REG - Baillie Gifford UK - Baillie Gifford UK Growth Trust PLC Interim Report
30/11/2022 07:00
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RNS Number : 9816H Baillie Gifford UK Growth Trust PLC 30 November 2022
RNS Announcement
Baillie Gifford UK Growth Trust plc
Legal entity identifier: 549300XX386SYWX8XW22
For the six months to 31 October 2022
Over the six month period to 31 October 2022, the Company's net asset value
per share total return was negative 10.9% compared to a negative 5.8% for the
FTSE All-Share Index total return. The share price total return for the same
period was negative 11.9%.
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.
¾ The net revenue return per share was 2.22p compared to 2.28p in the
corresponding period last year. As highlighted previously, no interim dividend
will be declared as all dividends are paid as a single final dividend.
¾ Over the period a total of 2,100,000 shares were bought back for
treasury. Following the purchase of a further 300,000 shares since the period
end, as at 28 November 2022 the Company has 9,821,700 shares held in treasury
accounting for 6.5% of the Company's current shares in issue.(*)
¾ Notwithstanding the near term economic challenges, the Board and
portfolio managers believe that there is an interesting and growing disconnect
between top-down perceptions of the UK market and the long-term opportunities
for growth investors.
* This percentage calculation excludes treasury shares from the denominator.
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 £227 billion under management and advice as at
29 November 2022.
Baillie Gifford UK Growth 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 at
bgukgrowthtrust.com (http://www.bgukgrowthtrust.com/) (‡).
Past performance is not a guide to future performance. See disclaimer at 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.
29 November 2022
For further information please contact:
Anzelm Cydzik, Baillie Gifford & Co
Tel: 0131 275 2000
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
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
Carolan Dobson
Chairman
29 November 2022
Interim Management Report
Performance
Over the six months to 31 October 2022, the Company's net asset value ('NAV')
total return per share declined by 10.9% which compares to a 5.8% decrease in
the FTSE All-Share Index, total return, over the same period. The share price
total return over the six months declined by 11.9% as the shares moved from a
discount of 11.8% to the NAV per share to a discount of 13.0%. Our short term
performance continued to disappoint, with the headwinds against our pronounced
growth style, that we discussed in the Annual Report, continuing to persist.
The paradox is that in operational terms the portfolio in general is
continuing to perform satisfactorily and therefore portfolio activity was
relatively low.
The main detractors from performance in the period included the kitchen
company Howden Joinery, car platform AutoTrader and clean air solution
provider Volution. In all three cases, despite strong trading, the market is
worried about the impact of an economic downturn in the short term although
all of these businesses have compelling growth opportunities over the longer
term and strong balance sheets to weather any near term turbulence. Our
exposure to fast growing unlisted technology businesses through Molten
Ventures was another notable detractor as markets correctly assumed that the
fall in valuations in the quoted market would have an impact on the carrying
value of Molten's investments; although the pessimism baked into its share
price, when compared to its most recent written down valuation of its assets,
seems excessive to us. Finally, not owning the major oil stocks in the period
was again the other notable detractor to our relative performance.
In terms of positives, we benefitted from a couple of businesses that agreed
to be taken over; namely the home emergency service business HomeServe and the
information, data and events business Euromoney Institutional Investor. In
both cases we were actually supportive of management's growth strategy and
although both bids were at significant premiums to the pre bid share price, we
would have been happy to have remained owners of both businesses. However, it
was clear that the boards of both were determined to accept the bids and we
reluctantly decided to accept both offers. The other notable positive in the
period was Wise, the foreign exchange platform that offers a more compelling
and cheaper proposition to consumers and small businesses than using banks.
Like many growth businesses, its shares had been pummelled but our old adage
that share prices will reflect fundamentals was partially borne out, with the
shares recovering strongly following a very encouraging trading statement
where growth was much stronger than expected; this bodes wells for the future.
