TIDMSBSI
RNS Number : 2141Q
Schroder BSC Social Impact Trust
26 October 2021
REPORT AND ACCOUNTS
Schroder BSC Social Impact Trust plc (the "Company") hereby
submits its Report and Accounts for the period from incorporation
on 24 September 2020 to 30 June 2021, as required by the Financial
Conduct Authority's Disclosure Guidance and Transparency Rule
4.1.
Highlights
-- Strong progress since launch with IPO proceeds fully
committed, ahead of original timetable, into a high-quality and
diversified portfolio.
-- NAV returns of 6.09%, ahead of target, driven primarily by capital gains.
-- Maiden dividend of 0.57p per share, a dividend yield of 0.55%
for the period from IPO to 30 June 2021/1.05% annualised
(ex-dividend date of 28 October 2021).
-- Invested capital already driving positive social outcomes
across the UK, with the Company's investments supporting over a
hundred frontline organisations.
-- Potential for further fundraise in 2021 to invest in an
attractive pipeline of investments, that can deliver high social
impact in the UK alongside sustainable real returns and low
correlation to traditional quoted markets.
The Portfolio Manager will be presenting at a webinar on 9
November 2021 at 11.30 a.m. Shareholders can sign up for the
webinar at: https://registration.duuzra.com/form/SBSIAnnual
The Company's Report and Accounts for the period from
incorporation on 24 September 2020 to 30 June 2021 is also being
published in hard copy format and an electronic copy will shortly
be available to download from the Company's website:
www.schroders.com/sbsi
Please click on the following link to view the document:
http://www.rns-pdf.londonstockexchange.com/rns/2141Q_1-2021-10-25.pdf
The Company has also submitted its Report and Accounts to the
National Storage Mechanism. It will shortly be available for
inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Enquiries:
Gareth Faith
Schroder Investment Management Limited
Tel: 020 7658 5264
Chair's Statement
I am pleased to present the first annual report of Schroder BSC
Social Impact Trust plc ("the Company"), covering the period from
incorporation on 24 September 2020 to 30 June 2021.
Investment opportunity
Despite decades of economic growth, the UK still struggles with
many deep-rooted social issues, including homelessness, uneven
health outcomes, rising income inequality and unequal life
opportunities. The global pandemic has highlighted the extent of
many of these problems as well as creating a number of new societal
challenges. The pandemic has also placed further pressure on
Government finances at a time when funding in many areas of health
and social care had already been drastically reduced over recent
years. An increasing number of private and charitable impact-driven
organisations are developing investable solutions to these
challenges. However, they often lack access to capital to reach
more people and improve and increase their impact.
The Company was created to help address this funding gap and
builds on Big Society Capital's track record of delivering
sustainable financial returns, while having a positive impact on
the lives of vulnerable and disadvantaged people across the UK. Big
Society Capital (the "Portfolio Manager") manages the Company's
portfolio, and Schroders (the "Manager") serves as the AIFM
(Alternative Investment Fund Manager, as defined by the Alternative
Fund Management Directive), bringing extensive experience as the
manager of a large stable of investment trusts, including those
investing in private markets. It is a powerful partnership and the
Board is confident it can deliver the unique combination of
financial and social returns expected by our shareholders.
The Company targets investments in high-need areas aligned to
the United Nations Sustainable Development Goals ("SDGs"), such as
housing, health and social care. It is our strong belief that
understanding and measuring impact can enhance accountability and
facilitate more informed decisions about balancing financial and
social goals, thus reducing risk and creating long-term value for
investors.
Progress since IPO
At the time of the Company's initial public offering ("IPO") and
listing on the premium segment of the London Stock Exchange on 22
December 2020, the Company raised GBP75 million. The Portfolio
Manager has made strong progress since launch and committed all IPO
proceeds ahead of the originally envisaged 12-month period into
high quality assets. As at 30 June 2021 the Company had deployed
66% of its IPO proceeds into 23 investments, supporting over 100
front-line organisations across three broad sectors: High Impact
Housing, Debt for Social Enterprises, and Social Outcomes
Contracts. The remaining commitments are expected to be called over
the coming months with Liquid ESG funds being used to avoid
short-term cash drag to investors.
More details on these initial investments including a
description of how they are defined can be found in the Portfolio
Manager's Report.
Financial performance
The Company has delivered strong shareholder returns since
launch. The Company's NAV produced a positive total return of 6.1%
in the period, ahead of the performance target of CPI +2%, with
returns primarily driven by capital growth. It is also pleasing
that the Company's share price has risen since launch with a
positive total return of 3.5% to 103.50p per share as at 30 June
2021, which we believe reflects the high level of investor interest
in the Company's unique investment strategy.
A more detailed analysis of performance may be found in the
Portfolio Manager's Report.
Social impact performance
One of our commitments at the time of the IPO was to provide an
easily accessible and informative map to bring to life the
"on-the-ground" work done by our investees in towns and cities
across the UK. I would like to draw readers' attention to the
Portfolio section of the Company's webpage where this map can be
found. The interactive map tracks the Company's underlying
investments by region, outcome area, asset class and the SDG to
which it contributes. Place-based impact investment is a growing
trend and we are pleased that your Company's investments are
facilitating beneficial change through engagement with local
communities across the country.
