Keystone Positive Cg - Keystone Positive Change IT Annual Results
27/11/2024 07:00
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RNS Number : 7595N Keystone Positive Change I.T. PLC 27 November 2024
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 2024
Over the year to 30 September 2024, the Company's net asset value per share
(NAV) total return was 2.2% compared to a total return of 20.4% for the
Comparative Index† (in sterling terms). The share price total return for the
same period was 13.5% as the discount narrowed from 14.0% to 4.6%.
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 £224 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.
26 November 2024
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 2024 which was approved by the Board on 26 November 2024.
Chair's statement
Since February 2021, Keystone Positive Change Investment Trust plc ('Keystone
Positive Change', 'Keystone' or 'the Company') has had two objectives of equal
importance: to generate attractive long-term capital returns through
investment in public and private markets 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 at Baillie Gifford has an investment horizon of five years and beyond to
allow these structural themes to play out. It is therefore disappointing to
write to shareholders in the knowledge that the Company may not survive beyond
its fourth anniversary of adopting this strategy.
Performance
Over the year to 30 September 2024, the Company's net asset value ('NAV')
total return was +2.2% compared to +20.4% for its benchmark, the MSCI All
Country World Index (in sterling terms). Over the same period, the share price
total return was +13.5%.
The first half of the year, to 31 March 2024, offered encouraging signs of
improved performance, with total returns of +10.7% for the NAV, +13.5% for the
share price and +16.3% for the comparative index. The second half of the year
proved more challenging, with the NAV losing much of its first half gain and
the share price remaining flat.
Since the Company adopted its investment strategy in February 2021, NAV total
return (to 30 September 2024) has been -26.9%, share price total return
-29.2%, while the index has delivered +40.3% over the same period. The Board
recognises that these shareholder returns are very disappointing and that in
order to meet the Company's investment objective of the NAV total return
exceeding that of the MSCI All Country World Index in sterling terms by at
least 2% per annum over rolling five-year periods, the portfolio would have
to deliver significant outperformance for the two years to 30 September 2026
to make up the accumulated shortfall. The Board has, of course, been
monitoring performance from the outset, and the Positive Change strategy has
historically succeeded in delivering such outsize returns, most recently while
benefiting from the pandemic recovery, when portfolio companies such as
Moderna were producing life-saving vaccines on an unprecedentedly expedited
timeline. The Company repositioned the portfolio in line with the current
investment strategy at a peak valuation point for growth stocks and since then
the macroeconomic environment has been far less supportive of early‑stage,
innovative businesses of the type that form this Company's investment
universe. Such companies are, the Board believes, essential for the world to
see the climate, biodiversity and social progress that it needs, but have been
out of favour with investors.
Commentary on the performance of individual companies held in the portfolio
during the last twelve months is provided in the Managers' Review.
Scheme of Reconstruction
On 9 September 2024, following a series of meetings with the Company's brokers
and Managers, the Company released an announcement indicating that, although
the Board remained confident in the long‑term prospects for the strategy, it
recognised that there had been a challenging period of performance during a
difficult backdrop for the investment trust sector. It noted that over the
previous 12 months the Board had taken several steps with a view to enhancing
value for shareholders including introducing a share buyback programme,
setting a continuation vote for February 2027 and increasing marketing
activity. It nonetheless concluded that the interests of shareholders might be
best served by implementing a transaction in the near term to address the size
of the Company, the low liquidity in the Company's shares and the discount at
which they have been trading, while enabling shareholders to retain exposure
to a global impact strategy.
As indicated in that announcement, the Board then consulted more widely with
shareholders and explored the Company's options, including a rollover into the
Baillie Gifford Positive Change Fund, an FCA authorised open-ended investment
company with assets of c.£1.8bn, substantially all of which is invested in
the same portfolio of listed equities as the Company. During that process,
particular attention was paid to addressing the illiquidity of the Company's
five private company investments, which comprised 3.6% of total assets as at
30 September 2024.
On 30 September 2024, the Company released an announcement confirming that,
having considered additional feedback from shareholders, and the Company's
options to retain exposure to a global impact strategy, the Board had decided
to propose a Scheme of Reconstruction and winding-up of the Company (the
'Scheme') under which shareholders would have the option to receive shares in
the Baillie Gifford Positive Change Fund, or an uncapped cash exit at a
modest discount to the formula asset value (the 'FAV') calculated for the
purposes of the Scheme.
The detailed proposals in respect of the Scheme are contained in a separate
Circular and shareholders are directed towards that document for the
calculation of their entitlements under the Scheme. In view of this proposal,
no Notice of Annual General Meeting is included in this Annual Report and
Financial Statements for the year to 30 September 2024. Shareholders are
encouraged to vote their shares at the General Meetings to be held in respect
of the Scheme and as set out in the Circular.
Impact
The Company invests in listed and private companies that address a social or
environmental challenge. 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 in their Review on the following pages.
In August 2024, the Company published its third 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, together with its companion
document Positive Conversations, which outlines engagement on investee
companies' business practices.
Amid a backdrop of uncertainty, the Board continues to believe that investing
for positive change is both important and full of opportunity and hopes that
shareholders will carefully consider the option to rollover their holding in
this Company to the Baillie Gifford Positive Change Fund, which has also
adopted a Sustainability Impact label, as set out in the Scheme of
Reconstruction detailed above.
