THE LEADING1 NORDIC LOAN-BASED CROWDFUNGING AND PEER-TO-PEER LOAN COMPANY FELLOW FINANCE PLANS TO LIST ITS SHARES ON THE NASDAQ FIRST NORTH FINLAND MARKETPLACE

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Fellow Finance Plc (”Fellow Finance” or ”Company”) is planning an initial public offering (”IPO”) and a listing of its shares on the First North Finland marketplace operated by Nasdaq Helsinki Ltd (“Listing”).

Established in 2013 and launching operations in 2014, Fellow Finance is an internationally active and growth-oriented FinTech group that provides crowdfunding services. The Company specialises in offering, to private individuals and businesses and on its crowd-funding platform, financing and investing solutions that are an alternative to traditional bank financing. The service most central to the Company’s business is the leading2 Nordic loan-based crowdfunding and peer-to-peer lending platform maintained by the Company. The Company has facilitated peer-to-peer loans to consumers as well as loan-based crowdfunding and invoice financing to businesses in a total amount of more than EUR 295 million3, serving nearly 430,000 users from around 50 different countries. Fellow Finance’s net sales consist mainly of commissions and interest income. Taaleri Plc is the largest owner of the Company, with an ownership of 45.7 percent before the IPO.

In 2017 Fellow Finance’s net sales was EUR 8.7 million, growing by 55 percent from the previous year. The good development continued in the first half of 2018, as the Company’s net sales grew by 43 percent compared to the same period of the previous year.  

The objective of the planned IPO and Listing is to finance international growth and expansion of operations. Further objectives for the Listing are to increase the number of share-holders, give the Company access to capital markets, and in-crease the liquidity of the Company share and awareness of the Company. The Listing will also allow the more efficient use of shares as e.g. means of payment in eventual corporate acquisitions and in the remuneration of employees. The gross proceeds that the Company will receive from the Share Issue are estimated to amount to a total of approximately EUR 10.0 million, before IPO related fees and expenses.

Institutional investors consisting of certain funds managed by OP Fund Management Company Ltd and Sp-Fund Management Company Ltd as well as Prior&Nilsson Fund and Asset Management Ltd have given their pre-commitments to subscribe for shares and agreed to become cornerstone investors in the IPO. Additionally, the Company’s Chairman Kai Myllyneva, and members of the Board of Directors Esa Laurila and Jorma Alanne given their pre-commitments to subscribe for shares in the IPO. Total subscription commitments amount to approximately EUR 4.6 million.

Fellow Finance’s CEO Jouni Hintikka:

“We have created an advanced marketplace where we unite businesses and individuals looking for financing in Finland, Sweden, Germany and Poland with a global pool of investors looking for returns. Borrower customers are provided with peer-to-peer loans, business loans and invoice financing at market terms. For investor customers our services enable diversification of assets into an alternative asset class with minimum need of time and effort.

Crowdfunding has experienced strong growth, both globally and in Europe4. We see a number of growth drivers in the market including opportunities arising from technical advances, the emergence of the platform economy in several business areas, opportunities arising from further development of machine learning, low expected returns on traditional forms of investment and consumer preferences for ease of use and fast availability of services.

We want to continue our strong and profitable growth in this market of rapid change and become the leading marketplace lending platform for people and businesses in Europe.”

Fellow Finance in brief

Fellow Finance is a FinTech group that provides the leading5 Nordic platform for loan-based crowdfunding and peer-to-peer lending.

Fellow Finance wants to transform the traditional financing to direct lending between people and businesses. With its innovative crowdfunding platform, the Company unites businesses and individuals looking for financing directly with investors at market terms.

