REG - Baillie Gifford Euro - Baillie Gifford European Growth Tst Interim Report
16/05/2024 07:00
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RNS Number : 6037O Baillie Gifford European Growth Tst 16 May 2024
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 2024
· Over the six month period to 31 March 2024, the Company's net asset
value per share (NAV) total return was 20.2% compared to a total return of
14.9% for the FTSE Europe ex UK index, in sterling terms. The Company's share
price total return for the same period was 18.5%.
· During the six month period four new positions were taken (Lonza,
Assa Abloy, Genmab and Camurus) and six existing positions were added to (DSV,
Sartorius Stedim Biotech, Royal Unibrew, Hypoport, Moncler and Bending
Spoons).
· Private company holdings, of which there are five, accounted for 9.9%
of total assets as at the period end.
· Invested gearing stood at 12% 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 2024 the Company had total assets of £448.5 million.
Baillie Gifford European Growth Trust is managed by Baillie Gifford, an
Edinburgh-based fund management group with approximately £227 billion under
management and advice as at 15 May 2024.
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 LSEG, Baillie Gifford and relevant underlying
index providers. See disclaimer at end of this announcement.
15 May 2024
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 275 2000
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 2024 which was approved by the Board on 15 May 2024.
Interim management report
For many growth investors, ourselves included, the rapid rise in inflation and
interest rates in recent years has been painful. We have deliberately taken
advantage of lower valuations and prepared for inflection points, accepting as
we did that recoveries and rebounds are seldom linear. We have weeded out
weaker companies, added to long-term winners facing temporary challenges, and
purchased new competitively advantaged companies benefiting from strong
tailwinds across multiple industries. While performance improved significantly
during the period, we think there is more to come. Europe is unloved, and with
resilient companies offering significant long-term upside on sale, it feels
like a better time to be a long-term European growth investor than it has for
several years.
Portfolio
Of course, there is a danger of sounding like a broken record. Moving beyond
the abstract to corporate reality is a far better means of conveying our
growing optimism. For most companies in the portfolio, fundamentals are
strengthening around key inflection points.
In healthcare, for example, we see enduring tailwinds behind several
innovative treatment modalities. New holding Genmab is building on its success
in treating blood cancer with further ground-breaking antibody-based
treatments, while existing holding CRISPR Therapeutics' cure for sickle cell
disease received the world's first approval for a CRISPR gene-editing
medicine, setting the scene for many more. Meanwhile, Sartorius Stedim
Biotech, which provides cost-efficient bioprocessing equipment for the
manufacture of new, innovative medicines, is seeing orders inflect after a
period of post-pandemic destocking. Things are going well at Swiss drug
development and manufacturing business Lonza, a recent addition to the
portfolio.
We share more detail on the company later in this report but suffice it to say
that thanks to geopolitical tensions between China and the US and the purchase
of a large manufacturing facility from Roche, Lonza is well positioned to gain
market share from here.
In technology, we continue to see platform companies scaling at pace. What has
changed is that many are now paying more attention to costs, which should help
drive profitable growth. Spotify, for example, is getting its staff costs
under control after a period of heightened hiring, and in its recent first
quarter results we saw the benefits. We have seen a similar trend at Hypoport,
Germany's leading online mortgage platform, which also had to make staff cuts
in 2023, but importantly has seen market share gains during the recent, severe
market downturn. Mortgage volumes appear to have bottomed out, and with
recovery hopefully imminent, Hypoport should deliver attractive profit growth.
In the semiconductor industry, companies are emerging from the recent market
downturn, with the advent of artificial intelligence an additional tailwind.
Lithography will continue to be a key driver of computing power in the years
ahead, and Dutch powerhouse ASML leads the way with its monopoly at the
leading edge of lithography machines. In fact, in the last quarter of 2023, it
saw its highest ever level for bookings. Fellow holding Soitec is at the
lagging end of the recovery. It makes engineered substrates for a variety of
applications but has suffered from excess downstream inventory. This should
correct in the next year or two, leading to an inflection point for revenues
which the company expects to exceed €2bn by 2027, doubling from last year's
starting point.
