TIDMKPC
RNS Number : 3181Y
Keystone Positive Change I.T. PLC
04 May 2023
RNS Announcement
Keystone Positive Change Investment Trust plc
Legal Entity Identifier: 5493002H3JXLXLIGC563
Regulated Information Classification: Interim Financial
Report
Results for the six months to 31 March 2023
Over the six months to 31 March 2023, the Company's net asset
value total return was 14.6% compared to a total return of 6.6% for
the comparative index*. The share price total return was 9.7% as
the discount widened from 13.2% to 17.0%.
Keystone Positive Change's objective is to generate long term
capital growth with the aim of the NAV total return exceeding that
of the MSCI AC World Index in sterling terms by at least 2 per
cent. per annum over rolling five-year periods; and contribute
towards a more sustainable and inclusive world by investing in the
equities of companies whose products or services make a positive
social or environmental impact. At 31 March 2023 the Company had
total assets of GBP172.1 million.
Keystone Positive Change is managed by Baillie Gifford, an
Edinburgh-based fund management group with approximately GBP225
billion under management and advice as at 3 May 2023.
Keystone Positive Change is a listed UK company. The value of
its shares and any income from them can fall as well as rise and
investors may not get back the amount invested. The Company is
listed on the London Stock Exchange and is not authorised or
regulated by the Financial Conduct Authority. You can find up to
date performance information about Keystone Positive Change at
keystonepositivechange.com ++ .
Past performance is not a guide to future performance. Total
return information is sourced from Baillie Gifford/Refinitiv and
relevant underlying index providers. See disclaimer at end of this
announcement.
* MSCI All Country World Index in sterling terms.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement.
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
The following is the unaudited Interim Financial Report for the
six months to 31 March 2023 which was approved by the Board on 3
May 2023 .
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared
in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.7R (indication of important events during the first six months,
their impact on the Financial Statements and a description of the
principal risks and uncertainties for the remaining six months of
the year); and
c) the Interim Financial Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.8R (disclosure of related party transactions and changes
therein).
On behalf of the Board
Karen Brade, Chair
3 May 2023
Interim Management Report
Over the past six months, the Company's NAV total return was
14.6%, and the share price total return was 9.7%. In comparison,
the benchmark MSCI All Country World Index returned 6.6% (in
sterling terms). Our focus, however, continues to be on the long
term, and we believe a period of five years is the appropriate time
horizon over which to judge our performance.
Focusing on picking winners
While rising interest rates and an end to the boom period might
cause angst for some investors, we believe it is becoming a better
time to be stock pickers. When capital is plentiful, the advantages
that usually belong to well-run businesses are eroded because even
weaker companies can stay in the game by raising cheap capital and
pursuing unsustainable growth strategies. However, as capital
becomes constrained, competitive advantages become more important.
Investors are less willing to finance businesses that grow users,
production, or other metrics but have little prospect of turning a
profit over a reasonable time horizon. For weaker companies, the
only way to survive is to cut costs, downsize, and abandon their
growth-at-all-cost strategy. Their market share will be picked up
by companies with the right business model and strong competitive
advantages.
Our investment philosophy focuses on companies with attractive
long-term growth prospects, strong competitive advantages, and
whose products and services are helping to create a more prosperous
and sustainable world. Our high-conviction approach means we seek
to pick out winners rather than just gaining exposure to particular
sectors or themes. In an era of constrained capital, we believe
this approach will be advantageous and that the Company's holdings
should benefit accordingly.
MercadoLibre - Latin America's largest ecommerce platform - is a
good example. We reviewed the investment case in 2022 and were
impressed by the company's competitive advantage, underpinned by
its investments in logistics and payment, and its expansion into
financial services. We added to the Company's holding in
MercadoLibre on the back of this research. Since then, as capital
became more constrained, competitors started to pull back. For
instance, Shopee (owned by Singapore-based SEA Ltd), which had
expanded aggressively by offering generous discounts and
incentives, pulled out of four Latin American countries and
increased pricing in Brazil. MercadoLibre was able to take
advantage of a more rational competitive environment to gain market
share. In 2022, its revenues grew by 49%, and operating profits
more than doubled. MercadoLibre was the top contributor to
performance over the past six months.
A similar dynamic could develop in the electric vehicle (EV)
market. Over the past few years, EV start-ups raised billions of
dollars to fund production expansion, even if each car they made
was sold at a significant loss. However, as access to funding
started to dry up, many EV companies had to lay off workers and cut
back their growth plans. A wave of consolidation is likely in the
coming years. We believe your portfolio holding Tesla will benefit
in this environment. After attending the company's Investor Day in
March, we reviewed the Tesla investment case. We found that Tesla
has managed to consistently reduce its production costs due to its
vertical integration and emphasis on manufacturing efficiency. This
cost advantage underpins Tesla's industry-leading margin. Thus far,
Tesla is one of the few profitable EV companies. During a period
when investors focus on profit, Tesla should benefit.
