REG - Baillie Gifford UK - BG UK Growth Trust plc half-year results
01/12/2023 07:00
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RNS Number : 2863V Baillie Gifford UK Growth Trust PLC 01 December 2023
RNS Announcement
Baillie Gifford UK Growth Trust plc (BGUK)
Legal Entity Identifier: 549300XX386SYWX8XW22
Results for the six months to 31 October 2023
The following is the unaudited Interim Financial Report for the six months to
31 October 2023 which was approved by the Board on 30 November 2023.
Over the six month period to 31 October 2023, the Company's net asset value
per share total return was negative 11.9% compared to a negative 5.9% for the
FTSE All-Share Index total return. The share price total return for the same
period was negative 12.5%.
¾ The positions in Farfetch and Abcam were sold in the period and the
complete sale of Naked Wines was concluded shortly after the period end. No
new positions were initiated in the period and there were 43 companies held in
the portfolio as at 31 October 2023.
¾ The net revenue return per share was 2.78p compared to 2.22p 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 538,500 shares were bought back for
treasury. Following the purchase of a further 334,500 shares since the period
end, as at 29 November 2023 the Company has 11,269,700 shares held in treasury
accounting for 7.5% of the Company's current shares in issue.(*)
¾ There is a pattern of short-term, cyclical concerns overshadowing
what the portfolio managers view as strengthening long-term prospects of the
majority of the companies held, and where operational and strategic progress
remains in line or ahead of expectations.
* This percentage calculation excludes treasury shares from the denominator.
Total return information is sourced from Baillie Gifford/LSEG. 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 total return.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with around £215 billion under management and advice as at
29 November 2023.
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‡.
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.
30 November 2023
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
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 2023 which is available on the
Company's website: bgukgrowthtrust.com. The principal risks and uncertainties
have not changed since the date of that report.
Responsibility statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared in accordance
with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R (indication of
important events during the first six months, their impact on the Financial
Statements and a description of the principal risks and uncertainties for the
remaining six months of the year); and
c) the Interim Financial Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R (disclosure of
related party transactions and changes therein).
On behalf of the Board
Carolan Dobson
Chairman
30 November 2023
Interim management report
Over the six months to 31 October 2023, the Company's net asset value ('NAV')
total return per share declined by 11.9% which compares to a 5.9% decrease in
the FTSE All-Share Index, total return, over the same period. The share price
total return over the six months declined by 12.5% as the shares moved from a
discount of 14.1% to the NAV per share to a discount of 15.0%. 538,500 shares
were bought back for treasury in the period in a total of twelve tranches.
Invested gearing stood at 4% at the end of the period having been 3% at its
start.
It is disappointing to report on another period of poor portfolio performance.
The main detractors in the period were the holdings in St James's Place, FD
Technologies (both discussed below) and Burberry (concerns about slowing
growth in the luxury fashion industry). Not owning either Shell or HSBC, which
both performed well, also hurt. The portfolio's main positive contributor to
performance was the life science supplies business Abcam which agreed to a
takeover. Other notable positives were Wise (money transfers) and 4imprint
(specialist marketing services) where the continuation of stronger than
expected trading at both companies was well received by the market.
As the economic clouds have darkened as higher interest rates start to bite,
alongside the stalemate in Ukraine and the horrifying recent events in the
Middle East, it has been a gloomy time for equity investors and the stock
market alike. For growth investors it has been doubly difficult as the market
is seemingly more interested in what is happening now rather than in a few
years' time. We will go on to explain why we actually remain very upbeat about
the portfolio, but first we need to cover the performance.
Nobody likes it when a stock you own performs poorly. Moreover, we are in the
difficult part of the performance cycle when stock markets punish companies
severely if they report disappointing news, as has been the case for some of
the holdings. The difficulty is that it is not unreasonable to use the said
stocks as examples of why the portfolio managers' philosophy and process might
be flawed. We understand this concern given performance, but we would strongly
refute it. To attempt to outperform a benchmark one has to accept, whether as
a portfolio manager or a shareholder, that investing carries with it risk.
