Today we publish our results for the 2019 financial year covering January to December. The outbreak of the Covid-19 pandemic has had far-reaching consequences for the organisations we support through our investments, but it is too early to quantify what the financial impact will be. These results represent our financial position before the emergence of Covid-19.
For 2019 we are reporting a net loss of £2.1 million, compared to a net loss of £6.5 million in 2018.This improved financial performance in 2019 was driven by a combination of growing income and lower write downs on our social impact investment portfolio, together with improved returns from our Treasury portfolio.
Social investment portfolio valuation trend positive
We reported a small investment loss of £38,000 (2018: £3.1 million loss) in the social investment portfolio. Valuation movements on our portfolio continue to be a key driver of year-by-year results. Overall, there was a downward movement in the underlying valuation of our investments, with write-downs (reduced valuations) across the social impact investment portfolio outweighing valuation increases. However, these write-downs were lower when compared to the prior year. We expect to see volatility in the portfolio and small valuation movements up or down can have a disproportionate effect on our financial results.
Treasury portfolio returns reflect favourable market conditions
The return on our treasury portfolio, where we hold our funds before they are drawn down into the social impact portfolio, was £5.7 million, ahead of the prior year (2018: £2.9 million). This is largely due to favourable market movements which are expected to reverse in 2020. We deploy our treasury portfolio proactively to create social impact while fulfilling our objectives to preserve capital, maintain liquidity and generate returns on investment.
Operating costs reflect growing portfolio
Operating costs of £7.9 million for the year (2018: £6.4 million) increased in line with expectations as we continue investment to build resilience and support the delivery of our strategy as the portfolio grows.
While the Covid-19 outbreak has not impacted the value of our investments in 2019, the consequences of the pandemic are likely to lead to a significant write down in 2020. Right now, the scale of any write down is unclear, although it is apparent that some areas of our portfolio will be impacted more than others.
A preliminary look at the potential impact on our portfolio indicates this is likely to be on direct lending (c.30% of the portfolio) and where business models are driven by footfall, directed at financial inclusion or can be fragile due to minimal reserves. In our social outcome and venture fund investments (c.20% of the portfolio) the impact is likely to be lower and linked to challenges such as ability to provide services and shifts in financial markets. Some investments in this group e.g. those in the tech sector, could in fact see some benefit. Our community renewable energy, housing and charity bond investments (c.50% of the portfolio) are expected to suffer less impact as revenues are generally better protected. How long the pandemic lasts and the speed at which the economy recovers will ultimately determine the financial impact of the current crisis.
Our new investments in 2019
In 2019, we committed to new investments totalling £74 million across our investment themes of Homes, Place and Early Action and existing portfolio areas. This includes £5 million for Bristol & Bath Regional Capital supporting Bristol’s One City initiative to invest in enterprise-based solutions to help address some of Bristol’s priority social challenges, £3 million for Connect Ventures to support purpose-led tech-enabled ventures that help build a better society and £15 million for BMO UK Residential Real Estate, a fund established to address the UK housing shortfall by attracting long term institutional investment through the delivery of flexible build to rent stock. Details of other new commitments made in 2019 can be found in the Report and Financial Statements, and on our website.
Our approach to impact in 2019
We are committed to improving how we understand, manage and communicate the social impact we seek to achieve through our investment. In 2019, our approach to impact continued to evolve, we have grown our Impact Team and will be issuing an Impact Review later in 2020.
With each investment, we aim for three types of impact outcome:
- Impact on people: The change we want to see in people’s lives
- Impact on the system: The changes that benefit enterprises, fund managers and investors
- Financial sustainability: Achieving a positive financial return that attracts other investors and therefore achieves the greatest social impact
By the end of 2019, 1,209 social enterprises and charities have received money from us and other investors alongside. We have invested over £80 million with a focus on early action and we expect to support 47,000 people through our social outcome contracts. We have invested over £75 million with a focus on housing for vulnerable people and our work will provide 4,600 people with homes. We have also invested £150 million with a focus on place-based investments and we are projecting £30 million of community savings and benefit funds from community renewable energy projects.
In these challenging times our overriding purpose, to improve the lives of people in the UK through investment with a sustainable return, remains the same. The impact of the COVID-19 epidemic will be felt most keenly by the most vulnerable people in our society. We are well-positioned to respond to the crisis and help those in most need. We have already taken action to enable the sharing of information across the sector, to adjust our existing funding and explore new funding opportunities. We are planning not just for the current emergency but also to help the sector rebuild for the future.