TIDMKPC
RNS Number : 6581T
Keystone Positive Change I.T. PLC
26 November 2021
RNS Announcement: Preliminary Results
-------------------------------------
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 2021
-----------------------------------------
Over the year to 30 September 2021, the Company's net asset
value (NAV) total return* was 17.3% compared to a total return of
24.5% for the Comparative Index (in sterling terms). The share
price total return for the same period was 40.9% as the discount
narrowed from 17.3% to 0.9%.
3/4 Baillie Gifford took over the management of the portfolio on
11 February 2021 and the portfolio was transitioned to Baillie
Gifford's Positive Change portfolio of global companies.
3/4 Investments have been made in three private companies: Northvolt, Spiber and PsiQuantum.
3/4 The Board believes that the Company is well positioned for
long-term success, with a differentiated investment objective that
will attract new investors.
* With borrowings at fair (market) value
Past performance is not a guide to future performance. Total
return information is sourced from Baillie Gifford/ Refinitiv. 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' 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 GBP 346 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. See disclaimer at
the end of this announcement.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement.
26 November 2021
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2000
Mark Knight, Four Communications
Tel: 0203 697 4200 or 07803 758810
The following is the Preliminary Results Announcement for the
year to 30 September 2021 which was approved by the Board on 25
November 2021.
Chairman's Statement
====================
We have experienced a prolonged period of unprecedented change
on both a global and domestic scale. National governments adopted a
range of interventions in response to the evolving Covid-19
pandemic, and to extreme weather events. Households adapted to home
working and home schooling, and businesses responded to survive
these challenging demands. Your Board oversaw a significant
transition for the Company, of both investment objective and new
management, with the ambition of making Keystone Positive Change
instrumental in the search for solutions to the challenges that
have been brought sharply into focus over recent months.
Management Arrangements
The Board announced in December 2020 that it had undertaken a
strategic review and had concluded that, for the Company to address
investors' evolving priorities, it would move to a global impact
mandate backing some of the world's most innovative and sustainable
businesses. It also announced that it had conducted a competitive
tender for the Company's investment management. At a General
Meeting on 10 February 2021, shareholder approval was given to
appoint Baillie Gifford as Investment Managers and to adopt their
Positive Change strategy for long-term capital growth by
encouraging a more sustainable and inclusive world. Their open
ended strategy invests in companies that offer solutions to global
challenges in areas such as healthcare, education, social inclusion
and the environment. The Keystone Positive Change strategy has been
tailored to take advantage of the Company's investment trust
structure by investing in less liquid listed companies, while up to
30% of the portfolio may be invested in private companies. The new
investment objective and policy are set out in full on page 20 of
the Annual Report and Financial Statements.
The Company's name, London Stock Exchange ticker and web address
were respectively changed to Keystone Positive Change Investment
Trust plc, KPC and keystonepositivechange.com .
The portfolio was reorganised completely in the second half of
February 2021. At 30 September 2021, the new portfolio comprises 36
[*] investments, of which three are private companies, details of
which are on the following pages. Further information on individual
investments is included in the Managers' Report.
The Positive Change team is led by Kate Fox and Lee Qian.
Michelle O'Keeffe and Edward Whitten are the two senior impact
analysts who complete this team of four key decision makers for
your Company's investments. They are supported by four analysts and
three portfolio advisers, as well as Peter Singlehurst, head of
Baillie Gifford's private companies team.
Performance
Over the year to 30 September 2021, the Company's net asset
value ('NAV') per share total return was 17.3% compared to 24.5%
for the comparative index, being a composite index comprising the
movement on the FTSE All-Share Index to 10 February 2021 and the
movement on the MSCI All Country World Index in sterling terms
thereafter.
The share price total return was 40.9% over the year to 30
September 2021, as the discount narrowed from 17.3% to 0.9%. The
Company has experienced improved secondary market liquidity in its
shares since the change of strategy and manager was announced in
December 2020. The average daily volume of shares traded in the
period following the change has been more than double that in the
prior year, driven largely by increased private investor demand. We
are pleased to see this constituency becoming a more significant
part of our register.
The following table shows performance over the financial year,
segmented into the periods to 10 February 2021 under the management
of Invesco Fund Managers Limited, and afterward under Baillie
Gifford. The significant narrowing of the discount and the
consequential impact on share price performance largely occurred in
December 2020.
Total return
11 February 1 October
1 October 2020 2021 to 2020 to 30
to 10 February 30 September September
2021 2021 2021
NAV 14.2% 2.8% 17.3%
Share price 35.8% 3.8% 40.9%
Index [
] 14.2% 9.0% 24.5%
Our timing in adopting a new investment strategy and changing
the portfolio coincided with stock market volatility that worked
against the Company in the short term. However, as a Board, we take
a long-term view in assessing the Company's delivery against its
dual objectives and are confident that the changes will drive
success.
Impact
The Company is focused on listed and private companies for whom
solving a social or environmental challenge is core to their
business. It positively and proactively aims to invest in
exceptional companies whose products, behaviour and/or services
create a meaningful improvement to the status quo. Companies held
in the portfolio must be making a significant contribution to
solving global challenges 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).
The Managers' impact analysis is based on robust, bottom-up
research that is independent from, but complementary to, the
investment analysis. Further details on the Managers' approach can
be found on the following pages.
The Company will publish an annual Impact Report on the
contribution that companies within the portfolio have made towards
a more sustainable and inclusive world. It will show the
portfolio's overall contribution to the 17 UN Sustainable
Development Goals. The Impact Report in respect of the calendar
year to 31 December 2021 will be published in mid-2022. For a
flavour of what this report will look like, we would encourage you
to read Baillie Gifford's Positive Change Impact Report and the
Positive Conversations Report for 2020, which have been published
for the Baillie Gifford Positive Change fund.
