TIDMBGCG
RNS Number : 8516O
Baillie Gifford China Grwth TrstPLC
13 October 2021
RNS Announcement
Baillie Gifford China Growth Trust plc
Legal Entity Identifier: 213800KOK5G3XY17ZX18
Regulated Information Classification: Half Yearly Financial
Report
Results for the six months to 31 July 2021
Over the six month period, the Company's net asset value per
share (NAV) fell by 14.2% compared to a 14.8% fall in the
comparative index, on a total return basis.
3/4 The last 6 months has been a volatile period for Chinese growth equities.
3/4 We saw a marked sell-off in US listed Chinese stocks,
including Yatsen, KE Holdings and Bilibili.
3/4 Positive contributors to performance included CATL, China's
leading battery manufacturer, and Li Ning, a leading domestic
sportswear manufacturer.
3/4 Over the period, we have made a number of investments in
companies exposed to China's green transition and to its industrial
upgrading, including Longi Green Energy.
Past performance is not a guide to future performance
Total return information is sourced from Refinitiv, Baillie
Gifford and relevant underlying index providers. See disclaimer at
end of this announcement.
Baillie Gifford China Growth Trust aims to achieve capital
growth over the long term from a diversified portfolio of 63
securities. At 31 July 2021 the Company had total assets of GBP265m
.
Baillie Gifford China Growth Trust is managed by Baillie
Gifford, an Edinburgh-based fund management group with
approximately GBP335 billion under management and advice as at 12
October 2021.
Baillie Gifford China Growth Trust 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 China Growth
Trust at bailliegiffordchinagrowthtrust.com ++ . Past performance
is not a guide to future performance
13 October 2021
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2000
Mark Knight, Four Communications
Tel : 0203 697 4200 or 07803 758810
++ 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.
The following is the unaudited Interim Financial Report for the six
months to 31 July 2021 which was approved by the Board on 13 October
2021.
Interim Management Report
The last six months has been a volatile period for Chinese
growth equities. There has been a raft of regulatory announcements
that have weighed heavily on market sentiment resulting in
valuation multiples contracting across a range of industries.
Notable regulatory news includes the following:
- In the US, the Accelerating Holding Foreign Companies
Accountable Act was signed by the Senate in June and may
effectively reduce the window from 3 years to 2 years whereby
Chinese companies who do not allow audit by Public Company
Accounting Oversight Board accounting firms are forced to delist
from US exchanges.
- In China, the Data Security Law came into effect in June and
requires Chinese companies to implement more stringent controls on
data or to seek approval before exporting the data overseas if the
data pertains to an area of national security.
- The Chinese State Council has opened a period of consultation
on Chinese variable interest entities (VIEs).
We believe the regulation above effectively encourages Chinese
companies to list domestically, including in Hong Kong, rather than
overseas. This has been a long-term aim of the Chinese government.
As the Company is agnostic to the listing location of Chinese
companies, we do not believe this regulation, taken at face value,
is of particular concern. The Company itself has approximately 37%
of NAV in VIE companies, including less than 10% of NAV in US
ADRs.
More importantly, the Chinese government has again stipulated
its desire to tackle the expansion of social and economic
inequality, and to slow or even reverse the country's falling birth
rate. Over the past two years we have seen increased regulation in
the 'new mountains' of healthcare, education and property. This
regulation has sought to reduce the principal costs associated with
child rearing and the barriers to consumption growth. The State
Council's 'Double Reduce Policy' in the education sector (where the
Company has no exposure) is the most severe example of increased
regulation. In response to inappropriate advertising by education
companies, the government has effectively forced a wholesale
restructuring of these businesses resulting in a significant
cooling of sentiment towards China. This cooling of sentiment has
also affected valuations of the big internet platforms. Here, the
government continues to work through anti-monopoly probes at a
number of these businesses whilst trying to tackle what it terms
the 'disorderly expansion of capital'. The market has largely taken
these regulatory moves as an attack on the private sector. We
disagree and would note that the vast majority of regulation in the
internet space has been remarkably sensible. Weeding out practices
such as forced supply exclusivity and differential pricing is a
positive for the companies we own. It encourages them to double
down on what they do best i.e. building platforms that create
significant value for all stakeholders.
As such, we remain happy to own companies such as Alibaba and
Tencent at modest overweight positions. We continue to believe
that, on balance, Alibaba's business is a strong force for good
within Chinese society and therefore likely to continue growing
over the next decade. Its ecommerce platform has created millions
of jobs within China and continues to bring goods and services to
the poorest of consumers. With ecommerce penetration below 30%, we
think the growth opportunity and returns for shareholders remain
sizeable, particularly given the current valuation. Tencent's
social media platform, WeChat, remains the de-facto app via which
almost all Chinese consumers organise their lives and via which
Chinese corporates increasingly connect with their customers,
suppliers and other stakeholders. Comparisons with Facebook do not
do this business justice. Whilst the market obsesses over
regulation which affects less than 10% of Tencent's business
(namely restrictions on gaming time spent by under 18s), our
attention lies elsewhere.