The emphasis on competitive advantage has been a consistent part
of our investment philosophy. This does not preclude us from
investing in earlier-stage businesses. In those instances, we
remain focused on picking out likely future winners rather than
simply gaining exposure to exciting trends. Strong management
teams, technological advantages, or superior and hard-to-replicate
business models are a must. Of course, investing in earlier-stage
companies carries greater risks, which we manage at a portfolio
level by having a range of companies at different stages of
maturity. However, as competitive advantages become more important
and valuation of earlier-stage companies returns to a more
palatable level, we believe the risk-reward balance is becoming
more favourable to our approach. We remain alert to both private
company and small-cap investment opportunities.
Portfolio Update
Over the past six months, we made three new investments:
Remitly, Autodesk, and HDFC. Remitly is a leader in providing
mobile-based remittance services for migrant workers. According to
the World Bank, annual global remittance flow to low- and
middle-income countries exceeds $600 billion. In the past,
customers had to visit agents working for companies such as Western
Union or Moneygram to send money. Layers of middlemen take a cut in
the process, and the average cost of sending remittances through
the offline channel is around 7%. Remitly offers an alternative
where customers can send remittances via the Remitly mobile app.
Money can be sent directly to receivers' bank accounts and mobile
wallets or picked up in person. Mobile remittance is much cheaper -
Remitly's average take rate is 2% - and faster, providing the
senders with greater peace of mind. The UN Sustainable Development
Goal has set the target of reducing the costs of remittance to
below 3% by 2030. We first looked at Remitly more than a year ago
and have since met the management team numerous times. We have also
spoken with a former employee, competitors, and industry experts as
part of our research process. We have been impressed by the
management team and execution. In the long term, scale and
partnerships should reinforce Remitly's advantage. The valuation
had come back significantly, from a market capitalisation of $7
billion when we first looked at the company to $2 billion at the
time of investment. Even factoring in a slowdown in growth as the
company scales, the investment return should be attractive.
Autodesk is well-known for its design software for the
Architecture, Engineering, and Construction (AEC) market.
Construction is one of the least digitalised industries, which
results in delayed projects and wasted materials. Autodesk is
looking to change this. For example, Autodesk Construction Cloud
helps to optimise workflow for project owners and contractors,
leading to increased efficiency and reduced waste. For design
software, the company is using artificial intelligence to improve
performance. Architects can use its services to identify materials
that have lowered embodied carbon or to run advanced simulations to
design more energy-efficient buildings. Autodesk's entrenched
position in design software provides competitive advantage, which
we believe will help the company expand to adjacent markets such as
construction and manufacturing. We have long admired this
high-quality business, but the valuation was demanding. Its share
price declined in 2022 as part of the sell-off of growth stocks,
and we used the opportunity to take a holding.
HDFC is an Indian financial services business focused on
providing home financing. It is a well-run business with an
excellent long-term underwriting track record. We have owned HDFC
in the open-ended Positive Change Fund for many years and were able
to take a holding after completion of a protracted process required
to hold Indian securities.
During the period, we made material additions to Shopify and Nu
Holdings. Shopify provides various services, including digital
storefronts, payment, and fulfilment, that help merchants sell
online. Its share price has returned to the pre-pandemic level
despite revenues more than tripling over the past three years. The
steep share price decline in 2022 prompted several reviews,
including surveying merchants and analysing the fulfilment
opportunity. The findings supported the investment case - merchants
remained highly satisfied with Shopify, and there were no clear
alternatives. While the pandemic might have pulled forward some
demand in the short term, we remain convinced that ecommerce
penetration will continue to rise over the long term.
Nu Holdings is Latin America's leading digital bank, with over
60 million active customers. The company is helping to widen access
to financial services in a region where incumbent banks have
historically under-served a large part of society. We participated
in Nu Holdings' IPO in December 2021, and the company has been
performing well since then. In 2022, active customers increased by
49%, and revenues increased by 182%. The company is
well-capitalised, with deposits significantly higher than its loan
book. We added to the Company's holdings on the back of strong
fundamental progress.
Two holdings left the portfolio over the past six months.
Abiomed, one of the largest contributors to performance over the
period, was acquired by Johnson & Johnson in December 2022. We
also sold Berkeley Lights, a maker of single-cell sequencing
equipment. While the company has impressive technology, its
execution on commercialisation has been disappointing. The company
has pivoted its business model but with little success so far. We
decided to sell Berkeley Lights and redeploy the proceeds
elsewhere. In addition to these exits, we made modest reductions to
Alnylam, ASML, Deere, Dexcom, Moderna, and TSMC. All those
companies have performed well over the long term, and we decided to
redeploy some capital to the newer holdings and additions mentioned
previously.
Banking Exposure
The collapse of Silicon Valley Bank and Signature Bank in March
2023 caused considerable uncertainty in the financial markets.
While the Company does not invest in either bank, we felt it was
prudent to examine the potential second-order impact on the
Company's holdings. The Company's overall exposure to the
Financials sector (11.2%) is lower than the benchmark (14.9%). We
reassessed the three banks in the Company's portfolio: Bank Rakyat
Indonesia, HDFC, and Nu Holdings. Bank Rakyat Indonesia is
Indonesia's largest microfinance provider. It has a good long-term
underwriting track record, is well-capitalised, and enjoys the
support of the Indonesian government, given its importance in
improving its population's financial access. HDFC has a diverse
funding base, a strong balance sheet, and good underwriting
history. Nu Holdings, as previously discussed, is making strong
fundamental progress and is well-capitalised. We are comfortable
with the investment case for all three banks.
