Baillie GiffordChina - Baillie Gifford China Growth Trust Full Year Rslts
05/04/2023 07:00
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RNS Number : 3899V Baillie Gifford China Grwth TrstPLC 05 April 2023
RNS Announcement
Baillie Gifford China Growth Trust plc
Legal Entity Identifier: 213800KOK5G3XYI7ZX18
Results for the year to 31 January 2023
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws and regulations.
The following is the results announcement for the year to 31 January 2023
which was approved by the Board on 4 April 2023.
Over the year the Company's net asset value total return(†) was -5.7% and
the share price total return(†) was -7.9%, compared with a total return of
-2.2% for the MSCI China All Shares Index (in sterling terms).
¾ In the period from 16 September 2020 (the date of the adoption of the
China strategy), the Company's net asset value and share price returned -14.2%
and -16.4% respectively compared to a total return of -12.7% for the MSCI
China All Shares Index (in sterling terms).
¾ Notable positive contributors are varied and include Sanhua Intelligent
Controls, a heat pump manufacturer for electric vehicles and air conditioners;
Zijin Mining, a copper mining business that is likely to experience
significant demand as a result of the green revolution globally; and Beigene,
a biotech firm specialising in cancer treatment.
¾ In terms of negative contributors, the Company saw weak share price
performance from a number of its communication service holdings including
Tencent, Bilibili and ByteDance (the Company's only unlisted investment which
represented 5.7% of the total assets as at 31 January 2023).
¾ The Company has also bought a number of stocks over the year. These
include Centre Testing, a company that provides testing, inspection and
certification services to a broad range of companies and industries; and
Donguan Yiheda, a company that makes a wide variety of parts used in factory
automation equipment. Both companies are contributing to the upgrading of
traditional industries in China.
¾ Whilst investment in China may prove volatile over a short term horizon,
the Managers have a long-term investment approach and are optimistic about the
prospects for the future.
† Alternative Performance Measure - see Glossary of Terms and Alternative
Performance Measures at the end of this announcement. Source:
Refinitiv/Baillie Gifford and relevant underlying index providers.
Baillie Gifford China Growth Trust aims to achieve long term capital growth
through investment principally in Chinese companies which are believed to have
above average prospects for growth. At 31 January 2023 the Company had total
assets of £210m.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with approximately £232 billion under management and advice
as at 4 April 2023.
Past performance is not a guide to future performance. The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. The Company may borrow
money to make further investments. This is commonly referred to as gearing.
The risk is that, when this money is repaid by the Company, the value of these
investments may not be enough to cover the borrowing and interest costs, and
the Company makes a loss. If the Company's investments fall in value, gearing
will increase the amount of this loss. The more highly geared the Company, the
greater this effect will be.
Investment in investment trusts should be regarded as medium to long term. You
can find up to date performance information about China Growth at
bailliegiffordchinagrowthtrust.com
See disclaimer at the end of this announcement.
4 April 2023
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474
5548
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chair's Statement
The 12 months under review has been a volatile and disappointing period for
Chinese equities. For the majority of the Company's financial year, the
Chinese economy struggled with physical lockdowns resulting from its Zero
Covid policy and market sentiment was negatively impacted by regulatory
crackdowns, as well as politics and geopolitics. In the last quarter of the
Company's financial year, there has been more positive news to report as China
began to reopen earlier and more quickly than expected bringing the timing of
the economic recovery forward.
Given travel restrictions to China, in April 2022 the Board met virtually with
the Managers' team based in Shanghai engaging with the various individuals on
a number of topics relevant to the Company. The 'boots on the ground' in
China is a key strength of the Managers that the Board identified early on
when considering the change of manager in 2020. The Board were impressed with
the calibre of the individuals who are working, alongside the team based in
Edinburgh, to identify the best stocks for the Company's portfolio.
During the financial year to 31 January 2023, the Company's net asset value
total return, calculated by deducting borrowings at fair value, was -5.7% and
the share price total return was -7.9%. This compares with a total return of
-2.2% for the MSCI China All Shares Index (in sterling terms).
Over the period from 16 September 2020 (the date of the adoption of the China
strategy), the Company's net asset value and share price returned -14.2% and
-16.4% respectively compared to a total return of -12.7% for the MSCI China
All Shares Index (in sterling terms).
As I noted in my statement last year, the Managers have a long-term investment
approach, and we would ask shareholders to judge performance over periods of
five years or more. Further information about the Company's portfolio
performance is covered by our portfolio managers, Sophie Earnshaw and Roderick
Snell, in their Managers' Report.
Discount/Premium and Share Issuance
The Company's share price discount to net asset value at the last financial
year end was 4.1%, and the Company's share price ended the year at a discount
to net asset value of 6.3%.
Unlike the financial year ending 31 January 2022, no shares have been issued
by the Company during the period as the shares have predominantly traded at a
discount to net asset value. The discount has been 15.5% at its widest but the
shares have also traded at a modest premium of up to 2.9% during the period.
The Company has not bought back any shares over the period, though the Board
keeps its liquidity policy under close review.
Dividend
Since the adoption of the China strategy and the appointment of Baillie
Gifford as Manager in September 2020, the Company's long term returns are now
expected to be predominantly generated from capital growth as opposed to
income. During the financial year, the revenue return per share increased by
121% from 0.97p to 2.14p.
Last year, being the first complete financial year since the adoption of the
China mandate, the Board agreed to match the dividend of the previous
financial year and was able to do so given the sizeable reserves of the
Company. This year the dividend will reset to a level that is in accordance
with the dividend policy of the Company, which is that any dividend paid will
be by way of a final dividend and be not less than the minimum required for
the Company to maintain its investment trust status.
The Board is proposing a final dividend of 1.7p which, subject to shareholder
approval, will be paid on 26 July 2023, with the shares trading ex-dividend on
22 June 2023.
Ongoing Costs
The ongoing charges figure for the year is 0.94%. Last year, the ongoing
charges were 0.72% (and without the fee waiver provided by Baillie Gifford in
relation to the first six months of its appointment in September 2020 it would
have been 0.81%).
Gearing
In April 2021, the Company entered into a US$40m revolving credit facility
with The Royal Bank of Scotland International ('RBSI'). As at 31 January 2023,
US$7.5m has been drawn down under the facility, and gearing stood at 2.5%.
Unlisted Investments
The Company holds one unlisted investment, ByteDance, which represented 5.7%
of the total assets as at 31 January 2023. The valuation process, which is
based on an independent assessment by S&P Global, is set out on page 7 of
the Annual Report.