Discount
Over the year to 30 September 2024 the discount narrowed from 14.0% to 4.6%,
although the Board recognises that this improvement in rating is primarily a
function of the announcements made on 9 and 30 September, which are discussed
above, rather than a sign of renewed market enthusiasm for the investment
strategy.
During the year the Board commenced a buyback programme to provide additional
liquidity for shareholders seeking an exit and unable to find it through
natural market channels. The Company bought back 2,635,645 shares representing
4.3% of share capital at a cost of £5.8 million and an average discount of
12.8%. Although such transactions are accretive to NAV per share for ongoing
shareholders, adding approximately 0.5% over the period, the Directors weighed
this benefit against concerns regarding the impact of asset shrinkage on the
ongoing charges ratio and medium-term reduction in liquidity in the Company's
shares when assessing the appropriate quantum.
Gearing
The Company started the financial year with net gearing of 10.1%, having drawn
down £15 million of a £25 million multi-currency revolving credit facility
provided by The Royal Bank of Scotland International Limited. This facility
expired at the end of August 2024 and was replaced by a £20 million
uncommitted facility with The Bank of New York Mellon (International)
Limited. At 30 September 2024, net gearing stood at 8.7%, with the only
adjustments to drawings being currency rebalancing on the US$ tranche but
slightly higher retained cash balances reducing net gearing exposure. The
Company is expected to continue to maintain a modest level of structural
gearing, which should enhance shareholder returns, for as long as remains
practicable within the context of the proposed Scheme of Reconstruction.
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.
Ongoing charges for the year to 30 September 2024 were 1.02% (2023 - 0.90%),
with the increase being attributable to both the decline in the asset base
noted above and one-off professional fees incurred with respect to the 2024
AGM; the recruitment of a new Director, from which we will unfortunately not
now be able to benefit; and renewal of the loan facility.
Dividend
The Company's capital growth-focused portfolio is not selected 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 declaring an interim dividend of 0.10p
per share (2023 - 0.45p per share) in lieu of a final dividend in respect of
the year to 30 September 2024. A further interim dividend of 0.35p per share,
calculated to exceed the minimum distribution required for the period from 1
October 2024 to the contemplated Scheme of Reconstruction implementation date,
will accompany it. Both dividends will be paid on 31 December 2024 to
shareholders on the register at close of business on 13 December 2024, to
minimise administrative costs associated with such payments.
Board appointments
Last year, the Board indicated that, as part of the normal process of
refreshment, Ian Armfield would not seek re-election at the AGM to be held in
2025. The Board therefore commenced a recruitment process to identify his
successor and on 19 August the Company announced the appointment of Ranjan
Ramparia with effect from 1 October 2024, to succeed Ian as Audit Chair on
his retirement. Events have, unfortunately, overtaken the
succession‑planning process and the announcement released on 30 September
2024 and discussed in more detail above confirmed that Ms Ramparia would not
now join the Board, in view of its probably limited future requirements. The
Board thanks her for her engagement with the Company and is sorry not to
benefit from her contribution.
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 will be held by a woman. The recent
recruitment process had a shortlist that comprised 44% women and 56%
candidates of a non-white ethnic background.
Outlook
The Board retains a high degree of conviction in the Positive Change strategy
and believes it is well suited to an investment trust structure which enables
the Managers to access the significant impact opportunities available from
committing primary capital to private companies and investing in less liquid
public companies for the long term. However, we recognise that the Company has
not received sufficient support from shareholders to allow the current
strategy the time needed to play out over the period to the February 2027
continuation vote that we recently introduced. The Board has therefore
reluctantly agreed to propose the Scheme, which will provide shareholders with
an opportunity to continue their investment through the rollover option.
Should the General Meetings planned for early next year, as set out in the
Shareholder Circular, not result in the Scheme of Reconstruction being
completed, the Company will in due course convene an Annual General Meeting to
consider the resolutions necessary for the Company to continue.
Karen Brade
Chair
26 November 2024
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 towards the end of this announcement.
Managers' review
The global backdrop remains complex, dynamic and uncertain. Geopolitical
tensions persist: the world feels fragile. We have emerged from a period of
rapid interest rate rises to one where all eyes are on inflation and growth
data points to determine if - and to what extent - policy makers will make
further reductions to interest rates. 2024 is a record year for elections
around the world, with none being more significant than the outcome of the US
election in November.
Against this backdrop, we remain resolute and consistent in the philosophy
that underpins the Company's two objectives - to deliver attractive investment
returns and to contribute towards a healthier and more inclusive and
environmentally sustainable world. Unfortunately, the challenges of our time
such as climate change, the burden of disease, and inequalities, persist.
These challenges require solutions. Fortunately, thanks to human ingenuity
and entrepreneurship, there are companies developing solutions to such
challenges. And here lies the opportunity: the providers of solutions will
experience rising demand for their products and services - they will thrive -
and companies that grow faster deliver the greatest outperformance.
This means that rather than trying to predict the next 25 basis point move in
interest rates or the outcome of the US elections, we remain focused on
understanding structural and secular trends such as the energy transition,
digitalisation and innovation in healthcare.
Performance
Over the past twelve months, the Company's NAV total return was 2.2% and the
share price total return was 13.5%. In comparison, the benchmark MSCI All
Country World Index returned 20.4% (in sterling terms).
