Annual Report and Accounts 2015 FOR THE YEAR ENDED 31 MARCH 2015

EMPOWERING COMPANIES TO SCALE UP

ENABLING COMPANIES TO START UP

ENSURING COMPANIES STAY AHEAD 2014-2015 | Annual Report and Accounts

Key facts over 40,000 smaller businesses We are working over with over 80 £2.3bn partners across to smaller Annual Report and Accounts 2015 England, Northern businesses FOR THE YEAR ENDED 31 MARCH 2015 Ireland, Scotland over and Wales to unlock finance 80 partners for smaller UK businesses Our programmes currently support £2.3bn* of finance to over 40,000 smaller businesses, and we participate in a further £2.9bn* of finance to small mid-cap businesses * total includes both our contribution and additional private sector money MORE THAN OVER £ +10,000 75% more smaller businesses of our lending and investment are now benefiting from support is distributed through finance supported by the smaller providers, increasing British Business Bank diversity in the market compared with a year ago

We operate across all sectors, but the top five supported are

14% 13% 13% 12% 8%

Wholesale and Information and Manufacturing Accommodation Science and Retail Trade Communications and Food Service Technology

Other UK Government Support Keep in touch Get in touch

@britishbbank www.british-business-bank.co.uk www.greatbusiness.gov.uk British Business Bank [email protected] 2 3 2014-2015 | Annual Report and Accounts CONTENTS

CONTENTS

Chairman’s Chief Executive’s Strategic report statement statement The British Business Bank “ has had a successful first 6 8 10 year, establishing

itself as an independently Directors’ report Corporate Directors’ governance remuneration operating plc and statement report delivering on its objective to make smaller business 31 37 41 finance markets work better ” Directors’ Auditor’s Report Consolidated responsibilities financial Keith Morgan statements Chief Executive Officer British Business Bank 50 51 55

Notes to the Company financial Notes to the consolidated statements Company financial financial statements statements 59 85 88

4 5 2014-2015 | Annual Report and Accounts CHAIRMAN’S STATEMENT

CHAIRMAN’S STATEMENT We aim to be the catalyst that brings about significant change to the structure and accessibility of finance markets, for the lasting benefit of our economy.

e have a specific remit to make we are well placed to deliver on the I would like to thank all the British background – from banking, investments the UK’s finance markets objectives we have been set for the Business Bank’s Directors for their and asset finance to specialist policy We’ve been keen to Wwork better for those smaller coming years. contribution during this key period. Their knowledge from the Civil Service. I would like to adopt a commercial- businesses so vital to our economic valuable input and commitment to their One striking feature of our workforce acknowledge the growth and prosperity. THE BOARD roles has been vital in maintaining the is their sense of common purpose – mindedness which Publishing our first annual report We’ve put a Board in place that brings high standards of corporate governance a real drive and passion to improve enormous effort and and financial statements is a significant together a wide range of financial and which underpin our organisation. finance markets for smaller businesses. enables us to connect milestone for the British Business Bank, small business experience. The Board is As importantly, we’ve been keen to commitment of our staff, with the market on and comes at the end of a period of rapid comprised of seven independent Non- DELIVERING THROUGH adopt a commercial-mindedness which which has enabled us development for our organisation. executive Directors, one Shareholder PARTNERSHIPS enables us to connect with the market on equal terms and with a The last year has been about putting Representative Director and three We remain focused on the problem that equal terms and with a common language to meet all of our in place everything needed to form a new Executive Directors. Most of our Board we’re trying to solve – a lack of supply and – a conscious and necessary reshaping common language organisation while continuing to deliver members have run, worked for, or been choice in finance for smaller businesses. of how a government-sponsored targets so far increasing levels and variety of finance, closely involved with small businesses In the last year we have introduced organisation should relate to the world of through a wider range of partners, to an throughout their careers. new and innovative approaches to start finance and business. increasing number of businesses. Gaining Until the Board was formalised in to address those issues and we look We continue to maintain strong State aid approval from the European 2014, the Bank was run as a shadow forward to further developments in the working relationships with colleagues at Commission last October has enabled us operation within the Department coming year which will build on what we the Department for Business, Innovation to operate with a level of independence for Business, Innovation and Skills. have already put in place. and Skills, which is our organisation’s which has allowed us to develop rapidly The Board has met regularly since its By employing our resources through sponsor, and we look forward to working and to achieve a huge amount in a establishment in 2014, adopting its a range of private sector partners, with them and new Ministers to further relatively short period of time. formal governance role in November we make best use of and leverage develop and implement our plans. In many ways, the story of our first 2014 when operations and assets were our funding to create greater impact. Finally, I would like to acknowledge year chimes with the experience of many transferred to the British Business Bank Maintaining strong relationships with first the enormous effort and of the start-up and scale-up businesses plc. In March 2015, Maria Turner, who those partners – ranging from equity commitment of our staff, which has we help fund – including recruiting successfully established and chaired our funds, banks, asset finance providers enabled us to meet all of our targets and integrating new colleagues, Board Risk Committee, decided to stand and alternative finance, to the business so far. In addition, I would also like setting up governance processes and down from the Board due to taking a membership organisations and advisory to thank a wide range of supporters policies, designing Company structures, new and demanding role in Scandinavia bodies who help us spread the word including Ministers and officials across developing a strong set of corporate – we wish her well and thank her for her about increased finance options gives us government, our delivery partners, values and putting the business’ important contribution. the solid foundation we need to deliver and others who have championed Ron Emerson infrastructure in place. As a Board committed to continual our objectives. our progress and share our aims. We Chairman The business has achieved this improvement, we have recently look forward to achieving much more British Business Bank while delivering the increased volume undertaken an evaluation to ensure COLLEAGUES together as we grow and develop as an and choice of finance that smaller the Board and its Committees operate Across our two offices in Sheffield and organisation. businesses need. Good performance effectively and to explore the opportunities London, we now have 106 colleagues in against our objectives, as measured by for improvements based on our first our organisation. They bring with them our key performance indicators, means months of organisational independence. a unique blend of skills, experience and

6 7 2014-2015 | Annual Report and Accounts CHIEF EXECUTIVE’S STATEMENT

CHIEF EXECUTIVE’S STATEMENT The British Business Bank became an operationally-independent plc in November 2014, established and owned by the UK Government to make finance markets work better for the country’s smaller businesses.

maller businesses are vital to our depending on the type of activity carried We are proud to be a part of that change, CONCLUSION economy, contributing almost half of out. This structure was agreed with playing a key role in the provision of early- The British Business Bank has had a We deliver our S private sector turnover and over 60% the European Commission in October stage equity and acting as catalyst for successful first year, establishing of private sector employment. Addressing 2014, prior to the launch of the plc in many new forms of finance serving smaller itself as an independently operating objectives by working the challenges and obstacles they face in November 2014. business needs. Recognising smaller plc and delivering on its objective through the market , accessing the finance they need to start, Underpinning all our activities is an businesses’ need for increasing volumes to make small business finance grow and thrive is at the core of what we do. overall objective to ensure we manage of growth finance, we launched our Help markets work better. Increasingly, the providing finance and Our objectives are to increase the supply taxpayer resources efficiently and within to Grow initiative in March which will work market and external commentators of finance in areas where finance markets a robust risk management framework, with private sector lenders to deliver are acknowledging the work we are offering guarantees in do not work effectively, to help create meeting a financial return target set by Growth Loans to fast growing smaller doing, and the change we are bringing partnership with over 80 greater choice for businesses in terms our Shareholder. businesses. about in the markets in which we of options and providers, and to provide We have also made a good start to raising operate. commercial lenders and better information in the market, building CONDITIONS IN THE awareness of finance options through our confidence among smaller businesses in MARKETPLACE highly-regarded Business Finance Guide, investors their understanding of the finance options A continuous programme of research published in summer 2014 in conjunction available. All of these will help deliver wider provides us with strong evidence to support with the ICAEW and with contributions government objectives around investment the work we do. Our first Small Business and endorsement from the financial and and growth in the economy. Finance Markets report, published in business sectors. November 2014, placed smaller business OUR BUSINESS MODEL finance markets in the context of the wider PERFORMANCE IN OUR FIRST We deliver our objectives by working economic recovery and considered some YEAR through the market, providing finance and of the structural market failures affecting The British Business Bank ended offering guarantees in partnership with supply and demand. It identified three main 2014-15 with all its product lines active, over 80 commercial lenders and investors. themes which underpin much of the work having successfully launched a series The commercial partners we work with we are taking forward: of initiatives and built up existing use our finance – together with their own • more businesses will seek finance for programmes. We currently support money – to lend to or invest in smaller UK growth £2.3bn of finance to over 40,000 smaller businesses. • a more diverse and vibrant supply of businesses, and we participate in a In this way we leverage our impact in the finance is needed further £2.9bn of finance to small market by drawing in private sector capital • awareness and understanding of the mid-cap businesses. More than 75% of to our areas of focus. Our finance provision range of finance options is not yet our finance is distributed through smaller Keith Morgan stretches from early stage equity funding, comprehensive enough. lending and investment providers, Chief Executive Officer through growth capital, to senior debt for There are signs that change is starting increasing diversity in the market. British Business Bank more established businesses. to impact the smaller business funding This has been accomplished whilst In line with State aid and other legal markets – demonstrated by recent increases making a 1.3% adjusted return on the considerations, our operations are in the use of equity finance and strong capital invested by the Government. organised through three subsidiaries, growth in alternative funding platforms.

8 9 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

STRATEGIC REPORT OUR OBJECTIVES

INCREASE SUPPLY CREATE A MORE OF FINANCE DIVERSE MARKET to smaller businesses where for smaller businesses’ OUR OBJECTIVES finance with greater markets do not work effectively The British Business Bank aims to outlined on page 24. Surveys also provide a way of improving choice of options and improve finance markets for smaller The British Business Bank has a understanding of the use of finance by providers businesses –Small and Medium sized dedicated market analysis team that smaller businesses. The British Business Enterprises (SMEs) – and small mid-cap monitors trends in small business Bank’s SME Finance Survey completed in businesses. We develop and manage finance markets so that we can better autumn 2014, and published alongside £ finance programmes designed to understand the types and severity of our Small Business Finance Markets enhance the working of finance markets these market issues. We use this analysis Report, gives updated insight into the in these areas. We currently support to inform our business planning and experience of smaller businesses when £2.3bn of finance to over 40,000 smaller product development processes. Since accessing finance. businesses through our programmes and launching we have published a range of We will also be conducting evaluations participate in a further £2.9bn of finance important research: of our programmes on a regular basis PROVIDE BETTER MANAGE for small mid-cap businesses. • In December 2014, we published a in order to understand their economic Through our programmes, we aim to detailed Smaller Business Finance impact, to improve the design of our taxpayers’ resources INFORMATION achieve the following objectives: Markets report with insight on the products and to inform the resource efficiently 1. Increase the supply of finance latest market developments, the allocation process. Evaluations are in the market connecting available in areas where markets do characteristics of different sub-markets, published on the British Business Bank smaller businesses and not work effectively such as financial technologies and website. finance providers 2. Help create a more diverse market for alternative forms of finance. finance with greater choice of options • In March 2015, we published an and providers Equity Report and tracker. The report 3. Promote better information in offers a wide-ranging view of the the market, building confidence market, covering the reasons for £ among smaller businesses in their seeking equity; recent trends; market understanding of the finance options failures and the role of Government available institutions. 4. Achieve this whilst managing taxpayer • In March 2015, we also published resources efficiently and within a analysis of the UK Smaller Business robust risk management framework. Growth Loans Market. This research The directors, in preparing this Strategic Report, have complied with s414C of the Companies Act We have developed a series of key paper examines the finance market for 2006 (as amended by the Strategic Report and Directors’ Regulations 2013). performance indicators (KPIs) to help growth loans to UK smaller businesses, This Strategic Report has been prepared for the British Business Bank plc Group as a whole and measure and reflect performance against and was used as the basis for launching each of these key objectives. These are our Help to Grow pilot. therefore gives greater emphasis to those matters which are significant to the British Business Bank plc and its subsidiary undertakings when viewed as a whole. Supply of finance The British Business Bank has previously stated that it is supporting over £3bn of finance. We have now made some technical improvements to our calculation of this figure. The most significant change is that we have split the total into two components to better reflect our role with respect to small mid-cap businesses. Previously we applied a discount to the finance figures for small mid-cap business to attempt to reflect the level of private sector involvement at the time of our original commitment or investment. However, this methodology lacked consistency and didn’t reflect the ongoing role played by the British Business Bank. It also created issues providing breakdowns of the figure by region or industry for interested stakeholders. As a result, we have updated our methodology to report the total amount of finance in which we are participating, without discounting adjustments. Consequently we have changed the description of our involvement to better reflect our role. For further details on our methodology refer to the British Business Bank website.

10 11

also conduct audits of all our delivery partners on a periodic basis. We work with and through private sector delivery partners, allowing us to maximise our impact and utilise existing infrastructure to achieve our goals on a cost-efficient basis and enabling us to generate and preserve value. This model allows us to leverage our own resources with private sector resources, either via guarantee structures or co-funding of debt or equity. Our objective of enabling finance markets to support smaller businesses is consistent with Government’s wider objectives. While we have our own brand and marketing activities, we are aligned with the GREAT Britain campaign – a nationwide Government-run campaign which provides support, advice and inspiration for businesses to grow. We also co-ordinate closely with: • the new Business Growth Service, which provides business support to businesses with high-growth potential • UK Export Finance and UK Trade and Investment, which support exporting businesses • Innovate UK, which provides seed finance and promoting collaboration with academia and industry for innovative businesses. The British Business Bank’s headquarters are in Sheffield with another office in London. We employ expertise from the private and public sector across our business in areas including investment, product management and development, finance, risk, policy and economic assessment. 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

STATE OF THE MARKET The UK economy is growing – according to the OUR BUSINESS MODEL Office for National Statistics, quarterly GDP has increased for nine consecutive quarters, growing by 3% in total over 2014. And further The British Business Bank is a public and high level strategic objectives, but We also conduct audits of all our delivery The diagram below shows how we bring expertise and Government money to growth in business investment in Q1 2015 limited Company wholly owned by the British Business Bank is operationally partners on a periodic basis. smaller business finance markets: means that the value of business investment in Government with three principal independent in its delivery against this We work with and through private the year to Q1 2015 was 7.5% higher than the subsidiaries. While products are delivered remit, and has its own board. We agree a sector delivery partners, allowing us to previous year. through different subsidiaries, the central medium-term plan with our shareholder, maximise our impact and utilise existing These improvements are expected to Expertise Money functions are shared, in order to align the updated on an annual basis. infrastructure to achieve our goals on a Designing solutions to make Over £3bn of public continue: forecasters expect GDP to grow by strategic direction and minimise costs. We have also agreed a Financial cost-efficient basis and enabling us to nance markets for smaller funding commitments 2.5% in 2015 and 2.3% in 2016, and the Office The British Business Bank is subject to Framework with HM Treasury which generate and preserve value. businesses work better for Budget Responsibility is predicting that European Commission State aid rules outlines how we can allocate our This model allows us to leverage business investment will increase to form a that ensure Member States do not distort resources in aggregate. This Framework our own resources with private sector larger component of our economy. competition in the Common Market. Our provides flexibility for us to allocate resources, either via guarantee structures Smaller businesses form an important part Group structure allows us to achieve our our resources in areas where they will or co-funding of debt or equity. of the UK’s diverse business population, with objectives in line with State aid and other have the greatest effect, including by Our objective of enabling finance SMEs accounting for 60% of private sector legal considerations. This structure was reallocating funding from programmes markets to support smaller businesses Working with nance market providers employment, and almost 50% of turnover. agreed with the European Commission in when we have assessed our support is consistent with Government’s wider In addition, survey evidence shows that over October 2014, prior to the launch of the is no longer required. Key resource objectives. While we have our own brand time business conditions among SMEs have Start-up Asset Venture Business plc in November 2014. A diagrammatic allocation decisions are made by the and marketing activities, we are aligned funding Finance Banks Capital been improving: an increasing proportion of Angels version of our structure is set out on board through the annual planning cycle with the GREAT Britain campaign – a providers providers funds SMEs reported making profit in the previous page 15. and are subject to shareholder approval. nationwide Government-run campaign Private Private 12 months – 79% in Q1 2015 compared to British Business Bank plc is 100% In-year, the Bank’s senior team discusses which provides support, advice and Sector Sector 69% two years earlier1 – and in 2014, 40% of Trade Supply- Peer- Money Debt Money owned and funded by the Secretary any major potential reallocations inspiration for businesses to grow. credit chain nance to-peer SME employers reported increases in annual funds of State for Business, Innovation between programmes and makes We also co-ordinate closely with: providers providers lenders turnover, up from 29% in 20122 . and Skills, with the shareholder recommendations to the Board and • the new Business Growth Service, Smaller businesses are optimistic about relationship managed through the shareholder as required. Over the medium which provides business support to growth in 2015 – the 2014 BIS Small Business Government’s Shareholder Executive. term, British Business Bank programmes businesses with high-growth potential Survey showed that a third of SME employers The shareholder sets the Bank’s remit aim to make a return across the Group in • UK Export Finance and UK Trade and expect to employ more people in the next 12 line with Government’s medium-term cost Investment, which support exporting months, compared to 20% in the 2012 survey. of capital. businesses As a public institution, we adhere • Innovate UK, which provides seed Start-up Scale-up Stay ahead to the highest standards of corporate finance and promoting collaboration Our objective of enabling governance from the public sector as with academia and industry for well as private financial institutions and innovative businesses. Mentoring and funds to Funds for high-growth More funding options finance markets ‘be your own boss’ potential rms and choice of provider combine best practices for managing The British Business Bank’s headquarters to support smaller public money with a commercial outlook. are in Sheffield with another office in Our objective to manage taxpayers’ London. We employ expertise from the businesses is consistent resources efficiently and the associated private and public sector across our with Government’s wider KPI illustrate our focus on creating value business in areas including investment, for our shareholder. In advance of new product management and development, objectives delivery partners coming on-stream we finance, risk, policy and economic Resulting in increased business conduct rigorous due diligence on the assessment. investment, growth and jobs organisations and key individuals. 1. SME Finance Monitor, Q1 2015, BDRC Continental 2. Small Business Survey, Department for Business, Innovation and Skills

12 13 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

MARKET SEGMENTATION STRUCTURE OF Our analysis has identified three and those looking to stay ahead in their groupings of smaller businesses – market. The table below shows how our THE ORGANISATION start-ups, businesses with high-growth programmes are targeting these market potential that are looking to scale up, segments. The British Business Bank is a public limited company and operates a group structure with three principal subsidiaries, which allows us to achieve our objectives in line with State aid and other legal considerations. The British Business Bank is also organised into business units which operate across the subsidiaries to pool expertise. The diagram below outlines this structure.

Business lifecycle START-UP SCALE-UP STAY AHEAD British Business Bank plc and principal subsidiaries

Mentoring and funds to ‘be Funds for high-growth More funding options and your own boss’ potential firms choice of provider

INVESTMENT PROGRAMME

• Investments in new platforms, debt funds and 1. British Business 2. British Business Bank 3. British Business Financial asset based lenders to Finance Ltd Investments Ltd Services Ltd support competition with the banks

VENTURE CAPITAL Manages British Business Bank The commercial subsidiary of the British Carries out services on behalf of the NEW ENABLE SOLUTIONS programmes that have an element of Business Bank plc with a separate Department for Business, Innovation and State aid. It invests a on a non-commercial board of directors. Since it is funded and Skills (BIS). This includes programmes • A range of programmes to • Guarantees and capital basis, and is not expected to make returns invests on a commercial basis, its remit which, for legal or commercial reasons, encourage investment in funding to support segments of the early stage challenger banks and asset in line with those the private sector would allows it to invest flexibly both alongside currently remain on BIS’s balance sheet. high-growth investment finance providers expect. Its programmes tackle specific private investors, and as a sole investor, The programmes target specific market market market failures affecting the finance to increase the volume and diversity of issues in smaller business finance markets. HELP TO ENTERPRISE FINANCE markets for smaller business: either those finance available for smaller businesses. We administer the assets and liabilities START-UP LOANS NEW GROW (PILOT) GUARANTEE pre-defined by State aid frameworks, In contrast with British Business Finance included on BIS’s balance sheet relating to • Guarantees that enable or otherwise identified through market Ltd, it is not required to target specific these programmes. The performance of • Loans for people wanting to • Guarantee and co-investment banks to lend where analysis and notified to the European market failures through its programmes. these programmes is taken into account in start a business structure to help businesses raise debt with mezzanine security is insufficient Commission. Its portfolio consists of a range of our performance measures. As such, these style features It has responsibility for some of our investments in finance providers including programmes are a core part of the British

PRINCIPAL SUBSIDIARIES PRINCIPAL core programmes, including our flagship lease finance providers, private debt Business Bank. venture capital programme, Enterprise funds and emerging channels such Programmes administered through this NEW FINANCE PLATFORMS AND CREDIT REFERENCE AGENCIES Capital Funds, which supports equity as marketplace lenders. In addition to subsidiary include the Enterprise Finance investments into smaller businesses with supporting the provision of debt finance Guarantee – our largest active programme high-growth potential. it invests in venture capital funds through – which facilitates lending to viable smaller Its objectives relate to smaller the VC Catalyst Fund. businesses that would otherwise be businesses. Its objectives relate to small mid-caps declined for lacking adequate security. START-UP SCALE-UP STAY AHEAD as well as smaller businesses. Its objectives relate to smaller businesses. Smaller businesses looking to start up Our programmes in this market Our programmes in this market are often deemed to be too risky for segment seek to help ambitious segment seek to address the high COMMUNICATIONS AND INFORMATION commercial lenders or investors, who smaller businesses scale up their levels of concentration within find it difficult to judge the distinction operations. We do this by promoting finance markets in order to provide between good and bad prospects, leaving investments in the earlier stages of more funding options and choice VENTURE CAPITAL SOLUTIONS this part of the market underserved. the Venture Capital market and also of provider for businesses that The Start-Up Loans programme, which encouraging the provision of growth are looking to stay ahead in their INVESTMENT PROGRAMMES we administer on behalf of BIS, seeks loans to more established smaller market; and also to allow good to address this problem by offering a businesses with significant growth companies without sufficient WHOLESALE SOLUTIONS

repayable loan of up to £25,000 and plans, helping to address long security to access finance. UNITS BUSINESS access to a business mentor. standing information asymmetries. LENDING SOLUTIONS

