Funding Circle Holdings plc (FCH) Earnings Call Transcript & Summary

Hello. Thank you for joining the Funding Circle full year results call. Just wanted to highlight that we moved this to a webcast only due to the evolving situation with COVID-19. I'll speak for a few minutes. Then I'll hand over to David de Koning, our Head of Investor Relations, to talk about financials. And then I'll come back and talk about strategy and outlook. Just wanted to say that, unfortunately, Sean Glithero couldn't join us today. He's come down with a stomach bug, which hopefully means that it's not coronavirus. But I just wanted to thank Sean for everything he's done as our CFO over the last 3 years. And looking forward to welcoming Oliver White in the coming months. So just starting on the executive summary. In 2019, Funding Circle delivered revenue of GBP 167.4 million, which was up 18% year-on-year, with loans under management reaching a record GBP 3.7 billion, so up 19% year-on-year despite a challenging economic environment. Adjusted EBITDA was negative GBP 27.5 million with a loss margin of around 16%, which was stable year-over-year with 2018. We had a loss before exceptional -- before tax and exceptional costs of GBP 49.9 million. We had a full loss of -- before tax of GBP 84.2 million, which included a noncash exceptional write-down of GBP 34.3 million of goodwill and intangible assets, which relates to the Developing Markets business for Funding Circle of Germany and the Netherlands, which I'll talk about a bit later. The group is accelerating on a path to profitability. Our U.K. business delivered a fully allocated operating profit of GBP 3 million in the second half of 2019. And the U.K. business represents 65% of group revenue. Our U.S. business is continuing to follow a similar trajectory in terms of loans under management growth to the U.K. business. And in the U.S., if we were a bank, we will be a top 50 bank in that market, so larger than 5,500 other banks, so we're pleased with the progress thus far. The group had net assets of GBP 320 million at the end of 2019, which includes a mixture of cash and also short- and long-term investments. The group is incredibly well capitalized. In terms of business initiatives, in 2019, we took actions to tighten our lending criteria in higher-risk bands, risk band loans, which slowed our growth due to a reduction in conversion, which is the number of applications for loans that became actual loans. But now we are seeing very positive early signs of that improving net returns for investors. Investor returns are expected to deliver between 5% and 7.8% for loans originated in the U.K. and the U.S. in 2019, which is 10% to 30% higher than 2018. And we feel that the decisions we took last year were the right long-term decisions for the benefit of the company but also for our customers as well. We're very excited that we've completed the initial build of our new instant-decision lending platform, and we rolled out initial pilots in Q4 2019 within the U.K. The first loans took, on average, just 6 minutes to go from application to approval. And we're on track to prudently roll out that functionality to 50% of borrowers by the end of 2020. We are planning to reorganize our German and Dutch business, which are developing markets of Funding Circle, so earlier-stage markets that we've been in for less time, to focus on originating loans for local lenders within each market as opposed to originating loans for institutional and retail investors. We will be centralizing operations in London, which will drive a more efficient model, better serve small businesses and accelerate the path of the group to profitability. So adjusted EBITDA losses for Germany and the Netherlands will fall from around GBP 16 million in 2019 to low single-digit millions on a run rate basis. In terms of outlook, we are focused on improving conversion across the platform to help more small businesses, keeping net returns attractive for our customers and focusing very much on delivering profitable growth. We're targeting group adjusted EBITDA breakeven in the second half of 2020. We expect the combined U.K. and U.S. business to grow revenue by 15% in 2020 with an acceleration through the year, so faster growth in the second half than the first half. And with respect to COVID-19, we have not -- the year has started well for us. We