Keystone Positive Cg - Keystone Positive Change I.T. plc Final Results
28/11/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231128:nRSb8277Ua&default-theme=true
RNS Number : 8277U Keystone Positive Change I.T. PLC 28 November 2023
Keystone Positive Change Investment Trust plc (KPC)
Regulated Information Classification: Annual Financial and Audit Reports
Legal Entity Identifier: 5493002H3JXLXLIGC563
Results for the year to 30 September 2023
Over the year to 30 September 2023, the Company's net asset value per share
(NAV) total return was 7.0% compared to a total return of 11.0% for the
Comparative Index† (in sterling terms). The share price total return for the
same period was 6.0% as the discount widened from 13.2% to 14.0%.
Past performance is not a guide to future performance. Total return
information is sourced from Baillie Gifford/LSEG. See disclaimer at the end of
this announcement. For a definition of terms see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
Keystone Positive Change Investment Trust plc ('Keystone Positive Change',
'Keystone' or 'the Company') aims to generate long term capital growth with
the aim of the NAV total return exceeding that of the MSCI AC World Index in
sterling terms by at least 2% per annum over rolling five year periods; and to
contribute towards a more sustainable and inclusive world by investing in the
equities of companies whose products or services make a positive social or
environmental impact. The performance target stated is in no way guaranteed.
Capital growth takes priority over income and dividends. Keystone is managed
by Baillie Gifford & Co, an independent fund management group, which has
around £217 billion under management and advice.
Keystone is a listed UK company. The value of its shares and any income from
them can fall as well as rise and investors may not get back the amount
invested. The Company is listed on the London Stock Exchange and is not
authorised or regulated by the Financial Conduct Authority. You can find up to
date performance information about Keystone at keystonepositivechange.com
(http://www.keystonepositivechange.com/) ‡. Past performance is not a guide
to future performance.
† The MSCI All Country World Index (in sterling terms) is the principal
index against which performance is measured.
‡ Neither the contents of the Managers' website nor the contents of any
website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
28 November 2023
For further information please contact:
Alex Blake, Baillie Gifford & Co - Tel: +44 (0)131 275 2000
Jonathan Atkins, Four Communications - Tel: +44 (0)203 920 0555 or 07872
495396
Nathan Brown or Matt Goss, Deutsche Numis - Tel: +44 (0)20 7260 1000
The following is the Preliminary Results Announcement for the year to 30
September 2023 which was approved by the Board on 27 November 2023.
Chair's statement
Keystone Positive Change Investment Trust plc ('Keystone Positive Change',
'Keystone' or 'the Company') has two objectives of equal importance: to
generate attractive long-term capital returns and to contribute towards a more
sustainable and inclusive world by investing in companies whose products or
services make a positive social or environmental impact. The Positive Change
team has an investment horizon of five years and beyond to allow these
structural themes to play out.
Performance
Over the year to 30 September 2023, the Company's net asset value ('NAV')
total return was +7.0% compared to +11.0% for its benchmark, the MSCI All
Country World Index (in sterling terms). While it was encouraging that
companies in the portfolio generally outperformed the index in terms of
revenue growth, this was offset by the detrimental impact of higher interest
rates on the valuation of companies over the period. Further details on the
main drivers of performance are contained in the Managers' review on the
following pages.
The share price total return was +6.0%, as the discount widened slightly from
13.2% to 14.0%. Over the same period, the average discount of the Global
Equity investment company sector (as defined by Deutsche Numis) widened from
9.8% to 14.5%.
Discount
The Board continues to evaluate the range of options at its disposal to
address, where possible, the discount at which the Company's shares trade
relative to its NAV. The Board does not consider that buying back shares
during periods when market sentiment is universally negative will necessarily
improve the Company's rating. It has the effect of shrinking the asset base
which will also increase the Company's ongoing charges ratio. That
notwithstanding, the Board recognises that buying the Company's shares at a
discount is accretive to its NAV and may provide short-term liquidity when
natural market buyers are in short supply. The Company has the power to buy
back its own shares and will do so when the Board considers that such activity
will benefit ongoing shareholders.
The Board retains conviction in the Positive Change strategy but recognises
that shareholder returns have been disappointing since shareholders approved
the change to the Company's strategy in February 2021. The Board therefore
commits that, at the annual general meeting ('AGM') in February 2027, being
the AGM immediately following a period of five full financial years since the
adoption of the Positive Change strategy, a Continuation Vote will be put to
shareholders. Further details in relation to this proposal are set out below
in the Outlook section.
Impact
The Company invests in listed and private companies that address a social or
environmental challenge. Amid a backdrop of uncertainty, we continue to
believe that investing for positive change is both important and full of
opportunity. We aim to invest in exceptional companies whose products,
services and behaviour generate meaningful improvements. Companies held in the
portfolio must be positioned to make a significant contribution to solutions
in one of four impact areas:
- Social inclusion and education;
- Environment and resource needs;
- Healthcare and quality of life; and
- Base of the pyramid (addressing the needs of the poorest four
billion people in the world).
For a company to merit inclusion in the portfolio, it must meet both the
anticipated financial return hurdle and the impact criteria. Further details
of the Managers' approach are provided on the following pages.
Two senior impact analysts form part of the investment decision-making team,
with additional impact analysts providing support. Senior impact analyst
Apricot Wilson joined in June 2023 replacing Michelle O'Keeffe who left
Baillie Gifford to pursue a PhD. Apricot is a CFA Charterholder and holds an
MBA from the China Europe International Business School in Shanghai. Prior to
joining Baillie Gifford in 2022, Apricot worked for Investing for Development
SICAV, a Luxembourg-based blended fund focused on development finance.
In August 2023, the Company published its second Impact Report, monitoring and
measuring the impact that the products and services provided by companies
within the portfolio are having on society and the environment. The Impact
Report is available on the Company's website
(https://www.bailliegifford.com/en/uk/individual-investors/insights/ic-article/2023-q3-keystone-positive-change-impact-report-10035798/)
, together with its companion document Positive Conversations, which outlines
engagement on investee companies' business practices.
Gearing
The Company started the financial year with net gearing of 10.6%, having drawn
down £15 million of a £25 million multi-currency revolving credit facility
provided by The Royal Bank of Scotland International Limited. At 30 September
2023, net gearing stood at 10.1%, with the only adjustments to drawings being
currency rebalancing on the US$ tranche. The Company is expected to continue
to maintain a modest level of structural gearing, which should enhance
shareholder returns over the long term.
Costs
Under the current management arrangements, the annual management fee is 0.70%
on the first £100 million of market capitalisation, 0.65% on the next £150
million of market capitalisation and 0.55% on the remaining market
capitalisation. As the fee is calculated on market capitalisation, the
Managers receive a smaller fee when the Company's shares are trading at a
discount to NAV than they would if the fee was charged on net assets. The fee
is also structured so that, as the Company grows, the annual management fee
will reduce towards the marginal rate of 0.55%.
Ongoing charges for the year to 30 September 2023 were 0.90% (2022 - 0.90%).
Dividend
The Company's capital growth-focused portfolio is not expected to generate a
significant or regular income stream. Dividends will be paid only to the
extent needed to maintain the Company's investment trust status. In accordance
with the dividend policy, the Board is recommending a final dividend of 0.45p
per share (2022 - 0.40p per share). This will be proposed for shareholders'
approval at the AGM to be held on 1 February 2024 and, if approved, will be
paid on 8 February 2024 to shareholders on the register at close of business
on 12 January 2024.
The Board
The Board is cognisant of good corporate governance practice and, as part of
the normal process of refreshment, Ian Armfield will not seek re-election to
the Board at the AGM to be held in 2025. The Board has commenced a recruitment
process seeking to appoint an additional independent non-executive Director
who will undertake the role of Audit Committee Chair following Ian's
retirement. An independent consultant will be appointed to assist the Board
and we will keep shareholders updated as the recruitment process progresses.
The Company is compliant with the FCA's gender representation requirements on
company boards, which target that at least 40% of directors will be women and
at least one of the senior positions on each board will be held by a woman.
The recruitment process in 2022 had a shortlist that comprised 50% women and
33% candidates of a non-white ethnic background. Although Andrew Fleming was
the strongest candidate on that occasion, the Board remains alert to the value
of including diverse viewpoints to strengthen the Board.
During the year, Katrina Hart was appointed as the Company's Senior
Independent Director ('SID').