Outwith the internet space, the government continues to show
support for sectors which will be key for China's next decade of
growth, namely, advanced manufacturing, industrial upgrading and
the renewables industry, all of which present sizeable
opportunities for long term growth investors. It is here that we
are increasingly focusing our investment research.
Portfolio Positioning and Recent Activity
The current portfolio represents a selection of the best and
most innovative public and private Chinese growth companies. What
you will see in the portfolio is a bias towards consumer
discretionary and healthcare related businesses. However, over the
period, we have made a number of investments in companies exposed
to China's green transition and to its industrial upgrading. Longi
Green Energy, a domestically listed A share company, is a good
example of the former. It is a world leading solar module
manufacturer, supplying roughly a quarter of the global market for
solar wafers and modules. This is an industry in which demand for
solar installation is expected to triple by 2025 and then triple
again by 2030, as environmental benefits increasingly motivate
governments around the world and economic competitiveness is driven
by ongoing cost reduction. Longi have developed from a wafer
manufacturer and are now building a growing downstream presence.
Their cost base has been consistently lower than competitors,
driven by a commitment to R&D, adoption of technology, scale
and execution. We admire the founder's ambitions for our planet's
future, his vision on smart energy solutions, emphasis on
technology leadership, and a commitment to clients, employees as
well as shareholders. This should position the company well to
benefit from the many years of growth ahead of it. Shenzhen
Megmeet, another domestically listed A share company, is a good
example of the latter. Megmeet makes power supply and electric
automation products for both industrial and consumer electronic
clients. The company finds itself in the right place at the right
time. It is exposed to exciting end markets that include industrial
automation, new energy vehicles and advanced intelligent
manufacturing. The management team have significant experience in
the industry working at both Huawei and Emerson prior to founding
Megmeet. The CEO and founder, Dr Tong, has instilled a company
culture that is committed to R&D, innovation, and collaboration
across departments. As the company grows, it is increasingly
developing products into modules and modules into solutions to
provide a one-stop service for clients and thereby deepening its
moat. We expect continued growth to come from rising market share
and expanding product lines. Organic growth will be complemented by
bolt-on acquisitions, where management have the experience needed
to deliver shareholder value. Megmeet has the potential to become a
significant global player in industrial automation and to deliver
substantial returns to investors.
In addition, the Company has also made an investment in one of
China's leading semiconductor companies, SG Micro. China's desire
for self-sufficiency in semiconductors has been strengthened by
recent tensions with the US. As such, this is an industry which is
likely to receive substantial policy support over the next two
decades. SG Micro is a fabless integrated circuit (IC) designer of
analog semiconductor chips. The company focuses on signal chain and
power management solutions. Analog chips are increasingly applied
in new fields including IoT, industrial control and the automotive
sector, all of which have seen significant growth. 5G, smart home
and smart city initiatives also bring new opportunities. The global
analog chip market is very fragmented. China makes up 60% of global
demand but is only 20% self-sufficient. SG Micro is China's number
one domestic supplier, where revenues grew more than 100% in 2019.
We expect a continued rise in demand, ongoing government support
and new product application opportunities to drive significant
growth in the years ahead. This is supported by a professional
management team with global experience and a company culture that
aligns with its long-term growth potential.
In order to fund these new purchases, we have made a number of
sales. As noted above, healthcare is one of the sectors in which
regulation remains stringent. Here the government aims to
incentivise innovation via pricing incentives for genuinely
innovative drugs. The vast majority of the Company's healthcare
holdings are likely to benefit from this trend. However, Jiangsu
Hengrui does not appear as well placed given it still generates a
substantial amount of revenue and profit from generic drugs, where
pricing pressure is likely to increase. This, combined with the
fact that we continue to find exciting opportunities in this space
has resulted in us selling Hengrui's shares.
Other sales of note include Shanghai Airport and Foshan Haitian.
Foshan Haitian is a leading soy sauce and seasoning company in
China. Its growth is likely to be driven by consolidation in the
soy sauce market and by diversification of its product lines.
However, after a strong run in the company's shares and a
significant re-rating, we have sold the holding on valuation
grounds. Shanghai Airport is a good quality company with exposure
to tourism and growth in the middle class. We have sold the company
so that we can invest in higher growth ideas elsewhere.
Net gearing remains low at around 1%. This gives us the
flexibility to invest in attractive opportunities as they become
available without needing to sell shares from the rest of the
portfolio.
Performance
Over the six months to the end of July 2021, the Company's net
asset value fell by approximately14% on a total return basis and
the share price fell by approximately 21%, reducing the share price
premium to NAV. Over the same period, the benchmark fell by
approximately 15%. We would hesitate to draw too much from short
term numbers and would hope that shareholders judge our investment
returns over periods of five years or longer, the same period over
which we judge our companies' performance. In terms of the net
asset value, notable positive contributors are varied. They include
CATL, China's leading battery manufacturer and a key enabler of
China's green transition; Li Ning, a leading domestic sportswear
manufacturer; and Asymchem, a leading contract manufacturing
company in the healthcare space. Relative performance was helped by
the fact that we did not have any exposure to education companies
that were negatively impacted by the regulator's 'Double Reduce
Policy' as explained above. Save for KE Holdings, an online real
estate business, the Company does not have any exposure to the
property sector.