Such patterns can be seen across the portfolio. In luxury, private markets,
acquisition-led companies, and much besides. Some investment cases will not
work out, but we increasingly see a disconnect between strengthening
underlying fundamentals overall and the relatively low level of valuations
across the portfolio.
Performance
As share prices have begun to reflect these turning points, performance has
improved. Over the period the Company's NAV delivered a total return of 20.2%
in sterling terms, while the FTSE Europe ex-UK benchmark returned 14.9%. The
Company's share price total return was 18.5%, ending the period at 98.6p,
representing a discount of 14.8% to the net asset value per share. This
compares to a discount of 13.6% at the beginning of the period.
We fully realise that shareholders expect outperformance as a matter of
course, not as an exception. Believe us when we say that we - as shareholders
too - have been unhappy with recent performance. We cannot promise that
performance will continue to improve, nor would we seek to argue that every
stock in the portfolio will do great things, but the abundance of positive
inflection points and reasonable valuations give us cause for rational rather
than blind optimism about the years to come.
Transactions
Online classifieds group Adevinta is in the process of being taken private by
a private equity consortium led by Permira. The bid values the company at NOK
115 per share (a 54% premium to the trailing 3-month average price), and while
this price seems low to us, we decided to sell the holding as the probability
of the deal going through is high - large shareholders are supportive. We will
retain some exposure through our investment in Schibsted, which will be left
with an 11% stake in Adevinta when it is taken private. We also sold Hemnet,
Sweden's monopolistic online property portal, on valuation grounds. Its
economics are superb, but at 23x forward sales, the market price seemed to be
fully reflecting even our rosiest upside case.
While we have seen positive inflection points in some technology companies,
we've seen negative signs in others. We sold Zalando, HelloFresh and AUTO1
during the period as it became increasingly clear that these business models
are less attractive than we had initially believed. There are additional
factors to consider in each case:
• Zalando is struggling to differentiate itself in the world of online
fashion. Its broad selection seems insufficient to convince shoppers to begin
their journey on the platform instead of Google or brands' own websites, and
we see increasing competition from Shein and Temu and heightened substitution
risk from second-hand fashion marketplace Vinted. We had also hoped that
Zalando's services for brands, like marketing and fulfilment, would have a
positive impact on profitability, but they haven't.
• AUTO1 is attempting to marry the digital and the physical, allowing car
dealers and consumers to buy cars online while providing assurance via local
test and inspection centres. With wafer thin margins in the core merchant
business and a higher cost of capital, AUTO1 will find it increasingly
difficult to scale, particularly as incumbent online classifieds companies
continue to encroach on its turf.
• HelloFresh saw revenues more than quadruple from 2019 to 2022 as the core
meal kit business took off. It also acquired its way into the ready-to-eat
market via the purchase of Factor. However, after two profit warnings in the
past two quarters, it became evident that the core meal kit business had begun
to decline while the company is trying to grow Factor, which requires
significant investment. The underlying economics thus look less attractive.
We also made small reductions to other holdings. As mentioned, Spotify's
revenue momentum remains strong, but its margin outlook improved significantly
when CEO Daniel Ek announced job cuts. The shares have performed strongly, and
while we're willing to give management the benefit of the doubt for now, we
remain vigilant. Margins could end up somewhere in the 5-10% corridor but
returns on capital ought to be very high as Spotify's business model requires
little capital. We also took money out of Prosus on growing concerns over the
Chinese government's periodic interventions in the domestic gaming and other
markets. We feel the smaller holding size better reflects the risks.
We made four new purchases during the period: Lonza, Assa Abloy, Genmab and
Camurus.
As mentioned earlier, Lonza is a Swiss contract development and manufacturing
organisation (CDMO). It is a one-stop shop for pharmaceutical companies,
supporting them with products and services from early trials through to the
manufacturing and packaging of finished products. Its strength lies in
biologics, where market growth rates could be around 10% for the next decade
as revolutionary treatments increasingly take off. Lonza enjoys many
advantages, including scale and reliability, and once it is built into the
manufacture of a drug, it is extremely difficult to dislodge. Lonza was the
first CDMO to scale up commercial manufacturing for an mRNA-based treatment in
the form of the COVID vaccine developed with Moderna. We took advantage of the
share price almost halving from June to December to take a holding, as the
market grappled with the cancellation of a contract with Moderna on the back
of lower COVID vaccine demand and poor communication from the now-dismissed
CEO. Neither dent the long-term potential as much as the market reaction
implied.
