Annual Financial Report

RNS Number : 0079S

Baillie Gifford UK Growth Fund PLC

03 July 2020

 

Baillie Gifford UK Growth Fund plc

Legal Entity Identifier: 549300XX386SYWX8XW22

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

This is the Annual Financial Report of Baillie Gifford UK Growth Fund plc as required to be published under DTR 4 of the UKLA Listing Rules.

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 30 April 2019 or 30 April 2020 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2019 and 2020; their reports were unqualified, did not draw attention to any matters by way of emphasis, and did not contain statements under 498(2) or 498(3) of the Companies Act 2006. Statutory accounts for the year ended 30 April 2019 have been filed with the Registrar of Companies and the statutory accounts for the year ended 30 April 2020 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 30 April 2020, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and is also available on the Baillie Gifford UK Growth Fund plc page of the Baillie Gifford website at: www.bgukgrowthfund.com

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.

Baillie Gifford & Co Limited

Company Secretary

30 June 2020

Covid-19 coronavirus - Important note regarding arrangements for the Annual General Meeting (AGM)

The Board of Baillie Gifford UK Growth Fund plc (UK Growth) recognises the public health risk associated with the Covid-19 outbreak arising from public gatherings and notes the Government's measures restricting such gatherings, travel and attendance at workplaces.

At the same time, the Board is conscious of the legal requirement for UK Growth to hold its AGM before the end of October. Given the current uncertainty around when public health concerns will have abated, the Board has for the time being decided to aim to follow the Company's customary corporate timetable and, accordingly, the Company's AGM is being convened to take place as scheduled at 12 noon on Wednesday 5 August 2020 at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN without access for shareholders. The Board will, however, continue to monitor developments and any changes will be advised to shareholders by post and details will be updated on the Company's website. In the meantime, the Board encourages all shareholders to submit proxy voting forms as soon as possible and, in any event, by no later than 12 noon on 3 August 2020.

We would encourage shareholders to monitor the Company's website at www.bgukgrowthfund.com.  Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome as always to submit them by email to [e-mail] or call 0800 917 2112. Baillie Gifford may record your call.

Chairman's Statement

Covid-19

In these uncertain times, my fellow Directors and I would like to take this opportunity to extend our thoughts to all affected by recent events, and our gratitude to those working tirelessly for the benefit of all.

Your Board has been monitoring how the Managers and other service providers have been responding to developments and has sought assurances that, operationally, they are acting responsibly towards their employees whilst maintaining appropriate standards of service to the Company. The portfolio managers in turn have continued to seek similar assurances from the companies held in the portfolio.

Annual General Meeting ('AGM')

It is intended that the Company's AGM will be held on Wednesday 5 August 2020 at 12.00 noon at the offices of Baillie Gifford, 1 Greenside Row, Edinburgh, EH1 3AN. Whilst normally inviting shareholders to attend, this doesn't seem possible at the current time, so shareholders are encouraged to submit their votes by proxy rather than attempt to do so in person. The meeting itself will involve the minimum number of people necessary for it to be quorate so anyone not authorised to attend will be declined entry for health reasons. Should the situation change, further information will be made available through the Company's website at www.bgukgrowthfund.com and the London Stock Exchange regulatory news service.

Performance

For the year to 30 April 2020, the Company's net asset value ('NAV') total return (capital and income) was negative 12.5% compared to a negative 16.7% for the FTSE All-Share Index total return.

The Company's share price total return over the same period was negative 14.6%. Whilst disappointing to see a fall in value, it is good to see our quality portfolio outperforming the broader market in these difficult times.

The longer-term prospects for our companies look exciting. The Managers' review below highlights some of the interesting developments in the portfolio as well as some of the issues faced.

Stewardship

As long-term 'actual' investors, the portfolio managers' focus is on promoting the best long-term performance outcomes for the businesses in which they invest, actively engaging with companies on those issues which could impact their long-term potential and supporting actions which they believe will maximise returns in future years. As part of the investment research process, consideration is given to relevant environmental, social and governance issues and the impact these may have on future returns.

The portfolio managers invest in companies at different stages in their evolution and across different industries and are wary of prescriptive policies and rules, believing that these can run counter to thoughtful and beneficial corporate stewardship. The approach adopted therefore favours a small number of simple stewardship principles which help shape interactions with companies. These principles, along with their core investment principles, are set out on page 9 of the Annual Report and Financial Statements .

Share Buy-backs and Issuance from Treasury

No shares were bought back during the year to 30 April 2020. At the forthcoming AGM, the Board will ask shareholders to renew the mandate to repurchase up to 14.99% of the outstanding shares. The 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 Board also believes that the Company benefits from the flexibility of being able to re-issue any shares that might be held in treasury and is therefore looking to renew the annual issuance authority. At present there are 10,396,700 shares, 6.9% of the Company's issued share capital as at 30 April 2020, held in treasury. To avoid any dilution to existing investors, these would only be re- issued at a premium to NAV and after associated costs.