have not seen an impact to date of the virus on recent trading or on collections activities in terms of loan repayments, but we continue to monitor the situation very closely, and we'll take appropriate action as required. Just moving to the next slide and just giving a little bit of background before we get into the financials, the small business lending continues to represent a very unique opportunity in the market. Small business lending is a small proportion of bank balance sheets, only 2% of bank balance sheets on average, but this is a really important thing for society because small businesses represent 60% of private sector employment, 50% of private sector jobs. Most of the job creation since the financial crisis has come from those companies. The loans that Funding Circle do have a very direct impact on GDP and also employment. Oxford Economics estimated an additional 115,000 jobs were created and sustained through the lending Funding Circle did in 2018, and an incremental GBP 6.5 billion was contributed to GDP. And the addressable markets that we operate in are very large. Our current addressable market is around GBP 470 billion. And with GBP 3.7 billion of loans under management, there's clearly a lot of headroom for Funding Circle to grow over the coming years. Funding Circle operates a platform model. We are bringing cutting-edge technology and data analytics to enable small businesses to access finance directly from investors and lenders. We have had over 80,000 borrowers, small businesses, borrow through our platform globally. And these are prime small business borrowers. So they tend to be -- have around 10 years of trading history, around 7 employees, GBP 1 million of turnover, typically borrowing GBP 80,000 over 50 months, although loans range between GBP 5,000 and GBP 500,000. On the investors side, we have over 95,000 investors globally, who've collectively lent GBP 8.5 billion to borrowers. And as I reemphasized earlier, projected returns in the U.K. and U.S. in 2019 are between 5% and 7.8% a year, an improvement on last year. In terms of borrowers, Funding Circle really offers this market-leading customer satisfaction, this really game-changing way of them being able to access finance. And that's why our Net Promoter Scores are in the 80% to 90% range in the U.K. and U.S. So for comparison, large companies like Apple tend to be around 70%, which is the best other company I've been able to find online. So we really do offer this amazing experience. 82% of borrowers tell us they would choose to access finance from Funding Circle again in the future rather than going back to their bank, and 70% choose us just because the process is too long or bureaucratic. And you can see that, that translates into very stable, predictable, repeat rates from our borrowers on the right-hand side of this slide. So what this slide shows is the average number of loans a borrower has held with Funding Circle, hold with Funding Circle or has borrowed through Funding Circle, and the years are from when they first became a borrower. And across multiple quarterly cohorts, we got this very stable repeat behavior because small businesses really feel that we offer something very differentiated and better than the alternatives. On the investors side of the platform, we are allowing investors to gain exposure to an SME credit asset class that was previously inaccessible. Returns between 5% and 7.8% a year, allowing them to build a very granular, deep and diversified portfolio of loans across various sectors, regions and risk bands. And all the loans are monthly repayment loans, so they pay back interest and principal every month. In terms of the distribution of funding on the platform, 50% of funding comes from institutional investors who purchase whole loans. These include banks, asset managers, insurance companies. We were pleased with the progress of the 2 new investor products that we launched in 2019. We launched ABS bonds, which makes up about 16% of loans under management; and also a private fund in the U.K., which has attracted money from local authority pension schemes. We also have national entities that purchase loans through Funding Circle, including the British Business Bank. And retail investors make up around 23% of the funding on the platform. I'll now hand over to David to talk through the group financial performance.

