Baillie Gifford UK - Baillie Gifford UK Growth Trust plc final results
16/06/2023 07:00
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RNS Number : 9095C Baillie Gifford UK Growth Trust PLC 16 June 2023
Baillie Gifford UK Growth Trust plc
Legal Entity Identifier: 549300XX386SYWX8XW22
Results for the year to 30 April 2023
For the year to 30 April 2023, the Company's net asset value ('NAV') total
return (capital and income) was 1.1% compared to 6.0% for the FTSE All-Share
Index total return. The share price total return for the same period was
negative 1.3%.
¾ The largest detractors to relative performance were: Molten Ventures,
a technology focused venture capital firm; FDM Group, a provider of
professional services focusing on information technology; Helical, a property
developer; and Farfetch, an online luxury fashion retailer. Not holding BP was
also a notable detractor.
¾ The notable positive contributors to relative performance were toy
manufacturer and retailer, Games Workshop, luxury goods retailer, Burberry,
and the direct marketer of promotional merchandise, 4imprint.
¾ Two new positions were initiated in the period: IT infrastructure
provider Softcat; and, the digitisation specialist Kainos. One position was
sold, online food ordering and delivery company Just Eat Takeaway.com. The
positions in Euromoney Institutional Investor and Homeserve were exited
following takeovers.
¾ The net revenue return for the year was 4.05p per share (2022:
4.39p). A final dividend of 3.60p per share is being recommended (2022:
3.91p). The dividend is paid by way of a single final payment.
¾ Over the year a total of 2,975,000 shares were bought back into
treasury. Since period end to 14 June 2023, a further 105,000 shares have been
bought back into treasury.
¾ The Board and Managers believe the portfolio to have attractive
growth fundamentals and the vast majority of holdings are expected to grow
well in excess of the market over the longer term and are high quality and
resilient.
Total return information is sourced from Baillie Gifford/Refinitiv. See
disclaimer at the end of this announcement. For a definition of terms see
Glossary of Terms and Alternative Performance Measures at the end of this
announcement.
Baillie Gifford UK Growth Trust plc invests to achieve capital growth
predominantly from investment in UK equities with the aim of providing a total
return in excess of the FTSE All-Share Index.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with around £234 billion under management and advice as at
14 June 2023.
Past performance is not a guide to future performance. Baillie Gifford UK
Growth Trust plc is a listed UK company. The value of its shares and any
income from them can fall as well as rise and investors may not get back the
amount invested. The Company is listed on the London Stock Exchange and is not
authorised or regulated by the Financial Conduct Authority. You can find up to
date performance information about Baillie Gifford UK Growth Trust plc at
bgukgrowthtrust.com.‡ See disclaimer at the end of this announcement.
‡Neither the contents of the Managers' website nor the contents of any
website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Four Communications
Tel: 020 3103 9553 or 07872 495 396
The following is the results announcement for the year to 30 April 2023 which
was approved by the Board on 15 June 2023.
Chairman's Statement
Performance
For the year to 30 April 2023, the Company's net asset value ('NAV') total
return (capital and income) was 1.1% compared to 6.0% for the FTSE All-Share
Index total return. Whilst the wild divergence of performance in the share
prices of companies perceived to offer either growth or value was more muted
this year compared to last, it still persisted, resulting in a disappointing
return from a portfolio focused on growth companies. There were also some
disappointing individual company outcomes, see the Managers' Report below, but
no more than might be normally expected. The Company's share price total
return over the same period was negative 1.3%.
Examining in detail the current profits and turnover and the portfolio
managers' expectations for future trading for the companies in the portfolio
shows that the majority of the companies at the profits and revenue level are
performing as expected against a backdrop of a difficult UK economy with
interest rates and inflation sharply higher than for the last 15 years. The
portfolio managers continue to be enthused by the long term prospects of the
companies held, as evidenced by the low level of portfolio turnover over the
year, of 5%.
Share Issuance and Buy-backs
There has been little investor appetite to invest in UK equities over the past
year and this, coupled with some disappointing performance, has resulted in
the shares standing at the financial year end at a 14.1% discount to the
Company's NAV compared to 11.8% a year earlier. The discount on the AIC UK All
Companies sector was 11.9% compared to 10.6% for the same period last year.
The Company's share buy-back policy seeks to operate in the best interests of
shareholders by taking into account the relative level of the Company's share
price discount to NAV when compared with peer group trusts, the absolute level
of discount, volatility in the level of discount and the impact from share
buy-back activity on the long-term liquidity of the Company's issued shares.
The Company has steadily bought back shares throughout the year, buying into
treasury 2,975,000 shares, which represents 1.9% of the Company's issued share
capital as at 30 April 2022. Since the financial year end, a further 105,000
shares have been bought back into treasury. However, it needs more investor
demand for UK growth equities to materially narrow the Company's discount.
The Company benefits from the flexibility of being able to issue new shares or
to re-issue any shares that might be held in treasury when there is sufficient
demand at a premium to NAV as this helps to improve trading liquidity and
reduces ongoing costs by being asset accretive. The Company is seeking to
renew the annual issuance authority at its Annual General Meeting ('AGM'). To
avoid any dilution to existing investors, shares held in treasury and any new
shares would only be re-issued/issued at a premium to NAV and after associated
costs.
