REG - Baillie Gifford Euro - Annual Financial Report

Baillie Gifford European Growth TrustAnnouncement

06/12/2022 14:30

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RNS Number : 7958I  Baillie Gifford European Growth Tst  06 December 2022

Baillie Gifford European Growth Fund plc (BGEU)

 

Legal Entity Identifier:  213800QNN9EHZ4SC1R12

Regulated Information Classification: Annual Financial and Audit Reports

 

Annual Report and Financial Statements

 

Further to the preliminary statement of audited annual results announced to
the Stock Exchange on 22 November 2022, Baillie Gifford European Growth Trust
PLC ("the Company") announces that the Company's Annual Report and Financial
Statements for the year ended 30 September 2022, including the Notice of
Annual General Meeting, has been posted to shareholders and submitted
electronically to the National Storage Mechanism where it will shortly be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

It is also available on the Company's page of the Baillie Gifford website at:
www.bgeuropeangrowth.com (http://www.bgeuropeangrowth.com) (as is the
preliminary statement of audited annual results announced by the Company on 22
November 2022).

 

Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements

Each of the Directors, whose names and functions are listed within the
Directors and Managers section of the Annual Report and Financial Statements,
confirm that, to the best of their knowledge:

¾  the Financial Statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets, liabilities,
financial position and net return of the Company;

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

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

 

 

Principal Risks relating to the Company

 

 

As explained on pages 24 and 25 of the Annual Report and Financial Statements
there is an ongoing process for identifying, evaluating and managing the risks
faced by the Company. The Directors have undertaken a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten the business model, future performance, solvency or liquidity. A
description of these risks and how they are being managed or mitigated is set
out below:

 

Financial Risk - The Company's assets at present consist mainly of listed
securities. Its principal and emerging risks are therefore market related and
include market risk (comprising currency risk, interest rate risk and other
price risk), liquidity risk and credit risk. Explanations of those risks and
how they are managed or mitigated are contained in note 19 to the Financial
Statements on pages 49 to 54 of the Annual Report and Financial Statements.
The Board has, in particular, considered the impact of heightened market
volatility since the Covid-19 pandemic and over recent months due to
macroeconomic and geopolitical concerns, including the Russia-Ukraine
conflict. In monitoring this risk, the Board considers at each meeting various
portfolio metrics including individual stock performance, the composition and
diversification of the portfolio by sector, purchases and sales of investments
and the top and bottom contributors to performance. The Managers provide
rationale for stock selection decisions.

 

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

 

 

Climate and Governance Risk - as investors place increased emphasis on
Environmental, Social and Governance (ESG) issues, perceived problems on ESG
matters in an investee company could lead to that company's shares being less
attractive to investors, adversely affecting its share price, in addition to
potential valuation issues arising from any direct impact of the failure to
address the ESG weakness on the operations or management of the investee
company (for example in the event of an industrial accident or spillage).
Repeated failure by the Managers to identify ESG weaknesses in investee
companies could lead to the Company's own shares being less attractive to
investors, adversely affecting its own share price. This is mitigated by the
Managers thorough ESG stewardship and engagement

policies, which are available to view on the Managers' website:
bailliegifford.com and have been reviewed and endorsed by the Company, and are
fully integrated into the investment process as well as the extensive up front
and ongoing due diligence which the Managers undertake on each investee
company. This due diligence includes assessment of the risks inherent in
climate change (see page 26 of the Annual Report and Financial Statements).

 

Discount Risk - the discount/premium at which the Company's shares trade
relative to its NAV can change. The risk of a widening discount is that it may
undermine investor confidence in the Company. To manage this, the Board
monitors the level of discount/premium at which the shares trade and the
Company has authority to buy back its existing shares when deemed by the Board
to be in the best interests of the Company and its shareholders in aggregate.

 

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

 

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

 

 

Operational Risk - failure of Baillie Gifford's systems or those of other
third party service providers could lead to an inability to provide accurate
reporting and monitoring or a misappropriation of assets. To mitigate this
risk, Baillie Gifford has a comprehensive business continuity plan which
facilitates continued operation of the business in the event of a service
disruption (including any disruption resulting from the pandemics or major
disaster). The Board reviews Baillie Gifford's Report on Internal Controls and
the reports by other key third party providers are reviewed by Baillie Gifford
on behalf of the Board. In the year under review, the other key third party
service providers have not experienced significant operational difficulties
affecting their respective services to the Company.

 

Leverage Risk - the Company may borrow money for investment purposes
(sometimes known as 'gearing' or 'leverage'). If the investments fall in
value, any invested borrowings will magnify the impact of this loss. If
borrowing facilities are not renewed, the Company may have to sell investments
to repay borrowings. To mitigate this, all borrowings require the prior
approval of the Board and leverage levels are discussed by the Board and
Managers at every meeting. Covenant levels are monitored regularly. The
majority of the Company's investments are in quoted securities that are
readily realisable. Further information on leverage can be found on page 62 of
the Annual Report and Financial Statements and in the Glossary of Terms and
Alternative Performance Measures on pages 63 and 64 of the Annual Report and
Financial Statements.

 

Political and Associated Economic Risk - the Board is of the view that
political change in areas in which the Company invests or may invest may have
practical consequences for the Company. Political developments are closely
monitored and considered by the Board. The Board continues to assess the
potential economic consequences for the Company's future activities including
those that may arise from geopolitical tensions. The Board remains watchful of
broader global political tensions and the associated potential for armed
conflict.

 

Emerging Risks - as explained on pages 24 to 25 of the Annual Report and
Financial Statements, the Board has regular discussions on principal risks and
uncertainties, including any risks which are not an immediate threat but could
arise in the longer term. The Board considers that the key emerging risks
arise from the interconnectedness of the global economy and the related
exposure of the investment portfolio to external and emerging threats such as

the societal and financial implications of the Russia-Ukraine military
conflict and the tensions between China and the US, cyber risk and new
coronavirus variants or similar public health threats. The Managers believe
the impact of such events may be to slow growth rather than to invalidate the
investment rationale.

 

 

 

Baillie Gifford & Co Limited

Company Secretaries

6 December 2022

 

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