TIDMSBSI
RNS Number : 6181R
Schroder BSC Social Impact Trust
30 October 2023
Schroder BSC Social Impact Trust plc
Annual Report and Accounts
Schroder BSC Social Impact Trust plc (the "Company") hereby
submits its final results for the year ended 30 June 2023.
Highlights
The Company has generated resilient shareholder returns since
inception on 22 December 2020 in a highly volatile market and
continues to provide a source of portfolio diversification for
investors, along with the opportunity to make a meaningful positive
difference to communities across the UK.
-- NAV of 104.90 pence per share as of 30 June 2023.
-- NAV total return per share of 0.8% in the financial year
ended 30 June 2023, during a period of continued downwards pressure
in the wider market.
-- NAV total return per share of 8.6% since inception (3.4% annualised).
-- Dividend of 2.30p per share for the year, increasing 77% from
1.30p per share for the year to 30 June 2022; dividend yield on NAV
guidance increased to 2-3% (from 1-2%).
-- High impact housing portfolio remains resilient - 100% of rent collection due by June 2023.
-- GBP87m of capital committed to date to support 168 frontline
organisations, reaching 276,000 people, at least 94% of whom are
disadvantaged or vulnerable.
-- 100% of investments align with the UN Sustainable Development
Goals, across four key impact themes, with the majority of the
portfolio aimed at reducing poverty and inequality (SDGs 1 &
10).
The Portfolio Manager will be presenting at a webinar on 31
October 2023 at 14:00. This is open to all existing and potential
shareholders, who can sign up for the webinar at:
https://registration.duuzra.com/form/SBSI23
The Company's Report and Accounts for the year ended 30 June
2023 is also being published in hard copy format and an electronic
copy will shortly be available to download from the Company's
website:
https://www.schroders.com/en-gb/uk/individual/funds-and-strategies/investment-trusts/schroder-bsc-social-impact-trust-plc/
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/6181R_1-2023-10-28.pdf
Enquiries:
Augustine Chipungu (Press) 020 7658 6000
Matthew Riley (Company Secretary) 020 7658 6000
Schroder BSC Social Impact Trust plc
Chair's Statement
I am pleased to present the third annual report of Schroder BSC
Social Impact Trust plc ("the Company"), covering the year ended 30
June 2023.
Following a period of high market volatility, the Bank of
England's monetary tightening policy appears to have been
successful in bringing inflation back in single-digit territory in
2023. The "worst-case" recessionary concerns of late 2022 appear to
have been (narrowly) averted, and we start seeing early signs of
interest rate stabilisation, alongside hopes of reducing
inflation.
However, the full impact of the higher inflation and interest
rates environment are only beginning to be felt and will have
long-term consequences for the cost of living in the UK, putting
pressure on the affordability of essential items like food, energy,
and housing.
It is estimated that UK households are facing the largest fall
in living standards since records began in the 1950s, and
low-income households are the most affected. In this challenging
environment, the social impact created by the Company's investments
is needed more than ever, with many investments providing solutions
to the cost-of-living crisis, such as increasing the supply of
affordable housing and helping households manage energy costs
through retrofit businesses and community renewables. In a time of
constrained government spending, the Company's investments
targeting innovation in public service commissioning through Social
Outcomes Contracts generate significant savings for the Government
[1] .
The Board believes the Company offers investors a valuable
source of portfolio diversification, through access to a unique mix
of private market investments, with the dual objectives of
providing long term capital growth and income and serving as a
source of permanent funding for organisations dedicated to positive
social impact.
Furthermore, the Board, AIFM and Portfolio Manager are committed
to advancing impact investing in the UK, through events and
publications aimed at increasing investors' understanding of best
practices and supporting them in making impact allocations in their
portfolios. We build relationships and maintain an active dialogue
with the investment community, actively seeking to understand how
the Company can best serve investors' requirements in committing
capital to high quality, high impact investments.
We understand that our investors want the Company to grow, both
through NAV asset growth and fresh capital raises, and it is a
stated high priority for the Board to take actions to make this
possible. We welcome conversations with investors interested in
helping us to achieve this goal of growing the Company.
Financial performance
The Company has delivered resilient NAV total returns since
inception on 22 December 2020, in a highly volatile market. Net
asset value ("NAV") total return for the year ended 30 June 2023
was 0.8% (2022: 1.6%), resulting in a NAV total return since
inception of 8.6% (3.4% annualised).
Overall, the Company's NAV per share fell from 105.4p to 104.9p
during the year ended 30 June 2023, after fees which included an
interim dividend payment of 1.30p per share paid on 6 December 2022
(2021: 0.57p).
The total share price return during the year ended 30 June 2023
was -11.0% (2022: -4.7%) as the Company's shares were not immune to
negative investor sentiment towards equities resulting in a wider
discount to NAV. The Company moved from trading at a premium to NAV
to a discount after the mini budget of September 2022, and traded
at an average discount of 7.3% in the twelve months to 30 June
2023, narrower than the average investment trust discount of 13.2%
over the same period.
A more detailed analysis of performance and additional
information on investments in the period under review are included
in the Portfolio Manager's Report. I would particularly like to
highlight that our Portfolio Manager has demonstrated the benefits
of extensive experience and an impact-led approach to investing in
social housing this year. Our portfolio has shown resilience within
a turbulent market, and should the Company raise more capital, we
are well positioned to deploy it responsibly in this important
sector.
Social impact performance
The Company published its second Impact Report on 29 June 2023,
showcasing the meaningful roles our investees have played in
communities across the UK during the year, the engagement of our
Portfolio Manager to support their success, and our impact
management methodology.
As of the date of the Impact Report the Company had committed
GBP87m, financing 168 organisations and reaching 276,000 people, of
whom at least 94% were from disadvantaged and vulnerable
backgrounds. The Company's investments helped fund over 27,000
affordable homes through the High Impact Housing asset class and
generated over GBP98m of near-term value as savings for government
and households. The full report is available on the Company's
website.
The Company's investments are also contributing to addressing
the specific social challenges created by rising energy costs. For
example, Agility Eco (in the Bridges Evergreen portfolio) is a
leading installer of energy efficiency improvements for low-income
households. Man Community Housing Fund received planning permission
for a development of 226 zero carbon, 100% affordable homes. Heart
of England Community Energy (backed by Triodos UK and the Community
Investment Fund) generates enough power for 4,500 homes as well as
providing wider community benefits.
More detail can be found in the Impact Report section on pages
29 to 30 of the 2023 Annual Report and Accounts. We continue to
welcome your feedback on the report, to help guide our
communications with shareholders about the frontline work of our
investees and our impact management methodology.
The Board was privileged in May 2023 to see first hand the
valuable work that our investees are undertaking in Hull and
together with representatives from the Portfolio Management team
visited Hull Women's Network, an organisation helping women and
their children escape domestic abuse, and Hull and East Yorkshire
Mind, providing support services to individuals and families
experiencing poor mental health. Both organisations also provide
safe and appropriate housing for people who need it most as part of
their wrap-around support services and have used social investment
from the Social and Sustainable Housing fund (in the Company's High
Impact Housing portfolio) to purchase and refurbish homes to a high
standard for their beneficiaries.
The Board is keen to help our investors meet their own
developing needs in relation to impact reporting, and we welcome
feedback.
Discount management
During the year to 30 June 2023 the Company's share rating
ranged between a discount to NAV of 15.3% and a premium to NAV of
1.5%. The 12-month average discount on 30 June 2023 was 7.3%
(average discount 2022: 0.5%).
The Company's share price moved to a discount to NAV in October
2022, during a period of turbulence for UK equities. Following
consultation with the Manager and the Company's corporate broker in
late 2022 the Board agreed that it was in shareholders' best
interests to commence buying back a limited number of shares with
the aim of narrowing the discount at which the shares were trading
to NAV. The Board also considers the shares an attractive
investment and the buybacks have been accretive to existing
shareholders.
While the Board is conscious that buybacks shrink the size of
the Company marginally in the short-term it remains our ambition to
grow the Company through share issuance in the longer term.
Addressing the discount to NAV is considered critical to achieving
this goal and the Board believes buy backs are one of the tools to
use in pursuit of this. During the year ended 30 June 2023 the
Company bought back 711,720 ordinary shares for a total
consideration of GBP674,000. All shares were bought back at a
discount to the prevailing NAV, and were placed into Treasury for
future re-issue. Should the Company's shares reach a sufficient
rating to its NAV, the Board will seek to use these shares to issue
to new and existing investors. Our Portfolio Manager has an
attractive pipeline of high impact investments, and it is the
Board's ambition to raise funds to take advantage of these
opportunities for our shareholders and to deploy further capital to
create more equal life chances and build resilient communities in
the UK.
Since 30 June 2023 and up to 26 October 2023, a further 449,924
shares have been bought back for a total consideration of
GBP411,130.84 and placed in Treasury.
At the forthcoming Annual General Meeting ("AGM") the Board will
seek to renew the authorities previously granted by shareholders to
issue or buy back shares. We encourage shareholders to vote in
favour of these resolutions which are described in more detail in
the on pages 91 to 94 of the 2023 Annual Report and Accounts.
Investor engagement
Another important plank in the strategy of closing the discount
and ultimately growing the Company, is active engagement with
current and prospective shareholders, which the Board and the
Managers take very seriously. Webinars and forums have been held
during the year under review to shed light on the investment
approach and portfolio holdings, and to help educate and inform
investors newer to social impact investing. In particular,
excellent feedback was received about the event convened in March
2023 that focused on the UK social housing market and the way that
a high impact focus has successfully been used to manage risk and
deliver resilient returns.
I am personally keen to meet with investors who may have a
desire or mandate to allocate to social impact, as the Company
aspires to be an attractive, diversified and reliable 'go-to'
partner for such portfolios. It has been useful to hear the issues
being faced by investors in this regard, and I am grateful for the
ideas shared in the meetings I have had during the year under
review and subsequently.
The Board recognises the size of the Company is a hurdle for
some investors, but we also hear from many that our strategy
answers a need across a range of investor types. Therefore, the
Board is thinking creatively and proactively about our outreach in
the year ahead. I hope our events, reports, and activities will be
valuable to you, and will help broaden and deepen our shareholder
base. I look forward to more dialogue with new investors to
increase our own investor impact and accelerate the much-needed
deployment of capital into high quality, high impact investments in
communities across the UK.
Dividend
The Board has considered the amount available to distribute to
investors and, as in previous years, has declared that the Company
will pay out substantially all of its income as a dividend,
resulting in a dividend of 2.30p per share (2022: 1.30p), payable
on 20 December 2023 to shareholders on the Company's share register
on 10 November 2023. This is above the target dividend of 1-2% of
net asset value communicated to investors at the initial public
offering ("IPO") and the Portfolio Manager is increasing its
guidance for future dividends to yield 2-3%. The dividend of 2.30p
is split between a 2.16p interest distribution and a 0.14p equity
dividend.
Continuation vote
In the Prospectus, published at the time of the IPO, the Company
undertook to provide shareholders with the opportunity to vote on
the Company's continuation should the Company's shares trade, on
average, at a discount in excess of 10% to NAV for the two-year
period ending 31 December 2023 and in any subsequent two-year
period. In the event that a vote was triggered shareholders would
be provided with the opportunity to vote on whether the Company
should continue in its present form.