Gearing
During the year, the Company replaced its one-year £20m revolving credit
facility with The Royal Bank of Scotland International Limited with a one-year
£30m revolving credit facility with the same counterparty. Drawn and invested
gearing stood at 5% and 3% of shareholders' funds as at the Company's year end
compared to 2% for both a year earlier.
The Board sets internal guidelines for the portfolio managers' use of gearing
which are altered from time to time but are subject to the absolute amount of
any gearing not representing more than 20% of net asset value of the Company
at the time of drawdown. Should the level be subsequently breached, then the
portfolio managers would be asked to make sales should there be insufficient
cash available to reduce the absolute amount of any gearing to below 20%.
Earnings and Dividends
The net revenue return per share for the year was 4.05p, versus 4.39p in 2022.
A final dividend of 3.60p per share, payable on 15 September 2023 to
shareholders on the register as at 18 August 2023, is being recommended to
shareholders.
The Company's priority is capital growth so shareholders should not rely on
receiving a regular or growing level of income from their investment in this
Company. Any dividend paid is by way of a single final payment and the Board
expects that such dividends would represent approximately the minimum
permissible to maintain investment trust status after taking account of
variables.
Board Composition
I intend to step down from the Board no later than next year's AGM and, in
line with good corporate governance, will play no role in the recruitment of
my successor. Accordingly, I have asked Mr Andrew Westenberger to chair a
Nomination Committee to appoint my successor.
An external recruitment consultant will be engaged shortly to undertake the
selection of a list of suitable candidates for consideration by the Nomination
Committee, after which a recommendation will be put to the Board for approval.
The external recruitment consultant will be asked to put forward candidates
with the desired skillset and also with a diverse range of characteristics.
The Board is ambitious to meet and support the Listing Rule diversity targets
and will take these and any other best practice matters into account when
determining the appropriateness of a candidate and final appointment. The
importance of diversity will be an important factor in the candidate
shortlist.
TCFD and Consumer Duty
The Board welcomes the new FCA regulation which requires Managers of UK based
investment vehicles, including investment trusts such as Baillie Gifford UK
Growth Trust managed by Baillie Gifford, to produce product-level TCFD (Task
Force on Climate-related Financial Disclosures) reports. These reports are a
framework designed to disclose information to investors and other stakeholders
about the climate-related risks and opportunities in the respective investment
vehicle and are a snapshot in time. The Board sees this as a valuable addition
to the detailed information already provided by Baillie Gifford to help
shareholders assess the climate impact of the investment portfolio. The report
produced by Baillie Gifford for our Company, as at end December 2022 and which
will be updated annually, can be found at bgukgrowthtrust.com. It shows the
portfolio measuring favourably across a number of metrics when compared to the
FTSE All-Share benchmark.
The FCA has also introduced new regulations designed to place the interests of
consumers at the heart of the businesses it regulates. Investment trusts that
are externally managed and not authorised by the FCA, like Baillie Gifford UK
Growth Trust plc, are not themselves in scope for the new Consumer Duty
regulations, although they and their boards continue to be subject to duties
under the Companies Act, the Listing Rules and the Corporate Governance Code.
Baillie Gifford as the Company's Manager is subject to the Consumer Duty
regulations in respect of a number of its investment products, including
shares in the Company. One of its obligations is to undertake an Assessment of
Value on these 'products' on a regular basis appropriate to the nature and
duration of the product. This assessment is similar, though not identical, to
the annual evaluation conducted by the Board of performance and quality of
service, costs and shareholder interest. Baillie Gifford has conducted its
initial Assessment of Value on Baillie Gifford UK Growth Trust plc and has
concluded that the Company does provide value. This Assessment of Value will
enable distributors of the Company's shares (such as platforms) to undertake
their own assessments under the Consumer Duty regulations and continue to make
shares in Baillie Gifford UK Growth Trust plc available to current and
potential shareholders.
Annual General Meeting
It is intended that the Company's AGM will be held on Thursday 7 September
2023 at 12.00 noon at the Institute of Directors, 116 Pall Mall, London SW1Y
5ED. Shareholders are warmly invited to attend. Should the situation change,
further information will be made available through the Company's website at
bgukgrowthtrust.com and the London Stock Exchange regulatory news service. The
meeting will include a presentation by the portfolio managers on the prospects
for UK equities and the positioning of the portfolio. They and the Board will
be available to answer any questions. Light refreshments will be available.
Outlook
Whilst the broader macro-economic environment is undoubtedly uncertain, the
vast majority of holdings in the portfolio are expected to grow well in excess
of the market and are high quality and resilient. The portfolio managers aim
to hold future winners through the cycle, so financial resilience is
particularly important. This is why they do not typically invest in highly
indebted companies, which means that the portfolio has a lower net
debt-to-equity ratio compared to the broader index.
The portfolio managers' approach remains one of patient investment in a
portfolio of growth companies, with strong competitive positions, run by
sensible management teams. As long-term stock pickers, the portfolio managers
are well placed to assess and invest in such names.