ESG
The consideration of Environmental, Social and Governance ('ESG') factors is
an integral part of the Managers' long-term investment approach. Further
details on the Managers' approach can be found on pages 9 to 14 of the Annual
Report.
The Board
The Board welcomed Jonathan Silver to the Board in September 2022 following a
search undertaken with the support of an external recruitment consultant.
Jonathan is a chartered accountant who has held a number of senior financial
positions and sits on other boards including another investment trust.
Andrew Robson is to retire from the Board at the AGM in 2023. The Board
extends its thanks to Andrew for his valued contribution. Andrew has been an
exemplary Chair of the Audit Committee since his appointment in July 2014 and
has acted as senior independent director since June 2021. Jonathan Silver will
take up the position as Chair of the Audit Committee and Magdalene Miller will
take over as Senior Independent Director.
As Andrew and I both complete our nine year tenure this summer, the Board
considered that it would be appropriate for me to stay on as Chair until 2024
in the interest of continuity given recent changes to the Company's mandate,
manager and a number of other Board changes. Our next hire will be for my
successor as Chair as I plan to step down in the first half of next year after
a suitable handover period. A search is underway supported by an external
recruitment consultant and a new appointment to the Board will be announced in
due course.
All Directors are subject to annual re-election at the AGM in June.
Biographies of each of the Directors can be found on page 27 of the Annual
Report.
Annual General Meeting
The AGM will be held at 4pm on Thursday, 15 June 2023 at the Institute of
Directors, 116 Pall Mall, London. The meeting will be followed by a
presentation from the Managers and all shareholders are invited to attend.
I would remind shareholders that they are able to submit proxy voting forms
before the applicable deadline on Tuesday, 13 June 2023, and also to direct
any questions to the Board or Managers in advance by email to
trustenquiries@bailliegifford.com (mailto:trustenquiries@bailliegifford.com)
or calling 0800 917 2112 (Baillie Gifford may record your call).
Outlook
China's macroeconomic, regulatory and pandemic policies are looking to align
with a pro-growth stance, for the first time in three years. China is likely
to be one of the very few major economies where growth could accelerate in
2023, enjoying a re-opening like much of the rest of the world experienced in
2022. In addition and unlike the majority of the world, China is experiencing
extremely low inflation (averaging approximately 2% at December 2022).
The rapid re-opening from Zero Covid, the increased household savings and
clear domestic policy support for growth for 2023 all point towards the 'need'
for a strong recovery. China has a very different development model from the
West and it is important to understand the context of the changes happening in
China. The Managers Report details the principles to be borne in mind when
investing in China. There are several risks, not least geopolitical, where
misjudgements notably in respect of Taiwan could lead to severe market
disruption. However, whilst China is a market where there is likely to be
ongoing short term volatility, the prospects for significant long term growth
remain.
Susan Platts-Martin
Chair
4 April 2023
For a definition of terms, see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Past performance is not a guide to future performance.
See disclaimer at the end of this announcement.
Managers' Report
This has been another volatile year for Chinese growth equities; one of
significant change and, perhaps, under-appreciated continuity. Market
sentiment, as ever, has proven fickle. Headlines announcing the demise of the
asset class have been replaced by frantic calls to reposition oneself for the
great reopening.
At Baillie Gifford, we think it's important to remain level-headed in all
market environments. We aim to look through the noise and identify long-term
structural trends and the companies that benefit from them. As such, we'll
highlight a number of broadly positive changes that have occurred in the
second half of last year, followed by a number of factors that are likely to
remain consistent.
So, what's changed? In October we witnessed the 20(th) National Congress of
the Chinese Communist Party ('CCP') in which the constitution was changed to
allow Xi Jinping to serve a third term as President. Membership of the
seven-person Politburo Standing Committee also changed significantly. The
market's reaction to this news was overwhelmingly negative and, as we noted at
the time, discounted a number of significant positives. The most important of
which, in our view, was the government's ability, post consolidation of power,
to act decisively and swiftly to counter severe economic weakness. Fast
forward a couple of months and this is exactly what we have witnessed. Rather
than a sharp ideological turn to the left, the CCP put forward a markedly
pro-growth agenda whilst dismantling two of the biggest detractors to economic
growth, namely Zero Covid and the 'Three Red Lines', (which set caps on
leverage for property developers). Support for the private sector has been
reiterated in numerous forums and the regulatory environment has remained
stable as was promised in May. Economic growth is rebounding and market
sentiment has improved.
From afar these changes might appear bewildering. But they result from a set
of principles that are under-appreciated in their continuity and are important
to bear in mind when building a conceptual framework for investing in China.
These are as follows:
- The CCP has a longstanding commitment to wealth creation and this
continues under Xi. Let's not forget that the principle contradiction, or the
most important problem identified by the CCP to solve under Xi's reign, is
'uneven and unbalanced growth and the people's desire for a better life'.
- This 'desire for a better life' will be delivered in a uniquely
Chinese way, one that attempts to harness the benefits whilst rectifying some
of the biggest excesses of capitalism. Common prosperity, or the attempt to
rectify severe income inequality, is key here. But contrary to popular belief,
it is not new. Instead, one can trace it back to the founder of the socialist
market economy, Deng Xiaoping, and his oft repeated but truncated quote: 'Let
some people get rich first'. The second half of this quote is well-known in
China but largely forgotten in the West: 'for the purpose of achieving common
prosperity faster'.
- As Xi's report to the 20(th) National Congress made clear, both
the state and the private sector are vital to China achieving its goal of
becoming a prosperous society by 2049. The private sector is crucial in that
it creates the majority of GDP growth, technological innovation and job
creation. But its investment priorities will continue to be guided by the
state and by a regulatory framework that prioritises wealth creation for all,
rather than wealth creation for the few.
- Whilst China's unique brand of authoritarianism has not precluded
economic growth or innovation as many thought it would, it does present
challenges to investors that are likely to persist. We should expect periods
in the future where the balance between market versus state becomes unstable.
We should expect periods of volatility caused by abrupt changes to regulatory
norms. But we should also expect continued pragmatism and a willingness to
roll back policies that do not contribute to China's long-term goals; goals
which are, in the main, conducive to investment returns.
Reminding ourselves of these underlying principles and the conceptual
framework that results is important during periods of volatile performance. It
allows us to keep our heads when everyone around us is losing theirs. Put
another way, being cognisant that China's development model is markedly
different to our own and likely to remain so helps us to take advantage of the
opportunities of investing there, whilst also being fully aware of the
risks.