In terms of negative contributors, we saw a marked sell-off in
US listed Chinese stocks. A number of our holdings were affected,
including Yatsen, KE Holdings and Bilibili. Yatsen and Bilibili are
exposed to two of the most exciting growth trends within China over
the next decade: Generation Z and the rise of Chinese brands. As
noted in previous reports, younger generations in China have
radically different online behaviour and brand preferences to their
older compatriots, along with strong and growing purchasing power.
Yatsen is a potential leader in the cosmetics space in China with
its strong domestic brand, and its innovative, data-driven approach
to product development and customer interaction. If successful,
this company could deliver exceptionally strong returns to
shareholders. Bilibili, with its highly engaged, young user base,
is both an enabler and driver of youth culture within China. The
management team have prioritised building a strong and vibrant
online community and are only just beginning to reap the benefits
in terms of monetisation.
Meituan, an online marketplace for the local service industry in
China, also featured in the top 10 negative contributors. Here, the
government's focus on social inequality negatively affected
sentiment. The regulator is pushing for greater protection of
workers with a focus on expanding social security benefits and
minimum wage requirements. We would note a couple of things.
Minimum wage requirements are unlikely to have a substantial impact
on Meituan's cost base given full-time delivery drivers earn
substantially more than the minimum wage in most city tiers. The
expansion of social security benefits to part-time drivers is
likely to increase delivery costs. However, factoring this in, we
believe that Meituan's business model remains more than viable and
that long-term profitability will still be attractive. In addition,
growth for this business continues to fire on all cylinders with
revenues in the first quarter growing at approximately 130% year on
year. We continue to believe that this is one of the best growth
businesses in our universe and remain happy holders.
Outlook
Baillie Gifford has been investing in China for over two
decades. As such, we have experienced numerous regulatory cycles,
significant volatility and, at times, painful periods of
adjustment. However, whilst investment in China may prove volatile
over a short term time horizon, we continue to believe that a
combination of a vast and growing domestic market, significant
investment in research and development, and private and public
equity markets that are poorly understood and very short term, give
long-term growth investors like ourselves a real opportunity to
generate returns for our shareholders.
The principal risks and uncertainties facing the Company are set
out below.
Baillie Gifford & Co
For a definition of terms see Glossary of Terms and Alternative
Performance Measures, see below.
Total return information is sourced from Refinitiv/Baillie
Gifford and relevant underlying index providers. See disclaimer at
the end of this announcement.
Past performance is not a guide to future performance.
List of Investments as at 31 July 2021
(unaudited)
===================================================================
% of
Value total
Name Business GBP'000 assets*
============================================== ================================================ ======== ========
Tencent Social media and entertainment company 21,590 8.1
Alibaba Online retailer, payment and cloud business 21,505 8.1
ByteDance (u) Social media and entertainment company 12,733 4.8
Contemporary Amperex
Technology Electric vehicle battery maker 9,456 3.6
Ping An Insurance Life and Health Insurance 9,107 3.4
Li Ning Domestic sportswear manufacturer 8,619 3.3
Meituan (formerly Meituan
Dianping) Online food delivery company 7,970 3.0
Kewichow Moutai Luxury baijiu maker 7,861 3.0
China Merchants Bank Consumer lending and wealth management 7,523 2.8
Zai Lab Biotechnology business 6,542 2.5
Bilibili Social media company 5,824 2.2
WuXi AppTec Life sciences contract research organisation 5,822 2.2
Guangzhou Kingmed
Diagnostics Diagnostics Company 5,218 2.0
China Molybdenum Metals and mining company 5,101 1.9
JD.com Online retailer 4,948 1.9
Asymchem Laboratories
(Tianjin) Life sciences contract research organisation 4,784 1.8
Geely Automobile Domestic automotive manufacturer 4,607 1.7
Ping An Bank SME and consumer lender 4,606 1.7
Sunny Optical Technology Electronic components for smartphones and autos 4,430 1.7
BeiGene Immunotherapy biotechnology company 4,315 1.6
NetEase Gaming and entertainment business 4,267 1.6
ENN Energy Gas distributor and provider 4,130 1.6
Shenzhou International Garment manufacturer 4,068 1.5
Estun Automation Robotics and factory automation company 4,048 1.5
SG Micro Corp Integrated circuit designer 4,024 1.5
Shenzhen Inovance
