Schroder BSC Social - Half-year Report
30/03/2023 07:00
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RNS Number : 6677U Schroder BSC Social Impact Trust 30 March 2023
Schroder BSC Social Impact Trust plc
Half Year Report
Schroder BSC Social Impact Trust plc hereby submits its Half Year Report for
the six months ended 31 December 2022 as required by the Financial Conduct
Authority's Disclosure Guidance and Transparency Rule 4.2.
The Half Year Report is also available to download from the Company's webpage
Schroder BSC Social Impact Trust plc (schroders.com)
(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/6677U_1-2023-3-29.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/6677U_1-2023-3-29.pdf)
The Company has also submitted a copy of its Half Year Report to the National
Storage Mechanism and it will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
Enquiries:
Kerry Higgins
Schroder Investment Management Limited
Tel: 020 7658 6189
Half Year Report and Accounts
Financial and Impact performance highlights
Delivering 4.7% annualised NAV total return per share since inception on 22
December 2020 in a volatile market, the Company continues to offer both a
source of diversification for investors and high social impact.
· NAV of 105.84 pence per share as at 31 December 2022.
· Resilient NAV total returns of 1.7% for the six months to 31 December 2022,
during a challenging period for the wider market.
· Partial exit from one High Impact Housing investment at 3.5% premium to last
reported NAV, realising Internal Rate of Return above target.
· Continued resilience across our High Impact Housing investments (33% of NAV) -
with 100% of rent due by December 2022 collected and no negative regulatory
judgements.
· The Board is monitoring the trading discount in the share price and commenced
buybacks in January. Addressing the discount to NAV is critical to achieving
our goal of raising additional capital to deploy for high social impact across
the UK.
Chair's Statement
I am pleased to present the half year report of the Schroder BSC Social Impact
Trust plc ("the Company"), covering the period from 1 July to 31 December
2022.
The period under review was characterised by market volatility, with inflation
reaching 40-year highs, and the rising cost of living, especially energy,
placing millions of people at risk of fuel poverty. The cost spikes, in
particular for essential items like food and energy, continued to
disproportionately impact those who are already most vulnerable and at risk.
The services offered to these groups by many of the Company's investments
continue to be of critical importance in this difficult climate.
The environment of continued geopolitical tensions, high inflation and rising
interest rates remained challenging for public markets, with further
volatility introduced in the UK by the September 2022 "mini-budget". While the
subsequent reversal of the proposals by the new Prime Minister and Chancellor
helped to stabilise the market, concerns remain about pressures on public
finances.
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.
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 six-month period to 31 December 2022 was 1.7%, resulting in a
NAV total return since inception of 9.6% (4.7% annualised).
Overall, the Company's NAV per share rose from 105.4p to 105.8p during the
period, after fees and expenses and an interim dividend payment of 1.30p per
share on 6 December 2022 (2021: 0.57p). The largest positive contribution to
the NAV came from investment income (1.34p per share) and valuation gains
(1.08p per share) reflecting strong operating performance in the Debt and
Equity for Social Enterprises asset class, and uplifts from development
completions in the High Impact Housing asset class.
The total share price return during the period was -12.0% as the Company's
shares were not immune to negative investor sentiment towards equities which
dominated the period. There has been a subsequent recovery in the Company's
share price post-period end.
A more detailed analysis of performance and additional information on
investments in the period under review are included in the Portfolio Manager's
Report.
Social impact performance
The Company published its inaugural Impact Report on 8 June 2022.
As of the date of the Impact Report the Company had committed £85m, financing
160 organisations and reaching 160,000 people, of whom at least 90% were from
disadvantaged and vulnerable backgrounds. The Company's investments helped
fund over 10,000 affordable homes through the High Impact Housing asset class
and generated over £55m of near-term value as savings for government and
households. The report received an independent verification from BlueMark, an
industry-leading, third-party assurance provider. The full report is available
for download 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.
We are planning to publish our second Impact Report during the second quarter
of 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. The
Board is keen to help our investors meet their own developing needs in
relation to impact reporting, and we will continue to evolve our approach to
stay at the leading edge and in response to feedback.
Premium/discount management
During the six months ended 31 December 2022, the Company traded at an average
discount to NAV of 3.32%. The Company's share price moved to a discount to NAV
in October 2022, during a period of turbulence for UK equities, and as at 31
December 2022 was at a 12.6% discount.
At the 2022 annual general meeting shareholders approved the renewal of the
Company's issuance and buy back authorities to enable the Company to issue up
to 10% of its issued share capital on a non-pre-emptive basis and to buy back
up to 14.99% of the issued share capital.
In January 2023, the Company began to buy back a limited number of shares with
the aim of narrowing the discount at which the shares were trading to NAV.
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 issuance in the long-term. Addressing the discount to NAV is critical
to achieving this goal and the Board believes buybacks can be an effective
tool in this regard. The Company has bought back a total of 263,331 to date,
all of which are currently held in treasury.
Should the Company's shares reach a sufficient rating to its NAV, the Board
will seek to issue shares to new and existing investors. Our Portfolio Manager
sees an attractive pipeline of high impact investments. 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.
Move to quarterly valuations
I am pleased to announce that the Company intends to increase the frequency of
its valuation points from bi-annual to quarterly. The Board are hopeful that
this increased transparency will be beneficial to existing shareholders as
well as making the Company's shares more attractive to potential new
investors. The Company intends to publish its first quarterly NAV in June 2023
with a valuation point of 31 March 2023.
