BIG SOCIETY CAPITAL 31 DECEMBER 2018

REPORT AND FINANCIAL STATEMENTS 2018 CONTENTS REPORT AND FINANCIAL STATEMENTS 2018

CONTENTS

Company Information 1 Corporate Governance 2 Remuneration Report 4 Strategic Report 5 Directors’ Report 12 Independent Auditor’s Report 14 Statement of Comprehensive Income 16 Statement of Financial Position 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements 20 COMPANY INFORMATION REPORT AND FINANCIAL STATEMENTS 2018 COMPANY INFORMATION

Directors the University of Oxford Investment Director of Civil Society Media and Sir Harvey McGrath 1,3 (Chair) Committee and was a co-founder (since February 2019) also of National Chair of Governors Birkbeck College, and former Chair of Apax Partners. Lottery Community Fund. Chair of Trustees of West London Fiona Ellis 2 Chris Wright Zone, Heart of the City, Funding Formerly Chair of the BBC Appeals Chief Executive of Catch22, Trustee London and Icould. Former Chair of Advisory Committee, Member of of Community Links, Only Connect, Prudential plc and Man Group plc. Durham University Council, Chair Launch22 and Catch22 Multi- Lesley-Anne Alexander CBE 1 of St Cuthbert’s Society and Trust Academy Trust. Non-Executive Non-Executive Director of the Manager of the Millfield House Director of Numbers for Good (until Royal Brompton Hospital and Foundation. February 2019). Metropolitan Thames Valley Housing Stuart Foster 2 Secretary Trust, and Trustee of the MicroLoan (Big Society Capital Director Alastair Ballantyne Foundation. Former Chief Executive nominated by the shareholder banks) of the Royal National Institute of Blind Auditors Managing Director, Commercial and People. KPMG LLP Private Banking Division of NatWest 15 Canada Square Paola Bergamaschi Broyd 2 Bank. London Non-Executive Director of BNY Christina McComb OBE E14 5GL Mellon International, Wells Fargo (Senior Independent Director) 3 Securities International, ARCA Fondi Bankers Chair of OneFamily and Standard Life SGR (Milan), SAMTI (Amsterdam) and HSBC plc European Private Equity Trust plc. Trustee of Fareshare UK. 69 Pall Mall Senior Independent Director of the London Kieron Boyle 1 British Business Bank and Nexeon Ltd SW1Y 5EY Chief Executive of Guy’s and St. and Trustee of Nesta. Thomas’ Charity. Trustee of Design Registered office Cliff Prior CBE3 Council and of Catch 22 and Advisory New Fetter Place Chief Executive of Big Society Board member of World Policy 8 - 10 New Fetter Lane Capital. Adviser to the Global Social Institute. London Entrepreneurship Network, Member EC4A 1AZ Sir Ronald Cohen of the UK National Advisory Board for Sir Ronald Cohen was co-founder Impact Investment. Non-executive Registered number Chair of Big Society Capital. He is director of International Venture 07599565 Chair of the Global Social Impact Philanthropy Centre. Investment Steering Group and Anne Wade former Chair of the Social Impact Non-Executive Director of John Investment Taskforce established Laing Group plc and of Summit under the UK’s presidency of the G8. Materials. Trustee of the Heron Co-founder and Chair of the Portland Foundation, Partner of Leaders’ Trust, co-founder and former Chair Quest. of Bridges Ventures and co-founder of Social Finance in the UK, US and Danielle Walker Palmour 1 Israel. Member of the Board of Dean’s Foundation Director of Friends Advisors at Harvard Business School Provident Foundation, Vice-Chair of York Blind and Partially Sighted 1 Member of the Nominations and Remuneration and a Vice-Chairman of Ben Gurion Committee (N&RC) University. Former Director of the Society and Trustee of York Area 2 Member of the Audit, Risk and Compliance Harvard Management Company and Quaker Meeting. Non-Executive Committee (ARCC) 3 Member of the Investment Committee (IC)

1 CORPORATE GOVERNANCE REPORT AND FINANCIAL STATEMENTS 2018 CORPORATE GOVERNANCE

Big Society Capital Limited • the Nominations and Remuneration issues within Big Society Capital’s (Big Society Capital, BSC) is an Committee (N&RC) – responsible investment portfolio. It is chaired by independent financial institution with for making recommendations the CFO of Big Society Capital (who a social mission, set up to help grow concerning the appointment of is not a member of the Investment the social investment market. directors, particularly for ensuring Committee). Members of ARCC that there is an even balance on the and the company auditors are Our vision is to improve people’s Board between individuals with the invited to observe meetings of the lives in the UK by helping tackle social appropriate depth of experience and Valuation Committee. challenges through investment. Big expertise in the financial and social Society Capital will focus its efforts, sectors. It also has responsibilities The Big Society Trust Limited alongside partners bringing their for setting levels of remuneration. The Big Society Trust Limited capital and expertise, on social issues (The Big Society Trust, BST) is the where the company can have a • the Audit, Risk and Compliance majority shareholder in Big Society sustainable impact. In the process Big Committee (ARCC) – responsible Capital. Its role is to ensure that Big Society Capital will help to build the for overseeing management Society Capital remains true to its social investment market. It also seeks processes and other arrangements mission. Reflecting its strategic to achieve and maintain financial to ensure the appropriateness remit, The Big Society Trust Board sustainability over the longer term. and effectiveness of systems and represents a balance of social and controls, including risk management. The company is authorised by the financial experience and comprises Financial Conduct Authority (Firm Big Society Capital has three other business and social sector leaders Number: 568940). operational committees: and ex-officio, the CEOs of sector representative bodies, a nominee of • the Executive Committee is chaired Big Society Capital the Cabinet Office and the Chair of by the CEO and is responsible Big Society Capital is a company Big Society Capital. The Big Society for the day-to-day running of Big limited by shares with capital Capital CEO is invited to attend The Society Capital. comprising “A” shares, held by The Big Big Society Trust Board meetings as Society Trust, and “B” shares, held by • the Investment Committee an observer. the four shareholder banks. comprises Board and Executive To fulfil its role, the Big Society Trust Committee members responsible The composition of the Big Society Board meets four times a year. For for making investments and for Capital Board reflects its purpose and each board meeting, Big Society the performance of Big Society includes directors with financial and/ Capital provides information about Capital’s portfolio of investments, or social sector expertise. The Board its activities and there is a discussion and reporting its activities to the comprises non-executive directors of developments with the Big Society Board. All investments over £10m (including one who is nominated by Capital CEO. The Board has an also require approval by the Board. It the shareholder banks) and the CEO opportunity to advise on strategy and is chaired by the CEO of Big Society of Big Society Capital. The Board to review its oversight role and BST/ Capital or delegated to an alternative meets five times a year and there is BSC governance arrangements. member of the Committee an annual review of the effectiveness (normally the Deputy Chair of the of the Board (including the Senior Investment Committee). Independent Director feeding-back on the Chair’s performance). • the Valuation Committee is responsible for determining Big Society Capital has two Board valuations and assessing Committees each comprising non- investment performance, executive directors with external including social impact. This members providing specific expertise: includes identifying key risks and

2 CORPORATE GOVERNANCE CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

To enable it to carry out its role, The Big The Big Society Trust Directors Society Trust has a controlling interest Advisory Board members as at 31 December 2018: in Big Society Capital. It has 80% of as at 31 December 2018 Dame Clare Tickell the voting rights at shareholders’ Vidhya Alakeson (Chair from 7 June 2018) meetings. For important issues, such Power to Change CEO of Hanover Housing Association as any change to the company’s Robert Annibale to November 2018, Member of the Articles concerning its objects or Citi Board of The National Audit Office. powers, a consensus vote by The Big Dawn Austwick OBE Baroness (Jill) Pitkeathley OBE Society Trust Board is required. Big Lottery Fund (retired as BST Director and Chair Jonathan Bland on 7 June 2018) Big Society Capital reports regularly to E3M House of Lords, Chair of the House of The Big Society Trust on its financial Lords Select Committee on Charities. performance, its investments Rt Hon Hazel Blears President of the National Council for and Board and senior manager Social Investment Business Voluntary Organisations. appointments. The Big Society Trust Dan Corry Nicola Pollock is not involved in making investment New Philanthropy Capital (from 7 June 2018) decisions or other operational issues. Alastair Davis Director, John Ellerman Foundation. Social Investment Scotland Stephen Howard LVO Shareholder banks Seb Elsworth Chair of Thames Reach and Power Each shareholder bank (Barclays, Access – The Foundation for to Change. Director of Big Issue HSBC, Lloyds Banking Group and Social Investment Social Investments Limited and RBS) has subscribed £50 million of David Hutchison OBE Thanda UK. Trustee, American Big Society Capital’s shares. Their Social Finance International Church. individual shareholdings will always be Dominic Llewellyn Robin Budenberg CBE less than 10% of the paid-in capital, Numbers for Good Chair of the Crown Estate, London currently 8.60%. Kate Markey Chairman of Centerview Partners and The London Community Foundation Non-Executive Director of Charity Bank. The banks can vote at shareholders’ meetings. Their votes are in Caroline Mason CBE Sir Stuart Etherington Esmee Fairbairn Foundation CEO of The National Council for proportion to their shareholding, but Voluntary Organisations. each is capped at 5% of the overall James Perry Panahpur Peter Holbrook CBE voting rights. The banks together CEO of Social Enterprise UK. have the right to nominate one Hugh Rolo director to the Big Society Capital Locality Joanna Fox Antony Ross OBE Senior Commercial Specialist in Board. In addition to information Bridges Fund Management the Infrastructure and Projects provided to them by that director, Authority and Head of Public Private the banks receive all Big Society Ian Scholes Partnerships. Capital Board papers and quarterly Spacious Place John Kingston OBE and half yearly reports. In certain Carolyn Sims Chair of Access – the Foundation for circumstances the banks have the Charity Bank Social Investment. right to request a meeting with the Whitni Thomas Sir Harvey McGrath senior management of Big Society Triodos Bank Chair of Big Society Capital. Capital to discuss its performance. Big Society Capital Advisory Board The Big Society Capital CEO has established an Advisory Board to advise on aspects of Big Society Capital’s strategy or activities. The Advisory Board is made up of individuals with specific interest and involvement in social investment including prominent practitioners from the sector. The Advisory Board is a consultative committee with no decision making powers. Its membership is approved by the Big Society Capital Board.

3 REMUNERATION REPORT REPORT AND FINANCIAL STATEMENTS 2018

This report covers the 12 months REMUNERATION ended 31 December 2018 and sets out the policy and disclosures in relation to REPORT the remuneration of the employees and directors of Big Society Capital.