On the surface, NAV performance over the year appears unexciting, and the
underperformance relative to the benchmark is disappointing. However, beneath
these still waters there are interesting currents at play: accelerating
growth, interesting opportunities related to Artificial Intelligence ('AI')
and market sentiment which continues to swirl around short-term news and
largely ignore the tides of change ahead.
The relatively weak investment returns belie the fact that the majority of
companies in the portfolio continue to deliver pleasing operational progress.
Indeed, indications are that fundamental growth is accelerating across the
portfolio. Forward three-year earnings growth (on a consensus basis) is
currently 18.5% per annum across the portfolio compared to 13.4% per annum 12
months ago. This compares to three-year forward earnings growth projections of
8.8% per annum for the index. As growth investors, it is our belief that it is
this fundamental progress that will drive superior share price returns over
the long run.
The top contributor to performance over the period was TSMC. It is the world's
largest foundry for the manufacture of semiconductors, so is a critical
enabler of high-performance computing and AI. Despite a challenging operating
environment that included escalating geopolitical tensions, an earthquake in
Taiwan and a semiconductor industry down cycle, TSMC has delivered strong
results consistently over the last 12 months with cumulative revenue for the
first three quarters of 2024 increasing 32% year-on-year. The demand for
semiconductors is cyclical yet also underpinned by the secular demand for
greater computing power and TSMC is at the heart of this. The company is a
trusted partner to its customers as, contrary to its peers, it does not
compete with its chip-design customers. This, combined with its processing and
manufacturing acumen, provides a formidable competitive advantage: it
manufactures more than half of the outsourced semiconductors globally.
This position of strength will be further cemented with capacity expansion.
For example, TSMC is expanding its presence in Europe, Japan and the US.
This global footprint is important in an emerging geopolitical backdrop. TSMC
is helping power the AI revolution, but it should not be forgotten that the
semiconductors it makes are the building blocks of innovation much more
broadly, whether that be in lower cost mobile computing, powering electric
vehicles or in sophisticated medical devices that improve patients' lives.
MercadoLibre, the Latin American ecommerce platform and fintech business, was
also a top contributor to performance as it continued to deliver strong
operational performance with overall revenue growing by 42% year-on-year to
over US$5 billion in its second quarter. Underpinning this is continued growth
in both fintech services (monthly active users now surpass 52 million) and its
ecommerce platform, which has grown in terms of all key metrics
(gross merchandise volume, take rate and revenue). What is exciting is that
the runway for growth is still significant - circa 85 million people use the
ecommerce site in a population of 670 million in the regions in which it
operates. These attention‑grabbing 'headline statistics' are of
course pleasing; so too is the long-term progress underpinning them. In 2023,
MercadoLibre commissioned an impact study which found that 1.8 million
families depended on the platform for their main source of income, and more
than half of the SMEs (small and medium sized enterprises) which use the
platform could have access to credit through its fintech services for the
first time.
Nu Holdings had a strong 12 months, solidifying its position as a leading
digital banking platform in Latin America. The company's net income more than
doubled to reach US$487 million in the second quarter of 2024. Nu has
continued to grow its customer base impressively, passing the 100 million
milestone over the summer. Not only is Nu continuing to grow in Brazil but it
is also expanding into Mexico and Colombia, where it now has circa 9 million
customers and has captured over 70% of the deposits across all fintechs
combined since launching its savings products. Nu continues to play a key role
in promoting financial inclusion. A study published by Nu and Mastercard in
early 2024 found that 60 per cent of Nu customers moved from gaining access to
financial services to intensive use of basic financial products and credit
within two years, regardless of income level. Increasing usage of financial
products is one indicator of customers' increasing ability to meet their
financial needs.
Not all companies have experienced support from the markets. 'Negativity bias'
refers to the human propensity to focus on negative events, information, or
emotions more than their positive counterparts. To some extent we are seeing
that over recent months in terms of the market sentiment towards some of the
main detractors to performance (such as Remitly) where the market has placed
much greater weight on any perceived weakness in results and largely ignored
any fundamental progress.
Remitly provides mobile-based remittance services for migrants. Its recent
results showed active customers had increased by 36% year-on-year to over six
million, margins had improved and revenues had grown by 32%. However, despite
strong operating progress the shares have been a detractor to performance,
perhaps owing to concerns over investment in marketing spend and the return on
that marketing spend. Against these short-term gyrations, we remain focused on
the long-term investment case. Remitly is still in the early innings of growth
and its competitive advantage - a combination of scale, efficiency, and brand
- is strengthening. We do not require quarter‑on‑quarter progress to be
smooth, providing the long-term opportunity is intact.
Moderna, the innovative biotech company, has had a challenging year. Moderna
has an exciting technology platform and is rapidly expanding its product
pipeline. However, where it has been challenged is on commercialisation. In
the face of weak Covid vaccine sales and a disappointing RSV vaccine launch,
the company has decided to reduce its research and development (R&D)
spending and focus its pipeline while pushing out cash-break-even until 2028.
Though it is reducing its R&D expenditure, it still expects to spend a
considerable amount - over US$16 billion over four years - as it develops a
pipeline that includes vaccines for respiratory, latent and infectious
diseases as well as a personalised cancer vaccine. We met with Moderna's CEO
Stephane Bancel following these developments to discuss them in detail and
will continue to engage with the company. Regardless of how exciting the
technology platform is, the commercial engine has to function well to allow
the company to harness the programmability of its mRNA technology. We remain
keenly vigilant for further progress.