In our view, the opportunities open to growth investors in China have remained
remarkably consistent throughout this period of volatility. Indeed, our
analysis of company fundamentals over time continues to point to China as a
place to find high growth companies. For example, over the last five years,
over 10% of Chinese companies with a starting market cap of $2bn or more have
grown their profits by over five fold. That compares to around 6% for global
markets and for the US.
In addition, the type of growth company on offer continues to expand. We have
companies such as Li Ning or Proya that are poised to benefit both from
China's growing middle class, but also from a shift in brand preferences
amongst younger Chinese consumers; we have companies like Longi and CATL that
have helped China build out almost 2/3rds of the world's solar capacity and
2/3rds of the world's battery capacity with the goal of helping China achieve
net zero by 2060; we have companies such as Inovance and Estun that continue
to move up the value chain in robotics and automation and thereby contribute
to broader productivity growth; we have companies such as Sinocera and SG
Micro that are helping China develop expertise and self-sufficiency in
materials science and semi-conductors… The list goes on.
As noted above, the opportunities within China have remained remarkably
consistent. But so have the risks. This is an asset class in which drawdowns
and periods of market volatility are the norm rather than the exception.
Indeed, the propensity for volatility has likely been heightened by the
increasingly competitive relationship between China and the US, and tensions
with Taiwan as noted more fully in our Interim Management Report published in
October 2022. As such, this remains an asset class with big risks and big
opportunities, and one that is only suitable for those with the appropriate
risk tolerance and long-term time horizon.
Portfolio Positioning and Recent Activity
The current portfolio represents a selection of the best and most innovative
public and private Chinese growth companies. As one would expect for a
long-term growth manager, the themes that we are excited about within the
Company remain largely consistent with those discussed in last year's
Managers' Report. These include our investments in companies exposed to the
green revolution both in China and abroad; companies that contribute to
China's ambition to advance its manufacturing capabilities in robotics and
automation; 'little giants' that have developed significant expertise in
relatively niche but strategically important industries such as
semiconductors; software related companies that are helping traditional
industries upgrade; leading domestic brands that have the scope to challenge
foreign brands within China and abroad; long duration growth companies within
the platform economy that continue to add value to consumers' lives; in short,
companies that we believe at the broadest level are likely to contribute to
China's economic, societal and environmental development over the next decade.
In terms of new purchases, we bought holdings in Centre Testing and Dongguan
Yiheda, both of which are contributing to the upgrading of traditional
industries in China. Centre Testing is a company that provides testing,
inspection and certification services to a broad range of companies and
industries. Our first in-depth report on the company was written in early
2020. Whilst we admired the growth potential of the business and the quality
of the management team, we were less convinced by the valuation. Since then,
the shares have substantially de-rated providing us with a good opportunity to
make an attractive investment. Centre Testing is a leading private player
within an industry dominated by state-owned enterprises and foreign companies.
It has a scale and reputation advantage over smaller domestic competitors and
a service edge over global companies and state-owned-enterprises. This should
allow it to take share. It is also able to supplement this organic growth via
acquisitions of smaller competitors in new verticals. As such, we believe it
is likely to grow at a double-digit rate for a very long time, an outcome that
is not reflected in the current valuation.
Dongguan Yiheda makes a wide variety of parts used in factory automation
equipment. It offers a product catalogue to design engineers of non-standard,
customisable parts. It then manufacturers these parts quickly and at scale
thereby saving time and reducing costs for its design engineer customers. The
opportunity for Yiheda is to increase the number and type of parts it offers
within its catalogue and thereby gain a greater share of wallet within factory
automation equipment. The overall addressable market in machine parts is large
and growing and the founder believes it can treble its share. The growth
runway for the company is therefore very long and the business itself is
profitable and cash generative.
As noted in our Interim Report, we also made investments in Jiangsu Azure, a
leading small form battery maker in the power tools market, and Kinlong, a
hardware provider to the building industry. For Jiangsu Azure, the
electrification of the power tools market is a strong structural growth
driver, whilst the company also has longer term opportunities in batteries for
vacuum cleaners and e-bikes. Its focus on these relatively niche markets and
its willingness to invest also gives it scope to take further share from
global competitors such as LG and Samsung. Kinlong has a strong reputation for
quality amongst its building industry customers. It is the number one player
in a number of the segments in which it operates with c.10% share. Its growth
opportunity is a function of continued growth in end markets, the expansion of
its product portfolio, and continued market share gains. This is another good
quality, long-term growth company that we were able to buy at a time of share
price weakness.
We have also made additions to a number of stocks throughout the year on
valuation grounds. These include Alibaba, China's leading ecommerce business;
KE Holdings, an online real estate portal; China Merchant's Bank, China's
leading wealth management and high-end banking business; and Ping An Bank, a
leading retail bank and part of the Ping An group of companies.
In order to fund the above, we sold a number of our lower conviction, smaller
holdings. These include both Tencent Music and Bilibili. Tencent Music was
bought due to its potential in on-demand music streaming. However, both the
regulatory backdrop and the competitive environment deteriorated markedly
post-purchase. The regulator's anti-monopoly ruling impacted the viability of
Tencent Music's exclusivity contracts with labels and has made it much easier
for competitors to add popular songs to their portals. ByteDance has also
entered the market and is increasingly seen as a platform via which new
artists can be incubated. As such, we believe the company's growth outlook and
longer term profitability are likely to be lower than we initially thought and
that investment returns from here are unlikely to be attractive. Bilibili is a
media and entertainment company popular with generation Z. We sold the holding
during the period due to unexpectedly strong competition from ByteDance and
Kuaishou, and markedly weaker operational performance as a result. The company
appeared overly reliant on subsidies for growth and as such we became less
convinced by its long-term business model.
In the healthcare space, we sold BGI, Zai Labs, and Hutchison China Meditech,
partly due to weaker than expected operational performance, and partly to
reduce our healthcare overweight given concerns around sanctions risk within
this sector. We also sold small holdings in Lufax, an SME lender, and Yatsen,
a cosmetics company.
Performance
Over the twelve months to the end of January 2023, the Company's net asset
value total return was -5.7%. Over the same period, the benchmark total return
was -2.2%. Our underperformance was largely due to allocation including lack
of exposure to energy and consumer staples, and an overweight position in
communication services. Whilst we acknowledge that short-term underperformance
is painful, we would hope that shareholders judge our investment returns over
a period of five years or longer, the same period over which we judge our
companies' performance.