Annual General Meeting
We anticipate welcoming shareholders to the AGM in London on 1 February 2024,
at The Conduit in Covent Garden. This venue was selected as aligning with the
Company's ambition to drive positive change, and in the hope of inspiring
broader shareholder engagement. To ensure shareholder votes are fairly
represented, the Board has decided to hold the voting on a poll, rather than
on a show of hands as has previously been customary. I therefore ask
shareholders to submit their proxy votes before the applicable deadline on 30
January 2024. This will not prevent you from submitting a polling card on the
day but will ensure that your votes are counted should you be unable to
attend. Any changes to the AGM arrangements will be announced to the London
Stock Exchange regulatory news service and made available at
keystonepositivechange.com.
If you hold shares through a share platform or other nominee, we would
encourage you to contact these organisations directly as soon as possible to
arrange for you to submit votes in advance of the AGM. Alternatively, the
Association of Investment Companies' ('AIC') website
www.theaic.co.uk/how-to-vote-your-shares
(http://www.theaic.co.uk/how-to-vote-your-shares) has information on how to
vote your shares if you hold them via one of the major platforms. The
following link will also take you through to the AIC website where there is
information on how your platform can help you attend the AGM in person
www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm
(http://www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm)
.
Outlook
When considering the change of strategy, in late 2020, the Board chose a
global strategy investing in listed and private companies with a clear impact
objective that would allow shareholders to access strong returns while
investing in the social and environmental health of the world in which they
live. The Board is sensitive to the tides of market sentiment, which flowed
towards 'green' investments and now appear to be in retreat. While
environmental, social and governance ('ESG') concerns are obviously given due
weight in the Company's approach both to investing in and engaging with the
companies held in the portfolio, we are keen to emphasise that Keystone's
ambition is more tangible than 'do least harm' and strives to 'do most good' -
prioritising active pursuit of positive change over passive screening of
negative influences. In doing this, the Company will continue to seek leading
technologies addressing difficult areas. We accept that individual company
outcomes will be mixed, but financial returns from the successes should be
several multiples of the losses from those that fail, and society as a whole
cannot afford to lose out on the solutions those successes will deliver.
The Board retains conviction in the Positive Change strategy and believes it
should be accessible within a closed-ended structure, which enables the
Managers to invest primary capital in private companies, to invest in less
liquid public companies and to utilise gearing. Given that the Positive Change
team has an investment horizon of five years and beyond, we believe it is
appropriate to conduct a fundamental review of financial performance over a
similar time horizon and assess the success and viability of the strategy at
that point. The Baillie Gifford Positive Change open-ended fund remains a top
performing fund over five years. However, we recognise that Keystone's
shareholder returns have been disappointing since shareholders approved the
change to the Company's strategy almost three years ago. Considering the
underperformance, the share price discount and a five year investment time
horizon, the Board commits that at the AGM in February 2027, being the AGM
immediately following a period of five full financial years since the adoption
of the Positive Change strategy, a Continuation Vote will be put to
shareholders. If, at that time, shareholders decide not to support the
Company's continuation, we will consult with shareholders and propose an
outcome that we believe to be in the best interests of shareholders as a
whole, which will include a return of capital at close to NAV.
Karen Brade
Chair
27 November 2023
Past performance is not a guide to future performance. Total return
information is sourced from Baillie Gifford/LSEG. See disclaimer at the end of
this announcement. For a definition of terms used see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
Managers' review
Philosophy
In a world where ageing populations, increasing geopolitical tensions and
rising protectionism present challenges to economic growth, seeking out
industries that are vital for the transition to a sustainable and inclusive
future should be a fruitful way to search for growth. For example, to combat
climate change, we need to rapidly build out renewable energy capacity, invest
in the grid and commercialise a range of technologies that can help to
decarbonise industries. According to Bloomberg New Energy Finance, investments
in renewable energy reached US$358 billion in the first half of 2023, a 22%
increase from the same period last year and yet to keep global warming well
below 2°C, the world needs to invest more than US$8 trillion in renewable
energy between 2023 and 2030, or US$1 trillion per year(1). Decarbonising
industries also present significant opportunities. Wood Mackenzie estimates
that decarbonising iron and steel production alone will require US$1.4
trillion of investment(2).
Education is another good example. With technologies such as AI and automation
impacting the economy, the need for training and upskilling is increasing.
According to Morgan Stanley, the global higher education and lifelong learning
market is expected to exceed US$3 trillion by 2030(3). In healthcare,
innovations are improving treatments for noncommunicable diseases, which are
increasing in prevalence owing to an ageing population and better diagnosis.
The global oncology market is expected to reach US$250 billion by 2024(4). Not
all industries are conducive to profitable growth, given that the level of
entry barriers and technology differentiation will vary. However, we are
confident that valuable companies will emerge from some of these areas.
Focusing on companies that have defendable business models should increase our
chance of delivering superior long-term investment returns.
Performance
Over the past twelve months, the Company's NAV total return was 7.0% and the
share price total return was 6.0%. In comparison, the benchmark MSCI All
Country World Index returned 11.0% (in sterling terms). The underperformance
is disappointing, but we continue to focus on the long term and believe a
period of five years is the appropriate time horizon to judge our performance.
Although many companies in the portfolio demonstrated strong operating
performance over the period, this was not always reflected in their share
prices. Over the past twelve months, the median revenue growth of portfolio
holdings was 14.3%, compared to 11.3% for the benchmark. More importantly, we
believe companies in the portfolio are well-positioned to deliver attractive
levels of growth in the future.
Shopify is a platform that makes it easy for merchants of all sizes to sell
online. The company provides a range of services, including online
storefronts, payment processing and financing. Shopify has a strong
competitive position and has been gaining market share. In 2022, merchants on
Shopify recorded Gross Merchandise Value ('GMV') of US$197 billion. Despite
its size, Shopify continued to grow at a healthy pace. In the most recent
quarter, GMV grew by 17% year-over-year and revenue grew by 31%. Over the past
year, Shopify was our largest positive contributor to performance.
Remitly is a mobile remittance company. Compared to offline remittance
services provided by incumbents such as Western Union, mobile remittance is
cheaper and faster. The cost of sending remittance payments with Remitly is
roughly half of that of Western Union, ensuring more of migrant workers'
hard-earned income goes to their family and friends. This is especially
impactful as 75% of remittance goes towards essential goods and services,
including food, rent, and healthcare. Because of the advantages of mobile
remittance and Remitly's strong execution, the company has grown revenue by at
least 40% year-over-year since its IPO in 2021. Furthermore, there are signs
that the competitive advantage is strengthening. Remitly's gross margin has
expanded by 8 percentage points over the past two years as the company has
benefited from economies of scale and lower fraud losses. Remitly currently
serves 5 million active customers and has processed US$34 billion of
remittance payments over the past 12 months. In comparison, there are 270
million international migrants and the global remittance flow to low- and
middle-income countries exceeds US$600 billion annually, which offers
significant growth ahead. Over the past year, Remitly was our second-largest
positive contributor to performance.
MercadoLibre is Latin America's largest ecommerce company and a major
financial technology ('FinTech') business. MercadoLibre helps Latin America's
merchants to reach more customers by selling online and its FinTech products
help to improve access to finance, especially for low-income consumers who
have historically been underserved by incumbent banks. In the most recent
quarter, MercadoLibre's revenue grew by 31% and its operating margin reached
16%. This continued a strong run of long-term performance. In an environment
of higher interest rates, aggressive competitors such as Shopee have started
pulling back to conserve capital, which has allowed MercadoLibre to exploit
its competitive advantages to gain market share. MercadoLibre was our
third-largest positive contributor to performance over the past year.
In addition to the top contributors, several other holdings have shown good
operating progress. Duolingo, the developer of the popular language learning
app, saw monthly active users increasing 43% year-over-year and revenue
growing 47% in FY2022. Dexcom, the maker of continuous glucose monitoring
devices, achieved revenue growth of 19% year-over-year and its operating
margin reached 13% in FY2022. Coursera, the online education platform, added
21 million new registered learners in FY2022, helping to support an annual
revenue growth of 26%. Climeworks, a carbon removal company, announced that
the US Department of Energy had selected its applications for direct air
capture hubs for grant negotiation, with the largest project eligible for
funding of up to US$600 million.
While many portfolio holdings have demonstrated pleasing operating progress, a
few companies have experienced more challenges.