Technology Factory automation company 3,799 1.4
Hanzhou Tigermed Consulting Clinical trial contract research organisation 3,726 1.4
Midea White goods and robotics manufacturer 3,346 1.3
Topchoice Medical Dental services provider 3,209 1.2
Fuyao Glass Automotive glass manufacturer 3,184 1.2
Kingdee International Software Software for SMEs and corporates 3,077 1.2
Weichai Power Construction machinery and heavy duty trucks 3,065 1.2
Yonyou Network Technology Software for SMEs and corporates 2,985 1.1
Zhejiang Sanhua Intelligent
Controls Heating and cooling component manufacturer 2,981 1.1
Shenzhen Megmeet Electrical Industrial automation and power supply company 2,833 1.1
Longi Solar manufacturer 2,646 1.0
List of Investments as at 31 July 2021 (unaudited) (Ctd)
% of
Value total
Name Business GBP'000 Assets*
============================== =============================================== ======== ========
Burning Rock Biotech Liquid biopsy cancer testing company 2,628 1.0
Proya Cosmetics Cosmetics and personal care company 2,499 0.9
Pop Mart Toy and collectibles maker 2,422 0.9
Glodon Software provider to the construction industry 2,413 0.9
Kingsoft Software for SMEs and corporates 2,366 0.9
HUAYA Automotive Systems Automotive parts manufacturer 2,172 0.8
Dada Nexus Logistics and warehousing provider 2,128 0.8
Medlive Technology Online physician platform 2,074 0.8
Minth Automotive parts manufacturer 1,925 0.7
Hangzhou Robam Appliances White goods manufacturer 1,919 0.7
New Horizon Health Colorectal cancer screening company 1,730 0.7
Luzhou Laojiao Premium baijiu maker 1,590 0.6
BGI Genomics Gene sequencing company 1,582 0.6
Lufax SME and consumer lender 1,501 0.6
Sinocare Blood glucose monitoring company 1,451 0.6
Brilliance China Automotive** Automotive makers and BMW partner 1,435 0.5
Ping An Healthcare & Tech Online GP service 1,417 0.5
Tencent Music Entertainment Online music provider 1,405 0.5
Hutchison China MediTech Biotechnology company 1,382 0.5
KE Holdings Online real estate 1,283 0.5
Yatsen Online cosmetics company 1,203 0.5
iQIYI Online movie and entertainment platform 1,197 0.5
Hua Medicine (Shanghai) Diabetes drug manufacturer 1,182 0.5
AAC Technologies Miniature electronic component maker 1,157 0.5
Yifeng Pharmacy Chain Drug retailer 1,108 0.4
Huya Live streaming company 989 0.4
Berry Genomics Gene sequencing company 892 0.3
============================== =============================================== ======== ========
Total Investments 262,999 99.3
Net Liquid Assets 1,927 0.7
=============================================================================== ======== ========
Total Assets 264,926 100.0
=============================================================================== ======== ========
(*) (Total assets before deduction of loans.)
Includes investments in Participatory Notes.
(u) Denotes unlisted holding (private company).
** Suspended.
Income Statement (unaudited)
For the six months ended For the six months ended For the year ended
31 July 2021 31 July 2020 31 January 2021
(audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
(Losses)/gains on
investments - (45,207) (45,207) - 3,855 3,855 - 64,697 64,697
Currency gains/(losses) - 64 64 - (97) (97) - (139) (139)
Income from investments and
interest receivable 1,325 - 1,325 3,100 - 3,100 3,600 - 3,600
Investment management fee
(note 3) (165) (495) (660) (180) (541) (721) (227) (681) (908)
Performance fee - - - - (64) (64) - (78) (78)
Other administrative
expenses (265) (20) (285) (479) (324) (803) (832) (559) (1,391)
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
Net return before finance
costs and taxation 895 (45,658) (44,763) 2,441 2,829 5,270 2,541 63,240 65,781
Finance costs of borrowings (25) (76) (101) - - - - - -
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
Net return on ordinary
activities before taxation 870 (45,734) (44,864) 2,441 2,829 5,270 2,541 63,240 65,781
Tax on ordinary activities (99) - (99) (203) - (203) (212) - (212)
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
Net return on ordinary
activities after taxation 771 (45,734) (44,963) 2,238 2,829 5,067 2,329 63,240 65,569
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
Net return per ordinary
share (note 4) 1.29p (76.54p) (75.25p) 3.67p 4.64p 8.31p 4.48p 121.71p 126.19p
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
Note:
Dividends paid and payable
per share (note 5) 2.55p 2.55p 7.15p
=========================== ======== ======== ======== ======== ======== ======== ======== ========= ========
The total column of this statement is the profit and loss
account of the Company. The supplementary revenue and capital
columns are prepared under guidance published by the Association of
Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as the
Company does not have any other comprehensive income and the net
return on ordinary activities after taxation is both the profit and
comprehensive income for the period.
