kingdom States Markets Total Kingdom States Markets Total
£m £m £m £m £m £m £m £m
Adjusted EBITDA 41.0 11.8 0.5 53.3 (22.1)
( (54.1) (7.9) (84.1)
Depreciation and
amortisation (5.6) (2.7) - (8.3) (4.1) (3.4) (0.7) (8.2)
Share-based payments and
social security costs (4.2) (0.6) - (4.8) (3.0) (1.2) (0.1) (4.3)
Foreign exchange losses - (0.8) - (0.8) - - - -
Exceptional items - (3.9) - (3.9) - (12.0) (4.9) (16.9)
Operating profit/(loss) 31.2 3.8 0.5 35.5 (29.2) (70.7) (13.6) (113.5)
United Kingdom
During the period, the UK continued to operate under CBILS, which provides an 80% government
guarantee to investors.
Whilst the scheme closed to applicants on 31 March 2021, applications received by that date
continued to be processed until June 2021 with no more processing permitted past that date.
We originated £1,381 million of loans in H1 2021 with loans under management growing by 24% to
£4,072 million at 30 June 2021. In total since the CBILS scheme was introduced we originated £2,993
million of loans.
The UK delivered total income growth of 67% to £98.8 million in H1 2021 (H1 2020: £59.3 million). H1
2020 was impacted by the disruption caused by the pandemic and lower trading volumes in March
and April whilst we became accredited to operate the government guarantee scheme in the UK. The
total income for H1 2021 was also 6% higher than the total income delivered in H2 2020 with a strong
level of servicing income.
Operating income in H1 2021 was £85.8 million (H1 2020: £43.3 million) and net investment income
was £13.0 million (H1 2020: £16.0 million) as the investments in SME loans on balance sheet
continued to amortise down.
In addition to trading, in June 2021, the UK sold 1,800 non-performing loans. This allowed us to
accelerate the return of £16.0 million of cash to retail investors.
6
With a strong trading performance during the period, the UK generated operating AEBITDA 4 of £27.7
million (H1 2020: negative £3.3 million). Investment AEBITDA4, which represents investment income,
investment expense and fair value gains and losses was £13.3 million (H1 2020: negative £18.8
million). H1 2020 experienced a significant fair value loss as the pandemic impacted the value of the
loans that Funding Circle held on its balance sheet.
Total AEBITDA was £41.0 million (H1 2020 negative £22.1 million) with an AEBITDA margin of 42%.
Operating profit was £31.2 million (H1 2020: loss of £29.2 million) with a margin of 32%.
United States
Like the UK, the US had a strong six months of trading in 2021 as it continued to originate PPP loans.
Under this scheme, the SBA will forgive the loans if the funds are used to pay eligible expenses such
as payroll costs of employees. This scheme ceased in May 2021 and since then the US has
recommenced lending of its core product as well as originating government guarantee loans through
the SBA on behalf of banks.
The US business originated £247 million of loans during H1 2021 to 12,854 businesses (H1 2020:
4,321 businesses). Due to the scheme design, the value of the loans was lower but the yield per loan
was higher for loans originated in 2021 compared to those originated in 2020. This compared to £410
million in H1 2020 and £171 million in H2 2020 although the PPP programme was paused between
September and December 2020 before relaunching in January 2021.
In July 2020, the US business was granted access to the use of the Federal Reserve’s PPP liquidity
facility. This allows for lending to be undertaken with funds coming directly from this facility. Prior to
that date, all PPP lending was done through our marketplace (referral) model. PPP loans are 100%
guaranteed by the SBA. Originations funded through the PPP liquidity facility totalled £205 million in
H1 2021 compared to £24 million in H2 2020. When loans are forgiven by the SBA, the debt
associated with them from the facility is also extinguished.
Loans under management totalled £733 million at 30 June 2021, with £333 million of this being PPP
loans.
Total income for the US was £20.2 million (H1 2020: £38.0 million). Operating income was £7.1
million (H1 2020 £17.6 million) and Investment income was £13.1 million compared to £20.4 million
in H1 2020. Similar to the UK, the reduction in investment income reflects the amortising nature of the
investment in SME loans held on balance sheet.
An additional £16.3 million of transaction fees were generated in H1 2021. However, PPP loans
originated under the PPP liquidity facility are held on balance sheet until they have been forgiven by
the SBA. Accordingly, under IFRS 9 we are required to spread the £16.3 million over the expected life
of those loans.
In June 2021, the US sold c.£63 million of loans held in the warehouse to an asset manager
crystallising c.£38 million of net cash proceeds and a fair value gain of £5.2 million.
Operating AEBITDA for the period was negative £9.1 million (H1 2020: negative £13.2 million) albeit
with deferred revenues of £16.3 million being spread over the future expected term of the PPP loans
on balance sheet.
Investment AEBITDA was £20.9 million (H1 2020: negative £40.9 million) reflecting an improvement
in the economic outlook for the SME loans on balance sheet together with the £5.2m fair value gain
following the loan sale. Similar to the UK, H1 2020 experienced a significant fair value loss as the
pandemic impacted the value of the loans that Funding Circle held on its balance sheet.
Total AEBITDA was £11.8 million compared to negative AEBITDA of £54.1 million in H1 2020 and
operating profit was £3.8 million (H1 2020: loss £70.7 million).
As part of the US restructuring announced in 2020, we downsized our premises in San Francisco
which resulted in an exceptional impairment of £3.9 million but importantly a future cash saving of
4
Investment AEBITDA is defined as investment income, investment expense and fair value adjustments, and operating AEBITDA represents
AEBITDA excluding investment AEBITDA.
7
c£2 million per year.
Finance review
Overview
Group total income was £120.6 million (H1 2020: £101.2 million), up 19%. Net income for the
year was £128.7 million (H1 2020: £5.1 million). Net income is total income less fair value
movements on SME loans held for sale. In H1 2020 the Group experienced significant fair value
losses on the SME loans held for sale following the impact of Covid 19 on SME borrowers. The
fair value gain in H1 2021 reflects a better performance from the SME loans together with a £5.2
million gain following the disposal of the loans in the US warehouses.
AEBITDA was £53.3 million (H1 2020: negative £84.1 million), which was comprised of £19.1
million operating AEBITDA (H1 2020: negative £24.4 million) and £34.2 million investment
AEBITDA (H1 2020: negative £59.7 million).
The Group’s operating profit was £35.5 million for the period (H1 2020: loss of £113.5 million).
The exceptional items in 2020 relate to the restructuring of the Developing Markets and US
businesses with a further impairment of its premises in 2021 as the US sublet and downsized its
office space in San Francisco to control costs.
Profit and loss
30 June 2021 30 June 2020
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
£m £m £m £m £m £m
Transaction fees 70.5 - 70.5 47.8 - 47.8
Servicing fees 21.9 - 21.9 13.8 - 13.8
Other fees 2.1 - 2.1 3.2 - 3.2
Fee income (“operating income”) 94.5 - 94.5 64.8 - 64.8
Investment income 33.5 - 33.5 49.8 - 49.8
Investment expense (7.4) - (7.4) (13.4) - (13.4)
Total income 120.6 - 120.6 101.2 - 101.2
Fair value gains/(losses) 8.1 - 8.1 (96.1) - (96.1)
Net income 128.7 - 128.7 5.1 - 5.1
People costs (39.4) - (39.4) (44.5) (3.8) (48.3)
Marketing costs (27.4) - (27.4) (22.4) - (22.4)
Depreciation, amortisation and impairment (8.3) (3.9) (12.2) (8.2) (12.4) (20.6)
Loan repurchase charge (0.1) - (0.1) (5.5) - (5.5)
Other costs (14.1) - (14.1) (21.1) (0.7) (21.8)
Operating expenses (89.3) (3.9) (93.2) (101.7) (16.9) (118.6)
Operating profit/(loss) 39.4 (3.9) 35.5 (96.6) (16.9) (113.5)
8
Total income
Total income for the Group was £120.6 million (H1 2020: £101.2 million). Total income represents
operating income and investment income, less investment expense.
Operating income includes transaction fees, servicing fees, and other fees and was £94.5 million (H1
2020: £64.8 million).
Transaction fees, representing fees earned on originations, grew 47% to £70.5 million. The
overall increase in transaction fees over H1 2020 was driven by a strong trading performance
for a full six month period, whereas H1 2020 experienced lower trading volumes during March
and April whilst the Group became accredited to operate the government guaranteed lending
schemes in the UK and the US. Both the UK and US saw high levels of activity particularly as
the schemes reached their conclusion.
Yields on CBILS loans in the UK were fixed at 4.75% with yields of nearly 9% on US PPP loans,
higher than the 3% in H1 2020 as: i) we were funding loans through the PPP liquidity facility
operated by the Federal Reserve as opposed to through the referral programme in H1 2020;
and ii) the yields on the higher volume, lower value loans were higher.
In addition to the above fees, as the PPP loans that are retained on balance sheet until they
are forgiven are held at amortised cost, the transaction fees associated with them are spread
over the expected life of the loans. Accordingly £16.3 million of transaction fees for which
cash has been received in the period were deferred from H1 2021 and are included within
trade and other payables on the balance sheet.
Servicing fees, representing income for servicing loans under management, increased to
£21.9 million from £13.8 million in H1 2020 following on from the heightened origination
activity since May 2020.
Overall servicing yield was 0.9% compared with 0.7% in H1 2020 with yields on CBILS loans at
1.25%. There is no servicing fee earned on PPP loans.
Other fees arise principally from a fee premium we received from certain institutional
investors in the year in respect of buying back certain defaulted loans under a historic loan
purchase commitment and from collections fees.
Net investment income represents the investment income, less investment expense, on loans
invested within Funding Circle’s investment vehicles and was £26.1 million (H1 2020: £36.4 million).
This has reduced as the loans invested in continue to amortise down.
Net income, defined as total income after fair value adjustments, was £128.7 million (H1 2020: £5.1
million). This reflects an increase in operating income of £29.7 million and a reduction in net
investment income of £10.3 million. The significant fair value loss in H1 2020 was largely attributable
to the impact that Covid-19 economic stress had on SME borrowers. Following improved
performance of the SME loans held on balance sheet, the fair value adjustment in H1 2021 was £8.1
million as opposed to negative £96.1 million in H1 2020. However, there remains an expectation of
ongoing stress and economic uncertainty into H2, which is factored into our valuation of these loans.
