Annual Report and Accounts 2017 Annual Report and Accounts 2017 A year of expansion and significant growth Over the past year, we have broadened and expanded our support for smaller businesses, cementing our place as a key enabler of finance markets in the UK. Our market impact continues to grow, as borne out by strong delivery against our Key Performance Indicators. Keith Morgan Chief Executive Officer British Business Bank — Annual Report and Accounts 2017 1 Contents 02 04 06 39 Chair’s statement Chief Executive’s Strategic report Directors’ report statement 60 74 75 80 Directors’ remuneration Directors’ responsibilities Independent Consolidated financial report auditor’s report statements 84 113 115 Notes to the consolidated Independent Company financial financial statements auditor’s report statements 2 British Business Bank — Annual Report and Accounts 2017 Chair’s statement Chair’s statement Scaling and strengthening We have achieved this progress We continue to act as a trusted against a rapidly evolving political advisor on important priorities for and economic background. Thanks the department and the government to the adaptability designed into more widely, such as the new our organisation from the outset, Industrial Strategy, the Patient Capital the Bank has been able to respond Review and funding for innovation. to changes in our environment and the finance markets with flexibility and agility while continuing to Start Up Loans Company deliver for smaller UK businesses The Start Up Loans Company (SULCo) and our government shareholder. joined the British Business Bank group on 1st April 2017. SULCo has Christina McComb This organisational flexibility and a well established and successful Interim Chair, our track record in innovation is likely track record providing finance to Senior Independent Director to be increasingly important, as the micro businesses across the UK. This government negotiates the UK’s means that, as a group, the Bank is future relationship with Europe. now able to offer support for funding There have been many suggestions around how our role may change as for businesses at all stages of their a result and, while it is too early to development – from microfinance to later-stage venture capital. By the start of 2016/17, the be certain of what the future holds, British Business Bank had I am confident that the Bank is well We were delighted to welcome placed to support the country’s successfully moved from our SULCo colleagues into our smaller businesses whatever the organisation and I am pleased to its startup phase to delivery. outcome of negotiations. report that the integration process A year on, the business has is making good progress. substantially scaled up its Extending partnerships programmes and broadened Our people its support for smaller Throughout the year, we have continued to develop our partnerships businesses across the UK. During 2016/17 our staff numbers with a broad range of finance have grown from 117 to 167. Such providers, fund managers and rapid expansion brings a series of challenger banks. A key highlight of challenges, as many of the scale-up this year was the successful delivery businesses we support will know of the £400m Northern Powerhouse all too well – including a need for Investment Fund, in partnership with communication, changes to ways ten Local Enterprise Partnerships of doing things and developing more across the Northern Powerhouse robust systems and procedures. region. This unique collaboration, described in greater detail later in this report, is a compelling illustration of how we work alongside our partners to deliver finance to smaller businesses where it is most needed. Addressing regional disparities in finance is a key aim of our shareholder, the Department for Business, Energy and Industrial Strategy. Chair’s statement British Business Bank — Annual Report and Accounts 2017 3 It is testament to the dedication Neeta Atkar was appointed as The Board and commitment of our people Non-executive Director and Chair throughout the organisation that There have been a number of Board of the Risk Committee in July 2016, we have made such meaningful changes this year. Ron Emerson stood taking over from Teresa Graham, progress this year whilst building down as the British Business Bank’s who had been fulfilling the latter and scaling to such a degree. Chair in September 2016, taking with role on an interim basis. him our thanks for overseeing the We are committed to making the Bank In April 2017 our shareholder setup of the Bank as its first Chair. a great place to work. The outputs announced the appointment of I have been privileged to fill the role from our most recent annual colleague our new Chair, Lord Smith of Kelvin, of Interim Chair over the past nine survey reflect the success of our to the British Business Bank, and months and I am delighted now to approach, with 95% of our workforce I and the rest of the Board look hand over to our new Chair, Lord Smith. saying they were proud to work for forward to working together with our organisation. Our people continue him in supporting the UK’s smaller to be our most important resource, business community. bringing their expertise, experience and enthusiasm to bear in contributing to our organisational goals. The purpose of the British Business The British Business Bank stands ready Bank is to make sure that smaller UK to play its part in supporting our smaller businesses have access to the finance businesses to succeed. In a short space that they need to invest, to grow and of time the Bank has demonstrated an to achieve their ambitions. This is a ability to make things better and easier mission I care passionately about and for smaller businesses, though more have dedicated a large part of my can and will be done. It has also built business career to advancing. The a centre of expertise and a business Bank has an already vital and growing capable of scaling up quickly, taking role to play in furthering that mission, on new responsibilities and a broader which is why I am so pleased to be remit should the opportunity arise. joining as its new Chair. I am confident that we will see our Lord Smith of Kelvin organisation grow and expand in the Chair I join the organisation at a critical time coming years, only and always with for smaller businesses across the UK the objective of furthering its mission. and for the British Business Bank itself. My immediate priority, on becoming It is obvious to say that our small chair, is to meet with a wide group businesses face a period of change. of smaller businesses and their What is now clear is that the scale representatives to gain a better of this change is unprecedented in understanding of how the British the experience of most of our Business Bank can best make a entrepreneurs. Their ability to weather difference. I am looking forward to the challenges and capitalise on the working with the Bank’s team and our opportunities that this change is colleagues in Government, including bringing will determine the long-term our Minister Margot James. Together, strength of our economy. If smaller and with our partners, we should make businesses are winning, at home and a formidable team, working on behalf abroad, so too is our society and of the UK’s 5.5m smaller businesses. economy. The converse is also true. 4 British Business Bank — Annual Report and Accounts 2017 Chief Executive’s statement Chief Executive’s statement A year of expansion and significant growth Over the past year, we have — A broadening of our offer on broadened and expanded our information about finance options, helping businesses to become support for smaller businesses, more aware of, consider and cementing our place as a key explore the choices provided enabler of finance markets by the market in the UK. Our market impact — A 4% adjusted return on capital, continues to grow, as borne exceeding the target set by out by strong delivery against government. our Key Performance Indicators. The financial statements for British Business Bank plc show an operating Keith Morgan The British Business Bank was profit of £49.8m. However we made Chief Executive set up to increase the amount and a loss after tax for the year of £12.2m. range of finance available to smaller This loss reflects the fact that, UK businesses. We believe that although we expect to receive a businesses that need finance – positive return on our Enterprise whether to start up, realise their Capital Funds, accounting standards growth ambitions or simply to require us to recognise up-front maintain their success – should be provisions on new commitments able to find and access the right in this programme. These are not finance for their needs. provisions for bad debt and are This applies to businesses right expected to unwind over future years. across the UK, and across all sectors During the year, we broadened the of the economy. 2016/17 has seen criteria for our ENABLE Funding us launch our first regionally-focused programme and Enterprise Finance fund, introduce new funds dedicated Guarantee to open them up to to scaleups in innovative sectors, providers of a much broader range and flex our existing interventions of finance, as well as introducing an to support a broader range of expansion capital initiative under our finance types. Investment Programme to support the Our performance this year reflects growth of diverse finance products. the growth in our organisation, with Geographically, we have started to a substantial increase in the stock tackle the well-documented lack of of finance we enable and continued finance provision – particularly equity strong delivery against our other finance – in the regions outside objectives.