Beyond the banking exposure, we also analysed loss-making
businesses and those with higher levels of debt. For loss-making
businesses, the vast majority are in net cash positions and are
well-placed even if funding dries up. For businesses with higher
levels of debt, their debt is either well-matched against future
cash flow (in the case of Ørsted) or covered by assets (in the case
of Deere). The overall level of gearing for portfolio holdings is
low, with an average net debt-to-equity ratio of 0.1, compared to
0.5 for the benchmark.
Positive Conversations
We recently released the latest Positive Conversations Report,
which focuses on portfolio companies' business practices and our
engagement activities in 2022. Last year, we had 102 engagements
with 39 portfolio companies. 69% of engagements were at an
executive level, covering a range of topics, including emissions
disclosures, biodiversity, financial inclusion, supply chains, and
corporate governance. In addition to Positive Conversations, we
will be publishing our annual Impact Report in the summer. This
details how portfolio companies are contributing to a more
sustainable world through their products and services.
Peace and Prosperity
We are living through a period of rising geopolitical tensions
and conflicts, which bring investment challenges and opportunities.
On a personal level, most of us want to live in a peaceful world
free from wars and conflicts. In his book The Better Angels of Our
Nature, Steven Pinker argued that a widening of perspectives, which
helped to expand the circle of empathy, was important in reducing
violence and abolishing barbaric practices such as slavery,
witch-hunts, and torture over the past few centuries. Today,
gaining cultural perspectives might help us appreciate that people
from different parts of the world have far more in common than some
would have us believe. One company contributing to this cultural
exchange is Duolingo. More than 60 million people use Duolingo to
learn languages every month, some to improve their career
prospects, others to enjoy improved communication with people from
other countries.
Commerce is another force that can promote peace and prosperity.
Enlightenment thinkers, including Adam Smith, have long argued that
gentle commerce helps to promote liberal values and peaceful
coexistence. In his book The Moral Consequences of Economic Growth,
economist Benjamin Friedman argued that "economic growth - meaning
a rising standard of living for the clear majority of citizens -
more often than not fosters greater opportunity, tolerance of
diversity, social mobility, commitment to fairness, and dedication
to democracy." Companies such as MercadoLibre and Shopify directly
support trade and commerce, with millions of merchants using their
platforms to sell goods and services.
We do not know if or when current geopolitical tensions might
recede. However, by supporting commerce and helping people actively
widen their perspectives, we believe that the likelihood of a
peaceful future should increase.
Outlook
It has been just over two years since we were appointed the
managers for Keystone Positive Change. It has been a remarkably
volatile period, punctuated by a global pandemic, wars, supply
chain shocks, and rising inflation and interest rates. Despite
those events, the operating performance of the companies within the
portfolio has remained resilient. Over the past two years, the
portfolio companies' median annualised revenue growth rate was
18.1%, which compares favourably to the benchmark, whose median
annualised revenue growth rate was 12.7%. Examining operating
profits, the equivalent growth rates for the companies in the
portfolio and the benchmark were 16.0% and 11.9%, respectively.
Importantly, portfolio holdings have also made significant societal
contributions, including developing and rolling out vaccines for
Covid-19, supporting education during the lockdown, and building a
more sustainable energy system. We continue to be confident in the
long-term prospects of your portfolio holdings and their ability to
contribute towards a more prosperous, sustainable, and inclusive
world.
Lee Qian and Kate Fox
Portfolio Managers
3 May 2023
For a definition of terms see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
Past performance is not a guide to future performance
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 committee at
Baillie Gifford, which takes advice from an independent third party
(S&P Global). The valuations committee is independent from the
portfolio managers, as well as Baillie Gifford's Private Companies
Specialist team, with all voting members being from different
operational areas of the firm, and the portfolio managers only
receive final valuation 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. The prices
are also reviewed twice per year by the Keystone Positive Change
Board and are subject to the scrutiny of external auditors in the
annual audit process.
Continued market volatility has meant that recent pricing has
moved much more frequently than would have been the case with the
quarterly valuations cycle. Beyond the regular cycle, the
valuations committee 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 changes to the valuation of comparable
public companies.
The valuations committee 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. When market volatility is particularly
pronounced the team does these checks daily. 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.
Keystone Positive Change Investment
Trust plc
======================================
Private company investments 4
Number of private
companies revalued
2 times 2
Number of private
companies revalued
4 times 2
===================================
The average movement in both valuation and private company share
price for those which have decreased in value is shown below.
Average movement Average movement
in investee in private
company valuation company share
price
================== ================== ================
Securities valued (6%) (6%)
================== ================== ================
The share price movement reflects a probability-weighted average
of the valuation that would be realised in an IPO, and the downside
protected valuation that would normally be triggered in the event
of a corporate sale or liquidation.
