Baillie Gifford UK Growth Trust plc final results

Baillie Gifford UK Growth Trust PLC

16 June 2023

 

Baillie Gifford UK Growth Trust plc

Legal Entity Identifier: 549300XX386SYWX8XW22

Results for the year to 30 April 2023

For the year to 30 April 2023, the Company's net asset value ('NAV') total return (capital and income) was 1.1% compared to 6.0% for the FTSE All-Share Index total return. The share price total return for the same period was negative 1.3%.

¾    The largest detractors to relative performance were: Molten Ventures, a technology focused venture capital firm; FDM Group, a provider of professional services focusing on information technology; Helical, a property developer; and Farfetch, an online luxury fashion retailer. Not holding BP was also a notable detractor.

¾    The notable positive contributors to relative performance were toy manufacturer and retailer, Games Workshop, luxury goods retailer, Burberry, and the direct marketer of promotional merchandise, 4imprint.

¾    Two new positions were initiated in the period: IT infrastructure provider Softcat; and, the digitisation specialist Kainos. One position was sold, online food ordering and delivery company Just Eat Takeaway.com. The positions in Euromoney Institutional Investor and Homeserve were exited following takeovers.

¾    The net revenue return for the year was 4.05p per share (2022: 4.39p). A final dividend of 3.60p per share is being recommended (2022: 3.91p). The dividend is paid by way of a single final payment.

¾    Over the year a total of 2,975,000 shares were bought back into treasury. Since period end to 14 June 2023, a further 105,000 shares have been bought back into treasury.

¾    The Board and Managers believe the portfolio to have attractive growth fundamentals and the vast majority of holdings are expected to grow well in excess of the market over the longer term and are high quality and resilient.

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

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

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £234 billion under management and advice as at 14 June 2023.

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

Jonathan Atkins, Four Communications

Tel: [phone] or 07872 495 396

The following is the results announcement for the year to 30 April 2023 which was approved by the Board on 15 June 2023.

Chairman's Statement

Performance
For the year to 30 April 2023, the Company's net asset value ('NAV') total return (capital and income) was 1.1% compared to 6.0% for the FTSE All-Share Index total return. Whilst the wild divergence of performance in the share prices of companies perceived to offer either growth or value was more muted this year compared to last, it still persisted, resulting in a disappointing return from a portfolio focused on growth companies. There were also some disappointing individual company outcomes, see the Managers' Report below, but no more than might be normally expected. The Company's share price total return over the same period was negative 1.3%.

Examining in detail the current profits and turnover and the portfolio managers' expectations for future trading for the companies in the portfolio shows that the majority of the companies at the profits and revenue level are performing as expected against a backdrop of a difficult UK economy with interest rates and inflation sharply higher than for the last 15 years. The portfolio managers continue to be enthused by the long term prospects of the companies held, as evidenced by the low level of portfolio turnover over the year, of 5%.

Share Issuance and Buy-backs
There has been little investor appetite to invest in UK equities over the past year and this, coupled with some disappointing performance, has resulted in the shares standing at the financial year end at a 14.1% discount to the Company's NAV compared to 11.8% a year earlier. The discount on the AIC UK All Companies sector was 11.9% compared to 10.6% for the same period last year.

The Company's 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 Company has steadily bought back shares throughout the year, buying into treasury 2,975,000 shares, which represents 1.9% of the Company's issued share capital as at 30 April 2022. Since the financial year end, a further 105,000 shares have been bought back into treasury. However, it needs more investor demand for UK growth equities to materially narrow the Company's discount.

The Company benefits from the flexibility of being able to issue new shares or to re-issue any shares that might be held in treasury when there is sufficient demand at a premium to NAV as this helps to improve trading liquidity and reduces ongoing costs by being asset accretive. The Company is seeking to renew the annual issuance authority at its Annual General Meeting ('AGM'). To avoid any dilution to existing investors, shares held in treasury and any new shares would only be re-issued/issued at a premium to NAV and after associated costs.

Gearing

During the year, the Company replaced its one-year £20m revolving credit facility with The Royal Bank of Scotland International Limited with a one-year £30m revolving credit facility with the same counterparty. Drawn and invested gearing stood at 5% and 3% of shareholders' funds as at the Company's year end compared to 2% for both a year earlier.

The Board sets internal guidelines for the portfolio managers' use of gearing which are altered from time to time but are subject to the absolute amount of any gearing not representing more than 20% of net asset value of the Company at the time of drawdown. Should the level be subsequently breached, then the portfolio managers would be asked to make sales should there be insufficient cash available to reduce the absolute amount of any gearing to below 20%.

Earnings and Dividends

The net revenue return per share for the year was 4.05p, versus 4.39p in 2022. A final dividend of 3.60p per share, payable on 15 September 2023 to shareholders on the register as at 18 August 2023, is being recommended to shareholders.