Gearing

During the year, the Company replaced its Scotiabank £35 million revolving one year credit facility with a £20 million revolving credit loan facility with National Australia Bank. This new facility contains the option to increase the amount borrowed to £35 million. No borrowings were drawn in the period and this continues to be the position.

The Board sets internal guidelines for the portfolio managers' use of gearing which are altered from time to time but are subject to net effective gearing not representing more than 20% of shareholders' funds.

Earnings and Dividends

The net revenue return per share for the year was 3.75p, versus 5.12p in 2019. A final dividend of 3.10p per share, payable on 12 August 2020 to shareholders on the register as at 10 July 2020, is being recommended. Shareholders should not rely on receiving a regular or growing level of income from the Company as its priority is capital growth. Any dividend paid will be 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.

Diversity Policy

The Board believes that maintaining a diversity of thought and experience on the Board, and at an operational level within Baillie Gifford, represents the best way of discharging its responsibilities to shareholders. In furtherance of this belief, the Board will look for the best ways to increase the diversity of gender, ideas, professional experiences and cultural backgrounds to which the Company is exposed.

The Board will continue to monitor diversity on an ongoing basis, having regard to developments in Corporate Governance Code and wider market practice, and seek to ensure that the Company retains the benefits of a diversity of thought and experience going forward. As circumstances allow, the Company will continue to look for opportunities to broaden the diversity to which the Company is exposed, in furtherance of this commitment.

Financial Conduct Authority ('FCA') Value Assessment

Shareholders might be aware that new FCA rules require Alternative Investment Fund Managers to assess the overall value that their authorised unit trusts and open-ended funds deliver to investors. Although these rules do not apply to investment trusts, it should be noted that, over the course of the Company's financial year, the Company's Committees and Board assessed various costs levied by third party service providers as well as the Managers and Secretaries, and the quality of service received. I can therefore report that at present it is the Board's view that charges levied by third parties and the Managers and Secretaries are reasonable.

Outlook

The long-term ramifications of Covid-19 on the UK and global economies are unknown, but it is likely that in the short-term the trading environment for many companies will be exceptionally challenging. On top of this, whilst the UK has left the European Union, the risks of a disorderly Brexit remain high.

The Board and Managers have attempted to consider the implications of such matters sensibly and dispassionately and remain convinced that exceptional UK growth companies are still able to exploit their competitive strengths over the long-term and take advantage of the opportunities that follow severe economic dislocation. Patient investors should, therefore, be rewarded in due course.

Carolan Dobson

Chairman

19 June 2020

For a definition of terms, see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

Managers' Report

The impact of the Covid-19 pandemic will likely be felt for some years to come. It has had tragic consequences for many families to-date whilst also shining a light on a number of professions that historically have always worked tirelessly for the good of society without the deserved recognition. We extend our sympathies to those that have suffered bereavement and our thanks to those vital workers that have carried out their duties in exceptionally difficult times. Considering the current tragic backdrop, it seems rather trivial to remind people that investment for the long-term remains our core professional focus, assimilating events and considering the implications for the portfolio, but professionally this is what we must do.

Although one can never say never, when writing future reports, we think it will be hard to match the events of the 12 months to 30 April 2020 for escalating drama. In the interim report we referred to the first half of the financial year as "tumultuous" with Brexit negotiations and global trade war concerns dominating headlines. So how on earth can one describe the events of the second half? Firstly, a snap UK election resulting in a surprisingly large Conservative majority that initially cheered markets and directly led to 'Brexit' actually happening, with the UK leaving the European Union at the end of January. But even those historic events were in turn superseded by the coronavirus (Covid-19) pandemic that led to most countries in the world forcing their citizens into lockdown and a collapse in economic activity. The UK stock market, in particular, suffered in this latter phase and, as the Chairman noted in her report, we ended in negative territory for the year.

Rather than speculate and blether on (a Scottish phrase) at length about the consequences of current events where the most intellectually honest, if slightly unsatisfactory, response to fellow shareholders is "we simply don't know", we think a more useful analysis is to answer 'what have you done, what are you doing and where are you going?' Particularly in regard to the latter point, whilst we have said in the past that we have no crystal ball, it is reasonable to ask how our investment framework helps us think about the current extraordinarily difficult and uncertain environment for companies.

What have we done?

The main thing to say about the last twelve months is that we have stayed true to our investment principles which, as always, are separately shown on page 9 of the Annual Report and Financial Statements . In our minds, there is a strong temptation to start reacting to near term events unless one has the discipline of a consistent investment process. Despite the distractions of the last twelve months we are, and remain, bottom up stock pickers with a long-term investment horizon, meaning that portfolio turnover has remained low. We have said previously that performance over short-term periods will be random. Consequently, we should not draw out significant conclusions of the portfolio outperforming over this twelve-month period, particularly as we downplayed the significance of the portfolio underperforming over the first half in the interim report. Such ups and downs are to be expected with a portfolio that looks very different from the index. What we can say is that despite some significant share price falls we remain unenthused about large parts of the UK markets, such as energy and banking, as we continue to believe the long-term prospects in those areas are unexciting for growth investors.