Gearing
The Company started the financial year with net gearing of 10.4%
[++] under a revolving credit facility provided by The Bank of New
York Mellon. This facility was repaid before the 10 February, when
the mandate was transferred to Baillie Gifford. In September 2021,
the Company entered into a three year, GBP25 million multi-currency
revolving credit facility provided by The Royal Bank of Scotland
International Limited. At 30 September 2021, GBP10 million had been
drawn down under this facility and net gearing stood at 4.6%.
Costs
Under the new 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. Baillie Gifford waived
their management fee for the first six months following their
appointment.
The ongoing charges for the year were 0.51% (and without the
Baillie Gifford fee waiver would have been 0.82%). Last year the
ongoing charges were 0.55%. The Board expects the Company to grow,
and benefit increasingly from the lower rate of management fee at
the upper tier as it does so. The higher base fee recognises the
Managers' investment of time and resource in pursuit of the
Company's twin objectives, and the Board is confident that
long-term performance, both in financial and impact terms, will
justify the increase in running costs in the meantime. No
performance fee is payable under the new management arrangements,
as it potentially was under the previous Investment Management
Agreement.
Dividend
The new investment objective and policy will result in returns
from the Company's portfolio being generated predominantly from
capital growth. As such, the Company expects to pay a significantly
lower level of dividend in future. To mitigate the impact on
shareholder income in the short term, the Board utilised the
Company's reserves to maintain the dividend level in respect of the
financial year to 30 September 2021. A fourth interim dividend of
4.0p will therefore be paid on 24 December 2021 to shareholders on
the register on 3 December 2021, being the last dividend payment in
respect of the year to 30 September 2021, and in accordance with
the dividend policy approved at the Annual General Meeting held on
10 February 2021.
It is proposed that the Company's dividend policy is amended for
2022, such that no interim dividends will be paid, and any annual
dividend will be paid only to the extent needed for the Company to
maintain its investment trust status.
Discount and Share Buy Backs
In the two months to the end of November 2020, the Company
bought back 423,735 shares into treasury at a cost of GBP1.1
million and a weighted average discount to NAV of 17.1%. At 30
September 2021, 5,778,363 shares were held in treasury. Such shares
have no voting rights and are not entitled to dividends. They are
available for reissue when market conditions permit, being a price
representing a premium to the prevailing NAV and, as such,
accretive to existing shareholders.
The discount to NAV at which the shares have traded narrowed
considerably following the announcement of the proposed appointment
of Baillie Gifford in December 2020. At 30 September 2021, the
discount was 0.9% compared with 17.3% at the start of the financial
year.
The Board
Having served for over ten years, John Wood intends to retire
from the Board at the AGM. We would like to thank John for his
significant and wise contribution to the Company and for his hard
work on behalf of shareholders. The Board has appointed Nurole to
assist the Board in identifying a new non-executive Director with
the skills and experience necessary to complement existing
Directors. We hope to announce the new appointment before the AGM.
All Directors are subject to annual re-election at the AGM.
Annual General Meeting
Provided current Government Covid-19 rules remain as they are,
we anticipate welcoming shareholders to the AGM in London in
February 2022. However, given that rules may tighten at short
notice, restricting the meeting to the minimum number to ensure it
is quorate, I ask shareholders nevertheless to submit their votes
by proxy before the applicable deadline on 7 February 2022 and to
submit any questions for the Board or Manager in advance by email
to trustenquiries@bailliegifford.com or by calling 0800 917 2112
(Baillie Gifford may record your call). This will not impede your
subsequent attendance in person should you wish if regulations
permit. Developments with regard to Covid-19 rules will be closely
monitored and any changes will be announced to the London Stock
Exchange regulatory news service and made available at
keystonepositivechange.com .
Outlook
We have selected a well-resourced, experienced and committed
team to implement the Keystone Positive Change strategy and deliver
its twin objectives. Long-term growth potential and the ability to
address social and environmental challenges must be inherent in the
businesses they invest in on your behalf.
The Board believes that the Company is well positioned for
long-term success with a differentiated investment objective that
will attract new investors and help increase the size of the
Company. Its strategy has been designed to make the best use of the
unique features of the investment trust structure, through the
employment of gearing and by investing in public and private
companies. We thank our long-term shareholders for their valued
ongoing support and welcome all new shareholders.
Karen Brade
Chairman
25 November 2021
Past performance is not a guide to future performance. Total
return information is sourced from Baillie Gifford/ Refinitiv. 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' Report
================
Change
We were delighted to become the Managers of the Company in
February of this year, following the Board's bold decision to adopt
a radical and positive change. Radical in transforming from a UK
value-oriented strategy to a global growth strategy, and positive
in adopting an objective that is not just seeking to deliver
attractive investment returns but one that also seeks to contribute
towards a more sustainable and inclusive world for us to retire
into and for our grandchildren's children to thrive in.
The Company has undergone a change of name and a change of
mandate. For your Managers, it has provided a welcome change in
that the closed-ended structure means we have the opportunity to
invest in private companies. This provides all of us with the
ability to contribute to change not just through long-term and
supportive capital but also by providing primary capital.
Our world is changing, and change needs to happen but must be
directed for the better. Despite some tremendous progress over the
years which has led to poverty rates declining, longer life
expectancy and exciting technological discoveries, our world is
facing several significant challenges that are complex and often
interlinked, from climate change and biodiversity loss to global
pandemics and persistent inequalities. These challenges have been
stark this year, with wild fires, heat domes and extreme flooding
highlighting the pace at which our weather systems are changing as
our home, planet earth, gets perilously warmer. Covid-19 has
highlighted how climate change, biodiversity loss and human habits
are bringing animal viruses closer to humans and that the way we
live - globalisation and urbanisation - is hastening the spread of
disease. We have all been in this pandemic but in different boats -
those without access to digital devices have fallen behind as
education moved online and access to vaccines is not yet
universal.
