Keystone Positive Cg - Keystone Positive Change Interim Results
03/05/2024 07:00
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RNS Number : 0705N Keystone Positive Change I.T. PLC 03 May 2024
RNS Announcement
Keystone Positive Change Investment Trust plc (KPC)
Legal Entity Identifier: 5493002H3JXLXLIGC563
Regulated Information Classification: Interim Financial Report
Results for the six months to 31 March 2024
Over the six months to 31 March 2024, the Company's net asset value total
return was 10.7% compared to a total return of 16.3% for the comparative
index*. The share price total return was 13.5% as the discount narrowed from
14.0% to 11.9%.
Keystone Positive Change's objective is 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 cent. per annum over rolling five-year
periods; and contribute towards a more sustainable and inclusive world by
investing in companies whose products or services make a positive social or
environmental impact. At 31 March 2024 the Company had total assets of £174
million.
Keystone Positive Change is managed by Baillie Gifford, an Edinburgh-based
fund management group with approximately £230 billion under management and
advice as at 31 March 2024.
Keystone Positive Change 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 Positive Change at
keystonepositivechange.com‡.
Past performance is not a guide to future performance. Total return
information is sourced from LSEG/Baillie Gifford and relevant underlying index
providers. See disclaimer at end of this announcement.
* MSCI All Country World Index in sterling terms.
‡ 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.
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
The following is the unaudited Interim Financial Report for the six months to
31 March 2024 which was approved by the Board on 2 May 2024.
Responsibility statement
We confirm that to the best of our knowledge:
a. the condensed set of Financial Statements has been prepared in accordance
with FRS 104 'Interim Financial Reporting';
b. the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of
important events during the first six months, their impact on the Financial
Statements and a description of the principal risks and uncertainties for the
remaining six months of the year); and
c. the Interim Financial Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
On behalf of the Board
Karen Brade
Chair
2 May 2024
Interim management report
Much has happened in the three years since we took on the management of
Keystone Positive Change Investment Trust, including the outbreak of war in
Ukraine and the Middle East; supply chain challenges as the world re-opened
post-pandemic; the end of easy monetary policy and the sharpest rise in
interest rates in four decades; and increasing evidence of the devastation
caused by global warming.
Against this dynamic and complex back-drop we have remained resolutely
committed to delivering on Keystone's dual objectives of generating attractive
long-term investment returns and contributing towards a more sustainable and
inclusive world. We continue to believe that capital owners and allocators can
play a valuable role in addressing global challenges by channelling capital
towards businesses that are intent on developing, scaling production of, and
successfully selling products and services that will help create a more
inclusive, healthier and more environmentally stable world.
Performance
Following eleven consecutive interest rate increases in the US and fourteen in
the UK, we seem to be in a period of greater calm on this front with no
changes in recent months and an expectation that rates will remain stable or
even fall from here. Performance in a rising interest rate environment has
been more challenging for the Company which invests in 'long duration growth
stocks', i.e., companies whose share prices are skewed towards cash flows
generated in the future. The more stable interest rate environment is helpful
for long-term growth investors. But what matters more is the strong
operational progress being made by portfolio holdings as we believe it is
fundamental progress in earnings that drives share prices over the long term.
Over the six months to 31 March 2024 the benchmark increased by 16.3%, the
Company's share price rose by 13.5% and NAV grew by 10.7%.
Two of the larger holdings in the portfolio, TSMC and ASML, were among the top
positive contributors to performance over the period, despite 2023 being a
challenging year for the semiconductor industry. ASML grew revenues by 30% and
TSMC outperformed its competitors, testament to the technological leadership
of these companies and their willingness to invest in both capacity expansion
and R&D so they can remain at the vanguard of their industries. Both
companies are cautiously optimistic that end-market demand has bottomed and
will recover thanks not just to demand for advanced chips enabling AI and
advanced computing, but also the growing need for chips in the energy
transition, for electrification and for digitalisation. Nu Holdings, the
Brazilian digital bank providing access to financial services to a hundred
million people in Latin America, reported phenomenal results, outpacing our
predictions when we took a position when it listed in 2021. In 2023 the
company grew its customer base by 26% and its average revenue per customer by
23% while achieving positive net profits for the first time. Duolingo, the
leading digital language learning app, beat expectations by growing revenues
by 45% with its monthly active users increasing to 88m and the percentage of
paying subscribers continuing on a positive trajectory.