Private company
Listed equities (unlisted) Net liquid Total assets
% securities assets %
% %
================== ================= ================= ============ ==============
31 March 2023 94.7 4.6 0.7 100.0
================== ================= ================= ============ ==============
30 September 2022 93.5 6.0 0.5 100.0
================== ================= ================= ============ ==============
Figures represent a percentage of total assets.
Includes holdings in ordinary shares, preference shares and
promissory notes.
Portfolio
Social Inclusion and Environment and Resource Healthcare and Quality Base of the Pyramid
Education Needs of Life
Value Value Value Value
Holding GBP'000 % Holding GBP'000 % Holding GBP'000 % Holding GBP'000 %
-------------- ------- ----- ----------- ------- ------ --------------- ------- ----- -------------- ------- -------
Bank Rakyat
MercadoLibre 12,958 7.5 Deere 7,124 4.1 Moderna 8,737 5.1 Indonesia 6,308 3.7
ASML 11,490 6.7 Xylem 5,988 3.5 Dexcom 6,985 4.1 Remitly Global 3,953 2.3
Alnylam
Shopify 7,993 4.6 Ørsted 5,262 3.1 Pharmaceuticals 6,334 3.7 Safaricom 2,566 1.5
TSMC 7,219 4.2 Novozymes 5,096 3.0 Illumina 6,032 3.5
HDFC 4,991 2.9 Umicore 4,979 2.9 Sartorius 4,691 2.7
Duolingo 3,922 2.3 Tesla 4,789 2.8 Chr. Hansen 4,558 2.6
NIBE Discovery
Nu Holdings 3,349 1.9 Industrier 4,071 2.4 Holdings 3,801 2.2
Northvolt
Coursera 1,556 0.9 AB (u) 3,930 2.3 10x Genomics 3,217 1.9
PsiQuantum 1,423 0.8 Autodesk 3,656 2.1 M3 3,035 1.8
AbCellera
FDM 1,363 0.8 Ecolab 3,159 1.8 Biologics 1,494 0.9
Climeworks
(u) 1,896 1.1 Teladoc 1,389 0.8
Spiber Peloton
(u) 749 0.4 Interactive 427 0.2
Joby
Aviation 350 0.2
-------------- ------- ----- ----------- ------- ------ --------------- ------- ----- -------------- ------- -------
56,264 32.6 51,049 29.7 50,700 29.5 12,827 7.5
-------------- ------- ----- ----------- ------- ------ --------------- ------- ----- -------------- ------- -------
Net liquid
assets 1,224 0.7
------- -------
(u) Private Company (Unlisted)
investment Total assets 172,064 100.0
------- -------
Condensed Income Statement (unaudited)
For the six months ended For the six months ended For the year ended
31 March 2023 31 March 2022 30 September 2022 (audited)
===============
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP' GBP'000 GBP'000 GBP'000 GBP' GBP'000 GBP'000 GBP'000
000 000
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Gains/(losses)
on investments - 19,505 19,505 - (40,036) (40,036) - (72,765) (72,765)
Currency
gains/(losses) - 722 722 - (147) (147) - (1,333) (1,333)
Income from
investments
and
interest
receivable 1,021 - 1,021 684 - 684 1,459 - 1,459
Investment
management fee
(note
3) (110) (331) (441) (145) (435) (580) (247) (741) (988)
Other
administrative
expenses (242) - (242) (273) - (273) (506) - (506)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Net return
before finance
costs and
taxation 669 19,896 20,565 266 (40,618) (40,352) 706 (74,839) (74,133)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Finance costs
of borrowings (104) (295) (399) (38) (97) (135) (101) (266) (367)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Net return on
ordinary
activities
before
taxation 565 19,601 20,166 228 (40,715) (40,487) 605 (75,105) (74,500)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Tax on ordinary
activities (167) (12) (179) (119) - (119) (216) - (216)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Net return on
ordinary
activities
after taxation 398 19,589 19,987 109 (40,715) (40,606) 389 (75,105) (74,716)
=============== ============ ========== ============ ============ ============ ======== ============ ============ ===============
Net return per
ordinary share
(note 4) 0.64p 31.69p 32.33p 0.17p (65.86p) (65.69p) 0.63p (121.50p) (120.87p)
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 of ordinary activities after taxation is both the profit and
total comprehensive income for the period.
