Keystone Positive Change Investment Trust plc (KPC)

Regulated Information Classification: Annual Financial and Audit Reports

Legal Entity Identifier: 5493002H3JXLXLIGC563

Results for the year to 30 September 2024

Over the year to 30 September 2024, the Company's net asset value per share (NAV) total return was 2.2% compared to a total return of 20.4% for the Comparative Index† (in sterling terms). The share price total return for the same period was 13.5% as the discount narrowed from 14.0% to 4.6%.

Past performance is not a guide to future performance. Total return information is sourced from Baillie Gifford/LSEG. See disclaimer at the end of this announcement. For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Keystone Positive Change Investment Trust plc ('Keystone Positive Change', 'Keystone' or 'the Company') aims to generate long term capital growth with the aim of the NAV total return exceeding that of the MSCI AC World Index in sterling terms by at least 2% per annum over rolling five year periods; and to contribute towards a more sustainable and inclusive world by investing in the equities of companies whose products or services make a positive social or environmental impact. The performance target stated is in no way guaranteed. Capital growth takes priority over income and dividends. Keystone is managed by Baillie Gifford & Co, an independent fund management group, which has around £224 billion under management and advice.

Keystone is a listed UK company. The value of its shares and any income from them can fall as well as rise and investors may not get back the amount invested. The Company is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority. You can find up to date performance information about Keystone at keystonepositivechange.com‡. Past performance is not a guide to future performance.

† The MSCI All Country World Index (in sterling terms) is the principal index against which performance is measured.

‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

26 November 2024

For further information please contact:

Alex Blake, Baillie Gifford & Co - Tel: +44 (0)131 275 2000

Jonathan Atkins, Four Communications - Tel: +44 (0)203 920 0555 or 07872 495396

Nathan Brown or Matt Goss, Deutsche Numis - Tel: +44 (0)20 7260 1000

The following is the Preliminary Results Announcement for the year to 30 September 2024 which was approved by the Board on 26 November 2024.

Chair's statement

Since February 2021, Keystone Positive Change Investment Trust plc ('Keystone Positive Change', 'Keystone' or 'the Company') has had two objectives of equal importance: to generate attractive long-term capital returns through investment in public and private markets and to contribute towards a more sustainable and inclusive world by investing in companies whose products or services make a positive social or environmental impact. The Positive Change team at Baillie Gifford has an investment horizon of five years and beyond to allow these structural themes to play out. It is therefore disappointing to write to shareholders in the knowledge that the Company may not survive beyond its fourth anniversary of adopting this strategy.

Performance

Over the year to 30 September 2024, the Company's net asset value ('NAV') total return was +2.2% compared to +20.4% for its benchmark, the MSCI All Country World Index (in sterling terms). Over the same period, the share price total return was +13.5%.

The first half of the year, to 31 March 2024, offered encouraging signs of improved performance, with total returns of +10.7% for the NAV, +13.5% for the share price and +16.3% for the comparative index. The second half of the year proved more challenging, with the NAV losing much of its first half gain and the share price remaining flat.

Since the Company adopted its investment strategy in February 2021, NAV total return (to 30 September 2024) has been -26.9%, share price total return -29.2%, while the index has delivered +40.3% over the same period. The Board recognises that these shareholder returns are very disappointing and that in order to meet the Company's investment objective of the NAV total return exceeding that of the MSCI All Country World Index in sterling terms by at least 2% per annum over rolling five-year periods, the portfolio would have to deliver significant outperformance for the two years to 30 September 2026 to make up the accumulated shortfall. The Board has, of course, been monitoring performance from the outset, and the Positive Change strategy has historically succeeded in delivering such outsize returns, most recently while benefiting from the pandemic recovery, when portfolio companies such as Moderna were producing life-saving vaccines on an unprecedentedly expedited timeline. The Company repositioned the portfolio in line with the current investment strategy at a peak valuation point for growth stocks and since then the macroeconomic environment has been far less supportive of early‑stage, innovative businesses of the type that form this Company's investment universe. Such companies are, the Board believes, essential for the world to see the climate, biodiversity and social progress that it needs, but have been out of favour with investors.

Commentary on the performance of individual companies held in the portfolio during the last twelve months is provided in the Managers' Review.

Scheme of Reconstruction

On 9 September 2024, following a series of meetings with the Company's brokers and Managers, the Company released an announcement indicating that, although the Board remained confident in the long‑term prospects for the strategy, it recognised that there had been a challenging period of performance during a difficult backdrop for the investment trust sector. It noted that over the previous 12 months the Board had taken several steps with a view to enhancing value for shareholders including introducing a share buyback programme, setting a continuation vote for February 2027 and increasing marketing activity. It nonetheless concluded that the interests of shareholders might be best served by implementing a transaction in the near term to address the size of the Company, the low liquidity in the Company's shares and the discount at which they have been trading, while enabling shareholders to retain exposure to a global impact strategy.

As indicated in that announcement, the Board then consulted more widely with shareholders and explored the Company's options, including a rollover into the Baillie Gifford Positive Change Fund, an FCA authorised open-ended investment company with assets of c.£1.8bn, substantially all of which is invested in the same portfolio of listed equities as the Company. During that process, particular attention was paid to addressing the illiquidity of the Company's five private company investments, which comprised 3.6% of total assets as at 30 September 2024.

On 30 September 2024, the Company released an announcement confirming that, having considered additional feedback from shareholders, and the Company's options to retain exposure to a global impact strategy, the Board had decided to propose a Scheme of Reconstruction and winding-up of the Company (the 'Scheme') under which shareholders would have the option to receive shares in the Baillie Gifford Positive Change Fund, or an uncapped cash exit at a modest discount to the formula asset value (the 'FAV') calculated for the purposes of the Scheme.

The detailed proposals in respect of the Scheme are contained in a separate Circular and shareholders are directed towards that document for the calculation of their entitlements under the Scheme. In view of this proposal, no Notice of Annual General Meeting is included in this Annual Report and Financial Statements for the year to 30 September 2024. Shareholders are encouraged to vote their shares at the General Meetings to be held in respect of the Scheme and as set out in the Circular.

Impact

The Company invests in listed and private companies that address a social or environmental challenge. Companies held in the portfolio must be positioned to make a significant contribution to solutions in one of four impact areas: social inclusion and education; environment and resource needs; healthcare and quality of life; and base of the pyramid (addressing the needs of the poorest four billion people in the world).