Assa Abloy is a high quality Swedish industrial in the access solutions
(locks) market. It is known for its mechanical and electronic locks, and while
the transition from the former to the latter ought to provide a helpful
tailwind to growth over the next decade, it is Assa's skill in acquisitions we
find especially appealing given the fragmented nature of its market. As with
many of Sweden's excellent industrials, Assa benefits from the presence of
long-term owners, in this case the Douglas and Schörling families, and a CEO
whose years at Atlas Copco are possibly the best training we can imagine for
running an industrial business. We took a holding after a moderate derating in
Assa's multiples gave us an unusual opportunity to buy this high quality, long
admired company at a reasonable price.
Genmab is a Danish drug developer which uses its unique expertise in
antibodies to develop medicines for oncology and autoimmune diseases. Since
2017, it has brought to market two wholly owned drugs and eight
royalty-generating partnered products, including three US$1bn+ revenue
blockbusters. One of these, Darzalex, developed for Johnson & Johnson, is
nearing US$10bn in sales. We see a raft of external validations here, with
multiple partners choosing Genmab as the partner of choice for antibody
treatments given its deep expertise. CEO Jan van der Winkel has been a key
driving force of the company since 2010, and like us, wants to ensure Genmab
remains independent. The market is focusing too much on the large exposure to
Darzalex and Genmab's willingness to continue investing and failing, we feel,
to appreciate the many potential shots on goal the underlying technology
permits.
Camurus is a Swedish biotechnology company founded in 1991. It does not engage
in drug discovery but reformulates existing medicines as long-acting
injectables using its proprietary delivery technology FluidCrystal. The bulk
of Camurus' revenue today comes from Buvidal (known as Brixadi in the US), its
innovative treatment for opioid use disorder. While this opportunity is
substantial, it is the potential for FluidCrystal to be extended into multiple
new markets with limited biological or regulatory risk that we find appealing
in terms of potential investment outcomes. Like Genmab, Camurus is highly
profitable and ambitious, targeting a quintupling of revenue by 2027 compared
with 2022.
Elsewhere, we have invested additional funds in existing holdings where share
prices continue to under-represent fundamental progress. This includes DSV,
Sartorius Stedim Biotech, Royal Unibrew, Hypoport and Moncler. We also made
two further investments in unlisted Italian app operator Bending Spoons where
operational momentum continues to outperform our expectations.
Outlook
Warren Buffett once said 'the beauty of stocks is they do sell at silly prices
from time to time.' For today this is perhaps too hyperbolic, but what we can
say is that the combination of inflection points and lower starting valuations
sets a favourable scene for the years ahead. The forces that sparked the
downturn in growth equities from late 2021 onwards appear to be easing, with
disinflation, expected interest rate cuts, healthier inventories, and stronger
growth forecasts offering potential tailwinds to valuations. If history is
anything to go by, we could see a strong rebound in the small and mid-cap
companies we are disproportionately exposed to. Our insight is not, however,
that valuation multiples will rise - though that may well happen - it is that
the companies in our portfolio have strong secular underpinnings, competitive
advantages, excellent management, and multiple paths ahead for accelerated,
profitable growth.
Chris Davies
Stephen Paice
For a definition of terms see Glossary of terms and Alternative Performance
Measures at the end of this announcement.
Total return information sourced from LSEG, Baillie Gifford and relevant
underlying index providers.
The principal risks and uncertainties facing the Company are set out at the
end of this announcement.
Past performance is not a guide to future performance.
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.