Facilitation of peer-to-peer loans

Peer-to-peer lending, like other forms of crowdfunding, has grown in popularity significantly6 in recent years and today it is a globally recognised form of flexible financing. Peer-to-peer lending is also referred to as P2P lending and marketplace lending, and it is one of the many forms of crowdfunding. Peer-to-peer lending enables flexible lending and borrowing between private individuals who require financing and parties interested in investing in loans to private individuals. In practice, a peer-to-peer loan is an agreement between a private individual and the investor party in which both the loan applicant and one or more lender (i.e. investor or investors) together decide on the terms of the loan. At the moment, peer-to-peer loans are offered on the Company’s crowdfunding platform to private individuals in Finland, Poland, Germany and Sweden. The Company is actively looking to expand the facilitation of peer-to-peer loans to several other European countries.

Facilitation of business financing
                       
The Company also provides businesses with various crowdfunding alternatives, that complements bank financing, by facilitating loan-based crowdfunding and invoice financing. At the moment, financing is facilitated to businesses on the Company’s crowdfunding platform in Finland, but the Company is constantly looking into the possibilities of expanding also its business financing services to foreign countries.

Like peer-to-peer lending, loan-based crowdfunding is a growing form of crowdfunding7 where a company obtains the financing required by it for some project directly from a large group of investors without the traditional banking sector acting as a middleman. Crowdfunding per se is not a new alternative means of financing for large enterprises that for long have been obtaining debt financing on market terms from the bond market. Advances in digitalisation now allow also small and medium-sized enterprises (SMEs) to crowdfund their projects on market terms by means of online crowdfunding platforms such as the crowdfunding service provided by the Company. In the view of Company management, techno-logical advances have made loan-based crowdfunding more commonplace among SMEs. The Company’s crowdfunding platform offers SMEs the opportunity to seek financing quickly on their own terms and with-out the assistance of financial institutions or other advisors. The Company seeks to provide SMEs with an agile and cost-effective crowdfunding alternative by means of its secure and modern online service de-signed and built as a marketplace for those in need of financing and those offering it.

In most cases, loan-based crowdfunding involves at the very least the directly enforceable personal guaran-tee of the enterprise’s owner-operator and often also real security in the form of a mortgage on property or a corporate mortgage.

Another form of financing facilitated to businesses by the Company is invoice financing, or factoring, where a company seeks the short-term financing required by it for a term of 14–90 days against a sales receivable, i.e. an invoice. On the Fellow Finance crowdfunding platform, invoice financing is obtained directly from a large number of investors without any middleman in the form of the traditional banking or receivables management sector. A company that uses invoice financing need not wait for its customers to pay their invoices according to the term of payment indicated and instead obtain immediate access to the funds. By making use of invoice financing, companies can also increase the predictability of their cash flow by eliminating the uncertainty associated with the payment of sales receivables. Invoice financing allows a company to in-crease the rate of capital turnover and improve its own liquidity. The invoiced parties pay the financed invoices directly to Fellow Finance in accordance with the original term of payment indicated and Fellow Finance pays the capital and interest onward to the investors who financed the invoice. The risk of credit loss on the invoice is not transferred directly to the investors and instead continues to reside with the company that uses the invoice financing. The invoice financing agreement in most cases involves at the very least the directly enforceable personal guarantee of the owner-operator for the invoices financed.

Invoice financing per se is not a new form of financing for companies but with its crowdfunding platform, Fellow Finance seeks to make also this means of financing available to SMEs as a flexible alternative financing channel operating on market terms.

The Company offers business customers an advanced business financing portal, through which business customers can submit invoices to be financed, manage their business loans and receive comprehensive reports for their financial management and internal analysis.

