Annual Financial Report

RNS Number : 8889D

Baillie Gifford UK Growth Fund PLC

28 June 2019

 

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 2018 or 30 April 2019 but is derived from those accounts. The Company's Auditors have reported on the Annual Report and Financial Statements for 2018 and 2019; 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 2018 have been filed with the Registrar of Companies and the statutory accounts for the year ended 30 April 2019 will be delivered to the Registrar in due course.

The Annual Report and Financial Statements for the year ended 30 April 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM 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

28 June 2019

Chairman's Statement

Performance

For the year to 30 April 2019, the Company's net asset value ('NAV') total return (capital and income) was 0.2% and the FTSE All Share index total return was 2.6%. The Company's share price total return over the same period was 5.0%.

For the first two months of the reporting period the portfolio was managed by Schroder Unit Trusts Limited ('Schroder'), since the end of June 2018 it has been managed by Baillie Gifford & Co Limited ('Baillie Gifford'), represented by the co-managers Iain McCombie and Milena Mileva. The reasons behind this and the consequent change in the Company's name were outlined in my 2018 statement.

The table below provides some additional detail by showing NAV performance over the two months to the end of June 2018 and the subsequent 10-month period to the end of April 2019.

	1 Year to 30 April 2019	30 April 2018 to 30 June 2018	30 June 2018 to 30 April 2019
Total Return*
NAV	0.2%	0.6%	(0.4%)
Share Price	5.0%	3.5%	1.4%
FTSE All Share	2.6%	2.6%	0.0%

Since the change of Managers and the consequent reorganisation of the portfolio, market conditions have been difficult for the focused portfolio of good quality UK stocks now held. It is, however, reassuring that the discount of the Company's share price versus its NAV has narrowed to 5.5% (NAV cum income).

Details on the prospects for the companies held in the portfolio are contained in the Managers' Report.

Portfolio Reorganisation

Following the move to Baillie Gifford the portfolio was re-positioned in line with the new Managers' growth investment philosophy. Consequently, most of the Company's prior 49 holdings were sold and 42 new holdings purchased with 100% of the portfolio now positioned as desired. The cost of this portfolio restructuring was approximately 1% of NAV.

Schroders ISA Savings Scheme

At the time of the Manager change, 23% of the Company's shares were held within the Schroders ISA Scheme and the Board highlighted that it would not be possible for individuals to continue to hold the Company's shares in the Schroders ISA. I am pleased to say that all this stock was either transferred to other third-party platforms or acquired by new and existing investors.

Share Buy-backs and Issuance from Treasury

No shares were bought back during the year to 30 April 2019. At the forthcoming Annual General Meeting ('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 2019, 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 maintained its total borrowing facilities at £35 million through a revolving one-year credit facility with Scotiabank. This was undrawn throughout the year due to several factors, including the overhang of stock from the Schroders ISA Savings Schemes. 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. In the long term, the Board expects gearing to range between 5 and 15%, with 10% representing a neutral position.

Earnings and Dividends

As highlighted in my most recent annual and interim Chairman's Statements, there will be a stepped reduction in dividend payments. Over the last few years, the Company has paid out dividends that reflected the portfolio revenue derived from Schroders' management style. As our new portfolio managers are growth investors, with any underlying income received being a by-product of that approach, revenue earnings for this and future years are expected to be notably lower than previously.

The net revenue return per share for the year was 5.12p, versus 6.58p in 2018. A final dividend of 2.95p per share is being recommended, making a total of 4.45p for the year ending 30 April 2019. Shareholders should note that earnings for the year ending 30 April 2019 include several dividends received in May and June 2018 before the portfolio was reorganised. As of the date of this statement, the earnings estimate for the year ending 30 April 2020 is 3.94p per share.

Historically, the Company's second dividend has also been paid as an interim dividend. This year it is being paid as a final dividend, therefore allowing shareholders the opportunity to vote on it at the AGM on 1 August 2019. Consequently, payment of the final dividend will be made after this date rather than at the end of July as has been the case in recent years. In addition, it is the intention of the Board that future dividends be paid by way of a single final payment and be approximately the minimum permissible to maintain investment trust status, reflecting our priority which is capital growth.

Continuation of the Company

At this year's AGM the Directors are proposing, in accordance with the Articles, that the life of the Company be extended for a further five years. If the continuation vote is not approved, the Directors will convene a meeting, to be held by 1 November 2019, confirming the voluntary winding up of the Company. Shareholders will then be entitled, in proportion to their respective holdings, to the net proceeds following the liquidation of the portfolio.