Detractors to performance included WuXi and Remitly. WuXi, the global leader
in outsourced research and development services to many of the world's biotech
and pharma companies, has been subject to tension between the US and China.
The emergence of draft bills related to the BioSecure Act in the US resulted
in significant share price falls. We have spoken with the CEO and some of
WuXi's customers and understand the company has minimal reliance on projects
at risk and that customers are not overly concerned. Geopolitical uncertainty
is likely to persist with the pending US election, and we are closely
monitoring the situation. However, we take comfort from steps WuXi has taken
to establish its manufacturing footprint outside China to minimise
geopolitical risk.
The mobile remittance provider, Remitly, was also a detractor to performance
over the six-month period, despite it performing extremely well operationally,
growing its customer base and revenues by over 40% in 2023 and improving
profitability as its network scales and its data advantage grows. The market
seems worried about Remitly's increased marketing spending, but we see it as a
necessary investment for long-term growth, as long as the return from that
marketing spend remains attractive. Remitly ended the year with just under 6m
customers benefiting from its fast, secure and affordable means of sending
money to their families and friends in low- and middle-income countries.
One of the attractive features of the Company is its ability to invest in
private companies. At the end of March 2024, 5.3% of the portfolio was
invested across five private companies that are developing exciting new
technologies from quantum computing to carbon removal solutions. In terms of
operational progress, Boston Metal, which is commercialising a novel
technology to decarbonise steel production and recover high-value metal from
mining waste, was selected by the US Department of Energy to enter into
negotiations for $50m of federal funding for a manufacturing plant in West
Virginia; and in March 2024 it inaugurated its first facility in Brazil where
it will start recovering high-value metal from mining waste at commercial
scale. Carbon removal company, Climeworks, continues to sign new carbon
removal agreements with customers from a range of industries, from airlines to
toy manufacturers, as it works towards the launch of its new plant in Iceland
in early summer. Operational progress at Swedish battery developer and
manufacturer, Northvolt, has been slower than expected in a higher cost
environment and for the sheer scale of what the company is trying to achieve.
On a more positive note, its progress in securing long-term contracts to the
value of over $55bn with esteemed partners is helping it secure financing to
fund its expansion of Europe's first home-grown gigafactory and realise its
plans for battery recycling.
Interest rates and geopolitical fragility dominate the headlines, often
masking the 'secret silent miracle of human progress'(1). We endeavour to find
the companies contributing to human progress through products and services
that address global challenges; we believe that these companies will thrive in
the long term; and we believe that share prices follow fundamentals. With this
in mind, it is worth highlighting the strong fundamentals of the portfolio:
companies within the portfolio have delivered 10.9% annual earnings growth
over the last five years compared to 8.0% for the index and are forecast to
deliver 16.8%(2) per annum for the next three years compared to 9.4% for the
index; portfolio companies have stronger balance sheets than the index with
net debt/EBITDA of 1x compared to 1.6x for the index; and the portfolio
holdings are investing in their future more than index constituents with capex
and R&D spend equating to 19% of revenues compared to 10% for the
benchmark. For these superior fundamental characteristics - faster growth,
stronger balance sheets and more investment - the portfolio is on a one year
forward PE of 27x, a premium of 55% to the benchmark(3). This compares to a
premium of 63% to the index three years ago.
Portfolio
We have made three complete sales and three new purchases for the Company over
the past six months. The sale of Daikin, a leading player in the heating,
ventilation and air conditioning industry, due to the emergence of new
information related to its involvement in the production of white phosphorous
smoke bombs used by the Japanese Ministry of Defence for training purposes,
was addressed in the full year statement. Danish offshore wind operator
Ørsted has faced operational challenges. Rising material costs, higher
interest rates and changes to government support for projects in the US led to
significant write-downs to projects there, undermining our confidence in the
management team's ability to allocate capital: we have decided to move on. M3,
a Japanese provider of digital services for the healthcare system, is growing
in complexity as it acquires more and bigger businesses in different
geographies. We think this comes with execution risk, so the position was
sold. In both cases we sold at a lower price to when we purchased shares in
February 2021; both companies were among the bigger detractors to performance
since then.