14 15 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

PERFORMANCE REVIEW AND FUTURE DEVELOPMENTS

On 1 November 2014, the British Business VENTURE CAPITAL The ENABLE Guarantees programme sector. The main aim of the Investment Bank successfully transitioned from a SOLUTIONS – HELPING aims to address capital constraints Our Investment Programmes are Programme is to promote volume and ring-fenced team within the Department BUSINESSES SCALE-UP associated with SME lending by enabling supporting £0.5bn of smaller diversity of supply of lending to smaller for Business, Innovation and Skills to an Included within this business area participating banks to share a portion business finance and participate in businesses by encouraging new entrants operationally independent, Government- are our interest and activities in the of the credit risk of a newly originated £2.9bn of finance to small mid-caps and supporting the growth of smaller owned economic development bank. Business Angel Co-Fund, Venture small business lending portfolio with HM lenders in the market. To date it has This represented the culmination of two Capital Catalyst Funds and the Government in return for a fee. This will Our investment programmes have made invested in a number of debt funds, asset years of set-up work, including obtaining Enterprise Capital Funds (ECF) – all lead to a reduction in capital requirements the following commitments: finance firms, marketplace lenders and State aid approval from the European of which are focused on supporting connected to the guaranteed lending, invoice finance. Commission on 15 October 2014 for the a vibrant and diverse venture capital allowing more lending to be generated • Business Finance Partnership Mid Cap The Investment Programme has mandate and organisational structure of market to support early stage and from the same allocated capital base. – £863m total commitments been further enhanced to include a new the organisation. high-growth firms in the UK. We have launched the first ENABLE • Business Finance Partnership Small Cap Expansion Capital initiative and a new While we have made great progress Yvonne received a loan from the Start-Up Guarantee transaction, which will facilitate – £87m total commitments Regional Finance initiative. The Expansion over our first financial year of operation, we Loans Company – supported by the Our Venture Capital solutions £125m of new lending through Clydesdale • Investment Programme – £400m of Capital initiative will enable investments British Business Bank – enabling her to recognise there is still much more to do to are supporting £0.9bn of and Yorkshire Banks. funding allocated, of which £228m has either by way of long term equity or start her business, Avalo Home ensure smaller businesses have access to smaller business finance The ENABLE Funding programme is been committed to date. other forms of risk capital to support the the finance that enables them to fulfil their designed to improve the provision of asset growth of companies active in smaller potential. Recent highlights include the Start- Investments have been made during and lease finance to smaller businesses, The BFP was set up to improve credit business lending markets. We anticipate Our market impact has grown Up Loans programme reaching the the year through Venture Capital by ‘warehousing’ newly-originated access for SMEs and small mid-caps from this will unlock further funding capacity significantly over the last year – British milestone of 25,000 new businesses programmes, with a focus on early asset finance receivables from different sources other than established banks. It is for these types of finance providers. The Business programmes currently support supported in January 2015 and the stage companies with high-growth originators. Once this structure is big delivered through two variants: BFP Mid Regional Finance initiative is designed to over 40,000 smaller businesses with over announcement by the Prime Minister in potential in the technology and enough, we will seek to refinance a portion Cap and BFP Small Cap. encourage the development of lending £2.3bn of finance. In addition, we participate February 2015 that the British Business business to business sectors. of our funding through securitisation in the The BFP Mid Cap was announced in capacity outside South East England. Up to in £2.9bn of finance for small mid-caps. Our Bank will pilot a new programme, under The Venture Capital Catalyst capital markets, which will enable smaller November 2011 to ease the flow of credit £50m is available through the Investment activity is forecast to increase significantly the banner Help to Grow, to support Fund has made four commitments finance providers to access institutional to small mid-cap businesses in response Programme to support regionally focused as we deliver our plan of supporting £10bn ambitious smaller businesses looking for totalling £30m from a total allocation investors’ funds. Over the coming year to the lack of liquidity caused by the global commercial business lenders. The scope of of finance over the next few years. Growth Finance. of funding of up to £125m and will the Bank will bring the programme fully economic downturn. It made investments this initiative is designed to include both The section below gives a performance In the Autumn Statement, December continue to support funds that are on-stream. alongside private sector matched-funding lenders operating in specific regions, and update of each of our business areas, and 2014, the Chancellor announced near to reaching a first close but into debt funds targeting mid-market those who operate more widely but who outlines future developments. that EFG’s lending capacity had been which might not otherwise meet companies with turnover up to £500m. operate one or more regional offices with a increased, enabling its partners to their target. The BFP Small Cap was launched in front office origination capability. LENDING SOLUTIONS – A guarantee up to £500m of new lending We were also awarded an May 2012, with the aim of increasing the RANGE OF DEBT SOLUTIONS TO to smaller businesses in 2015-16. additional £400m of funding in the flow and diversity of finance available to HELP BUSINESSES START-UP, Over the coming year we will be Autumn Statement 2014 to extend smaller businesses with turnover up to SCALE-UP AND STAY AHEAD increasing our support for growth the ECF programme following £75m, by supporting the development of Programmes included within this finance through the Help to Grow market analysis into the equity-gap sustainable non-bank finance markets that business area are the Start-Up Loans pilot. We published a Request for in the provision of smaller amounts are attractive to businesses and investors Programme, our new Help to Grow Proposals in March 2015 seeking of equity finance to SMEs due to alike. It has supported a range of non-bank programme – where we are currently participants to generate at least £100m asymmetric information between the Gousto received two rounds of investment lenders, such as invoice finance platforms requesting proposals from delivery of lending to growing businesses. This investor and the business on likely from the Angel CoFund – supported by the and asset-finance providers, making British Business Bank – and other investors partners – and the Enterprise Finance followed market engagement and viability and profitability. investments alongside private sector Guarantee (EFG). extensive market analysis that indicated matched-funding. more firms are likely to seek finance for WHOLESALE SOLUTIONS – INVESTMENT PROGRAMMES Following the success of the BFP growth going forward. The Help to Grow HELPING BUSINESSES STAY – HELPING BUSINESSES STAY programmes, the Investment Programme Gin and fruit liqueur manufacturer Bramley pilot is a flexible instrument, with the AHEAD AHEAD was launched in April 2013, with a focus and Gage raised £25k through Funding British Business Bank having the ability Programmes included within Programmes included within this business on making commercial investments, in a Circle – supported by the British Business Our Lending Solutions are supporting to provide guarantees or funding to this business area are ENABLE area are the Business Finance Partnership variety of forms, on terms and conditions Bank’s BFP Small Cap – to purchase a new £0.9bn of smaller businesses finance gin still to increase their production facilitate growth loans. guarantees and ENABLE funding. and the Investment Programme. that would be benchmarked to the private

16 17 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

OUR IMPACT – SMALLER BUSINESSES OUR IMPACT – How our programmes deliver for smaller businesses. FINANCE MARKETS How we work with our delivery partners. Debt finance unlocked Equity finance unlocked Equity finance unlocked, by the Start-Up Loans by our Angel CoFund by our Enterprise Capital programme backed by the e-Go Aeroplanes Funds programme British Business Bank Solfex Fittamamma

Solfex is the UK’s leading specialist Alexandra, a 29-year-old entrepreneur integrator and distributor of from West Sussex, has been given a Eileen Burbidge renewable solar, heat pump and £9,500 Start-Up Loan to help develop her partner, underfloor heating energy systems. clothing line and resource centre for active Passion Capital Cambridgeshire-based e-Go They wanted to grow their pregnant women. As well as funding, Aeroplanes is the UK’s first business’ infrastructure, partnering Alexandra has benefited hugely from the manufacturer of lightweight with an investor bringing not only support provided to her through George “By supporting and carbon-fibre aeroplanes, which finance, but additional experience, Clayson, her mentor. incentivising private cost significantly less to fly than strategic guidance and a network Alexandra said: “I have found the sector investors, the traditional aircraft and are designed of contacts. application process and the mentoring British Business Bank is to be a product for discerning pilots Panoramic Growth Equity, session incredibly helpful and making the best possible who relish superior performance. supported by our Enterprise Capital believe this experience, along contribution to the UK’s In May 2014 the Angel CoFund Funds programme, invested £1.25m, with the financial support will thriving growth culture.” completed the first tranche of enabling rapid – and award-winning make a huge difference in its £200k investment into e-Go – growth. Solfex was subsequently taking FittaMamma to the Aeroplanes as part of the Company’s sold to the Travis Perkins Group. next level.” £960k second funding round, Stuart Cooper, Managing Director investing alongside a new syndicate and Founder, commented: “Securing of 22 angel investors. the funding through the British Adrian Hillcoat, e-Go CEO, said: Business Bank’s Enterprise Capital Martin Ling “The Angel CoFund provided capital Funds programme proved to be an Debt finance unlocked co-founder, alongside our private investors to excellent result for us (and) enabled by our Business Finance get us going – without it our little us to become part of one of the UK’s Partnership/Investment BMS Finance plane literally wouldn’t have got largest listed Programme off the ground. We’re one of only a building Predator “British Business Bank is enabling few companies still manufacturing companies.” funders like us to tell businesses that complete aircraft in the UK, keeping Predator Equipment is a there is capital out there and that British aeronautical skills and manufacturer of large agricultural deals can be done. That in turn allows heritage alive.” trailers and liquid tankers based in us to meet the needs of a segment Dungannon, Northern Ireland. of businesses that are increasingly MD Eamon McVeigh said : “In this looking to move from subsistence into Rhydian Lewis climate, SMEs like ourselves need all a growth phase, which can only benefit Debt finance unlocked by our Enterprise Finance Guarantee co-founder, Ratesetter Team Sport the help we can get and it’s great to employment and the economy see the Government making a real at large.” Team Sport Indoor Karting has nine securing the impact through the Business Finance “Small businesses are the indoor recreational racetracks across the Brighton site Partnership posterchild of economic recovery south of the UK and opened a new go- when time was and the work and growth and the British Business karting centre in Brighton after securing of the essence, they’re doing Bank has a crucial role to play in financial help from a participating lender, and helped us with the likes of encouraging their growth.” Lloyds TSB. to expand into a new geographic area MarketInvoice.” Paul Wrightman, owner of Team Sport, that we had identified as being a good said, “The support ... was essential in opportunity for future growth.”

18 19 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

COMMUNICATIONS AND INFORMATION: IMPROVING BUSINESSES UNDERSTANDING OF THE FINANCE OPTIONS AVAILABLE FINANCIAL PERFORMANCE & POSITION As a newly established organisation, other organisations representing the we need to raise awareness of both our business and finance sectors, it sets out Overall results: institution and its offer to a wide range considerations when raising finance and These financial results cover the first period of audiences – smaller businesses, what is available to businesses ranging of operations for the British Business Bank FINANCIAL PERFORMANCE Government, the financial industry and from start-ups to growing mid-sized plc Group. In 2014-15: For the period ended 31 March 2015 Programmes potential partners. Achieving greater companies. • The Bank’s operating income was British managed on recognition of our brand and purpose The Guide has been distributed in £17.7m, compared to investment Business behalf of BIS enables us to attract more delivery partners hard copy and electronic form to around costs and operating expenditure of Bank Plc (Unaudited) and gives us greater access to channels to 700,000 businesses and their advisers, £9.9m. Operating income comprised Total smaller businesses, helping us to achieve has been featured on numerous websites largely of interest income (£12.0m) our objectives more effectively. and is used as a reference manual by and management fees charged to the £m £m £m In our first year, we have concentrated Business Growth Service advisers and Department for Business, Innovation and Investment income much of our resources on building relationship managers in many banks. Skills and others on a cost recovery basis Investment Programmes 8.8 3.2 12.0 British Business Bank and ICAEW’s relationships with the major news We will be issuing an updated edition (£5.3m). Lending Solutions - 18.3 18.3 Corporate Finance Faculty jointly outlets.Our work has been covered by later in the year. • Although the Bank generated net Venture Capital Solutions 3.2 0.1 3.3 published a new Business Finance television, radio as well as national, Building on the success of the operating income of £7.8m, it made an Wholesale Solutions - - - Guide in 2014 finance, business trade and local press, Business Finance Guide, the British overall loss before tax for the period of 12.0 21.6 33.6

both online and in print. This has included Business Bank is taking forward two £14m. This is as a result of the required Management fee and other income 5.7 - 5.7 The guide was produced in high-profile interviews, placed opinion related Government programmes accounting treatment for Enterprise partnership with a further pieces and coverage of our programme which will help to address information Capital Funds, explained below. Total operating income 17.7 21.6 39.3 17 organisations launches and milestones. asymmetries in the smaller business • The Bank’s operations were financed

As importantly, we have been finance markets and improve through the issue of shares totalling Net investment costs establishing strategic relationships with competition in banking. £664.3m to our shareholder. Investment Programmes (1.6) (1.6) those business intermediary bodies, Through the Small Business, Enterprise Lending Solutions - (16.4) (16.4) delivery partners and other providers and Employment Act, the Government Venture Capital Solutions 1.3 (2.1) (0.8) of support who have direct channels to has legislated to create a system Wholesale Solutions - - smaller businesses. This has involved whereby small businesses rejected for bank finance are given the option (0.3) (18.5) (18.8) collaborating on events, providing of having their applications referred speakers for conferences, distributing Other operational costs through a set of designated platforms to and signposting to each others’ material Staff costs (6.0) - (6.0) a range of alternative finance providers. and using joint messaging and branding Professional services (2.0) (5.0) (7.0) A related process is also being put in wherever possible. General operations (1.6) - (1.6) In addition, we have also held a series place to create a set of designated credit (9.6) (5.0) (14.6) reference agencies who will receive of our own successful events across the enhanced credit data (notably business country – with more planned for this year Total operating expenditure (9.9) (23.5) (33.4) – to help smaller businesses understand account balance data) from banks. their finance options, and are building our The British Business Bank has Net operating income 7.8 (1.9) 5.9

presence and content on both Linkedin a key role to play in the design and Less: unrealised element of derivative gains (2.4) - (2.4) and Twitter. implementation of these policies, which A key tool to help us achieve our will provide smaller businesses with Adjusted return 5.4 (1.9) 3.5 £17.7m objective of raising awareness of finance access to a bigger market of potential Average capital employed 658.9 options amongst smaller businesses lenders; and will be recommending to the The Bank’s operating is the Business Finance Guide, which Government which platforms and credit Adjusted return on average capital employed 1.3% we published jointly with the ICAEW in reference agencies will be designated to income for the period June 2014. With endorsement from 17 participate in the scheme.

20 21 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

a commitment to a fund and to impair the Reconciliation of operating income to loss before tax resulting investment when a fund manager British draws down against a commitment. This Business results in a significant upfront expense Bank plc which gradually reverses over the lifetime of the investment. The Bank has therefore Adjusted return 5.4 recognised a provision totalling £26.1m in the year ended 31 March 2015. This FINANCIAL POSITION Less: expense doesn’t relate to an underlying loss on our investments and is therefore As at 31 March 2015 ECF fair value provision expense (26.1) excluded from the calculation of adjusted notional return on equity. Programmes During the period to Plus: British managed on FUNDING OUR INVESTMENTS Business behalf of BIS Unwind of ECF fair value impairment 4.3 31 March 2015 we We require funding to make investments Bank plc (Unaudited) Total Unrealised ECF derivative fair value gains 2.4 and run our operations. Depending on our invested £172.9m in requirements these can be met from two Loss before tax per financial statements (14.0) sources: our investment earnings and our £m £m £m assets included on our shareholder. Investment assets To fund our capital investments we Investment Programme 493.1 33.7 526.8 balance sheet issue shares to our shareholder and Lending Solutions - 42.1 42.1 utilise available cash from our operations, Venture Capital Solutions 165.9 140.8 306.7 KEY DRIVERS OF FINANCIAL of investment income relating to the including asset repayments. At 31 March

PERFORMANCE Enterprise Finance Guarantee, reported 2015, UK Government held shares totalling OUR ASSETS As an investment business focusing on under Lending Solutions. In addition the £664.3m in British Business Bank plc, 659.0 216.6 875.6 Our programmes invest in a wide range of generating appropriate risk-adjusted £16.4m of Lending Solutions investment comprising the entire share capital of the products through private sector partners, returns on our capital investment, our costs related to the Enterprise Finance Company. Of this Shareholder investment, to enable us to achieve our objective of financial performance is dependent on a Guarantee. During 2014-15 we have £477.4m was used to purchase assets Investment liabilities providing greater volume and choice of number of significant items, including: benefited from lower than expected from the Department for Business, finance to smaller businesses and small Lending Solutions - (83.3) (83.3) • the amount of capital we have defaults on debts covered by the Enterprise Innovation and Skills on 1 November Mid Caps. Venture Capital Solutions (71.6) - (71.6) committed and the time period over Finance Guarantee and this has contributed 2014, £172.9m was used for new capital This is reflected in the split of these which that funding is deployed to the British Business Bank programmes investments and £14.0m retained for investments: • the underlying performance of our achieving an adjusted notional return on working capital. (71.6) (83.3) (154.9) • loans and receivables £18.5m investments and their ability to make equity of 1.3%. The level of defaults is Before 1 November 2014, the • available-for-sale assets £622.9m interest and debt repayments dependent on market conditions and may shareholder also provided funding for • assets designated at fair value through • over time the ability to exit investments increase again in future years. Board costs. Since 1 November 2014 all of the profit and loss £5.3m Net investment assets 587.4 133.3 720.7 successfully and make a capital profit. Staff and other operational costs totalled the Bank’s operational costs have been met • derivative financial instruments £12.3m.

£14.6m for the period and reflect the from its investment income. Our financial performance is also sensitive full costs associated with running British At 31 March 2015, British Business Bank For many investments, we make to payouts under guarantee schemes. Business Bank programmes. plc held £71.0m in cash, generated partly Other Assets/(Liabilities) commitments to a fund and the fund draws As agreed with our shareholder and The British Business Bank accepts through its own operations and partly Cash 71.0 down cash as it is needed. This means there HM Treasury, the British Business Bank a lower return from Enterprise Capital through shareholder funding. The Bank Tangible and intangible assets 0.8 is, at times, a delay between our investment includes programmes where it manages Funds in order to encourage private sector maintains a cash balance of at least £50m commitment and capital being drawn. Net other payables (11.1) assets or liabilities on behalf of BIS when investors to invest. Although the Bank to fund investments and can increase this During the period to 31 March 2015 we calculating its notional return on capital for expects to make a positive return from balance in line with investment demands. invested £172.9m in assets included on our the programmes as a whole. The financial these investments, this return is less than The majority of these funds (£68.1m) Total Net Assets 648.1 balance sheet. As at 31 March 2015, British performance for the period ended that required by the private sector. As a are held within the Government Banking Business Bank plc had further undrawn 31 March 2015 for the programmes result, accounting standards require the Service to ensure that there is minimal cost commitments of £849.3m to be invested managed on behalf of BIS included £17.5m Bank to recognise a liability when it makes to the Exchequer. across its portfolio.

22 23 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

KEY PERFORMANCE INDICATORS RISK MANAGEMENT

OUR FIVE YEAR KEY PERFORMANCE INDICATORS AND INTERNAL CONTROL The British Business Bank’s overarching annual business planning process. They objective is to change the structure of are crucial in developing our understanding The British Business Bank is committed to have policies and procedures in place to the business finance markets for smaller of the performance and position of the ensuring the best standards of Corporate ensure compliance with applicable laws businesses, so these markets work more Company’s business and progress is Governance and is supported in this by the and regulations, including Anti Money effectively and dynamically. This will help monitored on an annual basis and reported Board of Directors and Board Committees. Laundering, Data Protection, Freedom businesses prosper and build economic in our annual report and accounts. The Board of Directors of the plc has been of Information and State aid regulations, activity in the UK. Progress against delivering our KPIs set up along with Board-level committees, and aspire to follow best practice where This overarching goal has been broken is embedded in all areas of the business, notably Risk, Audit, Remuneration appropriate and applicable. down into a set of four key performance but is ultimately monitored by the Board and Nomination. To ensure robust and Our Risk Management Framework is the indicators (KPIs) that enable us to track our of Directors. The table below outlines our effective decision-making within the articulation of the overall strategy towards progress. Our KPIs clearly align with each strategic objectives, our KPIs and how we Group structure the British Business Bank the acceptance, avoidance, management particular objective and are set through our are performing. Board has approved Terms of Reference for and control of risks, as well as the executive level Investment Committees for development of risk capabilities aligned to each subsidiary which makes investment the business goals and objectives. decisions. The Framework: Objective Key performance indicators Current position • demonstrates a clear link to the overall OVERVIEW OF THE BRITISH strategy and business plan of the British Programmes currently support £2.3bn of BUSINESS BANK’S RISK Business Bank To increase the supply of finance available £10bn stock of finance facilitated finance to over 40,000 smaller businesses, MANAGEMENT FRAMEWORK • is owned by the Chief Risk Officer to SMEs in areas where markets do not through our programmes by the end of and participate in a further £2.9bn of finance The establishment of a new entity (CRO) and approved by the British work effectively March 2019 to small mid-cap businesses with a mandate to support businesses Business Bank Board. Any changes underserved by sections of the financial to the Risk Management Framework services industry brings with it are recommended by the Board Risk To help create a more diverse market for At least 50% of our finance facilitated Over 75% of finance currently being delivered inherent risk. Committee to the Board for approval SME finance with greater choice of options through providers other than the four via non-major (‘big-4’) banks Our Risk Management Framework • outlines the risk management vision and and providers largest banks over five years is a collection of tools, processes and objectives, and the approach for evolving methodologies that support the British the risk management capability of the Business Bank in identifying, assessing, British Business Bank Survey results show 43% average smaller To promote better information in the Clear survey evidence from smaller monitoring and controlling the risks it • is reviewed on an annual basis and, business awareness of six alternative market, building confidence among SMEs businesses and finance providers that faces. The Board has overall accountability if required, more frequently to reflect finance options. We are working to increase in their understanding of the finance smaller businesses’ awareness of finance and responsibility for the management of any significant material changes to Our Risk Management awareness, for example through the joint options available options has improved risk within the British Business Bank. the business, economic or regulatory publication of the Business Finance Guide Framework has been Our Risk Management Framework has outlook. been designed to align to the size, scale The yearly review of the Risk Management designed to align to the To manage taxpayer resources efficiently To earn greater than the Government’s The return across the British Business Bank and complexity of the British Business Framework is a means to review the and within a robust risk management medium term cost of capital at the end of programmes for the period from 1 November Bank and has been benchmarked against effectiveness of risk management within size, scale and complexity framework March 2019 2014 to 31 March 2015 is 1.3% other financial services institutions. The the British Business Bank. This review, of the British Business British Business Bank is not a FCA/PRA carried out by third party advisers, began in regulated entity, though a subsidiary February 2015 and is due to be completed Bank and has been representing approximately 1% of the in July 2015. The review benchmarks the There is some intended tension between overall supply gaps (through the between targeting very specific acute portfolio, Capital for Enterprise Fund target operating model of the risk function benchmarked against our four strategic objectives and related increase supply of finance objective) and market failures and more commercial Management, is regulated by the FCA for and outlines the key development priorities other financial services KPIs, so that we are incentivised to aim demand gaps (through the awareness programmes which can have a positive holding and not controlling client money. for the function in 2015-16. for a balanced outcome that takes into objective). impact on the market in the longer The British Business Bank does not hold Key elements of our Risk Management institutions account longer term structural market The return target ensures that the term by encouraging more diversity at regulatory capital and is not subject to Framework include Risk Appetite and Risk issues (through the diversity objective), British Business Bank aims for a balance provider and product level. FCA/PRA regulatory supervision. We Governance.

