British Business Bank Annual Report and Accounts 2020

Annual Report and Accounts 2020 Supporting smaller businesses across the UK

british-business-bank.co.uk

Contents Annual Report and Accounts 2020

We make finance markets work better so smaller businesses across the UK can prosper and grow.

Contents Chair’s statement 2

Chief Executive’s statement 4

Outgoing Chief Executive’s statement 6

Strategic report 8

Directors’ report 60

Directors’ remuneration report 90

Directors’ responsibilities 106

Independent auditor’s report 107

Consolidated financial statements 118

Notes to the consolidated financial statements 122

Independent auditor’s report 177

Company financial statements 180

Notes to the Company financial statements 183

British Business Bank british-business-bank.co.uk 1 Chair’s statement Annual Report and Accounts 2020

Chair’s statement Responding to the Covid-19 pandemic Adapting to In mid-March 2020, the economic shock to the UK economy caused by the outbreak of Covid-19 saw the British Business Bank become deliver more a key element of the government’s response to the crisis, including expanding our remit to support for smaller larger companies in certain circumstances. Our people responded swiftly, and with businesses great agility, to address this unprecedented situation, and the Board is truly appreciative of their The British Business Bank’s mission has dedication and hard work under always been to make finance markets pressure in delivering many billions of pounds of vital emergency loans work better so that smaller businesses to UK businesses. across the UK can prosper and grow. Our market-focused objectives – increasing volume and diversity of finance, responding to regional For the majority of 2019/20, we imbalances, and encouraging and continued to build our programmes enabling smaller businesses to seek of support for smaller businesses the finance best suited to their across the UK, growing as an needs – remain the same, even organisation and putting in place though the emphasis within each appropriate infrastructure as we changed as Covid-19 accelerated. did so. Because this report is Our focus on smaller businesses retrospective in nature, covering – of great importance to the UK the 2019/20 financial year, it does economy – continued, and we not cover in detail our full response increased substantially our volume to the Covid-19 crisis. We have, of finance supported while adding however, included an outline of our a greater diversity of provider to work during the first few months of our portfolio. 2020/21, to provide some context around what has proved to be one of the most significant events for the country in recent times. “ The Board is truly appreciative of the team’s dedication and hard work under pressure in delivering many billions of pounds of vital emergency loans to UK businesses.”

2 British Business Bank british-business-bank.co.uk Chair’s statement Annual Report and Accounts 2020

I was delighted when Catherine The Board Lewis La Torre, the CEO of our Our future role Keith Morgan, the Bank’s Chief commercial arm, agreed to take up We expect the British Business Executive Officer, announced in the position of CEO of the British Bank to play an increasingly October 2019 that he would be Business Bank from 1 September important role as we emerge from stepping down in late 2020. Keith 2020. Catherine has achieved the Covid-19 pandemic, flexing our first became involved in setting great success as CEO of our two resources to help UK businesses up the Bank in 2013, and has been growth-focused and commercially re-establish themselves over the pivotal in making it the success it successful subsidiaries, and I look coming months. has become over the intervening forward to working with her as we years – a fact recognised by the drive forward our support for There may well be additional award of a CBE for services to businesses during a period of UK responsibilities, and changes Small Business Finance in the economic recovery. to our role, as we work with the Queen’s New Year Honours list government to map out the next I would also like to thank Christina 2020. I would like to thank Keith phase of the Bank’s development. McComb, who stepped down as for his exemplary leadership of We stand ready, willing and able to Senior Independent Director this the organisation. do what is needed to help address year, for her valuable service and whatever challenges lie ahead. contribution over the last five years. We appointed Neeta Atkar as her successor in November 2019, and Nathaniel Sloane as a new Non-executive Director in Lord Smith of Kelvin March 2020. Chair

British Business Bank british-business-bank.co.uk 3 Chief Executive’s statement Annual Report and Accounts 2020

Chief Executive’s statement Recovering through growth As the UK economy shifts its focus Responding from stabilisation to recovery, we need to ensure smaller businesses can manage the many new with agility, challenges they face. It is growth that will ultimately be the key to a thriving post-Covid-19 delivering at UK economy. The British Business Bank is integral to supporting government pace and scale in leading Britain’s recovery and its ambition to make the UK the best place in the world to start and The British Business Bank is an organisation grow a business. that has innovation, adaptability and an Now is the time for us to build on understanding of smaller businesses at its core. the great successes of the last six These strengths were brought into sharp focus years and to give smaller businesses by our response to the coronavirus pandemic. the confidence to move from recovery to planning for growth.

It is a tribute to the leadership of Keith Morgan and the hard work Leading commercially while and dedication of our people that providing widely the Bank was able to respond to the economic challenges of The Bank and our role within the Covid-19 so effectively. In just over UK economy has never been under four months* we helped deliver greater scrutiny as we work as a more than £51bn of critical trusted partner of government to support, with over 1.2m facilities create the conditions that will provided to businesses at their enable smaller businesses to time of greatest need. prosper and grow.

Smaller businesses have shown The results reported in this set of great strength and resilience to accounts demonstrate that we survive and stabilise, and we can continue to make progress in be proud of the role we have delivering against our objectives played in helping them do so. There in order to address the structural is more to do, however, and we are challenges faced by smaller now looking forward to how we businesses in the marketplace can support them in the post-crisis when seeking the finance they recovery period and beyond. need to invest and grow.

“ The British Business Bank is integral to supporting government in leading Britain’s recovery and its ambition to make the UK the best place in the world to start and grow a business.”

4 British Business Bank british-business-bank.co.uk Chief Executive’s statement Annual Report and Accounts 2020

The Covid-19 pandemic impacted Alongside commitments through need to go further, embracing the our financial performance towards our commercial arm, which best talent regardless of gender, the end of the financial year, with reached a record level of £952m ethnicity, age, location, or other the final adjusted return being in 2019/20, equally important are characteristics. below our target adjusted return the subsidised schemes which we for the first time in our history. As deliver on behalf of government. This is critical if we are to help we discuss further in the report, light the way for government, continuing economic uncertainty By addressing persistent market the finance sector and smaller means that the long-term impact failures in the supply of finance, business owners. our programmes help businesses on our investment valuations I take on the role of Chief and credit losses is not yet fully at all stages of development, from providing aspiring entrepreneurs Executive of British Business discernible. Nevertheless, our Bank plc at a crucial time for aim always is to provide solid with mentoring and funding to enabling a greater choice of smaller businesses and look commercial stewardship in forward to supporting them as deploying public funds irrespective finance options for well- established companies. they come out of the pandemic of the macroeconomic context. and thrive once more. The government recognised this capability in 2019, allocating us Supporting opportunity an additional £200m to invest We remain committed to in high-growth businesses as increasing opportunity for the UK leaves the EU and further businesses wherever they are in resources to enable up to £600m the UK by levelling up economic Catherine Lewis La Torre of funding for the UK’s world- activity through regional access CEO leading health tech and life to finance across the country. sciences sector. However, if we are truly to help the UK economy to thrive, we * As of 11 August 2020

British Business Bank british-business-bank.co.uk 5 Outgoing Chief Executive’s statement Annual Report and Accounts 2020

Outgoing Chief Executive’s statement Building throughout 2019/20 Our highlights of 2019/20 included Enhancing the launch of a new ENABLE Build programme to help fund smaller housebuilders, the expansion of our flagship Enterprise Finance capabilities, Guarantee to asset finance and asset-based lenders, and the publication of valuable research delivering into UK Venture Capital (VC) returns and the case for increased investment into VC by Defined effectively Contribution pension schemes. We also passed a major milestone for our Start Up Loans programme, From the start, we built flexibility with £500m lent since 2012. into the design of the British Our work to level up the regions Business Bank which has served continued to grow, with extensive us well over the last year. outreach from our UK Network colleagues, who held over 1,200 intelligence-gathering meetings with smaller business The British Business Bank is now in intermediaries throughout the year, its sixth year of operation, having and over 800 businesses receiving been founded at the end of 2014 to funding of £436m from our three make finance markets work better regionally focused funds. for smaller UK businesses. By the In November 2019, we marked the end of March 2020, we were Bank’s fifth anniversary, reflecting supporting 98,000 businesses on the five-fold growth of the through a range of programmes organisation since the end of its that increase both the volume first year and highlighting many and range of finance available. of the successful businesses our While this year the Bank’s response funding has supported during to the Covid-19 pandemic has that time. naturally tended to overshadow the work we have undertaken in normal circumstances during 2019/20, it’s important still to recognise the progress that came before the emergence of the virus in the UK in March 2020.

“ The British Business Bank is now in its sixth year of operation, having been founded at the end of 2014 to make finance markets work better for smaller UK businesses.”

6 British Business Bank british-business-bank.co.uk Outgoing Chief Executive’s statement Annual Report and Accounts 2020

Our response to Covid-19 The British Business Bank was set up to be able to respond with agility to changing market conditions. This and our extensive forward planning for a downturn, meant that when the Covid-19 lockdown began in mid-March 2020 we were able to respond rapidly to the demands of a radically changed finance landscape, operationalising in days interventions that would take months under normal circumstances.

Providing value for money for taxpayers In a value for money report published by the National Audit Office (NAO) in January this year, the NAO found that “the British Business Bank has performed well I have worked closely with against its objectives”, enabling Looking to the future Catherine Lewis La Torre for additional growth in UK SMEs I announced in late 2019 that much of that time, during which as a result of our activities. I would be standing down from she excelled as CEO of British Business Investments and British It also said the Bank “had clear my position as CEO of the British Patient Capital. Catherine’s strong performance metrics and carried Business Bank by the end of 2020, track record means she is ideally out evaluation of its impact on having joined to lead its set-up placed to take on the role of CEO SMEs. Overall, it has been team in 2012. Over the last eight of British Business Bank plc, and performing well and SMEs have years, it’s been a pleasure to I wish her every success. been growing as a result of its work with a host of dedicated activities”, providing a welcome professionals, all totally committed and valuable endorsement of our to the Bank’s mission of supporting approach over the last six years. finance for smaller businesses across the UK. This gives the Bank a strong Keith Morgan platform on which to build as Chief Executive Officer it addresses the issues smaller for 2019/20 businesses will face as the UK emerges from the Covid-19 pandemic.

British Business Bank british-business-bank.co.uk 7 Strategic report Annual Report and Accounts 2020

Strategic report Improving finance markets

Our mission Historically, smaller businesses have encountered persistent The British Business Bank’s The British Business barriers to accessing finance, objectives for example: Bank’s mission is to Our objectives set out to tackle make finance markets – Younger businesses with a the most significant market weaknesses, as evidenced by work better so smaller shorter track record can find it difficult to access finance. our own and others’ research and businesses across the UK analysis, with the goal of providing can prosper and grow. – Owing to the UK’s concentrated better outcomes for smaller finance market, there has been businesses. a narrow choice of finance type and provider. We have four market-oriented objectives focused on improving – Businesses either lack knowledge the finance marketplace for smaller of finance choices, or are not businesses. confident in applying for them, meaning they are less likely to Two further objectives complement find the right finance. them, driving our delivery approach. One underpins how we execute – All these issues are amplified in our market-oriented objectives by regions outside of London and balancing risk and return, and the the South East of England. other leverages the knowledge we gain from both running our own These, and related issues, led programmes, and conducting to the formation of the British research, analysis and stakeholder Business Bank in late 2014. engagement across UK smaller Since then, we have made strong business finance markets. progress in delivering interventions to address these challenges. Our work over the last six years and the foundations we have built enabled us to respond quickly and positively to the unprecedented economic shock of Covid-19 in March 2020.

8 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

In delivering on these objectives, As a government-owned At moments of economic stress, we seek to be ‘additional’ – economic development bank, we act in a countercyclical manner, undertaking activities in the market it’s also important that we should maintaining and/or increasing our that would not otherwise occur. pursue these strategic objectives market exposure while other In doing so, we avoid displacing throughout the economic cycle. market participants may be existing private market activity As such, we must remain ready to disengaging. In this, we recognise and so can create a demonstrably deliver effectively not only in the our responsibility, as a government- net positive impact for the periods of good economic growth, backed entity, to contribute to the UK economy. but also in times of economic crisis financial stability and resilience of and downturn. This principle has the UK, in support of businesses been particularly important and their employees, as well as the towards the end of the 2019/20 wider economy and society. financial year.

Increase the Help increase Address regional Encourage and supply of diversity of imbalances in enable SMEs to finance finance access to find appropriate To increase the To help create a finance finance supply of finance to more diverse finance To identify and help To encourage and smaller businesses market for smaller to reduce regional enable smaller where markets don’t businesses, with imbalances in access businesses to seek work well. greater choice of to finance for smaller the finance best options and providers. businesses across suited to their needs. the UK.

To be the centre To achieve our other of expertise on objectives whilst smaller business managing taxpayers’ finance in the UK money efficiently providing advice and within a robust risk support to government management framework

British Business Bank british-business-bank.co.uk 9 Strategic report Annual Report and Accounts 2020

Our Board and Shareholder Our accountability Our activities and measure our financial performance business model For each of our objectives, we against all of the assets we manage, whether on our balance sheet or agree specific Key Performance To deliver against our objectives, on the balance sheets of others. Indicators (KPIs) and targets with we undertake a range of finance our Shareholder – the Department programmes and non-financial Our non-financial activities are for Business, Energy & Industrial activities for smaller businesses closely integrated with, and Strategy (BEIS) – against which the across the UK, at all stages of complementary to, our finance Bank is held accountable. We have development. programmes. included details of our performance against our 2019/20 KPIs within For our finance programmes, In addition to these programmes each of the following sections our principal business model is to which we ran during 2019/20, in making up this Strategic Report.* work indirectly through delivery the early part of 2020 we partners, which are financial introduced four new programmes services providers for smaller to support businesses through businesses (such as banks, non- the Covid-19 pandemic: bank lenders, equity funds and private debt funds). For most of – the Coronavirus Business our programmes, this indirect Interruption Loan Scheme approach enables us to ‘leverage (CBILS), launched on in’ third-party funding in addition 23 March 2020 to our own, maximising the impact – the Coronavirus Large Business of the public funds we deploy. Interruption Loan Scheme Our business model provides (CLBILS), launched on the flexibility to manage finance 20 April 2020 programmes on both our own – the Bounce Back Loan Scheme balance sheet and the balance (BBLS), launched on 4 May 2020 sheets of government departments. In the latter case, we act as an – the Future Fund, launched on ‘agent’ on their behalf – primarily 18 May 2020. for our Shareholder, BEIS, for programmes such as the Enterprise Fuller descriptions of these Finance Guarantee and the schemes are included in the Northern Powerhouse, Midlands following sections. Engine, and Cornwall and Isles of Scilly Investment Funds.

* As described on p37, our Shareholder has suspended a number of our underlying KPI targets for 2020/21 due to the outbreak of Covid-19 in March 2020.

10 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Smaller business development journey

Financial activities

Start up Scale up Stay ahead

Funds and mentoring to get new Funds to support More funding options, for business ideas off the ground scaling businesses more-established businesses Finance type: Debt Finance type: Equity Finance type: Debt

Start Up Loans Regional Angels Programme Enterprise Finance Guarantee Loans and mentoring to help Support to reduce regional Government-backed debt finance people start their own businesses imbalances in access to early stage for viable smaller businesses or become self-employed. equity finance. lacking security. Loans are unsecured, meaning Angel CoFund ENABLE Guarantees applicants have no need to put Equity co-investment alongside Guarantees which reduce the forward any assets or guarantors to business angel syndicates to amount of capital that lenders support an application. increase the volume of early need to hold for their loans to stage finance available to smaller businesses, so that they smaller businesses. can provide more lending. Regional equity funding ENABLE Funding Equity finance in the North, Cost-effective access to funding Midlands, Cornwall and Isles of Scilly through the capital markets for Enterprise Capital Funds smaller lenders, meaning they Funds which increase the supply can provide more finance to of early stage venture capital businesses. to scaling businesses and lower Regional debt funding barriers for fund managers entering Micro and small business debt the VC market. finance in the North, Midlands, British Patient Capital Cornwall and Isles of Scilly. Investments in long-term venture Investment Programme and growth funds, enabling high Support to increase the volume potential firms to develop into and diversity of finance for smaller world-class businesses. businesses by enabling the growth Managed Funds of new and alternative lenders. Investments into Funds of Funds designed to increase institutional funding of long-term patient capital for innovative businesses that are scaling rapidly.

Non-financial activities: Demand Development

‘Digital storefront’ UK Network Includes our Finance Hub and Business Finance Our field-based team across the UK, generating local Guide, providing best-in-class finance information smaller business market insights, as well as undertaking to UK smaller businesses. regional partner programmes and regional events.

Non-financial activities: Research

Market reports Topic reports Finance programme evaluations Research and analysis that Research and analysis that examine Third-party independent examine the UK’s finance provision specific aspects of UK smaller assessments of our portfolio landscape for smaller businesses, business finance markets, such as of schemes and programmes such as our flagship annual ‘Small our ground-breaking 2019 report to enable best practice, Business Finance Markets’ report. on ‘UK VC & Female Founders’. effectiveness and value for money.

British Business Bank british-business-bank.co.uk 11 Strategic report Annual Report and Accounts 2020

Increase the supply

To increase the supply of finance to smaller businesses where markets don’t work well.

The challenge for smaller Stock of finance for * businesses, and why it matters smaller businesses £8bn In some areas of smaller business £bn stock of finance supported, finance, there is a lack of volume 8 8.0 at 31 March 2020 of provision for certain groups of 7 smaller businesses – particularly 6.6 6 those that are the smallest, 5.0 youngest or are growing quickly. 5 Even if they’re viable, such 4 98,000 3.5 businesses can find it difficult 3 businesses supported at for structural reasons to access 2 31 March 2020 finance – a young business, for 1 example, cannot provide a track record of financial performance 0 that providers typically require. 2016/17 2017/18 2018/19 2019/20 * £1.1bn 2016/17 and 2017/18 figures reflect post year restatements of new commitments to funded programmes in 2019/20 £649m of new commitments to guarantee programmes in 2019/20

12 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

If we help markets address these This increase in provision is This progress, however, must be issues, more UK smaller businesses important as, for these businesses, offset against both a long-term will be able to unlock their potential mainstream debt finance is downward trend in mainstream – and release wider economic generally inappropriate, given bank lending (in 2019, gross flows benefits – by accessing a suitable that they typically don’t yet have fell to £56.7bn, the lowest level amount of finance of the right a stable income to service loan for five years), and data continuing type, at the right time. This effort repayments and may be pre- to show – at least prior to the to strengthen provision of finance revenue, or pre-profit. Yet the Covid-19 shutdown – ongoing matters even more when benefits of addressing this structural challenges. 84% of economic conditions are structural challenge are clear: SMEs, for instance, were offered uncertain, with external finance these companies are often highly the finance they sought in 2019, becoming increasingly important innovative and are likely to make an but for businesses trading for less for a business’s working capital and important contribution to the UK’s than five years this fell to 73%.5 cashflow support. By increasing future economy. Indeed, some are First-time applicants and sole the volume of finance to already doing so – as of October traders were also less likely to underserved market areas, we 2019, the UK had 19 equity-funded have their applications for finance often also simultaneously increase ‘unicorn’ businesses with a approved, with success rates the variety of finance on offer valuation of £1bn or more, the of 69% and 72% respectively – for example, through new market highest number in Europe.2 compared to an average of 75%.6 entrants or new types of finance Even so, more remains to be becoming available. This aspect is done, as there continues to be Given this, the Bank remains covered in more detail under the an undersupply of equity finance committed to working with as section which follows. when viewed against the leading many market participants as global equity markets, such as possible to deliver interventions the US.3 that target these ongoing issues. Background and recent trends We have also seen long-term In the six years since the British increases in other important Business Bank’s foundation in 2014, non-bank products, such as “ By increasing the there has been significant growth marketplace business lending and in the volume of finance supplied asset finance. Volumes of these volume of finance to to smaller businesses outside of rose five-fold and by more than a underserved market traditional bank lending products, third respectively between 2014 areas, we often also enabling support for a wider and 2019, with marketplace lending variety of business models of emerging from infancy into a simultaneously increase start-ups and smaller businesses. genuine funding route for smaller the variety of finance The value of UK equity investment, businesses, and asset finance on offer.” for example, more than doubled further developing its role as a 1 between 2014 and 2019 , making significant alternative product in the UK Europe’s largest venture the market.4 These developments capital market. This has enabled an again increase the volume of increased volume of support for finance in the market, increasing younger, high-growth companies, the likelihood that smaller whether at the initial ‘seed’ stage or businesses can access the later ‘venture’ and ‘growth’ stages. finance they need.

Details of references can be found in End notes, p186.

British Business Bank british-business-bank.co.uk 13 Strategic report Annual Report and Accounts 2020

Case study Clinical Design Technologies Clinical Design Technologies Clinical Design received equity investment from engineered a digital solution which Technologies The FSE Group, through the can be used as point-of-care urine Cornwall and Isles of Scilly testing for healthcare providers, Fund manager: The FSE Group Investment Fund, to promote its providing standardised results Urine Testing System technology. that can be read on a desktop Region: South West computer and saved to a patient’s An estimated 100m urine tests are electronic healthcare record. Location: Truro carried out every year in the UK alone, many of which are still The funding is supporting rollout of Programme: Cornwall and Isles of Scilly Investment Fund conducted with dipsticks that are the system in the UK and overseas colour-matched by eye. and will allow the business to take on six new staff initially, with further hires planned.

14 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Supporting equity finance Supporting debt finance Responding to the challenges, at every stage For smaller viable businesses and 2019/20 snapshot Young, high-growth businesses – which lack sufficient collateral to The Bank delivers a suite of finance which are typically pre-revenue access finance, we operate our programmes, across debt and or pre-profit – are served by our flagship debt programme – the equity, which seek to address equity programmes, which tackle Enterprise Finance Guarantee the specific challenges within the range of market failures in this (EFG). This was established this objective. space. The Angel CoFund and the following the financial crisis in early Enterprise Capital Funds (ECF) 2009 and has, as of 31 December For start-ups and younger programmes address the equity 2019, supported the provision of businesses, our Start Up Loans gap affecting smaller equity deals. almost 33,000 business loans to programme offers loans, business They have channelled significant a value of around £3.5bn. On 24 support and mentoring to investment into high potential March 2020, we suspended EFG individuals across the UK looking businesses that would likely due to the introduction of the new to start a business, or to grow a otherwise have struggled to Covid-19 loan guarantee schemes. recently established business. obtain funding (delivering £322m Although such businesses lack and £1.3bn respectively so far, Our Investment Programme, run by a track record (and often lack including third-party capital). our British Business Investments collateral), Start Up Loans is subsidiary, plays a key role in designed to accommodate these Larger high-potential businesses increasing the supply of debt factors, and addresses a market can find it difficult to obtain the finance through a wide variety gap, offering loans outside the risk significant long-term, or ‘patient’, of providers. In 2019/20, it made appetite of commercial finance investment they need to become new commitments worth £215m. providers. The programme also world-class businesses, as We also run two further debt plays an important role in providing recognised by the government’s programmes which increase the finance to under-served groups, 2017 Patient Capital Review. volume of finance available to with the proportion of loans to In response, we established British address significant structural women, BAME and previously Patient Capital (BPC) in 2018, with challenges in the financial unemployed applicants being an additional £2.5bn of funding, as infrastructure. Our ENABLE significantly higher than in the well as a £500m Managed Funds Guarantee encourages lenders to lending market more generally. programme. Like many of our increase their lending to smaller Supporting aspiring businesses finance programmes, these businesses by reducing the high schemes aim to attract significant capital costs associated with As at the end of March 2020, the private capital alongside, catalysing lending to smaller businesses, Start Up Loans programme had the market. For example, BPC has particularly for smaller banks. delivered more than 71,500 loans, already made £813m of Following product development, providing almost £586m of funding commitments into the market, in April 2019 we launched a since the scheme started in 2012. alongside over £4.8bn from third- targeted variant of the programme, Government support for Start Up party investors. ENABLE Build, aimed at supporting Loans was confirmed when it specialist lenders providing funding secured an extension to March In addition, the Managed Funds to smaller housebuilders. 2022 in the March 2020 Budget, programme also aims to attract allowing up to 10,000 more loans significant institutional investment In addition, ENABLE Funding to be made, along with an earlier into ‘patient capital’, which has helps smaller finance providers manifesto promise to extend previously been lacking at scale. to access capital markets more the programme. The volume of this activity means cost-effectively than they the British Business Bank is the otherwise could, supporting largest domestic investor in greater onward lending to smaller venture and venture growth businesses. Transactions across capital in the UK. both programmes total close to £2bn so far.

British Business Bank british-business-bank.co.uk 15 Strategic report Annual Report and Accounts 2020

Under the aegis of HM Treasury 2019/20 KPI performance Interim Covid-19 update and our Shareholder, we worked on Bank activities Our KPI for this objective is ‘stock closely with government officials, business organisations and trade of finance we support’ through our In late March 2020 the Bank associations, financial services finance programmes. This includes responded rapidly, at scale, to the stakeholders and others to both our own and ‘leveraged in’ national economic crisis brought implement new programmes, all third-party funding. In exceeding about by Covid-19. Our increases designed to address the major our 2019/20 KPI target, we in capability and market reach market issues that resulted from maintain the momentum we have since 2014, and our up-to-date the outbreak. These programmes built over the past six years to knowledge and analysis of smaller are collectively known as the expand the supply of finance in UK business finance markets enabled Bank’s Covid-19 response smaller business finance markets. us to mobilise swiftly to address schemes. what was (and remains) an Target unprecedented situation. This Coronavirus Business Interruption £7,804m stock of finance included expanding our strong Loan Scheme supported by 31 March 2020 network of accredited delivery We suspended the Enterprise partners, across all programmes, Outturn Finance Guarantee scheme and to over 200.7 As of 31 March, £7,966m stock replaced it with a new programme, of finance supported In last year’s Annual Report, we the Coronavirus Business mentioned we were agreeing a Interruption Loan Scheme (CBILS). framework with government for our The scheme opened on 23 March, approach in a downturn. Alongside providing up to £5m in finance this, as part of our forward for businesses with a turnover of resilience work, we carried out less than £45m. The government extensive implementation planning, covers the first 12 months of as highlighted independently in the interest and lender-levied fees, National Audit Office’s January and provides an 80% guarantee 2020 report on the Bank.8 This to lenders. The programme has 97 planning was further intensified accredited lenders and has, as of in 2019/20, and was available to 11 August 2020, provided almost build on when the Bank was asked 60,000 facilities worth £13.4bn. by the government to consider how we could support smaller businesses impacted by Covid-19.

The overarching aim was – in common with other Covid-19 “ Our increases in economic measures – to provide a ‘bridge’ for businesses through capability and market the crisis, safeguarding jobs and reach since 2014, the productive capacity of the and our up-to-date UK, such that the economy could recover as quickly as possible, knowledge and analysis once it was safe to do so. of smaller business finance markets enabled us to mobilise swiftly to address what was (and remains) an unprecedented situation.”

16 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Bounce Back Loan Scheme On 4 May, the Chancellor introduced a new Bounce Back Loan Scheme, a demand-led scheme offering lending that targets small and micro businesses, providing loans from £2k up to 25% of the business’s turnover, with a maximum loan of £50k. Providing lenders with a 100% government- backed guarantee and standardising the application form led to a faster process with many loans becoming available within days. The scheme provides a six-year term loan at a government set interest rate of 2.5% a year. The government covers interest payable in the first year and businesses benefit from a 12-month repayment holiday. The scheme has, as of 11 August 2020, delivered over 1.1m facilities to businesses, worth £35bn.

Coronavirus Large Business Future Fund Having utilised existing British Business Bank infrastructure and Interruption Loan Scheme On 20 April, the Chancellor accredited lenders to enable On 2 April 2020, the Chancellor announced the Future Fund, a rapid deployment of the first of the Exchequer announced a £250m match-funded, convertible phase of CBILS, we put in place further scheme that shared many loans programme, targeting equity- an accelerated accreditation of the elements of CBILS, but funded businesses that would be process for new lenders. By with larger facility sizes of up to unlikely to be eligible for CBILS. early August we had made more £50m, called the Coronavirus It supports the UK’s innovative than 100 accreditations across Large Business Interruption Loan businesses currently affected by these schemes. Scheme. CLBILS also provides an Covid-19. These businesses have 80% guarantee to lenders, and is been unable to access other targeted at larger businesses with government business support a turnover of more than £45m. programmes, such as CBILS, The maximum amount for term because they are either pre- loans and revolving credit facilities revenue or pre-profit and typically available through CLBILS to a rely on equity investment. borrower has now been increased The programme can provide to £200m, with a maximum investment of between £125k amount of £50m for invoice and £5m to eligible businesses. finance and asset finance facilities. Launched on 20 May, the UK With 23 accredited lenders, the Future Fund received £515m of scheme has, as of 11 August 2020, applications on its first day and due delivered nearly 500 facilities to its popularity, more funding has worth £3.4bn. been made available. It has, as of 11 August 2020, delivered over £560m of funding to 565 high potential businesses.

British Business Bank british-business-bank.co.uk 17 Strategic report Annual Report and Accounts 2020

Diversify the market

To help create a more diverse finance market for smaller businesses, with greater choice of options and providers.

The challenge for smaller Percentage through * businesses, and why it matters non-Big Five banks £284m Appropriate finance should be % of commitments to new delivery available to smaller businesses 100 92.8 90 89.7 91.5 partners in 2019/20 throughout the economic cycle, 83.0 particularly when supply is scarce. 80 Continuing to widen the range 70 of finance options available to 60 smaller businesses, by supporting 50 92.8% increases in the number, type and 40 stock of finance through 30 capabilities of finance providers non-Big Five banks and platforms, helps to ensure 20 smaller businesses can access 10 0 finance on terms that best suit 2016/17 2017/18 2018/19 2019/20 their business challenges. * 2016/17 data is for non-Big Four banks £215m of new commitments to non-bank and challenger bank lenders through our Investment Programme 12 new delivery partners added in 2019/20

18 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

In equity finance there is a greater The UK private debt market has Background and recent trends range of fund managers in the also grown substantially since its The increase in volume of finance market – many of them new or emergence in 2010 in response to provision in the market since the emerging fund managers – tighter bank lending conditions for Bank’s foundation six years ago has representing an enhanced variety businesses, and a low interest rate been accompanied by increased of investment approaches, again environment for investors. Private competition, variety and innovation increasing the likelihood that debt funds provide bespoke debt in small business finance. New smaller businesses will find the financing solutions, offering providers such as challenger and right funding source for them. businesses an alternative source specialist banks have emerged, of funding to banks. accompanying the rise of platforms such as equity crowdfunding and marketplace lenders.

The number of challenger and specialist banks has increased markedly since 2013, with many providing services to SMEs and adding capacity to the market. Between 2013 and 2019 the Prudential Regulation Authority (PRA) granted 46 financial institutions a full or restricted banking licence in the UK.

Around half of those licences have gone to organisations that provide Case study Through their work building businesses with products and e-Bate bespoke rebate management services, with a mix of full-service, software, founders Leanne digital-only and specialist banks, Fund Manager: Mercia Asset Bonner-Cooke MBE and Colette including micro banks. The range Management Wyatt recognised a gap in the of products and finance provider market for an affordable off-the- business models has enriched Region: East Midlands shelf solution. e-Bate is designed diversity in SME finance markets. Location: Leicester for buyers or suppliers which Independent challenger and either pay or receive rebates, specialist banks’ share of the asset Programme: Midlands Engine commissions, bonuses or finance market has been steadily Investment Fund incentive schemes. The platform increasing over time. Innovation in allows companies to automate asset finance platforms has also the process, helping to reduce seen the development of online overheads, manage pricing and portals and apps designed to increase revenue while ensuring help streamline applications compliance. and transactions. The funding will allow them to expand their sales and marketing e-Bate, the UK’s first software as activities and roll out e-Bate to a a service (SaaS) platform to help wider audience, creating new companies manage rebate and jobs at their office in Leicester. pricing schemes, secured funding from specialist asset manager Mercia, through the Midlands Engine Investment Fund.

British Business Bank british-business-bank.co.uk 19 Strategic report Annual Report and Accounts 2020

Mainstream bank lending is, however, still the source of most of the finance accessed by smaller 60,000 businesses, forming roughly two- smaller and mid-sized businesses thirds of the flow of finance in 2019.9 supported to date through our Work remains to be done to ensure Investment Programme that new entrants to the market since the financial crisis of 2008/9 become fully established and reach sustainable scale, as well as enabling Our ENABLE programmes regularly Similarly, we flexed our flagship the conditions for further diversity. support challenger and specialist Enterprise Finance Guarantee This will not only bolster SME banks in their transactions, programme to offer new product funding choices, but also enhance including providers such as variants, alongside its primary the resilience of UK smaller business OakNorth, Hampshire Trust Bank objective of increasing the volume finance markets by spreading the and Funding Circle in 2019/20. of accessible debt finance in the risk of provision across a greater In May 2019, we extended the market. As well as increasing the number of providers. ENABLE Guarantee programme to diversity of finance types available, accept applications from non-bank this also enabled us to increase Responding to the challenges, lenders, including those providing further the variety of sources of and 2019/20 snapshot asset finance and asset-based that finance through an ongoing lending, further diversifying the delivery partner accreditation As well as increasing the volume pool of eligible finance providers. programme in 2019/20. of early stage equity finance, our Enterprise Capital Funds We now have 140 delivery partners programme responds to structural across the Bank, helping to build a challenges in that it broadens diverse finance market that works and deepens the funding pool by “Our ENABLE better for smaller businesses. backing emerging fund managers programmes regularly in the market, offsetting the support challenger and tendency of private investors to specialist banks.” prefer deploying money into larger, established funds.

Through our Investment Programme, we supported greater diversity in finance markets by investing in key sectors of alternative provision, outside of large bank lending. This programme’s commitments now stand at £1.2bn (as at end of March 2020), supporting 18 debt funds, eight asset finance companies, six FinTech companies and four challenger banks. These providers in turn have been able to use these funds to support businesses, financing 60,000 smaller and mid-sized businesses to date.

20 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

In line with our countercyclical 2019/20 KPI performance Interim Covid-19 update mandate, the Bank has continued on Bank activities Our KPI for this objective is to support a diverse market by maintaining – and enhancing where ‘percentage of finance we support In response to the Covid-19 crisis, possible – the diversity and pace of through non-Big Five banks’ – we initially leveraged our broad delivery of its existing programmes NatWest Group (formerly RBS), network of accredited Enterprise during the crisis: Lloyds Banking Group, Barclays, Finance Guarantee lenders. HSBC UK and Santander. Additionally, we increased rapidly – As of 11 August 2020, our In exceeding our 2019/20 target, both the number and type of Investment Programme has we continue to drive forward finance providers accredited to maintained its activities, diversity of finance provision. the schemes. Across the three completing four transactions Covid-19 debt guarantee schemes, Target totalling £81m since the start as of 11 August 2020, the total of April. 91.1% of finance supported number of unique delivery partners through non-Big Five banks, has grown to 105, including FinTech – We have been able to enhance by 31 March 2020 providers, non-bank lenders and equity provision through the Angel CoFund (ACF). In April Outturn asset finance providers. While diverse types of finance and 2020 a further £30m loan was As of 31 March, 92.8% of finance providers have been made available to the ACF to finance supported through an important part of delivering enable it to broaden its scope non-Big Five banks emergency schemes during the over the next two years as part crisis, they will be even more of the Covid-19 response. important in the recovery, when – Our other national equity the UK’s smaller businesses programmes have continued will still need to be served by a to invest to maintain the flow healthy, competitive and diverse of equity capital to smaller finance market. businesses, committing £146m across five funds in 2020/21 so far (as of 11 August 2020), across our Enterprise Capital Funds, British Patient Capital and Managed Funds programmes since the start of April.

– We have also amended the operation of our programmes to support smaller businesses, ensuring forbearance conditions are applied.

British Business Bank british-business-bank.co.uk 21 Strategic report Annual Report and Accounts 2020

Reduce regional imbalances

To identify and help to reduce regional imbalances in access to finance for smaller businesses across the UK.

The challenge for smaller Total SMEs outside London businesses, and why it matters benefitting from Bank programmes £330m Appropriate finance should be Number of SMEs of Northern Powerhouse available to smaller businesses 100 Investment Fund (NPIF) wherever they’re based, but local 83,000 80 investments and regional imbalances persist 75,000 across the UK. 63,000 60 The availability and ease of 48,000 accessing certain types of finance 40 80% for smaller businesses depends of SMEs who received equity significantly on locality, with 20 funding from NPIF increased differences in awareness and the their investment in R&D availability of alternative finance 0 options, particularly those suited 2016/17 2017/18 2018/19 2019/20 to innovative, scale-up businesses. £100m of Midlands Engine Investment Fund investments

“We recognise the importance of well-developed entrepreneurial ecosystems, and interaction between public and private intermediaries, in 1,900 number of UK Network activities enhancing the development of local finance with stakeholders across the UK markets and reducing regional imbalances.”

22 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

This can affect the ability of Equity finance, on the other hand, smaller businesses located outside continues to be concentrated in of well-established financial hubs London, with 48% of deals and to achieve their potential. 66% of investment in UK SMEs taking place in London in 2019 – We recognise the importance of well above its 19% share of smaller well-developed entrepreneurial businesses and 20% share of ecosystems, and interaction high-growth businesses. While between public and private this concentration in London is a intermediaries, in enhancing the long-standing feature, in recent development of local finance years the concentration of equity markets and reducing regional deals by number – although not imbalances. If smaller business by value – has declined a little, finance markets work well across possibly reflecting the increase the UK, local economies are more in VC funds with offices likely to develop at pace and scale, outside London. more evenly spreading the benefits of economic development. There have also been signs of equity clusters developing outside of London, with Manchester, Background and recent trends Edinburgh and Glasgow sitting Regional debt markets are working alongside seven London boroughs Case study reasonably well, with volumes of in the top 10 of Local Authority Seaweed & Co. debt finance continuing to be Districts by number of announced relatively closely aligned with the equity deals in 2019. Region: North East general geographical distribution Evidence suggests a reinforcing Location: North Shields of the business population. This effect in the distribution of equity. reflects high levels of awareness Venture capital investors are Programme: Start Up Loans for core bank products like concentrated in London and the overdrafts, loans and credit South East, and 46% of businesses cards, alongside relatively high outside these regions identify a confidence in assessing and lack of suitable investors in their applying for debt products. local area as a barrier to using Specific local market failures equity. This compares to just 30% persist, however, in some areas. in London and the South East. Craig Rose, a marine biologist, Smaller businesses outside London had always been fascinated by and the South East are also more the sea and wanted to share his likely to perceive difficulties in passion by creating a business putting together a business case. that was environmentally, These perceived barriers to using commercially and socially equity could account for disparities sustainable. in equity use – and highlight the importance of addressing both Based in North Shields, demand and supply side issues in Seaweed & Co. supplies food the UK’s regions and nations. and nutrition manufacturers with a range of seaweed products sourced exclusively from the Outer Hebrides. Seaweed & Co’s products are sold to global distributors that work with major multinational companies.

British Business Bank british-business-bank.co.uk 23 Strategic report Annual Report and Accounts 2020

These relatively recently launched funds have already reached significant milestones, with NPIF and MEIF delivering, along with private sector investment, £330m and £100m of funding respectively to local businesses, as at end of March 2020. In July 2019, an independent ‘early assessment’ evaluation of NPIF found that “NPIF is only two years into a 10-year programme, but to date it has been very successful. The number and value of lending and equity deals are ahead of target and the finance has been distributed widely across the NPIF area.” 10

The Bank’s response to the regional equity challenge has focused on building the vital ‘grassroots’ components of an equity ecosystem, particularly at smaller investment sizes, and for businesses at an early stage. These aims are reflected in the Bank’s 2018 £100m Regional Angels Programme, which seeks to develop clusters of angels – We have worked with local Responding to the challenges, who not only provide capital but partners to launch three regional typically also business experience and 2019/20 snapshot funds which include debt as well and expertise – outside of London as equity, in response to regional We consider regional imbalances and the South East. In September access to finance disparities: in terms of demand, supply and 2019, the Bank made its first £10m the type of finance available. – Northern Powerhouse commitment under the programme Investment Fund (NPIF, launched to Dow Schofield Watts Angels. In designing and delivering 2017, £400m) programmes, we have tended – in Our response to the demand line with market trends – to focus – Midlands Engine Investment issues encountered in the regions on equity in addressing regional Fund (MEIF, 2018, £250m) is described in the next strategic imbalances. We do, however, objective. include debt provision as part of – Cornwall and Isles of Scilly our regional programmes where Investment Fund local market conditions require it. (CIOSIF, 2018, £40m). This reflects our ambition to Another £30m fund, focusing on support greater volume and debt, was launched in 2018 diversity of finance in specific exclusively for businesses in areas – particularly outside of Northern Ireland. London and the South East.

24 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

This means that our regional 2019/20 KPI performance Interim Covid-19 update programmes are even more on Bank activities Our KPI for this objective is relevant, and we have been working with all relevant focused on achieving key strategic Initial evidence shows that stakeholders to respond: milestones to drive delivery of imbalances in smaller business our varied supply and demand access to finance (and indeed – Our regional funds have been activities. We assess this using a wider economic imbalances) responding rapidly, to deploy ‘Red Amber Green’ status, where evident in the UK before the funding to new and existing local Green indicates met, Amber Covid-19 crisis will persist or businesses. We’ve worked with indicates partially met and Red worsen as a result of the pandemic. the organisations which fund indicates not met. At year-end, them, and our regional partners, our Board and Shareholder to support implementation of examine an internal report on this approach, which has also regional activities and agree an included capital repayment assessment of performance. holidays and usage of CBILS In achieving Green for this KPI in and the Future Fund. To put this 2019/20, we continue to accelerate activity into context, deployment and expand our work in addressing for Microfinance and Small regional imbalances in finance Business Loans in the Regional markets across the UK. Funds was three times greater in Quarter 1 2020/21 at £5.04m, Target compared to £1.54m in Report describing the Bank’s Quarter 4 of 2019/20. regional activities, and the – We increased our Regional execution of two strategic Angels Programme’s amount milestones: of capital for deployment for – Identification of regional access 2020/21 from £17.5m-£25m to to finance issues by July 2019 £50m. This additional funding, from existing programme – Five-year regional strategy for headroom, increases the pool addressing prioritised issues of early stage equity capital by December 2019 available for investment in high potential businesses Outturn across the UK. Green – Alongside this, we continue to appoint new delivery partners to the Regional Angels Programme, with £15m committed to Par Equity and £10m committed to Startup Funding Club in April 2020.

“Our regional funds have been responding rapidly, £25m to deploy funding to committed to Regional Angels Programme partners new and existing local so far in 2020/21 businesses.”

British Business Bank british-business-bank.co.uk 25 Strategic report Annual Report and Accounts 2020

Encourage and enable smaller businesses

To encourage and enable smaller businesses to seek the finance best suited to their needs.

