TIDMKPC
RNS Number : 8277U
Keystone Positive Change I.T. PLC
28 November 2023
Keystone Positive Change Investment Trust plc (KPC)
Regulated Information Classification: Annual Financial and Audit
Reports
Legal Entity Identifier: 5493002H3JXLXLIGC563
Results for the year to 30 September 2023
Over the year to 30 September 2023, the Company's net asset
value per share (NAV) total return was 7.0% compared to a total
return of 11.0% for the Comparative Index (in sterling terms). The
share price total return for the same period was 6.0% as the
discount widened from 13.2% to 14.0%.
Past performance is not a guide to future performance. Total
return information is sourced from Baillie Gifford/LSEG. See
disclaimer at the end of this announcement. For a definition of
terms see Glossary of Terms and Alternative Performance Measures at
the end of this announcement.
Keystone Positive Change Investment Trust plc ('Keystone
Positive Change', 'Keystone' or 'the Company') aims to generate
long term capital growth with the aim of the NAV total return
exceeding that of the MSCI AC World Index in sterling terms by at
least 2% per annum over rolling five year periods; and to
contribute towards a more sustainable and inclusive world by
investing in the equities of companies whose products or services
make a positive social or environmental impact. The performance
target stated is in no way guaranteed. Capital growth takes
priority over income and dividends. Keystone is managed by Baillie
Gifford & Co, an independent fund management group, which has
around GBP217 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 ++. Past performance
is not a guide to future performance.
The MSCI All Country World Index (in sterling terms) is the
principal index against which performance is measured.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement.
28 November 2023
For further information please contact:
Alex Blake, Baillie Gifford & Co - Tel: +44 (0)131 275
2000
Jonathan Atkins, Four Communications - Tel: +44 (0)203 920 0555
or 07872 495396
Nathan Brown or Matt Goss, Deutsche Numis - Tel: +44 (0)20 7260
1000
The following is the Preliminary Results Announcement for the
year to 30 September 2023 which was approved by the Board on 27
November 2023.
Chair's statement
Keystone Positive Change Investment Trust plc ('Keystone
Positive Change', 'Keystone' or 'the Company') has two objectives
of equal importance: to generate attractive long-term capital
returns and to contribute towards a more sustainable and inclusive
world by investing in companies whose products or services make a
positive social or environmental impact. The Positive Change team
has an investment horizon of five years and beyond to allow these
structural themes to play out.
Performance
Over the year to 30 September 2023, the Company's net asset
value ('NAV') total return was +7.0% compared to +11.0% for its
benchmark, the MSCI All Country World Index (in sterling terms).
While it was encouraging that companies in the portfolio generally
outperformed the index in terms of revenue growth, this was offset
by the detrimental impact of higher interest rates on the valuation
of companies over the period. Further details on the main drivers
of performance are contained in the Managers' review on the
following pages.
The share price total return was +6.0%, as the discount widened
slightly from 13.2% to 14.0%. Over the same period, the average
discount of the Global Equity investment company sector (as defined
by Deutsche Numis) widened from 9.8% to 14.5%.
Discount
The Board continues to evaluate the range of options at its
disposal to address, where possible, the discount at which the
Company's shares trade relative to its NAV. The Board does not
consider that buying back shares during periods when market
sentiment is universally negative will necessarily improve the
Company's rating. It has the effect of shrinking the asset base
which will also increase the Company's ongoing charges ratio. That
notwithstanding, the Board recognises that buying the Company's
shares at a discount is accretive to its NAV and may provide
short-term liquidity when natural market buyers are in short
supply. The Company has the power to buy back its own shares and
will do so when the Board considers that such activity will benefit
ongoing shareholders.
The Board retains conviction in the Positive Change strategy but
recognises that shareholder returns have been disappointing since
shareholders approved the change to the Company's strategy in
February 2021. The Board therefore commits that, at the annual
general meeting ('AGM') in February 2027, being the AGM immediately
following a period of five full financial years since the adoption
of the Positive Change strategy, a Continuation Vote will be put to
shareholders. Further details in relation to this proposal are set
out below in the Outlook section.
Impact
The Company invests in listed and private companies that address
a social or environmental challenge. Amid a backdrop of
uncertainty, we continue to believe that investing for positive
change is both important and full of opportunity. We aim to invest
in exceptional companies whose products, services and behaviour
generate meaningful improvements. Companies held in the portfolio
must be positioned to make a significant contribution to solutions
in one of four impact areas:
- Social inclusion and education;
- Environment and resource needs;
- Healthcare and quality of life; and
- Base of the pyramid (addressing the needs of the poorest four billion people in the world).
For a company to merit inclusion in the portfolio, it must meet
both the anticipated financial return hurdle and the impact
criteria. Further details of the Managers' approach are provided on
the following pages.
Two senior impact analysts form part of the investment
decision-making team, with additional impact analysts providing
support. Senior impact analyst Apricot Wilson joined in June 2023
replacing Michelle O'Keeffe who left Baillie Gifford to pursue a
PhD. Apricot is a CFA Charterholder and holds an MBA from the China
Europe International Business School in Shanghai. Prior to joining
Baillie Gifford in 2022, Apricot worked for Investing for
Development SICAV, a Luxembourg-based blended fund focused on
development finance.
In August 2023, the Company published its second Impact Report,
monitoring and measuring the impact that the products and services
provided by companies within the portfolio are having on society
and the environment. The Impact Report is available on the
Company's website , together with its companion document Positive
Conversations, which outlines engagement on investee companies'
business practices.
Gearing
The Company started the financial year with net gearing of
10.6%, having drawn down GBP15 million of a GBP25 million
multi-currency revolving credit facility provided by The Royal Bank
of Scotland International Limited. At 30 September 2023, net
gearing stood at 10.1%, with the only adjustments to drawings being
currency rebalancing on the US$ tranche. The Company is expected to
continue to maintain a modest level of structural gearing, which
should enhance shareholder returns over the long term.
Costs
Under the current management arrangements, the annual management
fee is 0.70% on the first GBP100 million of market capitalisation,
0.65% on the next GBP150 million of market capitalisation and 0.55%
on the remaining market capitalisation. As the fee is calculated on
market capitalisation, the Managers receive a smaller fee when the
Company's shares are trading at a discount to NAV than they would
if the fee was charged on net assets. The fee is also structured so
that, as the Company grows, the annual management fee will reduce
towards the marginal rate of 0.55%.
Ongoing charges for the year to 30 September 2023 were 0.90%
(2022 - 0.90%).
Dividend
The Company's capital growth-focused portfolio is not expected
to generate a significant or regular income stream. Dividends will
be paid only to the extent needed to maintain the Company's
investment trust status. In accordance with the dividend policy,
the Board is recommending a final dividend of 0.45p per share (2022
- 0.40p per share). This will be proposed for shareholders'
approval at the AGM to be held on 1 February 2024 and, if approved,
will be paid on 8 February 2024 to shareholders on the register at
close of business on 12 January 2024.
The Board
The Board is cognisant of good corporate governance practice
and, as part of the normal process of refreshment, Ian Armfield
will not seek re-election to the Board at the AGM to be held in
2025. The Board has commenced a recruitment process seeking to
appoint an additional independent non-executive Director who will
undertake the role of Audit Committee Chair following Ian's
retirement. An independent consultant will be appointed to assist
the Board and we will keep shareholders updated as the recruitment
process progresses.
The Company is compliant with the FCA's gender representation
requirements on company boards, which target that at least 40% of
directors will be women and at least one of the senior positions on
each board will be held by a woman. The recruitment process in 2022
had a shortlist that comprised 50% women and 33% candidates of a
non-white ethnic background. Although Andrew Fleming was the
strongest candidate on that occasion, the Board remains alert to
the value of including diverse viewpoints to strengthen the
Board.
During the year, Katrina Hart was appointed as the Company's
Senior Independent Director ('SID').
Annual General Meeting
We anticipate welcoming shareholders to the AGM in London on 1
February 2024, at The Conduit in Covent Garden. This venue was
selected as aligning with the Company's ambition to drive positive
change, and in the hope of inspiring broader shareholder
engagement. To ensure shareholder votes are fairly represented, the
Board has decided to hold the voting on a poll, rather than on a
show of hands as has previously been customary. I therefore ask
shareholders to submit their proxy votes before the applicable
deadline on 30 January 2024. This will not prevent you from
submitting a polling card on the day but will ensure that your
votes are counted should you be unable to attend. Any changes to
the AGM arrangements will be announced to the London Stock Exchange
regulatory news service and made available at
keystonepositivechange.com .