To ensure that impact considerations are purposefully integrated
throughout the investment life cycle, Big Society Capital follows
the Operating Principles for Impact Management (the "Principles").
The intention of the Principles is to provide a framework that
brings greater discipline and transparency around impact management
practices to the impact investing market. Big Society Capital has
been a signatory to the Principles since March 2020. Big Society
Capital's alignment against the Principles is documented and
independently verified in its disclosure and verification
statement.
Many investors use the SDGs as a framework to guide their impact
investing, and as stated above, the Company maps all investments to
the SDGs. The SDGs are a "blueprint to achieve a better and more
sustainable future for all." The UN describes them as a "call for
action" to "promote prosperity while protecting the planet." They
were adopted by all UN Member States in 2015 as part of the 2030
Agenda for Sustainable Development to address global
challenges.
Additionally, Schroders and Big Society Capital also endorse and
adopt the work of the Impact Management Project, an initiative
supported by various standard setting organisations, such as the
International Finance Corporation and United Nations Development
Programme, which proposes frameworks for measuring and managing
impact as well as aligning investments to impact objectives. Big
Society Capital, as one of the UK's leading impact investors, has
been an advisor to the Impact Management Project since inception,
and was involved in the development of its approach. We think it is
a great advantage that our Portfolio Manager is able to bring this
extensive expertise to its sourcing of opportunities, support for
investees and monitoring of impact across the Company's
holdings.
More details on the positive social impact created by the
Company since launch can be found in the Impact Report on pages 15
to 25 in the Report and Accounts.
Promotion and premium/discount management
The Company has shareholder authority to issue shares under the
prospectus. That authority will expire at the Annual General
Meeting ("AGM") to be held on 3 December 2021 and it is the
Company's intention to issue new ordinary shares following the
strong growth in NAV.
At the Company's AGM, resolutions to authorise the Board to
issue up to 10% of the issued share capital on a non-pre-emptive
basis, and a proposal for authority to purchase up to 14.99% of the
Company's issued share capital, will be put forward. Any shares so
purchased may be cancelled or held in treasury for potential
reissue.
Dividend
The Company will seek to use the investment trust interest
streaming regime which enables an investment trust which receives
"qualifying interest income" to treat the whole or part of a
dividend distribution as an interest distribution. The effect of
streaming is to move the point of taxation in respect of the
Company's qualifying interest income, from the Company to its
investors. For UK income taxpayers it will be taxed as interest
received on the date the distributions were made. The potential
benefit of splitting the dividend between a normal equity dividend
and a streamed interest payment is for investors who are not liable
to taxation.
The Board has considered the amount available to distribute to
investors and has declared that the Company will pay out
substantially all income as a dividend, resulting in a dividend of
0.57p per share, payable to shareholders on the Company's share
register as at 29 October 2021. This is consistent with the target
dividend communicated to investors at IPO. All of this dividend
payment should be treated by shareholders as an interest
distribution.
AGM
The AGM will be held on Friday, 3 December 2021 at 12.00 noon at
the Company's registered office. Shareholders are encouraged to
cast their votes by proxy.
The Portfolio Manager will be presenting at a webinar on 9
November 2021 at 11.30 a.m., to give shareholders the opportunity
to hear from them, and to ask questions. Shareholders are
encouraged to sign up using this link:
https://registration.duuzra.com/form/SBSIAnnual
In addition, the Board would like shareholders to get in touch
via the Company Secretary with any questions or comments, so that
the Board can answer them in advance of the AGM. The Board will be
providing answers to commonly asked questions on the Company's
webpage, as well as the answers to questions received from
shareholders before the AGM. To email, please use:
amcompanysecretary@schroders.com or write to us at the Company's
registered office address: Company Secretary, Schroder BSC Social
Impact Trust plc, 1 London Wall Place, London, EC2Y 5AU.
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 webpage:
https://www.schroders.com/en/uk/private-investor/fund-centre/funds-in-focus/investment-trusts/schroders-investment-trusts/never-miss-an-update/
Outlook
The Board is pleased with the initial progress made by the
Company in deploying IPO proceeds and delivering against its
investment objectives. The investments made have already started to
impact lives positively and this impact should continue to grow
over time as the Company deploys further capital.
Looking forward, the funding gap of capital required to address
a broad range of societal challenges seems certain to grow, and at
the same time, new sustainable and creative solutions and
enterprises are being developed. Therefore, we are confident that
the pipeline of opportunities for the Company to invest in will
remain robust. Our focus will continue to be on our core areas of
social housing, debt for social enterprises and social outcomes
contracts, but the Company will continue to utilise the Portfolio
Manager's expertise and deep networks in identifying potentially
new areas for investment.
It is the intention of the Company to continue to grow in time
in order to increase the magnitude of its impact, increase
liquidity in its shares, and bring down ongoing costs for
shareholders. The Company will continue to consult with its
shareholders on its growth plans and will update the market on
future fundraising plans in due course.
