REG - Baillie Gifford Euro - Baillie Gifford Europe Growth Tst plc Final Result
17/11/2023 07:00
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RNS Number : 7676T Baillie Gifford European Growth Tst 17 November 2023
RNS Announcement
Baillie Gifford European Growth Trust plc
Legal Entity Identifier: 213800QNN9EHZ4SC1R12
Results for the year to 30 September 2023
Over the year to 30 September 2023, the Company's net asset value per share
(NAV) total return was 8.3% compared to a total return of 20.5% for the
comparative index. The share price total return for the same period was 8.6%.
· Positive contributors in the period included: Ryanair, which
continued to take market share from weaker airlines and invest in new
capacity; and online classified companies Adevinta and its major shareholder
Schibsted which showed that they can offset temporarily weaker volumes with
price increases.
· Negative contributors in the period included: battery startup
Northvolt which was written down to reflect moves in public benchmarks, though
operational progress remains good; and payments processing company Adyen which
fell after announcing some market share losses in the US.
· Annual turnover was 9% and gearing stood at 15.6% of
shareholders' funds as at the year end.
· The portfolio now contains five unlisted companies accounting
for 10.9% of total assets as at 30 September 2023 (2022: 11.0% in four
companies).
· The net revenue for the year was 2.68p per share (2022: 0.79p).
A special interim dividend of 2.20p was paid on 15 September 2023. A final
dividend of 0.40p per share is being recommended (2022: 0.70p).
· Over the year a total of 538,471 shares were bought back into
treasury.
For a definition of terms see Glossary of terms and alternative performance
measures at the end of this announcement. Total return information is sourced
from Baillie Gifford/Refinitiv and relevant underlying index providers; see
disclaimer at the end of this announcement.
Baillie Gifford European Growth Trust's principal investment objective is to
achieve capital growth over the long-term from a diversified portfolio of
European securities.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with around £217 billion under management and advice as at
15 November 2023.
Past performance is not a guide to future performance. Baillie Gifford
European 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 European Growth Trust
plc on the Company's page of the Managers' website at bgeuropeangrowth.com
(http://www.bgeuropeangrowth.com) ‡
‡ 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:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chairman's Statement
Performance
The net asset value per share ('NAV') total return over the Company's
financial year was 8.3% compared to a total return of 20.5% for the FTSE
Europe ex UK Index, in sterling terms. The share price total return over the
year was 8.6%; as at 30 September 2023 the discount to NAV of the Company's
shares was 13.6%.
The dramatic shift in macroeconomics and interest rates of all durations has
continued to make it a challenging time for growth investors. Discount rates
have risen; price earnings ratios are conversely lower. Despite strong
operational performance from most of our holdings (further detail provided in
the Managers' report on below) the share prices of the types of companies we
own have not recovered from the significant falls we saw in the previous year,
and in some cases have fallen further.
Since Baillie Gifford began managing the portfolio in November 2019, the NAV
total return has been 9.3% compared to a total return of 25.1% for the FTSE
Europe ex UK Index, in sterling terms. The share price total return has been
2.6%, with the discount widening from 7.5% to 13.6%.
After an initially strong run of performance, the Company has suffered two
years of poor investment results. This has damaged the longer run outcome for
now. The Board is painfully aware of the volatility and disappointment this
has entailed for shareholders but is confident that Baillie Gifford's
currently out-of-favour growth style will be vindicated in the longer term.
The reason equity investment yields the best long run returns is that it
involves volatility and requires patience and, on occasion, a degree of
endurance. The Board therefore considers it premature to make a proper
assessment of long-term performance.
Earnings and dividend
During the year the Company received a repayment of tax (and interest) from
HMRC, totalling £7.9 million (2.20p per share) following receipt of a
settlement agreement in relation to the Franked Investment Group ('FII GLO')
computational-based claims. The Board distributed this to shareholders as a
special interim dividend of 2.20p per ordinary share on 15 September 2023.
Revenue return per share for the year was 2.68p (2022 - 0.79p) and the Board
is recommending a final dividend of 0.40 p per ordinary share (2022 - 0.70p).
Subject to shareholder approval at the Annual General Meeting ('AGM'), the
dividend will be paid on 2 February 2024 to shareholders on the register on 5
January 2024. The ex-dividend date will be 4 January 2024.
Borrowings
The Company has two €30 million long-term debt facilities: the first has a
remaining duration of 17 years and is priced at a fixed rate of 1.57% and the
other has over 12 years outstanding at a fixed rate of 1.55%. The Company also
has an undrawn €30 million overdraft facility with The Northern Trust
Company, which at present is capped at €15 million following Board
agreement. At the year end, the Company had gearing of 15.6% of shareholders'
funds.
Share buybacks, issuance and discount
Over the course of the Company's financial year, the share price moved from a
13.5% discount to NAV to a 13.6% discount to NAV. During this period, the
Company bought back 538,471 shares at a total cost of approximately £501,000.
The shares repurchased by the Company are held in treasury and are available
to be reissued, at a premium, when market conditions allow.
The Board is of the view that the Company should retain the power to buy back
shares during the year and so, at the AGM, is seeking to renew the annual
authority to repurchase up to 14.99% of the shares in the Company in issue.
When buying back shares, the Board does not have a formal discount target and
is prepared to buy back shares opportunistically.