If you hold shares through a share platform or other nominee, we
would encourage you to contact these organisations directly as soon
as possible to arrange for you to submit votes in advance of the
AGM. Alternatively, the Association of Investment Companies'
('AIC') website www.theaic.co.uk/how-to-vote-your-shares has
information on how to vote your shares if you hold them via one of
the major platforms. The following link will also take you through
to the AIC website where there is information on how your platform
can help you attend the AGM in person
www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm
.
Outlook
When considering the change of strategy, in late 2020, the Board
chose a global strategy investing in listed and private companies
with a clear impact objective that would allow shareholders to
access strong returns while investing in the social and
environmental health of the world in which they live. The Board is
sensitive to the tides of market sentiment, which flowed towards
'green' investments and now appear to be in retreat. While
environmental, social and governance ('ESG') concerns are obviously
given due weight in the Company's approach both to investing in and
engaging with the companies held in the portfolio, we are keen to
emphasise that Keystone's ambition is more tangible than 'do least
harm' and strives to 'do most good' - prioritising active pursuit
of positive change over passive screening of negative influences.
In doing this, the Company will continue to seek leading
technologies addressing difficult areas. We accept that individual
company outcomes will be mixed, but financial returns from the
successes should be several multiples of the losses from those that
fail, and society as a whole cannot afford to lose out on the
solutions those successes will deliver.
The Board retains conviction in the Positive Change strategy and
believes it should be accessible within a closed-ended structure,
which enables the Managers to invest primary capital in private
companies, to invest in less liquid public companies and to utilise
gearing. Given that the Positive Change team has an investment
horizon of five years and beyond, we believe it is appropriate to
conduct a fundamental review of financial performance over a
similar time horizon and assess the success and viability of the
strategy at that point. The Baillie Gifford Positive Change
open-ended fund remains a top performing fund over five years.
However, we recognise that Keystone's shareholder returns have been
disappointing since shareholders approved the change to the
Company's strategy almost three years ago. Considering the
underperformance, the share price discount and a five year
investment time horizon, the Board commits that at the AGM in
February 2027, being the AGM immediately following a period of five
full financial years since the adoption of the Positive Change
strategy, a Continuation Vote will be put to shareholders. If, at
that time, shareholders decide not to support the Company's
continuation, we will consult with shareholders and propose an
outcome that we believe to be in the best interests of shareholders
as a whole, which will include a return of capital at close to
NAV.
Karen Brade
Chair
27 November 2023
Past performance is not a guide to future performance. Total
return information is sourced from Baillie Gifford/LSEG. See
disclaimer at the end of this announcement. For a definition of
terms used see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Managers' review
Philosophy
In a world where ageing populations, increasing geopolitical
tensions and rising protectionism present challenges to economic
growth, seeking out industries that are vital for the transition to
a sustainable and inclusive future should be a fruitful way to
search for growth. For example, to combat climate change, we need
to rapidly build out renewable energy capacity, invest in the grid
and commercialise a range of technologies that can help to
decarbonise industries. According to Bloomberg New Energy Finance,
investments in renewable energy reached US$358 billion in the first
half of 2023, a 22% increase from the same period last year and yet
to keep global warming well below 2degC, the world needs to invest
more than US$8 trillion in renewable energy between 2023 and 2030,
or US$1 trillion per year(1) . Decarbonising industries also
present significant opportunities. Wood Mackenzie estimates that
decarbonising iron and steel production alone will require US$1.4
trillion of investment(2) .
Education is another good example. With technologies such as AI
and automation impacting the economy, the need for training and
upskilling is increasing. According to Morgan Stanley, the global
higher education and lifelong learning market is expected to exceed
US$3 trillion by 2030(3) . In healthcare, innovations are improving
treatments for noncommunicable diseases, which are increasing in
prevalence owing to an ageing population and better diagnosis. The
global oncology market is expected to reach US$250 billion by
2024(4) . Not all industries are conducive to profitable growth,
given that the level of entry barriers and technology
differentiation will vary. However, we are confident that valuable
companies will emerge from some of these areas. Focusing on
companies that have defendable business models should increase our
chance of delivering superior long-term investment returns.
Performance
Over the past twelve months, the Company's NAV total return was
7.0% and the share price total return was 6.0%. In comparison, the
benchmark MSCI All Country World Index returned 11.0% (in sterling
terms). The underperformance is disappointing, but we continue to
focus on the long term and believe a period of five years is the
appropriate time horizon to judge our performance.
Although many companies in the portfolio demonstrated strong
operating performance over the period, this was not always
reflected in their share prices. Over the past twelve months, the
median revenue growth of portfolio holdings was 14.3%, compared to
11.3% for the benchmark. More importantly, we believe companies in
the portfolio are well-positioned to deliver attractive levels of
growth in the future.
Shopify is a platform that makes it easy for merchants of all
sizes to sell online. The company provides a range of services,
including online storefronts, payment processing and financing.
Shopify has a strong competitive position and has been gaining
market share. In 2022, merchants on Shopify recorded Gross
Merchandise Value ('GMV') of US$197 billion. Despite its size,
Shopify continued to grow at a healthy pace. In the most recent
quarter, GMV grew by 17% year-over-year and revenue grew by 31%.
Over the past year, Shopify was our largest positive contributor to
performance.
Remitly is a mobile remittance company. Compared to offline
remittance services provided by incumbents such as Western Union,
mobile remittance is cheaper and faster. The cost of sending
remittance payments with Remitly is roughly half of that of Western
Union, ensuring more of migrant workers' hard-earned income goes to
their family and friends. This is especially impactful as 75% of
remittance goes towards essential goods and services, including
food, rent, and healthcare. Because of the advantages of mobile
remittance and Remitly's strong execution, the company has grown
revenue by at least 40% year-over-year since its IPO in 2021.
Furthermore, there are signs that the competitive advantage is
strengthening. Remitly's gross margin has expanded by 8 percentage
points over the past two years as the company has benefited from
economies of scale and lower fraud losses. Remitly currently serves
5 million active customers and has processed US$34 billion of
remittance payments over the past 12 months. In comparison, there
are 270 million international migrants and the global remittance
flow to low- and middle-income countries exceeds US$600 billion
annually, which offers significant growth ahead. Over the past
year, Remitly was our second-largest positive contributor to
performance.
MercadoLibre is Latin America's largest ecommerce company and a
major financial technology ('FinTech') business. MercadoLibre helps
Latin America's merchants to reach more customers by selling online
and its FinTech products help to improve access to finance,
especially for low-income consumers who have historically been
underserved by incumbent banks. In the most recent quarter,
MercadoLibre's revenue grew by 31% and its operating margin reached
16%. This continued a strong run of long-term performance. In an
environment of higher interest rates, aggressive competitors such
as Shopee have started pulling back to conserve capital, which has
allowed MercadoLibre to exploit its competitive advantages to gain
market share. MercadoLibre was our third-largest positive
contributor to performance over the past year.
In addition to the top contributors, several other holdings have
shown good operating progress. Duolingo, the developer of the
popular language learning app, saw monthly active users increasing
43% year-over-year and revenue growing 47% in FY2022. Dexcom, the
maker of continuous glucose monitoring devices, achieved revenue
growth of 19% year-over-year and its operating margin reached 13%
in FY2022. Coursera, the online education platform, added 21
million new registered learners in FY2022, helping to support an
annual revenue growth of 26%. Climeworks, a carbon removal company,
announced that the US Department of Energy had selected its
applications for direct air capture hubs for grant negotiation,
with the largest project eligible for funding of up to US$600
million.
While many portfolio holdings have demonstrated pleasing
operating progress, a few companies have experienced more
challenges.
Safaricom provides telecommunication and mobile money services
in Kenya and has recently expanded into neighbouring Ethiopia. The
investment in Ethiopia has hit near-term profits and Kenya's
macroeconomic challenges have resulted in a depreciation of the
country's currency. In these tough conditions, Safaricom still grew
its revenues, especially for its mobile money service, M-Pesa,
which demonstrated the resilience of the business and its
importance to customers. Nevertheless, Safaricom's share price
declined significantly in sterling terms. Safaricom was our largest
detractor from performance last year.
Ørsted , the Danish renewable energy company, faced challenging
operating conditions in the offshore wind industry, especially in
the US, where inflation, higher interest rates and supply chain
disruption resulted in some projects becoming less valuable than
before. While the challenges were not unique to Ørsted - other
developers pulled back or exited projects - the impact was more
noticeable on Ørsted, given its higher exposure to the offshore
wind industry. The company recently flagged up a likely impairment
on its US assets. While we are confident in the long-term growth of
the renewable energy sector, we are reviewing whether the industry
structure still supports profitable growth. Ørsted was our
second-largest detractor from performance over the past year.