The Nominations & Remuneration • ensure that contractual terms on • Total non-executive directors’ Committee (N&RC) is appointed by termination, and any payments fees in 2018 were £76,997 the Board of the company and makes made, are fair to the individual and (2017: £61,500). recommendations on these issues to it. the company; Higher paid employees The N&RC is responsible for • oversee any major changes in The total number of employees, establishing a formal and the nature of employee benefits including directors, with annual transparent procedure for setting provided by the company; and remuneration of £60,000 or more the remuneration policy for the • agree the policy for authorising claims and employed as at the period end executive staff of the company and for expenses from the directors. were as follows: for determining the remuneration packages of executive staff. It also Principles for executive leads the process for setting non- 2018 2017 remuneration Number Number executive directors’ fees. • Executive directors and the senior £60,000 - £69,999 10 7 The N&RC’s responsibilities regarding executive team will be paid a £70,000 - £79,999 3 5 remuneration are to: comparable remuneration package to persons engaged in similar £80,000 - £89,999 1 1 • make recommendations to the positions in the public or not-for- £90,000 - £99,999 1 2 Board of the company in relation to profit sectors, as appropriate. £100,000 - £109,999 1 1 the remuneration of directors and senior executives; • The senior executive team will £110,000 - £119,999 2 1 not be paid any bonuses. £140,000 - £149,999 - 1 • make recommendations to the £150,000 - £159,999 1 - Board of the company in relation Principles for non-executive to the identity and terms of remuneration appointment of independent • Non-executive directors will be Eighteen of these employees consultants for the conduct of an offered an equivalent sum paid by participate in the company pension independent salary survey, at least other comparable public bodies scheme. Employees make a once every five years; and not-for-profit organisations, contribution of up to 8% of salary to • establish the benchmark for such as housing associations. the pension scheme. The company remuneration packages for matches the employee contributions • In 2018, the amounts were £7,865 and pays an additional 3% of salary. persons engaged in similar (2017: £7,635) per annum for the positions in the public, not-for- service of acting as a non-executive The total number of employees at profit or charity sectors; director, £3,350 (2017: £3,300) 31 December 2018 was 52 and at 31 • review the on-going appropriateness per annum for chairing a Board December 2017 was 44. and relevance of the company Committee and £1,675 (2017: The ratio of highest salary to lowest remuneration, pensions and £1,650) per annum for acting as a salary is 6.52 (2017: 6.33). employment benefits policies; non-chair member of a Committee. In addition, £5,150 (2017: £5,000) • determine the total individual Gender pay data per annum is offered to a non- remuneration package of senior Big Society Capital has published its executive director who acts as executives in consultation with gender pay gap data on its website a member of the Investment the Chair and/or CEO of the www.bigsocietycapital.com. Committee. These amounts are company, as appropriate; reviewed by Big Society Capital • review on an annual basis annually in the light of inflation and the remuneration of non- non-executive remuneration levels executive directors; at comparable organisations.

4 STRATEGIC REPORT REPORT AND FINANCIAL STATEMENTS 2018 STRATEGIC REPORT

Strategy and purpose Business model and trends organisations to engage with the BSC’s over-riding purpose is Big Society Capital engages with market, developing research that to improve the lives of people investors, fund managers, social builds understanding, improving in the UK by connecting social enterprises and charities to make the measurement of social investment to social enterprises it easier to use social investment. impact, and advocating for an and charities. BSC is currently With its co-investors, it has appropriate policy environment. focusing its efforts on three areas made over £1.7 billion of new Big Society Capital’s principles are: where we believe social investment capital available to organisations can be particularly effective: homes with a social mission, through Independence: The Big Society Trust, for people in need, supporting investments into fund managers an independent holding company places and early action to prevent and social banks. It has a special that currently owns 65.6% of Big harm. In addition, BSC will continue focus on: providing homes for Society Capital’s shares, was set up to to make capital available to people in need; supporting ensure that the company is held ‘on opportunities outside these focus communities to improve lives; and mission’. The company is not owned areas including follow-ons from early action to prevent problems. or controlled by Government, nor is existing funds where BSC is seeing it controlled by the banks that have Big Society Capital acts as a an impact or well-formed and highly invested in it, which have capped shares wholesaler, to build the market impactful incoming propositions. of 40%, and voting rights of 20%. through intermediaries alongside BSC’s five corporate objectives others rather than investing Transparency: Big Society Capital is cascade from this strategy and directly. The company invests with committed to producing details of purpose. They guide BSC team intermediaries to provide finance the financial and social impact of its objectives and ultimately objectives that can meet the needs of social investments. It acts as a champion for individual staff members. enterprises and charities. The for sharing information and expertise company focuses on sustainable across the social investment sector. Corporate objectives solutions that will achieve positive 1. To support and invest in innovative Self-sufficiency: Over time, the investment returns as it believes models that use social investment company needs to cover its those will be able to attract the to enable those in most need to operating costs and any losses from most co-investors and ultimately live in affordable, safe, and secure the return on its investments, as achieve the greatest systemic homes – while creating wider change well as earn a small financial return. change. By investing its capital, in the market. This will demonstrate that the social the company aims to build a investment model is sustainable. 2. To support and invest in innovative thriving ecosystem which has models that use social investment strong intermediaries and more Wholesaler: Big Society Capital acts as to strengthen communities in available finance from diverse a wholesaler, deploying capital through disadvantaged areas to build local sources. The company will judge intermediaries including organisations solutions that improve people’s lives. its ultimate success by the growth providing market infrastructure. 3. To support and invest in innovative and social impact of the broader Big Society Capital has received models that use social investment environment it helps create, equity capital from The Big Society to help improve people’s lives by not just the direct impact of its Trust of £381m including £80m tackling problems at an earlier stage. investment capital. received in September 2018. The source of the capital from 4. To build and sustain a successful Big Society Capital also acts The Big Society Trust is dormant social investment market. as a market builder to increase awareness of, and confidence bank accounts managed by the 5. To grow BSC’s impact, effectiveness, in, social impact investment. It Reclaim Fund Limited (RFL). The sustainability, and reputation. does this by encouraging other RFL passes surplus funds to the

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BUSINESS MODEL AND TRENDS CONTINUED

Big Lottery Fund, which then RISK AREA EXPLANATION OF RISK grants the English portion of the funds to The Big Society Trust Strategic Risk – BSC is perceived to be not fulfilling its for investment in enterprises Reputation mission. Risk of lost credibility from financial domiciled in England. At the fraud or impact failure. launch of the company it was Strategic Risk – BSC suffers a failure in adequate expected that the Big Society Governance governance. Governance structure fails Trust’s shareholding would grow to provide sufficient oversight of social to £400m over time and further mission or the investment process. RFL monies are expected in Strategic Risk – Greater degree of development and co- future periods. Big Society Capital Under-developed network of development required by BSC resulting has received £200m from the partners and business models in slower progress from an impact and shareholder banks (Barclays, in BSC’s strategy focus areas. pipeline perspective. HSBC, Lloyds Banking Group and RBS) for investment across Performance / Investment Risks: The risk of financial and social impact the UK, which represents their losses as a result of loss of value of social impact investments, failure of a maximum commitment. counterparty to meet its obligations in accordance with agreed terms and risk of reduced mobilisation of co-investment. These risks are mitigated through Principal risks and uncertainties the Investment Committee and Valuation Committee frameworks which In order to achieve its mission consider investments from Financial, Social Impact and Systems Change BSC is required to take risks from perspectives and through concentration thresholds on Intermediaries and a strategic, financial return and Focus Areas. In addition, BSC runs programmes to support and develop social impact perspective. BSC Intermediaries and seeks to develop wider institutional relationships to bring considers the principal risks it is increased capital flows closer to BSC’s strategic focus areas. exposed to under four headings:– Further detail on the key financial risks facing BSC and the steps taken • Strategic Risks to manage them are outlined in Note 15 to the Financial Statements. • Performance / Investment Risks • External Risks RISK AREA EXPLANATION OF RISK • Operational / Preventable Risks Performance Risk – Investment returns may not meet expectations, Financial and capital is not received as expected. Further information on the nature Portfolio Co-investment targets and financial returns may not of these risks and how they are Performance be achieved. managed by BSC is set out below. Portfolio too narrowly concentrated. Strategic Risks: The risks arising Exits from investments may take longer than planned from the design and execution to realise, restricting liquidity for new investments. of BSC’s business strategy or Volatility of investment valuations. business model that may lead to financial loss, adverse social Performance Risk – BSC fails to effectively implement an internal social impact and reputational damage. Social Impact impact performance framework. BSC seeks to mitigate these risks The impact of BSC’s investments are not delivered through a strong governance as expected. framework and an active BSC fails to persuade the sector in its role as a programme of engagement with market builder and is unable to provide sufficient key stakeholders. evidence needed to demonstrate the effectiveness of social investment to the market.

6 STRATEGIC REPORT CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

External Risks: The risk of Government Policy and/or regulatory Big Society Capital as a changes and adverse macroeconomic trends impacting the responsible business performance of BSC’s social investment portfolio and its pipeline. Such Big Society Capital seeks to risks are often outside BSC’s direct control with mitigation through the maximise its positive impact and diversified nature of BSC’s portfolio and low correlation of that portfolio demonstrate its values as a social with wider market performance factors. organisation through how it runs its operations, its staff policies, its approach as an investor and its wider RISK AREA EXPLANATION OF RISK engagement with the social sector. External Risk – Policy changes in key areas of BSC’s activities and • During 2018, social enterprises and Regulatory a downturn or uncertainty in the macroeconomic charities enjoyed 101 (2017: 113) & Policy environment could impact investment pipeline and hours of free meeting room space the performance of the existing investment portfolio. at Big Society Capital’s offices. Furthermore, six desk spaces were Operational / Preventable Risks: The risk of direct losses resulting provided free of charge to National from inadequate or failed internal processes, people and key systems Housing Federation for three months. or indirect losses resulting from relationships with third parties. BSC • At the end of 2018, Big Society seeks to mitigate these types of risks by policies, processes, controls Capital had five (2017: four) social and procedures in place together with having suitably qualified and enterprises in its supply chain. experienced staff to operate these. This framework is supplemented by a programme of external reviews to assess the adequacy and • The company encourages effectiveness of these mitigants. staff to undertake Trustee and other governance roles in social enterprises and charities, outside RISK AREA EXPLANATION OF RISK of their work commitments and on Operational/ BSC fails to attract and retain staff with the required a voluntary basis. During 2018, 51 Preventable Risk – skills and experience. (2017: 41) charitable organisations People were supported by the company’s staff in this way. Operational/ Conduct risk – failure to observe FCA regulatory Preventable Risk – requirements. Business performance and key Regulatory Process Breach of State Aid requirements by Intermediaries. performance indicators Operational / Financial loss from fraud. Financial performance: Preventable Risk – Accounting, valuation and reporting issues occur and The Financial Statements on Processes and Key go undetected. pages 16 to 43 outline the Systems company’s financial performance Operations are interrupted by a business continuity for the period. incident or cybercrime. The company has made a financial loss in the year of £6.5m (2017: profit £0.8m). As noted in prior years, the company expects to see some volatility within the valuation of the social investment portfolio, given the nature of the company’s early stage investments, although