Your Directors are aware that performance over the past five years has been disappointing. Over the five years to 30 April 2019, the Company's NAV total return was 25.1% and the FTSE All Share index total return was 35.2%. The Company's share price total return over the same period was 26.6% and the share price discount to NAV (cum income) averaged 10.0%. Cognisant of these issues and following a review, the Board appointed Baillie Gifford as the Company's new AIFM and Company Secretaries in 2018, replacing Schroder.

It is still too early to comment on the longer-term performance of the new portfolio managers. However, having conducted a thorough review of the Managers' approach and resources we believe Baillie Gifford has the right team to manage a portfolio comprising judiciously selected investments with good long-term growth prospects. In addition, the Board believes that Baillie Gifford will market the Company appropriately and has noted the positive reaction of the Company's share price immediately following news of the Manager change and since.

Your Directors therefore believe that it is desirable to extend the Company's life and recommend that shareholders vote in favour of the extension for a further period of five years.

Board Composition

Bob Cowdell retired as a Director in September 2018 and Scott Cochrane and Ruary Neill were appointed in November 2018. Their respective additions strengthen the breadth and depth of the Board; their appointments are subject to ratification at the Company's Annual General Meeting in August 2019. Their respective biographies can be found on www.bgukgrowthfund.com.

Mr Hutton, who has served as a Director for 11 years, has indicated his intention to retire from the Board at the conclusion of this year's AGM. The Board and I would like to thank him for his contribution to Board discussions, his candid opinions and insightful comments. The Board continues to review its composition and to consider its succession and refreshment policies.

As a Board, we remain completely committed to the principles of diversity both within the Board and at an operational level.  While the recent appointments to the Board, taken together with Mr Hutton's retirement, will produce a 25 per cent. female representation on the Board, we retain a female Chair and female co-manager.  As a Board we will continue to look for appropriate opportunities to meet our long-term commitment to gender and wider diversity.

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.

Outlook

The Board and Managers have considered the implications of Brexit and the current political uncertainties. As of the date of this statement, there are so many uncertainties that there seems little that could be done to hedge the portfolio against such a wide range of potential negative outcomes other than our portfolio managers remaining focused on backing exceptional UK companies that have the potential to exploit their competitive advantage. Whilst the benefits of this approach will not always be reflected in short term returns, the Board and Managers firmly believe it will reward the patient investor over the long-term. 

AGM

The Annual General Meeting of the Company will be held on Thursday 1 August 2019 at 12.00 noon at the Institute of Directors, 116 Pall Mall, London SW1Y 5ED. Shareholders are warmly invited to attend. The meeting will include a presentation by the portfolio managers on the prospects for UK equities and the positioning of the portfolio. They and the Board will be available to answer any questions.

Change of Registrar

The Board appointed Computershare Investor Services PLC as the Company's Registrar with effect from 3 June 2019.

Carolan Dobson

Chairman

19 June 2019

* 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

Why Invest in UK Equities?

This is a question we are often asked. The inference is that the UK market is dominated by large, dull, boring businesses that any self-respecting growth manager would be crazy to look at. We happen to agree with this. However, where we take issue with the doomsters is that this generalisation applies to all of the market. The reality is that if an active stock picker is prepared to look beyond the well-known names, then there are plenty of UK businesses with tremendous growth records and others that show great promise for the future. We make no apologies for this optimism. Despite its many critics, one of the great attributes of capitalism is the creative destruction engendered. Society changes over time which allows for the emergence of new markets and services. New firms emerge to capitalise on this and existing businesses must adapt or face the consequences. If this seems fanciful or overly theoretical then simply take a walk around a town centre outside London to see one such adjustment occurring around us. This constant dynamism presents both huge opportunities and significant threats to investors (as well as admittedly inflicting short term pain on many blameless individuals and families). Our belief is that we want to be on the 'right' side of history for our investors and we look for businesses that are on that upward trajectory and own them for as long as we can. That is why, in simple terms, we prefer to own the likes of Boohoo rather than Marks and Spencer. We think that the risk of disruption has never been greater for many of the stalwarts of the UK stockmarket so, for example, we have no holdings in oil & gas exploration, banks or tobacco names. In contrast, we have assembled a portfolio of what we believe are exceptional companies that can capitalise on a myriad of growth opportunities both in the UK and globally. So, to answer the question posed at the start, we invest in UK equities because we do find plenty of companies that generate attractive growth.

