Keystone Positive Cg - Annual Financial Report
08/12/2023 14:53
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RNS Number : 2284W Keystone Positive Change I.T. PLC 08 December 2023
Keystone Positive Change Investment Trust plc ('KPC')
Legal Entity Identifier: 5493002H3JXLXLIGC563
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results announced to
the Stock Exchange on 28 November 2023, Keystone Positive Change Investment
Trust plc ("the Company") announces that the Company's Annual Report and
Financial Statements for the year ended 30 September 2023, including the
Notice of Annual General Meeting, has today been posted to shareholders and
submitted electronically to the National Storage Mechanism where it will
shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
It is also available on the Company's page of the Baillie Gifford website at:
www.keystonepositivechange.com (http://www.keystonepositivechange.com) (as is
the preliminary statement of audited annual results announced by the Company
on 28 November 2023).
Statement of Directors' Responsibilities in respect of the Annual Report and
Financial Statements
Each of the Directors, whose names and functions are listed within the
Directors and Management section of the Annual Report and Financial
Statements, confirm that, to the best of their knowledge:
¾ the Financial Statements, which have been prepared in accordance with
applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) including FRS 102 'The Financial
Reporting Standard applicable in the UK and Republic of Ireland', give a true
and fair view of the assets, liabilities, financial position and net return of
the Company;
¾ the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces; and
¾ the Annual Report and Financial Statements taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Principal and Emerging Risks relating to the Company
As explained on pages 66 and 67 of the Annual Report and Financial Statements
there is an ongoing process for identifying, evaluating and managing the risks
faced by the Company on a regular basis. The Directors have carried out a
robust assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance,
regulatory compliance, solvency or liquidity. A description of these risks and
how they are being managed or mitigated is set out below.
The Board considers the impact of heightened market volatility since the
Covid-19 pandemic and over recent months due to macroeconomic and geopolitical
concerns to be factors which exacerbate existing risks, rather than discrete
risks, within the context of an investment trust. Their impact is considered
within the relevant risks.
What is the risk? How is it managed? Current assessment of risk
Financial Risk: The Company's assets consist mainly of listed securities and In order to oversee this risk, the Board considers at each meeting the This risk remains high due to market volatility as a result of heightened
its principal and emerging financial risks are therefore market related and composition and diversification of the portfolio by impact theme and holding macroeconomic and geopolitical concerns.
include market risk (comprising currency risk, interest rate risk and other size, along with sales and purchases of investments. Individual
price risk), liquidity risk and credit risk. An explanation of those risks and
how they are managed is contained in note 19 to the Financial Statements. investments are discussed with the investment managers together with their
general views on the various
investment markets and sectors. A strategy meeting is held annually. The Board
has, in particular, considered the impact of heightened market volatility over
recent months owing to macroeconomic and geopolitical concerns. The value of
the Company's investment portfolio would be affected by any impact, positively
or negatively, on sterling but such impact would be partially offset by the
effect of exchange rate movements on the Company's US$ denominated borrowings.
What is the risk? How is it managed? Current assessment of risk
Investment strategy risk: Pursuing an investment To mitigate this risk, the Board regularly reviews and monitors: the Company's This risk remains high as the market's appetite for the innovative growth
objective and investment policy and strategy; the investment portfolio and its stocks typically held by the Company remains subdued, owing to macroeconomic
strategy to fulfil the Company's objective which performance in terms of impact and shareholder returns; the level of and geopolitical concerns.
discount/premium to net asset value at which the shares trade; and movements
the market perceives to be unattractive or in the share register, and raises any matters of concern with the Managers.
inappropriate, or the ineffective implementation of an attractive or
appropriate strategy, may lead to reduced returns for shareholders and, as a
result, a decreased demand for the Company's
shares. This may lead to the Company's shares trading at a widening discount
to their net asset value.
What is the risk? How is it managed? Current assessment of risk
Climate and governance risk: As investors place increased emphasis on This is mitigated by the Managers' strong ESG stewardship and engagement The Managers continue to employ strong ESG stewardship and engagement
Environmental, Social and Governance ('ESG') issues, perceived inaction on ESG policies, which have been endorsed by the Company, and which are fully policies.
matters in an investee company could lead to that company's shares being less integrated into the investment process, as well as the extensive up-front and
attractive to investors, adversely affecting its share price, in addition to ongoing due diligence which the Managers undertake on each investee company.
potential valuation issues arising from any direct impact of the failure to This due diligence includes assessment of the risks inherent in climate
address the ESG weakness on the operations or management of the investee change.
company (for example a failure to identify a pathway to Net Zero or poor
employment practices). Repeated failure by the Managers to identify ESG
weaknesses in investee companies could lead to the Company's own shares being
less attractive to investors, adversely affecting its own share price.
What is the risk? How is it managed? Current assessment of risk
Discount risk: The price at which the Company's shares trade relative to its To manage this risk, the Board monitors the level of discount/ premium at The Company's discount widened during the year.
net asset value can change. The risk of a widening discount is that it may which the shares trade and the reasons for movements in either direction. The
undermine investor confidence in the Company and the wider investment trust Board has a range of options available to address widening discounts and/or
sector, and attract arbitrageurs whose interests may not be aligned with those premiums, including reviewing the investment strategy or marketing approach.
of long-term investors. The Company also has authority to buy back or issue shares when deemed by the
Board to be in the best interests of the Company and its shareholders. During
the year, the Chair and the Company's brokers met with shareholders to discuss
their concerns, including attitudes to the widening discount and the Board has
committed to offer a Continuation Vote after five full financial years of the
Positive Change strategy.