For a company to merit inclusion in the portfolio, it must meet both the anticipated financial return hurdle and the impact criteria. Further details of the Managers' approach are provided in their Review on the following pages.

In August 2024, the Company published its third Impact Report, monitoring and measuring the impact that the products and services provided by companies within the portfolio are having on society and the environment. The Impact Report is available on the Company's website, together with its companion document Positive Conversations, which outlines engagement on investee companies' business practices.

Amid a backdrop of uncertainty, the Board continues to believe that investing for positive change is both important and full of opportunity and hopes that shareholders will carefully consider the option to rollover their holding in this Company to the Baillie Gifford Positive Change Fund, which has also adopted a Sustainability Impact label, as set out in the Scheme of Reconstruction detailed above.

Discount

Over the year to 30 September 2024 the discount narrowed from 14.0% to 4.6%, although the Board recognises that this improvement in rating is primarily a function of the announcements made on 9 and 30 September, which are discussed above, rather than a sign of renewed market enthusiasm for the investment strategy.

During the year the Board commenced a buyback programme to provide additional liquidity for shareholders seeking an exit and unable to find it through natural market channels. The Company bought back 2,635,645 shares representing 4.3% of share capital at a cost of £5.8 million and an average discount of 12.8%. Although such transactions are accretive to NAV per share for ongoing shareholders, adding approximately 0.5% over the period, the Directors weighed this benefit against concerns regarding the impact of asset shrinkage on the ongoing charges ratio and medium-term reduction in liquidity in the Company's shares when assessing the appropriate quantum.

Gearing

The Company started the financial year with net gearing of 10.1%, having drawn down £15 million of a £25 million multi-currency revolving credit facility provided by The Royal Bank of Scotland International Limited. This facility expired at the end of August 2024 and was replaced by a £20 million uncommitted facility with The Bank of New York Mellon (International) Limited. At 30 September 2024, net gearing stood at 8.7%, with the only adjustments to drawings being currency rebalancing on the US$ tranche but slightly higher retained cash balances reducing net gearing exposure. The Company is expected to continue to maintain a modest level of structural gearing, which should enhance shareholder returns, for as long as remains practicable within the context of the proposed Scheme of Reconstruction.

Costs

Under the current management arrangements, the annual management fee is 0.70% on the first £100 million of market capitalisation, 0.65% on the next £150 million of market capitalisation and 0.55% on the remaining market capitalisation. As the fee is calculated on market capitalisation, the Managers receive a smaller fee when the Company's shares are trading at a discount to NAV than they would if the fee was charged on net assets.

Ongoing charges for the year to 30 September 2024 were 1.02% (2023 - 0.90%), with the increase being attributable to both the decline in the asset base noted above and one-off professional fees incurred with respect to the 2024 AGM; the recruitment of a new Director, from which we will unfortunately not now be able to benefit; and renewal of the loan facility.

Dividend

The Company's capital growth-focused portfolio is not selected to generate a significant or regular income stream. Dividends will be paid only to the extent needed to maintain the Company's investment trust status. In accordance with the dividend policy, the Board is declaring an interim dividend of 0.10p per share (2023 - 0.45p per share) in lieu of a final dividend in respect of the year to 30 September 2024. A further interim dividend of 0.35p per share, calculated to exceed the minimum distribution required for the period from 1 October 2024 to the contemplated Scheme of Reconstruction implementation date, will accompany it. Both dividends will be paid on 31 December 2024 to shareholders on the register at close of business on 13 December 2024, to minimise administrative costs associated with such payments.

Board appointments

Last year, the Board indicated that, as part of the normal process of refreshment, Ian Armfield would not seek re-election at the AGM to be held in 2025. The Board therefore commenced a recruitment process to identify his successor and on 19 August the Company announced the appointment of Ranjan Ramparia with effect from 1 October 2024, to succeed Ian as Audit Chair on his retirement. Events have, unfortunately, overtaken the succession‑planning process and the announcement released on 30 September 2024 and discussed in more detail above confirmed that Ms Ramparia would not now join the Board, in view of its probably limited future requirements. The Board thanks her for her engagement with the Company and is sorry not to benefit from her contribution.

The Company is compliant with the FCA's gender representation requirements on company boards, which target that at least 40% of directors will be women and at least one of the senior positions will be held by a woman. The recent recruitment process had a shortlist that comprised 44% women and 56% candidates of a non-white ethnic background.

Outlook

The Board retains a high degree of conviction in the Positive Change strategy and believes it is well suited to an investment trust structure which enables the Managers to access the significant impact opportunities available from committing primary capital to private companies and investing in less liquid public companies for the long term. However, we recognise that the Company has not received sufficient support from shareholders to allow the current strategy the time needed to play out over the period to the February 2027 continuation vote that we recently introduced. The Board has therefore reluctantly agreed to propose the Scheme, which will provide shareholders with an opportunity to continue their investment through the rollover option.

Should the General Meetings planned for early next year, as set out in the Shareholder Circular, not result in the Scheme of Reconstruction being completed, the Company will in due course convene an Annual General Meeting to consider the resolutions necessary for the Company to continue.

Karen Brade

Chair

26 November 2024

Past performance is not a guide to future performance. Total return information is sourced from Baillie Gifford/LSEG. See disclaimer at the end of this announcement.

For a definition of terms used see Glossary of Terms and Alternative Performance Measures towards the end of this announcement.

Managers' review

The global backdrop remains complex, dynamic and uncertain. Geopolitical tensions persist: the world feels fragile. We have emerged from a period of rapid interest rate rises to one where all eyes are on inflation and growth data points to determine if - and to what extent - policy makers will make further reductions to interest rates. 2024 is a record year for elections around the world, with none being more significant than the outcome of the US election in November.

Against this backdrop, we remain resolute and consistent in the philosophy that underpins the Company's two objectives - to deliver attractive investment returns and to contribute towards a healthier and more inclusive and environmentally sustainable world. Unfortunately, the challenges of our time such as climate change, the burden of disease, and inequalities, persist. These challenges require solutions. Fortunately, thanks to human ingenuity and entrepreneurship, there are companies developing solutions to such challenges. And here lies the opportunity: the providers of solutions will experience rising demand for their products and services - they will thrive - and companies that grow faster deliver the greatest outperformance.