The Company also has authority to issue new shares and to reissue any shares
held in treasury for cash on a non pre-emptive basis. Shares are
issued/reissued only at a premium to NAV, thereby enhancing NAV for existing
shareholders. The Directors are, once again, seeking 10% share issuance
authority at the AGM. As with the buy back authority, this authority would
expire at the conclusion of the AGM to be held in 2025.
The Board
As noted in the 2022 Annual Report, Dr. Woodward will stand down from the
Board at the AGM. The Board therefore undertook a recruitment process seeking
to appoint an additional independent non-executive Director and was pleased to
announce the appointment of David Barron with effect from 1 October 2023.
David has spent 25 years working in the investment management sector and was
until November 2019 Chief Executive Officer of Miton Group PLC following six
years with the firm. Prior to this he was Head of Investment Trusts at JP
Morgan Asset Management for more than ten years having joined Robert Fleming
in 1995. David will stand for election at the upcoming AGM. On Dr Woodward's
departure from the Board, Andrew Watkins will become Chair of the Audit
Committee and Emma Davies Senior Independent Director. It is my intention to
stand down at the 2025 AGM, at which time David will replace me as Chair. The
Board intends to undertake a recruitment process next year and anticipates
appointing a further Director by 30 September 2024.
The Board wishes to thank Dr Woodward for his many years of commitment,
service, energy and insight and, in particular, for his assiduity and
experience in the role of Chairman of the Audit Committee.
Annual General Meeting
The AGM will be held at 11 a.m. on 18 January 2024 at the Institute of
Directors, 116 Pall Mall, London, SW1Y 5ED. The Managers will make a
presentation and I look forward to meeting shareholders who are able to
attend. To accurately reflect the views of shareholders of the Company, the
Board intends to hold the AGM voting on a poll, rather than by a show of hands
as has been customary. This will ensure an exact and definitive result. The
Board encourages all shareholders to exercise their votes on the AGM
resolutions by completing and submitting the form of proxy enclosed with the
Annual Report to ensure that your votes are represented at the meeting
(whether or not you intend to attend in person).
If you hold shares through a share platform or other nominee, the Board
encourages you to contact these organisations directly as soon as possible to
arrange for you to submit votes in advance of the AGM. Alternatively, the
Association of Investment Companies' ('AIC') website
theaic.co.uk/how-to-vote-your-shares
(http://www.theaic.co.uk/how-to-vote-your-shares) has information on how to
vote your shares if you hold them via one of the major platforms. The
following link will also take you through to the AIC website where there is
information on how your platform can help you attend the AGM in person
theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm
(http://www.theaic.co.uk/aic/ready-to-invest/shareholder-voting/attending-an-agm)
.
Should shareholders have questions for the Board or the Managers, or any
queries as to how to vote, they are welcome, as always, to submit them by
email to trustenquiries@bailliegifford.com or call 0800 917 2112.
Information on the resolutions can be found on pages 110 and 111 of the Annual
Report. The Directors consider that all resolutions to be put to
shareholders are in their and the Company's best interests as a whole and
recommend that shareholders vote in their favour.
Outlook
Fund managers are nearly always prone to regard the current environment as
difficult. It is no exaggeration, however, to describe the present
geopolitical turmoil and deterioration in the fabric and harmony of both
democratic and autocratic societies as troubling and unusual. 25 years of
unprecedented and arguably reckless money printing has come home to roost.
Adding value in anticipating big picture change either good or bad is
difficult, even accepting an element of reflexivity: one thing leads to
another. Inflation leads to falling living standards and, historically, wars.
The good news, as ever, is in the degree of innovation, disruption and
commercial success that can flow from human ingenuity. Stock-picking in the
form of focussing on what might go right is the best way to explore and mine
this seam. Growing, high quality companies delivering goods and services that
enhance their customers' lives are worthy of attention and investment. Our
Managers are adept at this activity. They have been sticking to their guns. In
this we support them.
Michael MacPhee
Chairman
16 November 2023
Managers' Report
We took over management of the Company four years ago with the aim of
investing in Europe's most dynamic growth companies. Since then, the share
price has experienced a spectacular rise and equally spectacular fall.
Adjusted for the share split, we started at just over 80p, peaked at around
170p, and ended the current period almost where we started. While we
continually ask ourselves what we could have done differently, Baillie Gifford
has been managing European portfolios since 1985 and has experienced poor
performance before. Many of our most successful companies have been through
similarly difficult bouts. Just as those companies did, we emerged from each
one in a stronger position. We do not wish to downplay the recent period of
poor performance. We think about it every
day. Disappointing as this is, however, it is more important to consider where
the share price will be five years from now.
Over short periods there are many variables that help dictate what a company
is worth. These include interest rates, risk appetite, social media, and many
of the behavioural shortcomings from which we humans regularly suffer.
Companies make mistakes too - operational hiccups happen. These are businesses
run by real people trying to navigate complex issues and unpredictable events.
Over longer periods of time, however, these variables play a far less
significant part. What is more important for value creation is a strong,
durable corporate culture, and the ability to grow profitably over time. We
will make mistakes, but if we build and maintain a portfolio of high-quality
growing businesses run by people we trust, we believe that we can deliver for
our shareholders.