'A week is a long time in politics' and other market musings
Perhaps one of the main reasons why it's difficult to be a long-term investor
is that when events keep coming thick and fast there is natural human tendency
to want to make sense of them (or be asked to comment on them). This six month
period is no exception. Although it seems a long time ago now, it was only
at the beginning of the period that Boris Johnson dramatically lost the
confidence of his MPs and resigned as leader of the Conservative Party,
triggering a leadership election that resulted in Liz Truss being appointed as
Prime Minister. This ceremonial handing over of power was poignantly the last
official act of our late Queen Elizabeth. Her passing, after an incredible
seventy years on the throne, led to understandable mourning by many people in
the UK and beyond. Yet, with barely a pause, we witnessed yet more astonishing
events with the implosion of the Truss Government after a disastrously
received 'mini' budget which ultimately led to her resignation as Prime
Minister after just 49 days. The subsequent appointment of Rishi Sunak as our
first British Asian Prime Minister, and the youngest for over a century and a
half, was a moment of tremendous symbolism, yet few would envy his task of
trying to restore calm to the market and to attempt to sort out the finances
of the Government in the midst of a difficult economic backdrop with a
fractious governing party on to its fifth prime minister since the Brexit
referendum.
What interested us in this tumultuous period was less the hurly burly of
politics and more the attempt by some commentators to sum up the changes seen
in this country over the long reign of our late Monarch. In particular, in
this 'instant analysis' there was a fundamental misunderstanding of progress
in our view. Of course, today we have many pressing social and economic
challenges and it's also true that Britain's relative standing in the world
has declined in part because of self-inflicted mistakes over the decades.
However, what this gloomy, near term focussed analysis forgets is the
astonishing progress and general increase in prosperity over the last seventy
years. Frankly, much of this progress would amaze previous generations so it
begs the question of why this misunderstanding? The answer is deceptively
simple: behaviourally, after the novelty wears off, we take most instances of
progress, such as a new product, for granted, but quietly and gradually these
all incrementally add up over time to something quite dramatic. This is
exactly the same when it comes to investing in companies over the long term.
However, as mentioned at the start of this commentary, most people don't think
like that and would rather we comment on Sterling, interest rates, inflation,
domestic and world politics etc. This isn't daft, as they are big questions
and, as a former colleague said once, "we all have bosses". Why wouldn't you
want to know if you thought we might have the answer? But we don't.
Instead, we'd rather have the honesty and humility in communicating with
fellow shareholders to acknowledge that forecasting macro-economic events is a
skill we simply don't possess. Moreover, it is a skill that is anathema to our
bottom-up style of researching and investing in companies that we believe have
superior growth prospects. Of course, we're not blind to the tougher near-term
environment but we're also alert to understanding what the opportunities might
be for the many businesses that have superior business models and competitive
positions. As we've seen many times before, these companies usually come out
of tough times with enhanced competitive positions.
Portfolio Update
In terms of portfolio activity, we made some modest changes in the period. The
thinking is straightforward. It has clearly been a very tough market for
growth stocks, and we have been monitoring a number where the share price has
been beaten up but the operational performance is, in fact, ahead of
expectations. We, therefore, added to existing holdings in Wise (foreign
exchange transfers) and Experian (credit checking) as both stocks have been
unfairly derated given their strong fundamentals, and, as noted earlier, it
was pleasing that, subsequent to our purchase, Wise reported much better than
expected trading.
We also decided to take new holdings in Softcat and Kainos - two businesses
which we know well but where valuation has been a stumbling block. Both are
beneficiaries of what we think is a very compelling long-term structural
trend, namely growth in corporate IT investment. The Covid-19 pandemic has
only reinforced the imperative for companies of all shapes and sizes to invest
in their IT estate and develop capabilities in areas such as data management
and analytics, cyber security and the cloud in order to remain competitive.
Softcat is a value-added reseller, mainly serving SMEs in the UK. We think it
possesses a differentiated corporate culture which has enabled it to
outperform the underlying market consistently and meaningfully. Kainos is a
Northern Irish company which leads digitisation projects for the government
(but increasingly corporates as well) and is also one of only a handful of
Workday software implementation partners globally. Workday is a US enterprise
software company which has successfully disrupted the on-premise HR and
financial software market with its cloud-based offering. We think Kainos will
continue to benefit from the global roll out of Workday's product suite.
These purchases have been funded by reductions in our holdings in the
information business RELX and the distributor Bunzl. Both have held up much
better in share price terms than many holdings, but their growth profiles are
more sedate, so we decided to reallocate capital to our new holdings. We also
decided to sell Just Eat Takeaway.com. Although we reduced our holding when it
completed the now disastrous US acquisition, it was a mistake not to sell out
completely. Our worry is that fierce competition by incumbents and other
parties encouraging competition, such as Amazon, will result in businesses
never able to exploit network benefits. We have also utilised some borrowings
to fund some of purchases and equity gearing stood at 3% as at 31 October
2022.