The Company's priority is capital growth so shareholders should not rely on receiving a regular or growing level of income from their investment in this Company. Any dividend paid is by way of a single final payment and the Board expects that such dividends would represent approximately the minimum permissible to maintain investment trust status after taking account of variables.

Board Composition

I intend to step down from the Board no later than next year's AGM and, in line with good corporate governance, will play no role in the recruitment of my successor. Accordingly, I have asked Mr Andrew Westenberger to chair a Nomination Committee to appoint my successor.

An external recruitment consultant will be engaged shortly to undertake the selection of a list of suitable candidates for consideration by the Nomination Committee, after which a recommendation will be put to the Board for approval. The external recruitment consultant will be asked to put forward candidates with the desired skillset and also with a diverse range of characteristics. The Board is ambitious to meet and support the Listing Rule diversity targets and will take these and any other best practice matters into account when determining the appropriateness of a candidate and final appointment. The importance of diversity will be an important factor in the candidate shortlist.

TCFD and Consumer Duty

The Board welcomes the new FCA regulation which requires Managers of UK based investment vehicles, including investment trusts such as Baillie Gifford UK Growth Trust managed by Baillie Gifford, to produce product-level TCFD (Task Force on Climate-related Financial Disclosures) reports. These reports are a framework designed to disclose information to investors and other stakeholders about the climate-related risks and opportunities in the respective investment vehicle and are a snapshot in time. The Board sees this as a valuable addition to the detailed information already provided by Baillie Gifford to help shareholders assess the climate impact of the investment portfolio. The report produced by Baillie Gifford for our Company, as at end December 2022 and which will be updated annually, can be found at bgukgrowthtrust.com. It shows the portfolio measuring favourably across a number of metrics when compared to the FTSE All-Share benchmark.

The FCA has also introduced new regulations designed to place the interests of consumers at the heart of the businesses it regulates. Investment trusts that are externally managed and not authorised by the FCA, like Baillie Gifford UK Growth Trust plc, are not themselves in scope for the new Consumer Duty regulations, although they and their boards continue to be subject to duties under the Companies Act, the Listing Rules and the Corporate Governance Code. Baillie Gifford as the Company's Manager is subject to the Consumer Duty regulations in respect of a number of its investment products, including shares in the Company. One of its obligations is to undertake an Assessment of Value on these 'products' on a regular basis appropriate to the nature and duration of the product. This assessment is similar, though not identical, to the annual evaluation conducted by the Board of performance and quality of service, costs and shareholder interest. Baillie Gifford has conducted its initial Assessment of Value on Baillie Gifford UK Growth Trust plc and has concluded that the Company does provide value. This Assessment of Value will enable distributors of the Company's shares (such as platforms) to undertake their own assessments under the Consumer Duty regulations and continue to make shares in Baillie Gifford UK Growth Trust plc available to current and potential shareholders.

Annual General Meeting

It is intended that the Company's AGM will be held on Thursday 7 September 2023 at 12.00 noon at the Institute of Directors, 116 Pall Mall, London SW1Y 5ED. Shareholders are warmly invited to attend. Should the situation change, further information will be made available through the Company's website at bgukgrowthtrust.com and the London Stock Exchange regulatory news service. 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. Light refreshments will be available.

Outlook

Whilst the broader macro-economic environment is undoubtedly uncertain, the vast majority of holdings in the portfolio are expected to grow well in excess of the market and are high quality and resilient. The portfolio managers aim to hold future winners through the cycle, so financial resilience is particularly important. This is why they do not typically invest in highly indebted companies, which means that the portfolio has a lower net debt-to-equity ratio compared to the broader index.

The portfolio managers' approach remains one of patient investment in a portfolio of growth companies, with strong competitive positions, run by sensible management teams. As long-term stock pickers, the portfolio managers are well placed to assess and invest in such names.

Carolan Dobson

Chairman
15 June 2023

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

Managers' Report

We are disappointed and sorry to be writing to fellow shareholders about a poor year of relative performance for the portfolio. While we totally understand that you might be despondent or frustrated, we remain firmly of the view that the portfolio is well positioned for the future and as a consequence portfolio turnover has remained low at 5%. If one thinks in terms of half-year periods, the Company has endured a difficult period of performance since November 2021 up to the end of October 2022. The principal reasons for that were a toxic combination of our 'Growth style' falling out of favour and a few large UK mega-cap stocks such as big oil and big pharma performing better in tougher or more uncertain times. Of course, some of our stock picking hasn't been ideal either but the data is pretty unambiguous. The style headwinds we have encountered are the biggest factor for the underperformance. For example, the biggest detractor to performance over the year to end April 2023 was Molten Ventures, the investor in private growth businesses. Unsurprisingly, given the fall in valuations of private companies globally, it recently announced that its unaudited net asset value had declined by 17% in the year to 31 March 2023. So yes, a tougher year for Molten but its share price declined by 59% meaning that at our year-end Molten traded at a 60% discount to this lower valuation. Clearly the stockmarket expects further valuation declines but this extreme pessimism seems at odds with the underlying progress Molten has seen in most of its main investments.

