REG - Baillie Gifford UK - Baillie Gifford UK Growth Trst plc Final Results
14/06/2024 07:00
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RNS Number : 4040S Baillie Gifford UK Growth Trust PLC 14 June 2024
Baillie Gifford UK Growth Trust plc
Legal Entity Identifier: 549300XX386SYWX8XW22
Results for the year to 30 April 2024
For the year to 30 April 2024, the Company's net asset value ('NAV') total
return (capital and income) was 0.6% compared to 7.5% for the FTSE All-Share
Index total return. The share price total return for the same period was
negative 0.5%.
¾ The largest detractors to relative performance were: St James's
Place, a UK wealth manager; Burberry, a luxury goods retailer; and Genus, a
leading animal genetics company. Not holding HSBC was also a notable
detractor. Abcam, an online platform selling antibodies to life science
researchers, and 4imprint, the direct marketer of promotional merchandise,
were the notable positive contributor to relative performance.
¾ One new position was initiated in the period: online greetings card
and gifting platform, Moonpig. Four positions were exited: Abcam, which was
taken over in the year; Boohoo.com, an online fashion retailer; Farfetch, an
online luxury fashion retailer; and Naked Wines, an online wine retailer.
¾ The net revenue return for the year was 5.68p per share (2023:
4.05p). A final dividend of 5.60p per share is being recommended (2023:
3.60p). The dividend is paid by way of a single final payment.
¾ Over the year a total of 3,841,977 shares were bought back into
treasury. Since period end to 12 June 2024, a further 635,000 shares have been
bought back into treasury.
¾ The Board and Managers believe that the portfolio is populated with
exciting growth businesses, with large market opportunities, strong
competitive positions, and importantly, the cultural adaptability to succeed
in a rapidly changing world. Once style headwinds abate, the portfolio should
be well placed to benefit.
¾ At this year's Annual General Meeting ('AGM'), the Directors are
proposing, in accordance with the Company's Articles, that the life of the
Company be extended for a further five years.
¾ Should the life of the Company be extended, the Board is making the
following commitments: 1) The Board will introduce a one-off 5-year
performance triggered exit opportunity whereby, in the event the Company's NAV
per share total return over the 5-year period from 30 April 2024 to 30 April
2029 does not equal or exceed the total return on the Company's benchmark
(FTSE All-Share Index), the Company will provide shareholders with the
opportunity to realise their investment in full at close to NAV per share; and
2) The Company will put forward a resolution at the Company's Annual General
Meeting to be held in 2027 for the continuation of the Company. This is in
addition to the five-yearly continuation votes in the Company's Articles of
Association.
¾ As highlighted in last year's Chairman's Statement, Ms Carolan Dobson
will not be standing for re-election at this year's Annual General Meeting and
has decided to stand down from the Board on 14 June 2024. Mr Neil Rogan was
appointed to the Board on 1 January 2024 and takes over as Chairman on 14 June
2024.
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.
Baillie Gifford UK Growth Trust plc invests to achieve capital growth
predominantly from investment in UK equities with the aim of providing a total
return in excess of the FTSE All-Share Index.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with around £224 billion under management and advice as at
12 June 2024.
Past performance is not a guide to future performance. Baillie Gifford UK
Growth Trust plc 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 Baillie Gifford UK Growth Trust plc at
bgukgrowthtrust.com.‡ 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.
For further information please contact:
Anzelm Cydzik, Baillie Gifford &
Co
Tel: 0131 275 2000
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
The following is the results announcement for the year to 30 April 2024 which
was approved by the Board on 13 June 2024.
Chairman's statement
Performance
In this, my final period as Chairman, it is disappointing to report on a
period of underperformance. For the year to 30 April 2024, the Company's net
asset value ('NAV') total return (capital and income) was 0.6% compared to
7.5% for the FTSE All-Share Index total return. The Company's share price
total return declined 0.5% and the shares ended the period at a 15.3% discount
to the Company's NAV compared to 14.1% a year earlier.
In 2018 when the Board took the decision to appoint Baillie Gifford to manage
the Company's assets, it was in the expectation that a growth-focussed UK
equity mandate would deliver positive absolute and relative returns over the
long term. Since then, whilst there have been periods of good performance, the
longer-term results have not been as expected. Over five years to 30 April
2024, the Company's NAV total return was only 3.0% at a time when the FTSE
All-Share Index total return was 30.1%.
Board Composition
As highlighted in my report last year, I will not be standing for re-election
to the Board at the upcoming AGM as I will have completed ten years of service
and I am standing down from the Board on 14 June 2024. Earlier this year our
Chair of the Audit Committee, Andrew Westenberger, led a recruitment process
supported by an external recruitment consultant, Trust Associates, to find my
successor. Mr Neil Rogan was appointed to the Board on 1 January 2024 and will
take over as Chairman on 14 June 2024. Neil is an experienced Investment Trust
Chairman and non-executive director. He also spent 30 years as an investment
manager with Touche Remnant, Flemings and most recently Gartmore/Henderson
where he was Head of Global Equities.
Subject to the outcome of the Company's continuation vote, I leave knowing
that the Company has a strong Board dedicated to operating in the best
interests of shareholders.
Board review
In February, the Board conducted a rigorous review of the services Baillie
Gifford provides to the Company to inform the Board as to what it should
recommend to shareholders for the continuation vote due at this year's Annual
General Meeting ('AGM').
The Board reviewed the Managers' provision of company services, third party
oversight, internal risk controls, marketing, shareholder support, quality of
staff and overall commitment to our Company and the investment trust sector
and found these to be of an excellent quality, provided with commitment and
integrity.