Outlook
We're currently working hard at developing a pipeline of new investment ideas
that might be mispriced in the current environment. We are not market timers
or forecasters, but the evidence of a growing opportunity set of potential
investments shows there is an interesting and growing disconnect between
top-down perceptions of the UK market and what we are starting to see in terms
of long-term opportunities for growth investors, notwithstanding the near term
economic challenges. In plain English and with apologies to Charles Dickens:
it was the worst of times, it was the best of times.
Iain McCombie & Milena Mileva
Baillie Gifford & Co
29 November 2022
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
portfolio 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. The prices are also reviewed twice per
year by the Company's Board and are subject to the scrutiny of external
auditors in the annual audit process.
Beyond the regular cycle, the valuations committee also monitors the portfolio
for certain `trigger events'. These may include: changes in fundamentals; a
takeover approach; an intention to carry out an Initial Public Offering (IPO);
or significant changes to the valuation of comparable public companies.
The valuations committee also monitors relevant market indices on a weekly
basis and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate. When market
volatility is particularly pronounced the team undertake these checks daily.
Any ad hoc change to the fair valuation of any holding is implemented swiftly
and reflected in the next published NAV. There is no delay.
As at 31 October 2022, the valuation for Wayve was based on the recent
purchase price adjusted for market movements in comparable companies.
List of Investments at 31 October 2022
Name Value % of total assets
Business £'000
Basic Materials
Rio Tinto Metals and mining company 6,856 2.5
Victrex Speciality high-performance chemicals manufacturer 3,835 1.4
Bodycote Heat treatment and materials testing 3,422 1.2
14,113 5.1
Consumer Discretionary
Games Workshop Toy manufacturer and retailer 9,519 3.5
Howden Joinery Manufacturer and distributor of kitchens to trade customers 7,393 2.7
Burberry Luxury goods retailer 7,252 2.6
RELX Professional publications and information provider 6,758 2.5
4imprint Direct marketer of promotional merchandise 6,039 2.2
Farfetch Technology platform for the global fashion industry 3,138 1.1
Boohoo.com Online fashion retailer 1,213 0.4
Naked Wines Online wine retailer 383 0.1
41,695 15.1
Consumer Staples
Diageo International drinks company 10,231 3.7
10,231 3.7
Financials
St. James's Place UK wealth manager 11,419 4.1
Legal & General Insurance and investment management company 7,554 2.7
Prudential International life insurer 6,176 2.2
Lancashire Holdings General insurance 6,006 2.2
AJ Bell Investment platform 5,675 2.1
Just Group Provider of retirement income products and services 4,542 1.7
Hiscox Property and casualty insurance 4,353 1.6
Hargreaves Lansdown UK retail investment platform 4,082 1.6
HomeServe Domestic insurance 3,792 1.4
IntegraFin Provides platform services to financial clients 3,654 1.3
Molten Ventures Technology focused venture capital firm 3,423 1.2
IG Group Spread betting website 3,419 1.2
64,095 23.3
Healthcare
Abcam Online platform selling antibodies to life science researchers 11,469 4.2
Genus World leading animal genetics company 8,158 2.9
Oxford Nanopore Novel DNA sequencing technology 813 0.3
Exscientia Biotech company 803 0.3
Creo Medical Designer and manufacturer of medical equipment 205 0.1
21,448 7.8
Industrials
Experian Global provider of credit data and analytics 11,234 4.1
Ashtead Construction equipment rental company 10,950 4.0
Volution Group Supplier of ventilation products 9,906 3.6
Wise Online platform to send and receive money 9,064 3.3
Renishaw World leading metrology company 8,357 3.0
Bunzl Distributor of consumable products 7,327 2.6
Inchcape Car wholesaler and retailer 7,289 2.6
Halma Specialist engineer 6,777 2.5
FDM Group Provider of professional services focusing on information technology 4,916 1.8
PageGroup Recruitment consultancy 4,609 1.7
Euromoney Institutional Investor Specialist publisher 4,589 1.7
85,018 30.9
Real Estate
Rightmove UK's leading online property portal 7,994 2.9
Helical Property developer 5,988 2.2
13,982 5.1
Technology
Auto Trader Group Advertising portal for second hand cars in the UK 11,252 4.1
First Derivatives IT consultant and software developer 3,431 1.2
Kainos Group IT services and implementer 2,397 0.9
Softcat IT reseller and infrastructure solutions provider 1,723 0.6
Wayve Technologies Ltd Developer of full autonomous driving systems 1,055 0.4
Series B Pref. (U)
19,858 7.2
Total Equities 270,440 98.2
Net Liquid Assets 4,993 1.8
Total Assets 275,433 100.0
(U) Denotes unlisted (private company) investment.
