Funding Circle
Holdings plc
Full Year 2024
Results
STRONG GROWTH
WITH PROFIT AHEAD OF EXPECTATIONS
ON TRACK TO
DELIVER MEDIUM TERM GUIDENCE
Funding Circle Holdings plc
(“Funding Circle” or the “Group”) today announces results for the
twelve months ended 31 December 2024.
Lisa Jacobs,
Funding Circle CEO, commented:
“2024 was a
transformative year for Funding Circle. We successfully executed
our plan to build a simpler, leaner, and more profitable business
while making strong progress in expanding our Term Loans and
FlexiPay offerings. The results we are reporting today show strong
revenue growth of 23% to £160m and FY profit of £3.4m, ahead of
market expectations.
“Strong SME
demand drove growth in our Term Loans business, allowing us to
support more borrowers than ever and increase originations by 33%.
At the same time, FlexiPay, our shorter-term lending product,
continues to see rapid adoption.
“Our
commitment to product expansion, powered by our leading data and
technology capabilities, has strengthened our role in supporting
small businesses. The launch of our Cashback credit card in the
second half of the year enhances our offering, enabling businesses
not only to borrow and pay later but also to spend with Funding
Circle.
“With strong
foundations in place, we are confident in our strategy and the
opportunities ahead. We remain on track to achieve our medium-term
target of over £200m in revenue, with PBT margins exceeding
15%.”
|
|
FY
2024
|
FY 2023[1]
|
|
|
£m
|
£m
|
|
Credit extended2
|
1,899
|
1,294
|
|
Balances under
management2
|
2,833
|
2,922
|
|
Revenue3
|
160.1
|
130.1
|
|
Profit/(loss) before taxation
(before exceptional items)
|
3.4
|
(9.9)
|
|
Profit/(loss) before taxation
(after exceptional items)
|
0.8
|
(9.9)
|
|
Unrestricted
Cash4
|
150.5
|
169.6
|
Financial
Summary:
-
For the Continuing
Group1,
credit extended grew 47% to £1,899m (2023: £1,294m):
-
Continued momentum
in UK Term Loan (“Term Loan”) originations up 33% to £1,407m (2023:
£1,060m).
-
Strong growth in
FlexiPay transactions, more than doubling to £492m (2023:
£234m).
-
Balances under
management were slightly lower at £2,833m (2023: £2,922m) in line
with expectations:
-
Term Loan Loans
under Management (“LuM”) of £2,714m (2023: £2,853m) reflects the
repayment of legacy Covid government-guaranteed loans and is
expected to grow in 2025.
-
FlexiPay balances,
which drive FlexiPay’s revenue, doubled to £119m (2023:
£58m).
-
Revenue was £160.1m
with 23% growth on 2023 with a strong performance from both Term
Loans and FlexiPay.
-
Significant move to
profit, with profit before tax (PBT) pre-exceptionals of £3.4m
(2023: Loss before tax
£9.9m).
-
Term Loans
increased profitability with PBT pre-exceptionals of £19.0m (2023:
£6.5m) reflecting strong cost actions and operating leverage, which
covers the investment in FlexiPay and the Cashback credit
card.
-
Exceptional items
of £2.6m, related to the simplification and streamlining of the
business announced in May 2024, led to a profit before tax of £0.8m
(2023: £9.9m loss).
-
Unrestricted cash
remained healthy at £150.5m (2023: £169.6m), with a decrease due to
the two share buyback programmes in the year, which are anticipated
to conclude in Q2 2025. As at 31 December 2024, £33.7m worth of
shares (33.5m shares) of the total £50m of announced buybacks had
been purchased.
1
The comparative financial
information has been re-presented to exclude the US business which
is presented as discontinued operations. The Continuing Group
excludes the US discontinued operations.
2
Credit extended includes
Originations and Transactions and Balances under management include
LuM and Lines of Credit.
3
Net income is also referred to as
“Revenue”.
4
Unrestricted cash refers to total
cash less cash that is restricted in use.
Operational
& Strategic Summary:
-
Delivered on our
plan for a simpler, leaner and profitable business:
- Successful sale of US business
to iBusiness Funding for a gain on sale of £10m.
- Progressed cost-efficiency
actions and on track to deliver c.£15m of annualised benefit in
2025 and, together with the US sale, reduced total headcount to 726
(Dec 2023: 1,101 including US).
-
Continued to drive
growth and innovate across all our products to support our
strategic ambitions:
- Term
Loans: Origination growth of 33% with
increasing PBT margins to 13.3%, driven by product innovation and
cost actions. Launched the government’s Growth Guarantee Scheme
(GGS) loans, allowing us to extend credit to a broader set of the
market. Grew the breadth of our Marketplace product set, monetising
our distribution strength, and allowing us to extend credit to
businesses that we can’t help directly get the funding they
need.
- FlexiPay:
Continued strong
growth from both new and existing customers, with 70% of 2024
revenue from existing customers (pre-2024). Transactions doubled
and closing balances grew 105% to £119m.
- Cashback
credit card: Launched in H2 2024 with steady
uptake in users and borrower usage exceeding
expectations.
-
Robust and
attractive Term Loan returns through the cycle:
- Annualised net returns on Term
Loans consistently ~5%, above cost of capital, to institutional
investors.
Looking
ahead:
-
Our refreshed
strategic priorities are focused on customer-led profitable
growth:
- Get to
yes: get the
right product to the right business, through credit excellence and
product improvements.
- Expand our
audience: target new segments; deepen and
expand our distribution channels.
- Scale our
products: capitalise on the large market
opportunity by focusing on refining and scaling our products to
drive growth and margin expansion.
- Build a
seamless lifetime customer experience: deliver an exceptional
experience throughout our customers’ lifetime journey with our
expanded product set, as their trusted financial
partner.
We have made a good start to the
year, we have attractive growth opportunities and are on track to
deliver our medium term guidance in 2026 of 15-20% revenue CAGR
from FY23 and PBT margins of >15%, equating to:
-
Revenue of at least
£200m
-
Profit before tax
of at least £30m
Board
Changes
The Company noted in the FY 2023
Annual Report and Accounts that there would be some upcoming
changes in Board composition in respect of some of its long-tenured
Directors.
Geeta Gopalan, Chair of the Audit
& Risk Committee and Senior Independent Director, and Neil
Rimer, Non-Executive Director, have both informed the Board of
their intention to step down later this year. To ensure a smooth
transition and maintain Board continuity, they will stand for
re-election at the forthcoming Annual General Meeting and, subject
to shareholder approval, intend to continue to serve as Directors
until suitable candidates have been identified and
appointed.
With Ken Stannard now in place as
Chair Designate, the Nomination Committee has renewed its search
process for independent Non-Executive Directors, with the
appropriate skills and experience to drive the business through the
next phase of growth.
Analyst
presentation:
Management will host a
presentation and conference call for institutional investors and
analysts at 9:30am UK time (BST), on Thursday 6 March
2025.
To watch and listen to the
webcast, with the opportunity to submit written questions, please
use this link to register and gain access to
the event.
For conference call access, please
dial +44 33 0551 0200 or +1 786 697 3501. Quote ‘Funding Circle
Full Year Results’ when prompted by the operator.
An on-demand replay and transcript
will also be available on the Funding Circle website following the
presentation.
For further
details:
Funding
Circle Holdings plc ir@fundingcircle.com
Lisa Jacobs, Chief Executive
Officer
Tony Nicol, Chief Financial
Officer
Headland
Consultancy
Stephen Malthouse and Jack Gault
(+44 20 3805 4822)
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.
About
us:
Funding Circle is the UK’s leading
SME finance platform. We operate in a large, attractive and growing
market, with over £80bn of outstanding debt in the UK SME market
and £1.3trn of B2B SME payments each year. In the UK, Funding
Circle has extended £14.6bn in credit to c.110,000
businesses.
We provide an unrivalled customer
experience, powered by data and technology. This advantage is clear
in our credit assessment process, with our models 3x better at
discriminating risk than traditional bureau scores. It also
delivers superior results for our customers. 77% of applicants
receive an instant decision, we have a strong NPS of 79 and see
strong repeat usage, especially with FlexiPay.
We are constantly
looking at ways to innovate our product offering which enables
customers to borrow, pay later and spend with Funding Circle and
serve more small business needs. In Q3 2024, we launched a new
Cashback credit card for everyday business spending.
Business
Review
2024 was a successful year of
change and transformation as we executed against our plan to
deliver a simpler, leaner and profitable
business. We have delivered strong revenue growth and
profitability ahead of market expectations. Our business is in a
strong position as the market leader in online SME lending. We have
leveraged our data and technology strengths to expand our product
set to serve more of our customers’ needs. We have delivered
robust, attractive loan returns to our institutional investors
through the cycle. We have an attractive go forward plan, driving
sustained revenue growth and expanding our
margins.
Borrow, Pay
Later and Spend: Our multiproduct transformation
Three years ago we set an ambition
to be a multi-product business, one that enabled businesses to not
only borrow for the longer term, but to also pay later and spend,
becoming a more important part of our customers’ lives and
providing further growth opportunities. Over the last three years,
we have delivered against this plan. Today, businesses can borrow
with our Term Loan, for longer term investment; pay later, managing
their cash flow through FlexiPay; or spend on our Cashback credit
card.
This shift is reaping strong
rewards for our business. First, we have seen strong growth. In
2024, more than a quarter of our credit extended was via FlexiPay
and FlexiPay revenue grew threefold. Secondly, we are seeing an
increase in our share of our customers’ financing as over 70% of
FlexiPay revenue came from existing Term Loan customers. Finally,
we have increased our interactions and engagement with our
customers. Three years ago, we interacted with a customer
approximately every half an hour, today we interact with a customer
every 92 seconds as they take a loan, FlexiPay a supplier or spend
on their business credit card.
Our competitive
advantage: data and technology at the heart of everything we
do
We’ve delivered this by leveraging
our credit, data and technology advantage, delivering the same
great customer experience. SMEs want fast, easy access to credit.
We provide that with a six minute application form, an instant
decision for 77% of applicants and funding in businesses’ accounts
in as little as 24 hours. This drives strong customer satisfaction
with an NPS of 79 and enables our busy customers to get back to
what they do best, running their business.
Our AI powered risk models are
trained with data from public sources alongside proprietary data on
our hundreds of thousands of loans and transactions and are three
times better at discriminating risk than the bureau scores alone.
Despite the challenging macroeconomic environment of the last
several years, our business has delivered well through the cycle.
Loan returns have been robust and attractive, attracting further
institutional investor demand and we have continued to attract and
serve SME demand.
Fuelling the
nation’s SMEs
We’re passionate about our
mission. We provide the fuel to power SMEs up and down the country.
We enable these entrepreneurs to build great businesses that create
jobs, bring economic growth and support their communities. They
aren’t the high growth venture-backed rocket ships, but they are
the backbone of the economy - the florists, the manufacturers, the
restauranteurs, the builders and countless others. They have a huge
impact on the economy, but they have historically been underserved.
For the last 15 years, we’ve been changing that with fast, easy
finance that backs small businesses.
As we continue to back these
businesses, we’re also backing the economy. In 2024, lending
through Funding Circle supported over 87,000 jobs; £7.2bn in GDP
contribution and £2.0bn in tax receipts. We lent to businesses in
every one of the country’s 650 constituencies.
2024: A simpler,
leaner, high growth, profitable business
In 2024, we executed well. We
delivered £3.4m in PBT pre-exceptionals, above market expectations
and up from a loss of £9.9m in 2023. Revenue grew by 23% to £160m.
Alongside this, our credit extended grew 47% to £1.9bn. We have a
strong balance sheet and, despite £33.7m of share buybacks in 2024,
we finished the year with a healthy unrestricted cash position of
£151m.
Our core Term Loans business grew
strongly with 33% origination growth, reaching £19.0m in PBT, a
margin of 13.3% as we attracted more businesses and enhanced our
product offering, launching government-backed Growth Guarantee
Scheme loans and a broader Marketplace offering.
FlexiPay, our pay later
proposition, continued to show strong growth with revenue tripling
over the course of the year. Businesses have now FlexiPaid more
than 280,000 times. When we launched FlexiPay, we had a hypothesis
that this would be a product that would attract both existing and
new to Funding Circle customers, and this is the case - with ~30%
of our 2024 FlexiPay revenue from new customers. We continue to see
strong usage from existing FlexiPay customers, once a customer
starts using FlexiPay it becomes part of their day to day cash flow
management tools. In 2024, over 70% of revenue was from customers
who had opened their FlexiPay account before 2024. In H2 2024, we
launched our Cashback credit card, completing our ‘borrow, pay
later and spend’ proposition. It is still early days for our
Cashback credit card but initial metrics are in line with our
expectations and we look forward to seeing further growth in 2025
and beyond.
We sold the US business in July
for a gain on sale of £10m and restructured the UK business, to
deliver ~£15m in annualised cost savings from 2025. These were not
easy decisions to make. We said goodbye to some talented Circlers
who were vital in our business’s journey. However, these decisions
were essential to position the Group for long term success - they
have placed the business in a strong position to deliver against
our medium-term plan with continued growth and profitability
trajectory.
Looking
ahead
2024 was a strong year, but we are
still just scratching the surface. The market opportunity is vast,
there is over £80bn in SME loans outstanding, over £1trn in SME B2B
payments and over £80bn in SME card transactions. We are in a
strong position to capitalise on this opportunity with high
customer satisfaction rates driven by proprietary and defensible
data and technology advantages.
Our four strategic priorities are
focused on profitable, customer-led growth:
-
Get to
yes: get the
right product to the right business, through credit excellence and
product improvements.
-
Expand our
audience: target new segments; deepen and
expand our distribution channels.
-
Scale our
product offering: capitalise on the large market
opportunity by focusing on refining and scaling our products to
drive growth and margin expansion.
-
Build a
seamless lifetime customer experience: deliver an exceptional
experience throughout our customers’ lifetime journey with our
expanded product set, as their trusted financial
partner.
We have a strong, mission-driven
team, a clear vision and plan. As we execute this plan, we'll
become an even more integral part of our customers' lives, fuelling
the success stories of hundreds of thousands more businesses and
creating countless jobs. We see a future where Funding Circle is at
the heart of SMEs' financial lives, providing the tools and
resources they need to thrive.
Finance review
Overview of the year ended 31 December 2024
We were pleased with the strong
operational and strategic performance in 2024. We saw significant
growth in both of our businesses and improving Group profitability
compared to 2023. The Group comprises two continuing Business Units
which are at different stages of maturity: Term Loans (a
longer-term financial product offering) and FlexiPay (a
shorter-term working capital product).
In H2 2024 we launched the
Cashback credit card. Given its recent launch, its contribution is
relatively minimal. We have therefore included its results,
transactions and balances in the FlexiPay segment.
The US business was sold on 1 July
2024 and is therefore treated as discontinued in the
year.
|
|
Originations and
transactions
|
|
Balances under
management
|
|
|
FY
2024
|
FY 2023
|
|
31 December
2024
|
31 December 2023
|
|
|
£m
|
£m
|
|
£m
|
£m
|
|
Continuing
operations
|
|
|
|
|
|
|
UK Term Loans
|
1,407
|
1,060
|
|
2,714
|
2,853
|
|
Other
|
—
|
—
|
|
n/a
|
11
|
|
FlexiPay
|
492
|
234
|
|
119
|
58
|
|
Total
|
1,899
|
1,294
|
|
2,833
|
2,922
|
Term
Loans
Term
Loans originations increased by 33% to £1,407m (2023: £1,060m).
Growth was driven by increased applications, product innovation and
enhancements. We participated in the third iteration of the
Recovery Loan Scheme (“RLS”) (H2 2023 to H1 2024) and the
longer-term government guarantee programme, the Growth Guarantee
Scheme (“GGS”) (from H2 2024). These schemes have enabled us to
provide finance to SMEs in parts of the market we would not have
reached otherwise.
Term
loan originations were funded in a platform model through forward
flow agreements with institutional investors. As the loans are
owned by these institutional investors, the LuM do not form part of
Funding Circle’s balance sheet.
We have
also continued to grow originations through our Marketplace network
of third party finance providers, where we refer SMEs if we are
unable to lend to them directly, earning a commission. This allows
us to support an even greater number of SMEs access a wide range of
financing options.
Despite
strong originations in the year, LuM decreased in 2024 as the
amortisation of the legacy Covid-19 government-guaranteed loans
outpaced growth in new lending.
As at 31
December 2024, the legacy Covid-19 loans represented £743m (31
December 2023: £1,457m), c.27% of total LuM. We expect Term Loan
LuM to grow in 2025.
As at 31
December 2024, we have c.£2.1bn of forward funding in place for
future originations.
FlexiPay and
Cashback credit card
Our line of credit product,
FlexiPay, has demonstrated significant growth to date and we
continue to invest in it. We successfully launched our Cashback
credit card in H2 2024 with a good uptake from our
customers.