We are excited to have taken three new holdings, all quite different in terms
of their business model and how they are driving change. Katitas is a Japanese
company that refurbishes vacant homes to sell to first-time buyers at
affordable prices. It is poised to benefit from structural changes with new
homes being unsustainable, expensive and in short supply, while younger
generations are more open to second-hand purchases. Its scale and unique
expertise mean it dominates the pre-owned market. We are excited about its
ability to grow in this niche market while contributing to greater
circularity.
Despite a weakening of demand for electric vehicles due to higher interest
rates and weaker economies, we remain excited about investment opportunities
associated with electrification of transportation. Rivian is a US company that
makes electric SUVs, pick-up trucks and commercial vans. It is well poised to
contribute to the electrification of the automotive sector with its strong
brand, vertically integrated manufacturing business model and strong
commitment to reducing carbon emissions.
Grab, South East Asia's leading platform for ride-hailing and food delivery
services, is the third new holding. We expect demand for its services to grow
as the region's economy expands and admire the competitive edge it has carved
out through its network, scale and technology. We believe that its digital
platform is playing a pivotal role in helping micro, small and medium sized
enterprise (SME) owners scale their businesses, enhance their financial
resilience and, importantly, improve their quality of life.
Positive Conversations
We recently published Positive Conversations
(https://www.bailliegifford.com/en/uk/individual-investors/insights/ic-article/2024-q1-keystone-positive-conversations-2023-10046032/)
, an annual report that focuses on the business practices of portfolio
holdings, including the carbon footprint, outlines progress towards Net Zero
alignment, and provides a record of our engagements with portfolio holdings.
Through our engagements we aim to grow our understanding, build relationships
with management teams and seek to influence where we think engagement can be
of value to companies and society. The report includes detail on positive
conversations with Illumina on strategy, governance and remuneration; with
Moderna on vaccine equality; and with Tesla on supply chains. This report
complements the Annual Impact Report which details how portfolio holdings are
contributing towards a more sustainable and inclusive world across the four
impact themes.
Outlook
'It's not what you look at that matters, it's what you see'(4).
We can all look at inflation figures and the US Federal Reserve's most recent
meeting minutes; or at the horrendous footage of the conflicts in Ukraine and
the Middle East; anyone can look at charts illustrating the rise in global
temperatures or the exponential spread of viruses.
Looking around us we see a world facing significant environmental and social
challenges; we see individuals and businesses innovating and developing new
products and services or new business models that have the potential to
address these global challenges. We see investment opportunities in businesses
that are challenging the status quo. What we see is encapsulated in our dual
objectives: to contribute towards a more sustainable, inclusive and healthier
world while generating attractive investment returns for shareholders. To do
this we endeavour to see what matters most, rather than being distracted by
trying to predict short-term sentiment on interest rates or geopolitics.
It could be said that society is at a watershed moment in time, faced with the
choice of continuing along the path we are on, or having the bravery, ambition
and determined optimism needed to help steer us onto a more sustainable and
inclusive trajectory.
This watershed moment is rich with investment opportunities for the brave and
ambitious. Some interesting areas we are exploring include the electrification
of mining equipment, new treatments for obesity, and companies helping improve
access to medication.
Thank you for seeing what we see in our philosophy; thank you for believing
that we see things that others don't, and for sharing our excitement in that.