Turning to our Company's investment performance, the Board reviewed the
Managers' investment philosophy and processes, the portfolio risk analysis,
the largest stock contributors to positive and negative performance, the
quality of the companies held in the portfolio, turnover levels and style
tilts. The Board found these to be in line with the Managers' committed growth
style and that predicted risk of investments was set appropriately for a
committed growth-orientated long-term fund. The Board examined the quality of
the Managers' research before stock purchase and thereafter and found it very
thorough and informed.
There has been much press comment about the difficulties the UK stock market
is facing, the lack of traditional buyers for UK equities and the pressure
that companies feel to move their listings to the US to achieve higher
ratings. The Board examined these issues with the support of their corporate
brokers and Baillie Gifford and found that whilst these problems were real,
they were not overwhelming. There are several brokers providing research on
each of our companies, and none of our portfolio companies, that are currently
held, have moved their listing. The UK equity market is now generally
considered to be inexpensive. That view is supported by the number of takeover
approaches appearing for UK listed companies both from private equity buyers
and international companies.
Over this five-year period the macroeconomic backdrop of sluggish economic
growth, rising interest rates and a spike in inflation has not been conducive
to Baillie Gifford's growth investment style. In addition, the UK benchmark
index has a significant exposure to resource and financial companies whose
profits tend to be cyclical with limited long term sustainable growth and as
such are not areas that meet the Managers' long term growth requirements.
These broader style and macroeconomic factors explain a significant amount of
the investment underperformance but not all. The balance between successful
and unsuccessful individual stock investments over this period has not been in
the Company's favour.
The Managers' report below provides further detail on the investment
performance of the portfolio.
Unquoted Investments
In January 2022 we made our first investment in an unquoted company by
investing into the shares of Wayve, a UK software company developing an AI
system that allows vehicles to learn whilst driving. This is an extremely
competitive area with many companies operating in it and it is a tribute to
Wayve's technology excellence that a recent funding round has raised more than
$1billion from Softbank, Microsoft and Nvidia.
Following how we valued this company since investment is a good example of how
we approach unquoted valuations. We initially invested £1,516,000 but when
similar listed companies' share prices fell, we lowered our valuation to
£582,000 on 31 October 2023. Now this recent funding valuation has
established a deal price, we have revalued the shares to the deal price, and
they are now valued at £3,338,000.
A handsome uplift on our purchase price of 120% and a good reflection of how
long-term growth investing with commitment and analysis can bear rewards.
Continuation votes and performance-triggered exit opportunity
In accordance with the Company's Articles of Association, shareholders have
the right to vote on the continuation of the Company every five years, the
next vote being at this year's Annual General Meeting in September.
Having concluded its review of Baillie Gifford's ability to deliver on the
Company's investment objective, the Board continues to believe firmly in the
Company's mandate and has confidence that over the longer term the portfolio
managers, through application of Baillie Gifford's investment process, have
the capacity to outperform. Accordingly, the Board is recommending that
shareholders vote in favour of continuation at the Annual General Meeting.
The Board believes that the current style headwinds will not last forever and
growth will resume its historical outperformance. The Board is reassured that
the current portfolio is populated with exciting growth businesses with strong
competitive positions and large market opportunities. The fundamentals of the
portfolio look strong, with 97% of the portfolio having positive earnings or
cashflows and 1-year forward sales growth and earnings better than the index
(6.0% and 7.6% 1-year forward sales and earnings growth compared to 2.7% and
5.6% for the FTSE All-Share Index).
However, the Board recognises shareholders' patience will have been tested by
the last three years of underperformance and, following consultation with
shareholders representing a material proportion of the Company's share
capital, if the continuation vote is passed at the Annual General Meeting the
Board makes the following commitments, which it believes will provide greater
certainty for shareholders in the event that underperformance were to
continue:
1. The Board will introduce a one-off 5-year performance triggered exit
opportunity whereby, in the event the Company's NAV per share total return
over the 5-year period from 30 April 2024 to 30 April 2029 does not equal or
exceed the total return on the Company's benchmark (FTSE All-Share Index), the
Company will provide shareholders with the opportunity to realise their
investment in full at close to NAV per share.
2. The Company will put forward a resolution at the Annual General Meeting
to be held by the Company in 2027 for the continuation of the Company. This is
in addition to the five-yearly continuation votes in the Company's Articles of
Association and, as such, a continuation vote is expected to be held in 2029
as well.
The Board believes these commitments are in the best interests of shareholders
as a whole.
Share Issuance and Buy-backs
Since issuing shares in 2021 and 2022, the Company's shares have de-rated and
moved to trading at a discount to NAV. Over the course of the year to 30
April, the Company has bought back on 67 occasions, buying into treasury
3,841,977 shares, which represents 2.6% of the Company's issued share capital
as at 30 April 2023. Since the financial year end, a further 635,000 shares
have been bought back. The Company currently has 14,873,677 shares held in
treasury.
The Company's share buy-back policy seeks to operate in the best interests of
shareholders by taking into account the relative level of the Company's share
price discount to NAV when compared with peer group trusts, the absolute level
of discount, volatility in the level of discount and the impact from share
buy-back activity on the long-term liquidity of the Company's issued shares.
The Board recognises the importance to shareholders that the Company's shares
should not persistently trade at a significant discount to NAV in absolute
terms or relative to the peer group and, while the Board does not believe it
is appropriate to publish a specific discount target, the Board would expect
to be more active in buying back shares, when appropriate.