The challenge for smaller Visitors to our smaller businesses, and why it matters business-facing finance information websites * 22% Improvements to small business year-on-year increase in number finance markets have increased Visitors (m) of visitors to the Finance Hub, flows of finance and the diversity 2.5 2.3 from 168k in 2018/19, to 205k of products, providers and 2.0 platforms available over the 1.8 past five years. 1.5 Challenges remain, however, 1.3 1.1 130% in terms of smaller businesses’ 1.0 year-on-year increase in the awareness of, and willingness number of unprompted website to use, finance. 0.5 sessions used to search for the Bank

0 2016/17 2017/18 2018/19 2019/20 * Finance Hub (launched June 2018), Business Finance Guide, regional funds 24,000 pages and Start Up Loans, NPIF, MEIF, CIOSIF websites followers across our Twitter and LinkedIn accounts

“ Economic uncertainty throughout 2019 led to an increase in use of short-term finance 23m average monthly audience reach, like overdrafts and credit cards, for working through media coverage capital and cashflow purposes.”

26 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

These challenges include: Background and recent trends – The share of smaller businesses using finance has continued to The share of businesses using decline over time, with the external finance has been on a majority preferring to forgo downward trend since the financial growth rather than borrow. crisis, falling from 44% in 2012 to 30% in Q2 2020. The brief pick-up – An equity information gap in finance use in 2019 (peaking at persists, with the majority of 49% in Q2 2019) has not been Encourage and enable businesses saying they don’t sustained, although early signs know anything about equity from June 2020 indicate an finance. increased proportion of smaller Case study businesses using finance. – Smaller businesses may not be Dale Coaching smaller businesses Economic uncertainty throughout aware of the full range of finance Region: London options available. 2019 led, in contrast, to an increase in use of short-term finance like Location: London As a result, businesses may be overdrafts and credit cards, for missing out on finance that could working capital and cashflow Programme: Start Up Loans help them facilitate the day-to-day purposes. running of operations, manage through times of uncertainty or Reluctance to use finance has fund longer-term expansion. become more pronounced with Weak demand for finance is also only a minority of businesses willing particularly prevalent outside to use finance to fund long-term London and the South East, further growth. In the three months to reinforcing regional imbalances in March 2020 just 29% of SMEs Jacqueline Hall decided to set access to finance. were happy to use finance to up her own online mentoring grow and develop, down from company after being made If UK smaller companies are to 45% in 2015, reflecting systemic redundant and then turned maximise the business benefits and structural problems on the down from various job that accessing external finance can demand-side that have persisted interviews. bring, then barriers to awareness, over time. knowledge and confidence need Using a £2,500 loan from Start to be addressed. Attitudinal barriers to using Up Loans, she set up a business finance persist, including a lack offering development and career of awareness of the range of coaching, which has now grown products and providers available to include a consortium with and a persisting reluctance to other female entrepreneurs give up control. Uncertainty over that hosts workshops and future economic conditions and encourages women into science, a perceived difficulty in getting technology, engineering and finance became more significant maths (STEM) related careers. barriers to applying in 2019.

British Business Bank british-business-bank.co.uk 27 Strategic report Annual Report and Accounts 2020

Over a third of businesses relied We group our interventions under In addition to the Finance Hub on their own knowledge and four stages of a process aimed at and Business Finance Guide, experience of finance when encouraging and enabling demand we provide further information deciding what to apply for and for finance amongst UK smaller to smaller businesses through where to apply. The most popular businesses: our corporate and regional next step after identifying a need fund websites. These are for finance was speaking to their – Awareness: building awareness complemented by the activities main bank, and few businesses of the Bank as a provider of of our UK Network, a field-based consider more than one provider. trusted information on finance team which is geographically This could indicate that businesses options dispersed around the country. are not benefitting from the choice – Consideration: becoming the The UK Network focuses on of finance options, providers and information provider of choice interactions with locally-based platforms now available and for UK smaller businesses smaller business finance possibly not getting the most intermediaries, such as competitive deal for their business. – Usage: ensuring the content accountants, to build their we provide is easy to find and access to finance ecosystems. understand Activities include: Responding to the challenges, and 2019/20 snapshot – Outcome: seeing changes in – gathering place-specific market how smaller businesses seek intelligence, which is then fed Through our Demand Development and use finance. back to enhance the Bank’s Unit (DDU) we deliver a range of digitally provided information, digital and physical activities to We have maintained progress as well as informing thinking on address long-term demand across these stages. Prompted future Bank initiatives challenges. awareness of the Bank amongst businesses that might seek finance – providing relevant information was at 24% at the end of March locally, such as sharing best 2020 (an increase of 4 percentage practice identified in other points on last year), and we are regions, and the latest increasingly being considered a information on finance options core source of information, with our smaller business-facing finance – convening and linking access information websites seeing visitors to finance players to drive local increase by a quarter compared improvements. to 2018/19. We have continued to In 2019/20, in its first full year refine our main digital information of operation, the UK Network offerings, the Finance Hub and exceeded its activity targets, Business Finance Guide, which including attending over 500 consistently see high site visitor regional and local events and recommendation ratings of around making over 215 presentations. 80%. These sites aim to offer clear ‘customer journeys’, with best-in- class user experience and content provision on finance options.

24% prompted awareness of the Bank amongst businesses that might seek finance

28 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

We continue to review customer 2019/20 KPI performance Interim Covid-19 update insights to iterate our demand on Bank activities Our KPI for this objective is a strategy in light of the crisis, and have altered our approach from combination of achieving targets The market situation has radically one of demand generation to associated with key aspects changed, with significant increases demand responsiveness. This (awareness, consideration, in demand for finance from UK includes addressing where regional usage and outcomes), as well as smaller businesses severely demand-side imbalances have delivering strategic milestones. affected by drops in cashflow. All are assessed using a ‘Red increased significantly following Amber Green’ status. Businesses are urgently seeking out the Covid-19 pandemic and information on their finance options. ensuring our programmes are best Out of the six KPI elements, for Our channels have seen significant placed to support the short- to 2019/20 we achieved Green in increases in activity, such as a rise medium-term priority of businesses four areas, and Amber in two. in daily unique visits to the Bank’s to survive, stabilise and then grow. An overall outturn rating of ‘Amber’ website from under 1,000 to over Because we want smaller shows progress in addressing 20,000 post-lockdown. This businesses to trust our organisation demand challenges, but we need occurred alongside a significant to inform, enable and reassure to improve performance in certain increase in the Bank’s media them through difficult times and areas, specifically around usage profile, given its national role in beyond, we put in place a new and outcome. delivering these schemes, with awareness campaign in June 2020, articles about the Bank’s work Target Outturn as well as creating British Business rising from 400-500 a month to Bank-branded information as part Awareness Green: over 7,000 in March 2020. measure*: 22% 24% of the digital journey on our We have managed this Finance Hub. Consideration Green: unprecedented surge in † The Finance Hub offers practical measure : 15,000 25,000 demand for information by rapidly guidance and detailed signposting Usage Amber: redesigning our websites to provide to external business support, measure‡: 79% 77.5% clear and detailed information on information on our own the Covid-19 response schemes Outcome Amber: interventions and products, and any for smaller businesses and their measure§: 73% 71.6% events and partner programmes advisers, current accredited created and managed by our Demand strategy Green providers and potential future UK Network team. Across these to be presented accredited providers. and approved by regional activation programmes 31 March 2020 Given Covid-19-related social we are addressing the needs of a distancing constraints, our UK much broader business population Outcome measures Green Network was unable to continue – all those eligible for loans as part designed and baselines its usual face-to-face activities. of the Covid-19 response – as well established by as those looking for information 31 March 2020 We immediately re-assigned and support through these very them to the Bank’s delivery partner uncertain times. accreditation team, enabling us to respond to greater operational Nevertheless, while demand for * Prompted awareness of the Bank demand by substantially increasing finance has significantly increased (SME Finance Monitor) the pace of such accreditations due to Covid-19, it remains too † Organic brand search – number of across our Covid-19 response soon to tell what the long-term sessions (Google Analytics) schemes. impact will be on the attitudinal ‡ Net Promoter System score – likelihood barriers identified earlier. We will to recommend the Finance Hub be monitoring this closely as the (Finance Hub Hotjar Survey) situation develops. § Were you able to find the finance information you were looking for? (Finance Hub Hotjar Survey)

British Business Bank british-business-bank.co.uk 29 Strategic report Annual Report and Accounts 2020

Centre of expertise

To be the centre of expertise on smaller business finance in the UK, providing advice and support to government.

As part of all its activities the Bank Media features * strives to build, refine and share its expertise, both to deliver more Number of media features effective programmes and to 5 8 7,906 advise and shape SME access to flagship publications 7 finance approaches with important 6 stakeholders. This principally 5,364 means working closely with the 5 4,932 Bank’s Shareholder, BEIS, and 4 23,000 HM Treasury, but also with 3 2,861 downloads of our reports wider government stakeholders and significant actors in industry, 2 academia, think tanks and 1 the media. 0 2016/17 2017/18 2018/19 2019/20 146 Through this objective, we track * Articles mentioning the Bank in all media times the Bank was mentioned the impact of our research (printed, broadcast, online). in Parliament and publications, as well as our involvement in opinion and policy engagement, and cross-government programme development. 27 one-to-one meetings with Secretaries of State and government Accounting Officers

30 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Policy engagement Responding to the challenges, In 2019/20 we worked with and 2019/20 snapshot relevant government departments Research and publications to progress ideas – such as on regional access to finance and In addition to our two annual post-EU-Exit strategy. Budget market reports – ‘Small Business 2020 provided the Bank with a Finance Markets’ and the ‘Small further £200m for investment in Business Equity Tracker’ – we high-growth businesses as the UK published three topic reports leaves the EU. Additionally, we on areas of market interest, and progressed important initiatives, where there are knowledge gaps. such as the £600m Life Sciences These were: Investment Programme, working – an October 2019 analysis, with the Office for Life Sciences, ‘UK Venture Capital Finance and the DCMS-led Creative Scale Case study Returns’, providing the most Up Programme. These areas Capital Cars comprehensive and robust remain active in 2020/21. approach to date for assessing Region: Scotland the comparative performance Opinion engagement Location: Edinburgh of UK VC funds since 2002 We continued to enhance our reach, both within the media and Programme: ENABLE Funding – a November 2019 report, ‘The through important academic and Future of DC Pensions: Enabling industry partners (with average Access to Venture Capital and monthly audience in 2019/20 Growth Equity’, providing an having increased to 23.3m, in-depth assessment of the case compared to 18.7m in 2018/19). for defined contribution (DC) The Bank’s new Government pension scheme investment in Relations and Public Affairs these asset classes (GRPA) unit increased engagement Capital Cars is an established with senior government and Edinburgh taxi private hire – a February 2020 report, ‘UK SME parliamentary stakeholders across company that provides a range Exporting Trends in Finance and all political parties. The Bank was of services from airport transfers Trade’, where for the first time the positively referenced in manifestos to luxury chauffeur trips and Bank co-sponsored a report with ahead of the December 2019 exclusive tours of Scotland. three government departments General Election. (BEIS, DIT and UKEF). Looking to add to its green fleet of executive vehicles, Capital Our reports received significant Cars received asset-based media coverage and continue lending via ENABLE Funding to be a ‘go-to’ source of market delivery partner Simply Asset information for the finance “Budget 2020 provided Finance to buy two electric Tesla industry and policy-makers. the Bank with a further Model S P85 vehicles. £200m for investment in The Teslas have proved popular high-growth businesses with the executive market, but as the UK leaves the EU.” also for special occasions where customers like the idea that they are reducing their carbon footprint. Capital Cars hopes to buy more electric cars in the future to extend its fleet in line with customer demand.

British Business Bank british-business-bank.co.uk 31 Strategic report Annual Report and Accounts 2020

Case study Chef and vegan cookery teacher, Mitch received a £15,000 Start Up Mitch’s Kitchen Mitch Lee, co-founded Mitch’s Loan to help launch his business. Kitchen with his wife Shirin in 2017. Despite the difficult economic Region: South East The Hampshire-based online shop climate, Mitch’s Kitchen saw a delivers home-cooked frozen 208% increase in sales from Location: Droxford vegan meals across the UK. The March 2019 to March 2020, Programme: Start Up Loans venture has also extended its with sales continuing to grow. business model to offer vegetable boxes to those self-isolating during Covid-19.

32 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Programme development We have also adapted our research Interim Covid-19 update Working with government projects, modifying, for instance, stakeholders we provide on Bank activities the scope of our forthcoming entrepreneur research to include a expertise for specific programmes We delivered significant volumes of Covid-19 ‘impact lens’. This means and products, assisting with their advice and research to help inform, we will gather the appropriate data development or refinement, in particular, our Shareholder and to provide a more relevant and to support government policy HM Treasury on the policy and timely body of evidence from goals. In 2019/20, this included delivery options for emergency which to drive our interventions, progressing further adjustments smaller business access to finance and effectively inform government to ENABLE Build and the National interventions. We offered our policy development. Security Strategic Investment full resources to government, Fund. The latter secured an leveraging our market and product We maintain intensive increase in its funding from experience, as well as our network engagement as the situation £85m to £135m at Budget 2020. of established delivery partners. evolves, working closely not As highlighted earlier, this only with officials at BEIS and helped the rapid delivery of four 2019/20 KPI performance HM Treasury, but also with delivery substantial national programmes partner representatives, business Our KPI for this objective considers across debt and equity. and finance groups, and a wide both delivery of specific initiatives, range of other stakeholders. As well as delivery of Covid-19 as well as contributions through response schemes, we are the year on the key aspects of supplementing some of our existing research and publications, policy activities to take account of the engagement, opinion engagement recent changes to the economic and programme development. “ As well as delivery environment and the expected At year-end, our Board and of Covid-19 response requirements of the recovery Shareholder examine an internal phase. A good example of this schemes, we are report on centre of expertise is in the tempo of our economic supplementing some activities and agree an assessment monitoring which has, where of performance, using a ‘Red of our existing activities relevant, accelerated to daily and Amber Green’ status. weekly updates, to complement to take account of the While it was recognised that the the usual monthly, quarterly and recent changes to the Bank achieved the agreed outputs annual approach that was economic environment in the year, the overall rating of appropriate pre-crisis. and the expected ‘Amber’ reflected the need to have a greater impact within requirements of the government, and to be more recovery phase.” proactive in our own research and contributions to policy debates.

Target Report on delivery of specific initiatives (seven for 2019/20) and contribution across key aspects by 31 March 2020 Outturn Amber

British Business Bank british-business-bank.co.uk 33 Strategic report Annual Report and Accounts 2020

Manage risk and returns

To achieve our other objectives whilst managing taxpayers’ money efficiently within a robust risk management framework.

* Why it is important Return on capital employed * In deploying public funds, we are % Return Target £370m very mindful of our responsibility 8 to deliver our programmes in 7 6.9 increase in value of investment assets accordance with the highest public 6 6.0 sector and industry standards, 5 whilst achieving value for money 4 across our portfolio of activities. 3.6 3.2 3 2.7 99% We manage our finance 2.1 2.1 2 of colleagues completing programmes carefully, continuously 1.2 e-learning training monitoring and, where appropriate, 1 increasing our operational and risk 0 management capabilities. This 2016/17 2017/18 2018/19 2019/20 * helps to ensure that we deliver * Return numbers are consistent with the effectively, to required standards IFRS restatement applicable from 2018/19. £84.7m Target figures are from each year's business and within a clearly defined risk plan. For further information on these of adjusted net operating income framework. To support this, we figures, see 2019/20 Financial Performance follow an annual business planning Summary on p38. process in consultation with our * Shareholder. £48.5m of operating expenditure

* All figures include those assets managed by the Bank on behalf of BEIS and others.

34 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

In November 2019, the Bank was Responding to the challenges, granted a renewal of its State Aid and 2019/20 snapshot settlement for a further five years. This enables the Bank to continue A significant achievement under to operate within applicable this objective was the completion competition law frameworks, as a of the Bank’s first National Audit publicly-funded entity operating in Office (NAO) value for money the markets. The renewal decision study, published in January 2020. acknowledges the Bank’s activities This involved nearly 12 months since 2014 as being compliant with of fieldwork and analysis by the original State Aid decision, the NAO, working closely with confirming that the Bank’s remit Bank colleagues across every and activities can remain along department. The NAO’s similar lines until 2024. Comptroller and Auditor General Case study was positive in his conclusions, We commissioned and published finding that the Bank was independent evaluations of our 40 St Paul’s “performing well” and that smaller Northern Powerhouse Investment Region: West Midlands businesses “have been growing as Fund and Start Up Loans 11 a result of its activities.” The report programme. Both confirmed that Location: Birmingham also stated that the Bank’s costs the programmes were delivering were in line with organisations on their objectives and were Programme: Start Up Loans 12 undertaking similar activities. ultimately value for money, with significantly greater economic The NAO’s report set out benefits than costs commissioned. recommendations for the Bank, its Shareholder, and HM Treasury. The Bank delivered 17 projects during 2019/20 broadly focused We welcomed and accepted these on improving the Bank’s control findings and are in the process of environment and continuous Amanjot Johal was inspired to responding in detail, including improvement. Notable key projects create his own intimate and working with the NAO so that delivered include the conclusion exclusive bar when he found our response meets the intent of the Bank’s GDPR programme, that those in Birmingham didn’t of the recommendations. To this implementation of IFRS9 reporting quite provide what he and his end, and as a first step, we are capability, creation of the Portfolio friends were looking for. responding to one of their Bank- Operations function to support oriented recommendations on He spotted a gap in the market fund portfolio administration p148, with a summary of where for a bar that specialised in and middle-office activities, we have withdrawn finance gin and combined mixology introduction of a contract programmes since our inception, knowledge with table service management system, migration the reasons for this and the effect in a relaxed atmosphere. With to a new payroll system and on our overall portfolio. support and a £25,000 loan roll-out of a continuous from Start Up Loans, he improvement framework. cleared out an existing building, soundproofed the ceiling and built in a seating area. The venture was awarded 2019 Bar of the Year by Gin Magazine.

British Business Bank british-business-bank.co.uk 35 Strategic report Annual Report and Accounts 2020

Case study Organise is a 500,000-strong Finance from the Ada Ventures’ Organise worker-driven online network of Enterprise Capital Fund has meant people who support each other Organise has been able to grow Region: London at work by providing the tools, rapidly, allowing it to keep up with support and confidence people demand and introduce new ways Location: London need to improve their work lives. of supporting its members.

Programme: Enterprise Capital Started in 2017, founders Bex Hay Funds and Nat Whalley needed seed finance to upgrade their digital infrastructure and build additional tools to support grassroots campaign action.

36 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

As an indication of our strong We keep ongoing operational compliance culture, following Interim Covid-19 update delivery of our Covid-19 schemes the launch of a new e-learning on Bank activities under constant review. We have programme in 2019/20, 99% scaled our resources – including The Bank’s activities were severely of colleagues completed their via outsourced models where affected by Covid-19. During required training. This ensures appropriate – to meet the this period we convened regular colleagues are aware of the Bank’s management demands of what is meetings of the Board, and Board key compliance policies and their now a significant emergency loan Risk and Audit Committees, to associated legal and regulatory guarantee and convertible loan oversee emerging risks and responsibilities. note portfolio. challenges. We invoked our Business Continuity Plan and Since 23 March, our schemes 2019/20 KPI performance moved swiftly to enable staff have delivered over £51bn of to work from home. We discuss finance, with more than 1.2m Our KPI for this objective is this in more detail in the facilities provided to businesses. ‘adjusted return on average capital ‘Our People’ section. During this period the Bank has employed’ across our finance grown the amount of finance it While the Bank’s objectives programmes. supports to businesses across have remained the same, our the UK by a factor of seven Prior to Q4 2019/20, we were Shareholder suspended a number and increased the number of on track to achieve our targeted of our underlying KPI targets at the businesses it is supporting by more adjusted return. However, given outset of the pandemic, in line with than ten times. Any outsourcing the impact of Q4 2019/20 valuation an action plan agreed pre-crisis, remains under our close adjustments and additional to permit complete focus on oversight and does not diminish expected credit loss provisions, as the Covid-19 response and in our accountability for finance Covid-19 emerged, the final outturn recognition that any attempt to programme management. for the year is below the target. enforce the Bank’s usual KPIs (such as a specific return target) Further detail on financial We have re-prioritised our would constrain it from acting performance can be found in the 2020/21 business plan to ensure countercyclically in partnership 2019/20 financial performance our resources are focused where with government. and calculation of adjusted they’re most needed. As the situation develops, we remain return section. We will revisit our KPI targets operationally positioned to in H2 of 2020/21 to ensure that respond as required, to support Target appropriate accountability smaller businesses now and Adjusted return on average frameworks are in place to beyond the current pandemic. capital employed of 2.13%, support the responsible, robust by 31 March 2020 delivery of both the Bank’s Covid-19 response schemes and Outturn effective management of existing As of 31 March 2020, adjusted finance programmes and non- return on average capital financial activities. employed was 1.20%

British Business Bank british-business-bank.co.uk 37 Strategic report Annual Report and Accounts 2020

2019/20 Financial performance and calculation of adjusted return

The principle of the adjusted return is to provide a measure of financial performance that includes the programmes on both the Bank’s and BEIS’s balance sheets.

The Bank manages a number of As at the reporting date, the first investments on behalf of BEIS of the four Covid-19 business loan under a service agreement; these schemes managed by the Bank include three regional funds, the had been in operation for just ENABLE Guarantee and ENABLE eight days with the other three Funding programmes and EFG. becoming operational in April and We also administer the assets May 2020. We are working with and liabilities included on BEIS’s the Shareholder to determine balance sheet relating to these what measures of performance programmes. for these programmes should be incorporated into the adjusted The adjusted return calculation return calculation in future adjusts the Bank’s audited profit reporting periods. These schemes before tax, interest payable, are not included in the 2019/20 finance costs and the movements adjusted return calculation but on the ECF loan commitment any impact would have been provision, and includes the net immaterial due to the timing of profit from the programmes that their launches. are managed by the Bank on behalf of BEIS. The return is also adjusted to eliminate the volatility of ECF valuation movements, which can significantly distort the performance from year to year, and to exclude the performance of the Start Up Loans programme.

“ The investment portfolio comprises a mix of investments which contribute towards meeting the Bank’s overall strategic objectives.”

38 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Financial performance and calculation of adjusted return on average capital employed Adjusted Programmes British managed Audited Adjustments Business on behalf of Adjusted Net Year ended 31 March 2020 (£m) Accounts for SUL* Bank plc* BEIS* Assets Investment assets BBI – Investment Programme 617.0 0.0 617.0 0.0 617.0 BBI – Other programmes 622.1 0.0 622.1 0.0 622.1 BPC (Venture/Growth) 325.1 0.0 325.1 0.0 325.1 ECF 253.3 0.0 253.3 0.0 253.3 Other Venture Capital 35.7 0.0 35.7 93.4 129.1 ENABLE Funding 0.0 0.0 0.0 411.3 411.3 Wholesale and Guarantee 3.3 0.0 3.3 21.1 24.4 Start Up Loans 120.9 (69.2) 51.7 0.0 51.7 1,977.4 (69.2) 1908.2 525.8 2,434.0 Investment liabilities Wholesale and Guarantee Solutions 0.0 0.0 0.0 (42.7) (42.7) ECF (145.7) 0.0 (145.7) 0.0 (145.7) (145.7) 0.0 (145.7) (42.7) (188.4) Net investment assets 1,831.7 (69.2) 1,762.5 483.1 2,245.6 Other assets and liabilities Cash 63.7 (1.5) 62.2 0.0 62.2 Tangible and intangible assets 14.0 (0.8) 13.2 0.0 13.2 Loans and borrowings (601.1) 69.2 (531.9) 0.0 (531.9) Net other receivables and payables 230.9 2.7 233.6 0.0 233.6 (292.5) 69.6 (222.9) 0.0 (222.9) Total net assets 1,539.2 0.4 1,539.6 483.1 2,022.7

The column ‘Audited Accounts’ in the table above analyses the investment assets and liabilities in the Consolidated Statement of Financial Position on p119 by business activity.

* Unaudited

British Business Bank british-business-bank.co.uk 39 Strategic report Annual Report and Accounts 2020

Financial performance and calculation of adjusted return on average capital employed (continued) Adjusted Programmes Adjustments British managed Audited for SUL and Business on behalf of Adjusted Year ended 31 March 2020 (£m) Accounts ECFs* Bank plc* BEIS* Return* Investment income BBI – Investment Programme 15.9 0.0 15.9 0.0 15.9 BBI – Other programmes 3.5 0.0 3.5 0.0 3.5 BPC – Venture/Growth 0.0 0.0 0.0 0.0 0.0 ECF 0.0 11.5 11.5 0.0 11.5 Other Venture Capital 0.5 0.0 0.5 4.9 5.4 ENABLE Funding 0.0 0.0 0.0 23.9 23.9 Wholesale and Guarantee 0.0 0.0 0.0 0.0 0.0 Start Up Loans 31.6 (31.6) 0.0 0.0 0.0 Investment income 51.5 (20.1) 31.4 28.8 60.2 Management fee and other income 20.8 0.0 20.8 (15.5) 5.3 Grant income 16.7 (16.7) 0.0 0.0 0.0 SUL inter-co interest 0.0 1.0 1.0 0.0 1.0 Gross operating income 89.0 (35.8) 53.2 13.3 66.5 Net investment costs BBI – Investment Programme 3.3 0.0 3.3 0.0 3.3 BBI – Other programmes 11.3 0.0 11.3 0.0 11.3 BPC – Venture/Growth 18.0 0.0 18.0 0.0 18.0 ECF (8.4) 8.4 0.0 0.0 0.0 Other Venture Capital (0.8) 0.0 (0.8) 0.0 (0.8) ENABLE Funding 0.0 0.0 0.0 0.0 0.0 Wholesale and Guarantee 0.0 0.0 0.0 (13.6) (13.6) Start Up Loans (68.4) 68.4 0.0 0.0 0.0 Net investment costs (45.0) 76.8 31.8 (13.6) 18.2 Net gain on write down of repayable capital grant 37.8 (37.8) 0.0 0.0 0.0 Net operating income 81.8 3.2 85.0 (0.3) 84.7 Other operating costs Staff Costs (30.7) 3.6 (27.1) 0.0 (27.1) Other Costs (35.5) 14.1 (21.4) 0.0 (21.4) Total operating expenditure (66.2) 17.7 (48.5) 0.0 (48.5) Net operating profit before ECF provisions and interest 15.6 20.9 36.5 (0.3) 36.2 ECF derivative gain (cash) 0.0 0.7 0.7 0.0 0.7 ECF permanent diminution in value 0.0 (11.5) (11.5) 0.0 (11.5) Adjusted return 15.6 10.1 25.7 (0.3) 25.5 Average Capital Employed 2,026.3 Adjusted return on average capital employed 1.2% Cost/income ratio 57.3%

The column ‘Audited Accounts’ in the table above analyses income and expenditure in the Consolidated Statement of Comprehensive Net Income on p118 by business activity.

* Unaudited

40 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

The investment portfolio The loss before tax shown in Overall results contributing comprises a mix of investments the Consolidated Statement of to the adjusted return for which contribute towards meeting Comprehensive Net Income is 2019/20 the Bank’s overall strategic £(2.1m) compared to a profit of objectives. Some investments £81.3m the previous year. This is – Adjusted net operating income earn a commercial return whilst primarily driven by three factors: (operating income minus others generate a return which is investment costs) was £84.7m. below the market rate. It is the – a reduction in net gains on investment assets – We generated an adjusted net performance of the commercial operating profit of £36.2m. investments managed by British – increased expected credit Business Investments Limited and loss provisions – Net assets increased by £71.2m British Patient Capital Limited that to £2,022.7m. makes the greatest contribution to – additional provisions in respect the Bank’s overall return. of new ECF loan commitments. – We made new commitments of £1,091m to funded programmes Adjusted return The reduced investment gains and £649m to guarantee Our adjusted net operating income and increased expected credit programmes. for the year was £84.7m despite a losses can largely be attributed challenging final quarter in which to the impact of Covid-19 and are discussed in more detail in the Key drivers of financial performance was affected by the impact of Covid-19. Adjusted paragraphs below. The additional performance operating expenditure was £48.5m, provisions in respect of new ECF As an investment business resulting in a 1.2% return on loan commitments reflect the fact focusing on generating appropriate average capital employed, which that the Group accepts a lower risk adjusted returns on our capital whilst below the target return of than market rate of return from investment, our financial 2.1%, represents an encouraging ECF investments and makes performance is dependent on performance. provision for the difference a number of significant items, between the expected return The year-on-year increase in including: and the market return at the time operating costs is in the context that a commitment is made. In – the amount of capital we have of an expansion in activities. The 2018/19 there were no new ECF committed and the time period cost/income ratio at 57.3% is commitments whereas in 2019/20 over which that funding is higher than 2018/19’s figure of two new commitments gave rise deployed 43.1%, reflecting both the to the provision. increased activities of the Bank – the underlying performance of and the exceptional impact our investments and their ability of Covid-19 on our income. to make interest and debt repayments

– over time, the ability to exit investments successfully and “ The Bank manages a number of investments on make a capital profit behalf of BEIS under a service agreement; these – events impacting on the include three regional funds, the ENABLE Guarantee macroeconomy. As has been and ENABLE Funding programmes and EFG.” observed in 2019/20, our performance can be impacted by external economic factors.

British Business Bank british-business-bank.co.uk 41 Strategic report Annual Report and Accounts 2020

2019/20 markets, portfolio FVTPL Portfolio Expected Credit Loss provisions composition and valuation The valuation impact of Covid-19 ECLs are derived by applying impacts on the Group’s FVTPL investments forward-looking economic Public markets have been gave rise to both gains and losses forecasts to estimate the future volatile since the beginning of in the final quarter of the year. performance of the lending the Covid-19-related downturn, The net impact which could be compared with the point-in-time initially showing declines, followed attributed to Covid-19 is estimated methodology applied in the by recoveries as they reacted to to be a reduction in value of valuation of the FVTPL the stimulus from government £(20m) in the final quarter of investments. Whilst the ECL interventions. Historically, venture the financial year. Within this provisions incorporate the Bank’s and growth investment valuation net impact there were gains best estimates of the impact of movements in the private markets of £48m and losses of £(68m). the downturn on the economy, have lagged those in the public it is possible that conditions in markets. This has been observed This net impact reflects the 2020/21 could worsen more than in previous periods of volatility nature and characteristics of anticipated, which would give and is due to the time difference the portfolios. The Venture and rise to further provisions of reporting cycles, with daily Growth, UKIIF and Enterprise being required. market pricing in public markets Capital Funds portfolios, which in compared with pricing that reflects aggregate have a value of £720.7m, Amortised Cost Portfolio quarterly valuation events in the have been relatively resilient to the The Covid-19 impact on the private markets. impact of Covid-19 due to their Group’s Amortised Cost significant exposures to early-stage investments has resulted in The Bank’s investment portfolios investments and technology-led additional ECL provisions of are diverse in their size, sector and businesses. Investments in around £30m out of a total of exposure to risk. The nature of the the BFP Mid Cap and Investment £42.0m provided in the year. lending within the Amortised Cost Programme portfolios, which The Group’s accumulated ECL portfolio, particularly Start Up account for £770m of value, provision is £122.7m on a gross Loans and peer-to-peer platform have been more heavily impacted amortised cost amount of £594.7m. lending (lending to start-ups and as they are more weighted to micro-businesses often without traditional sectors of the economy In addition, Covid-19 has resulted collateral), are investments that such as retail and hospitality. in a significant increase in ECLs are more vulnerable to the impact relating to the EFG guarantees, of the economic downturn. The Whilst the relative resilience estimated to be around £38.4m, Fair Value Through Profit or Loss of the FVTPL portfolio has been however these are excluded from (FVTPL) investment portfolio is encouraging, we are aware that the adjusted return calculation. more diversified with a wider there is potential for further spread of investments ranging from significant downward pressure early stage start-ups to mid-market on these valuations. As at the date of our financial year end 31 corporates. The Venture and “Our programmes Growth investment funds and ECF March 2020, the UK lockdown had have significant investments in only been in place for eight days invest in a wide range of high-growth, early-stage and the full impact on both the products through private technology-led businesses that economy and the performance sector partners, to have been relatively resilient to the of the Bank’s underlying portfolio impact of Covid-19. BFP Mid Cap investments during 2020/21 has enable us to achieve our and the Investment Programme yet to be established. It is probable objective of providing are weighted more towards the that the full impact will only greater volume and become discernible over future traditional sectors of the economy choice of finance to which have been more exposed to reporting periods. the impact of Covid-19. smaller businesses.”

42 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Our assets Our programmes invest in a wide range of products through private sector partners, to enable us to achieve our objective of providing greater volume and choice of finance to smaller businesses. In total we had £2,434.0m of adjusted investment assets at 31 March 2020, comprising debt financing to businesses of £1,726.5m provided through BBI, Start Up Loans and the ENABLE programmes, and £707.5m of equity financing provided through BPC, ECF and other venture capital programmes.

During the year to 31 March 2020 we invested £782.8m. The Group has made two loans This comprised £702.5m from the Funding to BEIS which at 1 April 2019 Group’s own resources and £80.3m We require funding to make had a total balance outstanding of of funding from BEIS into the investments and run our £525m. During the year BEIS repaid ENABLE Asset Finance programme operations. Depending on our £284.6m of that loan which was which the Bank manages on its requirements, these can be met applied by the Group to meet its behalf. The investment made by the from our investment earnings, our capital commitments. Group directly included £252.9m Shareholder or an external funder. from BBI’s Investment Programme, Our operating costs are funded £79.8m from its BFP Mid Cap To fund our capital investments, through investment income plus a programme, £149.9m in Venture/ we generally issue shares to our management fee charged to BEIS Growth and £75.7m in ECF. Shareholder and utilise available for managing assets on its behalf. cash from our operations, including Income received from this charging We received capital and interest asset repayments. At 31 March mechanism was £15.5m in 2019/20. returns on our investments of £422.9m, including £185.6m from 2020, the UK government held At 31 March 2020, British Business shares totalling £1,496m in British the Investment Programme, £91.5m Bank plc held £63.7m of cash from BFP Mid Cap and £9.8m to Business Bank plc, comprising balances. The Bank maintains the entire share capital of the BEIS from the ENABLE Asset sufficient cash balances to Finance programme. company. There was no additional fund short-term investments share capital issued during the and operational expenditure For many investments, we make year. As at 31 March 2020, the requirements. Most of these commitments to an investment Group had outstanding borrowing funds, £46.6m, are held within the fund and the fund draws down from the Nuclear Liabilities Fund Government Banking Service to cash as it is needed. This means of £531.8m. ensure that there is minimal cost that there is, generally, a delay to the Exchequer. between our investment commitment and capital being drawn. As of 31 March 2020, the British Business Bank Group had further undrawn commitments of £1,601.3m to be invested across its portfolio.

British Business Bank british-business-bank.co.uk 43 Strategic report Annual Report and Accounts 2020

How we’re supporting smaller businesses across the UK North East 3,733 Businesses supported £210m Scotland of funding supported

6,729 Yorkshire and Businesses supported the Humber £298m of funding supported 1 8,221 Businesses supported £544m of funding supported 2 Northern Ireland 2,128 5 Businesses supported

£64m North West 3 of funding supported 11,839 4 Businesses supported 6

West Midlands £724m 8 of funding supported 8,428 7 Businesses supported 9

£510m 10 of funding supported

11 Wales

5,295 South West Businesses supported 12 8,764 £184m Businesses supported of funding supported £442m Excludes those loans and investments for which regional data is not available. of funding supported

44 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Some of the smaller businesses we are supporting across the UK

Scotland West Midlands

Capital Cars 40 St Paul’s 1 7 Programme: ENABLE Funding Programme: Start Up Loans Location: Edinburgh Location: Birmingham

North East East Midlands

Seaweed & Co. e-Bate 2 8 Programme: Start Up Loans Programme: MEIF Location: North Shields Location: Leicester

North West East of England East Midlands Get Work Endomag 3 9 6,566 Programme: NPIF Programme: Enterprise Businesses supported Location: Lytham St Annes Capital Funds and British Patient Capital £400m Location: Cambridge of funding supported Yorkshire and the Humber Airship Services Ltd 4 East of England Programme: NPIF Location: Sheffield 8,644 Businesses supported £779m of funding supported London

Organise 10 London Programme: Enterprise Capital Funds Northern Ireland 14,415 Location: London Neurovalens Businesses supported 5 Programme: Northern Ireland South East £2,661m Growth Finance Fund Location: Belfast Mitch’s Kitchen of funding supported 11 Programme: Start Up Loans Location: Droxford Wales South East Merrion Hotel 6 South West Programme: CBILS 12,335 Location: Llandudno Clinical Design Technologies Businesses supported 12 Programme: CIOSIF Find out more about these and other Location: Truro £948m case studies by visiting the British Business of funding supported Bank website.

British Business Bank british-business-bank.co.uk 45 Strategic report Annual Report and Accounts 2020

Future developments

As the significant economic impacts of the Covid-19 crisis continue to play out, the Bank will continue to act countercyclically.

We will continue to work closely We have already begun work in the Scaling our risk management with all relevant public and private following key focus areas: We have appropriately scaled stakeholders, maintaining our agile both the reach and intensity of our Reviewing our operating model approach, so our programmes tracking of emerging and principal remain best placed to: We are examining options for our risks, in line with Covid-19 scheme future operating model. We will growth, and will continue to do so. – support UK businesses to consider and enhance capabilities Consistent with our existing risk ‘bridge’ across the crisis, so they in response to the expanded set management techniques, this are in a better position to emerge of responsibilities deriving from ongoing tracking covers both and thrive post-crisis, as the Covid-19, and any future changes specific and systemic risks, which economy opens up in remit, so that we can be best could put the Bank’s operations or set up for long-term success. – support businesses into the delivery of Covid-19 and existing recovery, carefully targeting our Navigating the future economic schemes in jeopardy. As well as the resources to help deal with the environment increased risks attached to our specific challenges faced by new Covid-19 schemes, and the deep We will continue to monitor and more established businesses economic challenges felt by the complex and uncertain economic across the UK as they rebuild businesses using them, we are conditions, modifying our following the pandemic. conscious of potential impacts approach where necessary. These on our delivery partners. These two near-term aims will conditions include non-Covid-19 be central in informing how we drivers such as the outcome of any deliver against our objectives, while trade agreements reached with the we also work to respond to the EU and other countries. Reflecting exceptionally challenging economic our Centre of Expertise role, we environment and the rapid and will use our market insight to steer substantial expansion of the Bank appropriate decision-making for during the crisis. Alongside this, we our programmes, inform forward are working with the government planning, and support wider to map out the next phase of the government policy-making. Bank’s development.

“ We will continue to monitor complex and uncertain economic conditions, modifying our approach where necessary.”

46 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Risks

The Directors have carried out a robust assessment of the principal risks facing the Bank. We reviewed our risk framework during 2019/20 with a focus on how it operated relative to the Bank’s risk appetite.

The Bank has been actively Material risks: issues that Economic downturn supporting the government’s could prevent us from The full short- and long-term policy responses on SME access successfully delivering impacts of the outbreak of to finance having launched a range the Bank’s objectives Covid-19 on the UK are currently of debt guarantee programmes unclear with the effect still evolving and a further programme to Covid-19 was declared a at this time, although it is expected support high-growth companies. pandemic as we approached the to have a material negative impact These programmes are year-end 2019/20 and the Bank on the UK and global economy in countercyclical in nature and responded by liaising swiftly with the short to medium term. The design and, as such, credit and the government to develop and outbreak and subsequent UK investment loss expectations are implement a range of debt and lockdown are negatively impacting significantly higher than the Bank’s equity response schemes, which almost all sectors of the UK standard programmes to date. being both delivered at pace and economy and the demand for The Bank will actively monitor countercyclical will mean that goods and services. This in turn is the evolving risk profile of the the Bank will deviate from its impacting UK business performance underlying portfolios. standard Risk Appetite positions and confidence. The impact of the in supporting the government’s Further external macroeconomic pandemic on the UK is likely to policy objectives. We continue to and political factors may affect materially impact the financial monitor and respond to a number both the flow of finance to, and performance of the Bank’s of material risks. demand from smaller businesses. portfolio of assets. In such cases, the Bank could also experience credit and investment losses, as smaller business end- borrowers have difficulty in meeting their commitments.

British Business Bank british-business-bank.co.uk 47 Strategic report Annual Report and Accounts 2020

The Board and Executive are EU Exit focused on ensuring we have Delivery partners The UK’s recent withdrawal from sufficient skilled resources in The Bank’s business model is the EU, and the eventual outcome place to support the success of heavily reliant upon our delivery of any trade agreements reached the new programmes and other partners for efficient execution with the EU and other countries, policy initiatives that the Bank is of the Bank’s interventions may have an impact on the undertaking. An assessment is and increasing the diversity of economic environment and the taking place to review the Bank’s funding for small businesses. behaviour of smaller businesses in operating model so we can better The consequent higher level of the UK in relation to demand for manage and deliver our expanded reputation risk inherent in this finance, with the risk of impacting set of responsibilities. model is managed through the both portfolio performance and Bank’s due diligence regimes the successful delivery of our Internal control, systems and regular audit programmes, programmes. alongside regular meetings with and processes delivery partners and service The Bank continues to engage The Bank continues to focus on level agreements. with key stakeholders to consider continual improvements to its how government policy impacts The implementation of the operational processes, systems smaller business access to finance Covid-19 response schemes saw a and internal control environment and how the Bank can support significant increase in the number to mitigate the risk that they create businesses as the transition period of the Bank’s delivery partners, excessive operational risks. The ends and as new rules come into often through fast-tracked growth of the Bank’s programmes place from 1 January 2021. accreditation processes and and portfolio as a result of reduced due diligence. In some implementing the Covid-19 circumstances the crisis will have response schemes at pace means People skills, wellbeing put considerable stresses on some that further work is being taken and capacity delivery partners. to review the internal controls, During the Covid-19 outbreak the systems and processes to The Bank will need to continue Bank’s employees transitioned ensure that they meet the to monitor the performance of to a remote working basis during necessary standards. its delivery partners, including the a period of exceptional growth. use of audits, and the practical Effective project management This brings with it potential risks to implementation of complex processes are applied across the wellbeing of colleagues, and intervention schemes delivered the Bank’s change programme, given the relative complexity of the at pace. Bank’s operations to its size, there incorporating lessons learnt is a risk of ‘corporate stretch’ in and best practice from previous delivering the Covid-19 response project experiences. The Bank also schemes. undertakes Risk and Control Self Assessments to identify risks and The Bank supported colleagues assess controls in its processes, with increased use of various with action plans put in place to online communication channels, address unacceptable “The Bank’s business assistance with home office deficiencies. model is heavily reliant equipment, health and wellbeing support including through an Over the period of the Covid-19 upon our delivery Employee Assistance Programme, crisis the Bank successfully partners for efficient and flexibility to support caring implemented its business execution of the Bank’s responsibilities. continuity processes, with colleagues working remotely interventions and over the period with a high increasing the diversity level of effectiveness. of funding for small businesses.”