In terms of the net asset value, notable negative contributors at stock level
included Tencent, Bilibili and ByteDance, all of which are classified as
communication services. Tencent's operational performance was severely
hampered by the lack of game approvals during the first nine months of the
year, in addition to cyclical weakness in its advertising and social media
businesses. The outlook for the company, however, is much brighter with game
approvals having restarted and the rebound in the Chinese economy likely to
feed through to Tencent's advertising business. ByteDance is the Company's
only private holding. In response to the decline in peer valuations, Baillie
Gifford also made negative adjustments to our internal valuation. That being
said, ByteDance's operational performance has remained exceptionally strong,
both domestically and overseas, despite a very challenging macroeconomic
backdrop. The company has also been buying back shares at prior valuations
implying confidence in the business's future development. As such, we continue
to believe that the current valuation does not reflect the company's very
sizeable growth opportunity. In addition, relative performance was also hurt
by our lack of exposure to Pinduoduo, a leading ecommerce company that mainly
operates in lower tier cities.
Other negative contributors to performance included Sunny Optical, a
manufacturer of lenses and modules that go into smartphones and autos, CATL,
China's largest electric vehicle ('EV') battery manufacturer, Asymchem, a
leading contract manufacturing organisation in the healthcare space, and
Jiangsu Azure, a leading small form battery manufacturer. As noted in our
interim report, Sunny Optical was experiencing a price war in its core
smartphone business which was started by a new entrant to the market. We think
this increase in competition will not persist as the new entrant is loss
making and unable to make an economic return. More positively, we think the
growth potential in Sunny's auto business is underappreciated and therefore
remain holders of the stock.
CATL's shares were weak in line with other EV names globally. Importantly,
operational performance remains strong with the company pre-announcing almost
treble digit earnings growth in 2022. NEV penetration remains low globally and
the company's strength in energy storage provides an additional growth driver
for the next decade.
Asymchem has been weak along with the broader healthcare space as concerns
around the regulators attitude to drug pricing have weighed on sentiment. We
believe the sell-off in Asymchem is unjustified given it has significant scope
to take volume share within the industry due to its globally innovative
manufacturing processes for small molecule drugs. Operationally, the company
is firing on all cylinders and recently reported over 200% earnings growth in
2022. That being said, this is one of the few holdings in the Company with
significant revenue exposure to the US and, as such, it comes with added
geopolitical risk.
In terms of notable positive contributors, these are varied. Sanhua
Intelligent Controls, a heat pump manufacturer for air conditioners and
electric vehicles, was our top contributor. It delivered significant
operational performance with 33% growth in sales and 26% growth in earnings
for the year to September. Autos account for around a third of its business.
Here, its industry leading technology and manufacturing scale allow it to
fully benefit from the electric vehicle boom in China. Its air-conditioning
business accounts for the remainder of its business and here it is expanding
capacity overseas and taking share.
Zijin Mining is another top contributor. We own this company due to its
significant exposure to copper, one of the metals that is likely to experience
significant demand as a result of the green revolution globally, and limited
supply.
Beigene, a biotech firm specializing in cancer treatment, was also a top
performer. It published phase 3 trial results for one of its drugs,
demonstrating superior efficacy and safety versus the competition. This led to
earnings upgrades for the company. We continue to believe that its growth
potential is underappreciated and that its internal pipeline plus its
attractiveness to global pharmaceutical companies looking to enter China, sets
it apart.
Ping An, China's leading private insurance company, also contributed strongly
to relative performance. The company had been disproportionately hit by
China's Zero Covid policy which impacted its agents' ability to sell their
products, whilst the company's internal restructuring also hurt short term
revenue growth. Internal restructuring is almost complete and we believe the
company's productivity and profitability are likely to benefit going forward.
Its sales agents have also been able to resume face to face meetings as Zero
Covid has been overturned. This is one of our largest overweights and a stock
that we believe has significant upside potential ahead of it.
Outlook
We continue to believe that China offers an attractive mix of substantial risk
but also substantial reward for long-term investors. Indeed, the big picture
opportunities within China remain incredibly compelling. That being said, this
is a volatile market and one must be comfortable with this volatility before
investing. In terms of the Company's underlying holdings, we remain confident
in the companies in which we invest and believe that, over time, their
continued strong operational performance will be matched by strong share price
returns.
Roderick Snell
Sophie Earnshaw
Baillie Gifford & Co
4 April 2023
For a definition of terms, see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Source: Refinitiv/Baillie Gifford and relevant underlying index providers.
Past performance is not a guide to future performance.
See disclaimer at the end of this announcement.
Review of Investments
Alibaba
Alibaba is a leading online retailer. Its ecommerce business continues to grow
strongly driven by increasing online penetration in segments such as grocery
and Fast Moving Consumer Goods, whilst the integration of live streaming and
social media to the platform has materially strengthened its appeal to
customers and merchants alike. In addition, Alibaba has a strong position in
infrastructure as a service, or the cloud, where it has a similar business to
Amazon Web Services and significant growth potential. Alibaba's partnership
structure and its capable and experienced management team are well-aligned
with shareholders and continue to offer a long-term and compelling vision for
the company.
Tencent
Tencent is a leading social media and entertainment platform. It has a
dominant position in online gaming and an ecosystem in WeChat that we believe
is one of the strongest in China. Monetisation of WeChat's over one billion
monthly active users has only just begun and represents a transformational
growth opportunity for the company. Further growth opportunities are provided
by Tencent's strong positions in cloud infrastructure and consumer and SME
lending, along with its portfolio of investee companies which span online
music streaming, ecommerce, and short form video. Pony Ma, the founder and
Chairman of the company, is indelibly focused on the long term and has
executed exceptionally well in one of China's fastest moving industries.
ByteDance
ByteDance is a social media and short form video company and it represents the
Company's first private investment. It was founded in 2012 by Yiming Zhang and
the company has grown to rank amongst the world's largest companies of its
kind. Its short form video app, Douyin, is market leader in China with over
1.7 billion daily active users, and TikTok, its global equivalent, is
dominating the format globally. ByteDance benefits from a technological edge
in machine learning which it uses to bring out new applications tailored to
different media forms and different demographics. The company's ability to
innovate in this space is exceptional and we believe one of the key drivers of
its likely future success. We believe ByteDance has the potential to be a
generation defining media company.
Ping An Insurance
Ping An Insurance is one of China's leading financial services groups. It is
China's second largest life insurer, a market with multi-decade growth
potential driven by China's emerging middle class and rising disposable
income. It also has a leading position in property and casualty insurance
where it has consistently delivered strong returns. In addition, it has
consistently invested in artificial intelligence and machine learning in order
to increase the efficiency and long-term viability of its core business.