Nevertheless, we remained alert to new opportunities and prior to the crisis bought new holdings in Farfetch (discussed in the interim report), Games Workshop and a small holding in Creo Medical. Games Workshop is a well-established retailer of its own fantasy games (such as Warhammer) and model figures that enthusiastic gamers buy and paint themselves. Over thirty years the business has built a fantastic amount of intellectual property and nurtured a loyal and passionate customer base. While this is always going to be a niche hobby, the growing interest in the fantasy area has, we think, stimulated additional demand for its products. Over the last few years, the current management team has made some well thought out tweaks to the business model that have been very successful, such as letting the company's independent wholesalers also sell the product online, simplifying the rules book to make the game more accessible to new customers, increased new product introductions and also engaged digitally with the gaming community. This latter change has generated significant goodwill and strengthened the relationship Games Workshop has with its community of gamers. We are excited about the remaining growth potential for the hobby, particularly internationally, as well as the scope to build a large and profitable IP licensing business. The latter will take time and patience, but we think the returns to long-term shareholders are potentially significant.

Creo Medical is one of the most exciting smaller companies we have come across in the recent past. It designs and manufactures new and highly innovative endoscopes which enable physicians to take this technology outside of the purely investigative/diagnostic realm into the operating theatre and use it effectively in therapeutic applications. Although Creo is still at an early stage of its development, and therefore with associated risks, there is growing evidence that its products are transformative to patient care in a range of cancers (starting with gastrointestinal indications), allowing for significantly quicker recovery, reduced hospital stays and lower recurrence rates. A recent liquidity event - the company raised some funding to accelerate the distribution/commercialisation of its product suite - allowed us to buy a small holding. 

What are we doing?

Since the coronavirus outbreak, the focus of our discussions (now over Zoom calls rather than in person) has continued to be on finding and owning the most promising UK growth businesses over a five-year plus horizon. This means that we are simultaneously looking for new opportunities while also carefully appraising the resilience of our existing investments in the face of current events and asking ourselves if the long-term case has in any way been impaired. One painful decision we took in the early stages of the crisis was to sell the holding in the cruise ship operator Carnival, despite the shares having already fallen significantly. In this particular case, we had concerns that growing the cruise market may prove challenging when a semblance of normality returns while, in the short-term, the balance sheet of the business was uncomfortably laden with debt, not a promising position when revenues are rapidly drying up. Interestingly, subsequent to our sale, Carnival has attempted to shore up its balance sheet with a mixture of expensive debt and equity which will undoubtedly dilute the upside for shareholders in the business should a cheerful scenario of recovery for cruising come to pass. On the flipside, we bought a new holding in 4imprint, a company which we have liked for some time but where valuation has been a stumbling block. 4imprint distributes promotional products used by businesses (primarily in the United States) as a form of advertising or as gifts to customers and employees. It operates in a large and extremely fragmented market and, through investments in marketing and its sales force, it has been gaining market share over many years from its smaller and less efficient competitors. The current lockdown measures have resulted in an extremely challenging operating environment. However, the business has a very robust financial position and should withstand the storm. If the 2009 downturn is an example, the company will emerge stronger and continue to significantly outgrow its underlying market.

Where are we going?

Perhaps the most important question of the three we asked ourselves is this final one. Neither of your portfolio managers are fans of trying to draw lessons from the last crisis, as some commentators have done. This smacks to us of generals trying to fight the last war. In reality, all crises are unique and complicated in their origins and we have been considering whether some of the broad themes that many of our holdings play into still ring true. What we would venture is that much of our thinking here is tentative and may change as more information comes to light. The most important theme by far is the growing digitisation of the economy and our belief that many growth businesses are trying to capitalise on this. Our view is that the current crisis is akin to a shock that will likely accelerate this trend. From our own business to others that we own or observe, necessity is forcing organisations to adopt digital ways of working. This can be painful but in the long-term can unlock significant productivity gains and opportunities for smart management teams. Our holdings in FDM Group and First Derivatives are, we believe, well-placed to benefit from enterprises in many different industries increasing investments in their technology infrastructure. The current crisis will also likely further entrench the "digital" habits of consumers and boost demand for our consumer technology platforms and retailers such as Just Eat Takeaway.com, Farfetch and Boohoo.com. We also remain enthusiastic about the strong network effects underpinning the dominant positions of Rightmove and Autotrader. In this severe and sudden downturn in activity in their end markets, however, both businesses have rightly realised that their competitive positions are best served by being financially supportive of their own customers, estate agent and second-hand car dealers respectively. Our mindset in both these cases is to back this policy of short-term financial pain in order to safeguard long-term opportunities. 