48 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Suppliers Stakeholder engagement Viability statement and delivery on objectives The Bank uses a number of The British Business Bank is 100% third parties to support its IT and As a national development funded by the UK government, operational processes and there bank wholly owned by the its sole Shareholder, and its is a risk that such suppliers do not UK government, we support continuation as an entity is meet the Bank’s requirements. The government policy objectives ultimately at the discretion of extent of this support, particularly in relation to smaller business the UK government. In assessing on operational processes, has finance. Given this, while we are the Bank’s prospects, the Board increased and is expected to operationally independent, there is assumes that the Bank has, and continue to increase through the always a risk that UK government will continue to have, government delivery of the Covid-19 response policies or decision-making support and that its funding schemes. It is important to manage processes may impact the Bank’s arrangement will remain in place. actively these suppliers to check ability to manage its business model The Board undertakes a business that they deliver against the Bank’s and/or deliver its Business Plan. planning exercise each year to expectations and the Bank is outline the five-year plan for enhancing its Supplier Relationship Some processes around the organisation, which is then Framework to further support this. decision-making and approvals rely approved by the Shareholder. on input from ministers and central The Board considers this five-year government administration. When planning horizon an appropriate Information management these structures change (due to a period over which to assess the and security new government, new minister or Bank’s prospects. machinery of government changes, As the bar continues to rise, there for example), there is a risk of Additionally, the Bank has is a risk that our IT infrastructure is delays in decision-making that undertaken analysis of stress not resilient enough to withstand could impact the Bank’s ability to scenarios of its portfolio and the disruption without loss of data or meet its objectives or to deviate Board has been given assurance functionality, or fails to comply from its designated Risk Appetite. that, in the event of a downturn, with the requirements of the the Shareholder will continue to EU General Data Protection support the Bank’s activities in Regulations (GDPR). The Bank relation to smaller businesses, has undertaken an extensive subject to government policy. programme to enhance its internal “As a national controls and cyber security development bank The Board believes it is possible protection software. In May wholly owned by the UK to form a reasonable expectation 2019, the Bank achieved Cyber of the Bank’s long-term viability Essentials Plus, building on the government, we support during that planning period of Cyber Essentials and IASME government policy five years, taking into account accreditations achieved in 2016, objectives in relation the principal risks to meeting and continues to improve on its its objectives. IT infrastructure. We are in the to smaller business The Bank has a financial framework process of joining the National finance.” in place that allows us to alter the Cyber Security Centre (NCSC) allocation of funding between Active Cyber Defence programme. programmes and years, subject to staying within agreed parameters.

Accordingly and on this basis, the Board has a reasonable expectation that the Bank will be able to continue in operation and meet its liabilities as they fall due.

British Business Bank british-business-bank.co.uk 49 Strategic report Annual Report and Accounts 2020

Our people

If the British Business Bank is to deliver on its mission to make finance markets work better so smaller businesses across the UK can prosper and grow, it needs the right people – committed colleagues with appropriate expertise and experience, and the ability to work collaboratively and creatively to put in place interventions that address market weaknesses.

To attract and retain the right In 2018/19, we devised a multi-year Our people are able to operate in people, our aim is to continue to people strategy to deliver this aim. both private and public spheres, make the Bank a great place to This was in response to the Bank’s and can cross disciplines to work, where colleagues bring their rapidly evolving structure, and also respond to the wide range of whole selves and do the best work in recognition of the Bank as an issues we are asked to address. of their career. In doing so, they increasingly mature, sizeable and This dynamic is underpinned by a can deliver the best experience for complex organisation. Even before strong sense of purpose, passion businesses, our delivery partners the Covid-19 pandemic, we were for the work, cross-team working, and other stakeholders. becoming larger and more multi- adaptability, and collaboration faceted, so strengthening and with stakeholders. building on the essence of what it’s like to work for the Bank became more important than ever.

50 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Our people strategy works through three strategic pillars:

– Culture and engagement: by enhancing our corporate culture and workforce engagement, we create the right working environment for colleagues to succeed

– Leadership: by embedding the behaviours we expect to see, we empower and develop our people, to lead the organisation into the future

– Reward and recognition: by valuing our colleagues in the right way, we engender a culture of high performance aligned to our mission and purpose.

These pillars are further supported by our policies and activities under diversity, inclusion Case study Lancashire-based Get Work and belonging – including helps tradespeople grow their corporate social responsibility. Get Work businesses by making web The following section describes Fund manager: Business advertising more accessible. the highlights of the initiatives Finance Solutions and Customers sign up to a fully we carried out under the above Merseyside Special automated platform that takes pillars in 2019/20, during which Investment Fund care of the entire advertising our people strategy focused on process, from setting up a Region: North West creating a more consistent and dedicated landing page and common understanding of our Location: Lytham St Annes Google Ads account to values, behaviours and purpose. generating leads, managing As Covid-19 emerged, we rapidly Programme: Northern calls and monitoring data. shifted our delivery emphasis, Powerhouse Investment Fund Established in 2018, the ensuring colleagues could work company is using a £100,000 safely and effectively through loan from the Northern the crisis. Powerhouse Investment Fund (NPIF) to set up an office for its current five employees. It aims to expand its workforce to 16 people by October 2021.

Get Work will also put the funding towards improving its website and sign-up process, as “ Even before the Covid-19 well as increasing its marketing pandemic, we were spend to encourage more tradespeople onto the platform. becoming larger and more multi-faceted.”

British Business Bank british-business-bank.co.uk 51 Strategic report Annual Report and Accounts 2020

Our activity in 2019/20

7% 83% 32 year-on-year increase in of colleagues took our colleagues promoted colleague engagement score 2020 engagement survey in 2019/20

79% 116 15 of colleagues feel able to new joiners welcomed in 2019, paid internships during strike the right balance bringing our organisation to summer 2019 between work and home life 352 colleagues

52 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Colleague engagement Performance management Culture and engagement If colleagues are engaged, they’re Stronger performance A stronger culture and more more likely to enjoy working for the management helps us build engaged colleagues mean Bank, and produce their best work. overall organisational success and we create the right working Following our 2019 engagement the productivity and wellbeing environment for colleagues survey, we committed to four of our employees. In 2019/20, to succeed. Our work under key areas of action to increase we enhanced our performance this pillar in 2019/20 focused engagement, support collaboration, management cycle, and increased on four main areas – protecting and optimise career development managers’ accountability for and strengthening our culture, – purpose and culture, leadership their teams, while encouraging colleague engagement, health and communication, development, more regular one-to-ones and and wellbeing, and performance and empowerment. Our quarterly coaching. We improved our management. colleague forum, chaired by senior colleague feedback mechanisms leaders, plays an important role and expanded the scope of Protecting and strengthening in the Bank’s future success by development plans to include all our culture representing, consulting with colleagues, and defined pay for It’s important that we deliberately and gathering feedback from our performance reward principles, foster a strong culture that people across the business. The reinforced through a Bank-wide underpins our mission, purpose forum was recently cited as an ratings calibration to ensure and strategy, and that we reinforce example of best practice by the consistency. and strengthen that culture to Involvement & Participation support our operational scale-up, Association and the Chartered the customer experience and Institute of Personnel and external brand. Following a pilot Development. Key focus areas for 2020/21 culture assessment and colleague Our key focus areas for Health and wellbeing workshops, the Board agreed a 2020/21 include articulating cultural engagement plan, focusing The health and wellbeing of a compelling employee value on line manager development, colleagues is of paramount proposition, cascading a brand engagement and refreshing importance to us. In 2019/20 we values-based leadership our values. increased our focus on mental programme to embed the health. We also ran an enhanced refreshed values, and programme of wellbeing events ensuring our colleague and promoted further sources of experience delivers a support available to colleagues. strong employer brand.

“If colleagues are engaged, they’re more likely to enjoy working for the Bank, and produce their best work.”

British Business Bank british-business-bank.co.uk 53 Strategic report Annual Report and Accounts 2020

Supporting our people in Leadership their careers Reward and recognition Helping our people to become In 2019/20 we filled 18% of Our reward and recognition better leaders at all levels vacancies internally, and promoted approach enables the recruitment sustains our business now and 32 colleagues to roles with greater and retention of the right people into the future. In early 2019/20 responsibility. During the year we so we can deliver successfully we created our new leadership welcomed 116 new colleagues to on our business objectives. We framework, which sets out the the Bank, increasing our headcount do this through a fair pay and behaviours to drive our success, to 352. To grow our leadership benefits structure that is aligned and integrated it into 360º pipeline from within, we ran talent with the external market, while feedback, development reviews to assess the current at the same time delivering value planning and recruitment. strengths, potential for senior for money for HM Government. leadership, and how to meet the Building leadership skills development needs of colleagues Reward In 2019/20 we focused on at director level and above. We In 2019/20 we revised our upskilling and equipping line also ran a successful internship bonus structures for more junior managers, launching a curriculum programme in the summer of 2019, colleagues to provide greater and on-line toolkit to provide with 15 interns receiving varied differentiation around performance. easy access to information placements and one returning We also introduced a new ‘job and resources. to a permanent role. family’ structure and associated salary ranges.

Benefits Key focus areas for 2020/21 We reviewed our benefits offering In 2020/21 we will be to support further the health and focusing further on career wellbeing of our people. We now development, leadership and offer all our colleagues an management development, enhanced and competitive and capability frameworks. benefits package.

Recognition We recognise outstanding colleague performance through a spot bonus system – with 19 given out in 2019/20 – and awards at our yearly ‘One Team’ all-colleague meetings.

Key focus areas for 2020/21 In 2020/21 we will focus on enhancing colleague recognition and embedding a total reward approach.

54 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Case study Sara Roberts, an ex-branding During Covid-19, Healthy Nibbles Healthy Nibbles consultant, launched Healthy has adapted, focusing on its Nibbles in 2014 with the help of subscription snack boxes for Region: Scotland a £20,000 Start Up Loan. customers who are working remotely. Location: Edinburgh After returning to the UK from Kenya, Sara noticed there were Sara’s future ambitions are to Programme: Start Up Loans very few healthy snack options develop her own range of products for consumers on the go. Healthy to stock in Healthy Nibbles vending Nibbles offers a subscription machines and snack boxes. snack box service and contactless vending machines nationwide; clients include Transport for London.

British Business Bank british-business-bank.co.uk 55 Strategic report Annual Report and Accounts 2020

Diversity, inclusion and belonging

It’s important to us that the British Business Bank is a welcoming environment which promotes diversity, inclusion and belonging. This helps to bring out the best in our people, promotes creativity and innovation, and increases the depth and breadth of experience and thinking we can draw upon.

Employee involvement Recruiting a diverse and Gender pay gap inclusive workforce Our equal opportunities, diversity We published our 2019 gender and inclusion policies support To attract the right mix of people, pay gap report, including what the managers and colleagues in all our external recruitment events Bank is doing to narrow its pay gap. creating a culture where everyone and marketing materials support The mean gender pay gap for the is welcome. We provide equal and promote diversity and Bank is 11%, which is lower than opportunities to all colleagues, inclusion. We support our both the average gender pay gap irrespective of age, disability, management teams to recruit and for all UK employees (17.3%), and gender, marriage and civil assess candidates fairly and ensure for all employees in the Finance partnership, pregnancy or our recruitment partners align and Insurance sector (33.7%). maternity, race, religion or with our values, behaviours, and belief, sex, or sexual orientation. diversity and inclusion approach, take care that our candidate pools Colleagues can raise concerns are gender balanced, and that through our grievance and ‘speak shortlists for senior roles support up’ procedures, our engagement our diversity and inclusion agenda. survey, on-line learning modules and a visible HR team in both Sheffield and London.

Our calendar of diversity events includes celebrating various religious festivals and International 11% Women’s Day. The mean gender pay gap “ We provide equal for the Bank. opportunities to all colleagues, irrespective of age, disability, gender, marriage and civil partnership, pregnancy or maternity, race, religion or belief, sex, or sexual orientation.”

56 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Women in finance We recognise that we have more We are a signatory of the Women Gender representation to do to increase the number of in Finance Charter. By October by grade women in our senior management 2021, our aim is that 50% of our The graphic below sets out the positions and we are taking Senior Leadership Team (Bands gender diversity of the Board, steps to make sure that senior 1-3) are female (within a 10% Executive Committee members, colleagues, when recruited, tolerance). As at 31 March 2020 Senior Leadership Team and reflect the characteristics of the our Senior Leadership Team was employees at 31 March 2020. diverse and inclusive workforce 67% male and 33% female. we seek to create. Disability Board Executive Committee members The Bank works with colleagues, including those with disabilities, Female Female to adapt work practices where necessary in order to help them 2019 3 2019 3 work effectively within the 2020 2 (-1) 2020 4 (+1) business. We are a disability confident employer as part of Male Male the UK government’s Disability Confident scheme and belong 2019 7 2019 5 to the Business Disability Forum. 2020 9 (+2) 2020 6 (+1) Championing human rights Senior management* All employees† We operate in accordance with the Universal Declaration Female 2019 Male Female 2019 Male of Human Rights and take account 37.2% 62.8% 43.6% 56.4% of other internationally accepted human rights standards. We also -1.6% +1.8% -2.6% +2.6% promote human rights through our employment policies and practices, 35.6% 64.4% 41% 59% and through the responsible use of 2020 2020 our products and services. *Managing Directors, Directors and Senior Managers † Employees as a percentage of headcount at 31 March 2020

Data protection Across the British Business Bank, we respect and protect the privacy and security of personal information. Our privacy statement governs how we collect, handle, store, share, use and dispose of information about people. We regard sound privacy practices as a key element of corporate governance and accountability.

British Business Bank british-business-bank.co.uk 57 Strategic report Annual Report and Accounts 2020

Ethnic diversity In summer 2019, our policy and communications team hosted a We value people from all masterclass on how to manage backgrounds and have an an integrated communications inclusive approach that campaign for graduate trainees celebrates diversity. We believe from the Taylor Bennett Foundation, 18% that our inclusive culture helps us a charity which encourages black, to attract, retain and develop our Asian and minority ethnic (BAME) of our colleagues disclose employees and encourages them graduates to pursue a career that they have a black, Asian to bring their whole selves in communications. or minority ethnic background to work.

Asian/Asian British 13.4% Black/African/Caribbean/Black British 2.0% Mixed 3.1% White 69.3% Undisclosed 12.2%

Belonging – Corporate Social Responsibility We think it’s important that colleagues feel not only part of the British Business Bank, but also positively connected with wider society while working here. Colleagues across the Bank worked together on initiatives focused on all three areas of our CSR mandate in 2019 – charity work, environment and volunteering.

Charities we supported included:

– Bluebell Wood Children’s Hospice in Sheffield

– Shelter

– The British Heart Foundation

– The Trussell Trust.

58 British Business Bank british-business-bank.co.uk Strategic report Annual Report and Accounts 2020

Our people took part in fundraising From the start of the pandemic activities throughout the year. Covid-19 up to 11 August 2020 we have had This included over 100 colleagues Our people-approach during the eight colleagues who reported completing over 30,000,000 steps Covid-19 pandemic has focused sick due to self-diagnosis of as part of our ‘Step-Up September’ on ensuring the wellbeing of all coronavirus, and several colleagues Challenge. As well as raising funds, colleagues, who were designated were unable to work due to family this also helped to promote as critical workers due to their care commitments. We continued wellbeing and cross-team responsibility for implementing to pay full contractual sick pay for collaboration, with enough steps the government’s emergency all colleagues who were unwell and to walk between our offices in loan schemes. full pay for those self-isolating or London and Sheffield 50 times. who were unable to work due to We also had several colleagues During the first phase of the another Covid-19 reason. We did take part in the London to Brighton pandemic, we aimed to reduce not put any of our people on the bike ride to raise money for the the risk of infection and protect furlough scheme or make anyone British Heart Foundation. colleagues’ health through clear redundant due to the pandemic. communication of government Colleagues can also take a day advice and taking precautionary We greatly appreciate the once a year to undertake voluntary measures such as increased increased hours colleagues work. They used these days in cleansing of offices and provision regularly worked, over and above 2019/20 to support a wide range of hand sanitiser. their normal duties to help put of causes, which included serving the government’s emergency and packing food at local food When the British Business Bank interventions in place, as well as banks and supporting a local art decided that all colleagues would taking on additional responsibilities organisation working with artists work from home from 17 March, and stepping in to bridge gaps for that have a variety of learning just prior to lockdown on 23 absent colleagues. We took the disabilities and physical disabilities. March, our IT pre-planning enabled decision to run our engagement Many colleagues also give their us to move our entire workforce to survey during the pandemic, to own time to volunteer with homeworking, which we supported gain full insight into how colleagues charities or act as trustees. by providing working from home were feeling during these advice and additional office challenging times. Colleagues are committed to equipment where required. reducing waste and limiting our impact on the environment at We have taken colleagues’ work by supporting local suppliers, mental health and physical reducing packaging, and by wellbeing very seriously during recycling more effectively. Under the pandemic, advising line normal circumstances, we also managers on supporting their operate a cycle to work scheme teams, encouraging use of our and use video conferencing to employee assistance programme reduce travel between offices. and signposting to further health and wellness advice and support, including webinars provided through our wellbeing partner. We “Our IT pre-planning also shared and put in place ideas enabled us to move for staying connected socially. Catherine Lewis La Torre our entire workforce to Chief Executive Officer homeworking, which we 10 September 2020 supported by providing working from home advice and additional office equipment where required.”

British Business Bank british-business-bank.co.uk 59 Directors’ report Annual Report and Accounts 2020

Directors’ report

The Directors present their annual report on the affairs of the Group, together with the financial statements and independent auditor’s audit report for the year ended 31 March 2020.

The Corporate Governance – A description of the principal – Information about the use of Statement is set out on p68 and activities of the Group during the financial instruments by the forms part of this report. course of this year is included in company and its subsidiaries is the strategic report given in note 2 to the financial The following information required statements by the Companies Act 2006 can – Information on our employment be found in the following sections disability policies and on our The Bank has chosen to include of the Annual Report, which are action on colleague engagement information regarding future incorporated by reference into is in the ‘Our People’ section developments within the strategic this report: report because we believe it is – Details of the significant events better placed there. since the balance sheet date are contained in note 29 to the financial statements

60 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Directors During the year the following individuals served as Directors. The process for appointment and removal of Directors is set out in the Corporate Governance Statement found on p68.

Initial Initial appointment appointment Reappointment Reappointment Director Position date expiry effective date expiry Lord Smith Non-executive 5 July 4 July 5 July 4 July Director 2017 2020 2020 2021 Neeta Atkar Non-executive 1 July 30 June 1 July 30 June Director 2016 2019 2019 2022 Jonathan Britton Non-executive 28 April 27 April 28 April 27 July Director 2014 2017 2017 20211 Piers Linney Non-executive 7 December 6 December 7 December 7 September Director 2017 2020 2020 2021 Christina McComb Non-executive 29 October 18 November 19 November 15 November Director 2013 2016 2016 2019 Dharmash Mistry Non-executive 1 May 30 April N/A N/A Director 2019 2022 Amanda Rendle Non-executive 7 December 6 December 7 December 7 September Director 2017 2020 2020 2021 Nathaniel Sloane Non-executive 1 March 28 February N/A N/A Director 2020 2023 Ceri Smith Shareholder 29 October 13 November 9 August 8 August Representative 2013 2016 2019 2022 Director Catherine Lewis Chief Executive 1 September 30 May N/A N/A La Torre Officer 2020 2021 Keith Morgan Chief Executive 10 December 31 August N/A N/A Officer 2013 2020 Christopher Fox Executive 13 January 31 March N/A N/A Director 2015 2020 Patrick Magee Executive 10 March N/A N/A N/A Director 2015

Notes 1. Initial extension to 27 April 2020 which was then further extended to 27 July 2021.

British Business Bank british-business-bank.co.uk 61 Directors’ report Annual Report and Accounts 2020

Directors’ biographies

Lord Smith of Kelvin Neeta Atkar Jonathan Britton Piers Linney Chair Senior Independent Independent Independent Director and Chair of Non-executive Director Non-executive Director Risk Committee and Chair of Audit Committee

One of the UK’s most Neeta has 30 years’ Jonathan Britton has Piers Linney is an experienced Chairs, experience in financial over 35 years’ experience entrepreneur and Lord Smith has led services, having held a in banking, spanning investor with a organisations in the series of positions at both corporate, SME and professional background private, public and banks and insurance investment banking in the City in both law voluntary sectors. He is companies in the private businesses. and investment banking. a chartered accountant and public sectors, by profession and former working across all A qualified chartered A qualified lawyer, President of the Institute aspects of risk. accountant, he was Piers has founded of Chartered Accountants Divisional Finance several technology of Scotland. Neeta is a Non-executive Director and Head and communication Director of Nomura of Strategy for the businesses and has won a He is currently Chair of Europe Holdings plc, Wholesale Division at range of entrepreneurship IMI plc, Forth Ports Ltd, Nomura International plc, Lloyds Banking Group awards, as well as Scottish Enterprise and Nomura Bank International from 2009 to 2013, and appearing as an investor the Commonwealth and Nomura Financial a Non-executive Director on Dragons’ Den. He sat Games Federation Products Europe. She and Chair of the Audit on the Cabinet Office Partnership. He is is also a Non-executive Committee of ICIC Bank SME Panel and the also Chancellor of the Director of Yorkshire UK Ltd from 2011 to 2017. Board of TechUK. University of Strathclyde. Building Society. Jonathan is currently a She chairs the Risk Non-executive Director Committees for both of Nomura Europe firms. She has been a Holdings plc, Nomura magistrate for over Bank International plc 20 years. and Nomura International plc. He is a also Non- executive Director of Richmills Ltd and The Salcombe Boatstore Ltd.

62 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Christina McComb OBE Dharmash Mistry Amanda Rendle Senior Independent Independent Independent Non- Director until 15 Non-executive Director executive Director and November 2019 Chair of Remuneration Committee

Christina McComb has Dharmash Mistry is an Amanda has over held a range of senior experienced venture 30 years of marketing private and public sector capitalist, entrepreneur and communications roles and has a track and Non-executive experience in agencies record in private equity Director. and clients across and venture capital numerous sectors investment as well as He is currently a partner including financial advising small and at LGT Lightstone and services, professional medium-sized prior to this was a partner service and FMCG. businesses. at Balderton Capital and She was HSBC’s Global Lakestar. Prior to this, he Head of Marketing for Christina is currently was Group MD of Emap Commercial Banking Chair of OneFamily, a Consumer Media, where and Global Banking modern financial mutual he co-led the delisting of and Markets. organisation, and Chair Emap plc from the FTSE of Standard Life Private 100 and sold the Amanda is a Non- Equity Trust plc. She is consumer business. executive Director for Senior Independent Tesco Bank, Countrywide Director of Big Society Dharmash sits as a plc and Jaren Consulting Capital, a trustee of Non-executive Director plc. She is a Fellow of the NESTA, and a Non- on the Board of BBC Marketing Society and executive Director Commercial Holdings Ltd a member of Women of Nexeon Ltd. and is Chair of blow Ltd. in Advertising & Communications London.

British Business Bank british-business-bank.co.uk 63 Directors’ report Annual Report and Accounts 2020

Nathaniel Sloane Ceri Smith Catherine Lewis La Torre Independent Shareholder Chief Executive Officer Non-executive Director Representative Director from 1 September 2020 (since 1 March 2020)

Nat worked in the private Ceri Smith is a Director Catherine was appointed sector for 25 years as at UK Government CEO of the British an entrepreneur, as Investments whose Business Bank in management consultant responsibilities include September 2020, at Bain and Company, overseeing the British having led the Bank’s and venture capitalist at Business Bank on behalf commercial arm since Accenture Technology of its Shareholder, the 2016 as CEO of British Ventures. He remains Secretary of State for Business Investments an active investor in Business, Energy and (BBI) and, from October alternative assets. Industrial Strategy. 2018, CEO of both BBI and British Patient Since 2002 Nat has been He previously worked Capital. active in the social impact in HM Treasury, the market. He co-founded Department for Business Prior to 2016, Catherine Impetus Trust, the first and the Foreign Office. was Head of Private UK venture philanthropy Responsibilities have Equity for Cardano Risk trust fund, and is a included advising Management, managing a founder trustee of the on business finance, global portfolio of private Education Endowment employment law, SME capital investments on Foundation, the UK’s taxation and developing behalf of UK pension largest What Works the government’s funds. She was previously Centre, chairing its Enterprise Capital Managing Director of Finance and Endowment Funds programme. Paris-based European Committee. private equity investor Fondinvest Capital, a He is founder chair of founding partner of Social and Sustainable Nordic fund-of-funds Capital, one of the UK’s manager Proventure, largest impact investment after which she funds, chairs Pause, a established a consultancy charity that supports business advising women to reduce the Sovereign Wealth Funds number of children and Institutional Investors taken into care, and in Asia, the Middle East was previously chair of and the US on their The National Lottery European private capital Community Fund in strategies. England.

64 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Keith Morgan CBE Christopher Fox Patrick Magee Chief Executive Officer Chief Financial Officer Chief Commercial until 31 August 2020 until 1 December 2019 Officer Executive Director until 31 March 2020

Keith led the As CFO, Christopher’s Patrick joined the British establishment of the remit also included Policy Business Bank as Chief British Business Bank and Communications, Operating Officer in from January 2013, and Strategy, Economics October 2014, becoming being appointed Chief and Business CCO in October 2017, Executive Officer in Development. Prior to with responsibility December 2013. He joining the Bank in 2015, for Guarantee and joined the Bank from UK Christopher was Head of Wholesale, Start Up Financial Investments, Banking at UK Financial Loans and Venture where he managed Investments (UKFI), Solutions business areas. the government’s overseeing HM As a member of the shareholdings in Government’s government’s Shareholder Bradford & Bingley shareholdings in Lloyds Executive, Patrick had and Northern Rock. Banking Group, RBS and previously led the team UK Asset Resolution working on the Bank’s Previously, Keith held (UKAR). He also served as set-up and governance senior roles at Santander a Non-executive Director and represented the (Sovereign Bancorp US on UKAR’s Board. government’s Shareholder and Abbey National UK). interests on its Board. Before joining Abbey, Previously, Christopher Previously, Patrick spent Keith spent 17 years at spent almost 20 years 18 years in investment LEK Consulting, where he at UBS, providing capital banking, including as a was a partner specialising markets and investment managing director of in financial services. banking advice to corporate finance at governments and Keith is a Non-executive JP Morgan Cazenove. financial institutions In May 2020, Patrick Director of UK Asset globally. Resolution Limited, became a Non-executive Bradford & Bingley plc, Director of International NRAM Limited (Northern Biotechnology Trust plc. Rock Asset Management) and serves on the Board and Technical Committee of the ICAEW Corporate Finance Faculty. He is also a trustee of Jephcott Charitable Trust and The Design Council.

British Business Bank british-business-bank.co.uk 65 Directors’ report Annual Report and Accounts 2020

Directors’ indemnities Sustainability principles Greenhouse gas emission reporting The Company has granted The British Business Bank is indemnities to each of its Directors committed to promoting Scope of Disclosure in respect of all losses arising out sustainability. Concern for the The British Business Bank reports of, or in connection with, the environment and promoting a its Scope 1 (Gas) and Scope 2 execution of their powers, duties broader sustainability agenda (Electricity) emissions based on its and responsibilities as Directors are integral to our professional property portfolio, and Scope 3 to the extent permitted by law activities and the management of (Travel) emissions based on and the Company’s Articles of the organisation. We aim to follow employees’ rail and air business Association. The Company and to promote good sustainability travel. provides Directors’ and Officers’ practice, to reduce the liability insurance. environmental impacts of all our The Bank can provide emission activities and to help our clients reporting from 2015/16 to date and partners to do the same. in respect of its premises and Going concern company travel activities. The Directors who served during Legal requirements The British Business Bank the year have a reasonable occupies four floors of office expectation that the Company The methodologies used to space. Reported Scope 1 emissions and the Group have adequate calculate the emissions are under cover those generated from the resources to continue in paragraph 15 of Schedule 7, Large gas and oil used in all buildings operational existence for the and Medium-sized Regulations: from which the Group operates, foreseeable future. Thus they – At least one ratio which with Scope 2 covering emissions continue to adopt the going from electricity. The figures concern basis in preparing the expresses the quoted company’s annual emissions in relation to a provided in Scope 1 and Scope 2 financial statements. Further in the table opposite are estimated details can be found in the quantifiable factor associated with the company’s activities. emissions relating to energy significant accounting policies consumed in properties where notes in the financial statements. – With the exception of the first the landlord controls the supply mandatory reporting year, a and re-charges the British repeat of the emissions data Business Bank. disclosed in the previous year’s directors’ report alongside Reported Scope 3 emissions information on emissions from relate to business travel the present year. undertaken by all colleagues using rail and air travel which has been – A statement of whether the booked through our corporate period for which it is reporting travel agent. These results are the information required by summarised in the table opposite. paragraph 15 (2) and (3) is Currently we do not report on different to the period in respect any other Scope 3 emissions. of which the directors’ report is “We aim to follow prepared. and to promote good sustainability practice, to reduce the environmental impacts of all our activities and to help our clients and partners to do the same.”

66 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Greenhouse gas emission assessment parameters

Baseline year for total reported CO2 Emissions 2016 Consolidation Approach Operational control Boundary Summary All facilities under operational control Emission factor data source DEFRA (2016) Assessment Methodology The Greenhouse Gas Protocol revised edition (2004) Intensity Ratio Emissions per full-time employee (FTE)

Greenhouse gas emissions

2018/19 2019/20 Comparison

Scope CO2 Scope CO2 2018/19 to 2019/20 (tonnes) (tonnes) (%) Scope 1 (Gas) 39 31 -20% Scope 2 (Electricity) 241 138 -41% Scope 3 (Travel) 83 120 +44% Total 363 289 Total per average number of employees 1.21 1.56

This information is given Directors’ disclosure and should be interpreted in to auditors accordance with the provisions of s418 of the Companies Act 2006. Each of the persons who are a Director at the date of approval of Approved by the Board of this annual report confirms that: Directors – so far as the Director is aware, there is no relevant audit information of which the company’s auditors are unaware

– the Director has taken all the Catherine Lewis La Torre Chief Executive Officer steps that he/she ought to have 10 September 2020 taken as a Director in order to make himself/herself aware of any relevant audit information, and to establish that the company’s auditors are aware of that information.

British Business Bank british-business-bank.co.uk 67 Directors’ report Annual Report and Accounts 2020

Corporate governance statement

The British Business Bank constitution consists of its Articles of Association and a Shareholder Relationship Framework Document between the British Business Bank and the Department for Business, Energy and Industrial Strategy (BEIS).

The British Business Bank plc “ Our Board remained operates, so far as is practicable, Our principal decisions focused on our a best practice corporate We describe below how the governance framework, and directors had regard to key governance, objectives complies with the UK Corporate stakeholders when making and risks to the Group’s Governance Code other than principal decisions during business throughout certain provisions connected to the year which were material in relations with Shareholders which the financial context of the Group. the year.” are covered by the Shareholder Framework Document, or specifies The Board also made important and explains any non-compliance decisions about its composition, in its Annual Report. reporting Keith Morgan’s announcement that he would be The UK Corporate Governance standing down from his role as Code is freely available from the Chief Executive and appointing Financial Reporting Council. The new Non-executive Directors, and UK Corporate Governance Code (as below) relating to the Group’s acts as a guide to a range of key engagement with its key issues to ensure effective Board stakeholders. practice. Our Board remained focused on Apart from those set out in this our governance, objectives and Annual Report, the Board is not risks to the Group’s business aware of any deviations from the throughout the year. Various key relevant aspects of the Code frameworks, control documents in the period since 1 April 2019 and core processes were reviewed insofar as it applies to the British and approved, including the Business Bank. schedule of matters reserved for Our Section 172(1) statement is the Board as described on p74. set out on p70. These included the Group’s risk appetite framework and risk appetite statement, business plans for British Business Investments and British Patient Capital, and the Group’s Policy Governance Framework.

68 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Principal decisions Key stakeholders More information In April 2019, our Board approved The Board considered how to Details of our Risk Management our participation in the launch of expand its support to SMEs and Framework for these types of ENABLE Build to make available up the wider community by working decisions are included on p81. to £1bn in guarantees provided by alongside BEIS to tackle access to This decision was taken in the the Ministry of Housing, finance and the UK housing context of the Bank’s credit and Communities and Local shortage. investment risk appetite being Government (MHCLG) to support medium to high; with robust due finance for smaller housebuilders. diligence being undertaken on We are working alongside Homes Homes England as our Delivery England to deliver this programme. Partner. In May 2019, our Board approved a The Board considered that the We explain the impact of our £450m ENABLE Guarantee to guarantee would improve an ENABLE Guarantees and other Barclays to launch a new cash back existing finance solution available such programmes on p20 of scheme for term loans to eligible to SMEs. the report. SME borrowers, the largest of its kind launched in the UK. In March 2020, our Board This decision was essential in More information on the CBILS approved the arrangements for the aligning our objectives with can be found on p16. Coronavirus Business Interruption the government’s policy and to Loan Scheme (CBILS) delivered by help eligible SMEs experiencing the Bank through (initially) more cashflow issues due to the than 40 accredited lenders and pandemic, for the benefit of partners to support the continued them, the economy and wider provision of finance to UK SMEs community. during the Covid-19 pandemic.

British Business Bank british-business-bank.co.uk 69 Directors’ report Annual Report and Accounts 2020

Our key stakeholders

Our Section 172(1) statement highlights our seven key stakeholders, and why and how we engage with them.

Smaller Smaller businesses businesses Why? To deliver products that customers value, we must engage with SMEs in building new solutions and Delivery improving existing ones. Partners How? – Face-to-face interactions – Use of digital channels such as Suppliers the Finance Hub, social media, email campaigns and newsletters – Attendance at and hosting British events Government Business and Parliament – Intelligence gathering and Bank research on relevant topics on both a regular and ad-hoc basis, via (for example) surveys and Shareholder focus panels, often resulting in (BEIS) publications – Gaining feedback on programmes via evaluations

Communities Where? and environment See p28 for detail of SME engagement measures including our Demand Development Unit interventions and use of our Bank Finance Hub and Business colleagues Finance Guide.

For the latest Bank research and programme evaluations, please The following pages outline who see: british-business-bank.co.uk/ our stakeholders are, why they research are important to our long-term success, how we engage and understand their issues and where you can find further information about them.

70 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Where? Delivery Partners British Business Bank website: Why? british-business-bank.co.uk/ Our overall success largely ourpartners depends on their performance and SUL’s website: and conduct, which encourages startuploans.co.uk/ private sector investment whilst delivery-partners helping address regional imbalances in the UK. P48 includes details of risk management related to our Suppliers How? delivery partners. – Origination and market Why? We rely on suppliers to deliver our engagement (events, meetings) goods and services on time and to – Onboarding, including good quality. This helps maintain iterative programme application value for money, and can bring support with potential Delivery innovative solutions that create Partners (DPs) shared value. – Marketing and brand alignment, How? building working relationships with new and existing DP – Operating an enhancing marketing and branding supplier relationship counterparts management framework – Ongoing relationship Where? management: “We rely on suppliers See p49 for information – Dedicated contact managers to deliver our goods on the Bank’s engagement for accredited DPs, to resolve and services on time with suppliers. issues and manage change/ and to good quality.” performance – Performance and risk monitoring, for example via quarterly reviews, through fora such as Limited Partner Advisory Committees, as well as independent audits of DPs – Networking and community- building events for accredited DPs, to build best practice and share experiences, such as the quarterly DP fora for SUL and annual British Patient Capital GP/LP forum

British Business Bank british-business-bank.co.uk 71 Directors’ report Annual Report and Accounts 2020

How? Where? – Regular events, roundtables Further information on the Bank’s and meetings engagement with government is included at p49 in ‘Stakeholder – Monitoring key issues across engagement and delivery on government departments, objectives’. including through the Dod’s Parliamentary monitoring service – Programme of meetings with the BEIS and other ministers Government and Parliament and other government officials – National Audit Office Value for Why? Money Study Maintaining the government’s support and trust in our ability to deliver is key to our success and future and to ensure our objectives continue to align to with the government’s policy.

72 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Shareholder (BEIS) Communities Bank colleagues and environment Why? Why? BEIS is vital to our operation and Why? Colleagues are our most funding. Effective engagement with Our long-term success is tied valuable asset: without their BEIS helps enable us to achieve inextricably to the progress of our knowledge and expertise we our objectives in line with communities and the preservation could not operate or achieve government policy priorities. of our environment. our aims.

How? How? How? – Regular meetings with BEIS, – Fundraising. We currently – Quarterly Town Halls and including quarterly Shareholder support the Trussell Trust and Annual All Colleague and policy meetings the Bluebell Wood Children’s conference – BEIS representative director Hospice – Annual engagement survey on the Board – Supporting local suppliers, leading to action plans which reducing packaging, and are followed up with Where? recycling colleagues P68 provides some detail on decisions being made in – Cycle to work scheme, – Colleague forum on business consultation with BEIS. bike lockers, use of video- change, updates and wellbeing conferences and displays of – NED with a designated

CO2 impact of travel plans workforce engagement role – Zero tolerance of modern Where? slavery in our businesses A separate report on p80 and supply chains details our engagement with our Where? colleagues. Further information Further information on our on engagement in response to Corporate Social Responsibility the Covid-19 crisis and measures initiatives can be found on p58. to enable colleagues to work flexibly, safely and support their wellbeing can be found on p59.

“Colleagues are our most valuable asset: without their knowledge and expertise we could not operate or achieve our aims.”

British Business Bank british-business-bank.co.uk 73 Directors’ report Annual Report and Accounts 2020

Although several Non-executive “ Our Board and Role and responsibility Directors have declared potential of the Board of Directors conflicts of interest, the Board Committees have the of the company considers them to be independent appropriate balance in character and judgement and British Business Bank plc is led of skills, experience therefore independent. by its Board of Directors which and independence is collectively responsible for the The Board reviewed the schedule to enable them to long-term sustainable success of of matters reserved for the Board the Bank, generating value for its in October 2018. The matters discharge their duties Shareholder and contributing to reserved for the Board include and responsibilities the wider society. The Board is also strategy and management, effectively.” responsible for establishing the company structure and capital, company’s purpose, values and financial reporting and controls, strategy, and satisfying itself that risk management and internal The Chair is responsible for leading these and its culture are aligned. controls, approval of major the Board and its discussions and projects and contracts, for encouraging open debate and The Board’s responsibilities communications with our challenge. The Chief Executive include understanding the views Shareholder, Board membership leads the executive in the day to of the company’s other key and other appointments, day running of the business and the stakeholders and considering the remuneration, delegation of implementation of strategy and is matters set out in section 172 of authority, corporate governance, supported in this by the Executive the Companies Act 2006 when appointment of professional Committee and the Senior making decisions. Amanda Rendle, advisors, litigation and approval Leadership Team. an independent Non-executive of overall levels of insurance. Director, has been appointed to As an organisation funded by be responsible for workforce Our Non-executive Directors taxpayers’ money, the Bank is engagement. scrutinise the performance of required to comply with the management against agreed principles set out in managing As set out in the Shareholder objectives. The Remuneration public money (www.gov.uk/ Relationship Framework Committee is responsible for government/publications/ Document, the Board must have setting appropriate levels of managing-public-money). no fewer than eight Directors remuneration for Executive including six Non-executive The Chief Executive is the Directors and other Bank Directors. Independent Non- Accounting Officer. The colleagues in consultation with executive Directors are to make responsibilities of the Accounting our Shareholder. This is further up the majority of the Board. Officer include responsibility for explained in the Directors’ the stewardship of the Bank’s Remuneration Report at p90. Our Board and Committees have resources. the appropriate balance of skills, experience and independence The Senior Independent to enable them to discharge Director is Neeta Atkar. The their duties and responsibilities Senior Independent Director’s effectively. The Board considers responsibilities are to work that the Chair was independent closely with the Chair, act as an on appointment and that all intermediary for other Directors Non-executive Directors other than as and when necessary and Ceri Smith are independent for the meet with other Non-executive purposes of the Code. Ceri Smith Directors to review the Chair’s is the Shareholder Representative performance following the Board Director. evaluation exercise.

74 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Appointment and removal Annual Director election Audit Committee of directors At the 2019 Annual General The Audit Committee is chaired by The Shareholder Relationship Meeting (AGM) Dharmash Mistry Jonathan Britton. Neeta Atkar and Framework Document provides was elected and all other Directors Dharmash Mistry were members that no appointment or removal of a were re-elected. of the Committee during the director of the Bank, or appointment year, with Dharmash Mistry being or removal of any such director to appointed in May 2019 following or from an executive position, can Information to the Board his appointment to the Board. All be made without the prior written All Directors are provided with members of the Audit Committee consent of the Shareholder. The updates on corporate governance are independent Non-executive Chair and the Senior Independent developments, legislative and Directors. The Chief Executive Director are appointed in a process regulatory changes, and relevant Officer, Chief Financial Officer, chaired by a commissioner from industry and technical information. Chief Risk Officer, General the Office of the Commissioner The Board is supplied in a timely Counsel, Head of Internal Audit for Public Appointments in line manner with the appropriate and a Shareholder Representative with the Shareholder Relationship information to enable it to attend Committee meetings along Framework Document. discharge its duties and any further with the external auditors who are information is readily available to invited to attend and report at all All newly appointed Non- all Directors. Since 2015 the Board meetings. The Chair has the right to executive Directors undergo a has received board papers and attend all meetings, and does tailor-made induction programme. information electronically, to so regularly. In addition, regular continuous increase efficiency, confidentiality education sessions are held Christopher Fox ceased being the and sustainability. covering topical issues. Chief Financial Officer (CFO) on 1 December 2019. Phil Piers took The composition of the Board Board committees over the role on that date, on an during the year is set out on p61 interim basis. of the Directors’ report. The Board has established four Board Committees to ensure The Committee also meets In November 2019, Christina robust and effective decision privately with both internal and McComb stepped down as Senior making within the Group structure, external audit. Attendance can Independent Director and Neeta namely Audit, Remuneration, Risk be found on p80. Atkar was appointed to this and Nomination committees. The position. In addition, Odgers Role British Business Bank Board has Berndtson was appointed as an The Committee’s role is to review, approved terms of reference for independent search consultant for monitor and make recommendations each committee. the appointment of a new Board to the Board relating to: Member for the British Business Bank, and in March 2020 Nathaniel – the ‘going concern’ nature of Sloane was appointed as Non- the Bank executive Director for a term of – the integrity of financial reporting three years. – the financial statements and Keith Morgan stepped down as any issues and judgements CEO on 31 August 2020. Catherine they contain Lewis La Torre assumed duties as CEO on 1 September 2020. – the adequacy and effectiveness of the internal and external The full biographies of all Board controls members can be found at: www.british-business-bank.co.uk/ – overseeing the relationship with our-people the Bank’s external auditor.