Performance
Over the last financial year, the Company's NAV delivered a total return of
8.3% while the FTSE Europe ex UK index returned 20.5% in sterling terms. The
Company's share price total return was 8.6%, ending the period at 83.6p,
representing a discount of 13.6% to the NAV. This compares to a discount of
13.5% at the beginning of the period.
Despite these relative returns, we are increasingly optimistic about the
future. Operational progress has been at least in line with our expectations,
and we are seeing many affirming signals that our companies are taking
advantage of this environment, investing while peers retrench, carrying out
acquisitions, and buying back shares. We are not the only ones who think the
selloff is overdone.
Positive contributors in the period include Ryanair, which continued to take
market share from weaker airlines and invest in new capacity. Online
classified companies Adevinta and its major shareholder Schibsted showed that
they can offset temporarily weaker volumes with price increases. Both
companies' share prices have also been boosted by news that a private equity
consortium is looking to acquire Adevinta. Freight forwarder DSV and building
materials manufacturer Kingspan continue to execute well, and both have been
linked with potential large-scale acquisitions made feasible by their strong
balance sheets. Spotify continues to grow healthily and now boasts over 550m
monthly active users. After much investment, its recent focus has shifted to
profitability using cost reductions and price increases as levers. This shift
is underway at many technology companies, although Spotify is the first to be
rewarded by the market.
Some companies performed less well. Battery startup Northvolt was written down
to reflect moves in public benchmarks, though operational progress remains
good. Elsewhere, payments processing company Adyen fell almost 50% in the week
after announcing some market share losses in the US. This looks temporary to
us, though we continue to monitor progress and debate the attractiveness of
the new, lower valuation. Sartorius Stedim Biotech, which manufactures
bioprocessing equipment for the biologics industry, also reported negative
news, noting a slowdown in demand and higher inventories. Again, these issues
feel temporary, and
we have made a modest addition. Swedish gaming company Embracer has been more
disappointing. The investment case centred on the founder's strategy of
acquiring media content and gaming studios and letting their founders flourish
in a decentralised organisation. Unfortunately, this was a case of
overpromising and underdelivering, and management is now being forced to sell
assets to pay down debt. We have some sympathy for the idea that the company
is now undervalued, but we have lost faith in the management team and the
board. Trust in management and alignment are non-negotiable for us so we have
sold our entire position.
Improving performance
We genuinely believe that the future looks brighter than the past. Cynics may
argue that this is what all underperforming fund managers say, so the onus is
on us to explain the underpinnings of our optimism. So, what are the catalysts
to drive improving performance?
Cognitive psychologist Gary Klein, in his book 'Seeing What Others Don't',
suggests that performance is improved by 'reducing errors and increasing
insights'. As we have written before, our main error has been misjudging the
impact of rapidly shifting monetary policy on the valuations of growth
companies. Because the companies in the portfolio tend to be smaller and grow
much faster than average, most of their lifetime cashflows are in the future,
and these are now being discounted at a much higher rate than they were. We
have therefore felt the impact of rising rates much more acutely. When panic
sweeps the market,
it is the more nascent, higher growth companies that get hit hardest.
In order to minimise future valuation risk, we monitor interest rate and
duration risk in the portfolio and construct a reverse discounted cashflow
model for every company we look at. These process tweaks will help us test our
assumptions on valuation, but also to take advantage of opportunities in a
volatile market. This is crucial - the potential upside is much greater than
the potential downside, so while minimising errors is important, it is less
important than identifying insights to help us invest today in tomorrow's
winners.
Insights
"Insights shift us toward a new story, a new set of beliefs that are more
accurate, more comprehensive, and more useful. Our insights transform us in
several ways. They change how we understand, act, see, feel, and desire."
- Gary Klein
We strive to identify insights. We look for new ways of seeing companies,
truths that others are perhaps less able to see, potential that the market is
not currently discounting. This is how one outperforms the market over the
long term. Klein suggests that insights are often generated through pattern
recognition and making connections as a by-product of coincidence or
curiosity. Insights can also come from contradictions and inconsistencies.
When we come across things that don't make sense, we need to build new mental
models to understand what is going on. For us this is happening more and more
when thinking about company valuations.
We have underperformed over the past two years - this simple observation is
irrefutable. Interest rates have risen, and valuation multiples have fallen.
However, here's the contradiction: over the past two years, the forward
price-to-earnings multiple of our portfolio has fallen by 50%, from 34x to
17x*, which is a 40% premium to the index we are trying to outperform. If
you believe sell-side analysts, earnings per share (EPS) of our portfolio are
expected to grow 12% per annum over the next three years which compares
favourably to 4% per annum for the index. At those rates, the valuation
multiple of our portfolio would be below that of the index within five years,
although we would be disappointed if it wasn't sooner. This doesn't make any
sense to us. The companies we invest in typically grow faster than the index
and we would expect this to continue for far longer than five years. We think
they are higher quality, have unique corporate cultures, have less debt, and
are run by some of the best capital allocators in Europe. Things can always
get cheaper but even the idea that our portfolio would trade at a discount to
the index in a few years highlights just how inefficient the market is at
valuing growth.
So, what's going on? Part of the explanation could be related to hyperbolic
discounting. This is a complicated sounding way of saying that future profits
are being excessively discounted. We are reminded of the 1972 Stanford
marshmallow experiment, led by psychologist Walter Mischel, which set out to
measure a child's willingness to defer gratification. Children would often
choose to devour one marshmallow immediately rather than wait fifteen minutes
to receive two. This desire to experience immediate rewards at the expense of
bigger rewards in the future plagues markets as much as children.