Operating expenses
Operating expenses before exceptional items have reduced by 12% or £12.4 million from H1 2020.
This is as a result of cost management initiatives in 2020 with the restructuring of the Developing
Markets and the US and a reduction in the loan repurchase charge in Developing Markets.
Operating expenses included certain exceptional items in H1 2020 driven by goodwill impairment and
restructuring costs of the Developing Markets and the US business. A further impairment charge was
incurred in H1 2021 as the US sublet its San Francisco office downsizing into smaller accommodation
as part of its cost control measures. Including these items, operating expenses reduced by £25.4
million to £93.2 million.
People costs (including contractors) which represent the Group’s largest ongoing operating cost
9
decreased during the period by 19% to £43.4 million, before the capitalisation of development spend.
This was driven by a decrease in average headcount of 15% following the reorganisation of the US
and Developing Markets businesses in H1 2020. Exceptional items in relation to this were £3.8
million. The share-based payment charge for the period, included in people costs, was £4.8 million
(H1 2020: £4.3 million).
30 June 30 June
2021 2020 Change
£m £m %
People costs 43.4 53.7 (19%)
Less capitalised development spend (“CDS”) (4.0) (5.4) (26%)
People costs net of CDS 39.4 48.3 (18%)
Average headcount (incl. contractors) 915 1,076 (15%)
Period-end headcount (incl. contractors) 931 1,004 (7%)
Marketing costs increased in the period from £22.4 million to £27.4 million principally driven by
broker commissions. Marketing spend overall was 29% of operating income (H1 2020: 35%).
Depreciation amortisation and impairment costs of £12.2 million (2020: £20.6 million) largely
represent the amortisation of the cost of the Group’s capitalised technology development and
impairment of assets.
A charge of £3.9 million was recorded in H1 2021 to impair the right of use asset and office fixtures
associated with the San Francisco office which was sublet. H1 2020 included an impairment charge
of £12.4 million associated with the restructure of the Developing Markets and US business.
Excluding these items, depreciation and amortisation was flat on H1 2020.
Loan repurchase charges relate to certain historical circumstances when in new markets,
predominantly Germany and the Netherlands, Funding Circle entered into arrangements to buyback
certain defaulted loans from certain financial institutions under a loan purchase commitment. In
return the business received a fee premium (reflected in Other fees). Under IFRS 9 this commitment is
accounted for under the expected credit loss model. In H1 2020, there was a charge of £5.5 million
caused by the impact of Covid-19 increasing the likelihood that there would be further defaulted loans
to buyback.
Other costs principally includes cost of sales, data and technology costs and property costs and have
reduced in H1 2021 following the restructuring of the Developing Markets and US businesses.
10
Balance sheet and investments
With strong performance from the business during the period, the Group’s net equity has grown from
£217.6 million at 31 December 2020 to £254.1 million as at 30 June 2021.
The Group’s balance sheet includes £149.0 million of net equity from the operating business. Funding
Circle also has various investment vehicles it uses to invest in SME loans. The net equity in these
vehicles totalled £105.1 million. The table below sets out the Group’s net equity:
30 June 31 December
2021 2020
Operating PPP Loans Warehouse Securitisation Investment in Other
business SPVs SPVs trusts and co- investments Total Total
investments
£m £m £m £m £m £m £m £m
Investment in SME loans 0.7 226.5 108.8 207.1 37.0 9.7 589.8 558.8
Cash 134.2 0.8 9.5 15.7 7.9 - 168.1 103.3
Other assets/(liabilities) - 1.0 - 2.7 (7.9) - (4.2) 11.1
Borrowings/bonds - (228.3) (81.3) (204.1) - - (513.7) (489.8)
Cash & Investments 134.9 - 37.0 21.4 37.0 9.7 240.0 183.4
Other assets 95.3 - - - - - 95.3 109.0
Other liabilities (81.2) - - - - - (81.2) (74.8)
Equity 149.0 - 37.0 21.4 37.0 9.7 254.1 217.6
The table below provides a further breakdown of Funding Circle’s net equity invested in these
vehicles:
30 June 31 December
2021 2020
Investment type £m £m
1. Securitisation SPVs 1
Vertical 8 12
Horizontal 13 4
2. Warehouse SPVs1 37 70
3. Investment in trusts and co-investments1 37 21
4. Other investments 10 11
Total 105 118
1
These vehicles are bankruptcy remote
1. Securitisation SPVs
i. Vertical - Funding Circle is required by regulation to retain a 5% equal participation in all classes of
bonds issued. This has continued to pay down.
ii. Horizontal - once loans are securitised, we temporarily hold the residual horizontal tranches with the
intention to sell once seasoned. These tranches have the potential to earn greatest returns, but they also
absorb losses first. The timing of the pandemic meant that it was not feasible to dispose of all these
horizontal tranches in 2020 but we still intend to do so in the foreseeable future. As the loans are valued
at fair value using discounted cash flow forecasts, improved economic assumptions have increased the
value of the horizontals.
2. Warehouse SPVs
In warehouses we deploy our equity and third party bank debt to aggregate loans temporarily prior to
securitisation/sale. The debt is senior which means the equity is more exposed to changes in the valuation of
loans. The warehouses in both the UK and US continued to amortise during the period.
In June 2021, the Group sold £63 million of loans held in the warehouse to an asset manager crystallising £38
million of net cash proceeds and a fair value gain of £5.2 million.
3. Investment in trusts and co-investments
As part of our participation in the CBILS and RLS programmes we are required to co-invest c.1% alongside
institutional investors. As the underlying SME loans are 80% guaranteed our exposure is limited. The growth
in these investments has been driven by the strong originations in the period.
4. Other investments
There are a small amount of Other Investments, comprising seed investments in Private Funds which are in
amortisation.
11
Cash flow
As at 30 June 2021, the Group held cash and cash equivalents of £168.1 million, up from
£103.3 million at the end of 2020. Of the balance, £25.1 million (2020: £38.9 million) was held and
restricted for use within the warehouse and securitisation vehicles.
As at 30 June 2021, the Group was due net £18 million of fees which were subsequently received in
August 2021.
Free cash flow, which is an alternative performance measure, represents the net cash flows from
operating activities less the cost of purchasing intangible assets, property, plant and equipment, lease
payments and interest received. It excludes the warehouse and securitisation financing and funding
cash flows.
Free cash flow has principally improved due to operating cash flows from transaction fee income and
investment income while controlling marketing and people costs year on year together with the
working capital benefit of receiving net £27 million of fees due at 31 December 2020 which were
subsequently received in February 2021.
The table below shows how the Group’s cash has been utilised:
30 June 30 June
2021 2020
£m £m
Adjusted EBITDA 53.3 (84.1)
Fair value adjustments (8.1) 96.1
Purchase of tangible and intangible assets (4.6) (5.9)
Payment of lease liabilities (3.8) (3.5)
Working capital / other 29.0 (12.2)
Free cash flow 65.8 (9.6)
Net investment in associates 1.4 0.6
Net investment in trusts and co-investments (15.7) (3.9)
Net investment in PPP loans 3.5 -
Net investment in warehouses and securitisations 9.8 (22.8)
Other 0.3 0.1
Effect of foreign exchange (0.3) 2.3
Movement in the period 64.8 (33.3)
Cash and cash equivalents at the beginning of the period 103.3 164.5
Cash and cash equivalents at the end of the period 168.1 131.2
Principal risks and uncertainties
The Group’s principal risks and uncertainties were disclosed on pages 40 to 47 of the 2020 annual
report and accounts after review and approval by the Board. The Group considers that the overall
principal risks and uncertainties, risk appetite, key risks and management of risks remain unchanged
for the six months ended 30 June 2021.
The principal risks include:
- Strategic risk, including the economic environment;
- Funding and balance sheet risk, including platform funding risk and balance sheet risk;
- Credit risk, including borrower acquisition and portfolio management risk;
- Regulatory, reputation and conduct risk, including regulatory risk, reputation risk and conduct
risk/treating customers fairly; and
- Operational risk, including process risk, information security, financial crime, technology risk and
client money risk.
12
Statement of Directors’ Responsibilities
The Directors confirm that these condensed interim financial statements have been prepared in
accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and
the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial
Conduct Authority, give a true and fair view of the assets, liabilities, financial position and loss as
required by DTR 4.2.4 and that the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the first six months and their
impact on the condensed set of financial statements, and a description of the principal risks
and uncertainties for the remaining six months of the financial year; and
• material related-party transactions in the first six months and any material changes in the
related-party transactions described in the last Annual Report and Accounts.
The maintenance and integrity of the Funding Circle Holdings plc website is the responsibility of the
directors; the work carried out by the authors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that might have occurred to the
interim financial statements since they were initially presented on the website.
The Directors of Funding Circle Holdings plc are listed in the Funding Circle Holdings plc Annual
Report and Accounts for 31 December 2020, with the exception of the following changes in the
period: Mrs Catherine Keers resigned on 19 May 2021, Mr Robert Steel resigned on 19 May 2021, Mr
Matthew King was appointed on 19 May 2021 and Mrs Helen Beck was appointed on 1 June 2021. A
list of current directors is maintained on the Funding Circle Holdings plc website:
www.corporate.fundingcircle.com.