The Board believes that since launch the Company has established
a clearly differentiated and unique position relative to other
investment companies. The Company provides shareholders with
exposure to hard to access high impact assets and managers whilst
its investments support partnerships between UK fund managers,
social organisations and the communities they serve. The Board also
believes that social impact investments should continue to provide
attractive long term investment opportunities and that the
prospects for private market social impact investments remains
positive. In addition, your Board notes that if the discount on 26
October 2023 of 13.13% were to continue until the end of this year,
then the Company's shares will have traded for the two years ending
31 December 2023 on average at a discount of 6.79%.
Quarterly valuations
In the Half Year Report, I advised that the Company intended to
increase the frequency of its valuation points from bi-annually to
quarterly to provide increased transparency for existing and
potential shareholders. Subsequently, the quarterly NAVs in respect
of 31 March and 30 June 2023 were published and the Company will
continue to publish the NAVs on a quarterly basis.
Online presentation
There will be a presentation by the Portfolio Manager at 2.00
p.m. on Tuesday, 31 October 2023 which will be available to watch
online. To sign up to watch the presentation please click on this
link: https://registration.duuzra.com/form/SBSI23
Details on how to watch the presentation are also available on
the Company's webpage: www.schroders.com/sbsi
By using a webinar, I hope more shareholders, and interested
parties will be able to listen to and ask questions of the
Portfolio Manager.
AGM
The AGM will be held on Friday, 15 December 2023 at 12.00 noon
at the offices of Schroders at 1 London Wall Place, London, EC2Y
5AU. A presentation from the Portfolio Manager will be given at the
AGM, and attendees will also be able to ask questions in person.
The presentation will be made available on the Company's website
following the meeting. Details of the formal business of the
meeting are set out in the Notice of Meeting on pages 92 to 94 of
the 2023 Annual Report and Accounts.
All shareholders are encouraged to vote by proxy in advance of
the AGM and to appoint the Chair of the meeting as their proxy.
This will ensure that shareholders' votes will be counted even if
they (or any appointed proxy) are not able to attend.
If shareholders have any questions for the Board, please write
to the Company's registered office address: Company Secretary,
Schroder BSC Social Impact Trust plc, 1 London Wall Place, London,
EC2Y 5AU, or email: amcompanysecretary@schroders.com .
For regular news about the Company, shareholders are also
encouraged to sign up to the Manager's investment trusts update by
visiting the Company's website:
https://www.schroders.com/en/uk/private-investor/fund-centre/funds-in-focus/investment-trusts/schroders-investment-trusts/never-miss-an-update/
Outlook
Following the volatile environment in global and UK markets, a
higher inflation, higher interest rate environment is expected to
have a long-term impact on the real economy, and the standards of
living of UK households. Most vulnerable and disadvantaged
households are the most affected, at a time when government
spending is also constrained.
In this context, the services provided by the organisations
funded by the Company's investments are needed more than ever.
While some of these organisations themselves will be affected by
rising cost pressures, the organisations in the Company's portfolio
have an average 30-years' track record, having demonstrated their
resilience through multiple economic cycles.
An expected election in the UK in the next twelve months
introduces further uncertainty around the policy risk. A
significant portion of the Company's portfolio is invested in
organisations with government-backed revenue sources. The Portfolio
Manager mitigates policy risk by diversifying the portfolio across
policy areas, and targeting areas with broad cross-party support,
such as housing, health and social care, and energy resilience.
Despite the challenging market environment, the social
investment market in the UK grew by 18% to GBP9.4bn in 2022,
according to the most recent annual market sizing exercise
published by Big Society Capital [2] . The Board believes that the
Company remains well positioned to lead and benefit from further
market growth, as the Portfolio Manager continues to see an
expanding and maturing pipeline of investment opportunities.
One of these opportunities is in very advanced stages, and we
expect the Portfolio Manager to fully commit the capital available
(following partial exits and capital repayments from the existing
portfolio) by early 2024. This opportunity would increase the
portfolio exposure to the "just transition to net zero" impact
theme and is expected to provide attractive returns to
investors.
In September 2023, the Company was Highly Commended in the Best
Newcomer Sustainable Fund category of Investment Week's Sustainable
Investment Awards 2023. We are pleased that the Company's
contribution as a key player in the sustainable investing space is
being recognised by the investor community.
We are encouraged to see growing appetite for sustainable
investment products, and an increased focus both from regulators
and investors on ensuring quality and clear standards. In the UK,
the Company engaged with the Financial Conduct Authority's
Sustainable Disclosure Requirement ("SDR") consultation through
Schroders and Big Society Capital, and we were pleased to see
extensive engagement from the broader financial sector. The
proposed SDR framework signals the regulator's commitment to
supporting the integrity and growth of the impact and wider
sustainability investment markets in the UK. We believe transparent
labelling and disclosure of impact products are essential for the
impact investment market to grow healthily. We also welcome the
EU's Sustainable Finance Disclosure Requirements ("SFDR")
consultation, launched this year to review SFDR's implementation
and explore new classifications that offer greater clarity on
investment product impact credentials.
Through engagement with key stakeholders in the investment and
regulatory space, as well as showcasing best practice in making
successful impact investments, the Managers aspire to position the
Company as a trusted leader and attractive partner for investors
making allocations to this emerging asset class.
We have been gratified to hear the interest in, and support for,
the Company's approach and purpose, but realise successful growth
depends on converting more of this latent demand and widening the
shareholder base. We look forward to speaking with you during the
year.
Susannah Nicklin
Chair
27 October 2023
Portfolio Manager's Report
Market developments
The twelve months to 30 June 2023 were a particularly
challenging one for the UK economy with inflation at a 40 year
high, led by large increases in energy and food prices and
contending with recessionary concerns. The "mini-budget" of
September 2022 further exacerbated the instability in financial
markets, and negative investor sentiment, despite its subsequent
reversal.
The Bank of England's ("BoE") response to market conditions was
to raise interest rates eight times in a 12-month period, to 5% on
30 June 2023, with a further rise to 5.25% voted for in August
2023. The new interest rate environment has broad implications on
the investment community as well as the broader population, in
particular, the most vulnerable and disadvantaged people that the
Company's investments are aiming to support.
Inflation started to reduce during 2023, returning to single
digits; however, the full effects of the higher inflationary and
interest rate environment are only just beginning to be felt, and
are expected to have long term consequences in areas such as
housing affordability, and continued pressures on
cost-of-living.
A House of Commons research briefing published in September 2023
highlights some of the starkest data illustrating the impact on the
cost of living of the last 2 years of rising inflation:
-- Food prices: Over the two years from August 2021 to August
2023 food prices rose by 28.4% . It previously took over 13 years,
from April 2008 to August 2021, for average food prices to rise by
the same amount.
-- Energy prices: household energy tariffs and road fuel costs
increased sharply in 2022; in an effort to mitigate the impact of
rising gas and electricity prices, the Government introduced an
Energy Price Guarantee (EPG) in October 2022, capping typical
consumption at GBP2,500 a year. This limited increases in typical
bills to 27% in October 2022.
-- Housing affordability: base interest rates rose from 0.1% in
December 2021 to 5.25% in September 2023, which led to higher
borrowing rates for households (specifically higher mortgage
rates), and higher rental costs - significantly impacting housing
affordability.
Low-income households are most affected by rising prices, mostly
due to being more affected by high food and energy prices.
"Food bank charities are reporting an increase in demand: the
Trussell Trust reported that in the year to March 2023 they
provided nearly 3 million emergency food parcels, a record number,
more than during the pandemic and more than double the number in
the same period five years before."
- House of Commons Library Research -
Rising Cost of Living in UK - Sep 23.
The new environment creates both risk and opportunities for the
Company on both social impact and financial returns. Looking first
at the social impact risk, many of the charities and social
enterprises supported by the Company's investments, and the
vulnerable people who benefit from their services, will be
negatively affected by the current environment. Whilst increasing
the need for the positive impact of our investments it means that
in some cases impact will be outweighed in overall terms by the
rising cost of living. On financial returns, we have aimed to build
a portfolio with a degree of inflation correlation. However, in a
very volatile inflation environment some of those correlations will
be only partial and some operate with a time-lag. In particular, as
the portfolio relies to a significant extent on government backed
revenues, government restrictions on how fast inflation flows
through into social housing rents and contract payments will be
important.
Looking at the opportunities for our investment strategy, the
social impact created by our investments is needed more than ever.
Many of our investments are directly tackling the cost of living
crisis, such as increasing the supply of affordable housing and our
retrofit and community renewable investments tackling fuel poverty.
In a time of constrained government finances our investments are
targeting service innovation that create significant savings - for
example our recent review of Social Outcomes Contracts showed that
every GBP1 spent has generated GBP10 in public value.
On the financial side, we expect the Company will continue to
provide a valuable source of diversification in a challenging
investment environment. High and volatile inflation is strongly
negative for traditional public market equity and bond portfolios.
We have aimed for a unique mix of impact-focused private assets
with diverse and resilient revenue streams that has thus far
protected capital and should continue to do so in the event of
further sharp market downturns.
Across our portfolios we are seeing the wider move to invest in
impact continuing. Our latest market sizing report values the
social impact investment market at GBP9.4bn as of the end of 2022,
an 18% increase from 2021. This represents an almost 11-fold
increase in the social impact investment market in the last 11
years. As a result, we are seeing an expanding and maturing
pipeline of investment opportunities, primarily in private markets
that are difficult for many investors to access. We believe the
Company remains well positioned to offer investor access to a
mature portfolio of high quality impact investments within this
expanding opportunity set.
Performance update
The NAV total return per share for the twelve-month period to 30
June 2023 was 0.8%. Overall, the Company's total NAV reduced
slightly from GBP89.92m to GBP88.75m over the period due to share
buy-backs reducing the number of shares in issue from 85.32 million
to 84.60 million. The shares bought back were held in Treasury at
the end of the financial year.
The Company's NAV per share declined from 105.39p to 104.90p
after an 1.30p dividend payment - with a full performance bridge in
the chart below.
In the 12 months to 30 June 2023 the Company recorded gross
revenue of GBP2.77m (2022 - GBP1.86m) and net revenue after fees,
costs and expenses of GBP1.97m (2022 - GBP1.12m), providing a net
revenue return per share of 2.32 pence (2022 - 1.37 pence). The
Company recorded losses on the fair value of investments of
GBP1.02m (2022 - gains of GBP0.63m) and capitalised expenses of
GBP0.33m (2022 - GBP0.29m), resulting in a total gross return of
GBP1.75m (2022 - GBP2.49m), and total net return of GBP0.62m (2022
- GBP1.44m), or 0.73 pence per share (2022 - 1.77 pence).
As shown in the table below, portfolio returns since inception
have been driven by the performance of investments in their mature
phase, contributing 10.67% to NAV total return. However, in the 12
months to 30 June 2023, the mature phase investments underperformed
plan contributing 0.17% due to a significant write down in the
Bridges Evergreen portfolio and the headwinds of rising rates.