We cannot wish away the fact that it is likely that the most dramatic recession in UK history is pending and will cause damage whose effects are not clear. That explains why, despite the Board being supportive of us utilising the additional firepower of our borrowing facilities, we have so far been cautious in gearing the portfolio. One final point is worth noting. As growth investors, dividends do not hold centre stage in our approach and in our view should only flow from the profits and cash flow generated after appropriate investment back into the business. The current dividend crisis in the UK, with an unprecedented decline in pay-outs to shareholders, is therefore of less interest to us. Indeed, in several cases, we have been supportive of decisions by companies to suspend dividends given the economic difficulties and the necessity to protect the business and position themselves for the opportunities that may arise.

While we remain optimistic about the overall quality and superior growth potential of the companies in the portfolio, we must acknowledge the greater than usual element of uncertainty. What gives us some confidence, if one is prepared to look beyond the immediate crisis, is that we have a high degree of confidence in the management teams of our business. In communication with many of them over recent weeks, our message has been simple: please try to do the right thing for the long-term interests of your business and try to do right by your other stakeholders such as staff, suppliers and customers. This is not easy, but rather like our investment style, we think by attempting to focus on the fundamentals of long-term success, the odds of a positive outcome are tilted in your favour. And to our fellow shareholders, we would like to thank you for your continued patience and support and look forward to updating you on our future progress.

Iain McCombie and Milena Mileva

Baillie Gifford & Co

19 June 2020

For a definition of terms, see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Past performance is not a guide to future performance.

	List of Investments as at 30  April		2020
Name		Business		Fair Value £'000	% of total assets
Basic Materials
Rio Tinto		Metals and mining company		6,764	2.6
Victrex		Speciality high-performance chemicals manufacturer		4,633	1.7
				11,397	4.3
Consumer Goods
Diageo		International drinks company		7,823	3.0
Games Workshop Group		Toy manufacturer and retailer		6,484	2.4
Burberry		Luxury goods retailer		5,554	2.1
				19,861	7.5
Consumer Services
Just Eat Takeaway.com		Operator of online and mobile market place for takeaway   food		11,178	4.2
Auto Trader Group		Advertising portal for second hand cars in the UK		9,895	3.7
Boohoo.com		Online fashion retailer		9,705	3.7
HomeServe		Domestic Insurance		9,004	3.4
RELX		Professional publications and information provider		8,574	3.2
Rightmove		UK's leading online property portal		8,088	3.1
Howden Joinery		Manufacturer and distributer of kitchens to trade  customers		7,554	2.9
Inchcape		Car wholesaler and retailer		4,903	1.9
Euromoney Institutional   Investor		Specialist publisher		2,611	1.0
Mitchells & Butlers		Pub and restaurant operator		2,106	0.8
Farfetch		Technology platform for the global fashion industry		2,041	0.8
4imprint		Direct marketer of promotional merchandise		1,984	0.8
				77,643	29.5
Financials
St. James's Place		UK wealth manager		9,129	3.5
Hargreaves Lansdown		UK retail investment platform		8,967	3.4
Prudential		International life insurer		8,596	3.3
Legal & General		Insurance and investment management company		6,639	2.5
Helical		Property developer		6,533	2.5
IntegraFin		Provides platform services to financial clients		6,309	2.4
Just Group		Provider of retirement income products and services		4,370	1.6
Draper Esprit		Technology focused venture capital firm		3,451	1.3
IG Group		Spread betting website		3,245	1.2
Hiscox		Property and casualty insurance		2,834	1.1
AJ Bell		Investment platform		2,792	1.0
				62,865	23.8

Name	Business	Fair Value £'000	% of total assets
Healthcare
Genus	World leading animal genetics company	10,899	4.1
Abcam	Online platform selling antibodies to life science   researchers	10,829	4.1
Creo Medical	Designer and manufacturer of medical equipment	593	0.3
		22,321	8.5
Industrials
Renishaw	World leading metrology company	9,121	3.4
Ultra Electronics	Aerospace and defence company	7,569	2.9
Halma	Specialist engineer	6,704	2.5
Bunzl	Distributor of consumable products	6,266	2.4
Ashtead	Construction equipment rental company	5,884	2.2
Volution Group	Supplier of ventilation products	5,210	2.0
PageGroup	Recruitment consultancy	4,098	1.6
Bodycote	Heat treatment and materials testing	4,019	1.5
James Fisher & Sons	Specialist service provider to the global marine and energy    industries	2,270	0.9
Rolls-Royce	Power systems manufacturer	2,157	0.8
		53,298	20.2
Technology
First Derivatives	IT consultant and software developer	6,560	2.5
FDM Group	Provider of professional services focusing on information   technology	5,848	2.2
		12,408	4.7
Total Equities		259,793	98.5
Net Liquid Assets		3,866	1.5
Total Assets		263,659	100.0

Stocks in bold are the 20 largest holdings.