Again, this is a company with a long-term, growth mind-set that we believe
will deliver substantial returns to shareholders.
Kweichow Moutai
Kweichow Moutai is one of the most important and iconic Chinese brands. It
manufactures premium baijiu (white alcohol) which has a heritage and respect
embedded within Chinese culture. Its unique brewing conditions and process
provide a core competitive advantage. When combined with supply scarcity and
limited competition in the very high-end market, Moutai is able to price at a
premium and maintain a loyal customer base. It is an extremely profitable
business. We believe in the strength and heritage of the brand, the
sustainability of revenue growth, and the longevity of its core competitive
advantage.
Meituan
Meituan is an online marketplace for the local service industry in China. It
operates in an expanding range of categories and cities with strong market
shares in on-demand restaurant delivery, in-store dining, hotel booking and
film ticketing. These verticals are each in an early stage of development,
leading to strong growth expectations for many years to come. Additionally,
the company is cementing its position as a key partner for merchants in all of
these segments by offering value-added services such as software and back-end
solutions. Wang Xing, the founder and CEO, continues to invest heavily for
growth. Indeed, his vision for the company is that it becomes the default
means by which Chinese consumers access the local services industry.
Li Ning
Li Ning is China's second-largest domestic sportswear company (and takes its
name from the founder who - as some may remember - won 6 gymnastics medals for
China at the 1984 Summer Olympics). It remains something of a turnaround
story, having run into problems between 2010 and 2015 as the model shifted
from wholesale distribution to direct stores. These problems now look to have
been largely remedied, and although Li Ning's returns remain lower than many
of its local and international peers, we are optimistic that improvements in
the supply chain and distribution channels will continue under the
well-regarded new CEO, Kosaka Takeshi, who joined in September 2019. More
broadly, we are intrigued by indications that the company's brands -
especially 'China Li Ning', which blends traditional Chinese embroidery styles
into their products - is gaining traction among a younger and more affluent
demographic, perhaps reflecting the possibility that national pride is
beginning to play a greater part in patterns of consumption. Is it conceivable
that Li Ning - with a national market share of around 8% at present - could
even start to chip away at the 35-40% of the market currently controlled by
premium foreign brands like Adidas and Nike?
China Merchants Bank
China Merchants Bank is a leading consumer bank in China with a lengthy track
record and solid market share. It has outcompeted its state-owned rivals via a
relentless focus on the consumer. As such, it has built up an enviable
position in consumer lending and in wealth management, both segments with
strong growth potential. In terms of lending quality, this has been strong
through the cycle and we believe this is a bank that will continue to offer
attractive returns to shareholders.
JD.com
JD.com is the second largest ecommerce player in China after Alibaba, with
particular strengths in logistics and delivery. The growth opportunity remains
large and we believe that JD's competitive edge is being sustained, despite
operating in a very competitive environment. The management team has taken
some proactive steps to ensure decision making is more devolved and we have
been encouraged by the openness at recent discussions regarding future
strategy and governance improvements. We believe that there is an excellent
chance that JD remains one of the go-to ecommerce businesses in China.
Zhejiang Sanha Intelligent Controls
Zhejiang Sanhua is one of the world's largest manufacturers of controls and
components for heating, ventilation and air conditioning (HVAC) systems,
electric vehicles and home appliances. Sanhua has a global customer base of
top tier manufacturers, with half of their revenues generated from China and
half from overseas. The company has over 50% market share in its key products.
Sanhua's ability to produce quality at scale is a key competitive advantage.
This is a founder-owned company whose global position has been
underappreciated in a China context. We expect Sanhua to benefit from
consumption growth in general, as well as growth in the electric vehicle
market, and an industry shift in home appliances towards stricter
environmental standards.
List of Investments at 31 January 2023
%
Value of total
Name Business £'000 assets
Alibaba Online retailer, payments and cloud business 13,819 6.6
Tencent Social media and entertainment company 12,694 6.0
ByteDance (u) Social media and entertainment company 11,953 5.7
Ping An Insurance Life and health insurance 9,559 4.6
Kweichow Moutai Luxury baijiu maker 9,436 4.5
Meituan Online food delivery company 7,977 3.8
Li Ning Domestic sportswear manufacturer 7,692 3.7
China Merchants Bank Consumer lending and wealth management 7,631 3.6
JD.com Online retailer 5,074 2.4
Zhejiang Sanhua Intelligent Controls Heating and cooling component manufacturer 4,946 2.4
BeiGene Immunotherapy biotechnology company 4,929 2.3
Zijin Mining Renewable energy enabler 4,580 2.2
CATL Electric vehicle battery maker 4,268 2.0
Estun Automation Robotics and factory automation company 4,158 2.0
Shandong Sinocera Functional Material Advanced materials manufacturer 4,156 2.0
Ping An Bank SME and consumer lender 4,134 2.0
Proya Cosmetics Cosmetics and personal care company 3,991 1.9
SG Micro Corp Semiconductor designer 3,881 1.8
Shenzhen Inovance Technology Factory automation company 3,659 1.7
ENN Energy Gas distributor and provider 3,482 1.7
Guangzhou Kingmed Diagnostics Diagnostics company 3,430 1.6
Midea White goods and robotics manufacturer 3,223 1.5
NetEase Gaming and entertainment business 3,082 1.4
Centre Testing International Testing and inspecting services provider 3,037 1.4
Fuyao Glass Industry Automotive glass manufacturer 2,877 1.4
Shenzhen Megmeet Electrical Power electronics manufacturer 2,827 1.3
Glodon Software provider to the construction industry 2,762 1.3
Yonyou Network Technology Software for SMEs and corporates 2,760 1.3
Shenzhou International Garment manufacturer 2,651 1.3
Geely Automobile Domestic automotive manufacturer 2,626 1.3
Beijing United Information Tec Industrial ecommerce platform 2,620 1.2
Asymchem Laboratories (Tianjin) Life sciences contract research organisation 2,476 1.2
Kingdee International Software Software for SMEs and corporates 2,472 1.2
Weichai Power Construction machinery and heavy duty trucks 2,438 1.2
Longi Solar energy provider 2,279 1.1
Hangzhou Tigermed Consulting Clinical trial contract research organisation 2,267 1.1
HUAYU Automotive Systems Automotive parts manufacturer 2,196 1.0
Kingsoft Software for SMEs and corporates 2,090 1.0
Sunny Optical Technology Electronic components for smartphones and autos 2,083 1.0
Brilliance China Automotive Automotive makers and BMW partner 2,051 1.0
WuXi AppTec Life sciences contract research organisation 2,045 1.0
KE Holdings(†) Online real estate 1,969 0.9
Sinocare Diagnostics and diabetes company 1,889 0.9
Topchoice Medical Dental services provider 1,766 0.8
Sungrow Power Supply Component supplier to renewables industry 1,736 0.8
Jiangsu Azure Air Freight & Logistics 1,590 0.8
Robam Appliances White goods manufacturer 1,580 0.8
Minth Automotive parts manufacturer 1,505 0.7
Hua Medicine (Shanghai) Diabetes drug manufacturer 1,503 0.7
Dongguan Yiheda Automation Co Factory automation equipment manufacturer 1,426 0.7
Yunnan Energy New Material Component supplier to renewables industry 1,381 0.7
Yifeng Pharmacy Chain Drug retailer 1,375 0.7
Kinlong Building Products 1,262 0.6
Pop Mart Toy and collectibles maker 1,210 0.5
Medlive Technology Medical dictionary and marketing organisation 1,036 0.5
New Horizon Health Early cancer detection 838 0.4
Dada Nexus(†) Logistics and warehousing provider 745 0.3
Burning Rock Biotech(†) Liquid biopsy cancer testing company 377 0.2
Total investments 209,499 99.7
Net liquid assets* 533 0.3
Total assets* 210,032 100.0
Borrowings (6,092) (2.9)
Shareholders' funds 203,940 97.1
*( ) For a definition of terms used,
see Glossary of Terms and Alternative Performance Measures at the end of this
announcement.