Illumina , the maker of genetic sequencing equipment, saw
revenue growth stagnating in FY2022. In addition, the company's
acquisition of Grail received legal and regulatory scrutiny while
the board and management team faced pressure from activist
shareholders, which resulted in the departures of the company's
chairman and CEO. While we are still confident in the long-term
growth opportunities for gene sequencing, we are closely monitoring
the developments at Illumina. We are also researching other
companies in the genomics industry to help us understand Illumina's
competitive position. Over the past twelve months, Illumina was our
third-largest detractor.
Portfolio
During the past twelve months, the Company invested in six new
companies. The purchases of Autodesk, Remitly and HDFC were
discussed in the Interim Report. In addition, we invested in Boston
Metal, WuXi Biologics and Daikin Industries. The latter was sold
after the reporting period end in response to new information that
we received.
Boston Electrometallurgical Corporation ('Boston Metal') is a
private company commercialising a novel technology for producing
green steel. Whereas many other technologies for decarbonising
steel production, such as carbon capture and storage ('CCS') and
green hydrogen, are likely to increase the cost of steel
production, Boston Metal's technology, based on direct
electrolysis, could produce cost-competitive steel as it removes
the need for chemical reductants and is able to use low-grade iron
ores.
There are still technology (scaling up inert anode) and
execution risks, but the potential impact and financial returns
could be very high if Boston Metal succeeds. Boston Metal's
technology can also recover high-value metal from mining waste. The
company has constructed the first facility for high-value metal
recovery in Brazil and is starting pilot production.
Boston Metal is a good example of the opportunities that exist
within private markets, which the investment trust structure is
well-positioned to support.
WuXi Biologics is a Chinese contract research, development and
manufacturing organisation focusing on biologics drugs, listed on
the Hong Kong stock exchange. It caters to small biotech and large
pharma companies and provides services from drug discovery to
commercial manufacturing. By leveraging its scale and expertise,
WuXi Biologics helps to save time and costs in drug research,
development, and manufacturing. This is particularly valuable for
biotech companies, which are often less well-capitalised compared
to large pharma companies. As a result, WuXi Biologics helps to
support innovation and competition in the pharmaceutical market.
Between 2017 and 2022, WuXi Biologics' revenue compounded at 57%
per year and its operating profit margin rose from 21% to 36%. The
company benefits from favourable access to talent, a differentiated
business model and investment in manufacturing processes. The
uncertainties with the investment case include geopolitical
tensions, the cyclicality of the industry and whether the labour
advantage could diminish over time as wages rise in China and WuXi
Biologics expands abroad. We will continue to monitor those areas.
However, given the significant growth opportunity, strong
management track record and attractive valuation, we believe the
company deserves a place in the portfolio.
Daikin Industries has a leading position in the heating,
ventilation and air conditioning industry ('HVAC'). We were
encouraged by Daikin's innovation and environmental leadership in
air conditioning and also its growing heat pump business. Before
purchasing the stock, we recognised that Daikin derived less than
1% revenue from the defence industry and we asked the company about
its exposures. We were satisfied with the information provided and
purchased the stock. Subsequently, we were notified that Daikin is
involved in the production of white phosphorous smoke bombs for the
Japanese Ministry of Defence for training purposes. White
phosphorus can have controversial use cases so we undertook further
research and engagement. Having carefully considered the activities
of the company, we decided to sell our holding post year-end.
The Company sold five companies over the past twelve months. In
addition to the sale of Berkeley Lights, which was discussed in the
Interim Report, we sold Nibe Industrier, FDM, Peloton
Interactive,and Teladoc.
Nibe Industrier is a manufacturer of heat pumps, stoves and
elements. It has enjoyed strong share price performance over recent
years and is the second top contributor to performance since the
take-on of Keystone. The outlook for the adoption of heat pumps is
favourable owing to growing awareness of the need to transition
heating systems away from fossil fuels and the supportive
regulatory backdrop. However, looking forward, despite Nibe's
admirable track record and the runway for growth, our analysis
points towards a more competitive environment and we feel that at
the current valuation it will be more challenging for the company
to meet our return hurdle over the coming years. Therefore, we have
sold the shares and redeployed capital into companies where we have
higher conviction.
FDM recruits, trains and provides career opportunities to
graduates, ex-forces personnel and returners-to-work, placing them
with clients who require IT expertise. It is proving more
challenging for the company to unlock growth than we had initially
expected. It is taking longer for potential customers to appreciate
FDM's offering and the company appears more vulnerable to external
events than anticipated. Another consideration in our decision is
the succession risk. Overall, we believe that FDM's ability to
drive positive change by providing jobs that enable upward social
mobility will be more limited and growth will be harder to
realise.
Peloton Interactive sells at-home exercise equipment and digital
content. We believe the long-term opportunity in digital fitness
remains exciting and the company can maintain market leadership.
However, the previous management team at Peloton made execution
missteps against a difficult operating backdrop, elevating the cost
base and making the company's financial characteristics
increasingly unattractive. While the new management team has made
admirable progress in recapitalising the business and reducing the
rate of cash burn, we believe growth and cash management will be at
odds for the foreseeable future.
Teladoc provides virtual healthcare services. Virtual care has
great potential to bring efficiency, cost savings and a better
quality of care to all parties in the system, from patients and
payers to providers. During the Covid-19 pandemic, demand for
virtual healthcare accelerated and benefited Teladoc. However, in
more recent years, Teladoc has made underwhelming progress in
growing its business. This is partly owing to increasing
competition attracted by the growth of virtual healthcare and in
part owing to the difficulties Teladoc faces in dealing with
multiple stakeholders in a very complex system. Our confidence in
management was also weakened after the US$6.6 billion impairment
charge linked to its acquisition of chronic care management company
Livongo in 2020. Overall, we no longer have sufficient conviction
that Teladoc will meet our dual objectives over the long term.
Impact
We released the Keystone Positive Change Annual Impact Report in
August, which can be found on our website. The report details the
impact of the products and services of the portfolio holdings. Our
thesis is that impact and investment go hand-in-hand, and the good
operating progress for many holdings has been mirrored by their
growing impact. For example, in 2022, MercadoLibre had 64.8 million
unique users of its digital wallet and the company granted 5.2
million loans to sellers, of which 49% were women. Tesla delivered
over 1.3 million electric vehicles and deployed 6.5 GWh of energy
storage. Tesla's products enabled customers to avoid emitting 13.4
million tonnes of CO(2) , up from 8.4 million tonnes in 2021.
Dexcom's continuous glucose monitoring devices helped 1.7 million
people manage their diabetes more effectively.
The Impact Report also provides aggregate data at a portfolio
level and maps the portfolio to the United Nations Sustainable
Development Goals.
Outlook
In the past year, members of the Positive Change team have been
on investment trips to the US, China, India and Europe. We have a
rich research pipeline that spans: AI in healthcare; genomics;
energy transition; circular economy; and sustainable agriculture.
We believe those areas will present exciting investment
opportunities over the coming years and decades.
Over the past twelve months, many of the portfolio companies
have demonstrated strong revenue and profit growth. However, share
prices have yet to appreciate in tandem, as rising interest rates
have put growth stocks out of favour with the market. Once global
interest rates are on a more stable trajectory, long-term
investment returns should be driven primarily by profit and cash
flow growth. The transition towards a more sustainable and
inclusive future will present large growth opportunities for
purpose-driven companies. By investing in a subset of them with
outstanding management teams and the potential to build durable
competitive advantages, we continue to believe that the Company can
generate attractive long-term investment returns for its
shareholders and contribute towards a better future.
Kate Fox
Lee Qian
27 November 2023
1 Renewable Energy Investment Hits Record-Breaking $358 Billion
in 1H 2023 - Bloomberg New Energy Finance
2 Pedal to the metal: Iron and steel's US$1.4 trillion shot at
decarbonisation - Wood Mackenzie
3 Global Education's $8 Trillion Reboot - Morgan Stanley
4 Delivering innovation: 2020 oncology market outlook -
McKinsey
Investing for Positive Change
Delivering attractive long-term investment returns
We aim to deliver attractive investment returns, which we define
as meaningful outperformance (by 2% annually net of fees) of the
MSCI ACWI over rolling five-year periods.
Our emphasis on growth and competitive advantage means that we
expect the delivered returns of the portfolio to come primarily
from revenue and profit growth at the companies we hold, rather
than from changes in valuation. In broad terms, we look for
companies with the potential to double in value over a five year
period, while still having significant growth prospects
thereafter.
Patience is required to tolerate short-term volatility that we
embrace in order to generate superior long-term financial returns.
We expect our portfolio of 30-60 listed and private companies to
differ significantly from the benchmark index, many of whose major
constituents are likely to suffer from precisely the challenges
that we outline in our four Impact Themes, and whose very scale
makes it difficult for them to innovate. While measuring portfolio
returns relative to a benchmark index can be a helpful way to
monitor the output of our investment process, we do not consider
the benchmark when constructing the portfolio.