As long-term investors, we believe that the market tends to underestimate the
attractiveness of special companies over long periods. This inefficiency
becomes much more acute during times of stress, when time horizons shrink,
risk appetite diminishes, and a premium is placed on certainty. It's no great
surprise, then, that market breadth has narrowed sharply since 2021. Many have
sought refuge in the perceived safety of the largest companies in the index
regardless of their fundamentals or valuations. We've long believed that the
midcap space in Europe contains a high proportion of future outliers, but this
view is increasingly at odds with what the market is pricing in. This won't
last forever, so we believe that this is the time to be adding to those stocks
where we see asymmetric payoffs.
Portfolio
Portfolio turnover for the year was 9%, implying an average holding period of
just over 10 years. During the second half of our financial year, we made six
new investments in public companies: EQT, one of the world's largest and most
reputable private equity firms; LVMH and Moncler, two luxury goods companies
that are getting better as they get bigger; Soitec, an innovative French
semiconductor company exposed to rapidly growing markets; Royal Unibrew, a
multi-beverage company with serial acquirer characteristics; and Eurofins, a
global lab testing business we've been waiting patiently to buy for many
years. We also made a new investment in an unlisted Italian software company
called Bending Spoons, which has a unique approach to monetising consumer
mobile apps. This is a diverse, high-quality, highly profitable collection of
companies growing much faster than the market, with meaningful inside
ownership and attractive valuations.
During the same period, to make way for these new holdings, we completely sold
five investments. We have already mentioned Embracer, but food delivery firm
Just Eat Takeaway.com and green holding company Aker Horizons didn't work out
either. Just Eat Takeaway.com suffered from an ill-timed acquisition in the
highly competitive US market. Legislators also introduced fee caps which
effectively turned a profitable business into a loss making one. With Aker
Horizons we underestimated how difficult it would be for its portfolio of
clean tech businesses to generate profits. MedTech distributor Addlife, and
heat pump manufacturer NIBE, have been more successful. During the Covid
pandemic, Addlife benefitted from increased demand for diagnostics and
hospital equipment, while demand for NIBE's energy efficient heat pumps far
exceeded supply during the energy crisis. In both cases we determined that
valuations had risen too much, and that the capital would be best redirected
into better ideas.
Private companies
While the Company can invest up to 20% of total assets in private companies,
we currently have five investments accounting for around 11%: Northvolt
(4.9%), McMakler (1.8%), sennder (1.8%), Flix (1.5%) and Bending Spoons
(0.9%). Overall operational progress has been good and both Northvolt and Flix
are rumoured to be considering an initial public offering ('IPO') in 2024.
We think giving investors low-cost access to private companies that would
otherwise be unavailable is an attractive proposition. Companies are staying
private for longer, as many of them are relatively asset light and therefore
require little capital to grow. As a result, many are in the fortunate
position to be able to choose their investors. We think our reputation as
long-term growth investors and our ability to invest in both private and
public markets mean we are advantaged when it comes to deal flow. We
absolutely believe that investing in Europe's increasingly dynamic private
companies can generate significant value and provide insights into a level of
disruption not normally seen in public markets.
Northvolt
Our very first private investment is becoming increasingly important to us and
the broader European economy. Northvolt was founded in 2016 by two former
Tesla executives backed by two Swedish entrepreneurs who wanted to accelerate
decarbonisation. Their mission was to produce the world's greenest batteries
with the lowest carbon footprint. In just seven years, the company has taken
on over 4,000 employees, secured more than $8bn in funding, and received more
than $55bn in orders from customers like BMW, VW, Scania, Siemens and ABB.
This is truly remarkable.
At 4.9% it is the largest position in the portfolio, so its success will help
underpin any rebound in performance. The rumoured IPO in 2024 is just a
milestone for us if it happens as we can continue holding the shares if there
remains sufficient upside. Either way it should be very high profile
particularly given its strategic importance to Europe's automotive industry,
politicians, and financial institutions who all want to see it succeed. Europe
cannot afford to rely on Asian battery manufacturers. It needs to build its
own supply chain and Northvolt is the best chance we have.
Northvolt's opportunity is large and growing. In Europe alone, battery demand
is expected to increase from around 150GWh in 2022 to 1,370GWh in 2030. This
is likely to be revised upwards as new markets and applications emerge. We
suspect this will be a commoditised market, but Northvolt's strategy seems
well-suited. Important aspects of this strategy include:
• An ambition to lower the carbon footprint of a battery to 10kg of carbon
dioxide equivalent per kilowatt hour, a 90% reduction from the current
industry benchmark. This will be driven by access to very cheap renewable
hydroelectric power, using responsibly sourced raw materials, and using at
least 50% recycled material.
• Its unique vertical integration. Everything from cathode production to
cell assembly to recycling will be done in-house. This not only lowers carbon
emissions but also helps capture more recycled materials and improves quality.
• A European supply chain. A local champion needs local supply, and
Northvolt's aim is to source 90% of components from within Europe. This
creates a lot of alignment with those customers and politicians responsible
for orders and subsidies.
• A focus on talent. Northvolt has assembled one of the best R&D teams
in the world. Battery chemistries and technological roadmaps will evolve so it
is important that the company can adapt and compete with its Asian
competitors.