Transactions more than doubled
since FY 2023, reaching £492m (2023: £234m), demonstrating strong
customer engagement. Drawn lines of credit (“balances”) grew to
£119m at 31 December 2024 (2023: £58m), in line with transaction
growth.
FlexiPay and the Cashback credit
card are funded by Funding Circle capital and a senior debt
facility. The lines of credit are part of Funding Circle’s balance
sheet.
Segmental highlights
|
|
31 December 20241
|
31
December 20231
|
|
|
Continuing operations
|
Continuing
operations
|
|
|
UK Term Loans
|
FlexiPay
|
Total
|
UK Term
Loans
|
FlexiPay
|
Other
Term Loan
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Transaction
fees
|
84.7
|
0.6
|
85.3
|
65.2
|
0.1
|
—
|
65.3
|
|
Servicing
fees
|
37.5
|
—
|
37.5
|
38.8
|
—
|
0.2
|
39.0
|
|
Interest
income
|
8.3
|
22.6
|
30.9
|
7.5
|
7.8
|
0.1
|
15.4
|
|
Other
fees
|
5.1
|
0.1
|
5.2
|
6.3
|
—
|
0.1
|
6.4
|
|
Operating
income
|
135.6
|
23.3
|
158.9
|
117.8
|
7.9
|
0.4
|
126.1
|
|
Net
investment income
|
2.8
|
—
|
2.8
|
3.6
|
—
|
—
|
3.6
|
|
Total income
|
138.4
|
23.3
|
161.7
|
121.4
|
7.9
|
0.4
|
129.7
|
|
Fair
value gains
|
4.2
|
—
|
4.2
|
3.1
|
—
|
—
|
3.1
|
|
Cost of
funds
|
—
|
(5.8)
|
(5.8)
|
—
|
(2.7)
|
—
|
(2.7)
|
|
Net income (“revenue”)
|
142.6
|
17.5
|
160.1
|
124.5
|
5.2
|
0.4
|
130.1
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
37.0
|
(12.5)
|
24.5
|
21.3
|
(14.4)
|
(0.2)
|
6.7
|
|
Discount
unwind on lease liabilities
|
(0.6)
|
—
|
(0.6)
|
(0.2)
|
—
|
—
|
(0.2)
|
|
Depreciation,
amortisation, impairment and modification gains/(losses)
|
(11.4)
|
(1.8)
|
(13.2)
|
(11.3)
|
(1.3)
|
—
|
(12.6)
|
|
Share-based
payments and social security costs
|
(6.5)
|
(1.3)
|
(7.8)
|
(3.3)
|
(0.5)
|
—
|
(3.8)
|
|
Exceptional
items
|
(2.3)
|
(0.3)
|
(2.6)
|
—
|
—
|
—
|
—
|
|
Foreign
exchange gains
|
0.5
|
—
|
0.5
|
—
|
—
|
—
|
—
|
|
Profit/(loss) before tax
|
16.7
|
(15.9)
|
0.8
|
6.5
|
(16.2)
|
(0.2)
|
(9.9)
|
1. In
the year to 31 December 2024, “Other” Term Loans are presented
within the UK Term Loans segment on the basis that the legacy
European operations included within Other are immaterial. The
comparative period has not been re-presented.
The
segmental results of the US business are not presented
above.
Revenue
from continuing operations was £160.1m (2023: £130.1m), a 23%
increase. Revenue consists of total income, fair value movements on
SME loans held for sale and investments in trusts. It is net of
cost of funds on the senior debt facility for
FlexiPay.
The
Group made a profit before tax (before exceptional items) from
continuing operations of £3.4m (2023: loss of £9.9m). The
exceptional items of £2.6m related to restructuring undertaken in
the UK, mainly comprising redundancy costs. After exceptional
items, the profit before tax from continuing operations was £0.8m
(2023: loss of £9.9m).
Term
Loans
The Term
Loans business delivered revenue of £142.6m growing 15% on FY 2023.
This growth came principally from the growth in originations and
the corresponding transaction fees. Servicing fees reduced in the
year, reflecting the reduction in LuM.
The
start of 2024 saw heightened demand from borrowers which normalised
in the second quarter. We did experience more subdued demand over
the summer months when businesses were awaiting the new
government’s October Budget, and we then saw demand pick up in the
final quarter.
Term
Loans generated AEBITDA of £37.0m in 2024 compared to £21.3m in the
prior year, with AEBITDA margin improvement. This demonstrated the
strong operational leverage we are achieving from the more mature
business, where costs above AEBITDA increased by 2.3% following
cost actions, while revenue grew by 15%.
Profit
before tax and exceptional items was £19.0m, up from £6.5m in FY
2023, primarily due to the growth in AEBITDA. After exceptional
items, profit before tax was £16.7m, compared with £6.5m in
2023.
FlexiPay and
Cashback credit card
Revenue
for FlexiPay was £17.5m in 2024, increasing from £5.2m in 2023 as a
result of a rise in the number of transactions and fee
growth.
When the
product was initially launched customers were able to draw and
repay within a 3-month period. In H1 2024 we expanded repayment
options to include 1, 3, 6, 9 and 12 months, with fees varying
depending on payback period. As a result, the average fee for each
drawdown grew to 5.8% (2023: 4.6%), reflecting a longer average
repayment period of 4 months.
A
Cashback credit card was launched in H2 2024. When customers
transact using cards, we earn an interchange fee of 1.75% alongside
interest on any revolving balances. The revenues earned from the
Cashback credit card in 2024 were relatively minimal.
FlexiPay
is funded through Funding Circle invested capital and a senior debt
facility with Citibank (it was solely funded by Funding Circle
until June 2023). The interest payable on this facility is shown in
“cost of funds” and is based on SONIA plus a margin. This facility
is for £150m with the ability to upsize further and is due for
renewal in August 2025.
The
AEBITDA result was negative £12.5m (2023: negative £14.4m), with
continued investment to support product momentum. The principal
costs incurred include staff-related expenses, marketing costs and
expected credit losses which are required to be recognised upfront
for both drawn and undrawn lines of credit.
As the
business continues to grow, we anticipate ongoing investment with a
resultant increase in the cost base, principally marketing and
expected credit losses. Once onboarded, we earn repeat revenues as
the customer uses the product.
US Term Loans business
As was
previously announced, the Group signed an agreement in June 2024 to
sell the US business to iBusiness Funding, LLC. The sale was
completed on 1 July 2024, at which point the US business was
deconsolidated.
The
operations of the US business are presented in a single line as
discontinued operations within the financial statements.
The
Group recognised a gain on sale of £9.8m (excluding foreign
exchange reserve recycling through the profit and loss). Further
details can be found in the financial statements in note
4.
Profit and loss
|
|
Before exceptional items
£m
|
|
31 December
2024
Total
£m
|
31
December
2023
(re-presented)1
£m
|
|
Transaction
fees
|
85.3
|
—
|
85.3
|
65.3
|
|
Servicing
fees
|
37.5
|
—
|
37.5
|
39.0
|
|
Interest
income
|
30.9
|
—
|
30.9
|
15.4
|
|
Other
fees
|
5.2
|
—
|
5.2
|
6.4
|
|
Operating income
|
158.9
|
—
|
158.9
|
126.1
|
|
Net
investment income
|
2.8
|
—
|
2.8
|
3.6
|
|
Total income
|
161.7
|
—
|
161.7
|
129.7
|
|
Fair
value gains
|
4.2
|
—
|
4.2
|
3.1
|
|
Cost of
funds
|
(5.8)
|
—
|
(5.8)
|
(2.7)
|
|
Net income (“revenue”)
|
160.1
|
—
|
160.1
|
130.1
|
|
People
costs
|
(68.1)
|
(2.3)
|
(70.4)
|
(65.5)
|
|
Marketing
costs
|
(45.6)
|
—
|
(45.6)
|
(37.1)
|
|
Depreciation,
amortisation and impairment
|
(13.2)
|
(0.3)
|
(13.5)
|
(12.6)
|
|
Charge
for expected credit losses
|
(8.6)
|
—
|
(8.6)
|
(4.5)
|
|
Other
costs
|
(21.2)
|
—
|
(21.2)
|
(20.3)
|
|
Operating expenses
|
(156.7)
|
(2.6)
|
(159.3)
|
(140.0)
|
|
Profit/(loss) before tax from continuing operations
|
3.4
|
(2.6)
|
0.8
|
(9.9)
|
1 The
comparative consolidated statement of comprehensive income has been
re-presented to reflect the results of the US business as a
discontinued operation.
Operating
income includes transaction
fees, servicing fees, interest income from loans held at amortised
cost, interest on cash balances and other fees and was £158.9m
(2023: £126.1m).
• Transaction
fees, representing fees earned on originations, increased to £85.3m
(2023: £65.3m), driven by growth in originations as the business
continued to expand its Term Loan offering to more segments of the
market, and attract more applications from SMEs. Average
transaction fee yields decreased in the Term Loans business to 6.0%
(2023: 6.2%) due to the mix in government-guaranteed/non-government
lending.
• Servicing
fees, representing income for servicing LuM, were £37.5m (2023:
£39.0m). The fees move in line with the quantum of LuM which
decreased in the Term Loans business as growth in LuM from new
lending was offset by continued repayment on the legacy Covid-19
scheme loans outpacing the impact of new originations.
Servicing
fees are not charged on FlexiPay lines of credit. Servicing yields
remain similar to 2023 levels.
• Interest
income represents:
i)
the fees earned on FlexiPay lines of credit and interest earned on
cash and cash equivalents. FlexiPay interest income is a fee
charged on transactions and spread over a number of months, in line
with borrower repayments. It has increased to £21.3m (2023: £7.6m),
driven by transaction levels and the average fees on transactions
which were 5.8% in the year (2023: 4.6%).
ii)
interest earned on cash and cash equivalents increased to £9.2m
(2023: £7.4m) in line with higher average base rates. This interest
applies to the Group’s unrestricted cash as well as restricted cash
drawn from the Citibank facility in anticipation of future
drawdowns.
• Other
fees arose principally from collection fees we recovered on
defaulted loans.
Net
investment income represents the investment income, less investment
expense, on loans held on balance sheet at fair value. It declined
to £2.8m (2023: £3.6m), driven by the continued amortisation of the
remaining loans on balance sheet.
Net
income (“revenue”), defined as total income after fair value
adjustments and cost of funds, was £160.1m (2023: £130.1m). The
fair value gain in the year of £4.2m (2023: £3.1m) related
primarily to certain investment in trusts and co-investments, which
were sold earlier than originally anticipated thereby accelerating
the receipt of future cash flows, which were valued at a discount.
As the on-balance sheet loans continue to amortise, we would expect
fair value gains/losses to decline in future.
Operating expenses
At an overall level, operating
expenses increased compared with 2023. However, costs remain
actively and tightly managed with a 12% increase in expenses before
exceptional items compared to a 23% growth in revenue.
The primary drivers of cost growth
were the variable expenses associated with marketing and expected
credit losses. Marketing costs increased by 23% to £45.6m and
expected credit losses increased to £8.6m from £4.5m, primarily due
to growth in FlexiPay balances.
For the remaining costs, share
based payments grew by £4m, driven by the growth in share price
which impacts employers’ national insurance costs. Excluding this,
the costs remained flat year on year with salary expenses
decreasing following the restructuring.
Exceptional items – restructuring
As part
of its ongoing commitment to profitability, the Group launched a
cost efficiency programme during the year. These actions are on
track to deliver an annualised run rate cash saving of ~£15 million
in 2025 and an actual reduction in the overall number of roles by
c.120. This resulted in redundancy costs of £2.3 million and
impairment of capitalised development spend intangible assets of
£0.3 million which were treated as exceptional items.
People costs (including contractors) represent
the Group’s largest ongoing operating cost and include
salary-related costs plus share-based payments.
Salary-related
costs reduced by 2% in the year with the savings achieved from the
restructuring more than offsetting inflation, new hires and the
absorption of global costs previously allocated to the US business.
The average salary per head increased by 5%.
The
share-based payment charge for the year, included in people costs,
was £7.8m (2023: £3.8m), largely driven by a higher share price
which increases the national insurance costs associated with the
awards.
Following
the UK Government’s Budget in October 2024, we expect that the
Group’s employer’s national insurance will increase by
c.£2m.
|
Continuing
operations
|
|
|
|
|
Salary
costs
|
69.3
|
70.9
|
(2)
|
|
Less
capitalised development spend (“CDS”)
|
(9.0)
|
(9.2)
|
(2)
|
|
Salary costs net of CDS
|
60.3
|
61.7
|
(2)
|
|
Share-based
payments
|
7.8
|
3.8
|
105
|
|
Total people costs
|
68.1
|
65.5
|
4
|
|
|
|
|
|
|
Average
headcount (incl. contractors)
|
788
|
845
|
(7)
|
|
Year-end
headcount (incl. contractors)
|
726
|
857
|
(15)
|
Marketing costs comprise
performance marketing (direct mail and online), brand spend and
commission payments made to brokers. Marketing costs increased in
the year to £45.6m (2023: £37.1m).
Depreciation, amortisation and impairment costs of
£13.5m (2023: £12.6m) largely represent the amortisation of the
cost of the Group’s capitalised technology development and the
depreciation of right-of-use assets related to the Group’s office
lease. Included within this charge is £0.3m exceptional impairment
of intangible assets related to projects used for activities
deprioritised as a result of our go forward focus.
Expected credit losses principally
relate to the IFRS 9 charge for FlexiPay where we account for
actual and future expected credit losses from SMEs defaulting on
their lines of credit. We would expect this charge to increase as
FlexiPay and Cashback credit card grow.
Other operating costs,
which
consist of loan processing costs, data and technology, professional
fees and staff and office-related costs, have grown as the Group
continued to invest in growth in the FlexiPay business. The
increase is driven by inflation, higher volumes and loan processing
costs.
Balance sheet
and investments
The
Group’s net equity was £217m at 31 December 2024 (31 December 2023:
£247m). This reduction reflects the share buyback by the
Group.
The
majority of the Group’s balance sheet is represented by cash and
invested capital as shown below. The invested capital is in certain
SME loans, either directly or historically through investment
vehicles, and in the FlexiPay lines of credit.
|
|
Operating business
|
Investment business
|
|
|
|
|
|
|
|
Legacy
securitisation,
warehouse
and other
loans
at fair value
£m
|
CBILS/RLS/GGS/
commercial co-
investments
£m
|
|
|
|
|
|
SME
loans and lines of credit
|
2.1
|
97.1
|
1.2
|
17.8
|
0.6
|
118.8
|
|
102.0
|
|
Cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
Unrestricted
|
150.2
|
0.3
|
—
|
—
|
—
|
150.5
|
|
169.6
|
|
Restricted
|
—
|
32.1
|
—
|
5.0
|
—
|
37.1
|
|
51.8
|
|
Other
assets
|
—
|
6.3
|
—
|
—
|
—
|
6.3
|
|
2.7
|
|
Borrowings
|
—
|
(101.9)
|
—
|
—
|
—
|
(101.9)
|
|
(56.9)
|
|
Cash and net investments
|
152.3
|
33.9
|
1.2
|
22.8
|
0.6
|
210.8
|
|
269.2
|
|
Other
assets
|
45.3
|
—
|
—
|
—
|
—
|
45.3
|
|
47.1
|
|
Other
liabilities
|
(34.6)
|
—
|
—
|
(5.0)
|
—
|
(39.6)
|
|
(69.5)
|
|
Equity
|
163.0
|
33.9
|
1.2
|
17.8
|
0.6
|
216.5
|
|
246.8
|
The
table below provides a summation of Funding Circle’s net invested
capital in products and vehicles:
|
Investment
in product/vehicles
|
|
|
|
1.
Legacy securitisation, warehouse and other loans at fair
value
|
1
|
19
|
|
2.
CBILS/RLS/GGS/commercial co-investments1
|
18
|
25
|
|
3.
Private funds
|
1
|
2
|
|
Net invested
|
20
|
46
|
|
FlexiPay1
|
34
|
18
|
|
Total net invested capital
|
54
|
64
|
1. These
vehicles are bankruptcy remote.
Legacy loans at fair value – this
relates to the legacy loans previously held in SPVs and warehouses
and reduced through the sale of the US business and ongoing
amortisation.
CBILS/RLS/GGS/commercial co-investments – as
part of our participation in the CBILS, RLS and GGS UK
government-guaranteed loan schemes, we were required to co-invest
c.1% alongside institutional investors.
Private funds – there
are a small amount of other loans, comprising seed investments in
private funds held as associates.
Cash
flow
At 31
December 2024, the Group’s cash position was £187.6m (31 December
2023: £221.4m). Of this balance £150.5m (31 December 2023: £169.6m)
is unrestricted in its use with £37.1m (2023: £51.8m) being
restricted.
