REG - Baillie Gifford Euro - Baillie Gifford European Growth Half-year Report
17/05/2022 07:00
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RNS Number : 6784L Baillie Gifford European Growth Tst 17 May 2022
RNS Announcement
Baillie Gifford European Growth Trust plc
Legal Entity Identifier: 213800QNN9EHZ4SC1R12
Regulated Information Classification: Half Yearly Financial Report
Results for the six months to 31 March 2022
Over the six month period, the Company's net asset value per share (NAV) total
return was -24.7% compared with a total return of -5.2% for the FTSE Europe ex
UK index, in sterling terms. The Company's share price total return for the
same period was -28.8%.
· Over the 28 months to 31 March 2022, being the period under the
management of Baillie Gifford, the Company's NAV total return was 27.0%
compared with a total return of 15.8% for the FTSE Europe ex UK index, in
sterling terms. The share price total return for the same period was 29.7%.
· During the six month period four new positions were taken
(tonies, McMakler, Topicus.com and Embracer) and seven existing positions were
added to (Aker Horizons, VNV Global, Allegro, Prosus, Just Eat Takeaway, Wizz
Air and Delivery Hero).
· At the AGM shareholders approved an increase in the maximum
amount that may be invested in unlisted investments, from 10% to 20% of total
assets.
· Invested gearing stood at 11.1% at the end of the period.
Past performance is not a guide to future performance
Total return information is sourced from Refinitiv, Baillie Gifford and
relevant underlying index providers. See disclaimer at end of this
announcement.
Baillie Gifford European Growth Trust aims to achieve capital growth over the
long-term from a diversified portfolio of European securities. At 31 March
2022 the Company had total assets of £461m.
Baillie Gifford European Growth Trust is managed by Baillie Gifford, an
Edinburgh-based fund management group with approximately £239 billion under
management and advice as at 16 May 2022.
Baillie Gifford European Growth Trust 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 at bgeuropeangrowth.com
(http://www.bgeuropeangrowth.com) ‡. Past performance is not a guide to
future performance.
17 May 2022
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474 5548
Jonathan Atkins, Four Communications
Tel: 020 3103 9553 or 07872 495 396
‡ 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.
The following is the unaudited Interim Financial Report for the six months to
31 March 2022 which was approved by the Board on 16 May 2022.
Interim Management Report
We live in uncertain and often disheartening times. Crisis follows crisis.
'Out of the frying pan and into the fire' would be an apt metaphor if the
nightmare of the aforementioned pan had ended, but the dislocations of the
pandemic still ripple through our lives only now aided and abetted by Russia's
invasion of Ukraine. Economic uncertainty abounds with inflation rife, rising
interest rates and a growing probability of recession, but geopolitical
uncertainty is equally prevalent. Germany is re-arming; Finland and Sweden are
openly considering NATO membership; and Switzerland has abandoned its
neutrality. None of us expected such tectonic shifts six months ago. More
recently, the French Presidential elections added fuel to the fire, with
rampant speculation about a possible 'Frexit' had Marine Le Pen won. President
Macron's victory may have calmed fears for now, but resolution is a luxury in
this environment. Seldom have there been so many reasons to fear Europe. Add
to all this the collapse of the Company's share price since September and
you'd be forgiven for wondering how we manage to get up in the morning.
The principal reason we do - and our overriding motivation - is because we see
a different version of the world, one expressed by the portfolio we have
constructed. It is a portfolio of companies driving and benefiting from
inexorable, momentous changes that promise to rewrite industries, habits and
lives. Upstaged by fever pitch noise, it is altogether too easy to forget the
underlying revolution in biotechnology driven by advances in gene sequencing
and other novel tools, or the paradigm shifts underway in our relationship
with food, or global decarbonisation, or the digitisation of retail and so on.
In a decade's time we suspect that it is the big intrinsic shifts to which our
portfolio companies are exposed that will be proven to matter far more than
the next rate hike or another few months of high inflation.