The Company benefits from the flexibility of being able to issue new shares or
to re-issue any shares that might be held in treasury when there is sufficient
demand at a premium to NAV as this helps to improve trading liquidity and
reduces ongoing costs by being asset accretive. The Company is seeking to
renew the annual issuance authority at its AGM. To avoid any dilution to
existing investors, shares held in treasury and any new shares would only be
re-issued/issued at a premium to NAV and after associated costs.
Gearing
During the year, the Company renewed its one-year £30 million revolving
credit facility with The Royal Bank of Scotland International Limited. Drawn
and invested gearing stood at 6% and 5% of shareholders' funds as at the
Company's year-end compared to 5% and 3% respectively a year earlier.
The Board sets internal guidelines for the portfolio managers' use of gearing
which are altered from time to time but are subject to net effective gearing
not representing more than 20% of shareholders' funds.
Earnings and Dividends
The net revenue return per share for the year was 5.68p, versus 4.05p in 2023.
The year-on-year increase was largely a consequence of increased dividends
received as well as special dividends from Lancashire Holdings and 4imprint. A
final dividend of 5.60p per share, payable on 13 September 2024 to
shareholders on the register as at 16 August 2024, is being recommended to
shareholders.
The Company's priority is capital growth so shareholders should not rely on
receiving a regular or growing level of income from their investment in this
Company.
Sustainability Disclosure Requirements ('SDR')
In November 2023, the Financial Conduct Authority ('FCA') published its
sustainability disclosure requirements and investment labels regime ('SDR') to
address concerns about misleading sustainability claims. SDR includes an
opt-in labelling regime for sustainable investment products, additional
disclosure requirements and restrictions on the use of sustainability terms.
It also establishes anti-greenwashing ('AGW') rules. Investment trusts and
their Managers are in scope of the SDR. Although investment trusts are not
directly in scope of the AGW requirements, the rules apply indirectly to them,
mostly via obligations imposed on their Managers.
Although Environmental, Social and Governance ('ESG') factors are taken into
consideration by our portfolio managers as part of their investment analysis,
the Company itself does not have an explicit sustainability objective and so
under SDR is potentially going to be categorised as 'Non-labelled' rather than
'Labelled' or 'Other'.
Annual General Meeting
It is intended that the Company's AGM will be held on Wednesday 4 September
2024 at 12.00 noon at the Leonardo Royal Hotel London City, 8-14 Cooper's Row,
London, EC3N 2BQ. Shareholders are warmly invited to attend however regular
attendees should note that this is a different venue to the one used in recent
years. To accurately reflect the views of shareholders of the Company, the
Board intends to hold the AGM voting on a poll, rather than on a show of
hands.
The meeting will include a presentation by the portfolio managers on the
prospects for UK equities and the positioning of the portfolio. They and the
Board will be available to answer any questions. Light refreshments will be
available.
Outlook
The portfolio managers and the Board believe that the portfolio's current
valuations fail to adequately reflect the value of the progress being made by
the investee companies. If this observation is correct, once the macro
backdrop becomes more favourable for growth investors, for example lower
interest rates and reduced levels of inflation and/or a more stable
geopolitical backdrop, then the significantly higher growth expectations for
the portfolio against the broader market should act as a catalyst for
long-term share price appreciation.
The current portfolio is comprised of exciting growth businesses with large
market opportunities, strong competitive positions and, importantly, the
cultural adaptability to succeed in a rapidly changing world. Having the nerve
and patience to continue holding them through turbulent times is likely to be
key in realising their long-term potential.
Carolan Dobson
Chairman
13 June 2024
Managers' report
This year we have segmented our Managers' report so that it starts with a
summary of the drivers of shorter term performance before then reflecting on
performance over the past five years and the factors behind this. It ends with
some commentary on the outlook for the portfolio and the companies held.
Performance
We discussed the disappointing short-term performance of the first half of the
Company's financial year in the interim report. In the second half of the
year, the Company's NAV total return broadly matched the index, the FTSE
All-share total return, so the result for the year remained unsatisfactory
(over the six months to 30 April 2024, the Company's NAV per share total
return was 14.2% compared to 14.2% for the FTSE All-Share total return). There
are a number of strands to this: while the absolute performance of the index
over the year was respectable, the performance of individual holdings in the
portfolio was much more dispersed, reflecting in particular a slant to the
downside with the stockmarket displaying displeasure at any unexpected bad
news, particularly with growth businesses. For example, a further unexpected
charge against profits led to a further lurch down in the share price of
wealth manager St James's Place, while concerns about the health of the
Chinese economy notably impacted the shares of pig breeder Genus, life insurer
Prudential and to some extent the luxury goods retailer Burberry. While
painful in the short term, we believe in all these cases there remains a long
term growth investment case in and we are patiently sticking with them. For
example with Prudential, the growth case involves its exposure to a wide
variety of fast growing Asian life insurance markets where it has strong
competitive positions that allows it to weather the shorter term vagaries of
the GDP growth in one country. Moreover, an impressive new management team
have articulated a clear and simple strategy that they are beginning to
execute on. This is not meant to be dismissive of possible China risks for
Prudential but as bottom up stock pickers we see this is an example of a
business that is growing and getting stronger even if the share price appears
disconnected to these fundamentals.
Although some other businesses that had guided to softer short-term trading
fared better, such as the leader in UK kitchens Howden Joinery and IT services
business Softcat, a greater number in the portfolio simply marked time as the
market appeared to place more emphasis on the cloudy near term economic and
geopolitical outlook, rather than the long term opportunities for the
businesses. We did see particularly strong operational performance rewarded in
the strong share price performance of specialist marketer 4imprint and the
foreign exchange payment disruptor Wise. Lastly, Wayve, our sole unquoted
investment, which is an autonomous driving technology business, was written up
substantially following its latest funding round where a significant sum of
new investment was raised at a higher valuation.