Restricted
cash relates to cash held in the funding vehicle of FlexiPay
together with amounts owed to the British Business Bank (“BBB”) for
guarantee fees collected from institutional investors under the
participation of the CBILS, RLS and GGS schemes. Total cash
movements have principally been driven by:
-
trading
performance;
-
timing of working capital
movements associated with UK government loan guarantee payments
received from investors still to be paid to the BBB;
-
monetisation of on-balance
sheet SME loans as they have continued to pay down;
-
ongoing investment in FlexiPay
lines of credit with external bank debt; and
-
purchase of shares as part of
the share buyback programme.
Free
cash flow, excluding the one-off guarantee fee payment, has
significantly improved year on year, and is nearing positive,
driven by the disposal of the loss-making US business and the move
to profitability of the continuing UK Group.
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 and
lease payments. It excludes the investment vehicle financing and
funding cash flows together with FlexiPay lines of credit and
Cashback credit card. The Directors view this as a key liquidity
measure and it is the net amount of cash used or generated to
operate and develop the Group’s platform each year.
The
table below shows how the Group’s cash has been
utilised:
|
|
2024
|
2023
|
|
£m
|
£m
|
|
Adjusted EBITDA from continuing
operations
|
24.5
|
6.7
|
|
Adjusted EBITDA from discontinued
operations
|
(8.7)
|
(10.6)
|
|
Adjusted
EBITDA
|
15.8
|
(3.9)
|
|
Fair value adjustments
|
(6.4)
|
(8.7)
|
|
Purchase of
tangible and intangible assets
|
(11.9)
|
(12.2)
|
|
Payment of
lease
liabilities
|
(3.2)
|
(6.0)
|
|
Working
capital/other
|
4.5
|
2.9
|
|
Free cash
flow (excl. restricted cash movement due to guarantee fee
payment)
|
(1.2)
|
(27.9)
|
|
Cash movement due to guarantee fee
payment
|
(26.1)
|
23.0
|
|
Free cash
flow
|
(27.3)
|
(4.9)
|
|
Net distributions from
associates
|
0.9
|
1.2
|
|
Net movement in trusts and
co-investments
|
10.5
|
4.8
|
|
Net movement in lines of credit
(net of borrowings)
|
(7.5)
|
15.8
|
|
Net movement in SME loans at
amortised cost (net of borrowings)
|
2.2
|
(3.3)
|
|
Net movement in loans at fair
value through profit and loss (net of bonds)
|
13.5
|
32.7
|
|
Share buyback/purchase of own
shares
|
(33.7)
|
(1.8)
|
|
Net proceeds from sale of US
business
|
7.5
|
—
|
|
Effect of foreign
exchange
|
0.1
|
(0.8)
|
|
Movement in the
year
|
(33.8)
|
43.7
|
|
Cash and cash equivalents at the
beginning of the year
|
221.4
|
177.7
|
|
Cash and cash
equivalents at the end of the year
|
187.6
|
221.4
|
Share buybacks
During
the year, the Group announced two share buybacks totalling up to
£50m. As at 31 December 2024, 33.5m shares have been purchased for
£33.7m. The shares have been cancelled, reducing share capital by
c.9%.
Principal risks and
uncertainties
The principal risks and
uncertainties for the Group are as follows:
|
Strategic
risk
Strategic risk is defined as the
failure to build a sustainable, diversified and profitable business
that can successfully adapt to environmental changes due to the
inefficient use of Funding Circle’s available resources.
|
-
Strategic risk
Risk arising from the failure to
build a sustainable, diversified and profitable business that can
successfully adapt to environmental changes.
ii) Economic
environment
Risk arising from macroeconomic or
political factors that may impact funding, credit performance, and
overall financial stability. It encompasses broader considerations,
including demand fluctuations, funding availability, and cost
management. This risk reflects the potential failure to establish a
sustainable, diversified, and profitable business model capable of
adapting to evolving economic and regulatory
environments.
iii)
Environmental, social and governance risk
Environment, social and/or
governance events or circumstances could cause an actual or
potential material negative impact on Funding Circle’s financial
performance or reputation.
|
|
Funding and
balance sheet risk
Funding and balance sheet risks
are the risks associated with the funding of our product set of
Term Loans and lines of credit and any exposure that our balance
sheet has to this funding through normal and stress
scenarios.
|
-
Funding risk
The risk that demand from
borrowers for credit cannot be met by the providers of that funding
(institutional investors in the case of Term Loans and Funding
Circle and Citibank in the case of lines of credit). This risk
varies with the economic attractiveness of Funding Circle products
as an investment, the level of diversification of funding sources
and the level of resilience of these funding sources and their
returns through economic cycles.
-
Balance sheet risk
The risk that, where Funding
Circle has put its balance sheet to use in funding either Term
Loans or lines of credit, investment positions reduce in value or
cannot be exited at an economically viable price; the risk that
Funding Circle liabilities cannot be met when they fall due or can
only be met at an uneconomic price. This risk is also associated
with interest rate fluctuations, particularly in the context of
levered investments. Balance sheet risk applies to all products
offered, the potential challenges faced in managing investment
positions and meeting obligations under favourable
conditions.
|
|
Credit
risk
Credit risk is the risk of
financial loss to an investor including Funding Circle itself, when
lending from its balance sheet should any borrower fail to fulfil
their contractual repayment obligations. Credit risk management is
the sum of activities necessary to deliver a risk profile at
portfolio level in line with Funding Circle management’s
expectations, in terms of net credit loss rate, risk-adjusted rate
of return and its volatility through economic cycles.
|
-
Credit risk
-
Borrower acquisition
Credit performance and returns of
new loans can deviate from expectations due to several factors:
changes in credit quality of incoming applications, calibration of
risk models or strategy parameters, and control gaps in processing
loan applications.
-
Portfolio risk management
Credit performance and returns of
existing portfolio can deviate from expectations due to several
factors: deterioration of credit environment, increased competition
driving higher prepayment rates, effectiveness of portfolio
monitoring, collections and recoveries.
|
|
Regulatory,
reputation and conduct risk
Regulatory, reputation and conduct
risk is defined as the risk of engaging in activities that detract
from Funding Circle’s goal of being a trusted and reputable company
with products, services and processes designed for customer success
and delivered in a way that will not cause customer detriment or
regulatory censure.
|
-
Regulatory risk
The risk that Funding Circle’s
ability to effectively manage its regulatory relationships is
compromised or diminished, that the Group’s governance and controls
framework is not satisfactory given business growth, or that there
is business interruption by reason of non-compliance with
regulation or the introduction of business-impacting
regulation.
-
Reputation risk
Operational or performance
failures could lead to negative publicity that could adversely
affect our brand, business, results, operations, financial
condition or prospects.
|
|
Operational
risk
Operational risk is the risk of
loss resulting from inadequate or failed internal processes, people
and systems or from external events.
|
-
Client money risk
Failure of Funding Circle to
adequately protect and segregate client money may lead to financial
loss, reputational damage and regulatory censure.
ii)
Financial
crime
Risk of regulatory breach,
financial loss or reputational damage arising from a failure to
adequately manage or prevent money laundering, terrorist financing,
bribery and corruption, or to comply with sanctions
regulations.
iii)
Process
risk
Failure to originate and service
loans in line with Funding Circle internal policies, investor
guidelines and third party loan guarantees (e.g. the British
Business Bank) may result in Funding Circle repurchasing loans from
investors. The risk of operational incident could impact the
ability to originate new loans or the ability to service loans
through collections from borrowers and return of money to
investors.
|
|
Technology
risk
Technology Risk refers to the
potential negative consequences that can arise from the use or
implementation of technology, including hardware, software, and
data management systems. Technology risks can arise from a variety
of sources, including hardware failures, software bugs, cyber
attacks, data breaches, and user errors. In response to evolving
threats and the rise of Generative Artificial Intelligence
(Gen-AI), Technology risk has been designated a “Principal Risk”,
ensuring stringent oversight and proactive mitigation. We have made
significant strides in enhancing our security and data maturity
posture. We are committed to continuous improvement and will
continue to mature our security and data practices.
|
-
Technology risk
Failure of the technology platform
could have a material adverse impact on Funding Circle’s business,
results of operations, financial condition or prospects.
-
Information security
Failure to protect the
confidential information of Funding Circle’s borrowers, investors
and IT systems may lead to financial loss, reputational damage and
regulatory censure.
-
Data risk
Failure in our ability to acquire,
use, secure and transform our data assets could result in adverse
material impacts across Funding Circle.
|
Consolidated statement of
comprehensive income
for the
year ended 31 December 2024
|
|
Note
|
31 December
2024
Before
exceptional items
£m
|
Exceptional items1
£m
|
31 December
2024
£m
|
31
December
2023
(re-presented)2
£m
|
|
Transaction
fees
|
|
85.3
|
—
|
85.3
|
65.3
|
|
Servicing
fees
|
|
37.5
|
—
|
37.5
|
39.0
|
|
Interest
income3
|
|
30.9
|
—
|
30.9
|
15.4
|
|
Other
fees
|
|
5.2
|
—
|
5.2
|
6.4
|
|
Operating income
|
|
158.9
|
—
|
158.9
|
126.1
|
|
Net
investment income
|
|
2.8
|
—
|
2.8
|
3.6
|
|
Total income
|
|
161.7
|
—
|
161.7
|
129.7
|
|
Fair
value gains
|
|
4.2
|
—
|
4.2
|
3.1
|
|
Cost of
funds
|
|
(5.8)
|
—
|
(5.8)
|
(2.7)
|
|
Net income4
|
6
|
160.1
|
—
|
160.1
|
130.1
|
|
|
|
|
|
|
|
|
People
costs
|
5, 7,
8
|
(68.1)
|
(2.3)
|
(70.4)
|
(65.5)
|
|
Marketing
costs
|
7
|
(45.6)
|
—
|
(45.6)
|
(37.1)
|
|
Depreciation,
amortisation and impairment
|
5, 6, 7,
11, 12
|
(13.2)
|
(0.3)
|
(13.5)
|
(12.6)
|
|
Expected
credit loss charge
|
7,
17
|
(8.6)
|
—
|
(8.6)
|
(4.5)
|
|
Other
costs
|
7
|
(21.2)
|
—
|
(21.2)
|
(20.3)
|
|
Operating expenses
|
7
|
(156.7)
|
(2.6)
|
(159.3)
|
(140.0)
|
|
|
|
|
|
|
|
|
Profit/(loss) before taxation
|
|
3.4
|
(2.6)
|
0.8
|
(9.9)
|
|
Income
tax (charge)/credit
|
9
|
(0.5)
|
—
|
(0.5)
|
1.7
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year from continuing operations
|
|
2.9
|
(2.6)
|
0.3
|
(8.2)
|
|
(Loss)/profit for the year from discontinued operations
|
4
|
(10.2)
|
18.5
|
8.3
|
(30.1)
|
|
|
|
|
|
|
|
|
(Loss)/profit for the year
|
|
(7.3)
|
15.9
|
8.6
|
(38.3)
|
|
|
|
|
|
|
|
|
Other comprehensive expense
|
|
|
|
|
|
|
Items
that may be reclassified subsequently to profit and
loss:
|
|
|
|
|
|
|
Exchange
differences on translation of foreign operations – discontinued
operations
|
4
|
(0.2)
|
(8.7)
|
(8.9)
|
(2.7)
|
|
Total comprehensive (expense)/income
for the year
|
|
(7.5)
|
7.2
|
(0.3)
|
(41.0)
|
|
|
|
|
|
|
|
|
Total comprehensive
income/(expense)
attributable to:
|
|
|
|
|
|
|
Owners
of the Parent
|
|
|
|
|
|
|
Income/(expense)
from continuing operations
|
|
2.9
|
(2.6)
|
0.3
|
(8.2)
|
|
(Expense)/income
from discontinued operations
|
4
|
(10.4)
|
9.8
|
(0.6)
|
(32.8)
|
|
Total comprehensive (expense)/income attributable
to the owners of the parent
|
|
(7.5)
|
7.2
|
(0.3)
|
(41.0)
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
Basic
earnings/(loss) per share from continuing operations
|
10
|
0.8p
|
|
0.1p
|
(2.4)p
|
|
Diluted
earnings/(loss) per share from continuing operations
|
10
|
0.8p
|
|
0.1p
|
(2.4)p
|
|
|
|
|
|
|
|
|
Basic
(loss)/earnings per share from discontinued operations
|
4,
10
|
(3.0)p
|
|
2.4p
|
(8.7)p
|
|
Diluted
(loss)/earnings per share from discontinued operations
|
4,
10
|
(3.0)p
|
|
2.2p
|
(8.7)p
|
1.
Exceptional items are detailed in note 5.
2. The
comparative consolidated statement of comprehensive income has been
re-presented to reflect the results of the US business as a
discontinued operation. See note 4.
3.
Interest income recognised on assets held at amortised cost under
the effective interest rate method and £7.7 million (2023: £5.3
million) on money market funds held at fair value through profit
and loss.
4. Net
income is also referred to as “revenue”.
Consolidated
balance sheet
as at 31
December 2024
|
|
Note
|
|
31
December
2023
Re-presented1
£m
|
|
Non-current assets
|
|
|
|
|
Intangible
assets
|
11
|
21.2
|
23.0
|
|
Property,
plant and equipment
|
12
|
9.6
|
5.0
|
|
Investment
in associates
|
|
0.6
|
1.5
|
|
Investment
in trusts and co-investments
|
13,
17
|
17.8
|
25.2
|
|
SME
loans held at amortised cost
|
13,
17
|
1.4
|
5.6
|
|
Trade
and other receivables
|
14
|
—
|
1.4
|
|
|
|
50.6
|
61.7
|
|
Current assets
|
|
|
|
|
SME
loans held at amortised cost
|
13,
17
|
0.7
|
1.1
|
|
SME
loans held at fair value through profit and loss
|
13,
17
|
1.2
|
18.6
|
|
Lines of
credit
|
13,
17
|
97.1
|
50.0
|
|
Trade
and other receivables
|
14
|
20.8
|
20.4
|
|
Cash and
cash equivalents
|
18
|
187.6
|
221.4
|
|
|
|
307.4
|
311.5
|
|
Total assets
|
|
358.0
|
373.2
|
|
Current liabilities
|
|
|
|
|
Trade
and other payables
|
15
|
27.8
|
54.3
|
|
Bank
borrowings
|
17
|
101.9
|
54.7
|
|
Short-term
provisions and other liabilities
|
16
|
3.6
|
1.5
|
|
Lease
liabilities
|
12
|
1.8
|
7.2
|
|
|
|
135.1
|
117.7
|
|
Non-current liabilities
|
|
|
|
|
Long-term
provisions and other liabilities
|
16
|
0.6
|
1.1
|
|
Bank
borrowings
|
17
|
—
|
2.2
|
|
Lease
liabilities
|
12
|
5.8
|
5.4
|
|
Total liabilities
|
|
141.5
|
126.4
|
|
Equity
|
|
|
|
|
Share
capital
|
|
0.3
|
0.4
|
|
Share
premium account
|
|
0.1
|
293.1
|
|
Foreign
exchange reserve
|
|
5.3
|
14.2
|
|
Share
options reserve
|
|
20.6
|
24.0
|
|
Retained
earnings/(accumulated losses)
|
|
190.2
|
(84.9)
|
|
Total equity
|
|
216.5
|
246.8
|
|
Total equity and liabilities
|
|
358.0
|
373.2
|
1. SME
loans have been presented under aggregated headings and the
comparative period re-presented in order to simplify the
presentation of these loans as the balances become less material.
Additionally, the comparative SME loans held at amortised cost have
been re-presented to more accurately reflect the current and
non-current split of these loans. See note 2 for
details.
The
financial statements were approved by the Board and authorised for
issue on 6 March 2025. They were signed on behalf of the Board
by:
Tony Nicol
Director
Company
registration number 07123934
The
notes form part of these financial statements.