By order of the Board
Samir Desai, Chief Executive Officer
Oliver White, Chief Financial Officer
9 September 2021
13
Condensed consolidated statement of comprehensive income
For the six months to 30 June 2021 (unaudited)
Unaudited Unaudited
6 months to 6 months to
30 June 2021 30 June 2020
Before Before
exceptional Exceptional exceptional Exceptional
items items 1 Total items items 1 Total
Note £m £m £m £m £m £m
Transaction fees 70.5 - 70.5 47.8 - 47.8
Servicing fees 21.9 - 21.9 13.8 - 13.8
Other fees 2.1 - 2.1 3.2 - 3.2
Fee income 94.5 - 94.5 64.8 - 64.8
Investment income 33.5 - 33.5 49.8 - 49.8
Investment expense (7.4) - (7.4) (13.4) - (13.4)
Total income 120.6 - 120.6 101.2 - 101.2
Fair value gains/(losses) 8.1 - 8.1 (96.1) - (96.1)
Net income 128.7 - 128.7 5.1 - 5.1
People costs (39.4) - (39.4) (44.5) (3.8) (48.3)
Marketing costs (27.4) - (27.4) (22.4) - (22.4)
Depreciation, amortisation and impairment (8.3) (3.9) (12.2) (8.2) (12.4) (20.6)
Loan repurchase charge (0.1) - (0.1) (5.5) - (5.5)
Other costs (14.1) - (14.1) (21.1) (0.7) (21.8)
Operating expenses 5 (89.3) (3.9) (93.2) (101.7) (16.9) (118.6)
Operating profit/(loss) 39.4 (3.9) 35.5 (96.6) (16.9) (113.5)
Finance income 0.1 - 0.1 0.3 - 0.3
Finance costs (0.6) - (0.6) (0.8) - (0.8)
Share of net profit/(loss) of associates 0.4 - 0.4 (1.1) - (1.1)
Profit/(loss) before taxation 39.3 (3.9) 35.4 (98.2) (16.9) (115.1)
Income tax 7 (2.0) - (2.0) (0.1) - (0.1)
Profit/(loss) for the period 37.3 (3.9) 33.4 (98.3) (16.9) (115.2)
Other comprehensive income
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translation of
(0.4) - (0.4) 8.7 - 8.7
foreign operations
Total comprehensive profit/(loss) for the
36.9 (3.9) 33.0 (89.6) (16.9) (106.5)
period
Total comprehensive profit/(loss)
attributable to:
Owners of the parent 36.9 (3.9) 33.0 (89.6) (16.9) (106.5)
Profit/(loss) per share
Basic profit/(loss) per share 8 10.6p 9.5p (28.2)p (33.0)p
Diluted profit/(loss) per share 8 9.8p 8.8p (28.2)p (33.0)p
1 Exceptional items are detailed within note 6.
14
Condensed consolidated balance sheet
As at 30 June 2021 (unaudited)
Unaudited
30 June 31 December
2021 2020
(Restated)1
Note £m £m
Non-current assets
Intangible assets 9 23.5 24.4
Property, plant and equipment 10 16.6 28.7
Investments in associates 11 9.7 11.0
Investment in trusts and co-investments 12 37.0 21.2
Investment in SME loans (other) 12 227.2 25.0
314.0 110.3
Current assets
Investment in SME loans (warehouse) 12 108.8 221.8
Investment in SME loans (securitised) 12 207.1 279.8
Trade and other receivables 58.9 67.0
Cash and cash equivalents 17 168.1 103.3
542.9 671.9
Total assets 856.9 782.2
Current liabilities
Trade and other payables 55.5 34.1
Bank borrowings 13 81.3 171.2
Bonds 204.1 294.3
Lease liabilities 10 7.3 7.3
Short-term provisions and other liabilities 14 5.0 8.7
353.2 515.6
Non-current liabilities
Long-term provisions and other liabilities 14 1.1 1.2
Bank borrowings 13 228.3 24.3
Lease liabilities 10 20.2 23.5
Total liabilities 602.8 564.6
Equity
Share capital 0.3 0.3
Share premium account 292.9 292.6
Foreign exchange reserve 9.3 9.7
Share options reserve 15.4 13.6
Accumulated losses (63.8) (98.6)
Total equity 254.1 217.6
Total equity and liabilities 856.9 782.2
1. See note 1.
These condensed interim financial statements were approved by the Board on 9 September 2021.
They were signed on behalf of the Board by:
O White
Director
15
Condensed consolidated statement of changes in equity
For the six months to 30 June 2021 (unaudited)
Share Foreign Share (Accumulated
Share premium exchange options losses)/retained Total
Note capital account reserve reserve earnings equity
£m £m £m £m £m £m
Balance as at
0.3 292.6 9.7 13.6 (98.6) 217.6
1 January 2021
Profit for the period - - - - 33.4 33.4
Other comprehensive income:
Exchange differences on
- - (0.4) - - (0.4)
translation of foreign operations
Transactions with owners
Issue of share capital - 0.3 - - - 0.3
Transfer of share option costs - - - (1.4) 1.4 -
Employee share schemes – value
- - - 3.2 - 3.2
of employee services
Unaudited balance at
0.3 292.9 9.3 15.4 (63.8) 254.1
30 June 2021
Balance as at
0.3 292.3 8.0 11.9 6.5 319.0
1 January 2020
Loss for the period - - - - (115.2) (115.2)
Other comprehensive income:
Exchange differences on
- - 8.7 - - 8.7
translation of foreign operations
Transactions with owners
Issue of share capital 0.1 0.2 - - - 0.3
Transfer of share option costs - - - (1.3) 1.3 -
Employee share schemes – value
- - - 4.1 - 4.1
of employee services
Unaudited balance at
0.4 292.5 16.7 14.7 (107.4) 216.9
30 June 2020
16
Condensed consolidated statement of cash flows
For the six months to 30 June 2021 (unaudited)
Unaudited Unaudited
6 months to 6 months to
Note
30 June 2021 30 June 2020
£m £m
Net cash inflow/(outflow) from operating activities 16 74.1 (0.6)
Investing activities
Purchase of intangible assets (4.2) (5.5)
Purchase of property, plant and equipment (0.4) (0.4)
Purchase of SME loans (other) (202.6) -
Purchase of SME loans (warehouse phase) - (289.6)
Cash receipts from SME loans (warehouse phase) 53.1 63.5
Proceeds from sale of SME loans (warehouse phase) 63.6 -
Cash receipts from SME loans (securitised) 77.7 108.0
Investment in trusts and co-investments (15.7) (3.9)
Redemption in associates 1.4 0.3
Dividends from associates - 0.3
Interest received 0.1 0.4
Net cash outflow from investing activities (27.0) (126.9)
Financing activities
Proceeds from bank borrowings 206.1 206.5
Repayment of bank borrowings (91.8) (200.6)
Proceeds from issuance of bonds - 190.1
Payment of bond liabilities (92.8) (100.7)
Proceeds from the exercise of share options 0.3 0.1
Payment of lease liabilities (3.8) (3.5)
Net cash inflow from financing activities 18.0 91.9
Net increase/(decrease) in cash and cash equivalents 65.1 (35.6)
Cash and cash equivalents at the beginning of the period 103.3 164.5
Effect of foreign exchange rate changes (0.3) 2.3
Cash and cash equivalents at the end of the period 168.1 131.2
17
Notes to the condensed interim financial statements
For the six months to 30 June 2021 (unaudited)
1. Basis of preparation
General information
Funding Circle Holdings plc (‘the Company’) is a public limited company which is listed on the London
Stock Exchange and is domiciled and incorporated in the United Kingdom under the Companies Act
2006. The Company’s registered office is 71 Queen Victoria Street, London, EC4V 4AY.
These condensed interim financial statements have been prepared as at, and for the six months to, 30
June 2021. The comparative financial information presented has been prepared as at, and for the six
months to 30 June 2020 and as at 31 December 2020.
The interim financial information presented as at, and for the six months to, 30 June 2021 comprise
the Company and its subsidiaries (together referred to as the “Group”). The consolidated financial
statements of the Group as at, and for the year to, 31 December 2020 are available on request from
the Company’s registered office and via the Company’s website.
Going concern
The Group made a total comprehensive profit of £33.0 million during the six months to 30 June 2021
(30 June 2020: loss of £106.5 million). As at 30 June 2021 the Group had net assets of £254.1 million
(31 December 2020: £217.6 million). This included cash and cash equivalents of £168.1 million (31
December 2020: £103.3 million) of which £25.1 million (31 December 2020: £38.9 million) is held
within the warehouse and securitisation vehicles. Additionally within the net assets the Group holds
£105.1 million (31 December 2020: £118.3 million) of invested capital, some of which is capable of
being monetised if liquidity needs arise.
The condensed interim financial statements are prepared on a going concern basis as the Directors
are satisfied that the Group has the resources to continue in business for the foreseeable future
(which has been taken as 12 months from the date of approval of the condensed interim financial
statements).
After the extension of CBILS lending, the UK business saw strong performance in originations and is
well positioned to facilitate further lending under the Recovery Loan Scheme (“RLS”), while resuming
the facilitation of non-government guarantee lending. The US business similarly experienced high
originations after the extension of the Paycheck Protection Programme (“PPP”) and has resumed
core lending since PPP ended. The combination of strong originations along with the sale of assets
in the US warehouses, detailed further below, has resulted in a strong cash position supporting the
resilience of the Group.
The Group has prepared detailed cash flow forecasts for the next 15 months and has updated the
going concern assessment.
The base case scenario assumes:
The expectation of the RLS scheme running until December 2021;
There is no monetisation of committed capital through asset sales in H2 2021;
There is no further extension to the PPP government scheme in the US;
Non-government scheme lending on the platform increases from H2 2021 but with overall
originations down on H1 2021;
Lending in the US steadily increases; and
Costs and headcount remain relatively flat but with increased investment in technology and
risk roles in H2 2021.
18
Management prepared a stress scenario in which:
Macroeconomic volatility occurs following the tapering of government support in H2 2021
along with increased inflation and interest rates reducing originations;
Investment returns reduce owing to increased funding costs, widening discount rates and
deterioration in loan performance;
An operational event occurring requiring a cash outlay; and
A downside loss scenario is applied to Funding Circle’s on-balance sheet investment in SME
loans resulting in higher initial fair value losses and lower cash flows to the subordinate
tranches of investments it owns.
Even in the stress scenario, sufficient cash is forecast to be generated to meet liabilities as they fall
due without the requirement to take significant mitigating actions or restructuring. The Group does
not currently rely on committed or uncommitted borrowing facilities with the exception of borrowings
used to fund warehouse SME loan purchases and draw downs on the PPPLF to fund PPP loans, and
does not have undrawn committed borrowing facilities available to the wider Group.