Delivering a positive impact
We look for listed and private companies for whom delivering a
positive impact is core to their business; whose products and
services represent a significant improvement to the status quo; and
who conduct business with honesty and integrity. We look for areas
where there is a meaningful, and widely accepted, opportunity gap
between the current situation and the desirable social outcome, and
for companies that are proactively narrowing that gap through their
business activities. To this end, we have identified four Impact
Themes.
Similar to financial returns, making a meaningful positive
impact requires patience and perseverance. We are not looking for
quick fixes, but genuine improvements which often take years, if
not decades, of hard work. We believe a period of five to ten years
is a useful timeframe for assessing companies' social and
environmental contributions. We expect the four Impact Themes to
evolve over time, hopefully as challenges are resolved.
Four Impact Themes
Social inclusion and education
Income and wealth inequalities have risen significantly over the
past 30 years and now threaten our acceptance of capitalism as a
force for good. We look for companies that are building a more
inclusive society through their products and services. We also look
for companies that are improving the quality or accessibility of
education as we believe that the diffusion of skills and knowledge
is one of the best tools to reduce inequality.
Environment and resource needs
The environmental impact of human activities is increasing, and
basic resources such as food and water are becoming scarcer.
Throughout history, climate change and famine have repeatedly
limited the development of nations(1) . Left unresolved, those
problems could jeopardise international relations, destabilise our
society and damage our planet. We are looking for companies that
are improving our resource efficiency and reducing the
environmental impact of our economic activities.
Healthcare and quality of life
We are living longer but we are not necessarily healthier. We
are richer but we are not necessarily happier. The stress of modern
life is damaging our physical and mental health. We are searching
for companies that are actively improving the quality of life in
developed and developing countries.
Base of the pyramid
Economic growth has led to improvements in living conditions in
many parts of the world. However, the fruits of human ingenuity
have not filtered down to everyone. We are looking for companies
that are addressing the basic and aspirational needs of the
billions of people at the bottom of the global income ladder.
1 The Measure of Civilisation: How Social Development Decides
the Fate of Nations, 2013.
Investment Process
Analysing investment and impact using a robust and consistent
process
Both our objectives are of equal importance. To reflect this, we
have established a six-stage process which allows both the impact
and investment objectives to be considered equally in the key parts
of our process: research, portfolio construction and reporting.
01 What we look for
A vast opportunity set for long-term stock pickers
The universe of companies in which we can invest is vast. We
make no attempt to cover the whole universe. Neither do we use
quantitative screens to cut it down to a manageable size. Instead,
we rely on a clear and consistent set of filters to focus our
attention on the relatively small number of businesses that might
be of interest to us. These filters flow naturally from our dual
objectives, and focus on: (1) the company's potential to address
one of our four thematic global challenges; (2) its potential to
build a profitably growing business.
02 Idea generation
Ideas naturally flow from our dual objectives. Curiosity is
key
We are bottom-up stock pickers who let our curiosity and
enthusiasm drive our research agenda. Idea generation takes place
throughout the investment process: when we meet companies; through
attendance at conferences; during team meetings; and through
general reading. Our long-term time horizon, focus on fundamental
in-house research and desire to take a different perspective means
we use diverse sources of information, from independent research to
engaging with academics and industry experts. Sharing a common
objective with the rest of our investment colleagues (seeking high
quality growth companies), we are fortunate in being able to
leverage the intellectual resources of our wider investment
department of around a hundred investors, including regional and
global teams and sector specialists, and our ESG team.
03 Fundamental company research: eight questions
Consistent framework focuses on dual objectives
Our company analysis consists of two stages: fundamental company
research and impact analysis.
Our fundamental company research involves an Investment Manager
examining eight questions relating to the quality of the business
and its growth prospects as well as the impact the company is
expected to deliver.
To assess the growth potential and quality of a business, we
consider the company's broad opportunity set, the strength and
durability of the competitive advantage, the financial
characteristics and management attitudes. To assess the expected
impact of a holding, we consider the challenge the company is
tackling, its product characteristics and business practices.
Valuation analysis focuses on whether we think the long-term
growth prospects of a company are under-appreciated. Here, we use a
range of measures for valuing companies and remain very much
focused on the potential for a business in five years' time. If a
company has backing from an Investment Manager, it will be taken
forward to the second stage of research: the Impact Analysis.
8 Question framework
01 What change is the company driving?
02 What is the scale of the growth opportunity and how might it evolve over time?
03 What is required to unlock the opportunity and how quickly can the company capitalise on it?
04 What is the competitive edge and how might it develop?
05 What attributes of the culture, governance, and management
attitude will support or detract from the company's ability to
capitalise on the opportunity?
06 What are the financial characteristics today and how might they evolve?
07 What might the company look like and what might its valuation be in 5 to 10 years?
08 What will it take to be an outlier?
04 Impact analysis
Independent and disciplined
The second stage of research focuses specifically on the impact
potential of a business. This is carried out by one of the Positive
Change Teams' Impact Analysts. Analysing impact is complex and can
be highly subjective. Our impact analysis is carried out
independent of the investment case using a rigorous, qualitative
framework that is based upon three factors: Intent; Product impact;
and Business practices.
This analysis is holistic: we recognise that there is no perfect
company and under each of these three factors we also consider
areas of controversy, the negative consequences of operations and a
company's awareness of those issues.
Monitoring and reporting impact is important: as one of our dual
objectives it is as important as monitoring and reporting financial
performance. The monitoring of impact is ongoing and is interwoven
with our monitoring of the investment case for a company. We look
at company reports and disclosures and are engaged with management,
we monitor significant news, always with a focus on the long term
and the key milestones we expect a company to reach in order to
deliver impact.
Once a potential idea has been identified, we analyse it using a
consistent framework of questions: (1) Intent - Forward looking
strategy that supports the positive outcome? Backed up by actions,
commitments and structures? Uses influence to drive solutions in
the wider industry? (2) Product impact - Relationship between the
product and the impact? Breadth and depth of impact? Materiality in
the context of the business and the problem? Linkage with the
United Nations Sustainable Development Goals (UN SDGs)? (3)
Business practices - Addresses impacts across the full value chain?
Transparent in its actions? Leads the industry in business
practices?
05 Portfolio construction
Two elements - investment and impact considered in tandem
The Positive Change team meets regularly to discuss new ideas
and the level of conviction in existing holdings. The team's
conviction in both the impact and investment potential of a company
is taken into consideration when making portfolio decisions and
sizing positions. Investment decisions are made by the five
decision makers: three Investment Managers: Kate Fox, Lee Qian and
Thaiha Nguyen, and two Senior Impact Analysts: Edward Whitten and
Apricot Wilson. Every stock must have the backing of an Investment
Manager and at least one sponsor of the impact objective. The group
heavily relies on and respects the opinions of team members to help
inform individual views. We think this process allows us to harness
diverse perspectives while also retaining conviction and
accountability of individual decision-making and reducing personal
bias.
We are active investors and our portfolio will differ
significantly from the benchmark, many of whose major constituents
are likely to face headwinds from the challenges we identify. In
order for a company to enter our portfolio, it must meet both of
our objectives - there are no compromises.
With a long-term investment horizon, portfolio turnover will be
low, we expect it to be below 20% per annum over the long term. We
will carefully monitor the companies in which we invest through
ongoing research and engagement with management teams. It is
inevitable that businesses will have setbacks and we are happy to
own companies through periods of short-term operational weakness.
However, if longer-term concerns develop that are not addressed by
management, if we detect a deterioration in the fundamental
investment case, for either element of our dual objectives, we will
sell a holding.
06 Monitoring, engagement and reporting
Rigorous, ongoing and with a long-term focus
Once we have taken a holding, we continue to monitor operational
performance and progress towards delivering positive change. In
doing so we engage with management teams on an ongoing basis. We
report on how the strategy has delivered on both its financial
objective and its impact objective.
The impact different companies make is not always quantifiable,
nor should it be. Furthermore, comparing impact across companies
with very different activities is problematic. And, where impact is
more easily quantifiable, it is not always measured and disclosed
in a uniform way. Despite its challenges, we have developed a
robust approach using our in-depth knowledge of companies, and we
report annually, though we always remain focused on our
five-year-plus time horizon.
6.1 Company impact
Consistent with our bottom-up, fundamental investment approach,
we identify bespoke metrics or milestones for each company that
will help us monitor its progress in delivering positive change. We
represent this impact through 'The Positive Chain', a model which
demonstrates how each company is contributing to positive outcomes
and impacts through its inputs, activities and outputs. We depend
primarily on company reported data but do not limit ourselves to
current levels of disclosure: where there are gaps we will engage
with companies and request more information.
Company engagement more broadly is ongoing, and we will discuss
with management teams both areas where we would like to see
improvements as well as areas where companies excel.