Safaricom provides telecommunication and mobile money services in Kenya and
has recently expanded into neighbouring Ethiopia. The investment in Ethiopia
has hit near-term profits and Kenya's macroeconomic challenges have resulted
in a depreciation of the country's currency. In these tough conditions,
Safaricom still grew its revenues, especially for its mobile money service,
M-Pesa, which demonstrated the resilience of the business and its importance
to customers. Nevertheless, Safaricom's share price declined significantly in
sterling terms. Safaricom was our largest detractor from performance last
year.
Ørsted, the Danish renewable energy company, faced challenging operating
conditions in the offshore wind industry, especially in the US, where
inflation, higher interest rates and supply chain disruption resulted in some
projects becoming less valuable than before. While the challenges were not
unique to Ørsted - other developers pulled back or exited projects - the
impact was more noticeable on Ørsted, given its higher exposure to the
offshore wind industry. The company recently flagged up a likely impairment on
its US assets. While we are confident in the long-term growth of the renewable
energy sector, we are reviewing whether the industry structure still supports
profitable growth. Ørsted was our second-largest detractor from performance
over the past year.
Illumina, the maker of genetic sequencing equipment, saw revenue growth
stagnating in FY2022. In addition, the company's acquisition of Grail received
legal and regulatory scrutiny while the board and management team faced
pressure from activist shareholders, which resulted in the departures of the
company's chairman and CEO. While we are still confident in the long-term
growth opportunities for gene sequencing, we are closely monitoring the
developments at Illumina. We are also researching other companies in the
genomics industry to help us understand Illumina's competitive position. Over
the past twelve months, Illumina was our third-largest detractor.
Portfolio
During the past twelve months, the Company invested in six new companies. The
purchases of Autodesk, Remitly and HDFC were discussed in the Interim Report.
In addition, we invested in Boston Metal, WuXi Biologics and Daikin
Industries. The latter was sold after the reporting period end in response to
new information that we received.
Boston Electrometallurgical Corporation ('Boston Metal') is a private company
commercialising a novel technology for producing green steel. Whereas many
other technologies for decarbonising steel production, such as carbon capture
and storage ('CCS') and green hydrogen, are likely to increase the cost of
steel production, Boston Metal's technology, based on direct electrolysis,
could produce cost-competitive steel as it removes the need for chemical
reductants and is able to use low-grade iron ores.
There are still technology (scaling up inert anode) and execution risks, but
the potential impact and financial returns could be very high if Boston Metal
succeeds. Boston Metal's technology can also recover high-value metal from
mining waste. The company has constructed the first facility for high-value
metal recovery in Brazil and is starting pilot production.
Boston Metal is a good example of the opportunities that exist within private
markets, which the investment trust structure is well-positioned to support.
WuXi Biologics is a Chinese contract research, development and manufacturing
organisation focusing on biologics drugs, listed on the Hong Kong stock
exchange. It caters to small biotech and large pharma companies and provides
services from drug discovery to commercial manufacturing. By leveraging its
scale and expertise, WuXi Biologics helps to save time and costs in drug
research, development, and manufacturing. This is particularly valuable for
biotech companies, which are often less well-capitalised compared to large
pharma companies. As a result, WuXi Biologics helps to support innovation and
competition in the pharmaceutical market. Between 2017 and 2022, WuXi
Biologics' revenue compounded at 57% per year and its operating profit margin
rose from 21% to 36%. The company benefits from favourable access to talent, a
differentiated business model and investment in manufacturing processes. The
uncertainties with the investment case include geopolitical tensions, the
cyclicality of the industry and whether the labour advantage could diminish
over time as wages rise in China and WuXi Biologics expands abroad. We will
continue to monitor those areas. However, given the significant growth
opportunity, strong management track record and attractive valuation, we
believe the company deserves a place in the portfolio.
Daikin Industries has a leading position in the heating, ventilation and air
conditioning industry ('HVAC'). We were encouraged by Daikin's innovation and
environmental leadership in air conditioning and also its growing heat pump
business. Before purchasing the stock, we recognised that Daikin derived less
than 1% revenue from the defence industry and we asked the company about its
exposures. We were satisfied with the information provided and purchased the
stock. Subsequently, we were notified that Daikin is involved in the
production of white phosphorous smoke bombs for the Japanese Ministry of
Defence for training purposes. White phosphorus can have controversial use
cases so we undertook further research and engagement. Having carefully
considered the activities of the company, we decided to sell our holding post
year-end.
The Company sold five companies over the past twelve months. In addition to
the sale of Berkeley Lights, which was discussed in the Interim Report, we
sold Nibe Industrier, FDM, Peloton Interactive,and Teladoc.
Nibe Industrier is a manufacturer of heat pumps, stoves and elements. It has
enjoyed strong share price performance over recent years and is the second top
contributor to performance since the take-on of Keystone. The outlook for the
adoption of heat pumps is favourable owing to growing awareness of the need to
transition heating systems away from fossil fuels and the supportive
regulatory backdrop. However, looking forward, despite Nibe's admirable track
record and the runway for growth, our analysis points towards a more
competitive environment and we feel that at the current valuation it will be
more challenging for the company to meet our return hurdle over the coming
years. Therefore, we have sold the shares and redeployed capital into
companies where we have higher conviction.
FDM recruits, trains and provides career opportunities to graduates, ex-forces
personnel and returners-to-work, placing them with clients who require IT
expertise. It is proving more challenging for the company to unlock growth
than we had initially expected. It is taking longer for potential customers to
appreciate FDM's offering and the company appears more vulnerable to external
events than anticipated. Another consideration in our decision is the
succession risk. Overall, we believe that FDM's ability to drive positive
change by providing jobs that enable upward social mobility will be more
limited and growth will be harder to realise.
Peloton Interactive sells at-home exercise equipment and digital content. We
believe the long-term opportunity in digital fitness remains exciting and the
company can maintain market leadership. However, the previous management team
at Peloton made execution missteps against a difficult operating backdrop,
elevating the cost base and making the company's financial characteristics
increasingly unattractive. While the new management team has made admirable
progress in recapitalising the business and reducing the rate of cash burn, we
believe growth and cash management will be at odds for the foreseeable future.
Teladoc provides virtual healthcare services. Virtual care has great potential
to bring efficiency, cost savings and a better quality of care to all parties
in the system, from patients and payers to providers. During the Covid-19
pandemic, demand for virtual healthcare accelerated and benefited Teladoc.
However, in more recent years, Teladoc has made underwhelming progress in
growing its business. This is partly owing to increasing competition attracted
by the growth of virtual healthcare and in part owing to the difficulties
Teladoc faces in dealing with multiple stakeholders in a very complex system.
Our confidence in management was also weakened after the US$6.6 billion
impairment charge linked to its acquisition of chronic care management company
Livongo in 2020. Overall, we no longer have sufficient conviction that Teladoc
will meet our dual objectives over the long term.
Impact
We released the Keystone Positive Change Annual Impact Report in August, which
can be found on our website. The report details the impact of the products and
services of the portfolio holdings. Our thesis is that impact and investment
go hand-in-hand, and the good operating progress for many holdings has been
mirrored by their growing impact. For example, in 2022, MercadoLibre had 64.8
million unique users of its digital wallet and the company granted 5.2 million
loans to sellers, of which 49% were women. Tesla delivered over 1.3 million
electric vehicles and deployed 6.5 GWh of energy storage. Tesla's products
enabled customers to avoid emitting 13.4 million tonnes of CO(2), up from 8.4
million tonnes in 2021. Dexcom's continuous glucose monitoring devices helped
1.7 million people manage their diabetes more effectively.
The Impact Report also provides aggregate data at a portfolio level and maps
the portfolio to the United Nations Sustainable Development Goals.
Outlook
In the past year, members of the Positive Change team have been on investment
trips to the US, China, India and Europe. We have a rich research pipeline
that spans: AI in healthcare; genomics; energy transition; circular economy;
and sustainable agriculture. We believe those areas will present exciting
investment opportunities over the coming years and decades.
Over the past twelve months, many of the portfolio companies have demonstrated
strong revenue and profit growth. However, share prices have yet to appreciate
in tandem, as rising interest rates have put growth stocks out of favour with
the market. Once global interest rates are on a more stable trajectory,
long-term investment returns should be driven primarily by profit and cash
flow growth. The transition towards a more sustainable and inclusive future
will present large growth opportunities for purpose-driven companies. By
investing in a subset of them with outstanding management teams and the
potential to build durable competitive advantages, we continue to believe that
the Company can generate attractive long-term investment returns for its
shareholders and contribute towards a better future.