Our preoccupations therefore reflect this. Most of our time is spent analysing
companies through an optimistic lens, not sifting through myopic headlines. We
focus on the long term and devote ourselves to considering the potential
upside should our companies thrive. As Hendrik Bessembinder demonstrates in
his 2017 paper, 'Do Stocks Outperform Treasury Bills?', long-term returns in
stock markets tend to be driven by a handful of extraordinary outliers. In
fact, from 1926 to 2016, just 4% of US stocks accounted for the entire
period's net wealth creation, or US$35tn. A further paper in 2019 discovered
that this was even more extreme outside the US. What is also striking is that,
if one looks at the many of these long-term winners, they have at times been
short-term losers. Amazon generated US$865bn of shareholder wealth between
June 1997 and December 2019, but in September 2001 it experienced a 93% fall,
and from September 2007 to November 2008 it experienced a 56% fall.
Sticking with these companies can therefore be hard when the market tells you
that you're wrong, sometimes for long periods of time. A long-term focus is
crucial. What's clear from Bessembinder's work is that extreme winners only
become so over many years, not a handful of quarters. His research also shows
that the average share price drawdown in the same decade as extraordinary
success for the extreme winners is 32.5%, and that these drawdowns last, on
average, for ten months. This is a lifetime in today's myopic market.
Optimism, open-mindedness, and an ability to cut through short-term noise are
vital if one is to exploit the long-term returns outliers can generate. We're
therefore willing to pay the short-term price of seeming foolish.
Crucially, our optimism also stems from what we're seeing in company
fundamentals. For calendar year 2022, the expected revenue growth rate for our
portfolio is 25% and for the next three years it is 19%pa. Compare this to the
10%pa anticipated three- year forward revenue growth rate for the portfolio at
the end of calendar 2019. Balance sheets are also in good shape, with the
average net debt/EBITDA ratio for the portfolio standing at 0.6x compared to
1.8x for the benchmark. Among our top 10 performance detractors for the
period, six were profitable last year, another three were only unprofitable
because they prioritised investment and the other (Wizz Air) was cyclically
depressed thanks to the pandemic. What strikes us generally is that
fundamentals appear to be on track, yet valuations have collapsed. We won't
get everything right, but this gives us confidence in the prospects for the
portfolio.
Performance
Over the six months to 31 March 2022, the Company's net asset value per share,
total return, was -24.7% while the FTSE Europe ex-UK index returned -5.2% over
the same period in sterling terms. The Company's share price returned -28.8%
to 108p representing a discount of 6.7% to the net asset value per share. This
compares to a discount of 1.3% at the beginning of the period. The company
bought back an aggregate 5.7m shares during the period. From the period end to
13 May 2022, the Company's net asset value per share has decreased by 14.2%
and the share price by 19.1%, compared with a fall in the FTSE Europe ex UK
index of 5.3%.
Such challenging performance is never easy to endure. It's especially
difficult looking through our performance attribution statistics and seeing so
few strong positive contributors. Dealing with periods of tough performance
is, however, part of the job. From time to time even the very best managers
will underperform. We have spoken in the past about the largely random nature
of short-term share price movements, which tend to reflect sentiment far more
than fundamentals. While this brings us comfort it risks sounding pontifical.
What matters more is that the underlying fundamentals of most companies in the
portfolio are strong and good progress is being made against our investment
hypotheses. This is not to paint the picture of a perfect world, but on
balance there's much to champion that simply isn't being captured by share
prices. If we were seeing widespread operational weakness, we'd be feeling
significantly less enthusiastic.