Services to investors

For the Company’s investor customers, the Company’s services provide an opportunity to make direct in-vestments in loans to private individuals and businesses and in businesses’ sales receivables. The return on investment consists of monthly interest payments. Investments can easily be diversified among hundreds of loans, thus reducing individual counterparty and loan risk, and investors can obtain a competitive return with low volatility. On its crowdfunding platform, the Company provides investors with advanced and diverse services for managing and analysing their investments and the development of these. Getting started as an investor in the Company’s service is easy and well suited to investors regardless of their investable assets, as no fee is charged to investors and no substantial starting capital is required. The Company’s investor customers do not incur any costs or fees, other than for transactions on the secondary marketplace maintained by the Company. Based on data maintained by the Company on its website8, the return on loans facilitated by the Company has no significant correlation with the equities market and loans thus offer a means of diversification for e.g. investments in equities. The Company divides all loan applications into credit risk categories with a credit rating model based on machine learning combined with a credit analysis of business customers, and thus provides investors with tools for risk-based yield requirements.

The Company also caters to institutional investors and is actively seeking to boost their number on its crowdfunding platform. Institutional investors are offered the opportunity of API integration to allow them to integrate investments, reporting and analysis into their own system.

Historically investing in loans has provided investors with an average annual return of close to 10%9, with a low level of volatility and correlation with e.g. the stock market.

Fellow Finance’s key strengths

The management of the Company view the following as key strengths of the Company:

  • Leading Nordic10 crowdfunding and peer-to-peer lending platform – The Company has experienced strong and steady growth throughout its highly profitable operating history
  • Global trends and market drivers support the Company’s growth – For example digitalisation, emergence of the platform economy, further development of machine learning and the harmonisation of crowdfunding regulation support the Company’s growth
  • Extensive, international and quickly growing customer base – Over 425,000 loan applicants and over 8,500 investors
  • The Company’s own, in-house developed technology platform enables scalability of volume and profitability – Enables agile expansion to new markets and financial products
  • Diverse and competitive offering of financial services for businesses and consumers alike
  • Effortless and mostly costless service challenges traditional investment alternatives – Easy to use, transparent, feature-rich, advanced and mainly free-of-charge service for investors challenging traditional investment services
  • Digitalisation-based business model and advanced technology
  • Developments in regulation relating to the Company’s business and opportunities opened up by payment institution authorisation
  • Skilled and experienced staff – A team with diverse experience and expertise in financing, asset management, technology development and business internationalisation

Fellow Finance financial targets, dividend policy and profit forecast

Financial targets and dividend policy

For the year 2023 Fellow Finance targets to have a turnover in excess of EUR 80 million and an operating profit of at least 25 per cent of turnover. The Company seeks to facilitate loans for EUR 1.5 billion per year in 2023 in ten European countries.

Fellow Finance seeks to distribute at least 30 per cent of annual net profit to its shareholders in dividends, taking into account the Company’s financial condition and financing situation.

 

Forecast for 2018

The Company forecasts, that net sales in 2018 will exceed EUR 12 million (EUR 8.7 million in 2017) and its operating profit to be EUR 3.1–3.6 million (EUR 2.5 million in 2017).

The Company estimates the growth prospects in Finland to be good owing to the growth in business financing facilitation and the Company’s internationalisation.

Fellow Finance’s financial development and key figures

Fellow Finance net sales grew with approximately 42.6 percent during the six-month period ending 30.6.2018 compared to the same period during the previous year, amounting to EUR 5.6 million. During this period 74.1 percent of net sales came from commissions and 25.9 percent from interest yields from loans.

The operating profit (EBIT) during the six-month period ending in 30.6.2018 was EUR 1.7 million, that is 30.0 percent of net sales. During the same period the profit before taxes (EBT) was EUR 1.0 million, that is 18.0 percent of net sales.