Assets in their investment phase, which are earlier in their
lifecycles and J-curves, made a 1.58% contribution to NAV total
return during the year to 30 June 2023, which is in line with
expectations.
Liquidity Assets made a positive contribution of 0.16% to
performance during a challenging year for markets through
allocations to shorter duration and floating rate credit.
30 Jun NAV total
2023 30 Jun 2023 NAV total return return
% NAV % NAV contribution contribution
12m to 30 June
committed invested 2023 since launch
-------------------------- --------- ----------- ---------------- ------------
Mature 65.04% 63.89% 0.17% 10.67%
-------------------------- --------- ----------- ---------------- ------------
Investment phase 32.33% 23.62% 1.58% 1.74%
-------------------------- --------- ----------- ---------------- ------------
Liquidity Assets - 10.53% 0.16% -0.57%
-------------------------- --------- ----------- ---------------- ------------
Cash and cash equivalents - 1.97% -1.14% -3.23%
-------------------------- --------- ----------- ---------------- ------------
Total* 97.37% 100.00% 0.78% 8.61%
-------------------------- --------- ----------- ---------------- ------------
*Please note totals might not sum due to rounding
The key drivers of financial performance in the twelve-month
period to 30 June 2023 were:
-- A ramp-up of returns in the High Impact Housing portfolio, in
particular valuation gains in the CBRE Affordable Housing Fund,
contributing 0.58p to NAV per share, and the Man Community Housing
Fund contributing 0.48p to NAV per share, mostly driven by
developments reaching completion.
-- A mix of income and capital gains in the Social Outcomes
Contracts portfolio driven by strong performance of the underlying
projects, with Bridges Social Outcomes Fund II contributing 0.48p
to NAV per share.
-- A notable negative development in the Bridges Evergreen
portfolio was the write-down to zero of their investment in Skills
Training UK. Bridges Evergreen contributed a negative 1.66p to NAV
per share.
-- With the exception of the Bridges Evergreen investment, all
other holdings in the Company's High Impact Portfolio made a
positive contribution to returns and are performing to plan.
The Social Impact performance of the portfolio was reported in
the Company's second Impact report published in June 2023. The
report highlighted that since launch, the Company's investments
have reached 276,000 people, 94% of whom are from disadvantaged,
vulnerable or underserved backgrounds; generated GBP98m in social
outcomes and savings; and funded 27,000 affordable, decent homes.
The Impact Section of this report contains the key highlights from
the Social Impact report, as well as details of our evolving
approach to impact management and reporting.
Portfolio cash flows and balance sheet
Overall, in the period GBP7.61m was deployed into existing and
new investments in the High Impact Portfolio:
-- The majority of the amount invested (GBP6.27m) was deployed
towards delivering new affordable homes in the High Impact Housing
allocation: Man Community Housing Fund drew down GBP2.55m and the
Social and Sustainable Housing fund drew down GBP3.72m over the
year.
-- In Debt and Equity for Social Enterprises , GBP1.03m was
drawn for further investment into the secured co-investments made
with Charity Bank, and the Charity Bond portfolio, delivering high
social impact in Health and Social Care.
-- Within Social Outcomes Contracts , further investment was
made into existing projects helping children on the edge of care
and homelessness. The Social Outcomes Contracts investments made in
the year to 30 June 2023 totaled GBP419,000.
Some of the Company's higher impact investments involve the
staged deployment of capital over multiple years; we aim to
mitigate any cash drag on returns through our Liquidity Assets
allocation. This is invested in assets with similar financial risk
and return characteristics as the core asset allocation, though has
a lower direct social impact given the lack of availability of
social impact-focused assets in publicly listed markets. During the
period, we fully redeemed our positions in two investments to
fulfil drawdowns in our High Impact Portfolio. The Liquidity Assets
portfolio experienced some volatility over the year due to market
turbulence but had a small net positive contribution to the total
return for the year of 0.16%.
Portfolio Allocation
The Company's investment objective is defined as:
-- Delivering measurable positive social impact as well as long
term capital growth and income, through investing in a diversified
portfolio of private market impact funds, co-investments alongside
impact investors and direct investments in order to gain exposure
to private market social impact investments.
-- Aiming to provide NAV total return of CPI plus 2 per cent.
per annum (once the portfolio is fully invested and averaged over a
rolling three- to five-year period, net of fees).
-- With low correlation to traditional quoted markets whilst
offering to address significant social issues in the UK.
A diversified asset allocation delivering local UK social
impact
The Company delivers its investment objective through allocating
to best-in-class social impact managers in private markets - with
proven track records delivering high quality financial returns
alongside measurable social impact for more disadvantaged groups in
the UK. Investments that are committed but not yet drawn by private
market funds are held in listed Liquidity Assets investments to
mitigate cash drag during longer drawdown periods.
As of 30 June 2023, the portfolio was 97% committed and 88%
invested in the Company's High Impact Portfolio. The Company has
approximately GBP2.5m of uncommitted capital, following the
cancellation of an unused follow-on commitment to the Charity Bond
portfolio, a partial exit from the Real Lettings Property Fund in
the third quarter of 2023, scheduled capital repayments from the
portfolio, and share buybacks. Furthermore 10% of NAV was held in
our Liquidity Assets portfolio and will in the longer term be
invested in higher impact private investments. In response to the
higher interest rate environment, the Company is balancing use of
Liquidity Assets with greater use of cash and cash equivalents in
money market funds, earning interest in line with base rates.
Providing access to a seasoned high impact portfolio
The Company has built a seasoned high impact portfolio that
would be difficult for shareholders to access directly - through a
combination of a seed portfolio and secondary investments from the
Portfolio Manager's relationships and knowledge of the sector. This
provides a greater allocation to more mature assets that will help
drive future financial and impact performance. The Portfolio
Manager's broader portfolio relationships offer additional fee
benefits to Company shareholders - with 41% of the Company's
portfolio with no or discounted management fees - from
co-investments or fee discounts that the Portfolio Manager has
negotiated, often through their role as initial cornerstone
investor in funds.
Targeting inflation resilient returns
The Company aims to deliver an asset allocation that is
resilient through periods of rising prices through targeting
two-thirds of its asset allocation to assets that will benefit from
inflation. These assets are:
-- Property and renewables - with a mix of long dated inflation
linked leases, shorter property leases where value is more driven
by property prices, and smaller investments in community renewables
in our Debt and Equity for Social Enterprises asset class; we also
hold renewables investments in our Liquidity Assets portfolio
-- Mezzanine and equity investments - where the value is driven
by government contracts that have historically moved with
inflation
-- Floating rate instruments which will benefit from increases in the base rate
As of 30 June 2023, the Company had committed 62% of its capital
to inflation sensitive assets. The remaining capital committed to
high impact investments was allocated to fixed income securities
such as charity bonds and social outcomes contracts; the Company
aims to minimise the duration of these fixed income assets, to
allow reinvestment over time into a potentially higher interest
rate environment. Including the investments in Liquidity Assets and
cash and cash equivalents held in money market funds, the Company's
invested amount in assets that will benefit from inflation is 66%
of its capital. The Portfolio Manager is seeking to optimise its
liquidity management, by investing its cash reserves in money
market funds benefitting from increases in the base rate.
As previously indicated, the Company sees significant risk in
achieving target returns to match recent elevated inflation levels.
As a result, the Company is underperforming its CPI+2% aim. This is
due to:
-- Property and renewables: The presence of caps and collars in
property index linked leases, caps in housing benefit increases and
expected real falls in property prices.
-- Mezzanine and equity investments: Delays in the pass through
of inflation to government contracts in the current environment
-- Floating rate instruments: Expected path of floating rates to continue to lag inflation
-- A portion of the investment allocation (34% of invested
capital) in fixed income securities and social outcome contracts
where Company revenue will only benefit over time from inflation at
higher interest rates as capital is re-invested.
Targeting low correlation to mainstream markets
The Company's asset allocation aims to achieve low correlation
to mainstream markets by backing business models that are
underpinned by government expenditure and have been historically
resilient through economic cycles. As at 30 June 2023, 70% of the
committed portfolio (61% invested) is underpinned by government
backed revenue streams. The proportion of government-backed
revenues in the portfolio is slightly below our long-term target of
75% (on a committed basis) due to the partial exit from The Real
Lettings Property Fund ("RLPP1"), the cancellation of the charity
bond top-up commitment, capital repayments in the period and the
write-down in the BEH portfolio; however, the advanced pipeline
opportunities which are being considered for the re-deployment of
available capital have a high proportion of government-backed
revenues, which we expect to bring our capital allocation in line
with the target. These revenue streams are themselves diversified
across policy areas, such as housing, clean energy and fuel
poverty, education, redressing inequalities/levelling up. This
diversification reduces exposure to individual policy risk, such as
the risk that government or budgetary changes would significantly
reduce or withdraw payments. The Company targets areas with a track
record of delivering impact for more disadvantaged groups and
generating savings for the public purse which provides additional
revenue resilience. Reflecting the uncorrelated nature of the
portfolio
relative to mainstream markets, the Company's share price had a
negative correlation with the FTSE ALL Share Index in the twelve
months to 30 June 2023 (-0.62), and since inception (-0.53).
Recent Events
Following the realisation of capital from RLPF1 and the
cancellation of unused commitments, and net of capital used for
share buybacks to date, the Company has c. GBP2.5m of uncommitted
capital, held to invest in further High Impact Investment
opportunities or provide flexibility for further share buybacks. We
are actively reviewing an active pipeline of investments in the
High Impact Portfolio, which we think will provide further
diversification and exposure to the four key impact themes
identified in our latest Impact Report (reducing poverty and
inequalities; good health and wellbeing; education, training and
decent work; and just transition to net zero), while also enhancing
returns. In particular, we are in an advanced stage with a new
investment in an opportunity that will increase the Company's
exposure to the "just transition to net zero" theme (currently with
the lowest weight in our investment portfolio), while providing an
attractive returns profile. We expect to be in a position to
complete and announce the transaction by the first quarter of next
year, which would bring us back to being fully committed.
We are confident that the Company remains well positioned to
lead and benefit from further market growth, as we continue to see
an expanding and maturing pipeline of investment opportunities.
In September, the Company was Highly Commended in the Best
Newcomer Sustainable Fund category of Investment Week's Sustainable
Investment Awards 2023. Entries were judged by a panel of experts
from across the investment industry considering factors such as
strong performance record; strength of the team; meeting the fund's
sustainable objectives; excellence in sustainable investing within
the investment process; strong engagement record; effective client
communication; wider fund impact; and key developments on the
strategy in the past year. We are pleased that the Company's
contribution is being recognised as playing a key role in the
evolution of sustainable investing.
Outlook
Following a year of monetary tightening, inflation continued on
a downward trend over the summer, and in October UK food prices
dropped slightly for the first time in two years. The Bank of
England slowed its rate increases, and guides towards inflation
reaching mid-single digits by the end of the year, returning to the
long-term 2% target by 2025. HM Treasury has set 22 November 2023
for this year's Autumn Statement, to be accompanied by an Office
for Budget Responsibility forecast. This is expected to be the
chancellor's last fiscal update before a general election, and it
is expected that one of the areas of scrutiny will be the
government's performance against the economic pledges from earlier
this year, in particular the pledge to halve inflation by year end.