It's totally reasonable to expect a portfolio manager, with a well-established
investment process to carry out careful analysis of any existing or potential
investment. Ultimately though, everyone has to accept that when we invest we
are investing in future outcomes, and they are unknowable. Mistakes in
investment are therefore an unfortunate fact of life for an investor in good
times as well as bad.
What we have to focus on is whether a poor share price is signalling that we
have fundamentally made a mistake in an individual investment, whether it is
random noise or if there is something broader going on. In regard to the
latter, what we mean is something we have referenced previously, namely that
our pronounced 'growth' style is out of favour in an environment of higher
interest rates. We have written at length about this before and we continue to
believe that it is the main factor affecting our performance. When digging
into the data we can point to many companies that have had respectable, or
better, operating performance that has not been reflected in their share
price. Nevertheless, it is also true that we have seen some individual
disappointments in the portfolio over the period and our actions have varied
depending on the circumstances.
A couple of stocks that we decided to exit recently were Farfetch and Naked
Wines. We have to admit that both investments have proven to be mistakes. In
both cases, there was a long-term growth opportunity from using technology and
an interesting business model to disrupt traditional forms of distribution in
their respective markets. The challenge for the management teams was to
capitalise and execute on the opportunities. Both companies fell short of our
expectations. We did recognise this as a risk in both cases and had,
therefore, reflected it in the relatively modest position sizing. In the case
of Farfetch, the online marketplace for luxury goods, the issue which became
increasingly clear to us was that the business, through a series of deals and
new initiatives, had become too complex and management, despite its admirable
vision and ambition, appeared to be struggling with execution. This really
mattered as, after years of heavy investment, the business required a clear
path to profitability.
In the case of Naked Wines, an online wine subscription business, we made the
mistake of assuming a step change in consumer habits during the pandemic (and
hence the ability of the company to acquire customers efficiently) would
continue and underestimated the normalisation of demand that followed.
Unfortunately, the post Covid period threw the business significantly off
course and it suffered from a weak balance sheet that carried too much
inventory. The company faced an unattractive choice of trying to stem the red
ink and potentially sacrificing the future value of the business by not fully
committing to new, and more promising, avenues of growing the customer base.
The significant board and management turmoil that ensued made the situation
more challenging.
With hindsight, we were overly patient in both cases. However, patience is a
key part of our process and we have exercised similar patience with other
companies which have gone on to successfully manage their way through tricky
situations. To us, these undoubted mistakes are painful but ones that we
ultimately recognised and dealt with as part of our investment process.
There are other businesses in the portfolio which were hard hit in the period
in share price terms but where we continue to believe the investment thesis
remains intact. For example, the technology and IT services business FD
Technologies was hit hard by the announcement that it was going to spend
significant money on further developing its database business KX. Although
this is a hit to profits in the short term, to us it was a deliberate action
of investment for future business growth in high-performance software which
has a rapidly expanding set of growth opportunities. Is there a risk that this
investment does not pay off? The answer is 'of course' but we think management
has done a decent job in establishing the case for allocating resource to this
division and deserves our support.
Perhaps the trickiest assessment of a stock detractor is where there is
genuine doubt in our belief. The shares of wealth manager St James's Place
slid following reporting of both a slowdown in new business inflows, and more
importantly, a package of fee reduction changes that will eat into cash flow
and profits in the short term when the changes are fully implemented in 2025.
The main point of the changes is to lower costs for clients. The controversy
for many years for the company has been whether the fees for a fully advised
business model were too high. The positive case is that the company has
addressed this issue without impacting its very important self-employed
partner salesforce. Surely, management should be applauded for taking a tough
decision to benefit clients. The business continues to grow successfully after
all. The bear case is that this is only just the beginning of pressure on fees
and therefore profits. The announcement of a new CEO starting imminently from
outside the business (the former well regarded finance director of Prudential)
comes at a critical time for the company and we will be engaging with him to
understand his thoughts and plans for the future. In the meantime, the very
low rating which discounts a very pessimistic scenario provides breathing
space to take stock.