Kate Fox and Lee Qian
Portfolio Managers
2 May 2024
1 Hans Rosling, Swedish physician and academic.
2 Third party analyst expectations.
3 These statistics exclude private companies.
4 Henry David Thoreau - American naturalist, essayist, poet, and philosopher
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance
List of investments
as at 31 March 2024
Name Business Impact theme Fair value % of
£'000 total
assets
TSMC Semiconductor manufacturer Social 12,149 7.0
ASML Supplier to semiconductor industry Social 11,427 6.6
MercadoLibre Ecommerce platform and fintech Social 11,332 6.5
Dexcom Continuous glucose monitoring Healthcare 8,943 5.1
Moderna Messenger RNA therapeutics Healthcare 8,364 4.8
Bank Rakyat Indonesia Bank Base 8,360 4.8
Xylem Innovative water solutions Environment 8,238 4.7
Shopify Online commerce platform Social 7,930 4.6
Autodesk Software products for architecture, engineering, construction, and Environment 7,349 4.2
manufacturing industries
Deere Agricultural equipment Environment 6,936 4.0
Nu Holdings Digital banking company Social 6,630 3.8
Remitly Global Online money transfer payments for immigrants Base 5,992 3.4
and their families
Duolingo Language learning website and mobile app Social 5,691 3.3
Ecolab Water, hygiene and infection prevention services Environment 5,325 3.1
Illumina Gene sequencing equipment Healthcare 5,242 3.0
HDFC Bank Mortgage provider Social 5,215 3.0
Alnylam Pharmaceuticals Biotechnology Healthcare 5,036 2.9
Sartorius Biopharmaceutical and laboratory tooling Healthcare 4,385 2.5
Coursera Online learning Social 3,451 2.0
Tesla Electric cars and renewable energy solutions Environment 3,406 2.0
Grab# Superapp in Southeast Asia, providing mobility, deliveries and digital Social 3,388 1.9
financial services
Northvolt AB (u) Battery developer and manufacturer, specialising Environment 3,333 1.9
in lithium-ion technology for electric vehicles
Umicore Global materials technology and recycling Environment 3,104 1.8
Katitas# Refurbishes vacant homes in Japan and sells Environment 3,056 1.8
to first-time buyers on an affordable basis
Safaricom Telecommunications and mobile payments Base 2,415 1.4
10x Genomics Life science technology Healthcare 2,116 1.2
Climeworks (u) Direct air carbon capture Environment 1,725 1.0
Boston Electrometallurgical Corp (u) Novel technology for producing green steel Environment 1,672 1.0
PsiQuantum (u) Silicon photonic quantum computing Social 1,572 0.9
Discovery Holdings Life and health insurance provider Healthcare 1,556 0.9
Joby Aviation Electric aircraft Environment 1,459 0.8
AbCellera Biologics Antibody drug discovery tools Healthcare 1,445 0.8
WuXi Biologics Contract research, development and manufacturing organisation focusing on Healthcare 1,433 0.8
biologics drugs
Novonesis Biological solutions Environment 1,166 0.7
Spiber (u) Novel protein biomaterials Environment 901 0.5
Rivian Automotive# Electric sports utility vechicles and pickup trucks Environment 618 0.4
Total investments 172,360 99.1
Net liquid assets† 1,594 0.9
Total assets† 173,954 100.0
Listed Unlisted Net liquid Total
equities
securities‡
assets†
assets†
% % % %
31 March 2024 93.8 5.3 0.9 100.0
30 September 2023 93.7 5.9 0.4 100.0
* Abbreviated as follows: Healthcare - Healthcare and quality of life; Social
- Social inclusion and education; Environment - Environment and resource
needs; Base - Base of the pyramid.
† For a definition of terms see Glossary of terms and Alternative
Performance Measures at the end of this announcement.
# New purchase during the period. Complete sales during the period were:
Ørsted, Daikin Industries, and M3. Chr Hansen merged with Novozymes to form
Novonesis.
‡ Includes holdings in ordinary shares, preference shares and promissory
notes.
(u) Denotes unlisted/private company holding.
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.