Key figures

 1 January – 30 June1 January – 31 December
EUR 1,000 (unless otherwise informed)   2018   2017   2017   2016 
 (unaudited, unless otherwise informed)
Consolidated key figures:    
Net sales (EUR 1,000)5,582.4 3,914.0 8,655.71) 5,592.21) 
From which commissions4,138.0 2,735.6 5,975.21) 3,590.61) 
From which interest yields from loans1,444.4 1,178.4 2,680.41) 2,001.61) 
EBITDA1,860.2 1,176.0 2,867.6 1,256.5 
EBITDA margin, %33.3%30.0%33.1%22.5%
Operating profit (EBIT)1 ,673.8 994.1 2,493.01) 918.01) 
Operating profit (EBIT) -margin, %30.0%25.4%28.8 %1)16.4 %1)
Earnings before taxes (EBT)1,005.1 408.3 1,218.21) 142.51) 
Earnings before taxes (EBT) -margin, %18.0%10.4%14.1%2.5%
Profit for the period785.9 361.1 1,083.71) 74.41) 
Lainaamo’s loan receivable portfolio17,851.7 17,817.3 18,124.8 12,119.8 
Lainaamo’s external interest-bearing debt17,445.0 16,995.0 16,945.0 13,335.0 
Return on equity, %36.4%22.0%29.8 %1)2.4 %1)
Earnings per shares (EPS) (adjusted for share split2)), undiluted, EUR0.14 0.06 0.192) 0.012) 

1) Audited
2) Key figures per share has been calculated by using a number of share adjusted in consequence of costless share issue for the Company’s shareholders. As a part of the arrangements related to planned IPO, it was decided by unanimous shareholders’ decision on 7 September 2018 to organize costless share issue for the Company’s share-holders. Share issue adjustment means adjustment of number of shares in consequence of costless share issue.

Information on the IPO

The contemplated IPO is expected to consist of both a primary offering where the Company issues new shares, with which the Company would aim to raise approximately EUR 10.0 million of new equity before IPO related fees and expenses, and a secondary offering, where certain shareholders of the Company would sell their existing shares. These shareholders are committed to offering shares for sale to new investors for the maximum amount of approximately EUR 10.0 million. The Company and the selling shareholders would commit to customary lock-up arrangements in connection with the IPO. The contemplated IPO is expected to include a personnel offering to the management and employees of Fellow Finance.

The Company will decide on the contemplated Listing and IPO, and timing thereof at a later date.

Evli Bank Plc would act as the Lead Manager in the contemplated IPO. The Company’s legal adviser is Borenius Attorneys Ltd.

Cornerstone Investors

Cornerstone investors have committed to subscribing for shares at the subscription price of the institutional offering in the possible IPO, subject to certain conditions being fulfilled, including that
the value of the Company’s share capital, valued at the subscription price of the institutional offering, does not exceed EUR 45.0 million. Pre-commitments to subscribe for shares have been received from certain mutual funds managed by OP Fund Management Company Ltd and Sp-Fund Management Company Ltd as well as Prior&Nilsson Fund and Asset Management Ltd. Additionally, the Company’s Chairman of the Board of Directors Kai Myllyneva, and members of the Board of Directors Esa Laurila and Jorma Alanne have given the pre-commitments to subscribe for shares in the IPO. The total pre-commitments are approximately EUR 4.6 million. The Company has committed to allocating 100% of the respective subscribed amount to each of the cornerstone investors.

Further enquires

Jouni Hintikka, CEO, Fellow Finance
jouni.hintikka@fellowfinance.fi
+358 40 585 5009

Teemu Nyholm, COO, Fellow Finance
teemu.nyholm@fellowfinance.fi
+358 50 577 1028

www.fellowfinance.com

Fellow Finance

Established in 2013 and launching operations in 2014, Fellow Finance is an internationally active and growth-oriented FinTech group that provides crowdfunding services. The group consists of parent company Fellow Finance Plc and its wholly owned subsidiaries Lainaamo Oy, P2P Sverige AB and Fellow Finance Sp. zo.o.

The Company specialises in offering, to private individuals and businesses and on its crowd-funding plat-form, financing and investing solutions that are an alternative to traditional bank financing. The service most central to the Company’s business is the leading11 Nordic loan-based crowdfunding and peer-to-peer lending platform maintained by the Company.

