Annual Financial Report

RNS Number : 2678J

Keystone Positive Change I.T. PLC

09 December 2022

 

Keystone Positive Change Investment Trust plc (KPC)

Legal Entity Identifier: 5493002H3JXLXLIGC563

Regulated Information Classification: Annual Financial and Audit Reports

Annual Report and Financial Statements

Further to the preliminary statement of audited annual results announced to the Stock Exchange on 30 November 2022, Keystone Positive Change Investment Trust plc ("the Company") announces that the Company's Annual Report and Financial Statements for the year ended 30 September 2022, including the Notice of Annual General Meeting, has today been submitted electronically to the National Storage Mechanism where it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

It is also available on the Company page of the Baillie Gifford website at: www.keystonepositivechange.com (as is the preliminary statement of audited annual results announced by the Company on 30 November 2022).

Covid-19 coronavirus - arrangements for the Annual General Meeting (AGM)

The Company anticipates welcoming shareholders in person to the Annual General Meeting (AGM) of the Company at the offices of Baillie Gifford & Co, Grimaldi House, St James's Square, SW1Y 4JH on Wednesday, 8 February 2023, at 1.15pm. Notwithstanding the relaxation of government controls, Covid-19 related rules might tighten at short notice in the event of a winter resurgence, restricting the meeting to the minimum number. The Board therefore encourages all shareholders to exercise their votes at the AGM by completing and submitting a form of proxy; and to monitor the Company's website at www.keystonepositivechange.com where any updates will be posted.  Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome as always to submit them by email to [e-mail] or call 0800 917 2112. Baillie Gifford may record your call.

Responsibility Statement of the Directors in respect of the Annual Financial Report

The Directors confirm that, to the best of their knowledge:

¾ the Financial Statements set out in the Annual Report and Financial Statements, which have been prepared in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) including FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾ the Strategic Report set out in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces (as also set out below); and

¾ the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

Principal Risks relating to the Company

 

As explained on pages 32 and 33 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, regulatory compliance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below.

The Board considers the ongoing Covid-19 pandemic, current geopolitical tensions, energy price rises and climate transition to be factors which exacerbate existing risks, rather than discrete risks, within the context of an investment trust. Their impact is considered within the relevant risks.

Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance in terms of impact and shareholder returns; the level of discount/premium to net asset value at which the shares trade; and movements in the share register, and raises any matters of concern with the Managers.

Discount/Premium Risk - the price at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the reasons for movements in either direction. The Board has a range of options available to address widening discounts and/or premiums, including reviewing the investment strategy or marketing approach. The Company also has authority to buy back or issue shares when deemed by the Board to be in the best interests of the Company and its shareholders.

Financial Risk - the Company's assets consist mainly of listed securities and its principal and emerging financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 19 to the Financial Statements on pages 59 to 63 of the Annual Report and Financial Statements. In order to oversee this risk, the Board considers at each meeting the composition and diversification of the portfolio by impact theme and holding size, along with sales and purchases of investments. Individual investments are discussed with the investment managers together with their general views on the various investment markets and sectors. A strategy meeting is held annually. The Board has, in particular, considered the impact of heightened market volatility during the Covid-19 pandemic and over recent months owing to macroeconomic and geopolitical concerns. The value of the Company's investment portfolio would be affected by any impact, positively or negatively, on sterling but such impact would be partially offset by the effect of exchange movements on the Company's US$ denominated borrowings.

Gearing Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts. To mitigate this risk, all borrowings require the prior approval of the Board and gearing levels are discussed by the Board and investment managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in listed securities that are readily realisable. Further information on gearing can be found on page 2, and the Glossary of Terms and Alternative Performance Measures on page 74, of the Annual Report and Financial Statements.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption (including any disruption resulting from the Covid-19 pandemic) or major disaster. Baillie Gifford staff continued to work from home to maintain a business-as-usual service throughout the Covid-19 pandemic. Following the removal of Covid-19 restrictions by the Scottish and UK Governments, a hybrid model is now operating, with staff determining the most appropriate split between working from home and working in the office, which ensures ongoing resilience. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board and a summary of the key points is reported to the Audit Committee and any concerns investigated. In the year under review, the other key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated.

Climate and Governance Risk - as investors place increased emphasis on Environmental, Social and Governance (ESG) issues, perceived inaction on ESG matters in an investee company could lead to that company's shares being less attractive to investors, adversely affecting its share price, in addition to potential valuation issues arising from any direct impact of the failure to address the ESG weakness on the operations or management of the investee company (for example a failure to identify a pathway to Net Zero or poor employment practices). Repeated failure by the Investment Manager to identify ESG weaknesses in investee companies could lead to the Company's own shares being less attractive to investors, adversely affecting its own share price. This is mitigated by the Manager's strong ESG stewardship and engagement policies, which have been endorsed by the Company, and which are fully integrated into the investment process, as well as the extensive up-front and ongoing due diligence which the Investment Manager undertakes on each investee company. This due diligence includes assessment of the risks inherent in climate change (see page 34 of the Annual Report and Financial Statements).

Political and Associated Economic Risk - political change in areas in which the Company invests or may invest may increasingly have practical consequences for the Company. To mitigate this risk, developments are closely monitored and considered by the Board. The Board has particular regard to repercussions from the Russian invasion of Ukraine, and ongoing tensions between the US and China, and monitors portfolio diversification by revenue stream where appropriate, as well as by investee companies' primary location, to mitigate against the negative impact of military

action or trade barriers.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the FCA Listing Rules and the Companies Act could lead to the Company being subject to tax on capital gains, suspension of the Company's Stock Exchange listing, financial penalties, or a qualified audit report. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances, representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

Emerging Risks - as explained on page 32 of the Annual Report and Financial Statements, the Board has regular discussions on principal risks and uncertainties, including any risks which are not an immediate threat but could arise in the longer term. The Board considers that the key emerging risks arise from the interconnectedness of global economies and the related exposure of the investment portfolio to emerging threats such as the societal and financial implications of geopolitical tensions, energy price rises or supply failures, climate transition, food insecurity, cyber risk, and new coronavirus variants or similar public health threats. These are mitigated by the Investment Manager's close links to the investee companies and their ability to ask questions on contingency plans. The Investment Manager believes the impact of such events may be to slow the pace of growth rather than to invalidate the investment rationale over the long term.

Baillie Gifford & Co Limited

Company Secretaries

9 December 2022

 

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