Susannah Nicklin
Chair
25 October 2021
Portfolio Manager's Report
Market developments
The social issues we set out to address with the Company are as
pressing as ever. Although the economic recovery from COVID-19 is
under way, the pandemic has exacerbated the underlying structural
challenges of UK society. Since the start of the pandemic, people
in the lowest pay quintile are more than twice as likely as those
in the highest to have lost their job, been furloughed or had hours
and pay reduced. NHS waiting lists recently reached 4.7 million
people, a 14-year high. At the end of 2020, over 95,000 UK
households, including over 121,000 children, were living in
temporary accommodation; double the number ten years ago.
Social impact investment, and the areas that we focus on
specifically for the Company's portfolio, are one part of the
solution to such growing challenges. While we are aware that social
impact investment is not a universal solution for social
challenges, we are encouraged to see an increasing number of
organisations developing investable models that provide successful
solutions. There is an expanding universe of opportunities for the
Company to make successful investments with a deep impact.
The global impact investing market is made up of diverse
investments across a range of asset classes, in both private and
publicly listed markets. When the Company was launched, the Global
Impact Investing Network had estimated the value of this market at
US$715bn.
The Company is exclusively focused on the social impact
investment segment in the UK. Over the last decade, this segment
has grown significantly, with an annual growth rate of 25 per cent
since 2011, the year before Big Society Capital was established.
Big Society Capital estimates the total market size has grown from
GBP5.1bn in 2019 to GBP6.4bn in 2020, an increase of 26% over the
year. In late 2020, we estimated, based on underlying market demand
and current growth rates, the investable high-impact segment of the
UK market would be approximately GBP10 to GBP15bn by 2025. From
what we have seen so far in 2021, we are confident that this
forecast is on track. New funds have come to market and existing
ones have raised further capital, because of the coming together of
investor demand and an increasing opportunity set of investable
high impact enterprises tackling issues such as housing, health
& social care and education.
The positive market developments have enabled us to commit the
Company's initial capital ahead of schedule to high quality
holdings which meet our financial return and impact targets.
Performance update
We are pleased with the progress our portfolio has made since
launching the Company in December 2020, with overall performance
ahead of plan.
This section outlines the financial performance of the Company,
taking into account the period of operation since IPO. In the next
set of financial statements, with a full year of performance, we
intend to publish a broader set of key performance indicators.
Total return to 30 June 2021 was ahead of expectations, with a
total return since IPO of 6.1%. Gains on investments in the period
were driven primarily by strong performance in Bridges Evergreen
Holdings. This fund comprised part of the seed portfolio purchased
from Big Society Capital and benefited from the strong performance
of earlier investments, in particular AgilityEco, tackling fuel
poverty and New Reflexions, providing children's services. Other
assets in the portfolio performed in line with forecasts. Overall,
the Company's Net Asset Value rose from GBP73.7m at IPO to GBP78.2m
at the period end, or 104.3p per share as set out in the NAV bridge
below. This represents an increase in NAV of 6.1% since IPO and
4.4% since the last reported NAV as of 31 December 2020.
The portfolio proved resilient during the period, with income
from investments stable and increasing in some cases with
additional demand for services, despite significant uncertainty
created by the ongoing pandemic. The investments targeted by the
Company have remained resilient throughout the last 18 months,
demonstrating the value of its diversification and revenue streams,
with low correlation to economic cycles and mainstream markets. We
established the Company with a substantial seed portfolio to help
drive initial performance, and it is the seed portfolio assets
later in their investment cycle that have driven positive
performance in the period.
Importantly, we were able to source and deploy capital into
highly attractive investment opportunities that meet our high bar
of impact and our target returns more quickly than expected. We
committed substantially all the initial capital raised by the end
of June 2021, faster than the original 12-month commitment
timetable. Two thirds of the net proceeds of the initial public
offering had been invested by the end of the reporting period.
At the time of publication of the Annual Report, the net IPO
proceeds are fully committed, following the signing of a GBP2m
secured loan to Abbeyfield York Society, a charity for older people
providing housing that enhances quality of life. The loan is a
co-investment with Charity Bank and is part of the Debt for Social
Enterprises asset class.
Portfolio allocation
In the period from IPO to 30 June 2021, the Company recorded
gross revenue return of GBP0.8m and net revenue after fees, costs
and expenses of GBP0.44m, a net revenue return per share of 0.58
pence. The Company also recorded gains on the fair value of
investments of GBP4.2m, resulting in a total gross return of
GBP5.0m, and total net return of GBP4.5m, or 5.98 pence per
share.
The Company will pay out a dividend of 0.57p per share, or
dividend yield of 0.55% for the period from IPO to 30 June
2021/1.05% annualised. This is in line with the guidance in the IPO
prospectus of an expected dividend yield in the region of 1-2%
p.a.
One of our key aims is for the Company to provide investors with
a diversified mix of high-impact assets, that have a low
correlation to traditional quoted financial markets. We achieve
this in part by backing business models that are underpinned by
government expenditure that does not fluctuate in line with
economic cycles. At the end of the period, 79% of the committed
portfolio is underpinned by government backed revenue streams.
These revenue streams are themselves diversified across policy
areas, such as housing, clean energy and energy 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 (e.g. housing or other benefits). We target areas
with a track record of delivering impact for more disadvantaged
groups and generating savings for the public purse which provide
additional revenue resilience.