Our academic partners at the University of Sussex and Utrecht
University articulate it well and with a refreshingly long time
horizon. They describe the previous 250 years as the First Deep
Transition, encompassing five great surges of development or
technological revolutions: the mechanisation of the cotton
industry; the age of steam and railways; electricity and heavy
engineering; oil, automobiles and mass production; and telecoms and
information. This transition provided great industrial progress and
created great wealth but also wicked problems, to which the
response will be the Second Deep Transition as we undo the wrongs
created over the last 250 years. As we strive to meet the
Sustainable Development Goals that aim to address climate change,
reduce inequalities and build a more prosperous and peaceful world
by 2030, the United Nations describe this as the Decade of Action -
but could it be (at least) the century of action?
This might sound rather downbeat. However, we are (concerned)
optimists. The world is achieving breakthrough science and
technological discoveries at an unprecedented pace; and these
breakthroughs will reshape how we live and how we care for our
environment.
We thank the Board for the bold changes it made in February and
we look forward to driving positive change with you, our
shareholders.
Your Portfolio
Your portfolio invests in 36 companies whose products and
services are providing solutions to four impact themes: social
inclusion and education, environment and resource needs; healthcare
and quality of life; and base of the pyramid (addressing the basic
and aspirational needs of poorer members of society). We invest
with a long-term time horizon - at least five years - and would
encourage that we are judged over rolling five year periods.
We are delighted to provide you with an update on portfolio
activity over the course of the eight months we have been managing
the portfolio as a means to introduce you to the companies we
invest in on your behalf and some of the exciting areas we are
researching.
We need to rapidly decarbonise energy generation. As the world's
largest offshore wind farm operator, Ørsted plays an important role
in the shift towards more renewable energy sources and is a key
contributor to making wind generated energy cost effective through
its adoption of larger turbines, its standardisation of the supply
chain and innovative ways of maintaining and operating wind farms.
Given the long runway for growth and its market leadership, we have
added to our position during the period. Renewable energy
generation will enable electrification in many industries, the most
prominent one currently being transportation. Along with supportive
legislation and government funding, Tesla has played an incredibly
important role in catalysing action in the traditionally sleepy
automotive industry. Sales of pure electric and plug-in hybrid
passenger vehicles are on track to double in 2021, taking
penetration up to nearly 9% compared to just 3% two years ago and
it is worth highlighting the extremes - Norway's electric vehicle
("EV") penetration is circa 75%. Not only has Tesla helped shift an
industry into action, it has made terrific operational and
financial progress at pace over recent years. It is a great example
of how investment returns and positive change are complementary.
Last year the company delivered nearly half a million vehicles and
has delivered nearly 630,000 so far this year; profitability has
improved despite reducing the price of its vehicles; and it
established a factory in China in less than ten months. This has
been accompanied by tremendous share price appreciation. We like to
run our winners to capture the asymmetry inherent in stock markets,
but we are also vigilant in testing our hypothesis and Tesla was no
exception. Through our most recent analysis we concluded that the
probability of Tesla meeting our investment hurdle (we seek
companies with scope to double over five years with a significant
growth opportunity thereafter) has reduced following share price
appreciation. The investment thesis from here is more reliant upon
success in less developed and potentially exciting opportunities
such as energy storage and autonomous vehicles. As such, we reduced
the position during the period.
Batteries are a key enabler of the shift from fossil fuels in
transportation (and other industries) and are a key differentiator
for automotive manufacturers as they can determine price and
performance. We were delighted to have the opportunity to
participate in Northvolt's recent private funding round as it
embarks on its ambition to become Europe's largest manufacturer of
EV batteries and to produce the world's greenest batteries by using
renewable energy and recycled raw materials. The company, founded
and led by an ex-Tesla engineer, has already secured contracts with
several leading automotive manufacturers as it embarks on this
ambitious journey. Electrification in the transportation sector is
not limited to ground transportation. There is a great deal of
investment and innovation going into developing electric flying
vehicles (the technical term being electric vertical take-off and
landing vehicles, or eVTOLs). Joby Aviation has developed a
prototype electric flying taxi which could transform city
transportation while reducing emissions, saving commuter time and
freeing up more green space. We provided primary capital that will
be used to help it commercialise its product.
Over the years we have discussed and researched what a
sustainable food system might look like, with a growing
appreciation of the complexities around food security, resource
degradation and human health. Deere, which is best known for its
iconic green tractors, is helping address the challenge of ever
more mouths to feed while reducing the environmental implications
of farming through its precision agriculture products. For example,
its 'see and spray' technology uses cameras, sensors and machine
learning to determine what is plant and what is weed and then
applies herbicides accordingly, both increasing crop yields and
reducing the use of herbicides, sometimes by up to 80%. As our
conviction in the opportunity in precision agriculture increases,
we have added to the holding.
We are living in a material world but the current system is
unsustainable - we can't continue on this linear system of
extraction, use and disposal, particularly of materials derived
from petrochemicals. We need to use better materials and keep goods
in the system for longer - we need to move from a linear to a
circular economy. Northvolt joined Umicore in the portfolio as a
company intent on recycling batteries from EVs (Umicore is already
the world's largest recycler of precious metals), so helping us
move to a circular system. Spiber is an exciting private Japanese
company we recently invested in which uses synthetic biology
(applying engineering techniques to biology to make products with
desirable properties) to make biodegradable fibres that share the
attractive qualities of animal fibres (such as cashmere) or
petrochemical based products. It is early days for Spiber, but we
are encouraged by its vertically integrated approach, its progress
to date in preparing for scaling production and the partnerships it
has established which ought to help it commercialise novel fibres
that are more sustainable alternatives to the status quo.