This means that rather than trying to predict the next 25 basis point move in interest rates or the outcome of the US elections, we remain focused on understanding structural and secular trends such as the energy transition, digitalisation and innovation in healthcare.

Performance

Over the past twelve months, the Company's NAV total return was 2.2% and the share price total return was 13.5%. In comparison, the benchmark MSCI All Country World Index returned 20.4% (in sterling terms).

On the surface, NAV performance over the year appears unexciting, and the underperformance relative to the benchmark is disappointing. However, beneath these still waters there are interesting currents at play: accelerating growth, interesting opportunities related to Artificial Intelligence ('AI') and market sentiment which continues to swirl around short-term news and largely ignore the tides of change ahead.

The relatively weak investment returns belie the fact that the majority of companies in the portfolio continue to deliver pleasing operational progress. Indeed, indications are that fundamental growth is accelerating across the portfolio. Forward three-year earnings growth (on a consensus basis) is currently 18.5% per annum across the portfolio compared to 13.4% per annum 12 months ago. This compares to three-year forward earnings growth projections of 8.8% per annum for the index. As growth investors, it is our belief that it is this fundamental progress that will drive superior share price returns over the long run.

The top contributor to performance over the period was TSMC. It is the world's largest foundry for the manufacture of semiconductors, so is a critical enabler of high-performance computing and AI. Despite a challenging operating environment that included escalating geopolitical tensions, an earthquake in Taiwan and a semiconductor industry down cycle, TSMC has delivered strong results consistently over the last 12 months with cumulative revenue for the first three quarters of 2024 increasing 32% year-on-year. The demand for semiconductors is cyclical yet also underpinned by the secular demand for greater computing power and TSMC is at the heart of this. The company is a trusted partner to its customers as, contrary to its peers, it does not compete with its chip-design customers. This, combined with its processing and manufacturing acumen, provides a formidable competitive advantage: it manufactures more than half of the outsourced semiconductors globally. This position of strength will be further cemented with capacity expansion. For example, TSMC is expanding its presence in Europe, Japan and the US.

This global footprint is important in an emerging geopolitical backdrop. TSMC is helping power the AI revolution, but it should not be forgotten that the semiconductors it makes are the building blocks of innovation much more broadly, whether that be in lower cost mobile computing, powering electric vehicles or in sophisticated medical devices that improve patients' lives.

MercadoLibre, the Latin American ecommerce platform and fintech business, was also a top contributor to performance as it continued to deliver strong operational performance with overall revenue growing by 42% year-on-year to over US$5 billion in its second quarter. Underpinning this is continued growth in both fintech services (monthly active users now surpass 52 million) and its ecommerce platform, which has grown in terms of all key metrics (gross merchandise volume, take rate and revenue). What is exciting is that the runway for growth is still significant - circa 85 million people use the ecommerce site in a population of 670 million in the regions in which it operates. These attention‑grabbing 'headline statistics' are of course pleasing; so too is the long-term progress underpinning them. In 2023, MercadoLibre commissioned an impact study which found that 1.8 million families depended on the platform for their main source of income, and more than half of the SMEs (small and medium sized enterprises) which use the platform could have access to credit through its fintech services for the first time.

Nu Holdings had a strong 12 months, solidifying its position as a leading digital banking platform in Latin America. The company's net income more than doubled to reach US$487 million in the second quarter of 2024. Nu has continued to grow its customer base impressively, passing the 100 million milestone over the summer. Not only is Nu continuing to grow in Brazil but it is also expanding into Mexico and Colombia, where it now has circa 9 million customers and has captured over 70% of the deposits across all fintechs combined since launching its savings products. Nu continues to play a key role in promoting financial inclusion. A study published by Nu and Mastercard in early 2024 found that 60 per cent of Nu customers moved from gaining access to financial services to intensive use of basic financial products and credit within two years, regardless of income level. Increasing usage of financial products is one indicator of customers' increasing ability to meet their financial needs.

Not all companies have experienced support from the markets. 'Negativity bias' refers to the human propensity to focus on negative events, information, or emotions more than their positive counterparts. To some extent we are seeing that over recent months in terms of the market sentiment towards some of the main detractors to performance (such as Remitly) where the market has placed much greater weight on any perceived weakness in results and largely ignored any fundamental progress.

Remitly provides mobile-based remittance services for migrants. Its recent results showed active customers had increased by 36% year-on-year to over six million, margins had improved and revenues had grown by 32%. However, despite strong operating progress the shares have been a detractor to performance, perhaps owing to concerns over investment in marketing spend and the return on that marketing spend. Against these short-term gyrations, we remain focused on the long-term investment case. Remitly is still in the early innings of growth and its competitive advantage - a combination of scale, efficiency, and brand - is strengthening. We do not require quarter‑on‑quarter progress to be smooth, providing the long-term opportunity is intact.

Moderna, the innovative biotech company, has had a challenging year. Moderna has an exciting technology platform and is rapidly expanding its product pipeline. However, where it has been challenged is on commercialisation. In the face of weak Covid vaccine sales and a disappointing RSV vaccine launch, the company has decided to reduce its research and development (R&D) spending and focus its pipeline while pushing out cash-break-even until 2028. Though it is reducing its R&D expenditure, it still expects to spend a considerable amount - over US$16 billion over four years - as it develops a pipeline that includes vaccines for respiratory, latent and infectious diseases as well as a personalised cancer vaccine. We met with Moderna's CEO Stephane Bancel following these developments to discuss them in detail and will continue to engage with the company. Regardless of how exciting the technology platform is, the commercial engine has to function well to allow the company to harness the programmability of its mRNA technology. We remain keenly vigilant for further progress.

Dexcom, the manufacturer of continuous glucose monitoring systems (CGMs) for diabetics saw its share price fall sharply following an announcement of slower than expected growth and a reset of expectations for the rest of the year. The challenge has been one of execution following a recent reorganisation of its sales force, weaker than expected international sales and a softening of US revenue per customer. These missteps are somewhat out of character for the company, which has displayed impressive operational progress and fundamental growth over a number of years. We believe there is a significant opportunity for CGMs and we remain optimistic about the potential of Dexcom's new over-the-counter Stelo product. We are engaging with management to build conviction in their ability to overcome the current challenges and unlock the tremendous growth opportunity ahead.