6.2 Portfolio contribution to United Nations Sustainable
Development Goals
At an overall portfolio level, we also link the product impact
for each company to the United Nations' Sustainable Development
Goals ('UN SDGs'). The UN developed the SDGs in 2015 as part of an
ambitious programme which aims to end poverty in all forms, to
build peaceful and inclusive societies, to protect human rights and
promote gender equality, and to ensure the protection of the planet
and its natural resources by the end of 2030. With 17 goals split
into 169 specific targets covering a broad range of topics, we do
not intend the portfolio to address every single goal. However,
mapping the contribution of individual holdings to these goals via
the underlying 169 targets allows us to assess the contribution of
the portfolio as a whole using an independent framework.
The companies in the portfolio take different approaches and we
hope to gain insight into what works best and to share our
learnings across holdings. For those companies that report how
their business is aligned with the SDGs, we take this into
consideration when making the linkage to the goals, but we are
selective in order to be as consistent as possible across all
holdings.
Baillie Gifford's approach to valuing private companies
We aim to hold our private company investments at 'fair value',
i.e. the price that would be paid in an open-market transaction.
Valuations are adjusted both during regular valuation cycles and on
an ad hoc basis in response to 'trigger events'. Our valuation
process ensures that private companies are valued in both a fair
and timely manner.
The valuation process is overseen by a valuations group at
Baillie Gifford, which takes advice from an independent third party
(S&P Global). The valuations group is independent from the
investment team, with all voting members being from different
operational areas of the firm, and the investment managers only
receive final notifications once they have been applied.
We revalue the private holdings on a three-month rolling cycle,
with one third of the holdings reassessed each month. During stable
market conditions, and assuming all else is equal, each investment
would be valued twice in a six month period. For investment trusts,
the prices are also reviewed twice per year, at the interim and
financial year end, by the respective investment trust boards and
are subject to the scrutiny of external auditors in the annual
audit process.
Beyond the regular cycle, the valuations team also monitors the
portfolio for certain 'trigger events'. These may include: changes
in fundamentals; a takeover approach; an intention to carry out an
Initial Public Offering ('IPO'); company news which is identified
by the valuation team or by the portfolio managers, or significant
changes to the valuation of comparable public companies. Any ad hoc
change to the fair valuation of any holding is implemented swiftly
and reflected in the next published net asset value. There is no
delay.
The valuations team also monitors relevant market indices on a
weekly basis and updates valuations in a manner consistent with our
external valuer's (S&P Global) most recent valuation report
where appropriate. Continued market volatility has meant that
recent pricing has moved much more frequently than would have been
the case with the quarterly valuations cycle.
Portfolio companies split by impact theme as at 30 September
2023
Social inclusion and education - Building a more inclusive
society and/or improving the quality and accessibility of
education;
Environment and resource needs - Improving our resource
efficiency and reducing the environmental impact of our economic
activities;
Healthcare and quality of life - Actively improving the quality
of life in developed and developing countries;
Base of the pyramid - Addressing the basic aspirational needs of
people at the bottom of the global income ladder.
Social Value % Environment Value % Healthcare and Value % Base of Value %
inclusion GBP'000 and resource GBP'000 quality of life GBP'000 the GBP'000
and education needs pyramid
-------------- -------- ----- --------------------- -------- ----- ---------------- -------- ----- ---------- -------- ------
Bank
Rakyat
MercadoLibre 12,639 7.8 Deere 6,604 4.1 Moderna 6,728 4.1 Indonesia 6,848 4.2
Remitly
ASML 9,418 5.8 Tesla 5,891 3.6 Dexcom 5,683 3.5 Global 5,954 3.7
Alnylam
TSMC 6,829 4.2 Xylem 5,275 3.3 Pharmaceuticals 5,674 3.5 Safaricom 1,871 1.3
Northvolt AB
Shopify 6,711 4.1 (u) 3,802 2.3 Sartorius 3,843 2.4
Duolingo 5,675 3.5 Autodesk 3,681 2.3 WuXi Biologics 3,807 2.3
Nu Holdings 5,178 3.2 Umicore 3,530 2.2 Illumina 3,608 2.2
Discovery
HDFC Bank 4,887 3.0 Ø rsted 3,431 2.1 Holdings 3,567 2.2
Coursera 4,765 3.0 Novozymes 3,311 2.1 10x Genomics 2,409 1.5
PsiQuantum
(u) 1,443 0.9 Ecolab 3,275 2.0 M3 2,256 1.4
Daikin Industries 3,067 1.9 Chr. Hansen 2,093 1.3
AbCellera
Climeworks (u) 1,820 1.1 Biologics 1,522 0.9
Joby Aviation 1,817 1.1
Boston
Electrometallurgical
Corp (u) 1,639 1.0
Spiber (u) 946 0.6
57,545 35.5 48,089 29.7 41,190 25.3 14,673 9.1
Net liquid
assets* 651 0.4
-------- ----- --------------------- -------- ----- ---------------- -------- ----------------- -------- ------
Total assets * 162,148 100.0
-------- ----- --------------------- -------- ----- ---------------- -------- ----------------- -------- ------
* For a definition of terms used, see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
(u) Denotes unlisted/private company holding.
List of investments as at 30 September 2023
Name Business Impact theme* Fair value % of
GBP'000 total
assets
---------------------------- ---------------------------------------------- -------------- ---------- -------
MercadoLibre Ecommerce platform and fintech Social 12,639 7.8
ASML Supplier to semiconductor industry Social 9,418 5.8
Bank Rakyat Indonesia Bank Base 6,848 4.2
TSMC Semiconductor manufacturer Social 6,829 4.2
Moderna Messenger RNA therapeutics Healthcare 6,728 4.1
Shopify Online commerce platform Social 6,711 4.1
Deere Agricultural equipment Environment 6,604 4.1
Online money transfer payments for
Remitly Global(#) immigrants and their families Base 5,954 3.7
Electric cars and renewable energy
Tesla solutions Environment 5,891 3.6
Dexcom Continuous glucose monitoring Healthcare 5,683 3.5
Language learning website and mobile
Duolingo app Social 5,675 3.5
Alnylam Pharmaceuticals Biotechnology Healthcare 5,674 3.5
Xylem Innovative water solutions Environment 5,275 3.3
Nu Holdings Digital banking company Social 5,178 3.2
HDFC Bank(#) Mortgage provider Social 4,887 3.0
Coursera Online learning Social 4,765 3.0
Sartorius Biopharmaceutical and laboratory tooling Healthcare 3,843 2.4
Contract research, development and
manufacturing organisation focusing
WuXi Biologics(#) on biologics drugs Healthcare 3,807 2.3
Battery developer and manufacturer,
specialising in lithium-ion technology
Northvolt AB (u) for electric vehicles Environment 3,802 2.3
Software products for architecture,
engineering, construction, and manufacturing
Autodesk(#) industries Environment 3,681 2.3
Illumina Gene sequencing equipment Healthcare 3,608 2.2
Discovery Holdings Life and health insurance provider Healthcare 3,567 2.2
Umicore Global materials technology and recycling Environment 3,530 2.2
Ørsted Renewable energy Environment 3,431 2.1
Novozymes Biological solutions Environment 3,311 2.1
Water, hygiene and infection prevention
Ecolab services Environment 3,275 2.0
Air conditioning and refrigeration
Daikin Industries(#) equipment Environment 3,067 1.9
10x Genomics Life science technology Healthcare 2,409 1.5
M3 Online medical services Healthcare 2,256 1.4
Chr. Hansen Biological solutions Healthcare 2,093 1.3
Safaricom Telecommunications and mobile payments Base 1,871 1.2
Climeworks (u) Direct air carbon capture Environment 1,820 1.1
Joby Aviation Electric aircraft Environment 1,817 1.1
Boston Electrometallurgical Novel technology for producing green
Corp(#) (u) steel Environment 1,639 1.0
AbCellera Biologics Antibody drug discovery tools Healthcare 1,522 0.9
PsiQuantum (u) Silicon photonic quantum computing Social 1,443 0.9
Spiber (u) Novel protein biomaterials Environment 946 0.6
---------------------------- ---------------------------------------------- -------------- ---------- -------
Total investments 161,497 99.6
-------------------------------------------------------------------------------------------- ---------- -------
Net liquid assets 651 0.4
-------------------------------------------------------------------------------------------- ---------- -------
Total assets 162,148 100.0
-------------------------------------------------------------------------------------------- ---------- -------
Listed equities Unlisted securities Net liquid Total
% ++ assets assets
% % %
------------------- ---------------- -------------------- ----------- --------
30 September 2023 93.7 5.9 0.4 100.0
------------------- ---------------- -------------------- ----------- --------
30 September 2022 93.5 6.0 0.5 100.0
------------------- ---------------- -------------------- ----------- --------
* Abbreviated as follows: Healthcare - Healthcare and quality of
life; Social - Social inclusion and education; Environment -
Environment and resource needs; Base - Base of the pyramid.
