REG - Baillie Gifford Euro - Baillie Gifford European Growth Half-year Report
12/05/2023 07:00
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RNS Number : 1586Z Baillie Gifford European Growth Tst 12 May 2023
RNS Announcement
Baillie Gifford European Growth Trust plc
Legal Entity Identifier: 213800QNN9EHZ4SC1R12
Regulated Information Classification: Interim Financial Report
Results for the six months to 31 March 2023
Over the six month period to 31 March 2023, the Company's net asset value per
share (NAV) total return was 22.9% compared to a total return of 21.7% for the
FTSE Europe ex UK index, in sterling terms. The Company's share price total
return for the same period was 19.8%.
· During the six month period two new positions were taken
(AutoStore and Hypoport) and three existing positions were added to (sennder,
Cellectis and Tonies).
· Private company holdings, of which there are four, accounted for
8.5% of total assets as at the period end.
· Invested gearing stood at 13.0% at the end of the period.
Baillie Gifford European Growth Trust's objective is to achieve capital growth
over the long-term from a diversified portfolio of European securities. At 31
March 2023 the Company had total assets of £436.7 million.
Baillie Gifford European Growth Trust is managed by Baillie Gifford, an
Edinburgh-based fund management group with approximately £225 billion under
management and advice as at 11 May 2023.
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. Total return
information is sourced from Refinitiv, Baillie Gifford and relevant underlying
index providers. See disclaimer at end of this announcement.
12 May 2023
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474 5548
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
‡ 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 2023 which was approved by the Board on 11 May 2023.
Interim Management Report
One of the trickiest parts of our job as managers is separating important
signals from noise. This is made especially difficult at times like these.
Markets are volatile, geopolitics feels unusually unpredictable, and many of
the variables once benign (like inflation and interest rates) are wreaking
havoc across the economy. With so many reasons to be worried, attention is
often transfixed by tabloid style developments. There is a natural human
predisposition to pay more attention to bad news than good. As Hans Rosling
once put it: 'the fears that once kept our ancestors alive today keep
journalists employed.'
This is not to say that short-term headwinds don't matter. The key question is
whether they matter more than the long-term forces driving companies' success.
In most cases they do not. Navigating this tension is crucial for us. There is
little advantage to be gained by competing against the many voices opining on
short-term matters. If we have any advantage at all, it is that we choose to
compete against the many fewer voices talking about the next 5-10 years.
Amazon's Jeff Bezos outlines this concept eloquently: 'if everything you do
needs to work on a 3-year time horizon, then you're competing against a lot of
people. But if you're willing to invest on a 7-year time horizon, you're now
competing against a fraction of those people.'
Few of our holdings embody this dichotomy better than ultra-low-cost airlines
Ryanair and Wizz. When the COVID pandemic struck Europe in early 2020, both
companies quickly found their entire fleets grounded for extended periods. To
state the obvious, if planes aren't flying, they're not making money. Panic
ensued. European governments began bailing out legacy carriers unable to
survive on their own thanks to their bloated cost structures and inefficient
operations. There was an inevitable focus on cash, covenants and, ultimately,
survival. These were probably the right things to worry about for the likes of
Lufthansa, Air France and KLM, but for Ryanair and Wizz such preoccupations
missed the more important signals.
Take Ryanair. Never one to waste a crisis, CEO Michael O'Leary set about
taking full advantage of the situation. Not only did he continue growing
Ryanair's fleet but he signed a major deal with Boeing, acquiring a number of
737-MAX planes at steep discounts at a time when they were struggling to find
customers. Wizz made a similar move with Airbus but also opened several new
bases at a time when most other airlines were closing them down. Paraphrasing
Buffett, both were greedy while others were fearful. But this wasn't just
about contrarian expansion. Both businesses were investing in structurally
lower unit costs, as these new planes come with higher fuel efficiency, higher
seat counts, and lower cost of ownership. Ryanair and Wizz enhanced their
competitive advantages while others were struggling to remain solvent.
Now to the present day. Both businesses are thriving. As the only two airlines
in expansion mode, they have been able to move into the gaps vacated by
retrenching competition. Ryanair, for example, has grown its market share in
Italy from 30% to 40% after the third collapse of Alitalia (national carriers
seldom die once). Its ex-fuel unit costs have fallen versus their pre-pandemic
level putting it in an even stronger position to gain more share as most other
players have seen their unit costs rise. Not only that, but O'Leary has signed
a contract to keep him around until 2028. As for Wizz, there have been a few
hiccups - particularly the decision to abandon fuel hedging as jet fuel prices
exploded - but progress is very much back on track. In March it announced
that, despite the fleet being 60% larger, its load factor was an astonishing
92%.