British Business Bank british-business-bank.co.uk 75 Directors’ report Annual Report and Accounts 2020

The Committee also has oversight In relation to internal and external The Corporate Governance Code of the internal audit and audit audit, the Audit Committee requires that the Audit Committee planning process of the Bank. considered and approved: should make a recommendation on the appointment of the auditor. During the financial year 2019/20, – the internal audit plan and review However, the Shareholder the Audit Committee considered of progress against this plan Relationship Framework document and approved: – the findings of internal audit specifies that we are audited by – the oversight of the Bank’s reviews the Comptroller and Auditor financial reporting process and General, which we believe provides the process for preparation of – group and subsidiary audit appropriate safeguards for our the consolidated accounts exemptions Shareholder. The National Audit Office (NAO) carries out the – the accounting policies adopted – the review of external audit external audit for and on behalf so the Bank as a whole complies planning and progress of the Comptroller and Auditor with the applicable accounting – the external audit management General. The Senior Statutory standards and presents letter. Auditor is in her sixth year of consolidated accounts that auditing the Bank which conflicts are true and fair In relation to governance and other with the Corporate Governance matters, the Audit Committee Code. This was considered by the – methods used to account for considered and approved: Audit Committee which satisfied significant or unusual itself of the independence of the – interest rate risk transactions where different Senior Statutory Auditor. The approaches are possible – controls relating to the ‘procure external auditors have not – the assessment of, and process to pay’ process and the conducted any non-audit services for preparing, the consolidated management of budgetary during the financial year and the accounts pressures in respect of Committee considers that the Departmental Expenditure Limits external auditor is both objective – the extent to which the Bank and independent. has complied with Shareholder – the governance statement financial reporting requirements to BEIS The significant issues considered by the Committee, with input from – IFRS 16 accounting implications. – the response to the National the external auditor, during the year Audit Office Review of the Bank. included:

– methodologies and procedures for determining asset valuations and provisions

– significant accounting policies

– decisions and judgements

– the contents of the Annual Report and Accounts

– IFRS 16 accounting implications.

76 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The external auditors brought six – the annual pay review matters to the Audit Committee’s Remuneration Committee attention in their 2018/19 – corporate performance ratings The Remuneration Committee was and annual bonus management letter relating to: chaired by Amanda Rendle. The – the timing of the recognition of other members of the Committee – Short-Term Incentive Plan and ECF loan commitment financial were Ceri Smith and Christina Long-Term Incentive Plan awards McComb until she stepped down liabilities and the underlying – a review of the redesign of the assumptions from the Board in November. T he Chair was then appointed a Long-Term Incentive Plan – the timing of the receipt of member of the Committee until – the annual remuneration and audited accounts from fund the appointment of Nathaniel reward strategy review managers in order to provide Sloane in March 2020 when the independent assurance over Chair stepped down from the – a review of market benchmarks investment valuations Committee. Attendance can for remuneration be found on p80. – IFRS 9 governance in relation to – publication of gender pay gap the Expected Credit Loss models Role data The Committee’s role is to set – the completeness and accuracy – the equal pay audit the remuneration policy for all of data used as input to one of Executive Directors, the Chair and the Group’s Expected Credit – the Women in Finance Charter other members of the Executive Loss models and gender diversity target Committee, including pension – access to underlying contractual rights and any compensation – exemptions from public sector agreements in relation to loans payments. It also sets the terms of pay guidelines the Long- and Short-Term Incentive made through one of the Group’s – the approach to remuneration Plans and any incentive schemes Delivery Partners at British Patient Capital the British Business Bank plc and – earlier engagement with the its subsidiaries may run in line with – ad-hoc salary proposals for auditors to resolve disclosure the Shareholder Relationship Executive Committee members issues ahead of the audit Framework Document. fieldwork. – a review of the Committee’s During the financial year 2019/20, terms of reference. All of these issues were addressed, the Remuneration Committee and their resolution discussed and considered: Signed for and on behalf of the agreed by the Committee. Remuneration Committee – the Remuneration Framework Signed for and on behalf of the of the Bank Audit Committee – annual confirmation to the Shareholder on remuneration commitments made in the Shareholder Framework Amanda Rendle document Chair of the Remuneration Committee – a review of the objectives for Jonathan Britton Executive Directors and Chair of the Audit Committee members of the Senior Leadership Team

British Business Bank british-business-bank.co.uk 77 Directors’ report Annual Report and Accounts 2020

– risks relating to execution of the Risk Committee business plan, including output Nomination Committee The Risk Committee is chaired by of stress tests The Nomination Committee is Neeta Atkar. The other members – inception of a policy compliance chaired by Lord Smith. Ceri Smith of the Committee during the year monitoring programme was a member of the Committee were Jonathan Britton, Piers throughout the year, Neeta Atkar Linney, Ceri Smith and Christina – approach to and updates on was appointed to the Committee McComb until she stepped down Operational Risk, Credit and in June 2019 and Christina from the Board in November 2019. Investment Risk, Information McComb stepped down in Attendance can be found on p80. Risk, Reputational Risk, November 2019. Attendance Change Risk and Market Risk can be found on p80. Role The Committee’s role is to advise – regular updates on the key risks The Corporate Governance the Board on the key risks to the faced by our product areas Code requires that a majority Bank in the pursuit of its objectives, of the Nomination Committee – annual Money Laundering including whether the Bank is be independent Non-executive Officer’s report operating within its risk appetite Directors in order to safeguard and the appropriateness of – position in relation to State aid the interests of the Shareholder the Bank’s Risk Management when making appointments. Our Framework. It reviews the Risk – risk sections within the Annual Nomination Committee does not Management Framework, taking Report comply with this as the Chair is account of the fact that the Bank considered independent only on – implementation of and is in the public sector and not appointment and Ceri Smith is compliance with GDPR regulated by the FCA/PRA. appointed by the Shareholder – the creation of and terms of and therefore not independent. During the financial year 2019/20, Reference for the Executive However, we believe the the Risk Committee considered Audit and Risk Committee Shareholder’s interests are and approved the following safeguarded as both the matters: – fraud prevention. Shareholder Representative and the Chair are appointed – ongoing appropriateness of the Signed for and on behalf of the by the Shareholder. Risk Management Framework, Risk Committee the Risk Taxonomy and Risk Role

Strategy The role of the Nomination – identification and mitigation Committee is to review the of material, emerging and leadership needs of the Neeta Atkar horizon risks organisation, consider succession Chair of the Risk Committee planning, and identify and – continued applicability of the nominate Board members. Risk Appetite Policy and Risk Appetite Statements for the During the financial year 2019/20 British Business Bank, British the Committee discussed and Business Investments and considered: British Patient Capital – succession planning for Executive and Non-executive Directors and for members of the Senior Leadership Team

– the appointment of Non- executive Directors

– a review of membership of the Board’s Committees.

78 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The Shareholder Relationship relationship with management, Framework Document provides Other committees Board culture, performance and that no appointment or removal The Bank has a number Board development. of a Director of the Bank or of management committees The report has been accepted by appointment or removal of including an Executive any such Director to or from an the Board and an action plan is Committee, an Executive Audit being developed for implementing executive position, can be made and Risk Committee, Investment without the prior written consent key recommendations during Committees and a Product 2020/21. of the Shareholder and appropriate Development Committee. consent to each directorship was The review concluded that the obtained from the Shareholder. The Board, the Board Committees, Board and its committees and the Executive Committees operate effectively. The Board is committed to have been structured to provide ensuring the diversity of its robust governance. The Board membership. The Nomination Committees and Investment Conflicts of interest Committee’s duties include Committees each have Terms regularly reviewing the structure, of Reference which set out Each Director has a duty under size and composition (including their respective duties and the Companies Act 2006 to avoid diversity) of the Board and making responsibilities. All appointments a situation where they have, or can recommendations to the Board to the Board, the Board have, a direct or indirect interest about any changes. Before any Committees and the Executive that conflicts, or possibly may appointment is made by the Committees are based on conflict with the company’s Board, the Nomination Committee the diversity of contribution, interests. As part of our Conflicts evaluates the balance of skills, experience and required skills, of Interest Policy, the Bank has knowledge, experience and irrespective of gender, race or adopted a formal procedure diversity on the Board. any other irrelevant criteria. for disclosure, review and authorisation of Directors’ Signed for and on behalf of the conflict of interest, which requires Nomination Committee Board and committee written disclosure of any actual attendance or potential conflicts of interest for all Directors and staff. The The table on p80 sets out the procedure requires Directors to attendance of Directors since notify formally the Chair or the Lord Smith of Kelvin 1 April 2019 at each Board and Company Secretary as soon as Chair of the Nomination Board Committee. they become aware of any actual Committee or potential conflicts of interest Board performance with their duties to the Bank, or of any material change in existing or The Bank is committed to ensuring potential conflicts that may have that the Board and its committees been authorised by the Board. operate effectively and that The Board believes that outside they continue to improve. The interests can be beneficial for both actions from the internal self- the Executive and Company and evaluation which took place last has authorised the outside interest year have all been successfully of the Chief Executive Officer in completed. An external evaluation his role as a Non-executive of the Board and its committees Director at UK Asset Resolution. was conducted in March 2020. The Bank has not made any The focus of this was role and political donations or incurred accountability of the Board, any political expenditure during operating processes, executive the financial year. selection and succession, strategy,

British Business Bank british-business-bank.co.uk 79 Directors’ report Annual Report and Accounts 2020

Attendance at meetings and committees The table below sets out the attendance of Directors at Board and Committee meetings in 2019/20:

Board Audit Risk Remuneration Nomination Total Number of Meetings 8 5 4 5 5

Chair Lord Smith of Kelvin 7/8 – – 2/2 5/5

Non-executive Directors Neeta Atkar 8/8 5/5 4/4 – 2/3 Jonathan Britton 7/8 5/5 4/4 – – Piers Linney 8/8 – 4/4 – – Christina McComb (resigned 15 November 2019) 4/5 – 2/2 3/3 3/3 Dharmash Mistry 6/8 2/4 – – – Amanda Rendle 7/8 – – 5/5 – Nathaniel Sloane (appointed 1 March 2020) 1/1 – – – – Ceri Smith 8/8 – 3/4 5/5 5/5

Executive Directors Keith Morgan 8/8 – – – – Patrick Magee 8/8 – – – – Christopher Fox 8/8 – – – –

80 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

Risk management and internal control

British Business Bank plc is committed to ensuring the best standards of corporate governance and is supported in this by the Board of Directors and Board Committees.

The Board has overall The Risk Management Framework accountability and responsibility Risk Management is subject to regular review to for the management of risk within Framework assess its effectiveness within the British Business Bank. Our Risk the British Business Bank and has Our Risk Management Framework Management Framework has been been updated over the last year comprises a set of tools, processes designed to align to the size, scale to reflect the evolving operating and methodologies that support and complexity of the British model. This year’s review the British Business Bank in Business Bank and has been concluded that the design of the identifying, assessing, monitoring benchmarked against other Risk Management Framework and controlling the risks it faces. financial services institutions. remains appropriate to enable the The Risk Management Framework: Bank to identify, assess, control The British Business Bank does not and monitor the risk profile against hold regulatory capital and is not – demonstrates a clear link to the the Risk Appetite Statement. regulated by the Financial Conduct overall strategy and business Authority (FCA) or the Prudential plan of the British Business Bank The findings of this review were Regulation Authority (PRA). The presented to the Risk Committee Bank is, however, subject to other – outlines the risk management in March 2020. The next review of applicable laws and regulations vision and objectives, and the the Risk Management Framework and aspires to meet standards of approach for evolving the risk is scheduled to take place in the good practice. management capability of the fourth quarter of 2020/21 financial British Business Bank year. This may be brought forward, We have policies and procedures – is reviewed on an annual basis however, to consider findings from in place designed to ensure the Bank’s operating model review. compliance with applicable and, if required, more frequently laws and regulations, including to reflect any significant material Key elements of our Risk Anti Money Laundering, Data changes to the business, Management Framework include Protection and Freedom of economic or regulatory outlook. risk appetite and risk governance. Information, and aspire to follow A discussion of how the Bank best practice where appropriate handles its risks in relation to and applicable. financial instruments is set out in To enable robust and effective note 27 of the financial statements. decision-making within the Bank, it has approved terms of reference for each executive level investment committee, for each subsidiary which makes investment decisions.

British Business Bank british-business-bank.co.uk 81 Directors’ report Annual Report and Accounts 2020

The Board undertook a review of “The Risk Appetite Policy Risk appetite the Bank’s risk appetite in March of the Bank is based on The Bank’s Risk Appetite Policy 2020 in conjunction with setting acts as the link between overall its business plan for 2020/21. the high-level design business strategy, the risk strategy Following this review the Bank principle that risk has since implemented a range of and the Risk Management appetite represents the Framework by bringing strategic Covid-19 response schemes, which context to identified risks, adopting have altered the prevailing risk level of risk the Board of clear escalation criteria, and profile of the Bank. The Board the British Business Bank informing the processes for the approved and acknowledged in is willing to accept to identification, assessment, control May 2020 that the Bank was and monitoring of risk exposures. deviating from its designated Risk deliver its objectives.” Appetite and that a full review of The Risk Appetite Policy of the the impact of implementing and Bank is based on the high-level embedding the various Covid-19 design principle that risk appetite response schemes would be represents the level of risk the completed and presented to the Board of the British Business Bank Risk Committee in September is willing to accept to deliver its 2020. objectives. The Risk Appetite Statement summarises the Board’s appetite for the principal risks that the Bank is exposed to. It is tied to the risk taxonomy detailed in the Risk Management Framework which outlines eight broad categories of Level 1 risks and 30 sub-categories of Level 2 risks. These include People Risk which was added as a standalone Level 1 risk category following a review of the risk taxonomy in September 2019.

82 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The Risk Appetite Statement

Risk Definition Example categories Example mitigants Strategic and The (residual) risks – Risk that the Bank has an – Both a clearly defined set Business Risk of direct or indirect inadequate governance of objectives and a robust financial losses arising structure. governance model are in Risk appetite: from a sub-optimal – Risk that the Bank’s current place. Low – Medium business strategy or and planned products may – New products are subject to business model and not meet business case market assessment and new the risk of failure to expectations. meet internal and/ product approval process. or public policy – Risk that the Bank does not – Regular review of our Key objectives. meet its deployment or Risks to Objectives by the commitment targets. senior team and Board – Risk that the Bank is not members. effective in meeting its – Assessing the risks and objectives. mitigants to meeting our objectives during the business planning process. Credit and The risk of direct – Risk of end-borrower default, – Delivery partner selection Investment or indirect financial for example due to poor process includes robust due Risk losses in on- and trading, or defects in the diligence, assessment of off-balance sheet delivery process. underwriting and sanctioning Risk appetite: positions as a result – Whilst the majority of processes, and thereafter Medium – High of the failure of an individual exposures to is subject to portfolio end-borrower or end-borrowers are small, monitoring and regular counterparty to review. meet its obligations exposures to mid-cap in accordance with companies are – The credit quality of agreed terms. typically larger. exposures is monitored – Delivery Partner default closely. or closure. – The Bank aims to continue – Venture Capital is subject to to invest throughout the vintage risk, with the year the economic cycle, therefore investment was made being minimising the vintage risk. a significant risk factor. – The portfolio is monitored – Concentration within one closely for concentration industry or location creates a risk. portfolio that is subject to greater risk than a more evenly balanced one.

British Business Bank british-business-bank.co.uk 83 Directors’ report Annual Report and Accounts 2020

The Risk Appetite Statement

Risk Definition Example categories Example mitigants Market Risk The risk of direct – The Bank can make material – The Bank has a small foreign or indirect financial losses due to foreign exchange exposure and does Risk appetite: losses that arise exchange movements not hedge this exposure. This Medium from fluctuations in through its investments. is in line with government values of, or income – The Bank’s investments are policy. from, assets or in subject to interest rate – The Bank conducts scenario movements in interest fluctuations. or exchange rates or testing of exposures sensitive credit spreads. to interest rate market valuation or foreign exchange movements. – The Bank requires some delivery partners to manage market risk directly within the terms of the investment. Operational The risk of direct – Errors in execution, delivery, – Risk and Control Risk or indirect losses and processing. Assessments with functional resulting from – Failure of internal controls or teams are held to assess Risk appetite: inadequate or failed processes. risks and associated internal Low – Medium internal processes, controls. technology, supplier – External or internal frauds. – Operational Incidents management, fraud or – Damage to physical assets, from external events. management process in utilities disruption or systems place. failure. – Close liaison with BEIS – The risk that the business counter fraud network and takes on too much change or regular interaction with key inadequately manages business partners. current change programmes. – Change function and Change – Risk that the Bank does not Board to manage the growth procure, contract with or of the organisation. manage its third-party base effectively. – Procurement and Finance contract and invoice oversight.

84 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The Risk Appetite Statement

Risk Definition Example categories Example mitigants People Risk The risk that the Bank – Risk that Bank does not – The Bank has a robust does not attract, recruit, develop or retain the recruitment process to Risk appetite: develop and retain right staff, skills and talent to attract talent. Low – Medium adequate human meet its objectives. – The Bank has an established resources to meet – Risk that the Bank does not reward strategy with the aim its objectives and/ have a culture that supports to attract and retain talent. or does not create a and drives appropriate working environment – The Bank invests in ongoing and culture to colleague behaviours and training and development for motivate and retain an decision-making. its staff. effective workforce. – Succession planning in place for the senior team. – The Bank has an established Code of Conduct to support its Culture and Values. Information Information Risk – Breach of legal requirements – Implementation of Business Risk encompasses relating to safe-keeping and Information systems and any compromise, disclosure of information. data governance across the Risk appetite: malicious acts or – Cyber-attacks that steal Bank, including GDPR. Low otherwise, to the sensitive data relating to the – Cyber Essentials Plus information the Bank Bank or its delivery partners accreditation. handles during its as well as disrupt the Bank’s creation, storage, – Information Risk processing, transfer functionality. Management Framework in or disposal (the – Risk of business sensitive place supported by policies information lifecycle). information being leaked or and procedures covering accidentally made available information security, data in the public domain. protection, freedom of – Risk of inaccurate or information, information incomplete data processed classification and handling, within the Bank’s operations. and IT acceptable use. – Information owned by the – Mandatory staff training Bank is not available to meet programme covering its business objectives or information security, cyber- fulfil its legal and regulatory crime, data protection, and obligations when requested freedom of information. by external stakeholders. – Information technology systems disaster recovery testing.

British Business Bank british-business-bank.co.uk 85 Directors’ report Annual Report and Accounts 2020

The Risk Appetite Statement

Risk Definition Example categories Example mitigants Legal and Risk of breaching all – Breaches of legal – New products and Compliance applicable UK and requirements in relation to programmes are assessed Risk EU law, regulation, public law or breach of against the UK and EU or standards relating government guidelines regulatory environments. Risk appetite: to delivery partners appropriate to a non- – The Bank has a suite of Low and products which departmental public body. policies to direct governance, exposes the Bank to – Risk that the Bank is not fines and penalties e.g. Tax Policy, Procurement as well as other compliant with European How to Buy Guide. associated financial Commission State aid rules. – Regular dialogue with the losses. – The risk that the Bank Shareholder State aid teams. operates in breach of – Legal Team review of applicable UK and EU laws transaction structuring. and regulations, or the law of any other jurisdiction that is – Bank employees are subject binding in the UK. to a Code of Conduct, annual Compliance – Risk that delivery partners Declaration and mandatory breach legal or regulatory e-Learning. requirements. – The Bank undertakes extensive due diligence on new delivery partners and monitors existing delivery partners and their performance against contractual requirements or Service Level Agreements.

86 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The Risk Appetite Statement

Risk Definition Example categories Example mitigants Reputational The risk that the – The corporate actions of the – A Reputational Risk Risk Bank will act in a way Bank fall short of the Management Policy is which falls short of expectations of our in place. Risk appetite: external stakeholder Shareholder and/or staff. – Active engagement with Low – Medium expectations and – The Bank operates an external stakeholders, causes reputational outsourcing model which is continuous monitoring and damage. subject to delivery partner service agreements. conduct and performance. – The Bank undertakes extensive due diligence on new delivery partners and monitors existing delivery partners and their performance against contractual requirements or Service Level Agreements. – The Bank has a robust Complaints Policy in place. – Social Media Guidelines in place for colleagues.

British Business Bank british-business-bank.co.uk 87 Directors’ report Annual Report and Accounts 2020

Separately, the Board and Risk impact on our portfolio assuming Market Risk (Foreign Exchange and Committee review an assessment a 1 in 20 year scenario across the Interest Rate risks). The outcomes of the quantification of the various programmes, and further were shared with our Shareholder. monetary value of potential scenarios including those based downside risks of a severe upon Bank of England guidelines downturn against our Business and scenario analysis based on Plan. This assesses the likely financial impacts arising from

Risk governance The British Business Bank risk governance structure is shown below:

British Business Bank Shareholder

The Board*

Executive Committee

Executive Audit and BBB Risk Committee BBB Audit Committee Risk Committee

Chief Risk Officer/Senior Senior Leadership Team Head of Internal Audit Information Risk Officer tid AulrnaetxE tid

First line of defence Second line of defence Third line of defence First line of defence (LOD) Second LOD is made up Third LOD provides is responsible for the of an independent risk independent assurance of pro-active day-to-day management capability the overall system of identification, reporting that provides objective internal control, including and management of their independent review, assessment of the risk own risks. Function heads monitoring, and governance framework. have primary appropriate challenge of accountability for the the operation of the first performance, operation, LOD, including the compliance and effective effectiveness of the control of risks affecting functions in managing risk, their business area. The and the controls in place aim is to achieve the to mitigate any risks. strategic objectives while remaining within Risk Appetite.

* The BBB Board also acts as a third line of defence in its supervision of the first and second lines of defence.

88 British Business Bank british-business-bank.co.uk Directors’ report Annual Report and Accounts 2020

The Bank’s Risk Management – the CEO is supported in delivery The Bank encourages a strong Framework is based upon a ‘three of these responsibilities through culture of risk awareness and lines of defence’ (LOD) model, direct reports from the Executive transparency through robust risk where the: Committee, and the Executive governance, clear accountabilities, Audit and Risk Committee regular intranet updates and – first line of defence is responsible in-house live and computer-based for the pro-active day-to-day – the CRO is a member of training. identification, reporting and the Executive Committee, management of their own risks the Executive Audit and Risk Policies form an integral part of Committee, the Investment managing risk within the British – second line of defence is Committee, and the Senior Business Bank. We have in place responsible for designing risk Leadership Team. He is also an enterprise-wide set of policies, policies and methodologies, supported by the Risk and frameworks and procedures monitoring performance and Compliance function in the covering the major parts of our compliance, identifying and delivery of his responsibilities business. reporting risks and providing independent and objective – the Risk and Compliance They outline how we intend to challenge to the first line of function works collaboratively function, taking account of defence with the product teams and regulatory or legal requirements other central control functions and industry best practice. Policies – third line of defence provides are approved by the appropriate independent assurance of the – the Internal Audit function committees and communicated to overall system of internal control operates independently of staff. Colleagues are also subject including assessment of the risk management, reporting directly to the British Business Bank Code governance framework. to the Board Audit Committee of Conduct and annual compliance and highlighting key areas of declarations. The key principles of this model, weakness relating to governance, as illustrated by the diagram on risk management or internal Approved by the Board of p88, are that: control Directors

– the Board has overall – the product teams engage accountability and responsibility constructively and openly for the management of risk within with Internal Audit, Risk and the Bank Compliance and other control functions. – the Board delegates specific Catherine Lewis La Torre risk management roles and Chief Executive Officer responsibilities to the Risk 10 September 2020 Committee, the Audit Committee, CEO, and the Chief Risk Officer (CRO)

British Business Bank british-business-bank.co.uk 89 Directors’ remuneration report Annual Report and Accounts 2020

Directors’ remuneration report Chair’s foreword

On behalf of the Board, There are opportunities for I am pleased to present the improvement of course, many of Role of the Committee Remuneration Report for the which are linked in some way to the The Committee’s primary role British Business Bank for the year Bank’s rapid growth over the last is to provide robust, independent ended 31 March 2020. Those few years. As outlined elsewhere governance for executive sections of the report that have in the Annual Report, the Bank has remuneration, to ensure that reward been audited by the National launched a number of initiatives for the Bank’s Executive Team: Audit Office have been identified under its people strategy with a as such. view to building on the positives. – supports the Bank’s long-term business strategy and values In my role as Non-executive In keeping with the Bank’s role in Director with responsibility for supporting all regions of the UK, – enables the Bank to recruit, workforce engagement, I was the Bank has focused on driving its motivate and retain talented fortunate to have the opportunity expansion by locating roles outside individuals with appropriate of meeting informally with small London as far as possible. This can skills and experience groups of colleagues during the be seen in the rapid growth of the – links executive reward to the year, to hear first-hand how they Bank’s Sheffield-based Start Up Bank’s performance against its view working for the Bank. I was Loans team for example. A key long-term business plan. struck by the high level of challenge for the Remuneration engagement overall – colleagues Committee has been to reflect enjoy working for the Bank and the requirements of this growing Structure of the Report are very committed to its mission regional diversity, as well as the and purpose. continuing complexity of the skills The Remuneration Report is needed to deliver against the divided into two parts: Bank’s strategic objectives, 1. Policy on Executive Directors’ within its approach to and senior management colleague remuneration. remuneration.

2. Annual report on remuneration. This section outlines how the policy has been applied and includes details of remuneration for the senior team.

90 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Other key decisions made by the During the first few months of Key decisions taken by the Committee and recommended to 2020/21, the Committee has Committee this year the Board during the year were: been focused on monitoring the unfolding Covid-19 crisis, During the financial year 2019/20, – agreeing the annual pay review and in ensuring that its decisions the Committee has continued to for 2019 on remuneration represent an focus on the Bank’s remuneration appropriate response in the strategy, adopting a holistic – determining pay-out level for the context of the crisis. In particular, approach to colleague reward. corporate element of the Bank’s the Committee has been mindful Our overriding aim is to ensure that Performance Bonus Plan for the of the way in which the crisis has our reward package is competitive year ended 31 March 2020 impacted all of the Bank’s in the commercial environment – agreeing the pay-out level for the stakeholders, including colleagues, in which the Bank competes for personal element of the Bank’s delivery partners, and businesses. talent, while remaining appropriate Long-Term Incentive Plan (LTIP) to our responsibilities as a publicly awards for all members of the Setting stretching business and owned body. Bank’s Executive Committee for personal targets for the Executive remains as important as ever, albeit In accordance with the rules of the the year ended 31 March 2020, it is especially challenging this year LTIP, awards were assessed for the and the aggregate pay-out level as the Bank concentrates on the corporate performance element for all other colleagues various short- and medium-term of the scheme over the three-year – setting corporate performance initiatives it has been asked to cycle ending 31 March 2020. targets and agreeing participants deliver to support UK businesses Based on the performance of the for the sixth-cycle LTIP.* through the worst of the Covid-19 Bank against its Key Performance crisis. The Committee’s work Indicators and taking into account The CEO pay ratio – describing continues in 2020/21 and we will various other considerations, the the ratio between the total ensure we monitor the impact of Committee concluded an award remuneration of the CEO and the the crisis on remuneration policies of 65% of the maximum was lower quartile, median and upper more widely and keep the strategy appropriate. Further details of quartile total remuneration for all for remuneration under review in awards of the Senior Executives colleagues – is published on p104 light of the changing environment are set out later in this report. for the first time. The median CEO in which we operate. pay ratio for 2019/20 is 6.4:1. This ratio is very much at the lower end of the range of ratios reported by other private sector organisations over the same period.

Amanda Rendle Chair of the Remuneration Committee “ During the first few months of 2020/21, the Committee has been focused on monitoring the unfolding Covid-19 crisis, and in ensuring that its decisions on remuneration represent an appropriate response in the context of the crisis.” * A lso referred to as Cycle 4 LTIP

British Business Bank british-business-bank.co.uk 91 Directors’ remuneration report Annual Report and Accounts 2020

Remuneration policy report

Table 1: Remuneration policy

Element Operation, opportunity and performance framework Base salary Objective Base salaries are reviewed annually considering the nature of the role and To provide a competitive responsibilities. Roles are benchmarked against relevant comparator organisations level of pay sufficient to in the public and private sectors. The Remuneration Committee also considers the attract and retain talent, external environment and views of the Shareholder. and reflecting the skills Any Executive Director salary increases in percentage terms will normally be in line and experience required with increases awarded to other colleagues but may be higher in certain for the role circumstances, such as where:

– there has been an increase in the scope or responsibility of an Executive Director’s role – a salary has fallen significantly below market positioning given the size and scale of the Bank. Long-Term Incentive Plan (LTIP) Objective Executive Directors and certain other senior colleagues are eligible to participate To reward colleagues in in a Long-Term Incentive Plan (LTIP). leadership roles for their The LTIP operates as a series of three-year cycles. Objectives are set at the personal performance beginning of each cycle and progress is reviewed by the Committee on an against objectives and annual basis. our values, as well as their shared accountability for Objectives are set in two categories: corporate and personal. The weighting the Bank’s sustained between these categories may be varied over time, at the discretion of the performance against its Committee, considering the requirements of the business and any relevant strategic goals external factors. For the LTIP cycle beginning April 2020, the weighting is 50% to corporate targets and 50% to personal targets. For earlier in-flight LTIP cycles, the weighting is 60% corporate and 40% personal targets.

Corporate targets cover rolling three-year periods and will generally be in line with the Bank’s business plan objectives. The current targets for the LTIP awards granted during the year and the threshold levels are set out in the Annual Report on Remuneration and have no specific weightings. Personal targets are designed to consider the specific responsibilities of individual senior leaders in the Bank.

92 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Table 1: Remuneration policy

Element Operation, opportunity and performance framework Long-Term Incentive Plan (LTIP) (continued) The current incentive is a maximum cash award of 50% of base salary. In the case of Executive Directors, awards are paid at the end of the relevant three-year cycle. In the case of other recipients of the LTIP, any awards in respect of personal objectives may be paid after two years and the corporate element after three years.

Recovery and withholding provisions apply for a period of seven years from the start of the performance period. The provisions apply in a range of adverse circumstances, at the Committee’s discretion, including financial accounts misstatement, significant failure of risk management, regulatory censure or breach of policy and procedures.

If a participant’s employment within the Group ends before an award is paid, the award opportunity is normally forfeit and lapses in full, although there are exceptions that may be agreed by the Committee for participants categorised as ‘good leavers’. The Remuneration Committee has ultimate discretion over the payment of any awards, taking into account factors it considers relevant including the overall performance of the Bank. Annual bonus Objective All permanent colleagues who are not members of the LTIP participate in the To reward colleagues British Business Bank Performance Bonus Plan. The plan provides an opportunity for their personal for eligible colleagues to be rewarded for their personal contribution during the performance against bonus year, as well as to participate in the Bank’s corporate success over the same objectives and our period. values, and to enable Bonus payments are made up of a personal and a corporate element, and are all colleagues to share calculated as follows: in the Bank’s success – The personal element reflects personal contribution during the year and is determined by the performance rating agreed as part of the year-end performance review – The corporate element is based on an assessment by the Board of the Bank’s achievement against its strategic objectives during the bonus year. This element represents a recognition of the commitment and effort that colleagues collectively have put into delivering the Bank’s objectives – Individual award levels are calculated by reference to salary and vary according to seniority. Colleagues must have worked for at least three months of the bonus year.

British Business Bank british-business-bank.co.uk 93 Directors’ remuneration report Annual Report and Accounts 2020

Table 1: Remuneration policy (continued)

Element Operation, opportunity and performance framework Pension and other benefits Objective The Bank contributes up to a maximum 15% of base salary to its defined To provide a range of contribution scheme or an approved personal pension scheme, subject to a flexible and market minimum colleague contribution of 3%. The CEO receives a cash-in-lieu allowance competitive benefits that of 10%. Any other colleague below Executive Director level who has reached his or are valued and support her pension Lifetime Allowance may also receive a cash-in-lieu allowance of 10%. colleague wellbeing All colleagues benefit from health and wellbeing support through a healthcare cash To encourage planning for plan, income protection and an employee assistance programme. Colleagues are retirement and long-term able to buy or sell up to five days’ holiday, and can select from a range of benefits savings including childcare vouchers and cycle to work through the Bank’s ‘mylifestyle’ flexible benefits portal.

Benefits are reviewed annually to ensure they remain appropriate in light of the Bank’s public ownership and competitiveness in relation to the market. Loss of office payments Objective The Bank does not offer any terms other than, where applicable, statutory To provide fair but not redundancy for loss of office within service contracts. Executive Directors and excessive contract the senior team are on six months’ notice either side. Provision may be made for features payment in lieu of notice, where this is deemed to be in the interest of the business. Any situation will be considered by the Committee on its merits.

Should an individual be considered a ‘good leaver’ under the LTIP rules, an appropriate portion of their LTIPs may, at the discretion of the Remuneration Committee, be retained. All termination payments are subject to Cabinet Office Guidance. New Executive Director remuneration Objective Remuneration for any new appointments is determined in accordance with the To attract and retain policy set out in this table. The same approach will be taken with respect to any high-calibre senior internal appointments. The Bank does not offer any sign-on payments. leaders

94 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Table 2: Scenarios chart: ranges for Executive Director remuneration

The following chart shows how £000 Executives’ remuneration could vary according to performance 500 and assumes that the Directors are 31% 31% employed by the Bank for a whole 25% 25% financial year. The variable pay 400 element is measured over a three- year period and is paid out after the end of the third year, subject 31% 100% 75% 69% 100% 75% 69% to continued employment or good 300 25% leaver status.

Notes 100% 75% 69% 1. Minimum = fixed pay only (salary and 200 current cost of benefits and pension). 2. T arget = fixed pay and 75% vesting of the LTIP. 100 3. Maximum = fixed pay and 100% vesting of the LTIP. 4. K eith Morgan stood down as CEO on 31 August, and Catherine Lewis La Torre 0 took over as Interim CEO with effect Minimum Target Maximum Minimum Target Maximum Minimum Target Maximum from 1 September 2020. The illustrations Keith Morgan Patrick Magee Catherine Lewis La Torre here show their remuneration on an annualised basis. Fixed pay Variable pay

The fee levels paid to Non- External appointments Non-executive Directors executive Directors reflect the time Executive Directors may be The Chair and the Non-executive commitment and responsibilities invited to become Non-executive Directors do not have service and are approved by the Directors in other companies. agreements with the Bank. Non- Shareholder. These appointments can enhance executive Directors are appointed The Board reviews the amount of their knowledge and experience under letters of appointment which each component of the fees on a to the benefit of the Bank. It is the provide for an initial term of service periodic basis to assess whether Bank’s policy that Board approval of three years. The appointment of they remain competitive and is required before any external a Non-executive Director can be appropriate in light of changes appointment may be accepted by terminated, by either party, giving in roles, responsibilities or time an Executive Director. The Bank’s written notice. Any increases in commitment of the Non-executive policy on whether Executive fees are subject to Shareholder Directors. In accordance with Directors are permitted to retain approval. There is no provision for common practice, Non-executive any fees paid for such services is compensation for loss of office. Directors are reimbursed expenses currently under review. During the The current dates of appointment incurred in performing their role. year, Keith Morgan served as a for the Non-executive Directors Non-executive Director at UK are shown in the Directors’ report. Table 3 sets out the key elements Asset Resolution Ltd and received of the Bank’s remuneration policy a fee of £80,000. The terms and conditions of for the Chair and other Non- appointment of the Non-executive executive Directors. Directors are available for inspection at the Bank’s registered office.

British Business Bank british-business-bank.co.uk 95 Directors’ remuneration report Annual Report and Accounts 2020

Table 3: Remuneration policy for Non-executive Directors

Element Operation, opportunity and performance framework Basic fee – Chair Objective The Chair fee will be reviewed from time to time by the Remuneration Committee. Remuneration is in the form of an annual cash fee, in line with practice in the UK Basic fee – Non-executive Directors Objective Non-executive Director remuneration is reviewed annually by the Chair and the Remuneration is in the Executive Directors. Any recommendations are subject to Board approval, with form of an annual cash Non-executive Directors not voting on their own remuneration. Additional fees fee, in line with practice are paid to the Senior Independent Director and Chairs of the Audit, Risk and in the UK Remuneration Committees, in recognition of the additional time spent on their committee activities. This is in line with UK practice generally.

96 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Annual report on remuneration

This part of the report has been prepared in accordance with Part 3 of Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Amendment Regulations 2013.

Disclosures are also made in Although the Bank is not subject accordance with the Companies to the variable pay cap introduced Single Total Figure Act 2006. The Bank has complied under the European Union Capital of Remuneration with the regulations where it Requirements Directive, it does Details of the total remuneration believes it is appropriate to do so. comply with the cap. paid to Executive Directors for each of the years 2018/19 and 2019/20 are shown in separate tables below.

Table 4: Executive Director remuneration (audited) Year ended 31 March 2020 Pension Payments Taxable Long-term (including cash Salary Benefits incentive supplements) Total £000 £000 £000 £000 £000 Keith Morgan 304.4 0.0 85.2 30.4 420.0 Christopher Fox 235.0 0.7 61.7 0.0 297.4 Patrick Magee 213.8 0.7 73.5 21.4 309.4 Total 753.2 1.4 220.4 51.8 1,026.8

Year ended 31 March 2019 Pension Payments Taxable Long-term (including cash Salary Benefits incentive supplements) Total £000 £000 £000 £000 £000 Keith Morgan 299.0 0.0 116.6 29.9 445.5 Christopher Fox 224.4 0.7 79.8 0.0 304.9 Patrick Magee 210.0 0.7 78.8 21.0 310.4 Total 733.4 1.4 275.2 50.9 1,060.8

Notes 1. The Company has not made pension contributions for Keith Morgan but has instead paid a cash alternative to him. 2. T he Executive Directors receive death in service and illness income protection benefits which are non-taxable. 3. E xecutive Directors were not eligible for annual incentive payments in 2019/20. 4. Long-term incentive payments relate to fourth-cycle LTIP, applicable for the three years from 1 April 2017 to 31 March 2020. 5. C hristopher Fox received an additional payment of £6,588.98 in March 2020 in lieu of unused annual leave. This payment is included above under his salary for the year. See also p103, where payments in connection with the termination of Christopher Fox’s employment are listed.

British Business Bank british-business-bank.co.uk 97 Directors’ remuneration report Annual Report and Accounts 2020

corporate performance (60% The table below provides a Performance assessment of the total potential award) and breakdown of the Long-Term Awards under the third-cycle LTIP, personal performance (40% of Incentive Plan (LTIP) payments covering the period 2016/17 to the total potential award). included in the single total figure 2018/19, were paid in August 2019. of remuneration for the year Considering performance against ended 31 March 2020. The fourth-cycle LTIP matured KPIs (shown in table 6 opposite), on 31 March 2020, covering the the Remuneration Committee three-year period 1 April 2017 to has determined that a corporate 31 March 2020. Awards under performance pay-out of 65% of the scheme are based on both the maximum award is appropriate.

Table 5: Fourth-cycle LTIP awards made to Executive Directors

Potential Actual Award Performance Award £000 Awarded £000 Keith Morgan Max amount: £000 149.5

Personal performance Y1 29.9 90% 26.9 Personal performance Y2 29.9 0% 0.0 Corporate performance 89.7 65% 58.3 Total Award 149.5 85.2

Christopher Fox Max amount: £000 112.2

Personal performance Y1 22.4 80% 17.9 Personal performance Y2 22.4 0% 0.0 Corporate performance 67.3 65% 43.7 Total Award 112.1 61.7

Patrick Magee Max amount: £000 105.0

Personal performance Y1 21.0 75% 15.8 Personal performance Y2 21.0 80% 16.8 Corporate performance 63.0 65% 41.0 Total Award 105.0 73.5

Notes 1. Only the first two years of the fourth-cycle LTIP count towards personal performance for this cycle.

98 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

with the Board’s assessment of the Fourth-cycle LTIP: Bank’s performance against those assessment against corporate targets. This assessment formed performance measures the basis of the Remuneration Committee’s determination of the The table below sets out the corporate element of the fourth- targets for the three-year period cycle LTIP. ending 31 March 2020, together

Table 6: Original KPI targets, revised targets and actual outcomes (fourth-cycle LTIP corporate performance)

2019/20 target from new business plan Lower Objective KPI per Go Live Strategic Plan Actual threshold Stretch Challenge Increase supply 1. Up to £10bn stock of finance £17.09bn £8.3bn £10.4bn £11.4bn facilitated through our

programmes over 5 years – of which SME £7.97bn £6.2bn £7.8bn £8.6bn More diverse 2. Over 50% of our finance finance market facilitated through providers 92.8% 85% 90% 94% other than the four largest banks over 5 years Better provision 3. Balanced scorecard measure, of information showing an average of green Amber/ Amber Green (4) Green (6) across each year in the plan Green (2) (score in brackets) Manage 4. To earn greater than the taxpayers’ government’s medium-term resources cost of capital over the next 1.2% 2.3% 2.9% 3.2% efficiently 5 years measured by the 5 year gilt rate at the beginning of the plan

Notes 1. T he ‘Better provision of information’ objective is assessed annually against measures on a balanced scorecard, and a RAG status of Red, Amber or Green is assigned to each measure and the overall outcome. The scores in brackets after the ‘Lower threshold’, ‘Stretch’ and ‘Challenge’ targets represent the scores out of a maximum possible score of 8. The outcome shown in the ‘Actual’ column is the average RAG status and score for the three years of the fourth-cycle LTIP. 2. In reaching its decision on the overall Corporate Performance outcome for the fourth-cycle LTIP, the Remuneration Committee also considered aspects of the Bank’s performance during the cycle that are not reflected in the outcomes against the KPI targets. 3. T he targets in the table above represent the original targets approved by the Remuneration Committee and communicated to LTIP participants at the time. They differ from the LTIP Cycle 4 targets reported in the 2018 Annual Report and Accounts, which included proposed revisions at the time of going to print. These were not subsequently agreed, and the original LTIP targets therefore continued to apply. 4. T argets for LTIP Cycle 4 were set in 2017. Once set, targets for a given LTIP cycle are generally not changed. As such, there may be minor differences in some cases between the Cycle 4 LTIP targets and those set each year as part of the annual Business Planning process (which are reported on in earlier sections of the Strategic Report).

British Business Bank british-business-bank.co.uk 99 Directors’ remuneration report Annual Report and Accounts 2020

Keith Morgan Patrick Magee Fourth-cycle LTIP: assessment For 2017/18, the Committee For 2017/18, the Committee against personal performance assessed personal performance as assessed personal performance measures ahead of target and awarded 90%. as on-target and awarded 75%. For 2018/19, the Committee The personal element of the For 2018/19, the Chair, the fourth-cycle LTIP was assessed by concluded that Patrick’s personal Committee and Keith agreed that performance was ahead of target the Remuneration Committee a personal performance award against personal performance for and awarded 80%. For 2019/20 would not be made. For 2019/20 the Committee assessed personal the performance years 2017/18 and the Committee assessed personal 2018/19, as set out below. While performance as ‘exceeded performance as ‘exceeded objectives’ and awarded 90%. not assessed for fourth-cycle objectives’ and awarded 80%. LTIP, personal performance assessments for 2019/20 have Christopher Fox also been included below for In 2017/18, the Committee completeness. concluded that Christopher’s personal performance was ahead of target and awarded 80%. For 2018/19, the Committee agreed that no personal performance award would be made. For 2019/20, the Committee assessed personal performance as ‘on target’ and awarded 75%.

Table 7: Non-executive Director remuneration (audited) Total Fees Total Fees 2019/20 2018/19 £000 £000 Neeta Atkar (Senior Independent Director) 35.6 30.0 Jonathan Britton 30.0 30.0 Caroline Green 0.0 20.1 Piers Linney 25.0 25.0 Christina McComb 25.0 43.7 Dharmash Mistry 22.9 nil Amanda Rendle 30.0 26.2 Nathaniel Sloane 2.1 nil Ceri Smith nil nil Lord Smith (Chair) 120.0 120.0

Notes 1. Ceri Smith is the Shareholder Representative and therefore does not receive a fee. 2. C hristina McComb was Chair of the Remuneration Committee until 31 December 2018. Her second three-year term ended on 15 November 2019. 3. A manda Rendle replaced Christina McComb as Chair of the Remuneration Committee with effect from 1 January 2019. 4. N eeta Atkar replaced Christina McComb as Senior Independent Director with effect from 15 November 2019. 5. D harmash Mistry was appointed with effect from 1 May 2019. 6. N athaniel Sloane was appointed with effect from 1 March 2020. 7. Caroline Green resigned with effect from 19 January 2019.