Thank you, Samir. Starting with loans under management on the left of Slide 8, the driver of our servicing revenue and originations, the driver of transaction revenue. Loans under management grew to over GBP 3.7 billion, up GBP 0.5 billion on the prior year with all geos growing. Loans under management growth is broadly the average of the past 2 years' origination growth. So in 2018, originations grew 40%, whereas in 2019, following the proactive decision to tighten credit in the U.K. and the U.S. that Samir mentioned earlier, origination growth for the group was suppressed at 3%, giving a simple average of about 20%, in line with the loans under management growth of 19%. All growth figures for the geos are shown in their local currency. U.K. originations were up 2% at around GBP 1.6 billion, with U.S. originations flat at GBP 0.6 billion. The Developing Markets of Germany and the Netherlands together grew a combined 8%. Moving on to revenue on Slide 9. Full year revenue of GBP 167.4 million, that represented growth of 18% for the group as a whole, with all geos in the 16% to 20% range. On the right, we can see that transaction revenue growth of 7% reflected a 3% origination of volume growth plus a small improvement in transaction yield to 5.2%. Most of the yield improvement was made in the second half of 2018, with yields declining modestly through last year, and that was due to channel mix and an increasing proportion of the originations from our existing customer base. Servicing yield was flat at 0.9% and is stated net of the impact of our new ABS program where we cannot charge ourselves a servicing fee on SME loans held on the balance sheet. To facilitate the launch of our new investor products, we have invested on our platform alongside institutional investors. The direct return benefit of doing so is shown as net investment income, which reached GBP 10.5 million in 2019, mainly in the second half of the year as the warehouses took time to build. This revenue line is a mix of interest earned on any SME loans we hold, adjustments for fair value movements in the book, less the cost of leverage used to acquire and hold the loans. Net investment income represented low teens yield based on average working capital and investments in the period. And as such, it was a good return on group's equity in addition to broadening our investor base. Slide 10. The chart on the left shows the build of revenue growth across the component parts. Origination growth drove 2 percentage points of the 18 percentage points of growth, with the majority from servicing revenue that grew broadly in line with loans under management, the flow-through of higher transaction yield, some small changes in other revenue and FX, with the largest component being the new net investment income revenue stream. Turning to segment profit on the right, we see segment adjusted EBITDA was GBP 11.2 million for the group, representing a margin of 7%. A strong performance in the U.K. saw segment adjusted EBITDA grow 38% to GBP 34 million despite tighter lending criteria, leading to the conversion of applications to loans falling. However, the U.K. improvement was not sufficient enough to fully offset the high losses in the U.S. and the Developing Markets. The U.S. has a very large addressable market. And in the year, we increased our marketing investment by over GBP 11 million to 48% of revenue. But like the U.K., conversion of applications to loans fell year-on-year, which impacted our overall profitability. In the Developing Markets, marketing spend also rose, up nearly GBP 7 million, and loan repurchase costs were also higher year-on-year. Together, these drove much of the increased adjusted EBITDA losses offsetting revenue. Moving to Slide 11. The left-hand chart shows adjusted EBITDA at a group level, which increased to GBP 27.5 million loss, with the loss margin broadly flat at 16%. The second half adjusted EBITDA loss of GBP 7.8 million was much reduced from the GBP 19.7 million loss in the first half of 2019, reflecting seasonality, operational leverage and the higher net investment income in the second half of the year. In terms of the build of adjusted EBITDA, segment profit of GBP 11.2 million was offset by GBP 26.4 million of product development spend charged to the P&L and increased corporate costs that included operating as a plc for the first year since IPO. Together, these central costs fell to 23% of revenue from 25% the year before. On the right, to keep our free cash flow representative of the trading flows of the business, we've slightly amended the definition to include the payment of lease liabilities and to exclude net investment in bonds and private funds. Free cash flow outflow for the year was GBP 49.4 million and deferred to adjusted EBITDA by GBP 7.1 million of lease liability payments; GBP 14.5 million of capitalized development spend on intangible fixed assets, this included progress towards our automation goals and continued build and rollout of our back office ledger system; and shown within other, GBP 9.5 million of fair value movements offset by similar amounts of working capital outflow and