Continued 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 team 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 team
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 2023 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 Geography Business 2024 2024
Value % of total assets
£'000
Ryanair Ireland Low-cost airline 21,874 4.9
Topicus.com Netherlands Acquirer of vertical market software companies 21,338 4.8
ASML Netherlands Semiconductor equipment manufacturer 19,262 4.3
Schibsted Norway Media and classifieds advertising platforms 19,132 4.3
Prosus Netherlands Portfolio of online consumer companies 17,754 4.0
Adyen Netherlands Online payments platform 17,562 3.9
Northvolt (U) Sweden Battery developer and manufacturer 15,816 3.5
Atlas Copco Sweden Industrial group 15,779 3.5
Kingspan Ireland Building materials provider 13,318 3.0
Allegro Poland E-commerce platform 13,083 2.9
EXOR Netherlands Investment company specialising in industrials 13,033 2.9
IMCD Netherlands Speciality chemicals distributor 13,006 2.9
Hypoport Germany FinTech platform 12,240 2.7
DSV Denmark Freight forwarder 11,633 2.6
Avanza Bank Sweden Online investment platform 11,219 2.5
Reply Italy IT consulting and systems integration provider 10,844 2.4
Richemont Switzerland Owner of luxury goods companies 10,730 2.4
Moncler Italy Manufactures luxury apparel products 10,182 2.3
Sartorius Stedim Biotech France Pharmaceutical and laboratory equipment provider 9,945 2.2
Nexans France Cable manufacturing company 9,915 2.2
Lonza* Switzerland Contract development and manufacturing organisation 9,703 2.1
EQT Sweden Investment firm, investing in equity, ventures, infrastructure and real estate 9,571 2.1
Dassault Systèmes France Develops software for 3D computer-aided design 9,325 2.1
Bending Spoons (U) Italy Mobile application software developer 8,880 2.0
Kering France Owner of luxury fashion brands 8,836 2.0
Spotify Sweden Online audio streaming service 7,954 1.8
sennder † (U) Germany Freight forwarder focused on road logistics 7,607 1.7
Assa Abloy* Sweden Developer, designer and manufacturer in access solutons market 6,592 1.5
McMakler (U) Germany Digital real estate broker 6,258 1.4
Kinnevik Sweden Investment company specialising in digital consumer businesses 5,916 1.3
Flix (U) Germany Long-distance bus and train provider 5,686 1.3
LVMH France Luxury goods 5,306 1.2
Mettler-Toledo Switzerland Manufacturer of precision instruments for laboratories 5,264 1.2
Beijer Ref Sweden Wholesaler of cooling technology 5,136 1.1
Wizz Air Hungary Low-cost airline 5,120 1.1
adidas Germany Sports shoes and clothing manufacturer 5,114 1.1
Epiroc Sweden Mining and infrastructure equipment provider 4,988 1.1
Delivery Hero Germany Online food delivery platform 4,823 1.1
Genmab* Denmark Antibody based drug development 4,558 1.0
CRISPR Therapeutics Switzerland Developer of treatments based on gene editing technology 3,918 0.9
AutoStore Norway Warehouse automation and cubic storage systems 3,877 0.8
Evotec Germany Contact research and drug discovery company 3,633 0.8
Royal Unibrew Denmark Alcoholic and non-alcoholic beverages 3,616 0.8
Tonies Germany Musical storybox toys for children 3,127 0.7
Eurofins France Analytical testing services 3,113 0.7
Soitec France Manufactures engineered substrates for semiconductor wafers 2,704 0.6
VNV Global Sweden Investment company specialising in early-stage technologies 2,675 0.6
Camurus* Sweden Develops and commercialises therapeutic medications 2,566 0.6
Total Investments 443,531 98.9
Net Liquid Assets 4,945 1.1
Total Assets 448,476 100.0
Borrowings (51,212) (11.4)
Shareholders' funds 397,264 88.6
(U) Denotes private company investment.
* New holding bought during the year (Adevinta, AUTO1, Cellectis, HelloFresh,
Hemnet, Hexpol and Zalando were sold during the period).
† Includes a convertible loan note.