Portfolio Positioning and Recent Activity

The application of our investment philosophy resulted in significant changes to the portfolio that we inherited from Schroders at the end of June 2018, with almost all of the 49 holdings sold and 42 new names bought. Changes thereafter have been minor in comparison.

Two new purchases were made in the second half of the year. Having met with the management team a couple of times and considered the merits of the investment case, we participated in the IPO of the online investment platform AJ Bell. We were particularly attracted by the fact that the business is still run by one of its founders and significant shareholder, Andy Bell, combined with our belief that the UK savings market enjoys strong long-term growth prospects. This is also a great example of how over the last decade and a half, changes in regulation and technology have led to the exciting emergence of a new service in the form of investment platforms servicing both the advised and direct-to-consumer market. Customers and advisors like the service because of the obvious benefit of the ability to see a myriad of funds and shares in their investment portfolio easily in one place. We believe these high margin, capital light platform businesses are exceptionally well-placed to exploit the structural shift from corporate defined benefit pension schemes to more self-directed defined contribution pension schemes and to accumulate savings flows over many years. We view AJ Bell, alongside Hargreaves Lansdown and Integrafin, as 'winners' in this attractive market and hope to own them for many years to come.

We also initiated a small position in Draper Esprit, a listed venture capital firm investing in European technology companies. Whilst the market for funding private enterprises in the US is well-developed, it is much less so in Europe. Draper Esprit has the ambition to become one of the leading providers of capital to highly prospective European technology businesses. The management team has a long and very successful track record, and, it seems to us, that their model of permanent capital through the PLC structure might have some advantages to the traditional VC model (constrained by the timing of exits) in better capturing the long-term value inherent in great businesses. We view a handful of the company's current core portfolio holdings (such as the Bristol based machine intelligence chip maker Graphcore and the London headquartered money transfer service TransferWise) as potentially transformational opportunities capable of driving outsized returns for investors.

These purchases were funded by the complete sale of HSBC, following concerns over its future growth potential, and the insurance broker Jardine Lloyd Thompson, following a takeover approach by Marsh & McLennan of the US.

As long-term investors, we would tend to view market volatility as an opportunity to increase our positions in some of the outstanding growth business we own. We, therefore, took advantage of market wobbles in the final quarter of 2018 and made additions to some of the portfolio's exciting growth investments such as Genus, FDM Group, First Derivatives, and Renishaw amongst others. Shareholders should not expect to see huge changes in the portfolio in the future given our style and we hope to highlight companies in future reports in more detail as to why we are enthused about their prospects.

Stewardship and Engagement

Our investment approach is founded on the long-term ownership of growing businesses. We are acutely aware of the responsibilities that stem from this approach and endeavour to be active stewards of our clients' capital. We want to help companies fulfil their potential by encouraging them to invest in growth opportunities and ignore the short-term pressures of the stock market. We therefore spend considerable time and effort in developing an understanding of the governance, social and environmental factors which might affect the long-term sustainability of the businesses we support. The following are only two examples of the many engagements we have had over the year.

Our holding in the annuities provider Just Retirement endured a torrid share price as the market was spooked by the regulator's provisional paper on lifetime mortgages that Just owns as an asset to match its future liabilities. The concern was that the proposals were very onerous on capital requirements that would negatively impact the capital position of Just. We engaged extensively with both the board and management on the issue and having thought about it carefully, independently wrote to the regulator expressing some concern over certain aspects of the paper that in our opinion had led to market confidence in the sector being unintentionally undermined. Pleasingly, the regulator appeared to listen to some of the points raised by many respondents in the consultation process and modified its approach to a degree. Our engagement here remains ongoing as there remains a striking disconnect between the share price and the value we see within the business.