Consolidated statement of changes
in equity
for the
year ended 31 December 2024
|
|
Note
|
|
|
Foreign
exchange
reserve
£m
|
|
(Accumulated
losses)/
retained earnings
£m
|
|
|
Balance at 1 January 2023
|
|
0.4
|
293.1
|
16.9
|
22.2
|
(48.6)
|
284.0
|
|
Loss for
the year
|
|
—
|
—
|
—
|
—
|
(38.3)
|
(38.3)
|
|
Other comprehensive expense
|
|
|
|
|
|
|
|
|
Exchange
differences on translation of foreign operations
|
|
—
|
—
|
(2.7)
|
—
|
—
|
(2.7)
|
|
Total comprehensive expense
|
|
—
|
—
|
(2.7)
|
—
|
(38.3)
|
(41.0)
|
|
Transactions with owners
|
|
|
|
|
|
|
|
|
Transfer
of share option costs
|
|
—
|
—
|
—
|
(3.8)
|
3.8
|
—
|
|
Purchase
of own shares held in Employee Benefit Trust
|
|
—
|
—
|
—
|
—
|
(1.8)
|
(1.8)
|
|
Issue of
share capital
|
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Employee
share schemes – value of employee services
|
|
—
|
—
|
—
|
5.6
|
—
|
5.6
|
|
Balance at 31 December 2023
|
|
0.4
|
293.1
|
14.2
|
24.0
|
(84.9)
|
246.8
|
|
Profit
for the year
|
|
—
|
—
|
—
|
—
|
8.6
|
8.6
|
|
Other comprehensive expense
|
|
|
|
|
|
|
|
|
Exchange
differences on translation of foreign operations
|
|
—
|
—
|
(8.9)
|
—
|
—
|
(8.9)
|
|
Total comprehensive (expense)/income
|
|
—
|
—
|
(8.9)
|
—
|
8.6
|
(0.3)
|
|
Transactions with owners
|
|
|
|
|
|
|
|
|
Transfer
of share option costs
|
|
—
|
—
|
—
|
(6.6)
|
6.6
|
—
|
|
Purchase
of own shares held in Employee Benefit Trust
|
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Buyback
and cancellation of own shares
|
|
(0.1)
|
—
|
—
|
—
|
(33.6)
|
(33.7)
|
|
Capital
reduction
|
|
—
|
(293.5)
|
—
|
—
|
293.5
|
—
|
|
Issue of
share capital/ exercise of share options
|
|
—
|
0.5
|
—
|
—
|
—
|
0.5
|
|
Employee
share schemes – value of employee services
|
|
—
|
—
|
—
|
3.2
|
—
|
3.2
|
|
Balance at 31 December 2024
|
|
0.3
|
0.1
|
5.3
|
20.6
|
190.2
|
216.5
|
The
notes form part of these financial statements.
Consolidated statement of cash
flows
for the
year ended 31 December 2024
|
|
Note
|
|
31
December
2023
Re-presented1
£m
|
|
Net cash outflow from operating activities
|
18
|
(67.4)
|
(25.6)
|
|
Investing activities
|
|
|
|
|
Purchase
of intangible assets
|
11
|
(9.0)
|
(11.5)
|
|
Purchase
of property, plant and equipment
|
12
|
(2.9)
|
(0.7)
|
|
Originations
of SME loans held at amortised cost
|
17
|
(0.2)
|
(4.7)
|
|
Cash
receipts from SME loans held at amortised cost
|
17
|
3.0
|
21.2
|
|
Originations
from SME loans held at fair value through profit and
loss
|
17
|
—
|
(11.9)
|
|
Cash
receipts from SME loans held at fair value through profit and
loss
|
17
|
13.5
|
37.6
|
|
Proceeds
from sale of SME loans held at fair value through profit and
loss
|
17
|
—
|
30.4
|
|
Investment
in trusts and co-investments
|
17
|
(4.1)
|
(1.8)
|
|
Cash
receipts from investments in trusts and co-investments
|
17
|
14.6
|
6.6
|
|
Redemption
in associates
|
|
0.9
|
1.1
|
|
Dividends
from associates
|
|
—
|
0.1
|
|
Proceeds
from sale of subsidiary
|
4
|
32.6
|
—
|
|
Direct
costs of selling subsidiary
|
4
|
(2.0)
|
—
|
|
Cash
disposed of on sale of subsidiary
|
4
|
(23.1)
|
—
|
|
Net cash inflow from investing activities
|
|
23.3
|
66.4
|
|
Financing activities
|
|
|
|
|
Proceeds
from bank borrowings
|
18
|
52.6
|
55.8
|
|
Repayment
of bank borrowings
|
18
|
(6.0)
|
(20.9)
|
|
Payment
of bond liabilities
|
18
|
—
|
(23.4)
|
|
Proceeds
from the exercise of share options
|
|
0.5
|
—
|
|
Purchase
of own shares
|
|
—
|
(1.8)
|
|
Share
buyback
|
|
(33.7)
|
—
|
|
Proceeds
from subleases
|
|
0.4
|
1.2
|
|
Payment
of lease liabilities
|
18
|
(3.6)
|
(7.2)
|
|
Net cash inflow from financing activities
|
|
10.2
|
3.7
|
|
Net (decrease)/increase in cash and cash equivalents
|
|
(33.9)
|
44.5
|
|
Cash and
cash equivalents at the beginning of the year
|
|
221.4
|
177.7
|
|
Effect
of foreign exchange rate changes
|
|
0.1
|
(0.8)
|
|
Cash and cash equivalents at the end of the year
|
18
|
187.6
|
221.4
|
1. SME
loan-related cash flows have been presented under aggregated
headings and the comparative period re-presented. See note 2 for
details.
The
notes form part of these financial statements.
Cash
flows from discontinued operations are shown in note 4.
Notes forming part of the
consolidated financial statements
for the
year ended 31 December 2024
1. Basis of accounting
The
consolidated financial statements are prepared under the historical
cost basis except for certain financial instruments that are
carried at fair value through profit and loss (“FVTPL”).
2. Basis of preparation
The
financial statements included in this preliminary announcement have
been prepared in accordance with the Disclosure and Transparency
Rules of the UK Financial Conduct Authority, and the principles of
UK-adopted international accounting standards, but do not comply
with the full disclosure requirements of these standards. The
financial information for the year ended 31 December 2023 is
derived from the statutory financial statements for that year which
have been delivered to the Registrar of Companies. The auditor
reported on those financial statements: their report was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under s498(2) or (3) of
the Companies Act 2006.
The
financial information contained in this announcement does not
constitute the statutory financial statements of the Group as at
and for the year ended 31 December 2024, but is derived from those
financial statements, which have been prepared in accordance with
UK-adopted international accounting standards. The financial
statements themselves have been approved by the Board of Directors
and reported on by the auditor and will be delivered to the
Registrar of Companies in due course.
Going concern
The
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 at least 12 months from the date of approval of the
financial statements).
The
Group made a total comprehensive expense of £0.3 million during the
year ended 31 December 2024 (2023: expense of £41.0 million). As at
31 December 2024, the Group had net assets of £216.5 million (2023:
£246.8 million). This includes £187.6 million of cash and cash
equivalents (2023: £221.4 million) of which £37.1 million (2023:
£51.8 million) is held for specific purposes and is restricted in
use. Additionally, within the net assets, the Group holds £53.5
million (2023: £63.5 million) of invested capital, some of which is
capable of being monetised if liquidity needs arise.
The
Group has prepared detailed cash flow forecasts for the next 15
months to 30 June 2026 and has updated the going concern assessment
to factor in the potential ongoing impact of inflation and related
economic stress.
The base
case scenario assumes:
• the
economic environment remains as is with no improvement or
deterioration in the macro environment forecast;
• launching
and growing short-term lending and non-limited company
lending;
• growth
in Cashback credit card alongside FlexiPay lines of
credit;
• the
Group continues to fund the lines of credit through its balance
sheet along with the senior banking facility;
• costs
are controlled with any growth driven by marketing, expected credit
losses (“ECL”) and cost of funds. Remaining costs grow but
predominantly through inflation. Strict control of headcount, with
limited increases;
• the
current share buyback programme concludes in early 2025 with no
additional buyback or dividend assumed; and
• corporation
tax begins to be paid alongside utilising brought forward tax
losses.
Management
prepared a severe but plausible downside scenario in
which:
• further
macroeconomic volatility continues through the period with elevated
inflation and interest rates reducing originations as borrower
demand for loans at higher interest rates reduces and investor
funding appetite reduces;
• investment
returns reduce owing to increased funding costs, widening discount
rates and deterioration in loan performance;
• an
operational event occurs requiring a cash outlay in
2025;
• 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 investments it owns
combined with the inability to monetise these;
• a
reduction in operating interest income from Money Market Funds due
to lower cash balances under stress; and
• a
combined credit and liquidity risk stress for FlexiPay.
Management
has reviewed its regulatory capital requirements. In the downside
scenario, the risk of capital requirement breach is considered
remote. The Group does not currently rely on committed or
uncommitted borrowing facilities, with the exception of a facility
for the purpose of originating FlexiPay lines of credit and does
not have undrawn committed borrowing facilities available to the
wider Group.
The
Directors have made enquiries of management and considered budgets
and cash flow forecasts for the Group and have, at the time of
approving these financial statements, a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future, specifically
assessed for the 15 months to 30 June 2026.
Significant changes in the current reporting year
The
financial position and performance of the Group were affected by
the following events and transactions during the year ended 31
December 2024:
-
Sale of the US business
As was previously announced in the
31 December 2023 financial results, the Group sought to divest of
the US business. A competitive bid process was undertaken with
interested parties and a sale agreement was signed on 24 June 2024
to sell the business to iBusiness Funding, LLC and completion
occurred on 1 July 2024. As a result of the sale of the US Business
Unit, the business and assets related to the US were considered to
form a disposal Group under IFRS 5 Non-Current Assets Held For Sale
and Discontinued Operations. The operations of the US business have been
disclosed in the consolidated statement of comprehensive income
separately as a discontinued operation, and the comparative period
restated.
Details related to the
discontinued operations can be found in note 4.
-
Simplification and streamlining
of UK business
As part of its ongoing commitment
to profitability, the Group launched a redundancy and cost
efficiency programme during the year. Non-recurring costs to
achieve these changes have been recorded as exceptional
items.
See note 5.
-
Launch of share buyback programme
As was previously announced, the
Group commenced a share buyback programme in March 2024 to buy and
cancel up to £25 million of shares in order to return value to
shareholders. The nominal cost of the shares cancelled reduces the
Group’s share capital with an equal increase in the capital
redemption reserve. The full cost of the buyback inclusive of
stamp duty and broker fees is debited to retained
earnings.
This programme was completed on 15
October 2024 with the purchase of 27,308,339 ordinary shares, and
the programme was extended to up to a further £25 million of
shares. In the year to 31 December 2024, 33.5 million shares were
purchased for consideration of £33.7 million inclusive of fees and
expenses under the programme representing 9.3% of the called up
share capital. 0.2 million of the purchased shares were pending
cancellation as at 31 December 2024.
-
Capital reduction
In November 2024, shareholders
approved a capital reduction at a general meeting held by the
Company, being the cancellation of the entire amount standing to
credit the Company’s share premium account. The capital reduction
process was completed in December 2024 and resulted in the
cancellation of the share premium and creation of accumulated
profit within the statement of changes in equity by £293.5
million.
This increased the distributable
reserves of the Company to help facilitate ongoing capital actions
and return of value to shareholders.
-
Modification to UK office lease
During February 2024, the Group
signed an agreement to modify the terms of its lease on the two
levels of the UK office previously expiring in March 2025,
shortening one to expire in June 2024 and extending the other to
March 2035 with termination options in March
2030.
Both were accounted for as a lease
modification. See note 12 for details.
-
Investment in trust and co-investment
transactions
During the year, certain
warehouses invested in trusts in which Funding Circle is a minority
co-investor sold their loan assets to a third party and Funding
Circle partially re-invested alongside the
purchaser.
As a result of the transaction,
the net cash flows from the investment were realised and a net fair
value gain of £2.2 million was recognised through fair value gains
in the consolidated statement of comprehensive
income.
The cash flows related to the
transaction are presented net within “Cash receipts from investment
in trusts and co-investments” in the statement of cash flows,
reflecting the net settlement of the realisation and
re-investment.
-
Launch of Cashback business credit card
During
the year the Cashback credit card product was launched offering
borrowers the ability to spend against their credit limit and earn
cashback on this spend with an introductory rate of 2% reducing to
1% after six months.
The
borrowers qualify for cashback if they either repay the card spend
in full, or make a minimum repayment by their billing
date.
Borrowers
who repay the balance in full do not incur interest charges, while
any borrowers who do not pay the card spend balance in full will be
charged interest on the drawn balance.
The
cashback is netted against the borrowers’ card spend balance due.
The Group recognises interchange fee income on the card spend of
c.1.75% recognised within transaction fee income. £0.3 million of
interchange fee income (2023: £nil) was recognised during the year,
gross of cashback.
The
cashback paid to the borrower is recognised as a reduction in the
transaction price under IFRS 15 as it is cash settled in nature and
is presented netted against the interchange fee income, while
interest earned on card balances which revolve is recognised within
interest income in the consolidated statement of comprehensive
income.
Summary of new and amended accounting policies
Re-presentation
of SME loans:
On the balance sheet ”SME loans
(securitised)”, “SME loans (warehouse)” and “SME loans (other)”
held at fair value through profit and loss have been presented
under “SME loans held at fair value through profit and loss” and
“SME loans (other)” held at amortised cost have been presented
under “SME loans held at amortised cost” in order to simplify the
presentation of these loans as the balances become less material
with the comparative period re-presented on this basis.
Additionally, the current and non-current split of SME loans held
at amortised cost has been re-presented to more accurately reflect
when the cash flows become due. This presentation and re-presentation has been
applied to the applicable notes and cash flow statement throughout
these accounts.
Discontinued
operations and deconsolidation
When the Group intends to sell
assets or Business Units, IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations, is applied. An asset or group of
assets is treated as a discontinued operation if:
- it is available for immediate
sale in its present condition;
- the sale is highly probable,
with management committed to a plan to sell the asset and an active
programme to locate a buyer initiated; and
- the sale is expected to be
completed within 1 year of classification as held for
sale.
Where these criteria are met, the
assets in the disposal group are measured at the lower of fair
value less cost to sell and their carrying value at the point they
are considered to meet the criteria. The results from the discontinued operations
are presented separately in the consolidated statement of
comprehensive income with the comparative period restated on a
like-for-like basis.
Where a Business Unit of the Group
is held as a discontinued operation with the intention of selling
it, it will remain consolidated for as long as the criteria for
control as defined by IFRS 10 Consolidated Financial Statements,
are met.
All three of these criteria must
be met in order to control an entity:
- power over the
investee;
- exposure, or rights, to variable
returns from its involvement with the investee; and
- the ability to use its power
over the investee to affect the amount of the investor’s
returns.
While an agreement might be signed
to sell the operation, if the Group continues to meet the criteria
for control between signing and closing the transaction,
deconsolidation will only occur on closing once the criteria are no
longer met.
Share
buybacks
Shares purchased and cancelled by
the Group as part of the share buyback programme reduce the equity
of the Group, but are anti-dilutive and return value to
shareholders when calculating earnings per share. The nominal cost
of the shares purchased and cancelled is treated as a reduction in
share capital with an offsetting increase in the capital redemption
reserve.
The capital redemption reserve is
a non-distributable reserve which can be used to pay up new shares
allotted as fully paid bonus shares. The cost of the share purchase
inclusive of stamp duty and broker fees is debited to retained
earnings.
Cashback
credit card accounting
Cashback offered on products
issued by the Group is considered to fall under IFRS 15 where it is
contractually linked to card spend where an interchange fee is
generated at the point of spend. Where the cashback reward to the borrower is
cash settled or netted against an outstanding balance due from the
customer, it is treated as a reduction in the transaction price
under IFRS 15 and there is no ongoing performance obligation beyond
the card transaction with interchange fee income recognised net of
the cashback granted. The cashback rewards programme does not
currently offer borrowers the option to exchange their cashback
reward for other non-cash goods or services. Where borrowers do not repay the full balance
due on their card and choose to revolve an element of it, interest
income is recognised under IFRS 9 on the interest
charged.
3. Critical accounting judgements and key sources of estimation
uncertainty
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 comparative year to 31 December
2023.
Critical judgements
Loans originated through the platform
The
Group originates SME loans through its platform which have been
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.
Recognition of deferred tax
Under
IAS 12, a deferred tax asset should be recognised for all
deductible temporary differences and tax losses to the extent that
it is probable that taxable profit will be available against which
the deductible temporary difference or tax losses can be
utilised.
While
the Board-approved forecasts project the UK to be in a taxable
profit position for the year ended 31 December 2025 and beyond,
there are risks to achieving this forecast and as a result it is
not considered highly probable.
Management
has used its judgement in determining whether there is sufficient
certainty to recognise a deferred tax asset. The “European
Securities and Markets Authority (“ESMA”) has previously issued
guidance relating to the recognition of deferred tax assets in
response to companies recognising assets too early only to
subsequently write them off. One of the key indicators suggested by
ESMA for the recognition of deferred tax is whether taxable profit
is being recognised from which an entity has begun to offset
losses.
This is
not yet the case for the UK business for a sustained period and
management has determined not to recognise a deferred tax asset as
a result.
Had
management determined a different level of certainty regarding the
taxable profits of the UK for the year end and beyond, then a
deferred tax asset may have been recognised.
Key sources of estimation uncertainty
The
following are the key sources of estimation uncertainty that the
Directors have identified in the process of applying the Group’s
accounting policies and have the most significant effect on the
amounts recognised in the financial statements.