It is probably natural to sound defensive or despondent following what up
until now has sounded like a tale of woes. This is not our position though.
While we are truly cognisant of the difficult time for shareholders in recent
years, we hope that we tried to be both open and frank about what has
happened. It is our style and we certainly do not think glib spin cuts it. But
here is the great paradox: despite all you have read so far, both of your
portfolio managers, who are shareholders themselves, are actually feeling as
upbeat about the portfolio as we can remember. This is not bravado. Be assured
that our feet are firmly on the ground, and we continue to challenge ourselves
on what we are doing. However, we see a pattern of short-term, cyclical
concerns overshadow what we view as strengthening long-term prospects of the
majority of the companies held and where the operational and strategic
progress remains in line or ahead of expectations. We view this as a real
opportunity for patient investors.
Although the Abcam takeover is likely to complete next year, we elected to
sell because we saw the opportunity to use the sales proceeds to add to a
range of existing holdings in portfolio such as the life insurers Prudential
and Legal & General, the animal genetics business Genus, the specialist
engineer Renishaw, the investment platform AJ Bell and the IT services
provider Kainos. All strike us as businesses with fantastic market positions
and sensible management teams whose valuations look very attractive at these
levels. Moreover, despite this relatively modest level of portfolio activity,
there are a handful of potential new investments on our radar.
As bottom up stock pickers, our low level of portfolio activity is the most
telling signal that we strongly believe that there is a lot of latent
potential and upside in the portfolio if you are prepared to look through the
current uncertainty.
Iain McCombie and Milena Mileva
Baillie Gifford & Co
30 November 2023
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 6.1%, 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 many investors pay too much attention 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 below. This reflects a rolling 12 month period to 31
October 2023.
Baillie Gifford statement on stewardship
Baillie Gifford's overarching ethos is that we are 'Actual' investors. We have
a responsibility to behave as supportive and constructively engaged long-term
investors. We invest in companies at different stages of their evolution,
across many different industries and geographies, and we focus on their unique
circumstances and opportunities. Consequently, we are wary of prescriptive
policies and rules, believing that these often run counter to thoughtful and
beneficial corporate stewardship. Our approach favours a small number of
simple principles which help shape our interactions with companies and give
appropriate latitude to diverse processes of our different investment teams.
These principles do not all have to be positively reflected in each holding
our teams acquire.
Prioritisation of long-term value creation
We encourage our holdings to be ambitious, focusing on long-term value
creation and capital deployment for growth. Helping management to resist
demands from shareholders with shorter horizons than ours can at times be an
important way to achieve better investment outcomes. We regard it as our
responsibility to encourage holdings away from destructive financial
engineering and towards activities that create genuine economic and
stakeholder value over the long run. We are happy that our value will often be
in supporting management when others don't.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and
representing the interests of all capital providers. There is no fixed
formula, but we expect boards to have the resources, information, cognitive
and experiential diversity they need to fulfil these responsibilities. We
believe good governance works best when there are diverse skill sets and
perspectives, paired with an inclusive culture and strong independent
representation with sufficient time to assist, advise and constructively
challenge the thinking of management.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward
superior strategic and operational endeavour. We believe incentive schemes can
be important drivers of behaviour, and encourage policies which create genuine
long-term alignment with external capital providers. We are accepting of
significant payouts to executives if these are commensurate with outstanding
long-run value creation, but plans should not reward mediocre outcomes or
short-termism. We generally think that performance hurdles should be skewed
towards long-term results and that remuneration plans should be subject to
shareholder approval.
Fair treatment of stakeholders
We believe it is in the long-term interests of all companies to maintain
strong relationships with stakeholders - including employees, customers,
suppliers, regulators and the communities they work within. We do not believe
in one-size fits-all policies and recognise that operating policies,
governance and ownership structures may need to vary according to
circumstance. Nonetheless, we believe the principles of fairness, transparency
and accountability should be prioritised at all appropriate times.