24 25 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

RISK APPETITE Board of the British Business Bank is • third line of defence provides The British Business Bank also This enables them to carry out a robust • the Board Risk Committee The British Business Bank’s Risk Appetite willing to accept in order to deliver its independent assurance of the overall operates an extensive Risk and Control assessment of the principal risks facing • the Board Audit Committee Policy acts as the link between overall public policy objectives system of internal control including Assessment process to identify and the Company, including those that would • the Risk & Compliance, Finance, HR, IT business strategy, the risk strategy and • Risk capacity is the maximum level assessment of the risk governance register key and emerging risks within threaten its business model, future and Legal functions the Risk Management Framework by of risk that the British Business framework. each functional area and across the performance, solvency or liquidity. • policies for risk management bringing strategic context to identified Bank can assume given its current organisation at a more strategic level. In 2014-15, the Board managed • the independent review of proposed risks, adopting clear escalation criteria, level of resources before breaching The key principles of this model, as The overall Risk Register, is reviewed in and monitored governance and risk investments by the Investment and informing the processes for the stakeholder constraints. demonstrated by the diagram below, are: detail by the senior team and the Board. and internal control matters through: Committee. identification, assessment, control and • The Board has overall accountability monitoring of risk exposures. RISK GOVERNANCE and responsibility for the management The Risk Appetite Policy allows the The British Business Bank Risk and of risk within the British Business Bank Board to articulate the appetite for risks Compliance function is based upon a • The Board delegates specific risk PRINCIPAL RISKS AND UNCERTAINTIES that are specific to their concerns for the ‘three lines of defence’ model, where the: management roles and responsibilities business, such as risks to the reputation • first line of defence is responsible for to the Board Risk Committee, the Audit Risk Definition Risk Categories Example Mitigants of the British Business Bank. The Financial the day to day management and risk Committee and Chief Executive Officer Stability Board defines risk appetite as control (CEO) and the CRO Compliance & Risk of breaching UK • Risk that British Business Bank’s • The British Business Bank is not regulated except for the aggregate level and types of risk a • second line of defence is responsible • The CEO is supported in delivery of Conduct Risk or EU regulations, regulated entity breaches regulatory its subsidiary Capital four Enterprises Fund Managers, financial institution is willing to assume for designing risk policies and these responsibilities through direct internal policies or requirements which constitutes approximately 1% of the Group’s net within its risk capacity to achieve its methodologies, monitoring reports from the senior team conduct standards, • Breach of applicable laws relating to assets strategic objectives and business plan. performance and compliance, • The CRO is a member of the senior which exposes the financial crime, money laundering and • New products and programmes are rigorously The Risk Appetite Policy of the British identifying and reporting risks and team and is also supported by the Risk British Business conflicts of interest assessed against the UK and EU regulatory Business Bank is based on these high- providing independent and objective and Compliance function in the delivery Bank to regulatory • Risk that British Business Bank enters into environments level design principles: challenge to the first line of defence of their responsibilities. fines and penalties, regulated activities within its programmes, • All new investments are subject to a robust due • Risk appetite is the level of risk the financial losses and without being regulated diligence process incorporating ‘Know Your Customer’ reputational risk • British Business Bank employees breach • British Business Bank has a Compliance Risk compliance standards Management Framework and a comprehensive suite of THREE LINES OF DEFENCE MODEL: Compliance related policies in place • British Business Bank employees are subject to a Code 1st Line of Defence 2nd Line of Defence 3rd Line of Defence of Conduct policy and annual Compliance Declaration

Day to day management & risk control Risk policies, methodologies & Independent assurance independent oversight & challenge Credit and The risk of direct • Risk of end borrower default, for example • Delivery partner selection process includes Investment or indirect losses in as a result of poor trading, or defects in the assessment of underwriting and sanctioning processes, Risk on- and off-balance delivery process and thereafter is subject to portfolio monitoring and THE BOARD sheet positions as a • Whilst the majority of individual regular review, and rigid due diligence process in result of the failure exposures to end borrowers are small, selecting delivery partners, including assessment of of an investee, exposures to mid-cap companies are track record and financial strength end borrower or typically larger • The credit quality of mid cap exposures is monitored Chief Board Risk Audit counterparty to • Delivery partner default or closure closely Executive Committee Committee meet its obligations • Venture Capital is subject to vintage risk, • The British Business Bank aims to continue to invest in accordance with with the year the investment was made the throughout the economic cycle, therefore minimising agreed terms largest single risk driver the vintage risk • Concentration within one industry or • The portfolio is monitored closely for concentration location creates a portfolio that is subject risk to greater risk than a more evenly balanced Head of one Investment Chief Senior Team Internal Audit Committees Risk Officer Information The risk of loss • Breach of legal requirements relating to • Information Security and Information Assurance Risk of information safe-keeping and disclosure of information policies in place to manage information risk. The or its hosting IT • Risk of business sensitive information accreditation process assesses information risks and systems which being leaked or accidently made available in accredits new and existing information systems may be difficult to public domain • The Data Protection Policy ensures that the British Risk & recover, resulting • Threats of cyber-attacks that steal Business Bank fully complies with the requirements of Business Control Compliance Internal Audit in regulatory fines sensitive data relating to the British Data Protection Act Functions Functions Function or reputational Business Bank or its delivery partners as • The British Business Bank realises the threats of risk with business well as disrupt the British Business Bank’s cyber-attacks and is developing a robust incident partners functionality response plan

26 27 2014-2015 | Annual Report and Accounts STRATEGIC REPORT

OUR VALUES PRINCIPAL RISKS AND UNCERTAINTIES (CONT.) British Business Bank has five shared values, which stem from our core essence of Enabling. The values were developed from the views and input of colleagues across the organisation, based on a bottom up approach. They are a foundation for what we stand for as a business and will continue to positively shape our corporate culture as we grow. Our Values Forum meets monthly, with colleagues from Sheffield and London representing teams across the business. Risk Definition Risk Categories Example Mitigants

Market Risk The risk of direct or • The British Business Bank makes • The British Business Bank has minor indirect losses that arise material losses due to foreign foreign exchange exposure, less than 4% from fluctuations in exchange movements through its of its portfolio, and does not hedge these INTEGRITY IMPROVING valuations, or interest investments exposures. This is in line with government income as a result of • The British Business Bank policy Acting with a shared sense of Challenging and innovating movements in interest investments are subject to interest • British Business Bank conducts scenario purpose, an abiding duty to create effective solutions or exchange rates rate fluctuations testing of exposures sensitive to Interest of care, and serving our that meet the objectives of our Rate market valuation movements market, Stakeholders and Stakeholders and ensuring that employees with fairness, finance markets for smaller honesty and transparency. businesses work effectively.

Operational Risk The risk of losses resulting • Errors in execution, delivery, and • Risk and Control Assessments with from inadequate or failed processing functional teams are held throughout the internal processes, people • Failure of internal controls year to assess risks and associated internal ENABL ING and systems or external • External or internal frauds controls events • Damage to physical assets, utilities • Operational Incidents management CONNECTING disruption or systems failure process in place DELIVERING • Close liaison with BIS counter fraud Commitment to delivering a Collaborating across the network and regular interaction with key professional, quality service organisation, engaging with business partners to all our Stakeholders and Stakeholders, Government, and • Business continuity and disaster recovery colleagues, whilst employing markets to better understand plans in place taxpayer resources responsibly the challenges faced by to provide solutions. smaller businesses.

Reputational Risk The risk that the firm • The British Business Bank operates • A Reputational Risk Policy is in place will act in a way which an outsourcing model which is • The British Business Bank undertakes falls short of stakeholder subject to Delivery Partner conduct extensive due diligence on new delivery expectations and performance partners and monitors existing delivery partners COMMERCIALLY • Service Level Agreements are in place with Delivery Partners MINDED • The British Business Bank has a robust Complaints Policy in place Exercising good commercial judgement to meet the needs of our market while Strategic and The risks arising from • Risk that the British Business • A clearly defined set of objectives and a also staying focused on the need to drive Business Risk a suboptimal business Bank’s current and planned products robust governance model are in place economic benefit. strategy or business model may not be fit for purpose • New products are subject to market that may lead to financial • Risk that the British Business Bank assessment and New Product Approval loss, reputational damage does not meet its deployment or process or failure to meet internal commitment targets • Regular review of the Strategic Risk and/or public policy • The British Business Bank is not Register by the senior team and Board CORPORATE AND SOCIAL RESPONSIBILITY objectives effective in meeting its objectives members Our governance arrangements mirror Since the establishment of the developing a Corporate and Social those of a quoted Company, while organisation we have developed a Values Responsibility policy for the British integrating best practice from the public Forum that champions the key principles Business Bank, which will use the values as sector as a Government owned economic within the culture of the organisation. a starting point. This is an area that will be development bank. This forum will be instrumental in of increasing focus over coming months.

28 29 2014-2015 | Annual Report and Accounts DIRECTORS’ REPORT

ENVIRONMENTAL MATTERS The British Business Bank employs impact through our investments. In 106 people and leases office space in many cases our agreements with Sheffield and London to accommodate fund managers specifically prohibit them. As a relatively small organisation investments in coal and we support the Bank has a limited direct impact on green investments through our Venture the environment. We have a greater Capital funds.

COLLEAGUES The British Business Bank has now built 120 individuals within the next 6 months. employee policies and further developing a strong team, with relevant expertise Selection of staff is based purely on a detailed training programme to ensure from both the private and public sectors. talent and suitability for the role, through that colleagues thrive, contribute to and The recruitment process is continuing a fair and open process. The Bank is develop in the British Business Bank and we aim to stabilise in size at around currently developing the full range of environment.

Executive Directors and Senior Managers Other employees TOTAL 1 Managing DIRECTORS’ Directors Total Total Total REPORT Female 3 7 32 42 he Directors’ present their • details of significant events since the annual report on the affairs of balance sheet date are contained in Male 8 20 36 64 Tthe Group, together with the note 24 to the financial statements financial statements and auditor’s • information about the use of Total 11 27 68 106 report, for the year ended 31 March financial instruments by the 2015. The Corporate Governance Company and its subsidiaries is Statement set out on pages 37 to 40 given in note 22 to the financial In addition, the Non-executive Directors comprised four males and four females as at 31 March 2015. forms part of this report. statements. The following information required by the Companies Act 2006 can be DIRECTORS 1. Staff numbers provided here are as at 31 March 2015 and not the average since the commencement of operations on 1 November 2014. Therefore they are calculated found in the following sections of the The Directors were as follows: on a different basis to those included in note 5 to the accounts. Annual Report, which are incorporated • Jonathan Britton by reference into this report: • Ronald Emerson • a description of the principal • Christopher Fox activities of the Group during the • Colin Glass APPROVAL OF THE STRATEGIC REPORT course of the year, an indication • Teresa Graham This Strategic Report was approved by the Board and signed on its behalf by: of likely future developments • Caroline Green in the business, boardroom • Christina McComb diversity matters and the narrative • Keith Morgan on financial risk management • Ceri Smith objectives and policies are all • Maria Turner Keith Morgan included in the Strategic Report • Patrick Magee Chief Executive Officer

30 31 2014-2015 | Annual Report and Accounts DIRECTORS’ REPORT

DIRECTORS’ BIOGRAPHIES

Ron Emerson – Christina McComb – Jonathan Britton – Colin Glass – Teresa Graham CBE – Caroline Green – Non-executive Chair Senior Independent Director Independent Non-executive Director Independent Non-executive Director Independent Non-executive Director – Independent Non-executive Ron brings a broad range of business Christina has held a number of senior – Audit Committee Chair Colin is a Chartered Accountant with Interim Risk Committee Chair Director skills and experience to the board. He roles in public and private sector Jonathan has extensive experience his own practice, Winburn Glass Teresa graduated from Newcastle Caroline is CFO and Head of Shared spent his early career in international organisations and has a successful in banking, spanning corporate, SME Norfolk (WGN). He is or has been a University. During her time working in a Big Services for the security and risk banking where he held a number track record in private equity and and investment banking businesses. Non-executive Director of several 4 accounting practice, she was seconded mitigation Company PGI Limited. She of senior management positions, Venture Capital investment. Supporting Jonathan is currently a Non-executive companies, some of which are quoted to the UK Government’s Enterprise and was previously Finance Director of principally with Bank of America and and advising growth businesses is at Director of ICICI Bank UK Limited and on AIM and which came out of the Deregulation Unit. In March 1988 she the VC-backed engineering Group Arc Standard Chartered Bank, where he was the heart of Christina’s career. She is a Non-executive Director for Nomura WGN portfolio. He has always been was appointed to the Government’s Specialist Engineering Limited having a member of the Group management a former director of 3i plc and was a European Holdings Limited, whose Audit passionately interested in helping Deregulation Advisory Panel for a two year previously spent 8 years in private committee and Group Head of Corporate founder director in the Shareholder Committee he also chairs. Since 2006, small businesses develop to their full term and served through two decades of equity, initially at 3i plc. She started her Banking. Since 1996 he has divided Executive. Christina currently holds he has also been a Director of Sparks, potential. He was a Non-executive administrations. She was the first female career at Xerox Corp where she spent his time between non-executive a number of non-executive Board a leading children’s medical research Director of Partnership Investment winner of the Young Accountant of the 9 years in a variety of roles including directorships, business advisory work positions; she is Chairman of Engage charity, becoming Chairman in 2012. Finance (PIF), a fund set up, with funding Year Award for 1988 in recognition of her supply chain, manufacturing and finance. and as an active member of the Faculty Mutual Assurance, Senior Independent Most recently, he was Divisional Finance from Europe and Barclays Bank, to contribution to the small firms sector, her Previously Caroline spent 5 years as a of Management Studies at Oxford Director of Standard Life European Director and Head of Strategy for the support SMEs and social achievement in profession and work with Government. trustee of the MS Society and currently University, where he is an Associate Private Equity Trust plc and a Non- Wholesale Division at Lloyds Banking the areas of Yorkshire and The Humber. She was also the first female laureate of sits on the board of unseen (UK), the Fellow. executive Director of Baronsmead Group and prior to that, Global Controller He acts as a mentor to early stage SMEs the Institute of Chartered Accountants. charity dedicated to eradication of As a non-executive he has served on VCT2 plc and Nexeon Limited. Christina and Head of Treasury at Barclays Bank with high-growth potential. Through his Teresa now works independently focusing human trafficking and slavery. a variety of boards ranging across listed has a BA Hons from London School of plc from 2006 to 2008. He previously deep interest and experience in SMEs, on her three passions – strategic advice to (main board and AIM), private equity Economics and an MBA from London held senior posts in UBS’s Investment he was awarded the Star in Practice ambitious, growing businesses, liberating funded, large, high impact subsidiaries, Business School. Banking Business. Jonathan holds Award in 2006 from the West Yorkshire these businesses from the fetters of private family owned, and regulated and an MA in Engineering Science from Society of Chartered Accountants and red tape and The Lexi Cinema, a social unregulated sectors. He has also acted as a Keble College, Oxford and is a qualified also was awarded Business Adviser of enterprise, digital, boutique cinema in North Senior Adviser at the Bank of England and chartered accountant. the Year in 2007 and Non-executive London covenanting 100% of its profits to a the Financial Services Authority. He holds Director of the year in 2008 both by charity in South Africa. She holds a number degrees from Manchester, Durham and the Institute of Directors Yorkshire of appointments, including non-executive, Oxford universities. and Humber. In January 2011 he was mentoring and advisory roles in growth awarded Non-executive Director of the businesses. Year in the Grant Thornton sponsored Quoted Company Awards for his work with AIM-quoted SMEs.

32 33 2014-2015 | Annual Report and Accounts DIRECTORS’ REPORT

During the year the Nominations Committee of the Bank met and approved the

appointments of our Ceri Smith – Maria Turner – Keith Morgan – Chief Executive Officer Christopher Fox – Patrick Magee – other independent Shareholder Representative Director Independent Non-executive Director Keith led the planning and establishment Chief Financial Officer and Head of Chief Operating Officer, Ceri heads the British Business Bank Maria was Risk Committee Chair until of the British Business Bank from Central Services, Executive Director Executive Director Directors and Public Data Group team in the May 2015. She has over 27 years’ risk January 2013, and was appointed Chief Christopher is Chief Financial Officer and Patrick joined the British Business Bank Government’s Shareholder Executive, experience managing risk in wholesale, Executive Officer in December 2013. is also responsible for central functions as Chief Operating Officer in October and was responsible for the successful retail, commercial and in investment Prior to this, Keith was a Director and including HR, IT and Admin. Prior to joining 2014. He had previously represented the delivery of the British Business banking businesses. Maria is currently Head of Wholly-Owned Investments the British Business Bank, Christopher Government’s shareholder interests on its Bank. He has held a number of senior Head of Market & Counterparty Credit at UK Financial Investments, joining in was Head of Banking at UK Financial Board. Before joining the BIS Shareholder positions in BIS advising the Secretary Risk at Nordea Bank. She has Global 2009 to manage the UK Government’s Investments, where he was responsible for Executive in June 2012, Patrick was a of State on a range of issues including Banking experience working in top tier shareholdings in Bradford & Bingley, overseeing HM Government’s shareholdings Managing Director of corporate finance business finance, industrial strategy, US, European and Asian banks. Maria Northern Rock and Northern Rock in Lloyds Banking Group, Royal Bank of at JP Morgan Cazenove, having worked at infrastructure and the UK’s employment also held senior positions in other Asset Management. Keith joined UKFI Scotland and UK Asset Resolution. He was the predecessor firms for almost 18 years. law framework. Before joining that banking institutions including Chief Risk from Banco Santander where he was also a Non-executive Director at UK Asset During his career Patrick has advised on a Department in 2007, Ceri was a senior Officer at Mizuho International plc bank a Director of Sovereign Bancorp in the Resolution, Bradford & Bingley and NRAM. broad range of M&A, Capital Markets and official at HM Treasury. Previous in London and Managing Director in Risk US, focusing on retail and SME strategy Christopher joined UKFI from UBS, where Corporate Broking assignments for a range responsibilities included developing the Management at JPMorgan, working in and the integration of Sovereign into he gained extensive experience of financial of clients in the General Industrial, policy response to the events around a number of roles and projects. Maria Santander. He was previously Director services over nearly 20 years, having Energy / Utility, Support Services and Northern Rock, founding and leading has a BSc Hons in Mathematics from the of Strategy & Planning at Abbey provided capital markets and investment Financial Services areas. He has broad the Treasury’s SME taxation team, University of Newcastle-upon-Tyne and National and a member of the Executive banking advice to a range of governments experience of working with companies developing the Government’s Enterprise is a qualified Chartered Accountant. Committee, and also served as Chairman and financial institutions around the world. which work closely with Government Capital Fund Programme, and leading on of Santander’s Asset Management and He joined UBS in 1993 and is a qualified including banks, utilities and support issues around the financing of terrorism Credit Card businesses in the UK. Before accountant. services / infrastructure providers. Patrick and serious crime in September 2001. joining Abbey in 2004, Keith spent 18 also spent two years on secondment to years at LEK. Consulting, where he was a the Panel for Takeovers and Mergers. partner specialising in financial services. During his time at the Shareholder Executive Patrick was involved in assisting with the establishment of The Green Deal Finance Company, the set-up and governance of the British Business Bank as well as work on a range of the companies in the Shareholder Executive portfolio.