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

- the movement in net asset value total return per ordinary share relative to the benchmark total return over the longer term;

- the movement in the share price total return relative to the benchmark total return over the longer term;

- the absolute level of movement in the net asset value total return over the longer term;

- the absolute level of movement in the share price total return over the longer term;

- the premium/discount of the share price to the net asset value per share;

- management fee; and

- ongoing charges.

An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

The one, five and ten year records for the KPIs can be found on pages 4,5 and 14 of the Annual Report and Financial Statements.

In addition to the above, the Board considers peer group comparative performance.

Future Developments of the Company

The outlook for the Company for the next 12 months is set out in the Chairman's Statement and the Managers' Report above.

Related Party Transactions

The Directors' fees for the year and interests in the Company's shares at the end of the year are detailed in the Directors' Remuneration Report on page 27 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the years reported, no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Management Fee Arrangements

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. For the financial year ended 30 April 2019, in order to offset the costs of repositioning the portfolio following its appointment as AIFM, Baillie Gifford agreed to waive its management fee for the year to the extent of £732,000 (approximately equal to six months' management fee payable to Baillie Gifford based on the Company's net asset value on 29 June 2018).

	2020 Revenue £'000	2020 Capital £'000	2020 Total £'000	2019 Revenue £'000	2019 Capital £'000	2019 Total £'000
Investment management fee	438	1,021	1,459	239	556	795

Principal Risks

As explained on pages 21 and 22 of the Annual Report and Financial Statements there is an ongoing process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - the Company's assets consist of listed securities and its principal and emerging risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained below. The Board has, in particular, considered the impact of heightened market volatility since the Coronavirus outbreak. To mitigate this risk the Board considers at each meeting various portfolio metrics including individual stock performance, the composition and diversification of the portfolio by sector, purchases and sales of investments and the top and bottom contributors to performance. The Managers provide rationale for stock selection decisions. A strategy meeting is held annually.

Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors: the Company's objective and investment policy and strategy; the investment portfolio and its performance; the level of discount/premium to net asset value at which the shares trade; and movements in the share register.

Discount Risk - the discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber security incidents. To mitigate this risk, the Audit Committee receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption (including any disruption resulting from the Coronavirus outbreak) or major disaster. Since the introduction of the Covid-19 restrictions, almost all Baillie Gifford staff have been working from home and operations have continued largely as normal. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other key third party providers are reviewed by Baillie Gifford on behalf of the Board. The other key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company.

Leverage Risk - the Company may borrow money for investment purposes (sometimes known as 'gearing' or 'leverage'). If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowing facilities require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The Company's investments are in listed securities that are readily realisable. Further information on leverage can be found below and in the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Political Risk - political developments are monitored and considered by the Board as they occur, such as the departure of the UK from the European Union on 31 January 2020, and to assess the political consequences for the Company's future activities.

Viability Statement

Notwithstanding that the continuation of the Company is subject to approval by shareholders every five years, with the next vote at the Annual General Meeting in 2024, the Directors have, in accordance with provision 31 of the UK Corporate Governance Code, assessed the prospects of the Company over a five year period. The Directors continue to believe this period to be appropriate as it reflects the Company's longer term investment strategy and to be a period during which, in the absence of any adverse change to the regulatory environment and to the tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks facing the Company nor to the effectiveness of the controls employed to mitigate those risks. Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a period of five years.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the principal risks and uncertainties detailed above and in particular the impact of market risk where a significant fall in UK equity markets would adversely impact the value of the investment portfolio. The Company's investments are listed and readily realisable and can be sold to meet its liabilities as they fall due. The Directors have also considered the Company's leverage and liquidity in the context of the unsecured revolving credit loan facility of £20 million expiring in July 2020, which was undrawn at 30 April 2020 and remains undrawn as at 18 June 2020. Specific leverage and liquidity stress testing was conducted during the year, including consideration of the risk of further market deterioration resulting from the coronavirus outbreak. The stress testing did not indicate any matters of concern. In addition, all of the key operations required by the Company are outsourced to third party service providers and it is reasonably considered that alternative providers could be engaged at relatively short notice where necessary. The Board has specifically considered the UK's departure from the European Union on 31 January 2020 and can see no scenario that it believes would affect the going concern status or viability of the Company.

Based on the Company's processes for monitoring revenue projections and operating costs, share price discount/premium, the Managers' compliance with the investment objective, asset allocation, the portfolio risk profile, leverage, counterparty exposure, liquidity risk, financial controls and the Managers' operational resilience, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years.

Going Concern

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, including its Covid-19 guidance, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern and specifically in the context of the coronavirus pandemic.

The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained below. The Board has, in particular, considered the impact of heightened market volatility since the coronavirus outbreak 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. 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. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) Regulations 2011.

In accordance with the Company's Articles of Association, shareholders have the right to vote on the continuation of the Company every five years, the next vote being at the Annual General Meeting to be held in 2024. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement above, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements.