Sustainable business practices
We believe an entity's long-term success is dependent on maintaining its
social licence to operate and look for holdings to work within the spirit and
not just the letter of the laws and regulations that govern them. We expect
all holdings to consider how their actions impact society, both directly and
indirectly, and how such actions may impact their long-term success.
Environmental practices should recognise the current pace of change in
opportunities, risks and societal expectations. Climate change, environmental
impact, social inclusion, tax and fair treatment of workers should be
addressed at board level, with appropriately ambitious policies and targets
focused on the relevant material dimensions. Boards and senior management with
superior prospects for long-term value creation should understand, regularly
review and disclose information relevant to such targets publicly, alongside
plans for ongoing improvement.
List of investments as at 31 October 2023 (unaudited)
Name Business Value % of total assets
£'000
Basic materials
Rio Tinto Metals and mining company 7,939 2.9
Victrex Speciality high-performance chemicals manufacturer 3,196 1.2
11,135 4.1
Consumer discretionary
Games Workshop Toy manufacturer and retailer 14,698 5.4
4imprint Direct marketer of promotional merchandise 9,508 3.5
Howden Joinery Manufacturer and distributor of kitchens 9,171 3.4
to trade customers
RELX Professional publications and information provider 8,280 3.1
Burberry Luxury goods retailer 6,761 2.5
Boohoo.com Online fashion retailer 944 0.4
Naked Wines Online wine retailer 60 -
49,422 18.3
Consumer staples
Diageo International drinks company 8,837 3.3
8,837 3.3
Financials
Legal & General UK wealth manager 8,231 3.0
Prudential International life insurer 7,911 2.9
AJ Bell Investment platform 7,473 2.8
Lancashire Holdings General insurance 6,889 2.6
St. James's Place UK wealth manager 6,856 2.5
Just Group Provider of retirement income products and services 5,905 2.2
Hiscox Property and casualty insurance 4,538 1.7
IntegraFin Provides platform services to financial clients 4,296 1.6
Hargreaves Lansdown UK retail investment platform 3,781 1.4
IG Group Spread betting website 2,742 1.0
Molten Ventures Technology focused venture capital firm 2,503 0.9
61,125 22.6
Healthcare
Genus World leading animal genetics company 8,540 3.2
Creo Medical Designer and manufacturer of medical equipment 675 0.3
Oxford Nanopore Novel DNA sequencing technology 631 0.2
Exscientia Biotech company 582 0.2
10,428 3.9
Industrials
Volution Group Supplier of ventilation products 11,605 4.3
Experian Global provider of credit data and analytics 11,363 4.2
Ashtead Construction equipment rental company 11,318 4.2
Wise Online platform to send and receive money 9,072 3.4
Renishaw World leading metrology company 7,845 2.9
Bunzl Distributor of consumable products 7,551 2.8
Inchcape Car wholesaler and retailer 6,525 2.4
Halma Specialist engineer 5,916 2.2
Bodycote Heat treatment and materials testing 5,338 2.0
PageGroup Recruitment consultancy 4,100 1.5
FDM Group Provider of professional services focusing on information technology 3,417 1.2
84,050 31.1
Real estate
Rightmove UK's leading online property portal 5,030 1.9
Helical Property developer 3,480 1.3
8,510 3.2
Technology
Auto Trader Group Advertising portal for second hand cars in the UK 13,396 5.0
Kainos Group IT services and implementer 8,389 3.1
Softcat IT reseller and infrastructure solutions provider 7,831 2.9
First Derivatives IT consultant and software developer 2,188 0.8
Wayve Technologies Ltd Series B Pref. (U) Developer of full autonomous driving systems 582 0.2
32,386 12.0
Total equities 265,893 98.5
Net liquid assets 3,990 1.5
Total assets 269,883 100.0
(U) Denotes unlisted investment (private company).
Stocks highlighted in bold are the 20 largest holdings.