Two examples of similar opportunities spring to mind: Polish ecommerce
platform Allegro and meal kit business HelloFresh.
¾ Allegro's share price is down over 60% since its IPO in October 2020.
More recently Shopee, one of its main competitors, has exited the market,
while its more serious competitor - the behemoth Amazon - appears to have
gained little traction since it formally entered the market two years ago. Not
content with its current moat, Allegro has continued to invest in its
offering, building a financial services arm and an advertising business. These
are both strategies which have been proven to work in similar businesses as
far apart as China and Latin America. It also nearly doubled its addressable
market with the acquisition of Mall, which opened new markets like Czechia and
Slovakia, which are ripe for disruption. Despite powerful signals about
Allegro's future earnings power, most commentary seems focused on Polish
inflation and the war next door.
¾ HelloFresh is down over 80% from its peak in November 2021, but here
again we see a mismatch between those who fear a downturn in consumer spending
and the long-term signals that matter. HelloFresh has, for example, built an
entirely new business in the ready-to-eat vertical alongside its core meal kit
business. It initially did this through the acquisitions of Factor and
YouFoodz but has managed to grow Factor's market share in the US from 8% in
early 2020 to a remarkable 60% today. This looks very much like its success in
the US meal kit business, where market share now stands at a staggering 75%.
HelloFresh continues to invest in new markets and in launching its newer meal
kit brands like Green Chef and Everyplate into existing markets, while
continuing to expand its meal selection. It has also improved its unit
economics and demonstrated an ability to generate solid cashflow.
Companies that can generate free cash flow and growing returns on capital are
much more likely to be in control of their own destiny. Importantly, at the
end of the period, approximately three-quarters of the portfolio was invested
in companies expected to generate positive free cash flow over the next twelve
months. Another 10% was invested in four holding companies - Aker Horizons,
Exor, Kinnevik and Prosus - which either benefit from supportive owners (e.g.
Aker), large cash balances (e.g. Exor), or generate a regular income from
asset sales or dividends from their underlying holdings (e.g. Kinnevik and
Prosus). The remaining companies are investing for growth, but most of them
benefit from profitable core businesses whose cashflows can be harnessed to
invest elsewhere. In short, we believe our companies have the financial
firepower to take advantage of the opportunities ahead.
The overriding message is this: we continue to focus zealously on the signals
relevant to our long-term investment hypotheses, and what we see today differs
significantly from the prevailing pessimistic mood. Adversity offers the
strong the chance to get stronger. We take inspiration on this from the great
Ayrton Senna: 'you cannot overtake fifteen cars in sunny weather…but you can
when it's raining.'
Transactions
On a rolling twelve month basis, turnover fell from just over 25% in the year
to 30 September 2022 to just under 15% in the period. This is much more in
line with where-term investors ought to be, implying our average holding
period is just shy of seven years. Like Ryanair and Wizz, we've tried to adopt
the 'never waste a crisis' mantra. Our trading activity during the period was
opportunistic, exploiting opportunities to buy new positions in great
companies we've admired for a while at what we consider bargain prices, but
also taking opportunities to back existing portfolio companies seeking to
invest for the future. New purchases AutoStore and Hypoport fit the former
type; sennder, Tonies and Cellectis the latter.
AutoStore designs cubic storage systems, which consist of large metal frames
and small box-like robots which whizz around the frames in search of items on
request. These systems address one of the biggest pain points in warehouse
automation: the storage and retrieval of items. After an over-priced IPO in
October 2021, the shares fell precipitously, offering a more appealing entry
point. What we like about AutoStore is that penetration of storage and
retrieval systems is extremely low across its markets, and AutoStore dominates
its niche. 20-30% growth rates over the next five years ought to be doable,
but with manufacturing and distribution largely outsourced, margins and
returns are highly attractive meaning that growth is unusually valuable.