Recent events
Following the end of the reporting period, the Company realised a partial exit
from one of its High Impact Housing Investments, the Resonance Real Lettings
Property Fund ("RLPF1"), a transaction with an Internal Rate of Return (IRR)
on the exited amount above the 6% fund target. The transaction was part of a
fund extension and staged exit plan approved by the RLPF1 investors in
February 2023. Our Portfolio Manager saw this as an attractive way to remain
invested with one of the most experienced social housing managers in the UK,
while also crystallising a gain and creating liquidity for further investment
and/or buybacks.
In the Portfolio Manager's Report, we provide a summary of the issues
experienced during the period by some Social Property REITs. The Board is
pleased to report that the Portfolio Manager has monitored this closely and is
not seeing any comparable issues in our High Impact Housing investments - with
100% of rent due by December 2022 collected and no negative regulatory
judgements. For those readers wishing to understand this market better, we
have included key findings from Big Society Capital's second edition of
'Mapping the market: UK social and affordable housing funds 2022' published in
November 2022. This report aims to help others make informed investment
decisions and underscores the importance of a commitment to impact management
throughout the investment life cycle, with clearly defined impact goals, in
order to source the best opportunities and reduce risk.
Outlook
In a climate of continuing instability, the Company's investment proposition,
to deliver high quality risk adjusted investor returns alongside significant
social impact, remains as relevant as ever.
The long-term effects of the pandemic, along with the economic and social
impact of geopolitical instability, have exacerbated the social challenges
that the Company's investments have been set up to alleviate. Demand for the
services offered by these organisations has increased and we do not anticipate
this to slow down. They deliver essential government-mandated services and
derive a substantial proportion of their revenues from government-backed
sources, which have been historically stable through economic cycles. Some of
these government contracts are indexed to inflation, and the Company's
portfolio includes some further inflation resilience through ownership of real
assets such as housing and inflation-indexed leases.
The Board is confident that the Company's investment thesis of impact-driven
value, together with strong execution by the Portfolio Manager, will continue
to provide an attractive combination of significant social impact, high
quality risk-adjusted returns and low correlation to traditional quoted
markets.
Your Company plays an important role in helping to expand capital to social
enterprises and other organisations across the UK that are purpose-driven and
focused on creating a fairer, inclusive and thriving society through
sustainable financial models. In pursuit of this, we are keen to share
knowledge with retail and institutional investors about the potential to
deliver both social impact and financial returns and welcome your engagement
with us.
Webinar/investor event
I would like to invite you to attend a webinar to be given by the Portfolio
Manager on 4 April 2023 at 10.00 a.m., providing an opportunity to learn more
about social impact investment, the Company's strategy and outlook, and to ask
questions. Shareholders are encouraged to sign up using this link:
https://registration.duuzra.com/form/SBSIInterim
Susannah Nicklin
Chair
29 March 2023
Portfolio Manager's Report
Portfolio Performance
The Net Asset Value (NAV) total return for the six-month period to 31 December
2022 was 1.68%. This resulted in a NAV total return since the 22 December 2020
IPO of 9.59%, or 4.72% annualised. Overall, the Company's NAV per share rose
from 105.39p to 105.84p following a dividend payment of 1.30p in the period
based on the earnings of the company in the year to 30 June 2022, as set out
in the NAV bridge below.
Classification NAV per share progression
Opening NAV per share 105.39
Valuation gains 1.08
Investment income 1.34
Company-level investment management fees -0.35
Other expenses -0.32
Dividends paid -1.30
Closing NAV per share 105.84
As shown in the following table, portfolio returns to date have been driven by
the performance of more seasoned investments in their mature phase. Mature
investments have contributed 1.57% to the NAV total return per share in the
six months to 31 December 2022 and 12.16% since launch two years ago. Assets
still in their investment phase are earlier in their life cycle and
J-curves(1), and to date are producing returns in line with expectations. Once
investments become fully deployed, they are re-classified as "Mature" in our
portfolio. This was the case for the CBRE Affordable Housing Fund, which was
fully deployed during the first quarter of our current financial year. This
accounts for the increase in the proportion of "Mature" assets in our
portfolio from 58.0% to 67.4%, based on capital committed. On the basis of
capital drawn, Mature assets account for 65.8% of our portfolio as of
31 December 2022, compared to 53.6% on 30 June 2022.
(1)The term J-curve is used to describe the typical return trajectory of
certain types of investments, where low or negative returns in the early years
of the investments are followed by a steep rise in returns as investments
mature. In the case of the Company's investments, the J-curve effect is due to
investing in property purchases and developments, where the early years are
characterised by cost outlays, followed by an expected rise in returns as
properties are occupied, and rental yield and property valuation uplifts start
to be reflected in returns.
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
financial risk and return characteristics similar to the core asset
allocation, although they have lower direct social impact given the low
availability of social impact-focused assets in publicly listed markets.
Liquidity Assets contributed a positive 17bps to returns in the six months to
31 December 2022.
NAV total return
31 Dec 2022 contribution NAV total return
% NAV high 31 Dec 2022 6 months contribution
impact exposure* % NAV invested to 31 Dec 2022 since launch
Mature 67% 66% 1.57% 12.16%
Investment phase 33% 19% 0.59% 0.75%
Liquidity Assets 14% 0.16% -0.57%
Cash, fees, expenses & other costs 1% -0.64% -2.75%
100% 100% 1.68% 9.59%
*NAV of £90.3m as at 31 December 2022
Portfolio allocation (31 Dec 2022)
High Impact Exposure as a % of NAV*
Mature 67%
Investment phase 33%
*NAV of £90.3m as at 31 December 2022
Invested as a % of NAV*
Mature 66%
Investment phase 19%
Liquidity Assets 14%
Cash, fees, expenses & other costs 1%
*NAV of £90.3m as at 31 December 2022
The top three drivers of financial performance in the six-month period to 31
December 2022 were:
- Bridges Evergreen Fund contributed 0.57p to NAV per share
growth with contributions from strong operating performance from investments
in Agility Eco and New Reflexions.