Financial Instruments

The Company invests in equities for the long-term so as to achieve its investment objective of long-term capital growth with the aim of providing a total return in excess of the FTSE All-Share Index. The Company borrows money when the Board and Managers have sufficient conviction that the assets funded by borrowed monies will generate a return in excess of the cost of borrowing. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests and could result in either a reduction in the Company's net assets or a reduction in the profits available for dividend.

These risks are categorised here as market risk (comprising interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short-term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting year.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises two elements - interest rate risk and market price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Manager assesses the exposure to market risk when making individual investment decisions as well as monitoring the overall level of market risk across the investment portfolio on an ongoing basis. Details of the Company's investment portfolio are shown above.

(i) Interest Rate Risk

Interest rate movements may affect the level of income receivable on cash deposits and interest payable on variable rate borrowings. They may also impact upon the market value of the Company's investments as the effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and the income receivable on cash deposits.

The Company has the ability to finance part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's interest bearing financial assets and liabilities at 30 April 2020 was nil.

Financial Assets

Cash deposits generally comprise overnight call or short-term money market deposits and earn interest at floating rates based on prevailing bank base rates.

Financial Liabilities

The Company did not make any draw down under the one year £20 million unsecured revolving credit loan facility with National Australia Bank during the year to 30 April 2020.

(ii) Market Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 9 of the Annual Report and Financial Statements.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Manager. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies.

Currency Risk

Certain of the Company's assets, liabilities and income could be denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

Other Price Risk Sensitivity

A full list of the Company's investments is shown above. There is a concentration of exposure to the UK, though it should be noted that the Company's investment may not be entirely exposed to economic conditions in the UK, as many UK listed companies do much of their business overseas.

100% (2019 - 100%) of the Company's net assets are invested in quoted equities. A 10% increase in quoted equity valuations at 30 April 2020 would have increased total net assets and net return on ordinary activities after taxation by £25,979,000 (2019 - £30,021,000). A decrease of 10% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk is not significant as the majority of the Company's assets are in investments that are readily realisable.

The Company has the power to take out borrowings, which give it access to additional funding when required. The Company's borrowing facilities are detailed in note 11 of the Annual Report and Financial Statements.

The maturity profile of the Company's financial liabilities due in less than one year at 30 April was:

	2020 £'000	2019 £'000
Other creditors and accruals	392	447
	392	447

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss. This risk is managed as follows:

-  where the Investment Manager makes an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question;

-  the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to The Bank of New York Mellon (International) Limited. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

-  investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Manager. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed;

-  the creditworthiness of the counterparty to transactions involving derivatives, structured notes and other arrangements, wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Manager; and

-  cash is only held at banks that are regularly reviewed by the Investment Manager.

Credit Risk Exposure

The exposure to credit risk at 30 April was:

	2020 £'000	2019 £'000
Cash and cash equivalents	3,512	4,488
Debtors	746	1,487
	4,258	5,975

None of the Company's financial assets are past due or impaired.

Fair Value of Financial Assets and Financial Liabilities

The Company's investments are stated at fair value and the Directors are of the opinion that the reported values of the Company's other financial assets and liabilities approximate to fair value.

Capital Management

The objectives of the Company are to ensure that it will continue as a going concern and to maximise the capital return to its equity shareholders through an appropriate level of gearing. Its borrowings are set out on note 11 on page 43 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital as detailed in note 12 of the Annual Report and Financial Statements. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 6 of the Annual Report and Financial Statements, and shares may be repurchased or issued as explained on pages 18 and 19 of the Annual Report and Financial Statements.

Fair Value of Financial Instruments

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).

The valuation techniques used by the Company are explained in the accounting policies on page 39 of the Annual Report and Financial Statements.

The financial assets designated as valued at fair value through profit or loss are all categorised as Level 1 in the above hierarchy. None of the financial liabilities are designated at fair value through profit or loss in the Financial Statements.

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors.

AIFM Remuneration

In accordance with the Directive, the AIFM remuneration policy is available at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements). The numerical remuneration disclosures in respect of the AIFM's reporting period are available at www.bailliegifford.com.

Leverage

The Company's maximum and actual leverage levels (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 30 April 2020 are as follows:

	Gross method	Commitment method
Maximum Limit	2.00:1	2.00:1
Actual	0.98:1	1.00:1

Statement of Directors' Responsibilities in Respect

of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and United Kingdom Accounting Standards, comprising Financial Reporting Standard 102 the Financial Reporting Standard Applicable in the UK and Republic of Ireland (FRS 102). Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of its profit or loss for that year. In preparing these Financial Statements, the Directors are required to:

¾ select suitable accounting policies and then apply them consistently;

¾ state whether applicable United Kingdom Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the Financial Statements;

¾ make judgements and accounting estimates that are reasonable and prudent; and

¾ prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general authority for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that, to the best of our knowledge:

¾ the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties they face; and

¾ the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Carolan Dobson

19 June 2020

 