Management have reviewed the financial covenants the Group must adhere to in relation to its
servicing agreements. These are with institutional investors and debt facilities associated with
borrowings used to fund SME loan originations in warehouses, which require minimum levels of
unrestricted cash in the Group and maintaining maximum debt to tangible net worth ratios. Even in
stressed scenarios there is not considered to be a material risk of a covenant breach despite a
narrowing of headroom in the near term.
The Directors have made inquiries of management and considered budgets and cash flow forecasts
for the Group and have, at the time of approving these interim financial statements, a reasonable
expectation that the Group has adequate resources to continue in as a going concern for the
foreseeable future.
Basis of preparation
These condensed interim financial statements, which have been reviewed and not audited, have been
prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with UK adopted IAS 34, “Interim Financial Reporting”. They do not include all of the
information required for full annual financial statements, and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year to 31 December 2020 which
have been prepared in accordance with International Financial Reporting Standards (IFRSs) pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union and IFRS in conformity with the
requirements of the Companies Act 2006, including International Accounting Standards (IAS) and
interpretations issued by the International Financial Reporting Standard Interpretations Committee
(IFRS-IC).
In the year to 31 December 2021 the annual financial statements will be prepared in accordance with
IFRS as adopted by the UK Endorsement Board and that this change in basis of preparation is
required by UK company law for the purposes of financial reporting as a result of the UK’s exit from
the EU on 31 January 2020 and the cessation of the transition period on 31 December 2020. This
change does not constitute a change in accounting policy but rather a change in framework which is
required to ground the use of IFRS in company law. There is no impact on recognition, measurement
or disclosure between the two frameworks.
The financial information included in these condensed interim financial statements does not
constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 (the
‘Act’). The statutory accounts for the year to 31 December 2020 have been reported on by the
Company’s auditors and were delivered to the Registrar of Companies following the Company’s
Annual General Meeting. The auditor’s report was (i) unqualified, (ii) did not include a reference to any
19
matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii)
did not contain a statement under section 498 of the Act.
Representation of comparative information
Investment in SME loans (other) of £24.3 million and related bank borrowings of £24.3 million have
been reclassified in the comparative period from current to non-current to reflect the expected life of
PPP loan assets and the contractual life of the PPPLF borrowings. The reclassification has no impact
on the profit and loss or net assets of the Group.
Significant changes in the current reporting period
The financial position and performance of the Group was affected by the following events and
transactions during the six months to 30 June 2021:
i) Sale of US warehouse loan assets
In June 2021, Funding Circle sold SME loan assets from the warehouses in the US for £63.6 million as
part of its strategy of monetising pre-pandemic investments resulting in a fair value gain on sale of
£5.2 million. The bank borrowings associated with the loans were fully repaid using the proceeds.
ii) The UK Government’s Recovery Loan Scheme (“RLS”) and relaunch of core lending
During the period, Funding Circle became an accredited lender under RLS, the new government
guaranteed loan scheme successor to CBILS. Under the terms of the scheme Funding Circle is
required to co-invest in loans originated through this scheme. The loans are beneficially owned by
investors under trust structures in which Funding Circle retains a small stake. Additionally core loans
have been re-launched and are originated via the same trust structures in the UK.
In certain RLS and core loan co-investments in the UK and in the re-launch of core lending in the US,
Funding Circle co-invests in notes of the leveraged structured vehicles on a pari passu basis along
with majority investors. These notes are subordinate to senior notes issued to the senior borrowing
facility provider of the vehicle. These vehicles are the sole beneficiaries of the trust structures under
which loans are originated by drawing down on the subordinate and senior note facilities during an
investment period. Once the investment period ends the vehicles distribute returns from the
amortisation of the associated loans to the senior and subordinate note holders after paying any
running expenses of the vehicle.
The Group does not consolidate the trusts or the structured vehicles or the loans held within the trusts
or borrowings and other net assets of the vehicles, recognising its interest in the loans or vehicles
instead as investment in trusts and co-investment assets on the balance sheet. This investment is
held at FVTPL.
iii) Paycheck protection programme (“PPP”) loan funding
During the period, the US Government’s PPP scheme was extended until May 2021. Funding Circle
continued to fund PPP loans via its lending platform, predominantly drawing down on the US
Government’s Federal PPP lending facility. As a result the Group holds £226.5 million (31 December
2020: £24.3 million) of PPP loans on balance sheet included within Investment in SME loans (other)
with corresponding draw down on the SBA facility of £228.3 million (31 December 2020: £24.3
million) included within Bank borrowings. The PPP loans on balance sheet and PPPLF liability may not
directly offset due to timing of cash payments and forgiveness of the loans and repayment of the
liability. These loans are recognised initially at fair value and are subsequently held at amortised cost
as the business model under which the assets are held is to collect contractual cash flows. The loans
are guaranteed and borrowers are incentivised to apply for forgiveness on the loans. Once a loan is
forgiven by the SBA, the loan and related borrowing are extinguished. Fee income and costs related
to the origination of the PPP loans is amortised under IFRS 9 over the expected life of the loans which
is estimated at 16 months. Where forgiveness occurs earlier than 16 months, the fee income and
costs recognition is accelerated. See note 3 for further details.
20
2. Changes in significant accounting policies
The accounting policies, methods of computation and presentation adopted in the preparation of the
condensed interim financial statements are consistent with those followed in the preparation of the
consolidated financial statements for the year to 31 December 2020. The Group has not early
adopted any other standard, interpretation or amendment that has been issued but is not yet
effective.
A number of new or amended standards became applicable for the current reporting period, however,
the Group did not have to change its accounting policies or make retrospective adjustments as a
result of adoption.
3. Critical accounting estimates and judgments
The preparation of the consolidated financial statements requires the Group to make estimates and
judgements that affect the application of policies and reported amounts. Critical judgements
represent key decisions made by management in the application of the Group accounting policies.
Where a significant risk of materially different outcomes exists due to management assumptions or
sources of estimation uncertainty, this will represent a key source of estimation uncertainty.
Estimates and judgements are continually evaluated and are based on experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
Although these estimates are based on management’s best knowledge of the amount, event or
actions, actual results ultimately may differ from those estimates.
The significant judgements and estimates applied by the Group in the financial statements have been
applied on a consistent basis with the financial statements for the year to 31 December 2020.
Critical judgements
a) Consolidation and deconsolidation of special purpose vehicles (“SPVs”)
As part of its asset-backed securitisation programmes, the Group has established warehouse and
securitisation SPVs. Judgement is required in determining who is most exposed to the variability of
returns and who has the ability to affect those returns and therefore who should consolidate these
vehicles and subsequently deconsolidate them. Where the Group has a significant interest in the
junior tranches of the securitisation vehicles or the subordinated debt in the warehouses, the Group
is deemed to be exposed to the majority of the variability of the returns of those vehicles and controls
them, and therefore consolidates them. Where this interest is reduced, the Group considers whether
the vehicles should be deconsolidated.
b) Loans originated through the platform
The Group originates SME loans through its platform which are funded primarily by banks, asset
managers, other institutional investors, funds, national entities, retail investors or by usage of its own
capital. Judgement is required to determine whether these loans should be recognised on the Group’s
balance sheet. Where the Group, its subsidiaries or SPVs which it consolidates have legal and
beneficial ownership to the title of those SME loans, they are recognised on the Group’s balance
sheet. Where this is not the case, the loans are not recognised at the point of origination.
Key sources of estimation uncertainty
The following are the key sources of estimation uncertainty that the Directors have made in the
process of applying the Group’s accounting policies and have the most significant effect on the
amounts recognised in the financial statements.
a) Fair value of financial instruments (note 15)
21
At 30 June 2021, the carrying value of the Group’s financial assets held at fair value was £418.4
million (31 December 2020: £547.9 million) and the carrying value of financial liabilities carried at fair
value was £11.8 million (31 December 2020: £7.8 million).
In accordance with IFRS 13 Fair Value Measurement, the Group categorises financial instruments
carried on the consolidated balance sheet at fair value using a three-level hierarchy. Financial
instruments categorised as level 1 are valued using quoted market prices and therefore there is
minimal estimation applied in determining fair value. However, the fair value of financial instruments
categorised as level 2 and, in particular, level 3 is determined using valuation estimation techniques
including discounted cash flow analysis and valuation models. The most significant estimation is with
respect to discount rates and default rates.
Since 31 December 2020 the assumptions related to estimating fair value have been revised to reflect
the observed actual performance of SME loans and a revision to the timing of the assumed defaults
to occur later given the extension of government support measures to H2 2021. The combination of
favourable observed performance and later defaults on an amortising pool of loans has led to a lower
lifetime cumulative default expectation and a higher relative estimation of fair value compared to the
carrying value of the loans. Additionally, market drivers of discount rates such as observed tightening
in collateralised loan obligation spreads have resulted in the estimated cash flows being discounted
at a lower rate which has led to a higher relative estimation of fair value compared to carrying value of
the loans and bonds.
22
A sensitivity to the default rates and discount rate are illustrated below.
Description Fair value (£m) Unobservable input Inputs Relationship of unobservable inputs to fair value
A change in the lifetime cumulative default rate
Lifetime cumulative
Investment in SME would have the following impact:
108.8 default rate as % of UK 15.4%
loans – (warehouse) UK: +260/-90 bps would decrease/increase fair
original
value by £(6.2) million/ £1.9 million respectively.
A change in the lifetime cumulative default rate
would have the following impact:
US SPV11: +200/-70 bps would decrease/increase
fair value by £(3.1) million/ £1.0 million
US 21.2%
Lifetime cumulative respectively.
Investment in SME and
207.1 default rate as % of US SPV12: +290/-80 bps would decrease/increase
loans – (securitised) 22.0%1
original fair value by £(5.8) million/ £1.7 million
UK 16.5%
respectively.
UK: +220/-70 bps would decrease/increase fair
value by £(4.9) million/ £1.5 million respectively.
Lifetime cumulative A change in the lifetime cumulative default rate by
Bonds (Unrated) (11.8) default rate of 16.5% +220/-70 bps would decrease/increase fair value
associated assets. by £1.9 million and (£0.5) million respectively.