CapEx. Looking at the statutory P&L format on Slide 12. Some of the line items outside of revenue as adjusted EBITDA. So in connection with the developing markets, which we classify as Germany and the Netherlands, we've taken a noncash goodwill write-down of GBP 34.3 million in respect of goodwill and other intangible assets. This is because the historic carrying value can no longer be supported by our estimates of future cash flows. Within people costs is a share-based payment charge of GBP 8 million, down from GBP 8.6 million last year, as the related provision for national insurance payments has reduced in line with the group's share price. The rise in depreciation and amortization reflected both increased capitalization of development costs and the recent property fit-outs. Higher cash balances post-IPO has led to an increase in net finance income. And the income tax charge arose on R&D tax credits, which cannot be offset against past taxable losses. Moving now on to Slide 13. We have revised our segmental reporting effective from the beginning of this year to better reflect how we now run the business internally. So with more of our product and development spend being managed by our local MDs, we're now in a position to report adjusted EBITDA by geography. And this means that the segment adjusted EBITDA will no longer be reported on and nor would product, development and corporate costs be separately identified. The table on the left shows the current approach, with the table on the right outlining our approach going forward. Operating profit and loss will be reported by geo, too, as items below EBITDA will also be captured by geo. Our first half 2020 results will be reported on this basis in August. And in the appendices, you will see a bridge of results from the current to the new format 2019. Ahead of our half year reporting, we will publish the restatements of H1 2019 and 2018 as well. In addition to reflecting how we are internally structured, we also believe this approach will satisfy some investor queries regarding GAAP profitability of each business segment. Coming on to Slide 14. You can see, this is how the new segmentation reflects the operating structures. And as you can see in the U.K., of the GBP 49.9 million loss we made in 2019, only GBP 2 million of that is attributable to the U.K. What you can see is the U.K. is a model which is working and has shown that it can continue on that path. And we continue to have confidence in our international geographies, and that is why we continue to invest there. Staying with the U.K. on the new segmentation slide, you can see that adjusted EBITDA margins grew to 17% in the second half of 2019. And on the right, the business recorded a GAAP operating profit in the second half of 2019, too. This was a function of operational leverage supported by seasonality and lower brand marketing spend plus the benefit of holding SME loans and generating net investment income for the first time. Moving to Slide 16 and the drivers of that net investment income. You will remember at the results last year, we outlined that we're launching 2 new investor products, private funds and ABS bonds, designed to diversify our funding and help increase our overall investor addressable market. In the case of the ABS bond market, that is a deep and diverse source of funding with around GBP 1.5 trillion of outstanding assets in the U.K. and the U.S. We successfully established ABS warehouses in the U.K. and the U.S. in 2019 as well as sponsoring 2 securitizations. By doing so, we gave access to the SME loan asset class to many investors who can only purchase bonds or preferred to only do this route. On Slide 17, we see that these new products have led to a change in the construct of our balance sheet. During the ABS program, whether in the warehouse stage or the securitization stage, the SME loans and associated bank or bond debt are ring-fenced from the core business in bankruptcy-remote vehicles. This means that the business' exposure is capped at the net economic investment made rather than the grossed-up SME loan or debt balance. At the end of December, we had 2 programs in the warehouse stage, 1 in the U.K. and 1 in the U.S. These were majority financed with bank debt, with our net working capital being GBP 94.4 million. We still hold a large part of the residual tranche of the 2 securitizations completed last year, so we are required to show the loans and associated bonds gross on our balance sheet. Looking ahead, when we sell a majority of our residual tranche and reduce down to the regulatory required minimum, we will only disclose our net position. However, whether net or gross presentation, the economic position is the same, which at year-end was GBP 37.6 million. In the last of the 3 boxed columns, we show the GBP 13.2 million seed investment in private funds. So compared to 2018, we have effectively exchanged cash for both working capital in the warehouses and investments in securitization vehicles and private fund. Together, these totaled GBP 145.2 million at year-end. I'll now hand over to Samir to talk through the strategy and the outlook.