- Man Community Housing Fund contributed 0.50p to NAV per share
growth, due to uplifts in value as development sites progress towards
practical completion. The fund is near-fully committed with the final 11th
site closing imminently, significantly ahead of schedule (within 2 years since
launch versus 5 year permitted investment period).
- The Charity Bond Portfolio contributed 0.37p to NAV per share
growth from interest income.
The portfolio continues to deliver strong social impact performance benefiting
more disadvantaged groups across areas such as housing, education, fuel
poverty and health and social care. The Company's investments are supporting
over 160 social organisations benefiting over 160,000 people of which over 90%
are from vulnerable or disadvantaged backgrounds. We aim to work with
organisations with deep experience in tackling social issues in the local
context, as we believe this reduces risk. The average delivery track record of
organisations in the portfolio is 27 years. These organisations have built
strong relationships with local stakeholders, deep knowledge of the social
issues they are addressing, and are trusted by their beneficiaries.
Social outcomes reported in the period include:
- Man Community Housing Fund received planning permission for
its 10th site, the development of 226 zero carbon, 100% affordable homes at
Old Malling Farm, Lewes. The project will be delivered in partnership with a
modular housebuilder and is expected to deliver the homes within two and a
half years starting in early 2023.
- The Bridges Social Outcomes Fund II achieved £50m of outcomes
payments, reaching over 18,500 people from fund inception to December 2022,
meaning that the projects funded resulted in measurable improvements to the
lives of the people supported and reached specific milestones. In turn, this
triggered contracted payments from the contract counterparties (typically
involving local and central commissioning bodies); the fund is on track to
achieving £100m+ of outcomes payments. These outcomes are estimated to
generate over £1bn of value to society, consisting of fiscal, economic, and
social value, according to data included in the "10 Years of Social Outcomes
Contracts" report, published by BSC in June 2022, which estimates that over
£10 of public value is created for each £1 spent by commissioners on social
outcomes.
- Active Prospects, with investment from the Social and
Sustainable Housing fund (SASH) and the Community Investment Fund (CIF), both
in the Company's portfolio, created more much-needed new homes for people with
learning disabilities, autistic people or those with mental health needs,
including six new homes at a flagship new service in Horley. Active Prospects
develops small clusters of self-contained homes with communal facilities.
These make it possible for people with very high-level needs to move out of
institutions. Active Prospects' high impact approach is to provide "ordinary
homes in ordinary communities". In 2022, 100% of people supported by Active
Prospects reported positive wellbeing outcomes.
We will be publishing a full review of the Company's social impact performance
in our second Impact Report in the second quarter of 2023.
Portfolio Cash Flows and Balance Sheet
In the period £3.9m was drawn down into existing investments - with the
majority of that (£3.2m) going towards delivering new affordable homes in the
High Impact Housing allocation. In Debt and Equity for Social Enterprises
there have been further investments into the secured co-investments with
Charity Bank, to Abbeyfield York who started the development of 25
purpose-built quality homes for older people who require supported housing.
Within Social Outcomes Contracts, further investment was made into projects
supporting young people at risk of homelessness, improving the quality of life
of people living with long term health conditions via social prescribing(2),
and improving the process of refugee integration.
(2)NHS definition: Social prescribing is a key component of Universal
Personalised Care. It is an approach that connects people to activities,
groups, and services in their community to meet the practical, social and
emotional needs that affect their health and wellbeing.
The Company's investment policy permits an allocation of up to 20% of net
assets into Liquidity Assets to mitigate cash drag during the investment
period of private funds. Following the Investment Policy changes approved by
investors at the AGM in December 2022, this allocation can be increased to 30%
of net assets immediately after a fundraise, as funds raised are committed to
new high impact investments.
Liquidity Assets 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. In the current environment of
heightened inflation, we believe this allocation is particularly important to
reduce cash drag impact on the performance of the Company. This allocation 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.
During the six months to December 2022, we reduced our Liquidity Assets
holdings by £4.0m, to fund drawdowns in the High Impact Portfolio, as well as
ongoing share buybacks.
As of 31 December 2022, the Company's Liquidity Assets holdings had a value of
£12.8m (14% of NAV) and were invested in six funds: during the period we
exited our position in the Edentree Ethical and Sustainable Bond Fund and
reduced our position in the Vontobel TwentyFour Sustainable Short Term Bond
Income Fund by £2m - as we rebalanced the portfolio to reduce duration and
exposure to fixed rates in a rising inflation and interest rate environment.
At 31 December 2022, 69% of our Liquidity Assets portfolio is invested in
instruments with returns that are floating rate and/or benefit from rising
inflation. Liquidity Assets had a positive 17bps contribution to performance
in the half.
Portfolio allocation (31 Dec 2022)
High Impact Exposure as a % of NAV
Social Outcomes Contracts 9%
High Impact Housing 40%
Debt and Equity for Social Enterprises 51%
Invested as a % of NAV
Social Outcomes Contracts 5%
High Impact Housing 33%
Debt and Equity for Social Enterprises 47%
Liquidity Assets 14%
Cash 1%
Recent Events
In January 2023, the Board commenced a share buyback programme, with the
intention of closing the trading discount in the shares. A total of 263,331
shares were purchased from the start of the year until 29 March 2023 and are
held in treasury.
To increase flexibility around buybacks the Portfolio Manager has redirected
£1.6m of formerly committed but uninvested capital in the Charity Bond
portfolio.