It begs the question of whether our growth style is simply misguided and we need to adapt to different times? We can only address the question with humility as we cannot be sure that we 'know' the correct answer. Our experience tells us two things: firstly, many people want simple answers to complex problems, which explains the rise of populist politicians in many countries. This type of thinking is seductive and persuasive after poor periods of performance and probably explains why 'style drift' is the biggest 'killer' of fund managers. We are not complacent and have debated between ourselves, and also with the Board (one of the great benefits of the investment trust structure), as to whether we could or should have done things differently in the last two years. The answer in both cases is that, as bottom-up stock pickers, we should continue to back our judgement. Indeed, to be blunt, had we tried to chase short term performance, it would have meant endorsing a skill that we have repeatedly said we lack and also abandoning our investment principles. Attempting both would have created more problems and concerns without necessarily having improved performance.

The second observation from experience is that as individual managers we have been through long patches of underperformance before and the key lesson learnt is to stay true to one's beliefs and investment style, no matter the temptation. Thus, we have tried to remain focussed, stay long term in our investment horizon and to keep appraising the stocks in the portfolio as to whether we think they will be additive to its performance. We probably sound like a broken record, but we believe that share prices follow fundamentals and the latter are good in this portfolio. Again, this is probably only of partial reassurance. The elephant in the room is of course when will growth as a style come back into favour? It would give us no greater pleasure to answer that positively but we have to be honest and say that we simply have no idea when this will happen. At least we can report that in the second half of the financial year being reported on, the portfolio modestly outperformed the index that itself rose by a healthy 13%. Of course, we have absolutely no idea if this is a turning point or a random event, but at the very least this gives us a little encouragement that some of the domestic doom and gloom that we reported on at the half-year has started to lift as the aftershocks of the Truss administration fade and the economic data proves not to be as dire as widely predicted.

Perhaps understandably there has been a focus on top-down factors such as political instability, the war in Ukraine, rising inflation and, more recently, the banking crisis in both the US and Europe. But as some of these factors fade, or at least are 'managed' by both businesses and consumers, we suspect that at some point there will be a return to focussing on company fundamentals and growth prospects, and here we remain greatly encouraged.

Portfolio

As noted above, portfolio activity remained low. In addition to Just Eat Takeaway.com, our two main sales, as reported at the half-year, were the takeovers of Euromoney Institutional Investor and Homeserve, both of which we reluctantly accepted. In the interim report we also talked about new purchases in the IT suppliers Softcat and Kainos and in the second half we added to both; they have continued to report robust growth. We also added to the heat treatment business Bodycote, as we thought the market was too preoccupied with the undoubted cyclical nature of some of its end markets, such as automotive and general industrial, and is underappreciating the restructuring of the business by management into a far more focussed and profitable business with some interesting growth angles. We also added to the financial platforms AJ Bell and Integrafin having previously reduced our position in Hargreaves Lansdown. This reflects our conviction that the first two businesses have clearer propositions in their end markets (both deal with IFA customers with AJ Bell also serving the direct-to-consumer market). Both suffered share price weakness due to tougher markets which brought their ratings down to even more attractive levels.

Elsewhere, we resisted the temptation to tinker with the portfolio. Looking at growth, or sometimes the lack of it, has been made tricky by the pandemic, the recovery from pandemic and now the gloom about a deteriorating economic picture across many countries. Throw in the impact of soaring inflation, higher interest rates and taxes, and optically you have an uncertain and unattractive backdrop for businesses. Yet that is not what the vast majority of our companies are reporting. For sure, they all have to navigate the challenges listed above and it would be irresponsibly naïve to think one's portfolio is immune to short-term challenges, but it is also important to note that good companies can manage the challenges and find new opportunities, whether it be: the plant hire business Ashtead finding new areas to rent (very lucratively in the case of hiring out floor cleaning equipment for example); the platform business Autotrader offering additional services and thus deriving more revenue streams from second-hand car sales; or, hobbyist retailer Games Workshop making progress in potentially monetising, with Amazon TV, some of its vast intellectual IP. There are reasons to be optimistic. Finally, on unlisted investments, we made no new investments in the year and our only exposure here is through Wayve, an autonomous vehicle technology business.

Outlook

It has been a challenging time for investors and, as we've already noted, there are many economic and geopolitical worries and issues. Despite this, we look at the portfolio of companies held and most have strong market positions, healthy balance sheets and good management teams. We are therefore reassured and excited about its prospects. While we understand that performance has to improve to warrant this optimism, we believe the attractive growth fundamentals of the portfolio remain in place and we have the necessary patience to see them reflected.