While AutoStore's sell-off fits the pattern of other high-growth stocks,
particularly those that came to the market with inflated valuations in 2021,
Hypoport has been the victim of the more specific problems facing the German
real estate market. Its core business is a leading mortgage marketplace called
Europace, which allows mortgage brokers to match lenders with borrowers in a
highly under-digitised market. The stock hit €600 at its peak in September
2021 but ended 2022 below €100 as German mortgage volumes plummeted in
response to higher interest and energy costs. Hypoport prepared itself for the
coming storm with a capital raise in January, and we took a holding shortly
thereafter having admired the company for several years.
We have also provided capital to existing holdings seeking to invest despite
the difficult environment. German toy company Tonies raised capital in
November ahead of a pre-Christmas push into the US market, while digital
freight forwarder sennder issued a convertible loan to enable continued
investment in growth. We participated in both, and it is pleasing to see such
front-footed behaviour.
We also provided capital to biotech holding Cellectis, which raised just shy
of $25m to continue funding clinical development of its CAR-T therapies. This
investment has required much patience, but the first allogenic CAR-T therapy
will hopefully arrive in 2025 at which point Cellectis will receive milestone
and royalty payments. Our hope is that this recent capital raise ensures its
survival until that point. Struggle is the default setting for companies
operating at the edge of human ingenuity. Such potential is rare, but becoming
more evident in Europe, and we are prepared to nurture small holdings in
earlier stage companies like this where we can find them on terms that offer
the possibility of extreme returns over time.
We also completed the sale of our position in video game publisher Ubisoft.
Unfortunately, Ubisoft had some deep- seated problems. Not only did it become
apparent that it had a toxic working culture after a series of shocking
revelations about workplace misconduct, but its game delays turned out to be
symptomatic of a culture of poor execution. More game delays followed,
revealing the true extent of the problem. In early September, however, Tencent
acquired a stake in the company of Ubisoft's founding Guillemot brothers, in a
deal that treated minorities very poorly indeed. Family members were
essentially able to sell to Tencent at a substantial premium to the market
price, but other shareholders were not. We are disappointed not to have
identified these problems earlier and this was the last straw. We expect our
companies to have special, high-performance cultures, and to treat all
shareholders equally.
Private Investments
We are often asked about our private investments. The portfolio currently
holds four private companies: battery maker Northvolt, online German real
estate broker McMakler, digital freight forwarder sennder, and mobility
company Flix. Together these accounted for 8.5% of the total assets at the end
of the period, Northvolt being the largest (4.4%), followed by sennder (2.0%),
McMakler (1.1%) and Flix (1.0%). These last three companies are relatively
small positions in the context of our portfolio, but Northvolt is our
second-largest position. We have tried to be highly selective about our
investments and therefore remain well below our 20% limit in unlisted
companies.
It is therefore perhaps worth taking a step back to remind shareholders why we
invest in private companies at all. The overriding reason we do it is simple:
the earlier we can invest in special companies, the more we get to benefit
from the upside they generate. If Northvolt becomes a Western battery
powerhouse - as is its ambition - we will surely make a lot of money. Why not
invest sooner rather than later? The benefits do not end there. Meeting and
studying nascent, disruptive companies help us discern how an established
industry may evolve in the future. The learning opportunities have been
numerous and enriching. All told, we think these benefits significantly
outweigh the negatives.
There are, however, two challenges that will always be difficult to overcome.
The first is our ability to share information. Much of what our private
companies tell us is not in the public domain, so it is very difficult for us
to provide updates on operational progress. Suffice it to say that we are
broadly happy with the direction of travel, but it hasn't been plain sailing.
Flix, for example, had a difficult pandemic as its business is in the planning
and sale of coach travel, though it is on a much better footing today.
McMakler has had a tough period of late stemming from weakness in the German
real estate market, though it appears to be gaining market share.
The second challenge is valuation. Since none of our private companies have a
live market price, we must periodically make adjustments to reflect what we
think the market value might be. In stable markets, our valuation team would
seek to appraise the valuation of each company twice in a six-month period,
but we may do this more often if there is evidence of a movement in fair
value. This may include major events which, if these companies were listed,
would likely move their share prices significantly as well as drive broader
sentiment towards their specific sectors. This explains, for example, why
Northvolt has been revalued twice as often as would normally be the case. We
continue to adopt this flexible approach to valuing our private companies in
order to reflect as best we can what we consider to be suitable valuations,
but it is arguably more art than science and likely to be imperfect.
While we remain highly enthused by the private opportunities in Europe, it is
important to emphasise that we take a conservative approach. The bar for
inclusion is high, and our approach to valuation responsive and considered.