(u) Denotes unlisted/private company holding.
For a definition of terms used see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
# New purchase during the year. Complete sales during the year
were: FDM; Nibe Industrier; Peloton Interactive; Berkeley Lights;
Teladoc.
++ Includes holdings in ordinary shares, preference shares and promissory notes.
Income statement
For the year ended 30 September 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
Gains/(losses) on investments 2 - 9,884 9,884 - (72,765) (72,765)
Currency gains/(losses) - 589 589 - (1,333) (1,333)
Income 1,618 - 1,618 1,459 - 1,459
Investment management fee 3 (223) (668) (891) (247) (741) (988)
Other administrative expenses (477) - (477) (506) - (506)
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
Net return before finance costs and
taxation 918 9,805 10,723 706 (74,839) (74,133)
Finance costs of borrowings (234) (666) (900) (101) (266) (367)
Net return on ordinary activities
before taxation 684 9,139 9,823 605 (75,105) (74,500)
Tax on ordinary activities (244) (7) (251) (216) - (216)
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
Net return on ordinary activities
after taxation 440 9,132 9,572 389 (75,105) (74,716)
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
Net return per ordinary share 4 0.71p 14.77p 15.48p 0.63p (121.50p) (120.87p)
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
Note: Dividends per share paid and
payable in respect of the year 5 0.45p 0.40p
------------------------------------ ----- --------- -------- -------- --------- --------- ---------
The total column of this statement represents the profit and
loss account of the Company. The supplementary revenue and capital
columns are prepared under guidance issued by the Association of
Investment Companies.
All revenue and capital items in this statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as the
Company does not have any other comprehensive income and the net
return on ordinary activities after taxation is both the
profit/(loss) and total comprehensive income/(expense) for the
year.
Balance sheet
As at 30 September 2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ----- -------- -------- -------- --------
Fixed assets
Investments 6 161,497 152,067
-------------------------------------- ----- -------- -------- -------- --------
Current assets
Debtors 313 199
Cash at bank 728 962
-------------------------------------- ----- -------- -------- -------- --------
1,041 1,161
-------------------------------------- ----- -------- -------- -------- --------
Creditors
Amounts falling due within one year 7 (15,628) (15,650)
Net current liabilities (14,587) (14,489)
Total assets less current liabilities 146,910 137,578
Creditors
Amounts falling due after more than
one year 7 (257) (250)
-------------------------------------- ----- -------- -------- -------- --------
Net assets 146,653 137,328
-------------------------------------- ----- -------- -------- -------- --------
Capital and reserves
Share capital 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 135,396 126,264
Revenue reserve 582 389
-------------------------------------- ----- -------- -------- -------- --------
Total shareholders' funds 8 146,653 137,328
-------------------------------------- ----- -------- -------- -------- --------
Statement of changes in equity
For the year ended 30 Capital
September 2023 Share Share premium redemption Capital Revenue Shareholders'
capital account reserve reserve reserve funds
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
Shareholders' funds at
1 October 2022 6,760 3,449 466 126,264 389 137,328
Net return on ordinary
activities after taxation - - - 9,132 440 9,572
Dividends paid during the
year 5 - - - (247) (247)
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
Shareholders' funds at
30 September 2023 6,760 3,449 466 135,396 582 146,653
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
For the year ended 30 Capital
September 2022 Share Share premium redemption Capital Revenue Shareholders'
capital account reserve reserve reserve funds
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
Shareholders' funds at
1 October 2021 6,760 3,449 466 203,842 - 214,517
Net return on ordinary
activities after taxation - - - (75,105) 389 (74,716)
Dividends paid during the
year 5 - - - (2,473) - (2,473)
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
Shareholders' funds at
30 September 2022 6,760 3,449 466 126,264 389 137,328
--------------------------- ----- -------- ------------- ----------- -------- -------- -------------
Cash Flow Statement
For the year ended 30 September 2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ----- -------- -------- -------- --------
Cash flows from operating activities
Net return before finance costs
and taxation 10,723 (74,133)
Tax on overseas income (249) (207)
Adjustments for:
Purchase of investments (36,264) (20,553)
Sale of investments 36,718 20,185
-------- -------- -------- --------
454 (368)
(Gains)/losses on investments held
at fair value (9,884) 72,765
Movement in unrealised currency
gains and losses (607) 1,374
Increase in debtors (109) (76)
(Decrease)/increase in creditors (19) 41
------------------------------------- ----- -------- -------- -------- --------
Net cash inflow/(outflow) from
operating activities 309 (604)
------------------------------------- ----- -------- -------- -------- --------
Cash flows from financing activities
Interest and facility fee paid
on bank facility (861) (329)
Preference dividends paid (12) (12)
Bank facility drawn 620 3,727
Net equity dividends paid 5 (247) (2,473)
------------------------------------- ----- -------- -------- -------- --------
Net cash (outflow)/inflow from
financing activities (500) 913
------------------------------------- ----- -------- -------- -------- --------
Net (decrease)/increase in cash
at bank (191) 309
------------------------------------- ----- -------- -------- -------- --------
Exchange movements (43) 60
Cash at bank at the start of the
year 962 593
------------------------------------- ----- -------- -------- -------- --------
Cash at bank at the end of the
year 728 962
------------------------------------- ----- -------- -------- -------- --------
Cash flow from operating activities
includes
Dividends received 1,554 1,434
------------------------------------- ----- -------- -------- -------- --------
Interest received 20 2
------------------------------------- ----- -------- -------- -------- --------
Notes to the Financial Statements
1. Principal accounting policies
The Financial Statements for the year to 30 September 2023 have
been prepared in accordance with FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' on the basis
of the accounting policies set out in the Annual Report and
Financial Statements which are unchanged from the prior year and
have been applied consistently.
2. Gains/(losses) on investments
For the year ended 30 September 2023 2022
GBP'000 GBP'000
------------------------------------ ------------ ------------
Gains/(losses) on investments:
Realised losses on sales (12,870) (6,963)
Changes in investment holding
gains and losses 22,754 (65,802)
------------------------------------ ------------ ------------
9,884 (72,765)
------------------------------------ ------------ ------------
3. Management fee
Baillie Gifford & Co Limited, a wholly owned subsidiary of
Baillie Gifford & Co, has been appointed as the Company's
Alternative Investment Fund Manager ('AIFM') and Company
Secretaries. Baillie Gifford & Co Limited has delegated
portfolio management services to Baillie Gifford & Co. The
annual management fee is 0.70% on the first GBP100 million of
market capitalisation, 0.65% on the next GBP150 million of market
capitalisation and 0.55% on the remaining market capitalisation.
Management fees are calculated and payable on a quarterly basis.
Market capitalisation is calculated using middle market quotations
derived from the Stock Exchange Daily Official List and the
weighted average number of shares in issue during the quarter.
4. Net return per ordinary share
For the year ended 30 2023 2023 2023 2022 2022 2022
September Revenue Capital Total Revenue Capital Total
---------------------------------- ------------ ------------ ---------- ------------ ------------- -------------
Net return per ordinary
share 0.71p 14.77p 15.48p 0.63p (121.50p) (120.87p)
---------------------------------- ------------ ------------ ---------- ------------ ------------- -------------
Revenue return per ordinary share is based on the net revenue
return on ordinary activities after taxation of GBP440,000 (2022
-GBP389,000) and on 61,815,632 (2022 - 61,815,632) ordinary shares
of 10p, being the weighted average number of ordinary shares in
issue during the year. Capital return per ordinary share is based
on the net capital gain for the financial year of GBP9,132,000
(2022 - loss of GBP75,105,000) and on 61,815,632 (2022 -
61,815,632) ordinary shares, being the weighted average number of
ordinary shares in issue during the year.
There are no dilutive or potentially dilutive shares in
issue.
5. Ordinary dividends
For the year ended 30 September 2023 2023 2022 2022
p GBP'000 p GBP'000
-------------------------------------- ---- -------- ---- --------
Amounts recognised as distributions
in the year:
-------------------------------------- ---- -------- ---- --------
Previous year's final dividend/fourth
interim dividend 0.40 247 4.00 2,473
-------------------------------------- ---- -------- ---- --------
We also set out below the total dividends paid and proposed in
respect of the financial year, which is the basis on which the
requirements of section 1158 of the Corporation Tax Act 2010 are
considered. The revenue available for distribution by way of
dividend for the year is GBP440,000 (2022 - GBP389,000).