1Two cumulative default rates are presented for the US representing the portfolios in each of the two respective securitisation vehicles. Separate
sensitivities to default rates for the US securitisation vehicles represent the respective seasoning of the loans and the different reasonably
possible range of outcomes.
The above sensitivities represent management’s estimate of the reasonably possible range of
outcomes and as a result the fair value of the assets and liabilities measured at fair value could
materially diverge from management’s estimate.
Relationship of unobservable inputs to fair
Description Fair value (£m) Unobservable input Inputs
value
A change in the discount rate by +/-100 bps
Investment in SME
108.8 Risk-adjusted discount rate UK 7.2% would decrease/increase fair value by £1.3
loans – (warehouse)
million.
A change in the discount rate by +/-100 bps
Investment in SME US 7.5%
207.1 Risk-adjusted discount rate would decrease/increase fair value by £2.4
loans – (securitised) UK 7.2%
million.
A change in the discount rate by +700/-100
Bonds (Unrated) (11.8) Risk-adjusted discount rate 10.4% bps would decrease/increase fair value by
£1.8 million / £(0.3)million respectively.
It is considered that the range of reasonably possible outcomes in relation to the discount rates used
is presented above and as a result the fair value of the assets could materially diverge from
management’s estimate.
As the discount rate is risk-adjusted, it should be noted that the sensitivities to discount rate and to
lifetime cumulative default rate contain a level of overlap regarding credit risk. The sensitivity in
expected lifetime cumulative defaults should not also be applied to the sensitivity of the credit risk
element of the risk-adjusted discount rate and the sensitivities are most meaningful viewed
independently of each other.
b) Expected life of PPP loans
The Group has originated PPP loans that are on balance sheet and are measured at amortised cost.
Transaction fee income and broker commission expense associated with these loans is treated under
IFRS 9 as an adjustment to the effective interest rate and are amortised over the expected life of the
loans. While the contractual life of the PPP loans is up to five years, due to the design of the PPP loan
programme, the loans are expected to be forgiven in a shorter period of time. The Group has
determined that the estimated expected life of PPP loans is 16 months from origination. In arriving at
this estimate, it has considered: the timeframe in which PPP borrowers are incentivised to apply for
forgiveness prior to being required to commence repayments on the loans; recent steps the SBA had
23
taken to streamline the forgiveness process; and trends in historical PPP loans. The impact of the
estimate on the period ended 30 June 2021 is the extent to which fee income and broker cost is
deferred. At 30 June 2021 £16.3 million fee income received and £1.4 million of broker commission
expense incurred was deferred to future periods.
Were the expected life to be 3 months longer at 19 months, an additional £0.7 million of fee income
and an additional £0.1 million of costs would be deferred to future periods and not recognised in the
period to 30 June 2021. A reduction in the expected life by 3 months to 13 months would increase
the fee income recognised in the period to 30 June 2021 by £1.0m and the broker commissions
recognised by £0.1m with a corresponding reduction in balances deferred to future periods.
Management considers that the reasonably possible range of outcomes to be +/- 3 months, however
if the SBA further streamlines the forgiveness process or takes steps to offer automatic forgiveness
of loans then the expected life could be shorter.
c) Estimated impairment of non-financial assets (note 6 and 10)
Non-financial assets (primarily intangible assets and property plant and equipment) are held within
the Group within cash generating units (“CGUs”) which are expected to benefit from the assets. The
Group has three CGUs, being Funding Circle USA (“FCUSA”) and its subsidiaries, Funding Circle
Limited (“FCUK”) and its subsidiaries and the German and Dutch businesses (Funding Circle
Continental Europe or “FCCE”). These assets are assessed annually for impairment or when
indicators of impairment are identified. In the 6 months ended 30 June 2021 it was determined there
were not indicators of impairment and an interim Group impairment review was not undertaken.
However for individual right-of-use assets and other fixed assets associated with the San Francisco
office, impairment was identified as a result of sub-leasing the offices amounting to £3.9 million.
24
4. Segmental information
IFRS 8 Operating segments requires the Group to determine its operating segments based on
information which is used internally for decision making. Based on the internal reporting information
and management structures within the Group, it has been determined that there are three geographic
operating segments. Reporting on this basis is reviewed by the Global Leadership Team (‘GLT’) which
is the chief operating decision-maker (‘CODM’). The GLT is made up of the Executive Directors and
other senior management and is responsible for the strategic decision making of the Group.
The three reportable segments consist of the geographic segments: the United Kingdom, the United
States and Developing Markets. The Developing Markets segment includes the Group’s businesses in
Germany and the Netherlands.
The GLT measures the performance of each segment by reference to a non-GAAP measure, adjusted
EBITDA which is defined as profit/loss before finance income and costs, taxation, depreciation and
amortisation (“EBITDA”); and additionally excludes share-base payment charges and associated
social security costs, foreign exchange, and exceptional items (see note 6). Together with Operating
profit/loss, adjusted EBITDA is a key measure of Group performance as it allows better comparability
of the underlying performance of the business.
Net income/(loss)
30 June 2021 30 June 2020
United United Developing Total United United Developing Total
Kingdom States Markets Kingdom States Markets
£m £m £m £m £m £m £m £m
Total income 98.8 20.2 1.6 120.6 59.3 38.0 3.9 101.2
Fair value gains/(losses) 0.3 7.8 - 8.1 (34.8) (61.3) - (96.1)
Net income/(loss) 99.1 28.0 1.6 128.7 24.5 (23.3) 3.9 5.1
Segment profit 30 June 2021 30 June 2020
United United Developing Total United United Developing Total
Kingdom States Markets Kingdom States Markets
£m £m £m £m £m £m £m £m
Adjusted EBITDA 41.0 11.8 0.5 53.3 (22.1) (54.1) (7.9) (84.1)
Depreciation and amortisation (5.6) (2.7) - (8.3) (4.1) (3.4) (0.7) (8.2)
Share-based payments and social security
costs (4.2) (0.6) - (4.8) (3.0) (1.2) (0.1) (4.3)
Foreign exchange losses - (0.8) - (0.8) - - - -
Exceptional items - (3.9) - (3.9) - (12.0) (4.9) (16.9)
Operating profit/(loss) 31.2 3.8 0.5 35.5 (29.2) (70.7) (13.6) (113.5)
25
5. Operating expenses
30 June 2021 30 June 2020
Before Exceptional Total Before Exceptional Total
exceptional items exceptional items
items items
£m £m £m £m £m £m
Depreciation, amortisation and impairment 8.3 3.9 12.2 8.2 12.4 20.6
Rental income and other recharges (0.5) - (0.5) (0.4) - (0.4)
Employment costs (including contractors) 39.4 - 39.4 44.5 3.8 48.3
Marketing costs (excluding employee
27.4 - 27.4 22.4 - 22.4
costs)
Data and technology costs 4.4 - 4.4 5.7 - 5.7
Loan repurchase charge 0.1 - 0.1 5.5 - 5.5
Other expenses 10.2 - 10.2 15.8 0.7 16.5
Total operating expenses 89.3 3.9 93.2 101.7 16.9 118.6
6. Exceptional items
The Group reflects its underlying financial results in the Before Exceptional Items column of the
condensed consolidated statement of comprehensive income in order to provide a clear and
consistent view of trading performance.
During the period to 30 June 2021 certain floors of the San Francisco office were sublet to third
parties for the remainder of the term of the head lease for an amount lower than the head lease rental.
As a result the sublease was determined to be a finance lease which resulted in the right-of-use asset
being de-recognised and a net investment in sublease recognised on the balance sheet. The
difference between the carrying value of the right-of-use asset and the net investment in the sublease
was £3.3 million (2020: £nil) and has been recorded in the statement of comprehensive income as an
impairment under exceptional items. Additionally it was determined that the fixed assets associated
with the office were impaired in full as they were no longer used by the Group resulting in impairment
of £0.6 million (2020: £nil). There was no cash movement in relation to the impairment (2020: £nil).
In the prior period, the Group announced the restructuring the German and Dutch (Developing
Markets) businesses. This restructuring resulted in one-off costs totaling £4.9 million. These
comprised redundancy costs of £3.8 million, accelerated depreciation on the right of use assets of
£0.4 million and other costs of £0.7 million. Cash payments associated with redundancy and other
costs totaled £0.7 million to 30 June 2021 (to 30 June 2020: £2.4 million).
In the prior period, the Group recognised a goodwill impairment in relation to the Funding Circle USA
business of £12.0 million. There was no cash movement in relation to the impairment.
26
7. Taxation
The Group calculates the period income tax expense using the tax rate that would be applicable to the
expected total annual earnings. The estimated average annual tax rate used for the six months to 30
June 2021 (excluding the tax charge on Research and Development Expenditure Credits (RDEC)) is
5.30%, compared to nil% for the six months to 30 June 2020. The major components of income tax
expense in the condensed consolidated statement of comprehensive income are:
30 June 30 June
2021 2020
£m £m
Current tax
UK corporation taxation 2.0 0.1
Total current tax 2.0 0.1
Total tax charge 2.0 0.1
The above tax charge includes the amount of tax deducted from the gross RDEC credit receivable for
2021 and 2020 of £0.2m.
The Group has unrelieved tax losses that are available for offset against future taxable profits. The
Group has not recognised a deferred tax asset in respect of these losses as there is not sufficient
evidence of suitable continuing profits being generated to utilise these losses.