Balance Sheet (unaudited)
At 31 July 2021 At 31 January 2021
(audited)
GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit or loss (note 6) 262,999 268,209
=============================================================== =============== ==================
Current assets
Debtors 427 1,347
Cash and cash equivalents 2,087 5,962
=============================================================== =============== ==================
2,514 7,309
=============================================================== =============== ==================
Creditors
Amounts falling due within one year (note 7) (5,983) (4,094)
Net current (liabilities)/assets (2,469) 3,215
=============================================================== =============== ==================
Net assets 259,530 271,424
=============================================================== =============== ==================
Capital and reserves
Share capital 17,087 16,486
Share premium account 31,780 13,182
Capital redemption reserve 41,085 41,085
Capital reserve 160,051 189,061
Revenue reserve 9,527 11,610
=============================================================== =============== ==================
Shareholders' funds 259,530 271,424
=============================================================== =============== ==================
Net asset value per ordinary share* 418.51p 492.66p
=============================================================== =============== ==================
Ordinary shares in issue (note 8) 62,012,982 55,093,831
=============================================================== =============== ==================
*See Glossary of Terms and Alternative Performance Measures at
the end of this announcement.
Statement of Changes in Equity (unaudited)
For the six months ended 31 July 2021
Share Share premium Capital redemption Capital Shareholders'
capital account reserve Reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================= ========= =============== ====================== ========= =============== =============
Shareholders' funds at
1 February 2021 16,486 13,182 41,085 189,061 11,610 271,424
Ordinary shares issued
(note 8) 601 18,598 - 16,724 - 35,923
Net return on ordinary
activities after
taxation - - - (45,734) 771 (44,963)
Dividends paid (note 5) - - - - (2,854) (2,854)
Shareholders' funds at
31 July 2021 17,087 31,780 41,085 160,051 9,527 259,530
======================= ========= =============== ====================== ========= =============== =============
For the six months ended 31 July 2020
Share Share premium Capital redemption Shareholders'
capital account reserve Capital reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================== ========= =============== =================== ================ =============== =============
Shareholders' funds
at 1 February 2020 16,486 5 41,085 151,441 13,191 222,208
Purchase of own
shares - - - (762) - (762)
Net return on
ordinary
activities after
taxation - - - 2,829 2,238 5,067
Dividends paid
(note 5) - - - - (2,801) (2,801)
Shareholders' funds
at 31 July 2020 16,486 5 41,085 153,508 12,628 223,712
=================== ========= =============== =================== ================ =============== =============
* The Capital Reserve as at 31 July 2021 includes investment
holding gains of GBP1,455,000 (31 July 2020 - gains of
GBP37,806,000)
Condensed Cash Flow Statement (unaudited)
Six months to Six months to
31 July 2021 31 July 2020
GBP'000 GBP'000
==================================================== ============= =============
Cash flows from operating activities
Net return on ordinary activities before taxation (44,864) 5,270
Net losses/(gains) on investments 45,207 (3,855)
Currency (gains)/losses (64) 97
Finance costs of borrowings 101 -
Overseas withholding tax (99) (203)
Changes in debtors and creditors 16 6
---------------------------------------------------- ------------- -------------
Cash from operations* 297 1,315
Interest paid (73) -
==================================================== ============= =============
Net cash inflow from operating activities 224 1,315
==================================================== ============= =============
Net cash (outflow)/inflow from investing activities (43,920) 4,567
==================================================== ============= =============
Cash flows from investing activities
Acquisitions of investments (59,422) (43,421)
Disposals of investments 15,502 47,988
==================================================== ============= =============
Cash flows from financing activities
Ordinary shares issued 37,215 -
Ordinary shares bought back - (362)
Bank loans drawn down 5,427 -
Equity dividends paid (note 5) (2,854) (2,801)
==================================================== ============= =============
Net cash inflow/(outflow) from financing activities 39,788 (3,163)
==================================================== ============= =============
(Decrease)/increase in cash and cash equivalents (3,908) 2,719
Exchange movements 33 (97)
Cash and cash equivalents at start of period 5,962 7,386
==================================================== ============= =============
Cash and cash equivalents at end of period 2,087 10,008
---------------------------------------------------- ------------- -------------
* Cash from operations includes dividends received in the period
of GBP939,000 (31 July 2020 - GBP2,772,000) and deposit interest
received of GBPnil (31 July 2020 - GBPnil).
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. Basis of Accounting
The condensed Financial Statements for the six months to 31 July 2021 comprise the
statements
set out on the previous pages together with the related notes below. They have been prepared
in accordance with FRS 104 'Interim Financial Reporting' and the AIC's Statement of
Recommended
Practice issued in November 2014, updated in October 2019 and April 2021 with consequential
amendments, and have not been audited or reviewed by the Auditor pursuant to the Auditing
Practices Board Guidance on 'Review of Interim Financial Information'. The Financial
Statements
for the six months to 31 July 2021 have been prepared on the basis of the same accounting
policies as set out in the Company's Annual Report and Financial Statements at 31 January
2021.