Portfolio companies split by impact theme
as at 31 March 2024
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
TSMC 12,149 7.0 Xylem 8,238 4.7 Dexcom 8,943 5.1 Bank Rakyat Indonesia 8,360 4.8
ASML 11,427 6.6 Autodesk 7,349 4.2 Moderna 8,364 4.8 Remitly Global 5,992 3.4
MercadoLibre 11,332 6.5 Deere 6,936 4.0 Illumina 5,242 3.0 Safaricom 2,415 1.4
Shopify 7,930 4.6 Ecolab 5,325 3.1 Alnylam Pharmaceuticals 5,036 2.9 16,767 9.6
Nu Holdings 6,630 3.8 Tesla 3,406 2.0 Sartorius 4,385 2.5
Duolingo 5,691 3.3 Northvolt AB (u) 3,333 1.9 10x Genomics 2,116 1.2
HDFC Bank 5,215 3.0 Umicore 3,104 1.8 Discovery Holdings 1,556 0.9
Coursera 3,451 2.0 Katitas 3,056 1.8 AbCellera Biologics 1,445 0.8
Grab 3,388 1.9 Climeworks (u) 1,725 1.0 WuXi Biologics 1,433 0.8
PsiQuantum (u) 1,572 0.9 Boston Electrometallurgical Corp (u) 1,672 1.0 38,520 22.0
68,785 39.6 Joby Aviation 1,459 0.8
Novonesis 1,166 0.7
Spiber (u) 901 0.5
Rivian Automotive 618 0.4
48,288 27.9
Net liquid assets* 1,594 0.9
Total assets* 173,954 100.0
* For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
(u) Denotes unlisted private company holding
Income statement (unaudited)
For the six months ended 31 March 2024 For the six months ended 31 March 2023 For the year ended 30 September 2023 (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 15,470 15,470 - 19,505 19,505 - 9,884 9,884
Currency gains - 219 219 - 722 722 - 589 589
Income from investments and interest receivable 915 - 915 1,021 - 1,021 1,618 - 1,618
Investment management fee 3 (118) (354) (472) (110) (331) (441) (223) (668) (891)
Other administrative expenses (252) - (252) (242) - (242) (477) - (477)
Net return before finance costs and taxation 545 15,335 15,880 669 19,896 20,565 918 9,805 10,723
Finance costs of borrowings (136) (389) (525) (104) (295) (399) (234) (666) (900)
Net return on ordinary activities before taxation 409 14,946 15,355 565 19,601 20,166 684 9,139 9,823
Tax on ordinary activities (155) 7 (148) (167) (12) (179) (244) (7) (251)
Net return on ordinary activities after taxation 254 14,953 15,207 398 19,589 19,987 440 9,132 9,572
Net return per ordinary share 4 0.41p 24.39p 24.80p 0.64p 31.69p 32.33p 0.71p 14.77p 15.48p
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 and total comprehensive income for the
period.
Balance sheet (unaudited)
Notes At 31 March At 30 September
2024 2023
(audited)
£'000
£'000
Fixed assets
Investments held at fair value through profit or loss 6 172,360 161,497
Current assets
Debtors 431 313
Cash at bank 1,608 728
2,039 1,041
Creditors
Amounts falling due within one year:
Bank loan 7 (15,044) (15,245)
Other creditors (445) (383)
(15,489) (15,628)
Net current liabilities (13,450) (14,587)
Total assets less current liabilities 158,910 146,910
Creditors
Amounts falling due after more than one year:
Cumulative preference shares 8 (250) (250)
Provision for tax liability 9 - (7)
Net assets 158,660 146,653
Capital and reserves
Share capital 10 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 147,425 135,396
Revenue reserve 560 582
Shareholders' funds 158,660 146,653
Net asset value per ordinary share* 262.3p 237.3p
* For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Statement of changes in equity (unaudited)
For the six months ended 31 March 2024
Notes Share capital £'000 Share Capital Capital Revenue reserve £'000 Shareholders'
reserve*
premium redemption £'000 funds
£'000
account reserve
£'000 £'000
Shareholders' funds at 1 October 2023 6,760 3,449 466 135,396 582 146,653
Net return on ordinary activities after taxation - - - 14,953 254 15,207
Ordinary shares bought into treasury - - - (2,924) - (2,924)
Dividends paid during the period 5 - - - - (276) (276)
Shareholders' funds at 31 March 2024 6,760 3,449 466 147,425 560 158,660
For the six months ended 31 March 2023
Notes Share capital £'000 Share Capital Capital Revenue reserve £'000 Shareholders'
reserve*
premium redemption £'000 funds
£'000
account reserve
£'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 - - - 19,589 398 19,987
Dividends paid during the period 5 - - - - (247) (247)
Shareholders' funds at 31 March 2023 6,760 3,449 466 145,853 540 157,068
* The Capital reserve balance at 31 March 2024 includes investment holding
losses of £12,785,000 (31 March 2023 - losses of £41,834,000).
