'I am really excited that we are starting to hit our stride'

The bank reported a pre-tax loss of £14.6m for the year ended March 31, 2024, following a loss of £20.2m the year before. This reflected a realised loss of £8m on its investment in Circularity Scotland, the company set up to run the DRS which fell into administration in June 2023, as well as unrealised losses of £9.8m on the revaluation of investments.

But the accounts reveal the bank’s investment income leapt by 80% to £19.3m, which came as operating costs rose to £16.1m – 13% lower than budgeted costs of £18.5m - from £13m the year before. It was the first time investment income exceeded costs at the bank since it opened its doors in November 2020.

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Excluding capital losses, the bank was profitable over the year.

The accounts cover chief executive Al Denholm’s first year in the role. Despite recording a loss, the accounts show Mr Denholm’s pay package for the period from joining on May 1, 2023, and March 31, 2024, was worth £335,302. This includes £220,000 of salary and £88,902 under a long-term incentive plan. He is paid an annual salary of £240,000.

Mr Denholm, an investment industry veteran of nearly 40 years, declared the bank is in “good shape”.

“We are moving from start-up, beginning to mature and becoming an increasingly established organisation,” he told The Herald. “For example, our income was up 80% to £19m, so in the 2023/ 2024 year we covered our cost base which was £16m, so that was positive.

“Clearly, as the portfolio grows that income should continue to grow, so hopefully it is a sign of things to come. Last year, we committed £225m to Scottish businesses and projects, which is very beneficial, and in that year we managed to bring in £400m of private capital alongside us. If you look at it as a total, the last three years, we are now at £640m, £650m of capital committed, with about £1bn of third-party capital coming alongside us.”

Mr Denholm added: “I’m realty excited also by the fact that, as a CEO, we are really starting to mature and hit our stride. We have good people and the right engagement and a really strong culture and a motivated team. We are really making a difference to Scotland.”

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Mr Denholm was also keen to underline the “impact” SNIB was making through its investments in Scotland, noting that 1,850 jobs had been created through its investee businesses. Some 649 affordable homes have been built through its backing of Thriving Investment’s Mid-Market Rent Fund.

The SNIB was established to provide development capital to Scottish firms engaged in the bank’s three core missions: the drive to net zero, tackling place-based inequality, and supporting innovation. It was set up with a war-chest of £2bn from ministers to be deployed over a 10-year period.

The accounts show the bank committed £225m of investment capital to 20 companies in its last financial year; of that figure, £129m was committed to eight new investments, while £96m of growth capital was provided for 12 follow-on investments.

The bank had by year-end committed around £640m of capital since its inception, with around 35 companies in its growing portfolio.

It underlined the total amount of investment “crowded-in” from the private sector as a result of its activity, which had exceeded £1bn as of March 31 this year. More than £400m of capital was committed alongside the bank’s investments last year, compared with £238m the year before.

However, the bank said the amount of capital it will deploy over its current financial year (2024/ 2025) will be lower than the previous year, following budget announcements made by the Scottish Government in December. The bank will have £181m to invest this year, and writing in its business plan for 2024/2025, Mr Denholm states that the reduction in funding “in no way dims the ambition of the bank; our missions are too important”.

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He told The Herald today: “It is still a sizeable number. It will still allow us to make a lot of really good investments within the Scottish economy.”

Mr Denholm succeeded the bank’s inaugural boss, Eilidh Mactaggart, in May last year, following a lengthy recruitment process. Ms Mactaggart had left abruptly in February 2022, sparking controversy as the bank did not immediately comment on the reasons for her departure.

Mr Denholm arrived at the bank shortly before Circularity Scotland fell into administration, resulting in a loss of £8m for SNIB.

Circularity Scotland was funded by industry bodies but fell into administration when the Scottish Government effectively kicked the DRS into the long grass, having failed to secure an exemption from Westminster from the Internal Market Act that would have allowed it to proceed.

Asked if the episode had led the bank to alter its approach, Mr Denholm said he had reviewed the bank’s investment in Circularity Scotland and found he was “personally comfortable” with the due diligence that had been carried out, stating that it had been “robust” and “well-considered”. “It was the kind of due diligence I would expect of any institutional investor, so I wouldn’t necessarily say that we have had to change anything as a result of that, because our processes are robust," he said.

“Clearly, that one did not work out. With every investment there is a risk and a reward.”

SNIB chairman Willie Watt, a former boss of investment firm Martin Currie whose tenure at the bank was extended for a further four years in May 2023, said: “The bank was established to be an impact investor, to drive growth in our economy, provide financial returns on public capital and deliver social impact. These are long-term goals, and we are operating in a challenging macroeconomic environment, which makes our progress all the more significant.

“The bank’s income exceeded operational expenses for the first time. This is significant but we are conscious that in our early years this remains sensitive to the mix of investments, continued deployment, and availability of capital to invest.

“This acceleration towards profitability has been progressive, with our income growing significantly year-on-year. A key factor in this was the clarity provided by Scottish ministers at the time of our founding, with a bold commitment to capitalise the bank with £2 billion over 10 years.

“The bank was conceived as a perpetual institution that would redeploy investment returns for the people of Scotland and we need to make this structure a reality.”