Going Concern
The Directors have considered the nature of the Company's principal risks and uncertainties,
as set out below, as well as the implications of the current Covid-19 pandemic. In addition,
the Company's investment objective and policy, assets and liabilities, and projected income
and expenditure, together with the dividend policy have been taken into consideration and
it is the Directors' opinion that the Company has adequate resources to continue in
operational
existence for the foreseeable future. The Company's assets, the majority of which are
investments
in quoted securities which are readily realisable, exceed its liabilities significantly. All
borrowings require the prior approval of the Board. Gearing levels and compliance with
borrowing
covenants are reviewed by the Board on a regular basis. The Company has continued to comply
with the investment trust status requirements of section 1158 of the Corporation Tax Act
2010
and the Investment Trust (Approved Company) (Tax) Regulations 2011. Accordingly, the
Directors
consider it appropriate to adopt the going concern basis of accounting in preparing these
Financial Statements and confirm that they are not aware of any material uncertainties which
may affect the Company's ability to continue to do so over a period of at least twelve
months
from the date of approval of these Financial Statements.
2. Financial Information
The financial information contained within this Interim Financial Report does not constitute
statutory accounts as defined in sections 434 to 436 of the Companies Act 2006. The
financial
information for the year ended 31 January 2021 has been extracted from the statutory
accounts
which have been filed with the Registrar of Companies. The Auditor's Report on those
accounts
was not qualified, did not include a reference to any matters to which the Auditor drew
attention
by way of emphasis without qualifying the report, and did not contain a statement under
sections
498(2) or (3) of the Companies Act 2006.
3. Investment Manager
Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, was
appointed
by the Company as its Alternative Investment Fund Manager and Company Secretary on 16
September
2020. The investment management function has been delegated to Baillie Gifford & Co. Dealing
activity and transaction reporting have been further sub-delegated to Baillie Gifford
Overseas
Limited and Baillie Gifford Asia (Hong Kong) Limited. The management agreement is terminable
on not less than three months' notice or on shorter notice in certain circumstances. The
annual
management fee is (i) 0.75% of the first GBP50 million of Net Asset Value; plus (ii) 0.65%
of Net Asset Value between GBP50 million and GBP250 million; plus (iii) 0.55% of Net Asset
Value in excess of GBP250 million, calculated and payable quarterly. Baillie Gifford agreed
to waive its investment management fee for the first six months following its appointment
as a
contribution to the costs that the Company has borne in respect of the Manager changes.
============================================================================================ ===============
4. Net return per ordinary share Year to
Six months to Six months to 31January 2021
31 July 2021 31 July 2020 (audited)
GBP'000 GBP'000 GBP'000
==================================================== =================== ================ ===============
Revenue return on ordinary activities after taxation 771 2,238 2,329
Capital return on ordinary activities after taxation (45,734) 2,829 63,240
==================================================== =================== ================ ===============
Total net return (44,963) 5,067 65,569
==================================================== =================== ================ ===============
Weighted average number of ordinary shares in issue 59,745,488 61,013,080 51,961,993
==================================================== =================== ================ ===============
Net return per ordinary share is based on the above totals of revenue and capital and the
weighted average number of ordinary shares in issue during each period.
There are no dilutive or potentially dilutive shares in issue.
============================================================================================================
Notes to the condensed financial statements (unaudited)
(ctd)
5. Dividends Six months to Six months to
31 July 2021 31 July 2020
GBP'000 GBP'000
================================================ =================== =======================
Amounts recognised as distributions in the
period:
Previous year's final of 4.60p (2020 - 4.60p), paid on
23 July 2021 2,854 2,807
2,854 2,807
================================================ =================== =======================
Dividends proposed and payable in respect of the
period:
Interim of 2.55p (2020 - 2.55p) 1,581 1,109
================================================ =================== =======================
1,581 1,109
------------------------------------------------ ------------------- -----------------------
The interim dividend was declared after the period end date and therefore has not been
included
as a liability in the Balance Sheet. It is payable on 12 November 2021 to shareholders on
the register at the close of business on 22 October 2021. The ex-dividend date is 21 October
2021.
6. Fair Value Hierarchy
The Company's investments are financial assets held at fair value through profit or
loss.
The fair value hierarchy used to analyse the basis on which the fair values of
financial instruments
held at fair value through the profit or loss account are measured is described below.
Fair
value measurements are categorised on the basis of the lowest (that is the least
reliable
or least independently observable) level input that is significant to the fair value
measurement.
The levels are determined by the lowest (that is the least reliable or least
independently
observable) level of input that is significant to the fair value measurement for the
individual
investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active
market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are
directly
or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
An analysis of the Company's financial assets based on the fair value hierarchy
described
above is shown below.
========
Level 1 Level 2 Level 3 Total
As at 31 July 2021 GBP'000 GBP'000 GBP'000 GBP'000
================================================== ======== ========= ============= ========
Listed equities 248,831 1,435 - 250,266
Unlisted ordinary shares - - 12,733 12,733
================================================== ======== ========= ============= ========
Total financial asset investments 248,831 1,435 12,733 262,999
================================================== ======== ========= ============= ========
Level 1 Level 2 Level 3 Total
As at 31 January 2021 (audited) GBP'000 GBP'000 GBP'000 GBP'000
================================================== ======== ========= ============= ========
Listed equities 260,199 - - 260,199
Unlisted ordinary shares - - 8,010 8,010
Total financial asset investments 260,199 - 8,010 268,209
================================================== -------- --------- ------------- --------
Notes to the condensed financial statements (unaudited) (ctd)
Investments in securities are financial assets designated at fair value through profit or
loss on initial recognition. In accordance with FRS 102 the tables above provide an
analysis
of these investments based on the fair value hierarchy described below which reflects the
reliability and significance of the information used to measure their fair value. During
the
six months, a listed equity investment with a fair value at 31 January 2021 of
GBP2,246,000
was transferred from Level 1 to Level 2 when its shares were suspended and a write-down
from
the last traded price was applied, to reflect the reputational impact of the suspension on
the underlying business.