8. Earnings/(losses) per share
30 June 30 June
2021 2020
£m £m
Profit/(loss) for the period 33.4 (115.2)
Basic weighted average number of ordinary shares in issue (million) 350.4 348.8
Basic profit/(loss) per share 9.5p (33.0)p
Profit/(loss) for the year before exceptional items 37.3 (98.3)
Basic weighted average number of ordinary shares in issue (million) 350.4 348.8
Basic profit/(loss) per share before exceptional items 10.6p (28.2)p
Profit/(loss) for the period 33.4 (115.2)
Diluted weighted average number of ordinary shares in issue (million) 381.0 348.8
Diluted profit/(loss) per share 8.8p (33.0)p
Profit/(loss) for the year before exceptional items 37.3 (98.3)
Diluted weighted average number of ordinary shares in issue (million) 381.0 348.8
Diluted profit/(loss) per share before exceptional items 9.8p (28.2)p
27
9. Intangible assets
Capitalised development Computer
Other intangibles Total
costs software
£m £m £m £m
Net book value
At 31 December 2020 24.2 0.1 0.1 24.4
At 30 June 2021 23.2 0.2 0.1 23.5
10. Property, plant and equipment, right-of-use assets and lease liabilities
Analysis of property, plant and equipment between owned and leased assets
30 June 31 December
2021 2020
£m £m
Property, plant and equipment (owned) 3.0 3.9
Right-of-use assets 13.6 24.8
16.6 28.7
During the period, right of use assets related to the US San Francisco office were sublet in a finance
sublease. As a result the right of use asset was derecognised and a net investment in sub-lease was
recognised within other receivables.
Lease liabilities – maturity analysis
30 June 31 December
2021 2020
£m £m
No later than one year 7.3 7.3
Later than one year and no later than five years 19.8 21.7
Later than five years 0.4 1.8
Total 27.5 30.8
Lease liabilities
30 June 31 December
2021 2020
£m £m
Current 7.3 7.3
Non-current 20.2 23.5
Total 27.5 30.8
28
11. Interest in associates
The Group holds 23.6% of Funding Circle European SME Direct Lending Fund I and 8.3% of Funding
Circle UK SME Direct Lending Fund I at 30 June 2021 (30 December 2020 and 30 June 2020: 23.6%
and 8.3%) which are accounted as investments in associates.
The Group’s share of profit from associates in the period was £0.4 million (30 June 2020: share of
losses of £1.1 million), the Group received capital distributions of £1.4 million (30 June 2020: £0.8
million) and the Group made additional investment of £nil into the funds (30 June 2020: £0.4 million).
12. Investments in SME loans
30 June 31 December
2021 2020
(Restated)1
£m £m
Non-current
Investment in loans (other) – amortised cost 227.2 25.0
Investment in trusts and co-investments– FVTPL 37.0 21.2
Total non-current 264.2 46.2
Current
Investment in loans (warehouse) – FVTPL 108.8 221.8
Investment in SME loans (securitised) – FVTPL 207.1 279.8
Total Current 315.9 501.6
Total 580.1 547.8
1. See note 1.
13. Borrowings
During 2021, the Group maintained revolving credit facility agreements of up to £220 million in the UK
and $180 million and $175 million for the Group’s US ABS programmes respectively. The facilities
were drawn down in order to fund the purchase of SME loans for the warehouses.
In the prior year, due to the impact of Covid-19 and the refocus towards CBILS and PPP loan
originations, the warehouses ceased reinvestment of proceeds from SME loans and commenced
paying down the outstanding facility balances during 2020.
During the period to 30 June 2021 the loans in the US warehouses were sold and the borrowing
facilities fully paid down using the proceeds. As at 30 June 2021, the amounts drawn in the UK and
US totalled £81.3 million (31 December 2020: £120.6 million) and $nil million (31 December 2020:
$69.2 million) respectively. Interest is payable on the borrowings in the UK at 2.25% plus 1 month
LIBOR and in the US were 2.5% plus the 3 month commercial paper rate on the first facility and at 3
month USD LIBOR + 2% on the second facility respectively.
Additionally in the US the Group has drawn $315.5 million (31 December 2020: $33.1 million) on the
PPP Liquidity Facility available from the Federal Reserve Bank at a fixed interest rate of 0.35% to Fund
PPP loans held on the Group’s balance sheet. The PPPLF contractually mature in up to five years
however is extinguished at the point the corresponding PPP loans are forgiven.
29
14. Provisions and other liabilities
Dilapidation Loan Restructuring1 Other1 Total
repurchase
£m £m £m £m £m
At 1 January 2020 0.9 2.9 - 0.2 4.0
Additional provision/liability - 5.5 4.5 0.9 10.9
Amount utilised - (2.0) (2.4) (0.2) (4.6)
At 30 June 2020 0.9 6.4 2.1 0.9 10.3
Exchange differences - 0.2 - (0.1) 0.1
Additional provision/liability - 0.7 1.5 2.3 4.5
Amount utilised - (2.1) (2.5) (0.4) (5.0)
At 31 December 2020 0.9 5.2 1.1 2.7 9.9
Exchange differences - (0.3) - (0.1) (0.4)
Additional provision/liability - 0.1 - 1.2 1.3
Amount utilised - (1.9) (0.6) - (2.5)
Amount reversed - - (0.1) (2.1) (2.2)
At 30 June 2021 0.9 3.1 0.4 1.7 6.1
1Restructuring provision is in relation to reorganisation of the US, German and Dutch businesses, see note 6. Other provisions
includes provisions for operational buybacks.
Current and non-current
30 June 31 December
2021 2020
£m £m
Current 5.0 8.7
Non-current 1.1 1.2
Total 6.1 9.9
Loan repurchase liability
In certain historical circumstances, in the less mature markets, Funding Circle has entered into
arrangements with institutional investors to assume the credit risk on the loan investments made by
the institutional investors. Under the terms of the agreements, the Group is required either to make
payments when the underlying borrower fails to meet its obligation under the loan contract or buy the
defaulted loan from the investors at its carrying value. In return for these commitments, the Group is
entitled to the excess returns or additional income which is recorded as other income.
Under IFRS 9, the Group is required to provide for these loan repurchases under the expected credit
loss (“ECL”) model.
The liability related to each loan arranged is based on the ECLs associated with the probability of
default of that loan in the next 12 months unless there has been a significant increase in credit risk of
that loan since origination. The Group assumes there has been a significant increase in credit risk if
outstanding amounts on the loan investment exceed 30 days, in line with the rebuttable presumption
per IFRS 9.
The Group defines a default, classified within non-performing, as a loan investment with any
outstanding amounts exceeding a 90-day due date, which reflects the point at which the loan is
considered to be credit-impaired. Under the loan repurchase contracts, this was the point at which
there is an obligation for the Group to make a payment under the contract or buy back the loan.
However, while the buyback agreement is contractually defined as 90 days past due, due to the
impact of Covid-19, a consent letter was signed with the institutional investors in April 2020 to
accommodate loans on forbearance plans whereby loans on such plans will be repurchased at 180
30
days past due. However, the definition of default for the purposes of expected credit losses remains
90 days past due and the buyback may lag the default definition applied.
If the loan is bought back by the Group, at the point of buy back, the financial asset associated with
the purchase meets the definition of purchased or originated credit impaired (“POCI”); this element of
the reserve is therefore based on lifetime ECLs.
The Group bands each loan investment using an internal risk rating and assesses credit losses on a
collective basis.
Performing: Underperforming: Non- Total
performing:
12-month Lifetime Lifetime
ECL ECL ECL
£m £m £m £m
At 1 January 2020 2.1 0.8 - 2.9
Liability against new loans originated - - - -
Exchange differences 0.1 0.1 - 0.2
Liability against loans transferred from performing (0.3) 0.5 4.9 5.1
Amounts utilised - - (4.1) (4.1)
Loans repaid (0.8) - - (0.8)
Change in probability of default 1.1 0.1 0.7 1.9
At 31 December 2020 2.2 1.5 1.5 5.2
Liability against new loans originated - - - -
Exchange differences (0.3) - - (0.3)
Liability against loans transferred from performing (0.1) (0.4) 0.9 0.4
Amounts utilised - - (1.9) (1.9)
Loans repaid (0.6) - - (0.6)
Change in probability of default 0.7 (0.5) 0.1 0.3
At 30 June 2021 1.9 0.6 0.6 3.1
Gross assets of
external parties Loan
subject to loan repurchase
Expected credit Basis for recognition of repurchase liability liability
loss coverage (%) loan repurchase liability (£m) (£m)
As at 31 December 2020
Performing (due in 30 days or less) 10.8 12 month ECL 20.3 2.2
Underperforming (31–90 days overdue) 71.5 Lifetime ECL 2.1 1.5
Non-performing (90+ days overdue) 79.0 Lifetime ECL 1.9 1.5
Total 24.3 5.2
As at 30 June 2021
Performing (due in 30 days or less) 13.8 12 month ECL 13.7 1.9
Underperforming (31–90 days overdue) 63.7 Lifetime ECL 1.0 0.6
Non-performing (90+ days overdue) 77.0 Lifetime ECL 0.8 0.6
Total 15.5 3.1
The percentages applied above are based on the Group’s past experience of delinquencies and loss
trends, as well as forward-looking information in the form of macroeconomic scenarios governed by
an impairment committee, which considers macroeconomic forecasts such as changes in interest
rates, GDP and inflation.
31
Macroeconomic scenarios are probability weighted within the model and include stress scenarios of:
i) low losses, a high GDP, market confidence and political stability; ii) normal losses based on baseline
economic conditions; iii) high losses with manufacturing and political instability; iv) very high losses
reflecting Covid-19 stress scenarios with an acceleration of defaults to a peak in H2 2021 as
government support schemes are eased and then de-stress gradually afterwards.
The stress scenario used was a geography-weighted scenario reflecting higher losses on the
Netherlands book than that of the German portion of the loan book, resulting in a blended stress of
defaults peaking in H2 2021 and de-stressing gradually afterwards.
The expected credit loss model includes actual defaults determined by monthly cohort, adjusted for
forecasted lifetime cumulative default rates. It applies the latest default curve and lifetime default
rates tailored to each cohort based on the expected lifetime default rate. When actual defaults trend
higher than the curve, the forecast default curve is shifted upwards to align with actual performance.
Estimated recoveries from defaults are discounted back to their present value using the effective
interest rate.
