A challenger bank that s genuinely challenging: how we profitably grew our loan book from 0-1bn in 27 months 15 March 2018 1
The SME lending market 2
We are unlocking the underserved and underestimated market for complex loans to SMEs globally Rendering a previously unprofitable market segment highly attractive Client requirements Service model Characteristics Fully automated & well-served Microlending 1K- 500K loan size Micro SMEs Lines of credit for simple needs Automated Credit scorebased Unsecured 3rd party data High customer acquisition costs High loss ratios High competition Low ROE Quick transaction completion time (days) Underserved Complex SME lending 500K- $0.5M- 25M $25M loan size Previously difficult to access given unfavourable economics Higher end of small and lower end of medium Bespoke needs Requires custom credit conditions and structures Requires indepth analysis Requires flexible payment terms Underserved market due to high underwriting costs High ROE opportunity Unprofitable for big banks and funds due to size vs. complexity Long transaction completion times (4-9 months) Highly manual & well-served Corporate lending 25M + loan size Larger SMEs and corporates Complex, multi product financial needs Manually underwritten High-cost, relationship managerbased model Complex structures High competition resulting in low margins and covenant-lite loan structures Low ROE Long transaction completion time (months) 3
Our founders journey and the creation of OakNorth 4
Our founders journey coincidentally starts at university while they were studying for their Masters Rishi and Joel met at the London School of Economics Institutions such as Deutsche Bank, Citigroup and Bank of America Merrill Lynch invested in Copal Acquired Amba Research to form Copal-Amba Sold Copal Amba to Moody s Corporation 1996 2002 2006 2005-2007 2013 2014 Copal Amba at Time of Sale C. 3,000 employees Established Copal. Only 40,000 of equity capital was used to build the business They apply for debt finance from UK banks and it proved to be a very painful process Provider of offshore research and analytics services to the global financial and corporate sectors Increased Copal Amba EBITDA margin from 10% to 30% in less than 6 months Global footprint across 10 countries Research centres in India, Sri Lanka, Costa Rica and China Sales offices in the US, UK, UAE, Mauritius, Hong Kong and Singapore Source: Company information 5
The OakNorth proposition 6
By Leveraging Artificial Intelligence and Machine Learning to Yield Superior Solutions for Lenders We Bring Together the Best of Both Worlds to Unlock an Underserved Market Automation Micro- Lending $1K- $500K Loan Size Big Data Machine Learning Innovation Artificial Intelligence Speed Relationship- Driven In-Depth Custom Analysis Customization Highly Skilled Team $25M + Loan Size Corporate Lending Semi-Automated Solution, Making the Process of Complex SME Lending Much More Efficient and Cost-Effective $270bn Market Across the UK 7
What makes us different and what it has helped us achieve to date 1 Secured banking license in March 2015 and began trading six months later Third bank in 150 years to obtain a deposit-taking banking license from the PRA (1) One of the fastest growing business in UK financial services with c.15,000 retail customers (2) 2 USPs are: Flexibility Speed Transparency Source: Company information 1. Achieved In Less Than 18 Months 2. As featured in the MISHCON and CITY A.M. «THE LEAP 100» 2017 List Achieved positive operating cash flow after 11 months and had repaid all accrued debts before we turned two years old The 1 st UK bank to be fully cloudhosted after several months of working with AWS and the regulator 8
The metrics speak for themselves A significant contribution to the UK economy Profitable and efficient High Credit Quality 1bn 5,100 8.4% Lent to date Gross Yield New ( 1) homes developed 11 Months to Cash of Flow Pipeline Breakeven Is From Incoming Inquiries 90 % OF LOAN BOOK COLLATERALISED 53 AVG LTV % ON REAL ESTATE BOOK 4,000 4bn New jobs created Added to the UK economy Profitable Post All Accrued Losses By Month 24 NO LOANS IN EXCESS OF 75% LTV NO DEFAULTS TO DATE 9
and Yield Attractive Unit Economics for Our Clients, Further Enhancing Stickiness Illustrative Unit Economics for ACORN Machine s Clients (%) Arising from the ability to price higher, which is derived from the potential to provide loans at bespoke terms quickly Coming as a result of operating leverage arising from technology focus Due to better credit decisions and monitoring Gross Yield Cost of Deposits Operating Costs Profit Before Tax & Provisions Provisions Tax Net Income Source: Company estimates 10
The value proposition is validated by clients OakNorth is able to target clients with complex lending needs in an efficient manner Resulting in a rapidly developed excellent reputation amongst UK SMEs Tailored, Transparent, Trustworthy Solutions Shaped a specific custom repayment structure for Leon s growth plan, providing 19m of growth capital It was a pleasure working with OakNorth on this deal we re no strangers to securing debt finance for large-scale projects, but this experience was one of the simplest and most stress-free transactions we ve concluded. " Jo Allen, Chief Executive of Frogmore Ability To Identify Value Where Other Lenders Overlook Enabled newly set-up restaurant Padella to become cashflow positive where other lenders only saw a start-up And superior Net Promoter Scores >75 42 Avg. UK Bank ( 1) Efficient, Responsive, Credit Approval Process Agreed the deal within an hour of the Credit Committee meeting 72 69 OakNorth has accessed the underserved UK complex SME lending market at speed, delivering significant network effects 1. Based On Transactional NPS For RBS, Lloyds, Aldermore, OSB, Paragon & Shawbrook 11
The future 12
In November last year, we closed the largest round of any UK fintech to date - 250m valuing the company at c.$1.3bn We secured investments from a number of high-profile investors, including GIC the Singaporean sovereign wealth fund, Toscafund, Coltrane Asset Management and the Clermont Group 13
The Combination of ACORN Machine s Three Pillars Provides a Holistic Solution to Address the Challenges of Complex SME Lending Fully Cloud- Enabled Via AWS Accessible anywhere Easily integrated Accessible across media Highly scalable PROCESS DATA Highly Automated Continuously improving through machine learning Scalable Across Geographies TECHNOLOGY Scalable Across Industries and Different Types of Collaterals Unlocking a New Revenue Opportunity Profitable Unit Economics High Credit Quality Source: Company information 14
ACORN Machine Provides a Data Lake of Granular Information on Industry Sub-Sectors and How These Fare in Different Markets Our edge comes from corroboration across sources and a breadth and depth of compilation abilities which creates rich and deep data sets across industries (1) 1 BORROWERS PROVIDE DATA TO LENDERS Collateral data Financial / accounting data 2 CLIENTS SHARE BORROWER DATA WITH ACORN MACHINE 3 ACORN MACHINE SHARES ANONYMIZED COMPILATION OF AGGREGATED DATA WITH CLIENTS (WHICH CAN ALSO BE SHARED BACK TO THEIR PROSPECTIVE BORROWERS) data lake 2 ACORN MACHINE CONTINUOUSLY COLLECTS DATA FROM THIRD PARTY SOURCES AND PROCESSES THIS DATA TO COMPILE USEFUL CONCLUSIONS Company-specific data Property transaction databases Private data providers Other public data sources Source: Company information 1. All data that flows through ACORN Machine is handled in compliance with General Data Protection Regulation 15
An intuitive, insightful user interface which provides strong visualisation capabilities across each stage of the value chain Powerful data visualization tools CORE PROPRIETARY BANKING ENGINE 1 Target Identification 2 Lead Capture 3 Qualification 4 Underwriting Analysis 5 Loan Booking 6 Proactive Monitoring 16
Thank you / questions? 17