Income Statement

	For the year ended 30 April 2020			For the year ended 30 April 2019
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net losses on investments	-	(42,210)	(42,210)	-	(6,850)	(6,850)
Currency losses	-	(9)	(9)	-	-	-
Income	6,562	-	6,562	8,658	-	8,658
Investment management fee	(438)	(1,021)	(1,459)	(239)	(556)	(795)
Other administrative expenses	(463)	-	(463)	(689)	-	(689)
Net return before finance costs and taxation	5,661	(43,240)	(37,579)	7,730	(7,406)	324
Finance costs of borrowings	(17)	(40)	(57)	(20)	(47)	(67)
Net return on ordinary activities before taxation	5,644	(43,280)	(37,636)	7,710	(7,453)	257
Tax on ordinary activities	-	-	-	-	-	-
Net return on ordinary activities after taxation	5,644	(43,280)	(37,636)	7,710	(7,453)	257
Net return per ordinary share (note 4)	3.75p	(28.75p)	(25.00p)	5.12p	(4.95p)	0.17p

Dividends declared in respect of the financial year ended 30 April 2020 amount to 3.10p (2019 - 4.45p). Further information on dividend distributions can be found in note 8 on page 42 of the Annual Report and Financial Statements.

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.

Balance Sheet

	At 30 April 2020 £'000	At 30 April 2019 £'000
Fixed assets
Investments held at fair value through profit or loss	259,793	300,207
Current assets
Debtors	746	1,487
Cash and cash equivalents	3,512	4,488
	4,258	5,975
Creditors
Amounts falling due within one year	(392)	(447)
Net current assets	3,866	5,528
Net assets	263,659	305,735
Capital and reserves
Share capital	40,229	40,229
Share premium account	9,875	9,875
Capital redemption reserve	19,759	19,759
Warrant exercise reserve	417	417
Share purchase reserve	60,433	60,433
Capital reserve	120,725	164,005
Revenue reserve	12,221	11,017
Shareholders' funds	263,659	305,735
Net asset value per ordinary share*	175.2p	203.1p
Ordinary shares in issue (note 8)	150,520,484	150,520,484

*  See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Statement of Changes in Equity

For the year ended 30 April 2020

	Share capital £'000	Share premium  account £'000	Capital redemption reserve £'000	Warrant exercise reserve £'000	Share purchase reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2019	40,229	9,875	19,759	417	60,433	164,005	11,017	305,735
Dividends paid during the year (note 5)	-	-	-	-	-	-	(4,440)	(4,440)
Net return on ordinary activities after taxation	-	-	-	-	-	(43,280)	5,644	(37,636)
Shareholders' funds at 30 April 2020	40,229	9,875	19,759	417	60,433	120,725	12,221	263,659

For the year ended 30 April 2019

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Warrant exercise reserve £'000	Share purchase reserve £'000	Capital reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 May 2018	40,229	9,875	19,759	417	60,433	171,458	10,081	312,252
Dividends paid during the year (note 5)	-	-	-	-	-		(6,774)	(6,774)
Net return on ordinary activities after taxation	-	-	-	-	-	(7,453)	7,710	257
Shareholders' funds at 30 April 2019	40,229	9,875	19,759	417	60,433	164,005	11,017	305,735

 

Cash Flow Statement

For the year ended 30 April

	2020		2019
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	(37,636)		257
Net losses on investments	42,210		6,850
Currency losses	9		-
Finance cost of borrowings	57		67
Changes in debtors and creditors	686		258
Cash from operations		5,326		7,432
Interest paid		(57)		(72)
Net cash inflow from operating activities		5,269		7,360
Cash flows from investing activities
Acquisitions of investments	(16,917)		(313,132)
Disposals of investments	15,121		325,392
Net cash (outflow)/inflow from investing activities		(1,796)		12,260
Cash flows from financing activities
Bank loan repaid	-		(12,000)
Equity dividends paid	(4,440)		(6,774)
Net cash outflow from financing activities		(4,440)		(18,774)
(Decrease)/increase in cash and cash equivalents		(967)		846
Exchange of movements		(9)		-
Cash and cash equivalents at start of year		4,488		3,642
Cash and cash equivalents at end of year*		3,512		4,488

*  Cash and cash equivalents represent cash at bank and short-term money market deposits repayable on demand.

 

Notes to the Financial Statements

1. 