Stocks highlighted in bold are the 20 largest holdings.
Income Statement (unaudited)
For the six months ended 31 October 2022 For the six months ended 31 October 2021 For the year ended 30 April 2022 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
(Losses)/gains on investments - (35,463) (35,463) - 7,350 7,350 - (63,036) (63,036)
Currency gains - - - - 18 18 - 40 40
Income from investments and interest receivable 3,912 - 3,912 4,047 - 4,047 7,787 - 7,787
Investment management fee (note 3) (209) (489) (698) (280) (653) (933) (519) (1,211) (1,730)
Other administrative expenses (265) - (265) (248) - (248) (498) - (498)
Net return before finance costs and taxation 3,438 (35,952) (32,514) 3,519 6,715 10,234 6,770 (64,207) (57,437)
Finance costs of borrowings (50) (118) (168) (18) (42) (60) (33) (76) (109)
Net return on ordinary activities before taxation 3,388 (36,070) (32,682) 3,501 6,673 10,174 6,737 (64,283) (57,546)
Tax on ordinary activities - - - - - - - - -
Net return on ordinary activities after taxation 3,388 (36,070) (32,682) 3,501 6,673 10,174 6,737 (64,283) (57,546)
Net return per ordinary share (note 4) 2.22p (23.66p) (21.44p) 2.28p 4.35p 6.63p 4.39p (41.89p) (37.50p)
Note: - - 3.91p
Dividends paid and payable per share (note 5)
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)
At 31 October At 30 April 2022
2022 (audited)
£'000 £'000
Fixed assets
Investments held at fair value through profit or loss (note 6) 270,440 306,585
Current assets
Debtors 236 1,824
Cash and cash equivalents 5,329 1,491
5,565 3,315
Creditors
Amounts falling due within one year:
Bank loan (note 7) (14,450) (6,450)
Other creditors (572) (517)
(15,022) (6,967)
Net current liabilities (9,457) (3,652)
Net assets 260,983 302,933
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 57,116 60,433
Capital reserve 119,433 155,503
Revenue reserve 12,365 14,928
Shareholders' funds 260,983 302,933
Net asset value per ordinary share* 172.4p 197.4p
Ordinary shares in issue (note 8) 151,395,484 153,495,484
* See Glossary of Terms and Alternative Performance Measures below.
The accompanying notes below are an integral part of the Financial Statements.
Statement of Changes in Equity (unaudited)
For the six months ended 31 October 2022
Share capital Share Capital Warrant exercise Share purchase Capital Revenue Shareholders'
£'000 premium account redemption reserve reserve Reserve* reserve funds
£'000 reserve £'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
Net return on ordinary activities after taxation - - - - - (36,070) 3,388 (32,682)
Ordinary shares bought back into treasury - - - - (3,317) - - (3,317)
Dividends paid (note 5) - - - - - - (5,951) (5,951)
Shareholders' funds at 31 October 2022 40,229 11,664 19,759 417 57,116 119,433 12,365 260,983
For the six months ended 31 October 2021
Share capital Share Capital Warrant exercise Share purchase Capital Revenue Shareholders'
£'000 premium account redemption reserve reserve Reserve* reserve funds
£'000 reserve £'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
Net return on ordinary activities after taxation - - - - - 6,673 3,501 10,174
Dividends paid (note 5) - - - - - - (3,715) (3,715)
Shareholders' funds at 31 October 2021 40,229 11,664 19,759 417 60,433 226,459 11,692 370,653
* The Capital Reserve balance at 31 October 2022 includes investment holding
losses of £38,250,000 (31 October 2021 - gains of £64,943,000).
The accompanying notes below are an integral part of the Financial Statements.