While the Prime Minister made comments about prioritising curbing
inflation and easing cost of living, there is an expectation that
we will see real-term cuts to benefits and public spending while
the UK is trying to contain high levels of national debt.
Despite the "bright spots", the outlook for the UK economy
remains uncertain, with some market commentators suggesting a
recession remains "unavoidable" [3] , as higher rates will have a
lagged effect on the economy.
It is estimated that UK households are facing the largest fall
in living standards since records began in the 1950s [4] , and this
fall in living standards disproportionately affects those who are
already most vulnerable in society [5] . UK households are seeing
their real incomes fall, while struggling to meet significantly
higher costs for essential items like food, energy and housing [6]
.
With continued pressures on government spending, the scaling of
proven solutions tackling social issues - such as the organisations
that the Company supports - remains as essential as ever.
This uncertain environment provides opportunities and risks for
the Company. While the solutions provided by the organisations that
the Company supports are needed more than ever, these organisations
need to manage higher cost bases themselves in order to remain
viable. We work with organisations with long track records (30
years on average [7] ), who have demonstrated their resilience over
multiple economic cycles. Two thirds of our capital is invested in
models with revenues rising with inflation; while our historical
returns to date are lagging the CPI+2% target, as explained in the
Performance Update section, we are maintaining our target for the
medium-to-long term, as we expect some of the benefits to flow
through with a lagged effect, and the inflation and interest rate
environment to stabilise. What we have seen in the last year was an
increase in the income generated by the portfolio, as a result of
increases in the interest rate on floating-rate loans, and higher
income generated by maturing investments. This increased income is
being passed on to our investors as a dividend exceeding our
previous guidance of 1-2% yield on net asset value. We expect the
income generated by our investments to continue to improve in the
future and have increased our future guidance on dividend yield to
2-3%.
With a general election expected in the next 12 months, we
acknowledge our portfolio is subject to policy risk. At the time of
writing, 70% of our committed capital is underpinned by
government-backed revenues. During the year, we have seen a
negative impact from policy risk in our portfolio, following a
change in government policy regarding traineeships, leading to a
write-down in the Bridges Evergreen portfolio. While this
development was disappointing, we believe this to be an isolated
case in our portfolio, which is diversified across multiple policy
areas, mostly targeting the most vulnerable and disadvantaged
groups. Successful interventions in these areas typically generate
savings for the government that are multiples of the cost, and
therefore these areas benefit from cross-party support. We further
mitigate policy risk by working with organisations that have been
successfully operating for several decades, navigating different
policy environments, and making investments that benefit from some
element of asset backing.
We are encouraged to see growing appetite for sustainable
investment products, and an increased focus both from regulators
and investors on ensuring quality and clear standards.
In this uncertain environment the goals of the Company remain
the same: to deliver for shareholders high quality returns with a
low correlation to traditional quoted markets alongside significant
social impact for more disadvantaged groups across the UK.
Hermina Popa, Jeremy Rogers
Big Society Capital
27 October 2023
Strategic Report
Principal and emerging risks and uncertainties
The Board, through its delegation to the Audit and Risk
Committee, is responsible for the Company's system of risk
management and internal control and for reviewing its
effectiveness. The Board has adopted a detailed matrix of principal
risks affecting the Company's business as an investment trust and
has established associated policies and processes designed to
manage and, where possible, mitigate those risks, which are
monitored by the Audit and Risk Committee on an ongoing basis. This
system assists the Board in determining the nature and extent of
the risks it is willing to take in achieving the Company's
strategic objectives. Both the principal and emerging risks and the
monitoring system are also subject to robust assessment at least
annually. The last assessment took place in October 2023.
During the year, the Board discussed and monitored a number of
risks which could potentially impact the Company's ability to meet
its strategic objectives. The Board received updates from the
Manager, Portfolio Manager, Company Secretary and other service
providers on emerging risks that could affect the Company. The
Board was mindful of the following emerging risks during the year;
the ongoing conflict in Ukraine, rising inflation and interest
rates, the threat of a UK recession and volatile energy prices.
These risks were not seen as new principal or emerging risks but
those that exacerbate existing risks and have been incorporated in
the market risks section in the table below.
Although the Board believes that it has a robust framework of
internal control in place this can provide only reasonable, and not
absolute, assurance against material financial misstatement or loss
and is designed to manage, not eliminate, risk.
Actions taken by the Board and, where appropriate, its
committees, to manage and mitigate the Company's principal risks
and uncertainties are set out in the table below.
The "Change" column on the right highlights the Audit and Risk
Committee's assessment of any increases or decreases in risk during
the year after mitigation and management. The arrows show the risks
as increased or decreased, and sideway arrows show risks as
stable.
Risk Mitigation and management Change
Strategic risk
The Company's investment objectives The appropriateness of the Company's Up
may become out of line with the investment remit is regularly reviewed
requirements of investors, or the and the success of the Company in
Company's investment strategy might meeting its stated objectives is
not lead to the Company achieving monitored.
its investment objective resulting
in the Company being subscale and The share price relative to NAV
shares trading at a discount. per share is monitored and the Board
has implemented a buy-back programme.
The target return of the company
is inflation plus 2%. There is no
guarantee that this will be achieved
and in high inflation environments
the target becomes more challenging
despite a element of the portfolios
investment returns benefitting from
higher inflation, with a lag.
Continuity risk
31 December 2023, and in any two-year The Portfolio Manager has extensive Up
period following such date, the experience and a track record in
Ordinary Shares have traded, on accurately timing the exits of private
average, at a discount in excess equity investments. The Board will
of 10 per cent. to Net Asset Value regularly monitor the position to
per Share, the Directors will propose ensure that any alternative proposals
an ordinary resolution at the Company's to be made to shareholders are put
next annual general meeting that forward at an appropriate time.
the Company continues its business
as presently constituted (the "Continuation The Board also made enquiry of the
Resolution"). broker and discussed with Big Society
Capital and Schroders, who in aggregate
It could take several years until hold 43.99% of the Company's total
all of the Company's private equity voting rights as at 30 September
investments are disposed of and 2023. It believed that there is
any final distribution of proceeds no reason to anticipate that shareholders
made to shareholders. would not be supportive should a
continuation vote be held in 2024.
The Company moved from trading at
a premium to NAV to trading at an If the Continuation Resolution is
average discount of 7.3% in the not passed, the Directors will put
twelve months to 30 June 2023, which forward proposals for the reconstruction
is narrower than the average investment or reorganisation of the Company,
trust discount over the period. bearing in mind the liquidity of
the Company's Investments, as soon
as reasonably practicable following
the date on which the Continuation
Resolution is not passed. These
proposals may or may not involve
winding up the Company and, accordingly,
failure to pass the Continuation
Resolution will not necessarily
result in the winding up of the
Company.
Investment management risks
Risks relating to the social impact The Portfolio Manager has extensive No change
of investee companies and the achievement experience in selecting private
of the target financial return. social impact investments and has
a robust investment process to ensure
that the anticipated positive impact
of investee companies is realistic
and achievable. The Board also monitors
impact regularly and publishes an
annual impact report.
The Portfolio Manager makes investments
according to a tested and robust
process and based on the goal of
achieving the target return. A pipeline
of opportunities is vetted and reviewed
and significant care is taken in
selecting high quality managers
and investees. The Portfolio Manager
receives regular management information
and engages regularly with investees
to monitor and ensure performance
to plan.
Liquidity risk
Liquidity risks include those risks Concentration limits are imposed No change
resulting from holding private equity on single investments to minimise
investments as well as not being the size of positions.
able to participate in follow-on
fundraises through lack of available The Portfolio Manager can sell Liquidity
capital which could result in dilution Assets to meet investment commitments
of an investment. and capital calls. The Portfolio
Manager will monitor and manage
Risks relating to investment commitments cash flows and expected capital
and capital calls. calls.
The Portfolio Manager will seek
to manage cashflow such that the
Company will be able to participate
in follow on fundraisings where
appropriate.
Valuation risk
Private equity investments are generally Contracts with investee companies No change
less liquid and more difficult to and funds are drafted to include
value than publicly traded companies. obligations to provide information
A lack of open market data and reliance to the Portfolio Manager in a timely
on investee company projections manner, where possible.
may also make it more difficult
to estimate fair value on a timely The Portfolio Manager and AIFM have
basis. extensive track records of valuing
privately held investments.
A valuation policy has been agreed
by the AIFM and Portfolio Manager
and includes a robust process for
the valuation of assets, including
consideration of the valuations
provided by investee companies and
the methodologies they have used.
Any changes to this policy must
be approved by the Audit and Risk
Committee.
The Audit and Risk Committee reviews
all valuations of unlisted investments
and challenges the methodologies
used by the Portfolio Manager and
AIFM. The Audit and Risk Committee
may also appoint an independent
party to complete a valuation of
the Company's assets.
Cyber security risks
Each of the Company's service providers Experienced third party service No change
is at risk of cyber attack, data providers are employed by the Company
theft or disruption to their infrastructure under appropriate terms and conditions
which could have an effect on the and with agreed service level specifications
services they provide to the Company. in relation to cyber security and
These risks could lead to reputational related procedures.
damage or the risk or loss control
of sensitive information leading The Board receives regular reports
to a potential breach of data protection from its service providers and the
law. Management Engagement Committee
will review the performance of key
service providers at least annually.
The Audit and Risk Committee reviews
reports on the external audits of
the internal controls operated by
certain service providers.
Economic, policy, and market risk
Changes in general economic and The risk profile of the portfolio N/A
market conditions, such as interest is considered and appropriate strategies
rates, inflation rates, industry to mitigate any negative impact
conditions, tax laws, political of substantial changes in markets
events and trends can substantially and government policies are discussed
and adversely affect the value of with the Portfolio Manager.
investments.
The rise in government bond yields
Market risk includes the potential has had, and may continue to have,
impact of events which are outside a negative impact on property prices.
the Company's control, such as pandemics, A portion of the Company's portfolio
civil unrest and wars. is invested in UK property.
Policy risk includes the potential
negative impact of changes in UK
government policies that affect
the business models, revenue streams
or have other material implications
for investees.
Risk assessment and internal controls review by the Board
Risk assessment includes consideration of the scope and quality
of the systems of internal control operating within key service
providers, and ensures regular communication of the results of
monitoring by such providers to the Audit and Risk Committee,
including the incidence of significant control failings or
weaknesses that have been identified at any time and the extent to
which they have resulted in unforeseen outcomes or contingencies
that may have a material impact on the Company's performance or
condition.
No significant control failings or weaknesses were Identified
from the Audit and Risk Committee's ongoing risk assessment which
has been in place throughout the financial year and up to the date
of this report. The Board is satisfied that it has undertaken a
detailed review of the risks facing the Company.
A full analysis of the financial risks facing the Company is set
out in note 20 to the accounts on pages 86 to 89 of the 2023 Annual
Report and Accounts.