Dexcom, the manufacturer of continuous glucose monitoring systems (CGMs) for
diabetics saw its share price fall sharply following an announcement of slower
than expected growth and a reset of expectations for the rest of the year. The
challenge has been one of execution following a recent reorganisation of its
sales force, weaker than expected international sales and a softening of
US revenue per customer. These missteps are somewhat out of character for the
company, which has displayed impressive operational progress and fundamental
growth over a number of years. We believe there is a significant opportunity
for CGMs and we remain optimistic about the potential of Dexcom's new
over-the-counter Stelo product. We are engaging with management to build
conviction in their ability to overcome the current challenges and unlock the
tremendous growth opportunity ahead.
As regular readers of this report will be aware, an attractive feature of the
Company is its ability to invest in private companies. At the end of September
3.6% of the portfolio was invested across five private companies developing
and scaling exciting new technologies from carbon removal solutions to
innovative fibres. We were delighted to attend the opening of Climeworks' new
carbon removal plant in Iceland over the summer. There have been some
challenges in scaling these complex facilities, but the company is adapting
and innovating to overcome them, while also deepening its commercial talent
pool. A visit to Spiber's headquarters and pilot plant in Japan provided an
opportunity to hear more about the advancements it is making in scaling its
Thai production plant, particularly in improving the recipe of its brewed
protein that is used to make innovative textiles. It was encouraging to hear
of fashion houses interested in using its novel fibres. Unfortunately, the
operational challenges persist for Northvolt, Europe's first home-grown
manufacturer of lithium-ion batteries for electric vehicles and energy storage
systems. To reflect the uncertainty about its future the valuation has been
marked down significantly. These private companies have developed important
products and are in the early stages of scaling and commercialising. Given the
complexity of what they are trying to achieve, the journey will be far from
smooth.
Portfolio
Over the past 12 months, portfolio name turnover has ticked up to circa 19%.
This level is in line with our long-term time horizon and reflects the
strength of the pipeline of new ideas. We have invested in seven new
companies over the year and made seven complete sales.
We talked in the Interim Report about new investments in US electric vehicle
company Rivian, South East Asian super-app Grab, and Katitas, the Japanese
company which renovates old homes to create affordable and sustainable homes
for buyers today.
The more recent investments in Epiroc, Vertex, Schneider and Soitec are also
diverse in terms of their businesses and the challenges they are helping to
solve.
Mining equipment is perhaps not an immediately obvious choice for the
portfolio and it is not often that our research takes us literally
underground. However, mining is an industry we cannot ignore. Our research
into the industry has spanned a number of years, we have questioned industry
experts from around the globe, quizzed management teams, and visited mines in
Finland and Sweden to see mining machinery in action.
Metals and minerals are essential for progress in areas such as the green
energy transition but their extraction comes at a cost. Mining is a
carbon‑intensive and traditionally dirty industry. How can we continue to
mine the materials we need in a way that mitigates damage?
We have taken a new position in Epiroc, a high‑quality Swedish industrial
business which provides mission-critical equipment and services to the mining
and construction industries. This is a strong business, operating in a
consolidated market with high barriers to entry. 70% of revenue comes from the
aftermarket, including services and parts. Epiroc is driving change in the
mining industry through greater electrification, automation and
digitalisation. Through the innovation of products and its business model,
Epiroc is helping to catalyse the adoption of technologies that will enable a
dirty, but necessary, industry to decarbonise.
Vertex Pharmaceuticals is also new to the portfolio. The company brings
transformative medicines in areas of high unmet needs to market. Vertex played
an important role in developing treatments for cystic fibrosis ('CF'), a
genetic disease that results in excessive mucus in the lungs and often leads
to serious infections. Prior to effective treatments, many CF patients sadly
did not reach adulthood. Today, life expectancy for CF patients is around
60 years, with some patients living into their 80s. CF treatments provide a
profitable revenue stream for Vertex, which generated US$10 billion in sales
and US$4 billion in operating profit in 2023. This profit stream helps to fund
research and Vertex's expansion into new disease areas, including sickle cell
disease, beta thalassemia, diabetes, and renal diseases.
Electrification (replacing technologies or processes that use fossil fuels
with electric-powered equivalents) is one of the most important strategies for
reducing CO2 emissions from energy. Schneider Electric, a French
multinational, is a leading provider of integrated electrification solutions
for buildings, data centres, infrastructure and industries. It helps its
customers manage the transition to a renewable dominant grid and without
Schneider, the pace of deployment of renewable generation infrastructure
globally would be slower. Schneider is well placed to benefit from the growing
demand for electrical management products and services. Over the next decade
and beyond, sales should compound at a mid-to-high single-digit pace, which,
combined with margin expansion and sensible capital allocation, should result
in attractive share price returns.
Soitec is a designer and manufacturer of engineered substrates used in the
manufacturing of semiconductors. The company's silicon-on-insulator wafers
improve the quality, performance and energy efficiency of semiconductors that
are used in a wide range of applications across industries such as mobile and
communication, automotive and smart devices. The company commands a strong
competitive position with its processing technology and is well positioned to
benefit from structural growth trends such as electrification, digitalisation
and the rise of AI.