(u) ( ) Denotes unlisted holding (private company).
(†) Includes investments in American Depositary Receipts
('ADRs').
Listed Unlisted Net liquid Total
equities Securities Assets Assets
% % % %
31 January 2023 94.0 5.7 0.3 100.0
31 January 2022 93.0 5.7 1.3 100.0
Baillie Gifford Statement on Stewardship
Baillie Gifford's over-arching ethos is that we are 'actual' investors. We
have a responsibility to behave as supportive and constructively engaged
long-term investors. We invest in companies at different stages in their
evolution, across vastly different industries and geographies and we celebrate
their uniqueness. Consequently, we are wary of prescriptive policies and
rules, believing that these often run counter to thoughtful and beneficial
corporate stewardship. Our approach favours a small number of simple
principles which help shape our interactions with companies.
Our Stewardship Principles
Prioritisation of Long-term Value Creation
We encourage our holdings to be ambitious and focus their investments on
long-term value creation. We understand that it is easy to be influenced by
short-sighted demands for profit maximisation but believe these often lead to
sub-optimal
long-term outcomes. We regard it as our responsibility to steer holdings away
from destructive financial engineering towards activities that create genuine
economic and stakeholder value over the long run. We are happy that our value
will often be in supporting management when others don't.
A Constructive and Purposeful Board
We believe that boards play a key role in supporting corporate success and
representing the interests of all capital providers. There is no fixed
formula, but it is our expectation that boards have the resources,
information, cognitive and experiential diversity they need to fulfil these
responsibilities. We believe that good governance works best when there are
diverse skillsets and perspectives, paired with an inclusive culture and
strong independent representation able to assist, advise and constructively
challenge the thinking of management.
Long-term Focused Remuneration With Stretching Targets
We look for remuneration policies that are simple, transparent and reward
superior strategic and operational endeavour. We believe incentive schemes can
be important in driving behaviour, and we encourage policies which create
genuine long-term alignment with external capital providers. We are accepting
of significant payouts to executives if these are commensurate with
outstanding long-run value creation, but plans should not reward mediocre
outcomes. We think that performance hurdles should be skewed towards long-term
results and that remuneration plans should be subject to shareholder approval.
Fair Treatment of Stakeholders
We believe it is in the long-term interests of enterprises to maintain strong
relationships with all stakeholders - employees, customers, suppliers,
regulators and the communities they exist within. We do not believe in
one-size-fits-all policies and recognise that operating policies, governance
and ownership structures may need to vary according to circumstance.
Nonetheless, we believe the principles of fairness, transparency and respect
should be prioritised at all times.
Sustainable Business Practices
We believe an entity's long-term success is dependent on maintaining its
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. We expect
all holdings to consider how their actions impact society, both directly and
indirectly, and encourage the development of thoughtful environmental
practices and 'net-zero' aligned climate strategies as a matter of priority.
Climate change, environmental impact, social inclusion, tax and fair treatment
of employees should be addressed at board level, with appropriately stretching
policies and targets focused on the relevant material dimensions. Boards and
senior management should understand, regularly review and disclose information
relevant to such targets publicly, alongside plans for ongoing improvement.
Income Statement
For the year ended 31 January
Notes 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (losses)/gains on investments - (12,378) (12,378) - (82,850) (82,850)
Currency losses - (216) (216) - (68) (68)
Income 2,407 - 2,407 1,599 - 1,599
Investment management fee 3 (311) (932) (1,243) (363) (1,089) (1,452)
Other administrative expenses (550) - (550) (479) (20) (499)
Net return before finance costs and taxation 1,546 (13,526) (11,980) 757 (84,027) (83,270)
Finance costs of borrowings (116) (347) (463) (46) (138) (184)
Net return on ordinary activities before taxation 1,430 (13,873) (12,443) 711 (84,165) (83,454)
Tax on ordinary activities (105) - (105) (119) - (119)
Net return on ordinary activities after taxation 1,325 (13,873) (12,548) 592 (84,165) (83,573)
Net return per ordinary share 5 2.14p (22.37p) (20.23p) 0.97p (138.22p) (137.25p)
The total column of this statement represents 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 the Company does not
have any other comprehensive income and the net return after taxation is both
the profit and comprehensive income for the year.
Balance Sheet
As at 31 January
Notes 2023 2023 2022 2022
£'000
£'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 7 209,499 222,015
Current assets
Debtors 26 100
Cash and cash equivalents 1,000 5,496
1,026 5,596
Creditors
Amounts falling due within one year (6,585) (8,270)
Net current (liabilities)/assets (5,559) (2,674)
Total assets less current liabilities 203,940 219,341
Capital and reserves
Share capital 17,087 17,087
Share premium account 31,780 31,780
Capital redemption reserve 41,085 41,085
Capital reserve 107,748 121,621
Revenue reserve 6,240 7,768
Shareholders' funds 203,940 219,341
Net asset value per ordinary share* 328.87p 353.70p
Ordinary shares in issue 5 62,012,982 60,888,553
* See Glossary of Terms and Alternative Performance Measures at the end of
this announcement.