During an investment trip to Sweden with the Board, we recently visited
Northvolt's first factory, Northvolt Ett, in the small town of Skellefteå.
The 200-hectare site near the Arctic Circle is equivalent to around 300
football pitches, so is a highly ambitious project. The current plan is to
produce 150GWh of batteries by 2030, but there is upside potential to this
figure. To put this into context, if the average electric car has a 70kWh
battery, this would be enough to power more than 2 million of the 11 million
cars sold in Europe in 2022. Using public estimates for battery prices in
2030, this could result in $10-15bn in sales. Engineering and manufacturing at
this scale poses tremendous challenges, and there will no doubt be delays and
setbacks. If Northvolt succeeds, however, the payoff for investors could be
huge.
Outlook
Our investment style is very much out of favour, and we have undoubtedly made
mistakes, but we have the right people and corporate culture at Baillie
Gifford to persevere through this difficult time. There are plenty of
geopolitical tensions and economic headwinds to worry about, but we must not
let such factors overshadow the adaptability, innovation, and capital
allocation of the companies we invest in. We are riding on the coat-tails of
founders, families and management teams who are doing all the hard work. That
this work is being so discounted by the market gives us confidence in a
brighter outlook for returns from here.
Stephen Paice
Chris Davies
Baillie Gifford
16 November 2023
* Representative portfolio and index figures are calculated excluding negative
earnings.
List of investments
As at 30 September 2023
Name Geography Business 2023 2023
Value % of total
£'000 assets
Northvolt(U) Sweden Battery developer and manufacturer 18,752 4.9
Prosus Netherlands Portfolio of online consumer companies 18,710 4.9
Ryanair Ireland Low-cost airline 16,791 4.4
Topicus.com Netherlands Acquirer of vertical market software companies 16,053 4.2
Schibsted Norway Media and classifieds advertising platforms 14,381 3.8
Atlas Copco Sweden Industrial group 13,070 3.5
DSV Denmark Freight forwarder 12,473 3.3
ASML Netherlands Semiconductor equipment manufacturer 12,247 3.2
Allegro.eu Poland E-commerce platform 12,058 3.2
Kingspan Ireland Building materials provider 11,356 3.0
EXOR Netherlands Investment company specialising in industrials 10,774 2.8
Kering France Owner of luxury fashion brands 10,570 2.8
IMCD Netherlands Speciality chemicals distributor 9,697 2.6
Adevinta Norway Online classifieds marketplaces 9,606 2.5
Avanza Bank Sweden Online investment platform 9,396 2.5
Richemont Switzerland Owner of luxury goods companies 8,907 2.3
Spotify Sweden Online audio streaming service 8,528 2.2
Mettler-Toledo Switzerland Manufacturer of precision instruments for laboratories 8,302 2.2
Dassault Systèmes France Develops software for 3D computer-aided design 8,137 2.1
Adyen Netherlands Online payments platform 8,024 2.1
Nexans France Cable manufacturing company 8,003 2.1
Reply Italy IT consulting and systems integration provider 7,089 1.9
sennder (U) # Germany Freight forwarder focused on road logistics 6,938 1.8
McMakler (U) Germany Digital real estate broker 6,668 1.8
Sartorius Stedim Biotech France Pharmaceutical and laboratory equipment provider 6,531 1.7
Zalando Germany Online fashion retail platform 5,848 1.5
Flix (U) Germany Long-distance bus and train provider 5,841 1.5
Hypoport* Germany FinTech platform 5,633 1.5
Hexpol Sweden Manufacturer of rubber and polymer compounds 5,591 1.5
Kinnevik Sweden Investment company specialising in digital consumer businesses 5,508 1.5
Delivery Hero Germany Online food delivery platform 4,968 1.3
Epiroc Sweden Mining and infrastructure equipment provider 4,910 1.3
Evotec Germany Contract research and drug discovery company 4,793 1.3
HelloFresh Germany Meal kit delivery company 4,775 1.3
LVMH* France Luxury goods 4,626 1.2
Wizz Air Hungary Low-cost airline 4,583 1.2
Soitec* France Manufactures engineered substrates for semiconductor wafers 4,508 1.2
Hemnet Sweden Online real estate platform 4,400 1.2
adidas Germany Sports shoes and clothing manufacturer 4,170 1.1
Beijer Sweden Wholesaler of cooling technology 3,827 1.0
AUTO1 Germany Online platform for used car selling in Europe 3,785 1.0
Moncler* Italy Manufactures luxury apparel products 3,693 1.0
Bending Spoons (U) * Italy Mobile application software developer 3,243 0.9
AutoStore* Norway Warehouse automation and cubic storage systems 3,121 0.8
Tonies Germany Musical storybox toys for children 3,099 0.8
Royal Unibrew* Denmark Alcoholic and non-alcoholic beverages 2,892 0.8
Eurofins* France Analytical testing services 2,862 0.8
Crispr Therapeutics Switzerland Developer of treatments based on gene editing technology 2,701 0.7
EQT* Sweden Investment firm, investing in equity, ventures, infrastructure and real estate 2,688 0.7
VNV Global Sweden Investment company specialising in early-stage technologies 2,253 0.6
Cellectis† France Biotech focused on genetic engineering 433 0.1
Total Investments 377,812 99.6
Net Liquid Assets* 1,536 0.4
Total Assets 379,348 100.0
Borrowings (51,960) (13.7)
Shareholders' funds 327,388 86.3
(U) Denotes private company investment.