We are patient and long-term investors but where we detect a deterioration in
the fundamentals of a business, or its impact case, we will sell and redeploy
the capital in companies where we have higher conviction. Over the past year
we have sold seven companies. We shared our rationale for selling Ørsted, the
Danish energy company, and M3, the Japanese digital healthcare provider, in
the Interim Report and discussed Daikin in last year's commentary. Our four
more recent sales are detailed below.
The Company has owned South African insurance provider Discovery and
single-cell sequencing tool developer 10x Genomics since February 2021.
Both companies have much to admire about their innovative products but each
company is facing difficulties in growing its business against
macro‑challenges and industry-specific headwinds. These difficulties have
led to disappointing share price performance over our period of ownership.
The operational growth headwinds have led us to sell and redeploy the cash in
companies where we have higher conviction in our dual objectives being
achieved over the long term.
Umicore, the Belgian recycler of metals and manufacturer of automotive
catalysts and battery cathodes, has also left the portfolio. The company had
executed poorly in some areas of its business and a succession of CEO changes
reduced our confidence that Umicore could navigate a fast-changing market and
grow profitably.
Finally, we have sold Wuxi Biologics after a relatively short period of
ownership (we first invested in August 2023). It is a Chinese company
providing end-to-end solutions and services for the discovery, development and
manufacturing of biologic drugs. It is a highly-regarded and entrepreneurial
business in a market which has very attractive global growth potential.
However, since investing the geopolitical risks have intensified to the point
that a significant proportion of Wuxi's US-based customers may no longer be
permitted to use its services in future. This uncertainty has weighed heavily
on the share price and we concluded that despite the attractive fundamentals
it is time to move on.
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 2023, Xylem, the water
infrastructure company, enabled its customers to reduce their water use by 800
billion litres. Tesla delivered over 1.8 million electric vehicles and
deployed 14.7 GWh of energy storage. Tesla's products enabled customers to
avoid emitting 20 million tonnes of CO2, up from 13.4 million tonnes in 2022.
Coursera, the education platform has 142 million registered learners. 77% of
learners reported a career benefit such as a promotion or pay rise after
taking its courses. The Impact Report also provides aggregate data at a
portfolio level and maps the portfolio to the United Nations Sustainable
Development Goals.
Outlook
The view we shared with readers in May still holds today:
"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 returns for shareholders…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
trajectory. This watershed moment is rich with investment opportunities for
the brave and ambitious."
We continue to believe that investing for positive change can deliver positive
social, environmental and financial outcomes for people, planet and savers. We
are as determined as ever to meet the Company's dual objectives.
Kate Fox
Lee Qian
Baillie Gifford & Co
26 November 2024
Past performance is not a guide to future performance. Total return
information is sourced from Baillie Gifford/LSEG. See disclaimer towards the
end of this announcement. For a definition of terms used see Glossary of Terms
and Alternative Performance Measures towards the end of this announcement.
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 All Country World
Index ('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
Impact
01 What change is the company driving?
Growth
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?
Quality
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?
Valuation
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, shown below.
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.
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?
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)?
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 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.
The Independent Auditor's Report on page 79 of the Annual Report and Financial
Statements explains the procedures carried out by the external auditor on the
valuation of the private companies (unlisted investments) as part of their
audit.
Portfolio companies split by impact theme
Portfolio companies split by impact theme as at 30 September 2024
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 Value % Healthcare and quality of life Value % Base of the pyramid Value %
resource needs
£'000 £'000 £'000 £'000
MercadoLibre 14,335 9.0 Autodesk 7,322 4.6 Alnylam Pharmaceuticals 8,734 5.5 Bank Rakyat Indonesia 8,106 5.1
TSMC 12,805 8.1 Xylem 6,961 4.4 Moderna 4,888 3.1 Remitly Global 3,640 2.3
ASML 8,843 5.6 Ecolab 5,549 3.5 Illumina 4,688 3.0 Safaricom 1,120 0.7
Shopify 7,758 4.9 Tesla 3,931 2.5 Dexcom 4,028 2.5
Nu Holdings 7,081 4.5 Deere 3,877 2.4 Sartorius 2,897 1.8
Duolingo 6,426 4.1 Epiroc 3,062 1.9 Vertex Pharmaceuticals 1,552 1.0
HDFC Bank 5,847 3.7 Katitas 3,033 1.9 AbCellera Biologics 780 0.5
Grab 3,851 2.4 Schneider Electric 2,601 1.6
Coursera 1,840 1.2 Climeworks u 1,862 1.2
PsiQuantum u 1,489 0.9 Boston Electrometallurgical Corp u 1,404 0.9
Soitec 1,388 0.9
Novonesis 1,355 0.9
Joby Aviation 1,290 0.8
Rivian Automotive 597 0.4
Spiber u 449 0.3
Northvolt AB u 447 0.3
70,275 44.4 45,128 28.5 27,567 17.4 12,866 8.1
Net liquid assets* 2,528 1.6
Total assets* 158,364 100.0
* For a definition of terms see Glossary of Terms and Alternative
Performance Measures towards the end of this announcement.
u Denotes unlisted/private company holding.