Viability statement
The Directors have assessed the viability of the Company over a
five year period, taking into account the Company's position at 30
June 2023 and the potential impact of the principal risks and
uncertainties it faces for the review period. The Directors have
assessed the Company's operational resilience and they are
satisfied that the Company's outsourced service providers will
continue to operate effectively, following the implementation of
their business continuity plans.
A period of five years has been chosen as the Board believes
that this reflects a suitable time horizon for strategic planning,
taking into account the investment policy, liquidity of
investments, payment of commitments, potential impact of economic
cycles, nature of operating costs, dividends and availability of
funding. This time period also reflects the average holding period
of an investment.
In its assessment of the viability of the Company, the directors
have considered each of the Company's principal risks and
uncertainties detailed on pages 47 to 49 of the 2023 Annual Report
and Accounts. The Directors have also considered the Company's
income and expenditure projections, liquid investments, cash
balances as well as commitments to provide further funding to the
Company's private equity investee companies; the Company currently
has no borrowings. A substantial proportion of the Company's
expenditure varies with the value of the investment portfolio. In
the event that there is insufficient cash to meet the Company's
liabilities, the liquid investments in the portfolio may be
realised.
The Company has additionally performed stress tests which
confirm that a 50% fall in the market prices of the portfolio would
not affect the Board's conclusions in respect of going concern.
The Board monitors the portfolio risk profile, limits imposed on
gearing, counterparty exposure, liquidity risk and financial
controls at its quarterly meetings. Although there continue to be
regulatory changes which could increase costs or impact revenue,
the Directors do not believe that this would be sufficient to
affect its viability.
The Board has assumed that the business model of a closed ended
investment company, as well as the Company's investment objective,
will continue to be attractive to investors. The Directors also
considered the beneficial tax treatment the Company is eligible for
as an investment trust. If changes to these taxation arrangements
were to be made it would affect the viability of the Company to act
as an effective investment vehicle.
The Board made enquiry of the broker and discussed with Big
Society Capital and Schroders, who in aggregate hold 43.99% of the
Company's total voting rights as at 30 September 2023. It believes
that there is no reason to anticipate that shareholders would not
be supportive should a continuation vote be held in 2024.
Therefore, Directors have concluded that there is a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the five year period
of their assessment.
Going concern
The Directors have assessed the principal risks, the impact of
the emerging risks and uncertainties and the matters referred to in
the viability statement. Based on the work the Directors have
performed, they have not identified any material uncertainties
relating to events or conditions that, individually or
collectively, may cast significant doubt on the Company's ability
to continue as a going concern for the period assessed by the
Directors, being the period to 31 October 2024 which is at least
twelve months from the date the financial statements were
authorised for issue.
By order of the Board
Schroder Investment Management Limited
Company Secretary
27 October 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and accounts in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law the Directors
have prepared the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (FRS: 102 The
Financial Reporting Standard applicable in the UK and Republic of
Ireland) and applicable law. Under company law the Directors must
not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the return or loss of the Company for that period.
In preparing these financial statements, the Directors are required
to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards, comprising
FRS 102, have been followed, subject to any material departures
disclosed and explained in the financial statements;
- prepare a directors' report, a strategic report and directors'
remuneration report which comply with the requirements of the
Companies Act 2006; and
- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors' Remuneration Report
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Manager. The
Directors' responsibility also extends to the ongoing integrity of
the financial statements contained therein.
Each of the Directors, whose names and functions are listed on
pages 51 and 52 of the 2023 Annual Report and Accounts, confirm
that to the best of their knowledge:
- the financial statements, which have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable law),
give a true and fair view of the assets, liabilities, financial
position and net return of the Company;
- the annual report and accounts includes a fair review of the
development and performance of the business and the financial
position of the Company, together with a description of the
principal risks and uncertainties that it faces; and
- the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
On behalf of the Board
Susannah Nicklin
Chair
27 October 2023
Income Statement
For the year ended 30 June 2023
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on
investments held at
fair value through
profit or loss - (1,020) (1,020) - 632 632
Income from investments 2,695 - 2,695 1,817 - 1,817
Other interest receivable
and similar income 77 - 77 40 - 40
-------------------------- ------- ------- ------- ------- ------- -------
Gross return 2,772 (1,020) 1,752 1,857 632 2,489
Investment management
fees (334) (334) (668) (286) (286) (572)
Administrative expenses (464) - (464) (452) - (452)
Transaction costs - - - - (22) (22)
-------------------------- ------- ------- ------- ------- ------- -------
Net return/(loss)
before taxation 1,974 (1,354) 620 1,119 324 1,443
Taxation - - - - - -
-------------------------- ------- ------- ------- ------- ------- -------
Net return/(loss)
after taxation 1,974 (1,354) 620 1,119 324 1,443
-------------------------- ------- ------- ------- ------- ------- -------
Return/(loss) per
share 2.32p (1.59)p 0.73p 1.37p 0.40p 1.77p
The "Total" column of this statement is the profit and loss
account of the Company. The "Revenue" and "Capital" columns
represent supplementary information prepared under guidance issued
by The Association of Investment Companies. The Company has no
other items of other comprehensive income, and therefore the net
return after taxation is also the total comprehensive income for
the year.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year (2022: none).
Statement of Changes in Equity
For the year ended 30 June 2023
Year ended 30 June 2023
Called-up
share Share Special Capital Revenue
capital premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2022 853 10,571 72,993 4,373 1,126 89,916
Repurchase of the
Company's own shares
into treasury - - (674) - - (674)
Net (loss)/return
after taxation - - - (1,354) 1,974 620
Dividends paid in
the year - - - - (1,109) (1,109)
-------------------------- --------- ------- ------- -------- -------- -------
At 30 June 2023 853 10,571 72,319 3,019 1,991 88,753
-------------------------- --------- ------- ------- -------- -------- -------
Year ended 30 June
2022
Called-up
share Share Special Capital Revenue
capital premium reserve reserves reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June 2021 750 - 72,993 4,049 435 78,227
Issue of ordinary
shares 103 10,729 - - - 10,832
Share issue costs - (158) - - - (158)
Net return after taxation - - - 324 1,119 1,443
Dividends paid in
the year - - - - (428) (428)
-------------------------- --------- ------- ------- -------- -------- -------
At 30 June 2022 853 10,571 72,993 4,373 1,126 89,916
-------------------------- --------- ------- ------- -------- -------- -------
Statement of Financial Position
at 30 June 2023
30 June 30 June
2023 2022
GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or
loss 64,199 67,000
Investments held at amortised cost 22,583 21,832
------------------------------------------------- ------- -------
86,782 88,832
------------------------------------------------- ------- -------
Current assets
Debtors 401 206
Cash at bank and in hand 2,089 1,310
------------------------------------------------- ------- -------
2,490 1,516
------------------------------------------------- ------- -------
Current liabilities
Creditors: amounts falling due within one year (519) (432)
------------------------------------------------- ------- -------
Net current assets 1,971 1,084
------------------------------------------------- ------- -------
Total assets less current liabilities 88,753 89,916
------------------------------------------------- ------- -------
Net assets 88,753 89,916
------------------------------------------------- ------- -------
Capital and reserves
Called-up share capital 853 853
Share premium 10,571 10,571
Special reserve 72,319 72,993
Capital reserves 3,019 4,373
Revenue reserve 1,991 1,126
------------------------------------------------- ------- -------
Total equity shareholders' funds 88,753 89,916
------------------------------------------------- ------- -------
Net asset value per share 104.90p 105.39p
Cash Flow Statement
For the year ended 30 June 2023
2023 2022
GBP'000 GBP'000
Net cash inflow from operating activities 1,116 873
Investing activities
Purchases of investments (7,833) (31,411)
Sales of investments 9,279 4,516
----------------------------------------------------- -------- ---------
Net cash inflow/(outflow) from investing activities 1,446 (26,895)
----------------------------------------------------- -------- ---------
Net cash inflow/(outflow) before financing 2,562 (26,022)
----------------------------------------------------- -------- ---------
Financing activities
Dividend paid (1,109) (428)
Repurchase of the Company's own shares into treasury (674) -
Issue of Ordinary Shares - 10,832
Share issue costs - (158)
----------------------------------------------------- -------- ---------
Net cash (outflow)/inflow from financing activities (1,783) 10,246
----------------------------------------------------- -------- ---------
Net cash inflow/(outflow) in the year 779 (15,776)
----------------------------------------------------- -------- ---------
Cash at bank and in hand at the beginning of the
year 1,310 17,086
Net cash inflow/(outflow) in the year 779 (15,776)
----------------------------------------------------- -------- ---------
Cash at bank and in hand at the end of the year 2,089 1,310
----------------------------------------------------- -------- ---------
Included in net cash inflow from operating activities are
dividends received amounting to GBP860,000 (year ended 30 June
2022: GBP723,000), income from debt securities amounting to
GBP1,236,000 (year ended 30 June 2022: GBP1,039,000) and other
interest receivable and similar income amounting to GBP70,000 (year
ended 30 June 2022: GBP40,000).
Notes to the Accounts
1. Accounting Policies
(a) Basis of accounting
Schroder BSC Social Impact Trust plc ("the Company") is
registered in England and Wales as a public company limited by
shares. The Company's registered office is 1 London Wall Place,
London EC2Y 5AU.
The accounts are prepared in accordance with the Companies Act
2006, United Kingdom Generally Accepted Accounting Practice ("UK
GAAP"), in particular in accordance with Financial Reporting
Standard (FRS) 102 "The Financial Reporting Standard applicable in
the UK and Republic of Ireland", and with the Statement of
Recommended Practice "Financial Statements of Investment Trust
Companies and Venture Capital Trusts" (the "SORP") issued by the
Association of Investment Companies in July 2022. All of the
Company's operations are of a continuing nature.
The accounts have been prepared on a going concern basis under
the historical cost convention, as modified by the revaluation of
investments held at fair value. The Directors believe that the
Company has adequate resources to continue operating until 31
October 2024, which is at least 12 months from the date of approval
of these accounts. In forming this opinion, the Directors have
taken into consideration: the controls and monitoring processes in
place; the Company's level of debt, undrawn commitments and other
payables; the low level of operating expenses, comprising largely
variable costs which would reduce pro rata in the event of a market
downturn; the Company's cash flow forecasts and the liquidity of
the Company's investments. In forming this opinion, the Directors
have also considered any potential impact of climate change, and
the risk/impact of elevated and sustained inflation and interest
rates on the viability of the Company. The Company has additionally
performed stress tests which confirm that a 50% fall in the market
prices of the portfolio would not affect the Board's conclusions in
respect of going concern. Further details of Directors'
considerations regarding this are given in the Chair's Statement,
Portfolio Managers' Review, Going Concern Statement, Viability
Statement and under the Principal and emerging risks and
uncertainties heading on page 47 of the 2023 Annual Report and
Accounts.
The accounts are presented in sterling and amounts have been
rounded to the nearest thousand.
The accounting policies applied to these accounts are consistent
with those applied in the accounts for the year ended 30 June
2022.
Certain judgements, estimates and assumptions have been required
in valuing the Company's investments and these are detailed in note
19 on page 85 of the 2023 Annual Report and Accounts.