Condensed cash flow statement (unaudited)
Six months to Six months to
31 March 2024
£'000 31 March 2023
£'000
Cash flows from operating activities
Net return before finance costs and taxation 15,880 20,565
Net gains on investments (15,470) (19,505)
Currency gains (258) (718)
Overseas tax incurred (142) (94)
Changes in debtors and creditors (123) (474)
Net cash inflow from investing activities 4,607 732
Net cash inflow from operating activities* 4,494 506
Cash flows from financing activities
Net cash inflow from drawdown of bank loans 60 225
Interest and cumulative preference share dividends paid (522) (379)
Ordinary shares bought back (2,873) -
Dividends paid (276) (247)
Net cash outflow from financing activities (3,611) (401)
Increase in cash at bank 883 105
Exchange movements (3) (36)
Cash at bank at start of period 728 962
Cash at bank at end of period 1,608 1,031
* Cash from operating activities includes dividends received of £798,000 (31
March 2023 - £588,000) and interest received of £6,000 (31 March 2023 -
£10,000).
Notes to the condensed Financial Statements (unaudited)
1 Basis of accounting
The condensed Financial Statements for the six months to 31 March 2024
comprise the statements set out above together with the related notes below.
They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in July
2022. They have not been audited or reviewed by the auditor pursuant to the
Auditing Practices Board Guidance on 'Review of Interim Financial
Information'. The condensed Financial Statements for the six months to 31
March 2024 have been prepared on the basis of the same accounting policies as
set out in the Company's Annual Report and Financial Statements at 30
September 2023.
Going concern
The Directors have considered the Company's principal risks and uncertainties,
as set out at the end of this announcement, together with the Company's
current position, investment objective and policy, the level of demand for the
Company's shares, the nature of its assets, its liabilities and projected
income and expenditure. The Board has, in particular, considered the ongoing
impact of geopolitical and macroeconomic challenges. The Company's assets, the
majority of which are investments in listed securities which are readily
realisable, exceed its liabilities significantly. The Board approves borrowing
and gearing limits and reviews regularly the amounts of any borrowing and the
level of gearing as well as compliance with borrowing covenants. The Company
has continued to comply with the investment trust status requirements of
section 1158 of the Corporation Tax Act 2010 and the Investment Trust
(Approved Company) Regulations 2011. Accordingly, the Directors consider it
appropriate to adopt the going concern basis of accounting in preparing these
condensed Financial Statements and confirm that they are not aware of any
material uncertainties which may affect the Company's ability to continue to
do so over a period of at least twelve months from the date of approval of
these condensed Financial Statements.
2 Financial information
The financial information contained within the Interim Financial Report does
not constitute statutory accounts as defined in sections 434 to 436 of the
Companies Act 2006. The financial information for the year ended 30 September
2023 has been extracted from the statutory accounts which have been filed with
the Registrar of Companies. The Auditors' Report on those accounts was not
qualified, did not include a reference to any matters to which the Auditors
drew attention by way of emphasis without qualifying their report, and did not
contain statements under sections 498(2) or (3) of the Companies Act 2006.
3 Investment management fee
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed by the Company as its Alternative Investment Fund
Manager and Company Secretary. Baillie Gifford & Co Limited has delegated
the investment management services to Baillie Gifford & Co.