In our High Impact Housing portfolio, the Company delivered a partial exit
(15% of the Company's investment) from the RLPF1 - as new institutional
investment came in alongside an extension of the fund. The exit was delivered
at an updated fund NAV, determined via an independent valuation by JLL as at
15 February, at a 3.5% increase to the 30 June 2022 NAV. RLPF1 remains an
investment that is highly aligned with the Company's investment strategy, from
both an impact and a returns perspective.
As part of the fund extension, RLPF1 entered into 15-year leases with Notting
Hill Genesis (NHG) and Capital Letters for over 50% of its property portfolio;
St. Mungo's continues to manage the remainder of the portfolio, with the
intention to transfer this to those partners over the course of this year.
Having had a decade long partnership with St Mungo's, Resonance, the manager,
has in the last two years expanded out to having over 20 partners across the
country. Resonance looks for partners with strong culture, practice and
commercial strength; in selecting its counterparties, the organisation looks
for:
- Local focus and relationship
- Longevity and track record
- Strong balance sheet
- Strong governance and leadership
RLPF1's two new leasing counterparties (NHG and Capital Letters) rate highly
on the criteria above.
NHG is a charitable community benefit society, created in 2018 from two
well-established housing associations and is now one of the largest housing
associations in London and the southeast. NHG's parent group own and manage
more than 66,000 properties and employ around 2,000 staff. The group's main
activities relate to the management of social housing, including care and
support, as well as the development of new homes. The group's roots reach back
to the 1960s when its legacy organisations were established by local people
who shared a similar vision: to house West London's working poor, providing
them a home from which they can build themselves and their families a secure
future. The group have a strong balance sheet, an A credit rating from S&P
and Fitch, and the strongest governance rating (G1) from the Regulator of
Social Housing published in August 2022.
NHG's dedicated Temporary Housing team operate 3,000 homes owned by 2,000
landlords across London boroughs. In February 2023, Resonance entered into a
partnership with NHG that will see the housing association take over the
management of 590 properties across the Resonance housing funds, starting with
over 100 tenanted properties from the RLPF1 portfolio. This partnership
arrangement is the largest ever carried out by NHG's temporary housing
business and Resonance funds will become the largest landlord for NHG.
Capital Letters was established in December 2018 by 13 London Boroughs
(expanded to 21 members by July 2022) to increase the supply of rented
accommodation for homeless households across London, reduce competition for
the limited pool of properties and drive down costs. The company enables the
members to collaborate and work in partnership to procure accommodation to
tackle homelessness, rather than competing with each other for a scarce
resource across London. By pooling resources and sharing expertise, Capital
Letters provides a better service to both private sector landlords and
tenants. Capital Letters is a not-for-profit company limited by guarantee and
owned by their members. Their work has been made possible by £38m of Flexible
Homelessness Support Grant from the Department for Levelling Up, Housing and
Communities(3) (DLUHC) which will last until 2024. In light of this, and as
outlined in their most recent corporate strategy, Capital Letters has been
working on developing independent sources of income to ensure that it can be
financially viable without recourse to government funding. Crucially, this
will also ensure that the services it provides for homeless families will
continue when the grant ceases over the long-term. Since inception, Capital
Letters, have helped around 4,000 homeless families find homes in the private
rented sector.
(3)Formerly the Ministry of Housing, Communities and Local Government (MHCLG).
High Impact Housing - Sector Spotlight
We note some of the challenges being experienced by listed Social Property
REITs - often linked to the short operating history and limited delivery
experience of property counterparties. We are not seeing any comparable issues
in our High Impact Housing investments - with 100% of rent due by December
2022 collected and no negative regulatory judgements. As outlined in our
Impact Report last year, we target organisations with proven track records of
delivering impact in their local context - with an average social organisation
track record of 27 years.
Counterparty indicators on a portfolio weighted average basis for
funds/entities(4)
Age (proxy for experience) 27 years
Number of staff (proxy for ability to provide sufficient support) 887
Net assets (proxy for financial resilience) £49.8m
Net assets as a % of overall fund valuation (proxy for liability coverage) >200%
(4)Based on the 30 counterparties across the four High Impact Housing
investments within the Company's portfolio.
It is estimated that £16.9 billion is needed every year for the next ten
years to adequately respond to the chronic shortage of social and affordable
housing in the UK. Over the past decade, the amount of private capital
investing to respond to this need has steadily increased, most notably from
social and affordable housing funds.
To help investors navigate this evolving fund market, in November 2022 Big
Society Capital launched the second edition of "Mapping the market: UK social
and affordable housing funds 2022". Sharing experience and key practical
lessons, it aims to help others make informed investment decisions that
include a robust assessment of managers' impact practices.
In the last eleven years of investing in this area, Big Society Capital has
learnt the importance of a commitment to impact management throughout the
investment life cycle and having clearly defined impact goals. Effective
consideration of impact guides sourcing of the best opportunities and the
visibility of impact delivered helps reduce risk.
Importantly the report highlights the risks that Big Society Capital believes
are most material to social and affordable housing investments and the
qualities we look for in managers to mitigate these risks. These qualities are
seen in all the High Impact Housing managers the Company invests in.
Risk factor Return implications How Big Society Capital considers this risk & assesses managers
Counterparty risk - quality of the counterparty that is leasing the property Security of yield to investors Look for high quality, financially resilient counterparties with strong
from the fund and its ability to service the agreement.
operational capabilities and governance, and assess their ability to manage
leases and underlying tenancies.
Capital growth
Ensure the fund manager establishes fair lease agreements that support
long-term sustainability of counterparty, including appropriate lease length
of indexation.