Our target is to provide a Net Asset Value total return of CPI
plus 2% per annum, once the portfolio is fully invested and
averaged over a rolling three- to five-year period, net of fees. We
target a significant degree of inflation linkage (such as leases
indexed to CPI) and correlation (such as government payments that
have historically moved with inflation) in the revenues that
underpin returns.
We have also made good progress with our approach to measuring
and managing social impact. This is an essential part of how we
manage the portfolio, and we are committed to continuous
development of this process and to bringing the impact of our
investments to life for our shareholders. Please see the dedicated
Impact section on pages 15 to 25 of the Report and Accounts for
further detail.
Portfolio developments
The Company invests primarily in three asset classes that were
selected to give a diversified set of opportunities with low
correlation, both with one another and with mainstream financial
markets. We have been pleased to see positive developments across
all three in the period.
Asset Class: Debt for Social Enterprises
Many impact-led social enterprises need capital so they can grow
and increase their impact, as well as to satisfy their existing
working capital requirements. The Company's portfolio is designed
to include a diversified set of debt products, including
asset-backed lending, mezzanine debt (including some equity) and
charity bonds. The underlying charities and social enterprises
deliver interventions which often support the most disadvantaged or
vulnerable members of society, in areas such as health and social
care, which benefit from government backed revenue streams.
As of 30 June 2021, the Company had committed GBP33m to
investments in this asset class (45% of net IPO proceeds); the
current value of investments in this asset class is GBP36m (45% of
NAV).
Initial Seed Portfolio Review
The existing social enterprise debt investments have contributed
well to the Company's overall performance in the period.
Evergreen Holdings , run by Bridges Fund Management is a GBP50m+
long-term capital vehicle that makes subordinated debt, mezzanine
and equity investments into mission-led businesses. The fund
targets a 5% yield alongside capital growth. Total return in the
period was particularly strong driven to a large degree by strong
earnings growth at AgilityEco, a leading provider of fuel poverty,
energy efficiency and low carbon services across the UK. New
Reflexions, a leading provider of residential care to children with
complex needs, also had strong trading performance and contributed
to the overall valuation uplift. The Evergreen team made one new
investment, into learning and skills provider Skills Training UK.
It works with funding partners in central and local Government to
offer a diversified range of apprenticeships, traineeships, adult
skills and employability courses that support 16-24 year-olds and
adult learners, many of whom are from disadvantaged
communities.
The Charity Bond Portfolio managed by Rathbones supports larger
UK charities seeking to raise significant amounts of capital via
the public and private bond markets, providing an alternative
source of funding to bank finance. The portfolio is invested in
nine bonds (both listed and unlisted) issued by charities and
social enterprises. The total portfolio value is GBP15m, which has
been fully committed and drawn, delivering an annualised yield of
4.5%. Bond issuers have repaid capital and interest in line with
schedule and no defaults have been reported.
The Company holds three secured loans within the Charity Bank
Co-investment Portfolio, totalling GBP5.1m. The portfolio is fully
committed and 75% drawn. Working with Charity Bank, the portfolio
supports housing and care related investments in Sue Ryder,
Abbeyfield South Downs and Uxbridge. Overall, the three facilities
are performing well, with no material change in credit quality,
provisioning, security or repayment profile. The facilities are
secured with low loans to value and floating interest rates with a
current annualised yield of 2.4%.
New investments since IPO
Shortly after the IPO, in December 2020, the Company made a
GBP2.5m investment in the inaugural private bond issue by Triodos
Bank UK Ltd, a leading lender to sustainability and social impact
focused organisations. This includes social housing, healthcare,
education, renewable energy, arts and culture, and community
projects. The bond issue enables Triodos Bank to continue to grow
its loan book and contribute to the resilience and growth of
charities and social enterprises. The bond has a ten-year duration,
callable by Triodos Bank at year five. It pays a fixed 4% coupon,
which will reset to base rate +3.9% at year five, if not
called.
Asset Class: High Impact Housing
The portfolio is invested in affordable and social housing,
which is intended to address the housing needs of a wide spectrum
of people, who are often those on the lowest incomes and the most
vulnerable. We invest across a range of asset types, from long-term
inflation-linked lease contracts with high-quality counterparties
to shorter leases to address specific issues, such as homelessness
or the housing needs of survivors of domestic abuse. Counterparties
include Registered Providers of social housing (such as housing
associations) and charities with long-standing track records, deep
expertise in addressing specific issues, and strong local
relationships with authorities and beneficiaries.
In addressing these needs, we seek to deliver returns that are
often supported by the government-backed and inflation-linked
housing benefit system. This has led to a lower historical
correlation to mainstream markets and insulation from the sharper
price movements in the private housing market.
As of 30 June 2021, the Company had committed GBP30m to
investments in this asset class (41% of net IPO proceeds), of which
GBP13m has been invested (17% of NAV).
Initial Seed Portfolio Review
The high-impact housing investments in the portfolio have
continued to deliver in line with our strategy.
The UK Affordable Housing Fund raised GBP244m at launch in 2018.
Its objective is to deliver a positive social impact by
contributing to the supply of sustainable and affordable homes for
people unable to purchase or rent in the open market. The fund
achieves this by providing equity financing for Registered
Providers, where the assets are owned by the fund and managed for
the long term by the Registered Provider through leases of 10 to 25
years. The fund has invested or committed GBP210m (86% of its
initial capital commitments) and raised a further GBP137m in the
first half of 2021, bringing total client commitments to GBP381m.