Carolan Dobson
Chairman
15 June 2023
For a definition of terms, see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Managers' Report
We are disappointed and sorry to be writing to fellow shareholders about a
poor year of relative performance for the portfolio. While we totally
understand that you might be despondent or frustrated, we remain firmly of the
view that the portfolio is well positioned for the future and as a consequence
portfolio turnover has remained low at 5%. If one thinks in terms of half-year
periods, the Company has endured a difficult period of performance since
November 2021 up to the end of October 2022. The principal reasons for that
were a toxic combination of our 'Growth style' falling out of favour and a few
large UK mega-cap stocks such as big oil and big pharma performing better in
tougher or more uncertain times. Of course, some of our stock picking hasn't
been ideal either but the data is pretty unambiguous. The style headwinds we
have encountered are the biggest factor for the underperformance. For example,
the biggest detractor to performance over the year to end April 2023 was
Molten Ventures, the investor in private growth businesses. Unsurprisingly,
given the fall in valuations of private companies globally, it recently
announced that its unaudited net asset value had declined by 17% in the year
to 31 March 2023. So yes, a tougher year for Molten but its share price
declined by 59% meaning that at our year-end Molten traded at a 60% discount
to this lower valuation. Clearly the stockmarket expects further valuation
declines but this extreme pessimism seems at odds with the underlying progress
Molten has seen in most of its main investments.
It begs the question of whether our growth style is simply misguided and we
need to adapt to different times? We can only address the question with
humility as we cannot be sure that we 'know' the correct answer. Our
experience tells us two things: firstly, many people want simple answers to
complex problems, which explains the rise of populist politicians in many
countries. This type of thinking is seductive and persuasive after poor
periods of performance and probably explains why 'style drift' is the biggest
'killer' of fund managers. We are not complacent and have debated between
ourselves, and also with the Board (one of the great benefits of the
investment trust structure), as to whether we could or should have done things
differently in the last two years. The answer in both cases is that, as
bottom-up stock pickers, we should continue to back our judgement. Indeed, to
be blunt, had we tried to chase short term performance, it would have meant
endorsing a skill that we have repeatedly said we lack and also abandoning our
investment principles. Attempting both would have created more problems and
concerns without necessarily having improved performance.
The second observation from experience is that as individual managers we have
been through long patches of underperformance before and the key lesson learnt
is to stay true to one's beliefs and investment style, no matter the
temptation. Thus, we have tried to remain focussed, stay long term in our
investment horizon and to keep appraising the stocks in the portfolio as to
whether we think they will be additive to its performance. We probably sound
like a broken record, but we believe that share prices follow fundamentals and
the latter are good in this portfolio. Again, this is probably only of partial
reassurance. The elephant in the room is of course when will growth as a style
come back into favour? It would give us no greater pleasure to answer that
positively but we have to be honest and say that we simply have no idea when
this will happen. At least we can report that in the second half of the
financial year being reported on, the portfolio modestly outperformed the
index that itself rose by a healthy 13%. Of course, we have absolutely no idea
if this is a turning point or a random event, but at the very least this gives
us a little encouragement that some of the domestic doom and gloom that we
reported on at the half-year has started to lift as the aftershocks of the
Truss administration fade and the economic data proves not to be as dire as
widely predicted.
Perhaps understandably there has been a focus on top-down factors such as
political instability, the war in Ukraine, rising inflation and, more
recently, the banking crisis in both the US and Europe. But as some of these
factors fade, or at least are 'managed' by both businesses and consumers, we
suspect that at some point there will be a return to focussing on company
fundamentals and growth prospects, and here we remain greatly encouraged.
Portfolio
As noted above, portfolio activity remained low. In addition to Just Eat
Takeaway.com, our two main sales, as reported at the half-year, were the
takeovers of Euromoney Institutional Investor and Homeserve, both of which we
reluctantly accepted. In the interim report we also talked about new purchases
in the IT suppliers Softcat and Kainos and in the second half we added to
both; they have continued to report robust growth. We also added to the heat
treatment business Bodycote, as we thought the market was too preoccupied with
the undoubted cyclical nature of some of its end markets, such as automotive
and general industrial, and is underappreciating the restructuring of the
business by management into a far more focussed and profitable business with
some interesting growth angles. We also added to the financial platforms AJ
Bell and Integrafin having previously reduced our position in Hargreaves
Lansdown. This reflects our conviction that the first two businesses have
clearer propositions in their end markets (both deal with IFA customers with
AJ Bell also serving the direct-to-consumer market). Both suffered share price
weakness due to tougher markets which brought their ratings down to even more
attractive levels.
Elsewhere, we resisted the temptation to tinker with the portfolio. Looking at
growth, or sometimes the lack of it, has been made tricky by the pandemic, the
recovery from pandemic and now the gloom about a deteriorating economic
picture across many countries. Throw in the impact of soaring inflation,
higher interest rates and taxes, and optically you have an uncertain and
unattractive backdrop for businesses. Yet that is not what the vast majority
of our companies are reporting. For sure, they all have to navigate the
challenges listed above and it would be irresponsibly naïve to think one's
portfolio is immune to short-term challenges, but it is also important to note
that good companies can manage the challenges and find new opportunities,
whether it be: the plant hire business Ashtead finding new areas to rent (very
lucratively in the case of hiring out floor cleaning equipment for example);
the platform business Autotrader offering additional services and thus
deriving more revenue streams from second-hand car sales; or, hobbyist
retailer Games Workshop making progress in potentially monetising, with Amazon
TV, some of its vast intellectual IP. There are reasons to be optimistic.
Finally, on unlisted investments, we made no new investments in the year and
our only exposure here is through Wayve, an autonomous vehicle technology
business.