The Management Agreement can be terminated on three months' notice. 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
Six months to Six months to Year to
31 March 2024
31 March 2023
30 September 2023 (audited)
£'000 £'000 £'000
Revenue return on ordinary activities after taxation 254 398 440
Capital return on ordinary activities after taxation 14,953 19,589 9,132
Total net return 15,207 19,987 9,572
Weighted average number of ordinary shares in issue 61,299,161 61,815,632 61,815,632
The net return per ordinary share figures are based on the above totals of
revenue and capital and the weighted average number of ordinary shares in
issue (excluding treasury shares) during each period.
There are no dilutive or potentially dilutive shares in issue.
5 Dividends
Six months to 31 March Six months to 31 March Year to
30 September
2024 2023
2023
£'000 £'000
(audited)
£'000
Amounts recognised as distributions in the period:
Previous year's final dividend of 0.45p (2023 - 0.40p) paid 8 February 2024 276 247 247
Amounts paid and payable in respect of the period:
Final dividend (2023 - 0.45p) - - 276
6 Fair Value Hierarchy
The Company's investments are financial assets held at fair value through
profit or loss. The fair value hierarchy used to analyse the basis on which
the fair values of financial instruments held at fair value through profit or
loss are measured is described below. The levels are determined by the lowest
(that is the least reliable or least independently observable) level of input
that is significant to the fair value measurement for the individual
investment in its entirety.
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).
An analysis of the Company's financial asset investments based on the fair
value hierarchy described above is shown below.
Investments held at fair value through profit or loss
Level 1 Level 2 Level 3 Total
As at 31 March 2024 £'000 £'000 £'000 £'000
Listed equities 163,157 - - 163,157
Unlisted securities - - 9,203 9,203
Total financial asset investments 163,157 - 9,203 172,360
Level 1 Level 2 Level 3 Total
As at 30 September 2023 (audited) £'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
The fair value of listed security investments is bid price or, in the case of
FTSE 100 constituents and holdings on certain recognised overseas exchanges,
last traded price. Listed Investments are categorised as Level 1 if they are
valued using unadjusted quoted prices for identical instruments in an active
market and as Level 2 if they do not meet all these criteria but are,
nonetheless, valued using market data. Unlisted investments are valued at fair
value by the Directors following a detailed review and appropriate challenge
of the valuations proposed by the Managers. The Managers' unlisted investment
policy applies methodologies consistent with the International Private Equity
and Venture Capital Valuation guidelines ('IPEV'). These methodologies can be
categorised as follows: (a) market approach (multiples, industry valuation
benchmarks and available market prices); (b) income approach (discounted cash
flows); and (c) replacement cost approach (net assets). The Company's holdings
in unlisted investments are categorised as Level 3 as unobservable data is a
significant input to their fair value measurements.
7 Bank loans
The Company has a 3 year £25 million multicurrency unsecured floating rate
facility with The Royal Bank of Scotland International Limited which expires
on 31 August 2024. At 31 March 2024 drawings were as follows: 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 June 2024 (30 September 2023 - US$9.5
million and £7.5 million maturing in December 2023).
8 Cumulative preference shares
Long term creditors include 250,000 5% cumulative preference shares of £1
each. The preference shares dividend is paid bi-annually, in March and
September.
9 Provision for tax liability
The tax liability provision at 31 March 2024 of nil (30 September 2023 -
£7,000) relates to a potential tax 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 gain 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.
10 Share capital: allotted, called up and fully paid
At 31 March 2024 At 30 September 2023 (audited)
Number £'000 Number £'000
Ordinary shares of 10p each in issue 60,491,865 6,049 61,815,632 6,182
Ordinary shares of 10p each held in treasury 7,102,130 711 5,778,363 578
67,593,995 6,760 67,593,995 6,760
In the six months to 31 March 2024, the Company bought back 1,323,767 ordinary
shares into treasury at a total cost of £2,924,000 and issued no new shares
(six months to 31 March 2023 - no shares bought back, none issued).
At 31 March 2024 the Company had authority remaining to buy back 8,711,985
ordinary shares on an ad hoc basis as well as a general authority to issue
shares and an authority to issue shares or sell shares from treasury on a non
pre-emptive basis up to an aggregate nominal amount of £618,156. In
accordance with authorities granted at the last Annual General Meeting in
February 2024, buy-backs will only be made at a discount to net asset value
and the Board has authorised use of the issuance authorities to issue new
shares or sell shares from treasury at a premium to net asset value, in both
cases in order to enhance the net asset value per share for existing
shareholders and improve the liquidity of the Company's shares.