This reflects the strong performance so far and the robust pipeline
of opportunities that the manager has identified. The fund aims to
produce a total return greater than 6% (with an annual target
income distribution yield of 4% from income producing assets) net
of all costs over the long term.
The Real Lettings Property Fund, managed by Resonance, is a
GBP57m fund operated in partnership with leading homelessness
charity St Mungo's. It provides homes for people in temporary
accommodation or at risk of homelessness by purchasing ordinary
homes and leasing them to St Mungo's. In doing so, the fund helps
people to be more independent. The fund is fully invested and at
the end of the reporting period had housed 971 tenants (including
515 children) to date, in 259 properties. Quarterly profit grew
during the period, largely due to an increase in Local Housing
Authority rates from 1 April. The fund continues to generate a cash
yield of 3% and a life to date net internal rate of return ("IRR")
of 5%, in line with its financial projections.
New investments since IPO
We committed GBP5m to the Man GPM RI Community Housing Fund,
which is addressing the UK's housing crisis through the provision
of new affordable housing. The fund aims to deliver 3,500 new homes
in mixed-tenure communities, predominantly leased to UK councils
and housing associations, and seeks to achieve returns driven by
long-term, inflation-linked income streams. The fund is targeting
8-10% net IRR with a stabilised yield of 6% from income producing
assets.
We also made a follow-on commitment of GBP5m to the Social and
Sustainable Housing LP (SASH), following the first GBP5m commitment
acquired through the initial portfolio in December 2020. SASH
provides investment to high-performing social sector organisations
with local knowledge and networks, and a strong track record of
managing transitional supported housing for vulnerable individuals.
They may include survivors of domestic violence, children leaving
the care system, ex-offenders, asylum seekers, people with complex
mental health issues and people with addiction issues. SASH makes
flexible secured loans which participate in changes in property
prices and rental incomes - generated from government-backed rental
payments with a target net IRR of 6%.
In addition to these investments, a key development in the
period was our publication of two reports from the initiative we
are leading with social advisory firm The Good Economy Partnership.
The initiative aims to establish new consistent and transparent
impact management norms in UK affordable housing investment and
build greater ability to assess and compare impact performance and
understand impact risk.
Asset Class: Social Outcomes Contracts
Social outcomes contracts aim to help the government achieve
better life outcomes for vulnerable people and better value for
public funds. They are public sector contracts designed to overcome
challenges in the way that public services have traditionally been
managed. The providers of these services are being paid for
achieving specified outcomes rather than prescribed inputs, using
investment to cover the upfront costs incurred to deliver the
service, which ultimately produces the desired social outcomes. We
look to invest in a pool of outcomes contracts that is diversified
across central and local government commissioners and different
policy areas.
As of 30 June 2021, the Company had committed GBP8m to
investments in this asset class (11% of net IPO proceeds), of which
GBP3m has been invested (4% of NAV).
Initial Seed Portfolio Review
There is one fund holding in the portfolio and there were no new
fund investments in the period. Significant future growth in the
social outcomes contract market will be determined by central
government spending decisions that we expect to be made in late
2021. We will assess the potential for further investments once
that position is clear.
The GBP35m Social Outcomes Fund II managed by Bridges Fund
Management invests in social outcomes contracts, receiving payments
when outcomes are delivered and thereby ensuring that payment is
completely aligned with measurable improvements in the lives of
participants.
The fund is 50% committed, with three out of nine of the
underlying contracts being written up in value in the period. These
contracts have already supported over 6,000 individuals with
complex needs. The fund has a good pipeline of social outcome
contract investments, is currently ahead of plan on the delivery of
social outcomes and on track to deliver its target IRR of 6%, net
of all costs.
Asset Class: Liquid ESG Investments
The Company includes a Liquid ESG allocation of up to 20% of net
assets, which can be invested in bond funds, real estate investment
trusts, infrastructure trusts and other liquid investments that
align with the Company's liquidity requirements, meet high ESG
requirements and are compliant with the Company's investment
policy. As at 30 June 2021, we had invested a total GBP11.0m in
four funds, detailed in the table below.
Liquid ESG Investments Invested
GBP'000
Edentree Responsible and Sustainable
Sterling Bond Fund 1,993
Rathbone Ethical Bond Fund 2,099
Threadneedle UK Social Bond Fund 3,186
Twenty Four Sustainable Short
Term
Bond Income (Vontobel Fund) 3,625
-------------------------------------- ---------
Total Liquid ESG Investments 10,903
-------------------------------------- ---------
Liquid ESG investments sit within a broader set of tools to
manage Company cash and commitment levels, with the central
objective of contributing to the Company's target returns and
impact goals by minimising the amount of unproductive cash held
prior to deployment.
The initial priority for Liquid ESG investments over 2020-22 is
to mitigate cash drag during the Company's ramp up phase, by
reaching a full 20% allocation to high-quality investments.
Following this we expect the Liquid ESG allocation will be
dependent on the Company's liquidity needs and commitment levels.
The Company does not charge management fees on allocations to
Liquid ESG investments or cash.