Outlook
It has been a challenging time for investors and, as we've already noted,
there are many economic and geopolitical worries and issues. Despite this, we
look at the portfolio of companies held and most have strong market positions,
healthy balance sheets and good management teams. We are therefore reassured
and excited about its prospects. While we understand that performance has to
improve to warrant this optimism, we believe the attractive growth
fundamentals of the portfolio remain in place and we have the necessary
patience to see them reflected.
Iain McCombie and Milena Mileva
Baillie Gifford & Co
15 June 2023
Past performance is not a guide to future performance.
For a definition of terms see Glossary of Terms and Alternative Performance
Measures at the end of this announcement.
Total return information is sourced from Refinitiv/Baillie Gifford and
relevant underlying index providers. See disclaimer at the end of this
announcement.
The Managers' Core Investment Principles
Investment Philosophy
The following are the three core principles underpinning our investment
philosophy. We have a consistent, differentiated long-term investment approach
to managing UK equities that should stand investors in the Company in good
stead:
Growth
We search for the few companies which have the potential to grow substantially
and profitably over many years. Whilst we have no insight into the short-term
direction of a company's share price, we believe that, over the longer term,
those companies which deliver above average growth in cash flows will be
rewarded with above average share price performance and that the power of
compounding is often under-appreciated by investors. Successful investments
will benefit from a rising share price and also from income accumulated over
long periods of time.
Patience
Great growth companies are not built in a day. We firmly believe that
investors need to be patient to fully benefit from the scale of the potential.
Our investment time horizon, therefore, spans decades rather than quarters and
our portfolio turnover*, at 5.1%, is significantly below the UK industry
average. This patient, long-term approach affords a greater chance for the
superior growth and competitive traits of companies to emerge as the dominant
influence on their share prices and allows compounding to work in the
investors' favour.
Active Investment Management
It is our observation that too much attention is paid to the composition of
market indices and active managers should make meaningful investments in their
best ideas regardless of the weightings of the index. For example, we would
never invest in a company just because it is large or to reduce risk. As a
result, shareholders should expect the composition of the portfolio to be
significantly different from the benchmark. This differentiation is a
necessary condition for delivering superior returns over time and shareholders
should be comfortable tolerating the inevitable ups and downs in short-term
relative performance that will follow from that.
Portfolio construction flows from the investment beliefs stated above.
* Alternative Performance Measure - see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
The Managers' Stewardship Principles
We have a responsibility to behave as supportive and constructively engaged
long-term investors. Our approach favours a small number of simple principles
which help shape our interactions with companies:
Prioritisation of long-term value creation
We encourage company management and their boards to be ambitious and focus
their investments on long-term value creation.
Sustainable business practices
We look for companies to act as responsible corporate citizens, working within
the spirit and not just the letter of the laws and regulations that govern
them.
Fair treatment of stakeholders
We believe it is in the long-term interests of companies to maintain strong
relationships with all stakeholders, treating employees, customers, suppliers,
governments and regulators in a fair and transparent manner.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and
representing the interests of minority shareholders.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward
superior strategic and operational endeavour.
Climate Transition Framework
The Managers use a four-question Climate Transition Framework (outlined below)
to undertake detailed climate specific analysis on the highest emitting
companies in the portfolio. The answers to these questions help determine
decisions about the weightings of holdings within the portfolio, engagement
priorities and decisions around potential divestments.
1. Are the company's products or services essential?
- Do cleaner alternatives exist?
2. Does the company have a credible strategy to
decarbonise and mitigate its impact consistent with limiting global
temperature increases to 1.5°C above pre-industrial levels?
- Does the corporate culture support this strategy?
3. Is it a climate solution provider?
- Is it likely to be a direct player, or material
influencer, in the transition to a net zero economy?
- How will it contribute to the transition?
4. How is it exposed to broader transitional and
physical risks associated with climate change and the transition to net zero?
ESG Engagement
By engaging with companies, we seek to build constructive relationships with
them, to better inform our investment activities and, where necessary, effect
change within our holdings, ultimately with the goal of achieving better
returns for our shareholders. The three examples below demonstrate our
stewardship approach through constructive, ongoing engagement.
Hargreaves Lansdown
Objectives
Engagement on a number of key areas throughout the year, namely:
- the Chair's appointment to an additional chairmanship
- board changes and investment priorities
- CEO departure and succession management
Discussions and outcomes
We had several meetings with relevant stakeholders to discuss each of these
areas. With regards to the Chair's appointment to an additional chairmanship,
we met with the general counsel and company secretary in early 2022, who
assured us that the board had undertaken a formal assessment process to review
the Chair's additional appointment. They confirmed that she would not be
joining any board committees in her new role and that she will be giving up
several of her private commitments in order to reduce the risk of
over-boarding.
In the second quarter of 2022, we met with the Chair to discuss board changes
and investment priorities. The non-executive element of the board has changed
significantly under her leadership and additional executives have been
appointed. We were reassured that the new appointments have strengthened
technological expertise given the company's significant investment in
technology. However, we suggested that communication about the progress of key
investment projects would be helpful to our monitoring of execution and
progress.
Later in the year, Hargreaves Lansdown announced that its CEO, Chris Hill,
would be stepping down in 2023, after six years in the role. We met with the
Chair in October to discuss the CEO's decision, the process for appointing a
successor, and the implications for the group's strategy. In December,
Hargreaves Lansdown announced that Dan Olley will replace Chris Hill as CEO.