For the year ended 30 September 2023 2023 2022 2022
p GBP'000 p GBP'000
------------------------------------ -------- ------------ -------- ------------
Amounts paid and payable in respect
of the financial year:
------------------------------------ -------- ------------ -------- ------------
Proposed final (payable 8 February
2024) 0.45 278 0.40 247
------------------------------------ -------- ------------ -------- ------------
The Board recommends a final dividend of 0.45p per ordinary
share for the year. If approved, the recommended final dividend
will be paid on 8 February 2024 to shareholders on the register at
the close of business on 12 January 2024. The ex-dividend date is
11 January 2024.
6. Investments
As at 30 September 2023 Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Listed equities 151,847 - - 151,847
Unlisted securities - - 9,650 9,650
---------------------------------- -------- -------- -------- --------
Total financial asset investments 151,847 - 9,650 161,497
---------------------------------- -------- -------- -------- --------
As at 30 September 2022 Level Level Level
1 2 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Listed equities 142,878 - - 142,878
Unlisted securities - - 9,189 9,189
---------------------------------- -------- -------- -------- --------
Total financial asset investments 142,878 - 9,189 152,067
---------------------------------- -------- -------- -------- --------
Investments in securities are financial assets held at fair
value through profit or loss. In accordance with Financial
Reporting Standard 102, the tables above provide an analysis of
these investments based on the fair value hierarchy described
below, which reflects the reliability and significance of the
information used to measure their fair value.
Fair value hierarchy
The fair value hierarchy used to analyse the basis on which the
fair values of financial instruments held at fair value through the
profit and loss account are measured is described below. Fair value
measurements are categorised on the basis of the lowest level input
that is significant to the fair value measurement.
Level 1 - using unadjusted quoted prices for identical
instruments in an active market;
Level 2 - using inputs, other than quoted prices included within
Level 1, that are directly or indirectly observable (based on
market data); and
Level 3 - using inputs that are unobservable (for which market
data is unavailable).
The Company's unlisted investments at 30 September 2023 were
valued using a variety of techniques. These include using
comparable company multiples, net asset values, assessment of
comparable company performance and assessment of milestone
achievement at the investee companies. The determinations of fair
value included assumptions that the trading multiples and
comparable companies chosen for the multiples approach provide a
reasonable basis for the determination of fair value. Valuations
are cross-checked for reasonableness to alternative multiples-based
approaches or benchmark index movements as appropriate. In some
cases the latest dealing price is considered to be the most
appropriate valuation basis, but only following assessment using
the techniques described above.
The valuation techniques used by the Company are further
explained in the accounting policies on page 94 of the Annual
Report and Financial Statements. A sensitivity analysis by
valuation technique of the unlisted securities is on pages 108 to
109 of the Annual Report and Financial Statements.
The Company received proceeds of GBP36,718,000 (2022 -
GBP20,185,000) from investments sold during the year. The book cost
of these investments when they were purchased was GBP49,588,000
(2022 - GBP27,148,000). These investments have been revalued over
time and, until they were sold, any unrealised gains/losses were
included in the fair value of the investments. Transaction costs of
GBP24,000 (2022 - GBP5,000) and GBP9,000 (2022 - GBP8,000) were
suffered on purchases and sales respectively.
7. Creditors
Borrowing facilities
At 30 September 2023 the Company had a 3 year GBP25 million
multi-currency unsecured floating rate revolving facility with The
Royal Bank of Scotland International Limited, which expires on 31
August 2024.
At 30 September 2023 drawings were as follows:
3/4 The Royal Bank of Scotland International Limited: US$9.5
million at an interest rate of 1.25% over SOFR and GBP7.5 million
at an interest rate of 1.25% over SONIA, both maturing in December
2023 (2022 - US$8.7 million at an interest rate of 1.25% over US
LIBOR and GBP7.5 million at an interest rate of 1.25% over SONIA,
both maturing in December 2022).
The main covenants relating to the above loans are that total
borrowings shall not exceed 25% of the Company's adjusted portfolio
value and the Company's minimum adjusted portfolio value shall be
GBP100 million.
There were no breaches of loan covenants during the year.
Amounts falling due after more than one 2023 2022
year - as at 30 September GBP'000 GBP'000
-------------------------------------------- ------------ ------------
5% cumulative preference shares of GBP1
each 250 250
-------------------------------------------- ------------ ------------
Provision for tax liability in respect 7 -
of Indian capital gains
-------------------------------------------- ------------ ------------
257 250
-------------------------------------------- ------------ ------------
Preference share dividends are paid bi-annually in March and
September.
Provision for Tax Liability
The tax liability provision at 30 September 2023 of GBP7,000 (30
September 2022 - nil) relates to a potential liability for Indian
capital gains tax that may arise on the Company's Indian
investments should they be sold in the future, based on the net
unrealised taxable capital gains at the period end and on enacted
Indian tax rates. The amount of any future tax amounts payable may
differ from this provision, depending on the value and timing of
any future sales of such investments and future Indian tax
rates.
Fair value of borrowings 2023 2023 2023 2022 2022 2022
Par Book Market Par Book Market
value value value value value value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Bank loans due within
one year 15,245 15,245 15,245 15,275 15,275 15,275
5% cumulative preference
shares 250 250 239 250 250 239
------------------------- ------------ ------------ ------------ ------------ ------------ ------------
15,495 15,495 15,484 15,525 15,525 15,514
------------------------- ------------ ------------ ------------ ------------ ------------ ------------
8. Shareholders' funds per ordinary share
As at 30 September 2023 2022
GBP'000 GBP'000
--------------------------------------- ------------------ ------------------
Shareholders' funds GBP146,653,000 GBP137,328,000
--------------------------------------- ------------------ ------------------
Number of ordinary shares in issue
at the year end 61,815,632 61,815,632
--------------------------------------- ------------------ ------------------
237.2p 222.2p
--------------------------------------- ------------------ ------------------
The shareholders' funds figures above have been calculated after
deducting borrowings at book value, in accordance with the
provisions of FRS 102. For the prior year, the difference between
borrowings at book value, borrowings at par and borrowings at
market value is negligible (see note 7 above) and no reconciliation
between NAV at book/par value and NAV at market/fair value is
provided, as the NAV per share is the same on both bases. A
reconciliation between shareholders' funds per share and NAV per
share at market value at 30 September 2023 is provided in the
Glossary of Terms and Alternative Performance Measures at the end
of this announcement.
9. Shares in Issue
The Company is limited by shares. The ordinary shares are fully
participating and, on a poll, carry one vote per GBP1 nominal held
(one vote per 10 ordinary shares of 10 pence each). The Company's
capital structure at 30 September 2023 consists of 67,593,995
ordinary shares of 10p each (30 September 2022 - 67,593,995) of
which 61,815,632 (30 September 2022 - 61,815,632) are allotted and
fully paid and 5,778,363 (30 September 2022 - 5,778,363) are held
in treasury. The Company also has 250,000 5% cumulative preference
shares of GBP1 each in issue.
In the year to 30 September 2023, the Company issued and bought
back no ordinary shares (2022 - no shares issued or bought back).
At 30 September 2023 the Company had authority to buy back
9,266,163 ordinary shares and to allot or sell from treasury
6,181,563 ordinary shares without application of pre-emption
rights. Under the provisions of the Company's Articles of
Association share buy-backs are funded from the capital
reserve.
10. Related Parties and transactions with the Managers
The Directors' fees and shareholdings are detailed in the
Directors' Remuneration Report on pages 74 to 77 of the Annual
Report and Financial Statements. No Director has a contract of
service with the Company. During the year no Director was
interested in any contract or other matter requiring disclosure
under section 412 of the Companies Act 2006.
Baillie Gifford & Co Limited has been appointed as the
Company's Alternative Investment Fund Managers ('AIFM') and Company
Secretaries. Details of the terms of the Investment Management
Agreement are set out on page 57 of the Annual Report and Financial
Statements and details of the fees during the year and the balances
outstanding at the year end are shown in notes 3 and 11 of the
Annual Report and Financial Statements respectively.
11. Audited financial information
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 30 September 2023
or 2022 but is derived from those accounts. Statutory accounts for
2022 have been delivered to the Registrar of Companies and those
for 2023 will be delivered in due course. The auditor has reported
on these accounts; the reports were (i) unqualified, (ii) did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report, and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006.
12. Publication date
The Annual Report and Financial Statements will be available on
the Company's page of the Managers' website
keystonepositivechange.com ++ on or around 8 December 2023.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement.
None of the views expressed in this document should be construed
as advice to buy or sell a particular investment.
Glossary of terms and alternative performance measures
('APM')
Total assets
This is the Company's definition of Adjusted Total Assets, being
the total value of all assets held less all liabilities (other than
liabilities in the form of borrowings).
Shareholders' funds
Shareholders' funds is the value of all assets held less all
liabilities, with borrowings deducted at book cost.