This progress is especially true for some of the most heavily sold-off
companies in the portfolio. Over the period the average total return for our
top ten detractors was roughly -50%, yet among these names one can find some
of the highest-growth companies in the portfolio, most of which are profitable
or unprofitable by choice. Such a drastic compression of multiples in so short
a time has therefore taken us by surprise. Delivery Hero, for example, is
aiming to grow revenues around 60-75% this year, despite having doubled
revenues in 2020 and more than doubled revenues in 2021. Its longer-term
ambition is to grow its gross transactional value to €200-350bn from the
€44-45bn guided for this year, yet today's multiples have compressed to the
extent that such an outcome simply isn't contemplated in today's share price.
Similar arguments could be made for other high-growth companies in the
portfolio and we are seeking to take advantage of the resulting opportunities.
It would be remiss to say nothing of the conflict in Ukraine. The impact of
this dreadful war on the portfolio is difficult to estimate and, while some
knock-on effects are already evident, others will take time to manifest. Wizz
Air, which also appears in our top ten detractors for the period, has seen
four of its planes trapped in Ukraine, and in the early part of the conflict
some crews too. Management viewed Ukraine as a key market for future growth,
and planned a significant expansion there. This is clearly now on hold.
Elsewhere, holding company Prosus has also felt the impact of the war via its
exposure to Russia where it owns local classifieds business Avito and a stake
in VK Group. Prosus is in the process of decoupling Avito and will write down
its stake in VK. Thankfully these businesses only accounted for 5% of Prosus'
accounting value. Many other businesses touch the affected region in different
ways, but at this point we have little to add other than to simply note that
the direct revenue exposure of the overall portfolio is less than 2%. We
continue to monitor our companies closely.
In summary, while performance in the near-term has been tough, we remain
optimistic about our companies and their ability to deliver over the
long-term.
Transactions
Underlying turnover for the period was slightly higher than usual. This is
largely a function of market volatility and our attempts to exploit the
resulting opportunities among existing holdings. We continue to believe in the
value of owning special companies for long periods of time. There aren't many
companies that reach our initial bar and so we added only four new holdings
over the period. Two of these - Topicus.com and Embracer - are consolidators,
or companies that grow primarily through acquisition. Topicus was spun out of
Constellation Software in January 2021 and acquires vertical market software
companies in bolt-on-style deals, while Embracer acquires gaming companies in
a mixture of large and small transactions. We think both companies have long
runways for capital allocation and unique cultures. As noted in the previous
annual report, we agreed to take a holding in SPAC 468 I, which merged with
German toy company Boxine. This was done via a private placement or PIPE
(private investment in public equity). The merger is now complete and the
resulting entity, renamed tonies to reflect its flagship children's product,
has formally become a holding. Reflecting our increasing enthusiasm for
opportunities in the European unlisted space and shareholders' approval at the
recent AGM of an increase in the amount that we can invest therein, we added
our fourth unlisted investment in the form of German digital real estate agent
McMakler.
We also made several additions to existing holdings during the period. We
participated in a private placement by green investment company Aker Horizons
in November as a means of increasing our initial small holding size. In a
similar vein, with growing enthusiasm for VNV Global, we decided to increase
the holding size. New purchases Topicus and Embracer also received additional
capital over the course of the period as we sought to grow our positions in
both companies. Several existing holdings saw significant share price declines
into the end of the 2021 calendar year and the first quarter of 2022, and we
made additions to names where the sell-off felt extreme and our conviction
consequently deepened. Allegro, Prosus, Just Eat Takeaway, Wizz Air and
Delivery Hero all received more capital as we felt our view had become
increasingly differentiated to the market.
These ideas required funding, which we secured through complete sales of five
stocks and partial sales of others. We parted ways with L'Oréal and Investor,
longstanding holdings in our European funds, not out of concerns over business
quality but rather over doubts about likely future growth rates and the
starting valuation multiples. Elsewhere, we sold Bechtle, Morphosys and Pernod
Ricard for similar reasons. We also made reductions to AddLife, DSV, IMCD,
Kuehne + Nagel, ASML, Beijer and NIBE as valuations felt increasingly
stretched against our expectations, as has occasionally been the case over the
past two years in particular.