Iain McCombie and Milena Mileva

Baillie Gifford & Co

15 June 2023

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.

The Managers' Core Investment Principles

Investment Philosophy

The following are the three core principles underpinning our investment philosophy. We have a consistent, differentiated long-term investment approach to managing UK equities that should stand investors in the Company in good stead:

Growth

We search for the few companies which have the potential to grow substantially and profitably over many years. Whilst we have no insight into the short-term direction of a company's share price, we believe that, over the longer term, those companies which deliver above average growth in cash flows will be rewarded with above average share price performance and that the power of compounding is often under-appreciated by investors. Successful investments will benefit from a rising share price and also from income accumulated over long periods of time.

Patience

Great growth companies are not built in a day. We firmly believe that investors need to be patient to fully benefit from the scale of the potential. Our investment time horizon, therefore, spans decades rather than quarters and our portfolio turnover*, at 5.1%, is significantly below the UK industry average. This patient, long-term approach affords a greater chance for the superior growth and competitive traits of companies to emerge as the dominant influence on their share prices and allows compounding to work in the investors' favour.

Active Investment Management
It is our observation that too much attention is paid to the composition of market indices and active managers should make meaningful investments in their best ideas regardless of the weightings of the index. For example, we would never invest in a company just because it is large or to reduce risk. As a result, shareholders should expect the composition of the portfolio to be significantly different from the benchmark. This differentiation is a necessary condition for delivering superior returns over time and shareholders should be comfortable tolerating the inevitable ups and downs in short-term relative performance that will follow from that.

Portfolio construction flows from the investment beliefs stated above.

* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

The Managers' Stewardship Principles

We have a responsibility to behave as supportive and constructively engaged long-term investors. Our approach favours a small number of simple principles which help shape our interactions with companies:

Prioritisation of long-term value creation
We encourage company management and their boards to be ambitious and focus their investments on long-term value creation.

Sustainable business practices
We look for companies to act as responsible corporate citizens, working within the spirit and not just the letter of the laws and regulations that govern them.

Fair treatment of stakeholders
We believe it is in the long-term interests of companies to maintain strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner.

A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders.

Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour.

Climate Transition Framework

The Managers use a four-question Climate Transition Framework (outlined below) to undertake detailed climate specific analysis on the highest emitting companies in the portfolio. The answers to these questions help determine decisions about the weightings of holdings within the portfolio, engagement priorities and decisions around potential divestments.

1.             Are the company's products or services essential?

-            Do cleaner alternatives exist?

2.             Does the company have a credible strategy to decarbonise and mitigate its impact consistent with limiting global temperature increases to 1.5°C above pre-industrial levels?

-            Does the corporate culture support this strategy?

3.             Is it a climate solution provider?

-            Is it likely to be a direct player, or material influencer, in the transition to a net zero economy?

-            How will it contribute to the transition?

4.             How is it exposed to broader transitional and physical risks associated with climate change and the transition to net zero?

ESG Engagement

By engaging with companies, we seek to build constructive relationships with them, to better inform our investment activities and, where necessary, effect change within our holdings, ultimately with the goal of achieving better returns for our shareholders. The three examples below demonstrate our stewardship approach through constructive, ongoing engagement.

Hargreaves Lansdown
Objectives

Engagement on a number of key areas throughout the year, namely:

-            the Chair's appointment to an additional chairmanship

-            board changes and investment priorities

-            CEO departure and succession management

Discussions and outcomes

We had several meetings with relevant stakeholders to discuss each of these areas. With regards to the Chair's appointment to an additional chairmanship, we met with the general counsel and company secretary in early 2022, who assured us that the board had undertaken a formal assessment process to review the Chair's additional appointment. They confirmed that she would not be joining any board committees in her new role and that she will be giving up several of her private commitments in order to reduce the risk of over-boarding.

In the second quarter of 2022, we met with the Chair to discuss board changes and investment priorities. The non-executive element of the board has changed significantly under her leadership and additional executives have been appointed. We were reassured that the new appointments have strengthened technological expertise given the company's significant investment in technology. However, we suggested that communication about the progress of key investment projects would be helpful to our monitoring of execution and progress.

Later in the year, Hargreaves Lansdown announced that its CEO, Chris Hill, would be stepping down in 2023, after six years in the role. We met with the Chair in October to discuss the CEO's decision, the process for appointing a successor, and the implications for the group's strategy. In December, Hargreaves Lansdown announced that Dan Olley will replace Chris Hill as CEO. Therefore, we engaged with the Chair again in December to discuss the reasons for the selection of Mr Olley as CEO. He has been serving as a non-executive director on the Hargreaves Lansdown board since June 2019 and we are satisfied that he has the skills and experience to accelerate the execution of the group's digital strategy. We expect to meet with him soon after he transfers to the CEO role.