Kate Fox
Lee Qian
27 November 2023
1 Renewable Energy Investment Hits Record-Breaking $358 Billion in 1H 2023 -
Bloomberg New Energy Finance
2 Pedal to the metal: Iron and steel's US$1.4 trillion shot at
decarbonisation - Wood Mackenzie
3 Global Education's $8 Trillion Reboot - Morgan Stanley
4 Delivering innovation: 2020 oncology market outlook - McKinsey
Investing for Positive Change
Delivering attractive long-term investment returns
We aim to deliver attractive investment returns, which we define as meaningful
outperformance (by 2% annually net of fees) of the MSCI ACWI over rolling
five-year periods.
Our emphasis on growth and competitive advantage means that we expect the
delivered returns of the portfolio to come primarily from revenue and profit
growth at the companies we hold, rather than from changes in valuation. In
broad terms, we look for companies with the potential to double in value over
a five year period, while still having significant growth prospects
thereafter.
Patience is required to tolerate short-term volatility that we embrace in
order to generate superior long-term financial returns. We expect our
portfolio of 30-60 listed and private companies to differ significantly from
the benchmark index, many of whose major constituents are likely to suffer
from precisely the challenges that we outline in our four Impact Themes, and
whose very scale makes it difficult for them to innovate. While measuring
portfolio returns relative to a benchmark index can be a helpful way to
monitor the output of our investment process, we do not consider the benchmark
when constructing the portfolio.
Delivering a positive impact
We look for listed and private companies for whom delivering a positive impact
is core to their business; whose products and services represent a significant
improvement to the status quo; and who conduct business with honesty and
integrity. We look for areas where there is a meaningful, and widely accepted,
opportunity gap between the current situation and the desirable social
outcome, and for companies that are proactively narrowing that gap through
their business activities. To this end, we have identified four Impact Themes.
Similar to financial returns, making a meaningful positive impact requires
patience and perseverance. We are not looking for quick fixes, but genuine
improvements which often take years, if not decades, of hard work. We believe
a period of five to ten years is a useful timeframe for assessing companies'
social and environmental contributions. We expect the four Impact Themes to
evolve over time, hopefully as challenges are resolved.
Four Impact Themes
Social inclusion and education
Income and wealth inequalities have risen significantly over the past 30 years
and now threaten our acceptance of capitalism as a force for good. We look for
companies that are building a more inclusive society through their products
and services. We also look for companies that are improving the quality or
accessibility of education as we believe that the diffusion of skills and
knowledge is one of the best tools to reduce inequality.
Environment and resource needs
The environmental impact of human activities is increasing, and basic
resources such as food and water are becoming scarcer. Throughout history,
climate change and famine have repeatedly limited the development of
nations(1). Left unresolved, those problems could jeopardise international
relations, destabilise our society and damage our planet. We are looking for
companies that are improving our resource efficiency and reducing the
environmental impact of our economic activities.
Healthcare and quality of life
We are living longer but we are not necessarily healthier. We are richer but
we are not necessarily happier. The stress of modern life is damaging our
physical and mental health. We are searching for companies that are actively
improving the quality of life in developed and developing countries.
Base of the pyramid
Economic growth has led to improvements in living conditions in many parts of
the world. However, the fruits of human ingenuity have not filtered down to
everyone. We are looking for companies that are addressing the basic and
aspirational needs of the billions of people at the bottom of the global
income ladder.
1 The Measure of Civilisation: How Social Development Decides the Fate of
Nations, 2013.
Investment Process
Analysing investment and impact using a robust and consistent process
Both our objectives are of equal importance. To reflect this, we have
established a six-stage process which allows both the impact and investment
objectives to be considered equally in the key parts of our process: research,
portfolio construction and reporting.
01 What we look for
A vast opportunity set for long-term stock pickers
The universe of companies in which we can invest is vast. We make no attempt
to cover the whole universe. Neither do we use quantitative screens to cut it
down to a manageable size. Instead, we rely on a clear and consistent set of
filters to focus our attention on the relatively small number of businesses
that might be of interest to us. These filters flow naturally from our dual
objectives, and focus on: (1) the company's potential to address one of our
four thematic global challenges; (2) its potential to build a profitably
growing business.
02 Idea generation
Ideas naturally flow from our dual objectives. Curiosity is key
We are bottom-up stock pickers who let our curiosity and enthusiasm drive our
research agenda. Idea generation takes place throughout the investment
process: when we meet companies; through attendance at conferences; during
team meetings; and through general reading. Our long-term time horizon, focus
on fundamental in-house research and desire to take a different perspective
means we use diverse sources of information, from independent research to
engaging with academics and industry experts. Sharing a common objective with
the rest of our investment colleagues (seeking high quality growth companies),
we are fortunate in being able to leverage the intellectual resources of our
wider investment department of around a hundred investors, including regional
and global teams and sector specialists, and our ESG team.
03 Fundamental company research: eight questions
Consistent framework focuses on dual objectives
Our company analysis consists of two stages: fundamental company research and
impact analysis.
Our fundamental company research involves an Investment Manager examining
eight questions relating to the quality of the business and its growth
prospects as well as the impact the company is expected to deliver.
To assess the growth potential and quality of a business, we consider the
company's broad opportunity set, the strength and durability of the
competitive advantage, the financial characteristics and management attitudes.
To assess the expected impact of a holding, we consider the challenge the
company is tackling, its product characteristics and business practices.
Valuation analysis focuses on whether we think the long-term growth prospects
of a company are under-appreciated. Here, we use a range of measures for
valuing companies and remain very much focused on the potential for a business
in five years' time. If a company has backing from an Investment Manager, it
will be taken forward to the second stage of research: the Impact Analysis.
8 Question framework
01 What change is the company driving?
02 What is the scale of the growth opportunity and how might it evolve
over time?
03 What is required to unlock the opportunity and how quickly can the
company capitalise on it?
04 What is the competitive edge and how might it develop?
05 What attributes of the culture, governance, and management attitude
will support or detract from the company's ability to capitalise on the
opportunity?
06 What are the financial characteristics today and how might they
evolve?
07 What might the company look like and what might its valuation be in 5
to 10 years?
08 What will it take to be an outlier?
04 Impact analysis
Independent and disciplined
The second stage of research focuses specifically on the impact potential of a
business. This is carried out by one of the Positive Change Teams' Impact
Analysts. Analysing impact is complex and can be highly subjective. Our impact
analysis is carried out independent of the investment case using a rigorous,
qualitative framework that is based upon three factors: Intent; Product
impact; and Business practices.
This analysis is holistic: we recognise that there is no perfect company and
under each of these three factors we also consider areas of controversy, the
negative consequences of operations and a company's awareness of those issues.
Monitoring and reporting impact is important: as one of our dual objectives it
is as important as monitoring and reporting financial performance. The
monitoring of impact is ongoing and is interwoven with our monitoring of the
investment case for a company. We look at company reports and disclosures and
are engaged with management, we monitor significant news, always with a focus
on the long term and the key milestones we expect a company to reach in order
to deliver impact.
Once a potential idea has been identified, we analyse it using a consistent
framework of questions: (1) Intent - Forward looking strategy that supports
the positive outcome? Backed up by actions, commitments and structures? Uses
influence to drive solutions in the wider industry? (2) Product impact -
Relationship between the product and the impact? Breadth and depth of impact?
Materiality in the context of the business and the problem? Linkage with the
United Nations Sustainable Development Goals (UN SDGs)? (3) Business practices
- Addresses impacts across the full value chain? Transparent in its actions?
Leads the industry in business practices?
05 Portfolio construction
Two elements - investment and impact considered in tandem
The Positive Change team meets regularly to discuss new ideas and the level of
conviction in existing holdings. The team's conviction in both the impact and
investment potential of a company is taken into consideration when making
portfolio decisions and sizing positions. Investment decisions are made by the
five decision makers: three Investment Managers: Kate Fox, Lee Qian and Thaiha
Nguyen, and two Senior Impact Analysts: Edward Whitten and Apricot Wilson.
Every stock must have the backing of an Investment Manager and at least one
sponsor of the impact objective. The group heavily relies on and respects the
opinions of team members to help inform individual views. We think this
process allows us to harness diverse perspectives while also retaining
conviction and accountability of individual decision-making and reducing
personal bias.