* New holding bought during the year (Addlife, Aker Horizons, Embracer, NIBE
Industrier, Takeaway.com, Ubisoft Entertainment were sold during the year)
† Includes American Depositary Receipt.
# Includes convertible loan note.
Income Statement
Notes 2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 19,795 19,795 - (241,839) (241,839)
Currency (losses)/gains (40) 533 493 104 (1,145) (1,041)
Income 2 3,912 - 3,912 4,313 - 4,313
Investment management fee 3 (354) (1,416) (1,770) (412) (1,647) (2,059)
Other administrative expenses (564) - (564) (572) - (572)
Net return before finance costs and taxation 2,954 18,912 21,866 3,433 (244,631) (241,198)
Finance costs of borrowings (164) (653) (817) (214) (652) (866)
Net return before taxation 2,790 18,259 21,049 3,219 (245,283) (242,064)
Tax on ordinary activities 6,835 - 6,835 (358) - (358)
Net return after taxation 9,625 18,259 27,884 2,861 (245,283) (242,422)
Net return per ordinary share 4 2.68p 5.09p 7.77p 0.79p (67.98p) (67.19p)
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
Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 6 377,812 358,105
Current assets
Debtors 2,406 2,797
Cash and cash equivalents 907 3,571
3,313 6,368
Creditors
Amounts falling due within one year: (1,775) (1,516)
Net current assets 1,538 4,852
Total assets less current liabilities 379,350 362,957
Creditors
Amounts falling due after more than one year: 7 (51,960) (52,560)
Net assets 327,390 310,397
Capital and reserves
Share capital 8 10,061 10,061
Share premium account 125,050 125,050
Capital redemption reserve 8,750 8,750
Capital reserve 176,215 158,457
Revenue reserve 7,314 8,079
Shareholders' funds 327,390 310,397
Net asset value per ordinary share* (borrowings at book value) 91.4p 86.5p
Net asset value per ordinary share* (borrowings at fair value) 96.7p 91.9p
The accompanying notes below are an integral part of the Financial Statements.
* See Glossary of terms and alternative performance measures at the end of
this announcement.
Statement of Changes in Equity
For the year ended 30 September 2023
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 October 2022 10,061 125,050 8,750 158,457 8,079 310,397
Dividends paid during the year 5 - - - - (10,390) (10,390)
Shares bought back into treasury - - - (501) - (501)
Net return on ordinary activities after taxation - - - 18,259 9,625 27,884
Shareholders' funds at 30 September 2023 10,061 125,050 8,750 176,215 7,314 327,390
For the year ended 30 September 2022
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 October 2021 10,061 125,050 8,750 411,184 6,494 561,539
Dividends paid during the year 5 - - - - (1,276) (1,276)
Shares bought back into treasury - - - (7,444) - (7,444)
Net return on ordinary activities after taxation - - - (245,283) 2,861 (242,422)
Shareholders' funds at 30 September 2022 10,061 125,050 8,750 158,457 8,079 310,397
The accompanying notes below are an integral part of the Financial Statements.
Cash Flow Statement
Notes 2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation 21,049 (242,064)
Net (gains)/losses on investments (19,795) 241,839
Currency (gains)/losses (533) 1,041
Finance costs of borrowings 817 866
Tax repayment received 7,034 -
Overseas withholding tax suffered (199) (284)
Overseas withholding tax received 451 459
Changes in debtors* (170) (214)
Changes in creditors* 29 (316)
Cash from operations(†) 8,683 1,327
Interest paid (813) (852)
Net cash inflow from operating activities 7,870 475
Cash flows from investing activities
Acquisitions of investments(#) (46,765) (147,499)
Disposals of investments(#) 47,203 147,012
Net cash inflow/(outlow) from investing activities 438 (487)
Cash flows from financing activities
Shares bought back into treasury (509) (7,436)
Equity dividends paid 5 (10,390) (1,276)
Net cash outflow from financing activities (10,899) (8,712)
Decrease in cash and cash equivalents (2,591) (8,724)
Exchange movements (73) 43
Cash and cash equivalents at start of year 3,571 12,252
Cash and cash equivalents at end of year 907 3,571
Comprising:
Cash at bank 907 3,571
907 3,571
* Change in debtors is made up of changes in accrued income, prepaid expenses
and taxation recoverable (excluding overseas withholding tax received in the
year). Change in creditors is made up of changes in other creditors and
accruals.
† Cash from operations includes dividends received of £2,839,000 (2022 -
£4,284,000) and interest received of £919,000 (2022 - £2,000).
# Acquisitions of investments is made up of the current year purchases at
cost, plus opening purchases for subsequent settlement, less
closing purchases for subsequent settlement (see note 11). Disposals of
investments is made up of the current year sales proceeds plus
opening investment sales awaiting settlement, less closing investment sales
awaiting settlement.
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Condensed Financial Statements
1. The Financial Statements for the year to 30 September 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 below which are consistent with those applied for the year ended 30
September 2022.