34 35 2014-2015 | Annual Report and Accounts CORPORATE GOVERNANCE STATEMENT CORPORATE GOVERNANCE STATEMENT The corporate governance arrangements Our Non-executive Directors scrutinise Jonathan Britton and Maria Turner were APPOINTMENT AND REMOVAL AUDITORS for the British Business Bank Group were the performance of management in appointed in April 2014 as independent OF DIRECTORS Each of the persons who is a Director at developed in advance of the launch of the meeting agreed goals and objectives. Non-executive Directors in preparation The appointment and removal of the date of approval of this annual report British Business Bank as an arms-length As part of their Remuneration Committee for the establishment of the Audit and Directors is set out in the Corporate confirms that: entity on 1 November 2014. membership, they are responsible for Risk Committees which took place during Governance Statement found on page 37. • so far as the Director is aware, there is no Our constitution consists of our setting appropriate levels of remuneration the year. In June 2014 the remaining relevant audit information of which the Articles of Association and a Shareholder for Executive Directors and staff in independent Non-executive Directors, DIRECTORS’ INDEMNITIES Company’s auditors are unaware Relationship Framework Document which consultation with our Shareholder. Colin Glass, Teresa Graham and Caroline The Company has granted indemnities • the Director has taken all the steps that requires that the British Business Bank plc This is further explained in the Directors’ Green were appointed to the Board. to each of its Directors in respect of all he/she ought to have taken as a Director operates, so far as is practicable, a corporate Remuneration Report at page 41. Patrick Magee resigned as a Shareholder losses arising out of, or in connection in order to make himself/herself aware governance framework that accords Matters reserved for the Board include representative Director in October 2014 with, the execution of their powers, of any relevant audit information and to with best practice and complies with the the strategic direction of the business, and joined the Board in March 2015 as an duties and responsibilities as Directors establish that the Company’s auditors are provisions of the UK Corporate Governance significant investments, Group policies, Executive Director having previously been to the extent permitted by law and the aware of that information. Code 2012 (other than Section E Relations terms of reference of all committees, appointed as Chief Operating Officer in Company’s Articles of Association. In This confirmation is given and should with Shareholders) or specifies and risk management and internal/external November 2014. In January 2015 Christopher discussion with our shareholder the be interpreted in accordance with the explains any non-compliance in its Annual controls and appointments to the Board Fox was appointed to the Board of Directors Company will consider the provision of provisions of s418 of the Companies Act Report. The 2012 Corporate Governance and Committees. using the services of Ridgeway Partners. Directors’ and Officers’ liability insurance 2006. Code is freely available from the Financial The Chief Executive leads the Executive In May 2015 Maria Turner gave for the coming years. Reporting Council. in the day to day running of the business notification of her intention to resign Approved by the Board of Directors, The Corporate Governance Code acts and the implementation of strategy and from the Board and Teresa Graham was GOING CONCERN as a guide to a range of key issues to chairs meetings of the Senior Management appointed by the Board as interim Chair of The Directors who served during the year ensure effective Board practice. The Code Team. The Chief Executive has delegated the Risk Committee. have a reasonable expectation that the is split between a number of chapters and authority from the BIS Accounting Officer Company and the Group have adequate Keith Morgan the principles of leadership, effectiveness (the Permanent Secretary). This means the DIRECTOR ELECTION resources to continue in operational Chief Executive Officer and accountability are values that the CEO is accountable directly to Government All Directors were required to submit existence for the foreseeable future. British Business Bank Board considers to be critical to the and to Parliament for the way in which the themselves for re-election at the Annual Thus they continue to adopt the going 13 July 2015 success of our business. British Business Bank manages General Meeting of the Company in 2014 concern basis in preparing the financial public money. and each Director was re-elected. statements. Further details can be found THE BOARD OF DIRECTORS OF The names and biographical in the principal accounting policies notes THE COMPANY APPOINTMENT AND REMOVAL details of our Directors can be found in the financial statements. As set out in the Shareholder Relationship OF DIRECTORS on page 32. Framework Document, the Board requires In 2013, Ron Emerson was appointed as During the year a corporate secretariat GREENHOUSE GAS EMISSIONS no fewer than eight Directors including Chairman of the Company in a process function has been created to assist REPORTING six Non-executive Directors. Independent chaired by a commissioner from the Office of with the operation of the Board and This Directors’ Report does not include Non-executive Directors are to constitute the Commissioner for Public Appointments. Committees and the provision of information on emissions of carbon dioxide. the majority of the Board. Our Board and Christina McComb was appointed as Senior timely and appropriate information. The British Business Bank plc leases two Committees have the appropriate balance Independent Director and Keith Morgan was All information to assist in the Board’s floors of office space and employed an of skills, experience and independence to appointed as the Chief Executive Officer oversight is available from the Company average of 108 staff during the period enable them to discharge their duties and and an Executive Director later in 2013. Secretary and Directors will be provided since go-live on 1 November 2014. Prior responsibilities effectively. During 2013, Patrick Magee and Ceri Smith with updates on corporate governance to 1 November 2014 the Company did not The Chairman is responsible for leading were also appointed as the Shareholder developments, legislative and regulatory have any designated office space or any the Board and its discussions and for representative Directors. changes, and relevant industry employees. Therefore the cost of collecting encouraging open debate and challenge. During 2014 the Nominations information. In 2015 the Board will information and estimating emissions is The Board is collectively responsible for the Committee of the Bank met and approved trial the use of electronic delivery and not considered to be proportionate to the long-term success and, in consultation with the appointments of our other independent format for Board papers and information, benefit for this year. our sole Shareholder, the strategy of the Directors using the services of Odgers to increase efficiency, confidentiality Company. Berndtson. and sustainability.

36 37 2014-2015 | Annual Report and Accounts CORPORATE GOVERNANCE STATEMENT

The British Business Bank is committed to ensure that the Board and its Committees operate effectively OUR COMMITTEES and are continually improving. During the year the Chairman conducted an Prior to the operational commencement adequacy and effectiveness of the with input from the External Auditor, performance against risk appetite and internal Board evaluation to monitor of the business on 1 November 2014, internal and external controls and included the valuation of assets to be oversee and advise the Board on the their effective operation. we successfully established our overseeing the relationship with transferred to the British Business Bank, risk exposures and future risk strategy. All Directors and the Company Board and its Committees with their the Bank’s external auditor. The Financial Modelling and Performance, the In particular the Committee evaluates Secretary participated in the annual own terms of reference. The terms of Committee also has oversight of the review of significant accounting decisions the Company’s governance, risk and review to ensure a rigorous and full reference for each of our Committees Internal Audit and Audit Planning and the content of the Annual Report and internal controls, the procedures to evaluation of the operation of the can be found on our website and are process of the Bank Accounts of the Company. The Committee guard against fraud and bribery and Board and its Committees. This process reviewed annually. The Committee Audit Committee also considered the Internal Audit Planning corruption safeguards. During the was composed of questionnaires that has discharged its responsibility and the interaction with the External year the Committee has considered asked for the Directors’ views on a Audit Committee in relation to the oversight of the Auditor of the Bank. the policies which apply to the British number of matters including Board Bank’s financial reporting process and The Committee will undertake an Business Bank Group, risk appetite and effectiveness and process, Committees The Audit Committee was established the process for preparation of the evaluation to assess the effectiveness During the year an risks applicable to the Group, and the interaction and roles, effectiveness of in 2014 under the Chairmanship of consolidated accounts in the following of both the internal and external audit compliance framework. the Chairman and governance function Jonathan Britton and also comprises ways: processes and approaches as part of internal Board evaluation As noted above, in May 2015 and Board Composition. further independent Non-executive • reviewed the accounting policies its agenda during 2015 to ensure they Maria Turner gave notification of her The outcome of the exercise Directors, Teresa Graham and Caroline adopted to ensure the Bank as a are both adequate and appropriate has been performed intention to resign from the Board showed no areas of concern and the Green. Maria Turner was also a member whole complies with the applicable for the organisation. In assessing the to ensure the effective and Teresa Graham was appointed by feedback received will be reviewed until her resignation in May 2015. Accounting Standards and presents effectiveness of the External Auditor, the Board as Interim Chair of the Risk by the Board and Chairman as part of The Chief Executive, Chief Finance consolidated accounts that are true the Audit Committee will have regard to operation of the Board Committee. our commitment to maintain ongoing Officer, Chief Risk Officer and Head and fair the scope of the audit work planned and and its Committees improvement given our first few of Internal Audit attend Committee • reviewed methods used to executed, standards of communication and Nomination Committee months of operational independence. meetings along with the external account for significant or unusual reporting, quality of insights on the internal Any changes and improvements will be auditors who are invited to attend and transactions where different control environment and independence. Established in 2014 under the implemented during 2015-2016. report at all meetings. The Committee approaches are possible During the year the Committee Chairmanship of Ron Emerson also meets privately with both internal • assessed and approved the process Remuneration Committee considered the structure of all the Nomination Committee also CONFLICTS OF INTEREST AND and external audit. for preparing the consolidated compensation payments to Directors and comprises Non-executive Directors, OUTSIDE APPOINTMENTS The Committee has met five times accounts The Remuneration Committee senior management, the setting-up of the Christina McComb and Ceri Smith. The The Directors are under a duty to during the year in July 2014, August • assessed the extent to which the was established in 2014 under the Long and Short-Term Incentive Plans of the Committee met during 2014 where avoid a situation where they have, or 2014, September 2014, December 2014 Bank has complied with the financial Chairmanship of the Senior Independent Company and the performance evaluation the nominations of potential Directors can have, a direct or indirect interest and March 2015 and attendance can be reporting requirements of the Director, Christina McComb, and also of senior management. were considered and recommended to that conflicts, or possibly may conflict found on page 40. Department for Business, Innovation comprises the Chairman, Ron Emerson, the Board. with the Company’s interests. As part and Skills. Teresa Graham and Ceri Smith. Risk Committee The Board is committed to ensuring of our Conflicts of Interest Policy, Role The Committee met 6 times during the the diversity of its membership. All the Bank has a formal procedure for The Audit Committee is governed As required by our Shareholder, the year, 3 in preparation for the operational Established in 2014 under the Chairmanship appointments to the Board are based disclosure, review and authorisation by the principles of the Corporate Bank is audited by the Comptroller and commencement of the business, and 3 of Maria Turner the Risk Committee also on merit and on the experience and of Directors’ conflicts of interest and Governance Code. We have reflected Auditor General. The National Audit subsequently. comprises independent Non-executive skills required, with due regard to the requires complete and accurate written these principles in the Audit Office carries out the external audit Directors, Christina McComb, Colin Glass, Ceri benefits of diversity. disclosure of any actual or potential Committee’s terms of reference for and on behalf of the Comptroller Role Smith and Jonathan Britton. Female membership of our Board conflicts of interest for all Directors which can be found on our website. and Auditor General. The external The Committee’s role is to set the The Committee has met four times and Committees as at 31 March 2015 and staff. The Committee’s role is to review, auditors have not conducted any non- remuneration policy for all Executive during the year in July 2014, September are given below. The Board is of the belief that monitor and make recommendations audit services during the financial year Directors, the Chairman and all other 2014, October 2014 and March 2015 and outside interests can be beneficial for to the Board relating to the going- and the Committee considers that the senior management, including pension attendance can be found on page 40. Board: 36% both the Executive and Company and concern nature of the Bank, the external auditor is both objective and rights and any compensation payments, Risk: 40% has authorised the outside interest of integrity of financial reporting, the independent. and to set the terms of the Long and Role Audit: 75% the Chief Executive Officer in his role as financial statements and any issues The significant issues considered Short-Term Incentive Plans and any bonus The Committee’s role is to advise the Nomination: 33% a Non-executive Director at UK Asset and judgements they contain, the by the Committee during the year, schemes the Company may operate. Board on the Company’s risk appetite and Remuneration: 50% Resolution.

38 39 2014-2015 | Annual Report and Accounts DIRECTORS’ REMUNERATION REPORT

DIRECTORS’ REMUNERATION REPORT CHAIR’S FOREWORD

On behalf of the Board, I am pleased to an incentive scheme that is designed to present the Remuneration Report for the reward employees based on the long- British Business Bank for the year ended term sustainable success of the Bank. Key ATTENDANCE AT MEETINGS 31 March 2015, the first since the Bank decisions made by the Committee became a plc. Those sections of the report and recommended to the Board during the AND COMMITTEES that have been audited by the National year were: Audit Office have been identified as such. • agreeing base remuneration for The table set out below details the attendance of Directors who attended each Board and Committee: The Committee’s primary role is to the Executive Directors and senior provide robust, independent governance management team for executive remuneration that: • designing a long term incentive plan Date of Board Audit Risk Remuneration Nomination • supports the Bank’s long term business (LTIP) appropriate to the particular appointment The Committee’s strategy and values circumstances of the Bank • enables the Bank to recruit, motivate • agreeing performance targets for 2014- primary role is to Total Number of Meetings 12 5 4 6 2 and retain talented individuals with 15 and the first cycle LTIP appropriate skills and experience • reviewing overall remuneration policy provide robust, Chair • links executive reward to the Bank’s for the Bank. independent Ron Emerson 29 October 2013 12/12 – – 6/6 2/2 performance against its long term business plan. As this was the first year of operation of governance Non-executive Directors the Bank, the Remuneration Committee This report is divided into two parts: has taken an interest in broader market for executive Jonathan Britton 28 April 2014 8/11 5/5 4/4 – – 1. Policy on Executive Directors’ and trends and carried out benchmarking of remuneration senior management remuneration salaries and other reward mechanisms in Colin Glass 24 June 2014 9/10 – 4/4 – – 2. Annual report on remuneration. This summer 2014. In the context of the Bank’s section outlines how the policy has policy remit, the Committee recognises Teresa Graham 24 June 2014 9/10 5/5 – 6/6 – been applied and includes details of that remuneration policy will need to be Caroline Green 24 June 2014 8/10 4/5 – – – remuneration for the senior team and reviewed from time to time to ensure the Board. that it is meeting the requirements of our Christina McComb 29 October 2013 12/12 – 4/4 6/6 2/2 shareholder and is fit for purpose. Where During the financial year 2014-15, the Bank appropriate, the Committee will seek Ceri Smith 29 October 2013 11/12 – 4/4 6/6 2/2 made significant progress, as outlined in relevant external advice and guidance. the Chairman’s statement. The Committee Looking ahead to 2015-16, the Maria Turner 28 April 2014 10/11 2/5 4/4 – – has played an important role in determining Committee will be reviewing the business Executive Directors a remuneration framework that reflects targets for the next period and setting the particular circumstances of the Bank stretching business and personal targets Keith Morgan 10 December 2013 12/12 as a public owned Company operating in a for the executive, in particular in the commercial environment. Accordingly, the context of any new policy initiatives which Christina McComb Christopher Fox 13 January 2015 2/3 Committee has agreed and implemented the Bank may be asked to undertake. Chair of the Remuneration Committee

Patrick Magee 10 March 2015 7/7; 1/1

40 41 2014-2015 | Annual Report and Accounts DIRECTORS’ REMUNERATION REPORT

REMUNERATION POLICY REPORT

POLICY OVERVIEW order to ensure that the Bank adopts the Bank’s strategy in alignment with the The Remuneration Committee leading practice with respect to its interests of the shareholder Element Operation, opportunity & performance framework determines, on behalf of the Board, remuneration policy. • the requirement to reward long-term the Bank’s policy on the remuneration performance and incentivise the right Objective: To reward performance over The current incentive is a maximum cash award of 50% of base salary. In the case of of the Chairman, Executive Directors HOW THE VIEWS OF THE behaviours the longer term (cont.) Executive Directors, awards are paid at the end of the relevant three year cycle; in the case and other members of the senior team. SHAREHOLDER HAVE BEEN • the efficient use of taxpayer resources of the first cycle LTIP, in August 2017. In the case of other members of the LTIP, any awards The Committee’s terms of reference are TAKEN INTO ACCOUNT and the requirement to deliver good value in respect of personal objectives may be paid after two years. There is no annual bonus available on the Bank’s website. The shareholder-appointed Non- for money for the Exchequer as a whole. award for Directors and the senior team. While not covered by the FCA/PRA executive Director is a member of Although the Company is not governed by the FCA or PRA, the Committee has Remuneration Code for banks, the the Remuneration Committee. In The Bank has not consulted its employees determined that the regulatory best practice should be adopted with regard to Recovery British Business Bank has sought where addition, specific approval has been on this policy, although it has considered and Withholding Provisions and such provisions shall apply for a period of seven years from appropriate to meet these governance obtained from the shareholder for the reward philosophy for employees in the start of the performance period. Recovery and Withholding shall apply in a range of requirements, in addition to The Large Executive Director remuneration and general. The focus for employees is on adverse circumstances, at the Committee’s discretion, including financial accounts mis- and Medium-sized Companies and Groups for the LTIP terms. rewarding performance over the longer statement, significant failure of risk management, regulatory censure or breach of policy Regulations 2013. term and to have reward packages which and procedures. As the Bank is in its first year THE REMUNERATION POLICY attract high-calibre candidates, while As a general rule, if a participant ceases employment within the Company’s Group before of operation, the Remuneration FOR DIRECTORS AND THE delivering value for money. an award is paid, then the award opportunity shall normally be forfeited and lapse in full, Committee acknowledges that the SENIOR TEAM Table 1 below summarises the key although there are exceptions for participants categorised as ‘good leavers’. policy may require review, both to In setting remuneration policy for elements of the Bank’s remuneration policy The Remuneration Committee has ultimate discretion over the payment of any awards meet changes in the Bank’s internal the senior team, the Remuneration for Executive Directors and the senior taking into account factors it considers relevant including the overall performance of the strategy and to reflect changes in the Committee has taken into account the team, taking into account the factors above. Bank. external environment. The Committee following key factors: The Executive Directors’ service contracts will consider how such changes are • the need to attract and retain a are available for inspection at the Bank’s appropriately taken into account in high-calibre senior team to deliver registered office. Pension & other benefits Table 1: Remuneration policy Objective: To provide an attractive and The Bank contributes up to 15% of base salary to its defined contribution scheme or an cost-effective package approved personal pension scheme, subject to a minimum employee contribution of 3%. Element Operation, opportunity & performance framework The CEO receives a cash-in-lieu allowance of 10%. Current benefits provided are illness income protection and life assurance. These are Base Salary subject to review on an annual basis.

Objective: To attract and retain Base salaries are reviewed annually taking into account the nature of the role and Loss of office payments high-calibre senior leaders responsibilities. Roles are benchmarked against relevant comparator organisations in the public and private sectors. The Remuneration Committee also takes into account the Objective: To provide fair but not There are no defined terms for loss of office within service contracts. Contractual Notice external environment and views of the shareholder. excessive contract features periods range from 3 to 6 months for members of the senior team. Executive Directors are on six months’ notice either side. Provision may be made for payment in lieu of notice, Long Term Incentive Plan (LTIP) where this is deemed to be in the interest of the business. Any situation will be considered by the Committee on its merits. Objective: To reward performance over Executive Directors and certain members of the senior team are eligible to participate in the Should an individual be considered a ‘good leaver’ under the LTIP rules, an appropriate the longer term Long Term Incentive Plan (LTIP). portion of their LTIPs may, at the discretion of the Remuneration Committee, be retained. The LTIP operates as a series of three year cycles; the first covers the period 2014-15 to All termination payments are subject to Cabinet Office Guidelines. 2016-17. Objectives are set at the beginning of each cycle and progress is reviewed by the Committee on an annual basis. Objectives are set in two categories: corporate and personal. The weighting between New Executive Director Remuneration these categories may be varied over time, at the discretion of the Committee, taking into Objective: To attract and retain high- Remuneration for any new appointments will be set in accordance with the policy set out in account the requirements of the business and any relevant external factors. The weighting calibre senior leaders this table. The same approach will be taken with respect to any internal appointments. for the first cycle LTIP is 60% to corporate targets and 40% to personal targets. Corporate targets cover rolling three year periods and will generally be in line with the Bank’s business plan objectives. Personal targets are designed to take into account the specific responsibilities of individual senior leaders in the Bank.

42 43 2014-2015 | Annual Report and Accounts DIRECTORS’ REMUNERATION REPORT

Based on the remuneration policy, the total remuneration for each Executive Director will depend on her or his own performance and the Bank’s performance. The following chart shows how executives’ remuneration could vary according to performance and assumes that the Directors are employed by the Bank for a whole financial year. The variable pay element is measured over a three year period and is paid out after the end of the third year, subject to continued employment.

Chart 1: Ranges for Executive Director remuneration Table 2: Remuneration policy for Non-executive Directors

500 25% 31% 450 Element Operation, opportunity & performance framework

400

350 33% 33% 27% 27% Basic fee – Chair 300

250 Remuneration is in the form of an annual cash fee, in line with The Chair fee will be reviewed from time to time by the Board. 200 practice in the UK

150 Basic fee – Non-executive Directors 100 100% 75% 69% 100% 73% 67% 100% 73% 67% 50 Remuneration is in the form of an annual cash fee, in line with Non-executive Director remuneration is reviewed annually by 0 Minimum Target Maximum Minimum Target Maximum Minimum Target Maximum practice in the UK the Chair and the Executive Directors. Any recommendations are subject to Board approval, with Non-executive Directors not voting Keith Morgan Christopher Fox Patrick Magee on their own remuneration.

n Variable Pay (LTI) n Fixed Pay

Notes Additional fees are paid to the Senior Independent Director and Chairs of the Audit, Risk and Remuneration Committees, in recognition of 1. Minimum = fixed pay only (salary and current cost of benefits and pension) the additional time spent in respect of their Committee activities. This is in line with UK practice generally. Any increases in fees are subject 2. Target = fixed pay and 75% vesting of the LTIP to Shareholder approval. 3. Maximum = fixed pay and 100% vesting of the LTIP

EXTERNAL APPOINTMENTS NON-EXECUTIVE DIRECTORS Directors are available for inspection at BANK WIDE REMUNERATION SHORT TERM INCENTIVE PLAN practice and such provisions apply for a Executive Directors may be invited The Chairman and the Non-executive the Bank’s registered office. AND INCENTIVE PLANS Senior employees who are not eligible for period of seven years from the start of to become Non-executive Directors in Directors do not have service agreements The fee levels paid to Non-executive The Bank aims to apply its remuneration the Long Term Incentive Plan are eligible the performance period. other companies. It is the Bank’s policy with the Bank. Non-executive Directors reflect the time commitment policy in a consistent way for all staff. to participate in the STIP. The purpose that Board approval is required before any Directors are appointed under letters and responsibilities, having regard to best Staff receive pension contributions, life of this plan is to reward senior managers ANNUAL BONUS external appointment may be accepted by of appointment which provide for an UK practice. assurance and illness income protection for their performance over the year as Employees not eligible for the Long an Executive Director. The Board provides initial term of service of three years. The The Board reviews Non-executive as well as their basic salary. The Bank assessed against both their personal or Short Term Incentive Plans may approval where such appointments appointment of a Non-executive Director Director fees on a periodic basis to assess has three mutually exclusive incentive objectives (currently 40% of award) participate in the annual bonus scheme will enhance the Executive Director’s can be terminated by either party giving whether they remain competitive and plans, all of which are designed to reward and the Bank’s objectives (currently which has a maximum award of 20% of knowledge and experience to the benefit written notice. There is no provision for appropriate in light of changes in roles, performance and achievement of the 60% of award). The maximum annual base salary. of the Bank. Board approval is also required compensation for loss of office. The dates responsibilities or time commitment Bank’s objectives. award is 30% of base salary. 50% of in order for the Executive Director to retain of the current letters of appointment of of the Non-executive Directors. In These plans are payable wholly any award is paid after the relevant year any fees paid for such services. During the Non-executive Directors are shown in accordance with common practice in cash, reflecting the fact that the Bank end, with 25% deferred for one year and the year, Keith Morgan served as a Non- the Corporate Governance Statement. Non-executive Directors are reimbursed has a single shareholder (the Secretary a further 25% deferred for two years. executive Director at UK Asset Resolution The terms and conditions of expenses incurred in performing of State for Business, Innovation and The STIP rules incorporate withholding Ltd and received a fee of £61,750. appointment of the Non-executive their role. Skills) and does not issue shares to staff. and recovery provisions in line with good

44 45 2014-2015 | Annual Report and Accounts DIRECTORS’ REMUNERATION REPORT

REMUNERATION

Table 4: Executive Director remuneration (audited) Annual Salary & Pension equivalent Taxable Annual Long-term payments 1 allow- 1 2 Total salary as at ANNUAL REPORT ances benefits incentive incentives (incl cash 31 March supplements) 2015 ON REMUNERATION £000 £000 £000 £000 £000 £000 £000 Keith Morgan3 125 – – - 12 137 299 Christopher Fox4 49 – - - - 49 210 This part of the report has been prepared variable pay cap introduced under the three year period in March 2017. 5 in accordance with Part 3 of Schedule European Union Capital Requirements 20% of the LTIP award is subject to Patrick Magee 13 – - - 1 14 210 8 of The Large and Medium-sized Directive, it does comply with the cap. personal performance in 2014-15. Total 187 – - - 13 200 719 Companies and Groups (Accounts and The Committee has reviewed the Reports) Amendment Regulations 2013. PERFORMANCE ASSESSMENT performance of individuals for 2014- Notes Disclosures are also made in accordance None of the senior team receives 15 and has made provisional awards 1. The Executive Directors receive death in service and illness income protection benefits which are non-taxable. There are no additional benefits payable. with the Companies Act 2006. The Bank an annual performance award or ranging from 75% to 95%. Table 3 2. The Remuneration Committee has reviewed performance of individuals for 2014/15 and has made provisional awards ranging from 75-95% for the senior team. has complied with the regulations where bonus. The LTIP is a three year plan below sets out the corporate three Subject to continued performance, these awards are payable in August 2017. it believes it is appropriate to do so. and the first LTIP corporate awards year performance targets for the first 3. Pension contributions were not made for Keith Morgan during 2014-15. The number shown above is the accrued amount due in respect of 2014-15 which was paid in Although the Bank is not subject to the will be assessed at the end of the LTIP cycle. 2015/16 as a cash alternative. 4. Christopher Fox joined the British Business Bank as Chief Financial Officer on 8 January 2015. The amounts shown above are the amounts payable in respect of service from this date. 5. Patrick Magee became an Executive Director of the Bank on 10 March 2015. The amounts shown above are the amounts payable in respect of service from this date. Table 3: Corporate targets for the 2014-2015 LTIP which matures in March 2017 Non-executive Directors are not remunerated in the same way as the Executive Directors and therefore have not been included in this table. However, they do receive compensation in the form of a fee as detailed in Table 7. 2016-17 target The amounts above are in respect of service on the Board for the period 1 November 2014 (the date the Bank commenced operations) to 31 March 2015. No amounts are shown for the prior financial year as the bank had no Executive Directors. Objective The median salary of British Business Bank employees for 2014-15 was £58,000. This compares to the CEO’s annual base salary of Lower threshold Stretch Challenge £299,000. No employee earns more than the highest paid Director.