We are active investors and our portfolio will differ significantly from the
benchmark, many of whose major constituents are likely to face headwinds from
the challenges we identify. In order for a company to enter our portfolio, it
must meet both of our objectives - there are no compromises.
With a long-term investment horizon, portfolio turnover will be low, we expect
it to be below 20% per annum over the long term. We will carefully monitor the
companies in which we invest through ongoing research and engagement with
management teams. It is inevitable that businesses will have setbacks and we
are happy to own companies through periods of short-term operational weakness.
However, if longer-term concerns develop that are not addressed by management,
if we detect a deterioration in the fundamental investment case, for either
element of our dual objectives, we will sell a holding.
06 Monitoring, engagement and reporting
Rigorous, ongoing and with a long-term focus
Once we have taken a holding, we continue to monitor operational performance
and progress towards delivering positive change. In doing so we engage with
management teams on an ongoing basis. We report on how the strategy has
delivered on both its financial objective and its impact objective.
The impact different companies make is not always quantifiable, nor should it
be. Furthermore, comparing impact across companies with very different
activities is problematic. And, where impact is more easily quantifiable, it
is not always measured and disclosed in a uniform way. Despite its challenges,
we have developed a robust approach using our in-depth knowledge of companies,
and we report annually, though we always remain focused on our five-year-plus
time horizon.
6.1 Company impact
Consistent with our bottom-up, fundamental investment approach, we identify
bespoke metrics or milestones for each company that will help us monitor its
progress in delivering positive change. We represent this impact through 'The
Positive Chain', a model which demonstrates how each company is contributing
to positive outcomes and impacts through its inputs, activities and outputs.
We depend primarily on company reported data but do not limit ourselves to
current levels of disclosure: where there are gaps we will engage with
companies and request more information.
Company engagement more broadly is ongoing, and we will discuss with
management teams both areas where we would like to see improvements as well as
areas where companies excel.
6.2 Portfolio contribution to United Nations Sustainable Development Goals
At an overall portfolio level, we also link the product impact for each
company to the United Nations' Sustainable Development Goals ('UN SDGs'). The
UN developed the SDGs in 2015 as part of an ambitious programme which aims to
end poverty in all forms, to build peaceful and inclusive societies, to
protect human rights and promote gender equality, and to ensure the protection
of the planet and its natural resources by the end of 2030. With 17 goals
split into 169 specific targets covering a broad range of topics, we do not
intend the portfolio to address every single goal. However, mapping the
contribution of individual holdings to these goals via the underlying 169
targets allows us to assess the contribution of the portfolio as a whole using
an independent framework.
The companies in the portfolio take different approaches and we hope to gain
insight into what works best and to share our learnings across holdings. For
those companies that report how their business is aligned with the SDGs, we
take this into consideration when making the linkage to the goals, but we are
selective in order to be as consistent as possible across all holdings.
Baillie Gifford's approach to valuing private companies
We aim to hold our private company investments at 'fair value', i.e. the price
that would be paid in an open-market transaction. Valuations are adjusted both
during regular valuation cycles and on an ad hoc basis in response to 'trigger
events'. Our valuation process ensures that private companies are valued in
both a fair and timely manner.
The valuation process is overseen by a valuations group at Baillie Gifford,
which takes advice from an independent third party (S&P Global). The
valuations group is independent from the investment team, with all voting
members being from different operational areas of the firm, and the investment
managers only receive final notifications once they have been applied.
We revalue the private holdings on a three-month rolling cycle, with one third
of the holdings reassessed each month. During stable market conditions, and
assuming all else is equal, each investment would be valued twice in a six
month period. For investment trusts, the prices are also reviewed twice per
year, at the interim and financial year end, by the respective investment
trust boards and are subject to the scrutiny of external auditors in the
annual audit process.
Beyond the regular cycle, the valuations team also monitors the portfolio for
certain 'trigger events'. These may include: changes in fundamentals; a
takeover approach; an intention to carry out an Initial Public Offering
('IPO'); company news which is identified by the valuation team or by the
portfolio managers, or significant changes to the valuation of comparable
public companies. Any ad hoc change to the fair valuation of any holding is
implemented swiftly and reflected in the next published net asset value. There
is no delay.
The valuations team also monitors relevant market indices on a weekly basis
and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate. Continued
market volatility has meant that recent pricing has moved much more frequently
than would have been the case with the quarterly valuations cycle.
Portfolio companies split by impact theme as at 30 September 2023
Social inclusion and education - Building a more inclusive society and/or
improving the quality and accessibility of education;
Environment and resource needs - Improving our resource efficiency and
reducing the environmental impact of our economic activities;
Healthcare and quality of life - Actively improving the quality of life in
developed and developing countries;
Base of the pyramid - Addressing the basic aspirational needs of people at the
bottom of the global income ladder.
Social inclusion and education Value % Environment and resource needs Value % Healthcare and quality of life Value % Base of the pyramid Value %
£'000 £'000 £'000 £'000
MercadoLibre 12,639 7.8 Deere 6,604 4.1 Moderna 6,728 4.1 Bank Rakyat Indonesia 6,848 4.2
ASML 9,418 5.8 Tesla 5,891 3.6 Dexcom 5,683 3.5 Remitly Global 5,954 3.7
TSMC 6,829 4.2 Xylem 5,275 3.3 Alnylam Pharmaceuticals 5,674 3.5 Safaricom 1,871 1.3
Shopify 6,711 4.1 Northvolt AB (u) 3,802 2.3 Sartorius 3,843 2.4
Duolingo 5,675 3.5 Autodesk 3,681 2.3 WuXi Biologics 3,807 2.3
Nu Holdings 5,178 3.2 Umicore 3,530 2.2 Illumina 3,608 2.2
HDFC Bank 4,887 3.0 Ørsted 3,431 2.1 Discovery Holdings 3,567 2.2
Coursera 4,765 3.0 Novozymes 3,311 2.1 10x Genomics 2,409 1.5
PsiQuantum (u) 1,443 0.9 Ecolab 3,275 2.0 M3 2,256 1.4
Daikin Industries 3,067 1.9 Chr. Hansen 2,093 1.3
Climeworks (u) 1,820 1.1 AbCellera Biologics 1,522 0.9
Joby Aviation 1,817 1.1
Boston Electrometallurgical Corp (u) 1,639 1.0
Spiber (u) 946 0.6
57,545 35.5 48,089 29.7 41,190 25.3 14,673 9.1
Net liquid assets* 651 0.4
Total assets* 162,148 100.0
* For a definition of terms used, see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
(u) Denotes unlisted/private company holding.
List of investments as at 30 September 2023
Name Business Impact theme* Fair value % of
£'000 total
assets(†)
MercadoLibre Ecommerce platform and fintech Social 12,639 7.8
ASML Supplier to semiconductor industry Social 9,418 5.8
Bank Rakyat Indonesia Bank Base 6,848 4.2
TSMC Semiconductor manufacturer Social 6,829 4.2
Moderna Messenger RNA therapeutics Healthcare 6,728 4.1
Shopify Online commerce platform Social 6,711 4.1
Deere Agricultural equipment Environment 6,604 4.1
Remitly Global(#) Online money transfer payments for immigrants and their families Base 5,954 3.7
Tesla Electric cars and renewable energy solutions Environment 5,891 3.6
Dexcom Continuous glucose monitoring Healthcare 5,683 3.5
Duolingo Language learning website and mobile app Social 5,675 3.5
Alnylam Pharmaceuticals Biotechnology Healthcare 5,674 3.5
Xylem Innovative water solutions Environment 5,275 3.3
Nu Holdings Digital banking company Social 5,178 3.2
HDFC Bank(#) Mortgage provider Social 4,887 3.0
Coursera Online learning Social 4,765 3.0
Sartorius Biopharmaceutical and laboratory tooling Healthcare 3,843 2.4
WuXi Biologics(#) Contract research, development and manufacturing organisation focusing on Healthcare 3,807 2.3
biologics drugs
Northvolt AB (u) Battery developer and manufacturer, specialising in lithium-ion technology Environment 3,802 2.3
for electric vehicles
Autodesk(#) Software products for architecture, engineering, construction, and Environment 3,681 2.3
manufacturing industries
Illumina Gene sequencing equipment Healthcare 3,608 2.2
Discovery Holdings Life and health insurance provider Healthcare 3,567 2.2
Umicore Global materials technology and recycling Environment 3,530 2.2
Ørsted Renewable energy Environment 3,431 2.1
Novozymes Biological solutions Environment 3,311 2.1
Ecolab Water, hygiene and infection prevention services Environment 3,275 2.0
Daikin Industries(#) Air conditioning and refrigeration equipment Environment 3,067 1.9
10x Genomics Life science technology Healthcare 2,409 1.5
M3 Online medical services Healthcare 2,256 1.4
Chr. Hansen Biological solutions Healthcare 2,093 1.3
Safaricom Telecommunications and mobile payments Base 1,871 1.2
Climeworks (u) Direct air carbon capture Environment 1,820 1.1
Joby Aviation Electric aircraft Environment 1,817 1.1
Boston Electrometallurgical Corp(#) (u) Novel technology for producing green steel Environment 1,639 1.0
AbCellera Biologics Antibody drug discovery tools Healthcare 1,522 0.9
PsiQuantum (u) Silicon photonic quantum computing Social 1,443 0.9
Spiber (u) Novel protein biomaterials Environment 946 0.6
Total investments 161,497 99.6
Net liquid assets(†) 651 0.4
Total assets(†) 162,148 100.0
Listed equities Unlisted securities‡ Net liquid assets(†) Total
% % % assets(†)
%
30 September 2023 93.7 5.9 0.4 100.0
30 September 2022 93.5 6.0 0.5 100.0
* Abbreviated as follows: Healthcare - Healthcare and quality of life;
Social - Social inclusion and education; Environment - Environment and
resource needs; Base - Base of the pyramid.