List of investments as at 30 September 2024
Name Business Impact theme* Fair value % of
£'000 total assets †
MercadoLibre Ecommerce platform and fintech Social 14,335 9.0
TSMC Semiconductor manufacturer Social 12,805 8.1
ASML Supplier to semiconductor industry Social 8,843 5.6
Alnylam Pharmaceuticals Biotechnology Healthcare 8,734 5.5
Bank Rakyat Indonesia Bank Base 8,106 5.1
Shopify Online commerce platform Social 7,758 4.9
Autodesk Software products for architecture, engineering, construction, and Environment 7,322 4.6
manufacturing industries
Nu Holdings Digital banking company Social 7,081 4.5
Xylem Innovative water solutions Environment 6,961 4.4
Duolingo Language learning website and mobile app Social 6,426 4.1
HDFC Bank Mortgage provider Social 5,847 3.7
Ecolab Water, hygiene and infection prevention services Environment 5,549 3.5
Moderna Messenger RNA therapeutics Healthcare 4,888 3.1
Illumina Gene sequencing equipment Healthcare 4,688 3.0
Dexcom Continuous glucose monitoring Healthcare 4,028 2.5
Tesla Electric cars and renewable energy solutions Environment 3,931 2.5
Deere Agricultural equipment Environment 3,877 2.4
Grab(#) Superapp in Southeast Asia, providing mobility, deliveries and digital Social 3,851 2.4
financial services
Remitly Global Online money transfer payments for immigrants and their families Base 3,640 2.3
Epiroc(#) Mining and infrastructure equipment provider Environment 3,062 1.9
Katitas(#) Refurbishes vacant homes in Japan and sells to first-time buyers on an Environment 3,033 1.9
affordable basis
Sartorius Biopharmaceutical and laboratory tooling Healthcare 2,897 1.8
Schneider Electric(#) Electrical power products Environment 2,601 1.6
Climeworks u Direct air carbon capture Environment 1,862 1.2
Coursera Online learning Social 1,840 1.2
Vertex Pharmaceuticals(#) Pharmaceuticals company Healthcare 1,552 1.0
PsiQuantum u Silicon photonic quantum computing Social 1,489 0.9
Boston Electrometallurgical Corp u Novel technology for producing green steel Environment 1,404 0.9
Soitec(#) Manufactures engineered substrates for semiconductor wafers Environment 1,388 0.9
Novonesis Biological solutions Environment 1,355 0.9
Joby Aviation Electric aircraft Environment 1,290 0.8
Safaricom Telecommunications and mobile payments Base 1,120 0.7
AbCellera Biologics Antibody drug discovery tools Healthcare 780 0.5
Rivian Automotive(#) Electric sports utility vehicles and pickup trucks Environment 597 0.4
Spiber u Novel protein biomaterials Environment 449 0.3
Northvolt AB u Battery developer and manufacturer, specialising in lithium-ion technology for Environment 447 0.3
electric vehicles
Total investments 155,836 98.4
Net liquid assets(†) 2,528 1.6
Total assets(†) 158,364 100.0
Listed Unlisted Net liquid Total
equities securities ‡ assets † assets †
% % % %
30 September 2024 94.8 3.6 1.6 100.0
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 towards the end of this announcement.
# New purchase during the year. Complete sales during the year were: 10x
Genomics; Daikin Industries; Discovery Holdings; M3; Umicore; WuXi Biologics;
Ørsted.
u Denotes unlisted/private company holding.
‡ Includes holdings in ordinary shares, preference shares and promissory
notes.
Income statement
For the year ended 30 September
Notes 2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 2 - 3,629 3,629 - 9,884 9,884
Currency gains - 421 421 - 589 589
Income 1,534 - 1,534 1,618 - 1,618
Investment management fee 3 (233) (700) (933) (223) (668) (891)
Other administrative expenses (597) - (597) (477) - (477)
Net return before finance costs and taxation 704 3,350 4,054 918 9,805 10,723
Finance costs of borrowings (268) (767) (1,035) (234) (666) (900)
Net return on ordinary activities before taxation 436 2,583 3,019 684 9,139 9,823
Tax on ordinary activities (244) (79) (323) (244) (7) (251)
Net return on ordinary activities after taxation 192 2,504 2,696 440 9,132 9,572
Net return per ordinary share 4 0.32p 4.14p 4.46p 0.71p 14.77p 15.48p
Note: Dividends per share paid and payable in respect of the year 5 0.10p 0.45p
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 2024 2024 2023 2023
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 6 155,836 161,497
Current assets
Debtors 337 313
Cash and cash equivalents 2,721 728
3,058 1,041
Creditors
Amounts falling due within one year 7 (15,327) (15,628)
Net current liabilities (12,269) (14,587)
Total assets less current liabilities 143,567 146,910
Creditors
Amounts falling due after more than one year 7 (336) (257)
Net assets 143,231 146,653
Capital and reserves
Share capital 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 132,058 135,396
Revenue reserve 498 582
Total shareholders' funds 8 143,231 146,653
Statement of changes in equity
For the year ended 30 September 2024
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 October 2023 6,760 3,449 466 135,396 582 146,653
Net return on ordinary activities - - - 2,504 192 2,696
after taxation
Ordinary shares bought back - - - (5,842) - (5,842)
Dividends paid during the year 5 - - - - (276) (276)
Shareholders' funds at 30 September 2024 6,760 3,449 466 132,058 498 143,231
For the year ended 30 September 2023
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'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 - - - 9,132 440 9,572
after taxation
Dividends paid during the year 5 - - - - (247) (247)
Shareholders' funds at 30 September 2023 6,760 3,449 466 135,396 582 146,653
Cash flow statement
For the year ended 30 September
Notes 2024 2024 2023 2023
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return before finance costs and taxation 4,054 10,723
Tax on overseas income (240) (249)
Adjustments for:
Purchase of investments (45,749) (36,264)
Sale of investments 55,039 36,718
9,290 454
Gains on investments held at fair value (3,629) (9,884)
Movement in unrealised currency gains and losses (486) (607)
Increase in debtors (28) (109)
Increase/(decrease) in creditors 49 (19)
Net cash inflow from operating activities 9,010 309
Cash flows from financing activities
Interest and facility fee paid on bank facility (1,011) (861)
Preference dividends paid (12) (12)
Bank facility drawn 15,318 620
Bank facility repaid (15,000) -
Ordinary shares bought back and stamp duty thereon (5,842) -
Net equity dividends paid 5 (276) (247)
Net cash outflow from financing activities (6,823) (500)
Net increase/(decrease) in cash at bank 2,187 (191)
Exchange movements (194) (43)
Cash at bank at the start of the year 728 962
Cash at bank at the end of the year 2,721 728
Cash flows from operating activities includes
Dividends received 1,455 1,554
Interest received 23 20
Notes to the Financial Statements
1. Principal accounting policies
The Financial Statements for the year to 30 September 2024 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
below which are unchanged from the prior year and have been applied
consistently.