Synthetic biology could have broad and profound implications
across many industries - we could be on the verge of an industrial
revolution, enabled by our deeper understanding of biology and
tools that help us read, edit and write DNA. Such tools also have
scope to improve our understanding, diagnosis and treatment of
diseases. Within our healthcare and quality of life theme we have
unearthed some exciting companies such as the recently purchased
AbCellera, a single cell screening company helping improve the
speed, and potentially the quality, of antibody discovery, thus
helping reduce the time and costs associated with developing
antibody therapies. It played a key role in the antibody discovery
process for Eli Lily's antibody therapy for Covid-19. AbCellera
joins a handful of companies in the portfolio which provide tools
and services that aid understanding of biology and diseases.
Investments that address the healthcare and quality of life impact
theme vary - from vaccine provider Moderna (our largest holding) to
Peloton, another recent purchase. Through a combination of its
content, hardware and brand, Peloton has carved out a unique
position in the interactive fitness market and has a huge runway
for growth as it strives to reach 100m subscribers. By reducing the
friction of keeping fit, Peloton is helping prevent the onset of
several conditions such as heart disease and diabetes.
In 1997, Kofi Annan, the former Secretary-General of the United
Nations said that 'knowledge is power. Information is liberating.
Education is the premise of progress, in every society, in every
family'. Finding an education provider that meets both of our
objectives has been challenging over the years, so we are delighted
to have participated in the IPO of Coursera, an online platform
providing a range of educational content from short courses to
online degrees. Coursera is unique for appealing to different
stakeholders in the education system: learners, academic partners
and corporations. Its 87 million registered learners help it
attract content (from both academic and corporate partners) which
in turn attracts more users. By providing online content, Coursera
is helping improve access to learning through lower costs and
greater convenience and helping provide relevant qualifications in
an ever evolving job market.
PsiQuantum is another private company we have supported by
participating in its recent fundraising. PsiQuantum is developing a
quantum computer. Quantum computing could be one of the most
important innovations of the 21st century as its extreme
(unthinkable!) processing power could solve complex challenges from
drug development to climate change - it could revolutionise
industries and create entirely new ones.
Additions and purchases have been spread across three of our
four impact themes with the Base of the Pyramid impact theme
remaining challenging to identify companies that meet our dual
objectives. We have been researching financial inclusion as a means
to improve resilience and create opportunity, along with associated
microfinance and remittance companies that could perhaps join
existing holdings such as Bank Rakyat Indonesia and Safaricom, a
Kenyan mobile operator and provider of the M-Pesa payments system,
in addressing the needs of those with lower incomes.
In addition to the reduction in Tesla, we sold the positions in
Alphabet and Glaukos. Our two objectives are of equal importance so
there are no compromises. Our conviction in Alphabet's potential to
deliver positive change through providing access to information has
largely played out, its 'Other Bets' which could have driven change
have underwhelmed and while progress has been made in its business
practices in some respects such as its climate commitments and tax,
its approach to ethics in Artificial Intelligence ("AI") and
monopolistic behaviours are disappointing. In contrast to Alphabet,
the reason for selling Glaukos concerned our conviction in the
investment case, in particular the competitive environment in novel
ways to treat glaucoma. We also reduced the position in M3, which
provides online doctors' portals, and NIBE, a leading provider of
ground source heat pumps. For both of these companies the valuation
had outpaced the fundamentals and so we trimmed the positions to
bring them more in line with our level of enthusiasm while putting
the proceeds to good use in some of the companies mentioned
above.
There are several interesting areas of research and a number of
companies mentioned here which might give the impression of high
turnover. However, please be reassured that despite it being a
rather fruitful period to find new ideas, the turnover of your
portfolio remains in line with our long-term investment
horizon.
The Future
We don't make any attempts to predict the direction of bond
yields or markets. Rather, we try to understand what the next waves
of innovation might be and what implications they might have for
society and our planet over the next 5, 10 or 25 years. It feels as
if we are on the cusp of several waves of innovation and
transformation, including the energy transition, electrification, a
material revolution, genetics, AI and quantum computing. Each of
these waves in isolation are exciting; in combination, they could
be incredibly powerful.
Our focus is on identifying the wave makers - the companies
driving change and disrupting the status quo - and to play our role
in helping the development and scaling of innovative solutions to
global challenges by providing long term and supportive capital,
something which has sadly become increasingly scarce over the
years. By doing so, we step up to our responsibility in steering
towards a more sustainable and inclusive future and can identify
exceptional businesses that will deliver attractive returns for
shareholders. We thank you for joining us on what we believe to be
an important and rewarding journey for savers, people and our
planet.
Kate Fox
Lee Qian
25 November 2021
Past performance is not a guide to future performance.
Total return information is sourced from Baillie
Gifford/Refinitiv. 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.
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 below, 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. We review
the themes on a regular basis.
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 business practices or 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. 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.
Investment 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.
1. 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.
2. 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.
3. 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:
1. What change is the company driving?
2. What is the scale of the growth opportunity and how might it
evolve over time?
3. What is required to unlock the opportunity and how quickly
can the company capitalise on it?
4. What is the competitive edge and how might it develop?
5. What attributes of the culture, governance, and management
attitude will support or detract from the company's ability to
capitalise on the opportunity?
6. What are the financial characteristics today and how might
they evolve?
7. What might the company look like and what might its valuation
be in 5 to 10 years?
8. What will it take to be an outlier?
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 underappreciated. 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.
4. 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; Business
Practices; and Product Impact.
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.
