TIDMBGUK

RNS Number : 7358P

Baillie Gifford UK Growth Fund PLC

12 June 2020

RNS Announcement

Baillie Gifford UK Growth Fund plc

Legal Entity Identifier: 549300XX386SYWX8XW22

 
Unaudited Preliminary Results for the year to 30 April 2020 
----------------------------------------------------------- 
 

Over the year to 30 April 2020, the Company's net asset value per share (NAV) total return was negative 12.5% compared to a negative total return of 16.7% for the FTSE All Share index. The share price total return for the same period was negative 14.6%.

3/4 The notable contributors to the relative outperformance were: Genus (world leading animal genetics company); Boohoo.com (online fashion retailer); Just Eat Takeaway.com (operator of online and mobile market place for takeaway food); and, Ultra Electronics (aerospace and defence systems provider).

3/4 Four new positions were initiated over the year (Farfetch, Creo Medical, Games Workshop and 4imprint) and four exited (Jupiter Fund Management, Ted Baker, M&G and Carnival). Annual turnover was 5.4% and no gearing was deployed during the period.

3/4 The net revenue return for the year was 3.75p per share (2019: 5.12p). A final dividend of 3.10p per share is being recommended to give a total for the year of 3.10p (2019: 2.95p Final and 1.50p Interim). The dividend is now paid by way of a single final payment and is approximately the minimum permissible to maintain investment trust status.

3/4 As a consequence of Covid-19, companies are in an extremely challenging operating environment. The portfolio in aggregate is comprised of holdings that are well capitalised and have lower than average debt compared to the rest of the market.

3/4 Despite the opaque macro backdrop, the Board and Managers remain convinced that exceptional UK growth companies can exploit their competitive positions over the long-term and take advantage of the opportunities that follow severe economic dislocation.

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

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

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around GBP246 billion under management and advice as at 11 June 2020.

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

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

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co

Tel: 0131 275 2000

Mark Knight, Four Communications

Tel: 0203 697 4200 or 07803 758810

The following is the unaudited preliminary statement of annual results for the year to 30 April 2020 which was approved by the Board on 11 June 2020.

Chairman's Statement

Covid-19

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

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

Annual General Meeting ('AGM')

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

Performance

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

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

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

Stewardship

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

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

Share Buy-backs and Issuance from Treasury

No shares were bought back during the year to 30 April 2020. At the forthcoming AGM, the Board will ask shareholders to renew the mandate to repurchase up to 14.99% of the outstanding shares. The share buy-back policy seeks to operate in the best interests of shareholders by taking into account the relative level of the Company's share price discount to NAV when compared with peer group trusts, the absolute level of discount, volatility in the level of discount and the impact from share buy-back activity on the long-term liquidity of the Company's issued shares.

The Board also believes that the Company benefits from the flexibility of being able to re-issue any shares that might be held in treasury and is therefore looking to renew the annual issuance authority. At present there are 10,396,700 shares, 6.9% of the Company's issued share capital as at 30 April 2020, held in treasury. To avoid any dilution to existing investors, these would only be re- issued at a premium to NAV and after associated costs.

Gearing

During the year, the Company replaced its Scotiabank GBP35 million revolving one year credit facility with a GBP20 million revolving credit facility with National Australia Bank. This new facility contains the option to increase the amount borrowed to GBP35 million. No borrowings were drawn in the period and this continues to be the position.

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

Earnings and Dividends

The net revenue return per share for the year was 3.75p, versus 5.12p in 2019. A final dividend of 3.10p per share, payable on 12 August 2020 to shareholders on the register as at 10 July 2020, is being recommended. Shareholders should not rely on receiving a regular or growing level of income from the Company as its priority is capital growth. Any dividend paid will be by way of a single final payment and the Board expects that such dividends would represent approximately the minimum permissible to maintain investment trust status.

Diversity Policy

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

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

Financial Conduct Authority ('FCA') Value Assessment

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

Outlook

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

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

Carolan Dobson

Chairman

11 June 2020

For a definition of terms, see Glossary of Terms and Alternative Performance Measures 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 5.4%, 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 many investors pay too much attention 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.

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.

 
Managers' Report 
================ 
 

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

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

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

What have we done?

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

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

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

What are we doing?

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

Where are we going?

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

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

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

Baillie Gifford & Co Limited

Managers & Secretaries

11 June 2020

Past performance is not a guide to future performance.