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BUSINESS PERFORMANCE AND KEY PERFORMANCE INDICATORS CONTINUED

expects there to be a general by a number of other adverse increase in fund income reflecting trend towards improved financial movements (further breakdown is the growth of the portfolio and the performance. available in Notes 3 and 5): more established nature of some of the fund investments. The decline in The company’s investment • adverse valuation movements in this year’s net profit demonstrates portfolio is made up of a social the social investment portfolio the upward and downward revenue investment portfolio and a resulting in a loss of £1.8m volatility from valuation movements treasury portfolio. The social (2017: profit £4.4m); that is likely to continue to be investment portfolio comprises • a slight increase on a feature of the company’s investments made to meet the management fees paid to performance in future years, as a company’s objectives outlined intermediaries, £4.2m compared result of applying the principles of fair above. The treasury portfolio to £3.8m in 2017, as the size value measurement. represents capital held before it is of the portfolio continues to drawn down into social investment. Treasury Portfolio grow, however management The largest portion of the treasury Social Investment Portfolio fees as a percentage of average portfolio is governed by a mandate A key driver of the company’s year committed social investments that only permits investments which on year financial performance were lower in 2018 (0.87%) have been successfully screened is the extent of realised and compared to 2017 (0.99%). in accordance with a socially unrealised valuation gains and The decreased returns from the responsible investment process, losses in the social investment social investment portfolio in while aiming for capital preservation. portfolio. The company’s social 2018 reflect the nature and risk The remainder of the treasury investment portfolio is valued profile of the investments. Big portfolio is invested into social bond, using accounting standards Society Capital’s use of fair value equity and multi-asset funds. Total assessing the fair value of an asset measurement in accounting for revenue from the treasury portfolio at the measurement date, based fund and other social investments in 2018 was £2.9m, approximately on International Private Equity has resulted in decreased revenue 33% lower than 2017, due to a lower and Venture Capital Valuation in 2018 based on the underlying average treasury portfolio balance guidelines. However, the valuations performance and valuation of the in the year, notwithstanding the do not necessarily reflect the investments. The movements receipt of £80m additional share company’s view of the long-term in investment valuations in capital in September 2018. Treasury value of the investments, which 2018 are due to write-downs returns were also impacted by mark are typically expected to be held within the portfolio significantly to market decreases on the social for between five to ten years. As is outweighing write-ups. This is bond, equity and multi-asset funds, common practice with unquoted largely due to a combination reflecting bond and equity market investments, a key metric of the of impairments on underlying trends during the year. financial success is the actual cash investments, generally in line with realised on an investment relative Administrative and other expenses fund manager positions and small to its cost. Administrative costs increased by decreases on the social property £0.2m to £6.0m in 2018 and treasury Income (comprising interest, investments. The performance management fees reduced marginally fees and dividends) on the of the social investment portfolio to £0.5m. Of the total administrative social investment portfolio has was negative 1.48% in 2018 expenses it is estimated that 40- continued to increase, during compared to positive 1.64% in 45% relate to the company’s social 2018 by £0.7m to £2.9m (2017: 2017, based on overall returns investment market building activities £0.5m increase to £2.2m), and the average balance of the including executing the engagement resulting from the growth of portfolio. Partially offsetting the plan and pipeline development for the portfolio. This was offset write up/ down movements is an

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BUSINESS PERFORMANCE AND KEY PERFORMANCE INDICATORS CONTINUED

which the company receives no market through the provision impact investment is available reimbursement. of information and resources across the funding spectrum. alongside a comprehensive The longer term objective is for • Continued engagement with directory of social investors the company to generate positive partners to enable more donor and advisers. By the end of financial returns and social impact advised funds (DAFs) and local 2018, there were 60,000 unique on a continuing basis as the social government pension funds to visitors to the website. investment portfolio becomes make social impact investments. more mature and exits from earlier • Continued to engage via regional • Continued engagement with investments are realised. The and national events and media investors through media and generation of financial returns activities with social enterprises, events including supporting will also enable the company’s charities and network bodies Worthstone’s Social Investment operational and market building costs to promote understanding Academy’s inaugural Social to be covered. However, it should be and opportunities to connect Impact Awards, investor events noted that, given the nature of the with organisations providing convened by Toniic, GIIN, Pensions company’s early stage investment investment and support. for Purpose and BVCA Impact portfolio, the company expects to • Delivered a second GET SITR Investment Advisory Group. continue to see volatility in the net campaign on behalf of DCMS, profit and in some years, particularly to increase awareness of Social Social Investment Activity and Key in the near term, the company may Investment Tax Relief, and Performance Indicators: experience further net losses. Big Society Capital has a range of the updated eligibility rules key performance indicators (KPIs) Market Building Activities: amongst social enterprises and that it uses to evaluate both the Big Society Capital continues to charities, and providing practical social investment market and the build awareness and understanding resources, case studies and 1:1 organisation’s performance. The of social investment with social surgery sessions to get advice. figures below show the company’s enterprises, charities and investors. There were 797 subscribers to KPIs at 31 December 2018. the campaign at the end of 2018. Our market building in 2018 included Capital available to social enterprises developing closer relationships • Ran a workshop for a group and charities with potential partners (particularly of universities on responsible • Since launching Big Society investors), who can work with us to investment across the spectrum Capital has signed 86 develop ideas for us and others to of capital. As a result of the (2017: 75) investments. make social investments that will interest shown, we will set up a enable social impact in our focus responsible investment network • The cumulative amount of areas of housing, place and early for universities in partnership investments signed by Big action. Through our ongoing market with Shareaction in 2019. Society Capital and its co- building, we continue to facilitate investors is £1,721m (2017: • Supported the continued deeper understanding with specific £1,146m). When an investment development of two key funders’ investor groups and to help address is signed, the funds are then networks (the Social Impact barriers to participation. available for intermediaries to Investors Group of Foundations Key activities in 2018 included: invest into social enterprises and and the Venture Philanthropy charities. • Continued to develop Steering Group) with our www.GoodFinance.org.uk, partners at the Association of • Of this £524m (2017: £434m) is a website to help social Charitable Foundations and the Big Society Capital’s own funds enterprises and charities European Venture Philanthropy and £1,197m (2017: £712m) is navigate the social investment Association, so that more social from its co-investors.

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NAME COMMITMENT THEME PURPOSE CBRE Affordable £10m Homes Attracting institutional capital to social Housing Fund impact driven affordable housing Key Fund Investments £1.5m Place Helping local organisations take on Limited community buildings Bridges Social Impact £12.5m Early Action Improving outcomes in children’s services, Bond Fund II homelessness and health and social care Ananda Impact Fund III £4.5m Early Action Building outstanding impact businesses GmbH & Co. KG across Europe Bethnal Green Ventures £0.25m Early Action Building tech businesses to change LLP people’s lives Rathbones Investment £20m Portfolio Helping social enterprises and charities Management Limited issue bonds to grow their impact Match facility alongside £10m Portfolio Supporting Charity Bank’s lending The Charity Bank to serve more social enterprises Limited and charities Bridges Evergreen £18.7m Portfolio Providing long-term capital to scale social Capital GP LLP impact driven enterprises Unity Trust Bank plc £3.1m Portfolio Growing UTB’s lending to social enterprises and charities Community Impact £1.8m Growth Helping Housing Associations build social Partnership CIC enterprises in their supply chain Big Issue Access Limited £2.3m Growth Fund England-wide small loan fund for social enterprises Cultural Impact £2.5m Growth Fund Small loans for enterprises delivering Development Loans social impact through the arts Limited Forward Enterprise FM £1.2m Growth Fund Small loans for enterprises run by Ltd ex-offenders and/or in recovery Picnic Investment £2m Growth Fund Helping the National Trust develop impact Limited driven enterprises in parks

10 STRATEGIC REPORT CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

BUSINESS PERFORMANCE AND KEY PERFORMANCE INDICATORS CONTINUED

The major categories of Money reaching social enterprises Cumulative drawdown by co-investors include: and charities organisational form: – Pensions and Insurance – 34% • The cumulative amount drawn – 68% (2017: 68%) asset locked (2017: 19%) down from Big Society Capital social enterprises and charities. and its co-investors is £1,004m – Funds & Fund Of Funds – 14% – 14% (2017: 14%) non-asset locked (2017: £764m). Big Society (2017: 16%) social enterprises. Capital’s expectation is that the – Social Bank Depositors – 14% average investment will typically – 4% (2017: 3%) Social Impact Bonds (2017: 18%) take between three and six years – 3% (2017: 3%) other (e.g. Local – Individuals & Family Offices – 13% to fully draw down. Authorities as part of mixed funds) (2017: 16%) • Of this £276m (2017: £224m) has – 3% (2017: 3%) is capital for – Charity or Foundation – 12% come from Big Society Capital’s arrangers (investments into (2017: 16%) own funds and £728m (2017: social investment advisers). £540m) from its co-investors. – Government bodies – 5% (2017: 8%) In 2018 drawdowns by investee – 6% (2017: 6%) is management fees paid to intermediaries. – Banks – 5% (2017: 5%) entities totalled £52m (2017: £82m). – 2% (2017: 3%) is cash balances – Other – 3% (2017: 2%) • The drawdown has been utilised as follows (based on Big Society in funds. • In 2018 BSC signed new Capital’s drawdown): investments totalling £90m, Capital available for investment Big Society Capital has received including three follow-on Cumulative drawdown by £581m (2017: £501m) of capital investments, (2017: £94m). product type: from Reclaim Fund Ltd and the See table opposite. – 65% (2017: 59%) is capital for social enterprises and charities through shareholder banks including the • At 31 December 2018 Big Society funds and social banks. £80m received in September 2018. Capital’s social investment This is the amount of capital that portfolio comprised investments – 20% (2017: 26%) is into the company has received from in the following activities property, mainly to help its shareholders, and is therefore (% of portfolio by valuation): charitable service delivery. available to the company to use – 4% (2017: 3%) is helping charities to run its operations and invest. Product Type (by Valuation) deliver services using Social Of this £581m, £524m has been Impact Bonds. 3% 1% signed and committed, of which – 6% (2017: 6%) is management £276m has been drawn down. 10% fees paid to intermediaries. 29% – 3% (2017: 3%) is capital for 12% This report was approved by the Board arrangers (investments into on 16 April 2019 and signed on its behalf. social investment advisers).