Income statement (unaudited)
For the six months ended For the six months to For the year ended
31 March 2024 31 March 2023 30 September 2023 (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 73,204 73,204 - 70,022 70,022 - 19,795 19,795
Currency (losses)/gains (17) 793 776 (22) (92) (114) (40) 533 493
Income 1,172 - 1,172 863 - 863 3,912 - 3,912
Investment management fee 3 (188) (752) (940) (179) (716) (895) (354) (1,416) (1,770)
Other administrative expenses (312) - (312) (296) - (296) (564) - (564)
Net return before finance costs and taxation 655 73,245 73,900 366 69,214 69,580 2,954 18,912 21,866
Finance costs 4 (81) (325) (406) (83) (330) (413) (164) (653) (817)
Net return on ordinary activities before taxation 574 72,920 73,494 283 68,884 69,167 2,790 18,259 21,049
Tax on ordinary activities 5 (88) - (88) 6,980 - 6,980 6,835 - 6,835
Net return on ordinary activities after taxation 486 72,920 73,406 7,263 68,884 76,147 9,625 18,259 27,884
Net return per ordinary share 6 0.14p 20.41p 20.55p 2.02p 19.20p 21.22p 2.68p 5.09p 7.77p
Dividends paid and payable per share 7 nil nil 2.60p
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.
The accompanying notes below are an integral part of the Financial Statements.
Balance sheet (unaudited)
Notes At 31 March 2024 At September 2023 (audited) £'000
£'000
Fixed assets
Investments held at fair value through profit or loss 8 443,531 377,812
Current assets
Debtors 1,685 2,406
Cash and cash equivalents 4,827 907
6,512 3,313
Creditors
Amounts falling due within one year (1,567) (1,775)
Net current assets 4,945 1,538
Total assets less current liabilities 448,476 379,350
Creditors
Amounts falling due after more than one year 9 (51,212) (51,960)
Net assets 397,264 327,390
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 247,033 176,215
Revenue reserve 6,370 7,314
Shareholders' funds 397,264 327,390
Net asset value per ordinary share (borrowings at book value)* 111.6p 91.4p
Net asset value per ordinary share (borrowings at fair value)* 115.8p 96.7p
Ordinary shares in issue 10 355,865,033 358,149,200
*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 2024
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 2023 10,061 125,050 8,750 176,215 7,314 327,390
Net return on ordinary activities after taxation - - - 72,920 486 73,406
Shares bought back into treasury - - - (2,102) - (2,102)
Dividends paid 7 - - - - (1,430) (1,430)
Shareholders' funds at 31 March 2024 10,061 125,050 8,750 247,033 6,370 397,264
For the six months ended 31 March 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
Net return on ordinary activities after taxation - - - 68,884 7,263 76,147
Dividends paid 7 - - - - (2,511) (2,511)
Shareholders' funds at 31 March 2023 10,061 125,050 8,750 227,341 12,831 384,033
* The capital reserve balance at 31 March 2024 includes investment holding
gains on investments of £64,208,000 (31 March 2023 - gains of £3,839,000).
Cash flow statement (unaudited)
For the six months to 31 March
Notes 2024 2023
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation 73,494 69,167
Net gains on investments (73,204) (70,022)
Currency (gains)/losses (793) 114
Finance costs of borrowings 406 413
UK corporation tax refund accrued - 7,004
Overseas withholding tax suffered (88) (24)
Overseas withholding tax reclaims received 51 401
Changes in debtors and creditors 25 (7,365)
Cash from operations* (109) (312)
Interest paid (406) (413)
Net cash outflow from operating activities (515) (725)
Cash flows from investing activities
Acquisitions of investments (37,179) (13,059)
Disposals of investments 45,004 15,302
Net cash inflow from investing activities 7,825 2,243
Cash flows from financing activities
Shares bought back (2,002) (9)
Equity dividends paid (1,430) (2,511)
Net cash outflow from financing activities (3,432) (2,520)
Increase/(decrease) in cash and cash equivalents 3,878 (1,002)
Exchange movements 42 (49)
Cash and cash equivalents at start of period 907 3,571
Cash and cash equivalents at end of period (†) 4,827 2,520
* Cash from operations includes dividends received in the period of
£1,084,000 (31 March 2023 - £443,000) and deposit interest received of
£26,000
(31 March 2023 - £3,000).
(†) Cash and cash equivalents represent cash at bank and short-term money
market deposits repayable on demand.