Statement of Changes in Equity
For the year ended 31 January 2023
Share Capital
Share premium redemption Capital Revenue Shareholders'
capital account reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at 1 February 2022 17,087 31,780 41,085 121,621 7,768 219,341
Dividends paid during the year - - - - (2,853) (2,853)
Net return on ordinary activities after taxation - - - (13,873) 1,325 (12,548)
Shareholders' funds at 31 January 2023 17,087 31,780 41,085 107,748 6,240 203,940
For the year ended 31 January 2022
Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £í000
£'000 £'000
Shareholders' funds at 1 February 2021 16,486 13,182 41,085 189,061 11,610 271,424
Dividends paid during the year - - - - (4,434) (4,434)
Ordinary shares sold from treasury - 8,043 - 16,725 - 24,768
Ordinary shares issued 601 10,555 - - - 11,156
Net return on ordinary activities after taxation - - - (84,165) 592 (83,573)
Shareholders' funds at 31 January 2022 17,087 31,780 41,085 121,621 7,768 219,341
* The capital reserve balance as at 31 January 2023 includes investment
holding losses on fixed asset investments of £26,491,000 (2022 - losses of
£31,163,000).
Cash Flow Statement
For the year ended 31 January
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation (12,443) (83,454)
Net losses on investments 12,378 82,850
Currency losses 216 68
Finance costs of borrowings 463 184
Overseas withholding tax suffered (181) (119)
Overseas withholding tax reclaims received 76 -
Changes in debtors 74 (45)
Changes in creditors (25) 328
Cash from operations 558 (188)
Interest paid (451) (178)
Net cash inflow/(outflow) from operating activities 107 (366)
Cash flows from investing activities
Acquisitions of investments (27,760) (81,766)
Disposals of investments 25,723 43,362
Net cash outflow from investing activities (2,037) (38,404)
Cash flows from financing activities
Ordinary shares issued - 37,216
Bank loans drawdown - 5,427
Equity dividends paid (2,853) (4,434)
Net cash (outflow)/inflow from financing activities (2,853) 38,209
Decrease in cash and cash equivalents (4,783) (561)
Exchange movements 287 95
Cash and cash equivalents at start of year 5,496 5,962
Cash and cash equivalents at end of year 1,000 5,496
Comprising:
Cash at bank 1,000 5,496
* Cash from operations includes dividends received of £2,402,000 (2022 -
£1,599,000) and interest received of £5,000 (2022 - nil).
Notes to the Financial Statements
1. Basis of Accounting
The Financial Statements for the year to 31 January 2023 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 in
the Annual Report and Financial Statements for the year 31 January 2023 which
are consistent with those applied for the year ended 31 January 2022.
2. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 2,402 1,599
Other income
Bank interest 5 -
Total income 2,407 1,599
Total income comprises:
Dividends from financial assets designated at fair value through profit or 2,402 1,599
loss
Interest from financial assets not at fair value through profit or loss 5 -
2,407 1,599
3. Investment Manager
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, was appointed as the Company's Alternative Investment Fund Manager
('AIFM') and Company Secretary on 16 September 2020. Baillie Gifford & Co
Limited has delegated portfolio management services to Baillie Gifford &
Co. Dealing activity and transaction reporting has 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 on not less than three
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 (i) 0.75% of the first £50
million of net asset value; plus(ii) 0.65% of net asset value between £50
million and £250 million; plus (iii) 0.55% of net asset value in excess of
£250 million, calculated and payable quarterly.
4. Net Return Per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 2.14p (22.37p) (20.23p) 0.97p (138.22p) (137.25p)
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £1,325,000 (2022 - £592,000), and on
62,012,982 (2022 - 60,888,553) 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 £13,873,000 (2022 - loss £84,165,000) and on 62,012,982
(2022 - 60,888,553) 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
2023 2022 2023 2022
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 27 July 2022) 4.60p 4.60p 2,853 2,853
Interim dividend - 2.55p - 1,581
4.60p 7.15p 2,853 4,434
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 dividends for the year is
£1,325,000 (2022 - £592,000).
2023 2022 2023 2022
£'000 £'000
Dividends paid and payable in respect of the year:
Interim dividend per ordinary share - 2.55p - 1,581
Proposed final dividend per ordinary share (payable 26 July 2023) 1.70p 4.60p 1,054 2,853
1.70p 7.15p 1,054 4,434
6. Fixed Assets - Investments
Investments in securities are financial assets designated at fair value
through profit or loss on initial recognition. In accordance with FRS 102 the
tables below provide an analysis of these investments based on the fair value
hierarchy described below which reflects the reliability and significance of
the information used to measure their fair value.
Fair Value Hierarchy
The levels are determined by the lowest (that is the least reliable or least
independently observable) level of input that is significant to the fair value
measurement for the individual investment in its entirety as follows:
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 valuation techniques used by the Company are explained in the accounting
policies on page 52 of the Annual Report and Financial statements. The
Company's unlisted ordinary share investment at 31 January 2023 was valued
using the market approach using comparable traded multiples. A sensitivity
analysis of the unlisted security is on page 63 of the Annual report and
Financial Statements. During the year, a suspended investment with a fair
value at 31 January 2022 of £1,482,000 was transferred from Level 3 to Level
1 when the shares re-listed.
As at 31 January 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 197,546 - - 197,546
Unlisted ordinary shares - - 11,953 11,953
Total financial asset investments 197,546 - 11,953 209,499
As at 31 January 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 207,678 - - 207,678
Suspended ordinary shares - - 1,482 1,482
Unlisted ordinary shares - - 12,855 12,855
Total financial asset investments 207,678 - 14,337 222,015
7. In the year to 31 January 2023 no shares were issued from Treasury (in
the year to 31 January 2022 - 2,404,151 shares were issued from Treasury). 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 31 January 2023 the Company had authority to buy back 9,295,746
ordinary shares. During the year to 31 January 2023, no ordinary shares (2022
- nil) were bought back for cancellation and no ordinary shares (2022 - nil)
were bought back into treasury. Under the provisions of the Company's Articles
of Association share buy-backs are funded from the capital reserve.
8. Cash and cash equivalents table
1 February Cash flows Exchange movement 31 January
2022
£'000
£'000
2023
£'000
£'000
Cash and cash equivalents 5,496 (4,783) 287 1,000
Loans due within one year (5,590) - (502) (6,092)
(94) (4,783) (215) (5,092)
9. The Annual Report and Financial Statements will be available on the
Company's website bailliegiffordchinagrowthtrust (http://www.shinnippon.co.uk)
(†) on or around 19 April 2023.