Performance
Over the six months to 31 March 2023, the Company's net asset value per share,
total return, was 22.9% while the FTSE Europe ex UK index returned 21.7% over
the same period in sterling terms. The Company's share price returned 19.8%
(total return) ending the period at 94.5p representing a discount
of 15.8% to the net asset value per share. This compares to a discount of
13.5% at the beginning of the period. As at 31 March 2023 the Company's net
asset value included £7m of UK corporation tax to be repaid in respect of the
Company's financial years 2003 to 2009 following successful legal action
regarding the tax treatment of overseas dividend income.
We expect our portfolio to deliver very different returns from the FTSE Europe
ex-UK index. It is worth emphasising that 23 of our holdings, representing
nearly 40% of the portfolio, are not even captured by it. This is deliberate -
we are trying to be very different in the sense that our focus is never upon
the index. Our portfolio is, for example, currently biased towards smaller
companies, younger companies, acquisitive companies, Swedish companies and
Dutch companies. This is the result of where we see the best opportunities,
not because we have any specific predilections. Such differences at least
partly explain our relatively poor performance of late. Being invested in high
potential, rapidly growing companies making the bulk of their lifetime profits
in the future left us exposed to abrupt derating of valuations when interest
rates began to rise. There have doubtless been a few mistakes too but,
overall, we remain confident that this portfolio of companies is in a strong
position to deliver attractive cumulative investment returns over the long
run.
Outlook
Even bottom-up stock pickers like us cannot fail to appreciate the stress in
the broader economy, particularly with ongoing uncertainty about the security
of the banking system, and while most European economies have narrowly avoided
recession, Sweden and Finland have not. They may be the proverbial canaries in
the coal mine. However, we can add little to no value predicting what comes
next. The best we can do is build a portfolio of companies capable of
weathering the storm and thriving over the long-term. This means focusing
closely on different factors from the average market participant and heeding
fundamental signals that are often drowned out by the noise of the here and
now. In the present context, it means enduring higher short-term volatility.
However, these signals are the best indication of whether our companies are in
control of their own destiny. To paraphrase the great Jack Welch, if you
cannot control your own destiny, then someone else will.
Chris Davies
Stephen Paice
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.
Ballie Gifford - Valuing Private Companies
We aim to hold our private company investments at 'fair value' i.e. the price
that would be paid in an open-market transaction. Valuations are adjusted both
during regular valuation cycles and on an ad hoc basis in response to 'trigger
events'. Our valuation process ensures that private companies are valued in
both a fair and timely manner.
The valuation process is overseen by a valuations committee at Baillie Gifford
which takes advice from an independent third party (S&P Global). The
investment managers feed into the process, but the valuations committee owns
the process and the portfolio managers only receive final valuation
notifications once they have been applied.
We revalue the private holdings on a three-month rolling cycle, with one-third
of the holdings reassessed each month.
Recent market volatility has meant that recent pricing has moved much more
frequently than would have been the case with the quarterly valuations cycle.
Beyond the regular cycle, the valuations committee also monitors the portfolio
for certain 'trigger events'. These may include: changes in fundamentals; a
takeover approach; an intention to carry out an Initial Public Offering; or
changes to the valuation of comparable public companies. The valuations
committee also monitors relevant market indices on a weekly basis and updates
valuations in a manner consistent with our external valuer's (S&P Global)
most recent valuation report where appropriate. When market volatility is
particularly pronounced the team do these checks daily. Any ad hoc change to
the fair valuation of any holding is implemented swiftly and reflected in the
next published net asset value. There is no delay.
The Independent Auditor's Report included in the 2022 Annual Report explains
the procedures carried out by the external auditor on the private companies
(unquoted investments) as part of their audit.