Estimation is required in assessing individual loans and when applying statistical models for
collective assessments, using historical trends from past performance as well as forward-looking
information including macroeconomic forecasts such as changes in interest rates, GDP and inflation
in each market together with the impact on loan defaults. The most significant estimation is with
default rates on performing loans. For the period ended 30 June 2021 the weighted average lifetime
default rate is estimated at 20.6% (31 December 2020: 20.5%). If the weighted average default rate
estimate were to change by +/-250bps the liability would change by £1.2 million for the period ended
30 June 2021 (31 December 2020: £1.2 million from +/-240bps). It is considered that the range of
reasonably possible outcomes in annual default rates used might be +/-250bps and as a result it is
possible that the liability in future could diverge from management’s estimate
The maximum exposure the Group might have to pay at the balance sheet date if 100% of eligible loans
were required to be bought back would be £15.5 million (31 December 2020: £24.3 million). This would
be dependent on the timing of any eligible loans defaulting. Repayments of eligible loans are no longer
reinvested and therefore the final loan is due to expire in December 2024, along with the associated
financial guarantees. At 30 June 2021, there is only one portfolio of loans.
32
15. Financial risk management
Financial risks arising from financial instruments are analysed into credit risk, liquidity risk, market
risk (including currency risk, interest rate risk and other price risk) and foreign exchange risk. These
condensed interim financial statements do not include all financial risk management information and
disclosures required in the annual financial statements. Details of how these risks are managed are
discussed in the Funding Circle Holdings plc’s financial statements for the year to 31 December 2020.
There has not been a significant change in the Group’s financial risk management processes or
policies since the year end.
The principal financial instruments used by the Group, from which financial instrument risk arises, are
as follows:
investments;
trade and other receivables;
cash and cash equivalents;
trade and other payables;
loan repurchase liabilities;
bonds;
bank borrowings; and
lease liabilities
Categorisation of financial assets and financial liabilities
The table shows the carrying amounts of financial assets and financial liabilities by category of
financial instrument:
30 June 2021 31 December 2020
Assets at Amortised Other Total Assets at Amortised Other Total
fair value cost fair value cost
through through
profit profit and
and loss loss
£m £m £m £m £m £m £m £m
Assets
Investments in SME loans
- 227.2 - 227.2 - 25.0 - 25.0
(other)
Investment in SME loans
108.8 - - 108.8 221.8 - - 221.8
(warehouse)
Investment in SME loans
207.1 - - 207.1 279.8 - - 279.8
(securitised)
Investment in trusts and co-
37.0 - - 37.0 21.2 - - 21.2
investments
Trade and other receivables 0.1 21.9 - 22.0 0.3 19.4 - 19.7
Cash and cash equivalents 65.4 102.7 - 168.1 24.8 78.5 - 103.3
418.4 351.8 - 770.2 547.9 122.9 - 670.8
Liabilities
Trade and other payables - (12.7) - (12.7) - (7.7) - (7.7)
Loan repurchase liability - - (3.1) (3.1) - - (5.2) (5.2)
Bank borrowings - (309.6) - (309.6) - (195.5) - (195.5)
Bonds (11.8) (192.3) - (204.1) (7.8) (286.5) - (294.3)
Lease liabilities - (27.5) - (27.5) - (30.8) - (30.8)
(11.8) (542.1) (3.1) (557.0) (7.8) (520.5) (5.2) (533.5)
33
Financial instruments measured at amortised cost
Financial instruments measured at amortised cost, rather than fair value, include cash and cash
equivalents, trade and other receivables, investment in SME loans (other), bank borrowings, lease
liabilities, certain bonds, and trade and other payables. Due to their nature, the carrying value of each
of the above financial instruments approximates to their fair value.
Other financial instruments
Loan repurchase liabilities are measured at the amount of loss allowance determined under IFRS 9.
Financial instruments measured at fair value
IFRS 13 requires certain disclosures which require the classification of financial assets and financial
liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs
used in making the fair value measurement.
Disclosure of fair value measurements by level is according to the following fair value measurement
hierarchy:
The fair value hierarchy has the following levels:
• level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date;
• level 2 inputs are inputs other than quoted prices included within Level 1 that are observable
for the asset or liabilities, either directly or indirectly; and
• level 3 inputs are unobservable inputs for the asset or liability.
The definitions, details of the inputs and the valuation techniques in determining the fair values of the
Group’s financial instruments are shown in the Funding Circle Holdings plc financial statements for
the year to 31 December 2020.
The Group's finance department performs the valuations of financial assets and liabilities required for
financial reporting purposes, including Level 3 fair values.
There have been no changes in the valuation techniques for any of the Group’s financial instruments
held at fair value in each of the periods presented.
The fair value of financial instruments that are not traded in an active market (for example,
investments in SME loans) is determined by using valuation techniques. These valuation techniques
maximise the use of observable market data where it is available and rely as little as possible on
entity-specific estimates. If all significant inputs required to fair value an instrument are observable,
the instrument is included in level 2. The investments categorised as level 2 relate to derivative
financial instruments. If one or more of the significant inputs is not based on observable market data,
the instrument is included in level 3.
There were no transfers between Level 1, Level 2 and Level 3 fair value measurements (year to 31
December 2020: none).
34
Fair value measurement using
30 June 2021 31 December 2020
Quoted Significant Significant Quoted Significant Significant
prices in observable unobservable prices in observable unobservable
active inputs inputs active Inputs inputs
markets markets
(level 1) (level 2) (level 3) (level 1) (level 2) (level 3)
£m £m £m £m £m £m
Financial assets
Trade and other receivables - 0.1 - - 0.1 0.2
Investment in SME loans (warehouse) - - 108.8 - - 221.8
Investment in SME loans (securitised) - - 207.1 - - 279.8
Investment in trusts and co-investments - - 37.0 - - 21.2
Cash and cash equivalents 65.4 - - 24.8 - -
65.4 0.1 352.9 24.8 0.1 523.0
Financial liabilities
Bonds - - (11.8) - - (7.8)
- - (11.8) - - (7.8)
The fair value of investment in SME loans (warehouse) has been estimated by discounting future
cash flows of the loans using discount rates that reflect the changes in market interest rates and
observed market conditions at the reporting date. The estimated fair value and carrying amount of the
investment in SME loans (warehouse) was £108.8 million at 30 June 2021 (31 December 2020:
£221.8 million).
The fair value of investment in SME loans (securitised) represents loan assets in the securitisation
vehicles and has been estimated by discounting future cash flows of the loans using discount rates
that reflect the changes in market interest rates and observed market conditions at the reporting date.
The estimated fair value and carrying amount of the investment in SME loans (securitised) was
£207.1 million at 30 June 2021 (31 December 2020: £279.8 million).
Bonds represent the unrated tranches of bond liabilities measured at fair value through profit and loss
(the rated tranches of bonds are measured at amortised cost). The fair value has been estimated by
discounting future cash flows in relation to the bonds using discount rates that reflect the changes in
market interest rates and observed market conditions at the reporting date. The estimated fair value
and carrying amount of the bonds was £11.8 million at 30 June 2021 (31 December 2020: £7.8
million).
Investment in trusts and co-investments represent the Group’s investment in the trusts and
unconsolidated vehicles used to fund CBILS, RLS and core loans and is measured at fair value
through profit and loss. The fair value has been estimated by discounting future cash flows in relation
to the trusts and co-investments using discount rates that reflect the changes in market interest rates
and observed market conditions at the reporting date. The estimated fair value and carrying amount
of the investment in trusts and co-investments was £37.0 million at 30 June 2021 (31 December
2020: £21.2 million).
Fair value movements on investment in SME loans (warehouse), investment in SME loans
(securitised), investments in trusts, and bonds (unrated) are recognised through the profit and loss as
part of net income.
A reconciliation of the movement in level 3 financial instruments is shown as follows:
35
Investment Bonds Investment Trade and
Investment in SME (unrated) in trusts and other
in SME loans loans co- receivables
(warehouse) (Securitised) investments
£m £m £m £m £m
Balance as at 1 January 2020 342.0 366.6 (20.0) - -
Additions 286.9 - - 20.9 -
Securitisations (214.2) 214.2 - - -
Transfers (0.2) - - - 0.2
Repayments (146.9) (211.7) 4.2 - -
Disposal - - (4.0) - -
Net (loss)/gain on the change in fair value of
financial instruments at fair value through (43.4) (87.2) 12.0 0.3 -
profit or loss
Foreign exchange loss (2.4) (2.1) - - -
Balance as at 31 December 2020 221.8 279.8 (7.8) 21.2 0.2
Additions - - - 15.7 -
Transfers 0.2 - - - (0.2)
Repayments (53.1) (77.7) - - -
Disposal (63.6) - - - -
Net (loss)/gain on the change in fair value of
financial instruments at fair value through 4.7 7.2 (4.0) 0.2 -
profit or loss
Foreign exchange loss (1.2) (2.2) - (0.1) -
Balance as at 30 June 2021 108.8 207.1 (11.8) 37.0 -
36
Financial risk factors
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s
receivables from customers and cash and cash equivalents held at banks. The Group’s maximum
exposure to credit risk by class of financial asset is as follows:
30 June 31 December
2021 2020
(Restated)2
£m £m
Non-current
Investment in SME loans (other) 227.2 25.0
Investment in trusts and co-investments 37.0 21.2
Current
Investment in SME loans (warehouse) 108.8 221.8
Investment in SME loans (securitised) 207.1 279.8
Trade and other receivables
- Trade receivables 0.9 1.6
- Other receivables 13.2 15.5
- Rent and other deposits 2.5 2.6
Cash and cash equivalent 168.1 103.3
Total gross credit risk exposure 764.8 670.8
Less bank borrowings and bond liabilities1 (513.7) (489.8)
Total net credit risk exposure 251.1 181.0
1. Included within bank borrowings are $315.5m (31 December 2020: $33.1 million) in relation to draw downs on the PPPLF.
2. See note 1.
In addition the Group is subject to financial guarantees it has issued to buy back loans detailed in the
loan repayment provision in note 14. The Group’s maximum exposure to credit risk on this financial
guarantee were every eligible loan required to be bought back would be £15.5 million (31 December
2020: £24.3 million). Investment in SME loans (warehouse) and investment in SME loans (securitised)
relate to the underlying pool of SME loans in both the warehouse and securitisation vehicles. Whilst
there is credit risk from the loans defaulting, these SME loans and the associated bank debt or third
party bonds are held within bankruptcy remote vehicles. If the SME loans were to all default, then the
bank debt holders or third party bondholders would not receive their money back. Therefore the
overall exposure to the Group for these investments is the Group’s net investment in the SME loans
which is after taking account of the bank debt and third party bonds. The investment in SME loans
(other) includes PPP loans funded by the use of the PPPLF. The loans are guaranteed by the US
Government in the event of default and the loans are anticipated to be forgiven. At the point of
default and subsequent collection of the guarantee or point of forgiveness, the loan and the
respective borrowings under the PPPLF are extinguished.