Condensed Cashflow Statement (unaudited)
Six months to 31 October 2022 Six months to 31 October 2021
£'000 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation (32,682) 10,174
Net losses/(gains) on investments 35,463 (7,350)
Currency gains - (18)
Finance costs of borrowings 168 60
Changes in debtors and creditors 1,501 1,147
Cash from operations* 4,450 4,013
Interest paid (100) (64)
Net cash inflow from operating activities 4,350 3,949
Cash flows from investing activities
Acquisitions of investments (13,289) (12,577)
Disposals of investments 13,970 16,907
Net cash inflow from investing activities 681 4,330
Cash flows from financing activities
Bank loan drawn down 8,000 2,450
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 (3,242) -
Net cash outflow from financing activities (1,193) (2,574)
Increase in cash and cash equivalents 3,838 5,705
Exchange movements - 18
Cash and cash equivalents at start of period 1,491 1,872
Cash and cash equivalents at end of period† 5,329 7,595
* Cash from operations includes dividends received of £5,470,000 (2021 -
£5,218,000).
† Cash and cash equivalents represent cash at bank and short term money
market deposits repayable on demand.
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Condensed Financial Statements (unaudited)
1. The condensed Financial Statements for the six months to 31 October
2022 comprise the statements set out above together with the related notes
below. They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in November
2014 and updated in July 2022 with consequential amendments and have not been
audited or reviewed by the Auditor pursuant to the Auditing Practices Board
Guidance 'Review of Interim Financial Information'. The Financial Statements
for the six months to 31 October 2022 have been prepared on the basis of the
same accounting policies as set out in the Company's Annual Report and
Financial Statements at 30 April 2022.
Going Concern
Having considered the nature of the Company's principal risks and
uncertainties, as set out below, together with its current position,
investment objective and policy, its assets and liabilities and projected
income and expenditure, together with the Company's dividend policy, it is the
Directors' opinion that the Company has adequate resources to continue in
operational existence for the foreseeable future. The Board has, in
particular, considered the ongoing impact of market volatility since the
Covid-19 pandemic and over recent months due to macroeconomic and geopolitical
concerns, including the Russia-Ukraine conflict, but does not believe the
Company's going concern status is affected. The Company's assets, the majority
of which are investments in quoted securities which are readily realisable,
exceed its liabilities significantly and could be sold to repay borrowings if
required. All borrowing facilities require the prior approval of the Board.
Gearing levels and compliance with borrowing covenants are reviewed by the
Board on a regular basis. In accordance with the Company's Articles of
Association, shareholders have a right to vote on the continuation of the
Company every five years, the next vote being in 2024. Accordingly, the
Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements and confirm that they are
not aware of any material uncertainties which may affect the Company's ability
to continue to do so over a period of at least twelve months from the date of
approval of these Financial Statements.
2. The financial information contained within this Interim Financial
Report does not constitute statutory accounts as defined in sections 434 to
436 of the Companies Act 2006. The financial information for the year ended 30
April 2022 has been extracted from the statutory accounts which have been
filed with the Registrar of Companies. The Auditor's Report on those accounts
was not qualified, did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report, and
did not contain a statement under sections 498(2) or (3) of the Companies Act
2006.
3. Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie
Gifford & Co, has been appointed by the Company as its Alternative
Investment Fund Manager (AIFM) and Company Secretary. The investment
management function has been delegated to Baillie Gifford & Co. The
management agreement can be terminated on six months' notice. The annual fee
is 0.5% of net asset value, calculated and payable quarterly.
4.
Six months Six months
to 31 October to 31 October
2022 2021
£'000 £'000
Net return per ordinary share
Revenue return on ordinary activities after taxation 3,388 3,501
Capital return on ordinary activities after taxation (36,070) 6,673
Total net return (32,682) 10,174
Weighted average number of ordinary shares in issue 152,402,008 153,420,349
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.
5.
Six months Six months
to 31 October 2022 to 31 October
£'000 2021
£'000
Dividends
Amounts recognised as distributions in the period:
Previous year's final dividend of 3.91p (2021 - 2.42p), 5,951 3,715
paid 16 September 2022
6. Fair Value Hierarchy
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).