List of Investments
Name Business Country Value % of total assets
£'000
Prosus Portfolio of online consumer companies Netherlands 22,403 5.1
Northvolt (U) Battery developer and manufacturer Sweden 19,735 4.4
Richemont Owner of luxury goods companies Switzerland 18,427 4.2
Topicus.com Acquirer of vertical market software companies Netherlands 17,363 4.0
Adyen Online payments platform Netherlands 16,805 3.9
Ryanair Low-cost airline Ireland 15,906 3.6
Kering Owner of luxury fashion brands France 14,875 3.4
ASML Semiconductor equipment manufacturer Netherlands 13,872 3.2
DSV Freight forwarder Denmark 12,710 2.9
Atlas Copco Industrial group Sweden 12,544 2.9
Avanza Bank Holding Online investment platform Sweden 12,439 2.8
IMCD Speciality chemicals distributor Netherlands 12,311 2.8
Zalando Online fashion retail platform Germany 11,929 2.7
Mettler-Toledo Manufacturer of precision instruments for laboratories Switzerland 11,298 2.6
Allegro.eu E-commerce platform Poland 10,955 2.5
Schibsted Media and classifieds advertising platforms Norway 10,824 2.5
Kingspan Group Building materials provider Ireland 10,209 2.3
Spotify Online audio streaming service Sweden 10,159 2.3
EXOR Investment company specialising in industrials Netherlands 9,860 2.3
Hexpol Manufacturer of rubber and polymer compounds Sweden 9,766 2.2
Nexans Cable manufacturing company France 9,622 2.2
Wizz Air Low-cost airline Hungary 9,533 2.2
Dassault Systèmes Develops software for 3D computer-aided design France 8,845 2.0
Reply IT consulting and systems integration provider Italy 8,612 2.0
sennder (U) ^ Freight forwarder focused on road logistics Germany 8,511 2.0
Kinnevik Investment company specialising in digital consumer businesses Sweden 8,043 1.8
Adevinta Online classifieds marketplaces Norway 6,755 1.6
Sartorius Stedim Biotech Pharmaceutical and laboratory equipment provider France 6,753 1.6
adidas Sports shoes and clothing manufacturer Germany 6,320 1.5
Beijer Wholesaler of cooling technology Sweden 6,238 1.4
Delivery Hero Online food delivery platform Germany 5,810 1.3
NIBE Industrier Heat pump manufacturer Sweden 5,293 1.2
Epiroc Mining and infrastructure equipment provider Sweden 5,119 1.2
Evotec Contract research and drug discovery company Germany 4,991 1.1
Takeaway.com Online food ordering and home delivery Netherlands 4,991 1.1
AUTO1 Online platform for used car selling in Europe Germany 4,908 1.1
McMakler (U) Digital real estate broker Germany 4,822 1.1
Autostore* A leader in warehouse automation and cubic storage systems Norway 4,635 1.1
Flixmobility (U) Long-distance bus and train provider Germany 4,301 1.0
Hypoport* FinTech platform Germany 4,253 1.0
Hemnet Online Swedish real estate platform Sweden 4,114 0.9
HelloFresh Meal kit delivery company Germany 3,766 0.9
Embracer Acquirer of video, mobile and board games companies Sweden 3,406 0.8
Tonies Musical storybox toys for children Germany 3,337 0.8
VNV Global Investment company specialising in early-stage technologies Sweden 2,473 0.6
Addlife Acquirer of life sciences companies Sweden 2,401 0.5
Aker Horizons Investment company specialising in green technology Norway 2,055 0.5
Crispr Therapeutics Developer of treatments based on gene editing technology Switzerland 1,229 0.3
Cellectis** Biotech focused on genetic engineering France 739 0.2
Total Equity Investments 426,265 97.6
Net Liquid Assets (†) 10,396 2.4
Total Assets (†) 436,661 100.0
Borrowings (52,628) (12.3)
Shareholders' funds 384,033 87.7
(U) Denotes unlisted holding (private company).
^ Includes a convertible loan note.