St. James's Place

Objectives
Engagement to learn about the company's decarbonisation pathway. Particularly, how St. James's Place ('SJP') will achieve net zero greenhouse gas emissions across its very significant investment portfolio.

Discussions

We spoke with various people from SJP's Responsible Investment ('RI') Team, who provided information about its decarbonisation commitment.

SJP is a signatory to several financial industry initiatives, including the Net Zero Asset Owner Alliance and the UN's Race to Zero Campaign. These initiatives have encouraged SJP to set both near and long-term targets for reducing emissions from the portfolio of investments managed on its clients' behalf. Along with a commitment to reach net zero by 2050, SJP has previously set an interim 2025 target for emissions reduction by 25 per cent, which it has reached early. The company is now considering setting a new emissions reduction target for 2030.

SJP annually reviews the performance of each of its underlying fund managers to determine progress on its decarbonisation pathway for its financed emissions. This process requires an assessment of credible ESG engagement, including climate-related concerns. The RI team highlighted a recent decision to remove a fund manager they assessed failing to meet minimum engagement requirements, despite warnings. The company also spent some time detailing its clear preference for engagement rather than divestment when considering investments in high emitting industries. SJP also provided detail on both the near-term and long-term objectives for Robeco's recent appointment as a company engagement specialist.

Outcome

We were pleased to hear about SJP's thoughtful approach as it seeks to decarbonise the significant emissions footprint from its investment portfolio. We await the setting of a new 2030 reduction target and will review in due course. We will also continue to monitor decarbonisation progress, particularly where investments relate to companies with significant emissions that are hard to abate.

Exscientia

Objectives

We previously supported the company's remuneration policy at the first AGM in 2022 after the IPO at the end of 2021 but communicated certain areas of concern and offered to speak with the company to discuss. This engagement provided the opportunity to articulate specific concerns and encourage the company to be thoughtful in improving alignment.

Discussion
Exscientia is a relatively young, early-stage biotech. The structure of previous executive compensation included long-term incentives that, unfortunately, focused on the company's share price over short periods of time, had minimal holding requirements and had no links to the company's operational progress. Speaking with individuals who work with the compensation committee directly, we encouraged the company to focus on operational metrics as appropriate indicators of operational progress and to involve time periods that are more aligned to an investment horizon of multiple years. The company highlighted the need to remain competitive to attract and retain talent within the biotech industry. In response, we encouraged the company to avoid reverting to industry conventions and reiterated our willingness to listen to any proposal if there was an interest in speaking with shareholders ahead of the AGM. We recognise the need for the company to attract capable individuals to run the business. However, we emphasised the importance of focusing remuneration on the long-term success of the company's operations rather than on the short-term share price.

Outcome

We will continue to monitor and appropriately engage with the company when further details are provided of new remuneration proposals.

List of Investments at 30 April 2023

Name	Business	Fair value £'000	% of total assets
Basic Materials
Rio Tinto	Metals and mining company	7,628	2.5
Victrex	Speciality high-performance chemicals manufacturer	3,888	1.3
		11,516	3.8
Consumer Discretionary
Games Workshop	Toy manufacturer and retailer	14,758	4.8
Burberry	Luxury goods retailer	10,349	3.3
Howden Joinery	Manufacturer and distributor of kitchens to trade customers	9,847	3.2
4imprint	Direct marketer of promotional merchandise	7,883	2.6
RELX	Professional publications and information provider	7,636	2.5
Boohoo.com	Online fashion retailer	1,481	0.5
Farfetch	Technology platform for the global fashion industry	1,364	0.4
Naked Wines	Online wine retailer	408	0.1
		53,726	17.4
Consumer Staples
Diageo	International drinks company	10,304	3.3
		10,304	3.3
Financials
St. James's Place	UK wealth manager	12,936	4.2
Prudential	International life insurer	9,228	3.0
Legal & General	Insurance and investment management company	7,596	2.5
Lancashire Holdings	General insurance	7,423	2.4
AJ Bell	Investment platform	7,087	2.3
Just Group	Provider of retirement income products and services	6,915	2.2
Hiscox	Property and casualty insurance	5,702	1.8
IntegraFin	Provides platform services to financial clients	5,341	1.7
Hargreaves Lansdown	UK retail investment platform	4,297	1.4
IG Group	Spread betting website	3,155	1.0
Molten Ventures	Technology focused venture capital firm	2,991	1.0
		72,671	23.5
Healthcare
Abcam	Online platform selling antibodies to life science researchers	11,046	3.6
Genus	World leading animal genetics company	8,580	2.8
Oxford Nanopore	Novel DNA sequencing technology	708	0.2
Exscientia	Biotech company	534	0.2
Creo Medical	Designer and manufacturer of medical equipment	110	-
		20,978	6.8
Industrials
Volution Group	Supplier of ventilation products	13,888	4.5
Experian	Global provider of credit data and analytics	11,376	3.7
Ashtead	Construction equipment rental company	11,014	3.6
Renishaw	World leading metrology company	8,601	2.8
Bunzl	Distributor of consumable products	8,160	2.6
Inchcape	Car wholesaler and retailer	7,921	2.5
Wise	Online platform to send and receive money	7,494	2.4
Halma	Specialist engineer	7,403	2.4
Bodycote	Heat treatment and materials testing	6,416	2.1
FDM Group	Provider of professional services focusing on information technology	5,268	1.7
PageGroup	Recruitment consultancy	4,952	1.6
		92,493	29.9
Real Estate
Rightmove	UK's leading online property portal	6,106	2.0
Helical	Property developer	5,390	1.7
		11,496	3.7
Technology
Auto Trader Group	Advertising portal for second hand cars in the UK	13,706	4.4
Softcat	IT reseller and infrastructure solutions provider	5,344	1.7
Kainos Group	IT services and implementer	4,871	1.6
First Derivatives	IT consultant and software developer	4,804	1.6
Wayve Technologies Ltd Series B Pref.  u	Developer of full autonomous driving systems	627	0.2
		29,352	9.5
Total Investments		302,536	97.9
Net Liquid Assets		6,336	2.1
Total Assets		308,872	100.0