5-Year Review
It is five years since the Company's last Continuation Vote. When we took over
the management of the Company from Schroders, we asked shareholders to judge
us over five years. The results are not what we, the Board or you as a fellow
shareholder would have hoped for, having underperformed by 4.8% p.a.. We were
therefore asked by the Board to examine the data, offer our perspectives and
explain why we feel confident about the portfolio being in good shape from
here, despite the disappointing outcome so far.
A recap of how we invest
Our investment philosophy is anchored around a core belief that share prices
will follow fundamentals over the long term. We try to identify companies that
will deliver superior earnings growth and hold onto them long enough for their
unique competitive and cultural strengths to emerge as the dominant influence
on share prices. The following chart provides some evidence to support this
approach as it shows the striking correlation between superior long-term
earnings growth and stock price returns for the FTSE All-Share. However, the
path is not always a smooth one and there will be periods when our style of
investing will be out of favour.
Delivered median total returns by earnings growth quintile
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Why hasn't our investment approach worked recently?
Since taking over the management of Baillie Gifford UK Growth Trust, we
believe that the macroeconomic backdrop has had an unusually dominant
influence on investment outcomes. For example, if we consider calendar year
NAV performance, as detailed in the table below, we can see that the portfolio
delivered robust relative returns during the initial shock of COVID-19 in 2020
as many of the high-margin, capital-light, well-capitalised companies held
were better able to weather the pandemic and, in some cases, directly
benefited from global lockdowns. However, relative performance started to
struggle in 2021 as economies re-opened and supply chains struggled to operate
smoothly.
Discrete Annual Performance to 31 December each year
2019 2020 2021 2022 2023
Share price 28.7% 12.7% 8.2% -29.9% 2.3%
NAV 25.3% 4.6% 12.1% -22.0% 4.2%
Index 19.2% -9.8% 18.3% 0.3% 7.9%
Source: Morningstar, FTSE, Total return in sterling. Index: FTSE All-Share
Index
In 2022, the conflict in Ukraine put still greater upward pressure on prices
and interest rates rose sharply. It was at this point in 2022 that our
performance was most challenged in both absolute and relative terms. Why? The
stock market had to process the imperative to discount future cash flows at a
higher rate. Conventional wisdom dictates that the multiples applied to future
earnings streams should compress in a more inflationary environment, so the
market had to grapple with the right 'new normal' multiple to attach to
equities. Growth businesses, which are valued on the premise of long-duration
earnings streams projected out into the future, underwent a sharp decline in
their share prices. To put it simply, the market backdrop over the past few
years has given rise to an environment where the share prices of growth
companies have been hit indiscriminately, regardless of the fundamental
operational progress they are making. We believe that much of the recent
underperformance of the portfolio has been down to this - our investment style
being out of favour - rather than too many poor investment decisions. To be
clear, we have made individual mistakes that have hurt performance, and we
have learnt from these experiences, but the magnitude of the underperformance
cannot be explained by these.
Could we have mitigated the underperformance?
We asked the investment risk team at Baillie Gifford to undertake analysis to
identify whether we could have done anything different from 2021 when
performance turned down. The short answer is that after looking at various
scenarios, the only way we could have achieved an outcome aligned with the
index would have been to significantly change the portfolio by taking large
new positions in some of the largest businesses in the UK, such as Shell, BP
and HSBC. Many of these companies in our view do not have obvious long term
growth potential but they have been beneficiaries of the macroeconomic turmoil
described above because of their near term earnings certainty. Owning many of
these large 'value' stocks would have mitigated underperformance, however, it
would have also undermined our active, bottom up, long-term growth investment
style. We consider it imperative to stick to our long-term growth investment
philosophy because the alternative is trying to second guess, and trade
around, short term swings in "style" in stock markets. Attempting to do so in
our view could make things far worse for shareholders.
Why do we believe that performance will improve over the next five years?
With a high inflationary and interest rate environment, we understand why our
style of growth investing has been out of favour with the market. However, we
believe that current valuations fail to adequately reflect the value of the
progress we are seeing in the businesses we invest in; they underestimate the
adaptability of the management teams running these businesses, and they
overlook the resilient financial characteristics that the portfolio possesses.
Rather than a cause for despondency, this disconnect between share prices and
fundamentals is a key reason why we remain confident in the long-term outlook
for the performance of the portfolio.
The three charts below illustrate the superior quality and resiliency
characteristics of the portfolio relative to the index. While we would urge
caution in relying too heavily on spuriously precise earnings forecasts, it is
encouraging that the portfolio is invested in companies with higher growth
expectations than the broader market.
Why does this matter? As we noted earlier, our investment philosophy is
anchored around a core belief that share prices will follow fundamentals over
the long term. Enduring growth should act as a catalyst for long-term share
price appreciation.
We continue to believe the portfolio is populated with exciting growth
businesses, with large market opportunities, strong competitive positions, and
importantly, the cultural adaptability to succeed in a rapidly changing world.
Having the nerve and patience to continue holding them through turbulent times
is key to realising their long-term potential.
Characteristics of the portfolio
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Outlook for the portfolio
We see an abundance of significant and unrecognised potential within the
current portfolio. We see it in long-standing holdings like Auto Trader,
Experian and Ashtead which have been working successfully to expand their
already substantial market opportunities, are embedding themselves ever more
deeply into their customers' businesses and whose competitive advantages are
now deeper than they have ever been. We also see it in relatively more recent
purchases like IT service providers Kainos and Softcat which enjoy
multi-decade growth tailwinds from the adoption of technology by both
enterprises and the public sector, and where the market fails to appreciate
unique cultural strengths which make both stand out from competitors and be
most trusted advisors to customers.