As regular readers of this report will be aware, an attractive feature of the Company is its ability to invest in private companies. At the end of September 3.6% of the portfolio was invested across five private companies developing and scaling exciting new technologies from carbon removal solutions to innovative fibres. We were delighted to attend the opening of Climeworks' new carbon removal plant in Iceland over the summer. There have been some challenges in scaling these complex facilities, but the company is adapting and innovating to overcome them, while also deepening its commercial talent pool. A visit to Spiber's headquarters and pilot plant in Japan provided an opportunity to hear more about the advancements it is making in scaling its Thai production plant, particularly in improving the recipe of its brewed protein that is used to make innovative textiles. It was encouraging to hear of fashion houses interested in using its novel fibres. Unfortunately, the operational challenges persist for Northvolt, Europe's first home-grown manufacturer of lithium-ion batteries for electric vehicles and energy storage systems. To reflect the uncertainty about its future the valuation has been marked down significantly. These private companies have developed important products and are in the early stages of scaling and commercialising. Given the complexity of what they are trying to achieve, the journey will be far from smooth.

Portfolio

Over the past 12 months, portfolio name turnover has ticked up to circa 19%. This level is in line with our long-term time horizon and reflects the strength of the pipeline of new ideas. We have invested in seven new companies over the year and made seven complete sales.

We talked in the Interim Report about new investments in US electric vehicle company Rivian, South East Asian super-app Grab, and Katitas, the Japanese company which renovates old homes to create affordable and sustainable homes for buyers today.

The more recent investments in Epiroc, Vertex, Schneider and Soitec are also diverse in terms of their businesses and the challenges they are helping to solve.

Mining equipment is perhaps not an immediately obvious choice for the portfolio and it is not often that our research takes us literally underground. However, mining is an industry we cannot ignore. Our research into the industry has spanned a number of years, we have questioned industry experts from around the globe, quizzed management teams, and visited mines in Finland and Sweden to see mining machinery in action.

Metals and minerals are essential for progress in areas such as the green energy transition but their extraction comes at a cost. Mining is a carbon‑intensive and traditionally dirty industry. How can we continue to mine the materials we need in a way that mitigates damage?

We have taken a new position in Epiroc, a high‑quality Swedish industrial business which provides mission-critical equipment and services to the mining and construction industries. This is a strong business, operating in a consolidated market with high barriers to entry. 70% of revenue comes from the aftermarket, including services and parts. Epiroc is driving change in the mining industry through greater electrification, automation and digitalisation. Through the innovation of products and its business model, Epiroc is helping to catalyse the adoption of technologies that will enable a dirty, but necessary, industry to decarbonise.

Vertex Pharmaceuticals is also new to the portfolio. The company brings transformative medicines in areas of high unmet needs to market. Vertex played an important role in developing treatments for cystic fibrosis ('CF'), a genetic disease that results in excessive mucus in the lungs and often leads to serious infections. Prior to effective treatments, many CF patients sadly did not reach adulthood. Today, life expectancy for CF patients is around 60 years, with some patients living into their 80s. CF treatments provide a profitable revenue stream for Vertex, which generated US$10 billion in sales and US$4 billion in operating profit in 2023. This profit stream helps to fund research and Vertex's expansion into new disease areas, including sickle cell disease, beta thalassemia, diabetes, and renal diseases.

Electrification (replacing technologies or processes that use fossil fuels with electric-powered equivalents) is one of the most important strategies for reducing CO2 emissions from energy. Schneider Electric, a French multinational, is a leading provider of integrated electrification solutions for buildings, data centres, infrastructure and industries. It helps its customers manage the transition to a renewable dominant grid and without Schneider, the pace of deployment of renewable generation infrastructure globally would be slower. Schneider is well placed to benefit from the growing demand for electrical management products and services. Over the next decade and beyond, sales should compound at a mid-to-high single-digit pace, which, combined with margin expansion and sensible capital allocation, should result in attractive share price returns.

Soitec is a designer and manufacturer of engineered substrates used in the manufacturing of semiconductors. The company's silicon-on-insulator wafers improve the quality, performance and energy efficiency of semiconductors that are used in a wide range of applications across industries such as mobile and communication, automotive and smart devices. The company commands a strong competitive position with its processing technology and is well positioned to benefit from structural growth trends such as electrification, digitalisation and the rise of AI.

We are patient and long-term investors but where we detect a deterioration in the fundamentals of a business, or its impact case, we will sell and redeploy the capital in companies where we have higher conviction. Over the past year we have sold seven companies. We shared our rationale for selling Ørsted, the Danish energy company, and M3, the Japanese digital healthcare provider, in the Interim Report and discussed Daikin in last year's commentary. Our four more recent sales are detailed below.

The Company has owned South African insurance provider Discovery and single-cell sequencing tool developer 10x Genomics since February 2021. Both companies have much to admire about their innovative products but each company is facing difficulties in growing its business against macro‑challenges and industry-specific headwinds. These difficulties have led to disappointing share price performance over our period of ownership. The operational growth headwinds have led us to sell and redeploy the cash in companies where we have higher conviction in our dual objectives being achieved over the long term.

Umicore, the Belgian recycler of metals and manufacturer of automotive catalysts and battery cathodes, has also left the portfolio. The company had executed poorly in some areas of its business and a succession of CEO changes reduced our confidence that Umicore could navigate a fast-changing market and grow profitably.

Finally, we have sold Wuxi Biologics after a relatively short period of ownership (we first invested in August 2023). It is a Chinese company providing end-to-end solutions and services for the discovery, development and manufacturing of biologic drugs. It is a highly-regarded and entrepreneurial business in a market which has very attractive global growth potential. However, since investing the geopolitical risks have intensified to the point that a significant proportion of Wuxi's US-based customers may no longer be permitted to use its services in future. This uncertainty has weighed heavily on the share price and we concluded that despite the attractive fundamentals it is time to move on.

Impact

We released the Keystone Positive Change Annual Impact Report in August, which can be found on our website. The report details the impact of the products and services of the portfolio holdings. Our thesis is that impact and investment go hand‑in‑hand, and the good operating progress for many holdings has been mirrored by their growing impact. For example, in 2023, Xylem, the water infrastructure company, enabled its customers to reduce their water use by 800 billion litres. Tesla delivered over 1.8 million electric vehicles and deployed 14.7 GWh of energy storage. Tesla's products enabled customers to avoid emitting 20 million tonnes of CO2, up from 13.4 million tonnes in 2022. Coursera, the education platform has 142 million registered learners. 77% of learners reported a career benefit such as a promotion or pay rise after taking its courses. The Impact Report also provides aggregate data at a portfolio level and maps the portfolio to the United Nations Sustainable Development Goals.