5. Portfolio construction - Investment and impact considered in tandem
The Positive Change team meet 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 four decision
makers: two Investment Managers: Kate Fox and Lee Qian, and two
Senior Impact Analysts: Michelle O'Keeffe and Edward Whitten. Every
stock must have the backing of an Investment Manager and at least
one Senior Impact Analyst. 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.
6. 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 don't 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
don't intend for 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.
Investment Portfolio by Impact Theme as at 30 September 2021
============================================================
Social Value % Environment Value % Healthcare and Value % Base of Value %
Inclusion GBP'000 and GBP'000 Quality of Life GBP'000 the GBP'000
and Education Resource Pyramid
Needs
ASML 16,996 7.6 Tesla 11,505 5.1 Moderna 30,071 13.4 Safaricom 6,588 2.9
Bank
Rakyat
TSMC 11,841 5.3 Umicore 7,539 3.4 Dexcom 10,683 4.7 Indonesia 4,652 2.1
NIBE
MercadoLibre 11,252 5.0 Industrier 7,512 3.3 Illumina 9,090 4.0
Shopify 5,853 2.6 Deere 7,312 3.3 M3 7,581 3.4
Alnylam
Coursera 3,761 1.7 Ørsted 7,084 3.1 Pharmaceuticals 5,792 2.6
Alibaba 3,087 1.4 Xylem 6,104 2.7 10x Genomics 5,052 2.2
FDM 2,282 1.0 Novozymes 4,174 1.9 Abiomed 5,046 2.2
PsiQuantum 1,483 0.7 Ecolab 3,440 1.5 Sartorius 4,953 2.2
Beyond Meat 3,003 1.3 Chr. Hansen 4,263 1.9
Northvolt
AB 2,066 0.9 Teladoc 3,883 1.7
Discovery
Spiber 1,097 0.5 Holdings 3,809 1.7
Joby Peloton
Aviation 745 0.3 Interactive 2,537 1.1
AbCellera
Biologics 1,485 0.7
Berkeley Lights 843 0.4
Total 56,555 25.3 61,581 27.3 95,088 42.2 11,240 5.0
Net
liquid
assets 417 0.2
-------- ----- ------------ -------- ----- ---------------- -------- ----- ---------- -------- ------
Total
assets 224,881 100.0
-------- ----- ------------ -------- ----- ---------------- -------- ----- ---------- -------- ------
For a definition of terms used, see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
List of Investments at 30 September 2021
========================================
Fair value % of total Cumulative % of
Name Business Impact theme* GBP'000 assets total assets
================= ============================== =============== ============ ================ ================
Moderna Messenger RNA therapeutics Healthcare 30,071 13.4
Supplier to semiconductor
ASML industry Social 16,996 7.6
TSMC Semiconductor manufacturer Social 11,841 5.3
Electric cars and renewable
Tesla energy solutions Environment 11,505 5.1
Latin American ecommerce
MercadoLibre platform and fintech Social 11,252 5.0
Dexcom Continuous glucose monitoring Healthcare 10,683 4.7
Illumina Gene sequencing equipment Healthcare 9,090 4.0
M3 Online medical services Healthcare 7,581 3.4
Global materials technology
Umicore and recycling Environment 7,539 3.4
NIBE Industrier Sustainable energy solutions Environment 7,512 3.3 55.2
Deere Agricultural equipment Environment 7,312 3.3
Ørsted Renewable energy Environment 7,084 3.1
Telecommunications and mobile
Safaricom payments Base 6,588 2.9
Xylem Innovative water solutions Environment 6,104 2.7
Shopify Online commerce platform Social 5,853 2.6
Alnylam
Pharmaceuticals Biotechnology Healthcare 5,792 2.6
10x Genomics Life science technology Healthcare 5,052 2.2
Abiomed Medical implant manufacturer Healthcare 5,046 2.2
Biopharmaceutical and
Sartorius laboratory tooling Healthcare 4,953 2.2
Bank Rakyat
Indonesia Bank Base 4,652 2.1 81.1
Chr. Hansen Biological solutions Healthcare 4,263 1.9
Novozymes Biological solutions Environment 4,174 1.9
Teladoc Healthcare services provider Healthcare 3,883 1.7
Discovery Life and health insurance
Holdings provider Healthcare 3,809 1.7
Coursera Online learning Social 3,761 1.7
Water, hygiene and infection
Ecolab prevention services Environment 3,440 1.5
Online retailing and
Alibaba financial services Social 3,087 1.4
Beyond Meat Plant-based meat alternatives Environment 3,003 1.3
Peloton Connected home fitness
Interactive technology Healthcare 2,537 1.1
IT-focused professional
FDM services provider Social 2,282 1.0 96.3
Battery developer and
Northvolt AB (u) manufacturer Environment 2,066 0.9
AbCellera
Biologics Antibody drug discovery tools Healthcare 1,485 0.7
Silicon photonic quantum
PsiQuantum (u) computing Social 1,483 0.7
Spiber (u) Novel protein biomaterials Environment 1,097 0.5
Berkeley Lights Life science technology Healthcare 843 0.4
Joby Aviation Electric aircraft Environment 745 0.3
Pharmaceuticals and
Motif Bio (u) biotechnology Legacy - -
Pharmaceuticals and
Jaguar Health biotechnology Legacy - -
================= ============================== =============== ============ ================ ================
Total Equities 224,464 99.8 99.8
================================================================== ============ ================ ================
Net Liquid Assets 417 0.2
================================================================== ============ ================ ================
Total Assets 224,881 100.0 100.0
================================================================== ============ ================ ================
* A bbreviated as follows: Heathcare - Healthcare and Quality of
Life; Social - Social Inclusion and Education; Environment -
Environment and Resource Needs; Base - Base of the Pyramid. Legacy
investments are residual investments from the portfolio transferred
from Invesco.
(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.