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

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

 
 List of Investments as at 30 April 2020 (unaudited) 
==================================================== 
 
 
 Name                       Business                                         Fair Value        % of 
                                                                                GBP'000       total 
                                                                                             assets 
=========================  ============================================  ==============  ========== 
 Basic Materials 
 Rio Tinto                  Metals and mining company                             6,764         2.6 
                            Speciality high-performance chemicals 
 Victrex                     manufacturer                                         4,633         1.7 
                                                                         ==============  ========== 
                                                                                 11,397         4.3 
                                                                         ==============  ========== 
 Consumer Goods 
 Diageo                     International drinks company                          7,823         3.0 
 Games Workshop 
  Group                     Toy manufacturer and retailer                         6,484         2.4 
 Burberry                   Luxury goods retailer                                 5,554         2.1 
                                                                         ==============  ========== 
                                                                                 19,861         7.5 
                                                                         ==============  ========== 
 Consumer Services 
 Just Eat                   Operator of online and mobile market 
  Takeaway.com               place for takeaway food                             11,178         4.2 
                            Advertising portal for second hand 
 Auto Trader Group           cars in the UK                                       9,895         3.7 
 Boohoo.com                 Online fashion retailer                               9,705         3.7 
 HomeServe                  Domestic insurance                                    9,004         3.4 
                            Professional publications and information 
 RELX                        provider                                             8,574         3.2 
 Rightmove                  UK's leading online property portal                   8,088         3.1 
                            Manufacturer and distributor of kitchens 
 Howden Joinery              to trade customers                                   7,554         2.9 
 Inchcape                   Car wholesaler and retailer                           4,903         1.9 
 Euromoney Institutional 
  Investor                    Specialist publisher                                2,611         1.0 
 Mitchells & Butlers        Pub and restaurant operator                           2,106         0.8 
                            Technology platform for the global 
 Farfetch                    fashion industry                                     2,041         0.8 
 4imprint                   Direct marketer of promotional merchandise            1,984         0.8 
                                                                         ==============  ========== 
                                                                                 77,643        29.5 
                                                                         ==============  ========== 
 
 
 Financials 
 St. James's Place      UK wealth manager                           9,129    3.5 
 Hargreaves Lansdown    UK retail investment platform               8,967    3.4 
 Prudential             International life insurer                  8,596    3.3 
                        Insurance and investment management 
 Legal & General         company                                    6,639    2.5 
 Helical                Property developer                          6,533    2.5 
                        Provides platform services to financial 
 IntegraFin              clients                                    6,309    2.4 
                        Provider of retirement income products 
 Just Group              and services                               4,370    1.6 
                        Technology focused venture capital 
 Draper Esprit           firm                                       3,451    1.3 
 IG Group               Spread betting website                      3,245    1.2 
 Hiscox                 Property and casualty insurance             2,834    1.1 
 AJ Bell                Investment platform                         2,792    1.0 
                                                                   62,865   23.8 
                                                                  =======  ===== 
 
 
 Healthcare 
                  World leading 
                   animal 
                   genetics 
 Genus             company                                 10,899                                                  4.1 
                  Online 
                   platform 
                   selling 
                   antibodies 
                   to life 
                   science 
 Abcam             researchers                             10,829                                                  4.1 
                  Designer and 
                   manufacturer 
                   of medical 
 Creo Medical      equipment                                  593                                                  0.3 
                                 --------------------------------  --------------------------------------------------- 
                                                           22,321                                                  8.5 
                                 ================================  =================================================== 
 Industrials 
                  World leading 
                   metrology 
 Renishaw          company                                  9,121                                                  3.4 
                  Aerospace and 
 Ultra             defence 
  Electronics      company                                  7,569                                                  2.9 
                  Specialist 
 Halma             engineer                                 6,704                                                  2.5 
                  Distributor 
                   of 
                   consumable 
 Bunzl             products                                 6,266                                                  2.4 
                  Construction 
                   equipment 
                   rental 
 Ashtead           company                                  5,884                                                  2.2 
                  Supplier of 
                   ventilation 
 Volution Group    products                                 5,210                                                  2.0 
                  Recruitment 
 PageGroup         consultancy                              4,098                                                  1.6 
                  Heat 
                   treatment 
                   and 
                   materials 
 Bodycote          testing                                  4,019                                                  1.5 
 James Fisher     Specialist 
  & Sons          service 
                  provider to 
                  the 
                  global marine 
                  and energy 
                  industries                                2,270                                                  0.9 
                  Power systems 
 Rolls-Royce       manufacturer                             2,157                                                  0.8 
                                                           53,298                                                 20.2 
                                 ================================  =================================================== 
 Technology 
                  IT consultant 
 First             and software 
  Derivatives      developer                                6,560                                                  2.5 
                  Provider of 
                   professional 
                   services 
                   focusing on 
                   information 
 FDM Group         technology                               5,848                                                  2.2 
                                 ================================  =================================================== 
                                                           12,408                                                  4.7 
                                 ================================  =================================================== 
 Total Equities                                           259,793                                                 98.5 
 Net Liquid Assets                                          3,866                                                  1.5 
 Total Assets                                             263,659                                                100.0 
===============================  ================================  =================================================== 
 

Stocks highlighted in bold are the 20 largest holdings.