7. Bank loans
During the period the Company entered into a one year US$40 million revolving credit facility
with Royal Bank of Scotland International which expires on 15 April 2022. At 31 July 2021
creditors falling due within one year include borrowings of GBP5.4 million (US$7.5 million)
(31 January 2021 - GBPnil) drawn down under the facility.
8. Share Capital
The Company has authority to allot shares under section 551 of the Companies Act 2006 or sell
shares held in treasury. Such authorities will only be used to issue shares or sell shares
from treasury at, or at a premium to, net asset value and only when the Directors believe
that it would be in the best interests of the Company to do so. In the six months to 31 July
2021 the Company issued a total of 2,404,151 shares on a non pre-emptive basis (nominal value
GBP601,000, representing 4.4% of the issued share capital at 31 January 2021) at a premium
to net asset value raising net proceeds of GBP11,382,000. Also in the six months to 31 July
the Company issued 4,515,000 shares from treasury on a non pre-emptive basis (nominal value
GBP1,129,000, representing 8.2% of the issued share capital at 31 January 2021) at a premium
to net asset value raising net proceeds of GBP24,794,000. (In the six months to 31 July 2020
no ordinary shares were issued.
The Company also has authority to buy back shares. In the six months to 31 July 2021 no
ordinary
shares were bought back (In the six months to 31 July 2020 no ordinary shares were bought
back for cancellation and 237,535 shares were bought back into treasury) therefore the
Company's
authority remains unchanged at 8,889,644 ordinary shares.
9. Transaction Costs
During the period the Company incurred transaction costs on purchases of investments of
GBP60,000
(31 July 2020 - GBP55,000; 31 January 2021 - GBP286,000) and transaction costs on sales of
GBP23,000 (31 July 2020 - GBP94,000; 31 January 2021 - GBP364,000).
10. Related party transactions
There have been no transactions with related parties during the first six months of the
current
financial year that have materially affected the financial position or the performance of
the Company during that period and there have been no changes in the related party
transactions
described in the last Annual Report and Financial Statements that could have had such an
effect
on the Company during that period.
None of the views expressed in this document should be construed as advice to buy or sell
a particular investment.
Principal Risks and Uncertainties
The principal risks facing the Company are inappropriate
business strategy, adverse market conditions, poor investment
performance, a reduction in income received, operational failure,
tax and regulatory change or breach, single country risk, emerging
market risk, unlisted securities and gearing. An explanation of
these risks and how they are managed is set out on pages 15 and 16
of the Company's Annual Report and Financial Statements for the
year to 31 January 2021 which is available
on the Company's website: bailliegiffordchinagrowthtrust.com.
The principal risks and uncertainties have not changed since the
date of the Annual Report. However, there have been a number of
regulatory developments since the publication of the Annual Report,
as referred to in the Interim Management Report above. Further
information on the risks associated with VIEs (see Glossary of
Terms and Alternative Performance Measures at the end of this
announcement) are included in the Risk Warnings on page 21 of the
Interim Report.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared
in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.7R (indication of important events during the first six months,
their impact on the Financial Statements and a description of the
principal risks and uncertainties for the remaining six months of
the year); and
c) the Interim Financial Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.8R (disclosure of related party transactions and changes
therein).
By order of the Board
Susan Platts-Martin
Chair
13 October 2021
Glossary of Terms and Alternative Performance Measures
('APM')
An alternative performance measure is a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework.
Total Assets
The total value of all assets held less all liabilities, other
than liabilities in the form of borrowings.
Shareholders' Funds and Net Asset Value
Shareholders' Funds is the value of all assets held less all
liabilities, with borrowings deducted at book cost. Net
Asset Value ('NAV') is the value of all assets held less all
liabilities, with borrowings deducted at either book value
or fair value. Per share amounts are calculated by dividing the
relevant figure by the number of ordinary shares in
issue.
Net Liquid Assets
Net liquid assets comprise current assets less current
liabilities, excluding borrowings.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's
share price is rarely the same as its net asset
value. When the share price is lower than the net asset value
per share it is said to be trading at a discount.
The size of the discount is calculated by subtracting the share
price from the net asset value per share and is
usually expressed as a percentage of the net asset value per
share.
If the share price is higher than the net asset value per share,
this situation is called a premium.
31 July 2021 31 January 2021
----------------------- ------------- ----------------
Closing NAV per share 418.51p 492.66p
Closing share price 430.00p 548.00p
Premium 2.7% 11.2%
----------------------- ------------- ----------------
Total Return (APM)
The total return is the return to shareholders after reinvesting
the dividend on the date that the share price
goes ex-dividend.