2. Gains/(losses) on investments
2024 2023
£'000 £'000
Gains/(losses) on investments:
Realised losses on sales (22,763) (12,870)
Changes in investment holding gains and losses 26,392 22,754
3,629 9,884
3. Investment management fee
Baillie Gifford & Co Limited, a wholly owned subsidiary of
Baillie Gifford & Co, was appointed by the Company as its Alternative
Investment Fund Managers and Company Secretaries with effect from 11 February
2021. Baillie Gifford & Co Limited has delegated the investment
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
2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 0.32p 4.14p 4.46p 0.71p 14.77p 15.48p
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £192,000 (2023 - £440,000) and on
60,491,492 (2023 - 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
£2,504,000 (2023 - gain of £9,132,000) and on 60,491,492 (2023 - 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
2024 2024 2023 2023
p £'000 p £'000
Amounts recognised as distributions in the year:
Previous year's final (paid 8 February 2024) 0.45 276 0.40 247
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 £192,000 (2023 - £440,000).
2024 2024 2023 2023
p £'000 p £'000
Amounts paid and payable in respect of the financial year:
Proposed interim in lieu of final/final (payable 31 December 2024) 0.10 59 0.45 276
The Board declares an interim dividend of 0.10p per ordinary share for the year to 30 September 2024. An interim dividend of 0.35p per ordinary share in respect of the financial period commencing 1 October 2024 is also declared, and both will be paid on 31 December 2024 to shareholders on the register at the close of business on 13 December 2024. The ex-dividend date is 12 December 2024.
6. Investments
Investments in securities are financial assets held at fair value through
profit or loss. In accordance with Financial Reporting Standard 102, the
tables below provide an analysis of these investments based on the fair value
hierarchy described on the following page, which reflects the reliability and
significance of the information used to measure their fair value.
As at September 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Listed equities 150,185 - - 150,185
Unlisted securities - - 5,651 5,651
Total financial asset investments 150,185 - 5,651 155,836
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
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 2024 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.
2024 2024 2024 2023
Listed Unlisted £'000 £'000
securities securities
£'000 £'000
Cost of investments at start of year 191,183 9,634 200,817 214,141
Investment holding (losses)/gains at start of year (39,336) 16 (39,320) (62,074)
Value of investments at start of year 151,847 9,650 161,497 152,067
Movements in year:
Purchases at cost 45,749 - 45,749 36,264
Sales proceeds received (55,039) - (55,039) (36,718)
Gains and losses on investments 7,628 (3,999) 3,629 9,884
Value of investments at end of year 150,185 5,651 155,836 161,497
Cost of investments at end of year 159,130 9,634 168,764 200,817
Investment holding losses at end of year (8,945) (3,983) (12,928) (39,320)
Value of investments at end of year 150,185 5,651 155,836 161,497
The Company received proceeds of £55,039,000 (2023 - £36,718,000) from
investments sold during the year. The book cost of these investments when they
were purchased was £77,802,000 (2023 - £49,588,000). 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
£43,000 (2023 - £24,000) and £30,000 (2023 - £9,000) were suffered on
purchases and sales respectively.
7. Creditors
Amounts falling due within one year 2024 2023
£'000 £'000
Bank loans 14,883 15,245
Other creditors and accruals 444 383
15,327 15,628
None of the above creditors are financial liabilities held at fair value
through profit or loss. Included in other creditors is £233,000 (2023 -
£219,000) in respect of the investment management fee.
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 expired on 31 August 2024. The Company replaced
this with an uncommitted floating rate revolving facility with The Bank of New
York Mellon (International) Limited, which has an extension clause effective
at 30 September 2026.
At 30 September 2024 drawings were as follows:
- The Bank of New York Mellon (International) Limited: US$9.9
million at an interest rate of 6.17% (being 1.1% over term SOFR) and £7.5
million at an interest rate of 1.1% over SONIA, both maturing in November 2024
(2023 - 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).