Outlook
As usual, we have no views to share on inflation, interest rates and the
plethora of other macroeconomic factors into which we have no insight and over
which we have no control. We can, however, control the composition of the
portfolio and believe we have assembled a collection of companies with
significant opportunities to grow meaningfully, deepening competitive
advantage, high levels of shareholder alignment and attractive valuations. We
cannot predict whether our recent underperformance will persist, or for how
long, but we can assure shareholders that we remain devoted to building a
portfolio capable of generating the long-term returns they rightly demand.
Importantly, we feel well-placed to exploit an increasingly rich European
universe at a time when sentiment towards European growth has seldom seemed so
gloomy.
Baillie Gifford & Co
16 May 2022
The principal risks and uncertainties facing the Company are set out at the
back of this announcement.
Past performance is not a guide to future performance.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures, see below.
Total return information is sourced from Refinitiv, Baillie Gifford and
relevant underlying index providers. See disclaimer at the end of this
announcement.
List of Investments as at 31 March 2022 (unaudited)
% of total assets
Value
Name Business Country £'000
Prosus Investment company Netherlands 22,896 5.0
Northvolt (U) Battery developer and manufacturer Sweden 20,619 4.5
Adyen Global payment company Netherlands 20,037 4.3
Ryanair Low-cost European airline Ireland 18,419 4.0
Atlas Copco Industrial compressors manufacturer Sweden 17,331 3.8
IMCD Speciality chemical distributor Netherlands 17,034 3.7
Avanza Bank Online savings and investment platform Sweden 15,097 3.3
Zalando Online fashion retailer Germany 13,808 3.0
ASML Semiconductor equipment manufacturer Netherlands 13,017 2.8
Allegro.eu E-commerce marketplace Poland 12,920 2.8
Kingspan Provides high performance insulation
and building envelope technologies Ireland 12,639 2.7
Richemont Luxury goods company Switzerland 11,592 2.5
adidas Global sportswear brand Germany 11,410 2.5
Kering Luxury brand conglomerate France 11,365 2.5
Spotify Online music streaming service Sweden 10,774 2.3
Reply IT consultancy Italy 10,767 2.3
Dassault Systèmes Software company France 10,041 2.2
NIBE International heating technology company Sweden 9,840 2.1
Kinnevik Investment company Sweden 9,756 2.1
Takeaway.com Online food delivery service Netherlands 9,695 2.1
Mettler-Toledo Manufacturer of precision weighing
equipment Switzerland 9,526 2.1
Wizz Air Low-cost airline Hungary 9,273 2.0
Hexpol Manufacturer of rubber and plastic
components Sweden 8,993 2.0
Schibsted Media and online classifieds company Norway 8,804 1.9
Nexans Manufacturer of low, medium and high
voltage cables France 8,606 1.9
Sartorius Stedim Biotech Pharmaceutical and laboratory equipment
provider France 8,570 1.9
Adevinta Online classifieds Norway 8,268 1.8
Beijer Refrigeration and air conditioning Sweden 7,991 1.7
Delivery Hero Online food delivery service Germany 7,134 1.6
Topicus.com Vertical market software provider Netherlands 7,087 1.5
AddLife Distributor of medical and laboratory
equipment 7,030 1.5
Sweden
HelloFresh Grocery retailer Germany 6,772 1.5
Kuehne + Nagel Freight forwarding and logistics company Switzerland 6,152 1.3
sennder Technologies (U) Digital freight forwarder Germany 6,133 1.3
Rational Cooking equipment manufacturer Germany 5,965 1.3
McMakler (U) Digital real estate agent Germany 5,914 1.3
Embracer Game developer Sweden 5,849 1.3
FinecoBank Savings and investment platform Italy 5,648 1.2
Aker Horizons Renewable energy and green technology
platform Norway 5,609 1.2
DSV Freight forwarding and logistics company Denmark 5,320 1.2
AUTO1 Digital automotive platform Germany 5,250 1.1
Epiroc Supplier to mining and construction industries
Sweden 5,171 1.1
Ubisoft Entertainment Video games publisher France 4,647 1.0
VNV Global Investment company Sweden 3,904 0.9
tonies Manufacturer of digital children's toys Germany 3,668 0.8
Flixmobility (U) European transport company Germany 3,573 0.8
Hemnet Online property platform Sweden 3,500 0.8
Cellectis* Genetic engineering for cell based
therapies France 1,242 0.2
Total Equity Investments 454,656 98.7
Net Liquid Assets† 5,876 1.3
Total Assets† 460,532 100.0
Borrowings (50,608) (11.0)
Shareholders' funds 409,924 89.0
(U) Denotes unlisted holding (private company).