Therefore, we engaged with the Chair again in December to discuss the reasons
for the selection of Mr Olley as CEO. He has been serving as a non-executive
director on the Hargreaves Lansdown board since June 2019 and we are satisfied
that he has the skills and experience to accelerate the execution of the
group's digital strategy. We expect to meet with him soon after he transfers
to the CEO role.
St. James's Place
Objectives
Engagement to learn about the company's decarbonisation pathway. Particularly,
how St. James's Place ('SJP') will achieve net zero greenhouse gas emissions
across its very significant investment portfolio.
Discussions
We spoke with various people from SJP's Responsible Investment ('RI') Team,
who provided information about its decarbonisation commitment.
SJP is a signatory to several financial industry initiatives, including the
Net Zero Asset Owner Alliance and the UN's Race to Zero Campaign. These
initiatives have encouraged SJP to set both near and long-term targets for
reducing emissions from the portfolio of investments managed on its clients'
behalf. Along with a commitment to reach net zero by 2050, SJP has previously
set an interim 2025 target for emissions reduction by 25 per cent, which it
has reached early. The company is now considering setting a new emissions
reduction target for 2030.
SJP annually reviews the performance of each of its underlying fund managers
to determine progress on its decarbonisation pathway for its financed
emissions. This process requires an assessment of credible ESG engagement,
including climate-related concerns. The RI team highlighted a recent decision
to remove a fund manager they assessed failing to meet minimum engagement
requirements, despite warnings. The company also spent some time detailing its
clear preference for engagement rather than divestment when considering
investments in high emitting industries. SJP also provided detail on both the
near-term and long-term objectives for Robeco's recent appointment as a
company engagement specialist.
Outcome
We were pleased to hear about SJP's thoughtful approach as it seeks to
decarbonise the significant emissions footprint from its investment portfolio.
We await the setting of a new 2030 reduction target and will review in due
course. We will also continue to monitor decarbonisation progress,
particularly where investments relate to companies with significant emissions
that are hard to abate.
Exscientia
Objectives
We previously supported the company's remuneration policy at the first AGM in
2022 after the IPO at the end of 2021 but communicated certain areas of
concern and offered to speak with the company to discuss. This engagement
provided the opportunity to articulate specific concerns and encourage the
company to be thoughtful in improving alignment.
Discussion
Exscientia is a relatively young, early-stage biotech. The structure of
previous executive compensation included long-term incentives that,
unfortunately, focused on the company's share price over short periods of
time, had minimal holding requirements and had no links to the company's
operational progress. Speaking with individuals who work with the compensation
committee directly, we encouraged the company to focus on operational metrics
as appropriate indicators of operational progress and to involve time periods
that are more aligned to an investment horizon of multiple years. The company
highlighted the need to remain competitive to attract and retain talent within
the biotech industry. In response, we encouraged the company to avoid
reverting to industry conventions and reiterated our willingness to listen to
any proposal if there was an interest in speaking with shareholders ahead of
the AGM. We recognise the need for the company to attract capable individuals
to run the business. However, we emphasised the importance of focusing
remuneration on the long-term success of the company's operations rather than
on the short-term share price.
Outcome
We will continue to monitor and appropriately engage with the company when
further details are provided of new remuneration proposals.
List of Investments at 30 April 2023
Name Business Fair value % of total assets
£'000
Basic Materials
Rio Tinto Metals and mining company 7,628 2.5
Victrex Speciality high-performance chemicals manufacturer 3,888 1.3
11,516 3.8
Consumer Discretionary
Games Workshop Toy manufacturer and retailer 14,758 4.8
Burberry Luxury goods retailer 10,349 3.3
Howden Joinery Manufacturer and distributor of kitchens to trade customers 9,847 3.2
4imprint Direct marketer of promotional merchandise 7,883 2.6
RELX Professional publications and information provider 7,636 2.5
Boohoo.com Online fashion retailer 1,481 0.5
Farfetch Technology platform for the global fashion industry 1,364 0.4
Naked Wines Online wine retailer 408 0.1
53,726 17.4
Consumer Staples
Diageo International drinks company 10,304 3.3
10,304 3.3
Financials
St. James's Place UK wealth manager 12,936 4.2
Prudential International life insurer 9,228 3.0
Legal & General Insurance and investment management company 7,596 2.5
Lancashire Holdings General insurance 7,423 2.4
AJ Bell Investment platform 7,087 2.3
Just Group Provider of retirement income products and services 6,915 2.2
Hiscox Property and casualty insurance 5,702 1.8
IntegraFin Provides platform services to financial clients 5,341 1.7
Hargreaves Lansdown UK retail investment platform 4,297 1.4
IG Group Spread betting website 3,155 1.0
Molten Ventures Technology focused venture capital firm 2,991 1.0
72,671 23.5
Healthcare
Abcam Online platform selling antibodies to life science researchers 11,046 3.6
Genus World leading animal genetics company 8,580 2.8
Oxford Nanopore Novel DNA sequencing technology 708 0.2
Exscientia Biotech company 534 0.2
Creo Medical Designer and manufacturer of medical equipment 110 -
20,978 6.8
Industrials
Volution Group Supplier of ventilation products 13,888 4.5
Experian Global provider of credit data and analytics 11,376 3.7
Ashtead Construction equipment rental company 11,014 3.6
Renishaw World leading metrology company 8,601 2.8
Bunzl Distributor of consumable products 8,160 2.6
Inchcape Car wholesaler and retailer 7,921 2.5
Wise Online platform to send and receive money 7,494 2.4
Halma Specialist engineer 7,403 2.4
Bodycote Heat treatment and materials testing 6,416 2.1
FDM Group Provider of professional services focusing on information technology 5,268 1.7
PageGroup Recruitment consultancy 4,952 1.6
92,493 29.9
Real Estate
Rightmove UK's leading online property portal 6,106 2.0
Helical Property developer 5,390 1.7
11,496 3.7
Technology
Auto Trader Group Advertising portal for second hand cars in the UK 13,706 4.4
Softcat IT reseller and infrastructure solutions provider 5,344 1.7
Kainos Group IT services and implementer 4,871 1.6
First Derivatives IT consultant and software developer 4,804 1.6
Wayve Technologies Ltd Series B Pref. (u) Developer of full autonomous driving systems 627 0.2
29,352 9.5
Total Investments 302,536 97.9
Net Liquid Assets 6,336 2.1
Total Assets 308,872 100.0
(u) ( )Denotes unlisted security.