Covid-19's impact on portfolio
The Company's portfolio has shown its structural resilience
during the pandemic, with revenue stable and increasing in some
areas with increased demand. The Company's investments are helping
to tackle significant social issues across the UK, with a
substantial proportion of revenues (79%) coming from government
sources. The pandemic has exacerbated many social issues and
providing solutions has become a political priority. An example was
the Everyone In initiative in the early stages of the pandemic,
which was designed to help protect rough sleepers from Covid and
was supported by emergency government funding. More generally, we
have seen revenues increase in response to greater social needs,
such as addressing homelessness and domestic violence.
The portfolio's underlying fund managers have actively supported
their portfolio companies and worked with regulators and industry
bodies to support their resilience in extraordinary times. In
particular in the social outcomes contract segment, BSC worked with
Bridges and commissioners to convert outcomes contracts to payment
on the basis of fee for service, during a period when certain
face-to-face services could not be delivered or were being
transitioned to remote delivery. This ensured that services for
vulnerable beneficiaries could continue at a time when they were
most needed, while the organisations delivering those services
continued to be paid for their delivery and for adapting their
model to a remote setting.
In high-impact housing, revenues for the majority of our
portfolio companies are government backed and demand for
high-impact housing has remained elevated during the pandemic with
stable rents. This contrasts to private rental and commercial real
estate, which have experienced high volumes of voids, arrears and
rent defaults. The Company's high-impact housing investments are
diversified across affordable and social housing for key workers,
social rent and homes for vulnerable people, such as asylum
seekers, homeless people and women experiencing domestic
violence.
Outlook
Looking ahead to 2022, we see continued strong potential. The
social impact of the COVID-19 pandemic will take much longer to
address than the immediate economic impact of the lockdown
measures. The UK government faces a tight fiscal situation, with
the Institute for Fiscal Studies saying in July that "the
Chancellor is likely to have very little room for manoeuvre in his
forthcoming Spending Review". We believe that this fiscal position
will make social impact investments a continued important part of
the solution, allowing the government to leverage outside capital
and deliver services that can create government savings alongside
significant social impact.
In addition, wider markets have been affected this year by the
increased uncertainty over the future path of inflation. We expect
this will make the inflation-linked or inflation-correlated aspect
of our approach an even more valuable part of investor portfolios
in the coming period.
Within this overall picture of a dynamic and growing market, the
Company will remain focused on three specific areas, discussed in
detail in this report. These are debt for social enterprises,
high-impact housing and social outcomes contracts.
These three asset classes were selected to give a diversified
set of opportunities that have low correlation, both with one
another and with mainstream financial markets. BSC has been
investing across these three asset classes since we launched in
2012. There are established models and managers with a track record
of delivering high social impact alongside a financial return,
whilst also being areas with significant opportunity for future
investment. They are also investment areas which are generally
inaccessible or present liquidity challenges for most investors. We
have an ambition to raise further capital in order to put it to
work in these areas, allowing the Company to expand the resources
available to organisations dedicated to improving people's lives in
our society and also to serve as a partner in facilitating further
growth of the impact investment ecosystem.
Strategic Report
Principal risks and uncertainties
The Board 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 regular, robust review. The
last review was completed in October 2021.
Although the Board believes that it has a robust framework of
internal controls 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.
Risk Mitigation and management
Strategic risks
The Company's investment objectives The appropriateness of the Company's
may become out of line with the investment remit is regularly
requirements of investors, or reviewed and the success of the
the Company's investment strategy Company in meeting its stated
might not lead to the Company objectives is monitored.
achieving its investment objective
resulting in the Company being The share price relative to NAV
subscale and shares trading at per share is monitored and the
a discount. Board has undertaken a capital
reduction to facilitate a buy-back
programme should this be required.
If in the two-year period ending The Portfolio Manager has extensive
on 31 December 2023, and in any experience and a track record
two-year period following such in accurately timing the exits
date, the Ordinary Shares have of private equity investments.
traded, on average, at a discount The Board will regularly monitor
in excess of 10 per cent. to the position to ensure that any
Net Asset Value per Share, the alternative proposals to be made
Directors will propose an ordinary to shareholders are put forward
resolution at the Company's next at an appropriate time.
annual general meeting that the
Company continues its business If the Continuation Resolution
as presently constituted (the is not passed, the Directors
"Continuation Resolution"). will put forward proposals for
the reconstruction or reorganisation
It could take several years until of the Company, bearing in mind
all of the Company's private the liquidity of the Company's
equity investments are disposed Investments, as soon as reasonably
of and any final distribution practicable following the date
of proceeds made to shareholders. 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 The Portfolio Manager has extensive
impact of investee companies experience in selecting private
social impact investments and
has a robust investment process
to ensure that the anticipated
positive impact of investee companies
is realistic and achievable.