NOTE

The information contained herein is not for publication or distribution, directly or indirectly, in or into the United States, Canada, New Zealand, Australia, Hong Kong, South Africa, Singapore or Japan.

This release does not constitute an offer of securities for sale in the United States, nor may the securities be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder. The Company does not intend to register any portion of the offering in the United States or to conduct a public offering of securities in the United States.

The issue, exercise and/or sale of securities in the initial public offering are subject to specific legal or regulatory restrictions in certain jurisdictions.  The Company and Evli Bank Plc assume no responsibility in the event there is a violation by any person of such restrictions.

This release contains forward-looking statements including statements concerning the Company's strategy, financial position, profitability, result of operation and market data as well as other statements that are not historical facts. Statements which include the words “will”, “estimate”, “predict”, “continue”, “anticipate”, “presume”, “may”, “plan”, “seek”, “become”, “aim”, “believe”, “could” and other similar expressions or their negative forms indicate forward-looking statements, but forward-looking statements are not limited to these expressions. By nature, forward-looking statements involve risks, uncertainties and numerous factors that could result in the actual consequences or results of operations differing materially from projections. Readers should not place undue reliance on these forward-looking statements.

The information contained herein shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of the securities referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any such jurisdiction.  Investors must neither accept any offer for, nor acquire, any securities to which this document refers, unless they do so on the basis of the information contained in the applicable prospectus published or offering circular distributed by the Company.

The Company has not authorized any offer to the public of securities in any Member State of the European Economic Area other than Finland. With respect to each Member State of the European Economic Area other than Finland and which has implemented the Prospectus Directive (each, a “Relevant Member State”), no action has been undertaken or will be undertaken to make an offer to the public of securities requiring publication of a prospectus in any Relevant Member State. As a result, the securities may only be offered in Relevant Member States (a) to any legal entity which is a qualified investor as defined in the Prospectus Directive; or (b) in any other circumstances falling within Article 3(2) of the Prospectus Directive.  For the purposes of this paragraph, the expression an “offer of securities to the public” means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to exercise, purchase or subscribe the securities, as the same may be varied by any measure implementing the Prospectus Directive in that Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

This communication is directed only at (i) persons who are outside the United Kingdom or (ii) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) and (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2) of the Order (all such persons together being referred to as “relevant persons”). Any investment activity to which this communication relates will only be available to and will only be engaged with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.



1 Measured by amount of financing facilitated at 1 August 2018. Source: Altfi Data (data accessed on 1 August 2018).

2 Measured by amount of financing facilitated at 1 August 2018. Source: Altfi Data (data accessed on 1 August 2018).

3 The amount of facilitated loans includes loans facilitated by the Company’s subsidiary Lainaamo Oy since June 2013 as well as loans facilitated by Fellow Finance since the launch in March 2014. Since May of 2015, as Lainaamo became a part of the group, the loans applied for through Lainaamo have been administered on the Fellow Finance platform.

4 Source: University of Cambridge, Judge school of Business. The 3rd European Alternative Finance Industry Report https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/centres/alternative-finance/downloads/2018-ccaf-exp-horizons.pdf

5 Measured by amount of financing facilitated at 1 August 2018. Source: Altfi Data (data accessed on 1 August 2018).

6 Source: University of Cambridge, Judge school of Business. The 3rd European Alternative Finance Industry Report.

7 Source: University of Cambridge, Judge school of Business. The 3rd European Alternative Finance Industry Report.

8 The Company has benchmarked the development of Fellow Finance investors’ returns against the Euro Stoxx 50 share index. https://www.fellowfinance.com/for-investor/statistics

9 Calculated for investors that have invested for more than three months and have diversified their investments in more than 100 loans. These investors represent 60% of the Company’s investor customers

10 Measured by amount of financing facilitated at 4 September 2018. Source: Altfi Data (data accessed on 4 September 2018).

11 Measured by amount of financing facilitated at 4 September 2018. Source: Altfi Data (data accessed on 4 September 2018).