Table 5: Senior team remuneration (audited) Increase stock of finance facilitated through £8bn £9.9bn £10.5bn British Business Bank programmes Pension pay- Annual Salary & Taxable Annual Long-term 3 1 2 ments (incl cash Total equivalent allowances benefits incentive incentives supplements) salary

£000 £000 £000 £000 £000 £000 £000 More diverse finance market (measured by 70% 75% 80% Shanika finance facilitated through non-big 4 lenders) 73 - - - 14 87 200 Amarasekara4 Mark Gray5 83 - - - 14 97 200 Patrick Magee6 87 - - - 10 97 210 Better provision of information (measured though 47% 49% 51% Neil Wood7 56 - - - - 56 307 average awareness of six alternative finance Total 299 - - - 38 337 917 options from British Business Bank customer research) Notes: 1. The individuals above receive death in service and illness income protection benefits which are non-taxable. 2. The Remuneration Committee has reviewed performance of individuals for 2014/15 and has made provisional awards ranging from 75-95% for the senior team. Subject Manage taxpayers’ resources efficiently through 1.2% 1.6% 1.8% to continued performance, these awards are payable in August 2016, except for Patrick Magee whose payment is deferred until August 2017 as he is an Executive Director. earning an appropriate adjusted return on equity 3. The amounts above are in respect of service as a member of the senior team for the period 1 November 2014 (the date of the inception of the Bank) to 31 March 2015. Members of the senior team have received no signing on payments, no leaving payments and no annual bonus payments. 4. Shanika Amarasekara, General Counsel and Company Secretary 5. Mark Gray, Managing Director, Risk and Compliance Expected vesting of corporate award based on Up to 50% for threshold Up to 75% Up to 100% 6. Patrick Magee was a member of the senior team prior to appointment to the Board. The remuneration figures above cover the period 1 November 2014 to 31 March 2015 judgement of Committee performance. 0% if no targets and include his remuneration whilst an Executive Director. are achieved 7. Neil Wood served as Interim Chief Financial Officer from 1 November 2014 to 8 January 2015 through a secondee agreement with Deloitte.

As the Bank commenced operations on 1 November 2014, there are no prior year comparatives for the remuneration of Executive Directors or the senior team.

46 47 2014-2015 | Annual Report and Accounts DIRECTORS’ REMUNERATION REPORT

Table 6: Long Term Incentive Plan (LTIP) PENSION ENTITLEMENTS Information on the number of meetings policy on a similar basis to 2014-15. The British Business Bank does not offer a of the Remuneration Committee and the The British Business Bank will seek Senior management participate in a Long Term Incentive Plan and have been granted interests worth up to a maximum of 50% of their defined benefit pension scheme for new individual attendance by members is approval from the Shareholder for any salary. Any payout is subject to a number of performance conditions. staff. However, colleagues that transferred provided on page 40. changes to the policy. into the Bank from BIS are able to continue The Chief Executive and Chief Financial % of to participate in BIS’s defined benefit Officer have been invited to join meetings, APPROVAL OF THE DIRECTORS’ Face value corporate End of Face value Face Value Total Face Type of of award award for corporate scheme. where their own remuneration is not REMUNERATION REPORT of personal of corporate value of interest (% of reaching performance Mark Gray, Patrick Magee and Shanika the subject of discussion. The Assistant This Directors’ Remuneration Report, award (£) award (£) award (£) salary) threshold period Amarasekara were participants in a defined Company Secretary acts as Secretary to including both the Policy and Annual 1 targets benefit pension scheme in 2014-15. Their the Committee. Remuneration Report, has been approved by pension entitlements are calculated based the Board of Directors. Keith Morgan Cash LTIP 50% £59,800 £89,700 £149,500 50% 31 March 2017 on length of service and earnings during EXTERNAL ADVISERS the period of eligible service as advised The Remuneration Committee received Signed on behalf of the Board of Directors. Christopher Fox2 Cash LTIP 50% £28,974 £43,460 £72,434 50% 31 March 2017 to the Bank by the Pension Administrator, advice from Aon in respect of the set-up Patrick Magee2 Cash LTIP 50% £32,840 £49,261 £82,101 50% 31 March 2017 MyCSP. Mark Gray, Patrick Magee and of the Long Term and Short Term Incentive Shanika Shanika Amarasekara transferred to the Plans and to support the production of this Yours sincerely Cash LTIP 50% £36,318 £54,477 £90,795 50% 31 March 2017 Amarasekara2 British Business Bank’s defined contribution Directors’ Remuneration Report. The total scheme on 1 February, 1 March and 1 June fees paid were £92,000. Mark Gray Cash LTIP 50% £40,000 £60,000 £100,000 50% 31 March 2017 2015 respectively. The change in their Aon was selected following a pension benefits is set out in the single competitive tendering process. Aon figure disclosure in table 5. Keith Morgan is a signatory to the Remuneration Christina McComb Notes: receives a cash allowance of 10% of base Consultants’ Code of Conduct which Chair of the Remuneration Committee 1. Personal performance targets are not included in this calculation as they are not subject to threshold conditions. salary in lieu of pension contribution. requires consultants to provide objective 2. Christopher Fox, Patrick Magee and Shanika Amarasekara‘s awards have been pro-rated as they were employed by the British Business Bank or BIS (prior to the Bank’s formation) for less than 12 months in the year ended 31 March 2015. and impartial advice. The Remuneration BOARD OF DIRECTORS Committee is satisfied that Aon is not TERMS OF OFFICE connected to the British Business Bank. Table 7: Non-executive Director remuneration (audited) The dates of appointment and terms of office of Non-Executive and Executive RELATIVE IMPORTANCE OF Total Fees Annual Fee Entitlement Directors are provided in the Corporate SPEND ON PAY The Committee members 2014-15 2014-15 Governance Statement, page 37. As this was our first year of operation, £000 £000 we are not able to provide information on bring with them a range MEMBERSHIP OF THE the actual expenditure of the Bank for Ron Emerson (Chairman) 120 120 REMUNERATION COMMITTEE the year ended 31 March 2015 and the of expertise from diverse Christina McComb (Senior The Remuneration Committee comprises preceding year and the difference in spend 46 45 Independent Director) Christina McComb (Chair), Ron Emerson, between those years on remuneration, backgrounds designed Maria Turner 30 30 Teresa Graham and Ceri Smith (representing distributions to shareholders and any both to support the The amount paid to Christina McComb the Shareholder). The Committee members other significant distributions. Total staff Jonathan Britton 30 30 was higher than her entitlement bring with them a range of expertise costs for 2014-15 were equal to 34% of Bank in its governance Teresa Graham 20 25 because there was an underpayment to from diverse backgrounds designed both revenue. her in the previous year. to support the Bank in its governance framework and to Caroline Green 20 25 The base fee for Non-executive framework and to facilitate the relationship IMPLEMENTATION OF THE facilitate the relationship Colin Glass 20 25 Directors is £25,000 and individuals with the Shareholder. Informal discussion REMUNERATION POLICY FOR Ceri Smith Nil Nil receive an allowance of £5,000 for between Committee members has also 2015-16 with the Shareholder chairing a Committee. There are no added value to the Bank’s remuneration For 2015-16, the Remuneration Patrick Magee Nil Nil additional fees payable for individual policy and practice. Committee will continue to implement the Committee membership.

48 49 2014-2015 | Annual Report and Accounts AUDITOR’S REPORT

DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for the Company’s transactions and disclose, preparing the Annual Report and the with reasonable accuracy at any time, financial statements in accordance with the financial position of the Company and applicable law and regulations. enable them to ensure that the financial Company law requires the Directors statements comply with the Companies to prepare such financial statements Act 2006. They are also responsible for for each financial year. Under that law safeguarding the assets of the Company the Directors are required to prepare and hence for taking reasonable steps for the Group financial statements in the prevention and detection of fraud and AUDITOR’S REPORT accordance with International Financial other irregularities. Reporting Standards (IFRSs) as adopted The Directors are responsible for OPINION ON FINANCIAL parent Company financial statements, as by the European Union and Article 4 the maintenance and integrity of the STATEMENTS applied in accordance with the provisions of the IAS Regulation and have also corporate and financial information In my opinion the financial statements: of the Companies Act 2006. I have also chosen to prepare the parent Company included on the Company’s website. • give a true and fair view of the state of audited the information in the Directors’ financial statements under IFRSs as Legislation in the United Kingdom By Order of the Board the Group’s and the parent Company’s Remuneration Report that is described in adopted by the European Union. Under governing the preparation and affairs as at 31 March 2015 and of the that report as having been audited. Company law the Directors must not dissemination of financial statements Group’s loss for the year then ended approve the financial statements unless may differ from legislation in other • have been properly prepared in MY AUDIT APPROACH they are satisfied that they give a true jurisdictions. accordance with International Financial The sections below explain the areas and fair view of the state of affairs of Reporting Standards as adopted by of particular audit focus together with the Company and of the profit or loss DIRECTORS’ RESPONSIBILITY European Union my responses to them, my approach to of the Company for that period. In STATEMENT • have been prepared in accordance with materiality and an explanation of the scope preparing these financial statements, We confirm that to the best of our the Companies Act 2006. of my audit. International Accounting Standard 1 knowledge: requires that Directors: 1. The financial statements, prepared in BASIS OF OPINIONS RISKS SIGNIFICANT TO • properly select and apply accounting accordance with International Financial I have audited the financial statements of MY AUDIT policies Reporting Standards as adopted by the British Business Bank plc for the year In arriving at my opinion on the financial • present information, including the EU, give a true and fair view of the Chief Executive Officer ended 31 March 2015 which comprise: statements, I assessed the risks of material accounting policies, in a manner assets, liabilities, financial position Keith Morgan • the Consolidated Statement of misstatement in the financial statements. that provides relevant, reliable, and profit or loss of the Company 13 July 2015 Comprehensive Net Income, the Those risks that had the greatest effect comparable and understandable and the undertakings included in the Consolidated Statement of Financial on the audit strategy, the allocation of information consolidation taken as a whole. Position, the Consolidated Statement of resources in the audit, and the direction of • provide additional disclosures 2. The strategic report includes a fair Changes in Equity and the Consolidated the efforts of the engagement team are when compliance with the specific review of the development and Cash Flow Statement outlined in the table overleaf. requirements in IFRSs are insufficient performance of the business and • the notes to the consolidated financial I have also set out how my audit to enable users to understand the the position of the Company and statements addressed these specific areas in order impact of particular transactions, the undertakings included in the • the Company Statement of Financial to support the opinion on the financial other events and conditions on consolidation taken as a whole, together Position, the Company Statement of statements as a whole, and any comments the entity’s financial position and with a description of the principal risks Changes in Equity and the Company Cash I make on the results of our procedures financial performance and uncertainties that they face. Flow Statement should be read in this context. This is not a • make an assessment of the 3. The annual report and financial • the notes to the Company financial complete list of all risks identified by Company’s ability to continue as a statements, taken as a whole, are fair, statements. my audit. going concern. balanced and understandable and The areas of focus were discussed provide the information necessary for The financial reporting framework that with the Audit Committee; their report on The Directors are responsible for shareholders to assess the Company’s Chief Financial Officer has been applied in their preparation is those matters that they considered to be keeping adequate accounting records performance, business model and Christopher Fox applicable law and International Financial significant issues in relation to the financial that are sufficient to show and explain strategy. 13 July 2015 Reporting Standards as adopted by statements is set out on page 39. the European Union and as regards the

50 51 2014-2015 | Annual Report and Accounts AUDITOR’S REPORT

APPLICATION OF MATERIALITY misstatement, whether caused by fraud entities; how they are managed; Risk Response I applied the concept of materiality both in or error. This includes an assessment of: and the audit exemptions taken by planning and performing my audit, and in • whether the accounting policies are the British Business Bank plc. British evaluating the effect of misstatements on appropriate to the Group and the Business Bank Investments Ltd, which Allocation of assets to the British Business Bank I reviewed legal documentation and board minutes, and circularised my audit and on the financial statements. parent Company’s circumstances and is the largest subsidiary and holds plc and its subsidiaries the auditors of BIS and HMT, to confirm which assets were due to This approach recognises that financial have been consistently applied and £509m of the Group’s £648m net The British Business Bank plc’s initial portfolio of transfer. I confirmed that all investments identified through this statements are rarely absolutely correct, adequately disclosed assets at 31 March 2015, is subject to investments, worth £477m at 31 October 2014, was process are correctly reflected in the accounts of the British Business and that an audit is designed to provide • the reasonableness of significant separate governance processes and has acquired by Group companies from the Department Bank plc Group. reasonable, rather than absolute, assurance accounting estimates made by the its own ledger; I have therefore treated of Business, Innovation and Skills (BIS) and from Her I reviewed the Memorandum of Understanding between the that the financial statements are free Directors this as a single component. The parent Majesty’s Treasury (HMT). In addition to these, certain British Business Bank plc Group and BIS and confirmed that the from material misstatement or irregularity. • the overall presentation of the Company and remaining subsidiaries assets worth a further £133m at 31 March 2015, remain scope of the British Business Bank plc Group’s responsibilities A matter is material if its omission or financial statements. are subject to common governance on BIS’ balance sheet but are administered by the British in respect of those assets remaining on the BIS balance sheet misstatement would, in the judgement of the processes and share a ledger and so I Business Bank plc Group. indicates it is acting as an agent, and therefore is not exposed to auditor, reasonably influence the decisions of In addition, I read all the financial have aggregated these to form a single The transfer of assets to the British Business Bank plc the risks and rewards associated with the investments. users of the financial statements. and non-financial information in the component for the purposes of my Group gave rise to risks that: The choice of materiality requires Annual Report to identify material audit. Both components are significant • the assets which transferred may not be completely professional judgement and for the Group inconsistencies with the audited to the Group in terms of value and reflected in the Group’s accounts, or assets may be financial statements as a whole was set financial statements and to identify any risk. I have taken assurance from work reflected which did not transfer at £7.35m, which is approximately 1% information that is apparently materially performed by the auditors of British • assets may not be allocated to the correct Company of Group total assets, a benchmark that I incorrect based on, or materially Business Bank Investments Ltd and accounts following transfer consider to be the principal consideration inconsistent with, the knowledge have performed additional procedures • if the British Business Bank plc Group’s responsibilities for for users in assessing the financial acquired by me in the course of to obtain assurance over the financial administering BIS’ assets exposes the Group to the risks performance of the Group. performing the audit. If I become aware information of the parent and other and rewards associated with those assets, the Group As well as quantitative materiality there of any apparent material misstatements subsidiaries. may need to recognise some or all of those assets in its are certain matters that, by their very or inconsistencies, I consider the accounts. nature, would if not corrected influence implications for my report. OPINION ON OTHER the decisions of users, for example, My audit approach is risk-based, MATTERS PRESCRIBED BY Accounting Treatment: I gained an understanding of the nature any errors in Directors’ remuneration as informed by a good understanding of THE COMPANIES ACT 2006 Accounting Treatment and Valuation of Assets of the investments within each class of assets to assess if the reported in the Directors’ Remuneration the operations of the British Business In my opinion: and Liabilities accounting treatments were appropriate and consistent for those Report. Assessment of such matters would Bank plc and an assessment of the • the information given in the British Business Bank plc assessed the accounting assets with a similar underlying transaction structure. I performed a need to have regard to the nature of the risks associated with the financial Directors’ Report for the financial treatment and associated valuation of the investments detailed review of a sample of investments and considered whether misstatement and the applicable legal and statements. This approach focuses audit year for which the Group financial it acquired, to ensure that these are appropriate for the management’s judgements on appropriate accounting treatments reporting framework, as well as the size of effort towards higher risk areas, such as statements are prepared is British Business Bank plc accounts. To support their applied are consistent with the relevant accounting standards and the misstatement. management judgements and estimates consistent with the Group financial assessment, management engaged expert advisers the underlying substance and form of legal agreements. I agreed with the Audit Committee and those that are considered significant statements to advise on the accounting treatments and to provide that I would report to it all corrected and based upon size, complexity and risk. • the part of the Directors’ valuations of assets at 31 October 2014 and 31 March Valuation: In line with auditing standards, I performed detailed uncorrected misstatements identified Remuneration Report to be audited 2015. procedures to enable me to gain assurance from the work of through my audit in excess of £124,000, GROUP AUDIT APPROACH has been properly prepared in British Business Bank identified that, for certain management’s experts. In assessing whether their work provides as well as differences below that threshold My Group audit scope focused on accordance with the Companies assets, different accounting treatments are required a sound basis for valuation I considered the overall competence, that in my view, warranted reporting on those balances assessed as being of Act 2006. within the British Business Bank plc accounts compared capability and objectivity of management’s experts, as well as the qualitative grounds. the greatest significance to the Group with those applied by the bodies which previously held scope of their work and its relevance to the accounts and my opinion. financial statements and their users. I the assets, which have resulted in material adjustments In particular, I considered the design of the valuation models they SCOPE OF MY AUDIT considered how the subsidiaries should being made to the valuation of those assets. created, the validity of the data inputs to those models, and the An audit involves obtaining evidence be aggregated to form the components The assessments made of accounting treatment and appropriateness of the key assumptions on which the models were about the amounts and disclosures in the of my Group audit approach in line with valuation models are based on a number of assumptions based. I sought confirmation that management had reassessed the financial statements sufficient to give International Standards of Auditing. I gave which could have a material effect on the accounts. assumptions which underpin the valuation models to confirm that reasonable assurance that the financial particular consideration to the size and British Business Bank will continue to make these they remain appropriate at year end. statements are free from material risk characteristics of the consolidated judgements for any new investments.

52 53 2014-2015 | Annual Report and Accounts CONSOLIDATED FINANCIAL STATEMENTS

Matters on which I am required to audit committee which we consider should report by exception. have been disclosed. I confirm that I have Consolidated Statement of Comprehensive Net Income not identified any such inconsistencies or FOR THE YEAR ENDED 31 MARCH 2015 ADEQUACY OF ACCOUNTING misleading statements. RECORDS AND EXPLANATIONS RECEIVED RESPECTIVE Under the Companies Act 2006 I am RESPONSIBILITIES OF THE Note Year ended Period ended required to report to you if, in my opinion: DIRECTORS AND THE AUDITOR 2015 2014 • adequate accounting records have not As explained more fully in the Directors’ £000 £000 been kept by the parent Company, or Responsibilities Statement, the Directors returns adequate for my audit have not are responsible for the preparation of the been received from branches not visited Group financial statements and for being INCOME by my staff; or satisfied that they give a true and fair view. • the consolidated financial statements My responsibility is to audit and express Interest income 4.1 12,033 - are not in agreement with the an opinion on the financial statements Management fee 4.2 5,331 - accounting records and returns; or in accordance with applicable law and Other income 4.3 315 - • I have not received all the information International Standards on Auditing (UK and explanations I require for my audit. and Ireland). Those standards require me Gross Operating Income 17,679 - and my staff to comply with the Auditing Net losses on investment assests 6.2 (331) - I have nothing to report in respect of these Practices Board’s Ethical Standards for matters. Auditors. Net operating income 17,348 - This report is made solely to the DIRECTORS’ REMUNERATION Company’s members, as a body, in Under the Companies Act 2006 I am also accordance with Chapter 3 of Part 16 of the EXPENDITURE required to report if in my opinion certain Companies Act 2006. My audit work has disclosures of Directors’ remuneration have been undertaken so that we might state not been made or the part of the Directors’ to the Company’s members those matters Staff costs 5 (5,993) (90) Remuneration Report to be audited is not I am either required to state to them in Purchase of goods and services 6.1 (3,396) (6) in agreement with the accounting records an auditor’s report and/or those further Depreciation and amortisation 6.3 (132) - and returns. I have nothing to report arising matters we have expressly agreed to from these matters or my review. report to them on in our engagement letter Operating Expenditure (9,521) (96) and for no other purpose. To the fullest Net Operating Profit / (Loss) 7,827 (96) MY DUTY TO READ OTHER extent permitted by law, I do not accept or INFORMATION IN THE ANNUAL assume responsibility to anyone other than REPORT the Company and the Company’s members ECF Fair Value Adjustments Under the ISAs (UK and Ireland), I am as a body, for my audit work, for this report, required to report to you if, in my opinion, or for the opinions I have formed. Unwind of ECF fair value impairment 13.2 4,270 - information in the Annual Report is: ECF fair value provision 17 (26,055) - • materially inconsistent with the information in the audited financial Hilary Lower Net ECF Fair Value Adjustments (21,785) - statements Senior Statutory Auditor • apparently materially incorrect based 14 July 2015 Loss Before Tax (13,958) (96) on, or materially inconsistent with, our knowledge of the Group acquired in the For and on behalf of the Tax 7 (3,160) - course of performing our audit Comptroller and Auditor General (Statutory • otherwise misleading. Auditor) Loss for the Period (17,118) (96) National Audit Office In particular, I am required to consider 157-197 Buckingham Palace Road Other Comprehensive Income for the Period Net of Tax whether we have identified any London SW1W 9SP Gain on investments recognised in reserves 13.2 5,735 - inconsistencies between our knowledge Deferred tax relating to ECF investments 7 (4,766) - acquired during the audit and the Directors’ Statement that they consider Total Comprehensive Loss for the Period (16,149) (96) the annual report is fair, balanced and understandable, and whether the annual report appropriately discloses those All operations are continuing. matters that we communicated to the The Gain on Investments Recognised in Reserves included within Other Comprehensive Income will be reclassified to profit and loss in subsequent periods if the gain on investments is realised.