Avoid thinly capitalised counterparties or those with limited track record or
inappropriately long lease lengths
Void risk - underlying properties owned by the fund are not let, impacting the Security of yield to investors Look for strong partnership between manager and local authority, to ensure
revenues of the counterparty and returns to the fund. housing delivered meets local needs.
Work with experienced registered providers (RP) of social housing that support
residents during times of financial difficulty or distress.
Avoid inexperienced registered providers that lack experience working with
local authorities and support service providers
Policy risk - withdrawal of Government housing benefit or changes in rent Security of yield to investors Look for funds that are long term in nature (> ten years) where short term
levels. volatility is expected to normalise over its lifetime, with fair rent reviews
and risk sharing mechanisms in place to protect RP's long term sustainability.
Development risk - where funds take on development risk as part of their Duration to income Look for evidence of manager's development track record, ability to account
strategy, delays in construction and rising costs may impact fund returns.
for potential risk in costs, and relationships with strong development
counterparties.
Capital growth
Avoid managers with lack of experience working with local authorities and
landowners
Resale risk - ability for the fund to sell housing assets in the future to Capital growth Look for funds that work with high-quality counterparties, ensuring proper
provide liquidity to investors.
maintenance and repairs are included in lease agreements and delivery of
housing in desirable areas with transport links, school access to ensure
property valuation rises in-line with the market.
Liquidity
Outlook
The government published a Spring Budget on 15 March 2023, after the period
end, with a focus on reducing inflation, growing the economy, and reducing
debt. The government's stated focus is to ensure sustainable long-term growth
and reduce inflation to 2.9% by the end of 2023. A more positive
macroeconomic backdrop has allowed the government to shift the focus from
"stability" to "growth" - in an effort to counteract concerns of an impending
UK recession in 2023.
There were a number of Budget measures with relevance for the Company:
- We are particularly encouraged by the government's recognition
of the crucial role of charities and social enterprises in reaching "people in
need that central or local government cannot"(5). To support their work, the
Spring Budget allocated over £100m of funding for charities and community
organisations. This will be allocated over the next two years to frontline
organisations most impacted by increased demand for their services from
vulnerable people and increased delivery costs, and measures to increase the
energy efficiency and sustainability of voluntary, community and social
enterprise (VCSE) organisations.
- One of the key pillars for the government's growth agenda is
education, and the Spring Budget introduces additional funding of £63m to
support "Returnerships", skills programmes aimed at the over-50s. Alongside
the government's continued commitment to post-18 education, the measures offer
a positive backdrop for the activities of organisations such as Skills
Training in the Bridges Evergreen portfolio.
- Measures to reduce inflation include the extension of support
for households to reduce the cost of living, including the extension of the
Energy Price Guarantee (EPG) of £2,500 for a further three months until June
2023. After this time, energy prices are expected to fall below the guarantee
threshold, reflecting a steep fall in wholesale energy prices since the start
of the year. To support more vulnerable households, the government will also
align charges for comparable direct debit and Pre-Payment Meter (PPMs)
customers, ensuring that those on PPMs no longer pay a premium for their
energy costs, a move that has been campaigned for among others by Fair by
Design, a program established by Big Society Capital.
Despite the measures announced, it is estimated that UK households are still
facing the largest fall in living standards since records began in the 1950s -
and they will not return to their pre-pandemic level until at least 2028,
reflecting the impact of the trade shock suffered by the UK since the energy
crisis began, on top of structural weaknesses in the economy(6). As we have
highlighted previously, this fall in living standards disproportionately
affects those who are already most vulnerable in society, increasing the
already high percentage of the population living in poverty, estimated at 20%
in 2020/2021(7). In this environment the scaling of proven solutions tackling
social issues - such as the organisations the Company supports - is needed
more than ever.
(5)Jeremy Hunt, via Civil Society, 15 March 2023.
(6)Institute for Government, 2023
(7)Joseph Rowntree Foundation, 2023
Also, in early 2023, further issues have emerged in the banking sector, with
knock-on effects on credit markets. As of the time of writing, there are no
material impacts expected on the Company's investments. The underlying revenue
sources of the portfolio are primarily from UK government backed sources (over
80% as of December 2022) and have been historically stable through economic
cycles. We anticipate that stability will continue through the current
turbulence and fiscal pressures, supported by the savings government and
society make with the impact of our investments.
In this challenging 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.