Outlook

The view we shared with readers in May still holds today:

"Looking around us we see a world facing significant environmental and social challenges; we see individuals and businesses innovating and developing new products and services or new business models that have the potential to address these global challenges. We see investment opportunities in businesses that are challenging the status quo. What we see is encapsulated in our dual objectives: to contribute towards a more sustainable, inclusive and healthier world while generating attractive returns for shareholders…It could be said that society is at a watershed moment in time, faced with the choice of continuing along the path we are on, or having the bravery, ambition and determined optimism needed to help steer us onto a more sustainable trajectory. This watershed moment is rich with investment opportunities for the brave and ambitious."

We continue to believe that investing for positive change can deliver positive social, environmental and financial outcomes for people, planet and savers. We are as determined as ever to meet the Company's dual objectives.

Kate Fox

Lee Qian

Baillie Gifford & Co

26 November 2024

Past performance is not a guide to future performance. Total return information is sourced from Baillie Gifford/LSEG. See disclaimer towards the end of this announcement. For a definition of terms used see Glossary of Terms and Alternative Performance Measures towards the end of this announcement.

Investing for Positive Change

Delivering attractive long-term investment returns

We aim to deliver attractive investment returns, which we define as meaningful outperformance (by 2% annually net of fees) of the MSCI All Country World Index ('ACWI') over rolling five-year periods.

Our emphasis on growth and competitive advantage means that we expect the delivered returns of the portfolio to come primarily from revenue and profit growth at the companies we hold, rather than from changes in valuation. In broad terms, we look for companies with the potential to double in value over a five year period, while still having significant growth prospects thereafter.

Patience is required to tolerate short-term volatility that we embrace in order to generate superior long-term financial returns. We expect our portfolio of 30-60 listed and private companies to differ significantly from the benchmark index, many of whose major constituents are likely to suffer from precisely the challenges that we outline in our four Impact Themes, and whose very scale makes it difficult for them to innovate. While measuring portfolio returns relative to a benchmark index can be a helpful way to monitor the output of our investment process, we do not consider the benchmark when constructing the portfolio.

Delivering a positive impact

We look for listed and private companies for whom delivering a positive impact is core to their business; whose products and services represent a significant improvement to the status quo; and who conduct business with honesty and integrity. We look for areas where there is a meaningful, and widely accepted, opportunity gap between the current situation and the desirable social outcome, and for companies that are proactively narrowing that gap through their business activities. To this end, we have identified four Impact Themes.

Similar to financial returns, making a meaningful positive impact requires patience and perseverance. We are not looking for quick fixes, but genuine improvements which often take years, if not decades, of hard work. We believe a period of five to ten years is a useful timeframe for assessing companies' social and environmental contributions. We expect the four Impact Themes to evolve over time, hopefully as challenges are resolved.

Four Impact Themes

Social inclusion and education

Income and wealth inequalities have risen significantly over the past 30 years and now threaten our acceptance of capitalism as a force for good. We look for companies that are building a more inclusive society through their products and services. We also look for companies that are improving the quality or accessibility of education as we believe that the diffusion of skills and knowledge is one of the best tools to reduce inequality.

Environment and resource needs

The environmental impact of human activities is increasing, and basic resources such as food and water are becoming scarcer. Throughout history, climate change and famine have repeatedly limited the development of nations¹. Left unresolved, those problems could jeopardise international relations, destabilise our society and damage our planet. We are looking for companies that are improving our resource efficiency and reducing the environmental impact of our economic activities.

Healthcare and quality of life

We are living longer but we are not necessarily healthier. We are richer but we are not necessarily happier. The stress of modern life is damaging our physical and mental health. We are searching for companies that are actively improving the quality of life in developed and developing countries.

Base of the pyramid

Economic growth has led to improvements in living conditions in many parts of the world. However, the fruits of human ingenuity have not filtered down to everyone. We are looking for companies that are addressing the basic and aspirational needs of the billions of people at the bottom of the global income ladder.

¹    The Measure of Civilisation: How Social Development Decides the Fate of Nations, 2013.

Investment process

Analysing investment and impact using a robust and consistent process

Both our objectives are of equal importance. To reflect this, we have established a six-stage process which allows both the impact and investment objectives to be considered equally in the key parts of our process: research, portfolio construction and reporting.

01      What we look for

A vast opportunity set for long-term stock pickers

The universe of companies in which we can invest is vast. We make no attempt to cover the whole universe. Neither do we use quantitative screens to cut it down to a manageable size. Instead, we rely on a clear and consistent set of filters to focus our attention on the relatively small number of businesses that might be of interest to us. These filters flow naturally from our dual objectives, and focus on: (1) the company's potential to address one of our four thematic global challenges; (2) its potential to build a profitably growing business.

02      Idea generation

Ideas naturally flow from our dual objectives. Curiosity is key

We are bottom-up stock pickers who let our curiosity and enthusiasm drive our research agenda. Idea generation takes place throughout the investment process: when we meet companies; through attendance at conferences; during team meetings; and through general reading. Our long-term time horizon, focus on fundamental in-house research and desire to take a different perspective means we use diverse sources of information, from independent research to engaging with academics and industry experts. Sharing a common objective with the rest of our investment colleagues (seeking high quality growth companies), we are fortunate in being able to leverage the intellectual resources of our wider investment department of around a hundred investors, including regional and global teams and sector specialists, and our ESG team.

03      Fundamental company research: eight questions

Consistent framework focuses on dual objectives

Our company analysis consists of two stages: fundamental company research and impact analysis.

Our fundamental company research involves an Investment Manager examining eight questions relating to the quality of the business and its growth prospects as well as the impact the company is expected to deliver.

To assess the growth potential and quality of a business, we consider the company's broad opportunity set, the strength and durability of the competitive advantage, the financial characteristics and management attitudes. To assess the expected impact of a holding, we consider the challenge the company is tackling, its product characteristics and business practices.

Valuation analysis focuses on whether we think the long-term growth prospects of a company are under‑appreciated. Here, we use a range of measures for valuing companies and remain very much focused on the potential for a business in five years' time. If a company has backing from an Investment Manager, it will be taken forward to the second stage of research: the Impact Analysis.