Stocks in bold are the 20 largest holdings.
Income Statement
For the year ended 30 April
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net losses on investments - (2,542) (2,542) - (63,036) (63,036)
Currency gains - - - - 40 40
Income 7,260 - 7,260 7,787 - 7,787
Investment management fee (432) (1,009) (1,441) (519) (1,211) (1,730)
Other administrative expenses (533) - (533) (498) - (498)
Net return before finance costs 6,295 (3,551) 2,744 6,770 (64,207) (57,437)
and taxation
Finance costs of borrowings (150) (349) (499) (33) (76) (109)
Net return on ordinary activities 6,145 (3,900) 2,245 6,737 (64,283) (57,546)
before taxation
Tax on ordinary activities - - - - - -
Net return on ordinary activities 6,145 (3,900) 2,245 6,737 (64,283) (57,546)
after taxation
Net return per ordinary share 4.05p (2.57p) 1.48p 4.39p (41.89p) (37.50p)
Dividends declared in respect of the financial year ended 30 April 2023 amount
to 3.60p (2022 - 3.91p). Further information on dividend distributions can be
found below.
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital return columns are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Comprehensive Income is not required as all gains and losses of
the Company have been reflected in the above statement. The accompanying notes
below are an integral part of the Financial Statements
Balance Sheet
As at 30 April
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 302,536 306,585
Current assets
Debtors 1,479 1,824
Cash and cash equivalents 5,512 1,491
6,991 3,315
Creditors
Amounts falling due within one year (15,105) (6,967)
Net current liabilities (8,114) (3,652)
Net assets 294,422 302,933
Capital and reserves
Share capital 40,229 40,229
Share premium account 11,664 11,664
Capital redemption reserve 19,759 19,759
Warrant exercise reserve 417 417
Share purchase reserve 55,628 60,433
Capital reserve 151,603 155,503
Revenue reserve 15,122 14,928
Shareholders' funds 294,422 302,933
Net asset value per ordinary share* 195.6p 197.4p
Ordinary shares in issue 150,520,484 153,495,484
The Financial Statements of Baillie Gifford UK Growth Trust plc (Company
registration number 2894077) were approved and authorised for issue by the
Board and were signed on 15 June 2023.
Carolan Dobson
Chairman
The accompanying notes below are an integral part of the Financial Statements.
* See Glossary of Terms and Alternative Performance Measures below.
Statement of Changes in Equity
For the year ended 30 April 2023
Share Share Capital Warrant Share Capital Revenue Shareholders'
capital premium redemption exercise purchase reserve reserve funds
£'000 account reserve reserve reserve £'000 £'000 £'000
£'000 £'000 £'000 £'000
Shareholders' funds at 1 May 2022 40,229 11,664 19,759 417 60,433 155,503 14,928 302,933
Ordinary shares bought back into treasury - - - - (4,805) - - (4,805)
Dividends paid during the year - - - - - - (5,951) (5,951)
Net return on ordinary activities after taxation - - - - - (3,900) 6,145 2,245
Shareholders' funds at 30 April 2023 40,229 11,664 19,759 417 55,628 151,603 15,122 294,422
For the year ended 30 April 2022
Share Share Capital Warrant Share Capital Revenue Shareholders'
capital premium redemption exercise purchase reserve reserve funds
£'000 account reserve reserve reserve £'000 £'000 £'000
£'000 £'000 £'000 £'000
Shareholders' funds at 1 May 2021 40,229 11,328 19,759 417 60,433 218,981 11,906 363,053
Ordinary shares sold from treasury - 336 - - - 805 - 1,141
Dividends paid during the year - - - - - - (3,715) (3,715)
Net return on ordinary activities after taxation - - - - - (64,283) 6,737 (57,546)
Shareholders' funds at 30 April 2022 40,229 11,664 19,759 417 60,433 155,503 14,928 302,933
The accompanying notes below are an integral part of the Financial Statements.