Net Asset Value (APM)
When a Company's borrowings are all short-term, flexible
facilities, Net Asset Value ('NAV') equates to shareholders' funds,
being the value of all assets held less all liabilities (including
borrowings). Per share amounts are calculated by dividing the
relevant figure by the number of ordinary shares in issue
(excluding shares held in treasury). For the prior year, the
difference between borrowings at book value, borrowings at par and
borrowings at market value is negligible (see note 19 on page 110
of the Annual Report and Financial Statements) and no
reconciliation between NAV with debt at book/par value and NAV with
debt at market value is provided. For the current year, a
reconciliation is provided below, as the NAV per share differs by
0.1p owing to roundings.
As at 30 September 2023 2022
------------------------------------------------ -------------- --------------
Shareholders' funds (net assets) (a) GBP146,653,000 GBP137,328,000
Ordinary shares in issue (excluding
treasury shares) (b) 61,815,632 61,815,632
------------------------------------ ---------- -------------- --------------
Net asset value per share ('NAV') (a ÷
with debt at book/par b x 100) 237.2p 222.2p
------------------------------------ ---------- -------------- --------------
As at 30 September 2023
------------------------------------------------ ---------------
Shareholders' funds net (assets) GBP146,653,000
Add back: debt at book/par GBP15,495,00
Less: debt at market value (GBP15,484,000)
Net asset value with debt at market (a) GBP146,664,000
value
Ordinary shares in issue (excluding
treasury shares) (b) 61,815,632
------------------------------------ ---------- ---------------
Net asset value per share ('NAV') (a ÷
with debt at market value b x 100) 237.3p
------------------------------------ ---------- ---------------
Discount/premium (APM)
As stock markets and share prices vary, an investment trust's
share price is rarely the same as its NAV. When the share price is
lower than the NAV per share it is said to be trading at a
discount. The size of the discount is calculated by subtracting the
share price from the NAV per share and is usually expressed as a
percentage of the NAV per share. If the share price is higher than
the NAV per share, this situation is called a premium.
As at 30 September 2023 2022
----------------------------------- ------- -------
Net asset value per
ordinary share (a) 237.3p 222.2p
Share price (b) 204.0p 192.8p
-------------------- ------------- ------- -------
((b) -
(a)) ÷
Discount (a) (14.0%) (13.2%)
-------------------- ------------- ------- -------
Net liquid assets
Net liquid assets comprise current assets less current
liabilities (excluding borrowings) and provisions.
Active share (APM)
Active share, a measure of how actively a portfolio is managed,
is the percentage of the portfolio that differs from its
comparative index. It is calculated by deducting from 100 the
percentage of the portfolio that overlaps with the comparative
index. An active share of 100 indicates no overlap with the index
and an active share of zero indicates a portfolio that tracks the
index.
Total return (APM)
The total return is the return to shareholders after reinvesting
the dividend on the date that the share price goes ex-dividend, as
detailed below.
For the year to 30 September 2023 2023 2022 2022
NAV Share NAV Share
price price
----------------------------- ----------- ------- ------- ------- -------
Closing NAV per share/share
price (a) 237.3p 204.0p 222.2p 192.8p
Dividend adjustment factor* (b) 1.00166 1.00194 1.01228 1.01242
----------------------------- ----------- ------- ------- ------- -------
Adjusted closing NAV per (c) = (a)
share/share price x (b) 237.7p 204.4p 224.9p 195.2p
----------------------------- ----------- ------- ------- ------- -------
Opening NAV per share/share
price (d) 222.2p 192.8p 347.0p 344.0p
----------------------------- ----------- ------- ------- ------- -------
(c) ÷
Total return (d) -1 7.0% 6.0% (35.2%) (43.3%)
----------------------------- ----------- ------- ------- ------- -------
* The dividend adjustment factor is calculated on the assumption
that dividends of 0.4p (2022 - 4.0p) paid by the Company during the
year were reinvested into shares of the Company at the cum income
NAV/share price, as appropriate, at the ex-dividend dates.
Ongoing Charges (APM)
The total expenses (excluding dealing and borrowing costs)
incurred by the Company as a percentage of the daily average net
asset value (with borrowings at market value), as detailed
below.
For the year to 2023 2022
30 September GBP'000 GBP'000
---------------------- --------------------------- -------- --------
Investment management
fee 891 988
Other administrative
expenses 477 506
--------------------------------------------------- -------- --------
Total expenses (a) 1,368 1,494
---------------------- --------------------------- -------- --------
Average net asset
value (b) 152,538 166,326
---------------------- --------------------------- -------- --------
((a) ÷ (b) expressed
Ongoing charges as a percentage) 0.90% 0.90%
---------------------- --------------------------- -------- --------
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other
public company, an investment trust can borrow money to invest in
additional investments for its portfolio. The effect of the
borrowing on the shareholders' assets is called 'gearing'. If the
Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the
value of the Company's assets falls, the situation is reversed.
Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gross gearing, also referred to as potential gearing is the
Company's borrowings expressed as a percentage of shareholders'
funds (a ÷ c in the table below).
Net gearing, also referred to as invested gearing is borrowings
at book value less cash at bank (any certificates of deposit are
not deducted) and brokers' balances expressed as a percentage of
shareholders' funds (b ÷ c in the table below).
As at 30 September 2023 2022
GBP'000 GBP'000
------------------------------ -------------------- -------- --------
Borrowings (at book cost) (a) 15,495 15,525
Less: cash at bank (728) (962)
Less: sales for subsequent - -
settlement
Add: purchases for subsequent - -
settlement
Adjusted borrowings (b) 14,767 14,563
Shareholders' funds (c) 146,653 137,328
------------------------------ -------------------- -------- --------
(a) as a percentage
Gross Gearing of (c) 10.6% 11.3%
------------------------------ -------------------- -------- --------
(b) as a percentage
Net Gearing of (c) 10.1% 10.6%
------------------------------ -------------------- -------- --------
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers
('AIFM') Regulations, leverage is any method which increases the
Company's exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company's
exposure and its net asset value and can be calculated on a gross
and a commitment method. Under the gross method, exposure
represents the sum of the Company's positions after the deduction
of sterling cash balances, without taking into account any hedging
and netting arrangements. Under the commitment method, exposure is
calculated without the deduction of sterling cash balances and
after certain hedging and netting positions are offset against each
other. The leverage figures at 30 September 2023 are detailed on
page 136 of the Annual Report and Financial Statements.
Unlisted (private) company
An unlisted or private company means a company whose shares are
not available to the general public for trading and are not listed
on a stock exchange.
Compound annual return (APM)
The compound annual return converts the return over a period of
longer than one year to a constant annual rate of return applied to
the compounded value at the start of each year.
Treasury shares
The Company has the authority to make market purchases of its
ordinary shares for retention as treasury shares for future
reissue, resale, transfer, or for cancellation. Treasury shares do
not receive distributions and the Company is not entitled to
exercise the voting rights attaching to them.
Bottom-up stock pickers
Baillie Gifford describes its investment style as being
'bottom-up stock pickers' which means that portfolios are built
'bottom-up', based on enthusiasm for the growth prospects of
individual companies, rather than 'top-down', by reference to
pre-determined allocations on geographical or industrial sectoral
grounds.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU SFDR does not have direct impact in the UK but, as
Keystone Positive Change Investment Trust plc is marketed in the
EU, SFDR reporting obligations apply. Owing to its impact
objective, Keystone is classified as an Article 9 fund and must
report against a detailed taxonomy in the form prescribed by the
regulations.
United Nations Global Compact ('UNGC')
The UNGC is the world's largest corporate sustainability
initiative, which calls upon companies to align strategies and
operations with universal principles on human rights, labour,
environment and anti-corruption, and take actions that advance
societal goals. Over 12,000 companies based in over 160 countries
are participating.
United Nations Sustainable Development Goals ('SDGs')
In September 2015, all 193 Member States of the United Nations
adopted a plan for achieving a better future for all - laying out a
path to end extreme poverty, fight inequality and injustice, and
protect our planet by 2030. At the heart of 'Agenda 2030'; are the
17 Sustainable Development Goals. These are: 1. No poverty; 2. Zero
hunger; 3. Good health and well-being; 4. Quality education; 5.
Gender equality; 6. Clean water and sanitation; 7. Affordable and
clean energy; 8. Decent work and economic growth; 9. Industry,
innovation and infrastructure; 10. Reduced inequalities; 11.
Sustainable cities and communities; 12. Responsible consumption and
production; 13. Climate action; 14. Life below water; 15. Life on
land; 16. Peace, justice and strong institutions; and 17.
Partnerships for the goals.
Organisation for Economic Co-operation and Development
('OECD')
The OECD is an international organisation of 38 member
countries, with a goal to shape policies that foster prosperity,
equality, opportunity and well-being for all through the
development of evidence-based international standards.
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