Income statement
================
For the year ended For the year ended
30 September 2021 30 September 2020
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
==================================================== ========= ========= ========= ========= ========= =========
Gains/(losses) on investments (note 2) - 30,478 30,478 - (40,377) (40,377)
Currency gains/(losses) - 859 859 - (473) (473)
Income 2,353 - 2,353 5,848 - 5,848
Investment management fee (note 3) (150) (451) (601) (192) (576) (768)
Other administrative expenses (427) (166) (593) (453) (133) (586)
==================================================== ========= ========= ========= ========= ========= =========
Net return before finance costs and taxation 1,776 30,720 32,496 5,203 (41,559) (36,356)
Finance costs of borrowings (50) (111) (161) (321) (5,795) (6,116)
==================================================== ========= ========= ========= ========= ========= =========
Net return on ordinary activities before taxation 1,726 30,609 32,335 4,882 (47,354) (42,472)
Tax on ordinary activities (121) - (121) (67) - (67)
==================================================== ========= ========= ========= ========= ========= =========
Net return on ordinary activities after taxation 1,605 30,609 32,214 4,815 (47,354) (42,539)
==================================================== ========= ========= ========= ========= ========= =========
Net return per ordinary share (note 4) 2.60p 49.49p 52.09p 7.41p (72.87p) (65.46p)
==================================================== ========= ========= ========= ========= ========= =========
Note:
Dividends per share paid and payable in respect of
the year (note 5) 11.20p 11.20p
==================================================== ========= ========= ========= ========= ========= =========
The total column of this statement represents the profit and
loss account of the Company. The supplementary revenue and capital
columns are prepared under guidance issued by the Association of
Investment Companies.
All revenue and capital items in this statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as the
Company does not have any other comprehensive income and the net
return on ordinary activities after taxation is both the profit and
total comprehensive income for the year.
Balance sheet
=============
At 30 September 2021 At 30 September 2020
GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss (note 6) 224,464 210,738
================================================================ ===================== =====================
Current assets
Debtors 132 54
Cash and cash equivalents 593 620
================================================================ ===================== =====================
725 674
================================================================ ===================== =====================
Creditors
Amounts falling due within one year (note 7) (10,422) (20,837)
Net current liabilities (9,697) (20,163)
================================================================ ===================== =====================
Total assets less current liabilities 214,767 190,575
================================================================ ===================== =====================
Creditors
Amounts falling due after more than one year (note 7) (250) (250)
Net assets 214,517 190,325
================================================================ ===================== =====================
Capital and reserves
Share capital 6,760 6,760
Share premium account 3,449 3,449
Capital redemption reserve 466 466
Capital reserve 203,842 174,808
Revenue reserve - 4,842
================================================================ ===================== =====================
Total shareholders' funds 214,517 190,325
================================================================ ===================== =====================
Ordinary shares in issue (note 9) 61,846,509 64,983,327
================================================================ ===================== =====================
Statement of changes in equity
==============================
For the year ended 30 September 2021
Capital
Share Share premium redemption Shareholders'
capital account reserve Capital reserve Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================= =========== ================ ================ ================ ================ ==============
Shareholders'
funds at 1
October 2020 6,760 3,449 466 174,808 4,842 190,325
Net return on
ordinary
activities
after taxation - - - 30,609 1,605 32,214
Ordinary shares
bought back and
held in
treasury (note
9) - - - (1,100) - (1,100)
Dividends paid
during the year
(note 5) - - - (475) (6,447) (6,922)
================= =========== ================ ================ ================ ================ ==============
Shareholders'
funds at 30
September 2021 6,760 3,449 466 203,842 - 214,517
================= =========== ================ ================ ================ ================ ==============
For the year ended 30 September 2020
Capital
Share 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 2019 6,760 3,449 466 239,073 7,858 257,606
Net return on
ordinary
activities after
taxation - - - (47,354) 4,815 (42,539)
Ordinary shares
bought back and
held in treasury
(note 9) - - - (16,911) - (16,911)
Dividends paid
during the year
(note 5) - - - - (7,831) (7,831)
=================== =========== =================== ================== ================ ========= ==============
Shareholders'
funds at 30
September 2020 6,760 3,449 466 174,808 4,842 190,325
=================== =========== =================== ================== ================ ========= ==============
Cash flow statement
===================
Year ended 30 September 2021 Year ended 30 September 2020
GBP'000 GBP'000 GBP'000 GBP'000
==================================================== ================ ============= =============== ==============
Cash flows from operating activities
Net return before finance costs and taxation 32,496 (36,356)
Tax on overseas income (111) (67)
Adjustments for:
Purchases of investments (360,107) (84,580)
Sale of investments 376,529 101,538
================ ============= =============== ==============
16,422 16,958
Scrip dividends - (217)
(Gains)/losses on investments held at fair value (30,478) 40,377
Movement in unrealised currency gains and losses (183) 377
(Increase)/decrease in debtors (88) 484
(Decrease)/increase in creditors (89) 46
Net cash inflow from operating activities 17,969 21,602
==================================================== ================ ============= =============== ==============
Cash flow from financing activities
Interest and facility fee paid on bank facility and
overdraft (150) (111)
Interest paid on debenture and bonds - (1,668)
Preference dividends paid (12) (12)
Bank facility (repaid)/drawn down and overdraft
repaid (9,833) 19,180
Redemption of debenture and bonds - (36,836)
Shares bought back and held in treasury (1,100) (16,911)
Net equity dividends paid (6,922) (7,831)
Net cash outflow from financing activities (18,017) (44,189)
==================================================== ================ ============= =============== ==============
Net decrease in cash and cash equivalents (48) (22,587)
Exchange movements 21 -
Repayment of overdraft 650 -
Cash and cash equivalents at start of the year (30) 22,557
==================================================== ================ ============= =============== ==============
Cash and cash equivalents at the end of the year 593 (30)
==================================================== ================ ============= =============== ==============
Reconciliation of cash and cash equivalents to the
Balance Sheet is as follows:
Cash held at custodian 593 620
Bank overdraft - (650)
==================================================== ================ ============= =============== ==============
Cash and cash equivalents 593 (30)
==================================================== ================ ============= =============== ==============
Cash flows from operating activities includes:
Dividends received 2,298 5,723
Interest received - 1
==================================================== ================ ============= =============== ==============
Notes to the financial statements
=================================
1. The Financial Statements for the year to 30 September 2021 have been prepared in accordance
with FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'
and 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 on investments: 2021 2020
GBP'000 GBP'000
===================================================================== ================ ===============
Realised gains/(losses) on sales 4,060 (22,005)
Changes in investment holding gains 26,418 (18,372)
========================================================================== ================ ===============
Total gains on investments and losses 30,478 (40,377)
========================================================================== ================ ===============
3. 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 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, based on market capitalisation, which 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. Baillie Gifford & Co Limited have waived the first six months'
fee following the transfer of the mandate from Invesco. Invesco Fund Managers Limited received
a management fee in respect of each of the quarterly periods ending on 31 March, 30 June,
30 September and 31 December each year of 0.1125% calculated on the average value of the market
capitalisation of the Company's shares for the ten business days ending on the relevant quarter
end date. The final fee payable by the Company to Invesco Fund Managers Limited was for the
period from 1 January to 7 March 2021.