12% 21% – 2% (2017: 3%) is cash balances in funds. Cliff Prior 12% Director ■ Property ■ Non-bank lending ■ Bank lending ■ Charity bonds ■ Ventures & Equity ■ Renewables ■ SIBs ■ Operating Intermediary & advisors

11 DIRECTORS’ REPORT REPORT AND FINANCIAL STATEMENTS 2018 DIRECTORS’ REPORT

The directors present Pillar III disclosures their report and financial Directors The company makes disclosures on statements for the year The following persons served as its website – www.bigsocietycapital. directors during the year: com – setting out the company’s ended 31 December 2018. capital resources, risk exposures Sir Harvey McGrath (Chair) and risk management processes. Lesley-Anne Alexander CBE (appointed to the Board 7 Statement of Directors’ Registered number: 07599565 June 2018) responsibilities in respect of the Strategic Report, the Directors’ Paola Bergamaschi Broyd Report and the Financial (appointed to the Board Statements 7 June 2018) The directors are responsible for Kieron Boyle preparing the Strategic Report, the Sir Ronald Cohen Directors’ Report and the financial statements in accordance with Fiona Ellis applicable law and regulations. Stuart Foster Company law requires the directors Christina McComb OBE to prepare financial statements for each financial year. Under that law Dai Powell OBE (resigned from the they have elected to prepare the Board 7 June 2018) financial statements in accordance Cliff Prior CBE with UK accounting standards and applicable law (UK Generally Dame Susan Rice DBE (resigned Accepted Accounting Practice), from the Board 7 June 2018) including FRS 102 The Financial Sarah Smart (resigned from the Reporting Standard applicable in the Board 31 December 2018) UK and Republic of Ireland. Anne Wade Under company law the directors Danielle Walker Palmour must not approve the financial statements unless they are Chris Wright (appointed to the satisfied that they give a true and Board 7 June 2018) fair view of the state of affairs of the company and of the profit or loss of the company for that Dividends period. In preparing these financial The directors do not recommend statements, the directors are the payment of a dividend for the required to: year (2017: £nil). • select suitable accounting policies Directors’ Indemnity and then apply them consistently; The company arranges directors’ • make judgements and estimates and officers’ liability insurance that are reasonable and prudent; to cover certain liabilities and • state whether applicable UK defence costs. Accounting Standards have been

12 DIRECTORS’ REPORT CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE STRATEGIC REPORT, THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS CONTINUED

followed, subject to any material Disclosure of information departures disclosed and explained to Auditors in the financial statements; Each person who was a director at the time this report was approved • assess the company’s ability to confirms that: continue as a going concern, disclosing, as applicable, matters • so far as they are aware, there is related to going concern; and no relevant audit information of which the company’s auditor is • use the going concern basis of unaware; and accounting unless they either intend to liquidate the company • they have taken all the steps or to cease operations, or have no that they ought to have taken realistic alternative but to do so. as a director in order to make themselves aware of any relevant The directors are responsible for audit information and to establish keeping adequate accounting that the company’s auditor is aware records that are sufficient to of that information. show and explain the company’s transactions and disclose with reasonable accuracy at any time the This report was approved by the Board financial position of the company on 16 April 2019 and signed on its behalf. and enable them to ensure that the financial statements comply with the Companies Act 2006. They are responsible for such internal control Cliff Prior as they determine is necessary to Director enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

13 INDEPENDENT AUDITOR’S REPORT REPORT AND FINANCIAL STATEMENTS 2018 INDEPENDENT AUDITOR’S REPORT

To the members of Big Society Capital Limited

Opinion The impact of uncertainties due to significant doubt over its ability to We have audited the financial the UK exiting the European Union continue as a going concern for statements of Big Society Capital on our audit at least a year from the date of Limited (“the company”) for the Uncertainties related to the effects of approval of the financial statements year ended 31 December 2018 Brexit are relevant to understanding (“the going concern period”). which comprise the Statement our audit of the financial statements. We are required to report to you if we of Comprehensive Income, the All audits assess and challenge have concluded that the use of the Statement of Financial Position, the the reasonableness of estimates going concern basis of accounting Statement of Changes in Equity, made by the directors, such as is inappropriate or there is an the Statement of Cash Flows the valuation of investments undisclosed material uncertainty and related notes, including the and related disclosures and the that may cast significant doubt over accounting policies in note 1. appropriateness of the going concern the use of that basis for a period basis of preparation of the financial In our opinion the financial statements: of at least a year from the date of statements. All of these depend on approval of the financial statements. • give a true and fair view of the state assessments of the future economic In our evaluation of the directors’ of the company’s affairs as at 31 environment and the group’s future conclusions, we considered the December 2018 and of its loss for prospects and performance. inherent risks to the company’s the year then ended; Brexit is one of the most significant business model, including the impact • have been properly prepared in economic events for the UK, and of Brexit, and analysed how those accordance with UK accounting at the date of this report its effects risks might affect the company’s standards, including FRS 102 The are subject to unprecedented levels financial resources or ability to Financial Reporting Standard of uncertainty of outcomes, with continue operations over the going applicable in the UK and Republic the full range of possible effects concern period. We have nothing to of Ireland; and unknown. We applied a standardised report in these respects. firm-wide approach in response to • have been prepared in accordance However, as we cannot predict all that uncertainty when assessing with the requirements of the future events or conditions and as the group’s future prospects and Companies Act 2006. subsequent events may result in performance. However, no audit outcomes that are inconsistent with should be expected to predict the Basis for opinion judgements that were reasonable unknowable factors or all possible We conducted our audit in at the time they were made, the future implications for a company accordance with International absence of reference to a material and this is particularly the case in Standards on Auditing (UK) (“ISAs uncertainty in this auditor’s report is relation to Brexit. (UK)”) and applicable law. Our not a guarantee that the company responsibilities are described will continue in operation. below. We have fulfilled our ethical Going concern The directors have prepared the responsibilities under, and are Other information financial statements on the going independent of the company The directors are responsible for the concern basis as they do not in accordance with, UK ethical other information, which comprises intend to liquidate the company requirements including the FRC the strategic report, the directors’ or to cease its operations, and Ethical Standard. We believe that the report, company information, as they have concluded that the audit evidence we have obtained is corporate governance and the company’s financial position means a sufficient and appropriate basis for remuneration report. Our opinion on that this is realistic. They have also our opinion. the financial statements does not concluded that there are no material cover those reports and we do not uncertainties that could have cast express an audit opinion thereon.

14 INDEPENDENT AUDITOR’S REPORT CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

OTHER INFORMATION CONTINUED

Our responsibility is to read the Directors’ responsibilities The purpose of our audit work strategic report and the directors’ As explained more fully in their and to whom we owe our report and, in doing so, consider statement set out on pages 12 to responsibilities whether, based on our financial 13, the directors are responsible This report is made solely to the statements audit work, the for: the preparation of the financial company’s members, as a body, in information therein is materially statements and for being satisfied accordance with Chapter 3 of Part misstated or inconsistent with the that they give a true and fair view; such 16 of the Companies Act 2006. Our financial statements or our audit internal control as they determine is audit work has been undertaken knowledge. Based solely on that work: necessary to enable the preparation so that we might state to the of financial statements that are free company’s members those matters • we have not identified material from material misstatement, whether we are required to state to them misstatements in the strategic due to fraud or error; assessing in an auditor’s report and for no report and the directors’ report; the company’s ability to continue other purpose. To the fullest extent • in our opinion the information given as a going concern, disclosing, as permitted by law, we do not accept in those reports for the financial applicable, matters related to going or assume responsibility to anyone year is consistent with the financial concern; and using the going concern other than the company and the statements; basis of accounting unless they either company’s members, as a body, for • in our opinion those reports have intend to liquidate the company or to our audit work, for this report, or for been prepared in accordance with cease operations, or have no realistic the opinions we have formed. alternative but to do so. the Companies Act 2006. Jonathan Martin Auditor’s responsibilities Matters on which we are required (Senior Statutory Auditor) to report by exception Our objectives are to obtain Under the Companies Act 2006 reasonable assurance about we are required to report to you if, whether the financial statements in our opinion: as a whole are free from material for and on behalf of KPMG LLP, misstatement, whether due to Statutory Auditor • adequate accounting records have fraud or error, and to issue our Chartered Accountants not been kept, or returns adequate opinion in an auditor’s report. 15 Canada Square for our audit have not been Reasonable assurance is a high E14 5GL received from branches not visited level of assurance, but does not 16 April 2019 by us; or guarantee that an audit conducted • the financial statements are not in accordance with ISAs (UK) in agreement with the accounting will always detect a material records and returns; or misstatement when it exists. Misstatements can arise from fraud • certain disclosures of directors’ or error and are considered material remuneration specified by law are if, individually or in aggregate, they not made; or could reasonably be expected to • we have not received all the influence the economic decisions information and explanations of users taken on the basis of the we require for our audit. financial statements. We have nothing to report in A fuller description of our these respects. responsibilities is provided on the FRC’s website at www.frc.org.uk/ auditorsresponsibilities.

15 REPORT AND FINANCIAL STATEMENTS 2018

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2018

Notes 2018 2017 £ 000 £ 000 Income 6,392 6,051 Investment (losses)/gains 2 (6,547) 951

Total Revenue 3 (155) 7,002

Other income 4 137 116 Administrative and other expenses 5 (6,441) (6,348)

(Loss)/profit on ordinary activities before taxation (6,459) 770

Tax credit on (loss)/profit on ordinary activities 7 1 12

(Loss)/profit for the financial year (6,458) 782

Other comprehensive income - -

Total comprehensive (loss)/income for the year (6,458) 782

The results above relate to continuing operations. The notes on pages 20 - 43 form part of these Financial Statements.

16 REPORT AND FINANCIAL STATEMENTS 2018

STATEMENT OF FINANCIAL POSITION

As at 31 December 2018

Notes 2018 2017 £ 000 £ 000 Fixed assets Intangible assets 8 45 - Tangible assets 9 133 192 Investments 10 220,196 194,856 220,374 195,048 Current assets Debtors 11 451 525 Investments 12 320,633 284,413 Cash at bank and in hand 17,251 5,230 338,335 290,168 Creditors: amounts falling due within one year 13 (768) (770)

Net current assets 337,567 289,398

Total assets less current liabilities 557,941 484,446

Provisions for liabilities Deferred taxation 14 (24) (21) Net assets 557,917 484,425

Capital and reserves Called up share capital 17 581,345 501,395 Profit and loss account 18 (23,428) (16,970) Total equity 557,917 484,425

The notes on pages 20 - 43 form part of these Financial Statements.