54 55 2014-2015 | Annual Report and Accounts CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity AS AT 31 MARCH 2015 AS AT 31 MARCH 2015 Note 2015 2014 £000 £000 ASSETS Issued capital Financial Retained Total

instrument earnings Non-current Assets reserve Loans and receivables 13.1 18,461 - Available-for-sale financial assets 13.2 622,930 - £000 £000 £000 £000 Assets designated at fair value through profit or loss 13.3 5,313 - Derivative financial instruments 13.4 12,273 - Opening Balance Property, plant and equipment 9 568 - - - - - Intangible assets 10 200 - as at 18 July 2013 Investment in associates 11 14 - Net income after - - (96) (96) Total Non-current Assets 659,759 - tax

Current Assets Total - - (96) (96) Trade and other receivables 14 5,062 50 Comprehensive Cash and cash equivalents 15 71,048 - Income

Total Current Assets 76,110 50 Issue of ordinary 50 - - 50 shares Total Assets 735,869 50 Balance at 31 50 - (96) (46) LIABILITIES March 2014

Current Liabilities Opening Balance 50 - (96) (46) Trade and other payables 16 (6,565) (96) as at 1 April 2014 Corporation tax 7 (4,402) - Provisions 17 (19,866) - Net income - - (17,118) (17,118) after tax Total Current Liabilities (30,833) (96)

Other - 969 - 969 Total Assets less Current Liabilities 705,036 (46) comprehensive

income, net of tax Non-current liabilities Trade and other payables (426) - Total 969 (17,118) (16,149) Deferred tax 7 (4,774) - Comprehensive Provisions 17 (51,755) - Income

Total Liabilities (87,788) (96) Issue of ordinary 664,276 - - 664,276 Net Assets/(Liabilities) 648,081 (46) shares

Equity Balance at 664,326 969 (17,214) 648,081 Issued share capital 20 664,326 50 31 March 2015 Financial instruments reserve 969 - Retained earnings (17,214) (96)

Total Equity 648,081 (46)

The financial statements of the group (parent company number 08616013) were approved by the Board of Directors and authorised for issue on 13 July 2015. They were signed on its behalf by:

Keith Morgan Chief Executive Officer British Business Bank 56 57 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Cash Flow Statement Notes to the consolidated financial statements AS AT 31 MARCH 2015 FOR THE YEAR ENDED 31 MARCH 2015

• has the power over the investee Note Year ended Period ended 1. General • is exposed, or has rights, to variable 2015 2014 information return from its involvement with the £000 £000 The British Business Bank plc (the investee “Company” or “Group”) is incorporated in • has the ability to use its power to the United Kingdom under the Companies affects its returns. Loss Before Tax (13,958) (96) Act. The address of the registered office The Company reassesses whether or is given on page 90. The nature of the not it controls an investee if facts and Cash Flows from Operating Activities British Business Bank Group’s operations circumstances indicate that there are Adjustments for: and its principal activities are set out in the changes to one or more of the three Net losses on investment assets 6.2 331 - strategic report on page 10. elements of control listed above. Consolidation of a subsidiary begins Depreciation and amortisation 6.3 132 - when the Company obtains control over Unwind of ECF fair value impairment 13.2 (4,270) - 2. Significant the subsidiary and ceases when the

Company loses control of the subsidiary. Provision expense 17 26,055 - accounting policies Specifically, the results of subsidiaries Movement in trade receivables (17,045) - BASIS OF ACCOUNTING acquired or disposed of during the Movement in trade payables 16 6,895 96 The financial statements have been year are included in the Consolidated prepared in accordance with International Statement of Comprehensive Net Income Net Cash Received from/(used for) Operating Activities (1,860) - Financial Reporting Standards (IFRSs) from the date the Company gains control as adopted by the European Union (EU), until the date when the Company ceases Cash Flows from Investing Activities IFRIC Interpretations and those parts of to control the subsidiary. the Companies Act 2006 applicable to Profit or loss and each component Net financial assets acquired on 31 October 20141 (475,529) - companies reporting under IFRSs. The of other comprehensive income are financial statements are prepared in attributed in full to the owners of Purchase of loan and receivable assets 13.1 (15,052) - accordance with IFRSs and Interpretations the Company in the absence of non- Repayment of loan and receivable assets 13.1 171 - in force at the reporting date. controlling interests. Total comprehensive Purchase of available-for-sale assets 13.2 (154,828) - The financial statements have been income of the subsidiaries is also Repayment of available-for-sale assets 13.2 56,062 - prepared on the historical cost basis, except attributed in full to the owners of the Purchase of assets designated at fair value through profit or loss 13.3 (3,065) - for the revaluation of certain financial Company in the absence of non- Repayment of assets designated at fair value through profit or loss 13.3 563 - instruments and non-financial assets that controlling interests. Cash received from derivative financial instruments 13.4 1,210 - are measured at revalued amounts or fair Where necessary, adjustments are Purchases of property, plant and equipment 9 (660) - values at the end of each reporting period, made to the financial statements of Purchase of intangible assets 10 (240) - as explained in the accounting policies subsidiaries to bring the accounting below. Historical cost is generally based on policies used into line with the Group’s Net Cash used in Investing Activities (591,368) - the fair value of the consideration given accounting policies. in exchange for goods and services. The All intragroup assets and liabilities, principal accounting policies adopted are set equity, income, expenses and cash-flows Cash Flows from Financing Activities Where necessary, out below. relating to transitions between the

These financial statements are members of the Group are eliminated on adjustments are Issue of new shares 20 664,276 - presented in pounds sterling because that consolidation.

is the currency of the primary economic made to the financial Net Cash from Financing Activities 664,276 - environment in which the Group operates. GOING CONCERN statements of The Directors have, at the time of Net Increase/(Decrease) in Cash and Cash Equivalents 71,048 - BASIS OF CONSOLIDATION approving the financial statements, subsidiaries to bring the The consolidated financial statements a reasonable expectation that the accounting policies used Cash and Cash Equivalents at Beginning of Year - - incorporate the financial statements of Company and the Group have adequate the Company and entities controlled by resources to continue in operational into line with the Group’s Cash and Cash Equivalents at End of Year 71,048 - the Company (its subsidiaries) made up existence for the foreseeable future. to 31 March each year. Control is achieved Thus they continue to adopt the going accounting policies when the Company: concern basis of accounting in preparing 1. The purchase of financial assets on 31 October 2014 was funded by the issue of new shares and these two transactions were settled on a net basis. the financial statements.

58 59 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ADOPTION OF NEW AND REVISED STANDARDS The Directors do not expect that taxes. Revenue is reduced for estimated it is probable that taxable profits will The following new and revised Standards and Interpretations have been adopted in the current year. Their adoption has not had any the adoption of the Standards and rebates and other similar allowances. be available against which deductible significant impact on the amounts reported in these financial statements. Interpretations listed oposite will have temporary differences can be utilised. a material impact on the financial DIVIDEND AND INTEREST Current and deferred tax are recognised statements of the Group in future periods, INCOME in profit or loss, except when they relate In the current year the Group has applied for the first time IFRS 10, IFRS 11, IFRS 12 and IAS 28 except that IFRS 9 will impact both the Dividend income from investments is to items that are recognised in other IFRS 10 Consolidated Financial (as revised in 2011) together with the amendments to IFRS 10, IFRS 11 and IFRS 12 regarding measurement and disclosures of financial recognised when the shareholders’ comprehensive income or directly in equity, Statements, IFRS 11 Joint the transitional guidance. IAS 27 (as revised in 2011) has also been applied and it deals only with instruments. rights to receive payment have been in which case, the current and deferred tax Arrangements, IFRS 12 separate financial statements. Beyond the information above, it is established (provided that it is probable are also recognised in other comprehensive Disclosure of Interests in Other not practicable to provide a reasonable that the economic benefits will flow to the income or directly in equity respectively. Entities, IAS 27 (as revised During the current financial year, the British Business Bank plc acquired 100% ownership estimate of the effect of these standards Group and the amount of revenue can be Where current tax or deferred tax arises in 2011) Separate Financial interests in British Business Bank Investments Limited, British Business Finance Limited and until a detailed review has been completed. measured reliably). from the initial accounting for a business Statements and IAS 28 (as British Business Financial Services Limited. IFRS 10 has been applied in determining that these Interest income is recognised when combination, the tax effect is included in the revised in 2011) Investments in subsidiaries should be consolidated and the disclosures in these accounts follow IFRS 12 (see BUSINESS COMBINATIONS it is probable that the economic benefits accounting for the business combination. Associates and Joint Ventures note 21for details). Acquisitions of subsidiaries and businesses will flow to the Group and the amount of VAT is accounted for in these financial are accounted for using the acquisition revenue can be measured reliably. Interest statements, in that amounts are shown net The IASB issued Recoverable Amount Disclosures for Non-Financial Assets (Amendments to method. The consideration transferred in income is accrued on a time basis, by of VAT except: IAS 36). The overall effect of the amendments is to reduce the circumstances in which the a business combination is measured at fair reference to the principal outstanding and • irrecoverable VAT is charged to recoverable amount of assets or cash-generating units is required to be disclosed, clarify the value, which is calculated as the sum of at the effective interest rate applicable, the Consolidated Statement of disclosures required, and introduce an explicit requirement to disclose the discount rate used in the acquisition-date fair values of assets which is the rate that exactly discounts Comprehensive Net Income, and determining impairment (or reversals) where recoverable amount (based on fair value less costs transferred by the Group, liabilities incurred estimated future cash receipts through included under the relevant expenditure IAS 36 (amendments) of disposal) is determined using a present value technique. by the Group to the former owners of the the expected life of the financial asset to heading acquiree and the equity interest issued by that asset’s net carrying amount on initial • irrecoverable VAT on the purchase of an As the Group does not have any goodwill or intangible assets with indefinite useful lives, the Group in exchange for control of the recognition. asset is included in additions. the application of the amendments has had no impact on the disclosures or on the amounts acquiree. Acquisition-related costs are recognised in the consolidated financial statements. recognised in profit or loss as incurred. TAXATION The net amount due to, or from, HM At the acquisition date, the identifiable The tax expense represents the sum of the Revenue and Customs in respect of VAT is assets acquired and the liabilities assumed tax currently payable and deferred tax. included within payables and receivables The IASB issued Novation of Derivatives and Continuation of Hedge Accounting (Amendments are recognised at their fair value at the The tax currently payable is based on on the Consolidated Statement of Financial to IAS 39 Financial Instruments: Recognition and Measurement). Under the amendments there acquisition date, except that: taxable profit for the year. Taxable profit Position. would be no need to discontinue hedge accounting if a hedging derivative was novated, provided • deferred tax assets or liabilities and differs from net profit as reported in the certain criteria are met. assets or liabilities related to employee income statement because it excludes PROPERTY, PLANT AND IAS 39 (amendments) benefit arrangements are recognised items of income or expense that are taxable EQUIPMENT AND INTANGIBLE The amendments do not apply to the Group and therefore the application of the amendments and measured in accordance with IAS or deductible in other years and also ASSETS has had no impact on the disclosures or on the amounts recognised in the consolidated financial 12 Income Taxes and IAS 19 Employee excludes items that are never taxable or statements. Benefits respectively deductible. The Group’s liability for current Property, plant and equipment • assets (or disposal Groups) that are tax is calculated using tax rates that have Property, plant and equipment are carried IFRIC 21 identifies the obligating event for the recognition of a liability as the activity that classified as held for sale in accordance been enacted or substantively enacted by at fair value or depreciated historical cost triggers the payment of the levy in accordance with the relevant legislation. The Interpretation with IFRS 5 Non-current Assets Held the balance sheet date. which is used as a proxy for fair value. clarifies that “economic compulsion” and the going concern principle do not create or imply that for Sale and Discontinued Operations Deferred tax is the tax expected to Furniture and equipment and an obligating event has occurred. are measured in accordance with that be payable or recoverable on differences leasehold improvement are stated at cost IFRIC Interpretation 21 Standard. between the carrying amounts of assets less accumulated depreciation and any The application of IFRIC Interpretation 21 has not had any material impact on the amounts and liabilities in the financial statements recognised impairment loss. recognised in the consolidated financial statements. REVENUE RECOGNITION and the corresponding tax bases used in The Group capitalises property, plant Revenue is measured at the fair value of the computation of taxable profit, and is and equipment purchased for a net value the consideration received or receivable accounted for using the balance sheet of £3,000 or more and which have a and represents amounts receivable for liability method. Deferred tax liabilities useful economic life in excess of one year. At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been goods and services provided in the normal are generally recognised for all taxable Depreciation is recognised so as to applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the EU): course of business, net of discounts, Value temporary differences and deferred tax write off the cost or valuation of assets • IFRS 9, Financial Instruments Added Tax (VAT) and other sales-related assets are recognised to the extent that (other than freehold land and properties • IAS 27 (amendments), Investment Entities

60 61 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

under construction) less their residual on disposal, or when no future economic FINANCIAL INSTRUMENTS an integral part of the effective interest rate, The Group has investments in Limited receivables when the recognition of values over their useful lives, using the benefits are expected from use or disposal. Financial assets and financial liabilities transaction costs and other premiums or Partnerships and Venture Capital interest would be immaterial. straight-line method, on the following Gains or losses arising from de-recognition are recognised in the Group’s Statement discounts) through the expected life of the investments which are classified as bases: of an intangible asset, measured as the of Financial Position when the Group debt instrument, or, where appropriate, a being AFS. Fair value is determined in the Impairment of financial assets difference between the net disposal becomes a party to the contractual shorter period, to the net carrying amount manner described in note 22. Gains and Financial assets, other than those at Fixtures and equipment 2 – 5 years proceeds and the carrying amount of the provisions of the instrument. on initial recognition. losses arising from changes in fair value FVTPL, are assessed for indicators of Leasehold improvement Shorter asset, are recognised in profit or loss when Financial assets and financial Income is recognised on an effective are recognised in other comprehensive impairment at each balance sheet date. of estimated remaining useful life or the asset is derecognised. liabilities are initially measured at fair interest basis for debt instruments other income and accumulated in the financial Financial assets are impaired where there outstanding lease term value. Transaction costs that are directly than those financial assets classified as instrument reserve with the exception of is objective evidence that, as a result of IT equipment 3 – 5 years Impairment of Property, Plant and attributable to the acquisition or issue at FVTPL. impairment losses, interest calculated using one or more events that occurred after the Equipment and Intangible Assets of financial assets and financial liabilities the effective interest method and foreign initial recognition of the financial asset, The estimated useful lives, residual values At each balance sheet date, the Group (other than financial assets and financial Financial assets at fair value through exchange gains and losses on monetary the estimated future cash flows of the and depreciation method are reviewed reviews the carrying amounts of its liabilities at fair value through profit profit or loss (FVTPL) assets, which are recognised directly in investment have been affected. at the end of each reporting period, with assets to determine whether there is any or loss) are added to or deducted from Financial assets are classified as at FVTPL profit or loss. Where the investment is For all other assets, objective evidence the effect of any changes in estimate indication that those assets have suffered the fair value of the financial assets or when the financial asset is a derivative disposed of or is determined to be impaired, of impairment could include: accounted for on a prospective basis. an impairment loss. If any such indication financial liabilities, where material, on financial instrument held for trading or it the cumulative gain or loss previously An item of property, plant and exists, the recoverable amount of the initial recognition. Transaction costs is designated as at FVTPL. The VC Catalyst recognised in the financial instrument • significant financial difficulty of the equipment is derecognised upon disposal asset is estimated to determine the extent directly attributable to the acquisition of investments have been designated as reserve is reclassified to profit or loss. issuer or counterparty or when no future economic benefits are of the impairment loss (if any). Where the financial assets or financial liabilities at fair at FVTPL. There are no held for trading Dividends on AFS equity instruments are • default or delinquency in interest or expected to arise from the continued use asset does not generate cash flows that value through profit or loss are recognised financial assets. recognised in profit or loss when the Group’s principal payments of the asset. The gain or loss arising on are independent from other assets, the immediately in profit or loss. Financial assets at FVTPL are stated at right to receive the dividends is established. • it becoming probable that the borrower the disposal or scrappage of an asset is Group estimates the recoverable amount The fair value of financial instruments is fair value, with any gains or losses arising The fair value of AFS monetary assets will enter bankruptcy or financial re- determined as the difference between the of the cash-generating unit to which the determined by reference to quoted market on re-measurement recognised in profit denominated in a foreign currency is organisation. sales proceeds and the carrying amount of asset belongs. prices where an active market exists for the or loss. The net gain or loss recognised in determined in that foreign currency and the asset and is recognised in income. Recoverable amount is the higher of fair trade of these instruments. The fair value of profit or loss incorporates translated at the spot rate at the balance For certain categories of financial value less costs to sell and value in use. financial instruments which are not traded any dividend or interest earned on the sheet date. The foreign exchange gains asset, such as trade receivables, assets Intangible assets acquired If the recoverable amount of an asset in an active market is determined using financial asset. and losses that are recognised in profit that are assessed not to be impaired separately is estimated to be less than its carrying generally accepted valuation techniques, or loss are determined based on the individually are, in addition, assessed Intangible assets, including IT programs amount, the carrying amount of the asset including estimated discounted cash flows. Held-to-maturity investments amortised cost of the monetary asset. for impairment on a collective basis. and software licences, with finite is reduced to its recoverable amount. An These are non-derivative financial assets Other foreign exchange gains and losses Objective evidence of impairment for useful lives that are acquired separately impairment loss is recognised immediately Financial assets with fixed or determinable payments are recognised in other comprehensive a portfolio of receivables could include are carried at cost less accumulated in profit or loss, unless the relevant asset Financial assets are classified into the and fixed maturity that the Group has income. the Group’s past experience of collecting amortisation and accumulated impairment is carried at a revalued amount, in which following specified categories: financial the positive intent and ability to hold to payments, an increase in the number of losses. Amortisation is recognised on a case the impairment loss is treated as a assets at fair value through profit or loss maturity. Held-to-maturity investments Loans and receivables delayed payments in the portfolio, as well straight-line basis over their estimated revaluation decrease. (FVTPL), held-to-maturity investments, are measured at amortised cost using Loans and receivables are non- as observable changes in national or local useful lives on the following basis: Where an impairment loss subsequently available-for-sale (AFS) financial assets and the effective interest method less any derivative financial assets with fixed or economic conditions that correlate with reverses, the carrying amount of the loans and receivables. The classification impairment, with revenue recognised on determinable payments, originated or default on receivables. IT programs 3 – 10 years asset is increased to the revised estimate depends on the nature and purpose of the an effective yield basis. The Group does acquired, that are not quoted in an active For financial assets carried at Software licences Period of licence of its recoverable amount, but so that financial assets and is determined at the not currently hold any held-to-maturity market. amortised cost, the amount of the the increased carrying amount does not time of initial recognition. investments. Loans and receivables comprise impairment is the difference between the The estimated useful life and amortisation exceed the carrying amount that would cash and cash equivalents, receivables asset’s carrying amount and the present method are reviewed at the end of each have been determined had no impairment Effective interest method Available-for-sale (AFS) financial and loans. After initial recognition they value of estimated future cash flows, reporting period, with the effect of any loss been recognised for the asset in The effective interest method is a method assets are measured at amortised cost using discounted at the financial asset’s original changes in estimate being accounted prior years. A reversal of an impairment of calculating the amortised cost of a debt AFS financial assets are non-derivatives the effective interest method, less effective interest rate. for on a prospective basis. Intangible loss is recognised immediately in profit or instrument and of allocating interest income that are either designated as AFS or are any impairment. Gains and losses are The carrying amount of the financial assets with indefinite useful lives that are loss, unless the relevant asset is carried over the relevant period. The effective not classified as (a) loans and receivables, recognised in the profit or loss through asset is reduced by the impairment acquired separately are carried at cost less at a revalued amount, in which case the interest rate is the rate that exactly (b) held-to-maturity investments or (c) the amortisation process. Interest income loss directly for all financial assets with accumulated impairment losses. reversal of the impairment loss is treated discounts estimated future cash receipts financial assets at fair value through profit is recognised by applying the effective the exception of trade receivables, An intangible asset is derecognised as a revaluation increase. (including all fees paid or received that form or loss. interest rate, except for short-term where the carrying amount is reduced