* Includes ADR.
† For a definition of terms see Glossary of Terms and Alternative
Performance Measures at the end of this Announcement.
Income Statement (unaudited)
For the six months ended For the six months ended For the year ended
31 March 2022 31 March 2021 30 September 2021
(audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (142,663) (142,663) - 37,726 37,726 - 106,241 106,241
Currency (losses)/gains (1) 703 702 1 2,320 2,321 (61) 1,981 1,920
Income 980 - 980 921 - 921 3,256 - 3,256
Investment management fee (note 3) (255) (1,019) (1,274) (272) (1,089) (1,361) (574) (2,298) (2,872)
Other administrative expenses (294) - (294) (284) - (284) (636) - (636)
Net return before finance costs and taxation 430 (142,979) (142,549) 366 38,957 39,323 1,985 105,924 107,909
Finance costs (note 4) (107) (320) (427) (44) (159) (203) (134) (427) (561)
Net return on ordinary activities before taxation 323 (143,299) (142,976) 322 38,798 39,120 1,851 105,497 107,348
Tax on ordinary activities (117) - (117) (59) - (59) (318) (380) (698)
Net return on ordinary activities after taxation 206 (143,299) (143,093) 263 38,798 39,061 1,533 105,117 106,650
Net return per ordinary share (note 5) 0.06p (39.50p) (39.44p) 0.07p 10.69p 10.76p 0.42p 28.90p 29.32p
Note:
Dividends paid and payable per share (note 6) Nil Nil 0.35p
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are prepared under
guidance published by the Association of Investment Companies.
All revenue and capital items in the above 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.
Balance Sheet (unaudited)
At 31 March At 30 September
2022 2021
£'000 (audited)
£'000
Fixed assets
Investments held at fair value through profit or loss (note 7) 454,656 600,351
Current assets
Debtors 1,567 2,320
Cash and cash equivalents 5,228 12,252
6,795 14,572
Creditors
Amounts falling due within one year (919) (1,913)
Net current assets 5,876 12,659
Total assets less current liabilities 460,532 613,010
Creditors
Amounts falling due after more than one year (note 8) (50,608) (51,471)
409,924 561,539
Capital and reserves
Share capital 10,061 10,061
Share premium account 125,050 125,050
Capital redemption reserve 8,750 8,750
260,639 411,184
Capital reserve
5,424 6,494
Revenue reserve
Shareholders' funds 409,924 561,539
Net asset value per ordinary share (borrowings at book value)* 114.2p 154.0p
Net asset value per ordinary share (borrowings at fair value)* 116.0p 154.5p
Ordinary shares in issue (note 9) 358,924,046 364,599,330
*See Glossary of Terms and Alternative Performance Measures at the end of this
announcement.