Approved by the Board on 16 April 2019 and signed on its behalf

Cliff Prior Director

Company registration number: 07599565

17 REPORT AND FINANCIAL STATEMENTS 2018

STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2018

Profit Share Share Other and loss capital premium reserves account Total £ 000 £ 000 £ 000 £ 000 £ 000 At 1 January 2017 501,395 - - (17,752) 483,643

Profit for the financial year - - - 782 782

At 31 December 2017 501,395 - - (16,970) 484,425

At 1 January 2018 501,395 - - (16,970) 484,425

Loss for the financial year - - - (6,458) (6,458)

Shares issued 79,950 - - - 79,950

At 31 December 2018 581,345 - - (23,428) 557,917

The notes on pages 20 - 43 form part of these Financial Statements.

18 REPORT AND FINANCIAL STATEMENTS 2018

STATEMENT OF CASH FLOWS

For the year ended 31 December 2018 Notes 2018 2017 £ 000 £ 000 Operating activities Operating profit/(loss) (6,459) 770 Adjustments for: Depreciation and amortisation 116 110 (6,343) 880 (Increase)/decrease in debtors 74 (205) (Decrease)/increase in creditors (2) (1,233) (6,271) (558) Returns on fixed asset investments 7,633 1,649 Returns on current asset investments (2,632) (4,390) Foreign exchange losses 175 319 Corporation tax received 4 3

Cash used in operating activities (1,091) (2,977)

Investing activities and interest Payments to acquire tangible & intangible fixed assets (102) (26) Payments to acquire fixed asset investments (47,680) (79,262) Payments to acquire current asset investments (69,373) (38,258) Repayment of loans 14,707 12,006 Proceeds from sale of current asset investments 35,500 92,949

Cash used in investing activities (66,948) (12,591)

Financing activities Proceeds from the issue of shares 79,950 -

Cash generated by financing activities 79,950 -

Net cash used Cash used in operating activities (1,091) (2,977) Cash used in investing activities (66,948) (12,591) Cash generated by financing activities 79,950 -

Net cash used 11,911 (15,568) Cash and cash equivalents at 1 January 19 33,268 48,836 Cash and cash equivalents at 31 December 45,179 33,268

Cash and cash equivalents comprise: Cash at bank 17,251 5,230 Current asset investments (Maturity less than 3 months from the date of acquisition) 27,928 28,038 19 45,179 33,268

The notes on pages 20 - 43 form part of these Financial Statements.

19 NOTES TO THE FINANCIAL STATEMENTS REPORT AND FINANCIAL STATEMENTS 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018 SUMMARY OF SIGNIFICANT Going concern Associates held as part of an ACCOUNTING The financial statements have been investment portfolio prepared on the going concern The company has investments POLICIES basis. The company has incurred which may be regarded as associated cumulative losses since inception of undertakings, which might require £23.4m, including a loss for the year these to be consolidated using the of £6.5m. The company had cash equity method of accounting. As and current asset investments of these investments are held as part £337.9m as at the year end, having of an investment portfolio, they been capitalised with £581.3m of have not been consolidated in the equity investment since inception. accounts of the company, and are Basis of preparation This means that, despite the losses measured at fair value with changes The financial statements have to date, the company is in a position in fair value recognised in profit or loss been prepared in accordance with to continue to finance and support in accordance with FRS 102 14.4B. FRS 102, the Financial Reporting the overall business objectives. The Standard applicable in the UK and directors have prepared cash flow Government grants Republic of Ireland. projections that support the ability Government grants are included The financial statements have of the company to continue as a within deferred income in the been prepared under the historical going concern. Statement of Financial Position cost convention, except for certain and credited to the Statement of financial instruments which are Revenue Comprehensive Income over the stated at their fair value, as detailed Revenue comprises income expected useful lives of the assets to in the ‘Basic Financial Instruments’ and gains/losses on the social which they relate or in the period in accounting policy below. investment and treasury portfolios. which the related costs are incurred. Revenue is recognised on an accruals basis throughout the year when it is Use of judgements and estimates Interest The preparation of the financial probable that the economic benefits Interest income is recognised either statements in conformity with will flow to the company. using the effective interest method applicable UK GAAP requires or on an accruals basis, depending management to make judgements, Foreign currency upon whether the financial asset estimates and assumptions that Transactions in foreign currencies is measured at ‘amortised cost’ or affect the application of accounting are translated to the company’s whether it has been designated upon policies and the reported amounts functional currency at the foreign initial recognition as at ‘fair value of assets, liabilities, income and exchange rate ruling at the date of through profit or loss’. the transaction. Monetary assets expenses. Actual results may differ The effective interest rate is the and liabilities denominated in foreign from these estimates. Estimates rate that exactly discounts the currencies at the Statement of and underlying assumptions are estimated future cash payments Financial Position date are translated reviewed on an on-going basis. and receipts through the expected to the functional currency (pound life of the financial instrument to The most significant area of sterling) at the foreign exchange rate the carrying amount of the financial judgement is the determination of ruling at that date. Foreign exchange instrument. When calculating the fair values for investments. This is differences arising on translation effective interest rate, the company discussed below, in the accounting are recognised in the Statement of estimates future cash flows policy ‘Basic financial instruments – Comprehensive Income. iii) Fair value measurement’. considering all contractual terms of the financial instrument, but not future credit losses.

20 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

Net gains or losses from financial Financial assets at amortised cost: company will use the Price of Recent Investment adjusted to reflect assets designated as at fair value • Debt investments meeting the milestone/ benchmark analysis. through profit or loss conditions set out in FRS 102.11, Net gains or losses from financial cash at bank and in hand, cash Where appropriate and reasonable assets designated as at fair value deposits (included in investments held earnings or revenue multiples are through profit or loss includes all as current assets), and other debtors. available for comparable businesses, realised and unrealised fair value the company will apply the Multiples changes, but excludes interest income. Financial liabilities at amortised cost: valuation technique to derive a value • Creditors for the investment. Basic financial instruments Financial liabilities at fair value i) Recognition and initial measurement If industry benchmarks can be Financial assets designated as at through profit or loss: applied to the investment to derive fair value through profit or loss are • Derivative financial instruments a fair value, these will be applied. recognised initially at fair value, If future cash flows can be reasonably with transaction costs recognised Note 15 – Financial risk management estimated, and it is felt that the risks, in profit or loss. Financial assets or and financial instruments – provides due to the high level of subjectivity, financial liabilities not at fair value a reconciliation of line items in the involved in applying the Discounted through profit or loss are recognised Statement of Financial Position to the Cash Flow method do not render the initially at fair value plus transaction categories of financial instruments. method insufficiently reliable, this will costs that are directly attributable to iii) Fair value measurement be applied. their acquisition or issue. As described in Note 16 – Valuation Where a regular Net Asset Valuation Investments within the social of financial instruments, the company is available for the investment, investment portfolio, in which the uses a three-level hierarchy for fair the company will assess this for company has significant influence value measurement disclosure. reasonableness and consider whether are held as part of an investment Fair value is the amount for which the investment can be valued on the portfolio, rather than qualifying an asset could be exchanged, basis of the underlying fair value of as associates. The company or a liability settled, between its assets, rather than its earnings. recognises its investments within knowledgeable, willing parties in If this is considered appropriate the the Statement of Financial Position, an arm’s length transaction on the company will apply the Adjusted Net on the date on which investments measurement date. Asset Valuation method. are signed and a drawdown notice In determining a fair value using has been received by the company. Level 3 valuation techniques, the The company may decide to use Additionally the company discloses company applies the principles a combination of the mentioned commitments at two distinct included in the ‘International methods, or other methods that are stages: commitments contracted Private Equity and Venture Capital considered more appropriate to derive but not drawn down and in principle Valuation Guidelines’ (2015 edition): the fair value of its investments. commitments. Details are set out in Note 21 – Capital commitments. Where an investment has been iv) Impairment made recently, or where there has A financial asset not classified at fair value through profit or loss is assessed ii) Classification been subsequent, significant new The company classifies its basic investment into the company, a more at each reporting date to determine financial instruments into the accurate valuation is not available whether there is objective evidence following categories: and there is no evidence to suggest of impairment. A financial asset or a group of financial assets is impaired Financial assets at fair value through that the unadjusted Price of Recent if there is objective evidence of profit or loss: Investment is no longer relevant, the company may apply the Price impairment as a result of one or more • Designated as at fair value through of Recent Investment, for a limited events that occurred after the initial profit or loss - debt, equity, fund and period following the date of the recognition of the asset(s), and that social impact bond investments and relevant transaction. Where it is felt loss event(s) had an impact on the derivative financial instruments. that there has been a change to the estimated future cash flows of that milestones or benchmark then the asset(s) that can be estimated reliably.

21 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

BASIC FINANCIAL INSTRUMENTS CONTINUED

v) Derivative financial instruments Investments held as current assets Taxation The company holds derivative The company classifies investments Tax on the profit or loss for the year financial instruments to manage (cash deposits or other debt comprises current and deferred its exchange risk exposure from securities) that cannot be readily tax. Tax is recognised in the profit its USD and EUR denominated realised within 24 hours, but can and loss account except to the financial assets. Derivatives are be realised within 12 months as extent that it relates to items recognised initially at fair value Investments held as current assets. recognised directly in equity or other with any attributable transaction comprehensive income, in which costs recognised in the profit and Intangible fixed assets case it is recognised directly in equity loss account as incurred. After Intangible fixed assets are or other comprehensive income. initial recognition derivatives are measured at cost less accumulative Current tax is the expected tax measured at fair value and changes amortisation and any accumulative payable or receivable on the taxable recognised in the profit and loss impairment losses. income or loss for the year, using account as incurred, the fair value Amortisation is provided on all tax rates enacted or substantively reflects the estimated amount the intangible assets to allocate the enacted at the balance sheet date, company would receive or pay in depreciable amount of the assets and any adjustment to tax payable in an arms length transaction. This to their residual values over their respect of previous years. amount is determined based on estimated useful lives, as follows: observable exchange rates. Deferred tax is provided on timing • Software development differences which arise from the vi) Offsetting over 3 years inclusion of income and expenses Financial assets and liabilities are in tax assessments in periods offset and the net amount presented Tangible fixed assets different from those in which they in the Statement of Financial Position Tangible fixed assets are measured at are recognised in the financial when, and only when, the company cost less accumulative depreciation and statements. has a legal right to offset the any accumulative impairment losses. amounts and intends either to settle Deferred tax is measured using the on a net basis or to realise the asset Depreciation is provided on all tangible tax rates and laws that have been and settle the liability simultaneously. fixed assets, other than freehold land, enacted or substantively enacted at rates calculated to write off the by the reporting date and that are Income and expenses are presented cost, less estimated residual value, of expected to apply to the reversal of on a net basis only when permitted each asset evenly over its expected the timing difference. under UK GAAP e.g. for gains and useful life, as follows: losses arising from a group of similar A reduction in the UK corporation transactions, such as gains and • Leasehold land and buildings tax rate from 20% to 19% (effective losses from financial instruments at over the lease term from 1 April 2017) and to 18% fair value through profit or loss. • Fixtures, fittings and equipment (effective from 1 April 2020) were over 3 years substantively enacted on 26 October 2015 and an additional reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company’s future current tax charge accordingly.