100 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Non-executive Director Scheme interests awarded remuneration during the financial year Non-executive Directors receive Executive Directors and other remuneration in the form of a fee. senior colleagues are invited Details for each of the years to participate in a Long-Term 2018/19 and 2019/20 are shown Incentive Plan. The table below in table 7. shows interests awarded to Executive Directors during 2019/20. The base fee for Non-executive Awards are worth up to a maximum Directors is £25,000 and the base of 50% of salary. Any pay-outs fee for the Senior Independent are in the form of cash, and are Director is £40,000. Individuals subject to performance and other receive an allowance of £4,995 conditions. The personal element for chairing a committee. There of the award was assessed over the are no additional fees payable for 2019/20 performance year, and the individual committee membership. corporate element will be assessed over the three-year period ending 31 March 2022.

Table 8: Sixth-cycle LTIP awards to Executive Directors

Year ended 31 March 2020 Percentage of corporate Total face Total face Total face award for End of value value of value of Total reaching corporate Type of of award personal corporate face value threshold performance interest (% of salary) award award of award targets period Keith Morgan Cash LTIP 50% 60.9 91.3 152.2 50% 31 March 2022 Christopher Fox Cash LTIP 50% 45.7 68.5 114.2 50% 31 March 2022 Patrick Magee Cash LTIP 50% 42.8 64.1 106.9 50% 31 March 2022

British Business Bank british-business-bank.co.uk 101 Directors’ remuneration report Annual Report and Accounts 2020

Table 9: Group targets for the sixth-cycle LTIP (March 2022)

Lower Objective Key Performance Indicator threshold Stretch Challenge Increase supply Value (£bn) of stock of finance supported through £8.0bn £10.0bn £11.0bn the Bank’s programmes by end of March 2022. More diverse % of finance supported through smaller providers 85% 90% 94% finance market (non-‘Big Five’ banks) by end of March 2022. Encourage and Balanced scorecard measure, showing an average enable SMEs to of Green across each year in the plan. 2019/20 to seek the finance be measured against the following four elements: they need a) Prompted awareness of the Bank 20% 22% 24% b) Organic brand search (no. of sessions) 13,500 15,000 16,500 c) Net promoter score for Finance Hub 72% 79% 84% d) Were you able to find the information 67% 73% 78% you were looking for?

In addition, the Bank’s Demand Strategy is expected to be approved at the September 2019 Board meeting (this is a lower threshold condition) and relevant outcome measures to be defined, allowing a baseline to be established during H2 2018/19. Manage taxpayers’ Adjusted return on capital employed (excluding 1.5% 1.9% 2.5% resources efficiently temporary fair value discounts) by end of March 2022. Centre of Expertise Performance over 2019/20 will be measured Performance against these against a qualitative report provided by the KPIs will be assessed by the Executive which assesses performance against Remuneration Committee at the seven key deliverables and four broader areas of end of each financial year and work set out in the business plan. This will be aggregated over the three years reviewed by UKGI with input from relevant to give an overall score. stakeholders. The precise process underlying this review will be agreed with UKGI during 2019/20 which will then be applied to subsequent years. Regional Performance over 2019/20 will be measured against a qualitative report of regional activities provided by the Executive that includes comparison to the key milestones set out in the business plan. Key regional issues are expected to be identified by July 2019 and a regional strategy agreed by December 2019 (this is a lower threshold condition), including relevant measures of outcomes. Using these outcome measures, appropriate long-term targets will be set for future years.

Notes 1. T he sixth-cycle LTIP started on 1 April 2019, and will complete on 31 March 2022. 2. T he group targets for the sixth-cycle LTIP were set by the Remuneration Committee in June 2019. As noted on p10 and p37 of the Strategic Report, several of the Bank’s KPI targets were suspended during 2020/21, through the Board. The Remuneration Committee will consider the impact of this, if any, on LTIP targets as part of the Committee’s normal LTIP assessment process.

102 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

– Up to £1,500 + VAT in respect Payments to past Directors of the employee’s legal costs, Percentage changes in CEO/ colleague pay No payments to former directors paid directly by the Bank to the adviser were made during the year. The CEO received a salary – Subject to meeting his objectives increase of 1.8% with effect from April 2019. At the same time, a 1.8% Payments for loss of office for the year up to his termination date, and to the malus and general pay increase was awarded Christopher Fox’s role was re- clawback provisions of the to colleagues below Executive structured and as a result he LTIP, the Committee agreed Director, with individual increases ceased to be an employee with that Christopher Fox will be of up to 5% awarded to a effect from 31 March 2020. In line treated as a ‘good leaver’ in proportion of colleagues on a with the Bank’s policy on payments respect of his outstanding LTIP discretionary basis. Colleagues of for loss of office, he has received awards. His award under the Start Up Loans, who are subject or will receive the following fourth-cycle LTIP is disclosed to Civil Service Pay Guidance, also payments: above, and will be paid at the received a general pay increase same time as awards for other of 1.8%, backdated to 1 April 2019, – Termination payments of LTIP participants. In addition, with individual increases of up to £4,825, comprising a statutory he is eligible for awards under 3% awarded on a discretionary redundancy payment of £4,725 the fifth and sixth-cycle LTIP to basis. and a consideration of £100 in a maximum value of £101,981. respect of the employee’s The corporate element of his obligations under the terms of awards under the fifth and sixth termination of his employment LTIP cycles have been pro- – Reasonable cost of rated to reflect the portion of outplacement support incurred the respective performance within six months of the periods for which he was an termination of employment employee of the Bank, and the value shown above assumes that the maximum corporate award is paid for each of these cycles. Final pay-outs will be determined based on actual performance over the three-year period. Awards will be paid out on the normal payment dates.

British Business Bank british-business-bank.co.uk 103 Directors’ remuneration report Annual Report and Accounts 2020

Pay ratio of the CEO’s total remuneration compared to other colleagues The table and accompanying notes below set out, for the year ended 31 March 2020, the ratio between the CEO’s total single figure of remuneration and total remuneration for all colleagues at the lower quartile, median and upper quartile.

Year Method Lower quartile pay ratio Median pay ratio Upper quartile pay ratio 2020 Option A 10.1:1 6.4:1 4.4:1

Option A has been used to – Total employer pension The Remuneration Committee calculate the lower quartile, contribution (calculated as the believes that the ratio of median median and upper quartile total % in payment as at 1/1/20 and pay ratio of 6.4:1 is appropriate remuneration for all colleagues applied to FTE salary) and proportionate, striking a excluding the CEO. The elements balance between the Bank’s need of remuneration used for this – Taxable value of the private to recruit and retain staff who calculation were as follows: medical insurance benefit for might otherwise work in financial eligible colleagues. services, while at the same time – Full-time-equivalent (FTE) salary delivering value-for-money as a as at 1 January 2020 CEO total remuneration has been calculated by reference to the public sector body. – Total bonus awarded or total LTIP single total figure of remuneration awards payable in respect of the for the year ended 31 March 2020. year ended 31 March 2020

Relative importance of spend on pay No dividends have been paid by the Bank, so we have set out below the percentage of total net operating income represented by total remuneration compared to 2018/19, to illustrate the relative importance of spend on pay.

Year Total net operating income (£k) Total remuneration (£k) % 2019/20 81,787 30,743 38% 2018/19 106,424 27,765 26%

104 British Business Bank british-business-bank.co.uk Directors’ remuneration report Annual Report and Accounts 2020

Implementation of the Membership of the External advisers remuneration policy for Remuneration Committee The Remuneration Committee 2020/21 The Remuneration Committee used advisers during the year For 2020/21, the Remuneration comprises Amanda Rendle, for the provision of remuneration Committee has agreed that the Nathaniel Sloane and Ceri Smith advice. During the year Mercer weighting of corporate and (representing the Shareholder). provided advice to the Committee personal measures in the LTIP Amanda Rendle has been Chair on remuneration matters for a fee should be set as 50% corporate of the Committee since 1 January of £9,840. Aon McLagan provided and 50% personal, to provide 2019. Nathaniel Sloane was benchmarking data for fees of a more balanced emphasis appointed in March 2020. £59,760. Neither of these advisers between shared accountability Christina McComb was a have any connection with the Bank. for corporate goals and individual member of the Committee until responsibility for delivering against she resigned from the Board in personal goals. November 2019. Lord Smith was appointed as an interim member In addition, the Committee agreed of the Committee for the period to increase the maximum employer November 2019 – February 2020. pension contribution for its most junior colleagues to the same The Committee members bring level (15%) as all other colleagues. with them a range of expertise The Committee also agreed two from diverse backgrounds changes designed to enhance designed both to support the Bank colleague health and wellbeing, in its governance framework and to specifically the introduction of a facilitate the relationship with the healthcare cash plan as a new core Shareholder. Informal discussion benefit, and the reopening of its between Committee members and group income protection plan to the Executive has also added value all colleagues. All changes will to the Bank’s remuneration policy take effect during the 2020/21 and practice. Only members of the financial year. Committee and the Chair of the Board have the right to attend In the context of the wider Committee meetings. economic uncertainty brought about by the Covid-19 crisis, no The Chief Executive, the Chief member of the Bank’s Executive Financial Officer, the General Committee has received a salary Counsel and Company Secretary, increase in the 2020 annual salary and the Chief People Officer have review process. been invited to join meetings, but not where their own remuneration is the subject of discussion. The Company Secretary or her delegate acts as Secretary to the Committee.

British Business Bank british-business-bank.co.uk 105 Directors’ responsibilities Annual Report and Accounts 2020

Directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

In accordance with UK Company – make an assessment of the give a true and fair view of Law, the Directors have elected to Company’s ability to continue the assets, liabilities, financial prepare both the Group financial as a going concern. position and profit or loss of the statements and the parent Company and the undertakings Company financial statements The Directors are responsible included in the consolidation under International Financial for keeping adequate accounting taken as a whole Reporting Standards (IFRS) as records that are sufficient to adopted by the European Union. show and explain the Company’s – the strategic report includes a transactions and disclose, with fair review of the development Under Company Law the Directors reasonable accuracy at any time, and performance of the business must not approve the financial the financial position of the and the position of the Company statements unless they are Company and enable them and the undertakings included satisfied that they give a true and to ensure that the financial in the consolidation taken fair view of the state of affairs of statements comply with the as a whole, together with a the company and group and of the Companies Act 2006. They are description of the principal risks profit or loss of the company and also responsible for safeguarding and uncertainties that they face group for that period. In preparing the assets of the Company and these financial statements, the hence for taking reasonable steps – the Annual Report and financial Companies Act 2006 requires for the prevention and detection statements, taken as a whole, are that Directors: of fraud and other irregularities. fair, balanced and understandable and provide the information – properly select and apply The Directors are responsible necessary for the shareholders accounting policies for the maintenance and integrity to assess the Company’s of the corporate and financial performance, business model – present information, including information included on the and strategy. accounting policies, in a manner Company’s website. Legislation in that provides relevant, reliable, the United Kingdom governing the By order of the Board comparable and understandable preparation and dissemination of information financial statements may differ – provide additional disclosures from legislation in other when compliance with the jurisdictions. specific requirements in IFRS Catherine Lewis La Torre We confirm that to the best of Chief Executive Officer are insufficient to enable users our knowledge: to understand the impact of 10 September 2020 particular transactions, other – the financial statements, events and conditions on the prepared in accordance with entity’s financial position and International Financial Reporting financial performance Standards as adopted by the EU, Phil Piers Chief Financial Officer 10 September 2020

106 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

Independent auditor’s report to the members of British Business Bank plc

The financial reporting framework Opinion on financial that has been applied in their statements preparation is applicable law and International Financial Reporting I have audited the financial Standards as adopted by the statements of British Business European Union and as applied in Bank plc group (BBB) for the year accordance with the provisions of ended 31 March 2020 which the Companies Act 2006. comprise: In my opinion the financial – the Consolidated Statement of statements: Comprehensive Net Income; – give a true and fair view of the – the Consolidated Statement of state of the group’s affairs as at Financial Position; 31 March 2020 and of the group’s – the Consolidated Statement of loss for the year then ended; Changes in Equity; – have been properly prepared in – the Consolidated Cash Flow accordance with International Statement; and Financial Reporting Standards as adopted by the European – the related notes, including the Union; and significant accounting policies. – have been prepared in accordance with the Companies Act 2006.

British Business Bank british-business-bank.co.uk 107 Independent auditor’s report Annual Report and Accounts 2020

– whether the directors’ statement Conclusions relating to relating to going concern Basis of opinion principal risks, going concern required under the Listing Rules I conducted my audit in and viability statement in accordance with Listing Rule accordance with International 9.8.6R(3) is materially I have nothing to report in respect Standards on Auditing (ISAs) (UK). inconsistent with my knowledge of the following information in the My responsibilities under those obtained in the audit; or annual report, in relation to which standards are further described the ISAs (UK) require me to report – the directors’ explanation in the in the Auditor’s responsibilities to you whether I have anything annual report as to how they for the audit of the financial material to add or draw attention to: have assessed the prospects of statements section of my report. the group, over what period they Those standards require me – the disclosures in the annual have done so and why they and my staff to comply with the report that describe the principal consider that period to be Financial Reporting Council’s risks and explain how they are appropriate, and their statement Revised Ethical Standard 2016. being managed or mitigated; as to whether they have a I am independent of the British Business Bank Plc group in – the directors’ confirmation in reasonable expectation that the group will be able to continue in accordance with the ethical the annual report that they have requirements that are relevant carried out a robust assessment operation and meet its liabilities as they fall due over the period of to my audit and the financial of the principal risks facing the statements in the UK. My staff group, including those that would their assessment, including any related disclosures drawing and I have fulfilled our other ethical threaten its business model, responsibilities in accordance with future performance, solvency attention to any necessary qualifications or assumptions. these requirements. I believe that or liquidity; the audit evidence I have obtained – the directors’ statement in the is sufficient and appropriate to financial statements about provide a basis for my opinion. whether the directors considered Emphasis of matter it appropriate to adopt the going concern basis of accounting I draw attention to the Impact in preparing the financial of Covid-19 on Investment statements and the directors’ Valuations section of note 13, identification of any material which summarises the potential uncertainties to the group’s macroeconomic consequences ability to continue to do so over a of the pandemic. This section period of at least twelve months describes the extent of estimation from the date of approval of the uncertainty in measuring the fair financial statements; value of investments as a result of the resulting volatility of financial markets at 31 March 2020. It also highlights the uncertainty in calculating the expected credit loss of the group’s financial assets held at amortised cost and the subjectivity of the associated considerations such as assessing the probability of default, loss- given default and in determining whether there has been a significant increase in credit risk. My opinion is not modified in this respect.

108 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

In this year’s report the following Overview of my audit changes to the risks identified have approach been made compared to my prior year report: Key audit matters Key audit matters are those – I have not identified a significant matters that, in my professional risk around the implementation judgment, were of most of a new finance system for the significance in my audit of the Start-Up Loans Company, as this financial statements of the current took place in the previous year. period and include the most significant assessed risks of – The focus of the significant risk material misstatement (whether or and key audit matter resulting not due to fraud) that I identified. from the implementation of IFRS 9 has remained on the complex I consider the following areas of considerations and high level of particular audit focus to be those management judgement required areas that had the greatest effect in the measurement of expected on my overall audit strategy, the credit loss allowances. I have not allocation of resources in my audit however identified a significant and directing the efforts of the risk or key audit matter around audit team in the current year. the significant requirements These matters were addressed in surrounding the classification the context of my audit of the of financial instruments. financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

This is not a complete list of all risks identified by my audit but only those areas that had the greatest effect on my overall audit strategy, allocation of resources and direction of effort. I have not included information relating to the work I have performed around management override of controls, other than to the extent where this was part of my work on the fair value measurement of financial assets as set out below; or fraud in revenue recognition, with specific regard to investment income, where my work has not identified any matters to report.

The areas of focus were discussed with the Audit Committee; their report on matters that they considered to be significant to the financial statements is set out on p75-77.

British Business Bank british-business-bank.co.uk 109 Independent auditor’s report Annual Report and Accounts 2020

Measurement of expected credit losses Description of risk The measurement of Expected Credit Losses BBB determine there to be a significant increase in (ECLs) is a highly subjective area due to the level of credit risk since initial recognition when accounts are judgement involved in determining assumptions used more than 30 days past due. As a result, a lifetime in the accounting estimate and as such is a key area of ECL is recognised against such assets in accordance focus and significant risk of material misstatement for with IFRS 9. the audit. The impairment allowance shown in the Consolidated Under IFRS 9, BBB investments that meet the Statement of Comprehensive Net Income for the Business Model and contractual cash flow criteria year ended 31 March 2020 is £42m. The increase of the standard are measured at amortised cost. compared to the prior year is due to model overlays Therefore, a loss allowance based on 12 month that reflect uncertainty in the outlook due to potential expected credit losses is recognised with movements economic implications of the Covid-19 pandemic. recognised in profit or loss. The impact of Covid-19 within the current year allowance is £29.7m. BBB’s ECL models were developed and built by an independent specialist analytics and risk management The Covid-19 pandemic has resulted in an increased firm. During the year, management, in conjunction level of estimation uncertainty in the provision, and with the independent developers, have made management have presented additional quantitative improvements to their existing ECL models and have and qualitative disclosure (note 13 (Impact of Covid-19 brought these in-house to form part of Business As on Investment Valuations)) regarding this estimation Usual (BAU). BBB use the models to calculate uncertainty in BBB’s financial statements. impairment provisions each quarter using underlying loan and investment data and assumptions.

The models incorporate forward-looking economic assumptions across five scenarios. These scenarios are derived from a forecast commissioned for May 2020 from an independent specialist analytics firm to reflect the expected economic impact of the Covid-19 pandemic. Additional overlays were made by management to reflect the underlying behaviours of the respective investment schemes.

110 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

Measurement of expected credit losses (continued) How the scope of my audit responded to the risk I have understood and evaluated the design and Key observations implementation of key controls, including the Based on the evidence I obtained I found that the governance in place, in relation to the measurement methodology, input data and assumptions used to of expected credit losses. calculate the ECLs were supported by appropriate evidence and were in line with the requirements I also performed the following procedures: of IFRS 9. – I assessed the design of the ECL models and assessed management’s rationale for the As a result of the uncertainty in the future economic assumptions and methods used to confirm outlook due to the Covid-19 pandemic there is that these would produce estimates which are increased estimation uncertainty in the measurement appropriate to the underlying financial instruments of loss allowances. The financial statements and compliant with the requirements of IFRS 9. (note 13 (Impact of Covid-19 on Investment Valuations)) describe the additional uncertainty in – I obtained assurance over the completeness and the measurement of the ECL, which I am content accuracy of the input data used in the ECL models is adequately disclosed, however, I have included by testing a sample of loan balances and verifying an emphasis of matter paragraph above to draw investment data against underlying contractual attention to this estimation uncertainty. documentation and other information. – I reviewed the reasonableness of key assumptions, including comparison of economic assumptions to relevant publicly available information and to the scenarios provided by BBB’s independent risk specialists. I assessed the specialists as management’s experts under ISA 500 using economics specialist members of my team. – I reviewed the sensitivity analysis undertaken by management to identify the most sensitive assumptions used in the model to focus our testing, and to evaluate how management had addressed estimation uncertainty in making the accounting estimate. I evaluated the reasonableness of those assumptions and performed additional sensitivity analysis. – I tested significant post-model adjustments to confirm that the management judgements made in determining the need for these was appropriate and that the adjustments had been calculated using appropriate and supportable assumptions.

British Business Bank british-business-bank.co.uk 111 Independent auditor’s report Annual Report and Accounts 2020

Fair value measurement of financial instruments Description of risk The most significant balance in the financial The investments held in SulCo are loans to statements of the British Business Bank plc group is entrepreneurs provided on non-commercial terms investments. The majority of these investments are and losses of 30% to 40% are expected across the measured at fair value based on valuation techniques scheme. As required by IFRS 9, SulCo recognises its including inputs not based on observable market loans at fair value on inception and subsequently data. The investments are held in the significant measures these at amortised cost. The level of write components British Business Finance Limited (BBFL), down required to account for these non-commercial British Business Investments Limited (BBI), British terms is highly material and is subject to a significant Patient Capital Limited (BPC) and the Start-up Loans estimate based on management’s judgement, which is Company (SulCo). derived from a number of non-observable inputs.

The valuation of Enterprise Capital Fund (ECF) Financial assets held at fair value amount to £1,505m investments held in BBFL are determined by at 31 March 2020 (£1,248m at 1 April 2019). The management using models, based on inputs and increase in fair value is primarily due to an increase in assumptions, and are therefore subject to a degree investment balances and activity, which is reflective of of management judgement and estimate. the ongoing growth of the business. The Covid-19 pandemic and resulting disruption in financial markets The investments held in BBI and BPC are in funds has increased the level of estimation uncertainty in valued by fund managers who are independent of the fair value at the reporting date as set in note 13 management so the level of management judgement (Impact of Covid-19 on Investment Valuations). or estimate is limited. The greatest level of estimation uncertainty for these funds is within the equity investment funds in the Venture/Growth and UKIIF programmes which are valued at £467m, which is approximately 23% of the investments held by the group.

112 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

Fair value measurement of financial instruments (continued) How the scope of my audit responded to the risk In auditing the financial asset valuations I have – I have assessed the accuracy and completeness performed the following procedures: of the review for potential impairments that management have performed in relation to their – I have tested the operating effectiveness of the loans and investments. controls applied by British Business Bank plc over the valuation processes for financial assets. This – I have undertaken a review of a sample of loans and included attendance at key internal meetings where investments and considered whether management’s I observed management’s review and challenge of judgements on appropriate accounting treatments valuations provided by fund managers. Where are consistent with the relevant accounting valuations are produced through models, I have standards and the underlying substance and form tested the design and implementation of controls of legal agreements. over the fair value model used. Key observations – Where management relies on valuations provided Based on the evidence I obtained I found that the by fund managers to estimate the value of its valuations provided by fund managers were IFRS 13 investments, I have considered the governance compliant values. arrangements in place and process undertaken by management to review and challenge the valuations Where the fair values were outputs from models I prior to their inclusion in the accounts. I have found that these outputs, and the underlying models’ performed detailed procedures to enable me to design, were in line with the requirements of IFRS 13. gain assurance from the work of the fund managers. As a result of the volatility of financial markets at This has included comparison of the most recent 31 March 2020 due to the Covid-19 pandemic audited accounts of the fund against the fund there is increased estimation uncertainty in the manager valuation report for the same period and measurement of fair value, especially for investments consideration of additional evidence where the held in externally managed debt and equity funds. accounting period of the fund and BBB are not The financial statements (note 13 (Impact of Covid-19 coterminous. I considered the overall competence, on Investment Valuations)) disclose the additional capability and objectivity of the fund managers, as uncertainty in these fair values which I am content well as the scope of their work and its relevance to is adequately disclosed, however, I have included the accounts and my opinion. an emphasis of matter paragraph above to draw – Where management uses models to estimate the attention to this estimation uncertainty. value of its loans and investments, I considered the design of the valuation models, the validity of the data inputs to those models, and the appropriateness of the key assumptions on which the models were based. For the ECF valuation model I sought confirmation that management had reassessed the assumptions made in the prior year which underpin the valuation model to confirm that they remain appropriate at year end and challenged management on how it has addressed estimation uncertainty. For the SulCo model I used auditors’ experts to support my assessment of the key assumptions used, and obtained assurance over the completeness and accuracy of the input data used in the model by testing a sample of loan balances.

British Business Bank british-business-bank.co.uk 113 Independent auditor’s report Annual Report and Accounts 2020

As well as quantitative materiality Application of materiality there are certain matters that, Responsibilities of the Directors for the financial I applied the concept of materiality by their very nature, would if not in both planning and performing corrected influence the decisions statements of users. Assessment of such my audit, and in evaluating the As explained more fully in the matters would need to have regard effect of misstatements on my Directors’ Responsibilities to the nature of the misstatement audit and on the financial Statement, the directors are and the applicable legal and statements. This approach responsible for: recognises that financial reporting framework, as well as statements are rarely absolutely the size of the misstatement. – the preparation of the group financial statements and for correct, and that an audit is I agreed with the Audit Committee being satisfied that they give designed to provide reasonable, that I would report to it all a true and fair view; rather than absolute, assurance uncorrected misstatements that the financial statements are identified through my audit in free from material misstatement. – such internal control as excess of £300,000, as well as management determines is A matter is material if its omission differences below this threshold or misstatement would, in the necessary to enable the that in my view warranted preparation of financial judgement of the auditor, reporting on qualitative grounds. reasonably influence the decisions statements that are free from material misstatement, whether of users of the financial Total unadjusted audit due to fraud or error; statements. differences reported to the Audit Committee have decreased net – assessing the group’s ability to Based on my professional assets by £3.3m. judgement, I determined overall continue as a going concern, materiality for the group’s financial disclosing, if applicable, matters statements at £18.9m, which is relating to going concern and approximately 1% of net using the going concern basis of investment assets. BBB develops accounting unless the directors and manages finance programmes either intend to liquidate the designed to enhance the working group or to cease operations, or of finance markets which it delivers have no realistic alternative but through investments in partner to do so. organisations. I therefore chose net investment assets as the benchmark because I consider it to be the principal consideration for users in assessing the financial performance of the group. I determined that this was more appropriate than using revenue or net profit as a benchmark as these are not the main drivers of the decision making within the business. I have revised my materiality basis from total assets in the prior year, as net investment assets more accurately represent the core activities of the group.

114 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

As part of an audit in accordance – obtain sufficient appropriate Auditor’s responsibilities with ISAs (UK), I exercise audit evidence regarding the for the audit of the financial professional judgment and financial information of the statements maintain professional scepticism entities or business activities throughout the audit. I also: within the group to express an My responsibility is to audit and opinion on the consolidated express an opinion on the financial – identify and assess the risks of financial statements. I am statements in accordance with material misstatement of the responsible for the direction, applicable law and International financial statements, whether supervision and performance of Standards on Auditing (ISAs) (UK). due to fraud or error, design the group audit. I remain solely and perform audit procedures An audit involves obtaining responsible for my audit opinion. responsive to those risks, and evidence about the amounts and obtain audit evidence that is I communicate with those charged disclosures in the financial sufficient and appropriate to with governance regarding, among statements sufficient to give provide a basis for my opinion. other matters, the planned scope reasonable assurance that the The risk of not detecting a and timing of the audit and financial statements are free from material misstatement resulting significant audit findings, including material misstatement, whether from fraud is higher than for one any significant deficiencies in caused by fraud or error. resulting from error, as fraud internal control that I identify Reasonable assurance is a high may involve collusion, forgery, during my audit. level of assurance, but is not a intentional omissions, guarantee that an audit conducted misrepresentations, or the I also provide those charged with in accordance with ISAs (UK) override of internal control. governance with a statement that will always detect a material I have complied with relevant misstatement when it exists. – obtain an understanding of ethical requirements regarding Misstatements can arise from internal control relevant to the independence, and to fraud or error and are considered audit in order to design audit communicate with them all material if, individually or in the procedures that are appropriate relationships and other matters aggregate, they could reasonably in the circumstances, but not for that may reasonably be thought be expected to influence the the purpose of expressing an to bear on my independence, economic decisions of users taken opinion on the effectiveness of and where applicable, related on the basis of these financial the group’s internal control. safeguards. statements. – evaluate the appropriateness of From the matters communicated accounting policies used and the with those charged with reasonableness of accounting governance, I determine those estimates and related disclosures matters that were of most made by management. significance in the audit of the financial statements of the current – evaluate the overall presentation, period and are therefore the key structure and content of the audit matters. I describe these financial statements, including matters in my auditor’s report the disclosures, and whether the unless law or regulation precludes consolidated financial public disclosure about the matter statements represent the or when, in extremely rare underlying transactions and circumstances, I determine events in a manner that achieves that a matter should not be fair presentation. communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

British Business Bank british-business-bank.co.uk 115 Independent auditor’s report Annual Report and Accounts 2020

This work, together with additional information and, in doing so, Audit scope procedures performed on consider whether the other The scope of my audit of the balances arising as a result of the information is materially British Business Bank plc group group’s consolidation process, gave inconsistent with the financial was determined by obtaining an me the evidence I needed for my statements or my knowledge understanding of the group and its opinion on the group financial obtained in the audit or otherwise environment, including group-wide statements as a whole. The appears to be materially misstated. controls, and assessing the risks of significant components of the If, based on the work I have material misstatement at the group account for over 99% of the performed, I conclude that there group level. group’s assets. Together with the is a material misstatement of this procedures performed at group other information, I am required The group comprises British level this gave me the evidence to report that fact. I have nothing Business Bank plc, BBB Patient I needed for my opinion on the to report in this regard. Capital Holdings Limited, British group financial statements as Business Financial Services a whole. I am specifically required to Limited, British Business Finance address the following items and Limited and the subsidiaries of Total assets of individual to report uncorrected material these companies: British Business components of the BBB plc group misstatements in the other Investments Limited, British Patient (as at 31 March 2020) information, where I conclude Capital Limited, The Start-Up that those items meet the Loans Company, British Business 5% following conditions: 11% 21% Aspire Holdco Limited, Capital – Fair, balanced and for Enterprise Limited, Capital for understandable: the statement Enterprise Fund Managers Limited 12% given by the directors that the and Capital for Enterprise (GP) annual report and accounts taken Limited. The group financial as a whole are fair, balanced and statements are a consolidation understandable and provide the of these companies. necessary information to enable 51% I identified the following as users to assess the entity’s performance, business model significant components of the BBB PLC BBI BPC and strategy, is materially group: British Business Bank plc, BBFL SulCo British Business Investments inconsistent with my knowledge Limited, British Patient Capital obtained in the audit; or Limited, British Business Finance Other Information – Audit Committee reporting: the Limited and Start-Up Loans section describing the work of Company (a subsidiary of British Directors are responsible for the other information. The other the group Audit Committee Business Finance Limited). British does not appropriately address Business Investments Limited and information comprises information included in the annual report, but matters communicated by me British Patient Capital Limited to the Audit Committee. require statutory audits and the does not include the parts of the Directors’ Remuneration Report work in this respect is carried I also have nothing to report in described in that report as having out separately. The work on the this regard. other significant components is been audited, and the financial performed by the group audit statements and my auditor’s engagement team. report thereon. My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon. In connection with my audit of the financial statements, my responsibility is to read the other

116 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

Based on my knowledge and Opinion on other understanding of the group and its Other matter matters prescribed by environment obtained during the I have reported separately, on the Companies Act course of the audit, I have p177-179, on the Parent Company identified no material Financial Statements of British The strategic and directors’ misstatements in this information. reports Business Bank plc for the year ended 31 March 2020 and on the In my opinion, based on the work information in the Directors’ undertaken in the course of the Matters on which I report by Remuneration Report that is audit, the information given in the exception described as having been audited. Strategic and Directors’ Reports for the financial year for which the Adequacy of accounting records information and explanations financial statements are prepared Hilary Lower is consistent with the financial received Senior Statutory Auditor statements and those reports have I report to you if, in my opinion: 10 September 2020 been prepared in accordance with – adequate accounting records applicable legal requirements. For and on behalf of the have not been kept, or returns Comptroller and Auditor General In light of the knowledge and adequate for my audit have not (Statutory Auditor) understanding of the group and the been received from branches not company and its environment visited by my staff; National Audit Office obtained in the course of the audit, 157-197 Buckingham Palace Road – the financial statements are not I have not identified any material London SW1W 9SP in agreement with the accounting misstatements in the Strategic records and returns; or Report or the Directors’ Report. – I have not received all of the The corporate governance information and explanations I statement require for my audit; or In my opinion, based on the work undertaken in the course – a corporate governance of the audit: statement has not been prepared by the parent company. – the information given in the corporate governance statement, I have nothing to report arising in compliance with rules 7.2.5 from this duty. and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by Financial Conduct Authority (the FCA Rules), in respect of internal control and risk management systems in relation to financial reporting processes, and about share capital structures, is consistent with the accounts and has been prepared in accordance with applicable legal requirements.

British Business Bank british-business-bank.co.uk 117 Consolidated financial statements Annual Report and Accounts 2020

Consolidated financial statements Consolidated statement of comprehensive net income For the year ended 31 March 2020 2020 2019 Note £000 £000 Income Interest income 4.1 51,535 43,437 Grant income 4.2 16,685 17,4 61 Management fee income 4.3 19,296 20,575 Other income 4.4 1,472 1,837 Gross operating income 88,988 83,310 Expected credit loss on amortised cost assets 13.1 (42,012) (12,846) Net gains/(losses) on investment assets 5 (2,971) 28,669 Net gain on write down of repayable capital grant 6 37,782 7,291 Net operating income 81,787 106,424

Expenditure Staff costs 7.1 (30,743) (27,765) Other operating expenditure 7.2 (32,354) (34,775) Depreciation and amortisation 7.3 (3,114) (1,443) Operating expenditure (66,211) (63,983) Net operating profit before ECF loan commitment financial liability, interest payable and finance costs 15,576 42,441 ECF loan commitment financial liability Provided in the year on new commitments 19 (44,941) - Released in the year 19 38,654 44,364 Finance costs 15 (314) - Interest payable 20 (11,113) (5,552) Profit/(loss) before tax (2,138) 81,253 Tax 8.1 (6,594) (9,933) Profit/(loss) for the year after tax (8,732) 71,320

Other comprehensive income - - Total comprehensive income for the year (8,732) 71,320

All operations are continuing.

The notes on p122-176 form an integral part of the financial statements.

The results by operating segment are shown in note 9 to the financial statements.

118 British Business Bank british-business-bank.co.uk Consolidated financial statements Annual Report and Accounts 2020

Consolidated statement of financial position As at 31 March 2020 2020 2019 Note £000 £000 Assets Cash and cash equivalents 10 63,705 152,117 Amounts owed by Shareholder 11 240,400 525,000 Trade and other receivables 12 9,837 9,746 Amortised cost investments 13.1 471,993 431,126 Investments held at fair value through profit or loss 13.2 1,505,522 1,248,184 Assets held for sale 13.2 - 40,610 Property, plant and equipment 14 2,596 3,708 Right-of-use assets 15 10,669 - Intangible assets 16 778 1,358 Corporation tax receivable 8.2 5,499 - Deferred tax asset 8.3 9,293 8,894 Total assets 2,320,292 2,420,743

Liabilities Trade and other payables 17 (21,151) (18,149) Corporation Tax payable 8.2 - (3,936) Provisions 18 (300) (300) ECF loan commitment financial liability 19 (145,664) (139,377) Loans and other borrowings 20 (601,078) (711,285) Lease liabilities 21 (12,867) - Total liabilities (781,060) (873,047) Net assets 1,539,232 1,547,696

Equity Issued share capital 24.2 1,496,408 1,496,408 Retained earnings 42,824 51,288 Total equity 1,539,232 1,547,696

The financial statements of the Group (parent company number 08616013) were approved by the Board of Directors and authorised for issue on 10 September 2020. They were signed on its behalf by:

Catherine Lewis La Torre Chief Executive Officer

The notes on p122-176 form an integral part of the financial statements.

British Business Bank british-business-bank.co.uk 119 Consolidated financial statements Annual Report and Accounts 2020

Consolidated statement of changes in equity As at 31 March 2020 Financial Issued instrument Retained capital reserve earnings Total Note £000 £000 £000 £000 Balance as at 1 April 2019 1,496,408 - 51,288 1,547,696 Other opening adjustments * - - 1,355 1,355 Adjustment due to IFRS 16 † - - (1,087) (1,087) Balance under IFRS 16 as at 1 April 2019 1,496,408 - 51,556 1,547,964 Net income after tax - - (8,732) (8,732) Total comprehensive income - - (8,732) (8,732) Issue of ordinary shares 24.2 - - - - Balance at 31 March 2020 1,496,408 - 42,824 1,539,232

Balance as at 1 April 2018 1,371,408 - (20,032) 1,351,376 Net income after tax - - 71,320 71,320 Total comprehensive income - - 71,320 71,320 Issue of ordinary shares 24.2 125,000 - - 125,000 Balance at 31 March 2019 1,496,408 - 51,288 1,547,696

* O ther opening adjustments relate to the impact of reversing the rent-free provision, previously recognised under IAS17 on two of the three leases. Under IAS 17 the rent-free provision would have been spread over the life of the leases and unwound as rent charges commenced.

† T he application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. It resulted in a decrease in ‘Other expenses’ and an increase in depreciation and interest expense.

120 British Business Bank british-business-bank.co.uk Consolidated financial statements Annual Report and Accounts 2020

Consolidated cash flow statement As at 31 March 2020 2020 2019 Note £000 £000 Profit before tax (2,138) 81,253

Cashflows from operating activities Adjustments for non-cash items: Net gain on write down of repayable capital grant 6 (37,782) ( 7,291) Depreciation and amortisation 3,114 1,443 Interest payable 11,113 5,552 ECF loan commitment financial liability/provision 19 6,287 (44,364) Other provision expense 18 - 180 Changes in operating assets and liabilities: Net increase in amortised cost investments 13.1 (40,867) (2,573) Net increase in assets at fair value through profit or loss 13.2 (216,728) (123,755) Increase in trade and other receivables 12 (91) (3,964) Increase in trade and other payables 4,351 4,431 Payment of Corporation Tax 8.2 (16,490) (22,291) Payment of interest payable (3,932) (1,288) Net cash used in operating activities (293,163) (112,667)

Cashflows from investing activities Purchases of property, plant and equipment 14 (72) (2,814) Purchase of intangible assets - (143) Net cash used in investing activities (72) (2,957)

Cashflows from financing activities Issue of new shares 24.2 - 125,000 Capital grants received 20 - 4,100 Payments of lease liabilities 15 (491) - Finance charge 15 314 - Net (increase)/decrease in amounts owed by shareholder 11 284,600 (525,000) Net increase/(decrease) in loans from Nuclear Liabilities Fund 20 (79,600) 600,000 Net cash from financing activities 204,823 204,100

Net (decrease)/increase in cash and cash equivalents (88,412) 88,476

Cash and cash equivalents at beginning of the year 152,117 63,641 Cash and cash equivalents at end of the year 63,705 152,117

Interest received was £84.1m (2019: £68.2m).

The notes on p122-176 form an integral part of the financial statements.

British Business Bank british-business-bank.co.uk 121 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Notes to the consolidated financial statements For the year ended 31 March 2020

revalued amounts at the end of Determining whether a Company 1. General information each reporting period. Historical has control of an entity is generally The British Business Bank plc cost is generally based on the fair straightforward based on (the ‘Company’ or ‘Group’) is value of the consideration given in ownership of the majority of the incorporated in the United exchange for goods and services. voting capital. However, in certain Kingdom under the Companies The principal accounting policies instances, this determination will Act. The address of the registered adopted are set out, below. involve judgement, particularly in the case of structured entities office is Steel City House, West These financial statements are Street, Sheffield, S1 2GQ. The where voting rights are often not presented in pounds sterling the determining factor in decisions nature of the British Business because that is the currency of Bank Group’s operations and its over relevant activities. This the primary economic zone in judgment may involve assessing principal activities are set out in the which the Group operates. Strategic Report on p8-59. the purpose and design of the Basis of consolidation entity. 2. Significant accounting The consolidated financial Consolidation of a subsidiary statements incorporate the policies begins when the Company obtains financial statements of the control over the subsidiary and Basis of preparation Company and entities controlled ceases when the Company by the Company (its subsidiaries) The financial statements have loses control of the subsidiary. made up to 31 March 2020. been prepared in accordance with Specifically, the results of Control is achieved when the International Financial Reporting subsidiaries acquired or disposed Company: Standards (IFRS) as adopted of during the year are included in the Consolidated Statement by the European Union (EU), – has the power over the investee interpretations issued by the IFRS of Comprehensive Net Income Interpretations Committee and – is exposed, or has rights, from the date the Company gains those parts of the Companies Act to variable returns from its control until the date when the 2006 applicable to companies involvement with the investee Company ceases to control the reporting under IFRS. The subsidiary. – has the ability to use its power financial statements are prepared to affect its returns. Where necessary, adjustments are in accordance with IFRS and made to the financial statements of interpretations in force at the The Company reassesses whether subsidiaries to bring the accounting reporting date. or not it controls an investee if policies used into line with the facts and circumstances indicate The financial statements have Group’s accounting policies. that there are changes to one or been prepared on the historical more of the three elements of All intragroup assets and liabilities, cost basis, except for certain control listed above. equity, income, expenses and financial assets and liabilities cashflows relating to transactions that are measured at amortised between the members of cost and financial instruments the Group are eliminated on that are measured at fair value or consolidation.

122 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Profit or loss and each component At inception of a contract, At inception or on reassessment of other comprehensive income the Group assesses whether a of a contract that contains a lease are attributed in full to the owners contract is, or contains, a lease. component, the Group allocated of the Company in the absence A contract is, or contains, a lease the consideration in the contract of non-controlling interests. Total if the contract conveys the right to each lease component on the comprehensive income of the to control the use of an identified basis of their relative stand-alone subsidiaries is also attributed in asset for a period of time in prices. However, for the leases of full to the owners of the Company exchange for consideration. To land and buildings in which it is a in the absence of non-controlling assess whether a contract conveys lessee, the Group has elected not interests. the right to control the use of to separate non-lease components an identified asset, the Group and account for the lease and non- Going concern assesses whether: lease components as a single lease The Directors have a reasonable component. expectation that the Company – the contract involved the use of and the Group have adequate an identified asset – this may be On transition to IFRS 16, the resources to continue in specified explicitly or implicitly, weighted average incremental operational existence for the and should be physically distinct borrowing rate applied to lease foreseeable future. The Group has or represent substantially all liabilities recognised under IFRS 16 received a letter of support from of the capacity of a physically was 2.525%. the Secretary of State for BEIS distinct asset. If the supplier has There were no other new or stating it will provide sufficient a substantive substitution right, amended standards applied for funding to enable the Group to the asset is not identified the first time and therefore no meet its liabilities as and when – the Group has the right to obtain restatements of the previous they fall due for a period of not substantially all of the economic financial statements were required. less than 12 months from the date benefits from use of the asset of approval of these financial throughout the period of use At the date of authorisation of these statements. Thus, the Directors financial statements, the following continue to adopt the going – the Group has the right to direct Standards and Interpretations concern basis of accounting in the use of the asset. The Group which have not been applied in preparing the financial statements. has this right when it has the these financial statements, were decision-making rights that are in issue but not yet effective (and Adoption of new and revised most relevant to changing how in some cases had not yet been standards and for what purpose the asset adopted by the EU): Leases is used. In rare cases where The Group has applied IFRS 16 the decision about how and for – IFRS 17 Insurance Contracts using the modified retrospective what purpose the asset is used – IAS 1 (amendments) Presentation approach, with the cumulative is predetermined, the Group has of Financial Statements effect of adopting IFRS 16 the right to direct the use of the being recognised in equity as asset if either: – Amendments to IFRS 3, ‘Business an adjustment to the opening combinations’, definition of a balance of retained earnings for – the Group has the right to business the current period and therefore, operate the asset the comparative information has – Amendments to the Conceptual – the Group designed the asset framework. not been restated and continues in a way that predetermines to be reported under IAS 17 and how and for what purpose it The Directors do not expect that IFRIC 4. The details of accounting will be used. the adoption of the Standards policies under IAS 17 and IFRIC 4 and Interpretations listed above are disclosed separately if they are This policy is applied to all will have a material impact on the different from those under IFRS contracts in existence as at financial statements of the Group 16 and the impact of changes is 1 January 2019 in addition to in future years. disclosed in note 15. contracts entered into, or changed, on or after 1 January 2019.