A second ongoing engagement is with the clothing retailer Ted Baker. Over the years, Ted Baker has developed an exceptionally strong brand identity. We have long admired the company's measured approach to growth and believe that its investments in omni-channel distribution have positioned it well to adapt to the challenges, and embrace the opportunities, brought on the retail sector by digital technology. The brand identity has been built with founder and major shareholder Ray Kelvin at its heart. It was, therefore, disappointing when allegations about Mr Kelvin's behaviour came to light in December. After these emerged we engaged with various members of the non-executive board to take reassurance that the company was taking the right approach to a serious and sensitive issue. The board acted swiftly and, we believe, appropriately to set up suitable structures to lead an investigation into these matters. Mr Kelvin subsequently decided to step down while maintaining his innocence. Losing the founder was a serious issue for us given Mr Kelvin's significant input to the success of Ted Baker. Following some reflection, we decided that a smaller holding than before was warranted. However, we still retained a holding after meeting the executive team and speaking to one of the non-executive directors of the company on the importance of succession at this crucial time for the business. While there are some outstanding cultural and industry issues that we will continue to monitor, we applauded the decision shortly after to appoint Lindsay Page, Ted Baker's highly respected and longstanding CFO and COO, as the new chief executive.

What these examples illustrate is that investment should not be about shuffling bits of paper nor engagement merely a box-ticking exercise. It is about being willing in certain circumstances to engage and debate, with boards, key strategic issues and be willing to support a company at a difficult time. This is not a distraction to what we do but is a fundamental and underappreciated part of our task as patient long-term investors. 

Gearing

At the time of transfer from Schroders the portfolio was ungeared and this remained the case throughout the year.  Initially we waited for the Schroder ISA overhang of stock to be resolved but then general caution about the possible outcomes over Brexit led us to stay ungeared.  However, as believers in long-term equity returns, we expect to utilise gearing strategically, with 10% being the anticipated long-term strategic position. 

Performance

Over the twelve months to 30 April 2019, the Company's net asset value ('NAV') total return (capital and income) was 0.2% and the FTSE All Share index total return was 2.6%. The Company's share price total return over the same period was 5.0%. We took over the management of the Company's assets in the end of June 2018 and have experienced significant performance volatility since. Whilst the final quarter of 2018 presented a very challenging backdrop for our growth approach, performance has rebounded strongly since the beginning of the year. We believe it is unwise to try to infer anything meaningful from such a short period and request that shareholders judge our efforts over similar time frames to the ones we apply to judge the progress of our underlying investments, namely five years.

Outlook

Political developments, whether Brexit or the prospects for US/China trade, have been a key factor for equity markets during the past year.  We simply do not have a crystal ball and therefore cannot claim to have any expertise in forecasting political outcomes. What we do know is the recent operational progress of the portfolio's holdings has generally been encouraging despite the apparent doom and gloom espoused by the media.

So, what we are doing? As long-term investors, we try and focus on topics such as the competitive position of the companies in which we invest, and whether there are sound reasons why that business should be significantly larger in five and 10 years' time. We think those are the key drivers to any successful investment strategy over the long term. A further comfort for us, in a period of uncertainty, is that as patient backers of skilled management teams we implicitly benefit from their ability to nimbly adapt or seek out new opportunities. This is an attribute that too many stockmarket investors overlook with their short-term focus and much higher portfolio turnover.

Summary

To sum up this first annual Managers' report since taking on the mandate, we are confident that the portfolio is populated with some terrific businesses which have the potential to nurture and exploit their competitive advantages and deliver good growth over the next five years and beyond. We remain confident that consistently applying our approach will result in attractive long-term returns to fellow shareholders and we are excited and upbeat about the prospects for the portfolio.

Iain McCombie and Milena Mileva

Baillie Gifford & Co

19 June 2019

Past performance is not a guide to future performance.

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

List of Investments as at 30 April 2019

Name	Business	Fair Value £'000	% of total assets
Basic Materials
Rio Tinto	Metals and mining company	8,196	2.7
Victrex	Speciality high-performance chemicals manufacturer	5,645	1.8
		13,841	4.5
Consumer Goods
Diageo	International drinks company	9,197	3.0
Burberry	Luxury goods retailer	8,059	2.6
Ted Baker	Fashion retailer	4,867	1.6
		22,123	7.2
Consumer Services
Auto Trader Group	Advertising portal for second hand cars in the UK	11,458	3.7
Rightmove	UK's leading online property portal	8,777	2.9
RELX	Professional publications and information provider	8,392	2.8
Just Eat	Operator of online and mobile market place for takeaway   food	7,729	2.5
Boohoo.com	Online fashion retailer	7,376	2.4
Carnival	World's largest cruise ship operator	7,159	2.3
Inchcape	Car wholesaler and retailer	6,015	2.0
Euromoney Institutional   Investor	Specialist publisher	3,885	1.3
Mitchells & Butlers	Pub and restaurant operator	3,027	1.0
		63,818	20.9
Financials
Hargreaves Lansdown	UK retail investment platform	14,044	4.6
Prudential	International life insurer	13,216	4.3
St. James's Place	UK wealth manager	12,025	3.9
Legal & General	Insurance and investment management company	9,023	3.0
Hiscox	Property and casualty insurance	6,753	2.2
Helical	Property developer	6,243	2.0
Just Group	Provider of retirement income products and services	5,337	1.8
IntegraFin	Provides platform services to financial clients	5,030	1.6
Jupiter Fund Management	Investment management business	4,918	1.6
Draper Esprit	Technology focused venture capital firm	2,904	1.0
AJ Bell	Investment platform	2,849	0.9
IG Group	Spread betting website	2,189	0.7
		84,531	27.6