Condensed Balance Sheet (Unaudited)
At 31 March At 30 September
2023 2022 (audited)
GBP'000 GBP'000
--------------------------------------- ----------- ---------------
Fixed assets
Investments held at fair value through
profit or loss (note 6) 170,840 152,067
--------------------------------------- ----------- ---------------
Current assets
Debtors 587 199
Cash and cash equivalents 1,031 962
--------------------------------------- ----------- ---------------
1,618 1,161
--------------------------------------- ----------- ---------------
Creditors
Amounts falling due within one year:
Bank loan (note 7) (14,746) (15,275)
Other creditors (382) (375)
--------------------------------------- ----------- ---------------
(15,128) (15,650)
--------------------------------------- ----------- ---------------
Net current liabilities (13,510) (14,489)
--------------------------------------- ----------- ---------------
Total assets less current liabilities 157,330 137,578
--------------------------------------- ----------- ---------------
Creditors
Amounts falling due after more than
one year:
Cumulative preference shares (note
8) (250) (250)
Provision for tax liability (note 9) (12) -
--------------------------------------- ----------- ---------------
Net assets 157,068 137,328
--------------------------------------- ----------- ---------------
Capital and reserves
Share capital (note 10) 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 145,853 126,264
Revenue reserve 540 389
--------------------------------------- ----------- ---------------
Shareholders' funds 157,068 137,328
--------------------------------------- ----------- ---------------
Net asset value per ordinary share
* 254.1p 222.2p
--------------------------------------- ----------- ---------------
* For a definition of terms see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
Statement of Changes in Equity (unaudited)
For the six months ended 31 March 2023
Share Capital
Share premium redemption Capital Revenue Shareholders'
capital account reserve Reserve reserve funds
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 - - - 19,589 398 19,987
Dividends paid during the
period (note 5) - - - - (247) (247)
---------------------------------- -------- -------- ----------- ---------- -------- -------------
Shareholders' funds at 31
March 2023 6,760 3,449 466 145,853 540 157,068
---------------------------------- -------- -------- ----------- ---------- -------- -------------
For the six months ended 31 March 2022
Share Capital
Share premium redemption Revenue Shareholders'
capital account reserve Capital Reserve reserve funds
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 - - - (40,715) 109 (40,606)
Dividends paid during the
period (note 5) - - - (2,473) - (2,473)
---------------------------------- -------- -------- ----------- ----------------- -------- -------------
Shareholders' funds at 31
March 2022 6,760 3,449 466 160,654 109 171,438
---------------------------------- -------- -------- ----------- ----------------- -------- -------------
* The Capital Reserve balance at 31 March 2023 includes
investment holding losses of GBP41,834,000 (31 March 2022
- losses of GBP36,636,000).
Condensed Cash Flow Statement (unaudited)
Six months Six months
to to
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Cash flows from operating activities
Net return before finance costs and taxation 20,565 (40,352)
Net (gains)/losses on investments (19,505) 40,036
Currency (gains)/losses (718) 141
Overseas tax incurred (94) (53)
Changes in debtors and creditors (474) (306)
Net cash inflow/(outflow) from investing
activities 732 (731)
--------------------------------------------- ---------- ----------
Net cash inflow/(outflow) from operating
activities * 506 (1,265)
--------------------------------------------- ---------- ----------
Cash flows from financing activities
Net cash inflow from drawdown of bank
loans 225 4,849
Interest and cumulative preference share
dividends paid (379) (127)
Dividends paid (247) (2,473)
--------------------------------------------- ---------- ----------
Net cash (outflow)/inflow from financing
activities (401) 2,249
--------------------------------------------- ---------- ----------
Increase in cash and cash equivalents 105 984
Exchange movements (36) (4)
Cash and cash equivalents at start of
period 962 593
--------------------------------------------- ---------- ----------
Cash and cash equivalents at end of
period 1,031 1,573
--------------------------------------------- ---------- ----------
* Cash from operating activities includes dividends received of
GBP588,000 (31 March 2022 - GBP349,000) and interest received of
GBP10,000 (31 March 2022 - nil).
Notes to the Financial Statements (unaudited)
1 Basis of Accounting
The condensed Financial Statements for the six months to 31
March 2023 comprise the statements set out above, together with the
related notes below. They have been prepared in accordance with FRS
104 'Interim Financial Reporting' and the AIC's Statement of
Recommended Practice issued in October 2019 and updated in April
2021 and July 2022 with consequential amendments. They have not
been audited or reviewed by the Auditors pursuant to the Auditing
Practices Board Guidance on 'Review of Interim Financial
Information'. The condensed Financial Statements for the six months
to 31 March 2023 have been prepared on the basis of the same
accounting policies as set out in the Company's Annual Report and
Financial Statements at 30 September 2022.
The financial information contained within this Interim
Financial Report does not constitute statutory accounts as defined
in sections 434 to 436 of the Companies Act 2006. The financial
information for the year ended 30 September 2022 has been extracted
from the statutory accounts which have been filed with the
Registrar of Companies. The Auditors' Report on those accounts was
not qualified, did not include a reference to any matters to which
the Auditors drew attention by way of emphasis without qualifying
their report, and did not contain statements under sections 498(2)
or (3) of the Companies Act 2006.
2 Going Concern
The Directors have considered the Company's principal risks and
uncertainties, as set out below, together with the Company's
current position, investment objective and policy, the level of
demand for the Company's shares, the nature of its assets, its
liabilities and projected income and expenditure. The Board has, in
particular, considered the ongoing impact of geopolitical and
macroeconomic challenges. The Company's assets, the majority of
which are investments in listed securities which are readily
realisable, exceed its liabilities significantly. The Board
approves borrowing and gearing limits and reviews regularly the
amounts of any borrowing and the level of gearing as well as
compliance with borrowing covenants. The Company has continued to
comply with the investment trust status requirements of section
1158 of the Corporation Tax Act 2010 and the Investment Trust
(Approved Company) Regulations 2011. Accordingly, the Directors
consider it appropriate to adopt the going concern basis of
accounting in preparing these condensed Financial Statements and
confirm that they are not aware of any material uncertainties which
may affect the Company's ability to continue to do so over a period
of at least twelve months from the date of approval of these
condensed Financial Statements.