Liquidity risk
Liquidity risks include those Concentration limits are imposed
risks resulting from holding on single investments to minimise
private equity investments as the size of positions.
well as not being able to participate
in follow-on fundraises through The Portfolio Manager can sell
lack of available capital which Liquid ESG Investments to meet
could result in dilution of an investment commitments and capital
investment. calls. The Portfolio Manager
will monitor and manage cash
Risks relating to investment flows and expected capital calls.
commitments and capital 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 Contracts with investee companies
generally less liquid and more are drafted to include obligations
difficult to value than publicly to provide information to the
traded companies. A lack of open Portfolio Manager in a timely
market data and reliance on investee manner, where possible.
company projections may also
make it more difficult to estimate The Portfolio Manager and AIFM
fair value on a timely basis. have 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 Experienced third party service
providers is at risk of cyber providers are employed by the
attack, data theft or disruption Company under appropriate terms
to their infrastructure which and conditions and with agreed
could have an effect on the services service level specifications.
they provide to the Company.
These risks could lead to reputational The Board receives regular reports
damage or the risk or loss control from its service providers and
of sensitive information leading the Management Engagement Committee
to a potential breach of data will review the performance of
protection law. key service providers at least
annually.
The Audit and Risk Committee
reviews reports on the external
audits of the internal controls
operated by certain of the key
service providers.
Emerging risks and uncertainties
In October 2021, the Board also discussed and monitored a number
of risks that could potentially impact the Company's ability to
meet its strategic objectives. These were political risk, climate
change risk and COVID-19-related risks. The Board has determined
they are not currently material for the Company. The Board receives
updates from the Manager, Portfolio Manager, Company Secretary and
other service providers on other potential risks that could affect
the Company.
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 67 to 70 of the 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 2021 and the potential impact of the principal and emerging
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 as required by COVID-19.
The Board believes that a period of five years reflects a
suitable time horizon for strategic planning, taking into account
the investment policy, liquidity of investments, potential impact
of economic cycles, nature of operating costs, dividends and
availability of funding. In its assessment of the viability of the
Company, the Directors have considered each of the Company's
principal and emerging risks and uncertainties detailed on pages 32
and 33 of the Report and Accounts and in particular the impact of a
significant fall in regional equity markets on the value of the
Company's investment portfolio.
The Directors have also considered the Company's liquid
investments, the Company's cash balances and the forecast income
and expenditure flows 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 Directors have also considered the continuation vote
which the Company is required to put to shareholders if, in the
two-year period ending on 31 December 2023, and in any two-year
period following such date, the ordinary shares have traded, on
average, at a discount in excess of 10 per cent. to net asset value
per share. The Company has not traded at a discount of this level
since launch in December 2020 and the Directors therefore currently
do not believe this affects the viability of the Company over a
five year horizon. Based on the Company's processes for monitoring
operating costs, the Board's view that both the Manager and
Portfolio Manager have the appropriate depth and quality of
resource to achieve superior returns in the longer term, the
portfolio risk profile, limits imposed on gearing, counterparty
exposure, liquidity risk and financial controls, the 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 25 October 2021 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
25 October
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;
- notify the Company's shareholders in writing about the use of
disclosure exemptions in FRS 102 used in the preparation of the
financial statements; 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 Manager is responsible for the maintenance and integrity of
the webpage dedicated to the Company. Legislation in the United
Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed on
pages 35 and 36 of the 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 Strategic Report contained in the report and accounts
includes a fair review of the development and performance of the
business and the 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
25 October 2021
Income Statement
For the period from the date of incorporation on 24 September
2020, to 30 June 2021
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Gains on investments held
at fair value through
profit or loss - 4,200 4,200
Income from investments 775 - 775
Other interest receivable
and similar income 5 - 5
----------------------------- -------- -------- --------
Gross return 780 4,200 4,980
Investment management
fees (121) (121) (242)
Administrative expenses (224) - (224)
Transaction costs - (30) (30)
----------------------------- -------- -------- --------
Net return before taxation 435 4,049 4,484
Taxation - - -
---------------------------- -------- -------- --------
Net return after taxation 435 4,049 4,484
----------------------------- -------- -------- --------
Return per share 0.58p 5.40p 5.98p
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 period.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the period.
Statement of Changes in Equity
For the period from the date of incorporation on 24 September
2020, to 30 June 2021
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
Issue of Management
Shares 50 - - - - 50
Redemption of Management
Shares (50) - - - - (50)
Issue of Ordinary
Shares 750 74,250 - - - 75,000
Share issue costs - (1,229) (28) - - (1,257)
Cancellation of
share premium - (73,021) 73,021 - - -
Net return after
taxation - - - 4,049 435 4,484
-------------------------- ---------- ---------- -------- --------- -------- --------
At 30 June 2021 750 - 72,993 4,049 435 78,227
-------------------------- ---------- ---------- -------- --------- -------- --------
Statement of Financial Position
at 30 June 2021
2021
GBP'000
Fixed assets
Investments held at fair value through profit
or loss 41,369
Investments held at amortised cost 21,142
------------------------------------------------ --------
62,511
Current assets
Debtors 221
Cash at bank and in hand 17,086
------------------------------------------------ --------
17,307
----------------------------------------------- --------
Current liabilities
Creditors: amounts falling due within one
year (1,591)
------------------------------------------------ --------
Net current assets 15,716
------------------------------------------------ --------
Total assets less current liabilities 78,227
------------------------------------------------ --------
Net assets 78,227
------------------------------------------------ --------
Capital and reserves
Called-up share capital 750
Special reserve 72,993
Capital reserves 4,049
Revenue reserve 435
------------------------------------------------ --------
Total equity shareholders' funds 78,227
------------------------------------------------ --------
Net asset value per share 104.30p
Cash Flow Statement
For the period from the date of incorporation on 24 September
2020, to 30 June 2021
GBP'000
Net cash inflow from operating activities 397
Investing activities
Purchases of investments (57,245)
Sales of investments 191
--------------------------------------------- ---------
Net cash outflow from investing activities (57,054)
--------------------------------------------- ---------
Net cash outflow before financing (56,657)
--------------------------------------------- ---------
Financing activities
Issue of Management Shares 13
Redemption of Management Shares (13)
Issue of Ordinary Shares 74,843
Share issue costs (1,100)
--------------------------------------------- ---------
Net cash inflow from financing activities 73,743
--------------------------------------------- ---------
Net cash inflow in the period 17,086
--------------------------------------------- ---------
Cash at bank and in hand at the beginning -
of the period
Net cash inflow in the period 17,086
--------------------------------------------- ---------
Cash at bank and in hand at the end of the
period 17,086
--------------------------------------------- ---------
Included in net cash inflow from operating activities are
dividends received amounting to GBP285,000, income from debt
securities amounting to GBP283,000 and other interest receivable
and similar income amounting to GBP5,000.