Statement of Changes in Equity (unaudited)
For the six months ended 31 March 2022
Share capital Share premium account Capital redemption Capital * Revenue reserve Shareholders'
£'000 £'000 reserve reserve £'000 funds
£'000 £'000 £'000
Shareholders' funds at 1 October 2021 10,061 125,050 8,750 411,184 6,494 561,539
Net return on ordinary activities after taxation - - - (143,299) 206 (143,093)
Dividends paid (note 6) - - - - (1,276) (1,276)
Shares bought back into treasury - - - (7,246) - (7,246)
Shareholders' funds at 31 March 2022 10,061 125,050 8,750 260,639 5,424 409,924
For the six months ended 31 March 2021
Share premium Capital redemption
Share Capital * Revenue Shareholders'
capital account reserve reserve reserve funds
£'000 £'000 £'000 £'000 £'000 £'000
Shareholders' funds at 1 October 2020 10,061 123,749 8,750 303,860 6,228 452,648
Net return on ordinary activities after taxation - - - 38,798 263 39,061
Dividends paid (note 6) - - - - (1,268) (1,268)
Shares issued from treasury - 1,301 - 2,207 - 3,508
Shareholders' funds at 31 March 2021 10,061 125,050 8,750 344,865 5,223 493,949
* The Capital reserve as at 31 March 2022 includes investment holding gains of
£25,089,000 (31 March 2021 - gains of
£153,460,000).
Cash Flow Statement (unaudited)
Six months to Six months to
31 March 31 March
2022 2021
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation (142,976) 39,120
Net losses/(gains) on investments 142,663 (37,726)
Currency gains (702) (2,321)
Finance costs of borrowings 427 203
Overseas withholding tax suffered (117) (57)
Overseas withholding tax reclaims received 468 -
Changes in debtors and creditors (190) (388)
Cash from operations* (427) (1,169)
Interest paid (429) (82)
Net cash outflow from operating activities (856) (1,251)
Cash flows from investing activities
Acquisitions of investments (87,304) (64,331)
Disposals of investments 89,821 42,936
Net cash inflow/(outflow) from investing activities 2,517 (21,395)
Equity dividends paid (1,276) (1,268)
Cash flows from financing activities
Shares issued - 3,508
Shares bought back (7,246) -
Net borrowings drawn down - 27,263
Net cash (outflow)/inflow from financing activities (7,246) 30,771
(Decrease)/increase in cash and cash equivalents (6,861) 6,857
Exchange movements (163) 548
Cash and cash equivalents at start of period 12,252 (16,882)
Cash and cash equivalents at end of period† 5,228 (9,477)
* Cash from operations includes dividends received in the period of £941,000
(31 March 2021 - £827,000) and deposit interest received of £2,000
(31 March 2021 - £2,000).
† Cash and cash equivalents represent cash at bank and short-term money
market deposits repayable on demand.
Notes to the condensed financial statements (unaudited)
1 The condensed Financial Statements for the six months to 31 March 2022
comprise the statements set out above together with the related notes 1 to 11
below. They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in November
2014 and updated in October 2020 and April 2021 with consequential amendments
and have not been audited or reviewed by the Auditor pursuant to the Auditing
Practices Board Guidance 'Review of Interim Financial Information'. The
Financial Statements for the six months to 31 March 2022 have been prepared on
the basis of the same accounting policies as set out in the Company's Annual
Report and Financial Statements at 30 September 2021.
Going Concern
The Directors have considered the nature of the Company's principal risks and
uncertainties, as set below, as well as the ongoing impact of market
volatility during the Covid-19 pandemic and hostilities in Ukraine. In
addition, the Company's investment objective and policy, assets and
liabilities and projected income and expenditure, together with the dividend
policy have been taken into consideration and it is the Directors' opinion
that the Company has adequate resources to continue in operational existence
for the foreseeable future. The Company's assets, the majority of which are
investments in quoted securities which are readily realisable, exceed its
liabilities significantly.
All borrowings require the prior approval of the Board and gearing levels are
reviewed by the Board on a regular basis. The Directors consider it
appropriate to adopt the going concern basis of accounting in preparing these
Financial Statements and confirm that they are not aware of any material
uncertainties which may affect the Company's ability to continue to do so over
a period of at least twelve months from the date of approval of these
Financial Statements.