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 Manager and Company Secretary with
effect from 11 February 2021. Baillie Gifford & Co Limited has
delegated the investment management services to Baillie Gifford
& Co. The Management Agreement can be terminated on three
months' notice. The annual management fee is 0.70% on the first
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
Year to
30 September
Six months Six months
to 31 March to 31 March 2022
2023 2022 (audited)
Net return per ordinary share GBP'000 GBP'000 GBP'000
-------------------------------- ------------ ------------ --------------
Revenue return on ordinary
activities after taxation 398 109 389
Capital return on ordinary
activities after taxation 19,589 (40,715) (75,105)
-------------------------------- ------------ ------------ --------------
Total net return 19,987 (40,606) (74,716)
-------------------------------- ------------ ------------ --------------
Weighted average number of
ordinary shares
in issue 61,815,632 61,815,632 61,815,632
-------------------------------- ------------ ------------ --------------
The net return per ordinary share figures are based on the above
totals of revenue and capital and the weighted average number of
ordinary shares in issue (excluding treasury shares) during each
period.
There are no dilutive or potentially dilutive shares in
issue.
5
Year to
30 September
Six months Six months
to 31 March to 31 March 2022
2023 2022 (audited)
Dividends GBP'000 GBP'000 GBP'000
------------------------------------ ------------ ------------ --------------
Amounts recognised as distributions
in the period:
Fourth interim of 4.0p paid
December 2022 - 2,473 2,473
Final dividend of 0.4p paid
February 2023 247 - -
------------------------------------ ------------ ------------ --------------
247 2,473 2,473
------------------------------------ ------------ ------------ --------------
Amounts paid and payable
in respect of the period:
Final dividend of 0.4p paid
February 2023 - - 247
------------------------------------ ------------ ------------ --------------
- - 247
------------------------------------ ------------ ------------ --------------
6 Fair Value Hierarchy
The Company's investments are financial assets held at fair
value through profit or loss. The fair value hierarchy used to
analyse the basis on which the fair values of financial instruments
held at fair value through profit or loss are measured is described
below. The levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is
significant to the fair value measurement for the individual
investment in its entirety.
Level 1 - using unadjusted quoted prices for identical
instruments in an active market;
Level 2 - using inputs, other than quoted prices included within
Level 1, that are directly or indirectly observable (based on
market data); and
Level 3 - using inputs that are unobservable (for which market
data is unavailable).
An analysis of the Company's financial asset investments based
on the fair value hierarchy described above is shown below.
Investments held at fair value through profit or loss
Level Level Level
1 2 3 Total
As at 31 March 2023 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- -------- -------- --------
Listed equities 162,842 - - 162,842
Unlisted securities - - 7,998 7,998
---------------------- -------- -------- -------- --------
Total financial asset
investments 162,842 - 7,998 170,840
---------------------- -------- -------- -------- --------
Level Level Level
As at 30 September 1 2 3 Total
2022 (audited) 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
---------------------- -------- -------- -------- --------
The fair value of listed security investments is bid price or,
in the case of FTSE 100 constituents and holdings on certain
recognised overseas exchanges, last traded price. Listed
Investments are categorised as Level 1 if they are valued using
unadjusted quoted prices for identical instruments in an active
market and as Level 2 if they do not meet all these criteria but
are, nonetheless, valued using market data. Unlisted investments
are valued at fair value by the Directors following a detailed
review and appropriate challenge of the valuations proposed by the
Managers. The Managers' unlisted investment policy applies
methodologies consistent with the International Private Equity and
Venture Capital Valuation guidelines ('IPEV'). These methodologies
can be categorised as follows: (a) market approach (multiples,
industry valuation benchmarks and available market prices); (b)
income approach (discounted cash flows); and (c) replacement cost
approach (net assets). The Company's holdings in unlisted
investments are categorised as Level 3 as unobservable data is a
significant input to their fair value measurements.
7 Bank Loans
The Company has a 3 year GBP25 million multicurrency unsecured
floating rate facility with The Royal Bank of Scotland
International Limited which expires on 31 August 2024. At 31 March
2023 drawings were as follows: US$9.0 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 June 2023 (30 September 2022 -
US$8.7 million and GBP7.5 million maturing in December 2022).
8 Cumulative Preference Shares
Long term creditors include 250,000 5% cumulative preference
shares of GBP1 each. The preference shares dividend is paid
bi-annually, in March and September.
9 Provision for Tax Liability
The tax liability provision at 31 March 2023 of GBP12,000 (30
September 2022 - nil) relates to a potential tax liability for
Indian capital gains tax that may arise on the Company's Indian
investments should they be sold in the future, based on the net
unrealised taxable gain at the period end and on enacted Indian tax
rates. The amount of any future tax amounts payable may differ from
this provision, depending on the value and timing of any future
sales of such investments and future Indian tax rates.