10. The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 January 2023 or 2022 but is derived
from those accounts. Statutory accounts for 2022 have been delivered to the
Registrar of Companies, and those for 2023 will be delivered in due course.
The auditor has reported on those accounts; their 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.
† Neither the contents of the Company's website nor the contents of
any website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into, or forms part of, this announcement.
Glossary of Terms and Alternative Performance Measures ('APM')
Total Assets
This is the Company's definition of Adjusted Total Assets, being the total of
all assets less current liabilities, before deduction of all 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.
2023 2022
Closing NAV per share 328.87p 353.70p
Closing share price 308.00p 339.25p
(Discount)/Premium (6.3%) (4.1%)
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.
2023 2023 2022 2022
NAV Share NAV Share
price price
Closing NAV per share/share price (a) 328.87p 308.00p 353.70p 339.25p
Dividend adjustment factor* (b) 1.014030 1.014557 1.016038 1.015984
Adjusted closing NAV per share/share price (c = a x b) 333.48p 312.48p 395.37p 344.67p
Opening NAV per share/share price (d) 353.70p 339.25p 492.66p 548.00p
Total return (c ÷ d)-1 (5.7%) (7.9%) (27.0%) (37.1%)
* The dividend adjustment factor is calculated on the assumption that the
dividend of 4.60p (2022 - 7.15p) paid by the Company during the year was
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.
2023 2022
Investment management fee £1,243,000 £1,452,000
Other administrative expenses £550,000 £479,000
Total expenses (a) £1,793,000 £1,931,000
Average daily cum-income net asset value (b) £190,419,970 £267,217,990
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.94% 0.72%
Baillie Gifford & Co Limited was appointed on 16 September 2020 and agreed
to waive its management fee for six months from the date of its appointment.
The calculation for 2022 above is therefore not representative of future
management fees. The reconciliation below shows the ongoing charges figure if
the management fee waiver had not been in place.
2022
Investment management fee £1,452,000
Investment management fee waiver £223,000
Other administrative expenses £479,000
Total expenses (a) £2,154,000
Average daily cum-income net asset value (b) £267,217,990
Ongoing charges ((a) ˜÷(b) expressed as a percentage) 0.81%
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.
Equity gearing is the Company's borrowings adjusted for cash and cash
equivalents expressed as a percentage of shareholders' funds.
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2023 2022
Gearing* Potential Gearing† Gearing* Potential Gearing†
£'000 £'000 £'000 £'000
Borrowings (a) 6,092 6,092 5,590 5,590
Cash and cash equivalents (b) 1,000 - 5,496 -
Sales for subsequent settlement (c) - - 2,175 -
Shareholders' funds (d) 203,940 203,940 219,341 219,341
2.5% 3.0% 1.0% 2.5%
* Gearing: ((a)-(b)+(c)) divided by (d), expressed as a percentage.
(†) Potential gearing: (a) divided by (d), expressed as a percentage.
Leverage (APM)
For the purposes of the UK 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.
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.
Participatory Notes (or P-Notes)
A P-Note is a certificate-based instrument that can be issued by a
counterparty bank and provides a synthetic stock exposure to an underlying
equity instrument. The synthetic exposure results in the P-Note having the
same performance as the underlying stock but carries an additional currency
exposure due to the P-Note being denominated in US$. P-Notes are unleveraged
instruments.
Variable Interest Entity ('VIE')
VIE structures are used by some Chinese companies to facilitate access to
foreign investors in sectors of the Chinese domestic economy which prohibit
foreign ownership. The purpose of the VIE structure is to give the economic
benefits and operational control of ownership without direct equity ownership
itself. The structures are bound together by contracts and foreign investors
are not directly invested in the underlying company.
Treasury Shares
The Company has the authority to make market purchases of its ordinary shares
for retention as treasury shares for future reissue, resale, transfer or for
cancellation. Treasury shares do not receive distributions and the Company is
not entitled to exercise the voting rights attaching to them.
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implied, as to the accuracy, completeness or timeliness of the data contained
herewith nor as to the results to be obtained by recipients of the data.
No Provider shall in any way be liable to any recipient of the data for any
inaccuracies, errors or omissions in the index data included in this document,
regardless of cause, or for any damages (whether direct or indirect) resulting
therefrom. No Provider has any obligation to update, modify or amend the data
or to otherwise notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
MSCI Index Data
Source: MSCI. The MSCI information may only be used for your internal use, may
not be reproduced or redisseminated in any form and may not be used as a basis
for or a component of any financial instruments or products or indices. None
of the MSCI information is intended to constitute investment advice or a
recommendation to make (or refrain from making) any kind of investment
decision and may not be relied on as such. Historical data and analysis should
not be taken as an indication or guarantee of any future performance analysis,
forecast or prediction. The MSCI information is provided on an 'as is' basis
and the user of this information assumes the entire risk of any use made of
this information. MSCI, each of its affiliates and each other person involved
in or related to compiling, computing or creating any MSCI information
(collectively, the 'MSCI Parties') expressly disclaims all warranties
(including, without limitation, any warranties of originality, accuracy,
completeness, timeliness, non-infringement, merchantability and fitness for a
particular purpose) with respect to this information. Without limiting any of
the foregoing, in no event shall any MSCI Party have any liability for any
direct, indirect, special, incidental, punitive, consequential (including,
without limitation, lost profits) or any other damages (msci.com).
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 China Growth Trust is marketed
in the EU by the AIFM, BG & Co Limited, via the National Private Placement
Regime (NPPR) the following disclosures have been provided to comply with the
high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's Governance and Sustainable
Principles and Guidelines as its policy on integration of sustainability risks
in investment decisions.
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.
More detail on the Investment Manager's approach to sustainability can be
found in the Governance and Sustainability Principles and Guidelines document,
available publicly on the Baillie Gifford website (bailliegifford.com).
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework or criteria for
environmentally sustainable economic activities in respect of six
environmental objectives. It builds on the disclosure requirements under the
SFDR by introducing additional disclosure obligations in respect of
Alternative Investment Funds ('AIFs') that invest in an economic activity that
contributes to an environmental objective.
The Company does not commit to make sustainable investments as defined under
SFDR. As such, the underlying investments do not take into account the EU
criteria for environmentally sustainable economic activities.
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws.
- ends -
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