8 question framework

Impact

01      What change is the company driving?

Growth

02      What is the scale of the growth opportunity and how might it evolve over time?

03      What is required to unlock the opportunity and how quickly can the company capitalise on it?

04      What is the competitive edge and how might it develop?

Quality

05      What attributes of the culture, governance, and management attitude will support or detract from the company's ability to capitalise on the opportunity?

06      What are the financial characteristics today and how might they evolve?

Valuation

07      What might the company look like and what might its valuation be in 5 to 10 years?

08      What will it take to be an outlier?

04      Impact analysis

Independent and disciplined

The second stage of research focuses specifically on the impact potential of a business. This is carried out by one of the Positive Change Teams' Impact Analysts. Analysing impact is complex and can be highly subjective. Our impact analysis is carried out independent of the investment case using a rigorous, qualitative framework that is based upon three factors, shown below.

This analysis is holistic: we recognise that there is no perfect company and under each of these three factors we also consider areas of controversy, the negative consequences of operations and a company's awareness of those issues.

Monitoring and reporting impact is important: as one of our dual objectives it is as important as monitoring and reporting financial performance. The monitoring of impact is ongoing and is interwoven with our monitoring of the investment case for a company. We look at company reports and disclosures and are engaged with management, we monitor significant news, always with a focus on the long term and the key milestones we expect a company to reach in order to deliver impact.

Once a potential idea has been identified, we analyse it using a consistent framework of questions.

Intent

-        Forward looking strategy that supports the positive outcome?

-        Backed up by actions, commitments and structures?

-        Uses influence to drive solutions in the wider industry?

Product impact

-        Relationship between the product and the impact?

-        Breadth and depth of impact?

-        Materiality in the context of the business and the problem?

-        Linkage with the United Nations Sustainable Development goals (UN SDGs)?

Business practices

-        Addresses impacts across the full value chain?

-        Transparent in its actions?

-        Leads the industry in business practices?

05      Portfolio construction

Two elements - investment and impact considered in tandem

The Positive Change team meets regularly to discuss new ideas and the level of conviction in existing holdings. The team's conviction in both the impact and investment potential of a company is taken into consideration when making portfolio decisions and sizing positions. Investment decisions are made by the five decision makers: three Investment Managers: Kate Fox, Lee Qian and Thaiha Nguyen, and two Senior Impact Analysts: Edward Whitten and Apricot Wilson. Every stock must have the backing of an Investment Manager and at least one sponsor of the impact objective. The group heavily relies on and respects the opinions of team members to help inform individual views. We think this process allows us to harness diverse perspectives while also retaining conviction and accountability of individual decision-making and reducing personal bias.

We are active investors and our portfolio will differ significantly from the benchmark, many of whose major constituents are likely to face headwinds from the challenges we identify. In order for a company to enter our portfolio, it must meet both of our objectives - there are no compromises.

With a long-term investment horizon, portfolio turnover will be low, we expect it to be below 20% per annum over the long term. We will carefully monitor the companies in which we invest through ongoing research and engagement with management teams. It is inevitable that businesses will have setbacks and we are happy to own companies through periods of short-term operational weakness. However, if longer-term concerns develop that are not addressed by management, if we detect a deterioration in the fundamental investment case, for either element of our dual objectives, we will sell a holding.

06      Monitoring, engagement and reporting

Rigorous, ongoing and with a long-term focus

Once we have taken a holding, we continue to monitor operational performance and progress towards delivering positive change. In doing so we engage with management teams on an ongoing basis. We report on how the strategy has delivered on both its financial objective and its impact objective.

The impact different companies make is not always quantifiable, nor should it be. Furthermore, comparing impact across companies with very different activities is problematic. And, where impact is more easily quantifiable, it is not always measured and disclosed in a uniform way. Despite its challenges, we have developed a robust approach using our in-depth knowledge of companies, and we report annually, though we always remain focused on our five-year-plus time horizon.

6.1 Company impact

Consistent with our bottom-up, fundamental investment approach, we identify bespoke metrics or milestones for each company that will help us monitor its progress in delivering positive change. We represent this impact through 'The Positive Chain', a model which demonstrates how each company is contributing to positive outcomes and impacts through its inputs, activities and outputs. We depend primarily on company reported data but do not limit ourselves to current levels of disclosure: where there are gaps we will engage with companies and request more information.

Company engagement more broadly is ongoing, and we will discuss with management teams both areas where we would like to see improvements as well as areas where companies excel.

6.2 Portfolio contribution to United Nations Sustainable Development Goals

At an overall portfolio level, we also link the product impact for each company to the United Nations' Sustainable Development Goals ('UN SDGs'). The UN developed the SDGs in 2015 as part of an ambitious programme which aims to end poverty in all forms, to build peaceful and inclusive societies, to protect human rights and promote gender equality, and to ensure the protection of the planet and its natural resources by the end of 2030. With 17 goals split into 169 specific targets covering a broad range of topics, we do not intend the portfolio to address every single goal. However, mapping the contribution of individual holdings to these goals via the underlying 169 targets allows us to assess the contribution of the portfolio as a whole using an independent framework.

The companies in the portfolio take different approaches and we hope to gain insight into what works best and to share our learnings across holdings. For those companies that report how their business is aligned with the SDGs, we take this into consideration when making the linkage to the goals, but we are selective in order to be as consistent as possible across all holdings.

Baillie Gifford's approach to valuing private companies

We hold our private company investments at 'fair value', i.e. the price that would be paid in an open‑market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team, with all voting members being from different operational areas of the firm, and the investment managers only receive final notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued twice in a six month period. For investment trusts, the prices are also reviewed twice per year, at the interim and financial year end, by the respective investment trust boards and are subject to the scrutiny of external auditors in the annual audit process.

Beyond the regular cycle, the valuations team also monitors the portfolio for certain 'trigger events'. These may include: changes in fundamentals; a takeover approach; an intention to carry out an Initial Public Offering ('IPO'); company news which is identified by the valuation team or by the portfolio managers, or significant changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value. There is no delay.

The valuations team also monitors relevant market indices on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate. Continued market volatility has meant that recent pricing has moved much more frequently than would have been the case with the quarterly valuations cycle.

The Independent Auditor's Report on page 79 of the Annual Report and Financial Statements explains the procedures carried out by the external auditor on the valuation of the private companies (unlisted investments) as part of their audit.