Trade receivables represent invoiced amount in respect of servicing fees due from institutional
investors. The risk of financial loss is deemed minimal because the counterparties are well
established financial institutions.
Ongoing credit evaluation is performed on the financial condition of other receivables and, where
appropriate, a provision for impairment is recorded in the financial statements.
Other receivables includes amounts receivable in respect of credit impaired debts acquired by the
Group. The carrying amount of these loans are stated net of impairment charges, represents the
37
Group’s maximum exposure to credit risk as no collateral or other credit enhancements are held.
The credit risk on cash and cash equivalents is limited because the counterparties are banks with the
majority holding credit ratings assigned by international credit rating agencies of A- or higher.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Group’s position.
The Group’s liquidity position is monitored and reviewed on an ongoing basis by the Directors. As the
investments in loan securities held within the ABS warehouses are planned to be monetised within a
short time horizon these are classified as current assets.
Interest rate risk
a) Interest rate risk sensitivity analysis – non trading interest (fixed rate)
Interest on investments in SME loans and on the PPPLF borrowings is fixed until the maturity of the
investment and is not impacted by market rate changes.
b) Interest rate risk sensitivity analysis – non trading interest (floating rate)
Interest on cash and cash deposit balances are subject to movements in LIBOR. The Directors
monitors interest rate risk and note that interest rates remain near historical low. The Directors
believe that any reasonable increase in the Libor rate would not significantly impact the Group.
Interest on UK warehouse borrowings are subject to movements in 1 month GBP LIBOR. However, the
Group has taken out interest rate caps to mitigate the risk of interest rate rises.
Interest on bonds (in the UK) is subject to movements in the Sterling Overnight Index Average Rate
(“SONIA”). However, the Group has mitigated the risk of increases in interest rates through the use of
interest rate caps.
Following the financial crisis, the reform and replacement of benchmark interest rates such as GBP
LIBOR and other inter-bank offered rates (‘IBORs’) has become a priority for global regulators.
There remains some uncertainty around the timing and precise nature of these changes. As described
above the Group is exposed to GBP and USD LIBOR on bank borrowings.
The Group has monitored the market and output from industry working groups and regulators which
manage the transition to the new benchmark interest rates away from GBP LIBOR to SONIA and USD
LIBOR to SOFR. In response to the transition the Group has identified all its LIBOR exposures and is
undertaking a plan to smoothly transition to alternative benchmark rates. Given the Group’s
exposures relate to bank borrowings, the impact is limited and the Group expects to rely on fall-back
language within the contracts.
The amendments to IFRS 9 will be applied until uncertainty arising from the benchmark interest rate
reforms that the Group is exposed to ends. This uncertainty will remain until the Group’s contracts
that reference LIBOR are amended to reference the alternative benchmark.
38
16. Cash outflow from operations
30 June 30 June
2021 2020
£m £m
Profit/(loss) before taxation 35.4 (115.1)
Adjustments for:
Depreciation of property, plant and equipment 3.4 4.6
Amortisation of intangible assets 4.9 3.6
Impairment of goodwill (exceptional item) - 12.0
Impairment of tangible assets (exceptional item) 3.9 0.4
Interest receivable (0.1) (0.3)
Interest payable 0.6 0.8
Non-cash employee benefits expense – share based payments and associated social security
4.4 4.3
costs
Fair value adjustments (8.1) 96.1
Movement in restructuring provision (exceptional item) (0.7) 2.1
Movement in other provisions (3.1) 4.2
Share of (gains)/losses of associates (0.4) 1.1
Other non-cash movements 0.3 (0.4)
Changes in working capital:
Movement in trade and other receivables 14.0 (18.8)
Movement in trade and other payables 19.6 4.8
Net cash inflow/(outflow) from operating activities 74.1 (0.6)
Analysis of changes in liabilities from financing activities
1 January Cash flows Exchange Other non- 30 June
2020 movements cash 2020
movements
£m £m £m £m £m
Bank borrowings (265.8) (5.9) (7.7) - (279.4)
Bonds (348.7) (89.4) (11.8) 11.9 (438.0)
Lease liabilities (38.3) 3.5 (1.5) 0.1 (36.2)
Liabilities from financing activities (652.8) (91.8) (21.0) 12.0 (753.6)
1 January Cash flows Exchange Other non- 30 June
2021 movements cash 2021
movements
£m £m £m £m £m
Bank borrowings (195.5) (114.3) 0.2 - (309.6)
Bonds (294.3) 92.8 1.4 (4.0) (204.1)
Lease liabilities (30.8) 3.8 0.1 (0.6) (27.5)
Liabilities from financing activities (520.6) (17.7) 1.7 (4.6) (541.2)
39
17. Cash and cash equivalents
30 June 31 December
2021 2020
£m £m
Cash and cash equivalents 168.1 103.3
The cash and cash equivalents balance is made up of cash, money market funds and bank deposits.
The carrying amount of these assets is approximately equal to the fair value.
Included within cash and cash equivalents above is a total of £33.9 million (31 December 2020: £44.2
million) in cash which is restricted in use. Of this: i) £1.0 million (31 December 2020: £1.0 million) is
held in the event of rental payment defaults; ii) £25.1 million (31 December 2020: £38.9 million) is
held in the securitisation and warehouse SPVs which has been collected for on-payment to lenders
and bond holders and is therefore restricted in its use; iii) £7.8 million (31 December 2020: £4.3
million) is held within Funding Circle Focal Point Limited and Funding Circle Eclipse Limited and which
is restricted in use to repaying investors in CBILS/RLS loans and paying CBILS and RLS-related costs
to the UK Government.
At 30 June 2021, cash equivalents relating to money market funds totalled £65.4 million (31
December 2020: £24.8 million).
18. Related party transactions
The basis of remuneration of key management personnel remains consistent with that disclosed in
the 2020 Annual Report and Accounts. There were no other related party transactions which had a
material impact on these condensed interim financial statements.
19. Contingent liabilities
In common with other businesses, the Group is involved from time to time in disputes in the ordinary
course of business. These disputes can include counter claims made by defaulted borrowers, against
whom Funding Circle has filed a claim for the recovery of monies owed under a loan agreement. There
is one current case in the US. Funding Circle considers these claims to be without any substantive
legal merit and does not expect them to have a material adverse financial impact on the group’s
consolidated results or net assets, however as proceedings are in the early stages the outcome cannot
be reliably measured.
20. Financial risk management
The Group’s financial risks and risk management objectives and policies are consistent with those
disclosed in the consolidated financial statements as at and for the year to 31 December 2020.
21. Subsequent events
There have been no subsequent events since the balance sheet date.
40
Glossary
Alternative performance measures
The Group uses a number of alternative performance measures (“APMs”) within its financial
reporting. These measures are not defined under the requirements of IFRS and may not be
comparable with the APMs of other companies. The Group believes these APMs provide stakeholders
with additional useful information in providing alternative interpretations of the underlying
performance of the business and how it is managed and are used by the Directors and management
for performance analysis and reporting. These APMs should be viewed as supplemental to, but not
as a substitute for, measures presented in the financial statements which are prepared in accordance
with IFRS.
APM Closest equivalent Adjustments to Definition
IFRS measure reconcile to
IFRS measure
Income statement
Adjusted EBITDA, while not Refer to Finance Profit/loss before finance income and costs, taxation,
EBITDA defined under IFRS, Review. depreciation and amortisation (“EBITDA”) and additionally
is a widely excludes share-based payment charges and associated
accepted profit social security costs, foreign exchange and exceptional
measure items.
Investment EBITDA, while not Refer to Finance Investment AEBITDA is defined as investment income,
AEBITDA and defined under IFRS, Review. investment expense and fair value adjustments and
Operating is a widely operating AEBITDA represents AEBITDA excluding
AEBITDA accepted profit investment AEBITDA.
measure
Net investment Net income Refer to Net investment income, represents investment income less
income performance investment expense.
highlights
Exceptional None. Refer to note 6. Items which the Group excludes from adjusted EBITDA in
items order to present a measure of the Group’s performance.
Each item is considered to be significant in nature or size
and is treated consistently between periods. Excluding
these items from profit metrics provides the reader with
additional performance information on the business across
the business as it is consistent with how information is
reported to the Board and GLT.
Cash flow
Free cash flow Cash generated Refer to Net cash flows from operating activities plus the cost of
from operating Finance Review. purchasing intangible assets, property, plant and equipment,
activities. lease payments and interest received. It excludes the
warehouse and securitisation financing and funding cash
flows.
41
Independent review report to Funding Circle Holdings plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Funding Circle Holdings plc’s condensed consolidated interim financial statements (the “interim
financial statements”) in the Half Year 2021 Results of Funding Circle Holdings plc for the 6 month period ended
30 June 2021 (the “period”). Based on our review, nothing has come to our attention that causes us to believe that the
interim financial statements are not prepared, in all material respects, in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook
of the United Kingdom’s Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the Condensed consolidated balance sheet as at 30 June 2021;
the Condensed consolidated statement of comprehensive income for the period then ended;
the Condensed consolidated statement of cash flows for the period then ended;
the Condensed consolidated statement of changes in equity for the period then ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the Half Year 2021 Results of Funding Circle Holdings plc have been prepared
in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Half Year 2021 Results, including the interim financial statements, is the responsibility of, and has been approved by
the directors. The directors are responsible for preparing the Half Year 2021 Results in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim financial statements in the Half Year 2021 Results based on
our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom’s Financial Conduct
Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly
agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410,
‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing
(UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Year 2021 Results and considered whether it contains any
apparent misstatements or material inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
9 September 2021
42
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