As at 31 October 2022 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Listed equities 269,385 - - 269,385
Unlisted preference shares* - - 1,055 1,055
Total financial asset investments 269,385 - 1,055 270,440
As at 30 April 2022 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Listed equities 305,193 - - 305,193
Unlisted preference shares* - - 1,392 1,392
Total financial asset investments 305,193 - 1,392 306,585
* The unlisted preference shares investment represents a holding in Wayve
Technologies Limited.
The fair value of listed investments is either bid price or last traded price
depending on the convention of the exchange on which the investment is listed.
Listed investments are categorised as Level 1 if they are valued using
unadjusted quoted prices for identical instruments in an active market and as
Level 2 if they do not meet all these criteria but are, nonetheless, valued
using market data. 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 investment 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 holding in an unlisted investment is categorised
as Level 3 as unobservable data is a significant input to its fair value
measurement.
7. At 31 October 2022 the Company had borrowings of £14,450,000 (30 April
2022 - £6,450,000). This was drawn down under the one year £30 million
unsecured revolving credit loan facility with The Royal Bank of Scotland
International Limited which expires in July 2023.
8. At 31 October 2022, the Company had the authority to buy back
22,226,628 ordinary shares and to allot or sell from treasury 15,299,548
ordinary shares without application of pre-emption rights in accordance with
the authorities granted at the AGM in September 2022. During the six months to
31 October 2022, no shares were sold from treasury (year to 30 April 2022 -
475,000 ordinary shares were sold from treasury at a premium to net asset
value, with a nominal value of £119,000 raising net proceeds of £1,141,000).
During the six months to 31 October 2022, 2,100,000 ordinary shares with a
nominal value of £525,000 were bought back at a total cost of £3,317,000 and
held in treasury (year to 30 April 2022 - no shares were bought back).
9. During the period, transaction costs on equity purchases amounted to
£58,000 (31 October 2021 - £23,000) and on equity sales £6,000 (31 October
2021 - £2,000).
10. 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.
Glossary of Terms and Alternative Performance Measures (APM)
Total Assets
Total assets less current liabilities, before deduction of all 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.
31 October 30 April
2022
2022
Closing NAV per share 172.4p 197.4p
Closing share price 150.0p 174.2p
Discount (13.0%) (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.
31 October 2022 NAV 31 October 2022 30 April 2022 NAV 30 April 2022
Share Share
price price
Closing NAV per share/share price (a) 172.4p 150.0p 197.4p 174.2p
Dividend adjustment factor* (b) 1.0203 1.0233 1.0096 1.0098
Adjusted closing NAV per share/share price (c = a x b) 175.9p 153.5p 199.3p 175.9p
Opening NAV per share/share price (d) 197.4p 174.2p 237.3p 244.0p
Total return (c ÷ d) -1 (10.9%) (11.9) (16.0%) (27.9%)
* The dividend adjustment factor is calculated on the assumption that the
dividends of 3.91p (2021 - 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.
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.
Equity gearing is the Company's borrowings adjusted for cash and cash
equivalents expressed as a percentage of shareholders' funds.
31 October 30 April
2022
2022
Borrowings £14,450,000 £6,450,000
Less: cash and cash equivalents (£5,329,000) (£1,491,000)
Adjusted borrowings £9,121,000 £4,959,000
Shareholders' funds £260,983,000 £302,933,000
Equity gearing 3% 2%
Potential gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 October 30 April
2022
2022
Borrowings £14,450,000 £6,450,000
Shareholders' funds £260,983,000 £302,993,000
Potential gearing 6% 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.
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.
Principal Risks and Uncertainties
The principal risks facing the Company are financial risk, investment strategy
risk, climate and governance risk, discount risk, regulatory risk, custody and
depositary risk, operational risk, cyber security risk, leverage risk,
political risk and emerging risks. An explanation of these risks and how they
are managed is set out on pages 7 to 9 of the Company's Annual Report and
Financial Statements for the year to 30 April 2022 which is available on the
Company's website: bgukgrowthtrust.com (http://www.bgukgrowthtrust.com/) . The
principal risks and uncertainties have not changed since the date of that
report.
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FTSE Index Data
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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 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 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 of 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 Alternative
Investment Funds that invest in an economic activity that contributes to an
environmental objective. The Company does not commit to make sustainable
investments as defined under SFDR. As such, the underlying investments do not
take into account the EU criteria for environmentally sustainable economic
activities.
- ends -
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