Expected credit loss impairment of FlexiPay lines of credit (note
17)
At 31
December 2024, the Group held £110.0 million of drawn FlexiPay
lines of credit and £278.7 million of undrawn lines of credit,
gross of expected credit loss impairment allowances.
While
other financial assets of the Group are held at amortised cost, the
FlexiPay lines of credit are the most sensitive to estimation
uncertainty due to the higher balance outstanding and more limited
historical data.
An
expected credit loss impairment allowance is held against the lines
of credit of £15.6 million (£12.9 million related to drawn lines of
credit and £2.7 million related to undrawn).
The
Group estimates the expected credit loss allowance following IFRS 9
through modelling the exposure at default based on observed trends
related to the overall line of credit facility and the proportion
drawn at the time of default. The probability of default is
estimated utilising observed trends and combining these with
forward-looking information including different macroeconomic
scenarios which are probability weighted. The loss given default is
driven by assumptions regarding the level of recoveries collected
after defaults occur.
The area
most sensitive to estimation uncertainty is the probability of
default (“PD”) related to stage 1 lines of credit which is based on
actual experience and the probability weighting of the
forward-looking scenarios utilised. Currently a baseline scenario,
upside scenario and downside scenario are utilised which are
probability weighted 60% baseline, 10% upside and 30% downside,
which provide a blended stage 1 probability of default of 3.6%. It
is also noted that the downside scenario has peak unemployment of
6.9% in December 2027 and upside scenario has a trough unemployment
of 3.6% from September 2026 relative to 4.4% in December
2024.
Given
the stage 1 PD is based on 12 month expected credit losses, the
respective peak and trough of these scenarios has a low impact on
the stage 1 ECL as at 31 December 2024 given the time horizon to
reaching the respective peak and trough.
If 100%
probability weighting was to be applied to the upside scenario and
the lowest point of the upside scenario unemployment forecast was
solely applied for calculating the PD,
the
weighted PD related to stage 1 lines of credit would decrease by 60
bps to 3.0% and the expected credit loss impairment provision would
decrease by £0.8 million (£0.4 million on drawn lines of credit and
£0.4 million on undrawn lines of credit).
If a
100% probability weighting was to be applied to the downside
scenario and the highest point of the downside scenario
unemployment forecast was solely applied for calculating the PD,
the weighted PD related to stage 1 lines of credit would increase
by 120 bps to 4.8% and the expected credit loss impairment would
increase by £1.8 million (£0.9 million on drawn lines of credit and
£0.9 million on undrawn lines of credit). It is considered that the
above sensitivities represent the range of reasonably possible
outcomes in relation to the probability of default on stage 1
FlexiPay lines of credit.
The loss
given default (“LGD”) of the expected credit loss impairment
allowance is estimated based on observation of the blended
portfolio recoveries to date on defaulted lines of credit projected
out into the future using an 84.4% LGD.
While
the LGD expectation is based on the trajectory of recoveries to
date, the lifetime LGD may differ from the estimated amount. A +/-
500bps increase/decrease in the estimated lifetime LGD would
increase/decrease the expected credit loss impairment allowance by
£0.9 million/(£0.9 million). It is considered that the above
sensitivities represent the range of reasonably possible outcomes
in relation to the LGD on FlexiPay lines of credit.
4. Discontinued
operations
The Group announced on 7 March
2024 its intention to divest of the US business. As of this date, the US business was
considered to form a disposal group and was reclassified as a
discontinued operation. An agreement was signed on 24 June 2024 to
sell the business to iBusiness Funding, LLC and the transaction
completed as of 1 July 2024. As a result, Group retained control of
the US business until 1 July 2024, at which point it was
deconsolidated.
The current and comparative period
loss for the year from discontinued operations, segmental results,
cash flows from discontinued operations and component elements of
the gain on disposal are detailed below.
|
Discontinued
operations
|
|
31 December
2024
Before
exceptional items
|
31 December
2024
Exceptional
items
|
31 December
2024
Total
|
31 December 2023
|
|
|
Note
|
£m
|
£m
|
£m
|
£m
|
|
Transaction fees
|
|
10.3
|
—
|
10.3
|
23.4
|
|
Servicing fees
|
|
2.1
|
—
|
2.1
|
3.4
|
|
Interest income
|
|
0.7
|
—
|
0.7
|
1.3
|
|
Other fees
|
|
0.2
|
—
|
0.2
|
0.6
|
|
Operating
income
|
|
13.3
|
—
|
13.3
|
28.7
|
|
Investment income
|
|
0.7
|
—
|
0.7
|
4.4
|
|
Investment expense
|
|
—
|
—
|
—
|
(0.6)
|
|
Net investment
income
|
|
0.7
|
—
|
0.7
|
3.8
|
|
Total
income
|
|
14.0
|
—
|
14.0
|
32.5
|
|
Fair value gains
|
|
2.2
|
—
|
2.2
|
5.6
|
|
Net
income
|
|
16.2
|
—
|
16.2
|
38.1
|
|
People costs
|
|
(16.0)
|
1.7
|
(14.3)
|
(28.9)
|
|
Marketing costs
|
|
(3.7)
|
—
|
(3.7)
|
(11.3)
|
|
Depreciation, amortisation,
impairment and modification gains/(losses)
|
11,
12
|
(0.3)
|
—
|
(0.3)
|
(10.3)
|
|
(Charge)/credit for expected
credit losses
|
16,
17
|
(0.1)
|
—
|
(0.1)
|
0.1
|
|
Other costs
|
|
(6.2)
|
—
|
(6.2)
|
(11.0)
|
|
Operating
expenses
|
|
(26.3)
|
1.7
|
(24.6)
|
(61.4)
|
|
Realised FX recycled from foreign
currency translation reserve
|
|
—
|
8.7
|
8.7
|
—
|
|
Gain on disposal
of US business
|
|
—
|
8.1
|
8.1
|
—
|
|
(Loss)/profit
before taxation
|
|
(10.1)
|
18.5
|
8.4
|
(23.3)
|
|
Income tax
|
9
|
(0.1)
|
—
|
(0.1)
|
(6.8)
|
|
(Loss)/profit for the year from
discontinued operations
|
|
(10.2)
|
18.5
|
8.3
|
(30.1)
|
|
Other
comprehensive income/(expense)
|
|
|
|
|
|
|
Exchange differences on
translation of foreign operations – discontinued
operations
|
|
(0.2)
|
(8.7)
|
(8.9)
|
(2.7)
|
|
Total
comprehensive (expense)/income for the year attributable to owners
of the Parent
|
|
(10.4)
|
9.8
|
(0.6)
|
(32.8)
|
|
Earnings per
share
|
|
|
|
|
|
|
Basic (loss)/earnings per share
from discontinued operations
|
10
|
(3.0)p
|
|
2.4p
|
(8.7)p
|
|
Diluted (loss)/earnings per share
from discontinued operations
|
10
|
(3.0)p
|
|
2.2p
|
(8.7)p
|
|
Segmental
Adjusted EBITDA from discontinued operations
|
|
|
|
31 December
2024
|
31 December
2023
|
|
|
£m
|
£m
|
|
Adjusted
EBITDA
|
(8.7)
|
(10.6)
|
|
Discount unwind on
lease liabilities
|
(0.2)
|
(0.4)
|
|
Depreciation,
amortisation, impairment and modification gains/(losses)
|
(0.3)
|
(10.3)
|
|
Exceptional
items
|
18.5
|
—
|
|
Share-based
payments and social security costs
|
(1.0)
|
(1.8)
|
|
Foreign exchange
gains/(losses)
|
0.1
|
(0.2)
|
|
Profit/(loss)
before tax
|
8.4
|
(23.3)
|
Cash
flow
|
|
31 December
2024
|
31 December
2023
|
|
|
£m
|
£m
|
|
Cash and cash
equivalents at the beginning of the year
|
22.3
|
13.8
|
|
Net cash outflow
from operating activities
|
(8.6)
|
(12.3)
|
|
Net cash
(outflow)/inflow from investing activities
|
(13.3)
|
64.8
|
|
Net cash outflow
from financing activities
|
(0.6)
|
(43.2)
|
|
Net
(decrease)/increase in cash generated
|
(0.2)
|
23.1
|
|
Effect of foreign exchange rate
changes
|
0.2
|
(0.8)
|
|
Cash and cash
equivalents at the end of the year
|
—
|
22.3
|
|
Details of the
sale of the US business (exceptional items):
|
£m
|
|
Consideration received:
|
|
|
Cash consideration at prevailing
exchange rate
|
32.6
|
|
Net assets disposed on (including
cash and cash equivalents of £23.1m)
|
(22.2)
|
|
Gross gain on
sale
|
10.4
|
|
|
|
|
Direct transaction costs for
legal, advisory and other costs
|
(2.3)
|
|
Net impact of (early
vesting)/lapsing US share options
|
1.7
|
|
Other disposal
related costs
|
(0.6)
|
|
|
|
|
Gain on
sale
|
9.8
|
|
Reclassification of foreign
currency translation reserve
|
8.7
|
|
Total gain as a
result of disposal after reclassification of foreign currency
translation reserve
|
18.5
|
5. Exceptional
items
The Group reflects its underlying
financial results in the “before exceptional items” column of the
consolidated statement of comprehensive income in order to provide
a clear and consistent view of trading
performance.
As part of its ongoing commitment
to profitability, the Group launched a redundancy and cost
efficiency programme during the year. This process will result in a
simpler, leaner and better positioned UK-focused operation. This resulted in
redundancy costs of £2.3 million and impairment of capitalised
development spend intangible assets of £0.3 million which were
treated as exceptional items.
The Group disposed of its
investment in the US business on 1 July 2024, as detailed in note
4.
6. 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
two continuing business and one discontinued US business operating
segments. Reporting on this basis is reviewed by the Executive
Committee (“ExCo”), formerly known as the Global Leadership Team
(“GLT”), which is the chief operating decision maker (“CODM”). The
ExCo is made up of the Executive Directors and other senior
management and is responsible for the strategic decision making of
the Group.
The
Other segment historically included the Group’s Term Loans
businesses in Germany and the Netherlands. The Other segment has
been presented within UK Term Loans for the year ended 31 December
2024 on the basis it is no longer individually
material.
The
comparative period to 31 December 2023 has not been re-presented as
it is immaterial.
The ExCo
measures the performance of each segment primarily by reference to
profit before tax. Additionally, the ExCo utilises a non-GAAP
measure, Adjusted EBITDA, which is defined as profit/loss for the
year before finance costs (being the discount unwind on lease
liabilities), taxation, depreciation, amortisation and impairments
(“AEBITDA”), and additionally excludes share-based payment charges
and associated social security costs, foreign exchange and
exceptional items. AEBITDA is a measure of Group performance as it
allows better comparability of the underlying performance of the
business. The segment reporting, including AEBITDA, excludes the
impact of the Group’s transfer pricing arrangements as this is not
information presented to, or used by, the CODM in decision making
or the allocation of resources.
|
|
31 December
20241
|
|
31 December
20231
|
|
|
Continuing
operations
|
|
Continuing
operations
|
|
|
United
Kingdom
|
|
United
Kingdom
|
|
Other
|
|
Total
|
|
|
|
Term
Loans
|
FlexiPay
|
|
Total
|
|
Term
Loans
|
FlexiPay
|
|
Term
Loans
|
|
Total
|
|
|
|
£m
|
£m
|
|
£m
|
|
£m
|
£m
|
|
£m
|
|
£m
|
|
|
Transaction
fees
|
84.7
|
0.6
|
|
85.3
|
|
65.2
|
0.1
|
|
—
|
|
65.3
|
|
|
Servicing
fees
|
37.5
|
—
|
|
37.5
|
|
38.8
|
—
|
|
0.2
|
|
39.0
|
|
|
Interest
Income
|
8.3
|
22.6
|
|
30.9
|
|
7.5
|
7.8
|
|
0.1
|
|
15.4
|
|
|
Other
fees
|
5.1
|
0.1
|
|
5.2
|
|
6.3
|
—
|
|
0.1
|
|
6.4
|
|
|
Operating
income
|
135.6
|
23.3
|
|
158.9
|
|
117.8
|
7.9
|
|
0.4
|
|
126.1
|
|
|
Net
investment income
|
2.8
|
—
|
|
2.8
|
|
3.6
|
—
|
|
—
|
|
3.6
|
|
|
Total
income
|
138.4
|
23.3
|
|
161.7
|
|
121.4
|
7.9
|
|
0.4
|
|
129.7
|
|
|
Fair value
gains
|
4.2
|
—
|
|
4.2
|
|
3.1
|
—
|
|
—
|
|
3.1
|
|
|
Cost of
funds
|
—
|
(5.8)
|
|
(5.8)
|
|
—
|
(2.7)
|
|
—
|
|
(2.7)
|
|
|
Net
income
|
142.6
|
17.5
|
|
160.1
|
|
124.5
|
5.2
|
|
0.4
|
|
130.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
37.0
|
(12.5)
|
|
24.5
|
|
21.3
|
(14.4)
|
|
(0.2)
|
|
6.7
|
|
|
Discount unwind on
lease liabilities
|
(0.6)
|
—
|
|
(0.6)
|
|
(0.2)
|
—
|
|
—
|
|
(0.2)
|
|
|
Depreciation,
amortisation, impairment and modification gains/(losses)
|
(11.4)
|
(1.8)
|
|
(13.2)
|
|
(11.3)
|
(1.3)
|
|
—
|
|
(12.6)
|
|
|
Share-based
payments and social security costs
|
(6.5)
|
(1.3)
|
|
(7.8)
|
|
(3.3)
|
(0.5)
|
|
—
|
|
(3.8)
|
|
|
Exceptional
items
|
(2.3)
|
(0.3)
|
|
(2.6)
|
|
—
|
—
|
|
—
|
|
—
|
|
|
Foreign exchange
gains
|
0.5
|
—
|
|
0.5
|
|
—
|
—
|
|
—
|
|
—
|
|
|
Profit/(loss)
before tax
|
16.7
|
(15.9)
|
|
0.8
|
|
6.5
|
(16.2)
|
|
(0.2)
|
|
(9.9)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
1. The
segmental results of the US business are not presented above and
are presented within note 4 –discontinued operations.
7.
Operating expenses
|
Continuing
operations
|
|
Before
exceptional items
£m
|
|
|
|
|
Depreciation
|
12
|
3.0
|
—
|
3.0
|
3.5
|
|
Amortisation and
impairment
|
5,
11
|
10.6
|
0.3
|
10.9
|
9.1
|
|
Modification
gains
|
12
|
(0.4)
|
—
|
(0.4)
|
—
|
|
Rental
income and other recharges
|
|
—
|
—
|
—
|
(0.2)
|
|
Employment
costs (including contractors)
|
8
|
68.1
|
2.3
|
70.4
|
65.5
|
|
Marketing
costs - (excluding employment costs)
|
|
45.6
|
—
|
45.6
|
37.1
|
|
Data and
technology
|
|
7.2
|
—
|
7.2
|
6.8
|
|
Expected
credit loss impairment charge
|
17,
19
|
8.6
|
—
|
8.6
|
4.5
|
|
Other
expenses
|
|
14.0
|
—
|
14.0
|
13.7
|
|
Total
operating expenses from continuing operations
|
|
156.7
|
2.6
|
159.3
|
140.0
|
1. See note
5 for details on exceptional items.
8. Employees
The
average monthly number of employees (including Directors) during
the year was:
|
|
|
|
|
Continuing
operations
|
|
|
|
Term
Loans
|
628
|
666
|
|
FlexiPay
|
88
|
81
|
|
Other
|
5
|
9
|
|
Total
continuing operations
|
721
|
756
|
|
Discontinued
operations
|
|
|
|
US1
|
106
|
203
|
|
Total
discontinued operations
|
106
|
203
|
|
Total
|
827
|
959
|
1.
Average monthly numbers are calculated over 12 months and for the
2024 US discontinued operations includes 6 months following the
sale of the US business where the employee number was
nil.
In
addition to the employees above, the average monthly number of
contractors during the year was 80 (2023: 115), of which 13 (2023:
26) related to the US.
Employment
costs (including Directors’ emoluments) during the year
were:
|
|
|
|
|
Continuing operations
|
Before exceptional items
£m
|
|
31 December 2024
Total
£m
|
31
December
2023
Total
£m
|
|
Wages
and salaries
|
56.0
|
—
|
56.0
|
55.6
|
|
Social
security costs
|
6.3
|
—
|
6.3
|
6.0
|
|
Pension
costs
|
2.1
|
—
|
2.1
|
2.1
|
|
Share-based
payments
|
7.8
|
—
|
7.8
|
3.8
|
|
Exceptional
costs
|
—
|
2.3
|
2.3
|
—-
|
|
|
72.2
|
2.3
|
74.5
|
67.5
|
|
Contractor
costs
|
4.9
|
—
|
4.9
|
7.2
|
|
Less:
capitalised development costs
|
(9.0)
|
—
|
(9.0)
|
(9.2)
|
|
Employment
costs net of capitalised development costs from continuing
operations
|
68.1
|
2.3
|
70.4
|
65.5
|
1. See
note 5 for details of exceptional items.