2 The financial information contained within this Interim Financial
Report does not constitute statutory accounts as defined in sections 434 to
436 of the Companies Act 2006. The financial information for the year ended 30
September 2021 has been extracted from the statutory accounts which have been
filed with the Registrar of Companies. The Auditor's Report on those accounts
was not qualified, did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report, and
did not contain a statement under sections 498(2) or (3) of the Companies Act
2006.
3 Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie
Gifford & Co, was appointed by the Company as its Alternative Investment
Fund Manager (AIFM) and Company Secretary on 29 November 2019. The investment
management function has been delegated to Baillie Gifford & Co. The
management agreement can be terminated on three months' notice. 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 Finance Costs
Six months to 31 March 2022 Total
Revenue Capital
£'000
£'000 £'000
Loan interest 79 318 397
Loan arrangement fee 1 2 3
Negative interest on cash balances 27 - 27
107 320 427
Year to 30 September 2021 (audited)
Revenue Capital Total
£'000 £'000 £'000
Overdraft facility 19 76 95
Loan interest 87 349 436
Loan arrangement fee 1 2 3
Negative interest on cash balances 27 - 27
134 427 561
Six months to 31 March 2021
Revenue Capital Total
£'000 £'000 £'000
Overdraft facility 15 59 74
Loan interest 24 98 122
Loan arrangement fee 1 2 3
Negative interest on cash balances 4 - 4
44 159 203
5. Year to 30 September
Six months to 31 March Six months to 31 March 2021
2022 2021 (audited)
£'000 £'000 £'000
Net return per ordinary share
Revenue return on ordinary activities after taxation Capital return on 206 263 1,533
ordinary activities after taxation
(143,299) 38,798 105,117
Total net return (143,093) 39,061 106,650
Weighted average number of ordinary shares in issue
362,745,292 362,827,352 363,715,768
Net return per ordinary share is based on the above totals of revenue and
capital and the weighted average number of ordinary shares in issue during
each period.
There are no dilutive or potentially dilutive shares in issue.
6. Six months to 31 March Six months to 31 March
2022 2021
£'000 £'000
Dividends
Amounts recognised as distributions in the period:
Final dividend 0.35p (2021 - 0.35p), paid 11 February 2022 1,276 1,268
1,276 1,268
Dividends proposed in the period:
Interim dividend - nil (2021 - nil) - -
- -
7 Fair Value Hierarchy
The Company's investments are financial assets held at fair value through
profit or loss. The fair value hierarchy used to analyse the basis on which
the fair values of financial instruments held at fair value through the profit
or loss account are measured is described below. Fair value measurements are
categorised on the basis of the lowest level input that is significant to the
fair value measurement.
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
An analysis of the Company's financial assets based on the fair value
hierarchy described above is shown below.
Level 1 Level 2 Level 3 Total
As at 31 March 2022 £'000 £'000 £'000 £'000
Listed equities 418,416 - - 418,416
Unlisted securities - - 36,240 36,240
Total financial asset investments 418,416 - 36,240 454,656
Level 1 Level 2 Level 3 Total
As at 30 September 2021 £'000 £'000 £'000 £'000
Listed securities 572,399 - - 572,399
Unlisted securities - - 27,952 27,952
Total financial asset investments 572,399 - 27,952 600,351
Unlisted investments are valued at fair value by the Directors following a
detailed review and appropriate challenge of the valuations proposed by the
Managers. The Managers' unlisted valuation policy applies methodologies
consistent with the International Private Equity and Venture Capital Valuation
Guidelines ('IPEV'). These methodologies can be categorised as follows: (a)
market approach (multiples, industry valuation benchmarks and available market
prices); (b) income approach (discounted cash flows); and (c) replacement cost
approach (net assets). The Company's holdings in unlisted investments are
categorised as Level 3 as unobservable data is a significant input to their
fair value measurements.