(u) Denotes unlisted/private company holding.
† For a definition of terms used see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
# New purchase during the year. Complete sales during the year were:
FDM; Nibe Industrier; Peloton Interactive; Berkeley Lights; Teladoc.
‡ Includes holdings in ordinary shares, preference shares and
promissory notes.
Income statement
For the year ended 30 September Notes 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 2 - 9,884 9,884 - (72,765) (72,765)
Currency gains/(losses) - 589 589 - (1,333) (1,333)
Income 1,618 - 1,618 1,459 - 1,459
Investment management fee 3 (223) (668) (891) (247) (741) (988)
Other administrative expenses (477) - (477) (506) - (506)
Net return before finance costs and taxation 918 9,805 10,723 706 (74,839) (74,133)
Finance costs of borrowings (234) (666) (900) (101) (266) (367)
Net return on ordinary activities before taxation 684 9,139 9,823 605 (75,105) (74,500)
Tax on ordinary activities (244) (7) (251) (216) - (216)
Net return on ordinary activities after taxation 440 9,132 9,572 389 (75,105) (74,716)
Net return per ordinary share 4 0.71p 14.77p 15.48p 0.63p (121.50p) (120.87p)
Note: Dividends per share paid and payable in respect of the year 5 0.45p 0.40p
The total column of this statement represents the profit and loss account of
the Company. The supplementary revenue and capital columns are prepared under
guidance issued by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Comprehensive Income is not required as the Company does not
have any other comprehensive income and the net return on ordinary activities
after taxation is both the profit/(loss) and total comprehensive
income/(expense) for the year.
Balance sheet
As at 30 September Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Fixed assets
Investments 6 161,497 152,067
Current assets
Debtors 313 199
Cash at bank 728 962
1,041 1,161
Creditors
Amounts falling due within one year 7 (15,628) (15,650)
Net current liabilities (14,587) (14,489)
Total assets less current liabilities 146,910 137,578
Creditors
Amounts falling due after more than one year 7 (257) (250)
Net assets 146,653 137,328
Capital and reserves
Share capital 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 135,396 126,264
Revenue reserve 582 389
Total shareholders' funds 8 146,653 137,328
Statement of changes in equity
For the year ended 30 September 2023 Notes Share Share premium account Capital Capital Revenue Shareholders'
capital £'000 redemption reserve reserve funds
£'000 reserve £'000 £'000 £'000
£'000
Shareholders' funds at 1 October 2022 6,760 3,449 466 126,264 389 137,328
Net return on ordinary activities after taxation - - - 9,132 440 9,572
Dividends paid during the year 5 - - - (247) (247)
Shareholders' funds at 30 September 2023 6,760 3,449 466 135,396 582 146,653
For the year ended 30 September 2022 Notes Share Share premium account Capital Capital Revenue Shareholders'
capital £'000 redemption reserve reserve funds
£'000 reserve £'000 £'000 £'000
£'000
Shareholders' funds at 1 October 2021 6,760 3,449 466 203,842 - 214,517
Net return on ordinary activities after taxation - - - (75,105) 389 (74,716)
Dividends paid during the year 5 - - - (2,473) - (2,473)
Shareholders' funds at 30 September 2022 6,760 3,449 466 126,264 389 137,328
Cash Flow Statement
For the year ended 30 September Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before finance costs and taxation 10,723 (74,133)
Tax on overseas income (249) (207)
Adjustments for:
Purchase of investments (36,264) (20,553)
Sale of investments 36,718 20,185
454 (368)
(Gains)/losses on investments held at fair value (9,884) 72,765
Movement in unrealised currency gains and losses (607) 1,374
Increase in debtors (109) (76)
(Decrease)/increase in creditors (19) 41
Net cash inflow/(outflow) from operating activities 309 (604)
Cash flows from financing activities
Interest and facility fee paid on bank facility (861) (329)
Preference dividends paid (12) (12)
Bank facility drawn 620 3,727
Net equity dividends paid 5 (247) (2,473)
Net cash (outflow)/inflow from financing activities (500) 913
Net (decrease)/increase in cash at bank (191) 309
Exchange movements (43) 60
Cash at bank at the start of the year 962 593
Cash at bank at the end of the year 728 962
Cash flow from operating activities includes
Dividends received 1,554 1,434
Interest received 20 2
Notes to the Financial Statements
1. Principal accounting policies
The Financial Statements for the year to 30 September 2023 have been prepared
in accordance with FRS 102 'The Financial Reporting Standard applicable in the
UK and Republic of Ireland' on the basis of the accounting policies set out in
the Annual Report and Financial Statements which are unchanged from the prior
year and have been applied consistently.
2. Gains/(losses) on investments
For the year ended 30 September 2023 2022
£'000 £'000
Gains/(losses) on investments:
Realised losses on sales (12,870) (6,963)
Changes in investment holding gains and losses 22,754 (65,802)
9,884 (72,765)
3. Management fee
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed as the Company's Alternative Investment Fund
Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has
delegated portfolio management services to Baillie Gifford & Co. The
annual management fee is 0.70% on the first £100 million of market
capitalisation, 0.65% on the next £150 million of market capitalisation and
0.55% on the remaining market capitalisation. Management fees are calculated
and payable on a quarterly basis. Market capitalisation is calculated using
middle market quotations derived from the Stock Exchange Daily Official List
and the weighted average number of shares in issue during the quarter.
4. Net return per ordinary share
For the year ended 30 September 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 0.71p 14.77p 15.48p 0.63p (121.50p) (120.87p)
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £440,000 (2022 -£389,000) and on
61,815,632 (2022 - 61,815,632) ordinary shares of 10p, being the weighted
average number of ordinary shares in issue during the year. Capital return per
ordinary share is based on the net capital gain for the financial year of
£9,132,000 (2022 - loss of £75,105,000) and on 61,815,632 (2022 -
61,815,632) ordinary shares, being the weighted average number of ordinary
shares in issue during the year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary dividends
For the year ended 30 September 2023 2023 2022 2022
p £'000 p £'000
Amounts recognised as distributions in the year:
Previous year's final dividend/fourth interim dividend 0.40 247 4.00 2,473
We also set out below the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of section 1158
of the Corporation Tax Act 2010 are considered. The revenue available for
distribution by way of dividend for the year is £440,000 (2022 - £389,000).
For the year ended 30 September 2023 2023 2022 2022
p £'000 p £'000
Amounts paid and payable in respect of the financial year:
Proposed final (payable 8 February 2024) 0.45 278 0.40 247
The Board recommends a final dividend of 0.45p per ordinary share for the
year. If approved, the recommended final dividend will be paid on 8 February
2024 to shareholders on the register at the close of business on 12 January
2024. The ex-dividend date is 11 January 2024.
6. Investments
As at 30 September 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 151,847 - - 151,847
Unlisted securities - - 9,650 9,650
Total financial asset investments 151,847 - 9,650 161,497
As at 30 September 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 142,878 - - 142,878
Unlisted securities - - 9,189 9,189
Total financial asset investments 142,878 - 9,189 152,067
Investments in securities are financial assets held at fair value through
profit or loss. In accordance with Financial Reporting Standard 102, the
tables above provide an analysis of these investments based on the fair value
hierarchy described below, which reflects the reliability and significance of
the information used to measure their fair value.