10
At 31 March At 30 September
2023 2022 (audited)
----------------------------
Share Capital: allotted,
called up
and fully paid Number GBP'000 Number GBP'000
---------------------------- ---------- ------- ---------- -------
Ordinary shares of 10p each
in issue 61,815,632 6,182 61,815,632 6,182
Ordinary shares of 10p each
held in treasury 5,778,363 578 5,778,363 578
---------------------------- ---------- ------- ---------- -------
67,593,995 6,760 67,593,995 6,760
---------------------------- ---------- ------- ---------- -------
In the six months to 31 March 2023, the Company transacted no
buybacks and issued no new shares (six months to 31 March 2022 - no
shares bought back, none issued).
At 31 March 2023 the Company had authority to buy back 9,266,163
ordinary shares on an ad hoc basis as well as a general authority
to issue shares and an authority to issue shares or sell shares
from treasury on a non pre-emptive basis up to an aggregate nominal
amount of GBP618,156. In accordance with authorities granted at the
last Annual General Meeting in February 2023, buy-backs will only
be made at a discount to net asset value and the Board has
authorised use of the issuance authorities to issue new shares or
sell shares from treasury at a premium to net asset value, in both
cases in order to enhance the net asset value per share for
existing shareholders and improve the liquidity of the Company's
shares.
11 Related Party Transactions
There have been no transactions with related parties during the
first six months of the current financial year that have materially
affected the financial position or the performance of the Company
during that period and there have been no changes in the related
party transactions described in the last Annual Report and
Financial Statements that could have had such an effect on the
Company during that period.
None of the views expressed in this document should be construed
as advice to buy or sell a particular investment.
Principal Risks and Uncertainties
The principal and emerging risks facing the Company are: the
risk that the Company's strategy and business model are
unsuccessful in achieving its investment objective;
discount/premium risk; financial risk; gearing risk; operational
risk; custody and depositary risk; climate and governance risk;
political and associated economic risk; and regulatory risk. An
explanation of these risks and how they are managed is set out on
pages 23 to 25 of the Company's Annual Report and Financial
Statements for the year to 30 September 2022 which is available on
the Company's website: keystonepositivechange.com ++. The principal
risks and uncertainties have not changed materially since the date
of that report.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement.
None of the views expressed in this document should be construed
as advice to buy or sell a particular investment.
The Interim Financial Report will be available on the Company's
page of the Managers' website keystonepositivechange.com ++ on or
around 12 May 2023.
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express or implied, as to the accuracy, completeness or timeliness
of the data contained herewith nor as to the results to be obtained
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to any recipient of the data for any inaccuracies, errors or
omissions in the index data included in this document, regardless
of cause, or for any damages (whether direct or indirect) resulting
therefrom.
No Provider has any obligation to update, modify or amend the
data or to otherwise notify a recipient thereof in the event that
any matter stated herein changes or subsequently becomes
inaccurate.
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suffered by you as a result of or in connection with any opinions,
recommendations, forecasts, judgements, or any other conclusions,
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whether or not based on the content, information or materials
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MSCI Index Data
Source: MSCI. The MSCI information may only be used for your
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and may not be used as a basis for or a component of any financial
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does
not have direct impact in the UK following Brexit. However, it
applies to third-country products marketed in the EU. As Keystone
Positive Change Investment Trust plc is marketed in the EU by the
AIFM, BG & Co Limited, via the National Private Placement
Regime ('NPPR'), the following disclosures have been provided to
comply with the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles
and Guidelines as its policy on integration of sustainability risks
in investment decisions.
Detail on the Investment Manager's approach to sustainability
can be found in the ESG Principles and Guidelines document,
available publicly on the Baillie Gifford website
(bailliegifford.com).
Keystone Positive Change Investment Trust plc has sustainable
investment as its objective while seeking capital growth over the
long term. Pursuant to Article 9 of the Sustainable Finance
Disclosure Regulation, it aims to invest in companies whose
products and/or services make a positive impact.
No index has been designated as a reference sustainable
benchmark against which the product can be measured to determine if
it is meeting its sustainable investment objective. However,
Baillie Gifford & Co has developed a robust approach using its
in-depth knowledge of companies to measure the impact of
sustainable investments. A positive change impact report is
published annually and is publicly available on the Baillie Gifford
website. This report shows how each company in the portfolio is
delivering positive change through its products and services. Key
metrics for each individual company in relation to the contribution
made by their products or services to the four impact themes and
their contribution to the Sustainable Development Goals are
included in the report.
The Regulatory Technical Standards ('RTS') under SFDR which
specify the details of the content and presentation of information
regarding the transparency of sustainable investments in the
Company's financial reports apply from 1 January 2023. As such,
more information will be included in the Annual Report to meet
these requirements.
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework or
criteria for environmentally sustainable economic activities in
respect of six environmental objectives. It builds on the
disclosure requirements under SFDR by introducing additional
disclosure obligations in respect of AIFs that invest in an
economic activity that contributes to an environmental
objective.