========================================================================================================
4. Net Return per Ordinary Share 2021 2020
===================================================================== ================ ===============
Revenue return 2.60p 7.41p
Capital return 49.49p (72.87p)
========================================================================== ================ ===============
Total return 52.09p (65.46p)
========================================================================== ================ ===============
Revenue return per ordinary share is based on the net revenue return on ordinary activities
after taxation of GBP1,605,000 (2020 - GBP4,815,000) and on 61,846,509 (2020 - 64,983,327)
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 GBP30,609,000 (2020 - loss of GBP47,354,000) and on 61,846,509 (2020 - 64,983,327) 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.
=============================================================================================================
Notes to the financial statements (ctd)
=======================================
5. Ordinary Dividends 2021 2021 2020 2020
p GBP'000 p GBP'000
=========================================== ================= ================== ============== ==========
Amounts recognised as distributions in the
year:
Fourth interim dividend in lieu of a final
dividend (prior year) 4.00 2,473 4.00* 2,704
Special dividend (prior year) - - 0.734* 496
First interim dividend 2.40 1,483 2.40 1,592
Second interim dividend 2.40 1,483 2.40 1,537
Third interim dividend 2.40 1,483 2.40 1,502
11.20 6,922 11.934 7,831
* Restated following the sub-division of each existing ordinary share of 50p into five ordinary
shares of 10p each on 13 February 2020.
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
GBP1,605,000 (2020 - GBP4,915,000).
==============================================================================================================
2021 2021 2020 2020
p GBP'000 p GBP'000
=========================================== ================= ================== ============== ==========
Amounts paid and payable in respect of the
financial year:
First interim dividend 2.40 1,483 2.40 1,592
Second interim dividend 2.40 1,483 2.40 1,537
Third interim dividend 2.40 1,483 2.40 1,502
Fourth interim dividend 4.00 2,473 4.00 2,473
================================================= ================= ================== ============== ==========
Total 11.20 6,922 11.20 7,104
================================================= ================= ================== ============== ==========
6. As at 30 September 2021 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================================= ==================== ================= =============== =================
Listed equities 219,818 - - 219,818
Unlisted equities - - 4,646 4,646
Total financial asset investments 219,818 - 4,646 224,464
======================================= ==================== ================= =============== =================
As at 30 September 2020 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
================================= ==================== ================= =============== =================
Listed equities 210,713 - - 210,713
Unlisted equities - - 25 25
Total financial asset investments 210,713 - 25 210,738
======================================= ==================== ================= =============== =================
Investments in securities are financial assets held at fair value through profit or loss.
In accordance with Financial Reporting Standard 102, the preceding tables 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 2021 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.
==============================================================================================================
7. Creditors falling due within one year include drawings under the following borrowing facilities:
Borrowing facilities
At 30 September 2021 the Company had a 3 year GBP25 million multi-currency unsecured floating
rate revolving facility with Royal Bank of Scotland International, which expires on 31 August
2024.
At 30 September 2021 drawings were as follows:
Royal Bank of Scotland International: US$6.9 million at an interest rate of 1.25% over SOFR
and GBP5 million at an interest rate of 1.25% over SONIA, both maturing in December 2021 (2020
- GBP19.2 million at an interest rate of 0.67323% drawn under a facility with Bank of New
York Mellon).
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.
==============================================================================================================
Par, Book and Market 2021 2021 2021 2020 2020 2020
Value of Borrowings Par Book value Market value Par value Book value Market
value GBP'000 GBP'000 GBP'000 GBP'000 value
GBP'000 GBP'000
======================= ======== ============== ================= ============ ============== ==========
Bank loans due within one
year 10,114 10,114 10,114 19,180 19,180 19,180
5% cumulative preference
shares 250 250 248 250 250 246
10,364 10,364 10,362 19,430 19,430 19,426
============================= ======== ============== ================= ============ ============== ==========
8. Shareholders' Funds per ordinary share 2021 2020
=========================================== ================= ===== ==================== =================
Shareholders' funds GBP214,517,000 GBP190,325,000
Number of ordinary shares in issue at the year
end 61,815,632 62,239,367
================================================= ================= ===== ==================== =================
Shareholders' funds per ordinary share 347.0p 305.8p
================================================= ================= ===== ==================== =================
The shareholders' funds figures above have been calculated after deducting borrowings at book
value, in accordance with the provisions of FRS 102. For the current and 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.