9. Income tax charge/(credit)
The
Group is subject to all taxes applicable to a commercial company in
its countries of operation. The UK (losses)/profits of the Company
are subject to UK income tax at the standard corporation tax rate
of 25% (23.5% is applied to the table below for 2023 as a blended
rate for the year, as the increase in the statutory corporation tax
rate to 25% was effective from 1 April 2023).
|
|
|
|
|
Current
tax
|
|
|
|
Continuing
operations
|
|
|
|
UK
|
|
|
|
Current tax
on profits for the year
|
0.5
|
0.3
|
|
Adjustment
in respect of prior years
|
—
|
(2.0)
|
|
|
0.5
|
(1.7)
|
|
Other
|
|
|
|
Current tax
on profits/(losses) for the year
|
—
|
—
|
|
Adjustment
in respect of prior years
|
—
|
—
|
|
|
—
|
—
|
|
Total
current tax charge/(credit) from continuing operations
|
0.5
|
(1.7)
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
US
|
|
|
|
Current tax
on (losses)/profits for the year
|
0.1
|
0.3
|
|
Adjustment
in respect of prior years
|
—
|
(0.1)
|
|
Total
current tax charge from discontinued operations
|
0.1
|
0.2
|
|
|
|
|
|
Total
current tax charge/(credit)
|
0.6
|
(1.5)
|
|
|
|
|
|
Deferred
tax
|
|
|
|
Continuing
operations
|
|
|
|
UK
|
|
|
|
Deferred
tax on (losses)/profits for the year
|
—
|
—
|
|
Adjustment
in respect of prior years
|
—
|
—
|
|
|
—
|
—
|
|
Other
|
|
|
|
Deferred
tax on (losses)/profits for the year
|
—
|
—
|
|
Adjustments
in respect of prior years
|
—
|
—
|
|
|
—
|
—
|
|
Total
deferred tax charge/(credit) from continuing operations
|
—
|
—
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
US
|
|
|
|
Deferred
tax on profits/(losses) for the year
|
—
|
6.6
|
|
Adjustments
in respect of prior years
|
—
|
—
|
|
Total
deferred tax charge from discontinued operations
|
—
|
6.6
|
|
|
|
|
|
Total
deferred tax charge
|
—
|
6.6
|
|
Total
tax charge
|
0.6
|
5.1
|
The
above current tax charge/(credit) represents the expected tax on
the Research and Development Expenditure Credit (“RDEC”) receivable
for 2024 and US state taxes from 1 January 2024 to the date of
disposal of the US business.
In the
prior year, the tax charge represents the tax liability on the
Group’s taxable profit, including state taxes, and the amount of
tax deducted from the RDEC receivable for 2023.
Based on the Group’s current
financial projections, the estimate of the deferred tax asset in
respect of the losses arising in the UK was £nil at 31 December
2024 (December 2023: £nil).
The US business at 30 December
2024 is represented as discontinued operations.
The
Group charge/(credit) for the year can be reconciled to the
profit/(loss) before tax shown per the consolidated statement of
comprehensive income as follows.
Factors affecting the tax charge/(credit) for the year
|
|
|
|
|
Profit/(loss)
before taxation for the Group
|
9.2
|
(33.2)
|
|
Taxation
on profit/(loss) at 25.0% (2023: 23.5%)
|
2.3
|
(7.8)
|
|
Effects
of:
|
|
|
|
Research
and development
|
0.4
|
0.3
|
|
Effect
of foreign tax rates
|
0.1
|
0.3
|
|
Non-taxable/non-deductible
expenses
|
0.3
|
0.7
|
|
Unrecognised
timing differences
|
(0.1)
|
1.7
|
|
Unrecognised
tax losses accumulated
|
1.1
|
5.6
|
|
Adjustment
in respect of prior years
|
—
|
(2.1)
|
|
Deferred
tax assets derecognised
|
—
|
6.6
|
|
Impairment
charge
|
(3.5)
|
(0.2)
|
|
Total tax charge
|
0.6
|
5.1
|
|
Total tax charge/(credit) from continuing operations
|
0.5
|
(1.7)
|
|
Total tax charge from discontinued operations
|
0.1
|
6.8
|
There
was no tax charge/(credit) in the current or prior year related to
exchange differences on translation of foreign operations in other
comprehensive income or the recycling of these into profit and
loss.
The
Group was taxed at different rates depending on the country in
which the profits arise.
The key
applicable tax rates for 2024 include the UK 25%, and the US 21%.
The effective tax rate for the year was 4.87% (2023:
-15.4%).
|
|
|
|
|
Property,
plant and equipment
|
—
|
(1.5)
|
|
Carry
forward losses (UK)
|
—
|
1.5
|
|
Carry
forward losses (US)
|
—
|
—
|
|
Recognised
deferred tax
|
—
|
—
|
Unrecognised deferred tax
|
|
|
|
|
Property,
plant and equipment
|
6.9
|
22.8
|
|
Carry
forward losses
|
125.0
|
183.4
|
|
Deferred
stock options
|
22.5
|
20.5
|
|
US
R&D credit
|
—
|
2.2
|
|
US fair
value adjustments
|
—
|
40.7
|
|
Other
|
0.2
|
0.4
|
|
Unrecognised deferred tax1
|
154.6
|
270.0
|
1.
Balances
presented in the table above are gross timing differences and are
not tax effected.
Based on
the temporary differences, there are total unrecognised deferred
tax assets of £38.7 million (2023: £62.2 million). In addition,
there is an unrecognised deferred tax asset in relation to R&D
expenditure credit set-off amounts of £2.0 million (2023: £1.7
million).
The
Group has unrelieved tax losses of £125.0 million (2023: £183.4
million) that are available for offset against future taxable
profits.
Factors affecting the tax charge in future years
Factors
that may affect the Group’s future tax charge include the
geographic location of the Group’s earnings (including changes in
transfer pricing arrangements), the tax rates in those locations,
changes in tax legislation and the use of brought-forward tax
losses. The calculation of the Group’s total tax charge involves a
degree of estimation and judgement with respect to the recognition
of any deferred tax asset.
10. Earnings/(loss) per share
Basic
earnings/(loss) per share amounts are calculated by dividing the
profit/(loss) for the year attributable to ordinary equity holders
of the Company by the weighted average number of ordinary shares
outstanding during the year.
For
diluted earnings/(loss) per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The dilutive potential ordinary
shares include those share options granted to employees under the
Group’s share-based compensation schemes which do not have an
exercise price or where the exercise price is less than the average
market price of the Company’s ordinary shares during the
year.
Where
loss per share is presented, there is no difference in the weighted
average number of shares used in the calculation of basic and
diluted loss per share as the effect of all potentially dilutive
shares outstanding was anti-dilutive.
The
following table reflects the profit/(loss) and share data used in
the basic and diluted earnings/(loss) per share
computations:
|
|
31
December
2024
|
31
December
2024
|
31 December
2023
|
|
|
£m
|
£m
|
£m
|
|
|
Total
|
Before
exceptional items
|
Total
|
|
Profit/(loss) for the year from
continuing operations
|
0.3
|
2.9
|
(8.2)
|
|
Basic weighted average number of
ordinary shares in issue (million)
|
342.4
|
342.4
|
344.8
|
|
Basic earnings/(loss) per share
from continuing operations
|
0.1p
|
0.8p
|
(2.4)p
|
|
|
|
|
|
|
Profit/(loss) for the year from
continuing operations
|
0.3
|
2.9
|
(8.2)
|
|
Diluted weighted average number of
ordinary shares in issue (million)
|
382.2
|
382.2
|
344.8
|
|
Diluted earnings/(loss) per share
from continuing operations
|
0.1p
|
0.8p
|
(2.4)p
|
|
|
31
December
2024
|
31
December
2024
|
31 December
2023
|
|
|
£m
|
£m
|
£m
|
|
|
Total
|
Before
exceptional items
|
Total
|
|
Profit/(loss) for the year from
discontinued operations
|
8.3
|
(10.2)
|
(30.1)
|
|
Basic weighted average number of
ordinary shares in issue (million)
|
342.4
|
342.4
|
344.8
|
|
Basic earnings/(loss) per share
from discontinued operations
|
2.4p
|
(3.0)p
|
(8.7)p
|
|
|
|
|
|
|
Profit/(loss)for the year from
discontinued operations
|
8.3
|
(10.2)
|
(30.1)
|
|
Diluted weighted average number of
ordinary shares in issue (million)
|
382.2
|
342.4
|
344.8
|
|
Diluted earnings/(loss) per share
from discontinued operations
|
2.2p
|
(3.0)p
|
(8.7)p
|
11.
Intangible assets
|
|
Capitalised
development
costs
£m
|
|
|
|
|
Cost
|
|
|
|
|
|
At 1
January 2023
|
54.8
|
0.8
|
1.2
|
56.8
|
|
Exchange
differences
|
(0.8)
|
—
|
—
|
(0.8)
|
|
Additions
|
11.3
|
0.2
|
—
|
11.5
|
|
Disposals
|
(4.1)
|
(0.6)
|
—
|
(4.7)
|
|
At 31
December 2023
|
61.2
|
0.4
|
1.2
|
62.8
|
|
At 1
January 2024
|
61.2
|
0.4
|
1.2
|
62.8
|
|
Exchange
differences
|
0.2
|
—
|
(0.1)
|
0.1
|
|
Additions
|
9.0
|
—
|
—
|
9.0
|
|
Disposals
|
(4.4)
|
(0.3)
|
—
|
(4.7)
|
|
De-recognition of
assets of discontinued operations
|
(15.7)
|
—
|
—
|
(15.7)
|
|
At 31
December 2024
|
50.3
|
0.1
|
1.1
|
51.5
|
|
Accumulated
amortisation
|
|
|
|
|
|
At 1
January 2023
|
26.8
|
0.6
|
1.2
|
28.6
|
|
Exchange
differences
|
(0.5)
|
0.1
|
—
|
(0.4)
|
|
Charge for
the year
|
12.3
|
0.1
|
—
|
12.4
|
|
Impairment
|
3.9
|
—
|
—
|
3.9
|
|
Disposals
|
(4.1)
|
(0.6)
|
—
|
(4.7)
|
|
At 31
December 2023
|
38.4
|
0.2
|
1.2
|
39.8
|
|
At 1
January 2024
|
38.4
|
0.2
|
1.2
|
39.8
|
|
Exchange
differences
|
0.1
|
—
|
(0.1)
|
—
|
|
Charge for
the year
|
9.7
|
0.1
|
—
|
9.8
|
|
Impairment
(exceptional item)
|
0.3
|
—
|
—
|
0.3
|
|
Impairment
|
0.7
|
0.1
|
—
|
0.8
|
|
Disposals
|
(4.4)
|
(0.3)
|
—
|
(4.7)
|
|
De-recognition of
assets of discontinued operations
|
(15.7)
|
—
|
—
|
(15.7)
|
|
At 31
December 2024
|
29.1
|
0.1
|
1.1
|
30.3
|
|
Carrying
amount
|
|
|
|
|
|
At 31
December 2024
|
21.2
|
—
|
—
|
21.2
|
|
At 31
December 2023
|
22.8
|
0.2
|
—
|
23.0
|
During
the year ended 31 December 2024 £0.3 million (2023: £nil) of
intangible assets were impaired in the FlexiPay Business Unit
related to projects discontinued as a result of the simplification
of the Group. These were treated as an exceptional item (see note
5). A further £0.8 million of intangibles were impaired in 2024
related to capitalised development spend and software no longer in
use.
In the
prior year intangible assets of £3.9 million predominantly related
to the US business were fully impaired. This was as a result of the
annual impairment review assessment of each cash-generating
unit.
12. Property, plant and equipment, right-of-use assets and lease
liabilities
The
Group has right-of-use assets which comprise property leases held
by the Group. Information about leases for which the Group is a
lessee is presented below.
Analysis of property, plant and equipment between owned and leased
assets
|
|
|
|
|
Property,
plant and equipment (owned)
|
2.9
|
1.7
|
|
Right-of-use
assets
|
6.7
|
3.3
|
|
|
9.6
|
5.0
|
Reconciliation of amount recognised in the balance sheet
|
|
Leasehold
improvements
£m
|
|
Furniture
and
fixtures
£m
|
Right-of-use
assets
(property)
£m
|
|
|
Cost
|
|
|
|
|
|
|
At 1
January 2023
|
5.2
|
3.0
|
2.1
|
32.7
|
43.0
|
|
Disposals
|
—
|
(1.1)
|
—
|
—
|
(1.1)
|
|
Additions1
|
—
|
0.7
|
—
|
0.2
|
0.9
|
|
Exchange
differences
|
—
|
—
|
—
|
(0.6)
|
(0.6)
|
|
At 31
December 2023
|
5.2
|
2.6
|
2.1
|
32.3
|
42.2
|
|
At 1
January 2024
|
5.2
|
2.6
|
2.1
|
32.3
|
42.2
|
|
Disposals
|
(3.7)
|
(0.4)
|
(0.7)
|
(9.6)
|
(14.4)
|
|
Lease
modification
|
—
|
—
|
—
|
5.7
|
5.7
|
|
Additions1
|
2.3
|
0.5
|
0.1
|
—
|
2.9
|
|
Exchange
differences and other non cash movements
|
(0.4)
|
—
|
—
|
0.1
|
(0.3)
|
|
Derecognition
of assets of discontinued operations
|
(0.2)
|
(1.0)
|
(0.7)
|
(10.2)
|
(12.1)
|
|
At 31 December 2024
|
3.2
|
1.7
|
0.8
|
18.3
|
24.0
|
|
Accumulated depreciation
|
|
|
|
|
|
|
At 1
January 2023
|
3.9
|
1.9
|
1.8
|
25.4
|
33.0
|
|
Disposals
|
—
|
(1.1)
|
—
|
—
|
(1.1)
|
|
Charge
for the year
|
0.7
|
0.8
|
0.1
|
2.7
|
4.3
|
|
Impairment
|
—
|
0.1
|
0.1
|
1.3
|
1.5
|
|
Exchange
differences
|
(0.1)
|
—
|
—
|
(0.4)
|
(0.5)
|
|
At 31
December 2023
|
4.5
|
1.7
|
2.0
|
29.0
|
37.2
|
|
At 1
January 2024
|
4.5
|
1.7
|
2.0
|
29.0
|
37.2
|
|
Disposals
|
(3.7)
|
(0.4)
|
(0.7)
|
(9.6)
|
(14.4)
|
|
Charge
for the year
|
0.5
|
0.6
|
0.1
|
2.0
|
3.2
|
|
Impairment
|
—
|
0.1
|
—
|
—
|
0.1
|
|
Exchange
differences
|
—
|
—
|
—
|
0.1
|
0.1
|
|
Derecognition
of assets of discontinued operations
|
(0.2)
|
(1.0)
|
(0.7)
|
(9.9)
|
(11.8)
|
|
At 31 December 2024
|
1.1
|
1.0
|
0.7
|
11.6
|
14.4
|
|
Carrying amount
|
|
|
|
|
|
|
At 31 December 2024
|
2.1
|
0.7
|
0.1
|
6.7
|
9.6
|
|
At 31
December 2023
|
0.7
|
0.9
|
0.1
|
3.3
|
5.0
|
1.
Leasehold
improvement and right-of-use asset additions in the year are
non-cash in nature.
In
February 2024, the Group signed an amendment to shorten the lease
term on one of the UK office floors to 30 June 2024 and extend the
term on the other floor.
The
modification of the lease which was shortened resulted in a net
modification gain of £0.4 million (with a £1.1 million reduction in
lease liability and £0.7 million reduction in right-of use-asset),
and the lease liability and right of use asset net of accumulated
depreciation were derecognised at 30 June 2024.
The
extension of the term on the other floor resulted in an increase to
the lease liability of £6.4 million and right of use asset of £6.4
million before depreciation.
Leasehold
improvement additions associated with re-fitting the retained floor
totalled £1.5 million.
Certain
right-of-use assets related to the US San Francisco office had been
sublet under an operating sublease. Due to a further weakening of
the San Francisco commercial property market, the estimated cash
flows on the sublet no longer support the carrying value of the
asset. As a result, an impairment of £1.3 million was recognised in
the previous year ended 31 December 2023.
Property,
plant and equipment of £0.1 million (2023: £0.2 million) related to
the US business was fully impaired in the year.