The Company invests predominantly in shares of companies whose
products or services make a positive social or environmental
impact. A portion of these companies are in economic activities
that contribute to environmental objectives including those that
are covered by the Taxonomy Regulation's Technical Screening
Criteria. The level of Taxonomy alignment will be reported as part
of the annual report but the expected minimum level of Taxonomy
alignment is at least 1 per cent. The 'do no significant harm'
principle applies only to those investments underlying the Company
that take into account the criteria for environmentally sustainable
economic activities. The investments underlying the remaining
portion of the Company do not take into account the EU criteria for
environmentally sustainable economic activities.
Glossary of Terms and Alternative Performance Measures
('APM')
Total Assets
The total value of all assets held less all liabilities (other
than liabilities in the form of borrowings).
Net Asset Value
When a Company's borrowings are all short-term, flexible
facilities, Net Asset Value (NAV) equates to shareholders' funds,
being the value of all assets held less all liabilities (including
borrowings). Per share amounts are calculated by dividing the
relevant figure by the number of ordinary shares in issue
(excluding shares held in treasury). For the current and prior
period, the difference between borrowings at book value, borrowings
at par and borrowings at market value is negligible and no
reconciliation between NAV at book/ par value and NAV at fair value
is provided, as the NAV per share is the same on both bases.
Net Asset Value Per Share (APM)
At 30 September
At 31 March 2022
2023 (audited)
------------------------------------ ---------- -------------- ---------------
Shareholders' funds (Net Asset
Value) a GBP157,068,000 GBP137,328,000
Ordinary shares in issue (excluding
treasury shares) b 61,815,632 61,815,632
------------------------------------ ---------- -------------- ---------------
(a ÷
Net asset value per share b x 100) 254.1p 222.2p
------------------------------------ ---------- -------------- ---------------
Discount/Premium (APM)
An investment trust's share price is rarely the same as its NAV.
When the share price is lower than the NAV per share it is said to
be trading at a discount. The size of the discount is calculated by
subtracting the 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.
Net Liquid Assets
Net liquid assets comprises current assets less current
liabilities excluding borrowings.
Total Return (APM)
The total return is the return to shareholders after reinvesting
the net dividend on the date that the share price goes ex-dividend.
In periods where no dividend is paid, the total return equates to
the capital return.
31 March 31 March 30 September 30 September
2023 2023 2022 2022
NAV Share NAV Share price
price
--------------------------- ---------- -------- -------- ------------ ------------
Closing NAV/price per
share a 254.1p 211.0p 222.2p 192.8p
Dividend adjustment
factor* b 1.0017 1.0020 1.01228 1.01242
Adjusted closing NAV/price
per share c = a x b 254.5p 211.4p 224.9p 195.2p
Opening NAV/price per
share d 222.2p 192.8p 347.0p 344.0p
--------------------------- ---------- -------- -------- ------------ ------------
(c ÷
Total return d) -1 14.6% 9.7% (35.2%) (43.3%)
--------------------------- ---------- -------- -------- ------------ ------------
* The dividend adjustment factor is calculated on the assumption
that the dividends paid by the Company during the period were
reinvested into shares of the Company at the cum income NAV/share
price at the relevant ex-dividend date.
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other
public company, an investment trust can borrow money to invest in
additional investments for its portfolio. The effect of the
borrowing on the shareholders' assets is called 'gearing'. If the
Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the
value of the Company's assets falls, the situation is reversed.
Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gross gearing, also referred to as potential gearing is the
Company's borrowings expressed as a percentage of shareholders'
funds (a ÷ c in the table below).
Net gearing, also referred to as invested gearing is borrowings
at book value less cash and cash equivalents (any certificates of
deposit are not deducted) and brokers' balances expressed as a
percentage of shareholders' funds (b ÷ c in the table below).
31 March 30 September
2023 2022
-------------------------------- --------- -------------- --------------
Borrowings (at book cost) a GBP14,996,000 GBP15,525,000
Less: cash and cash equivalents (GBP1,031,000) (GBP962,000)
Less: sales for subsequent
settlement - -
Add: purchases for subsequent
settlement - -
-------------------------------- --------- -------------- --------------
Adjusted borrowings b GBP13,965,000 GBP14,563,000
-------------------------------- --------- -------------- --------------
Shareholders' funds c GBP157,068,000 GBP137,328,000
-------------------------------- --------- -------------- --------------
a ÷
Gross gearing c 9.5% 11.3%
-------------------------------- --------- -------------- --------------
b ÷
Net gearing c 8.9% 10.6%
-------------------------------- --------- -------------- --------------
Active Share (APM)
Active share, a measure of how actively a portfolio is managed,
is the percentage of the portfolio that differs from its
comparative index. It is calculated by deducting from 100 the
percentage of the portfolio that overlaps with the comparative
index. An active share of 100 indicates no overlap with the index
and an active share of zero indicates a portfolio that tracks the
index.
Treasury Shares
The Company has the authority to make market purchases of its
ordinary shares for retention as treasury shares for future
reissue, resale, transfer, or for cancellation. Treasury shares do
not receive distributions and the Company is not entitled to
exercise the voting rights attaching to them.
Private (Unlisted) Company
A private or unlisted company means a company whose shares are
not available to the general public for trading and are not listed
on a stock exchange.
- Ends -
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