Cash Flow Statement
For the year ended 30 April
2023 2023 2022 2022
£'000 £'000 £'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation 2,245 (57,546)
Net losses on investments 2,542 63,036
Currency gains - (40)
Finance costs of borrowings 499 109
Changes in debtors 344 (372)
Changes in creditors (3) (83)
Cash from operations† 5,627 5,104
Interest paid (357) (97)
Net cash inflow from operating activities 5,270 5,007
Cash flows from investing activities
Acquisitions of investments (24,014) (24,632)
Disposals of investments 25,521 17,778
Net cash inflow/(outflow) from investing activities 1,507 (6,854)
Cash flows from financing activities
Bank loan drawn down 8,000 6,450
Bank loan repaid - (2,450)
Equity dividends paid (5,951) (3,715)
Ordinary shares sold from treasury - 1,141
Ordinary shares bought back into treasury and stamp duty thereon (4,805) -
Net cash (outflow)/inflow from financing activities (2,756) 1,426
Increase/(decrease) in cash and cash equivalents 4,021 (421)
Exchange movements - 40
Cash and cash equivalents at start of year 1,491 1,872
Cash and cash equivalents at end of year* 5,512 1,491
* Cash and cash equivalents represent cash at bank and short-term deposits
repayable on demand.
† Cash from operations includes dividends received of £7,523,000 (2022 -
£7,420,000) and £77,000 deposit interest (2022 - nil).
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Condensed Financial Statements
1) The Financial Statements for the year to 30 April 2023 have been prepared
in accordance with FRS 102 'The Financial Reporting Standard applicable in the
UK and Republic of Ireland' on the basis of the accounting policies set out
below which are consistent with those applied for the year ended 30 April
2022.
2) Income
2023 2022
£'000 £'000
Income from investments
UK dividends 7,183 7,787
Other income
Deposit interest 77 -
Total income 7,260 7,787
Special dividends received in the year amounted to £311,000 (2022 -
£919,000) with £311,000 (2022 - £919,000) classified to revenue and nil
(2022 - nil) classified to capital.
3) Investment Management Fee
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fee 432 1,009 1,441 519 1,211 1,730
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford
& Co, has been appointed as the Company's Alternative Investment Fund
Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has
delegated portfolio management services to Baillie Gifford & Co. Dealing
activity and transaction reporting has been further sub-delegated to Baillie
Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
The Investment Management Agreement between the AIFM and the Company sets out
the matters over which the Managers have authority in accordance with the
policies and directions of, and subject to restrictions imposed by, the Board.
The Investment Management Agreement is terminable on not less than six months'
notice or on shorter notice in certain circumstances. Compensation would only
be payable if termination occurred prior to the expiry of the notice period.
The annual management fee is 0.5% of net assets, calculated and payable
quarterly.
4) Net Return per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 4.05p (2.57p) 1.48p 4.39p (41.89p) (37.50p)
Revenue return per ordinary share is based on the net revenue return on
ordinary activities after taxation of £6,145,000 (2022 - £6,737,000), and on
151,603,018 (2022 - 153,457,607) ordinary shares, being the weighted average
number of ordinary shares in issue during each year.
Capital return per ordinary share is based on the net capital loss for the
financial year of £3,900,000 (2022 - net capital loss of £64,283,000), and
on 151,603,018 (2022 - 153,457,607) ordinary shares, being the weighted
average number of ordinary shares in issue during each year.
There are no dilutive or potentially dilutive shares in issue.
5) Ordinary Dividends
2023 2022 2023 2022
£'000 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 16 September 2022) 3.91p 2.42p 5,951 3,715
Also set out below are the total dividends paid and proposed in respect of the
financial year, which is the basis on which the requirements of section 1158
of the Corporation Tax Act 2010 are considered. The revenue available for
distribution by way of dividend for the year is £6,145,000 (2022 -
£6,737,000).
2023 2022 2023 2022
£'000 £'000
Dividends paid and payable in respect of the year:
Proposed final dividend (payable 15 September 2023) 3.60p 3.91p 5,419 5,951
If approved, the final dividend of 3.60p will be paid on 15 September 2023 to
all shareholders on the register at the close of business on 18 August 2023.
The ex-dividend date is 17 August 2023.
6) At 30 April 2023, the Company had a one year £30 million unsecured
revolving credit loan facility with The Royal Bank of Scotland International
Limited which expires in July 2023. At 30 April 2023, £14,450,000 was drawn
down under this facility. At 30 April 2022, £6,450,000 was drawn down under a
one year £20 million unsecured revolving credit loan facility with The Royal
Bank of Scotland International Limited which expired in July 2022.
The main covenant relating to the above loan is that total borrowings shall
not exceed 30% of adjusted portfolio value. There were no breaches of loan
covenants during the year.
7) Transaction costs of £115,000 (2022 - £62,000) and £10,000 (2022 -
£3,000) were suffered on purchases and sales respectively.
8) The Company's shareholder authority permits it to hold shares bought back
'in treasury'. Under such authority, treasury shares may be subsequently
either sold for cash (at a premium to net asset value per ordinary share) or
cancelled. At 30 April 2023 the Company had authority to buy back 21,351,628
ordinary shares. During the year to 30 April 2023, 2,975,000 shares were
bought back into treasury at a total cost of £4,805,000 (2022 - no ordinary
shares were bought back).
In the year to 30 April 2023, no shares were sold from treasury (2022 - the
Company sold from treasury 475,000 ordinary shares at a premium to net asset
value, with a nominal value of £119,000 raising net proceeds of £1,141,000).