11 Related party transactions
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company during that period and
there have been no changes in the related party transactions described in the
last Annual Report and Financial Statements that could have had such an effect
on the Company during that period.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Principal risks and uncertainties
The principal and emerging risks facing the Company are: the risk that the
Company's strategy and business model are unsuccessful in achieving its
investment objective; discount/premium risk; financial risk; gearing risk;
operational risk; custody and depositary risk; climate and governance risk;
political and associated economic risk; and regulatory risk. An explanation of
these risks and how they are managed is set out on pages 41 to 45 of the
Company's Annual Report and Financial Statements for the year to 30 September
2023 which is available on the Company's website: keystonepositivechange.com.
The principal risks and uncertainties have not changed materially since the
date of that report.
‡ 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.
The Interim Financial Report will be available on the Company's page of the
Managers' website keystonepositivechange.com (http://www.bgukgrowthfund.com)
‡ on or around 15 May 2024.
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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.
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whatsoever to you, whether in contract (including under an indemnity), in tort
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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
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in or related to compiling, computing or creating any MSCI information
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(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)
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).
Net asset value
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 current period, the difference
between borrowings at book value, borrowings at par and borrowings at market
value is negligible and no reconciliation between NAV at book/par value and
NAV at fair value is provided, as the NAV per share is the same on both bases.
For the year to 30 September 2023, a reconciliation is provided below, as the
NAV per share differs by 0.1p owing to roundings.
Net asset value per share (APM)
At 31 March At 30 September
2024
2023
Shareholders' funds (net assets) a £158,660,000 £146,653,000
Ordinary shares in issue (excluding treasury shares) b 60,491,865 61,815,632
Net asset value per share ('NAV') (a ÷ b x 100) 262.3p 237.2p
At 30 September
2023
Shareholders' funds (net assets) £146,653,000
Add back: debt at book/par £15,495,000
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)
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 NAV per
share from the share price 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.
At 31 March At 30 September
2024
2023
Net asset value per ordinary share a 262.3p 237.3p
Share price b 231.0p 204.0p
(Discount)/premium (b-a) ÷ a expressed as a percentage (11.9%) (14.0%)
Net liquid assets
Net liquid assets comprises current assets less current liabilities excluding
borrowings.
Total return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend. In periods where
no dividend is paid, the total return equates to the capital return.
31 March 31 March 30 September 2023 30 September 2023
2024
2024
NAV Share price
NAV Share price
Closing NAV/price per share a 262.3p 231.0p 237.3p 204.0p
Dividend adjustment factor* b 1.001775 1.00203 1.00166 1.00914
Adjusted closing NAV/price per share c = a x b 262.8p 231.5p 237.7p 204.4p
Opening NAV/price per share d 237.3p 204.0p 222.2p 192.8p
Total return (c ÷ d) -1 10.7% 13.5% 7.0% 6.0%
* The dividend adjustment factor is calculated on the assumption that the
dividends paid by the Company during the period were reinvested into shares of
the Company at the cum income NAV/share price at the relevant ex-dividend
date.
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.
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.
Private (unlisted) company
A private or unlisted company means a company whose shares are not available
to the general public for trading and are not listed on a stock exchange.
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 and cash equivalents (any certificates of deposit are not deducted)
and brokers' balances expressed as a percentage of shareholders' funds (b ÷ c
in the table below).
31 March 30 September 2023
2024
Borrowings (at book cost) a £15,294,000 £15,495,000
Less: cash and cash equivalents (£1,608,000) (£728,000)
Less: sales for subsequent settlement - -
Add: purchases for subsequent settlement 50 -
Adjusted borrowings b £13,736,000 £14,767,000
Shareholders' funds c £158,660,000 £146,653,000
Gross gearing a ÷ c 9.6% 10.6%
Net gearing b ÷ c 8.6% 10.1%
- Ends -
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