(b) Valuation of investments
The Company's business is investing in financial assets with a
view to profiting from their total return in the form of income and
capital growth. Investments with a fixed coupon and redemption
amount are valued at amortised cost in accordance with FRS 102.
Other financial assets are managed and their performance evaluated
on a fair value basis, in accordance with a documented investment
objective and information is provided internally on that basis to
the Company's Board of Directors. Upon initial recognition these
investments are designated by the Company as "held at fair value
through profit or loss", included initially at cost and
subsequently at fair value using the methodology below. This
valuation process is consistent with International Private Equity
and Venture Capital Guidelines issued in December 2022, which are
intended to set out current best practice on the valuation of
Private Capital investments.
(i) Quoted bid prices for investments traded in active markets.
(ii) The price of a recent investment, where there is considered
to have been no material change in fair value.
(iii) Where it is felt that a milestone has been reached or a
target achieved, the Company may use the price of a recent
investment adjusted to reflect that change.
(iv) Investments in funds may be valued using the NAV per unit
with an appropriate discount or premium applied to arrive at a unit
price.
(v) Price earnings multiples, based on comparable businesses.
(vi) Industry benchmarks, where available.
(vii) Discounted Cash Flow techniques, where reliable estimates of cash flows are available.
The above valuation methodologies are deemed to reflect the
impact of climate change risk on the investments held.
Purchases and sales of quoted investments are accounted for on a
trade date basis. Purchases and sales of unquoted investments are
recognised when the related contract becomes unconditional.
(c) Accounting for reserves
Gains and losses on sales of investments and the management fee
or finance costs allocated to capital, are included in the Income
Statement and dealt with in capital reserves. Increases and
decreases in the valuation of investments held at the year end, are
included in the Income Statement and in capital reserves within
"Investment holding gains and losses".
For shares that are repurchased and held in treasury, the full
cost is charged to the Special reserve.
(d) Income
Dividends receivable are included in revenue on an ex-dividend
basis except where, in the opinion of the Board, the dividend is
capital in nature, in which case it is included in capital.
Income from limited partnerships will be included in revenue on
the income declaration date.
Income from fixed interest debt securities is recognised using
the effective interest method.
Deposit interest outstanding at the year end is calculated and
accrued on a time apportionment basis using market rates of
interest.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses
are allocated wholly to the revenue column of the Income Statement
with the following exceptions:
- The management fee is allocated 50% to revenue and 50% to
capital in line with the Board's expected long-term split of
revenue and capital return from the Company's investment
portfolio.
- Expenses incidental to the purchase of an investment are
charged to capital. These expenses are commonly referred to as
transaction costs and comprise brokerage commission and stamp duty.
Details of transaction costs are given in note 9 (c) on page 83 of
the 2023 Annual Report and Accounts.
The underlying costs incurred by the Company's investments in
collective funds are not included in the various expense
disclosures.
(f) Finance costs
Finance costs, including any premiums payable on settlement or
redemption and direct issue costs, are accounted for on an accruals
basis using the effective interest method and in accordance with
FRS 102.
Finance costs are allocated 50% to revenue and 50% to capital in
line with the Board's expected long-term split of revenue and
capital return from the Company's investment portfolio.
(g) Financial instruments
Cash at bank and in hand may comprise cash, short-term deposits
and highly liquid investments which are readily convertible to a
known amount of cash and are subject to insignificant risk of
changes in value.
Other debtors and creditors do not carry any interest, are
short-term in nature and are accordingly stated at nominal value,
with debtors reduced by appropriate allowances for estimated
irrecoverable amounts.
Bank loans and overdrafts are initially measured at fair value
and subsequently measured at amortised cost. They are recorded at
the proceeds received net of direct issue costs. The Company had no
bank loans or overdrafts at 30 June 2023 (2022: nil).
(h) Taxation
Taxation on ordinary activities comprises amounts expected to be
received or paid.
Tax relief is allocated to expenses charged to the capital
column of the Income Statement on the "marginal basis". On this
basis, if taxable income is capable of being entirely offset by
revenue expenses, then no tax relief is transferred to the capital
column.
As the Company continues to meet the conditions required to
retain its status as an Investment Trust, any capital gains or
losses arising on the revaluation or disposal of investments are
exempt. The Company has no deferred tax asset, recognised or
unrecognised at 30 June 2023 (2022: nil).
(i) Value added tax ("VAT")
Expenses are disclosed inclusive of the related irrecoverable
VAT.
(j) Dividends payable
In accordance with FRS 102, dividends payable are included in
the accounts in the year in which they are paid. Part, or all of
any dividend declared may be designated as an "interest
distribution", calculated in accordance with the investment trust
income streaming rules and paid without deduction of any income
tax.
2. Gains on investments held at fair value through profit or loss
2023 2022
GBP'000 GBP'000
(Losses)/gains on sales of investments based on
historic cost (642) 99
Amounts recognised in investment holding gains in
the previous year in respect of investments sold
in the year 537 12
-------------------------------------------------- ------- -------
(Losses)/gains on sales of investments based on
the carrying value at the previous balance sheet
date (105) 111
Net movement in investment holding (losses)/gains (915) 521
-------------------------------------------------- ------- -------
(Losses)/gains on investments held at fair value
in the current year through profit and loss (1,020) 632
-------------------------------------------------- ------- -------
3. Income from investments
2023 2022
GBP'000 GBP'000
Income from investments:
UK dividends 1,133 752
Overseas dividends 163 20
Interest income from debt securities and other financial
assets 1,399 1,045
--------------------------------------------------------- ------- -------
2,695 1,817
--------------------------------------------------------- ------- -------
Other interest receivable and similar income:
Deposit interest 37 2
Other income 40 38
--------------------------------------------------------- ------- -------
77 40
--------------------------------------------------------- ------- -------
Total income 2,772 1,857
--------------------------------------------------------- ------- -------
4. Investment management fees
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investment management
fees 334 334 668 286 286 572
---------------------- ------- ------- ------- ------- ------- -------
The bases for calculating the investment management fees are set
out in the Report of the Directors on page 54 of the 2023 Annual
Report and Accounts and details of all amounts payable to the
managers are given in note 17 on page 85 of the 2023 Annual Report
and Accounts.
5. Administrative expenses
2023 2022
GBP'000 GBP'000
Other administrative expenses 261 263
Directors' fees(1) 141 137
Auditor's remuneration for the audit of the Company's
annual accounts(2) 62 52
------------------------------------------------------ ------- -------
464 452
------------------------------------------------------ ------- -------
(1) Full details are given in the remuneration report on pages
65 to 66 of the 2023 Annual Report and Accounts
(2) Includes VAT amounting to GBP12,000 (2022: GBP9,000).
6. Taxation
(a) Analysis of tax charge for the year
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Taxation for the - - - - - -
year
---------------- ------- ------- ------- ------- ------- -------
The Company has no corporation tax liability for the year ended
30 June 2023 (2022: nil).
(b) Factors affecting tax charge for the year
2023 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return before
taxation 1,974 (1,354) 620 1,119 324 1,443
----------------------------- ------- ------- ------- ------- ------- -------
Net return before
taxation multiplied
by the Company's applicable
rate of corporation
tax for the year of
20.5% (2022: 19%) 405 (278) 127 213 62 275
Effects of:
Capital gains on
investments - 210 210 - (120) (120)
Tax deductible interest
distribution (405) 68 (337) (213) 54 (159)
Expenses not deductible
for corporation tax
purposes - - - - 4 4
----------------------------- ------- ------- ------- ------- ------- -------
Taxation on ordinary
activities - - - - - -
----------------------------- ------- ------- ------- ------- ------- -------
UK Corporation Tax rate has increased from 19% to 25% with
effect from 1 April 2023.
(c) Deferred taxation
The Company has met the condition to retain its status as an
Investment Trust Company. The Company has no unrecognised deferred
tax asset (2022: nil).
7. Return per share
2023 2022
GBP'000 GBP'000
Revenue return 1,974 1,119
Capital return (1,354) 324
-------------------------------------------------- ---------- ----------
Total return 620 1,443
-------------------------------------------------- ---------- ----------
Weighted average number of shares in issue during
the year 85,132,892 81,387,804
Revenue return per share 2.32p 1.37p
Capital return per share (1.59)p 0.40p
-------------------------------------------------- ---------- ----------
Total return per share 0.73p 1.77p
-------------------------------------------------- ---------- ----------
There are no dilutive instruments, the return per share is
actual return.
8. Dividends
2023 2022
GBP'000 GBP'000
2022 final dividend of 1.30p (2021: 0.57p) paid out
of revenue profits as an interest distribution 1,109 428
----------------------------------------------------- ------- -------
2023 2022
GBP'000 GBP'000
2023 final dividend proposed of 2.30p (2022: 1.30p),
to be paid out of revenue profits 1,946 1,109
----------------------------------------------------- ------- -------
The 2023 final dividend of 2.30p will be split between a 2.16p
interest distribution and a 0.14p equity dividend (2022: 1.30p was
interest distribution).
The proposed final dividend amounting to GBP1,946,000 (2022:
GBP1,109,000) is the amount used for the basis of determining
whether the Company has satisfied the distribution requirements of
Section 1158 of the Corporation Tax Act 2010. The revenue available
for distribution by way of dividend for the year is GBP1,974,000
(2022: GBP1,119,000).
9. Fixed assets
(a) Movement in investments
2023 2022
Investments Investments
held at held at
fair value Investments fair value Investments
through held at through held at
profit amortised profit amortised
or loss cost Total or loss cost Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening book cost 62,267 21,832 84,099 37,169 21,142 58,311
Opening investment
holding gains 4,733 - 4,733 4,200 - 4,200
--------------------- ----------- ----------- -------- ----------- ----------- --------
Opening fair value 67,000 21,832 88,832 41,369 21,142 62,511
Purchases at cost 7,269 980 8,249 31,411 3,195 34,606
Sales proceeds (9,050) (229) (9,279) (6,101) (2,816) (8,917)
(Losses)/gains on
investments held at
fair value through
profit or loss (1,020) - (1,020) 321 311 632
--------------------- ----------- ----------- -------- ----------- ----------- --------
Closing fair value 64,199 22,583 86,782 67,000 21,832 88,832
--------------------- ----------- ----------- -------- ----------- ----------- --------
Closing book cost 59,844 22,583 82,427 62,267 21,832 84,099
Closing investment
holding gains 4,355 - 4,355 4,733 - 4,733
--------------------- ----------- ----------- -------- ----------- ----------- --------
Closing fair value 64,199 22,583 86,782 67,000 21,832 88,832
--------------------- ----------- ----------- -------- ----------- ----------- --------
(b) Unquoted investments, including investments quoted in inactive markets
Material revaluations of unquoted investments during the
year
Opening Closing
valuation valuation
at 30 at 30
June June
2022 Purchases Revaluation Distributions 2023
Investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Bridges Evergreen Capital
LP 14,451 - (1,701) - 12,750
----------------------------- ---------- --------- ----------- ------------- ----------
Man GPM RI Community Housing
1 LP 5,202 2,930 397 (383) 8,146
----------------------------- ---------- --------- ----------- ------------- ----------
UK Affordable Housing Fund 9,848 - 351 - 10,199
----------------------------- ---------- --------- ----------- ------------- ----------
Material revaluations of unquoted investments during the year
ended 30 June 2022
Opening Closing
valuation valuation
at 30 at 30
June June
2021 Purchases Revaluation Distributions 2022
Investment GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Community Investment fund - 4,500 957 - 5,457
-------------------------- ---------- --------- ----------- ------------- ----------
Material disposals of unquoted investments during the year
2023
Book Sales Realised
cost proceeds gain/(loss)
Investment GBP'000 GBP'000 GBP'000
Resonance Real Lettings Property Fund
LP 990 990 -
-------------------------------------- -------- --------- ------------
Material disposals of unquoted investments during the year ended
30 June 2022
2022
Book Sales Realised
cost proceeds gain/(loss)
Investment GBP'000 GBP'000 GBP'000
Man GPM RI Community Housing 1 LP 851 851 -
---------------------------------- -------- --------- ------------
There were no material disposals of unquoted investments during
the year ended 30 June 2022.