Pensions The company operates a defined contribution pension scheme. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of the scheme.

22 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

INVESTMENT GAINS/ (LOSSES) 2018 2017 £ 000 £ 000 Social investment portfolio Net gains/(losses) from financial assets designated as at fair value through profit or loss: Realised 1,686 2,150 Unrealised (7,744) (1,507) Net gains/(losses) from financial assets carried at amortised cost: Unrealised 111 (142) Total Net Gains from Financial Assets (5,947) 501 Net foreign exchange (losses)/gains from financial assets designated as at fair value: Unrealised (13) -

Total Social investment (losses)/gains (5,960) 501

Treasury portfolio Net gains/(losses) from financial assets designated as at fair value through profit or loss: Current Asset Investments – Realised 618 379 Current Asset Investments – Unrealised (1,030) 206 Net (losses)/gains from financial assets carried at amortised cost: Realised (13) 184

Total Net (Losses)/Gains from Financial Assets (425) 769

Net (losses)/gains on currency forward derivatives – Realised (2,307) 1,456 Net (losses)/gains on currency forward derivatives – Unrealised (34) 1,152 Net (losses)/gains on currency forward derivatives (2,341) 2,608 Net foreign exchange gains/(losses) from financial assets designated as amortised cost: Realised 713 464 Unrealised 1,466 (3,391)

Net foreign exchange losses (162) (319)

Total Treasury (losses)/gains (587) 450

Total Social investment and Treasury (losses)/gains (6,547) 951

During 2018 the company made investments in foreign currency denominated assets. As outlined in Note 15 – Financial risk management and financial instruments, the foreign exchange risk is managed with currency forward derivative contracts. Any gains/ losses on the revaluation of foreign denominated assets offset the corresponding gains/ losses on the currency forward derivatives to the extent that the derivatives match the underlying currency exposure. Following changes in the mix and return profile of foreign exchange denominated assets in the treasury portfolio during 2018 the exchange gain on foreign currency denominated debt securities was £2.2m (2017: loss of £2.9m) which was offset by a loss on the currency forward derivatives in 2018 of £2.3m (2017 gain of £2.6m), resulting in a net foreign exchange loss of £162,000 (2017: £319,000).

23 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

TOTAL REVENUE 2018 2017 £ 000 £ 000 Social investment portfolio Fixed asset investments: Interest income on financial assets designated as amortised cost 495 302 Interest income on financial assets designated as at fair value through profit or loss 2,311 1,807 Dividend income from financial assets designated as at fair value through profit or loss 74 36 Fees received 15 38 Income 2,895 2,183

Net (losses)/gains from financial assets designated as at fair value through profit or loss: Management fees and expenses paid to intermediaries (4,175) (3,832) Valuation changes and income relating to underlying investments (1,883) 4,475 Net foreign exchange losses from financial assets (13) - Net gains/(losses) from financial assets designated as amortised cost: Valuation changes and income relating to underlying investments 111 (142) Investment gains/(losses) (5,960) 501

(3,065) 2,684

Treasury portfolio Interest income on financial assets designated as amortised cost 3,497 3,868 Income 3,497 3,868

Net (losses)/gains from financial assets designated as at fair value through profit or loss: Current asset investments (412) 585 Net (losses)/gains on currency forward derivatives (2,341) 2,608 Net (losses)/gains from financial assets carried at amortised cost: (13) 184 Net foreign exchange gains/(losses) from financial assets designated as amortised cost 2,179 (2,927) Investment (losses)/gains (587) 450

2,910 4,318

Income Social investment portfolio 2,895 2,183 Treasury portfolio 3,497 3,868 6,392 6,051 Investment (losses)/gains Social investment portfolio (5,960) 501 Treasury portfolio (587) 450 (6,547) 951

Total Revenue (155) 7,002

24 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

3. TOTAL REVENUE CONTINUED

Total revenue decreased significantly in 2018 primarily as result of higher write-downs within the social investment portfolio together with decreased returns from the treasury portfolio. As described in the Strategic Report on pages 5 to 11 the income and valuation movements on the social investment portfolio reflect the continued growth of the portfolio and the current stage of the company’s social investments as these move to a more mature fully-invested position, as well as the expected volatility due to the nature of the investments and the use of fair value accounting to value them. As described in Note 16 – Valuation of financial instruments, one of the valuation techniques applied is to value the investments on the basis of their Net Asset Valuation. This results in the recognition of set-up costs, management fees and other expenses paid to intermediaries, as they are incurred by the investee. The management fees paid to intermediaries who manage funds allow those fund managers to employ high quality teams to deliver the social and financial returns required. In this way, the fees represent the cost of delivering the company’s investment objectives and of building the capacity of the social investment sector to deliver returns for all social investors. Management fees as a percentage of average committed social investments were 0.87% in 2018 (2017: 0.99%).

OTHER INCOME 2018 2017 £ 000 £ 000 Government grants received 59 36 Other income 78 80 137 116

During 2018, five grants were received totalling £58,929. DCMS provided two grants, £20,000 and £15,000 covering SITR and Knowledge Hubs projects respectively. £5,600 was received from The Rockefeller Foundation to facilitate a conference on Impact Investment. £11,245 was received from Guys & St Thomas’ Charity for Research on Market Solutions to Childhood Obesity. £7,084 was received from Wellcome Trust for our Research to Venture Mental Health Programme.

25 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

ADMINISTRATIVE AND OTHER EXPENSES 2018 2017 £ 000 £ 000 Wages and salaries 2,775 2,922 Non-executive directors’ fees 77 62 Social security costs 372 296 Pension costs 245 222 Staff related costs, including recruitment, training and travel 534 366 Premises 651 650 General and administrative expenses 352 408 Consultancy 216 130 Marketing, including events, sponsorship and website development 231 253 Research 41 10 Amounts receivable by the company’s auditor (see below) 105 110 Other professional costs 149 181 Depreciation of owned fixed assets 100 110 Amortisation of intangible assets 16 - Investment related expenses, including legal fees 88 88 Total administrative expenses 5,952 5,808

Treasury management fees 489 540 Total other expenses 489 540

Total administrative and other expenses 6,441 6,348

Amounts receivable by the company’s auditor and its associates in respect of: Auditors’ remuneration for audit services 89 87 Taxation compliance services 16 23 105 110

AVERAGE NUMBER OF EMPLOYEES DURING THE YEAR 2018 2017 Number Number Investment 20 20 Senior Management 3 5 Communications 4 3 Operations 10 10 Social & Finance Sector Engagement 5 5 On Purpose Interns 2 2 44 45

A breakdown of the total number of employees, including directors, with annual remuneration of £60,000 or more and employed as at the period end is disclosed in the Remuneration Report on page 4.

26 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

DIRECTORS’ AND KEY MANAGEMENT PERSONNEL EMOLUMENTS DIRECTORS’ EMOLUMENTS 2018 2017 £ 000 £ 000 Emoluments 228 207 Company contributions to money purchase pension schemes 16 16 244 223

Highest paid director: Emoluments 151 145 Company contributions to money purchase pension schemes 16 16 167 161

NUMBER OF DIRECTORS TO WHOM RETIREMENT BENEFITS ACCRUED: 2018 2017 Number Number Money purchase schemes 1 1

KEY MANAGEMENT PERSONNEL EMOLUMENTS* 2018 2017 £ 000 £ 000 Emoluments 706 654 Company contributions to money purchase pension schemes 77 53 783 707

*Key management personnel includes one executive director

27 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

TAXATION 2018 2017 £ 000 £ 000 Analysis of charge in period Current tax: Adjustments in respect of previous periods (4) (3) (4) (3)

Deferred tax: Origination and reversal of timing differences 3 (9) 3 (9)

Tax credit on (loss)/profit on ordinary activities (1) (12)

Factors affecting tax charge for period The differences between the tax assessed for the period and the standard rate of corporation tax are explained as follows: 2018 2017 £ 000 £ 000 (Loss)/Profit on ordinary activities before tax (6,459) 770

Standard rate of corporation tax in the UK 19.0% 19.3%

£ 000 £ 000 (Loss)/Profit on ordinary activities multiplied by the standard rate of corporation tax (1,227) 149

Effects of: Income not taxable and/or expenses not allowable for tax purposes 889 (230) Capital allowances for period in excess of depreciation 6 9 Adjustments to tax charge in respect of previous periods (4) (3) Tax loss not recognised as deferred tax asset 332 72 Deferred tax – origination and reversal of timing differences 3 (9) Current tax credit for period (1) (12)

28 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

INTANGIBLE FIXED ASSETS

Software development £ 000 Cost At 1 January 2018 - Additions 61 At 31 December 2018 61

Amortisation At 1 January 2018 - Provided during the year 16 At 31 December 2018 16

Carrying amount At 31 December 2018 45

TANGIBLE FIXED ASSETS Fixtures, fittings, Land and tools and buildings equipment Total £ 000 £ 000 £ 000 Cost At 1 January 2018 330 246 576 Additions - 41 41 At 31 December 2018 330 287 617

Depreciation At 1 January 2018 183 201 384 Charge for the year 67 33 100 At 31 December 2018 250 234 484

Carrying amount At 31 December 2018 80 53 133 At 31 December 2017 147 45 192

29 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

FIXED ASSET INVESTMENTS Total £ 000 Social investment portfolio At 1 January 2018 194,856 Additions 51,161 Repayment of loans (14,707) Redemptions (2,920) Profit and loss – unrealised* (8,194) At 31 December 2018 220,196

*Profit and loss – unrealised is predominantly a combination of management fees and expenses paid to intermediaries and fair value adjustments on social investments.