Fair value hierarchy
The fair value hierarchy used to analyse the basis on which the fair values of
financial instruments held at fair value through the profit and loss account
are measured is described below. Fair value measurements are categorised on
the basis of the lowest level input that is significant to the fair value
measurement.
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
The Company's unlisted investments at 30 September 2023 were valued using a
variety of techniques. These include using comparable company multiples, net
asset values, assessment of comparable company performance and assessment of
milestone achievement at the investee companies. The determinations of fair
value included assumptions that the trading multiples and comparable companies
chosen for the multiples approach provide a reasonable basis for the
determination of fair value. Valuations are cross-checked for reasonableness
to alternative multiples-based approaches or benchmark index movements as
appropriate. In some cases the latest dealing price is considered to be the
most appropriate valuation basis, but only following assessment using the
techniques described above.
The valuation techniques used by the Company are further explained in the
accounting policies on page 94 of the Annual Report and Financial Statements.
A sensitivity analysis by valuation technique of the unlisted securities is on
pages 108 to 109 of the Annual Report and Financial Statements.
The Company received proceeds of £36,718,000 (2022 - £20,185,000) from
investments sold during the year. The book cost of these investments when they
were purchased was £49,588,000 (2022 - £27,148,000). These investments have
been revalued over time and, until they were sold, any unrealised gains/losses
were included in the fair value of the investments. Transaction costs of
£24,000 (2022 - £5,000) and £9,000 (2022 - £8,000) were suffered on
purchases and sales respectively.
7. Creditors
Borrowing facilities
At 30 September 2023 the Company had a 3 year £25 million multi-currency
unsecured floating rate revolving facility with The Royal Bank of Scotland
International Limited, which expires on 31 August 2024.
At 30 September 2023 drawings were as follows:
¾ The Royal Bank of Scotland International Limited: US$9.5 million at
an interest rate of 1.25% over SOFR and £7.5 million at an interest rate of
1.25% over SONIA, both maturing in December 2023 (2022 - US$8.7 million at an
interest rate of 1.25% over US LIBOR and £7.5 million at an interest rate of
1.25% over SONIA, both maturing in December 2022).
The main covenants relating to the above loans are that total borrowings shall
not exceed 25% of the Company's adjusted portfolio value and the Company's
minimum adjusted portfolio value shall be £100 million.
There were no breaches of loan covenants during the year.
Amounts falling due after more than one year - as at 30 September 2023 2022
£'000 £'000
5% cumulative preference shares of £1 each 250 250
Provision for tax liability in respect of Indian capital gains 7 -
257 250
Preference share dividends are paid bi-annually in March and September.
Provision for Tax Liability
The tax liability provision at 30 September 2023 of £7,000 (30 September 2022
- nil) relates to a potential liability for Indian capital gains tax that may
arise on the Company's Indian investments should they be sold in the future,
based on the net unrealised taxable capital gains at the period end and on
enacted Indian tax rates. The amount of any future tax amounts payable may
differ from this provision, depending on the value and timing of any future
sales of such investments and future Indian tax rates.
Fair value of borrowings 2023 2023 2023 2022 2022 2022
Par Book Market Par Book Market
value value value value value value
£'000 £'000 £'000 £'000 £'000 £'000
Bank loans due within one year 15,245 15,245 15,245 15,275 15,275 15,275
5% cumulative preference shares 250 250 239 250 250 239
15,495 15,495 15,484 15,525 15,525 15,514
8. Shareholders' funds per ordinary share
As at 30 September 2023 2022
£'000 £'000
Shareholders' funds £146,653,000 £137,328,000
Number of ordinary shares in issue at the year end 61,815,632 61,815,632
237.2p 222.2p
The shareholders' funds figures above have been calculated after deducting
borrowings at book value, in accordance with the provisions of FRS 102. For
the prior year, the difference between borrowings at book value, borrowings at
par and borrowings at market value is negligible (see note 7 above) and no
reconciliation between NAV at book/par value and NAV at market/fair value is
provided, as the NAV per share is the same on both bases. A reconciliation
between shareholders' funds per share and NAV per share at market value at 30
September 2023 is provided in the Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
9. Shares in Issue
The Company is limited by shares. The ordinary shares are fully participating
and, on a poll, carry one vote per £1 nominal held (one vote per 10 ordinary
shares of 10 pence each). The Company's capital structure at 30 September 2023
consists of 67,593,995 ordinary shares of 10p each (30 September 2022 -
67,593,995) of which 61,815,632 (30 September 2022 - 61,815,632) are allotted
and fully paid and 5,778,363 (30 September 2022 - 5,778,363) are held in
treasury. The Company also has 250,000 5% cumulative preference shares of £1
each in issue.
In the year to 30 September 2023, the Company issued and bought back no
ordinary shares (2022 - no shares issued or bought back). At 30 September 2023
the Company had authority to buy back 9,266,163 ordinary shares and to allot
or sell from treasury 6,181,563 ordinary shares without application of
pre-emption rights. Under the provisions of the Company's Articles of
Association share buy-backs are funded from the capital reserve.
10. Related Parties and transactions with the Managers
The Directors' fees and shareholdings are detailed in the Directors'
Remuneration Report on pages 74 to 77 of the Annual Report and Financial
Statements. No Director has a contract of service with the Company. During the
year no Director was interested in any contract or other matter requiring
disclosure under section 412 of the Companies Act 2006.
Baillie Gifford & Co Limited has been appointed as the Company's
Alternative Investment Fund Managers ('AIFM') and Company Secretaries. Details
of the terms of the Investment Management Agreement are set out on page 57 of
the Annual Report and Financial Statements and details of the fees during the
year and the balances outstanding at the year end are shown in notes 3 and 11
of the Annual Report and Financial Statements respectively.
11. Audited financial information
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 30 September 2023 or 2022 but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the Registrar of Companies and those for 2023 will be delivered in due
course. The auditor has reported on these accounts; the reports were (i)
unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
12. Publication date
The Annual Report and Financial Statements will be available on the Company's
page of the Managers' website keystonepositivechange.com
(http://www.keystonepositivechange.com/) ‡ on or around 8 December 2023.
‡ Neither the contents of the Managers' website nor the contents of any
website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Glossary of terms and alternative performance measures ('APM')
Total assets
This is the Company's definition of Adjusted Total Assets, being the total
value of all assets held less all liabilities (other than liabilities in the
form of borrowings).
Shareholders' funds
Shareholders' funds is the value of all assets held less all liabilities, with
borrowings deducted at book cost.
Net Asset Value (APM)
When a Company's borrowings are all short-term, flexible facilities, Net Asset
Value ('NAV') equates to shareholders' funds, being the value of all assets
held less all liabilities (including borrowings). Per share amounts are
calculated by dividing the relevant figure by the number of ordinary shares in
issue (excluding shares held in treasury). For the prior year, the difference
between borrowings at book value, borrowings at par and borrowings at market
value is negligible (see note 19 on page 110 of the Annual Report and
Financial Statements) and no reconciliation between NAV with debt at book/par
value and NAV with debt at market value is provided. For the current year, a
reconciliation is provided below, as the NAV per share differs by 0.1p owing
to roundings.
As at 30 September 2023 2022
Shareholders' funds (net assets) (a) £146,653,000 £137,328,000
Ordinary shares in issue (excluding treasury shares) (b) 61,815,632 61,815,632
Net asset value per share ('NAV') with debt at book/par (a ÷ b x 100) 237.2p 222.2p
As at 30 September 2023
Shareholders' funds net (assets) £146,653,000
Add back: debt at book/par £15,495,00
Less: debt at market value (£15,484,000)
Net asset value with debt at market value (a) £146,664,000
Ordinary shares in issue (excluding treasury shares) (b) 61,815,632
Net asset value per share ('NAV') with debt at market value (a ÷ b x 100) 237.3p
Discount/premium (APM)
As stock markets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV per
share it is said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, this situation is called a premium.
As at 30 September 2023 2022
Net asset value per ordinary share (a) 237.3p 222.2p
Share price (b) 204.0p 192.8p
Discount ((b) - (a)) ÷ (a) (14.0%) (13.2%)
Net liquid assets
Net liquid assets comprise current assets less current liabilities (excluding
borrowings) and provisions.
