Losses widen at Funding Circle over IT and flotation costs

By Roger Baird on 7th March 2019

P2P/Marketplace Lending

The business peer-to-peer lender is targeting sales of more than £200m this year.

Losses widen at Funding Circle over IT and flotation costs

Funding Circle posted a wider full-year pre-tax loss, as IT development costs jumped at the peer-to-peer lender.

The platform, which originates small business loans, reported a loss of £50.7m in 2018, compared to £36.3m the year before, as the cost of upgrading its network lifted during the period.

The FTSE 250 firm said product development costs leapt by 80 per cent to £24.5m as it boosts its IT network. It added it has over 150 engineers working on ensuring that half of its loan applications are fully automated by 2020. The group said it also incurred additional corporate costs associated with its London flotation last October.

The platform - which operates in the UK, US, Germany and the Netherlands - said its sales lifted 55 per cent to £141.9m, as it arranged more loans. It added loan originations jumped 40 per cent to £2.3bn over the period. The business said it is targeting sales of more than £200m this year.

The better-than-expected results, saw the company's shares rise five per cent to 368p in early trading.

The platform said it arranged funding for more than 60,000 small firms last year, adding that more it attracted 85,000 investors who target returns of between five per cent and eight per cent.

Canadian launch

Funding Circle said it planned to launch operations in Canada in the second half of this year, opening up a £45bn small business market.

Before that, it plans to offer two new institutional investor products, a US asset-backed bond product and a private direct lending fund in continental Europe, in the first half of 2019.

Chief executive Samir Desai (pictured, centre) said: “Funding Circle is in a strong position financially and operationally, and we are confident of meeting our growth expectations for the year.”

However, some brokers think the pace the platform has set will be hard to match in 2019, given a slowing global economy, marked by weaker European growth, trade wars between the US and China and Brexit in the UK.

Analysts at Barclays have warned that “investors will become more nervous” in this environment.

Earlier this month these factors led the Bank of England to slash UK growth forecasts to 1.2 per cent this year, the slowest pace since 2009. The Bank had predicted growth of 1.7 per cent this year as recently as November.

Brexit fears

Funding Circle said it “recognises the increasing economic uncertainty caused by Brexit”, but added that its “international operations represent approximately 30 per cent of our overall business, and our UK business is not directly affected on a day-to-day operational basis by the prospect of the UK leaving the EU”.

However, it said would continue to monitor the Brexit process “for any possible impact on UK SMEs”.

The business floated on the London Stock Exchange in October at 440p per share, valuing the platform at £1.5bn. However, it has consistently traded below that price, a number of investors say its initial public offering was overpriced, with it now potentially heading into a difficult loan market. 

Funding Circle was founded in 2010 by Desai and his two friends, James Meekings (pictured, right) and Andrew Mullinger (pictured, left), who all met at university.

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