Thank you, David. So turning to Slide 19. As I spoke about earlier, in the second -- in the first half of 2019, we took actions to slow down the growth of the platform, which reduced conversion but have shown signs of improving net returns for investors. In the U.K., conversion dropped by around 13%. And in the U.S., it dropped by around 25%. But in both markets, we've seen -- we believe we will see a market improvement in the net returns to investors: in the U.K., a 20% to 30% improvement; and in the U.S., a 10% to 20% improvement. And these actions were the right long-term decision for Funding Circle but also the right decision for our lending customers as well. As a result of improving returns on the platform, we continue to see more and more investors attracted to the unique asset class that we're producing. In the U.S., we're very pleased that we've signed a partnership with BancAlliance, which is a network of 250 community banks, and Funding Circle are building a comprehensive program which will allow these community banks to get access to small business loans outside their local jurisdictions. BancAlliance members are typically community banks with between GBP 100 million and GBP 10 billion of assets, so on the smaller side. But actually, collectively, BancAlliance is one of the top 10 largest banks in the U.S. by assets. In addition, as David spoke about, our new ABS bond program has progressed well in both the U.K. and U.S. We launched a program in the U.S. which trades on the name SBIZ, which our first securitization was around $210 million of loans. That was oversubscribed and allowed us to add 18 new institutional lenders to the platform. In the U.K., our program SBOLT was a GBP 250 million securitization, which we did in the transaction together with Waterfall Asset Management. We had demand from 12 institutional investors who -- sorry, who entered -- who were added to the platform as well. So pleased with the progress of the new bond products, a validation of our strategy to increase the total addressable universe of investors and bring more investors on to our platform that could not or did not want to purchase loans but can purchase bonds. In terms of our developing markets of Germany and Netherlands, so those are developing markets for Funding Circle because we've been in the markets for less time and they are less mature businesses. But clearly, Germany and Netherlands are not developing markets themselves. We are changing the model to better serve small businesses and accelerate the path to profitability. So we are moving from a marketplace where we focus on originating loans to institutional and retail investors to a model that is focused on originating loans for local lending partners, like banks and other finance companies. We believe this change in model will lead to low overall conversion in those markets moving to better conversion because the interest rates available from the German and Dutch banking system, many of which are state-owned banks, are lower than the rates that we can offer via institutional and retail investors. We don't see the same dynamic in the U.K. and U.S. markets where, on average, we are cheaper to pursue with loans being offered from banks. This model will move from one which is where we earn income on transaction fees and servicing fees to one where we earn income from transaction fees only. So in the model, we will do everything we do today, except pricing loans and servicing loans on an ongoing basis by collecting repayments and passing them lenders. Those will be done by the lenders themselves. As a result of this, we are moving from a model where we have around 150 people based in Amsterdam and Berlin to a model where we will initially have around 25 people centralized in London. And obviously, I just wanted to say that we are really thankful for all the hard work and efforts that our colleagues in Amsterdam and Berlin have put into the business. However, we do believe that this is the right long-term decision for Funding Circle and that this model will work better in those markets. This will bring the Developing Market segment from losses of around GBP 16 million in 2019 to low single-digit millions losses on a run rate basis, with a GBP 5 million exceptional restructuring charge expected as we migrate to the new model. And clearly, we also believe that this will give us a much faster path to profitability in the developing markets. So I just want to talk a little bit about our new instant-decision lending platform, which is something that I am very personally excited about. When I came up with the idea for Funding Circle 10 years ago -- well, longer than that now, but we've been operating for 10 years, we had a very clear vision of where we wanted to get to. And I believe that we are really now starting to realize that vision. If you look at instant fulfillment, it really is the trend of our time. Parallel industries to finance have been transformed by this trend, transportation, food delivery, e-commerce. And we believe that our new instant-decision lending platform, which is the first time that this has really been done for term loans at scale on the SME side, will really drive a superior customer experience and significant competitive advantage in the market. Funding Circle is uniquely positioned to deliver this platform. We have been operating for 10 years, so we have a huge amount of experience lending to SMEs online. We've processed over 1 million loan