31 July 31 July 31 January 31 January
2021 2021 2021 2021
NAV Share NAV Share
price price
====================================== =============== ========== ========== =========== ===========
Closing NAV per share/share
price (a) 418.66p 430.00p 492.66p 548.00p
Dividend adjustment factor* (b) 1.0098331 1.0095041 1.018946 1.020054
Adjusted closing NAV per share/share (c = a
price x b) 422.77p 434.09p 501.99p 558.99p
Opening NAV per share/share
price (d) 492.66p 548.00p 363.49p 333.00p
====================================== =============== ========== ========== =========== ===========
Total return (c ÷d)-1 (14.2%) (20.8%) 38.1% 67.9%
====================================== =============== ========== ========== =========== ===========
* The dividend adjustment factor is calculated on the assumption
that the dividends paid out by the Company are reinvested into the
shares of the Company at the cum income NAV 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 are calculated on the basis prescribed by the Association
of Investment Companies.
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.
Glossary of Terms and Alternative Performance Measures
('APM')(ctd)
Potential gearing is the Company's borrowings expressed as a
percentage of shareholders' funds. Invested gearing is the
Company's borrowings at book value less cash and cash equivalents
(as adjusted for investment and share buy-back/ issuance
transactions awaiting settlement) expressed as a percentage of
shareholders' funds.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers
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.
Unlisted (Private) Company
An unlisted company means a company whose shares are not
available to the general public for trading and not listed on a
stock exchange.
Participatory Notes (or P-Notes)
A P-Note is a certificate-based instrument that can be issued by
a counterparty bank and provides a synthetic stock exposure to an
underlying equity instrument. The synthetic exposure results in the
P-Note having the same performance as the underlying stock but
carries an additional currency exposure due to the P-Note being
denominated in US$. P-Notes are unleveraged instruments.
Variable Interest Entity ('VIE')
VIE structures are used by some Chinese companies to facilitate
access to foreign investors in sectors of the Chinese domestic
economy which prohibit foreign ownership. The purpose of the VIE
structure is to give the economic benefits and operational control
of ownership without direct equity ownership itself. The structures
are bound together by contracts and foreign investors are not
directly invested in the underlying company.
Investment Policy
The Company invests predominantly in shares of, or depositary
receipts representing the shares of, Chinese companies. Chinese
companies are companies that have their headquarters in China or
that the Investment Manager deems to have a significant part of
their operations in China. They may be listed, quoted, or traded on
any market, or unlisted. The Company will be actively managed and
may invest in companies of any size and in any sector. In
furtherance of the Investment Policy the portfolio will normally
consist principally of quoted equity securities although unlisted
companies, fixed interest holdings or other non equity investments
may be held.
The portfolio will comprise between 40 and 80 listed and
unlisted securities. No individual investment will represent a
greater weight in the portfolio than, (i)20%, or (ii) its weight in
the MSCI China All Shares Index (in sterling terms) plus 7.5%,
whichever is lower as measured at the time of investment. The
maximum amount which may be invested in unlisted securities shall
not exceed 20% of the gross asset value of the Company, measured at
the time of investment.
The Company will at all times be invested in several sectors.
While there are no specific limits placed on exposure to any one
sector, the Company will at all times invest and manage the
portfolio in a manner consistent with spreading investment risk.
The Company intends to employ gearing in the normal course of
events. The Company may in aggregate borrow amounts equaling up to
25% of gross asset value, although the Board expects that
borrowings will typically not exceed 20% of gross asset value, in
both cases calculated at the time of drawdown.
With prior approval of the Board, the Company may use
derivatives for the purposes of efficient portfolio management in
order to reduce, transfer or eliminate investment risk in the
Company's portfolio. Derivative instruments in which the Company
may invest may include foreign exchange forwards, exchange-listed
and over-the-counter options, futures, options on futures, swaps
and similar instruments. The Company does not intend to enter into
derivative or hedging transactions to mitigate against general
currency or interest rate risk.
While it is intended that the Company will be fully invested in
normal market conditions, the Company may hold cash on deposit or
invest on a temporary basis in a range of cash equivalent
instruments. There is no restriction on the amount of cash or cash
equivalent instruments that the Company may hold.
The Company may invest no more than 10%, in aggregate, of gross
asset value at the time of acquisition in other listed closed-ended
investment funds, but this restriction will not apply to
investments in such funds which themselves have stated investment
policies to invest no more than 15% of their gross asset value in
other closed ended investment funds. In this case, the limit is
15%.
No material change will be made to the Company's Investment
Policy without the prior approval by ordinary resolution of the
shareholders.
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No Provider has any obligation to update, modify or amend the
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MSCI Index Data
Source: MSCI. The MSCI information may only be used for your
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IR DKBBKABDDKKD
(END) Dow Jones Newswires
October 13, 2021 02:00 ET (06:00 GMT)
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