Income statement (unaudited)
For the six months ended For the six months to For the year ended
31 October 2023
31 October 2022
30 April 2023 (audited)
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Losses on investments - (38,005) (38,005) - (35,463) (35,463) - (2,542) (2,542)
Currency gains - 54 54 - - - - - -
Income from investments and interest receivable 4,812 - 4,812 3,912 - 3,912 7,260 - 7,260
Investment management fee 3 (208) (484) (692) (209) (489) (698) (432) (1,009) (1,441)
Other administrative expenses (267) - (267) (265) - (265) (533) - (533)
Net return before finance costs and taxation 4,337 (38,435) (34,098) 3,438 (35,952) (32,514) 6,295 (3,551) 2,744
Finance cost of borrowings (155) (361) (516) (50) (118) (168) (150) (349) (499)
Net return on ordinary activities before taxation 4,182 (38,796) (34,614) 3,388 (36,070) (32,682) 6,145 (3,900) 2,245
Tax on ordinary activities - - - - - - - - -
Net return on ordinary activities after taxation 4,182 (38,796) (34,614) 3,388 (36,070) (32,682) 6,145 (3,900) 2,245
Net return per ordinary share 4 2.78p (25.81p) (23.03p) 2.22p (23.66p) (21.44p) 4.05p (2.57p) 1.48p
Note: 5 - - 3.60p
Dividends paid and payable per share
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are prepared under
guidance published by the Association of Investment Companies.
All revenue and capital items in the above statements derive from continuing
operations.
A Statement of Comprehensive Income is not required as all gains and losses of
the Company have been reflected in the above statement.
The accompanying notes below are an integral part of the Financial Statements.
Balance sheet (unaudited)
Notes At 31 October 2023 At 30 April
£'000
2023
£'000
Fixed assets
Investments held at fair value through profit or loss 6 265,893 302,536
Current assets
Debtors 216 1,479
Cash and cash equivalents 5,248 5,512
5,464 6,991
Creditors
Amounts falling due within one year:
Bank loan 7 (16,350) (14,450)
Other creditors (1,474) (655)
(17,824) (15,105)
Net current liabilities (12,360) (8,114)
Net assets 253,533 294,422
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 54,763 55,628
Capital reserve 112,807 151,603
Revenue reserve 13,894 15,122
Shareholders' funds 253,533 294,422
Net asset value per ordinary share* 169.0p 195.6p
Ordinary shares in issue 8 149,981,984 150,520,484
* 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 2023
Notes Share Share Capital Warrant Share Capital Revenue Shareholders'
reserve*
capital premium redemption exercise purchase £'000 reserve funds
£'000
£'000 account reserve reserve reserve £'000
£'000 £'000 £'000 £'000
Shareholders' funds at 40,229 11,664 19,759 417 55,628 151,603 15,122 294,422
1 May 2023
Net return on ordinary activities after taxation - - - - - (38,796) 4,182 (34,614)
Ordinary shares bought back into treasury - - - - (865) - - (865)
Dividends paid 5 - - - - - - (5,410) (5,410)
Shareholders' funds at 40,229 11,664 19,759 417 54,763 112,807 13,894 253,533
31 October 2023
For the six months ended 31 October 2022
Notes Share Share Capital Warrant Share Capital Revenue Shareholders'
reserve*
capital premium redemption exercise purchase £'000 reserve funds
£'000
£'000 account reserve reserve reserve £'000
£'000 £'000 £'000 £'000
Shareholders' funds at 40,229 11,664 19,759 417 60,433 155,503 14,928 302,933
1 May 2022
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 5 - - - - - - (5,951) (5,951)
Shareholders' funds at 40,229 11,664 19,759 417 57,116 119,433 12,365 260,983
31 October 2022
* The Capital Reserve balance at 31 October 2023 includes investment holding
losses of £41,156,000 (31 October 2022 - losses of £38,250,000).
The accompanying notes below are an integral part of the Financial Statements.