Portfolio companies split by impact theme

Portfolio companies split by impact theme as at 30 September 2024

Social inclusion and education - Building a more inclusive society and/or improving the quality and accessibility of education.

Environment and resource needs - Improving our resource efficiency and reducing the environmental impact of our economic activities.

Healthcare and quality of life - Actively improving the quality of life in developed and developing countries.

Base of the pyramid - Addressing the basic aspirational needs of people at the bottom of the global income ladder.

*   For a definition of terms see Glossary of Terms and Alternative Performance Measures towards the end of this announcement.

u   Denotes unlisted/private company holding.

List of investments as at 30 September 2024

*   Abbreviated as follows: Healthcare - Healthcare and quality of life; Social - Social inclusion and education; Environment - Environment and resource needs; Base - Base of the pyramid.

†   For a definition of terms see Glossary of Terms and Alternative Performance Measures towards the end of this announcement.

#   New purchase during the year. Complete sales during the year were: 10x Genomics; Daikin Industries; Discovery Holdings; M3; Umicore; WuXi Biologics; Ørsted.

u   Denotes unlisted/private company holding.

‡   Includes holdings in ordinary shares, preference shares and promissory notes.

Income statement

For the year ended 30 September

The total column of this Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance issued by the Association of Investment Companies.

All revenue and capital items in this Statement derive from continuing operations.

A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return on ordinary activities after taxation is both the profit/(loss) and total comprehensive income/(expense) for the year.

Balance sheet

As at 30 September

Statement of changes in equity

For the year ended 30 September 2024

For the year ended 30 September 2023

Cash flow statement

For the year ended 30 September

Notes to the Financial Statements

1.       Principal accounting policies

The Financial Statements for the year to 30 September 2024 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out below which are unchanged from the prior year and have been applied consistently.

2.       Gains/(losses) on investments

3.       Investment management fee

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, was appointed by the Company as its Alternative Investment Fund Managers and Company Secretaries with effect from 11 February 2021. Baillie Gifford & Co Limited has delegated the investment management services to Baillie Gifford & Co. The annual management fee is 0.70% on the first £100 million of market capitalisation, 0.65% on the next £150 million of market capitalisation and 0.55% on the remaining market capitalisation. Management fees are calculated and payable on a quarterly basis. Market capitalisation is calculated using middle market quotations derived from the Stock Exchange Daily Official List and the weighted average number of shares in issue during the quarter.

4.       Net return per ordinary share

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £192,000 (2023 - £440,000) and on 60,491,492 (2023 - 61,815,632) ordinary shares of 10p, being the weighted average number of ordinary shares in issue during the year. Capital return per ordinary share is based on the net capital gain for the financial year of £2,504,000 (2023 - gain of £9,132,000) and on 60,491,492 (2023 - 61,815,632) ordinary shares, being the weighted average number of ordinary shares in issue during the year.

There are no dilutive or potentially dilutive shares in issue.

5.       Ordinary dividends

We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £192,000 (2023 - £440,000).

The Board declares an interim dividend of 0.10p per ordinary share for the year to 30 September 2024. An interim dividend of 0.35p per ordinary share in respect of the financial period commencing 1 October 2024 is also declared, and both will be paid on 31 December 2024 to shareholders on the register at the close of business on 13 December 2024. The ex-dividend date is 12 December 2024.

6.       Investments

Investments in securities are financial assets held at fair value through profit or loss. In accordance with Financial Reporting Standard 102, the tables below provide an analysis of these investments based on the fair value hierarchy described on the following page, which reflects the reliability and significance of the information used to measure their fair value.

Fair value hierarchy

The fair value hierarchy used to analyse the basis on which the fair values of financial instruments held at fair value through the profit and loss account are measured is described below. Fair value measurements are categorised on the basis of the lowest level input that is significant to the fair value measurement.

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The Company's unlisted investments at 30 September 2024 were valued using a variety of techniques. These include using comparable company multiples, net asset values, assessment of comparable company performance and assessment of milestone achievement at the investee companies. The determinations of fair value included assumptions that the trading multiples and comparable companies chosen for the multiples approach provide a reasonable basis for the determination of fair value. Valuations are cross-checked for reasonableness to alternative multiples-based approaches or benchmark index movements as appropriate. In some cases the latest dealing price is considered to be the most appropriate valuation basis, but only following assessment using the techniques described above.

The Company received proceeds of £55,039,000 (2023 - £36,718,000) from investments sold during the year. The book cost of these investments when they were purchased was £77,802,000 (2023 - £49,588,000). These investments have been revalued over time and, until they were sold, any unrealised gains/losses were included in the fair value of the investments. Transaction costs of £43,000 (2023 - £24,000) and £30,000 (2023 - £9,000) were suffered on purchases and sales respectively.

7.       Creditors

None of the above creditors are financial liabilities held at fair value through profit or loss. Included in other creditors is £233,000 (2023 - £219,000) in respect of the investment management fee.

Borrowing facilities

At 30 September 2023 the Company had a 3 year £25 million multi-currency unsecured floating rate revolving facility with The Royal Bank of Scotland International Limited, which expired on 31 August 2024. The Company replaced this with an uncommitted floating rate revolving facility with The Bank of New York Mellon (International) Limited, which has an extension clause effective at 30 September 2026.

At 30 September 2024 drawings were as follows:

-        The Bank of New York Mellon (International) Limited: US$9.9 million at an interest rate of 6.17% (being 1.1% over term SOFR) and £7.5 million at an interest rate of 1.1% over SONIA, both maturing in November 2024 (2023 - US$9.5 million at an interest rate of 1.25% over SOFR and £7.5 million at an interest rate of 1.25% over SONIA, both maturing in December 2023).

The main covenants relating to the above loans are that total borrowings shall not exceed 20% of the Company's net assets and the Company's minimum net assets shall be £100 million.

There were no breaches of loan covenants during the year.

Preference share dividends are paid bi-annually in March and September.

Provision for Tax Liability

The tax liability provision at 30 September 2024 of £86,000 (2023 - £7,000) relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the year end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that there is no difference between the amounts at which the financial assets and liabilities of the Company are carried in the Balance Sheet and their fair values. The fair values of the Company's borrowings are shown below. The fair value of the 5% cumulative preference shares was based on the closing market offer price on the London Stock Exchange as at 30 September 2023 and was par at 30 September 2024 owing to the proposed Scheme of Reconstruction, which offers redemption at par should the Scheme proceed.