* New holding bought during the period (Ubisoft was sold during the period)
** 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 2023 31 March 2022 30 September 2022 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000l £'000
Gains/(losses) on investments - 70,022 70,022 - (142,663) (142,663) - (241,839) (241,839)
Currency (losses)/gains (22) (92) (114) (1) 703 702 104 (1,145) (1,041)
Income 863 - 863 980 - 980 4,313 - 4,313
Investment management fee (note 3) (179) (716) (895) (255) (1,019) (1,274) (412) (1,647) (2,059)
Other administrative expenses (296) - (296) (294) - (294) (572) - (572)
Net return before finance costs and taxation 366 69,214 69,580 430 (142,979) (142,549) 3,433 (244,631) (241,198)
Finance costs (note 4) (83) (330) (413) (107) (320) (427) (214) (652) (866)
Net return on ordinary activities before taxation 283 68,884 69,167 323 (143,299) (142,976) 3,219 (245,283) (242,422)
Tax on ordinary activities (note 5) 6,980 - 6,980 (117) - (117) (358) - (358)
Net return on ordinary activities after taxation 7,263 68,884 76,147 206 (143,299) (143,093) 2,861 (245,283) (242,422)
Net return per ordinary share (note 4) 2.02p 19.20p 21.22p 0.06p (39.50p) (39.44p) 0.79p (67.98p) (67.19p)
Note: Nil Nil 0.70p
Dividends paid and payable per share (note 7)
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 statements 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
2023 (audited)
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss (note 8) 426,265 358,105
Current assets
Debtors 8,700 2,797
Cash and cash equivalents 2,520 3,571
11,220 6,368
Creditors
Amounts falling due within one year (824) (1,516)
Net current assets 10,396 4,852
Total assets less current liabilities 436,661 362,957
Creditors
Amounts falling due after more than one year (note 9) (52,628) (52,560)
384,033 310,397
Capital and reserves
Share capital 10,061 10,061
Share premium account 125,050 125,050
Capital redemption reserve 8,750 8,750
Capital reserve 227,341 158,457
Revenue reserve 12,831 8,079
Shareholders' funds 384,033 310,397
Net asset value per ordinary share (borrowings at book value)* 107.1p 86.5p
Net asset value per ordinary share (borrowings at fair value)* 112.2p 91.9p
Ordinary shares in issue (note 10) 358,687,671 358,687,671
*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 2023
Share Share Capital Capital Reserve £'000 Revenue Shareholders'
capital premium account redemption reserve funds
£'000 £'000 reserve £'000 £'000
£'000
Shareholders' funds at 1 October 2022 10,061 125,050 8,750 158,457 8,079 310,397
Net return on ordinary activities after taxation - - - 68,884 7,263 76,147
Dividends paid (note 7) - - - - (2,511) (2,511)
Shareholders' funds at 31 March 2023 10,061 125,050 8,750 227,341 12,831 384,033
For the six months ended 31 March 2022
Share Share Capital Capital Reserve £'000 Revenue Shareholders'
capital premium account redemption reserve funds
£'000 £'000 reserve £'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 7) - - - - (1,276) (1,276)
Shares bought back into treasury - - - (7,426) - (7,246)
Shareholders' funds at 31 March 2022 10,061 125,050 8,750 260,639 5,424 409,924
* The Capital reserve as at 31 March 2023 includes investment holding gains of
£3,839,000 (31 March 2022 - gains of £25,089,000).
Cashflow Statement (unaudited)
Six months to Six months to
31 March 31 March
2023 2022
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation 69,167 (142,976)
Net (gains)/losses on investments (70,022) 142,663
Currency losses/(gains) 114 (702)
Finance costs of borrowings 413 427
UK corporation tax refund accrued 7,004 -
Overseas withholding tax suffered (24) (117)
Overseas withholding tax reclaims received 401 468
Changes in debtors and creditors (7,365) (190)
Cash from operations* (312) (427)
Interest paid (413) (429)
Net cash outflow from operating activities (725) (856)
Cash flows from investing activities
Acquisitions of investments (13,059) (87,304)
Disposals of investments 15,302 89,821
Net cash inflow from investing activities 2,243 2,517
Equity dividends paid (2,511) (1,276)
Cash flows from financing activities
Shares bought back (9) (7,246)
Net cash outflow from financing activities (9) (7,246)
Decrease in cash and cash equivalents (1,002) (6,861)
Exchange movements (49) (163)
Cash and cash equivalents at start of period 3,571 12,252
Cash and cash equivalents at end of period† 2,520 5,228
* Cash from operations includes dividends received in the period of
£443,000 (31 March 2022 - £941,000) and deposit interest received of £3,000
(31 March 2022 - £2,000).
(†) Cash and cash equivalents represent cash at bank and short-term money
market deposits repayable on demand.
Notes to the Financial Statements (unaudited)
1 The condensed Financial Statements for the six months to 31 March 2023
comprise the statements set out above together with the related notes 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 2023 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 2022.