Name	Business	Fair Value £'000	% of total assets
Health Care
Abcam	Online platform selling antibodies to life science   researchers	7,832	2.6
Genus	World leading animal genetics company	7,705	2.5
		15,537	5.1
Industrials
Renishaw	World leading metrology company	11,739	3.8
HomeServe	Domestic insurance	8,745	2.9
Halma	Specialist engineer	8,393	2.7
Bunzl	Distributor of consumable products	8,376	2.7
Ultra Electronics	Aerospace and defence company	7,737	2.5
Howden Joinery	Manufacturer and distributor of kitchens to trade customers	7,307	2.4
Rolls-Royce	Power systems manufacturer	5,977	2.0
Bodycote	Heat treatment and materials testing	5,918	2.0
PageGroup	Recruitment consultancy	5,852	1.9
Ashtead	Construction equipment rental company	5,743	1.9
Volution Group	Supplier of ventilation products	5,514	1.8
James Fisher & Sons	Specialist service provider to the global marine and energy    industries	3,308	1.1
		84,609	27.7
Technology
First Derivatives	IT consultant and software developer	8,092	2.7
FDM Group	Provider of professional services focusing on information    technology	7,656	2.5
		15,748	5.2
Total Equities		300,207	98.2
Net Liquid Assets		5,528	1.8
Total Assets		305,735	100

Stocks highlighted 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 in 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, was appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary on 29 June 2018. The agreement with the previous manager, Schroder Unit Trusts was terminated on 29 June 2018. Baillie Gifford & Co Limited has delegated portfolio management and services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas 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. 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).

	2019 Revenue £'000	2019 Capital £'000	2019 Total £'000	2018 Revenue £'000	2018 Capital £'000	2018 Total £'000
Investment management fee	239	556	795	460	1,072	1,532

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 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 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. 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 Internal Audit Department and a summary of the key points is reported to the Audit Committee and any concerns investigated. In addition, the existence of assets is subject to annual external audit.

Operational Risk - failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The 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.

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 extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The Company's investments are in listed securities that are readily realisable. Further information on leverage can be found on page 53 of the Annual Report and Financial Statements 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 Government's intention that the UK should leave the European Union, 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 2019, the Directors have, in accordance with provision C2.2 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 loan facility of £35m expiring in July 2019, which was undrawn at 30 April 2019. 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. The Board has specifically considered the market uncertainty arising from the UK's negotiations to leave the European Union 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 and financial controls, 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, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

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 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 on 1 August 2019. The Directors have no reason to believe that the continuation vote will not be passed this year. 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 2019 is shown below.

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 interest rate risk profile of the Company's floating interest rates at 30 April was:

	2019 £'000	2019 Weighted average interest rate	2018 Book value £'000	2018 Weighted average interest rate
Bank loan	-	-	12,000	1.18%

Interest Rate Risk Sensitivity

An increase of 50 basis points in interest rates, with all other variables held constant, would have decreased the Company's total net assets and total return on ordinary activities for the year ended 30 April 2019 by Nil (2018 - £42,000). A decrease of 50 basis points would have had an equal but opposite effect.

(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.

Other Price Risk Sensitivity

A full list of the Company's investments is shown above. This shows that the portfolio comprises entirely UK listed investments. Accordingly, 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% (2018 - 100%) of the Company's net assets are invested in quoted equities. A 10% increase in quoted equity valuations at 30 April 2019 would have increased total net assets and net return on ordinary activities after taxation by £30,021,000 (2018 - £31,889,000). 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:

	2019 £'000	2018 £'000
Bank loan - including interest	-	12,012
Other creditors and accruals	447	494
	447	12,506

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:

	2019 £'000	2018 £'000
Cash and cash equivalents	4,488	3,642
Debtors	1,487	2,219
	5,975	5,861

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 42 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 38 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) and the most recent numerical remuneration disclosures in respect of the AIFM's reporting period are available at www.bailliegifford.com.