8.       Shareholders' funds per ordinary share

The shareholders' funds figures above have been calculated after deducting borrowings at book value, in accordance with the provisions of FRS 102. For the year to 30 September 2024, there is no difference between borrowings at book value, borrowings at par and borrowings at market value (see note 7 above) and no reconciliation between NAV at book/par value and NAV at market/fair value is provided, as the NAV per share is the same on both bases. A reconciliation between shareholders' funds per share and NAV per share at market value at 30 September 2023 is provided in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

9.       Shares in Issue

The Company is limited by shares. The ordinary shares are fully participating and on a poll carry one vote per £1 nominal held. In the year to 30 September 2024, the Company issued no ordinary shares and bought back 2,635,645 ordinary shares at a total cost of £5,842,000 to be held in treasury (2023 - no shares issued or bought back). At 30 September 2024 the Company had authority to buy back 7,400,107 ordinary shares and to allot or sell from treasury 6,181,560 ordinary shares without application of pre-emption rights. Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve.

10.     Related Parties and transactions with the Managers

The Directors' fees and shareholdings are detailed in the Directors' Remuneration Report on pages 70 to 73 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Baillie Gifford & Co Limited has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Details of the terms of the Investment Management Agreement are set out on page 55 of the Annual Report and Financial Statements and details of the fees during the year and the balances outstanding at the year end are shown in notes 3 and 11 of the Annual Report and Financial Statements respectively.

11.     Audited financial information

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2024 or 2023 but is derived from those accounts. Statutory accounts for 2023 have been delivered to the Registrar of Companies and those for 2024 will be delivered in due course. The auditor has reported on these accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

12.     Publication date

The Annual Report and Financial Statements will be available on the Company's page of the Managers' website keystonepositivechange.com‡ on or around 6 December 2024.

‡ Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Glossary of terms and alternative performance measures ('APM')

Total assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Shareholders' funds

Shareholders' funds is the value of all assets held less all liabilities, with borrowings deducted at book cost.

Net Asset Value (APM)

When a Company's borrowings are all short-term, flexible facilities, Net Asset Value ('NAV') equates to shareholders' funds, being the value of all assets held less all liabilities (including borrowings). Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue (excluding shares held in treasury). For the current year, there is no difference between borrowings at book value, borrowings at par and borrowings at market value (see note 7) and no reconciliation between NAV with debt at book/par value and NAV with debt at market value is provided. For the prior year, a reconciliation is provided below, as the NAV per share differs by 0.1p owing to roundings.

Discount/premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the NAV per share from the share price and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium.

Net liquid assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings) and provisions.

Active share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Total return (APM)

The total return is the return to shareholders after reinvesting the dividend on the date that the share price goes ex-dividend, as detailed below.

*   The dividend adjustment factor is calculated on the assumption that dividends of 0.45p (2023 - 0.40p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV/share price, as appropriate, at the ex-dividend dates.

Ongoing charges (APM)

The total expenses (excluding dealing and borrowing costs) incurred by the Company as a percentage of the daily average net asset value (with borrowings at market value), as detailed below.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gross gearing, also referred to as potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds (a ÷ c in the table below).

Net gearing, also referred to as invested gearing is borrowings at book value less cash at bank (any certificates of deposit are not deducted) and brokers' balances expressed as a percentage of shareholders' funds (b ÷ c in the table below).

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers ('AIFM') Regulations, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. The leverage figures at 30 September 2024 are detailed on page 127 of the Annual Report and Financial Statements.

Unlisted (private) company

An unlisted or private company means a company whose shares are not available to the general public for trading and are not listed on a stock exchange.

Compound annual return (APM)

The compound annual return converts the return over a period of longer than one year to a constant annual rate of return applied to the compounded value at the start of each year.

Contingent value rights

'CVR' after an instrument name indicates a security, usually arising from a corporate action such as a takeover or merger, which represents a right to receive potential future value, should the continuing company achieve certain milestones.

Take rate

The take rate is the percentage of sales that a platform or marketplace takes as a commission in exchange for providing a service such as transactions processing, hosting, or other value-added services. This is a fundamental aspect of any ecommerce business, as it directly impacts profit margins.

Treasury shares

The Company has the authority to make market purchases of its ordinary shares for retention as treasury shares for future reissue, resale, transfer, or for cancellation. Treasury shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.

Bottom-up stock pickers

Baillie Gifford describes its investment style as being 'bottom-up stock pickers' which means that portfolios are built 'bottom-up', based on enthusiasm for the growth prospects of individual companies, rather than 'top-down', by reference to pre-determined allocations on geographical or industrial sectoral grounds.

Sustainable Finance Disclosure Regulation ('SFDR')

The EU SFDR does not have direct impact in the UK but, as Keystone Positive Change Investment Trust plc is marketed in the EU, SFDR reporting obligations apply. Owing to its impact objective, Keystone is classified as an Article 9 fund and must report against a detailed taxonomy in the form prescribed by the regulations.

United Nations Global Compact ('UNGC')

The UNGC is the world's largest corporate sustainability initiative, which calls upon companies to align strategies and operations with universal principles on human rights, labour, environment and anti-corruption, and take actions that advance societal goals. Over 12,000 companies based in over 160 countries are participating.

United Nations Sustainable Development Goals ('SDGs')

In September 2015, all 193 Member States of the United Nations adopted a plan for achieving a better future for all - laying out a path to end extreme poverty, fight inequality and injustice, and protect our planet by 2030. At the heart of 'Agenda 2030'; are the 17 Sustainable Development Goals. These are: 1. No poverty; 2. Zero hunger; 3. Good health and well-being; 4. Quality education; 5. Gender equality; 6. Clean water and sanitation; 7. Affordable and clean energy; 8. Decent work and economic growth; 9. Industry, innovation and infrastructure; 10. Reduced inequalities; 11. Sustainable cities and communities; 12. Responsible consumption and production; 13. Climate action; 14. Life below water; 15. Life on land; 16. Peace, justice and strong institutions; and 17. Partnerships for the goals.

Organisation for Economic Co-operation and Development ('OECD')

The OECD is an international organisation of 38 member countries, with a goal to shape policies that foster prosperity, equality, opportunity and well-being for all through the development of evidence-based international standards.

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MSCI Index data

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FTSE Index data

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Regulated Information Classification: Annual Financial and Audit Reports.

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