Cash flow statement (unaudited)
Six months to Six months to
31 October 2023
31 October 2022
£'000
£'000
Cash flows from operating activities
Net return on ordinary activities before taxation (34,614) (32,682)
Net losses on investments 38,005 35,463
Currency gains (54) -
Finance costs of borrowings 516 168
Changes in debtors 1,264 1,588
Changes in creditors (84) (87)
Cash from operations* 5,033 4,450
Interest paid (361) (100)
Net cash inflow from operating activities 4,672 4,350
Cash flows from investing activities
Acquisitions of investments (16,732) (13,289)
Disposals of investments 16,117 13,970
Net cash (outflow)/inflow from investing activities (615) 681
Cash flows from financing activities
Bank loan drawn down 1,900 8,000
Equity dividends paid (5,410) (5,951)
Ordinary shares bought back into treasury and stamp duty thereon (865) (3,242)
Net cash outflow from financing activities (4,375) (1,193)
(Decrease)/increase in cash and cash equivalents (318) 3,838
Exchange movements 54 -
Cash and cash equivalents at start of period 5,512 1,491
Cash and cash equivalents at end of period† 5,248 5,329
* Cash from operations includes dividends received of £5,994,000 (2022 -
£5,470,000) and £65,000 deposit interest (2022 - £13,000).
† Cash and cash equivalents represent cash at bank.
The accompanying notes below are an integral part of the Financial Statements.
Notes to the Financial Statements (unaudited)
01 Basis of accounting
The condensed Financial Statements for the six months to 31 October 2023
comprise the statements set out above together with the related notes below.
They have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued in November
2014 and updated in 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 2023 have been prepared on the basis of the
same accounting policies as set out in the Company's Annual Report and
Financial Statements at 30 April 2023.
Going concern
Having considered the nature of the Company's principal risks and
uncertainties, as set out above, 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 impact of heightened market volatility over recent
months due to macroeconomic and geopolitical concerns, including increased
inflation and interest rates and 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. The Directors have
considered the continuation vote to be held at the 2024 Annual General
Meeting, along with the other factors set out above, and are satisfied that it
is 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.
02 Financial information
The financial information contained within this Interim Financial Report does
not constitute statutory accounts as defined in sections 434 to 436 of the
Companies Act 2006. The financial information for the year ended 30 April 2023
has been extracted from the statutory accounts which have been filed with the
Registrar of Companies. The Auditor's Report on those accounts was not
qualified, did not include a reference to any matters to which the Auditor
drew attention by way of emphasis without qualifying their report, and did not
contain a statement under sections 498(2) or (3) of the Companies Act 2006.
03 Investment manager
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.
04 Net return per ordinary share
Six months to Six months to
31 October 2023
31 October 2022
£'000
£'000
Revenue return on ordinary activities after taxation 4,182 3,388
Capital return on ordinary activities after taxation (38,796) (36,070)
Total net return (34,614) (32,682)
Weighted average number of ordinary shares in issue 150,285,181 152,402,008
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.
05 Dividends
Six months to Six months to
31 October 2023
31 October 2022
£'000
£'000
Amounts recognised as distributions in the period: 5,410 5,951
Previous year's final dividend of 3.60p (2022 - 3.91p), paid 15 September 2023
06 Fixed assets - investments
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 2023 Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
Listed equities 265,311 - - 265,311
Unlisted preference shares* - - 582 582
Total financial asset investments 265,311 - 582 265,893
Level 1 Level 2 Level 3 Total
£'000
£'000
£'000
£'000
As at 30 April 2023
Listed equities 301,909 - - 301,909
Unlisted preference shares* - - 627 627
Total financial asset investments 301,909 - 627 302,536
* The unlisted preference shares investment represents a holding in Wayve
Technologies Ltd.
The fair value of listed investments is quoted bid price. 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 2022 ('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.
07 Bank loans
At 31 October 2023 the Company had borrowings of £16,350,000 (30 April 2023 -
£14,450,000).
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 2024.