(c) Transaction costs
The following transaction costs, comprising stamp duty and legal
fees, were incurred in the year:
2023 2022
GBP'000 GBP'000
On acquisitions - 12
On disposals - -
---------------- -------- --------
- 12
---------------- -------- --------
10. Current assets
2023 2022
Debtors GBP'000 GBP'000
Dividends and interest receivable 382 193
Other debtors 19 13
---------------------------------- -------- --------
401 206
---------------------------------- -------- --------
11. Current liabilities
Creditors: amounts falling due within one year
2023 2022
GBP'000 GBP'000
Other creditors and accruals 519 432
----------------------------- -------- --------
The Directors consider that the carrying amount of creditors
falling due within one year approximates to their fair value.
12. Called-up share capital
2023 2022
GBP'000 GBP'000
Ordinary Shares of 1p each, allotted, called up and
fully paid:
Opening balance of 85,316,586 (2022: 75,000,000)
shares 853 750
Repurchase of 711,720 (2022: nil) shares into treasury (7) -
Placing of nil (2022: 10,316,586) shares - 103
------------------------------------------------------- ------- -------
Subtotal of 84,604,866 (2022: 85,316,586) shares 846 853
711,720 (2022: nil) shares held in treasury 7 -
------------------------------------------------------- ------- -------
Closing balance(1) 853 853
------------------------------------------------------- ------- -------
(1) Represents 85,316,586 (2022: 85,316,586) shares of 1p each,
including 711,720 (2022: nil) held in treasury.
During the year, the Company repurchased 711,720 of its own
shares, nominal value GBP7,117, to hold in treasury, representing
0.83% of the shares outstanding at the beginning of the year. The
total consideration paid for these shares amounted to GBP674,000.
The reason for these purchases was to seek to manage the volatility
of the share price discount to NAV per share.
13. Reserves
Year ended 30 June 2023
Capital reserves
Gains
and losses Investment
on sales holding
Share Special of gains and Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 10,571 72,993 (360) 4,733 1,126
Losses on sales of investments
based on the carrying value
at the previous balance
sheet date - - (105) - -
Net movement in investment
holding losses - - - (915) -
Transfer on disposal of
investments - - (537) 537 -
Repurchase of the Company's
own shares into treasury - (674) - - -
Management fees allocated
to capital - - (334) - -
Dividends paid - - - - (1,109)
Retained revenue for the
year - - - - 1,974
------------------------------- ----------- ----------- --------------- ---------- -----------
Closing balance 10,571 72,319 (1,336) 4,355 1,991
------------------------------- ----------- ----------- --------------- ---------- -----------
Year ended 30 June 2022
Capital reserves
Gains
and losses Investment
on sales holding
Share Special of gains and Revenue
premium(1) reserve(2) investments(3) losses(4) reserve(5)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance - 72,993 (151) 4,200 435
Proceeds of placing 10,729 - - - -
Expenses of placing (158) - - - -
Gains on sales of investments
based on the carrying value
at the previous balance
sheet date - - 111 - -
Net movement in investment
holding gains - - - 521 -
Transfer on disposal of
investments - - (12) 12 -
Management fees allocated
to capital - - (286) - -
Transaction costs - - (22) - -
Dividend paid - - - - (428)
Retained revenue for the
year - - - - 1,119
------------------------------ ----------- ----------- --------------- ---------- -----------
Closing balance 10,571 72,993 (360) 4,733 1,126
------------------------------ ----------- ----------- --------------- ---------- -----------
The Company's Articles of Association permit dividend
distributions out of realised capital profits.
(1) Share premium is a non distributable reserve and represents
the amount by which the fair value of the consideration received
from shares issued exceeds the nominal value of shares issued.
(2) This is a distributable capital reserve arising from the
cancellation of the share premium, and may be distributed as
dividends or used to repurchase the Company's own shares.
(3) This is a realised (distributable) capital reserve and may
be distributed as dividends or used to repurchase the Company's own
shares.
(4) This reserve may include some holding gains on liquid
investments (which may be deemed to be realised) and other amounts
which are unrealised. An analysis has not been made between those
amounts that are realised (and may be distributed as dividends or
used to repurchase the Company's own shares) and those that are
unrealised.
(5) The revenue reserve may be distributed as dividends or used
to repurchase the Company's own shares.
14. Net asset value per share
2023 2022
Net assets attributable to shareholders (GBP'000) 88,753 89,916
Shares in issue at the year end 84,604,866 85,316,586
-------------------------------------------------- ---------- ----------
Net asset value per share 104.90p 105.39p
-------------------------------------------------- ---------- ----------
15. Reconciliation of total return on ordinary activities before
finance costs and taxation to net cash inflow from operating
activities
2023 2022
GBP'000 GBP'000
Total return before taxation 620 1,443
Less capital return before taxation 1,354 (324)
Less accumulation dividends(1) (416) (51)
(Increase)/decrease in prepayments and accrued income (189) 14
(Increase)/decrease in other debtors (6) 1
Increase in other creditors 87 98
Management fee and transaction costs allocated to
capital (334) (308)
------------------------------------------------------ -------- --------
Net cash inflow from operating activities 1,116 873
------------------------------------------------------ -------- --------
(1) Accumulation dividends are capitalised to investments.
16. Uncalled capital commitments
At 30 June 2023, the Company had uncalled capital commitments
amounting to GBP8,749,000 (2022: GBP17,392,000) in respect of
follow-on investments, which may be drawn down or called by
investee entities, subject to standard notice periods.
17. Transactions with the Managers
Under the terms of the Alternative Investment Fund Manager
Agreement, the Manager is entitled to receive a management fee.
Details of the basis of the calculation are given in the Directors'
Report on page 54 of the 2023 Annual Report and Accounts.
The fee payable to the Manager in respect of the year ended 30
June 2023 amounted to GBP614,000 (2022: GBP512,000), of which
GBP307,000 (2022: GBP171,000) was outstanding at the year end. Any
investments in funds managed or advised by the Manager or any of
its associated companies, are excluded from the assets used for the
purpose of the calculation and therefore incur no fee.
Under the terms of the Investment Management Agreement, the
Manager may reclaim from the Company certain expenses paid by the
Manager on behalf of the Company to HSBC in connection with
accounting and administrative services provided to the Company.
These charges amounted to GBP66,000 for the year ended 30 June 2023
(2022: GBP96,000), and the whole of this amount (2022: same) was
outstanding at the year end.
No Director of the Company served as a Director of any company
within the Schroder Group at any time during the year, or prior
period.
In accordance with the terms of a discretionary mandate between
the Company, Big Society Capital Limited and Rathbone Investment
Management Limited is entitled to receive a management fee for
portfolio management services relating to certain of the Company's
investments. Details of the basis of the calculation are given in
the Directors' Report on page 54 of the 2023 Annual Report and
Accounts. The fee payable to Rathbone in respect of the year ended
30 June 2023 amounted to GBP55,000, (2022: GBP61,000) of which
GBP13,000 (2022: GBP14,000) was outstanding at the year end.
18. Related party transactions
Details of the remuneration payable to directors are given in
the Directors' Remuneration Report on page 64 of the 2023 Annual
Report and Accounts and details of Directors' shareholdings are
given in the Directors' Remuneration Report on page 65 of the 2023
Annual Report and Accounts. Details of transactions with the
Managers are given in note 17 above. There have been no other
transactions with related parties during the year or prior
period.
19. Disclosures regarding financial instruments measured at fair value
The Company's financial instruments within the scope of FRS 102
that are held at fair value comprise certain investments held in
its investment portfolio.
FRS 102 requires that financial instruments held at fair value
are categorised into a hierarchy consisting of the three levels
below. A fair value measurement is categorised in its entirety on
the basis of the lowest level input that is significant to the fair
value measurement.
Level 1 - valued using unadjusted quoted prices in active
markets for identical assets.
Level 2 - valued using observable inputs other than quoted
prices included within Level 1.
Level 3 - valued using inputs that are unobservable.
Details of the Company's policy for valuing investments are
given in note 1(b) on page 78 of the 2023 Annual Report and
Accounts . Level 3 investments have been valued in accordance with
note 1(b)(ii) to (vii).
The Company's unlisted investments held at fair value are valued
using a variety of techniques consistent with the recommendations
set out in the International Private Equity and Venture Capital
guidelines. Investments in third-party managed funds were valued by
reference to the most recent net asset value provided by the
relevant manager. The valuation methods adopted by third-party
managers include using comparable company multiples, net asset
values, assessment of comparable company performance and assessment
of milestone achievement at the investee. For certain investments,
such as High Impact Housing, the third-party manager may appoint
external valuers to periodically value the underlying portfolio of
assets. The valuations of third-party managed funds will also be
subject to an annual audit. The valuations of all investments are
considered by the Portfolio Manager and recommended to the AIFM,
who in turn recommends them to the Company. Where it is deemed
appropriate, the Portfolio Manager may recommend an adjusted
valuation to the extent that the adjusted valuation represents the
Portfolio Manager's view of fair value.
At 30 June, the Company's investment held at fair value, were
categorised as follows:
2023 2022
GBP'000 GBP'000
Level 1 9,342 16,847
Level 2 - -
Level 3 54,857 50,153
-------- ------- -------
Total 64,199 67,000
-------- ------- -------
There have been no other transfers between Levels 1, 2 or 3
during the year (2022: nil).
Movements in fair value measurements included in Level 3 during
the year are as follows:
2023 2022
GBP'000 GBP'000
Opening book cost 44,693 26,222
Opening investment holding gains 5,460 4,244
------------------------------------------ ------- -------
Opening fair value of Level 3 investments 50,153 30,466
Purchases at cost 6,957 18,471
Sales proceeds (1,742) -
Net gains on investments (511) 1,216
------------------------------------------ ------- -------
Closing fair value of Level 3 investments 54,857 50,153
------------------------------------------ ------- -------
Closing book cost 49,908 44,693
Closing investment holding gains 4,949 5,460
------------------------------------------ ------- -------
Closing fair value of Level 3 investments 54,857 50,153
------------------------------------------ ------- -------
20. Financial instruments' exposure to risk and risk management policies
The Company's objectives are set out on the inside front cover
of this report. In pursuing these objectives, the Company is
exposed to a variety of financial risks that could result in a
reduction in the Company's net assets or a reduction in the profits
available for dividends.