2. Income
2023 2022
£'000 £'000
Income from investments
Overseas dividends 2,890 4,311
Overseas interest 103 -
Other income
Interest 919 2
Total income 3,912 4,313
Interest for 2023 includes £869,000 interest received from HMRC with the tax
repayment (see note 6 on page 96 of the Annual Report and Financial
Statements).
3. Investment Management Fee
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 354 1,416 1,770 412 1,647 2,059
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 29 November 2019. 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 0.55% of the lower of (i) the
Company's market capitalisation and (ii) the Company's net asset value (which
shall include income), in either case up to £500 million, and 0.50% of the
amount of the lower of the Company's market capitalisation or net asset value
above £500 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 2.68p 5.09p 7.77p 0.79p (67.98p) (67.19p)
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £9,625,000 (2022 - £2,861,000), and on
358,552,904 (2022 - 360,823,119) 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 gain for the
financial year of £18,259,000 (2022 - net capital loss of £245,283,000), and
on 358,552,904 (2022 - 360,823,119) 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 period:
Previous year's final (paid 10 February 2023) 0.70p 0.35p 2,511 1,276
Special Interim Dividend (paid 15 September 2023) 2.20p - 7,879 -
2.90p 0.35p 10,390 1,276
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 £9,625,000 (2022 -
£2,861,000).
2023 2022 2023 2022
£'000 £'000
Dividends paid and proposed in the period:
Special Interim Dividend (paid 15 September 2023) 2.20p - 7,879 -
Proposed final dividend per ordinary share 0.40p 0.70p 1,433 2,511
(payable 10 February 2024)
2.60p 0.70p 9,312 1,276
6. Investments
As at 30 September 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 336,369 - - 336,369
Unlisted equities - - 41,443 41,443
Total financial asset investments 336,369 - 41,443 377,812
As at 30 September 2022 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 318,506 - - 318,506
Unlisted equities - - 39,599 39,599
Total financial asset investments 318,506 - 39,599 358,105
Investments in securities are financial assets designated at fair value
through profit or loss on initial recognition. In accordance with FRS 102 the
tables above 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 pages 92 and 93 of the Annual Report and Financial Statements. A
sensitivity analysis by valuation technique of the unlisted securities is on
pages 104 and 105 of the Annual Report and Financial Statements.
7. Creditors - amounts falling due after more than one year
2023 2022
£'000 £'000
Unsecured loan notes:
€30m 1.55% 24 June 2036 25,998 26,299
€30m 1.57% 8 December 2040 25,962 26,261
51,960 52,560
The company has €30 million of long-term, fixed rate, senior, unsecured
privately placed loan notes, with a fixed coupon of 1.57% to be repaid on 8
December 2040 and a further €30 million of long-term, fixed rate, senior,
unsecured privately placed loan notes with a fixed coupon of 1.55% to be
repaid on 24 June 2036.
The main covenants which are tested monthly are: (i) Net tangible assets shall
not fall below £200,000,000. (ii) Total borrowings shall not exceed 30% of
the Company's adjusted assets. (iii) The Company's number of holdings shall
not fall below 30.
The Company currently has a €30,000,000 bank overdraft credit facility
agreement with The Northern Trust Company (the 'Bank') for the purpose of
pursuing its investment objective. As at 30 September 2023, nil had been drawn
down (2022 - nil). The facility is uncommitted. Interest is charged at 1.25%
above the European Central Bank Main Financing Rate. The Board has currently
agreed to cap a drawdown under this facility at €15,000,000.
8. Share Capital
2023 2023 2022 2022
Number £'000 Number £'000
Allotted, called up and fully paid ordinary shares of 2.5p each 358,149,200 8,954 358,687,671 8,967
Treasury shares of 2.5p each 44,294,490 1,107 43,756,019 1,094
Total 402,443,690 10,061 402,443,690 10,061
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 September 2023 the Company had authority
to buy back 53,228,811 ordinary shares. During the year to 30 September 2023,
no ordinary shares (2022 - nil) were bought back for cancellation and 538,471
ordinary shares were bought back into treasury at a cost of £500,000 (2022 -
£7,444,000). Under the provisions of the Company's Articles of Association
share buy-backs are funded from the capital reserve. The Company has authority
to allot shares under section 551 of the Companies Act 2006. The Board has
authorised use of this authority to issue new shares at a premium to net asset
value per share in order to enhance the net asset value per share for existing
shareholders and improve the liquidity of the Company's shares. During the
year to 30 September 2023 no shares were issued (in the year to 30 September
2022 - no shares were issued).
9. Analysis on change in net debt
1 October Cash flows Other non-cash changes Exchange 30 September
2022
£'000
£'000
2023
£'000 movement
£'000
£'000
Cash and cash equivalents 3,571 (2,591) - (73) 907
Loans due in more than one year (52,560) - (6) 606 (51,960)
(48,989) (2,591) (6) 533 (51,053)
10. The financial information for 2022 is derived from the statutory
accounts for 2022 which have been delivered to the Registrar of Companies.
Statutory accounts for 2023 will be delivered to the Registrar of Companies in
due course. The Auditors have reported on the 2022 and 2023 accounts, their
report was (i) unqualified; (ii) did not include a reference to any matters to
which the Auditors 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.
11. Transactions with related parties and the managers and secretaries
The Directors' fees for the year and interests in the Company's shares at the
end of the year are detailed in the Directors' Remuneration Report on page 76
of the Annual Report and Financial Statements. The Directors' Fees are
included in note 4 on page 95 of the Annual Report and Financial Statements.