What is the risk? How is it managed? Current assessment of risk
Regulatory risk: Failure to comply with applicable legal and regulatory To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and All control procedures are working effectively. There have been no material
requirements such as the tax rules for investment trust companies, the FCA Compliance Departments provide regular reports to the Audit Committee on regulatory changes that have impacted the Company during the year.
Listing rules and the Companies Act could lead to the Company being subject to Baillie Gifford's monitoring programmes. Major regulatory change could impose
tax on capital gains, suspension of the Company's Stock Exchange listing, disproportionate compliance burdens on the Company. In such circumstances
financial penalties or a qualified audit report. representation is made to ensure that the special circumstances of investment
trusts are recognised. Shareholder documents and announcements, including the
Company's published Interim and Annual Report and Financial Statements, are
subject to stringent review processes and procedures are in place to ensure
adherence to the Transparency Directive and the Market Abuse Directive with
reference to inside information.
What is the risk? How is it managed? Current assessment of risk
Custody and depositary risk: Safe custody of the Company's assets may be To mitigate this risk, the Board receives six-monthly reports from the All control procedures are working effectively.
compromised through control failures by the depositary, including breaches of depositary confirming safe custody of the Company's assets held by the
cyber security. custodian. Cash and portfolio holdings are independently reconciled to the
custodian's records by the Managers. The custodian's internal controls reports
are reviewed by Baillie Gifford's Business Risk Department and a summary of
the key points is reported to the Audit Committee and any concerns
investigated.
What is the risk? How is it managed? Current assessment of risk
Operational risk: Failure of Baillie Gifford's systems or those of other third To mitigate this risk, Baillie Gifford has a comprehensive business continuity All control procedures are working effectively.
party service providers could lead to an inability to provide accurate plan which facilitates continued operation of the business in the event of a
reporting and monitoring or a misappropriation of assets. service disruption or major disaster. The Audit Committee reviews Baillie
Gifford's Report on Internal Controls and the reports by other third party
providers are reviewed by Baillie Gifford on behalf of the Board and a summary
of the key points is reported to the Audit Committee and any concerns
investigated. In the year under review, the other key third party service
providers have not experienced significant operational difficulties affecting
their respective services to the Company.
What is the risk? How is it managed? Current assessment of risk
Gearing risk: The Company may borrow money for investment purposes. If the To mitigate this risk all borrowings require the prior approval of the Board The Company's revolving loan facility can be repaid with no penalties, should
investments fall in value, any borrowings will magnify the extent of this and gearing levels are discussed by the Board and Managers at every meeting. the decision be taken to reduce the gearing.
loss. If borrowing facilities are not renewed, the Company may have to sell Covenant levels are monitored regularly. The majority of the Company's
investments to repay borrowings. The Company can also make use of derivative investments are in listed securities that are readily realisable. Further
contracts. information on gearing can be found on page 36 of the Annual Report and
Financial Statements and in the Glossary of Terms and Alternative Performance
Measures.
What is the risk? How is it managed? Current assessment of risk
Political and associated economic financial risk: Political change in areas in To mitigate this risk, developments are closely monitored and considered by This risk remains high due to the conflicts in Ukraine and Gaza and ongoing
which the Company invests or may invest may increasingly have practical the Board. The Board has particular regard to macroeconomic and geopolitical US/China tensions.
consequences for the Company. tensions, and monitors portfolio diversification by revenue stream where
appropriate, as well as by investee companies' primary location, to mitigate
against the negative impact of military action or trade barriers.
What is the risk? How is it managed? Current assessment of risk
Cyber security risk: A cyber attack on Baillie Gifford's network or that of a To mitigate this risk, the Audit Committee reviews Reports on Internal All control procedures are working effectively.
third party service provider could impact the confidentiality, integrity or Controls published by Baillie Gifford and other third party service providers.
availability of data and systems. Baillie Gifford's Business Risk Department report to the Audit Committee on
the effectiveness of information security controls in place at Baillie Gifford
and its business continuity framework. Cyber security due diligence is
performed by Baillie Gifford on third party service providers which includes a
review of crisis management and business continuity frameworks.
What is the risk? How is it managed? Current assessment of risk
Emerging risks: The Board has regular discussions on principal risks and This is mitigated by the Managers' close links to the investee companies and No change in emerging risks.
uncertainties, including any risks which are not an immediate threat but could their ability to ask questions on contingency plans. The Managers believe the
arise in the longer term. The Board considers that the key emerging risks impact of such events may be to slow the pace of growth rather than to
arise from the interconnectedness of global economies and the related exposure invalidate the investment rationale over the long term.
of the investment portfolio to emerging threats such as the societal and
financial implications of geopolitical tensions, energy price rises or supply
failures, climate transition, food insecurity, cyber risk including AI and
quantum computing capabilities, and new coronavirus variants or similar public
health threats.
Increasing risk Decreasing risk No change
Baillie Gifford & Co Limited
Company Secretaries
8 December 2023
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