^u  Denotes unlisted security.

Stocks in bold are the 20 largest holdings.

Income Statement

For the year ended 30 April

	2023 Revenue £'000	2023 Capital £'000	2023 Total £'000	2022 Revenue £'000	2022 Capital £'000	2022 Total £'000
Net losses on investments	-	(2,542)	(2,542)	-	(63,036)	(63,036)
Currency gains	-	-	-	-	40	40
Income	7,260	-	7,260	7,787	-	7,787
Investment management fee	(432)	(1,009)	(1,441)	(519)	(1,211)	(1,730)
Other administrative expenses	(533)	-	(533)	(498)	-	(498)
Net return before finance costs and taxation	6,295	(3,551)	2,744	6,770	(64,207)	(57,437)
Finance costs of borrowings	(150)	(349)	(499)	(33)	(76)	(109)
Net return on ordinary activities before taxation	6,145	(3,900)	2,245	6,737	(64,283)	(57,546)
Tax on ordinary activities	-	-	-	-	-	-
Net return on ordinary activities after taxation	6,145	(3,900)	2,245	6,737	(64,283)	(57,546)
Net return per ordinary share	4.05p	(2.57p)	1.48p	4.39p	(41.89p)	(37.50p)

Dividends declared in respect of the financial year ended 30 April 2023 amount to 3.60p (2022 - 3.91p). Further information on dividend distributions can be found below.

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. The accompanying notes below are an integral part of the Financial Statements

Balance Sheet
As at 30 April

	2023 £'000	2023 £'000	2022 £'000	2022 £'000
Fixed assets
Investments held at fair value through profit or loss		302,536		306,585
Current assets
Debtors	1,479		1,824
Cash and cash equivalents	5,512		1,491
	6,991		3,315
Creditors
Amounts falling due within one year	(15,105)		(6,967)
Net current liabilities		(8,114)		(3,652)
Net assets		294,422		302,933
Capital and reserves
Share capital		40,229		40,229
Share premium account		11,664		11,664
Capital redemption reserve		19,759		19,759
Warrant exercise reserve		417		417
Share purchase reserve		55,628		60,433
Capital reserve		151,603		155,503
Revenue reserve		15,122		14,928
Shareholders' funds		294,422		302,933
Net asset value per ordinary share*		195.6p		197.4p
Ordinary shares in issue		150,520,484		153,495,484

The Financial Statements of Baillie Gifford UK Growth Trust plc (Company registration number 2894077) were approved and authorised for issue by the Board and were signed on 15 June 2023.

Carolan Dobson
Chairman

The accompanying notes below are an integral part of the Financial Statements.

* See Glossary of Terms and Alternative Performance Measures below.

Statement of Changes in Equity
For the year ended 30 April 2023

	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 2022	40,229	11,664	19,759	417	60,433	155,503	14,928	302,933
Ordinary shares bought back into treasury	-	-	-	-	(4,805)	-	-	(4,805)
Dividends paid during the year	-	-	-	-	-	-	(5,951)	(5,951)
Net return on ordinary activities after taxation	-	-	-	-	-	(3,900)	6,145	2,245
Shareholders' funds at 30 April 2023	40,229	11,664	19,759	417	55,628	151,603	15,122	294,422

For the year ended 30 April 2022

	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 2021	40,229	11,328	19,759	417	60,433	218,981	11,906	363,053
Ordinary shares sold from treasury	-	336	-	-	-	805	-	1,141
Dividends paid during the year	-	-	-	-	-	-	(3,715)	(3,715)
Net return on ordinary activities after taxation	-	-	-	-	-	(64,283)	6,737	(57,546)
Shareholders' funds at 30 April 2022	40,229	11,664	19,759	417	60,433	155,503	14,928	302,933

The accompanying notes below are an integral part of the Financial Statements.