Despite all the doom and gloom surrounding the state of innovation in the UK,
we look to long-standing holdings like Renishaw and Genus whose commitment to
research and development spending, we believe, will yield significant results
in the coming decade by enabling manufacturers and farmers across the globe to
solve some of their most pressing productivity and sustainability challenges.
Earlier in their lifecycles are companies like AI autonomous driving start-up
Wayve, the surgical endoscopy business Creo Medical, and next generation
sequencing company Oxford Nanopore. All three are at the vanguard of progress
in their respective fields and are true world leaders.
We invest in companies for decades, so trust in management is of great
importance for us. We are fortunate to be invested alongside some of the most
accomplished leadership teams such as those at Games Workshop and 4imprint
whose long-term mindset and dedication to doing the right thing have been a
crucial ingredient in the enormous success both businesses have achieved over
time.
Your portfolio managers work in an investment firm which allocates capital to
some of the most promising public and private enterprises across the world. We
can both say, with some confidence, that the companies in this portfolio can
hold their own across that global investment stage.
Iain McCombie and Milena Mileva
Baillie Gifford & Co
13 June 2024
The managers' core investment principles
Investment philosophy
The following are the three core principles underpinning our investment
philosophy. We have a consistent, differentiated long-term investment approach
to managing UK equities that should stand investors in the Company in good
stead:
Growth
We search for the few companies which have the potential to grow substantially
and profitably over many years. Whilst we have no insight into the short- term
direction of a company's share price, we believe that, over the longer term,
those companies which deliver above average growth in cash flows will be
rewarded with above average share price performance and that the power of
compounding is often under-appreciated by investors. Successful investments
will benefit from a rising share price and also from income accumulated over
long periods of time.
Patience
Great growth companies are not built in a day. We firmly believe that
investors need to be patient to fully benefit from the scale of the potential.
Our investment time horizon, therefore, spans decades rather than quarters and
our portfolio turnover is significantly below the UK industry average. This
patient, long-term approach affords a greater chance for the superior growth
and competitive traits of companies to emerge as the dominant influence on
their share prices and allows compounding to work in the investors' favour.
Active investment management
It is our observation that too much attention is paid to the composition of
market indices and active managers should make meaningful investments in their
best ideas regardless of the weightings of the index. As a result,
shareholders should expect the composition of the portfolio to be
significantly different from the benchmark and hence the outcome in returns
(in both good and bad periods) will also be significantly different from the
benchmark. This differentiation is a necessary condition for delivering
superior returns over a long-term time horizon.
Portfolio construction flows from the investment beliefs stated above.
Baillie Gifford's stewardship principles
Baillie Gifford's overarching ethos is that we are 'Actual' investors. That
means we seek to invest for the long term. Our role as an engaged owner is
core to our mission to be effective stewards for our clients. As an active
manager, we invest in companies at different stages of their evolution across
many industries and geographies, and focus on their unique circumstances and
opportunities. Our approach favours a small number of simple principles rather
than overly prescriptive policies. This helps shape our interactions with
holdings and ensures our investment teams have the freedom and retain the
responsibility to act in clients' best interests.
Long-term value creation
We believe that companies that are run for the long term are more likely to be
better investments over our clients' time horizons. We encourage our holdings
to be ambitious, focusing on long-term value creation and capital deployment
for growth. We know events will not always run according to plan. In these
instances we expect management to act deliberately and to provide appropriate
transparency. We think helping management to resist short-term demands from
shareholders often protects returns. We regard it as our responsibility to
encourage holdings away from destructive financial engineering towards
activities that create genuine value over the long run. Our value will often
be in supporting management when others don't.
Alignment in vision and practice
Alignment is at the heart of our stewardship approach. We seek the fair and
equitable treatment of all shareholders alongside the interests of management.
While assessing alignment with management often comes down to intangible
factors and an understanding built over time, we look for clear evidence of
alignment in everything from capital allocation decisions in moments of stress
to the details of executive remuneration plans and committed share ownership.
We expect companies to deepen alignment with us, rather than weaken it, where
the opportunity presents itself.
Governance fit for purpose
Corporate governance is a combination of structures and behaviours; a careful
balance between systems, processes and people. Good governance is the
essential foundation for long-term company success. We firmly believe that
there is no single governance model that delivers the best long-term outcomes.
We therefore strive to push back against one-dimensional global governance
principles in favour of a deep understanding of each company we invest in. We
look, very simply, for structures, people and processes which we think can
maximise the likelihood of long-term success. We expect to trust the boards
and management teams of the companies we select, but demand accountability if
that trust is broken.
Sustainable business practices
A company's ability to grow and generate value for our clients relies on a
network of interdependencies between the company and the economy, society and
environment in which it operates. We expect holdings to consider how their
actions impact and rely on these relationships. We believe long-term success
depends on maintaining a social licence to operate and look for holdings to
work within the spirit and not just the letter of the laws and regulations
that govern them. Material factors should be addressed at the board level as
appropriate.