30 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

The company holds 20% or more of the share capital of the following undertakings:

Country of % Aggregate Capital Aggregate Profit Incorporation / As at 31 and reserves (loss) for the year Principal place of Shares December of the entity2 of the entity2 Investments business1 held Class 2018 £000 £000 3SC Capitalise Limited UK Ordinary 50.00 - - Triodos New Horizons Limited UK Ordinary 30.00 3 - Children’s Support Services Limited UK Ordinary 26.60 1,758 (139) Energise Innovation Limited UK Ordinary 35.37 - - The Charity Bank Limited UK Ordinary 65.34 18,263 (609) It’s All About Me Scheme LLP UK Partnership 25.00 92 41 Interest Social Stock Exchange Limited UK Ordinary 31.60 (270) (422) Bridges Social Impact Bond 38 Seymour Street, Partnership 37.78 Holding less than 50%, Fund LP London, W1H 7BP Interest no public filing required Impact Ventures S.A., SICAV-SIF Luxembourg Registered 41.58 Holding less than 50%, Shares no public filing required North East Social Investment Fund Maybrook House, Partnership 48.75 Holding less than 50%, Limited Partnership Grainger Street, Interest no public filing required Newcastle Nesta Impact Investments 1 1 Plough Place, Partnership 45.46 Holding less than 50%, Limited Partnership London, EC4A 1DE Interest no public filing required Real Lettings Property Fund Limited 42 St Thomas Road, Partnership 25.07 Holding less than 50%, Partnership Launceston, Cornwall Interest no public filing required The Community Investment Reading Bridge Partnership 40.00 Holding less than 50%, Fund L.P. House, George Interest no public filing required Street, Reading The Third Sector Loan Fund LLP UK Partnership 50.00 10,360 (614) Interest Shared Lives Investments LP 131-151 Great Partnership 37.93 Holding less than 50%, Titchfield Street, Interest no public filing required London Social Growth Fund LLP UK Partnership 50.00 7,358 (1,700) Interest Bridges Social Interim LP 38 Seymour Street, Partnership 99.98 822 (14) London Interest Social Finance Care and Wellbeing UK Partnership 50.00 1,109 (390) Investments LLP Interest Funding Affordable Homes SICAV Luxembourg Registered 27.08 Holding less than 50%, SIF S.A. Shares no public filing required Big Issue Invest Social Enterprise 113-115 Fonthill Partnership 62.98 9,544 112 Investment Fund II L.P. Road, London Interest National Homelessness Property 42 St Thomas Road, Partnership 46.06 Holding less than 50%, Fund Limited Partnership Launceston, Cornwall Interest no public filing required Cheyne Social Property High Impact 94 Solaris Avenue Partnership 100.00 2,793 (207) (1) Fund Camana Bay, Grand Interest Cayman Bridges Evergreen Capital LP UK Partnership 59.05 18,659 376 Interest Bethnal Green Ventures LLP UK Partnership 24.54 1,799 (736) Interest Public Service Lab LLP UK Partnership 20.00 (568) (410) Interest BII Outcomes Investment Fund LP 113-115 Fonthill Partnership 85.00 358 (331) Road, London Interest Community Owned Renewable UK Partnership 50.00 16,728 (223) Energy LLP Interest

The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 requires that: ¹ for unincorporated undertakings, the address of its principal place of business is stated. ² for all undertakings where the company’s holding is 50% or greater, and for undertakings where the company’s holding is 20% or greater and the undertaking is required by any provision of the 2006 Companies Act to deliver a copy of its balance sheet, the aggregate amount of the capital and reserves of the undertaking as at the end of its relevant financial year, and its profit or loss for that year is also stated. ³ Aggregate capital and reserves and profit or loss not available, as first financial year end falls after 31 December 2018.

31 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

DEBTORS 2018 2017 £ 000 £ 000 Other debtors 17 9 Prepayments 248 265 Accrued income on treasury portfolio 74 85 Treasury portfolio – Derivative financial instrument 112 166 451 525

INVESTMENTS HELD AS CURRENT ASSETS 2018 2017 £ 000 £ 000 Treasury portfolio – Cash deposits 32,715 33,878 Treasury portfolio – Listed debt securities 257,621 219,219 Treasury portfolio – Social Bond/Equity/Multi Asset Funds 30,297 31,316 320,633 284,413

Investments held as current assets can be realised within 1 year, but not within 24 hours. Social bond/ equity/multi asset funds are open-ended investment companies, and are held as part of the social investment allocation within the treasury portfolio, as described in the Strategic Report on pages 5 to 11. Listed debt securities include items with a fair value of £130,000 (2017: £nil), which have been pledged as collateral for a contingent liability on foreign exchange forward contracts. The collateral is adjusted daily to reflect any contingent liability arising as at the prior day close of business and is subject to a minimum transfer threshold of £250,000. The collateral can be replaced by a range of agreed alternative financial assets. The company retains the risks and rewards of ownership.

CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2018 2017 £ 000 £ 000 Trade creditors 123 140 Other taxes and social security costs 94 85 Other creditors 26 20 Accruals 501 513 Deferred income 24 12 768 770

Other creditors comprise drawdown notices received before the year end but paid after the year end.

32 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

DEFERRED TAXATION 2018 2017 £ 000 £ 000 Accelerated capital allowances 24 21 Adjustment in respect of prior period (102) (680) Tax losses carried forward (1,812) (1,582) Tax losses not recognised as a deferred tax asset 1,914 2,263 Provision for deferred tax 24 21

2018 2017 £ 000 £ 000 Provision for liabilities At 1 January 21 30 Credited to the profit and loss account 3 (9) At 31 December 24 21

FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

Introduction The Board is responsible for overall corporate governance, which includes ensuring that there are adequate systems of risk management. The systems and processes aim to identify, measure and report risks. Risk is controlled through a system of procedures, checks, reports and responsibilities. The Audit, Risk and Compliance Committee examines management processes and other arrangements to ensure the appropriateness and effectiveness of systems and controls, including risk management. As described in the Strategic Report on pages 5 to 11, the company’s investment portfolio comprises a social investment portfolio and a treasury portfolio. The social investment portfolio comprises unlisted equity investments, loans, investments in unlisted funds and investments in social impact bonds. All social investments are approved by the Investment Committee (which has been delegated authority by the Board to operate within set parameters). The treasury portfolio comprises bank and building society cash deposits, certificates of deposit and listed and unlisted debt securities, social bond/equity/multi-asset funds, and represents capital held before it is drawn down into social investment. The treasury portfolio operates using a socially responsible investment process.

33 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

CATEGORIES OF FINANCIAL INSTRUMENT Financial instruments as at 31 December by category are shown below: 2018 Financial instruments Financial measured at fair instruments value through measured at Non financial profit or loss amortised cost instruments Total £ 000 £ 000 £ 000 £ 000 Assets Tangible & Intangible fixed assets - - 178 178 Fixed asset investments 207,142 13,054 - 220,196 Debtors 112 91 248 451 Investments held as current assets 41,830 278,803 - 320,633 Cash at bank and in hand - 17,251 - 17,251

Liabilities Creditors: amounts falling due within one year - (768) - (768) Deferred taxation - - (24) (24)

249,084 308,431 402 557,917

2017 Financial instruments Financial measured at fair instruments value through measured at Non financial profit or loss amortised cost instruments Total £ 000 £ 000 £ 000 £ 000 Assets Tangible fixed assets - - 192 192 Fixed asset investments 186,759 8,097 - 194,856 Debtors 166 94 265 525 Investments held as current assets 35,924 248,489 - 284,413 Cash at bank and in hand - 5,230 - 5,230

Liabilities Creditors: amounts falling due within one year - (770) - (770) Deferred taxation - - (21) (21)

222,849 261,140 436 484,425

The financial instruments not accounted for at fair value through profit or loss are assets and liabilities whose carrying amounts at the period end approximate fair value.

34 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

CATEGORIES OF FINANCIAL INSTRUMENT CONTINUED Gains and losses recognised in the profit and loss account during the period to 31 December by category are shown below: 2018 Financial assets Financial Financial measured at fair derivatives assets value through measured at measured at Other income profit or loss fair value amortised cost and expense Total £ 000 £ 000 £ 000 £ 000 £ 000 Interest income 2,311 - 3,992 - 6,303 Fee and dividend income 89 - - - 89 Investment gains / (losses) (6,483) (2,341) 2,277 - (6,547) Other income - - - 137 137 Administrative & other expenses - - (489) (5,952) (6,441) Tax on loss on ordinary expenses - - - 1 1

(4,083) (2,341) 5,780 (5,814) (6,458)

2017 Financial assets Financial Financial measured at fair derivatives assets value through measured at measured at Other income profit or loss fair value amortised cost and expense Total £ 000 £ 000 £ 000 £ 000 £ 000 Interest income 1,788 - 4,189 - 5,977 Fee and dividend income 74 - - - 74 Investment gains / (losses) 1,228 2,608 (2,885) - 951 Other income - - - 116 116 Administrative & other expenses (72) - (544) (5,732) (6,348) Tax on loss on ordinary expenses - - - 12 12

3,018 2,608 760 (5,604) 782

35 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

CREDIT RISK Credit risk is the risk of financial loss from a counterparty’s failure to settle financial obligations as they fall due. The company is exposed to credit risk principally from debt securities held, loans and receivables and cash deposits. Investments in unlisted funds and loans included in fixed asset investments are all social investments. Debt securities, showing as current asset investments are held within the treasury portfolio. Cash deposits are either held for operational purposes or as part of the treasury portfolio. Cash deposits that can be withdrawn at any time without notice and without penalty or that have a maturity or period of notice of not more than 24 hours or one working day are shown as cash at bank and in hand, all other deposits with a maturity of up to 1 year are shown as investments held as current assets. Within the treasury portfolio the company has set a maximum exposure limit for each counterparty. The treasury policy seeks to minimise the exposure to counterparties with perceived higher risk of default by specifying an average credit rating for the portfolio. The treasury portfolio is managed externally and counterparty exposure limits and average credit rating are monitored by the external managers. The company receives monthly treasury reports. The company’s maximum credit risk exposure at the Statement of Financial Position date is represented by the respective carrying amounts of the relevant financial assets in the Statement of Financial Position, with the exception of listed debt securities designated as at amortised cost, for which the credit exposure and the carrying value are shown below. The carrying value includes amortisation of the premium at purchase and does not include any market revaluation, and therefore does not represent the current credit risk. The company uses foreign exchange forward contracts to manage its exchange risk exposure from holdings of non-GBP denominated financial assets. Collateral is exchanged on open foreign exchange forward contracts representing the unrealised gain (receipt of collateral by the company) or loss (pledge of collateral by the company) on a daily basis. Credit risk arises from changes in the value of the open foreign exchange forward contracts being insufficiently covered by collateral received (to cover unrealised gains) if the counterparty to the contract does not complete the exchange of currency on the contracted settlement date. This is mitigated by utilising standard credit support agreements with a limited number of mainstream financial institutions and reliance upon the collateral management processes at the investment manager.