Notes to the Financial Statements (unaudited)
1. Principal accounting policies
The condensed Financial Statements for the six months to 31 March 2024
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 July 2022
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 2024 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 2023.
Going concern
The Directors have considered the nature of the Company's principal risks and
uncertainties below and the ongoing impact of geopolitical and macroeconomic
challenges. 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. Financial information
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
2023 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. Investment management
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 2024
Revenue Capital Total
£'000 £'000 £'000
Loan notes interest 81 323 404
Overdraft arrangement fee - 2 2
81 325 406
Year to 30 September 2023 (audited)
Revenue Capital Total
£'000 £'000 £'000
Loan notes interest 163 651 814
Overdraft arrangement fee 1 2 3
164 653 817
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
5. Tax
The revenue tax charge for the six months to 31 March 2023 included
£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. During the year end 30 September
2023 a repayment of tax of £7,034,000 was received from HMRC.
6. Net return per ordinary share
Six months to 31 March 2024 Six months to 31 March 2023 Year to
£'000 £'000 30 September 2023 (audited)
£'000
Net return per ordinary share
Revenue return on ordinary activities after taxation 486 7,263 9,625
Capital return on ordinary activities after taxation 72,920 68,884 18,259
Total net return 73,406 76,147 27,884
Weighted average number of ordinary shares in issue 357,267,626 358,687,671 358,552,904
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 to 31 March 2024 Six months to 31 March 2023
£'000 £'000
Amounts recognised as distributions in the period: 1,430 2,511
Final dividend 0.40p (2023 - 0.70p), paid 2 February 2024
Dividends proposed in the period: - -
Interim dividend - nil (2023 - 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 asset investments based on the fair
value hierarchy described above is shown below.
Level 1 Level 2 £'000 Level 3 £'000 Total
As at 31 March 2024 £'000 £'000
Listed equities 399,285 - - 399,285
Unlisted securities - - 44,246 44,246
Total financial asset investments 399,285 - 44,246 443,531
Level 1 Level 2 £'000 Level 3 £'000 Total
As at 30 September 2023 £'000 £'000
Listed equities 336,369 - - 336,369
Unlisted securities - - 41,443 41,443
Total financial asset investments 336,369 - 41,443 377,812
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. Financial liabilities
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 2024, nil had been drawn down under the facility (31 March 2023 - nil,
30 September 2023 - 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 2024 the book
value of the loan notes amounted to £51,212,000 (31 March 2023 -
£52,628,000, 30 September 2023 - £51,960,000). The fair value of the loan
notes at 31 March 2024 was £36,422,000 (31 March 2023 - £34,280,000, 30
September 2023 - £32,869,000).
10. Share capital
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 2024 no ordinary shares were issued (in
the year to 30 September 2023 no ordinary shares were issued).
The Company also has authority to buy back shares. In the six months to 31
March 2024 no ordinary shares were bought back for cancellation and 2,284,167
ordinary shares were bought back into treasury at a cost of £2,102,000. (In
the year to 30 September 2023 no ordinary shares were bought back for
cancellation and 538,471 ordinary shares were bought back into treasury at a
cost of £501,000).
Between 1 April 2024 and 14 May 2024, no shares were issued and 553,301 shares
were bought back into treasury.
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, political and associated economic risk, discount risk, regulatory risk,
custody and depositary risk, operational risk, leverage risk, climate and
governance risk and cyber security risk. An explanation of these risks and how
they are managed is set out on pages 30 and 34 of the Company's Annual Report
and Financial Statements for the year to 30 September 2023 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
15 May 2024
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 stock markets 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 2024 31 March 2023
Net asset value per ordinary share (borrowings at book value) 111.6p 107.1p
Shareholders' funds (borrowings at book value) £397,264,000 £384,033,000
Add: book value of borrowings £51,212,000 £52,628,000
Less: fair value of borrowings £36,422,000 £34,280,000
Shareholders' funds (borrowings at fair value) £412,054,000 £402,381,000
Number of shares in issue 355,865,033 358,687,671
Net asset value per ordinary share (borrowings at fair value) 115.8p 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. Gross 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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