British Business Bank british-business-bank.co.uk 123 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Income recognition – liability. The calculation does not Deferred tax is the tax expected management income and other consider expected credit losses to be payable or recoverable on income and includes transaction costs, differences between the carrying Following the adoption of IFRS and premiums or discounts that amounts of assets and liabilities 15 ‘Revenue from contracts with are integral to the effective interest in the financial statements and customers’, income is recognised rate, such as origination fees. the corresponding tax bases used when a recipient obtains control of in the computation of taxable When the Group revises the a good or service and thus has the profit and is accounted for estimates of future cashflows, the ability to direct the use and obtain using the balance sheet liability carrying amount of the respective benefits from the goods or service. method. Deferred tax liabilities financial asset or financial liability Management fee income and are generally recognised for all is adjusted to reflect the new Other income are recognised taxable temporary differences and estimate discounted using the when a recipient obtains control deferred tax assets are recognised original effective interest rate. of the service. to the extent that it is probable Any changes are recognised in that taxable profits in future years Income is measured at the fair the Consolidated Statement of will be available against which value of the consideration received Comprehensive Net Income. deductible temporary differences or receivable and represents Grant income can be utilised. amounts receivable for goods and services provided in the Grant income is recognised under Current and deferred tax are normal course of business, net of IAS 20 and relates to a Resource recognised in the Consolidated discounts, Value Added Tax (VAT) Grant and represents funding Statement of Comprehensive and other sales-related taxes. from the Company’s Shareholder Net Income. to cover the operating costs of Interest income The Start Up Loans Company VAT Interest income is recognised (SUL). Any grant income in excess VAT is accounted for in the under IFRS 9 on financial assets of operating cost is treated as accounts, in that amounts are measured at amortised cost when deferred income and has been shown net of VAT except where: it is probable that the economic included as a liability in the – irrecoverable VAT is charged to benefits will flow to the Group Consolidated Statement the Consolidated Statement and the amount of revenue can of Financial Position. of Comprehensive Net Income be measured reliably. Interest Tax and included under the relevant income is accrued on a time basis, expenditure heading by reference to the principal The tax expense represents the sum of the tax currently payable outstanding using the effective – irrecoverable VAT on the and deferred tax. interest method. purchase of an asset is included in additions. The effective interest method The tax currently payable is based on taxable profit for is a method of calculating The net amount due to, or from, the year. Taxable profit differs the amortised cost of a debt HM Revenue and Customs in from net profit as reported in instrument and of allocating respect of VAT is included within the Consolidated Statement interest income over the relevant payables or receivables on the of Comprehensive Net Income period. The effective interest rate Consolidated Statement of because it excludes items of is the rate that exactly discounts Financial Position. future contractual cash payments income or expense that are taxable or receipts over the expected life or deductible in other years and of the financial asset or financial it further excludes items that are liability to the gross carrying never taxable or deductible. The amount of the financial asset (i.e. Group’s liability for current tax is its amortised cost before any calculated using tax rates that have impairment allowance) or to the been enacted or substantively amortised cost of the financial enacted by the balance sheet date.

124 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Property, plant and equipment An item of property, plant and An intangible asset is derecognised Fixtures and fittings, IT equipment equipment is derecognised on disposal, or when no future and leasehold improvements are upon disposal or when no future economic benefits are expected to stated at cost less accumulated economic benefits are expected arise from continued use. Gains or depreciation and any recognised to arise from the continued use of losses arising from derecognition impairment loss. the asset. The gain or loss arising of an intangible asset, measured on the disposal or scrappage of as the difference between the The Group capitalises property, an asset is determined as the net disposal proceeds and the plant and equipment purchased difference between the sales carrying amount of the asset, are for a net value of £3,000 or more proceeds and the carrying amount recognised in the Consolidated and which have a useful economic of the asset and is recognised in Statement of Comprehensive life in excess of one year. the Consolidated Statement of Net Income when the asset is Comprehensive Net Income. derecognised. Depreciation is recognised so as to write off the cost or valuation Intangible assets Financial assets and liabilities of assets less their residual values Intangible assets including Financial assets and financial over their useful lives, using the internally developed software with liabilities are recognised in the straight-line method, on the a finite useful life and IT programs Group’s Consolidated Statement following bases: and software licences, with finite of Financial Position when the Leasehold improvement useful lives that are acquired Group becomes a party to the separately, are carried at cost contractual provisions of the Shorter of estimated remaining less accumulated amortisation instrument. useful life or outstanding lease and accumulated impairment term losses. Amortisation is recognised Financial assets and financial liabilities are initially measured at Fixtures and fittings on a straight-line basis over the estimated useful life on the fair value, less directly attributable 5 years following bases: transaction costs, except for the transaction costs directly IT equipment Internally developed software attributable to the acquisition 3 – 5 years and IT programs of financial assets or financial liabilities at fair value through Right-of-use property 3 – 10 years profit or loss which are recognised Term of lease recognised under Software licences immediately in the Consolidated IFRS 16 Period of licence Statement of Comprehensive Net Income. The estimated useful lives, residual The estimated useful life and values and depreciation method Classification of financial amortisation method are are reviewed at the end of each instruments reviewed at the end of each reporting period, with the effect of Financial assets are classified reporting period, with the effect any changes in estimate accounted under IFRS 9 as amortised cost, of any changes in estimate being for on a prospective basis. fair value through profit or loss accounted for on a prospective (FVTPL) or fair value through other basis. Intangible assets with comprehensive income (FVOCI) indefinite useful lives that are depending on the Group’s business acquired separately are carried model for that asset category at cost less accumulated and the contractual cashflow impairment losses. characteristics of the instruments.

British Business Bank british-business-bank.co.uk 125 Notes to the consolidated Annual Report and Accounts 2020 financial statements

The Group has undertaken an The future expected cashflows be in stage 2 using a combination assessment of the business are risk adjusted and discounted of non-statistical, qualitative model in respect of each group using an appropriate discount information, such as changes to of its financial assets and has rate, which has been calculated the borrower’s intrinsic credit determined that in all cases the by taking the average five-year worthiness, as well as quantitative, business model is one of ‘Hold to median corporate debt rate for statistical information. It applies a Collect’ as none of its business Caa/C rated loans, in order to presumption that when accounts models has an objective of sale. calculate the fair value. are more than 30 days past due, there has been a significant The Group’s financial assets In accordance with IFRS 9 the increase in credit risk and such comprise debt and equity fair value adjustment at initial assets are assessed as being in instruments, classified as such recognition, which is the difference ‘stage 2’. under IAS 32. Debt instruments are between the transaction value of classified both at initial recognition the loans and their fair value, would The ‘Through the Cycle’ (TTC) and subsequently, as amortised usually be deferred and either proportion of the performing cost instruments, where the amortised or recognised when book that has suffered from a contractual cashflows represent a gain or loss was crystallised. significant increase in credit risk solely payments of principal and However, the Directors have was taken as 10% in line with interest (SPPI). If the cash flows do determined that it is appropriate in the European Banking Authority not represent SPPI, the instrument this circumstance to apply a true (EBA) benchmarks. EBA guidance is measured at FVTPL. and fair override, and consequently published for small financial any fair value adjustment institutions was taken as an anchor All of the Group’s equity arising on the SUL loan book point in the analysis. instruments are measured at will be recognised immediately FVTPL both on initial recognition through the Consolidated Financial assets are included in and subsequently. Statement of Comprehensive ‘stage 3’ when there is objective Net Income because this reflects evidence that the asset is credit The Group currently has no impaired, with expected credit financial instruments recognised the commercial position more appropriately. losses still calculated on a lifetime as FVOCI according to IFRS 9 basis. Accounts which are more classification. Impairment of financial assets than 90 days past due are Individual investment programmes The Group assesses on a forward- considered to be in default and are detailed further in note 13. looking basis, the expected credit credit impaired. Once an account losses (ECL) associated with its is recognised as being in ‘stage 3’, Fair value at initial recognition – debt instrument assets carried at interest income is recognised by SUL amortised cost and with exposures applying the effective interest Loans originated through the arising from loan commitments and rate to the amortised cost Group’s Start Up Loans (SUL) financial guarantee contracts. carrying amount. programme have been classified Changes in the carrying amount as amortised cost financial At initial recognition, financial of assets arising as a result of instruments. The Group charges a assets are categorised as ‘stage impairment are recognised in single rate of interest (6%) to SUL 1’ and an impairment provision the Consolidated Statement of customers that is independent of is made for ECLs resulting from Comprehensive Net Income. If a the credit quality of the customer. default events projected within the loan has no realistic prospect of This interest rate is not sufficient to next 12 months (12-month ECL). recovery, any loss incurred by the compensate for the expected losses Subsequently, financial assets are Group on extinguishing the debt is for the SUL scheme which are considered to be in ‘stage 2’ when written off against the provision for forecast to be between 30% and their credit risk has increased loan impairment. Any subsequent 40%, reflecting the non-commercial significantly since initial recognition, recoveries of amounts previously nature of the scheme. Therefore, at which point it is considered written off are recognised through the transaction value of a Start Up appropriate to recognise lifetime the Consolidated Statement of Loan will not equal its fair value. ECL. The Group assesses assets to Comprehensive Net Income.

126 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Assets held for sale Cash and cash equivalents Loan commitments at below Assets are classified as held for Cash and cash equivalents market rate sale if their carrying amount will comprise cash in hand and current The Group accepts a lower than be recovered through a sale balances with banks and other market rate of return from ECF transaction rather than through financial institutions, which are investments in order to encourage continuing use. This condition is readily convertible to known private sector investors to invest regarded as met only when the amounts of cash and which are alongside. Although the Group sale is highly probable, the asset subject to insignificant risk of expects to make a positive return is available for immediate sale changes in value and have an from these investments, this in its present condition and the original maturity of three months return is less than that required asset is actively marketed for sale. or less. by the private sector. The Group Management must be committed has loan commitments for each to the sale which should be Amounts owed by Shareholder of these investments and at initial expected to qualify as recognition These loans are classified as recognition elected to irrevocably as a completed sale within one FVTPL under IFRS 9 because the designate the liability related year from the date of classification. contractual terms do not give rise to these loan commitments as Assets held for sale are measured to cashflows on specified dates measured at fair value through at the lower of carrying amount and do not include any payment profit or loss. Group financial and fair value less costs to sell. of interest. assets and financial liabilities is managed, and its performance is Trade and other receivables Investments in Associates evaluated on a fair value basis, in IAS 28 Investments in Associates Trade receivables are measured accordance with a documented applies to all investments in which at amortised cost. investment strategy, and the Group has significant influence information about these assets Financial liabilities but not control. A holding of 20% and liabilities is provided internally or more of the voting power of an In both the current and prior on that basis to the Group’s key investment would normally indicate period, financial liabilities are management personnel. significant influence and require classified at initial recognition these investments to be accounted and subsequently measured at When a commitment is drawn, the for as associates using the equity amortised cost, except for: loan commitment is released and method of accounting. Where the a separate fair value adjustment – financial liabilities at fair value on the resulting investment Group holds greater than 20% of through profit or loss: this the ordinary share capital of an is recognised in net losses on classification is applied to investments in the Consolidated entity but there is no significant derivatives and other financial influence, these entities are not Statement of Comprehensive Net liabilities designated as such at Income, to reflect the difference accounted for as associates. initial recognition. Gains or losses Instead these entities are classified between the fair value and the on financial liabilities designated amount drawn. and accounted for as a financial as FVTPL are presented in the asset in accordance with IFRS Consolidated Statement of 9 Financial Instruments. These Comprehensive Net Income investments are held at FVTPL and initially recorded at cost and – financial liabilities arising from subsequently re-valued based the transfer of financial assets on fund net asset values (NAVs). not qualifying for derecognition, Details of the Group’s significant whereby a financial liability is holdings are shown in note 25. recognised for the consideration received for the transfer. In subsequent periods, the Group recognises any expense incurred on the financial liability.

British Business Bank british-business-bank.co.uk 127 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Loans and other borrowings Provisions Contingent liabilities The Group has loan facilities from Provisions are recognised when the The Group has contingent liabilities the Secretary of State for BEIS and Group has a present obligation as a arising through financial guarantees the Nuclear Liabilities Fund which result of a past event; it is probable issued to counterparties. A are classified and measured as that the Group will be required to contingent liability is a possible amortised cost financial liabilities. settle that obligation and a reliable obligation depending on whether estimate can be made of the some uncertain future event occurs, In addition, it has received a amount of the obligation. or a present obligation but payment capital grant in respect of the SUL is not probable, or the amount scheme. The agreement does The amount recognised as a cannot be measured reliably. not have a maturity date and provision is the best estimate carries an interest rate of zero. of the consideration required to The Group may at times The capital grant is repayable settle the present obligation at enter into financial guarantee on demand, in whole or in part, the balance sheet date, taking into contracts which are contracts if at the absolute discretion of account the risks and uncertainties that require the issuer to make BEIS certain conditions arise that surrounding the obligation. Where specified payments to reimburse affect the scheme adversely. a provision is measured using the the holder for a loss it incurs The Group classifies and initially cashflows estimated to settle the because a specified debtor fails measures the capital grant as an present obligation, its carrying to make payments when due, amortised cost financial liability. amount is the present value of in accordance with the terms Subsequently, the Group measures those cashflows when the effect of of a debt instrument. Financial the liability as amortised cost but the time value of money is material. guarantee contracts are initially adjusts the carrying value by any measured at fair value and amounts it believes will not be subsequently measured at the recoverable from the loans made to higher of: entrepreneurs under the scheme. Further details relating to the – the amount of the impairment capital grant are shown in note 6. loss allowance – the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15.

For financial guarantee contracts, the loss allowance is measured as a financial liability.

128 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Foreign exchange Leases 3. Critical accounting The individual financial statements Leases are classified as finance of each Group company are leases whenever the terms of the judgements and key sources presented in the currency of the lease transfer substantially all the of estimation uncertainty primary economic environment risks and rewards of ownership In preparing the Financial in which it operates (its functional to the lessee. All other leases are Statements, the Directors are currency) which is pounds sterling. classified as operating leases. required to make judgements and The Group applies IAS 21 The The Group assesses whether a estimates. Judgements involve Effects of Changes in Foreign contract is, or contains, a lease an interpretation of requirements Exchange Rates and transactions at inception of the contract. The to decide how to allocate, value that are denominated in a foreign Group recognises a right-of-use or recognise an item. Estimates currency are translated into sterling asset and a corresponding lease arise from using assumptions at the rate of exchange ruling liability with respect to all lease which result in a range of possible on the date of each transaction, agreements in which it is the outcomes. The most important except where rates do not lessee, except for short-term judgements and estimates used fluctuate significantly, in which leases (defined as leases with a in preparing these Financial case an average rate for a period term of 12 months or less) and Statements are described below. is used. Monetary assets and leases of low value assets. For Actual results may differ from liabilities denominated in foreign these leases, the Group recognises these estimates. currencies as at the balance the lease payments as an operating The estimates and underlying sheet date are re-translated at the expense on a straight-line basis assumptions are reviewed on rates of exchange ruling at that over the term of the lease unless an ongoing basis. Revisions date. Translation differences are another systematic basis is more to accounting estimates are recognised in the Consolidated representative of the time pattern recognised in the year in which the Statement of Comprehensive in which economic benefits from estimate is revised if the revision Net Income. the leased assets are consumed. affects only that year, or in the year Retirement costs The lease liability is initially of the revision and future years if the revision affects both current Payments to defined contribution measured at the present value and future years. retirement schemes are of the lease payments that are recognised as an expense when not paid at the commencement Judgements date, discounted by using the rate employees have rendered service a. Debt and equity fund net asset entitling them to the contributions. implicit in the lease. If this rate cannot be readily determined, values used in the assessment of Any unpaid contributions are FVTPL investment valuations recognised as a liability. the Group uses its incremental borrowing rate. The incremental The future returns from FVTPL Employee benefits borrowing rate is the rate of fund investments are inherently In accordance with IAS 19 interest that the Group would uncertain and will depend on Employee Benefits, the Group have to borrow at over a similar a range of factors including the recognises short-term employee term and with a similar security manager’s success in originating benefits when an employee has the funds necessary to obtain an lending and investment rendered service in exchange for asset of similar value to the right- opportunities, costs and fees, those benefits. of-use asset in a similar economic how the manager exercises environment. A corresponding right discretion in trading off equity of-use asset is also recognised. against debt components in loan structures, credit and warrant/ Please refer to adoption of new and equity performance, and prevailing revised standards for the current market conditions. year accounting policy (p123).

British Business Bank british-business-bank.co.uk 129 Notes to the consolidated Annual Report and Accounts 2020 financial statements

The values of the Group’s Business models are assessed Estimates investments in FVTPL debt and in respect of groups of financial a. Inputs to the Enterprise equity funds are based on the assets according to how they are Capital Funds valuation models fund net asset values (NAVs). In collectively managed both in order The Group has modelled the general, the fund’s investments in to achieve a particular business estimated future cashflows underlying portfolio companies do objective, and in order to generate generated from its Enterprise not have observable market inputs cashflows. The assessments are Capital Funds (ECF) in order which can be used for the to determine whether cashflows to derive the fair value of its purposes of measuring fair value generated by the assets result investments, and financial and are therefore valued using from contractual collections, the liabilities relating to its loan Level 3 inputs as defined by IFRS sale of financial assets, or both. commitments. The models use 13. The managers of the funds The business model assessment inputs, some of which rely on apply valuation methodologies in determines how the Group estimates and assumptions made compliance with IFRS or other classifies its financial instruments by management that risk causing recognised accounting standards as follows: a material adjustment to the such as UKGAAP. Most of the carrying amounts of the assets Group’s investment funds apply – Hold to collect contractual and liabilities. IFRS valuation methodologies or cashflows – Amortised cost or FVTPL apply the International Private Within the ECF investment Equity and Venture Capital (IPEV) – Hold to collect and sell – FVOCI calculation the Group uses Valuation Guidelines. multiple inputs and assumptions – Neither Hold to collect nor to determine the four components The Covid-19 pandemic has sell FVTPL. (Accrued Return, Loan, Option and given rise to significant additional Additional Upside) that comprise uncertainty as to investment For financial assets that have the fair value. The key global valuations and the Group has taken a business model which is one assumptions used are: account of this in its assessment of hold to collect contractual of the March 2020 valuations by cashflows, the Group then – the risk-adjusted discount rate giving particular scrutiny to the makes an assessment as to the used in the valuation expected valuation methodologies adopted classification between amortised future cashflows by its fund managers, ensuring cost or FVTPL based on a that they are appropriate and detailed review of the contractual – the volatility percentage, which is consistent with IFRS, IPEV or documentation in relation to the a benchmark for the volatility of other relevant guidelines. individual instrument. Financial the market price of comparable assets are classified as amortised investments over time b. Classification of financial cost if the contractual cashflows – the profiles of expected cash assets are solely payments of principal flows generated by the ECF In accordance with IFRS 9, the and interest (SPPI) on the principal funds throughout their lives. Group makes an assessment as amount outstanding, consistent to the classification of its financial with a basic lending arrangement. The key input into the calculation assets depending on its business is the NAV of the individual funds. In making its assessment the model in relation to groups The risk-adjusted discount rate and Group applies judgement as to of assets and the contractual the volatility percentage are the whether there are contractual cashflow characteristics of global assumptions which involve a terms which can give rise to individual instruments. significant degree of management modification of the time value of estimate. money element of the contractual cashflows, or to changes in the timing or amount of contractual cashflows, which could result in significantly different cash flows arising.

130 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

As an indication of sensitivity, a 200 basis points decrease in the b. The assessment of fair value a 200 basis points increase in market rate across the Enterprise on initial recognition for SUL the risk-adjusted discount rate Capital Funds portfolio would There is uncertainty in both the across the ECF portfolio would decrease the loan commitment expected cashflows and the decrease the fair value of the provision by around £14.8m, which Effective Interest Rate (EIR) investment in the Consolidated approximates to a 10.2% change in used to calculate the fair value Statement of Financial Position the provision value. at initial recognition for SUL. by around £13.4m. This sensitivity The EIR is subsequently used in Risk adjusted discount rate and approximates to a 5.3% change the calculation of interest income market return rate in the asset value. Likewise, a 200 recognised in the Consolidated basis points decrease in the risk- The ECF discount rates used in the Statement of Comprehensive adjusted discount rate across the model are as follows: Net Income as the fair value Enterprise Capital Funds portfolio – ECFs classified as low risk: 11% adjustment amortises. would increase the fair value of the portfolio by around £15.2m, which – ECFs classified as medium risk: The cashflows comprise four main approximates to a 6.0% change in 13.5% components: principal, interest, the asset value. expected loss on principal and – ECFs classified as high risk: 17.5%. expected loss on interest. For A 400 basis points decrease in each individual account and for the volatility percentage used The discount rates are reviewed each period, the expected loss on across the Enterprise Capital annually and in practice have principal and the expected loss on Funds portfolio would decrease remained at constant levels in interest are assessed by taking the the fair value gain on investments recent years. Against this context outstanding contractual amounts included in the Consolidated a 2% sensitivity is considered and adjusting for the marginal Statement of Comprehensive Net appropriate. probability of default and loss Income by around £3.0m over a Volatility percentage given default. one-year period and result in a corresponding decrease in the Recent spikes in the volatility EIR is calculated using the risk- fair value of the derivatives by indices used to calculate the adjusted cashflows discounted the same amount. This sensitivity volatility assumption led to an using a derived market rate which approximates to a 1.2% change increase in the option value for the references to the five-year median in the asset value. Likewise, a ECF portfolio that was considered yield for Caa/C rated corporate 400 basis points increase in the unrealistic. Therefore, a review debt applicable at the year of volatility percentage used across was undertaken and a new origination. the Enterprise Capital Funds methodology was implemented for The fair value of SUL is sensitive portfolio would increase the fair March 2020. The new methodology to changes in the discount rate value gain on derivatives by around uses indices that are considered and to changes in expected cash £3.0m which approximates to a more closely aligned to the ECF flows arising from the actual and 1.2% change in the asset value. portfolio companies, considers the sector-specific focus and future expected performance The key input assumption that maturity of each fund and reduces of the loans. A 2% increase in impacts on the value of the ECF the impact of short-term volatility the discount rate as a result of loan commitments is the market on the option value. The volatility movements in corporate debt rates return rate. As an indication of assumptions used in the model vary for Caa/C rated loans or LIBOR sensitivity, a 200 basis points from 15.0% to 43.1% and against could lead to an approximate increase in the market return rate this context, a 4% sensitivity is £9.2m decrease in fair value. across the ECF portfolio would considered appropriate. We applied increase the loan commitment the new methodology to the March provision in the Consolidated 2019 portfolio and the difference Statement of Financial Position in option value was immaterial. by around £13.2m, which Therefore, no re-statement of approximates to a 9.1% change the March 2019 accounts was in the provision value. Likewise, considered necessary.

British Business Bank british-business-bank.co.uk 131 Notes to the consolidated Annual Report and Accounts 2020 financial statements

c. The assessment of ECL – changes in market measures of Where there has been a significant impairment allowances against credit quality relative increase in the probability amortised cost financial assets of default (PD) compared to initial – changes in economic outlook The calculation of impairment recognition, based on the customer’s that may affect a customer’s provisions is inherently uncertain credit quality, the account is ability to repay (for example an and requires the Group to make assessed as being in ‘stage 2’. interest rate increase) a number of assumptions and Where current PD is measurable, a estimates. – changes to the borrower’s significant relative increase in the PD intrinsic credit worthiness is judged to have occurred where The measurement of ECL reflects there has been an increase in PD an unbiased and probability – any covenant breaches from origination to the reporting date weighted amount that is equivalent to a 3-notch downgrade determined by evaluating a range – legal or regulatory changes on a granular external credit rating of possible outcomes, the time that may adversely affect the scale. In addition, assets with a PD value of money and reasonable borrower equivalent to external credit rating and supportable information that – changes in the credit quality grade A (Standard & Poor’s/Fitch) is available without undue cost or of another exposure to the or A2 (Moody’s) are considered to effort at the reporting date about borrower be low risk and are always classed past events, current conditions and as Stage 1 under the IFRS 9 low forecasts of future economic – changes to the quality of any credit risk exemption. For assets conditions. guarantees or parental support. which are not re-rated and where on-going behavioural modelling is At initial recognition, financial assets Financial assets are included in not available, a fixed percentage of are categorised as ‘stage 1’ and an ‘stage 3’ when there is objective the performing portfolio is assumed impairment provision is made for evidence that the asset is credit to be in Stage 2 based on historic ECLs resulting from default events impaired, with expected credit grade transitions where available. projected within the next 12 months losses still calculated on a lifetime Where historic grade transitions (12-month ECL). Subsequently, and basis. Assets which are more are not available the percentage at each reporting date, a judgement than 90 days past maturity are in is defined in line with European is made as to whether the financial default and fully provided for by Banking Authority (EBA) guidance. In asset has been subject to a the Group. the ECL calculations, a scalar based significant increase in credit risk. on the observed performance of Where that is judged to be the case, ECLs are calculated using three each respective cohort is applied financial assets are considered main components, probability of to the fixed percentage. to be in ‘stage 2’, at which point default (PD), loss given default (LGD) and exposure at default it is considered appropriate to The impact of the Covid-19 (EAD). The LGD represents losses recognise lifetime ECL. pandemic has raised further expected on default, taking into matters for consideration in The Group assesses assets to be account the mitigating effect assessing the Group’s amortised in stage 2 using a combination of collateral, its expected value cost financial assets. Guidance of non-statistical, qualitative when realised and the time value has been issued by the Prudential information, as well as quantitative, of money. The EAD represents Regulation Authority (PRA) with statistical information. It applies a the expected balance at default, respect to accounting for ECL in presumption that when accounts taking into account the repayment context of Covid-19. This has been are more than 30 days past due of principal and interest from the incorporated into the post-model (late), there has been a significant balance sheet date to the default. overlay process described on p133. increase in credit risk and such Discounting of the expected assets are assessed as being cashflows is performed using in ‘stage 2’. Examples of the the EIR. qualitative indicators that might be used in assessing a significant increase in credit risk are:

132 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Economic scenarios and Covid-19 post-model overlays The calculation of probability associated probability weightings The Group has applied post-model of default (PD) IFRS 9 requires the calculation overlays to reflect the increase in The PD of each underlying loan of ECLs to account for multiple credit risk that is not accounted for or credit facility provided by the forward-looking macroeconomic due to the lack of behavioural credit Group is a key assumption for the scenarios. The ECL model scores and economic scenarios IFRS 9 ECL calculation and this adopted by the Group uses a that reflect the pre-Covid-19 is reliant on rating assessments Cyclicality Index (CI), which can be pandemic base case view. The undertaken by external and internal considered as a measure of where post-model overlays are calculated PD models. Where account the economy sits in the credit cycle using a percentage of the model level ratings are not available the at any time. output ECL for each portfolio and average PD derived from the same are based off the expected impact cohort of lending is applied. The model uses publicly available of the Covid-19 pandemic and data on default rates as a basis known sensitivities of the portfolios The calculation of loss given for the CI and generates a base to prescribed stresses. default (LGD) case scenario (determined by a LGD assesses the loss potential in regression model utilising base The PD overlays across the Group’s case of a default and is reliant on case forecasts of Consumer portfolios fall between a 1 to 2 the collateral residual value acting Price Index growth rates, interest notch downgrade for PD on a as security reported against each rates and unemployment rates), Moody’s granular rating scale. This loan or the reported seniority then two better and two worse reflects the expected impact of ranking of the Group’s facility scenarios generated by considering Covid-19 on each of the portfolios compared to other investors. LGD a distribution of possible scenarios and takes into account the ability is estimated using internal models around the base case scenario. of the model inputs to reflect any which consider observed loss In the instance where suitable increase in risk. The LGD overlay data or using external benchmarks publicly available data is not is based on a 40% decrease in where appropriate. available or is outdated, additional recovery rates in a stress period, third part forecasts may be sought, with a further conservative The calculation of exposure or post model overlays applied. adjustment for SUL and peer-to- at default (EAD) peer lending to 90% LGD. Exposure at default (EAD) is In previous years, the base case estimated for each month for scenario for British Business Bank The overlays have resulted in the contractual lifetime of each IFRS 9 models was sourced from an overall increase in the ECL financial instrument. This is either the annual Bank of England stress provision of £23.5m which is 4% of the contractual maturity profile testing publications, however the total exposure. Overlays required of the investment or an internal production of these scenarios is to reflect increases in PD due to estimate of the exposure value delayed due to Covid-19 priorities. an expected deterioration in the based on expected repayment The Group has therefore engaged credit quality of lending post- profiles based on historical with Oxford Economics to source Covid-19 amounting to £8.9m have information. A credit conversion updated independent economic been applied, as have overlays of factor is applied to undrawn forecasts for use in the IFRS 9 ECL £13.4m to account for worsening irrevocable commitments based models which incorporates the LGDs due to lower expected on external benchmarks or Covid-19 impact on model variables. recoveries on defaulted loans. internally observed data for similar Oxford Economics provided five In addition, ECL provisions have portfolios or types of assets. economic forecasts of varying been increased by £1.2m due to severity for the Group to select from the increase in default risk within The Group has undertaken as the base case input into the IFRS the portfolio, which also causes sensitivity analysis on these key 9 ECL models. The Group took the an increase in the proportion of inputs to ECL impairment provision decision to use the most pessimistic performing accounts assigned calculation which is disclosed in of these to reflect the high level to stage 2. note 27.2 and 27.3. of uncertainty over the economic climate as of 31 March 2020.

British Business Bank british-business-bank.co.uk 133 Notes to the consolidated Annual Report and Accounts 2020 financial statements

4. Income

4.1 Interest income 2020 2019 Note £000 £000 Contractual Interest from amortised cost investments 13.1 30,815 29,919 Amortisation of fair value adjustment on initial recognition of investments 13.1 20,720 13,518 Total interest income 51,535 43,437

The amortisation of the fair value adjustment on initial recognition represents the difference between the contractual interest rate and the effective interest rate applicable for the financial asset.

4.2 Grant income 2020 2019 £000 £000 Grant received from Shareholder 16,685 17,4 61 Total grant income 16,685 17,461

Grant income relates to the Resource Grant received from BEIS under the terms of the ‘Grant Offer Letter’ between BEIS and SUL. The grant income funds the operating expenses of SUL and any amount in excess is recorded as deferred scheme income in the Consolidated Statement of Financial Position.

4.3 Management fee income 2020 2019 £000 £000 Management fee income earned from: Angel Co Fund - 30 Department for Business, Energy and Industrial Strategy 15,502 15,302 Northern Powerhouse Investments Limited 899 2,691 Midlands Engine Investments Limited 1,088 1,774 Cornwall and Isles of Scilly Investments Limited 80 310 Innovate UK 71 309 Nuclear Decommissioning Authority - 80 Nuclear Liabilities Fund 1,612 - East Midlands Early Growth Fund Limited - 49 Other 44 30 Total management fee income 19,296 20,575

4.4 Other income 2020 2019 £000 £000 Arrangement and other fees 1,472 1,837 Total other income 1,472 1,837

134 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

5. Net gains/(losses) on investment assets 2020 2019 Note £000 £000 Fair value adjustment on initial recognition of amortised cost assets 13.1 (19,394) (18,419) Derecognition of amortised cost assets 13.1 (18,193) (2,364) Fair value adjustment on initial recognition of assets held at fair value through profit or loss 13.2 (38,654) (45,870) Fair value gains on assets held at fair value through profit or loss 13.2 73,270 95,322 Total net gains/(losses) on investment assets (2,971) 28,669

6. Net gain on write down of repayable capital grant 2020 2019 £000 £000 Write down of repayable capital grant received 37,782 7,291 Total net gain on write down of repayable capital grant 37,782 7,291

The Group receives a Capital Grant from BEIS under the terms of the ‘Grant Offer Letter’ between BEIS and SUL for the purpose of extending loans to entrepreneurs at below market rate (see note 20). On expiry of the grant period (31 March 2025), SUL will repay to BEIS the amount of cash held in its bank accounts representing capital and interest repayments from entrepreneurs. The repayable capital grant will be reduced by any unrecovered amounts from the beneficiaries of the loans. The gain on write down of repayable capital grant represents the reduction in the capital grant liability for the write-offs and impairment losses incurred on the loans to entrepreneurs in the period as well as the reduction/increase in the capital grant liability for the fair value adjustment on initial recognition and the subsequent amortisation of this adjustment.

British Business Bank british-business-bank.co.uk 135 Notes to the consolidated Annual Report and Accounts 2020 financial statements

7. Operating expenditure

7.1 Staff numbers and staff costs The average monthly number of employees including Executive Directors was: 2020 2019 On payroll 346 264 Secondees 1 3 Agency staff 3 21 Non-executive Directors 10 9 Total staff numbers 360 297

Aggregate remuneration comprised: 2020 2019 £000 £000 Wages and salaries: On payroll including Executive Directors 20,043 16,722 Secondees 142 541 Agency staff 470 2,392 Non-executive Directors’ fees 353 357 Short- and long-term incentive plans and bonus scheme 4,152 3,179 Social security costs 2,859 2,367 Pension costs 2,724 2,207 Total staff costs 30,743 27,765

7.2 Other operating expenditure 2020 2019 £000 £000 Professional fees: Investment scheme design and transactions 2,793 2,636 Operational fees 6,844 6,808 Accommodation and office services 2,273 4,971 Information technology 7,630 6,216 Marketing 3,429 3,267 SUL delivery partner fees 6,860 7,677 Auditor’s remuneration 387 432 Staff related costs, including training and travel 2,101 2,494 Other purchase of goods and services 37 274 Total other operating expenditure 32,354 34,775

Auditor’s remuneration is stated net of VAT and relates to fees payable for the audit of the Group’s annual accounts. The Group’s auditor did not provide any non-audit services.

136 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

7. Operating expenditure (continued) 7.3 Depreciation and amortisation 2020 2019 Note £000 £000 Property, plant and equipment 14 1,182 776 Right-of-use assets 15 1,350 - Intangible assets 582 667 Total depreciation and amortisation 3,114 1,443

8. Tax

8.1 Tax on profit on continuing activities 2020 2019 £000 £000 Current tax Current year 6,380 18,584 Adjustment in respect of prior years 613 (3,710) Total current tax 6,993 14,874

Deferred tax Current year (399) (4,941) Total deferred tax (399) (4,941) Total tax on continuing activities 6,594 9,933

Recognised through Net Comprehensive Income 6,594 9,933 Total tax on continuing activities 6,594 9,933

Factors affecting the tax expense for the period The tax expense for the period is different from the standard rate of Corporation Tax in the UK as explained in the table, overleaf. The Corporation Tax rate used is based on the enacted Corporation Tax rate for the year commencing 1 April 2019.

Deferred tax primarily relates to the Group’s investments in ECFs. It is calculated at 19% (2019: 17%) of the estimated unrealised gains within the funds. This is a temporary timing difference and the tax will become payable once the gains are realised in the underlying funds, for example through investment exits.

The Group’s investments in ECFs comprise interests in Limited Partnerships. Temporary accounting movements in relation to these investments are either added back or deducted from the taxable profit or loss. The Group is subject to tax on estimated realised gains or losses arising in the individual Limited Partnerships. The reconciliation, overleaf takes account of these adjustments.

British Business Bank british-business-bank.co.uk 137 Notes to the consolidated Annual Report and Accounts 2020 financial statements

8. Tax (continued) The tables below reconcile the tax charge for the year: 2020 2019 £000 £000 Profit/(loss) before tax (2,138) 81,253 Tax on profit/(loss) at standard UK tax rate 19% (2019: 19%) (406) 15,438 Effects of: Net gain on disposal of investments 948 - Permanent disallowances relating to: ECF loan commitments financial liability/provision 1,195 (8,429) Other permanent disallowances - 37 Timing differences relating to: ECF fair value adjustment on initial recognition 7,34 4 11,426 ECF realised gains 2,925 7,284 ECF fair value movements (5,758) ( 7,541) Long-Term Incentive Plan accrued expenditure 201 214 Other timing differences (69) 155 Total tax charge 6,380 18,584

Unrealised losses Deferred tax 2020 2019 2020 2019 £000 £000 £000 £000 Unrealised losses on ECF investments (1,700) (28,090) (323) (4,775) Other unrealised losses (400) (976) (76) (166) Unrealised losses subject to deferred tax (2,100) (29,066) (399) (4,941)

138 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

8. Tax (continued) 8.2 Corporation Tax payable 2020 2019 £000 £000 Corporation Tax payable at 1 April 3,936 11,353 Tax expense for the year 6,993 14,874 IFRS 16 transition 62 - Tax paid (16,490) (22,291) Corporation Tax (receivable)/payable at 31 March (5,499) 3,936

8.3 Deferred tax asset 2020 2019 £000 £000 Deferred tax (asset)/liability at 1 April (8,894) (3,953) Movement in the year (399) (4,941) Deferred Tax (asset) at 31 March (9,293) (8,894)

9. Operating segments The Group’s performance and results are managed internally as follows:

– British Business Bank entities: these are split into British Business Finance Limited (BBFL), British Patient Capital Limited (BPC), British Business Investments Ltd (BBI), The Start Up Loan Company (SUL) and the overall Group results

– Programmes administered on behalf of BEIS: In addition to its own operations, the British Business Bank, through its subsidiary British Business Financial Services Ltd (BBFSL), administers assets on behalf of BEIS. These assets do not form part of the British Business Bank plc Group financial statements but are reported to management. The financial performance and position of these programmes is included within the Strategic Report. These figures are not part of the audited financial statements

– Business units: The Group’s business units span the different subsidiaries to pool expertise.

British Business Bank british-business-bank.co.uk 139 Notes to the consolidated Annual Report and Accounts 2020 financial statements

9. Operating segments (continued) Consolidated statement of comprehensive income for the year ending 31 March 2020 Company plc and Intra-group Total BBFL BBI BPC SUL BBFSL eliminations Group £000 £000 £000 £000 £000 £000 £000 Income Investment Programmes - 19,367 -- -- 19,367 Venture Capital Solutions 1,526 -- - - (996) 530 Start Up Loans --- 31,638 - - 31,638 Management fee and other income 88 1,308 1,612 - 61,422 (43,662) 20,768 Grant income - - - 16,685 - - 16,685 1,614 20,675 1,612 48,323 61,422 (44,658) 88,988 Net gains/(losses) on investment assets Investment Programmes - 14,682 - - - - 14,682 Venture Capital Solutions (9,194) - 17,952 - - - 8,758 Start Up Loans - - - (68,423) - - (68,423) (9,194) 14,682 17,952 (68,423) - - (44,983) Net gain on write down of repayable capital grant - - - 37,782 - - 37,782

Operational expenditure Staff costs (1,036) (1,815) (1,482) (3,560) (22,850) - (30,743) Professional services (28) (893) (966) (668) ( 7,082) - (9,637) General operations (16,494) (10,434) (10,164) (12,339) (20,061) 43,662 (25,830) (17,558) (13,142) (12,612) (16,567) (49,993) 43,662 (66,210) Net operating profit before ECF loan commitment financial liability and interest payable (25,138) 22,215 6,952 1,115 11,429 (996) 15,577 ECF fair value provision expense 38,654 - - - - - 38,654 ECF fair value provision on new commitments (44,941) - - - - - (44,941) Finance costs - - - - (314) - (314) Interest payable - - - (996) (11,114) 996 (11,114) Profit/(loss) before tax (31,425) 22,215 6,952 119 1 - (2,138)

All transactions between Group companies take place on an arm’s length basis. There are no differences between the entities’ reportable profit or loss and the results in the note above.

140 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

9. Operating segments (continued) Consolidated statement of comprehensive income for the year ending 31 March 2019 Company plc and Intra-group Total BBFL BBI BPC SUL BBFSL eliminations Group £000 £000 £000 £000 £000 £000 £000 Income Investment Programmes - 19,187 -- -- 19,187 Venture Capital Solutions 840 -- - - (688) 152 Start Up Loans --- 24,098 - - 24,098 Management fee and other income 52 1,837 - - 60,769 (40,246) 22,412 Grant income - -- 17,4 61 - - 17,4 61 892 21,024 - 41,559 60,769 (40,934) 83,310 Net gains/(losses) on investment assets Investment Programmes - 60,859 - - - - 60,859 Venture Capital Solutions (23,782) - 9,447 - - - (14,335) Start Up Loans - -- (30,701) - - (30,701) (23,782) 60,859 9,447 (30,701) - - 15,823 Net gain on write down of repayable capital grant - - - 7,291 - - 7,291

Operational expenditure Staff costs (1,031) (1,626) (827) (3,924) (20,357) - (27,765) Professional services (174) (682) (418) (454) ( 7,716) - (9,444) General operations (11,433) (8,694) (6,665) (13,083) (27,145) 40,246 (26,774) (12,638) (11,002) ( 7,910) (17,4 61) (55,218) 40,246 (63,983) Net operating profit before ECF loan commitment financial liability and interest payable (35,528) 70,881 1,537 688 5,551 (688) 42,441

ECF fair value provision expense 44,364 - - - - - 44,364 ECF fair value provision on new commitments ------Interest payable - - - (688) (5,552) 688 (5,552) Profit/(loss) before tax 8,836 70,881 1,537 - (1) - 81,253

All transactions between Group companies take place on an arm’s length basis. There are no differences between the entities’ reportable profit or loss and the results in the note above.

British Business Bank british-business-bank.co.uk 141 Notes to the consolidated Annual Report and Accounts 2020 financial statements

9. Operating segments (continued) The ECF portfolio is classified as FVTPL. For the measurement of the Group’s financial target interest income, the fair value movement is included, and all other accounting impacts as shown in the table below are excluded.