The main covenants relating to the above loans are that total borrowings shall
not exceed 20% of the Company's net assets and the Company's minimum net
assets shall be £100 million.
There were no breaches of loan covenants during the year.
Amounts falling due after more than one year 2024 2023
£'000 £'000
5% cumulative preference shares of £1 each 250 250
Provision for tax liability in respect of Indian capital gains 86 7
336 257
Preference share dividends are paid bi-annually in March and September.
Provision for Tax Liability
The tax liability provision at 30 September 2024 of £86,000 (2023 - £7,000)
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 gain at the year 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 financial assets and financial liabilities
The Directors are of the opinion that there is no difference between the
amounts at which the financial assets and liabilities of the Company are
carried in the Balance Sheet and their fair values. The fair values of the
Company's borrowings are shown below. The fair value of the 5% cumulative
preference shares was based on the closing market offer price on the London
Stock Exchange as at 30 September 2023 and was par at 30 September 2024 owing
to the proposed Scheme of Reconstruction, which offers redemption at par
should the Scheme proceed.
2024 2024 2024 2023 2023 2023
Par Book Market Par Book Market
value value value value value value
£'000 £'000 £'000 £'000 £'000 £'000
Bank loans due within one year 14,833 14,833 14,833 15,245 15,245 15,245
5% cumulative preference shares 250 250 250 250 250 239
15,083 15,083 15,083 15,495 15,495 15,484
8. Shareholders' funds per ordinary share
2024 2023
Shareholders' funds £143,231,000 £146,653,000
Number of ordinary shares in issue at the year end 59,179,987 61,815,632
Shareholders' funds per ordinary share 242.0p 237.2p
The shareholders' funds figures above have been calculated after deducting
borrowings at book value, in accordance with the provisions of FRS 102. For
the year to 30 September 2024, there is no difference between borrowings at
book value, borrowings at par and borrowings at market value (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. In the year to 30 September
2024, the Company issued no ordinary shares and bought back 2,635,645 ordinary
shares at a total cost of £5,842,000 to be held in treasury (2023 - no shares
issued or bought back). At 30 September 2024 the Company had authority to buy
back 7,400,107 ordinary shares and to allot or sell from treasury 6,181,560
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 70 to 73 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 Manager ('AIFM') and Company Secretaries. Details
of the terms of the Investment Management Agreement are set out on page 55 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 2024 or 2023 but is
derived from those accounts. Statutory accounts for 2023 have been delivered
to the Registrar of Companies and those for 2024 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 6 December 2024.
‡ 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 current year, there is no
difference between borrowings at book value, borrowings at par and borrowings
at market value (see note 7) and no reconciliation between NAV with debt at
book/par value and NAV with debt at market value is provided. For the prior
year, a reconciliation is provided below, as the NAV per share differs by 0.1p
owing to roundings.
2024 2023
Shareholders' funds (net assets) (a) £ 143,231,000 £146,653,000
Ordinary shares in issue (excluding treasury shares) (b) 59,179,987 61,815,632
Net asset value per share ('NAV') with debt at book/par (a ÷ b x 100) 242.0p 237.2p
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)
As stockmarkets 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 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.
2024 2023
Net asset value per ordinary share (a) 242.0p 237.3p
Share price (b) 231.0p 204.0p
Discount ((b) - (a)) ÷ (a) (4.6%) (14.0%)
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.
2024 2024 2023 2023
NAV Share price NAV Share price
Closing NAV per share/share price (a) 242.0p 231.0p 237.3p 204.0p
Dividend adjustment factor* (b) 1.0018 1.0020 1.00166 1.00194
Adjusted closing NAV per share/share price (c) = (a) x (b) 242.4p 231.5p 237.7p 204.4p
Opening NAV per share/share price (d) 237.3p 204.0p 222.2p 192.8p
Total return (c) ÷ (d) -1 2.2% 13.5% 7.0% 6.0%
* The dividend adjustment factor is calculated on the assumption that
dividends of 0.45p (2023 - 0.40p) 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.
2024 2023
£'000 £'000
Investment management fee 933 891
Other administrative expenses 597 477
Total expenses (a) 1,530 1,368
Average net asset value (b) 150,070 152,538
Ongoing charges ((a) ÷ (b) expressed as a percentage) 1.02% 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).
2024 2023
£'000 £'000
Borrowings (at book cost) (a) 15,133 15,495
Less: cash at bank (2,721) (728)
Less: sales for subsequent settlement - -
Add: purchases for subsequent settlement - -
Adjusted borrowings (b) 12,412 14,767
Shareholders' funds (c) 143,231 146,653
Gross Gearing (a) as a percentage of (c) 10.6% 10.6%
Net Gearing (b) as a percentage of (c) 8.7% 10.1%
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
2024 are detailed on page 127 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.
Contingent value rights
'CVR' after an instrument name indicates a security, usually arising from a
corporate action such as a takeover or merger, which represents a right to
receive potential future value, should the continuing company achieve certain
milestones.
Take rate
The take rate is the percentage of sales that a platform or marketplace takes
as a commission in exchange for providing a service such as transactions
processing, hosting, or other value-added services. This is a fundamental
aspect of any ecommerce business, as it directly impacts profit margins.
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.
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