Baillie Gifford UK - Annual Financial Report
06/07/2023 10:42
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RNS Number : 2074F Baillie Gifford UK Growth Trust PLC 06 July 2023
Baillie Gifford UK Growth Trust plc
Legal Entity Identifier: 549300XX386SYWX8XW22
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the statement of audited annual results announced to the Stock
Exchange on 16 June 2023, Baillie Gifford UK Growth Trust plc ("UK Growth" or
"the Company") announces that the Company's Annual Report and Financial
Statements for the year ended 30 April 2023, including the Notice of Annual
General Meeting, has today been posted to shareholders and submitted
electronically to the National Storage Mechanism where it will shortly be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
It is also available on the UK Growth page of the Baillie Gifford website at:
bgukgrowthtrust.com (http://www.bgukgrowthtrust.com) (as is the statement of
audited annual results announced by the Company on 16 June 2023).
Responsibility Statement of the UK Growth Directors in respect of the Annual
Financial Report
The UK Growth Directors confirm that, to the best of their knowledge:
- the Financial Statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and net return of the Company;
- the Strategic Report includes a fair review of the development and
performance of the business and the position of the issuer, together with a
description of the principal risks and uncertainties they face; and
- the Annual Report and Financial Statements taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Principal and Emerging Risks relating to the Company
As explained on pages 25 and 26 of the Annual Report and Financial Statements
there is an ongoing process for identifying, evaluating and managing the risks
faced by the Company on a regular basis. The Directors have carried out a
robust assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future performance,
regulatory compliance, solvency or liquidity. There have been no significant
changes to the principal risks during the year. A description of these risks
and how they are being managed or mitigated is set out below.
The Board considers heightened macroeconomic and geopolitical concerns to be
factors which exacerbate existing areas of risk as categorised and further
explained below.
Financial Risk - the Company's assets consist mainly of listed securities and
its principal and emerging risks are therefore market related and include
market risk (comprising currency risk, interest rate risk and other price
risk), liquidity risk and credit risk. An explanation of those risks and how
they are managed is contained in note 18 on pages 50 to 53 of the Annual
Report and Financial Statements. The Board has, in particular, considered the
impact of heightened market volatility since the Covid-19 pandemic and over
recent months due to macroeconomic factors such as higher inflation and
interest rates and geopolitical concerns, including the Russia-Ukraine
conflict. To monitor and, where possible, mitigate these risks the Board
considers at each meeting various portfolio metrics including individual stock
performance, the composition and diversification of the portfolio by sector,
purchases and sales of investments and the top and bottom contributors to
performance. The Managers provide rationale for stock selection decisions. A
strategy meeting is held annually.
Investment Strategy Risk - pursuing an investment strategy to fulfil the
Company's objective which the market perceives to be unattractive or
inappropriate, or the ineffective implementation of an attractive or
appropriate strategy, may lead to reduced returns for shareholders and, as a
result, a decreased demand for the Company's shares. This may lead to the
Company's shares trading at a widening discount to their net asset value. To
mitigate this risk, the Board regularly reviews and monitors: the Company's
objective and investment policy and strategy; the investment portfolio and its
performance; the level of discount/premium to net asset value at which the
shares trade; and movements in the share register.
Climate and Governance Risk - as investors place increased emphasis on
Environmental, Social and Governance (ESG) issues, perceived problems on ESG
matters in an investee company could lead to that company's shares being less
attractive to investors, adversely affecting its share price, in addition to
potential valuation issues arising from any direct impact of the failure to
address the ESG weakness on the operations or management of the investee
company (for example in the event of an industrial accident or spillage).
Repeated failure by the Investment Manager to identify ESG weaknesses in
investee companies could lead to the Company's own shares being less
attractive to investors, adversely affecting its own share price. This is
mitigated by the Investment Managers' thorough ESG stewardship and engagement
policies, which are available to view on the Managers' website:
bailliegifford.com (http://www.bailliegifford.com) and have been reviewed and
endorsed by the Company, and are fully integrated into the investment process
as well as the extensive upfront and ongoing due diligence which the
Investment Managers undertake on each investee company. This due diligence
includes assessment of the risks inherent in climate change (see page 27 of
the Annual Report and Financial Statements).