Cash Flow Statement

For the year ended 30 April

	2023 £'000	2023 £'000	2022 £'000	2022 £'000
Cash flows from operating activities
Net return on ordinary activities before taxation	2,245		(57,546)
Net losses on investments	2,542		63,036
Currency gains	-		(40)
Finance costs of borrowings	499		109
Changes in debtors	344		(372)
Changes in creditors	(3)		(83)
Cash from operations†		5,627		5,104
Interest paid		(357)		(97)
Net cash inflow from operating activities		5,270		5,007
Cash flows from investing activities
Acquisitions of investments	(24,014)		(24,632)
Disposals of investments	25,521		17,778
Net cash inflow/(outflow) from investing activities		1,507		(6,854)
Cash flows from financing activities
Bank loan drawn down	8,000		6,450
Bank loan repaid	-		(2,450)
Equity dividends paid	(5,951)		(3,715)
Ordinary shares sold from treasury	-		1,141
Ordinary shares bought back into treasury and stamp duty thereon	(4,805)		-
Net cash (outflow)/inflow from financing activities		(2,756)		1,426
Increase/(decrease) in cash and cash equivalents		4,021		(421)
Exchange movements		-		40
Cash and cash equivalents at start of year		1,491		1,872
Cash and cash equivalents at end of year*		5,512		1,491

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

† Cash from operations includes dividends received of £7,523,000 (2022 - £7,420,000) and £77,000 deposit interest (2022 - nil).

The accompanying notes below are an integral part of the Financial Statements.

Notes to the Condensed Financial Statements

1) The Financial Statements for the year to 30 April 2023 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out below which are consistent with those applied for the year ended 30 April 2022.

2) Income                

	2023 £'000	2022 £'000
Income from investments
UK dividends	7,183	7,787
Other income
Deposit interest	77	-
Total income	7,260	7,787

Special dividends received in the year amounted to £311,000 (2022 - £919,000) with £311,000 (2022 - £919,000) classified to revenue and nil (2022 - nil) classified to capital.

3) Investment Management Fee

	2023 Revenue £'000	2023 Capital £'000	2023 Total £'000	2022 Revenue £'000	2022 Capital £'000	2022 Total £'000
Investment management fee	432	1,009	1,441	519	1,211	1,730

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.

The Investment Management Agreement between the AIFM and the Company sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice or on shorter notice in certain circumstances. Compensation would only be payable if termination occurred prior to the expiry of the notice period. The annual management fee is 0.5% of net assets, calculated and payable quarterly.

4) Net Return per Ordinary Share

	2023 Revenue	2023 Capital	2023 Total	2022 Revenue	2022 Capital	2022 Total
Net return per ordinary share	4.05p	(2.57p)	1.48p	4.39p	(41.89p)	(37.50p)

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £6,145,000 (2022 - £6,737,000), and on 151,603,018 (2022 - 153,457,607) 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 £3,900,000 (2022 - net capital loss of £64,283,000), and on 151,603,018 (2022 - 153,457,607) 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

	2023	2022	2023 £'000	2022 £'000
Amounts recognised as distributions in the year:
Previous year's final dividend (paid 16 September 2022)	3.91p	2.42p	5,951	3,715

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 £6,145,000 (2022 - £6,737,000).

	2023	2022	2023 £'000	2022 £'000
Dividends paid and payable in respect of the year:
Proposed final dividend (payable 15 September 2023)	3.60p	3.91p	5,419	5,951

If approved, the final dividend of 3.60p will be paid on 15 September 2023 to all shareholders on the register at the close of business on 18 August 2023. The ex-dividend date is 17 August 2023.

6) At 30 April 2023, the Company had a one year £30 million unsecured revolving credit loan facility with The Royal Bank of Scotland International Limited which expires in July 2023. At 30 April 2023, £14,450,000 was drawn down under this facility. At 30 April 2022, £6,450,000 was drawn down under a one year £20 million unsecured revolving credit loan facility with The Royal Bank of Scotland International Limited which expired in July 2022.

The main covenant relating to the above loan is that total borrowings shall not exceed 30% of adjusted portfolio value. There were no breaches of loan covenants during the year.

7) Transaction costs of £115,000 (2022 - £62,000) and £10,000 (2022 - £3,000) were suffered on purchases and sales respectively.

8) The Company's shareholder authority permits it to hold shares bought back 'in treasury'. Under such authority, treasury shares may be subsequently either sold for cash (at a premium to net asset value per ordinary share) or cancelled. At 30 April 2023 the Company had authority to buy back 21,351,628 ordinary shares. During the year to 30 April 2023, 2,975,000 shares were bought back into treasury at a total cost of £4,805,000 (2022 - no ordinary shares were bought back).