applications, much of it with multichannel acquisition data. What I mean by that is we uniquely have data on borrowers that come to us through Google advertisements, TV, radio, from different banks. We have the ability to risk assess on a channel basis that doesn't exist outside the banking system, which typically services only its own customers. We've been doing longer-term loans of up to 5 years, and it takes -- it just takes time to be able to actually understand how loans perform as these loans actually repay over a period of time. We've already delivered close to 90% Net Promoter Scores to our borrowers. And we have a large engineering team of 300 people. We have 200 people in our risk and analytics team who have been very focused on this project and really taking Funding Circle to the next level. We've also been able to utilize some of the latest technologies because we're unencumbered by legacy systems. We have built a proprietary data lake, which contains data on 26 million businesses across the U.K. and U.S. with over 2 billion data points. We've been able to use Kafka mass distributed data streaming technology, which is used by companies like Uber and Airbnb to process billions of data points to be able to make assessments. We've built this platform using a pers decision-orientated architecture, which I'll show you in a second, which allows us to change the order and types of questions we ask depending on the answers that our small business borrower gives. The entire system is cloud-based, using Amazon Web Services, so has an incredible level of scalability. And it all relies on our eighth generation credit models which are built using machine learning technologies and using the vast data and experience we've been able to accumulate over a number of years, which I think, it's fair to say, is unparalleled in the online world. So I just wanted to show a demo of the application. This is dummy data, has been sped up. But what you can see is that a borrower can go through this in a very simple way. It's mobile-enabled. We're building mobile apps as well. Later in the form, as questions are answered, it generates different alternative journeys for the borrower. And this is important because it allows us to personalize and customize the experience based on the risk level but also the channel and the type of business that comes through. The entire application takes, on average, 6 minutes from the start of the application to approval. And in the case of many customers, there's a limited number of information fields that they need to actually fill in because we've built these data lakes which have so much of the information already pre-populated. And in many cases, we can do an assessment, excluding any actual forms or data connections. So something we are very, very excited about as a business. For me, personally, it's taken us many years to refine this. And it's something we talked about a lot at the IPO and something we're very excited to roll out to 50% of our borrowers in 2020. So on top of these, we are conducting a few pilots in 2020 to make our platform more useful to small businesses and help improve conversion. So in Q4 2019, we began working with various lending partners in the U.K., U.S. and the Developing Markets to allow small businesses that did not qualify for Funding Circle loans or were outside the criteria we offered, for instance, that were higher risk or that wanted larger loans than we could provide. And what this does is it means that small businesses that come to Funding Circle are more likely to leave with a loan. Clearly, in the Developing Markets, we believe that this model is better suited as the actual core business model. But in the U.K. and U.S., it's something that we think will be additive. And like I spoke about before in terms of the Developing Markets, Funding Circle will receive a transaction fee for arranging these loans but no servicing fee. As we get going, we're working with a small group of lenders at the moment to make sure the processes work well. So we expect it to be modest. But the early trials have been very positive in terms of us being able to improve our conversion rates because loans are fulfilled by other lenders as opposed to necessarily just by Funding Circle. And we're seeing very high levels of customer satisfaction and, importantly, similar levels of repeat behavior to our core business in terms of even when small businesses take a loan from another lender through our platform, they still come back to Funding Circle at the same rate to get a loan in the future because they want to qualify for our core product or they want to have the relationship with us. In addition, we're going to launch a modest trial in 2020 to help smaller companies access funding and build their credit profile. This will be smaller loans, typically less than GBP 50,000 and less than 12 months' duration. And this is the first new use of our new instant-decision lending platform. Because we are able to process loans now with incredible efficiency, it opens up segments that we previously weren't able to serve well and are now able to do so. And we expect -- we hope to be able to extend the platform, the institutional lending platform, to point-of-sale finance to embed on partner websites so that they can fulfill loans for their own customers. So really starting to start to leverage this huge investment we've made in technology and data over the years to help more and more small businesses. And