Lease liabilities
Amounts
recognised on the balance sheet were as follows:
|
|
|
|
|
Current
|
1.8
|
7.2
|
|
Non-current
|
5.8
|
5.4
|
|
Total
|
7.6
|
12.6
|
13. SME loans and lines of credit
|
|
|
|
|
Non-current
|
|
|
|
SME
loans– amortised cost
|
1.4
|
5.6
|
|
Investment
in trusts and co-investments – FVTPL
|
17.8
|
25.2
|
|
Total non-current
|
19.2
|
30.8
|
|
Current
|
|
|
|
SME
loans– amortised cost
|
0.7
|
1.1
|
|
Lines of
credit – amortised cost1
|
97.1
|
50.0
|
|
SME
loans – FVTPL
|
1.2
|
18.6
|
|
Total current
|
99.0
|
69.7
|
|
Total
|
118.2
|
100.5
|
1.
Included in Lines of credit are £7.2m related to Cashback credit
card balances net of ECL impairment.
14.
Trade and other receivables
|
|
|
|
|
Other
receivables
|
—
|
1.4
|
|
Non-current
trade and other receivables
|
—
|
1.4
|
|
Trade
receivables
|
0.4
|
0.4
|
|
Other
receivables
|
4.2
|
2.7
|
|
Tax-related
receivables
|
4.8
|
4.6
|
|
Prepayments
|
4.7
|
5.2
|
|
Accrued
income
|
5.8
|
5.3
|
|
Rent and
other deposits
|
0.9
|
2.2
|
|
Current
trade and other receivables
|
20.8
|
20.4
|
|
|
20.8
|
21.8
|
The
maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivables described
earlier.
No trade
receivables were overdue or impaired.
Included
in rent and other deposits are £0.9 million of rental deposits
(2023: £1.6 million) in respect of the Group’s property leases
which expire over the next five years.
The
Directors consider that the carrying amount of trade and other
receivables approximates to their fair value.
15. Trade and other payables
|
|
|
|
|
Trade
payables
|
1.8
|
2.4
|
|
Other
taxes and social security costs
|
7.0
|
4.2
|
|
Other
creditors1
|
6.5
|
32.6
|
|
Accruals
and deferred income
|
12.5
|
15.1
|
|
|
27.8
|
54.3
|
1. Other
creditors includes £4.4 million (2023: £30.7 million) due to the
British Business Bank (BBB) primarily related to scheme lender fees
collected from investors associated with government-guaranteed
products.
The
Directors consider that the carrying amount of trade and other
payables approximates to their fair value.
16. Provisions and other liabilities
|
|
|
|
|
ECL on
undrawn lines of credit and other2
£m
|
|
|
At 1
January 2023
|
1.1
|
0.5
|
—
|
0.5
|
2.1
|
|
Additional
provision/liability
|
—
|
0.2
|
—
|
1.2
|
1.4
|
|
Amount
utilised
|
—
|
(0.4)
|
—
|
(0.3)
|
(0.7)
|
|
Amount
reversed
|
—
|
(0.2)
|
—
|
—
|
(0.2)
|
|
At 31
December 2023
|
1.1
|
0.1
|
—
|
1.4
|
2.6
|
|
Additional
provision/liability
|
—
|
—
|
2.3
|
2.2
|
4.5
|
|
Amount
utilised
|
(0.3)
|
(0.1)
|
(2.3)
|
—
|
(2.7)
|
|
Amount
reversed
|
(0.2)
|
—
|
—
|
—
|
(0.2)
|
|
Disposal
of provisions related to discontinued operations
|
—
|
—
|
—
|
—
|
—
|
|
At 31 December 2024
|
0.6
|
—
|
—
|
3.6
|
4.2
|
1. The
restructuring provision relates to the simplification and
streamlining of the Group and has been treated as an exceptional
item.
See note
5.
2. ECL
on undrawn lines of credit and other provisions includes provisions
for operational buybacks of £0.9 million (2023: £nil) and £2.7
million (2023: £1.4 million) of expected credit loss impairment
allowance related to undrawn FlexiPay lines of credit. See notes 17
and 19.
|
|
|
|
|
Current
provisions and other liabilities
|
3.6
|
1.5
|
|
Non-current
provisions and other liabilities
|
0.6
|
1.1
|
|
|
4.2
|
2.6
|
The
dilapidation provision represents an estimated cost for dismantling
the customisation of offices and restoring the leasehold premises
to its original state at the end of the tenancy period. The
provision is expected to be utilised by 2030.
17. Financial risk management
The
Board of Directors has overall responsibility for the establishment
and oversight of the Group’s risk management framework.
The risk
management policies are established to identify and analyse the
risks faced by the Group, to set appropriate risk limits and
controls and to monitor risks and ensure any limits are adhered to.
The Group’s activities are reviewed regularly and potential risks
are considered.
Risk factors
The
Group has exposure to the following risks from its use of financial
instruments:
• credit
risk;
• liquidity
risk; and
• market
risk (including foreign exchange risk, interest rate risk and other
price risk).
Principal financial instruments
The
principal financial instruments used by the Group, from which
financial instrument risk arises, are as follows:
• SME
loans;
• investments
in trusts and co-investments;
• lines
of credit;
• trade
and other receivables;
• cash
and cash equivalents;
• trade
and other payables;
• bank
borrowings;
• lease
liabilities; and
• loan
repurchase liabilities.
Categorisation of financial assets and financial
liabilities
The
tables show the carrying amounts of financial assets and financial
liabilities by category of financial instrument as at 31 December
2024:
|
|
31 December
2024
|
31 December 2023
|
|
|
Fair value
through profit
and
loss
|
Amortised
cost
|
Other
|
Total
|
Fair value through profit and
loss
|
Amortised cost
|
Other
|
Total
|
|
Assets
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
SME loans held at amortised
cost
|
—
|
2.1
|
—
|
2.1
|
—
|
6.7
|
—
|
6.7
|
|
SME loans held at fair value
through profit and loss
|
1.2
|
—
|
—
|
1.2
|
18.6
|
—
|
—
|
18.6
|
|
Lines of credit
|
—
|
97.1
|
—
|
97.1
|
—
|
50.0
|
—
|
50.0
|
|
Investment in trusts and
co-investments
|
17.8
|
—
|
—
|
17.8
|
25.2
|
—
|
—
|
25.2
|
|
Trade and other
receivables
|
0.6
|
10.7
|
—
|
11.3
|
0.8
|
11.2
|
—
|
12.0
|
|
Cash and cash
equivalents
|
136.3
|
51.3
|
—
|
187.6
|
150.1
|
71.3
|
—
|
221.4
|
|
|
155.9
|
161.2
|
—
|
317.1
|
194.7
|
139.2
|
—
|
333.9
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Trade and other
payables
|
—
|
(8.3)
|
—
|
(8.3)
|
—
|
(35.0)
|
—
|
(35.0)
|
|
Loan repurchase
liability
|
—
|
-
|
—
|
—
|
—
|
—
|
(0.1)
|
(0.1)
|
|
Bank borrowings
|
—
|
(101.9)
|
—
|
(101.9)
|
—
|
(56.9)
|
—
|
(56.9)
|
|
Lease liabilities
|
—
|
(7.6)
|
—
|
(7.6)
|
—
|
(12.6)
|
—
|
(12.6)
|
|
|
—
|
(117.8)
|
—
|
(117.8)
|
—
|
(104.5)
|
(0.1)
|
(104.6)
|
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, SME
loans held at amortised cost, FlexiPay lines of credit, bank
borrowings, lease liabilities 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:
• 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 assets or liabilities, either
directly or indirectly; and
• level
3 inputs are unobservable inputs for the assets or
liabilities.
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. If one or more of the
significant inputs are not based on observable market data, the
instrument is included in level 3. An assessment that the level
applied to financial instruments is appropriate and whether a
transfer between levels is required is undertaken at the end of
each accounting period. There were no transfers between levels
during the year or prior year.
The
Finance department of the Group performs the valuations of items
required for financial reporting purposes, including level 3 fair
values. This team reports to the Chief Financial Officer (“CFO”).
Discussions of valuation processes and results are held regularly
at Balance Sheet Management and Impairment and Valuation Committees
along with regular updates provided to the Audit
Committee.
|
Fair value
measurement using
|
|
|
31 December
2024
|
31 December 2023
|
|
|
|
Quoted
prices
in active markets
(level
1)
|
Significant
observable inputs
(level
2)
|
Significant
unobservable inputs
(level
3)
|
Quoted prices in active
markets
(level 1)
|
Significant observable
Inputs
(level 2)
|
Significant unobservable
inputs
(level 3)
|
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
|
Financial
assets
|
|
|
|
|
|
|
|
|
SME loans held at fair value
through profit and loss
|
—
|
—
|
1.2
|
—
|
—
|
18.6
|
|
|
Trade and other
receivables
|
0.6
|
—
|
—
|
0.8
|
—
|
—
|
|
|
Investment in trusts and
co-investments
|
—
|
—
|
17.8
|
—
|
—
|
25.2
|
|
|
Cash and cash
equivalents
|
136.3
|
—
|
—
|
150.1
|
—
|
—
|
|
|
|
136.9
|
—
|
19.0
|
150.9
|
—
|
43.8
|
|
| |
|
|
|
|
|
|
|
The fair
value of all SME loans held at fair value 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 SME loans held at fair value through
profit and loss was £1.2 million at 31 December 2024 (2023: £18.6
million).
Investment
in trusts and co-investments represents the Group’s investment in
the trusts and other vehicles used to fund CBILS, RLS GGS and
certain commercial loans and is measured at fair value through
profit and loss. The government-owned British Business Bank will
guarantee up to 80% of the balance of CBILS loans in the event of
default (and between 70% and 80% of RLS loans and 70% for GGS
loans). The estimated fair value and carrying amount of the
investment in trusts and co-investments was £17.8 million at 31
December 2024 (2023: £25.2 million).
The most
relevant significant unobservable inputs relate to the default rate
estimate and discount rates applied to the fair value calculation.
However, it was determined that the reasonably possible range of
outcomes from these inputs into the estimates are not material to
the accounts.
Since 31
December 2023, the assumptions related to estimating fair value
have been marginally updated. The expected stress in defaults due
to the macro environment of inflationary cost pressures experienced
by SMEs and their customers in the year did not materialise to the
extent expected as base rates peaked, plateaued and began to fall
and borrowers remained largely resilient. This has led to some
favourable observed performance with lower defaults and stable
recoveries relative to expectations on many of the portfolios
particularly the legacy SME loans (securitised) in the US prior to
their sale along with the US business. The expectation of a macro
stress is now expected to be less pronounced but last longer. This
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 than at 31 December 2023.
However,
due to the amortising nature of these loans and the sale of the US
loans, there is less sensitivity to default assumptions given the
lower relative remaining value on the book year on year.
During the year, certain
warehouses invested in trusts in which Funding Circle is a minority
co-investor sold their loan assets to a third party and Funding
Circle partially re-invested alongside the
purchaser.
As a result of the transaction,
the net cash flows from the investment were realised sooner and a
net fair value gain of £2.2 million was recognised through fair
value gains in the consolidated statement of comprehensive
income.
The cash flows related to the
transaction are presented net within “Cash receipts from investment
in trusts and co-investments” in the statement of cash flows,
reflecting the net settlement of the realisation and
re-investment.
There
has additionally been decreases in discount rates used to discount
the estimated cash flows in the year, primarily driven by decreases
in the risk free rate, due to central bank interest rates falling
and expectations of rate cuts priced into swaps.
Many of
the investments in leveraged investment in trust structures have
experienced a reduction in discount rates due to de-leveraging of
the vehicles as senior lenders debt has been paid down. The
repayment of senior debt and the passage of time has additionally
led to fair value gains as a result of the discount unwind as
projected future cash flows of the investments which tend to be
backloaded in the structure become are nearer in time to the
balance sheet date. This, in turn, has led to a higher relative
estimation of fair value in the year.
The
result of the various factors outlined above is a £6.4 million net
fair value gain during the year (of which £2.2 million relates to
discontinued operations) primarily driven by favourable performance
of legacy securitisation loans relative to expectations of stressed
performance over the year; however, as these loans continue to
amortise they are expected to become less sensitive to estimation
uncertainty.
Sensitivities
to unobservable assumptions in the valuation of SME loans and money
market funds within cash and cash equivalents are not disclosed as
reasonably possible changes in the current assumptions inclusive of
default rates, discount rates and recovery rates would not be
expected to result in material changes in the carrying
values.
Fair
value movements on SME loans held at fair value through profit and
loss and investments in trusts and co-investments are recognised
through the profit and loss account in fair value
gains/(losses).
A
reconciliation of the movement in level 3 financial instruments is
shown as follows:
|
|
SME loans held
at fair value through profit and loss
£m
|
Investment in
trusts and co-investments
£m
|
|
Balance as at 1 January
2023
|
69.1
|
28.7
|
|
Additions
|
11.9
|
1.8
|
|
Repayments
|
(37.6)
|
(6.6)
|
|
Disposal
|
(30.4)
|
—
|
|
Net gain on the change in fair
value of financial instruments at fair value through profit or
loss
|
7.4
|
1.3
|
|
Foreign exchange loss
|
(1.8)
|
—
|
|
Balance as at 31
December 2023
|
18.6
|
25.2
|
|
Additions
|
—
|
4.1
|
|
Repayments
|
(13.5)
|
(14.6)
|
|
Net gain on the change in fair
value of financial instruments at fair value through profit or
loss
|
2.6
|
3.8
|
|
Other non-cash
movements
|
(0.7)
|
—
|
|
Disposal of discontinued
operations
|
(5.8)
|
(0.7)
|
|
Balance as at 31
December 2024
|
1.2
|
17.8
|
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:
|
|
31
December
2024
|
31 December
2023
|
|
|
£m
|
£m
|
|
Non-current
|
|
|
|
SME loans held at amortised
cost
|
1.4
|
5.6
|
|
Investment in trusts and
co-investments
|
17.8
|
25.2
|
|
Trade and other
receivables:
|
|
|
|
- Other receivables
|
—
|
1.4
|
|
Current
|
|
|
|
SME loans held at amortised
cost
|
0.7
|
1.1
|
|
SME loans held at fair value
through profit and loss
|
1.2
|
18.6
|
|
Lines of credit
|
97.1
|
50.0
|
|
Trade and other
receivables
|
|
|
|
- Trade receivables
|
0.4
|
0.4
|
|
- Other receivables
|
4.2
|
2.7
|
|
- Accrued income
|
5.8
|
5.3
|
|
- Rent and other
deposits
|
0.9
|
2.2
|
|
Cash and cash
equivalents
|
187.6
|
221.4
|
|
Total gross
credit risk exposure
|
317.1
|
333.9
|
|
Less bank
borrowings1
|
(101.9)
|
(56.9)
|
|
Total net credit
risk exposure
|
215.2
|
277.0
|
1.
Included within bank borrowings are £nil (2023: £2.2 million) in
relation to drawdowns on the PPPLF and £101.9 million (2023: £54.7
million) related to the FlexiPay warehouse.
In
addition, the Group was subject to certain financial guarantees in
its legacy European operations which it had issued to buy back
loans. The Group’s maximum exposure to credit risk on these
financial guarantees were every eligible loan required to be bought
back would be £nil (2023: £0.4 million).
An
expected credit loss allowance related to undrawn lines of credit
on the FlexiPay product of £2.7 million (2023: £1.4 million) is
held within provisions and other liabilities. The Group’s maximum
exposure to credit risk on the undrawn lines of credit if they were
all to be fully drawn would be £278.7 million (2023: £157.3
million).
The
Group has the ability to freeze, reduce or withdraw lines of credit
as a way of managing associated credit risk.
Credit risk associates with SME loans held at amortised cost and
lines of credit
Under
IFRS 9, the Group is required to provide for loans measured at
amortised cost under the expected credit loss (“ECL”) model. The
impairment related to each loan 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 below factors are used in estimating
the impairment:
|
Factor
|
Description
|
|
Probability
of Default (“PD”)
|
The
Group has developed PD models tailored to each Term Loan or line of
credit product to assess the likelihood of default within the next
12 months and over the lifetime. The models estimate PD based on
the latest payment behaviour of the customers and observed
historical trends. The PD model also includes an estimate of the
future macroeconomic effect.
|
|
Exposure
at Default (“EAD”)
|
The
Group has developed an EAD model for line of credit products to
assess the likely exposure at default. The model calculates
estimates of EAD based upon the latest payment behaviour of the
customer, the credit limit utilisation, and applying a credit
conversion factor approach.
|
|
Loss
Given Default (“LGD”)
|
The
Group has developed LGD models tailored to each Term Loan or line
of credit product to assess the likely financial loss given an
account defaults. The models calculate estimates of LGD based on
historical data on observed recoveries against defaulted
accounts.
|
|
Discount
rate
|
The
Group uses account-level effective interest rate which is
calculated based on line of credit amount or loan amount, interest
and fees, expected repayments including pre-payments and
term.
|
Significant increase in credit risk: The
Group assumes there has been a significant increase in credit risk
if the loan or line of credit is overdue, or if the line of credit
has been frozen due to identification of risk from sources such as
bureau data indicating they have become overdue on a third party
debt for example, or if the borrower is late on another FC
product.