62 63 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

through the use of an allowance account. in accordance with the substance of the PROVISIONS The Group applies IAS 21 The Effects In addition, there is uncertainty in When a trade receivable is considered contractual arrangement. Provisions are recognised when the of Changes in Foreign Exchange Rates 3. Critical estimating the effective interest rate uncollectible, it is written off against Group has a present obligation (legal or and transactions that are denominated accounting for various debt fund investments. The the allowance account. Subsequent Financial guarantee contract constructive) as a result of a past event, it in a foreign currency are translated into future returns from these investments recoveries of amounts previously written liabilities is probable that the Group will be required sterling at the rate of exchange ruling judgements are not limited to contracted cash flows off are credited against the allowance Financial guarantee contract liabilities to settle that obligation and a reliable on the date of each transaction, except and key sources of interest and principal. Future returns account. Changes in the carrying amount are measured initially at their fair values estimate can be made of the amount of the where rates do not fluctuate significantly, are inherently uncertain and will depend of the allowance account are recognised and, if not designated as at FVTPL, are obligation. in which case an average rate for a period of estimation on a range of factors including the in profit or loss. subsequently measured at the higher of: The amount recognised as a provision is used. Monetary assets and liabilities manager’s success in originating lending When an AFS financial asset is • the amount of the obligation under the is the best estimate of the consideration denominated in foreign currencies as at uncertainty opportunities, costs and fees, how the considered to be impaired, cumulative contract, as determined in accordance required to settle the present obligation at the balance sheet date are retranslated manager exercises discretion in trading gains or losses previously recognised with IAS 37 Provisions, Contingent the balance sheet date, taking into account at the rates of exchange ruling at that In the application of the Group’s off equity against debt components in in other comprehensive income are Liabilities and Contingent Assets the risks and uncertainties surrounding the date. These translation differences are accounting policies, which are described loan structures, credit performance, and reclassified to profit or loss in the period. • the amount initially recognised obligation. Where a provision is measured recognised in the Consolidated Statement in note 2, the Directors are required prevailing market conditions. If, in a subsequent period, the amount less, where appropriate, cumulative using the cash flows estimated to settle the of Comprehensive Net Income. to make judgements, estimates and The Group has estimated effective of the impairment loss decreases and the amortisation recognised in accordance present obligation, its carrying amount is assumptions about the carrying amounts interest rates for all debt fund investments decrease can be related objectively to an with the revenue recognition policies the present value of those cash flows (when RETIREMENT BENEFIT COSTS of assets and liabilities that are not on a consistent basis. As an indication of event occurring after the impairment was set out above. the effect of the time value of money is Payments to defined contribution readily apparent from other sources. This sensitivity, a 50 basis points decrease in recognised, the previously recognised material). retirement benefit schemes are recognised applies in particular to the valuation of the effective interest rate would decrease impairment loss is reversed through profit Financial liabilities When some or all of the economic as an expense when employees have Enterprise Capital Funds. The estimates interest income by £0.9m and result in a or loss to the extent that the carrying Financial liabilities are classified as either benefits required to settle a provision are rendered service entitling them to the and associated assumptions are based on corresponding increase in revaluation gains amount of the investment at the date the financial liabilities at FVTPL or other expected to be recovered from a third party, contributions. Payments made to State- historical experience and other factors recognised through other comprehensive impairment is reversed does not exceed financial liabilities. The Group does not a receivable is recognised as an asset if it is managed retirement benefit schemes that are considered to be relevant. Actual income. what the amortised cost would have been hold any financial liabilities at FVTPL. virtually certain that reimbursement will be are dealt with as payments to defined results may differ from these estimates. had the impairment not been recognised. Other financial liabilities, including received and the amount of the receivable contribution schemes where the Group’s The estimates and underlying borrowings, are initially measured at fair can be measured reliably. obligations under the schemes are assumptions are reviewed on an Derecognition of financial assets value, net of transaction costs. equivalent to those arising in a defined ongoing basis. Revisions to accounting The Group derecognises a financial asset Other financial liabilities are CONTINGENT LIABILITIES contribution retirement benefit scheme. estimates are recognised in the period only when the contractual rights to the subsequently measured at amortised The Group has contingent liabilities arising in which the estimate is revised if the cash flows from the asset expire, or cost using the effective interest method, through financial guarantees. A contingent EMPLOYEE BENEFITS revision affects only that period, or in when it transfers the financial asset and with interest expense recognised on an liability is a possible obligation depending In accordance with IAS 19 Employee the period of the revision and future substantially all the risks and rewards of effective yield basis. on whether some uncertain future event benefits, the Group recognises short term periods if the revision affects both ownership of the asset to another entity. occurs, or a present obligation but payment employee benefits when an employee has current and future periods. If the Group neither transfers nor retains Derecognition of financial liabilities is not probable or the amount cannot be rendered service in exchange for those The estimates and assumptions that substantially all the risks and rewards of The Group derecognises financial liabilities measured reliably. Contingent liabilities are benefits. risk causing a material adjustment to the ownership and continues to control the when, and only when, the Group’s not recognised but are instead disclosed, carrying amounts of assets and liabilities transferred asset, the Group recognises obligations are discharged, cancelled unless the possibility of an outflow of LEASES within the next financial year are: its retained interest in the asset and an or expire. economic resources is remote. Where the Leases are classified as finance leases • fluctuations in the fair values of The Directors have had to associated liability for amounts it may have time value of money is material, contingent whenever the terms of the lease transfer available-for-sale assets, where make judgements on the to pay. If the Group retains substantially CASH AND CASH EQUIVALENTS liabilities which are required to be disclosed substantially all the risks and rewards of quoted prices and other valuation all the risks and rewards of ownership of Cash and cash equivalents comprise cash under IAS 37 are stated at discounted ownership to the lessee. All other leases models and techniques are used to valuation of Enterprise a transferred financial asset, the Group in hand and current balances with banks amounts. are classified as operating leases. determine estimated future cash continues to recognise the financial and other financial institutions, which are Rentals payable under operating leases flows, and include a number of other Capital Funds and asset and also recognises a collateralised readily convertible to known amounts of FOREIGN EXCHANGE are charged to income on a straight-line assumptions on returns from borrowing for the proceeds received. cash and which are subject to insignificant The individual financial statements of basis over the term of the relevant lease • directors’ judgements with regard to risk of changes in value and have an each Group Company are presented in except where another more systematic the impairment of assets investments in Financial liabilities and equity original maturity of three months or less. the currency of the primary economic basis is more representative of the time • fluctuations in the fair value of debt funds Debt and equity instruments are classified Bank overdraft amounts are included environment in which it operates (its pattern in which economic benefits from financial liabilities/guarantees as either financial liabilities or as equity within trade and other payables. functional currency) which is pounds sterling. the lease asset are consumed. measured using modelling techniques.

64 65 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. Income 5. Staff numbers and costs

The average monthly number of employees (including Executive Directors) was: 4.1. INTEREST INCOME An analysis of the Group’s interest income is as follows:

Note Year ended Period ended 2015 2014 2015 2014 £000 £000 Number Number

Interest from available-for-sale assets 13.2 11,822 - Permanent staff 69 - Interest from loans and receivables 13.1 211 - Seconded staff 20 - Temporary and agency staff 19 - Total interest income 12,033 - Total 108 -

4.2 . MANAGEMENT FEE An analysis of the Group’s management fee income is as follows: The figures in the above table represent the average monthly number of employees since the British Business Bank commenced its operations on 1 November 2014. Year ended Period ended When looking at the full financial year 2014-15, the average monthly number of employees (including Executive Directors) 2015 2014 for the year split between the above categories would be 29, 8 and 8. £000 £000

Management fee earned from: Year ended Period ended Angel Co Fund 142 - 2015 2014 Department for Business, Innovation and Skills 5,026 - £000 £000 Capital for Enterprise Limited 156 - Other 7 - Their aggregate remuneration comprised: Total management fee income 5,331 - Wages and salaries – Permanent staff 2,448 - Wages and salaries – Seconded staff 657 - Wages and salaries – Temporary and agency staff 1,060 - Non-executive Directors’ fees 315 90 4.3 . OTHER INCOME Short and Long-Term Incentive Plans and bonus scheme 703 - An analysis of the Group’s other income is as follows: Social security costs 378 - Pension costs 432 - Year ended Period ended 2015 2014 Total staff costs 5,993 90 £000 £000

Grant income before 1 November 2014 315 -

Total other income 315 -

66 67 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6. Operating Costs 7. Tax

6.1. PURCHASE OF GOODS AND SERVICES Year ended Period ended Year ended Period ended 2015 2014 2015 2014 £000 £000 £000 £000 Current corporation tax: Consultancy and professional services Acquired on 31 October 2014 (1,242) - Scheme design and transactions 766 - Charge in year (3,160) - (4,402) Finance 554 -

HR 363 - Deferred corporation tax Legal 142 - Opening (8) - IT 106 - Change in year (4,766) - Other 22 - Total (4,774) - Accommodation and office services 664 - Marketing 285 -

Auditor’s remuneration 160 6 Corporation tax is calculated at 21% (2014: 20%) of the estimated taxable profit for the year. Deferred tax primarily relates to the British Staff related costs, including training and travel 148 - Business Bank’s investments in Enterprise Capital Funds. It is calculated at 20% of the estimated unrealised gains within the funds. This Other purchase of goods and services 186 - is a temporary timing difference and the tax will become payable once the gains are realised in the underlying funds, for example through Total 3,396 6 investment exits. Of the deferred tax liability of £4.8m, we estimate that approximately £2.9m relates to unrealised gains at the time that the Bank acquired the assets from the Department for Business, Innovation and Skills. A significant proportion of the consultancy and professional services costs relate to the set-up of the British Business Bank as a fully operationally independent organisation. For example, the Bank used advisers to develop its finance capability, including support The table below reconciles the tax charge for the year: in building financial models for valuation, accounts production and forecasting which will be maintained by the Bank. Advisers also Profit / (loss) provided support in the selection and procurement of a pension scheme and life assurance. before tax Current Tax

Auditor’s remuneration relates to fees payable for the audit of the Group’s annual accounts. The Group’s auditors did not provide any £000 £000 non-audit services. Loss before tax (13,958) (2,931) Net gain on investments recognised in reserves 5,735 1,204 6.2. NET LOSSES ON INVESTMENT ASSETS Permanent disallowances relating to: ECF provision expense 26,055 5,471 Unwind of ECF fair value impairment (4,270) (897) Notes Year ended Period ended 2015 2014 Other permanent disallowances 153 32 £000 £000 Timing differences relating to: Impairment of investments in associates 11 2 - ECF derivative fair value movement (3,601) (756) Bad debt allowance on loans and receivables 13.1 124 - ECF accrued return (3,214) (675) Foreign exchange losses on available-for-sale financial assets 13.2 1,174 - ECF impairment 2,262 475 Impairment of available-for-sale financial assets 13.2 2,262 - ECF realised gains 5,500 1,155 Fair value losses on assets held at fair value through profit and loss 13.3 370 - Fair value gains on asset derivatives 13.4 (3,601) - Long-Term Incentive Plan accrued expenditure 534 112 Total 331 - Other timing differences (45) (9) Losses brought forward (99) (21) 6.3. DEPRECIATION AND AMORTISATION Profits chargeable to current tax 15,052 3,160

Unrealised gains Deferred Tax Notes Year ended Period ended 2015 2014 £000 £000 £000 £000 Value of ECF investments 148,312 29,662 Property, plant and equipment depreciation 9 92 - Less tax base of ECF investments ( 124,743) ( 24,949) Intangible assets amortisation 10 40 - Unrealised gains on ECF investments 23,569 4,714 Total 132 - Other unrealised gains 261 52 Unrealised gains subject to deferred tax 23,830 4,766

68 69 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. Operating segments

The Group’s performance and results are assets on behalf of the Department pool expertise. Further information on the managed internally as follows: for Business, Innovation and Skills. performance of each of the business units • British Business Bank entities – these These assets do not form part of is included in the Strategic Report. are split into British Business Finance the British Business Bank plc Group Limited (BBFL), British Business Bank financial statements but are reported to BBFL and BBBIL were acquired and Investments Ltd (BBBIL) and the overall management. The financial performance commenced trading during the year Group results. and position of these programmes is ended 31 March 2015 and therefore • Programmes administered on behalf of included within the Strategic Report. no comparable prior year information Balance sheet as at 31 March 2015 BBFL BBBIL Company plc Total Group BIS – In addition to its own operations, These figures are not part of the audited is available. Prior year British Business £000 £000 £000 £000 the British Business Bank also through financial statements. Bank plc Group results are provided in the its subsidary British Business Finance • Business units – The Group’s business primary statements. Service Ltd, (BBFSL) administers units span the different subsidiaries to Investment Assets Investment Programme BFP Mid Cap - 426,029 - 426,029 Profit and loss for the year BBFL BBBIL BBFSL & Intra-Group Total Group Investment Programme - 38,465 - 38,465 ending 31 March 2015 Company plc eliminations £000 £000 £000 £000 £000 BFP Small Cap - 28,643 - 28,643 Venture Capital Solutions Income Enterprise Capital Fund (ECF) 148,312 - - 148,312 Investment Programmes - 8,819 - - 8,819 VC Catalyst - 5,313 - 5,313 Venture Capital Solutions 3,214 - - - 3,214 Other venture capital investments 12,229 - - 12,229 Other income 262 400 11,244 (6,260) 5,646 Total Investment Assets 160,541 498,450 - 658,991 3,476 9,219 11,244 (6,260) 17,679 ECF fair value provision (71,621) - - (71,621) Net Investment Assets 88,920 498,450 - 587,370 Net investment costs Investment Programmes - (1,668) - - (1,668) Other Assets/(Liabilities) Venture Capital Solutions 1,337 - - - 1,337 Cash 13,837 16,043 41,168 71,048 1,337 (1,668) - - (331) Tangible and intangible assets - - 768 768 Net other (payables) / receivables (8,431) (5,806) 3,132 (11,105) Operational Costs Total Net Assets 94,326 508,687 45,068 648,081 Staff costs (317) (560) (5,116) - (5,993) Professional services (59) (65) (1,829) - (1,953) General operations (1,496) (1,862) (4,477) 6,260 (1,575) (1,872) (2,487) (11,422) 6,260 (9,521)

Net operating income 2,941 5,064 (178) - 7,827 ECF fair value provision expense (26,055) - - - (26,055) Unwind of ECF fair value impairment 4,270 - - - 4,270

Pre-tax earnings on an IFRS basis (18,844) 5,064 (178) - (13,958)

70 71 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9. Property, plant and equipment

Leasehold 11. Associates Programme. It makes commercial investor. This is in line with the Group’s improvement IT equipment Total Capital for Enterprise Ltd (CfEL), a investments that stimulate at least strategic objectives. £000 £000 £000 subsidiary of British Business Finance the same amount of investment from The investments which British Cost or valuation Limited, has one associate which arises the private sector, encouraging new Business Finance Limited make in At incorporation on 18 July 2013 - - - out of its investment in a French Fund lenders into the market and the growth Enterprise Capital Funds meet the Management Company (SAS Athena). of smaller lenders. British Business accounting definition of a loan and are At 31 March 2014 - - - This investment transferred to the Bank Investments Limited investments classified as available-for-sale assets. Additions 140 520 660 British Business Bank Group when it through the Investment Programme are Any upside returns which the funds purchased CfEL. The carrying value of classified as available-for-sale assets. generate are separately accounted for At 31 March 2015 140 520 660 the investment as at 31 March 2015 is as derivatives. £14,000 and Group’s share of losses VC CATALYST Accounting standards require that Accumulated depreciation and impairment arising in the year is £2,000. VC Catalyst Fund investments are funded available-for-sale assets are held at At incorporation on 18 July 2013 - - - by British Business Bank Investments fair value. In effect, this corresponds Limited. The VC Catalyst Fund invests to the amount that a private sector At 31 March 2014 - - - 12. Investments in commercially viable Venture Capital investor would pay for the investment. Charge for the year (11) (81) (92) funds that might otherwise fail to reach a This means that every ECF investment BUSINESS FINANCE satisfactory first close – the point at which is impaired to reflect the fact that it will At 31 March 2015 (11) (81) (92) PARTNERSHIP a fund has raised enough money to begin not provide the level of return sought British Business Bank Investments making investments in businesses. It by a private sector investor, even if Carrying amount Limited manages the Business Finance enables private sector investment already it is providing a positive return. The At 31 March 2015 129 439 568 Partnership programme. committed to those funds to be unlocked impairment then reverses over the life of The Business Finance Partnership and invested in growth companies. the asset to top-up the prioritised return At 31 March 2014 - - - (BFP) has two strands. The first strand The British Business Bank has and provide a commercial rate of return in is the BFP Mid Cap which invests in chosen to account for all of its new the accounts. See note 13.2 for details. fund managers who lend to medium- Venture Capital investments at fair value In addition, British Business Finance sized businesses with turnover of through profit or loss as explained in the Limited signs ECF agreements committing up to £500m. All of the BFP Mid Cap accounting policies in note 2. See note to the prioritised return and reduced investments are classified as available- 13.3 for details. upside gain in advance of drawdowns. 10. Intangible assets for-sale assets. See note 13.2 for details. At the point that British Business Finance The second strand is the BFP Small Software ENTERPRISE CAPITAL FUNDS Limited enters into a new commitment Cap which invests in debt funds and British Business Finance Limited runs IT licences Total it becomes probable that it will incur non-bank lenders that provide an Enterprise Capital Funds. Enterprise Capital £000 £000 £000 accounting losses through recognition alternative source of lending for small Funds are commercially focused funds that Cost or valuation of a fair value impairment. Consequently businesses with turnover up to £75m. bring together private and public money to At incorporation on 18 July 2013 - - - British Business Finance Limited has to Its investments attract matching private make equity investments in high growth recognise a provision for the liability it sector investment. businesses. British Business Finance At 31 March 2014 - - - is taking on at the point of commitment The majority of the BFP Small Caps Limited invests into funds on terms that Additions 213 27 240 and this provision is utilised to cover the investments are classified as available- improve the outcome for private sector impairment when a drawdown is made. for-sale assets. See note 13.2 for investors when those funds are successful. At 31 March 2015 213 27 240 See note 17 for details. details. It does this by taking an agreed prioritised Where a fund performs well enough to During 2014-15 the BFP Small Cap return of 3–4.5% which is paid regardless Accumulated depreciation and impairment more than repay British Business Finance also invested in MarketInvoice. Through of a fund’s performance. In return British At incorporation on 18 July 2013 - - - Limited’s prioritised return and capital MarketInvoice, British Business Bank Business Finance Limited is entitled to less the remaining return is accounted for as Investments Limited purchases invoices of the remaining upside gain, in excess of At 31 March 2014 - - - a derivative. These are detailed in note from investors, releasing money that the agreed return, if a fund is successful. Charge for the year (26) (14) (40) 13.4. would otherwise be tied up for between British Business Finance Limited

30 and 120 intentionally makes a trade-off between At 31 March 2015 (26) (14) (40) OTHER VENTURE CAPITAL days. The investment is classified as the prioritised return and upside gains. INVESTMENTS loans and receivables. See note 13.1 Overall, the terms mean that British British Business Finance Limited also Carrying amount for details. Business Finance Limited expects the has three other smaller Venture Capital At 31 March 2015 187 13 200 Enterprise Capital Funds to provide schemes: Bridges, Aspire and the Capital

a positive return to Government, but for Enterprise Fund. These are detailed in At 31 March 2014 - - - INVESTMENT PROGRAMME British Business Bank Investments that this return will be lower than that note 13.2. Limited manages the Investment typically sought by a private sector

72 73 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. Investment Assets 13.3. ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

13.1. LOANS AND RECEIVABLES Acquired on Additions Repayments Revaluation Closing At 31 March 2015 31 October 2014 £000 £000 £000 £000 £000

Acquired on 31 Additions Repayments Accrued Return Bad debt Closing VC Catalyst 3,181 3,065 (563) (370) 5,313 October 2014 allowance Total 3,181 3,065 (563) (370) 5,313 £000 £000 £000 £000 £000 £000 Private companies

BFP Peer-to-peer 3,493 - (171) 199 (124) 3,397 13.4. DERIVATIVES Investment Programme - 15,052 - 12 - 15,064 Peer-to-peer Acquired on 31 Repayments Revaluation Closing Total 3,493 15,052 (171) 211 (124) 18,461 October 2014 £000 £000 £000 £000

The carrying value of the loans and receivable assets approximates to their fair value. Enterprise 9,882 (1,210) 3,601 12,273 Capital Funds 13.2. AVAILABLE-FOR-SALE ASSETS Total 9,882 (1,210) 3,601 12,273 At 31 March 2015

Acquired Unwind of Foreign on 31 Accrued Additions Repayments Revaluation fair value exchange Impairment Closing October interest impairment losses 14. Trade and other receivables 2014 £000 £000 £000 £000 £000 £000 £000 £000 £000 2015 2014 £000 £000 Limited Amounts receivable within one year Partnership Investments Trade receivables 1,192 - Accrued income 3,835 - BFP Mid Cap 339,208 117,146 (42,752) 7,384 5,043 - - - 426,029 Other receivables 35 50

BFP Small Cap 19,160 5,281 (216) 698 990 - (667) - 25,246 Total 5,062 50 Investment Programme 8,532 15,188 - 526 (338) - (507) - 23,401

Total 366,900 137,615 (42,968) 8,608 5,695 - (1,174) - 474,676 Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. Of the amount above, £1m of trade receivables and £3.8m of accrued income are receivable from the Department for Business, Innovation and Skills. Venture Capital Investments

Enterprise Capital Funds 121,870 17,062 (8,115) 3,214 - 4,270 - (2,262) 136,039 Bridges 1,514 5 (126) - - - - - 1,393 15. Cash and cash equivalents The following balances were held at year end: Aspire 3,529 - - - 40 - - - 3,569 2015 2014 Capital for £000 £000 Enterprise Fund 11,960 146 (4,853) - - - - - 7,253

Total 138,873 17,213 (13,094) 3,214 40 4,270 (2,262) 148,254 Government Banking Service 68,118 - Commercial banks 2,930 -

Total 71,048 - Total available for sale assets 505,773 154,828 (56,062) 11,822 5,735 4,270 (1,174) (2,262) 622,930 The British Business Bank generally maintains a cash balance of at least £50m to fund investments. As at 31 March 2015 the cash balance The total impairment includes £5.6m of impairments on investment additions in the year (which have been offset against the provision was £71m due to additional drawdowns to fund investments of £62.4m in April and May 2015. As the majority of cash is held in the release). In addition it includes £3.4m of net impairment reversal on existing investments. Government Banking Service there is minimal cost to the Exchequer.