List of investments as at 30 April 2024
Name Business Fair value % of
£'000 total
assets
Basic materials
Rio Tinto Metals and mining company 6,174 2.0
Victrex Speciality high-performance chemicals manufacturer 1,712 0.6
7,886 2.6
Consumer discretionary
Games Workshop Toy manufacturer and retailer 14,735 4.9
Howden Joinery Manufacturer and distributor of kitchens to trade customers 12,600 4.2
4imprint Direct marketer of promotional merchandise 11,918 4.0
RELX Professional publications and information provider 5,871 2.0
Burberry Luxury goods retailer 4,595 1.5
Moonpig Online greetings card and gifting platform 3,565 1.2
53,284 17.8
Consumer staples
Diageo International drinks company 7,894 2.6
7,894 2.6
Financials
AJ Bell UK wealth manager 9,533 3.2
Legal & General Insurance and investment management company 9,206 3.1
Just Group Provider of retirement income products and services 8,113 2.7
Lancashire Holdings General insurance 7,399 2.5
Prudential International life insurer 6,463 2.1
Hiscox Property and casualty insurance 5,954 2.0
IntegraFin Provides platform services to financial clients 5,891 2.0
St. James's Place UK wealth manager 4,668 1.5
Hargreaves Lansdown UK retail investment platform 4,355 1.4
Molten Ventures Technology focused venture capital firm 3,633 1.2
IG Group Spread betting website 3,217 1.1
68,432 22.8
Healthcare
Genus World leading animal genetics company 7,165 2.4
Creo Medical Designer and manufacturer of medical equipment 749 0.2
Exscientia Biotech company 518 0.2
Oxford Nanopore Novel DNA sequencing technology 305 0.1
8,737 2.9
Industrials
Experian Global provider of credit data and analytics 14,798 4.9
Ashtead Construction equipment rental company 14,059 4.7
Volution Group Supplier of ventilation products 13,946 4.7
Renishaw World leading metrology company 10,590 3.5
Wise Online platform to send and receive money 10,577 3.5
Bunzl Distributor of consumable products 7,923 2.7
Inchcape Car wholesaler and retailer 7,832 2.6
Halma Specialist engineer 7,079 2.4
Bodycote Heat treatment and materials testing 6,463 2.2
PageGroup Recruitment consultancy 4,871 1.6
FDM Group Provider of professional services focusing on information technology 2,701 0.9
100,839 33.7
Real Estate
Rightmove UK's leading online property portal 5,477 1.8
Helical Property developer 3,702 1.3
9,179 3.1
Technology
Auto Trader Group Advertising portal for second hand cars in the UK 15,065 5.0
Softcat IT reseller and infrastructure solutions provider 9,720 3.2
Kainos Group IT services and implementer 8,954 3.1
Wayve Technologies Ltd Series B Pref (u) Developer of full autonomous driving systems 3,338 1.1
First Derivatives IT consultant and software developer 3,262 1.1
40,339 13.5
Total Equities 296,590 99.0
Net Liquid Assets 2,913 1.0
Total Assets 299,503 100.0
(u) ( )Denotes unlisted (private company) investment.
Stocks in bold are the 20 largest investments.
Income statement
For the year ended 30 April 2024 (with comparatives for the year ended 20
April 2023)
2024 Revenue £'000 2024 2024 2023 2023 2023
Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000
Losses on investments - (6,288) (6,288) - (2,542) (2,542)
Currency losses - (93) (93) - - -
Income 9,787 - 9,787 7,260 - 7,260
Investment management fee (421) (982) (1,403) (432) (1,009) (1,441)
Other administrative expenses (568) - (568) (533) - (533)
Net return before finance costs 8,798 (7,363) 1,435 6,295 (3,551) 2,744
and taxation
Finance costs of borrowings (314) (732) (1,046) (150) (349) (499)
Net return on ordinary activities before taxation 8,484 (8,095) 389 6,145 (3,900) 2,245
Tax on ordinary activities - - - - - -
Net return on ordinary activities after taxation 8,484 (8,095) 389 6,145 (3,900) 2,245
Net return per ordinary share (Note 4) 5.68p (5.42p) 0.26p 4.05p (2.57p) 1.48p
Dividends declared in respect of the financial year ended 30 April 2024 amount
to 5.60p (2023 - 3.60p).
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital return columns are prepared
under guidance published 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 all gains and losses of
the Company have been reflected in the above statement.
The accompanying notes below are an integral part of the Financial Statements.
Balance sheet
As at 30 April 2024 (with comparatives as at 30 April 2023)
2024 2024 2023 2023
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 296,590 302,536
Current assets
Debtors 2,242 1,479
Cash and cash equivalents 1,917 5,512
4,159 6,991
Creditors
Amounts falling due within one year (17,596) (15,105)
Net current liabilities (13,437) (8,114)
Net assets 283,153 294,422
Capital and reserves
Share capital 40,229 40,229
Share premium account 11,664 11,664
Capital redemption reserve 19,759 19,759
Warrant exercise reserve 417 417
Share purchase reserve 49,380 55,628
Capital reserve 143,508 151,603
Revenue reserve 18,196 15,122
Shareholders' funds 283,153 294,422
Net asset value per ordinary share* 193.0p 195.6p
Ordinary shares in issue (note 8) 146,678,507 150,520,484
* See Glossary of terms and Alternative Performance Measures at the end of
this announcement.
The accompanying notes below are an integral part of the Financial Statements.