No Director has a contract of service with the Company. During the years
reported, no Director was interested in any contract or other matter requiring
disclosure under section 412 of the Companies Act 2006.
The Management fee due to Baillie Gifford & Co Limited is set out in note
3 on page 95 of the Annual Report and Financial Statements and the amount
accrued at 30 September 2023 is set out in note 11 on page of the Annual
Report and Financial Statements. Details of the Investment Management
Agreement are set out on page 58 of the Annual Report and Financial
Statements.
The Company is part of a marketing programme which includes all the investment
trusts managed by the Manager. The Company's marketing contribution, recharged
by the Manager, was £88,000 (£100,000) as disclosed in note 4 on page 95 of
the Annual Report and Financial Statements.
12. The Annual Report and Financial Statements will be available on the
Company's page of the Managers' website at bgeuropeangrowth.com
(http://www.bgeuropeangrowth.com) on or around 1 December 2023.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
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 requires investment trust companies to provide personal
information to HMRC on certain investors who purchase shares in investment
trusts. As an affected company, Baillie Gifford European Growth Trust 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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implied, as to the accuracy, completeness or timeliness of the data contained
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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
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with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
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herein.
FTSE Index Data
Source: London Stock Exchange Group plc and its group undertakings
(collectively, the 'LSE Group'). ©LSE Group 2023. FTSE Russell is a trading
name of certain of the LSE Group companies. 'FTSE®' 'Russell®', 'FTSE
Russell®, are trade marks of the relevant LSE Group companies and are used by
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU 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
European Growth Trust is marketed in the EU by the AIFM, Baillie Gifford &
Co Limited, via the National Private Placement Regime, 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 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 Managers' 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 of criteria for
environmentally sustainable economic activities in respect of six
environmental objectives. It builds on the disclosure requirements under SFDR
by introducing additional disclosure obligations in respect of alternative
investment funds 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.
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 less current liabilities, before deduction of all
borrowings.
Shareholders' funds
Shareholders' Funds is the value of all assets held less all liabilities, with
borrowings deducted at book value.
Net asset value
Net Asset Value is the value of total assets less liabilities with borrowings
deducted at either book value or fair value as described below. The net asset
value per share (NAV) is calculated by dividing this amount by the number of
ordinary shares in issue (excluding treasury shares).
Net asset value (borrowings at fair value) (APM)
Borrowings are valued at an estimate of market worth. The fair value of the
Company's loan notes is set out in note 19 on page 107 of the Annual Report
and Financial Statements
.
A reconciliation from shareholders' funds (borrowings at book value) to net
asset value after deducting borrowings at fair value is provided below.
2023 2023 2022 2022
per share
£'000 £'000 per share
Shareholders' funds (borrowings at book value) 327,390 91.4p 310,397 86.5p
Add: book value of borrowings 51,960 14.5p 52,560 14.7p
Less: fair value of borrowings (32,869) (9.2p) (33,425) (9.3p)
Net asset value (borrowings at fair value) 346,481 96.7p 329,532 91.9p
The per share figures above are based on 358,149,200 (2022 - 358,687,671)
ordinary shares of 2.5p, being the number of ordinary shares in issue at the
year end.
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 it is
said to be trading at a discount. The size of the discount is calculated by
subtracting the share price from the NAV and is usually expressed as a
percentage of the NAV. If the share price is higher than the NAV, it is said
to be trading at a premium.
2023 2023 2022 2022
NAV (book) NAV (fair) NAV (book) NAV (fair)
Closing NAV 91.4p 96.7p 86.5p 91.9p
Closing share price 83.6p 83.6p 79.5p 79.5p
Discount 8.5% 13.6% 8.1% 13.5%
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 price NAV Share price
Closing NAV/share price (a) 96.7p 83.6p 91.9p 79.5p
Dividend adjustment factor* (b) 1.0286 1.0328 1.0024 1.0025
Adjusted closing NAV/share price (c) = (a) x (b) 99.5p 86.3p 92.1p 79.7p
Opening NAV/share price (d) 91.9p 79.5p 154.5p 152.4p
Total return (c) ÷ (d) -1 8.3% 8.6% (40.4%) (47.7%)
* The dividend adjustment factor is calculated on the assumption that the
dividends of 0.7p and 2.20p (2022 - final dividend 0.35p) paid by the Company
during the year were reinvested into shares of the Company at the cum income
NAV/share price, as appropriate, at the ex-dividend date.
The NAV (fair) total return for the period since Baillie Gifford began
managing the portfolio in November 2019 can be calculated using the
methodology shown in the table above and an opening NAV of 93.7p, a dividend
adjustment factor of 1.0585 and a closing NAV of 96.7p.
Ongoing charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value with borrowings at fair 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 is
provided below.
2023 2022
Investment management fee £1,770,000 £2,059,000
Other administrative expenses £564,000 £572,000
Total expenses (a) £2,334,000 £2,631,000
Average net asset value (with borrowings deducted at fair value) (b) £379,519,000 £439,950,000
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.62% 0.60%
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 shareholders' funds is called
'gearing'. If the Company's assets grow, shareholders' funds 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.
Gearing is the Company's borrowings adjusted for cash and cash equivalents
expressed as a percentage of shareholders' funds.
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
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.
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.
-end-
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