The Company's maximum and actual leverage levels (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 31 January 2019 are as follows:

Leverage

	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 the 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 2019

Income Statement

	For the year ended 30 April 2019			For the year ended 30 April 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Net (losses)/gains on investments	-	(6,850)	(6,850)	-	16,445	16,445
Income	8,658	-	8,658	10,980	-	10,980
Investment management fee	(239)	(556)	(795)	(460)	(1,072)	(1,532)
Other administrative expenses	(689)	-	(689)	(399)	-	(399)
Net return before finance costs and taxation	7,730	(7,406)	324	10,121	15,373	25,494
Finance costs of borrowings	(20)	(47)	(67)	(8)	(18)	(26)
Net return on ordinary activities before taxation	7,710	(7,453)	257	10,113	15,355	25,468
Tax on ordinary activities	-	-	-	(14)	-	(14)
Net return on ordinary activities after taxation	7,710	(7,453)	257	10,099	15,355	25,454
Net return per ordinary share (note 4)	5.12p	(4.95p)	0.17p	6.58p	10.00p	16.58p

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 2019 £'000	At 30 April 2018 £'000
Fixed assets
Investments held at fair value through profit or loss	300,207	318,885
Current assets
Debtors	1,487	2,219
Cash and cash equivalents	4,488	3,642
	5,975	5,861
Creditors
Amounts falling due within one year	(447)	(12,494)
Net current assets/(liabilities)	5,528	(6,633)
	305,735	312,252
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	164,005	171,458
Revenue reserve	11,017	10,081
Shareholders' funds	305,735	312,252
Net asset value per ordinary share*	203.1p	207.5p
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 2019

	Share capital £'000	Share premium £'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

For the year ended 30 April 2018

	Share capital £'000	Share premium £'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 2017	40,229	9,875	19,759	417	69,236	156,103	8,753	304,372
Ordinary shares bought back into Treasury (note 8)	-	-	-	-	(8,803)	-	-	(8,803)
Dividends paid during the year (note 5)	-	-	-	-	-	-	(8,771)	(8,771)
Net return on ordinary activities after taxation	-	-	-	-	-	15,355	10,099	25,454
Shareholders' funds at 30 April 2018	40,229	9,875	19,759	417	60,433	171,458	10,081	312,252

 

Cash Flow Statement

For the year ended 30 April

	2019		2018
	£'000	£'000	£'000	£'000
Cash flows from operating activities
Net return on ordinary activities before taxation	257		25,468
Net losses/(gains) on investments	6,850		(16,445)
Finance cost of borrowings	67		26
Changes in debtors and creditors	258		801
Cash from operations		7,432		9,850
Interest paid		(72)		(19)
Net cash inflow from operating activities		7,360		9,831
Cash flows from investing activities
Acquisitions of investments	(313,132)		(111,331)
Disposals of investments	325,392		109,004
Net cash inflow/(outflow) from investing activities		12,260		(2,327)
Cash flows from financing activities
Ordinary shares bought back into treasury	-		(8,803)
Bank loan drawn down	-		12,000
Bank loan repaid	(12,000)		-
Equity dividends paid	(6,774)		(8,771)
Net cash outflow from financing activities		(18,774)		(5,574)
Increase in cash and cash equivalents		846		1,930
Cash and cash equivalents at start of year		3,642		1,712
Cash and cash equivalents at end of year*		4,488		3,642

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

 

Notes to the Financial Statements

1.

The Financial Statements for the year to 30 April 2019 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.  In accordance with the Company's Articles of Association, shareholders have the right to vote at the Annual General Meeting to be held on 1 August 2019 on whether to continue the Company for a further five years. The Directors have no reason to believe that the continuation resolution will not be passed at the Annual General Meeting. The financial statements of the Company have been prepared on a going concern basis, on the assumption the continuation vote is passed by shareholders at the forthcoming Annual General Meeting.

2.

Income

2019 £'000

2018 £'000

Income from investments UK dividends Other income Deposit interest Underwriting commission

8,648 10 -

10,977 1 2

Total income

8,658

10,980

Investment Management Fee

3.