74 75 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. Trade and other payables 18. Contingent liabilities and indemnities 2015 2014 £000 £000 The Group has taken advantage of the and British Business Financial Sevices until they are satisfied in full exemption available under section 479A Limited, and their respective subsidiaries. • asserts that the guarantee is Amounts falling due within one year Subsidiary companies: conditions for As required by the Act, the British enforceable against the British Trade payables 14 83 exemption from audit of the Companies Business Bank plc therefore: Business Bank plc by any person to VAT and social security 346 - Act which exempts qualifying companies • guarantees all outstanding liabilities whom the subsidiary companies are Accrued expenditure 2,597 13 from the audit of their individual accounts to which the subsidiary companies are liable in respect of those liabilities. Other payables 3,608 - for a financial year. The exemption is in subject at the end of the financial year respect of British Business Finance Limited to which the guarantee relates, and Total 6,565 96

Amounts falling due after more than one year 19. Capital and other commitments Accrued expenditure 426 - 19.1. CAPITAL COMMITMENTS Total 426 - The British Business Bank plc had the following commitments at the balance sheet date in relation to its existing investment portfolio:

Of the amount above, £0.4m of other payables relate to amounts payable in relation to the acquisition of the CfEL Group 2015 2014 and £2.1m relate to the Shareholder loan from the Department for Business, Innovation and Skills. All Shareholder loans are £000 £000 subsequently converted to share capital. Accrued expenditure also includes £0.1m of staff costs payable to BIS. The Directors consider that the carrying amount of trade payables approximates to their fair value. BFP Small Cap 27,836 - BFP Mid Cap 457,537 - Investment Programme 136,453 - 17. Provisions VC Catalyst Fund 24,400 - At 31 March 2015 Enterprise Capital Funds 195,090 - Total Bridges Venture Fund 899 £000 Capital for Enterprise Fund 7,086 -

Opening balance - Total 849,301 - Acquired on purchase of ECF investments 45,566 Provided in year 31,696 Provision utilised in year (5,641) 19.2. OPERATING LEASE COMMITMENTS The Bank’s occupation of its registered office at Foundry House, 3 Millsands, Riverside Exchange, Sheffield S3 8NH is governed by a Closing Balance 71,621 Memorandum of Terms of Occupation (MOTO) covering the period from 17 December 2012 to 30 June 2017. For the year ended 31 March 2015, lease payments of £62,000 were recognised as an expense in the year. Of which: Current 19,866 The lease commitments as at the balance sheet date are as follows: Non-current 51,755 <1yr 1-5yrs >5 yrs Total Total 71,621 £000 £000 £000 £000

All provisions relate to loan commitments. Operating lease 62 77 - 139

The net provision expense for Enterprise private sector. Accounting standards require when new ECF commitments are entered The Bank is in the process of signing a new MOTO to cover its occupation of office space at Fleetbank House, 2- 6 Salisbury Square, Capital Fund (ECF) investments is £26.1m. the Bank to recognise a liability when it into. This expenditure gradually reverses London, EC4Y 8JX. The MOTO is expected to permit the Bank to occupy the space to 1 April 2019 with an option to break the agreement The British Business Bank accepts a lower makes a commitment to a fund. The Bank over the lifetime of the investment as the effective from 1 May 2016, upon serving six months’ notice. The Bank will pay £215,244 per annum subject to a fixed annual uplift return from ECF investments in order to records this liability as a provision. When impairment is reversed. The expenditure of 2.25%. encourage private sector investors to a commitment is drawn the Bank impairs doesn’t relate to an underlying loss on ECF invest. Although the Bank expects to make the resulting investment and utilises the investments and is therefore excluded from For the year ended 31 March 2015, the Bank paid £197,000 in expenses in relation to occupying the offices. Once the MOTO is signed, a positive return from these investments, provision by a corresponding amount. This the Group’s financial target. There were no the Bank is expected to incur £220,000 of expenses in 2015-16 covering the period to the first break point. this return is less than that required by the results in significant upfront expenditure provisions in the previous year.

76 77 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

20. Share capital Net Assets acquired on 31 October 2014 through BBBIL BBFL 2015 2014 purchase of subsidiaries £000 £000 £000 £000 Assets Authorised: Investments 374,863 148,751 ordinary shares of £1 each 5,000,000 50

Total 374,863 148,751 Issued and not fully paid ordinary shares of £1 each - 50 Issued and fully paid ordinary shares of £1 each 664,326 - Liabilities Corporation tax liability (1,242) - Provisions - (45,566) The Company has one class of ordinary shares which carry no right to fixed income.

Total (1,242) (45,566)

Net Assets 373,621 103,185 21. Subsidiaries and other significant undertakings The net assets acquired by British Business Bank plc included £1,277,000 of cash held within a client account for an invoice The Group consists of a parent Company, British Business Bank plc, incorporated in the UK and a number of subsidiaries held directly by the discounter. Net financial assets acquired on 31 October 2014 were £475,529,000. British Business Bank plc, which operate and are incorporated in the United Kingdom. Details of the subsidiaries results including their net assets as at the balance sheet date and their profit or loss for the period ended The principal subsidiary undertakings of the Company are shown below. The capital of each entity depends on its nature and consists of 31 March 2015, are provided in the segmental reporting note 8. ordinary shares. The British Business Bank Group also has the following significant holdings in undertakings other than subsidiaries.

Subsidiary Country of Incorporation Nature of Business Shares held by Name Country in which it is Class of share held by the Proportion held by the incorporated British Business Bank British Business Bank

British Business Bank Investments UK Makes commercial investments into 100% BMS Finance S.A.R.L. Luxembourg Ordinary shares 49.8% Limited (BBBIL) providers of finance to smaller businesses Industrial Lending 1 plus Venture Capital fund investments Luxembourg Ordinary shares 44.1% (Boost Fund)

British Business Finance UK Manages and invests on behalf 100% Liquid Accounts1 UK Ordinary shares 35.6% Limited (BBFL) of the Group Pricoa Sterling Corporate Bond Fund2 Ireland Ordinary shares 66.7% British Business Financial Services UK Administers investments on behalf 100% Urica Capital Limited3 Jersey Ordinary shares 50% Limited (BBFSL) of the Department for Business, Innovation and Skills VRG Ventures4 UK Ordinary shares 26.5%

All shares in the subsidiaries were acquired on 31 October 2014 for fair value and were funded through issuing shares to the Department of Business, Innovation and Skills. British Business Financial Sevices Limited did not hold any assets or liabilities when it was acquired and 1Liquid Accounts produces abbreviated unaudited accounts, making use of exemptions available to small companies. It has not yet was therefore acquired at nil cost. published its accounts as at 31 March 2015. As at 31 March 2014 it had capital and reserves of £198,803 and during 2013-14 it made a loss of £393,533. In addition to the principal subsidiaries shown above, British Business Bank plc additionally has the following subsidiary undertakings: Capital for Enterprise Limited, Capital for Enterprise Fund Managers Limited, Capital for Enterprise (GP) Limited and British Business Bank 2Pricoa’s latest financial year end was 30 June 2014. The fund does not produce separate accounts and therefore figures for the fund Aspire Hold Co Limited. are not available.

3Urica’s latest financial year end was for the 18 months to June 2014. As at that date, its aggregate amount of capital and reserves was £2,055,988 and during its financial year it made a loss of £171,518.

4VRG Ventures Limited produces abbreviated unaudited accounts, making use of exemptions available to small companies. It has not yet published its accounts as at 31 December 2014. As at 31 December 2013 it had capital and reserves of £22,624 and during 2014 it made a loss of £221,416.

78 79 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22. Financial Instruments

22.1. CATEGORIES OF FINANCIAL INSTRUMENTS 22.2. FAIR VALUE Fair value of the Group’s financial The primary valuation methodology used The following table analyses the Group’s financial assets and liabilities in accordance with the categories of financial instruments in IAS MEASUREMENTS assets and financial liabilities that for the debt element of investments is 39 Financial Instruments, Recognition and Measurement. Assets and liabilities outside the scope of IAS 39 are shown separately. The information set out below provides are measured at fair value on a the discounted cash flow method. Fair information about how the Group recurring basis value is estimated by deriving the present At 31 March 2015 Note Assets held Loans and Available- Liabilities Non-financial Total determines fair values of various value of the investment using reasonable at FVTPL receivables for-sale held at assets and financial assets and financial liabilities. Available-for-sale assets assumptions of expected future cash flows assets amortised liabilities The investment portfolio consists For all Available For Sale assets, except and the estimated repayment value and cost of assets carried at amortised cost for the Enterprise Capital Funds, the date, discounted at the appropriate risk- (loans and receivables) and fair value investment valuation, a net asset adjusted discount rate. The discount rate £000 £000 £000 £000 £000 (available-for-sale assets, assets valuation (NAV), is determined by is estimated with reference to the market Assets designated at fair value through profit investment managers on a regular basis risk-free rate and a risk-adjusted premium. or loss, and derivatives). Fair value (monthly or quarterly). Each investment has a periodically Property, plant and 9 - - - - 568 568 is the price that would be received The Directors review the investment updated model, which for each valuation equipment to sell an asset or paid to transfer valuation reports periodically and are assessment is updated for actual asset Intangible assets 10 - - - - 200 200 a liability in an orderly transaction satisfied with the year-end valuations performance and key assumption and between market participants at presented in the financial statements. input changes. the measurement date, regardless Enterprise Capital Funds also contain Loans and receivables 13.1 - 18,461 - - - 18,461 of whether that price is directly Enterprise Capital Funds, Assets a separately identified equity derivative. observable or estimated using another designated at fair value through profit or The derivatives are valued using the Available-for-sale 13.2 - - 622,930 - - 622,930 valuation technique. loss, and derivatives Black-Scholes model. The key inputs financial assets used in the derivative valuation are outlined in the table below:

Designated at FVTPL 13.3 5,313 - - - - 5,313

Input Assumptions in determining the input Derivatives 13.4 12,273 - - - - 12,273

Investment in associate 11 - - - - 14 14 Net amount drawn and fund valuation as at 31 March 2015 Reported by fund managers

Assessed separately for each fund based on remaining Trade and other 14 - 5,052 - - - 5,052 Time to fund exit – ranging from 0 to 5 years receivables investment period and estimated timetable for fund exits

Prepayments 14 - - - - 10 10 Benchmarked against technology funds and other companies Cash and cash 15 - 71,048 - - - 71,048 Volatility – ranging from 10% to 40% listed on the London Stock Exchange’s market for smaller equivalents companies (AIM)

Total 17,586 94,561 622,930 - 792 735,869 Set to equal the contractual return which funds must pay before Dividend yield – ranging from 3% to 4.5% any upside on the option is realised

Liabilities Risk free rate Derived from UK Government bonds Trade and other payables 16 - - - (6,645) (346) (6,991)

Corporation tax 7 (4,402) (4,402)

Deferred tax 7 - - - - (4,774) (4,774)

Provisions 17 (71,621) (71,621)

Total - - - (6,645) (81,143) (87,788)

Net Assets 17,586 94,561 622,930 (6,645) (80,351) 648,081

80 81 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fair value of financial assets and sale assets and loans and receivables are transaction and concentration risk. The receivables purchased through an variable rate loans. Interest rate risk is primarily invests pounds sterling in its financial liabilities that are not all classified as Level 3 assets. Group’s credit risk is also influenced by invoice discounter. The Group provides for all regularly monitored to ensure that the functional currency, GBP. There are measured at fair value on a recurring At 31 March 2015, based on the general macroeconomic conditions. debts which are overdue by 90 days at a rate mix of variable and fixed rate borrowing some investments in funds which have basis but for which fair value valuation assessment available-for-sale Credit risk may arise in any of the of 50% of the average overdue balance over is appropriate. The Group does not use a Europe wide investment mandate, and disclosures are required assets were increased by £5.7m, taken to Group’s assets where there is the potential the last three months. In determining the derivatives to hedge interest rate risk. are denominated in Euros. A prerequisite The Directors consider that the carrying Other Comprehensive Income. In addition, for default including loans and receivables recoverability of the amounts receivable, LIBOR sensitivity of the Investment of these funds is that they invest into amounts of the loans and receivables the fair value of derivative assets held and available-for-sale investments with a the Group considers past performance of Programme is as follows: the UK at a fund level a larger amount financial assets recorded at amortised was increased by £3.6m, taken to the contractual repayment. recoveries. • The impact of a 1 percentage point than our financial investment. Less than cost in the financial statements Income Statement. The degree to which the Group is As at the reporting date, all overdue increase in the interest rate applicable 4% of the Group’s portfolio is in non-GBP approximate their fair values. exposed to this credit risk depends on receivables had been provided for in line to British Business Bank Investments denominated investments. There In addition, for financial reporting 22.3. FINANCIAL RISK the individual characteristics of the with this policy. Limited investments would be an is currently no policy to hedge this purposes, fair value measurements are MANAGEMENT contract counterparty and the nature of approximate increase in income of £5m currency risk. categorised into Level 1, 2 or 3 based on The Group has exposure to a number the investment. The amount of exposure, Market risk over a one year period. the degree to which the inputs to the fair of financial risks through the conduct before taking into account any collateral Market risk is the risk of a loss of • The impact of a 0.25 percentage point Liquidity risk value measurements are observable and of its operations. Details of the Group’s or security, in each class of financial asset earnings or economic value due to adverse decrease in the interest rate applicable Liquidity risk is the risk that an entity does the significance of the inputs to the fair risk management structure are provided is limited to the amount invested at any changes in financial market prices, such as to British Business Bank Investments not have sufficient financial resources in value measurement in its entirety, which in the Risk Management section of the given point in time. interest rates, foreign exchange rates or Limited investments would be an the short term to meet its obligations as are described as follows: Strategic Report. The value of the investments in each equity prices. approximate decrease in income of they fall due, or its strategy is constrained • Level 1 fair value measurements are This note presents information about class of financial asset is detailed in notes The Group will identify market risk arising £1m over a one year period. Larger by inadequate or inappropriate funding those derived from quoted prices the nature and extent of risks arising from 22.1 and 13 to 16 which also give details from an inability to exit an investment decreases would be mitigated by a sources. (unadjusted) in active markets. the financial instruments. of total impairment losses during the within the intended time frame. significant element of LIBOR floors. Liquidity risk is not deemed material • Level 2 fair value measurements are British Business Bank has exposure year. to the Group as it is 100% Government those derived from inputs other than to the following risks from its use of The concentration of credit risk is Interest rate risk Currency risk funded, with all programmes pre-approved quoted prices included within Level financial instruments: limited due to the investment base being British Business Bank’s investments The Group does not have material and committed to, and it does not have a 1 that are observable for the asset or • credit risk large and spread across the Group’s include a combination of fixed and exposure to currency risk as the Group leveraged balance sheet. liability, either directly (i.e. as prices) or • market risk operating segments. Accordingly, the indirectly (i.e. derived from prices. Directors believe that there is no further • Level 3 fair value measurements Credit risk credit provision required in excess of 23. Related party transactions are those derived from valuation Credit risk is the risk of a loss due to the the provision for impairment losses and techniques that include inputs for the failure of a counterparty of a financial the specific provision for credit losses Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and asset or liability that are not based on instrument to meet its obligations to pay detailed below. are not disclosed in this note. Transactions between the Group and its associates are disclosed below. observable market data (unobservable the Group in accordance with agreed Credit risk assessment is carried out as The Department for Business, Innovation & Skills (BIS) is the principal shareholder and parent of the British Business Bank plc. British inputs). terms, or due to the risk of loss due to part of the investment approval process and Business Bank plc provides services to BIS in relation to some of the financial assets held within BIS and not yet novated. In return, inappropriate investment decisions. Credit is revisited on an ongoing basis as part of British Business Bank recognises income in relation to the services provided. In addition, BIS provided loans and secondees to the British The Group’s financial assets at fair value risk also includes settlement risk when a the Group’s portfolio management process. Business Bank Group for which there are recharges. through the profit and loss, available-for- counterparty fails to settle their side of a Overdue amounts relate solely to TRADING TRANSACTIONS During the year, Group companies entered into the following transactions with BIS (2014: £nil):

Year ended 2015 £000 The ageing of financial instruments at the reporting date was as follows: Income Grant-in-aid 295 Overdue by Overdue by Management fee 5,026 Not overdue Total less than 90 days longer than 90 days Expenditure £000 £000 £000 £000 Staff seconded from BIS 450

Loans and receivables 17,830 434 197 18,461 Capital transactions Shares issued 664,276 Available-for-sale Shareholder loan 2,081 622,930 - - 622,930 financial assets 672,128 Trade receivables 1,192 - - 1,192

Total 641,952 434 197 642,583 AMOUNTS OUTSTANDING AT YEAR END As at the balance sheet date, the Group was owed £4.8m from BIS relating to the management fee (2014: £nil) and owed BIS £2.6m for seconded staff, transfer of assets on acquisition and the shareholder loan (2014: £nil).

82 83 2014-2015 | Annual Report and Accounts NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Company Statement of Financial Position AS AT 31 MARCH 2015

24. Events after the balance sheet date

As at the date of this annual report and accounts, there have been no post balance sheet events which require disclosure.

ASSETS Note 2015 2014 £000 £000 £000 Non-current Assets Property, plant and equipment 568 - Intangible assets 200 - Investments 2 618,868 -

Total Non-current Assets 619,636 -

Current Assets Trade and other receivables 4 9,256 50 Cash and cash equivalents 3 41,168 -

Total Current Assets 50,424 50

Total Assets 670,060 50

LIABILITIES

Current Liabilities Trade and other payables 5 (5,408) (96) Corporation tax (116) -

Total Current Liabilities (5,524) (96)

Total Assets less Liabilities 664,536 (46)

Non-current Liabilities Trade and other payables (274) -

Total Non-current Liabilities (274) -

Total Liabilities (5,798) (96)

Net Assets/(Liabilities) 664,262 (46)

Equity Issued share capital 664,326 50 Retained earnings (64) (96)

Total Equity 664,262 (46)

The financial statements of the Company (Company number 08616013) were approved by the Board of Directors and authorised for issue on 13 July 2015. They were signed on its behalf by:

Keith Morgan Chief Executive Officer British Business Bank

84 85 2014-2015 | Annual Report and Accounts COMPANY FINANCIAL STATEMENTS

Company Statement of Changes in Equity Company Cash Flow Statement AS AT 31 MARCH 2015 AS AT 31 MARCH 2015

Year Period Note ended 2015 ended 2014 £000 £000 £000

Issued capital Retained earnings Total Profit / (loss) before tax 148 (96)

£000 £000 £000 Cash flows from operating activities Adjustments for: Opening balance as at 18 July 2013 - - - Depreciation, bad debt and impairments 132 - Movement in trade receivables 4 (9,206) - Net income after tax - (96) (96) Movement in trade payables 5 5,586 96

Total comprehensive income - (96) (96) Net cash received from/(used for) operating activities (3,340) -

Issue of ordinary shares 50 - 50 Cash flows from investing activities

Balance at 31 March 2014 50 (96) (46) Purchase of available-for-sale assets 2 (618,868) - Purchases of property, plant and equipment (660) - Opening balance as at 1 April 2014 50 (96) (46) Purchase of intangible assets (240) -

Net income after tax - 32 32 Net cash used in investing activities (619,768) -

Total comprehensive income - 32 32 Cash flows from financing activities

Issue of ordinary shares 664,276 - 664,276 Issue of new shares 664,276 - Balance at 31 March 2015 664,326 (64) 664,262 1. The purchase of financial assets on 31 October 2014 was funded by the issue of new shares and these two transactions were settled on a net basis.

Net cash from financing activities 664,276 -

Net increase/(decrease) in cash and cash equivalents 41,168 -

Cash and cash equivalents at beginning of year - -

Cash and cash equivalents at end of year 41,168 -

86 87 2014-2015 | Annual Report and Accounts NOTES TO THE COMPANY FINANCIAL STATEMENTS

Notes to the Company financial statements FOR YEAR ENDED 31 MARCH 2015

1. Significant accounting policies 3. Cash and cash equivalents

Basis of accounting have not been repeated here as there Profit of the parent Company The cash and cash equivalents balance as at 31 March 2015 represents cash held within the Government Banking Service. The separate financial statements of are no differences to those provided in The Company has taken advantage the Company are presented as required the consolidated accounts. of section 408 of the Act and by the Companies Act 2006 (“the Act”). These financial statements have consequently the statement of 4. Trade and other receivables The Company’s accounting policies been prepared on the going concern comprehensive income (including the are consistent with those described basis as described in the consolidated profit and loss account) of the parent 2015 2014 in the consolidated accounts of the accounts of the British Business Bank Company is not presented as part £000 £000 British Business Bank plc. Disclosures plc, and under the historical cost of these accounts. The profit of the Amounts receivable within one year in relation to property, plant and convention. The financial statements parent Company for the financial year Trade receivables 1,125 - equipment (note 9), intangible assets are presented in pounds sterling, which amounted to £32,000 (2014: loss of (note 10) and share capital (note 20) is the Company’s functional currency. £96,000). Prepayments 8 - Intra-group 8,100 - 2. Investments Other receivables 23 50

The Company acts as a holding Company for the Group and has the following principal subsidiary undertakings which affected Total 9,256 50 the Group’s results or net assets:

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost. Subsidiary Nature of Business

Makes commercial investments into providers of finance to British Business Bank Investments Limited smaller businesses plus Venture Capital fund investments 5. Trade and other payables 2015 2014 British Business Finance Limited (BBFL) Manages and invests into schemes on behalf of the Group £000 £000 Administers investments on behalf of the Department for Amounts falling due within one year British Business Financial Services Limited (BBFSL) Business, Innovation and Skills Trade payables - 83 VAT and social security 323 - All subsidiary undertakings are wholly-owned and incorporated in the UK. All shareholdings are in the name of the British Accrued expenditure 1,523 13 Business Bank plc. Intra-group 881 - Other payables 2,681 -

At 31 March 2015 Total 5,408 96 Investment in Investment in Investment in Total BBBIL BBFL BBFSL £000 £000 £000 £000 Amounts after more than one year Opening balance - - - - Accrued expenditure 274 - Acquired in year 500,153 118,715 - 618,868

Total 274 - Closing Balance 500,153 118,715 - 618,868

The Directors consider that the carrying amount of trade payables approximates to their fair value.

88 89 © British Business Bank plc (July 2015)

All figures source British Business Bank 31st March 2015 unless otherwise stated.

This publication is available from british-business-bank.co.uk.

Any enquiries regarding this publication should be sent to: British Business Bank plc Foundry House 3 Millsands Sheffield S3 8NH

British Business Bank plc is a public limited company registered in England and Wales (registration number 08616013, registered office at Foundry House, 3 Millsands, Sheffield, S3 8NH). As the holding Company of the Group operating under the trading name of British Business Bank, it is a development bank wholly owned by HM Government which is not authorised or regulated by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA). It operates under its own trading name through a number of subsidiaries, one of which is authorised and regulated by the FCA. British Business Bank plc and its subsidiary entities are not banking institutions and do not operate as such. A complete legal structure chart for British Business Bank plc

and its subsidiaries can be found at www.british-business-bank.co.uk BBB 01072015 54