Active share (APM)
Active share, a measure of how actively a portfolio is managed, is the
percentage of the portfolio that differs from its comparative index. It is
calculated by deducting from 100 the percentage of the portfolio that overlaps
with the comparative index. An active share of 100 indicates no overlap with
the index and an active share of zero indicates a portfolio that tracks the
index.
Total return (APM)
The total return is the return to shareholders after reinvesting the dividend
on the date that the share price goes ex-dividend, as detailed below.
For the year to 30 September 2023 2023 2022 2022
NAV Share price NAV Share price
Closing NAV per share/share price (a) 237.3p 204.0p 222.2p 192.8p
Dividend adjustment factor* (b) 1.00166 1.00194 1.01228 1.01242
Adjusted closing NAV per share/share price (c) = (a) x (b) 237.7p 204.4p 224.9p 195.2p
Opening NAV per share/share price (d) 222.2p 192.8p 347.0p 344.0p
Total return (c) ÷ (d) -1 7.0% 6.0% (35.2%) (43.3%)
* The dividend adjustment factor is calculated on the assumption that
dividends of 0.4p (2022 - 4.0p) paid by the Company during the year were
reinvested into shares of the Company at the cum income NAV/share price, as
appropriate, at the ex-dividend dates.
Ongoing Charges (APM)
The total expenses (excluding dealing and borrowing costs) incurred by the
Company as a percentage of the daily average net asset value (with borrowings
at market value), as detailed below.
For the year to 30 September 2023 2022
£'000 £'000
Investment management fee 891 988
Other administrative expenses 477 506
Total expenses (a) 1,368 1,494
Average net asset value (b) 152,538 166,326
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.90% 0.90%
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an
investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on the shareholders' assets is called
'gearing'. If the Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the value of
the Company's assets falls, the situation is reversed. Gearing can therefore
enhance performance in rising markets but can adversely impact performance in
falling markets.
Gross gearing, also referred to as potential gearing is the Company's
borrowings expressed as a percentage of shareholders' funds (a ÷ c in the
table below).
Net gearing, also referred to as invested gearing is borrowings at book value
less cash at bank (any certificates of deposit are not deducted) and brokers'
balances expressed as a percentage of shareholders' funds (b ÷ c in the table
below).
As at 30 September 2023 2022
£'000 £'000
Borrowings (at book cost) (a) 15,495 15,525
Less: cash at bank (728) (962)
Less: sales for subsequent settlement - -
Add: purchases for subsequent settlement - -
Adjusted borrowings (b) 14,767 14,563
Shareholders' funds (c) 146,653 137,328
Gross Gearing (a) as a percentage of (c) 10.6% 11.3%
Net Gearing (b) as a percentage of (c) 10.1% 10.6%
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers ('AIFM')
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a ratio between the Company's exposure and its net asset value and can be
calculated on a gross and a commitment method. Under the gross method,
exposure represents the sum of the Company's positions after the deduction of
sterling cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other. The leverage figures at 30 September
2023 are detailed on page 136 of the Annual Report and Financial Statements.
Unlisted (private) company
An unlisted or private company means a company whose shares are not available
to the general public for trading and are not listed on a stock exchange.
Compound annual return (APM)
The compound annual return converts the return over a period of longer than
one year to a constant annual rate of return applied to the compounded value
at the start of each year.
Treasury shares
The Company has the authority to make market purchases of its ordinary shares
for retention as treasury shares for future reissue, resale, transfer, or for
cancellation. Treasury shares do not receive distributions and the Company is
not entitled to exercise the voting rights attaching to them.
Bottom-up stock pickers
Baillie Gifford describes its investment style as being 'bottom-up stock
pickers' which means that portfolios are built 'bottom-up', based on
enthusiasm for the growth prospects of individual companies, rather than
'top-down', by reference to pre-determined allocations on geographical or
industrial sectoral grounds.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU SFDR does not have direct impact in the UK but, as Keystone Positive
Change Investment Trust plc is marketed in the EU, SFDR reporting obligations
apply. Owing to its impact objective, Keystone is classified as an Article 9
fund and must report against a detailed taxonomy in the form prescribed by the
regulations.
United Nations Global Compact ('UNGC')
The UNGC is the world's largest corporate sustainability initiative, which
calls upon companies to align strategies and operations with universal
principles on human rights, labour, environment and anti-corruption, and take
actions that advance societal goals. Over 12,000 companies based in over 160
countries are participating.
United Nations Sustainable Development Goals ('SDGs')
In September 2015, all 193 Member States of the United Nations adopted a plan
for achieving a better future for all - laying out a path to end extreme
poverty, fight inequality and injustice, and protect our planet by 2030. At
the heart of 'Agenda 2030'; are the 17 Sustainable Development Goals. These
are: 1. No poverty; 2. Zero hunger; 3. Good health and well-being; 4. Quality
education; 5. Gender equality; 6. Clean water and sanitation; 7. Affordable
and clean energy; 8. Decent work and economic growth; 9. Industry, innovation
and infrastructure; 10. Reduced inequalities; 11. Sustainable cities and
communities; 12. Responsible consumption and production; 13. Climate action;
14. Life below water; 15. Life on land; 16. Peace, justice and strong
institutions; and 17. Partnerships for the goals.
Organisation for Economic Co-operation and Development ('OECD')
The OECD is an international organisation of 38 member countries, with a goal
to shape policies that foster prosperity, equality, opportunity and well-being
for all through the development of evidence-based international standards.
Third Party Data Provider Disclaimer
No third party data provider ('Provider') makes any warranty, express or
implied, as to the accuracy, completeness or timeliness of the data contained
herewith nor as to the results to be obtained by recipients of the data.
No Provider shall in any way be liable to any recipient of the data for any
inaccuracies, errors or omissions in the index data included in this document,
regardless of cause, or for any damages (whether direct or indirect) resulting
therefrom. No Provider has any obligation to update, modify or amend the data
or to otherwise notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
MSCI Index Data
Source: MSCI. The MSCI information may only be used for your internal use, may
not be reproduced or redisseminated in any form and may not be used as a basis
for or a component of any financial instruments or products or indices. None
of the MSCI information is intended to constitute investment advice or a
recommendation to make (or refrain from making) any kind of investment
decision and may not be relied on as such. Historical data and analysis should
not be taken as an indication or guarantee of any future performance analysis,
forecast or prediction. The MSCI information is provided on an 'as is' basis
and the user of this information assumes the entire risk of any use made of
this information. MSCI, each of its affiliates and each other person involved
in or related to compiling, computing or creating any MSCI information
(collectively, the 'MSCI Parties') expressly disclaims all warranties
(including, without limitation, any warranties of originality, accuracy,
completeness, timeliness, non-infringement, merchantability and fitness for a
particular purpose) with respect to this information. Without limiting any of
the foregoing, in no event shall any MSCI Party have any liability for any
direct, indirect, special, incidental, punitive, consequential (including,
without limitation, lost profits) or any other damages. (msci.com).
FTSE Index Data
Source: London Stock Exchange Group plc and its group undertakings
(collectively, the 'LSE Group').
© LSE Group 2023. FTSE Russell is a trading name of certain of the LSE Group
companies. 'FTSE®' 'Russell®', 'FTSE Russell®', is/are a trade mark(s) of
the relevant LSE Group companies and is/are used by any other LSE Group
company under license. All rights in the FTSE Russell indexes or data vest in
the relevant LSE Group company which owns the index or the data. Neither LSE
Group nor its licensors accept any liability for any errors or omissions in
the indexes or data and no party may rely on any indexes or data contained in
this communication. No further distribution of data from the LSE Group is
permitted without the relevant LSE Group company's express written consent.
The LSE Group does not promote, sponsor or endorse the content of this
communication.
Regulated Information Classification: Annual Financial and Audit Reports.
- ends -
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR KZMZMLNDGFZM
Recent news on Keystone Positive Change Investment Trust
See all newsBrief: Keystone Positive Change Investment Trust To Reconvene Shareholder Meetings To Implement Reconstruction Scheme
Keystone Positive Cg - Reconvening the Scheme Meetings and convening AGM
RCS - Saba Capital Mgmt. - SABA MEETING REQUISITION – FOUR UK-LISTED TRUSTS
Saba suffers further defeats in campaign to shake up UK trusts (updated)
Brief: Keystone Positive Change Investment Trust Says Over 60% Votes Cast Against Saba's Requisitioned Resolutions