Statement of changes in equity
For the year ended 30 April 2024
Notes Share capital £'000 Share premium account £'000 Capital redemption reserve £'000 Warrant Share Capital Revenue Shareholders'
exercise purchase reserve reserve funds
reserve reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 May 2023 40,229 11,664 19,759 417 55,628 151,603 15,122 294,422
Ordinary shares bought back into treasury 8 - - - - (6,248) - - (6,248)
Dividends paid during the year 5 - - - - - - (5,410) (5,410)
Net return on ordinary activities after taxation 4 - - - - - (8,095) 8,484 389
Shareholders' funds at 30 April 2024 40,229 11,664 19,759 417 49,380 143,508 18,196 283,153
For the year ended 30 April 2023
Notes Share capital £'000 Share premium account £'000 Capital redemption reserve £'000 Warrant Share Capital Revenue Shareholders'
exercise purchase reserve reserve funds
reserve reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 May 2022 40,229 11,664 19,759 417 60,433 155,503 14,928 302,933
Ordinary shares bought back into treasury 8 - - - - (4,805) - - (4,805)
Dividends paid during the year 5 - - - - - - (5,951) (5,951)
Net return on ordinary activities after taxation 4 - - - - - (3,900) 6,145 2,245
Shareholders' funds at 30 April 2023 40,229 11,664 19,759 417 55,628 151,603 15,122 294,422
The accompanying notes below are an integral part of the Financial Statements.
Cash flow statement
For the year ended 30 April 2024 (with comparatives for the year ended 30
April 2023)
2024 2024 2023 2023
£'000
£'000
£'000
£'000
Cash flows from operating activities
Net return on ordinary activities before taxation 389 2,245
Adjustments to reconcile company profit before tax to next cash flow from
operating activities
Net losses on investments 6,288 2,542
Currency losses 93 -
Finance costs of borrowings 1,046 499
Other capital movements
Changes in debtors (171) 344
Changes in creditors 31 (3)
Cash from operations* 7,676 5,627
Interest paid (897) (357)
Net cash inflow from operating activities 6,779 5,270
Cash flows from investing activities
Acquisitions of investments (24,185) (24,014)
Disposals of investments 23,251 25,521
Net cash (outflow)/inflow from investing activities (934) 1,507
Cash flows from financing activities
Bank loan drawn down 1,900 8,000
Equity dividends paid (5,410) (5,951)
Ordinary shares bought back into treasury and stamp duty thereon (5,837) (4,805)
Net cash outflow from financing activities (9,347) (2,756)
(Decrease)/increase in cash and cash equivalents (3,502) 4,021
Exchange movements (93) -
Cash and cash equivalents at start of year 5,512 1,491
Cash and cash equivalents at end of year† 1,917 5,512
* Cash from operations includes dividends received of £9,539,000 (2023 -
£7,523,000) and £82,000 deposit interest (2023 - £77,000).
† Cash and cash equivalents represents cash at bank and short-term deposits
repayable on demand.
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Financial Statements
1. The Financial Statements for the year to 30 April 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 consistent with those applied for the year
ended 30 April 2023.
2. Income
2024 2023
£'000 £'000
Income from Investments
UK dividends 9,705 7,183
Other income
Deposit interest 82 77
Total Income 9,787 7,260
Special dividends received in the year amounted to £1,491,000 (2023 -
£311,000) with £1,491,000 (2023 - £311,000) classified to revenue and nil
(2023 -nil) classified to capital.
3. Investment management fee
2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment Management Fee 421 982 1,403 432 1,009 1,441
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed as the Company's Alternative Investment Fund
Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has
delegated portfolio management services to Baillie Gifford & Co. Dealing
activity and transaction reporting have been further sub-delegated to Baillie
Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
The Investment Management Agreement between the AIFM and the Company sets out
the matters over which the Managers have authority in accordance with the
policies and directions of, and subject to restrictions imposed by, the Board.
The Investment Management Agreement is terminable by the Managers on not less
than six months' notice or on shorter notice in certain circumstances. With
effect from 6 June 2024, the Investment Management Agreement is terminable by
the Company on not less than three months' notice or on shorter notice in
certain circumstances. Prior to this, the Investment Management Agreement was
terminable by the Company on not less than six months' notice or on shorter
notice in certain circumstances. Compensation would only be payable if
termination occurred prior to the expiry of the notice period. The annual
management fee is 0.5% of net assets, calculated and payable quarterly.
4. Net return per ordinary share
2024 2024 2024 2023 2023 2023
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 5.68p (5.42p) 0.26p 4.05p (2.57p) 1.48p
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £8,484,000 (2023 - £6,145,000), and on
149,401,543 (2023 - 151,603,018) ordinary shares, being the weighted average
number of ordinary shares in issue during each year.
Capital return per ordinary share is based on the net capital loss for the
financial year of £8,095,000 (2023 - net capital loss of £3,900,000), and on
149,401,543 (2023 - 151,603,018) ordinary shares, being the weighted average
number of ordinary shares in issue during each year.
There are no dilutive or potentially dilutive shares in issue.
5. Ordinary dividends
2024 2023 2024 2023
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 15 September 2023) 3.60p 3.91p 5,410 5,951
Also set out below are 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 £8,484,000 (2023 -
£6,145,000).
2024 2023 2024 2023
£'000 £'000
Dividends paid and payable in respect of the year:
Proposed final dividend (payable 13 September 2024) 5.60p 3.60p 8,214 5,410
If approved, the final dividend of 5.60p will be paid on 13 September 2024 to
all shareholders on the register at the close of business on 16 August 2024.
The ex-dividend date is 15 August 2024.
6. At 30 April 2024, the Company had a one year £30 million unsecured
revolving credit loan facility with The Royal Bank of Scotland International
Limited which expires in July 2024. At 30 April 2024, £16,350,000 was drawn
down under this facility. At 30 April 2023, the Company had a one year £30
million unsecured revolving credit loan facility with The Royal Bank of
Scotland International Limited which expired in July 2023. At 30 April 2023,
£14,450,000 was drawn down under this facility.