Discount Risk - the discount/premium at which the Company's shares trade
relative to its net asset value can change. The risk of a widening discount is
that it may undermine investor confidence in the Company. To manage this risk,
the Board monitors the level of discount/premium at which the shares trade and
the Company has authority to buy back its existing shares when deemed by the
Board to be in the best interests of the Company and its shareholders.
Regulatory Risk - failure to comply with applicable legal and regulatory
requirements such as the tax rules for investment trust companies, the FCA
Listing Rules and the Companies Act could lead to suspension of the Company's
Stock Exchange listing, financial penalties, a qualified audit report or the
Company being subject to tax on capital gains. To mitigate this risk, Baillie
Gifford's Business Risk, Internal Audit and Compliance Departments provide
regular reports to the Audit Committee on Baillie Gifford's monitoring
programmes. Major regulatory change could impose disproportionate compliance
burdens on the Company. In such circumstances representation is made to ensure
that the special circumstances of investment trusts are recognised.
Shareholder documents and announcements, including the Company's published
Interim and Annual Report and Financial Statements, are subject to stringent
review processes, and procedures are in place to ensure adherence to the
Transparency Directive and the Market Abuse Directive with reference to inside
information.
Custody and Depositary Risk - safe custody of the Company's assets may be
compromised through control failures by the Depositary, including cyber
security incidents. To mitigate this risk, the Audit Committee receives six
monthly reports from the Depositary confirming safe custody of the Company's
assets held by the Custodian. Cash and portfolio holdings are independently
reconciled to the Custodian's records by the Managers. The Custodian's assured
internal controls reports are reviewed by Baillie Gifford's Business Risk
Department and a summary of the key points is reported to the Audit Committee
and any concerns investigated. In addition, the existence of assets is subject
to annual external audit.
Operational Risk - failure of Baillie Gifford's systems or those of other
third party service providers could lead to an inability to provide accurate
reporting and monitoring or a misappropriation of assets. To mitigate this
risk, Baillie Gifford has a comprehensive business continuity plan which
facilitates continued operation of the business in the event of a service
disruption or major disaster. The Audit Committee reviews Baillie Gifford's
Report on Internal Controls and the reports by other key third party providers
are reviewed by Baillie Gifford on behalf of the Board. The other key third
party service providers have not experienced significant operational
difficulties affecting their respective services to the Company.
Cyber Security Risk - a cyber attack on Baillie Gifford's network or that of a
third party service provider could impact the confidentiality, integrity or
availability of data and systems. To mitigate this risk, the Audit Committee
reviews Reports on Internal Controls published by Baillie Gifford and other
third party service providers. Baillie Gifford's Business Risk Department
report to the Audit Committee on the effectiveness of information security
controls in place at Baillie Gifford and its business continuity framework.
Cyber security due diligence is performed by Baillie Gifford on third party
service providers which includes a review of crisis management and business
continuity frameworks.
Leverage Risk - the Company may borrow money for investment purposes
(sometimes known as 'gearing' or 'leverage'). If the investments fall in
value, any borrowings will magnify the impact of this loss. If borrowing
facilities are not renewed, the Company may have to sell investments to repay
borrowings. To mitigate this risk, all borrowing facilities require the prior
approval of the Board and leverage levels are discussed by the Board and
Managers at every meeting. Covenant levels are monitored regularly. The
Company's investments are in listed securities that are readily realisable.
Further information on leverage can be found on page 61 of the Annual Report
and Financial Statements and in the Glossary of Terms and Alternative
Performance Measures on pages 62 and 63 of the Annual Report and Financial
Statements.
Political Risk - political developments are monitored and considered by the
Board. Following the departure of the UK from the European Union, the Board
continues to assess the potential consequences for the Company's future
activities including those that may arise from further constitutional change.
Emerging Risks - as explained on pages 25 and 26 of the Annual Report and
Financial Statements, the Board has regular discussions on principal risks and
uncertainties, including any risks which are not an immediate threat but could
arise in the longer term. The Board considers that the key emerging risks
arise from the interconnectedness of the global economy and the related
exposure of the investment portfolio to external and emerging threats such as
the societal and financial implications of an escalation of geopolitical
tensions, cyber risk, new coronavirus variants or similar public health
threats. This is mitigated by the Investment Managers' close links to the
investee companies and their ability to ask questions on contingency plans.
The Investment Managers believe the impact of such events may be to slow the
pace of growth rather than to invalidate the investment rationale over the
long term.
Baillie Gifford & Co Limited
Company Secretaries
6 July 2023
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