2019 Revenue £'000

2019 Capital £'000

2019 Total £'000

2018 Revenue £'000

2018 Capital £'000

2018 Total £'000

Investment management fee

239

556

795

460

1,072

1,532

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, was appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary on 29 June 2018. The agreement with the previous manager, Schroder Unit Trusts was terminated on 29 June 2018. Baillie Gifford & Co Limited has delegated portfolio management and services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas 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. In order to offset the costs of repositioning the portfolio following its appointment as AIFM, Baillie Gifford agreed to waive its management fee 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

2019 Revenue

2019 Capital

2019 Total

2018 Revenue

2018 Capital

2018 Total

Net return on ordinary activities

5.12p

(4.95p)

0.17p

6.58p

10.00p

16.58p

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £7,710,000 (2018 - £10,099,000), and on 150,520,484 (2018 - 153,594,108) 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 £7,453,000 (2018 - net capital gain of £15,355,000), and on 150,520,484 (2018 - 153,594,108) 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

2019

2018

2019 £'000

2018 £'000

Amounts recognised as distributions in the year:

Second interim dividend (paid 31 July 2018)

3.00p

2.70p

4,516

4,198

First interim dividend (paid 31 January 2019)

1.50p

3.00p

2,258

4,573

4.50p

5.70p

6,774

8,771

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 £7,710,000 (2018 - £10,099,000).

.		2019	2018	2019 £'000	2018 £'000
	Dividends paid and payable in respect of the year:
	Interim dividend (paid 31 January 2019)	1.50p	3.00p	2,258	4,573
	Proposed final dividend (payable 6 August 2019)	2.95p	3.00p	4,440	4,516
		4.45p	6.00p	6,698	9,089
	If approved, the final dividend of 2.95p will be paid on 6 August 2019 to all shareholders on the register at the close of business on 12 July 2019. The ex-dividend date is 11 July 2019.
6.	At 30 April 2019, the Company had a 1 year £35m unsecured floating rate loan facility with Scotiabank Europe plc which expires on 8 July 2019. There were no drawings under this facility at 30 April 2019.
7.	Transaction costs incurred on the purchase and sale of investments are added to the purchase costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs on purchases amounted to £1,476,000 (2018 - £451,000) and transaction costs on sales amounted to £90,000 (2018 - £61,000).
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, or at a premium to, net asset value per ordinary share) bought or cancelled. At 30 April 2019 the Company had authority to buy back 22,563,020 ordinary shares. During the year to 30 April 2019, no ordinary shares were bought back (2018 - 5,068,700 ordinary shares with a nominal value of £1,267,175 were bought back at a total cost of £8,803,000 and held in treasury). Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve.
9.	The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 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.
10.	The Annual Report and Financial Statements will be available on the Company's website www.bgukgrowthfund.com on or around 28 June 2019.

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. Premium/Discount (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 as a premium. 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.
			2019 NAV		2019 Share Price		2018 NAV		2018 Share Price
	Closing NAV per share/share price	(a)	203.1p		192.0p		207.5p		187.5p
	Dividend adjustment factor*	(b)	1.0236		1.0255		1.0284		1.0336
	Adjusted closing NAV per share/share price	(c = a x b)	207.9p		196.9p		213.4p		193.8p
	Opening NAV per share/share price	(d)	207.5p		187.5p		195.6p		168.5p
	Total return	(c ÷ d) - 1	0.2%		5.0%		9.1%		15.0%
	*      The dividend adjustment factor is calculated on the assumption that the dividends of 4.50p (2018 - 5.70p) 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 is provided below.
						2019		2018
	Investment management fee					£795,000		£1,532,000
	Other administrative expenses					£689,000		£399,000
	Total Expenses			(a)		£1,484,000		£1,931,000
	Average net asset value			(b)		£293,237,000		£308,312,000
	Ongoing Charges ((a) ÷ (b) expressed as a percentage)					0.51%		0.63%

Baillie Gifford and Co Limited was appointed on 29 June 2018 and agreed to waive its management fee 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 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	2018
Investment management fee		£795,000	£1,532,000
Investment management fee waived during the year		£732,000	-
Other administrative expenses		£689,000	£399,000
Total Expenses	(a)	£2,216,000	£1,931,000
Average net asset value	(b)	£293,237,000	£308,312,000
Ongoing Charges ((a) ÷ (b) expressed as a percentage)		0.76%	0.63%

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 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.

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