These financial risks include market risk (comprising interest
rate risk and other price risk), liquidity risk and credit risk.
The Directors' policy for managing these risks is set out below.
The Board coordinates the Company's risk management policy. The
Company has no significant exposure to foreign exchange risk on
monetary items.
The Company's classes of financial instruments may comprise the
following:
- investments in collective funds, listed and unlisted bonds,
shares of quoted and unquoted companies which are held in
accordance with the Company's investment objective;
- debtors, creditors, short-term deposit and cash arising directly from its operations;
- bank loans used for investment purposes; and
- derivatives used for efficient portfolio management or currency hedging.
(a) Market risk
The fair value or future cash flows of a financial instrument
held by the Company may fluctuate because of changes in market
prices. This market risk comprises two elements: interest rate risk
and other price risk. Information to enable an evaluation of the
nature and extent of these two elements of market risk is given in
parts (i) and (ii) of this note, together with sensitivity analyses
where appropriate. The Board reviews and agrees policies for
managing these risks. The Manager assesses the exposure to market
risk when making each investment decision and monitors the overall
level of market risk on the whole of the investment portfolio on an
ongoing basis.
(i) Interest rate risk
Interest rate movements may affect the level of income
receivable on investments carrying a floating interest rate coupon,
cash balances and interest payable on any loans or overdrafts when
interest rates are re-set.
Management of interest rate risk
Liquidity and borrowings are managed with the aim of increasing
returns to shareholders. The Company may borrow from time to time,
but gearing will not exceed 20 per cent of net asset value at the
time of drawing. Gearing is defined as borrowings less cash,
expressed as a percentage of net assets. The Company has arranged
an overdraft facility with HSBC Bank plc but it has not been
utilised during the year or prior year.
Interest rate exposure
The exposure of financial assets and financial liabilities to
floating interest rates, giving cash flow interest rate risk when
rates are re-set, is shown below:
2023 2022
GBP'000 GBP'000
Exposure to floating interest rates:
Investments carrying a floating interest rate coupon 5,603 4,852
Cash at bank and in hand 2,089 1,310
----------------------------------------------------- ------- -------
7,692 6,162
----------------------------------------------------- ------- -------
Sterling cash balances at call earn interest at floating rates
based on the Sterling Overnight Interest Average rates ("SONIA").
The above year end amounts are broadly representative of the
exposure to interest rates during the year and prior year.
Interest rate sensitivity
The following table illustrates the sensitivity of the return
after taxation for the year and net assets to a 0.75% (2022: 0.75%)
increase or decrease in interest rates in regards to the Company's
monetary financial assets and financial liabilities. This level of
change is considered to be a reasonable illustration based on
observation of current market conditions. The sensitivity analysis
is based on the Company's monetary financial instruments held at
the accounting date with all other variables held constant.
2023 2022
0.75% 0.75% 0.75% 0.75%
increase decrease increase decrease
in rate in rate in rate in rate
GBP'000 GBP'000 GBP'000 GBP'000
I ncome statement - return after
taxation
Revenue return 58 (58) 46 (46)
Capital return - - - -
--------------------------------- --------- --------- --------- ---------
Total return after taxation 58 (58) 46 (46)
--------------------------------- --------- --------- --------- ---------
Net assets 58 (58) 46 (46)
--------------------------------- --------- --------- --------- ---------
(ii) Other price risk
Other price risk includes changes in market prices which may
affect the value of investments.
Management of other price risk
The Board meets on at least four occasions each year to consider
the asset allocation of the portfolio and the risk associated with
particular industry sectors. The portfolio management team has
responsibility for monitoring the portfolio, which is selected in
accordance with the Company's investment objective and seeks to
ensure that individual stocks meet an acceptable risk/reward
profile. The Board may authorise the Manager to enter derivative
transactions for the purpose of currency hedging, although
non-sterling exposures are expected to be limited.
Market price risk exposure
The Company's total exposure to changes in market prices at 30
June comprises the following:
2023 2022
GBP'000 GBP'000
Investments held at fair value through profit or
loss 64,199 67,000
------------------------------------------------- ------- -------
T he above data is broadly representative of the exposure to
market price risk during the period.
Concentration of exposure to market price risk
An analysis of the Company's investments is given on pages 34
and 35 of the 2023 Annual Report and Accounts . This shows a
concentration of exposure to the social housing sector in the
United Kingdom.
Market price risk sensitivity
The following table illustrates the sensitivity of the return
after taxation for the period and net assets to an increase or
decrease of 10% in the fair values of the Company's investments.
This level of change is considered to be a reasonable illustration
based on observation of current market conditions. The sensitivity
analysis is based on the Company's exposure to the underlying
investments and includes the impact on the management fee but
assumes that all other variables are held constant.
2023 2022
10% 10% 10% 10%
increase decrease increase decrease
in in in in
fair value fair value fair value fair value
GBP'000 GBP'000 GBP'000 GBP'000
Income statement - return after taxation
Revenue return (26) 26 (27) 27
Capital return 6,394 (6,394) 6,673 (6,673)
----------------------------------------- ---------- ---------- ---------- ----------
Total return after taxation and net
assets 6,368 (6,368) 6,646 (6,646)
----------------------------------------- ---------- ---------- ---------- ----------
Percentage change in net asset value 7.2% (7.2%) 7.4% (7.4%)
(b) Liquidity risk
This is the risk that the Company will encounter difficulty in
meeting its obligations associated with financial liabilities that
are settled by delivering cash or another financial asset.
Management of the risk
The Portfolio Manager monitors the cash position to ensure
sufficient is available to meet the Company's financial
obligations. For this purpose, the Portfolio Manager may retain up
to 20% of net assets in Liquidity Assets, other liquid investments
and a reserve of cash. The Company has also arranged an overdraft
facility with HSBC Bank plc.
Liquidity risk exposure
Contractual maturities of financial liabilities, based on the
earliest date on which payment can be required are as follows:
2023 2022
Three Three
months months
or less Total or less Total
GBP'000 GBP'000 GBP'000 GBP'000
Creditors: amounts falling due
within one year
Other creditors and accruals (519) (519) (432) (432)
------------------------------- -------- -------- -------- --------
(519) (519) (432) (432)
------------------------------- -------- -------- -------- --------
(c) Credit risk
Credit risk is the risk that the failure of the counterparty to
a transaction to discharge its obligations under that transaction
could result in loss to the Company.
Credit risk exposure
The Company is exposed to credit risk principally from debt
securities held, loans and receivables and cash deposits.
Portfolio dealing
The credit ratings of broker counterparties are monitored by the
AIFM and limits are set on exposure to any one broker.
Exposure to the Custodian
The custodian of the Company's assets is HSBC Bank plc which has
long-term Credit Ratings of AA- with Fitch and Aa3 with
Moody's.
Any assets held by the custodian will be held in accounts which
are segregated from the custodian's own trading assets. If the
custodian were to become insolvent, the Company's right of
ownership of those investments is clear and they are therefore
protected. However the Company's cash balances are all deposited
with the custodian as banker and held on the custodian's balance
sheet. Accordingly, in accordance with usual banking practice, the
Company will rank as a general creditor to the custodian in respect
of cash balances.
Exposure to debt securities
The Portfolio Manager's investment process ensures that
potential investments are subject to robust analysis, appropriate
due diligence and approval by an investment committee.
Pre-investment checks are made to prevent breach of the Company's
investment limits, which are designed to ensure a diversified
portfolio to manage risk. Debt securities are subject to continuous
monitoring and quarterly reports are presented to the Board.
Credit risk exposure
The following amounts shown in the Statement of Financial
Position, represent the maximum exposure to credit risk at the year
end:
2023 2022
Balance Maximum Balance Maximum
Sheet exposure Sheet exposure
GBP'000 GBP'000 GBP'000 GBP'000
Fixed assets
Investments held at fair value
through profit 64,199 - 67,000 -
Investments held at amortised
cost (debt securities) 22,583 22,583 21,832 21,832
Current assets
Debtors 401 401 206 206
Cash at bank and in hand 2,089 2,089 1,310 1,310
------------------------------- -------- --------- -------- ---------
89,272 25,073 90,348 23,348
------------------------------- -------- --------- -------- ---------
(d) Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried in the
balance sheet at fair value, or the balance sheet amount is a
reasonable approximation of fair value.
21. Capital management policies and procedures
The Company's capital management objectives are to ensure that
it will be able to continue as a going concern, and to maximise the
income and capital return to its equity shareholders.
The Company's capital structure comprises the following:
2023 2022
GBP'000 GBP'000
Equity
Called-up share capital 853 853
Reserves 87,900 89,063
------------------------ ------- -------
Total equity 88,753 89,916
------------------------ ------- -------
The Board, with the assistance of the Manager, monitors and
reviews the broad structure of the Company's capital on an ongoing
basis. This review will include:
- the possible use of gearing, which will take into account the
Manager's views on the market;
- the potential benefit of repurchasing the Company's own shares
for cancellation or holding in treasury, which will take into
account the share price discount;
- the opportunity for issue of new shares; and
- the amount of dividend to be paid, in excess of that which is required to be distributed.
22. Events after the accounting date that have not been reflected in the financial statements
There have been no events we are aware of since the balance
sheet date which either require changes to be made to the figures
included in the financial statements or to be disclosed by way of
note.
Status of announcement
2022 Financial Information
The figures and financial information for 2022 are extracted
from the published Annual Report and Accounts for the year ended 30
June 2022 and do not constitute the statutory accounts for that
year. The 2022 Annual Report and Accounts have been delivered to
the Registrar of Companies and included the Report of the
Independent Auditors which was unqualified and did not contain a
statement under either section 498(2) or section 498(3) of the
Companies Act 2006.
2023 Financial Information
The figures and financial information for 2023 are extracted
from the Annual Report and Accounts for the year ended 30 June 2023
and do not constitute the statutory accounts for the year. The 2023
Annual Report and Accounts include the Report of the Independent
Auditors which is unqualified and does not contain a statement
under either section 498(2) or section 498(3) of the Companies Act
2006. The 2023 Annual Report and Accounts will be delivered to the
Registrar of Companies in due course.
Neither the contents of the Company's webpages nor the contents
of any website accessible from hyperlinks on the Company's webpages
(or any other website) is incorporated into, or forms part of, this
announcement.
[1] Outcomes for All: Ten Years of Social Outcomes Contracts,
Big Society Capital, June 2022
[2]
https://bigsocietycapital.com/latest/investment-into-uk-social-impact-exceeds-9-billion-despite-economic-gloom/
[3]
https://www.investmentweek.co.uk/opinion/4130808/recession-probablycoming
[4] Institute for Government, 2023
[5] Joseph Rowntree Foundation, 2023
[6] House of Commons Library, Rising Cost of Living in the UK
report, 2023
[7] SBSI Impact Report
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END
FR NKFBKCBDKKKB
(END) Dow Jones Newswires
October 30, 2023 03:00 ET (07:00 GMT)
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