At 30 April 2023 the Company had authority to issue or sell from treasury
15,299,548 ordinary shares
9) The financial information set out above does not constitute the Company's
statutory accounts for the year ended 30 April 2023 or 2022. The financial
information for 2022 is derived from the statutory accounts for 2022 which
have been delivered to the Registrar of Companies. The Auditor has reported on
the 2022 accounts, their report was (i) unqualified; (ii) did not include a
reference to any matters to which the Auditor drew attention by way of
emphasis without qualifying their report; and (iii) did not contain a
statement under sections 498(2) or (3) to 497 of the Companies Act 2006.
10) The Annual Report and Financial Statements will be available on the
Company's website bgukgrowthtrust.com on or around 6 July 2023. None of the
views expressed in this document should be construed as advice to buy or sell
a particular investment.
Glossary of Terms and Alternative Performance Measures (APM)
An alternative performance measure ('APM') is a financial measure of
historical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework. The APMs noted below are commonly used measures
within the investment trust industry and serve to improve comparability
between investment trusts.
Total Assets
This is the Company's definition of Adjusted Total Assets, being the total
value of all assets held less all liabilities (other than liabilities in the
form of borrowings).
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 Liquid Assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV 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.
2023 2022
Closing NAV per share 195.6p 197.4p
Closing share price 168.0p 174.2p
Discount (14.1%) (11.8%)
Total Return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
2023 2023 2022 2022
NAV Share NAV Share
price price
Closing NAV per share/share price (a) 195.6p 168.0p 197.4p 174.2p
Dividend adjustment factor* (b) 1.0204 1.0232 1.0096 1.0098
Adjusted closing NAV per share/share price (c = a x b) 199.6p 171.9p 199.3p 175.9p
Opening NAV per share/share price (d) 197.4p 174.2p 237.3p 244.0p
Total return (c ÷ d)-1 1.1% (1.3%) (16.0%) (27.9%)
* The dividend adjustment factor is calculated on the assumption that the
dividend of 3.91p (2022 - 2.42p) paid by the Company during the year were
reinvested into shares of the Company at the cum income NAV per share/share
price, as appropriate, at the ex-dividend date.
Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value. The ongoing charges have been
calculated on the basis prescribed by the Association of Investment Companies.
A reconciliation from the expenses detailed in the Income Statement above is
provided below.
2023 2022
Investment management fee £1,441,000 £1,730,000
Other administrative expenses £533,000 £498,000
Total expenses (a) £1,974,000 £2,228,000
Average net asset value (b) £283,920,000 £354,588,000
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.70% 0.63%
Turnover (APM)
Annual turnover is a measure of portfolio change or trading activity in a
portfolio. Turnover is calculated as the minimum of purchases and sales in a
month, divided by the average market value of the portfolio, summed to get
rolling 12 month turnover data.
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.
Invested gearing is the Company's borrowings adjusted for cash and cash
equivalents expressed as a percentage of shareholders' funds.
2023 2022
Borrowings £14,450,000 £6,450,000
Less: cash and cash equivalents (£5,512,000) (£1,491,000)
Adjusted borrowings £8,938,000 £4,959,000
Shareholders' funds £294,422,000 £302,933,000
Invested gearing 3% 2%
Drawn gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2023 2022
Borrowings £14,450,000 £6,450,000
Shareholders' funds £294,422,000 £302,933,000
Drawn gearing 5% 2%
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers (AIFM)
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a ratio between the Company's exposure and its net asset value and can be
calculated on a gross and a commitment method. Under the gross method,
exposure represents the sum of the Company's positions after the deduction of
sterling cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other. The Company's maximum and actual
leverage as at the year end are set out on page 61 of the Annual Report and
Financial Statements.
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.
Unlisted (Private) Company
An unlisted (private) company means a company whose shares are not available
to the general public for trading and not listed on a stock exchange.
Sustainable Finance Disclosure Regulation ('SFDR')
Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('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 UK Growth Trust plc is
marketed in the EU by the AIFM, BG & Co Limited, via the National Private
Placement Regime (NPPR) the following disclosures have been provided to comply
with the high-level requirements of SFDR. The AIFM has adopted Baillie Gifford
& Co's Governance and Sustainable Principles and Guidelines as its policy
on integration of sustainability risks in investment decisions.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment.
More detail on the Investment Managers' approach to sustainability can be
found in the Governance and Sustainability Principles and Guidelines document,
available publicly on the Baillie Gifford website (bailliegifford.com).
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework 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.
Automatic Exchange of Information
In order to fulfil its obligations under UK Tax Legislation relating to the
automatic exchange of information, the Company is required to collect and
report certain information about certain shareholders.
The legislation will require investment trust companies to provide personal
information to HMRC on certain investors who purchase shares in investment
trusts. As an affected company, Baillie Gifford UK Growth Trust plc will have
to provide information annually to the local tax authority on the tax
residencies of a number of non-UK based certificated shareholders and
corporate entities.
Shareholders, excluding those whose shares are held in CREST, who come on to
the share register will be sent a certification form for the purposes of
collecting this information.
For further information, please see HMRC's Quick Guide: Automatic Exchange of
Information - information for account holders
gov.uk/government/publications/exchange-of-information-account-holders.
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