====================================================================================================================
9. In the year to 30 September 2021, the Company issued no ordinary shares. 423,735 shares were
bought back during the year over 14 separate occasions at an average price of 257.8p (2020
- 5,354,628) and held in treasury for subsequent re-issue or cancellation. At 30 September
2021 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. The purchases and sales proceeds figures above include transaction costs of GBP137,000 (2020
- GBP323,000) and GBP226,000 (2020 - GBP56,000) respectively. The Company received GBP376,529,000
(2020 - GBP101,392,000) from investments sold during the year. The book cost of these investments
when they were purchased was GBP372,693,000 (2020 - GBP123,397,000). 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. Of the realised gains on sales of investments during
the year of GBP4,060,000 (2020 - loss of GBP22,005,000), a net loss of GBP152,000 was included
in investment holding losses at the previous year end.
==============================================================================================================
11. The financial information set out above does not constitute the Company's statutory accounts
for the years ended 30 September 2021 or 2020 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the Registrar of Companies and those for 2021 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. Related Parties and Transactions with the Managers
The Directors' fees and shareholdings are detailed in the Directors' Remuneration Report on
pages 36 and 37 of the Annual Report and Financial Statements. No Director has a contract
of service with the Company. During the year no Director was interested in any contract or
other matter requiring disclosure under section 412 of the Companies Act 2006.
Baillie Gifford & Co Limited has been appointed as the Company's Alternative Investment Fund
Manager ('AIFM') and Company Secretaries. Details of the terms of the Investment Management
Agreement are set out on page 26 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.
==============================================================================================================
13. The Report and Accounts will be available on the Managers' website keystonepostivechange.com
(++) on or around 10 December 2021.
==============================================================================================================
++ 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
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) as per note 8 above. For the
current and 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 fair value is provided, as the NAV per
share is the same on both bases.
2021 2020
===================================================== ================== ============== ==============
Shareholders' funds (Net Asset Value) a GBP214,517,000 GBP190,325,000
Ordinary shares in issue (excluding treasury shares) b 61,815,632 62,239,367
Net asset value per share (a ÷ b x100) 347.0p 305.8p
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's
share price is rarely the same as its NAV. When the share price is
lower than the NAV per share it is said to be trading at a
discount. The size of the discount is calculated by subtracting the
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 comprise current assets less current
liabilities (excluding borrowings).
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.
2021 2021 2020 2020
NAV Share NAV Share
price price
=========================================== ================= ====== ====== ======= =======
Closing NAV per share/share price (a) 347.0p 344.0p 305.8p 253.0p
Dividend adjustment factor* (b) 1.0338 1.0360 1.0350 1.0407
Adjusted closing NAV per share/share price (c = a x b) 358.7p 356.4p 316.5p 263.3p
Opening NAV per share/share price (d) 305.8p 253.0p 372.5p 308.0p
=========================================== ================== ====== ====== ======= =======
Total return (c ÷ d) - 1 17.3% 40.9% (15.0%) (14.5%)
=========================================== ================== ====== ====== ======= =======
* The dividend adjustment factor is calculated on the assumption
that the dividends of 11.2p (2020 - 11.934p) paid by the Company
during the year was 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 fair value), as detailed below.
2021 2020
========================================= =========== ============== ==============
Investment management fee GBP601,000 GBP768,000
Other administrative expenses GBP593,000 GBP586,000
Less: non-recurring expenses (GBP166,000) (GBP169,000)
----------------------------------------- ----------- -------------- --------------
Total expenses a GBP1,028,000 GBP1,185,000
Average daily cum-income net asset value b GBP202,840,000 GBP217,052,000
========================================= =========== ============== ==============
Ongoing charges a ÷ b 0.51% 0.55%
========================================= =========== ============== ==============
Baillie Gifford & Co Limited was appointed on 11 February
2021 and agreed to waive its management fee for six months from the
date of its appointment. The calculation for 2021 above is
therefore not representative of future management fees. The
reconciliation below shows the ongoing charges figure if the
management fee waiver had not been in place.
2021 2020
========================================= =========== ============== ==============
Investment management fee GBP601,000 GBP768,000
Investment management fee waiver GBP643,000 -
Other administrative expenses GBP593,000 GBP586,000
Less: non-recurring expenses (GBP166,000) (GBP169,000)
----------------------------------------- ----------- -------------- --------------
Total expenses a GBP1,671,000 GBP1,185,000
Average daily cum-income net asset value b GBP202,840,000 GBP217,052,000
========================================= =========== ============== ==============
Ongoing charges a ÷ b 0.82% 0.55%
========================================= =========== ============== ==============
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).
2021 2020
========================================= =========== ============== ==============
Borrowings (at book cost) GBP10,364,000 GBP19,430,000
Less: cash and cash equivalents a (GBP593,000) GBP30,000
Less: sales for subsequent settlement - -
Add: purchases for subsequent settlement - GBP330,000
----------------------------------------- ----------- -------------- --------------
Adjusted borrowings b GBP9,771,000 GBP19,790,000
Shareholders' funds c GBP214,517,000 GBP190,325,000
========================================= =========== ============== ==============
Gearing b ÷ c 4.6% 10.4%
========================================= =========== ============== ==============
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers
(AIFM) Directive, 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.
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.
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Regulated Information Classification: Annual Financial and Audit Reports.
- ends -
[*] Excluding two legacy investments held at nil value.
[ ] Composite index comprising the FTSE All Share until
10/2/2021 when it changed to the MSCI ACWI.
[++] Recalculated using current methodology - see Glossary of
Terms and Alternative Performance Measures (APM)
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END
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