Jeremy Rogers, Hermina Popa
Big Society Capital
29 March 2023
Portfolio Overview (31 December 2022)
Example revenue sources Example social outcomes
Invested as Exposure as Investment focus
Name Asset type Invested % of NAV Exposure* % of NAV
Resonance Real Lettings Property Fund High Impact Housing £6.5m 7% £6.5m 7% Leasing "move-on accommodation" to charities Housing Benefit Transition from homelessness to independent living
UK Affordable Housing Fund High Impact Housing £9.8m 11% £9.8m 11% Delivering sustainable and affordable housing in areas of need Key worker rental payments Increased supply of, and access to, affordable homes
Social and Sustainable Housing (SASH) High Impact Housing £7.2m 8% £9.9m 11% Housing for vulnerable people Supported Housing payments Housing for survivors of domestic abuse
Man Group Community Housing Fund High Impact Housing £6.5m 7% £10.2m 11% Delivering additional affordable housing Housing Benefit Increased supply of, and access to, affordable homes
Charity Bank Debt and Equity for Social Enterprises £5.1m 6% £6.5m 7% Senior secured loans to charities NHS payments, trading income Improved
Co-Investment Facility quality of life for long term conditions
Charity Bond Portfolio Debt for Social Enterprises £14.9m 17% £16.5m 18% Bonds issued by charities Gov't social care contracts Physical and mental health
Bridges Evergreen Capital Debt and Equity for Social Enterprises £14.9m 17% £14.9m 17% Long-term capital for social enterprises Gov't social care contracts Access to quality care services
Triodos Bank UK Bond Issue Debt and Equity for Social Enterprises £2.5m 3% £2.5m 3% Private bond issued by Triodos bank Trading income Social housing, healthcare, education, renewable energy, arts & culture,
and community projects
Bridges Social Outcomes Fund Social Outcomes Contracts £4.2m 5% £8.3m 9% Outcomes contracts across themes Gov't outcome payments Supporting children to remain with their families
Community Investment Fund Debt and Equity for Social Enterprises £5.5m 6% £5.5m 6% Fund to invest in locally led neighbourhood- based organisations Feed in Tariff Renewable energy revenues Community benefit generated by renewable energy projects, used to address fuel
poverty and climate action
Liquidity Assets
TwentyFour Sustainable Enchanced Income Liquidity Assets £3.9m 4%
ABS Fund
Vontobel Fund TwentyFour Sustainable Short Term Bond Income Fund Liquidity Assets £1.4m 2%
Bluefield Solar Income Fund Liquidity Assets £2.7m 3%
Greencoat UK Wind Plc Liquidity Assets £2.3m 3%
Rathbone Ethical Bond Fund Liquidity Assets £1.7m 2%
EdenTree Responsible and Sustainable Sterling Bond Fund Liquidity Assets £0.0m 0%
CT UK Social Bond Fund Liquidity Assets £0.8m 1%
*Exposure is NAV plus undrawn commitments.
Investment Portfolio at 31 December 2022
Nature of Country of Industry Carrying Shareholders' funds %
interest incorporation Sector Value(1)
Holding Listed/ £'000
unlisted
UK Affordable Housing Fund Equity Shares Unlisted United Kingdom Investor in Affordable and Social Housing 9,818 10.9
Social and Sustainable Housing LP Limited Partnership Interest Unlisted United Kingdom Investor in Affordable and Social Housing 7,172 7.9
Resonance Real Lettings Property Fund LP Limited Partnership Interest Unlisted United Kingdom Investor in Affordable and Social Housing 6,527 7.2
Man GPM RI Community Housing 1 LP Limited Partnership Interest Unlisted United Kingdom Investor in Affordable and Social Housing 6,456 7.1
High Impact Property 29,973 33.1
Bridges Evergreen Capital LP Limited Partnership Interest Unlisted United Kingdom Investor in Profit-With- Purpose Organisations 14,934 16.5
Community Investment Fund Limited Partnership Interest Unlisted United Kingdom Investor in Communities Supporting Social Inclusion and Change 5,533 6.2
Triodos Bank UK Limited 2020 Bond 4% 23/12/2030 Fixed Income Security Unlisted United Kingdom Ethical Banking 2,500 2.8
Rathbones Bond Portfolio: Hightown Housing Association 4% 31/10/2029 Fixed Income Security Listed United Kingdom Charity (Affordable and Social Housing) 2,483 2.7
Charity Bank Co-Invest Portfolio: Sue Ryder FRN 04/12/2043 Fixed Income Security Unlisted United Kingdom Charity (Medical) 2,470 2.7
Rathbones Bond Portfolio: Dolphin Square Charitable Foundation 4.25% Fixed Income Security Listed United Kingdom Charity (Affordable and Social Housing) 2,450 2.7
06/07/2028
Rathbones Bond Portfolio: Greensleeves Homes Trust 4.25% 30/03/2026 Fixed Income Security Listed United Kingdom Charity (Care Services) 2,357 2.6
Rathbones Bond Portfolio: RCB Bonds PLC 3.5% 08/12/2033 Fixed Income Security Listed United Kingdom Ethical Banking 2,223 2.5
Charity Bank Co-Invest Portfolio: Uxbridge United Welfare Trust 2.85% Fixed Income Security Unlisted United Kingdom Charity (Community and Social Housing) 1,801 2.0
20/12/2033
Rathbones Bond Portfolio: Thera Trust 5.5% 31/03/2024 Fixed Income Security Unlisted United Kingdom Charity (Care Services) 1,650 1.8
Rathbones Bond Portfolio: Alnwick Garden Trust 5% 27/03/2030 Fixed Income Security Listed United Kingdom Charity (Public Gardens) 1,500 1.7
Rathbones Bond Portfolio: Golden Lane Housing 3.9% 23/11/2029 Fixed Income Security Listed United Kingdom Charity (Affordable and Social Housing) 952 1.1
Rathbones Bond Portfolio: B4RN (Broadband for Rural North Limited) 4.5% Fixed Income Security Unlisted United Kingdom Communications for Rural Communities 865 1.0
30/04/2026
Charity Bank Co-Invest Portfolio: Abbeyfield York 3.6% 12/05/2049 Fixed Income Security Unlisted United Kingdom Charity (Care Services) 566 0.6
Charity Bank Co-Invest Portfolio: Abbeyfield Southdowns 3.35% 26/7/2044 Fixed Income Security Unlisted United Kingdom Charity (Care Services) 240 0.3
Rathbones Bond Portfolio: Coigach Community CIC 5.248% 31/03/2030 Fixed Income Security Unlisted United Kingdom Renewable Energy 233 0.3
Debt and Equity for Social Enterprises 42,757 47.5
Bridges Social Outcomes Fund II LP Limited Partnership Interest Unlisted United Kingdom Social Outcomes Contracts 4,213 4.7
Social Outcomes Contracts 4,213 4.7
TwentyFour Sustainable Enhanced Income ABS Fund Equity Shares Listed Luxembourg Diversified 3,918 4.3
Bluefield Solar Income Fund Equity Shares Listed Guernsey Diversified 2,668 3.0
Greencoat UK Wind Plc Fund Equity Shares Listed United Kingdom Diversified 2,280 2.5
Rathbone Ethical Bond Fund Equity Shares Listed United Kingdom Diversified 1,729 1.9
Vontobel Fund TwentyFour Sustainable Short Term Bond Income Fund Equity Shares Listed Luxembourg Diversified 1,388 1.5
CT UK Social Bond Fund Equity Shares Listed United Kingdom Diversified 797 0.9
Liquidity Assets 12,780 14.1
Total Investments(2) 89,723 99.4
Cash at bank and in hand 1,361 1.5
Other net liabilities (783) (0.9)
Total Shareholder's funds 90,301 100.0
(1)Fixed income securities amounting to 22,290,000 are included at
amortised cost. These include investments amounting to 11,965,000 which are
listed, but traded in inactive markets.