08 Share capital
At 31 October 2023, the Company had the authority to buy back 22,305,053
ordinary shares and to allot or sell from treasury 15,041,548 ordinary shares
without application of pre-emption rights in accordance with the authorities
granted at the AGM in September 2023. During the six months to 31 October
2023, no shares were sold from treasury (year to 30 April 2023 - no shares
were sold from treasury). During the six months to 31 October 2023, 538,500
ordinary shares with a nominal value of £135,000 were bought back at a total
cost of £865,000 and held in treasury (year to 30 April 2023 - 2,975,000
ordinary shares with a nominal value of £744,000 were bought back at a total
cost of £4,805,000 and held in treasury).
09 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')
An alternative performance measure 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.
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 net asset value. When the share price is lower than the
net asset value 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 net asset
value per share and is usually expressed as a percentage of the net asset
value per share. If the share price is higher than the net asset value per
share, this situation is called a premium.
31 October 2023 31 October 2022
Closing NAV per share 169.0p 195.6p
Closing share price 143.7p 168.0p
Discount (15.0%) (14.1%)
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 are calculated
on the basis prescribed by the Association of Investment Companies.
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 31 October 30 April 30 April
2023
2023
2023
2023
NAV
Share price
NAV
Share price
Closing NAV per share/share price (a) 169.0p 143.7p 195.6p 168.0p
Dividend adjustment factor* (b) 1.0195 1.0230 1.0204 1.0232
Adjusted closing NAV per share/share price (c = a x b) 172.3p 147.0p 199.6p 171.9p
Opening NAV per share/share price (d) 195.6p 168.0p 197.4p 174.2p
Total return (c ÷ d) -1 (11.9%) (12.5%) 1.1% (1.3%)
*The dividend adjustment factor is calculated on the assumption that the
dividends of 3.60p (2022 - 3.91p) 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.
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.
31 October 30 April
2023
2023
Borrowings £16,350,000 £14,450,000
Less: cash and cash equivalents (£5,248,000) (£5,512,000)
Adjusted borrowings £11,102,000 £8,938,000
Shareholders' funds £253,533,000 £294,422,000
Invested gearing 4% 3%
Drawn gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
31 October 30 April
2023 2023
Borrowings £16,350,000 £14,450,000
Shareholders' funds £253,533,000 £294,422,000
Drawn gearing 6% 5%
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.
Private (unlisted) company
A private (unlisted) company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.
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.
Leverage (APM)
For the purposes of the UK 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.
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Provider shall in any way be liable to any recipient of the data for any
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therefrom.
No Provider has any obligation to update, modify or amend the data or to
otherwise notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any liability
whatsoever to you, whether in contract (including under an indemnity), in tort
(including negligence), under a warranty, under statute or otherwise, in
respect of any loss or damage suffered by you as a result of or in connection
with any opinions, recommendations, forecasts, judgements, or any other
conclusions, or any course of action determined, by you or any third party,
whether or not based on the content, information or materials contained
herein.
FTSE index data
London Stock Exchange Group plc and its undertakings (collectively, the 'LSE
Group'). © LSE Group 2023. FTSE Russell is a trading name of certain of the
LSE Group companies. 'FTSE®' 'Russell®', 'FTSE Russell®', is/are a trade
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Neither LSE Group nor its licensors accept any liability for any errors or
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU SFDR does not have a direct impact in the UK due to Brexit, however, it
applies to third-country products marketed in the EU. As Baillie Gifford UK
Growth Trust plc is marketed in the EU by the AIFM, Baillie Gifford & 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 ESG Principles and
Guidelines as its policy on integration of sustainability risks in investment
decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
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.
The likely impact on the return of the portfolio from a potential or actual
material decline in the value of investment due to the occurrence of an
environmental, social or governance event or condition will vary and will
depend on several factors including but not limited to the type, extent,
complexity and duration of an event or condition, prevailing market conditions
and existence of any mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its Investment Objective & Policy. Baillie Gifford &
Co can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Manager's approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
- ends -
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