A
backstop is applied for any outstanding amounts on the loan
investment exceed 30 days, in line with the rebuttable presumption
per IFRS 9.
Forecast period: We
estimate PD, EAD and LGD for the duration of the lifetime of the
Term Loan or line of credit. Term Loans utilise the contractual
term of the Term Loan. For lines of credit, the duration of the
lifetime is estimated to be five years.
Definition of default:
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. In some circumstances where loans are bought
back by the Group, the financial asset associated with the purchase
meets the definition of purchased or originated credit-impaired
(“POCI”); this element of the impairment is therefore based on
lifetime ECLs.
Lines of
credit utilises the same default definition and probability of
default under IFRS 9; however, they are assessed based on 12-month
probability of default at the overall available line of credit
level, estimating the expected utilisation of the line of credit at
the estimated point of default. The expected credit loss impairment
associated with undrawn lines of credit is disclosed within other
liabilities in note 16 and in note 19.
In the
prior year, SME loans held at amortised cost included PPP loans
funded by the use of the PPPLF. The loans were guaranteed by the US
government in the event of default and the loans were 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.
SME
loans held at amortised cost also include loans which have been
brought back from investors with the intention of collecting
contractual cash flows.
Lines of
credit comprises £97.1 million (2023: £50.0 million) of drawn
amounts through the FlexiPay product net of expected credit loss
impairment.
The
gross principal value of SME loans held at amortised cost is £11.3
million (2023: £21.4 million) and drawn lines of credit is £110.0
million (2023: £55.4 million), totalling £121.3 million (2023:
£76.8 million), and an allowance for expected credit losses of £9.2
million (2023: £14.7 million) and £12.9 million (2023: £5.4
million) respectively, totalling £22.1 million (2023: £20.1
million), is held against these loans and drawn lines of credit as
detailed below.
An
impairment charge of £7.0 million (2023: impairment charge of £3.3
million) was recognised through the statement of comprehensive
income in the year to 31 December 2024 within (provision)/credit
for expected credit losses in the income statement related to drawn
lines of credit and SME loans held at amortised cost.
Additionally,
an expected credit loss impairment charge was recognised relating
to undrawn FlexiPay lines of credit of £1.3 million (31 December
2023: £1.1 million) and an expected credit loss impairment charge
of £nil (31 December 2023: credit of £0.4 million) related to the
loan repurchase liability and an expected credit loss impairment
charge related to operational buybacks of £0.4 million (2023: £nil)
were recognised as detailed in notes 16 and 17.
The
Group bands each loan investment at origination using an internal
risk rating and assesses credit losses on a collective portfolio
basis by product. Credit risk grades are not reported to management
on an ongoing basis and the only borrower specific information that
is produced and used is past due status.
There is
no significant concentration of credit risk to specific industries
or geographical regions.
|
Reconciliation
of opening to closing ECL
|
Stage 1
Performing:
12-month
ECL
£m
|
Stage 2
Underperforming:
Lifetime
ECL
£m
|
Stage
3
Non-performing:
Lifetime
ECL
£m
|
|
|
|
At 1
January 2023
|
1.1
|
0.3
|
0.9
|
14.1
|
16.4
|
|
Impairment
against new lending and purchased assets
|
12.6
|
0.1
|
0.1
|
0.6
|
13.4
|
|
Exchange
differences
|
—
|
—
|
—
|
(0.5)
|
(0.5)
|
|
Impairment
against loans transferred between stages
|
(0.3)
|
0.5
|
2.5
|
—
|
2.7
|
|
Loans
repaid
|
(10.5)
|
—
|
(0.2)
|
(0.9)
|
(11.6)
|
|
Change
in probability of default or loss given default
assumptions
|
(1.3)
|
0.1
|
0.4
|
0.5
|
(0.3)
|
|
At 31
December 2023
|
1.6
|
1.0
|
3.7
|
13.8
|
20.1
|
|
Impairment
against new lending and purchased assets
|
12.7
|
—
|
—
|
—
|
12.7
|
|
Exchange
differences
|
—
|
—
|
(0.1)
|
(0.3)
|
(0.4)
|
|
Impairment
against loans transferred between stages
|
(0.2)
|
3.9
|
7.1
|
—
|
10.8
|
|
Loans
repaid
|
(11.2)
|
(3.3)
|
(0.4)
|
(0.7)
|
(15.6)
|
|
Impairment
provision derecognised related to written off loans
|
—
|
—
|
—
|
(0.3)
|
(0.3)
|
|
Change
in probability of default or loss given default
assumptions
|
(0.1)
|
(0.2)
|
(0.8)
|
0.6
|
(0.5)
|
|
Derecognition
of impairment associated with assets of discontinued
operations
|
—
|
—
|
(0.1)
|
(4.6)
|
(4.7)
|
|
At 31 December 2024
|
2.8
|
1.4
|
9.4
|
8.5
|
22.1
|
|
|
Expected
credit
loss
coverage
%
|
Basis
for
recognition
of
expected
credit
loss
impairment
|
Gross
lines of credit and SME loans held at amortised cost
£m
|
Provision
for
expected
credit
loss
£m
|
|
|
As at 31 December 2023
|
|
|
|
|
|
|
Stage 1
– Performing
|
2.9
|
12-month
ECL
|
55.8
|
(1.6)
|
54.2
|
|
Stage 2
– Underperforming
|
50.0
|
Lifetime
ECL
|
2.0
|
(1.0)
|
1.0
|
|
Stage 3
– Non-performing
|
86.0
|
Lifetime
ECL
|
4.3
|
(3.7)
|
0.6
|
|
POCI
|
93.9
|
Lifetime
ECL
|
14.7
|
(13.8)
|
0.9
|
|
|
|
Total
|
76.8
|
(20.1)
|
56.7
|
|
As at 31 December 2024
|
|
|
|
|
|
|
Stage 1
–- Performing
|
2.8
|
12-month ECL
|
99.1
|
(2.8)
|
96.3
|
|
Stage 2
– Underperforming
|
43.8
|
Lifetime ECL
|
3.2
|
(1.4)
|
1.8
|
|
Stage 3
– Non-performing
|
90.4
|
Lifetime ECL
|
10.4
|
(9.4)
|
1.0
|
|
POCI
|
98.8
|
Lifetime ECL
|
8.6
|
(8.5)
|
0.1
|
|
|
|
Total
|
121.3
|
(22.1)
|
99.2
|
|
Of which is drawn FlexiPay lines of credit
|
Expected
credit
loss
coverage
%
|
Basis
for
recognition
of
expected
credit
loss
impairment
|
|
Provision
for
expected
credit
loss
£m
|
|
|
As at 31 December 2023
|
|
|
|
|
|
|
Stage 1
– Performing
|
2.8
|
12-month
ECL
|
50.3
|
(1.4)
|
48.9
|
|
Stage 2
– Underperforming
|
52.6
|
Lifetime
ECL
|
1.9
|
(1.0)
|
0.9
|
|
Stage 3
– Non-performing
|
93.8
|
Lifetime
ECL
|
3.2
|
(3.0)
|
0.2
|
|
POCI
|
—
|
Lifetime
ECL
|
—
|
—
|
—
|
|
|
|
Total
|
55.4
|
(5.4)
|
50.0
|
|
As at 31 December 2024
|
|
|
|
|
|
|
Stage 1
– Performing
|
2.8
|
12-month ECL
|
97.0
|
(2.7)
|
94.3
|
|
Stage 2
– Underperforming
|
43.8
|
Lifetime ECL
|
3.2
|
(1.4)
|
1.8
|
|
Stage 3
– Non-performing
|
89.8
|
Lifetime ECL
|
9.8
|
(8.8)
|
1.0
|
|
POCI
|
—
|
Lifetime ECL
|
—
|
—
|
—
|
|
|
|
Total
|
110.0
|
(12.9)
|
97.1
|
The risk
and finance functions of the Group monitor the performance of the
FlexiPay lines of credit and SME loans held at amortised cost and
calculate the ECL estimate required for financial reporting
purposes. These teams report to the Chief Financial Officer (“CFO”)
and Chief Risk Officer (“CRO”). Discussions of estimates processes
and results are held regularly at Balance Sheet Management and
Impairment and Valuation Committee meetings along with regular
updates provided to the Audit Committee.
Forward-looking information and scenarios: The
allowance for expected credit losses required estimation to assess
individual loans or when applying statistical models for collective
assessments based on the Group’s past experience of historical
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 which are
considered for incorporation into scenarios and probability
weighted.
These
scenarios are utilised to derive a default stress multiplier in the
unstressed PD projections established from historical
experience.
Key changes to scenarios used in 2024: During
the year, the business moved away from using macroeconomic
scenarios derived from US macroeconomic data (primarily GDP which
correlated well to US charge off rates) toward a focus on the UK
macro economic data aligning with the disposal of the US
business.
UK-specific
forecast data was obtained from a third party economics provider
for three scenarios; a baseline, upside and downside
scenario.
A number
of data points were obtained and considered by Funding Circle
including GDP, real estate prices, unemployment rates, among
others, however unemployment held the strongest correlation to UK
insolvency rates and was determined to be more suitable under
statistical modelling techniques.
As a
result unemployment was used as a single factor forecast input for
determining scenarios utilised for PD stress
multipliers.
The
scenarios used were as follows:
|
Macroeconomic
drivers (average for the forecast year)
|
ECL
scenario
|
|
|
|
|
|
|
Unemployment
rates %
|
Upside
|
3.97
|
3.65
|
3.62
|
3.63
|
3.64
|
|
Base
case
|
4.40
|
4.31
|
4.18
|
4.06
|
4.00
|
|
Downside
|
5.15
|
5.98
|
6.71
|
6.71
|
6.48
|
A
sensitivity to these assumptions on the estimated ECL is disclosed
within note 3.
The
nature of the stress forecasts was lower than those used in the
previous year where there was a shift away from shorter, sharper
stress forecast expectations associated with sharp inflation and
supply chain issues to a more “traditional” gradual but longer
lasting stress.
In
combination with this more muted stress multiplier derived from the
scenarios FC shifted its benchmark weighting from 70% baseline, 20%
downside, 10% upside from FY 2023 to 60% baseline, 30% downside and
10% upside in 2024 because in Funding Circle’s judgement the more
subtle downside impact is more probable than the higher stress used
under the prior year’s scenarios having considered possible
weightings.
Credit risk associated with other financial assets:
SME
loans held at fair value through profit and loss relate to the
underlying pool of SME loans from the legacy warehouses and SPVs
that have since been purchased or novated into other Funding Circle
entities, but remain held at FVTPL with the business model of
holding the loans for sale.
Additionally,
loans originated by the Group with the intention of selling onwards
are included in this category.
Trade
receivables represent the invoiced amounts 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 expected credit
losses is recorded in the financial statements.
Other
receivables include net investment in subleases of offices
representing the present value of future sublease payments
receivable. Where appropriate, impairment is recorded where the
receivable is in doubt.
Individual
risk limits for banks and financial institutions are set by the
Group with reference to external rating agencies. The Group’s
treasury policy has set limits and quantities that the Group must
remain within. No credit or counterparty limits were exceeded
during the year. The Group’s cash and cash equivalents split by
S&P counterparty rating were A/A- rated: £51.4 million (2023:
£71.3 million), A+ or better rated: £136.3 million (2023: £150.1
million) and below A- rated: £nil (2023: £nil).
Impairment of net investment in subleases:
Certain
right-of-use assets related to the US San Francisco office were
sublet under a financing sublease and were represented as net
investments in subleases within other receivables. Due to a
reduction in market values since inception of the sublet, the
estimated cash flows expected on expiry of the existing sublet and
expectations of further sublet were lower and as a result an
impairment of £0.8 million was recognised in the prior year ended
31 December 2023. The impairment is disclosed in the consolidated
statement of comprehensive income within depreciation, amortisation
and impairment.
18. Notes to the consolidated statement of cash flows
Cash outflow from operating activities
|
|
|
|
|
Profit/(loss)
before taxation
|
|
|
|
Continuing
operations
|
0.8
|
(9.9)
|
|
Discontinued
operations
|
8.4
|
(23.3)
|
|
Total
operations
|
9.2
|
(33.2)
|
|
Adjustments for:
|
|
|
|
Depreciation
of property, plant and equipment
|
3.2
|
4.3
|
|
Amortisation
of intangible assets
|
9.8
|
12.4
|
|
Modification
gain
|
(0.4)
|
—
|
|
Impairment
of property, plant and equipment, intangible assets, ROU assets and
investment in sublease
|
0.9
|
6.2
|
|
Impairment
of intangibles (exceptional item)
|
0.3
|
—
|
|
Interest
payable
|
0.8
|
0.6
|
|
Non-cash
employee benefits expense – share-based payments and associated
social security costs
|
8.1
|
5.6
|
|
Fair
value adjustments
|
(6.4)
|
(8.7)
|
|
Movement
in loan repurchase liability
|
(0.1)
|
(0.4)
|
|
Movement
in other provisions
|
1.7
|
0.9
|
|
Share of
gains of associates
|
—
|
(0.1)
|
|
ECL
impairment
|
8.7
|
4.4
|
|
Profit
on sale of the US subsidiary (exceptional item)
|
(9.8)
|
—
|
|
Recycling
of foreign exchange reserve on sale of subsidiary (exceptional
item)
|
(8.7)
|
—
|
|
Other
non-cash movements
|
(0.2)
|
0.7
|
|
Changes in working capital
|
|
|
|
Movement
in trade and other receivables
|
(3.1)
|
(13.5)
|
|
Movement
in trade and other payables
|
(26.6)
|
34.7
|
|
Tax
paid
|
(0.1)
|
(0.6)
|
|
Originations
of lines of credit
|
(467.0)
|
(230.4)
|
|
Cash
receipts from lines of credit
|
412.3
|
191.5
|
|
Net cash
outflow from operating activities
|
(67.4)
|
(25.6)
|
Cash and cash equivalents
|
|
|
|
|
Cash and
cash equivalents
|
187.6
|
221.4
|
The cash
and cash equivalents balance is made up of cash and money market
funds. The carrying amount of these assets is approximately equal
to their fair value. Included within cash and cash equivalents
above is a total of £37.1 million (2023: £51.8 million) in cash
which is restricted in use. Of this, £nil (2023: £1.1 million) is
restricted in use in the event of rental payment defaults and is
therefore restricted in its use. £5.0 million (2023: £31.1 million)
of cash is held which is restricted in use to repaying investors in
CBILS and RLS loans and paying CBILS and RLS-related costs to the
UK government. A further £32.1 million (2023: £19.6 million) of
cash is held which is restricted for use in the FlexiPay
warehouse.
At 31
December 2024, money market funds totalled £136.3 million (2023:
£150.1 million).
Analysis of changes in liabilities from financing
activities
|
|
|
|
|
Other
non-cash
movements
£m
|
|
|
Bank
borrowings
|
(22.6)
|
(34.9)
|
0.6
|
—
|
(56.9)
|
|
Bonds
|
(23.7)
|
23.4
|
0.6
|
(0.3)
|
—
|
|
Lease
liabilities
|
(19.8)
|
7.2
|
0.6
|
(0.6)
|
(12.6)
|
|
Liabilities from financing activities
|
(66.1)
|
(4.3)
|
1.8
|
(0.9)
|
(69.5)
|
|
|
|
|
|
Other non-cash
movements
£m
|
Derecognition of liabilities related to discontinued
operations
£m
|
|
|
Bank
borrowings
|
(56.9)
|
(46.6)
|
—
|
—
|
1.6
|
(101.9)
|
|
Lease
liabilities
|
(12.6)
|
3.6
|
(0.3)
|
(5.8)
|
7.5
|
(7.6)
|
|
Liabilities from financing activities
|
(69.5)
|
(43.0)
|
(0.3)
|
(5.8)
|
9.1
|
(109.5)
|
19. Contingent liabilities and commitments
As part
of the ongoing business, the Group has operational requirements
with its investors. At any point in time, it is possible that a
particular investor may expect the Group to purchase their loan in
the event of a breach of representation or warranty, operational
errors or control issues or where agreed eligibility criteria have
not been complied with. Where a loan is purchased it is presented
within SME loans held at amortised cost on the face of the
consolidated balance sheet and held at amortised cost under IFRS
9.
In
common with other businesses, the Group is involved from time to
time in disputes in the ordinary course of business. There are no
active cases expected to have a material adverse financial impact
on the Group.
The
Group has commitments related to undrawn amounts on issued FlexiPay
lines of credit. At 31 December 2024, there were undrawn
commitments of £278.7 million (2023: £157.3 million). An expected
credit loss impairment allowance is held within other provisions by
the Group of £2.7 million (2023: £1.4 million) in relation to the
estimated credit losses the Group may be exposed to on these
undrawn lines of credit.
20. Subsequent events
There
have been no subsequent events since the balance sheet
date.
