Our latest Annual Report tells a positive story. We have seen encouraging growth during our third year in operation. Our deal flow has doubled along with our portfolio of clients, and we’re investing in an increasing number of industries which rely on our intervention to accelerate their growth. In October we received a huge vote of confidence from Chancellor, Rachel Reeves, who announced the transition of the UK Infrastructure Bank into the National Wealth Fund (NWF).
As we publish our Annual Report and Accounts today for the fiscal year ending March 2024, you will see that we completed 18 new transactions during that period, representing £1.7bn in commitments. As of today, we have cumulatively invested £4.7 billion, unlocking approximately £12.3 billion in private capital, and creating or supporting approximately more than 17,000 jobs. This is more than double what we were reporting at this time last year.
Looking at these figures, you might then be surprised to see that we are reporting an after-tax loss of almost £66m. So why is this? First, for each new investment we are required to recognise any expected credit losses (ECLs) at the point of our financial commitment to the deal. This is not actual cash leaving the business. It involves making provision for possible default on investments in the portfolio. This is both a prudent and required accounting treatment. It may well be that some, or even none of these ECLs, are realised. And if that is the case, these provisions are reversed and added back to the bottom line at the end of a deal’s term.
Second, our portfolio of fund investments reports their underlying assets on a fair value basis. In the year ending March 2024, the fair values were £46 million lower than the prior year, or approximately 10% of the total funded exposure. This predominantly due to challenges in the digital sector, where the private finance market has been constrained. And much like our ECLs, these fair value adjustments have not been realised to date. Equity or equity-like investments in the sectors we support inherently carry more risk, and therefore we expect volatility in valuations over time, either based on macroeconomic issues or company-specific challenges.
Whilst our portfolio is growing, it is still in its infancy; we are not yet at the size where the portfolio generates sufficient levels of income to absorb either the expected credit loss provisions of each new debt investment that we commit to or negative swings in fair values on equity commitments. That position will change over time and our long-term objective is still to be consistently profitable.
Let’s not forget that our mission dictates that we measure more than just the numbers. Our success is judged on the broader impact of our investments. That’s where the real story lies. Infrastructure investment is a long-game, and the benefits of the investments we are making now will accrue for many years to come, taking time to feed through to the financials.
So, how are we measuring our success in terms of this broader impact? Our metrics include, but are not limited to, private finance mobilised, jobs created and retained, and greenhouse gas emissions abated or avoided. We assess every proposed transaction against these metrics, to inform our decision about whether or not to proceed. In our investment principles, we commit to being additional, which means we never crowd out private sector investors. We have, and will continue to, walk away from deals at late stages because private investors have been able to fund the transaction without us. Quite simply, that is us fulfilling our role. We are not here to deploy public money where it is not needed.
We are proud of our achievements in the last financial year. Our investments have unlocked a range of positive outcomes and will help install up to 2.3 GW energy storage capacity at facilities such as Sheaf Energy Park in Kent, and manufacturing hydrogen power units to replace diesel generator with GeoPura.
Importantly, by taking on challenges – such as co-designing and investing in an innovative platform to finance zero emission buses with Rock Road and Aviva - we are demonstrating to the market how we can support them and work in partnership to overcome barriers to investment to support our transition to net zero.
As our portfolio matures, we are already seeing evidence of our impact. We were excited last month to see Cornish Lithium, in whom we invested in August 2023, open the UK’s first low-emission, lithium hydroxide demonstration plant, which will reduce the UK’s reliance on carbon-intensive, imported lithium by extracting supplies domestically in a sustainable way.
Evaluating our impact is an important part of effectively managing public money, and recently we commissioned an Early Learnings Assessment to health check the robustness of our impact frameworks. The report concluded that our current processes offer a strong basis to measure impact and additionality and recommended some enhancements, which we will implement to further improve our current processes. Significantly, the report also found that, although evidencing crowding-in this early is difficult, we had unlocked significant private capital and had not crowded-out the private sector.
As we look back at what we have achieved, we also look forward to our new chapter as the NWF. Crucially, three years in, we are confident that we are establishing the right expertise, to make the right investment decisions that will deliver a return for the taxpayer, mobilise private investment and deliver growth and support clean industries across the UK for decades to come. That will be the true story of the NWF.
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