The table summarises the amounts relating to the ECFs that have been recognised in arriving at the Group profit/(loss) before tax in the Consolidated Statement of Comprehensive Net Income. 2020 2019 Note £000 £000 Fair value adjustment on initial recognition (38,654) (45,870) Fair valuation movements 30,304 39,692 Provision released in year 19 38,654 44,364 Net gain/(loss) on Enterprise Capital Funds 30,304 38,186

SUL The Group accepts a lower than market rate of return from Start Up Loans to entrepreneurs as discussed in note 2 to the financial statements. Accounting standards require the Group to recognise a fair value adjustment on initial recognition when it makes a Start Up Loan. 2020 2019 £000 £000 Gross lending advanced in the year 95,589 81,153 Fair value adjustment on initial recognition (19,394) (18,419) Fair value on initial recognition 76,195 62,734

142 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

9. Operating segments (continued) Consolidated statement of financial position as at 31 March 2020 Company plc and Total BBFL BBI BPC SUL BBFSL Group £000 £000 £000 £000 £000 £000 Investment assets Amortised cost BFP Mid Cap - 89,876 - - - 89,876 Investment Programme - 226,168 - - - 226,168 Loan to Midlands Engine Investments 14,724 - - - - 14,724 Start Up Loans - - - 120,937 - 120,937 Loan to Northern Powerhouse Investments 20,288 - - - - 20,288 Assets held at FVTPL BFP Mid Cap - 379,196 - - - 379,196 Investment Programme - 390,866 - - - 390,866 Enterprise Capital Funds 253,344 - - - - 253,344 Venture/Growth - - 318,600 - - 318,600 UKIIF - 142,253 - - - 142,253 Other venture capital investments 3,997 10,791 6,475 - - 21,263 Total investment assets 292,353 1,239,150 325,075 120,937 - 1,977,515 ECF loan commitments financial liability (145,664) - - - - (145,664) Net investment assets 146,689 1,239,150 325,075 120,937 - 1,831,851

Other assets/(liabilities) Cash 10,838 27,645 13,201 1,523 10,498 63,705 Property, plant and equipment, right-of-use and Intangible assets - - - 839 13,204 14,043 Corporation Tax 3,717 4,666 (2,517) (85) (282) 5,499 Provisions - - - - (300) (300) Deferred tax 8,897 14 14 80 288 9,293 Loans and other borrowings - - - (69,238) (531,840) (601,078) Lease liabilities - - - - (12,867) (12,867) Amounts owed from Group undertakings (68,032) 78,002 (134,014) (51,845) 175,889 - Amounts owed by Shareholder - - - - 240,400 240,400 Net other payables (220) (1,073) (51) (2,088) ( 7,882) (11,314) Total net assets 101,889 1,348,404 201,708 123 (112,892) 1,539,232

At 31 March 2020 the Company held investments in subsidiaries of £1,575.7m which are eliminated in full on consolidation.

British Business Bank british-business-bank.co.uk 143 Notes to the consolidated Annual Report and Accounts 2020 financial statements

9. Operating segments (continued) Consolidated statement of financial position as at 31 March 2019 Company plc and Total BBFL BBI BPC SUL BBFSL Group £000 £000 £000 £000 £000 £000 Investment assets Amortised cost BFP Small Cap - 2 - - - 2 BFP Mid Cap - 55,432 - - - 55,432 Investment Programme - 233,542 - - - 233,542 Start Up Loans - - - 137,241 - 137,241 Loan to Northern Powerhouse Investments 4,909 - - - - 4,909 Assets held at FVTPL BFP Mid Cap - 436,058 - - - 436,058 Investment Programme - 296,961 - - - 296,961 Enterprise Capital Funds 226,611 - - - - 226,611 Venture/Growth - - 203,049 - - 203,049 UKIIF - 123,765 - - - 123,765 Other venture capital investments 2,350 - - - - 2,350 Total investment assets 233,870 1,145,760 203,049 137,241 - 1,719,920 ECF loan commitments financial liability (139,377) - - - - (139,377) Net investment assets 94,493 1,145,760 203,049 137,241 - 1,580,543

Other assets/(liabilities) Cash 192 59,551 2,856 3,409 86,109 152,117 Property, plant and equipment and Intangible assets - - - 1,468 3,598 5,066 Corporation Tax (1,841) (1,508) (325) - (262) (3,936) Provisions - - - - (300) (300) Deferred tax 8,566 14 - - 314 8,894 Loans and other borrowings - - - (107,021) (604,264) (711,285) Amounts owed from Group undertakings 30,554 129,073 (8,213) (32,800) (118,614) - Amounts owed by Shareholder - - - - 525,000 525,000 Net other payables (270) (746) (433) (2,228) (4,726) (8,403) Total net assets 131,694 1,332,144 196,934 68 (113,145) 1,547,696

At 31 March 2019 the Company held investments in subsidiaries of £1,589.0m which are eliminated in full on consolidation.

144 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

10. Cash and cash equivalents 2020 2019 £000 £000 Government Banking Service 46,566 134,746 Commercial banks 17,139 17,371 Total cash and cash equivalents 63,705 152,117

As the majority of the cash is held in the Government Banking Service there is minimal cost to the Exchequer.

11. Amounts owed by Shareholder 2020 2019 £000 £000 Amounts owed by Shareholder 240,400 525,000

BBB loaned £350m in August 2018 and a further £250m in January 2019 to BEIS, its shareholder, under the terms of two Loan Agreements. The amounts lent are repayable on demand and have a zero-interest rate. In the year ending 31 March 2020 £284.6m was repaid (2019 £75.0m).

12. Trade and other receivables 2020 2019 £000 £000 Amounts receivable within one year Trade receivables 2,671 340 Accrued income 5,193 7,859 Prepayments 1,043 706 Other receivables 930 841 Total trade and other receivables 9,837 9,746

The Directors consider that the carrying amount of trade receivables approximates to their fair value as they are short- term in nature.

British Business Bank british-business-bank.co.uk 145 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Through the Investment UK Innovation Investment Fund 13. Investments Programme, BBI participated in The UK Innovation Investment Business Finance Partnership a public issue of Tier 2 fixed rate Fund (UKIIF) is funded by BBI and reset callable subordinated loan British Business Investments supports the creation of viable notes by Shawbrook Bank plc Limited (BBI) manages the Business investment funds targeting UK with an initial semi-annual coupon Finance Partnership programme. high-growth technology-based of 8½%. The issue was listed businesses. It has invested through The Business Finance Partnership on the London Stock Exchange two underlying funds of funds, (BFP) now has just one strand, on 28 October 2015. BBI also the UK Future Technology Fund, BFP Mid Cap, which invested in participated in loan notes by which has now ceased making funds who lend to medium-sized Atom Bank with fixed coupon of new investments, and the Hermes businesses with turnover of up to 10% p.a., Secure Trust Bank with Environmental Impact Fund. £500m. Under IFRS 9 the BFP Mid interest rate of 6.75% p.a., and Cap portfolio was classified as PCF Bank Ltd with fixed coupon The UKIIF investments are FVTPL except for one fund. of 8% p.a. These three loan notes accounted for and measured at are not listed on the London Stock FVTPL under IFRS 9. The second strand was BFP Small Exchange. These investments are Enterprise Capital Funds Cap, which has no investment value classified as a amortised cost as at 31 March 2020 (2019 £2k). financial under IFRS 9. British Business Finance Limited (BBFL) invests in Enterprise Investment Programme Venture/Growth Capital Funds (ECFs). ECFs are BBI manages the Investment Through the Venture/Growth commercially-focused funds that Programme. It makes commercial programme, BPC invests in bring together private and public investments that stimulate commercially viable venture and money to make equity investments at least the same amount of venture growth capital funds, in high-growth businesses. BBFL investment from the private including evergreen structures, to invests into funds on terms that sector, encouraging new lenders support UK companies with high- improve the outcome for private into the market and the growth of growth potential to access the sector investors when those funds smaller lenders. BBI’s investments long-term financing they need to are successful. It does this by in Limited Partnerships through scale up. BPC will also invest in co- taking an agreed prioritised return the Investment Programme are investment opportunities arising of 3%-4.5%. In return BBFL is classified as FVTPL. through its portfolio. entitled to less of any remaining upside gain in excess of the agreed This programme has participated These investments are accounted return, if a fund is successful. in peer-to-peer lending, and has for and measured at FVTPL under provided invoice discount finance, IFRS 9. asset finance and other credit facilities. This lending is classified as amortised cost under IFRS 9.

146 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

BBFL intentionally makes a trade- Managed Funds Start Up Loans off between the prioritised return The BBI Managed Funds SUL lends to entrepreneurs via and potential upside gains. Overall, programme’s mandate is to a number of delivery partners at the terms mean that BBFL expects channel institutional capital to an interest rate of 6%. Losses on the ECFs to provide a positive innovative, high-growth companies these loans are expected to be return to government, but this so they might meet their full growth between 30% and 40% of the return will be lower than that potential. Through this programme, total loans advanced, reflecting typically sought by a private sector the Group expects to become a the non-commercial nature of the investor. This is in line with the significant, cornerstone investor scheme. This lending is classified Group’s strategic objectives. in funds of funds with a patient as amortised cost under IFRS 9. capital mandate. The £500m initial The investments which BBFL allocation which has been made Accounting standards require makes in ECFs are classified as to the programme represents a that these loans are measured FVTPL under IFRS 9. significant commitment in the at fair value on initial recognition and subsequently measured at Accounting standards require that years ahead. The first commitment amortised cost. The fair value these financial assets are held at under the programme was made in adjustment on initial recognition fair value, which is the amount that September 2019. represents the difference between a private sector investor would pay the face value of loans written for the investments. This means Regional Angels Programme and the present value of future that for every ECF investment The Regional Angels Programme, expected cashflows discounted a fair value adjustment on initial managed by BBI, is designed to using an appropriate discount rate. recognition is recorded to reflect address regional imbalances in the availability of angel finance, and the fact that it will not provide Accrued interest income and to increase the amount of capital the level of return sought by a amortisation of the fair value available to smaller businesses private sector investor, even if it adjustment on initial recognition with high-growth potential through is providing a positive return. ECF are calculated for each individual angel networks, particularly in investments are measured at fair loan. For presentation purposes areas where this type of finance value on an ongoing basis. See note these are presented separately is less readily available. The first 13.2 for details. as the accrued interest income is commitment under the programme the contractual interest that will In addition, BBFL signs ECF was made in September 2019. be collected whilst the fair value agreements committing to the adjustment on initial recognition prioritised return and reduced Other Venture Capital will be amortised over the life of upside gain in advance of Investments the loans. drawdowns. At the point that BBFL BBFL also has three other smaller enters into a new commitment to schemes: Help to Grow funds, provide a loan at below market rate Aspire and the Direct Investments. it recognises a provision which it These are detailed in note 13.2. accounts for as a FVTPL financial liability. The provision is released when a commitment is drawn to recognise a reduction in the liability. The provision is measured as the NPV of the commitment using a combination of the expected market return, minus prioritised return and the weighted average life of the portfolio. See note 19 for further commitment details.

British Business Bank british-business-bank.co.uk 147 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Impact of Covid-19 on The uncertainty resulting from The net impact on the FVTPL Investment Valuations Covid-19 mainly arises from the valuations, which could be The Covid-19 pandemic caused a uncertainty in the UK economic attributed to Covid-19, is estimated significant slow-down in economic recovery path that is yet to by management to be a reduction activity in the final quarter of 2019- unfold and how it will impact the of around £21.4m in the final 20 which in turn had an impact on magnitude and timing of the stress quarter, largely within the BFP the Group’s investment valuations uplift to PD, LGD and the stress Mid Cap and the Investment at the reporting date. In assessing transition from Stage 1 to Stage Programme portfolios. the impact, the Group has closely 2. As detailed in note 3, this has Withdrawal from programmes followed the guidance issued by been considered via the adoption the Financial Conduct Authority, of a revised economic base case As indicated above on p35, we the Financial Reporting Council together with post-model overlays are currently responding to the and the Prudential Regulation to estimate the impact on PD, LGD NAO’s recommendations, as Authority regarding the approach and Staging transition model inputs. put forward in their January to assessing valuations and ECL 2020 value for money study on The FVTPL investment portfolio provisions under IFRS 9. the Bank. Specifically, with this is more diversified with a wider note, we are responding to their The impact on the Amortised spread of investments ranging recommendation to “report Cost investments has been from early stage start-ups to more clearly where the Bank has proportionally greater than on mid-market corporates. The BPC withdrawn from activities because the FVTPL investments, and and ECF funds have significant the market failure is addressed, or management’s estimate of the investments in high-growth early the intervention is not delivering component of the 2019-20 stage technology-led businesses the outcomes expected.” ECL provision increase which that have been relatively resilient is Covid-19 related is around to the impact of Covid-19. BFP The following information £29.7m out of a total of £42.0m. Mid Cap and the Investment addresses this by reporting clearly The forward-looking nature of Programme are weighted towards – for the first time, and to date the approach to calculating ECL the traditional sectors of the since the Bank’s founding in 2014 provisioning under IFRS 9 means economy which have been more – where we have withdrawn, or that future losses are recognised at exposed to the impact of Covid-19. are engaged in withdrawal, from an earlier stage and take account The UKIIF portfolio has benefited finance programmes on the Bank’s of forecast future economic from significant upward valuations balance sheet. For the avoidance scenarios. The nature of the lending in life sciences and healthcare of doubt, this includes live within the larger portfolios within focused funds. schemes inherited upon the Bank’s the Amortised Cost portfolio, in foundation, where the decision The Covid-19 pandemic has particular Start Up Loans and the has subsequently been taken given rise to significant additional peer-to-peer platform lending to withdraw; or schemes set up uncertainty around investment (which is lending to start-ups and since foundation, again where the valuations as the extent of the micro-businesses often without decision has subsequently been to impact of Covid-19 is still not collateral), has made these withdraw. The reporting does not clear. The impact on investments investments more vulnerable to the cover inherited schemes that were will vary depending on individual impact of the economic downturn. already deemed in run-off prior to business models, the length and the Bank’s foundation (principally form of lockdown measures the legacy venture funds) and/ and the success of Government or are not on the Bank’s balance interventions. Valuation sheet, in line with the financial methodologies include market reporting in the Bank’s Annual multiples, industry benchmarks and Report and Accounts. discounted cashflows all of which are inherently more uncertain as market places change and so forecasts and historical reference points become less reliable.

148 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Since the Bank’s founding, the Business Finance Partnership Help to Grow, Funding and decision has been taken to (BFP), incorporating Small Cap Guarantees withdraw from the following and Mid Cap The Help to Grow (H2G) scheme schemes. A summary statement This programme was established was launched in May 2016, with the for each includes: post-2008/9 financial crisis, and aim of both supporting banks to announced by government in 2011. fund the growth of innovative small – the rationale for withdrawing Its aim was to provide finance businesses (through guarantees), – current status of withdrawal, to large SMEs and mid-sized as well as enabling such companies whether in train or complete businesses, through non-bank to access the debt they needed debt providers, catalysing a market to fund their growth opportunities – commentary on portfolio impact. outside the large banks. The (through a funding approach). In future Annual Reports, to intervention has been successful, £30m was made available in an maintain transparency on this and as the economy recovered initial phase. post-2008/9, private capital topic, we commit to reporting Following launch, it became on any material changes to the returned to the large SME/mid-cap sector. Through our market analysis apparent through our product summary statements below (such monitoring that demand across as withdrawal completing, or and monitoring, we recognised this improvement and therefore took both strands of the programme conversely, if programmes are was limited. This resulted in the refinanced). Moreover, if the Bank the decision to withdraw from this part of the market. From 2016, no Bank closing the scheme to new decides to withdraw from other proposals. Existing commitments programmes, it will report on them further commitments from the BFP Small/Mid Cap portfolio have under the two strands are in future Annual Reports in a undergoing managed run-off. The similar manner. been made. The portfolio remains in managed run-off, seeking to commitments are: maximise value for money from – A total of four facilities issued the existing commitments in the under H2G Guarantees, of which portfolio, while appropriately two are outstanding. The value of reducing our exposure. As this these two facilities amounts process remains contingent on to £1.5m market conditions, there is no formal fixed end-date when run-off – On H2G Funding, two deals will complete. which were signed with delivery partners to provide lending into In terms of the impact of this the market. A total of £17.5m withdrawal decision, as shown was committed to the delivery in these accounts, the BFP Small partners, of which a single Cap portfolio represents £nil value £10.5m commitment remains live. as at 31 March 2020. The Mid Cap portfolio represents £469.1m As such, in total the H2G of value as at 31 March 2020 programme forms less than 0.3% (original commitments into these of the Bank’s total assets under funds totalled £892.5m) and this management as at 31 March represents 13.3% of the Bank’s 2020 (where H2G Guarantees are total assets under management included on a notional basis). as at 31 March 2020.*

* In this withdrawal from programmes section, assets under management is defined as the combined total of the fair value of funded commitments, and the notional (stock of finance supported) value of guarantee commitments.

British Business Bank british-business-bank.co.uk 149 Notes to the consolidated Annual Report and Accounts 2020 financial statements

13. Investments (continued)

13.1 Amortised cost investments As at 31 March 2020

Amortisation Fair value of fair value adjustment adjustment Expected Opening on initial Accrued on initial credit loss Closing balance Additions recognition Repayments Interest recognition Derecognition allowance balance £000 £000 £000 £000 £000 £000 £000 £000 £000 BFP Small Cap 2 - - (54) - - 52 - - BFP Mid Cap 55,432 46,772 - (12,974) 3,460 - - (2,814) 89,876 Investment Programme 233,542 98,337 - (113,802) 15,907 - - ( 7,816) 226,168 Start Up Loans 137,241 95,589 (19,394) (75,107) 10,918 20,720 (18,245) (30,785) 120,937 Loan to Northern Powerhouse Investments 4,909 15,700 - (378) 378 - - (321) 20,288 Loan to Midlands Engine Investments Limited - 15,000 - (152) 152 - - (276) 14,724 Total 431,126 271,398 (19,394) (202,467) 30,815 20,720 (18,193) (42,012) 471,993

As at 31 March 2019 Amortisation Fair value of fair value adjustment adjustment Expected Opening on initial Accrued on initial credit loss Closing balance Additions recognition Repayments Interest recognition Derecognition allowance balance £000 £000 £000 £000 £000 £000 £000 £000 £000 BFP Small Cap 635 - - (745) 18 - - 94 2 BFP Mid Cap 60,200 22,491 - (30,135) 2,957 - - (81) 55,432 Investment Programme 238,508 114,478 - (132,764) 16,200 - - (2,880) 233,542 Start Up Loans 129,210 81,153 (18,419) (66,560) 10,591 13,518 (2,364) (9,888) 137,241 Loan to Northern Powerhouse Investments - 5,000 - (153) 153 - - (91) 4,909 Total 428,553 223,122 (18,419) (230,357) 29,919 13,518 (2,364) (12,846) 431,126

The amortisation of the fair value adjustment on initial recognition represents the difference between the contractual interest rate and the effective interest rate applicable for the financial asset.

150 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

13. Investments (continued)

13.2 Investments held at fair value through profit or loss As at 31 March 2020

Fair value adjustment on Opening initial Fair value Closing balance Transfers Additions recognition Repayments movements balance £000 £000 £000 £000 £000 £000 £000 BFP Mid Cap 436,058 - 33,000 - (78,487) (11,375) 379,196 Investment Programme 296,961 - 154,563 - (71,816) 11,158 390,866 UKIIF 123,765 - 5,830 - (11,940) 24,598 142,253 Managed Funds - - 9,364 - - 879 10,243 Regional Angels - - 548 - - - 548 Venture/Growth 203,049 (38,326) 149,914 - (7,514) 17,952 325,075 Enterprise Capital Funds 226,611 - 75,695 (38,654) (40,612) 30,304 253,344 Help to Grow Funds 1,368 - 2,153 - (260) - 3,261 Aspire 528 - - - - (27) 501 Capital for Enterprise Fund 395 (536) - - - 163 22 CfE Direct Investment - 536 - - - (336) 200 Direct investments 59 - - - - (46) 13 Total 1,288,794 (38,326) 431,067 (38,654) (210,629) 73,270 1,505,522

As at 31 March 2019 Fair value adjustment on Opening initial Fair value Closing balance Transfers Additions recognition Repayments movements balance £000 £000 £000 £000 £000 £000 £000 BFP Mid Cap 494,922 - 28,415 - (114,705) 27,426 436,058 BFP Small Cap 14,114 (12,891) 129 - (1,857) 505 - Investment Programme 242,038 12,816 80,700 - (46,239) 7,64 6 296,961 UKIIF 131,986 - 8,569 - (35,320) 18,530 123,765 Venture/Growth 76,243 75 119,980 - (12,284) 19,035 203,049 Enterprise Capital Funds 204,041 - 92,060 (45,870) (63,312) 39,692 226,611 Help to Grow Funds - - 1,368 - - - 1,368 Aspire 903 - - - - (375) 528 Capital for Enterprise Fund 792 - - - (360) (37) 395 Direct investments - - 17,159 - - (17,100) 59 Total 1,165,039 - 348,380 (45,870) (274,077) 95,322 1,288,794

Repayments are received when a fund has exited or partially exited an underlying investment and the Group receives its share of the proceeds due to the contractual obligations of the fund.

On 1 April 2019, the Group disposed of 20% of its holding in Venture/Growth to the Nuclear Liabilities Fund, which was held in the Consolidated Statement of Financial Position at £40.6m.

British Business Bank british-business-bank.co.uk 151 Notes to the consolidated Annual Report and Accounts 2020 financial statements

14. Property, plant and equipment

As at 31 March 2020 Leasehold Fixtures & improvement IT equipment Fittings Total £000 £000 £000 £000 Cost or valuation At 1 April 2019 2,874 2,581 78 5,533 Additions 12 40 18 70 Disposals - - - - At 31 March 2020 2,886 2,621 96 5,603

Accumulated depreciation and impairment At 1 April 2019 (555) (1,206) (64) (1,825) Charge for the year (543) (624) (15) (1,182) Disposals - - - - At 31 March 2020 (1,098) (1,830) (79) (3,007)

Carrying amount At 31 March 2020 1,788 791 17 2,596 At 31 March 2019 2,319 1,375 14 3,708

As at 31 March 2019 Leasehold Fixtures & improvement IT equipment Fittings Total £000 £000 £000 £000 Cost or valuation At 1 April 2018 1,149 1,538 78 2,765 Additions 1,771 1,043 - 2,814 Disposals (46) - - (46) At 31 March 2019 2,874 2,581 78 5,533

Accumulated depreciation and impairment At 1 April 2018 (268) (782) (45) (1,095) Charge for the year (333) (424) (19) (776) Disposals 46 - - 46 At 31 March 2019 (555) (1,206) (64) (1,825)

Carrying amount At 31 March 2019 2,319 1,375 14 3,708 At 31 March 2018 881 756 33 1,670

152 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

15. Right-of-use assets

As at 31 March 2020 Right-of-use Property £000 Cost or valuation At 1 April 2019 - IFRS 16 initial application 13,377 Additions - Disposals - At 31 March 2020 13,377

Accumulated depreciation and impairment At 1 April 2019 - IFRS 16 initial application (1,358) Charge for the year (1,350) Disposals - At 31 March 2020 (2,708)

Carrying amount At 31 March 2020 10,669 At 31 March 2019 -

Right-of-use Property is the value of the leased property recognised upon implementation of IFRS16. The corresponding lease liability is disclosed in note 21. 2020 £000 Impact on consolidated statement of net comprehensive income Increase in depreciation and amortisation (1,350) Increase in finance charge (314) Decrease in other operating expenditure 491 Increase/(Decrease) in profit for the year (1,173)

The table below shows the adjustment for each financial statement line item affected by the application of IFRS 16 as at 1 April 2019. Impact IFRS 16 percentage adjustments As presented £000 £000 £000 Impact on consolidated statement of financial position Right-of-use assets 100% 12,019 12,019 Net impact on total assets 0.5% 12,019 2,420,743 Lease liabilities 100% (13,043) (13,043) Net impact on total liabilities 1.5% (13,043) (873,047) Retained earnings 2.0% 1,024 (51,288)

British Business Bank british-business-bank.co.uk 153 Notes to the consolidated Annual Report and Accounts 2020 financial statements

16. Intangible assets Intangible assets comprise purchased software.

17. Trade and other payables 2020 2019 £000 £000 Amounts falling due within one year Trade payables 1,510 1,508 VAT and social security 1,145 604 Accrued expenditure 16,299 12,387 Other payables 638 1,739 Deferred scheme income 1,559 743 21,151 16,981 Amounts falling due after more than one year Other payables - 1,168 - 1,168 Total trade and other payables 21,151 18,149

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

18. Provisions

Year ended 31 March 2020 Dilapidation provision Total £000 £000 Balance at 31 March 2019 300 300 Provided in year - - Released in year - - Balance at 31 March 2020 300 300 Of which: Current - - Non-current 300 300

Year ended 31 March 2019 Dilapidation provision Total £000 £000 Balance at 31 March 2018 120 120 Provided in year 300 300 Released in year (120) (120) Balance at 31 March 2019 300 300 Of which: Current - - Non-current 300 300

154 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

19. ECF loan commitment 2020 2019 £000 £000 Balance at 1 April 139,377 183,741 Provided in year on new ECFs 44,941 - Released in year (38,654) (44,364) Balance at 31 March 145,664 139,377 Of which: Current 39,036 35,877 Non-current 106,628 103,500 145,664 139,377

Non-current amounts relate to undrawn loan commitments where, based on historic and forecast information, it is not anticipated the commitments will be utilised with the next 12 months. Given the uncertain nature of timings of the drawdowns from ECFs the Directors believe this is the best estimate at the balance sheet date.

20. Loans and other borrowings 2020 2019 £000 £000 Repayable within one year Unsecured loans provided by BEIS 14,894 - Unsecured loans provided by the Nuclear Liabilities Fund 361,440 - Repayable capital grants 54,344 92,127 430,678 92,127 Repayable after one year Unsecured loans provided by BEIS - 14,894 Unsecured loans provided by the Nuclear Liabilities Fund 170,400 604,264 170,400 619,158 Total loans and other borrowings 601,078 711,285

The capital grants have been classified as a current liability as they are repayable on demand, in whole or in part, under certain conditions.

During the year the Group received capital grants of £nil (2019: £4.1m) and wrote down the value of capital grants by £37.8m (2019: £7.3m).

BEIS has provided two term loan facilities to SUL. The first facility of £12.0m was provided on 24 February 2014 and is repayable on 17 December 2020. The balance of this loan facility at 31 March 2020 was £7.9m (2019: £7.9m). A further term facility of £10.0m was provided on 17 December 2015 and is also repayable on 17 December 2020. The balance of this facility at 31 March 2020 was £7m (2019: £7m).

On 23 August 2018 the Group received a loan of £350m from the Nuclear Liabilities Fund to be used for general corporate purposes, which is repayable in full on 23 August 2020. This loan accrues interest at a rate of 2% per annum and £7.2m (2019: £4.2m) of interest accrued in the year. The balance of this loan at 31 March 2020 was £361.4m (2019: £354.2m).

On 28 December 2018 the Group received a second loan of £250m from the Nuclear Liabilities Fund which is used for making investments on behalf of the Nuclear Liabilities Fund after 1 April 2019. The term of this loan is 4 years with the value reducing in £5m tranches as the Group makes investment payments on behalf of the Nuclear Liabilities Fund. Any amount unutilised at 28 December 2022 will be repaid on this date. This loan accrues interest at a rate of 2% per annum for the first 2 years decreasing to 1.5% for the remaining life of the loan and £3.9m (2019: £1.3m) of interest accrued in the year. During the year repayments of £79.6m (2019: nil) were made against the unsecured loans and interest of £3.9m (2019: £1.3m) was repaid. The balance of this loan at 31 March 2020 was £170.4m (2019: £250m).

British Business Bank british-business-bank.co.uk 155 Notes to the consolidated Annual Report and Accounts 2020 financial statements

20. Loans and other borrowings (continued) Total interest payable in the year on the two Nuclear Liabilities Fund loans was £11.1m (2019: £5.5m).

BEIS is a party to both of the Nuclear Liabilities Fund loan agreements, under the terms of which it has undertaken at the repayment dates, to provide funding to the Group to enable it to discharge its obligations to repay the loans including any interest or costs accrued.

21. Lease liabilities

Maturity analysis – contractual undiscounted cashflow Less than one year 1,176 One to five years 7,590 More than five years 5,449 Total undiscounted lease liabilities at 31 March 2020 14,215

Lease liabilities included in the statement of financial position at 31 March 2020 12,867 Current 870 Non-current 11,997 The comparative operating lease payments were as follows: <1 year 1–5 years >5 years Total £000 £000 £000 £000 At 31 March 2019 1,656 6,623 6,553 14,832 The operating lease commitment as at 31 March 2019 was £14.8m and the corresponding lease liability was £13.0m. The variance of £1.8m relates to discounting.

The Bank’s occupation of the 5th and 6th floors at its registered office at Steel City House, West Street, Sheffield S1 2GQ is governed by a 10-year lease agreement covering the period from 9 October 2017 to 8 October 2027 for an annual rental cost of £224,000 with an option to break the agreement after five years.

The Bank entered into a lease from 1 June 2018 to 8 October 2027 to rent the 4th floor of Steel City House, West Street, Sheffield, S1 2GQ for an annual rental cost of £199,000 and including a rent-free period of 14 months.

The Bank entered into a 10-year lease from 11 May 2018 to rent the 2nd floor of Salisbury Square House, 8 Salisbury Square, London, EC4 for an annual rental cost of £1,232,725 and including a rent-free period of 30 months.

22. Reconciliation of liabilities arising from financing activities The changes in the Group’s liabilities arising from financing activities can be classified as follows: Long-term Short-term Lease ECF loan borrowings borrowings Liabilities commitments Total £000 £000 £000 £000 £000 Balance at 1 April 2019 619,158 92,127 - 139,377 850,662 Cashflows: Repayments (84,437) - (490) - (84,927) Proceeds - - - - - Non-cash: IFRS 16 adoption - - 13,043 - 13,043 Transfers (369,127) 369,127 - - - Interest 4,806 7,20 0 314 - 12,320 Provision movement - - - 6,287 6,287 Write off - (37,782) - - (37,782) Balance at 31 March 2020 170,400 430,672 12,867 145,664 759,603

156 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

22. Reconciliation of liabilities arising from financing activities (continued) Long-term Short-term ECF loan borrowings borrowings commitments Total £000 £000 £000 £000 Balance at 1 April 2018 14,900 101,266 183,741 299,907 Cashflows: Repayments - - - - Proceeds 600,000 4,100 - 604,100 Non-cash: Interest 4,258 - - 4,258 Provision movement - - (44,364) (44,364) Write off - (13,239) - (13,239) Balance at 31 March 2019 619,158 92,127 139,377 850,662

23. Contingent liabilities and indemnities The Group has taken advantage of the exemption available under section 479A Subsidiary companies: conditions for exemption from audit of the Companies Act 2006 which exempts qualifying companies from the audit of their individual accounts for a financial year. The exemption is in respect of the following subsidiaries:

Subsidiary name Registered No. British Business Finance Limited 09091928 British Business Financial Services Limited 09174621 Capital for Enterprise Limited 06179047 Capital for Enterprise Fund Managers Limited 06826072 Capital for Enterprise (GP) Limited SC354499 British Business Aspire Holdco Limited 09263859 The Start Up Loans Company 08117656

As required by the Act, the British Business Bank plc:

– guarantees all outstanding liabilities to which the subsidiary companies are subject at the end of the financial year to which the guarantee relates, and until they are satisfied in full

– asserts that the guarantee is enforceable against the British Business Bank plc by any person to whom the subsidiary companies are liable in respect of those liabilities.

Under the Bank’s Help to Grow financial guarantee programme, the Bank has entered into financial guarantee agreements of £10.5m (2019: £30m). The Bank has guaranteed 75% of eligible lending to SMEs under these agreements and a counter guarantee is in place that guarantees 50% of the Bank’s 75% of eligible lending. As at 31 March 2020 the amount lent under these financial guarantee agreements was £3m (2019: £3m). During the year ending 31 March 2020 the remaining guarantee agreement originally totalling £30m was reduced to £10.5m, with no further amounts being lent under it.

British Business Bank british-business-bank.co.uk 157 Notes to the consolidated Annual Report and Accounts 2020 financial statements

24. Capital and other commitments

24.1 Capital commitments The British Business Bank plc had the following undrawn commitments at the balance sheet date in relation to its existing investment portfolio: 2020 2019 £000 £000 British Business Investments Limited BFP Mid Cap 122,915 143,968 Investment Programme 313,179 285,080 UKIIF 20,970 24,721 Regional Angels 34,452 - Managed Funds 285,199 -

British Patient Capital Limited Growth Capital 147,345 158,083 Venture 322,947 202,792 Co-Investment 22,987 52,631

Venture Capital Solutions Enterprise Capital Funds 284,552 265,108

Other Northern Powerhouse Investments Ltd 29,300 45,000 Midlands Engine Investments Ltd 17,50 0 32,500 1,601,346 1,209,883

BPC disposed of 20% of its prior year investments for the sum of £38.3m on 1 April 2019, as such the undrawn commitment on those investments has been deducted from the current year value.

In the prior year, the BPC capital commitment was disclosed under a single programme “Venture/Growth”. This financial year, the disclosure has been updated to split the commitment into three separate components and the comparative has been updated accordingly.

24.2 Share capital 2020 2019 Issued and fully paid ordinary shares of £1 each: 1,496,407,924 1,496,407,924

£000 £000 Brought forward 1,496,408 1,371,408 Shares issued for cash - 125,000 Carried forward 1,496,408 1,496,408

The Company has one class of ordinary shares which carry no right to fixed income.

158 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

25. Subsidiaries and other significant undertakings The Group consists of a parent company, British Business Bank plc, incorporated in the UK, and a number of subsidiaries held directly by the British Business Bank plc, which operate and are incorporated in the UK.

The subsidiary undertakings of the parent company are shown below. The capital of each entity depends on its nature and consists of ordinary shares. All the subsidiary undertakings have the same registered address being, Steel City House, West Street, Sheffield S1 2GQ with the exception of The Start Up Loans Company whose registered office is 71-75 Shelton Street, Covent Garden, London WC2H 9JQ.

Country of Shares held by Subsidiary Incorporation Nature of Business the Group British Business Investments UK Makes commercial investments 100% Limited* into providers of finance to smaller businesses plus venture capital fund investments BBB Patient Capital Holdings UK Holding company 100% Limited British Patient Capital Limited* UK Makes commercial investments into 100% venture and growth capital British Business Finance Limited UK Manages and invests into schemes 100% on behalf of the Group British Business Financial Services UK Administers investment schemes 100% Limited on behalf of the Department for Business, Energy and Industrial Strategy Capital for Enterprise Limited* UK Holding company 100% Capital for Enterprise Fund UK Acts as fund manager of Capital for 100% Managers Limited* Enterprise L.P. Capital for Enterprise (GP) Limited* UK Acts as general partner to Capital 100% for Enterprise L.P. British Business Aspire Holdco UK Provides equity investments to 100% Limited* women-led SMEs The Start Up Loans Company* UK Provides loans to entrepreneurs N/A

* Indicates investments are not directly held in these companies.

The Start Up Loans Company is a company limited by guarantee of which British Business Finance Limited is the sole member.

Details of the subsidiaries’ results either individually or as part of a consolidated group, including their net assets as at the balance sheet date and their profit or loss for the year ended 31 March 2020, are provided in the segmental reporting note 9.

British Business Bank british-business-bank.co.uk 159 Notes to the consolidated Annual Report and Accounts 2020 financial statements

25. Subsidiaries and other significant undertakings (continued) The British Business Bank Group also has the following significant holdings in undertakings other than subsidiaries.

Country in which Class of share Proportion held Name it is incorporated held by the Group by the Group BMS Finance S.A.R.L. Luxembourg Not classified 49.8% Registered address: 55 Avenue Pasteur, L-2311, Luxembourg Industrial Lending 1 (Boost Fund) Luxembourg Class A shares 46.6% Registered address: 6 Rue Adolphe, L-1116, Luxembourg Pricoa Sterling Corporate Bond Fund * Ireland Not classified 67.7% Registered address: 70 Sir John Rogerson’s Quay, Dublin, Ireland VRG Ventures Limited UK Ordinary shares 28.4% Registered address: Cardiff House, Tilling Road, London, NW2 1LJ Pyropure Limited UK Class A shares 25.9% Registered address: Vestry House, Laurence Pountney Hill, London, EC4R 0EH Muzinich UK Private Debt Fund Luxembourg Not classified 20.7% Registered address: 49 Avenue J.F.K, L-1855, Luxembourg

* Pricoa’s latest financial year end was 30 June 2020. The fund does not produce separate accounts and therefore figures for the fund are not available.

160 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

26. Structured entities A structured entity is an entity in Depending on the Group’s power which voting or similar rights are over the activities of the entity not the dominant factor in deciding and its exposure to, and ability to control. Structured entities are influence, its own returns, it may generally created to achieve a consolidate the entity. In other narrow and well-defined objective cases, it may sponsor or have with restrictions around their exposure to such an entity but not ongoing activities. consolidate it. As at 31 March 2020 and 31 March 2019 the Group does An interest in a structured entity not consolidate any interests in is any form of contractual or structured entities as the Group non-contractual involvement is not considered to have control which creates variability in returns or significant influence over these arising from the performance of entities due to the way these the entity for the Group. Such entities are structured. interests include debt and equity investments and investment The nature and extent of the management agreements. Group’s interest in structured entities and its maximum exposure is summarised, below:

Interest in Limited Partnerships 2020 2019 £000 £000 Assets at fair value through profit or loss 1,505,509 1,288,735 Total assets 1,505,509 1,288,735

British Business Bank british-business-bank.co.uk 161 Notes to the consolidated Annual Report and Accounts 2020 financial statements

27. Financial instruments categories of financial instruments

27.1 Categories of financial instruments The following table analyses the Group’s financial assets and liabilities in accordance with the categories of financial instruments in IFRS 9.

At 31 March 2020 Liabilities Assets held at held at Liabilities Assets held amortised amortised held at FVTPL cost cost at FVTPL Total Note £000 £000 £000 £000 £000 Assets Amortised cost investment assets 13.1 - 471,993 - - 471,993 Investment assets held at FVTPL 13.2 1,505,522 - - - 1,505,522 Trade and other receivables 11/12 240,400 8,794 - - 249,194 Cash and cash equivalents 10 - 63,705 - - 63,705 Total assets 1,745,922 544,492 - - 2,290,414

Liabilities Trade and other payables 17 - - (20,006) - (20,006) Loans and other borrowings 20 - - (546,733) (54,345) (601,078) ECF loan commitments 19 - - - (145,664) (145,664) Lease liabilities 21 - - (12,867) - (12,867) Total liabilities - - (579,606) (200,009) (779,615) Net assets 1,745,922 544,492 (579,606) (200,009) 1,510,799

At 31 March 2019 Liabilities Assets held at held at Liabilities Assets held amortised amortised held at FVTPL cost cost at FVTPL Total Note £000 £000 £000 £000 £000 Assets Amortised cost investment assets 13.1 - 431,126 - - 431,126 Investment assets held at FVTPL 13.2 1,288,794 - - - 1,288,794 Trade and other receivables 11/12 525,000 9,040 - - 534,040 Cash and cash equivalents 10 - 152,117 - - 152,117 Total assets 1,813,794 592,283 - - 2,406,077

Liabilities Trade and other payables 17 - - (17,545) - (17,545) Loans and other borrowings 20 - - (619,158) (92,127) (711,285) ECF loan commitments 19 - - - (139,377) (139,377) Total liabilities - - (636,703) (231,504) (868,207) Net assets 1,813,794 592,283 (636,703) (231,504) 1,537,870

162 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.2 Fair value measurements The Group’s financial assets are The Group has also provided two The note set out below provides all classified as Level 3 assets, loans to its Shareholder which at information about how the except for two amortised cost 31 March 2020 had a total value Group determines the fair values investments and one FVTPL of £240.4m (2019 £525.0m). These of various financial assets and investment which are classified loans have been classified as financial liabilities. Fair value is the as Level 1 assets. FVTPL. The loans are repayable on price that would be received to demand and have a zero-interest During the year ending 31 March sell an asset or paid to transfer a rate. The Directors consider that 2020 the fair value of investment liability in an orderly transaction the credit risk for these loans is assets held at fair value through between market participants at minimal given the credit rating profit or loss increased by the measurement date, regardless of the borrower and that the £73.3m (2019: £95.3m) taken to of whether that price is directly value of the principal outstanding the Consolidated Statement of observable or estimated using represents the fair value. Comprehensive Net Income. another valuation technique. Fair value impairments on Enterprise Capital Funds For financial reporting purposes, initial recognition of amortised For the purposes of valuation, fair value measurements are cost investments of £19.4m the Enterprise Capital Funds categorised into Level 1, 2 or 3 (2019: £18.4m) were taken to investments are bifurcated into based on the degree to which the Consolidated Statement of a debt and a derivative element, the inputs to the fair value Comprehensive Net Income. which are disclosed together. The measurements are observable primary valuation methodology Fair value of the Group’s financial and the significance of the inputs used for the debt element of assets and financial liabilities to the fair value measurement in investments is the discounted that are measured at fair value on its entirety, which are described cashflow method. Fair value a recurring basis as follows: is estimated by deriving the Investments held at fair value present value of the investment – Level 1 fair value measurements through profit or loss (FVTPL) using reasonable assumptions of are those derived from quoted For all FVTPL assets, except for expected future cashflows and the prices (unadjusted) in active the Enterprise Capital Funds, estimated repayment value and markets the investment valuation, a net date, discounted at the appropriate asset valuation (NAV) which is – Level 2 fair value measurements risk-adjusted discount rate. The determined on a fair value basis, are those derived from inputs discount rate is estimated with is determined by investment other than quoted prices reference to the market risk-free managers on a regular basis included within Level 1 that rate and a risk-adjusted premium. (monthly or quarterly). are observable for the asset or Each investment has an annually liability, either directly (i.e. as The Directors review the reviewed model, which for each prices) or indirectly (i.e. derived investment valuation reports valuation assessment is updated from prices) periodically and are satisfied for actual asset performance and that they provide an appropriate – Level 3 fair value measurements key assumption and input changes. measure of fair value at the are those derived from valuation reporting date. techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group’s investment portfolio consists of assets carried at amortised cost and fair value.

British Business Bank british-business-bank.co.uk 163 Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.2 Fair value measurements (continued) Enterprise Capital Funds also contain an equity derivative. The derivatives are valued using the Black-Scholes model. The key inputs used in the derivative valuation are:

Input Assumptions in determining the input Net amount drawn and fund valuation Net amounts drawn are cashflows from the business. as at 31 March 2020 Fund valuations are reported by fund managers. Time to fund exit – ranging from 0–10 years Assessed separately for each fund based on remaining investment period and estimated timescale for fund exits. Volatility – ranging from 15% to 43% The FTSE AIM All Shares sector indices have been used as a source for calculating volatility. The volatility applied to each fund varies according to the sector focus of the fund and its expected maturity. Prioritised return – ranging from 3.0% to 4.5% Set to equal the contractual return which funds must pay before any upside on the option is realised. Risk free rate Derived from UK Government bonds.

Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis Set out below is a comparison by class of carrying amounts and fair values of the Group’s financial assets and financial liabilities measured at amortised cost. Carrying Value Fair Value Carrying Value Fair Value 2020 2020 2019 2019 £000 £000 £000 £000 Financial assets at amortised cost Amortised cost BFP Small Cap - - 2 2 BFP Mid Cap 89,876 89,876 55,432 49,849 Investment Programme 226,168 236,847 233,542 237,099 SUL 120,937 157,594 137,241 144,731 Northern Powerhouse Investments 14,724 15,000 4,909 5,000 Midlands Engine Investments 20,288 20,000 - - 471,993 519,317 431,126 436,681

Financial liabilities at amortised cost Unsecured loans 546,733 546,733 619,158 619,158 Capital grants 54,345 54,345 92,127 92,127 601,078 601,078 711,285 711,285

Financial assets at amortised cost are classed as Level 3 assets except for one investment that is publicly listed. Unsecured loans and capital grants are classed as Level 3 liabilities.