Income Statement (unaudited)

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

The Board of Baillie Gifford UK Growth Fund plc is recommending to the Annual General Meeting of the Company to be held on 5 August 2020 the payment of a final dividend of 3.10p (2019 - 2.95p) per ordinary share making a total of 3.10p (2019 - 4.45p) paid and proposed for the year ended 30 April 2020.

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 at the end of this announcement are an integral part of the Financial Statements.

Balance Sheet (unaudited)

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

The accompanying notes at the end of this announcement are an integral part of the Financial Statements.

Statement of Changes in Equity (unaudited)

For the year ended 30 April 2020

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

For the year ended 30 April 2019

 
 
                                Share      Capital      Warrant        Share 
                   Share      premium   redemption     exercise     purchase      Capital       Revenue  Shareholders' 
                 capital      account      reserve      reserve      reserve      reserve       reserve          funds 
                 GBP'000      GBP'000      GBP'000      GBP'000      GBP'000      GBP'000       GBP'000        GBP'000 
==============  ========  ===========  ===========  ===========  ===========  ===========  ============  ============= 
Shareholders' 
 funds at 1 
 May 2018         40,229        9,875       19,759          417       60,433      171,458        10,081        312,252 
Dividends paid 
 during the 
 year (note 5)         -            -            -            -            -            -       (6,774)        (6,774) 
Net return on 
 ordinary 
 activities 
 after 
 taxation 
 (note 4)              -            -            -            -            -      (7,453)         7,710            257 
Shareholders' 
 funds at 30 
 April 2019       40,229        9,875       19,759          417       60,433      164,005        11,017        305,735 
==============  ========  ===========  ===========  ===========  ===========  ===========  ============  ============= 
 

The accompanying notes at the end of this announcement are an integral part of the Financial Statements.

 
Cash Flow Statement (unaudited) 
=============================== 
 

For the year ended 30 April

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

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

The accompanying notes at the end of this announcement are an integral part of the Financial Statements.

 
Notes to the Condensed Financial Statements (unaudited) 
======================================================= 
 
 
1.   The Financial Statements for the year to 30 April 2020 have been prepared in accordance with 
      FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland'. The 
      accounting policies adopted are consistent with those of the previous financial year. 
     ================================================================================================= 
 
2.   Income                                                                2020                   2019 
                                                                        GBP'000                GBP'000 
     ==================================================  ======================  ===================== 
     Income from investments 
 UK dividends                                                             6,544                  8,648 
     Other income 
 Deposit interest                                                            18                     10 
 ======================================================  ======================  ===================== 
 Total income                                                             6,562                  8,658 
 ======================================================  ======================  ===================== 
 
       Investment Management Fee 
     ==================================================  ======================  ===================== 
3.                                2020             2020      2020          2019      2019         2019 
                               Revenue          Capital     Total       Revenue   Capital        Total 
                               GBP'000          GBP'000   GBP'000       GBP'000   GBP'000      GBP'000 
     ================  ===============  ===============  ========  ============  ========  =========== 
 Investment 
  management fee                   438            1,021     1,459           239       556          795 
 --------------------  ---------------  ---------------  --------  ------------  --------  ----------- 
 
       Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been 
       appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretary. 
       Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford 
       & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie 
       Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited. 
       The Investment Management Agreement between the AIFM and the Company sets out the matters 
       over which the Managers have authority in accordance with the policies and directions of, 
       and subject to restrictions imposed by, the Board. The Investment Management Agreement is 
       terminable on not less than six months' notice or on shorter notice in certain circumstances. 
       Compensation would only be payable if termination occurred prior to the expiry of the notice 
       period. The annual management fee is 0.5% of net assets, calculated and payable quarterly. 
       For the financial year ended 30 April 2019, in order to offset the costs of repositioning 
       the portfolio following its appointment as AIFM, Baillie Gifford agreed to waive its management 
       fee for the year to the extent of GBP732,000 (approximately equal to six months' management 
       fee payable to Baillie Gifford based on the Company's net asset value on 29 June 2018). 
     ================================================================================================= 
4.   Net Return per                                2020      2020          2019      2019         2019 
     Ordinary Share       2020 Revenue          Capital     Total       Revenue   Capital        Total 
     ================  ===============  ===============  ========  ============  ========  =========== 
 Net return on 
  ordinary activities            3.75p         (28.75p)  (25.00p)         5.12p   (4.95p)        0.17p 
 ====================  ===============  ===============  ========  ============  ========  =========== 
     Revenue return per ordinary share is based on the net revenue return on ordinary activities 
     after taxation of GBP5,644,000 (2019 - GBP7,710,000), and on 150,520,484 (2019 - 150,520,484) 
     ordinary shares, being the weighted average number of ordinary shares in issue during each 
     year. 
     Capital return per ordinary share is based on the net capital loss for the financial year 
     of GBP43,280,000 (2019 - net capital loss of GBP7,453,000), and on 150,520,484 (2019 - 
     150,520,484) 
     ordinary shares, being the weighted average number of ordinary shares in issue during each 
     year. 
     There are no dilutive or potentially dilutive shares in issue. 
     ================================================================================================= 
5.   Ordinary Dividends                                      2020          2019      2020         2019 
                                                                                  GBP'000      GBP'000 
     ==================================================  ========  ============  ========  =========== 
     Amounts recognised as distributions in the year: 
 Previous year's final dividend (paid 6 August 2019)        2.95p         3.00p     4,440        4,516 
 Interim dividend                                               -         1.50p         -        2,258 
 ======================================================  ========  ============  ========  =========== 
                                                            2.95p         4.50p     4,440        6,774 
 ======================================================  ========  ============  ========  =========== 
 