we believe that these borrowers could graduate to the core products and lower rates in time. So we'll launch lending in Q2 2020 but expect that lending to be very, very modest during the trial period but want to be completely transparent that we're doing this. So just in summary. In terms of the outlook for 2020, we have our clear strategic plan, which remains the same. We're focusing on driving a better borrower experience, investing in data, technology and analytics, diversifying our funding sources and building a highly scalable global business. Our focus in terms of the business is on improving conversion across the platform, keeping net returns attractive to investors, that's very important for us, and delivering profitable growth and accelerating our path to profitability. So we're trading -- trading for the year has started well. We've been pleased with it so far. We -- however, we continue to assess the possible impact of COVID-19 on our borrowers and investors. We've not seen any impact of the virus on recent trading, but we're monitoring the situation very closely, and we'll take appropriate action as required. We expect the combined U.K. and U.S. revenue to grow by around 15% in 2020, with growth skewed to H2 due to natural seasonality in the business but also lapping the credit tightening actions that we took in H1 2019, which contributed to improving investor returns but did slow down growth. The reorganized Developing Markets business will contribute GBP 7 million of revenue in 2020. That will be weighted to H1 from the wind-down of the existing model, with H2 seeing the scaling of the new model from a low base, and we expect to be very prudent as we grow that. We're targeting group adjusted EBITDA breakeven in the second half of 2020, which reflects the operating leverage in the business as the business scales. And group adjusted EBITDA losses for 2020 overall will halve, which benefits from the new approach in the Developing Markets and marketing spend falling modestly as a percentage of revenue.

So now we go over to Q&A, and happy to take any questions that you have.

[Operator Instructions] We will now take our first question from Mr. Lukasz Wójcik from Goldman Sachs.

I just had a quick question on the yesterday's announcement in the budget regarding GBP 200 million of funding for the British Business Bank. Along with GBP 1.2 billion in additional funding, did you include any of this in your guidance? Or do you expect some additional tailwind from this?

The British Business Bank is a partner of Funding Circle. We haven't accessed these particular schemes in the past. But clearly, we're very supportive of the actions that government has taken recently in terms of reducing -- waving business rate payments for small businesses in terms of delaying the payment of taxes and VAT to the government, which we think will help small businesses in terms of their cash flow. And clearly, Funding Circle has a very unique and important role to play over the coming periods. As the largest online small business loan provider, we believe that our platform is uniquely positioned to help small businesses especially at a time when it's very likely that bank branches will be closed. So it's a fast-evolving situation, but we feel that we can help small businesses. And clearly, we avail ourselves of various government programs at the moment.

So we're just going to take a question from the webcast, from Charles Elliott. Question is, do you have a target when you would turn free cash flow breakeven positive?

[indiscernible] the business, we've tried to be very open and clear about the underlying profitability of each market, which you can see very clearly on Slide 14. This was in response to the change in the way we run the business, which is moving to more local operating structures, but also because we have been asked by a number of investors and analysts about the underlying allocations of costs, and we felt it was appropriate to do that. What you can see is that our U.K. business lost around GBP 2 million of operating profit in the second half -- sorry, in 2019 but was profitable in the second half and is free cash flow generative. So our U.K. business is already at cash flow breakeven. We are changing our model in the Developing Markets to reduce cash flow burn and to reduce adjusted EBITDA losses. And as we talked about in the specific slide there, losses will fall from around GBP 16.5 million to low single digits. And our U.S. business continues to grow. It's about half the size of our U.K. business, clearly, a market that is very, very large, 5x as large as the U.K. and one we would like to continue to invest in. However, we do expect improvements in the profitability profile of the U.S. business mainly as a function of the fact that the U.S. business will have a much -- is growing its base of existing customers, which have much higher profitability levels than new customers. So if the group is approaching adjusted EBITDA, we'll be -- as we're targeting adjusted EBITDA breakeven in the second half of this year, we would expect cash flow breakeven to follow around a year later. However, we do expect cash flow -- cash outflows to reduce materially as a result of the improvement in the business and the actions that we're taking.

Do we have any other questions? Okay. With that, thank you very much, everyone. And if you have any questions, please feel free to get in touch with the company directly. Thank you.