36 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

CREDIT RISK EXPOSURE Credit risk exposure as at the Statement of Financial Position date comprises: 2018 2017 £ 000 £ 000 Fixed asset investments 220,196 194,856 Other debtors 17 9 Accrued income 74 85 Social Bond/Equity/Multi Asset Funds – Investments held as current assets 30,297 31,316 Cash deposits – Investments held as current assets 32,715 33,878 Listed debt securities* 256,305 220,238 Cash deposits – Cash at bank and in hand 17,251 5,230 Maximum exposure to credit risk as at the Statement of Financial Position date 556,855 485,612

* Included within listed debt securities: Credit risk Carrying exposure value £ 000 £ 000 Listed debt securities designated as at amortised cost 256,305 257,621 256,305 257,621

As at the year end Cash at bank and in hand and Investments held as current assets were held at institutions rated as follows by Standard and Poor’s Investor Services:

Rating 2018 2017 £ 000 £ 000 Social Bond/Equity/Multi Asset Funds investments Not rated 30,297 31,316 Listed debt securities AAA 40,050 39,902 Listed debt securities AA 43,880 29,439 Listed debt securities A 117,484 96,179 Listed debt securities BBB 42,956 42,578 Listed debt securities Not rated 13,251 11,121 Cash deposits – Investments held as current assets A-1 28,922 33,878 Cash deposits – Investments held as current assets A-2 501 - Cash deposits – Investments held as current assets Not rated 3,292 - Cash deposits – Cash at bank and in hand A-1 17,251 5,230 337,884 289,643

37 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

LIQUIDITY RISK Liquidity risk is the risk that cash may not be available to pay obligations. The company’s policy is to ensure it has sufficient funds to fulfil liabilities as they fall due, including investment commitments approved by the Investment Committee (see Note 21 – Capital Commitments for details of investment commitments). The company’s financial assets include loans, unlisted equity investments, investments in unlisted funds and investments in social impact bonds, which are generally illiquid. The company’s investments in listed debt securities are considered to be readily realisable as they are actively traded. All cash deposits held as current assets have a maturity of less than 12 months. The company’s overall liquidity is monitored on a daily basis. The company expects to receive quarterly capital inflows to meet its social investment commitments and other obligations. An analysis of contractual creditor balances, by maturity is shown below:

2018 Carrying Contractual 6 months amount cash flows or less £ 000 £ 000 £ 000 Creditors: amounts falling due within one year 744 744 744 744 744 744

2017 Carrying Contractual 6 months amount cash flows or less £ 000 £ 000 £ 000 Creditors: amounts falling due within one year 758 758 758 758 758 758

MARKET RISK Market risk is the risk that changes in market prices, such as interest rates and credit spreads (not relating to changes in the issuers credit standing) will affect the company’s income or the fair value of its holdings of financial instruments. The company has interest rate exposure. The company currently has £337.9 million in cash or current asset investments that earn interest at a variety of rates. Any reduction in interest rates will reduce the interest income on these deposits. A reduction of interest rates by 1% would result in a reduction in returns of £3.4 million.

FOREIGN EXCHANGE RISK The company is exposed to foreign currency risks on assets and liabilities as a result of changes in exchange rates. The company invests in foreign currency denominated bonds through its treasury portfolio and a foreign currency denominated fund in the social investment portfolio and so has foreign currency risk exposure on those assets. The company mitigates the risk on the bonds by putting in place matching currency forward derivative contracts. When a foreign currency denominated bond is purchased a spot trade and a forward are executed and these are rolled forward every three months. The spot trade buys foreign currency and sells GBP (originally to fund the bond purchase) and a new forward contract is then executed to sell foreign currency and buy GBP creating a foreign currency liability that offsets the investment. Currently the size of the company’s investment in the foreign currency denominated fund is too low for a similar process to be cost effective due to the associated fees, the fund also holds GBP denominated assets which partially mitigate the exposure. The exposure continues to be monitored and the company has the ability to implement a similar procedure to the bonds when/if required.

38 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

15. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS CONTINUED

REGULATORY RISK The company is authorised and regulated by the FCA. It is required to regularly assess the amount of capital needed for operations and will hold liquid capital in excess of this amount. The company has, at all times during the period under regulatory supervision, held sufficient capital to meet its regulatory capital requirement.

VALUATION OF FINANCIAL INSTRUMENTS

The determination of fair value for basic financial instruments for which there is no observable market price requires the use of valuation techniques as described in Note 1 – Accounting policies, ‘Basic financial instruments – iii) Fair value measurement’. The company uses a three-level hierarchy for fair value measurement disclosure, as follows: • Level 1. The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date. • Level 2. Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly. • Level 3. Inputs are unobservable (ie for which market data is unavailable) for the asset or liability. In determining a fair value using Level 3 valuation techniques, the company applies the principles included in the ‘International Private Equity and Venture Capital Valuation Guidelines’ (2015 Edition): • Where an investment has been made recently, or where there has been subsequent, significant new investment into the company, a more accurate valuation is not available and there is no evidence to suggest that the unadjusted Price of Recent Investment is no longer relevant, the company may apply the Price of Recent Investment, for a limited period following the date of the relevant transaction. Where it is felt that there has been a change to the milestones or benchmark then the company will use the Price of Recent Investment adjusted to reflect milestone/ benchmark analysis. • Where appropriate and reasonable earnings or revenue multiples are available for comparable businesses, the company will apply the Multiples valuation technique to derive a value for the investment. • If industry benchmarks can be applied to the investment to derive a fair value, these will be applied. • If future cash flows can be reasonably estimated, and it is felt that the risks, due to the high level of subjectivity, involved in applying the Discounted Cash Flow method do not render the method insufficiently reliable, this will be applied. • Where a regular Net Asset Valuation is available for the investment, the company will assess this for reasonableness and consider whether the investment can be valued on the basis of the underlying fair value of its assets, rather than its earnings. If this is considered appropriate the company will apply the Adjusted Net Asset Valuation method. The company may decide to use a combination of the mentioned methods, or other methods that are considered more appropriate to derive the fair value of its investments.

39 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

16. VALUATION OF FINANCIAL INSTRUMENTS CONTINUED

The fair value hierarchy of financial assets and liabilities as at 31 December can be analysed as follows: 2018 2017 £ 000 £ 000 Financial assets/(liabilities) held at fair value:

Level 1 Investments held as current assets - - Level 2 Investments held as current assets 41,830 35,924 Derivative financial instruments 112 166 Level 3 Fixed assets – investments 207,142 186,759 249,084 222,849

There have been no changes in classification of assets held at each level.

Level 3 financial assets held at fair value Financial assets held at fair value through profit or loss £ 000 Balance at 1 January 2018 186,759 Purchases 45,493 Sales (16,459) Total investment returns (8,651) Balance at 31 December 2018 207,142

All level 3 financial assets held at fair value are investments held within the social investment portfolio.

SHARE CAPITAL Nominal 2018 2018 2017 value Number £ 000 £ 000 Allotted, called up and fully paid: Ordinary A shares £1 each 381,345 381,345 301,395 Ordinary B shares £1 each 200,000 200,000 200,000 581,345 501,395

During the year The Big Society Trust Limited subscribed for 79,950,000 additional shares at par following receipts of further funds via Reclaim Fund Ltd.

40 NOTES TO THE FINANCIAL STATEMENTS CONTINUED REPORT AND FINANCIAL STATEMENTS 2018

PROFIT AND LOSS ACCOUNT 2018 2017 £ 000 £ 000 At 1 January (16,970) (17,752) Profit/(loss) for the financial year (6,458) 782

At 31 December (23,428) (16,970)

CASH AND CASH EQUIVALENTS 2018 2017 Cash and cash equivalents comprise: £ 000 £ 000 Cash at bank 17,251 5,230 Current asset investments (Maturity less than 3 months from the date of acquisition) 27,928 28,038 Cash and cash equivalents per cash flow statement 45,179 33,268

As described in Note 12 – Investments held as current assets, investments held as current assets can be realised within 1 year, but not within 24 hours. For cash flow purposes those investments that have a maturity or period of notice of less than 3 months from the date of acquisition are included as cash and cash equivalents. A breakdown of investments held as current assets is provided below: 2018 2017 £ 000 £ 000 Cash deposits (Maturity less than 3 months from the date of acquisition) 27,928 28,038 Cash deposits (Maturity greater than 3 months from the date of acquisition) 4,787 5,840 Listed debt securities 257,621 219,219 Social Bond/Equity/Multi Asset Funds investments 30,297 31,316

Investments held as current assets per Statement of Financial Position 320,633 284,413

EVENTS AFTER THE REPORTING DATE

There are no significant events to disclose since the reporting date.

41 NOTES TO THE FINANCIAL STATEMENTS REPORT AND FINANCIAL STATEMENTS 2018

CAPITAL COMMITMENTS

The company recognises investments and potential investments at three distinct stages of the investment process: 1. Investments signed and drawn down – legal agreements are completed and signed and funds (in total or partial) have been drawn down. The amounts drawn down are recognised as financial assets in the Statement of Financial Position, and the balance of the commitment is disclosed below. 2. Investments signed, commitment undrawn – legal agreements are completed and signed and funds (in total or partial) have not been drawn down. These are not recognised within the Statement of Financial Position, but are disclosed below. 3. In principle commitments – the commitment has been approved in principle by the company’s Investment Committee, legal agreements and deal terms are in the process of being prepared. These are not recognised within the Statement of Financial Position, but are disclosed below. As at 31 December, there were capital commitments, in respect of investments signed, commitments undrawn of: 2018 2017 £ 000 £ 000 Commitments contracted, undrawn fully or partially and not provided in the Financial Statements 248,512 207,365

As at 31 December, there were in principle commitments of: 2018 2017 £ 000 £ 000 In principle commitments (approved by the Investment Committee, subject to legal documentation) 24,000 21,352

OTHER FINANCIAL COMMITMENTS Total future minimum lease payments under non-cancellable operating leases: Land and Land and buildings buildings 2018 2017 £ 000 £ 000 Falling due: within one year 358 358 within two to five years 76 434 434 792

42 REPORT AND FINANCIAL STATEMENTS 2018

RELATED PARTY TRANSACTIONS

During 2018 The Big Society Trust, being the parent company, purchased £80m (2017: £Nil) of £1 Ordinary A shares in Big Society Capital Limited. During the period Access – The Foundation for Social Investment, being a member of The Big Society Trust group, paid £78,400 (31 December 2017: £70,000) to Big Society Capital, in respect of a licence fee for the use of its offices. As at 31 December 2018 there was an outstanding balance of £6,500 (31 December 2017: £6,000). The transactions were made on terms equivalent to those that prevail in arm’s length transactions. Directors’ and senior management emoluments are disclosed in Note 6 – Directors’ and key management personnel emoluments, and the Remuneration Report on page 4.

CONTROLLING PARTY

The directors consider that the immediate parent undertaking and the ultimate controlling party of this company is The Big Society Trust, a company incorporated in the UK and limited by guarantee. The consolidated financial statements of the group are available to the public and may be obtained from Companies House.

PRESENTATION CURRENCY

The financial statements are presented in Sterling.

LEGAL FORM OF ENTITY AND COUNTRY OF INCORPORATION

Big Society Capital Limited is a limited company incorporated in England.

PRINCIPAL PLACE OF BUSINESS

The address of the company’s principal place of business and registered office is: New Fetter Place 8-10 New Fetter Lane London EC4A 1AZ

43 REPORT AND FINANCIAL STATEMENTS 2018

www.bigsocietycapital.com/annualreport Registered number 07599565