• Revenue Growth: Increased by 23% to 160 million.
• Group Profit: 3.4 million, above market expectations.
• PBT Margin (Term Loans): 13.3%, up from 5.2% the previous year.
• Credit Extended: Grew 47% to 1.9 billion.
• Cost Savings: Annualized benefit of 15 million from UK restructuring.
• Share Buyback: Completed a 25 million buyback program; over 11% of share capital bought back.
• FlexiPay Revenue Growth: Grew more than threefold.
• Net Assets: 217 million.
• Unrestricted Cash: 151 million.
• Term Loans Revenue: 142.6 million, up 15% from 2023.
• FlexiPay Transactions: Nearing 500 million with end-of-month balances at 119 million.
• Operating Cost Growth: 9%, compared to revenue growth of 23%.
• Expected Credit Losses: Increased with FlexiPay balance growth, consistent with expectations.
• Loan Returns: Stable net returns around 5% above investors' cost of funding.

• Warning! GuruFocus has detected 2 Warning Sign with LSE:FCH.

Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Funding Circle Holdings PLC (LSE:FCH) achieved a 23% increase in revenue, reaching 160 million pounds.
• The company reported a group profit of 3.4 million pounds, surpassing market expectations.
• Credit extended grew by 47% to 1.9 billion pounds, with significant growth in both core loans and new products.
• The company successfully restructured its UK business, resulting in an annualized benefit of 15 million pounds in cost savings.
• Funding Circle Holdings PLC (LSE:FCH) launched two share buyback programs, buying back over 11% of its share capital by the end of February 2025.

Negative Points

• The company is facing ongoing litigation related to the sale of loans, which could have potential implications if not resolved favorably.
• Despite strong performance, the macroeconomic environment remains challenging, with high business insolvencies and low consumer confidence.
• The FlexiPay product, while showing growth, still incurs upfront costs and is not yet fully profitable.
• The US business was sold due to trading losses, indicating challenges in international markets.
• There is a need for additional capital to support the growth of FlexiPay, which could impact cash reserves.

Q & A Highlights

Q: Can you provide an update on the litigation issue and its potential implications if the case is lost? A: Lisa Jacobs, CEO: The litigation involves a summary judgment related to two loans defaulted in March 2020. The case questions who has the rights to the claim, not the enforceability of the loans or personal guarantees. The trial is expected after September, and we remain confident in a favorable outcome for Azuro, the involved party. Further details cannot be disclosed due to ongoing proceedings.

Q: What is the status and future of the share buyback program? A: Tony Nicol, CFO: The buyback program is ongoing, with about 8 million remaining. We evaluate buybacks within our capital allocation framework, aiming for long-term shareholder value. We consider the current share price undervalued, which influences our approach.

Q: Could you elaborate on the focus for new product development? A: Lisa Jacobs, CEO: Our focus is on expanding in the SME B2B transactions and card payments markets, leveraging products like FlexiPay and the business credit card. We aim to deepen relationships with SMEs, enhancing recurring revenue and customer interaction frequency.

Q: How is the current economic uncertainty affecting borrower demand and returns? A: Lisa Jacobs, CEO: Despite a challenging macroeconomic environment, our model has shown resilience, delivering returns 5% above investors' cost of capital. We continue to see strong SME demand, supported by our expanded product set addressing both investment and working capital needs.

Q: What are the capital requirements for FlexiPay's future growth? A: Tony Nicol, CFO: FlexiPay's growth requires modest capital, supported by cash-generative term loans. Capital needs depend on FlexiPay's growth speed, with early cohorts now cash-generative, indicating strong future revenue potential.

Q: Are there further cost-saving opportunities beyond the 15 million achieved? A: Tony Nicol, CFO: Future cost growth will be more inflationary, particularly in non-marketing costs. Marketing costs remain variable, aligned with revenue growth, typically around 30% of revenue.

Q: How does the company plan to address potential implications for its loan documentation processes? A: Lisa Jacobs, CEO: No questions have been raised about the validity or enforceability of loans in the court case. We are confident in Azuro's success in the proceedings.

Q: What was the percentage of term loan origination through Marketplace for the full year, and will it remain at this level? A: Tony Nicol, CFO: Marketplace originations were around 10-11% for the full year, consistent with the first half, and we expect this level to continue.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.