164 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

SUL BFP Small Cap, BFP Mid Cap and Liabilities held at FVTPL Loans to entrepreneurs are Investment Programme The ECF loan commitments are financial assets with fixed or Loans at amortised cost provided part of a group of financial assets determinable payments and are through the BFP Small Cap, the and financial liabilities that are not quoted in an active market. BFP Mid Cap and the Investment managed, and their performance Loans are recognised when cash is Programme comprise both fixed evaluated on a fair value basis, advanced and initially recognised rate and floating rate investments and information about the group at fair value and subsequently with an average duration of not is provided internally on that basis measured at amortised cost over more than five years. The Directors to the entity’s key management the term of the loan. have assessed that the changes personnel. As permitted under in interest rates and in credit IFRS 9, an election has been made For the estimation of fair value at spreads and the associated impact to measure the financial liability the reporting date, the Group has on the fair value of these assets arising from the loan commitments utilised a future expected cash since they were originated are not at FVTPL. The fair value of each flow model which is based on material to the Group’s results. The commitment is calculated by the recent past performance for previous table shows the Director’s discounting future cashflows using similar loans. estimates of the fair value of these a discount rate which is adjusted to The future expected cashflows assets at 31 March 2020 and take account of the credit risk. derived from the model are 31 March 2019. BFP Small Cap, discounted using an appropriate BFP Mid Cap and Investment discount rate which has been Programme amortised cost assets calculated by taking the 5-year are classed as Level 3 assets in the median corporate debt rates fair value hierarchy except for two for Caa/C rated loans. This amortised cost investments which information has been sourced from are classified as Level 1 assets. Moody’s market analysis. SUL are Unsecured loans and classed as Level 3 assets based capital grants on the valuation techniques used The carrying value and fair value to determine the fair value at the of unsecured loans reflect the reporting date. The fair value of amount at which the Group SUL is sensitive to changes in the expects to settle its liabilities with discount rate and to changes in BEIS and the Nuclear Liabilities expected cashflows arising from Fund respectively. The carrying the actual and future expected value and fair value of the BEIS performance of the loans. A 2% capital grant are equivalent increase in the discount rate as a because the grant has no maturity result of movements in corporate and is repayable on demand, in debt rates for Caa/C rated whole or in part, under certain loans or LIBOR could lead to an conditions. approximately £9.2m decrease in fair value.

British Business Bank british-business-bank.co.uk 165 Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management Assessment of credit and The Group also undertook a The Group has exposure to a investment risk is carried out as stress test based upon the Bank number of financial risks through part of the investment approval of England (BOE) Annual Cyclical the conduct of its operations. process and is revisited on an Scenario Stress Testing guidelines. Details of the Group’s risk ongoing basis as part of the This was undertaken by analysing management structure are Group’s portfolio management which UK macroeconomic provided in the Risk Management process. With respect to SUL, all variables suggested by the BOE section of the Strategic Report. loans to entrepreneurs are on an would have an impact on the This note presents information unsecured basis and the credit Bank’s credit and investment risk about the nature and extent of risk is the risk that an entrepreneur exposures and then evaluating risks arising from the financial will default on their contractual how changes in these variables instruments. There have been obligations to make repayments, over a five-year time horizon would no changes to the principal types resulting in financial loss to the impact on credit and market value of risks faced by the Group. Group. To manage this, the losses in the Group’s portfolio. Executive Committee approves The Group has exposure to the all material changes to the lending The findings of this exercise following risks from its use of policy for SUL. All loan applications showed that if the UK financial instruments: are assessed with reference to the economy were to go through lending policy in force at the time. a macroeconomic downside – Credit and Investment risk Subsequently loans are regularly scenario as prescribed by the BOE’s Annual Cyclical Scenario – Market risk reviewed for any factors that may indicate that the likelihood of within the next financial year, the – Liquidity risk. repayment has changed. During Bank could incur additional credit the year there have been no and investment losses of £246m Credit risk and investment risk noteworthy changes in the credit (equivalent to c.10% of the Credit and investment risk is the risk management procedures. Bank’s average capital deployed risk of loss to the Group from between 2020 and 2024) over the failure of clients, customers As part of the annual business the next five years. or counterparties to fully honour planning process, the Group These stress testing outcomes their obligations to the Group, undertakes stress testing on its were considered by the Board including the whole and timely portfolio. Severe but plausible and also communicated to our payment of principal, interest, stressed scenarios featuring stakeholders. collateral and other receivables significant asset value corrections and the risk of loss due to a fall in on the fair value of investments the value of equity investments or and heightened portfolio adverse credit spread movements. defaults are applied to forecast Credit risk includes settlement deployment and stock levels in risk, when a counterparty fails to each Programme within the Bank. settle their side of a transaction, The general approach is that these and concentration risk. Credit risk scenarios are chosen on the basis may arise in any of the Group’s that they are as severe as a 1 in assets where there is the potential 20-year downside scenario (i.e. the for default including loans and worst year in the past 20 years). receivables and available for sale The output of this exercise reflects investments with a contractual the risk undertaken by the Group repayment. operating in underserved finance markets and demonstrates that the Group would suffer significant losses if such a scenario were to materialise.

166 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

Maximum credit risk exposure Maximum Net Maximum Net Exposure Collateral Exposure Exposure Collateral Exposure 2020 2020 2020 2019 2019 2019 £000 £000 £000 £000 £000 £000 Cash and cash equivalents 63,705 - 63,705 152,117 - 152,117 Amounts owed by Shareholder 240,400 - 240,400 525,000 - 525,000 Trade and other receivables 9,837 - 9,837 9,746 - 9,746 Amortised cost investments 471,993 95,150 376,843 431,126 93,770 337,356 Investments held at FVTPL 1,505,522 - 1,505,522 1,288,794 - 1,288,794 Total 2,291,457 95,150 2,196,307 2,406,783 93,770 2,313,013

The Group through its applicable Credit risk rating and loss Assets held at amortised cost delivery partners has the ability to allowance The Group’s investments call on collateral in the event of a The Group has the following assets are assessed by the Group’s default of the counterparty by way subject to expected credit loss Investment Committee. The Group of calling on the asset for which impairments: produces credit risk ratings for the finance has been provided. The its investments based upon the collateral disclosed in the table – Trade receivables estimated Probability of Default relates in full to loans provided in – Assets held at amortised cost and Loss Given Default of that relation to asset-backed finance. investment. – Cash and cash equivalents. The maximum exposure is the The following table presents an carrying value of the financial Trade and other receivables analysis of credit quality of assets assets in the Consolidated Impairment on trade and other held at amortised cost, which were Statement of Financial Position. receivables has been measured on previously classified as Loans and The carrying value of the the 12-month expected loss basis receivables, Available-for-sale, investments in each class of and reflects the short maturities of or Held to maturity. It indicates financial asset is detailed in section the exposures. An expected credit whether assets were subject to 27.2 of this note and in note 13. loss has not been recognised in the a 12-month ECL or lifetime ECL accounts as it would be immaterial. allowance, and whether they were credit-impaired.

British Business Bank british-business-bank.co.uk 167 Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management (continued) As at 31 March 2020

Stage 1 Stage 2 Stage 3 Total £000 £000 £000 £000 Low - - - - Medium 242,501 51,932 - 294,433 High 179,090 38,391 - 217,4 81 Defaulted financial assets - - 82,743 82,743 Total gross carrying amounts 421,591 90,323 82,743 594,657 Loss allowance (26,714) (15,227) (80,723) (80,723) Carrying amount 394,877 75,096 2,020 471,993

The movement in the allowance for assets held at amortised cost during the year was as follows. Stage 1 Stage 2 Stage 3 Total £000 £000 £000 £000 Balance at 1 April 2019 10,901 8,671 61,080 80,652 Remeasurement 6,243 14,201 18,490 38,934 Transfer between staging (3,150) ( 7,317 ) 10,467 - Financial assets derecognised (793) (328) (9,314) (10,435) New financial assets acquired 13,513 - - 13,513 Balance at 31 March 2020 26,714 15,227 80,723 122,664

168 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management (continued) As at 31 March 2019

Stage 1 Stage 2 Stage 3 Total £000 £000 £000 £000 Low 5,000 - - 5,000 Medium 223,559 - - 223,559 High 201,738 15,313 - 217,051 Defaulted financial assets - - 66,168 66,168 Total gross carrying amounts 430,297 15,313 66,168 511,778 Loss allowance (10,901) (8,671) (61,080) (122,664) Carrying amount 419,396 6,642 5,088 431,126

The movement in the allowance for assets held at amortised cost during the preceding year was as follows. Stage 1 Stage 2 Stage 3 Total £000 £000 £000 £000 Balance at 1 April 2018 10,673 10,445 46,688 67,806 Remeasurement (10,308) 3,163 11,542 4,397 Transfer between staging (1,594) (3,162) 4,756 - Financial assets derecognised (672) (1,775) (1,906) (4,353) New financial assets acquired 12,802 - - 12,802 Balance at 31 March 2019 10,901 8,671 61,080 80,652

British Business Bank british-business-bank.co.uk 169 Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management (continued) Not credit-impaired Credit impaired Subject to 12-month ECL Subject to lifetime ECL Subject to lifetime ECL Total Gross Gross Gross Gross carrying Allowance carrying Allowance carrying Allowance carrying Allowance amount for ECL amount for ECL amount for ECL amount for ECL £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 As at 1 April 2019 430,297 (10,901) 15,313 (8,671) 66,168 (61,080) 511,778 (80,652) Transfer to 12 month ECL 2,463 ( 7,629) (2,258) 5,450 (205) 2,179 -- Transfer to lifetime ECL (106,964) 8,167 106,964 (8,167) - --- Transfer to credit-impaired financial asset (14,643) 2,612 (17,235) 10,034 31,878 (12,646) -- New financial assets originated or purchased 271,398 (13,513) - - - - 271,938 (13,513) Fair value adjustment on initial recognition (new lending) (19,394) - - - - - (19,394) - Financial assets that have been derecognised during the period (including write-off) (158,957) 793 (17,859) 328 (13,029) 9,314 (189,845) 10,435 Changes to risk parameters - (6,243) - (14,201) - (18,490) - (38,934) Amortisation 17,391 - 5,398 - (2,069) - 20,720 - As at 31 March 2020 421,591 (26,714) 90,323 (15,227) 82,743 (80,723) 594,657 (122,664) Carrying amount as at 31 March 2020 394,877 75,096 2,020 471,993

170 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management Cash and cash equivalents Interest rate risk (continued) The Group held cash and cash The Group’s investments include a The Group has undertaken equivalents of £63.7m as at 31 combination of fixed and variable sensitivity analysis of the key March 2020 (2019: £152.1m). The rate loans. Interest rate risk is inputs to ECL impairment provision cash and cash equivalents are monitored to ensure that the models. Due to the previously held with banks and financial sensitivity of the Group’s returns benign economic environment institutions which are rated AA- to market interest rate movements and the recent deterioration in to AA+ based on S&P ratings. are understood and managed economic conditions, this analysis within Risk Appetite. The Group has concentrated on the downside The Group considers that cash does not use derivatives to hedge impact on ECL provision levels: and cash equivalents have a low interest rate risk. credit risk based on the external – The potential impact of ascribing credit ratings of the holding parties. LIBOR sensitivity of the Group’s 100% probability to the worst- As such, an expected credit loss investments is estimated as case economic scenario could has not been recognised in the follows: increase provisions by £39.7m. accounts. – The impact of a 1 percentage – The potential impact of a Market risk point increase in the interest rate deteriorated PD input with Market risk is the risk of direct applicable to investments would a sensitivity of a 1-notch or indirect losses that arise be an approximate increase in downgrade on a granular PD from fluctuations in the values income of £5m over a one-year rating scale, equating to 1.5x of, or income from, assets or in period. multiple on all the performing movements in interest or exchange – The impact of a 0.65 percentage loan PD inputs, could increase rates or credit spreads. The Group point decrease in the interest provisions by £20.6m. recognises market risk arising from rate applicable to investments an inability to exit an investment – The potential impact of would be an approximate within the intended timeframe. inaccurately modelled LGD decrease in income of £3m input for the ECL calculations over a one-year period. Larger with a sensitivity of a 1-notch decreases are significantly downgrade on a granular LGD mitigated by LIBOR floors. rating scale, equating to a range of LGD input increases from 2% to 30% depending on the portfolio, could increase provisions by £26.8m.

British Business Bank british-business-bank.co.uk 171 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Currency risk Liquidity risk The Group has also entered into The Group does not have Liquidity risk is the risk that an term facilities with BEIS, the material exposure to currency entity does not have sufficient repayment of which is managed risk as the Group primarily financial resources in the short as part of the Start Up Loans invests in its functional currency, term to meet its obligations as Company’s cashflow forecasting, pounds sterling. There are some they fall due, or its strategy is business planning and liquidity investments in funds which have constrained by inadequate or management processes which an international investment inappropriate funding sources. ensure that any mismatches mandate and are denominated in between maturing assets Euros or US Dollars. A condition The Group manages its liquidity and liabilities are smoothed of investment in these funds risk management as part of its cash and a degree of protection is is that they invest into the UK and operational risk management provided against any unexpected at a fund level a larger amount processes and ensures that developments that may arise. than our financial investment. sufficient funds in liquid form are During the prior year the Group Approximately 6.8% of the Group’s maintained at all times to meet entered into term facilities with the portfolio is in non-pounds sterling liabilities as they fall due. NLF, the repayment terms of which denominated investments. There In relation to the capital grants are set out in note 20. Should there is currently no policy to hedge this provided to the Group, they be a shortfall at the repayment currency risk. Due to the small may become repayable on point of these term facilities, the amount of investments currently demand, in whole or in part, if at Group’s Shareholder has confirmed held in foreign currency, no the absolute discretion of BEIS, it will provide the necessary cash currency sensitivity analysis has certain conditions arise that affect by way of capital investment. been performed. the Start Up Loans Company adversely. The Group is dependent Other than the capital grants and on continuing support from BEIS term facilities, liquidity risk is not that the grants will not be recalled deemed significant to the Group as for a period of at least 12 months it is 100% government funded, with from the date of approval of these all programmes pre-approved and financial statements. committed to, and it does not have a leveraged balance sheet.

172 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

27.3 Financial risk management (continued) Liquidity risk analysis The tables below show cashflows payable up to a period of 10 years on an undiscounted basis.

These differ from the Consolidated Statement of Financial Position values due to the effects of discounting on certain SOFP items and due to the inclusion of contractual lending commitments.

As at 31 March 2020 Within 1 year 2-5 years 5yrs+ Total £000 £000 £000 £000 Financial liabilities Loans and other borrowings 350,000 251,078 - 601,078 Lease liabilities 1,176 7,590 5,449 14,215 Other liabilities 18,447 - - 18,447 Total financial liabilities 369,623 258,668 5,449 633,740 Within 1 year 2-5 years 5yrs+ Undrawn Total £000 £000 £000 £000 £000 Off balance sheet Contractual lending commitments 383,196 774,251 49,561 109,786 1,316,794 ECF loan commitments 79,998 204,554 - - 284,552 Total off balance sheet 463,194 978,805 49,561 109,786 1,601,346

In relation to our contractual lending commitments, it is not anticipated that these will be drawn in full. The above table reflects the anticipated drawdown based on cashflow forecast and also reflects the element of the total commitment that is expected to expire without being drawn ‘Undrawn’. Within 1 year 2-5 years 5yrs+ Total £000 £000 £000 £000 Financial liabilities Loans and other borrowings - 614,900 - 614,900 Other liabilities 15,634 1,168 - 16,802 Total financial liabilities 15,634 616,068 - 631,702

As at 31 March 2019 Within 1 year 2-5 years 5yrs+ Undrawn Total £000 £000 £000 £000 £000 Off balance sheet Contractual lending commitments 298,326 414,476 88,006 143,967 944,775 ECF loan commitments 75,695 189,413 - - 265,108 Total off balance sheet 374,021 603,889 88,006 143,967 1,209,883

British Business Bank british-business-bank.co.uk 173 Notes to the consolidated Annual Report and Accounts 2020 financial statements

Capital transactions. The Bank’s Adjusted this indicator as part of its monthly The British Business Bank Return on Capital employed is performance management and for plc’s share capital comprises governed by BEIS and defined the first 11 months of the financial 1,496,407,924 of issued and fully in a Shareholder Framework year ending 31 March 2020 paid ordinary shares of £1. The Document. The Adjusted Return performance was above the target. Bank is not subject to external on Capital Employed is a key However, the Covid-19 pandemic regulatory capital requirements performance indicator that is set which impacted in March 2020 under the Basel III regulatory for the Bank by its Shareholder as resulted in a significant reduction capital framework and therefore part of the annual planning cycle in the Return in that month. Further does not manage its capital and a figure of 1.2% was achieved details on the Adjusted Return according to the Pillar 1 and Pillar for the financial year ending 31 on Capital Employed are given in 2 requirements set out in that March 2020. The target Adjusted Objective 6 to the Annual Report. framework. Where appropriate Return on Capital Employed the Bank uses internal models for which has been agreed with the measuring economic capital in the shareholder is 2.1%. The Bank assessment of new investment monitors its performance against

28. Related party transactions Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its related parties are disclosed below.

Key Management Personnel Key Management Personnel refer to the Executive Committee of the Group and Non-executive Directors. 2020 2019 £000 £000 Compensation Salaries and other short-term benefits 1,594 1,965 Long-term benefits 364 600 Post-employment benefits 71 134 2,029 2,699

Aggregated contributions in respect of Key Management Personnel to defined contribution pension schemes for the year ending 31 March 2020 were £70,961 (2019: £134,000).

Trading transactions for which there are recharges. related parties by virtue of having The Department for Business, Nuclear Liabilities Fund Limited directors who are also directors Energy and Industrial Strategy (BEIS) (NLF) is a related party by virtue of BBB plc and because they are is the principal shareholder and of being controlled by the Group’s companies owned by the ultimate parent of the British Business Bank ultimate shareholder. All entities shareholder. The Group has plc. BBB plc provides services to under the BEIS group are provided services in the year to BEIS in relation to some financial considered to be related parties. these companies and recognises assets held by BEIS. In return, BBB management fee income in relation Northern Powerhouse Investments plc recognises management fee to the services provided. Limited (NPIL), Midlands Engine income in relation to the services Investments Limited (MEIL) During the year, Group companies provided. In addition, BEIS provided and Cornwall and Isles of Scilly entered into the following temporary staff to the BBB Group Investments Limited (CIoS) are transactions with related parties:

174 British Business Bank british-business-bank.co.uk Notes to the consolidated Annual Report and Accounts 2020 financial statements

2020 2019 £000 £000 Income Management fee BEIS 15,502 15,302 NPIL 899 2,691 MEIL 1,088 1,774 CIoS 80 310 Innovate UK 71 309 NLF 1,612 - Nuclear Decommissioning Authority - 80 East Midlands Early Growth Fund Limited 17 49 Grant income – BEIS 16,685 17,4 61 Write down of repayable grant received – BEIS 37,782 7,291 73,736 45,267

Expenditure Staff seconded from BEIS 142 199 Rent payable to BEIS 207 621 Other amounts payable to BEIS - 54 349 874

Investment transactions Transfer of investments to NLF 38,326 - 38,326 -

Capital Transactions Shares issued to BEIS - 125,000 Grants received from BEIS - 4,100 Loans issued to BEIS - (600,000) Repayments received on loans issued to BEIS 284,600 75,000 284,600 (395,900)

On 1 April 2019, the Group disposed of 20% of its holding in Venture/Growth to the Nuclear Liabilities Fund, which was held in the Consolidated Statement of Financial Position at £40.6m. The proceeds of disposal were £38.3m. One fund did not transfer and as such £2.3m has been transferred back into FVTPL Investments under Venture/Growth, there was no gain/(loss) on disposal.

BPC is acting as agent for the NLF portion of investments and the above management charge reflects its charge for the year.

British Business Bank british-business-bank.co.uk 175 Notes to the consolidated Annual Report and Accounts 2020 financial statements

The Bank has maintained 28. Related party transactions 29. Events after the operational capacity to deliver (continued) reporting date the above Covid-19 schemes in addition to its existing Amounts outstanding at year end In response to the economic shock programmes, by re-prioritising its to the UK caused by the Covid-19 As at 31 March 2020, the Group existing activities, re-deploying pandemic, following the reporting was owed £3.3m from BEIS relating personnel and extending its date the Bank continued to launch to the management fee (2019: resources through recruitment and significant new schemes to assist £2.8m) and owed BEIS £0.2m outsourcing arrangements. (2019: £0.4m). UK businesses, beyond CBILS (launched 23 March). At the time On 10 June, the Bank appointed As at 31 March 2020, the Group of writing, these included: Catherine Lewis La Torre as Interim was owed £0.9m from NPIL CEO, effective 1 September. (2019: £2.6m), £1.1m from MEIL – CLBILS (launched 20 April) (2019: £1.8m), and £0.1m from As at the date of this Annual Report – BBLS (launched 4 May) CIoS (2019: £0.7m) relating to and Accounts, there have been no the management fee. – Future Fund (launched 20 May). other post reporting date events that require disclosure. As at 31 March 2020 the As these schemes sit on the Group was owed £240.4m government’s balance sheet there (2019: £525.0m) in unsecured are no specific transactions under loans by BEIS and owed £54.3m these schemes for the Bank to (2019: £92.1m) in capital grants report. They have however driven to BEIS. a significant and material increase in the Bank’s operations, with the As at 31 March 2020 the Group Covid-19 schemes contributing owed £534.9m (2019: £600.0m) in £51.8bn at 11 August 2020 unsecured loans to NLF. (compared to £7.7bn stock of As at 31 March 2020, the Group finance supported at 31 December has made loan commitments 2019, pre-crisis). to NPIL of £50m (2019: £50m) At the time of writing, it is not and MEIL of £32.5m (2019: possible to form a reasonable £32.5m). During the year ending estimate of the final size of these 31 March 2020 NPIL had drawn schemes, given the inherent down a further £15.7m of its uncertainty due to Covid-19, and loan commitment. MEIL had the fact that these schemes are drawn down £15m of its loan largely demand-led. However, commitment. regular delivery data on these schemes is published by the Bank.

176 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

Independent auditor’s report to the members of British Business Bank plc

Opinion on financial Basis of opinion Conclusions relating to going statements concern I conducted my audit in I have audited the financial accordance with International I have nothing to report in respect statements of British Business Bank Standards on Auditing (ISAs) (UK). of the following matters in relation plc for the year ended 31 March My responsibilities under those to which the ISAs (UK) require me 2020 which comprise the Company standards are further described in to report to you where: Statement of Financial Position, the the Auditor’s responsibilities for the Company Statement of Changes audit of the financial statements – the British Business Bank plc’s in Equity, the Company Cash Flow section of my report. Those use of the going concern basis Statement and the related notes, standards require me and my of accounting in the preparation including the significant accounting staff to comply with the Financial of the financial statements is not policies. The financial reporting Reporting Council’s Revised Ethical appropriate; or Standard 2016. I am independent framework that has been applied – the British Business Bank of the British Business Bank plc in their preparation is applicable plc have not disclosed in in accordance with the ethical law and the International Financial the financial statements any requirements that are relevant Reporting Standards as adopted identified material uncertainties to my audit and the financial by the European Union and as that may cast significant doubt statements in the UK. My staff and regards the parent company about the British Business I have fulfilled our other ethical financial statements, as applied in Bank plc’s ability to continue to responsibilities in accordance with accordance with the provisions of adopt the going concern basis these requirements. I believe that the Companies Act 2006. I have of accounting for a period of the audit evidence I have obtained also audited the information in at least twelve months from is sufficient and appropriate to the Directors’ Remuneration the date when the financial provide a basis for my opinion. Report that is described as having statements are authorised been audited. for issue. In my opinion the financial statements:

– give a true and fair view of the state of the parent company’s affairs as at 31 March 2020

– have been properly prepared in accordance with International Financial Reporting Standards as adopted by European Union

– have been prepared in accordance with the Companies Act 2006.

British Business Bank british-business-bank.co.uk 177 Independent auditor’s report Annual Report and Accounts 2020

fraud may involve collusion, Responsibilities of the Auditor’s responsibilities forgery, intentional omissions, directors for the financial for the audit of the financial misrepresentations, or the statements statements override of internal control

As explained more fully in the My responsibility is to audit and – obtain an understanding of Directors’ Responsibilities express an opinion on the financial internal control relevant to the Statement, the directors are statements in accordance with audit in order to design audit responsible for: applicable law and International procedures that are appropriate Standards on Auditing (ISAs) (UK). in the circumstances, but not – the preparation of the financial for the purpose of expressing an statements and for being An audit involves obtaining opinion on the effectiveness of satisfied that they give a true evidence about the amounts the British Business Bank plc’s and fair view and disclosures in the financial internal control statements sufficient to give – such internal control as reasonable assurance that the – evaluate the appropriateness of management determines financial statements are free accounting policies used and the is necessary to enable the from material misstatement, reasonableness of accounting preparation of financial whether caused by fraud or error. estimates and related disclosures statements that are free from Reasonable assurance is a high made by management material misstatement, whether level of assurance, but is not a due to fraud or error guarantee that an audit conducted – evaluate the overall presentation, structure and content of the – assessing the parent company’s in accordance with ISAs (UK) financial statements, including ability to continue as a going will always detect a material the disclosures, and whether the concern, disclosing, if applicable, misstatement when it exists. financial statements represent matters relating to going concern Misstatements can arise from the underlying transactions and and using the going concern fraud or error and are considered events in a manner that achieves basis of accounting unless material if, individually or in the fair presentation the directors either intend to aggregate, they could reasonably liquidate the parent company or be expected to influence the – conclude on the appropriateness to cease operations, or have no economic decisions of users taken of the British Business Bank plc’s realistic alternative but to do so. on the basis of these financial use of the going concern basis statements. of accounting and, based on the As part of an audit in accordance audit evidence obtained, whether with ISAs (UK), I exercise a material uncertainty exists professional judgment and related to events or conditions that maintain professional scepticism may cast significant doubt on the throughout the audit. I also: British Business Bank plc’s ability to continue as a going concern. – identify and assess the risks of If I conclude that a material material misstatement of the uncertainty exists, I am required to financial statements, whether draw attention in my report to the due to fraud or error, design related disclosures in the financial and perform audit procedures statements or, if such disclosures responsive to those risks, and are inadequate, to modify my obtain audit evidence that is opinion. My conclusions are based sufficient and appropriate to on the audit evidence obtained up provide a basis for my opinion. to the date of my report. However, The risk of not detecting a future events or conditions may material misstatement resulting cause British Business Bank plc’s from fraud is higher than for to cease to continue as a going one resulting from error, as concern.

178 British Business Bank british-business-bank.co.uk Independent auditor’s report Annual Report and Accounts 2020

I communicate with those charged with governance regarding, Opinion on other matters Matters on which I report by among other matters, the planned prescribed by the Companies exception scope and timing of the audit and Act 2006 I have nothing to report in respect significant audit findings, including In my opinion: of the following matters where the any significant deficiencies in Companies Act 2006 requires me internal control that I identify – the parts of the Directors’ to report to you if, in my opinion: during my audit. Remuneration Report to be audited have been properly – adequate accounting records prepared in accordance with the have not been kept by the parent Other information Companies Act 2006 company, or returns adequate for Directors’ are responsible for my audit have not been received – in light of the knowledge and the other information. The other from branches not visited by my understanding of the parent information comprises information staff; or company and its environment included in the annual report, obtained in the course of the – the financial statements and but does not include the parts audit, I have not identified any the part of the directors’ of the Directors’ Remuneration material misstatements in the remuneration report to be Report described in that report as Strategic Report or the Directors’ audited are not in agreement having been audited, the financial Report with the accounting records and statements and my auditor’s returns; or report thereon. My opinion on – the information given in the the financial statements does Strategic and Directors’ Report – certain disclosures of directors’ not cover the other information for the financial year for which remuneration specified by law and I do not express any form of the financial statements are are not made; or assurance conclusion thereon. prepared is consistent with the – I have not received all of the In connection with my audit financial statements and those information and explanations I of the financial statements, reports have been prepared in require for my audit; or my responsibility is to read accordance with applicable the other information and, in legal requirements. – a corporate governance doing so, consider whether the statement has not been prepared other information is materially by the parent company. inconsistent with the financial statements or my knowledge obtained in the audit or otherwise Hilary Lower appears to be materially misstated. Senior Statutory Auditor If, based on the work I have 10 September 2020 performed, I conclude that there is a material misstatement of this For and on behalf of the other information, I am required to Comptroller and Auditor General report that fact. I have nothing to (Statutory Auditor) report in this regard. National Audit Office 157-197 Buckingham Palace Road London SW1W 9SP

British Business Bank british-business-bank.co.uk 179 Company financial statements Annual Report and Accounts 2020

Company financial statements Company statement of financial position as at 31 March 2020 Note 2020 2019 £000 £000 Assets Cash and cash equivalents 9,328 84,677 Amounts owed by Shareholder 2 240,400 525,000 Trade and other receivables 3 311,625 17,860 Investments 4 1,575,725 1,588,982 Property, plant and equipment 2,535 3,595 Right-of-use assets 10,669 - Intangible assets - 4 Deferred tax 270 283 Total assets 2,150,552 2,220,401

Liabilities Trade and other payables 5 (142,504) (139,859) Corporation Tax payable (282) (262) Lease liabilities (12,867) Loans and other borrowings 6 (531,840) (604,264) Provisions (300) (300) Total liabilities (687,793) (744,685) Net assets 1,462,759 1,475,716

Equity Issued share capital 1,496,408 1,496,408 Retained earnings (33,649) (20,692) Total equity 1,462,759 1,475,716

The Company has taken advantage of section 408 of the Companies Act 2006 and consequently the statement of comprehensive income (including the profit and loss account) of the parent company is not presented as part of these financial statements. The (loss)/profit of the parent company for the financial period amounted to £13.2m (loss) (2019: £56.2m profit).

The financial statements of the Company were approved by the Board of Directors and authorised on 10 September 2020. They were signed on its behalf by:

Catherine Lewis La Torre Chief Executive Officer

The notes on p183-186 form an integral part of the financial statements. Company number 08616013

180 British Business Bank british-business-bank.co.uk Company financial statements Annual Report and Accounts 2020

Company financial statements Company statement of changes in equity as at 31 March 2020 Issued Retained capital earnings Total £000 £000 £000 Balance as at 1 April 2019 1,496,408 (20,692) 1,475,716 Other opening adjustments * - 1,355 1,355 Adjustment due to IFRS 16 † - (1,087) (1,087) Balance under IFRS 16 as at 1 April 2019 1,496,408 (20,424) 1,475,984 Net income after tax - (13,225) (13,225) Total comprehensive income - (13,225) (13,225) Issue of ordinary shares - - - Balance at 31 March 2020 1,496,408 (33,649) 1,462,759

Balance as at 1 April 2018 1,371,408 (76,839) 1,294,569 Net income after tax - 56,147 56,147 Total comprehensive income - 56,147 56,147 Issue of ordinary shares 125,000 - 125,000 Balance at 31 March 2019 1,496,408 (20,692) 1,475,716

* Other opening adjustments relate to the impact of reversing the rent-free provision, previously recognised under IAS17 on two of the three leases. Under IAS17 the rent-free provision would have been spread over the life of the leases and unwound as rent charges commenced.

† T he application of IFRS 16 to leases previously classified as operating leases under IAS17 resulted in the recognition of right-of-use assets and lease liabilities. It resulted in a decrease in `Other expenses’ and an increase in depreciation and interest expense.

British Business Bank british-business-bank.co.uk 181 Notes to the Company Annual Report and Accounts 2020 financial statements

Company cash flow statement as at 31 March 2020 Note 2020 2019 £000 £000 Profit/(loss) before tax (13,257) 56,244

Cashflows from operating activities Adjustments for: Depreciation, bad debt and impairments 2,485 699 Interest expense 11,113 5,552 Finance charge 314 - Impairment of investments in subsidiary undertakings 4 13,257 - Purchase of investments in subsidiary undertakings 4 - (1 ,547,839) Disposal of investments in subsidiary undertakings 4 - 1,203,117 Interest paid (3,936) (1,288) Other provision expense - 180 Movement in trade receivables 3 (293,765) 356 Movement in trade payables 5 4,002 132,459 Net cash used in operating activities (279,787) (150,520)

Cashflows from investing activities Purchases of property, plant and equipment (71) (2,730) Net cash used in investing activities (71) (2,730)

Cashflows from financing activities Issue of new shares - 125,000 Payments of lease liabilities (491) Net (increase)/decrease in amounts owed by Shareholder 2 284,600 (525,000) Net increase/(decrease) in loans from Nuclear Liabilities Fund 6 (79,600) 600,000 Net cash from financing activities 204,509 200,000

Net increase/(decrease) in cash and cash equivalents (75,349) 46,750

Cash and cash equivalents at beginning of year 84,677 37,927 Cash and cash equivalents at end of year 9,328 84,677

The notes on p183-186 form an integral part of the financial statements.

182 British Business Bank british-business-bank.co.uk Notes to the Company Annual Report and Accounts 2020 financial statements

Notes to the Company financial statements as at 31 March 2020

1. Significant accounting policies

Basis of accounting The separate financial statements of the Company are presented as required by the Companies Act 2006 (‘the Act’).

The Company’s financial accounting policies are consistent with those described in the consolidated accounts of the British Business Bank plc. Disclosures in relation to share capital have not been repeated here as there are no differences to those provided in the consolidated accounts (note 24).

Investments in subsidiary undertakings are measured at cost less impairment in accordance with IAS 27.

These financial statements have been prepared on the going concern basis as described in the consolidated financial statements of the British Business Bank plc, and under the historical cost convention. The financial statements are presented in pounds sterling, which is the Company’s functional currency.

2. Amounts owed by Shareholder 2020 2019 £000 £000 Amounts owed by Shareholder 240,400 525,000

On 31 August 2018 the Company lent £350m to BEIS, its shareholder, under the terms of a Loan Agreement. The amount lent is repayable on demand and has a zero-interest rate. In the year ending 31 March 2020 £284.6m (2019: £75m) was repaid under this Loan Agreement.

On 15 January 2019 the Company lent a further £250m to BEIS under the terms of a separate Loan Agreement. The amount lent is repayable on demand and has a zero-interest rate. In the year ending 31 March 2020, £nil (2019 £nil) was repaid under this Loan Agreement.

British Business Bank british-business-bank.co.uk 183 Notes to the Company Annual Report and Accounts 2020 financial statements

3. Trade and other receivables 2020 2019 £000 £000 Amounts receivable within one year Trade receivables 77 182 Accrued Income 798 375 Prepayments 857 541 Amounts due from Group companies 309,863 16,748 Other receivables 30 14 Total trade and other receivables 311,625 17,860

4. Investments The Company acts as a holding company for the Group and has the following principal subsidiary undertakings which affected the Group’s results or net assets:

Subsidiary Nature of Business BBB Patient Capital Holdings Limited Holding company British Business Finance Limited (BBFL) Manages investment schemes on behalf of the Group. The Start Up Loans Company (SUL) which provides loans to entrepreneurs is a subsidiary of BBFL Manages investment schemes on behalf of the British Business Financial Services Limited (BBFSL) Department for Business, Energy and Industrial Strategy

All subsidiary undertakings are wholly-owned and incorporated in the UK, all shareholdings are in the name of British Business Bank plc.

During the year ended 31 March 2019 the company disposed of its 100% shareholding in British Business Investments Limited (BBI) to BBB Patient Capital Holdings Limited, which is a 100% owned subsidiary of the Company. British Business Investments Limited and British Patient Capital Limited are 100% owned subsidiaries of BBB Patient Capital Holdings Limited.

See note 25 of the consolidated financial statements for details of all subsidiary holdings of the Company.

At 31 March 2020 Investment in BBI Holdings BBFL Total £000 £000 £000 £000 Opening balance - 1,473,839 115,143 1,588,982 Investment in year - - - - Impairment in year - - (13,257) (13,257) Disposal in year - - - - Closing Balance - 1,473,839 101,886 1,575,725

At 31 March 2019 Investment in BBI Holdings BBFL Total £000 £000 £000 £000 Opening balance 1,203,117 - 41,143 1,244,260 Investment in year - 1,473,839 74,000 1 ,547,839 Disposal in year (1,203,117) - - (1,203,117) Closing Balance - 1,473,839 115,143 1,588,982

184 British Business Bank british-business-bank.co.uk Notes to the Company Annual Report and Accounts 2020 financial statements

5. Trade and other payables 2020 2019 £000 £000 Amounts falling due within one year Trade payables 840 1,181 VAT and social security 1,087 542 Accrued expenditure 8,697 7,896 Amounts due to Group companies 131,339 127,709 Other payables 541 1,686 142,504 139,014

Amounts after more than one year Accrued expenditure - 845 142,504 139,859

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

6. Loans and other borrowings

2020 2019 £000 £000 Unsecured loans 531,840 604,264 Total loans and other borrowings 531,840 604,264

On 23 August 2018 the Group received a loan of £350m from the Nuclear Liabilities Fund to be used for general corporate purposes, which is repayable in full on 23 August 2020. This loan accrues interest at a rate of 2% per annum and £7.2m (2019: £4.2m) of interest accrued in the year. The balance of this loan at 31 March 2020 was £361.4m (2019: £354.2m).

On 28 December 2018 the Group received a second loan of £250m from the Nuclear Liabilities Fund which is used for making investments on behalf of the Nuclear Liabilities Fund after 1 April 2019. The term of this loan is 4 years with the value reducing in £5m tranches as the Group makes investment payments on behalf of the Nuclear Liabilities Fund. Any amount unutilised at 28 December 2022 will be repaid on this date. This loan accrues interest at a rate of 2% per annum for the first 2 years decreasing to 1.5% for the remaining life of the loan and £3.9m (2019: £1.3ml) of interest accrued in the year. During the year repayments of £79.6m (2019: nil) were made against the unsecured loans and interest of £3.9m (2019: £1.3m) was repaid. The balance of this loan at 31 March 2020 was £170.4m (2019: £250m).

Total interest payable in the year on the two Nuclear Liabilities Fund loans was £11.1m (2019: £5.5m).

BEIS is a party to both of the Nuclear Liabilities Fund loan agreements, under the terms of which it has undertaken at the repayment dates, to provide funding to the Group to enable it to discharge its obligations to repay the loans including any interest or costs accrued.

British Business Bank british-business-bank.co.uk 185 Notes to the Company Annual Report and Accounts 2020 financial statements

End notes 1 British Business Bank, Smaller Business Finance Markets 2020, https:// 7. Related party transactions 8. Controlling party www.british-business-bank.co.uk/ wp-content/uploads/2020/02/Small- During the year under review In the opinion of the Directors, the Business-Finance-Markets-2019-20- British Business Bank plc Company’s ultimate controlling report-FINAL.pdf was 100% owned by the UK party is the Secretary of State 2 British Business Bank analysis of Government, with the shareholder for the Department for Business, PitchBook, Beauhurst and other third being the Secretary of State for the Energy and Industrial Strategy. The party data as at June 2020 Department for Business, Energy consolidated financial statements 3 British Business Bank, Smaller Business and Industrial Strategy (BEIS). The of the Department for Business, Finance Markets 2020, https:// www.british-business-bank.co.uk/ Company has elected to take the Energy and Industrial Strategy are wp-content/uploads/2020/02/Small- exemption under IAS 24 regarding available from the government Business-Finance-Markets-2019-20- disclosure of transactions with departments’ website at GOV.UK. report-FINAL.pdf related parties because the UK Copies of the Group financial 4 British Business Bank, Smaller Business Government has control over both statements of the British Business Finance Markets 2020, https:// the Company and other related Bank plc are available from www.british-business-bank.co.uk/ entities. Compensation paid Companies House, Crown Way, wp-content/uploads/2020/02/Small- to key management personnel Maindy, Cardiff CF14 3UZ. Business-Finance-Markets-2019-20- report-FINAL.pdf is disclosed in the Directors’ 5 Remuneration Report. British Business Bank, Business Finance Survey 2019, https://www.british- The Company trades with business-bank.co.uk/wp-content/ uploads/2020/03/2019-Business- Government bodies on an arm’s Finance-Survey.pdf length basis on commercial 6 BVA BDRC, SME Finance Monitor, terms in line with contractual YE Q4 2019 agreements. The main Government 7 As of 14 August 2020. All references to bodies transacted with are BEIS the number of Covid-19 scheme delivery and the Company’s principal partners in the strategic report, whether subsidiary undertakings BBB on an aggregate or per-scheme basis, Patient Capital Holdings Limited, are as of this date. All other Covid-19 British Business Finance Limited scheme delivery data is as published by (BBFL) and British Business government on 11 August 2020 Financial Services Limited (BBFSL). 8 National Audit Office, British Business Bank, 2020, https://www.nao.org.uk/ The Group’s trading and other wp-content/uploads/2020/01/British- capital transactions with BEIS were Business-Bank.pdf all effected through the Company 9 British Business Bank, Smaller Business and are disclosed in note 28 of the Finance Markets 2020, https:// www.british-business-bank.co.uk/ consolidated financial statements. wp-content/uploads/2020/02/Small- The Company made charges to its Business-Finance-Markets-2019-20- principal subsidiary undertakings report-FINAL.pdf in respect of services provided on 10 SQW Ltd., Northern Powerhouse their behalf amounting to £43.7m Investment Fund – Early Assessment (2019: £40.1m). Report 2019, https://www.british- business-bank.co.uk/wp-content/ uploads/2019/07/NPIF-early-assessment- report-FINAL_24-July-2019.pdf 11 NAO, British Business Bank 2020, press notice, https://www.nao.org.uk/ press-release/governments-support-to- business/ 12 National Audit Office, British Business Bank, 2020, https://www.nao.org.uk/ wp-content/uploads/2020/01/British- Business-Bank.pdf

186 British Business Bank british-business-bank.co.uk This is a certified climate neutral print product for which carbon emissions have been calculated and offset by supporting recognised carbon offset projects. The carbon offset projects are audited and certified according to international standards and demonstrably reduce emissions.

The climate neutral label includes a unique ID number specific to this product which can be tracked at www.climatepartner.com, giving details of the carbon offsetting process including information on the emissions volume and the carbon offset project being supported.

Design: red-stone.com

Photography (excluding front cover, case studies and pages 3, 5, 7, 10, 12, 17, 18, 20, 22, 24, 26, 30, 34, 43, 58, 71, 72 and 76): Tom Donald and Oliver Goodrich

Some stock photography has had to be used in this year’s report due to Covid-19 restrictions. British Business Bank plc Steel City House West Street Sheffield S1 2GQ t. 0114 206 2131 e. [email protected] british-business-bank.co.uk © British Business Bank plc September 2020

All figures source British Business Bank 31 March 2020 unless otherwise stated.

British Business Bank plc is a public limited company registered in England and Wales (registration number 08616013, registered office at Steel City House West Street Sheffield S1 2GQ). 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. Accordingly, none of the British Business Bank group of companies takes deposits or offers banking services. A complete legal structure chart for British Business Bank plc and its subsidiaries can be found at www.british-business-bank.co.uk