Notes to the Accounts
1. Accounting Policies
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 October 2019. 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 through profit or loss. The
directors believe that the Company has adequate resources to
continue operating until 31 October 2022, 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 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.
The accounts are presented in sterling and amounts have been
rounded to the nearest thousand.
Certain judgements, estimates and assumptions have been required
in valuing the Company's investments and these are detailed in note
19 on page 66 of the Report and Accounts .
2. Income from investments
Period to
30 June
2021
GBP'000
Income from investments:
UK dividends 285
Interest income from debt securities and other financial
assets 490
---------------------------------------------------------- ----------
775
---------------------------------------------------------- ----------
Other interest receivable and similar income:
Deposit interest 1
Other income 4
---------------------------------------------------------- ----------
5
---------------------------------------------------------- ----------
Total income 780
---------------------------------------------------------- ----------
3. Investment management fee
Period to 30 June 2021
Revenue Capital Total
GBP'000 GBP'000 GBP'000
Investment management fees 121 121 242
---------------------------- -------- -------- --------
The bases for calculating the investment management fees are set
out in the Report of the Directors on pages 35 and 36 of the Report
and Accounts and details of all amounts payable to the managers are
given in note 17 on page 66 of the Report and Accounts.
4. Dividends
A final dividend of 0.57p per share has been declared in respect
of the period ended 30 June 2021, and has been designated as an
interest distribution.
5. Return per share
Period to
30 June
2021
GBP'000
Revenue return 435
Capital return 4,049
------------------------------------------------------- -----------
Total return 4,484
------------------------------------------------------- -----------
Weighted average number of shares in issue during the
period 75,000,000
Revenue return per share 0.58p
Capital return per share 5.40p
------------------------------------------------------- -----------
Total return per share 5.98p
------------------------------------------------------- -----------
6. Called-up share capital
The issued share capital at the accounting date was as
follows:
2021
GBP'000
Ordinary shares allotted, called-up and fully paid:
75,000,000 shares of 1p each: 750
----------------------------------------------------- --------
On incorporation, the issued share capital of the Company
comprised a single 1p Ordinary Share,
GBP1 paid, held by an employee of the Company's legal adviser,
as subscriber to the Company's memorandum of association.
On 2 November 2020, 50,000 Redeemable Shares were allotted to a
member of the Schroder Group, in order to obtain a certificate to
conduct business. These shares were paid up to one quarter of their
nominal value of GBP1 per share.
On 22 December 2020, 74,499,999 Ordinary Shares were issued at
GBP1 per share, following a placing and offer for subscription, and
the 50,000 Redeemable Shares were redeemed out of the proceeds of
the issue.
7. Net asset value per share
2021
Net assets attributable to shareholders (GBP'000) 78,227
Shares in issue at the period end 75,000,000
--------------------------------------------------- -----------
Net asset value per share 104.30p
--------------------------------------------------- -----------
8. Transactions with the Manager
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 pages 37 and 38 of the Report and Accounts.
The fee payable to the Manager in respect of the period ended 30
June 2021 amounted to GBP209,000, and the whole of this amount was
outstanding at the period 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.
No Director of the Company served as a director of any company
within the Schroder Group at any time during the period.
In accordance with the terms of a discretionary mandate,
Rathbone Investment Management Limited is entitled to receive a
management fee for portfolio management services relating to
certain of the Company's investments. The fee payable to Rathbone
in respect of the period ended 30 June 2021 amounted to GBP33,000,
of which GBP16,000 was outstanding at the period end.
Status of announcement
2021 Financial Information
The figures and financial information for 2021 are extracted
from the Report and Accounts for the period from incorporation on
24 September 2020 to 30 June 2021 and do not constitute the
statutory accounts for the period. The 2021 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 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.
This information is provided by RNS, the news service of the
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END
FR DKPBNNBDBQKB
(END) Dow Jones Newswires
October 26, 2021 02:00 ET (06:00 GMT)
Schroder Bsc Social Impact (LSE:SBSI)
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