(2)Total investments comprise:
£'000 %
Unquoted 64,978 72.4
Listed in the UK 16,771 18.7
Listed on a recognised stock exchange overseas 7,974 8.9
Total 89,723 100.0
Principal Risks and Uncertainties
The Board has determined that the key risks for the Company are strategic
risk, investment management risk, liquidity risk, valuation risk and cyber
security risk. Additionally, 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, COVID-19
related risks, inflation risk and UK political risk. The Board has determined
they are not currently material for the Company. These risks are set out on
pages 45 and 46 of the Report and Accounts for the year ended 30 June 2022.
In addition, the Board is mindful of the continuing impact of the war in
Ukraine, inflation and increasing interest rates. The Board considers that
these are risks that could have further implications for financial markets. In
all other respects, the Company's principal risks and uncertainties, and their
mitigation, have not changed materially since the publication, on 21 October
2022, of the Annual Report, and are not expected to change materially for the
remaining six months of the Company's financial year.
Going concern
The Board has considered the Company's principal risks and uncertainties
(including whether there are any emerging risks); has scrutinised the detailed
cash flow forecast; and has considered their assessment of the likelihood and
quantum of funds which could be raised from sales of investments. As a result,
the Board is comfortable that the Company will have sufficient liquid funds to
pay operating expenses.
On this basis, the Board considers it appropriate to adopt the going concern
basis of accounting in preparing the Company's accounts.
Related party transactions
There have been no transactions with related parties that have materially
affected the financial position or the performance of the Company during the
six months ended 31 December 2022.
Directors' responsibility statement
The Directors confirm that, to the best of their knowledge, this set of
condensed financial statements has been prepared in accordance with United
Kingdom Generally Accepted Accounting Practice, in particular with Financial
Reporting Standard 104 "Interim Financial Reporting" and with the Statement of
Recommended Practice, "Financial Statements of Investment Companies and
Venture Capital Trusts" issued in July 2022 and that this Interim Management
Report includes a fair review of the information required by 4.2.7 R and 4.2.8
R of the Financial Conduct Authority's Disclosure Guidance and Transparency
Rules.
Income Statement
For the six months ended 31 December 2022 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six months For the six months For the year
ended 31 December 2022 ended 31 December 2021 ended 30 June 2022
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held at fair value through profit or loss - 921 921 - 583 583 - 632 632
Income from investments 1,119 - 1,119 676 - 676 1,817 - 1,817
Other interest receivable and similar income 28 - 28 19 - 19 40 - 40
Gross return 1,147 921 2,068 695 583 1,278 1,857 632 2,489
Investment management fee (168) (168) (336) (129) (129) (258) (286) (286) (572)
Administrative expenses (238) - (238) (186) - (186) (452) - (452)
Transaction costs - - - - (13) (13) - (22) (22)
Net return before finance costs and taxation 741 753 1,494 380 441 821 1,119 324 1,443
Finance costs - - - - - - - - -
Net return before taxation 741 753 1,494 380 441 821 1,119 324 1,443
Taxation (note 3) - - - - - - - - -
Net return after taxation 741 753 1,494 380 441 821 1,119 324 1,443
Return per share 0.87p 0.88p 1.75p 0.49p 0.57p 1.06p 1.37p 0.40p 1.77p
(note 4)
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 six months ended 31 December 2022 (unaudited)
Called-up
share Share Special Capital Revenue
capital premium reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 30 June 2022 853 10,571 72,993 4,373 1,126 89,916
Dividend paid (note 5) - - - - (1,109) (1,109)
Net return after taxation - - - 753 741 1,494
At 31 December 2022 853 10,571 72,993 5,126 758 90,301
For the six months ended 31 December 2021 (unaudited)
Called-up
share Share Special Capital Revenue
capital premium reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At 30 June 2021 750 - 72,993 4,049 435 78,227
Issue of Ordinary Shares 103 10,621 - - - 10,724
Share issue costs - (50) - - - (50)
Dividend paid (note 5) - - - - (428) (428)
Net return after taxation - - - 441 380 821
At 31 December 2021 853 10,571 72,993 4,490 387 89,294
For the year ended 30 June 2022 (audited)
Called-up
share Share Special Capital Revenue
capital premium reserve reserves reserve Total
£'000 £'000 £'000 £'000 £'000 £'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)
Dividend paid (note 5) - - - - (428) (428)
Net return after taxation - - - 324 1,119 1,443
At 30 June 2022 853 10,571 72,993 4,373 1,126 89,916
Statement of Financial Position
at 31 December 2022 (unaudited)
(Unaudited) (Unaudited) (Audited)
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 67,433 51,281 67,000
Investments held at amortised cost 22,290 21,803 21,832
89,723 73,084 88,832
Current assets
Debtors 292 324 206
Cash at bank and in hand 1,361 16,451 1,310
1,653 16,775 1,516
Current liabilities
Creditors: amounts falling due within one year (1,075) (565) (432)
Net current assets 578 16,210 1,084
Total assets less current liabilities 90,301 89,294 89,916
Net assets 90,301 89,294 89,916
Capital and reserves
Called-up share capital (note 6) 853 853 853
Share premium 10,571 10,571 10,571
Special reserve 72,993 72,993 72,993