1.	The Financial Statements for the year to 30 April 2020 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The accounting policies adopted are consistent with those of the previous financial year.
2.	Income							2020 £'000						2019 £'000
	Income from investments UK dividends Other income Deposit interest							6,544 18						8,648 10
	Total income							6,562						8,658
	Investment Management Fee
3.			2020 Revenue £'000	2020 Capital £'000	2020 Total £'000				2019 Revenue £'000				2019 Capital £'000				2019 Total £'000
	Investment management fee		438	1,021	1,459				239				556				795
	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. For the financial year ended 30 April 2019, in order to offset the costs of repositioning the portfolio following its appointment as AIFM, Baillie Gifford agreed to waive its management fee for the year to the extent of £732,000 (approximately equal to six months' management fee payable to Baillie Gifford based on the Company's net asset value on 29 June 2018).
4.	Net Return per Ordinary Share		2020 Revenue	2020 Capital		2020 Total			2019 Revenue			2019 Capital				2019 Total
	Net return on ordinary activities		3.75p	(28.75p)		(25.00p)			5.12p			(4.95p)				0.17p
	Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £5,644,000 (2019 - £7,710,000), and on 150,520,484 (2019 - 150,520,484) 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 £43,280,000 (2019 - net capital loss of £7,453,000), and on 150,520,484 (2019 - 150,520,484) 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						2020			2019	2020 £'000					2019 £'000
	Amounts recognised as distributions in the year:
	Previous year's final dividend (paid 6 August 2019)						2.95p			3.00p	4,440					4,516
	Interim dividend						-			1.50p	-					2,258
							2.95p			4.50p	4,440					6,774
	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 £5,644,000 (2019 - £7,710,000).
.							2020			2019	2020 £'000				2019 £'000
		Dividends paid and payable in respect of the year:
		Interim dividend					-			1.50p	-				2,258
		Proposed final dividend (payable 12 August 2020)					3.10p			2.95p	4,666				4,440
							3.10p			4.45p	4,666				6,698
		If approved, the final dividend of 3.10p will be paid on 12 August 2020 to all shareholders on the register at the close of business on 10 July 2020. The ex-dividend date is 9 July 2020.
6.		At 30 April 2020, the Company had a 1 year £20 million unsecured revolving credit loan facility with National Australia Bank which expires on 8 July 2020. There were no drawings under this facility at 30 April 2020.
7.		During the year, transaction costs on purchases amounted to £51,000 (2019 - £1,476,000) and transaction costs on sales amounted to £8,000 (2019 - £90,000).
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 2020 the Company had authority to buy back 22,563,020 ordinary shares. During the year to 30 April 2020, no ordinary shares were bought back (2019 - no ordinary shares were bought back). Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve.
9.		1 May 2019 £'000 Cash flows £'000 Exchange movement £'000 30 April 2020 £'000 Cash and cash equivalents 4,488 (967) (9) 3,512 Total 4,488 (967) (9) 3,512
10.		The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2020 or 2019 but is derived from those accounts. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The Auditors have reported on those accounts, their report was (i) unqualified; (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.
11.		The Annual Report and Financial Statements will be available on the Company's website www.bgukgrowthfund.com on or around 3 July 2020.

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.
				2020				2019
	Closing NAV per share			175.2p				203.1p
	Closing share price			161.5p				192.0p
	Discount			(7.8%)				(5.5%)
	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.
			2020 NAV		2020 Share Price		2019 NAV		2019 Share Price
	Closing NAV per share/share price	(a)	175.2p		161.5p		203.1p		192.0p
	Dividend adjustment factor*	(b)	1.0143		1.0155		1.0236		1.0255
	Adjusted closing NAV per share/share price	(c = a x b)	177.7p		164.0p		207.9p		196.9p
	Opening NAV per share/share price	(d)	203.1p		192.0p		207.5p		187.5p
	Total return	(c ÷ d) - 1	(12.5%)		(14.6%)		0.2%		5.0%
	*  The dividend adjustment factor is calculated on the assumption that the dividends of 2.95p (2019 - 4.50p) 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.
						2020		2019
	Investment management fee					£1,459,000		£795,000
	Other administrative expenses					£463,000		£689,000
	Total expenses			(a)		£1,922,000		£1,484,000
	Average net asset value			(b)		£292,419,000		£293,237,000
	Ongoing Charges ((a) ÷ (b) expressed as a percentage)					0.66%		0.51%
	Baillie Gifford & Co Limited was appointed on 29 June 2018 and agreed to waive its management fee for the year ended 30 April 2019 to the extent of £732,000 (approximately equal to six months' management fee payable to Baillie Gifford based on the Company's net asset value on 29 June 2018). The calculation for 2019 above is therefore not representative of future management fees. The reconciliation below shows the ongoing charges figure if the waived management fee is included in the ongoing charges calculation.
								2019
	Investment management fee							£795,000
	Investment management fee waived during the year							£732,000
	Other administrative expenses							£689,000
	Total Expenses			(a)				£2,216,000
	Average net asset value			(b)				£293,237,000
	Ongoing Charges ((a) ÷ (b) expressed as a percentage)							0.76%
	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. Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. The Company currently has no borrowings drawn down. Leverage (APM) For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, 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.
	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 Fund 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 https://www.gov.uk/government/publications/exchange-of-information-account-holders. Third Party Data Provider Disclaimer No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting 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 FTSE International Limited ('FTSE') © FTSE 2020. 'FTSE®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication. Regulated Information Classification: Additional regulated information required to be disclosed under applicable law.

 

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