Final Results

RNS Number : 7429B

Baillie Gifford UK Growth Fund PLC

11 June 2019

 

RNS Announcement

Baillie Gifford UK Growth Fund plc

Legal Entity Identifier: 549300XX386SYWX8XW22

Unaudited Preliminary Results for the year to 30 April 2019

Over the year to 30 April 2019, the Company's net asset value per share (NAV) total return was 0.2% compared to a total return of 2.6% for the FTSE All Share index. The share price total return for the same period was 5.0%.

-   Over the ten months to 30 April 2019, being the period under the management of Baillie Gifford, the Company's NAV total return was minus 0.4% compared to a flat return of 0.0% for the FTSE All Share index. The share price total return for the same period was 1.4%.

-   Following the transition to Baillie Gifford, shares held by investors through the Schroder ISA savings scheme platform have either been transferred to third party platforms or absorbed by natural market demand and the underlying portfolio reorganised in line with the new Managers' explicit growth bias.

-   The net revenue return for the year was 5.12p per share (2018: 6.58p). A final dividend of 2.95p per share is being recommended to give a total for the year of 4.45p (2018: 6.00p). 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.

-   Recent operational performance of the underlying holdings has generally been encouraging and, despite the political uncertainty and confused macroeconomic backdrop, the Managers remain focused on backing exceptional UK companies that have the potential to exploit their competitive advantage.

-   At this year's Annual General Meeting the Directors will be seeking shareholder approval to extend the life of the Company for a further five years.

Total return information is sourced from Baillie Gifford/Refinitiv. See disclaimer at the end of this announcement. For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Baillie Gifford UK Growth Fund plc invests to achieve capital growth predominantly from investment in UK equities with the aim of providing a total return in excess of the FTSE All-Share Index.

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £198 billion under management and advice as at 10 June 2019.

Past performance is not a guide to future performance. Baillie Gifford UK Growth Fund plc is a listed UK company. The value of its shares and any income from them can fall as well as rise and investors may not get back the amount invested. The Company is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority. You can find up to date performance information about Baillie Gifford UK Growth Fund plc at www.bgukgrowthfund.com‡ See disclaimer at the end of this announcement.

‡    Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co  

Tel: [phone]

Roland Cross, Director, Four Broadgate

Tel: [phone] or 07831 401309

The following is the unaudited preliminary statement of annual results for the year to 30 April 2019 which was approved by the Board on 10 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

10 June 2019

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

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.

Baillie Gifford & Co Limited

Managers & Secretaries

10 June 2019

The principal risks and uncertainties facing the Company are set out at the end of this announcement.

Past performance is not a guide to future performance.

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

Total return information is sourced from Refinitiv/Baillie Gifford and relevant underlying index providers. See disclaimer at the end of this announcement.

List of Investments as at 30 April 2019 (unaudited)

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	1.9
		13,841	4.6
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	2.7
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	20.8
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 Bar	Property developer	6,243	2.1
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	27.7

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	2.6
FDM Group	Provider of professional services focusing on information    technology	7,656	2.5
		15,748	5.1
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.

Income Statement (unaudited)

	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 Board of Baillie Gifford UK Growth Fund plc is recommending to the Annual General Meeting of the Company to be held on 1 August 2019 the payment of a final dividend of 2.95p (2018 - second interim of 3.00p) per ordinary share making a total of 4.45p (2018 - 6.00p) paid and proposed for the year ended 30 April 2019.

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 (unaudited)

	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 (unaudited)

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

For the year ended 30 April 2018

	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 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 (unaudited)

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 period		3,642		1,712
Cash and cash equivalents at end of period*		4,488		3,642

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

Notes to the Condensed Financial Statements (unaudited)

1.    

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 Revenue £'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 authority permits it to hold shares bought back 'in treasury'. Such 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. The financial information for 2018 is derived from the statutory accounts for 2018 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2018 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) to 497 of the Companies Act 2006. The statutory accounts for 2019 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies in due course.
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) (unaudited) 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 for the year). 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%

	Glossary of Terms and Alternative Performance Measures (APM) (Ctd) (unaudited) 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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