Capital reserves 5,126 4,490 4,373
Revenue reserve 758 387 1,126
Total equity shareholders' funds 90,301 89,294 89,916
Net asset value per share (note 7) 105.84p 104.66p 105.39p
Cash Flow Statement
For the six months ended 31 December 2022 (unaudited)
(Unaudited) (Unaudited) (Audited)
For the six For the six For the
months months period
ended ended ended
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
Net cash inflow from operating activities 598 340 873
Investing activities
Purchases of investments (3,938) (13,883) (31,411)
Sales of investments 4,500 2,662 4,516
Net cash inflow/(outflow) from investing activities 562 (11,221) (26,895)
Net cash inflow/(outflow) before financing 1,160 (10,881) (26,022)
Financing activities
Dividend paid (1,109) (428) (428)
Issue of Ordinary Shares - 10,724 10,832
Share issue costs - (50) (158)
Net cash (outflow)/inflow from financing activities (1,109) 10,246 10,246
Net cash inflow/(outflow) in the period 51 (635) (15,776)
Cash at bank and in hand at the beginning of the period 1,310 17,086 17,086
Net cash inflow/(outflow) in the period 51 (635) (15,776)
Cash at bank and in hand at the end of the period 1,361 16,451 1,310
Notes to the Accounts
1. Financial Statements
The information contained within the accounts in this half year report has not
been audited or reviewed by the Company's independent auditor.
The figures and financial information for the year ended 30 June 2022 are
extracted from the latest published accounts of the Company and do not
constitute statutory accounts for that year. Those accounts have been
delivered to the Registrar of Companies and included the report of the auditor
which was unqualified and did not contain a statement under either
section 498(2) or 498(3) of the Companies Act 2006.
2. Accounting policies
Basis of accounting
The accounts have been prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, in particular with Financial Reporting Standard
104 "Interim Financial Reporting" and with the Statement of Recommended
Practice "Financial Statements of Investment Trust Companies and Venture
Capital Trusts" issued by the Association of Investment Companies in July
2022.
All of the Company's operations are of a continuing nature.
The accounting policies applied to these accounts are consistent with those
applied in the accounts for the year ended 30 June 2022.
3. Taxation
The Company's effective corporation tax rate is nil, as deductible expenses
exceed taxable income. The Company intends to continue meeting the conditions
required to retain its status as an Investment Trust Company, and therefore no
provision has been made for deferred tax on any capital gains or losses
arising on the revaluation or disposal of investments.
4. Return per share
(Unaudited) (Unaudited) (Audited)
For the For the For the
six months six months year
ended ended ended
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
Revenue return 741 380 1,119
Capital return 753 441 324
Total return 1,494 821 1,443
Weighted average number of shares in issue during the period 85,316,586 77,523,078 81,387,804
Revenue return per share 0.87p 0.49p 1.37p
Capital return per share 0.88p 0.57p 0.40p
Total return per share 1.75p 1.06p 1.77p
5. Dividend paid
(Unaudited) (Unaudited) (Audited)
For the For the For the
six months six months year
ended ended ended
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
2022 dividend paid of 1.30p (period ended 30 June 2021: 0.57p) 1,109 428 428
No dividend has been declared in respect of the six months ended 31 December
2022.
6. Called-up share capital
Changes in called-up share capital during the period were as follows:
(Unaudited) (Unaudited) (Audited)
For the For the For the
six months six months year
ended ended ended
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
Opening balance 853 750 750
Placing of shares - 103 103
Closing balance 853 853 853
Changes in the number of shares in issue during the period were as follows:
(Unaudited) (Unaudited) (Audited)
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2022 2021 2022
Ordinary Shares of 1p each 85,316,586 75,000,000 75,000,000
Placing of shares - 10,316,586 10,316,586
Closing balance of shares in issue 85,316,586 85,316,586 85,316,586
7. Net asset value per share
(Unaudited) (Unaudited) (Audited)
31 December 31 December 30 June
2022 2021 2022
Net assets attributable to shareholders (£'000) 90,301 89,294 89,916
Shares in issue at the period end 85,316,586 85,316,586 85,316,586
Net asset value per share 105.84p 104.66p 105.39p
8. 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.
At 31 December 2022, the Company's investment held at fair value, were
categorised as follows:
31 December 31 December 30 June
2022 2021 2022
£'000 £'000 £'000
Level 1 12,780 13,512 16,847
Level 3 54,653 37,769 50,153
Total 67,433 51,281 67,000
There have been no transfers between Levels 1, 2 or 3 during the period
(period ended 31 December 2021 and year ended 30 June 2022: nil).
9. Uncalled capital commitments
At 31 December 2022, the Company had uncalled capital commitments amounting to
£13,573,000 (31 December 2021: £17,917,000 and 30 June 2022: £17,392,000)
in respect of follow-on commitments, which may be drawn down or called by
investee entities, subject to agreed notice periods.
10. Events after the interim period that have not been reflected in the
financial statements for the interim period
The Directors have evaluated the period since the interim date and have not
noted any events which have not been reflected in the financial statements.
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