Going Concern
The Directors have considered the nature of the Company's principal risks and
uncertainties, as set out below, as well as the heightened market volatility
over recent months due to macroeconomic and geopolitical concerns, including
rising inflation and interest rates. 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 2022 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 2023
Revenue Capital Total
£'000 £'000 £'000
Loan notes interest 82 328 410
Overdraft arrangement fee 1 2 3
83 330 413
Year to 30 September 2022 (audited)
Revenue Capital Total
£'000 £'000 £'000
Loan notes interest 162 650 812
Overdraft arrangement fee 1 2 3
Negative interest on cash balances 51 - 51
214 652 866
Six months to 31 March 2022
Revenue Capital Total
£'000 £'000 £'000
Loan notes interest 79 318 397
Overdraft arrangement fee 1 1 3
Negative interest on cash balances 27 - 27
107 320 427
5 Tax
The revenue tax charge for the six months to 31 March 2022 includes
£7,004,000 UK corporation tax to be repaid in respect of the Company's
financial years 2003 to 2009 following successful legal action regarding the
tax treatment of overseas dividend income. This amount had not been previously
provided for, as recovery was not considered sufficiently probable. However,
based on documentation received from HMRC, the repayment is deemed to be
virtually certain as at 31 March 2023.
6 Net return per ordinary share
Six months Six months Year to
30 September 2022
to 31 March to 31 March
(audited)
2023 2022
£'000
£'000 £'000
Net return per ordinary share
Revenue return on ordinary activities after taxation 7,263 206 2,861
Capital return on ordinary activities after taxation 68,884 (143,299) (245,283)
Total net return 76,147 (143,093) (242,422)
Weighted average number of ordinary 358,687,671 362,745,292 360,823,119
shares in issue
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.
7 Dividends
Six months Six months
to 31 March to 31 March
2022
2023
£'000
£'000
Dividends
Amounts recognised as distributions in the period:
Final dividend 0.70p (2022 - 0.35p), paid 10 February 2023 2,511 1,276
2,511 1,276
Dividends proposed in the period:
Interim dividend - nil (2022 - nil) - -
- -
8 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 2023 £'000 £'000 £'000 £'000
Listed equities 388,896 - - 388,896
Unlisted securities - - 37,369 37,369
Total financial asset investments 388,896 - 37,369 426,265
Level 1 Level 2 Level 3 Total
As at 30 September 2022 £'000 £'000 £'000 £'000
Listed equities 318,506 - - 318,506
Unlisted securities - - 39,599 39,599
Total financial asset investments 318,506 - 39,599 358,105
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.
9 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 2023, nil had been drawn down under the facility (31 March 2022 -
nil, 30 September 2022 - 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 2023 the book
value of the loan notes amounted to £52,628,000 (31 March 2022 -
£50,608,000, 30 September 2022 - £52,560,000). The fair value of the loan
notes at 31 March 2023 was £34,280,000 (31 March 2022 - £44,238,000, 30
September 2022 - £33,425,000).
10 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 2023 no ordinary shares were
issued (in the year to 30 September 2022 no ordinary shares were issued).
The Company also has authority to buy back shares. In the six months to 31
March 2023 no ordinary shares were bought back for cancellation or into
treasury (in the year to 30 September 2022 no ordinary shares were bought back
for cancellation and 5,911,659 ordinary shares were bought back into treasury
at a cost of £7,444,000).
Between 1 April 2023 and 11 May 2023, no shares were issued and 132,982 shares
were bought back into treasury.
11 During the period, transaction costs on equity purchases amounted to
£5,000 (31 March 2022 - £64,000; 30 September 2022 - £104,000) and on
equity sales £5,000 (31 March 2022 - £36,000; 30 September 2022 - £59,000).
12 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 2022 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
11 May 2023
Glossary of Terms and Alternative Performance Measures ('APM')
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 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
2023
Net Asset Value per ordinary share 107.1p
(borrowings at book value)
Shareholders' funds £384,033,000
(borrowings at book value)
Add: book value of borrowings £52,628,000
Less: fair value of borrowings £34,280,000
Shareholders' funds £402,381,000
(borrowings at fair value)
Number of shares in issue 358,687,671
Net Asset Value per ordinary share (borrowings at fair value) 112.2p
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.
Third Party Data Provider Disclaimer
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implied, as to the accuracy, completeness or timeliness of the data contained
herewith nor as to the results to be obtained by recipients of the data. No
Provider shall in any way be liable to any recipient of the data for any
inaccuracies, errors or omissions in the index data included in this document,
regardless of cause, or for any damages (whether direct or indirect) resulting
therefrom.
No Provider has any obligation to update, modify or amend the data or to
otherwise notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
FTSE Index Data
Source: London Stock Exchange Group plc and its group undertakings
(collectively, the 'LSE Group'). © LSE Group 2022. 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 any
other LSE Group company under license. All rights in the FTSE Russell indexes
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content of this communication.
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 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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