The main covenant relating to the above loan is that total borrowings shall
not exceed 30% of adjusted portfolio value. There were no breaches of loan
covenants during the year.
7. Transaction costs of £118,000 (2023 - £115,000) and £9,000 (2023 -
£10,000) were suffered on purchases and sales respectively.
8. The Company's shareholder authority permits it to hold shares bought
back 'in treasury'. Under such authority, treasury shares may be subsequently
either sold for cash (at a premium to net asset value per ordinary share) or
cancelled. At 30 April 2024 the Company had authority to buy back 19,001,576
ordinary shares. During the year to 30 April 2024, 3,841,977 shares were
bought back into treasury at a total cost of £6,248,000 (2023 - 2,975,000
shares were bought back into treasury at a total cost of £4,805,000).
In the year to 30 April 2024, no shares were sold from treasury (2023 - no
shares were sold from treasury). At 30 April 2024 the Company had authority to
issue or sell from treasury 15,041,548 ordinary shares.
9. The financial information set out above does not constitute the
Company's statutory accounts for the year ended 30 April 2024 or 2023. The
financial information for 2023 is derived from the statutory accounts for 2023
which have been delivered to the Registrar of Companies. The Auditor has
reported on the 2023 accounts, their report was (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 sections 498(2) or (3) to 497 of the Companies Act 2006.
10. The Annual Report and Financial Statements will be available on the
Company's website bgukgrowthtrust.com on or around 4 July 2024. None of the
view expressed in this document should be construed as advise to buy or sell a
particular investment.
Glossary of terms and Alternative Performance Measures ('APM')
An alternative performance measure ('APM') is a financial measure of
historical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework. The APMs noted below are commonly used measures
within the investment trust industry and serve to improve comparability
between investment trusts.
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).
Net Asset Value
Net Asset Value ('NAV') is the value of total assets less liabilities
(including borrowings). The NAV per share is calculated by dividing this
amount by the number of ordinary shares in issue (excluding treasury shares).
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
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, it is said to be trading at a premium.
2024 2023
Closing NAV per share 193.0p 195.6p
Closing share price 163.5p 168.0p
Discount (15.3%) (14.1%)
Total return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
2024 2024 2023 2023
NAV share price NAV share price
Closing NAV per share/share price (a) 193.0p 163.5p 195.6p 168.0p
Dividend adjustment factor* (b) 1.0197 1.0226 1.0204 1.0232
Adjusted closing NAV per share/share price (c=a x b) 196.8p 167.2p 199.6p 171.9p
Opening NAV per share/share price (d) 195.6p 168.0p 197.4p 174.2p
Total return (c ÷ d)-1 0.6% (0.5%) 1.1% (1.3%)
* The dividend adjustment factor is calculated on the assumption that the
dividend of 3.60p (2023 - 3.91p) paid by the Company during the year were
reinvested into shares of the Company at the cum income NAV per share/share
price, as appropriate, at the ex-dividend date.
Ongoing charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value. The ongoing charges have been
calculated on the basis prescribed by the Association of Investment Companies.
A reconciliation from the expenses detailed in the Income statement above is
provided below:
2024 2023
Investment management fee £1,403,000 £1,441,000
Other administrative expenses £568,000 £533,000
Total expenses (a) £1,971,000 £1,974,000
Average net asset value (b) £280,829,000 £283,920,000
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.70% 0.70%
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.
Invested gearing is the Company's borrowings adjusted for cash and cash
equivalents expressed as a percentage of shareholders' funds.
2024 2023
Borrowings £16,350,000 £14,450,000
Less: cash and cash equivalents (£1,917,000) (£5,512,000)
Adjusted borrowings £14,433,000 £8,938,000
Shareholders' funds £283,153,000 £294,422,000
Invested gearing 5% 3%
Drawn gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2024 2023
Borrowings £16,350,000 £14,450,000
Shareholders' funds £283,153,000 £294,422,000
Drawn gearing 6% 5%
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 Company's maximum and actual
leverage as at the year end are set out on page 103 of the Annual Report and
Financial Statements.
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.
Unlisted (Private) Company
An unlisted (private) company means a company whose shares are not available
to the general public for trading and not listed on a stock exchange.
Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As Baillie Gifford UK Growth Trust plc is
marketed in the EU by the AIFM, Baillie Gifford & Co Limited, via the
National Private Placement Regime ('NPPR') the following disclosures have been
provided to comply with the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's stewardship principles and
guidelines as its policy on integration of sustainability risks in investment
decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment.
The likely impact on the return of the portfolio from a potential or actual
material decline in the value of investment due to the occurrence of an
environmental, social or governance event or condition will vary and will
depend on several factors including but not limited to the type, extent,
complexity and duration of an event or condition, prevailing market conditions
and existence of any mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its investment objective and policy. Baillie Gifford & Co
can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Manager's approach to sustainability can be found in the
stewardship principles and guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
Automatic exchange of information
In order to fulfil its obligations under UK Tax Legislation relating to the
automatic exchange of information, the Company is required to collect and
report certain information about certain shareholders.
The legislation will require investment trust companies to provide personal
information to HMRC on certain investors who purchase shares in investment
trusts. As an affected company, Baillie Gifford UK Growth Trust plc will have
to provide information annually to the local tax authority on the tax
residencies of a number of non-UK based certificated shareholders and
corporate entities.
Shareholders, excluding those whose shares are held in CREST, who come on to
the share register will be sent a certification form for the purposes of
collecting this information.
For further information, please see HMRC's Quick Guide: Automatic Exchange of
Information - information for account holders
gov.uk/government/publications/exchange-of-information-account-holders.
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