In the year to 30 April 2023, no shares were sold from treasury (2022 - the Company sold from treasury 475,000 ordinary shares at a premium to net asset value, with a nominal value of £119,000 raising net proceeds of £1,141,000). At 30 April 2023 the Company had authority to issue or sell from treasury 15,299,548 ordinary shares

9) The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2023 or 2022. The financial information for 2022 is derived from the statutory accounts for 2022 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2022 accounts, their report was (i) unqualified; (ii) did not include a reference to any matters to which the Auditor 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.

10) The Annual Report and Financial Statements will be available on the Company's website bgukgrowthtrust.com on or around 6 July 2023. None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Glossary of Terms and Alternative Performance Measures (APM)

An alternative performance measure ('APM') is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The APMs noted below are commonly used measures within the investment trust industry and serve to improve comparability between investment trusts.

Total Assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets held less all liabilities (other than liabilities in the form of borrowings).

Net Asset Value

Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares).

Net Liquid Assets

Net liquid assets comprise current assets less current liabilities, excluding borrowings.

Discount/Premium (APM)

As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, it is said to be trading at a premium.

	2023	2022
Closing NAV per share	195.6p	197.4p
Closing share price	168.0p	174.2p
Discount	(14.1%)	(11.8%)

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

		2023 NAV	2023 Share price	2022 NAV	2022 Share price
Closing NAV per share/share price	(a)	195.6p	168.0p	197.4p	174.2p
Dividend adjustment factor*	(b)	1.0204	1.0232	1.0096	1.0098
Adjusted closing NAV per share/share price	(c = a x b)	199.6p	171.9p	199.3p	175.9p
Opening NAV per share/share price	(d)	197.4p	174.2p	237.3p	244.0p
Total return	(c ÷ d)-1	1.1%	(1.3%)	(16.0%)	(27.9%)

* The dividend adjustment factor is calculated on the assumption that the dividend of 3.91p (2022 - 2.42p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV per share/share price, as appropriate, at the ex-dividend date.

Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value. The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies.

A reconciliation from the expenses detailed in the Income Statement above is provided below.

		2023	2022
Investment management fee		£1,441,000	£1,730,000
Other administrative expenses		£533,000	£498,000
Total expenses	(a)	£1,974,000	£2,228,000
Average net asset value	(b)	£283,920,000	£354,588,000
Ongoing charges ((a) ÷ (b) expressed as a percentage)		0.70%	0.63%

Turnover (APM)

Annual turnover is a measure of portfolio change or trading activity in a portfolio. Turnover is calculated as the minimum of purchases and sales in a month, divided by the average market value of the portfolio, summed to get rolling 12 month turnover data.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Invested gearing is the Company's borrowings adjusted for cash and cash equivalents expressed as a percentage of shareholders' funds.

	2023	2022
Borrowings	£14,450,000	£6,450,000
Less: cash and cash equivalents	(£5,512,000)	(£1,491,000)
Adjusted borrowings	£8,938,000	£4,959,000
Shareholders' funds	£294,422,000	£302,933,000
Invested gearing	3%	2%

Drawn gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

	2023	2022
Borrowings	£14,450,000	£6,450,000
Shareholders' funds	£294,422,000	£302,933,000
Drawn gearing	5%	2%

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (AIFM) Regulations, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. The Company's maximum and actual leverage as at the year end are set out on page 61 of the Annual Report and Financial Statements.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Unlisted (Private) Company

An unlisted (private) company means a company whose shares are not available to the general public for trading and not listed on a stock exchange.

Sustainable Finance Disclosure Regulation ('SFDR')

Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Baillie Gifford UK Growth Trust plc is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime (NPPR) the following disclosures have been provided to comply with the high-level requirements of SFDR. The AIFM has adopted Baillie Gifford & Co's Governance and Sustainable Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.

Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build up an in-depth knowledge of an individual company and a view on its long-term prospects. This includes the consideration of sustainability factors (environmental, social and/or governance matters) which it believes will positively or negatively influence the financial returns of an investment.

More detail on the Investment Managers' approach to sustainability can be found in the Governance and Sustainability Principles and Guidelines document, available publicly on the Baillie Gifford website (bailliegifford.com).

Taxonomy Regulation

The Taxonomy Regulation establishes an EU-wide framework or criteria for environmentally sustainable economic activities in respect of six environmental objectives. It builds on the disclosure requirements under SFDR by introducing additional disclosure obligations in respect of AIFs that invest in an economic activity that contributes to an environmental objective.

The Company does not commit to make sustainable investments as defined under SFDR. As such, the underlying investments do not take into account the EU criteria for environmentally sustainable economic activities.

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 Trust 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 gov.uk/government/publications/exchange-of-information-account-holders.

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