8 The Company has a €30 million overdraft credit facility with The Northern
Trust Company for the purpose of pursuing its investment objective. At 31
March 2022, nil had been drawn down under the facility (31 March 2021 -
€11.2 million (£9.6 million), 30 September 2021 - nil). Interest is charged
at 1.25% above the European Central Bank Main Refinancing Rate. On 8 December
2020 the Company issued €30 million of long-term, fixed rate, senior,
unsecured privately placed notes ('loan notes'), with a fixed coupon of 1.57%
to be repaid on 8 December 2040 and on 24 June 2021 issued a further €30
million of loan notes with a fixed coupon of 1.55% to be repaid on 24 June
2036. At 31 March 2022 the book value of the loan notes amounted to
£50,608,000 (31 March 2021 - £25,487,000, 30 September 2021 - £51,471,000).
The fair value of the loan notes at 31 March 2022 was £44,238,000 (31 March
2021 -£25,391,000, 30 September 2021 - £49,855,000).
9 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 in order to enhance the net
asset value per share for existing shareholders and improve the
liquidity of the Company's shares. In the six months to 31 March 2022 no
ordinary shares were issued (in the year to 30 September 2021 the
Company issued a total of 2,400,000 shares on a non pre-emptive basis (nominal
value £60,000, representing 0.7% of the issued share capital
at 30 September 2020) at a premium to net asset value (on the basis of debt
valued at book value) raising net proceeds of £3,508,000).
The Company also has authority to buy back shares. In the six months to 31
March 2022 5,675,284 ordinary shares were bought back into treasury at a cost
of £7,246,000 (in the year to 30 September 2021 no ordinary shares were
bought back for cancellation or into treasury).
10 During the period, transaction costs on equity purchases amounted to
£64,000 (31 March 2021 - £77,000; 30 September 2021 - £96,000)
and on equity sales £36,000 (31 March 2021 - £25,000; 30 September
2021 - £45,000).
11 Related Party Transactions
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company during that period and
there have been no changes in the related party transactions described in the
last Annual Report and Financial Statements that could have had such an effect
on the Company during that period.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Principal Risks and Uncertainties
The principal risks facing the Company are financial risk, investment strategy
risk, discount risk, regulatory risk, custody and depositary risk, operational
risk, leverage risk and political risk. An explanation of these risks and how
they are managed is set out on pages 7 and 8 of the Company's Annual Report
and Financial Statements for the year to 30 September 2021 which is available
on the Company's website: bgeuropeangrowth.com. The principal risks and
uncertainties have not changed since the date of the Annual Report.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance
with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of
important events during the first six months, their impact on the Financial
Statements and a description of the principal risks and uncertainties for the
remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
By order of the Board
Michael MacPhee
Chairman
16 May 2022
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
Total 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 cost.
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 Asset Value (Borrowings at Book Value)
Borrowings are valued at nominal book value (book cost).
Net Asset Value (Borrowings at Fair Value) (APM)
Borrowings are valued at an estimate of their market worth.
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 per share. 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.
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.
Net Asset Value (Reconciliation of NAV at Book Value to NAV at Fair Value)
31 March
2022
Net Asset Value per ordinary share (borrowings at book value)
114.2p
Shareholders' funds (borrowings at book value) £409,924,000
Add: book value of borrowings Less: fair value of borrowings £50,608,000
£44,238,000
Shareholders' funds (borrowings at fair value)
£416,294,000
Number of shares in issue 358,924,046
Net Asset Value per ordinary share (borrowings at fair value)
116.0p
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.
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
Gearing represents borrowings less cash and cash equivalents expressed as a
percentage of shareholders' funds.
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.
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FTSE Index Data
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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 (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/en/uk/about-us/
literature-library/corporate-governance/
governance-sustainability-principles-and-guidelines/).
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 SFDR
by introducing additional disclosure obligations in respect of 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.
-ends-
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