 
 
 Also set out below are the total dividends paid and proposed in respect of the financial year, 
  which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 
  are considered. The revenue available for distribution by way of dividend for the year is 
  GBP5,644,000 (2019 - GBP7,710,000). 
                                                                               2020     2019        2020        2019 
                                                                                                 GBP'000     GBP'000 
        Dividends paid and payable in respect of the year: 
        Interim dividend                                                          -    1.50p           -       2,258 
        Proposed final dividend (payable 12 August 2020)                      3.10p    2.95p       4,666       4,440 
        =================================================================  ========  =======  ==========  ========== 
                                                                              3.10p    4.45p       4,666       6,698 
        =================================================================  ========  =======  ==========  ========== 
        If approved, the final dividend of 3.10p will be paid on 12 August 2020 to all shareholders 
         on the register at the close of business on 10 July 2020. The ex-dividend date is 9 July 2020. 
6.      At 30 April 2020, The Company has a one year GBP20 million unsecured floating rate facility 
         with National Australia Bank which expires on 8 July 2020. There were no drawings under this 
         facility at 30 April 2020. Negotiations are underway to replace this facility on expiry. 
7.      Transaction costs incurred on the purchase and sale of investments are added to the purchase 
         costs or deducted from the sales proceeds, as appropriate. During the year, transaction costs 
         on purchases amounted to GBP51,000 (2019 - GBP1,476,000) and transaction costs on sales amounted 
         to GBP8,000 (2019 - GBP90,000). 
8.      The Company's authority permits it to hold shares bought back 'in treasury'. Such treasury 
         shares may be subsequently either sold for cash (at a premium to, net asset value per ordinary 
         share) or cancelled. At 30 April 2020 the Company had authority to buy back 22,563,020 ordinary 
         shares. During the years to 30 April 2020 and to 30 April 2019, no ordinary shares were bought 
         back. Under the provisions of the Company's Articles of Association share buy-backs are funded 
         from the capital reserve. 
9.      The financial information set out above does not constitute the Company's statutory accounts 
         for the year ended 30 April 2020 or 2019. The financial information for 2019 is derived from 
         the statutory accounts for 2019 which have been delivered to the Registrar of Companies. The 
         Auditors have reported on the 2019 accounts, their report was (i) unqualified; (ii) did not 
         include a reference to any matters to which the Auditors drew attention by way of emphasis 
         without qualifying their report; and (iii) did not contain a statement under sections 498(2) 
         or (3) to 497 of the Companies Act 2006. The statutory accounts for 2020 will be finalised 
         on the basis of the financial information presented in this preliminary announcement and will 
         be delivered to the Registrar of Companies in due course. 
10.     The Annual Report and Financial Statements will be available on the Company's website www.bgukgrowthfund.com 
         on or around 3 July 2020. 
 
 

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

 
 Glossary of Terms and Alternative Performance Measures (APM) 
  Total Assets 
  Total assets less current liabilities, before deduction of all borrowings. 
  Net Asset Value 
  Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). 
  The NAV per share is calculated by dividing this amount by the number of ordinary shares in 
  issue (excluding treasury shares). 
  Net Liquid Assets 
  Net liquid assets comprise current assets less current liabilities, excluding borrowings. 
  Discount/Premium (APM) 
  As stockmarkets and share prices vary, an investment trust's share price is rarely the same 
  as its NAV. When the share price is lower than the NAV per share it is said to be trading 
  at a discount. The size of the discount is calculated by subtracting the share price from 
  the NAV per share and is usually expressed as a percentage of the NAV per share. If the share 
  price is higher than the NAV per share, it is said to be trading at a premium. 
                                                                  2020                              2019 
 ==========================================  =========================  ================================ 
 Closing NAV per share                                          175.2p                            203.1p 
 Closing share price                                            161.5p                            192.0p 
 ------------------------------------------  -------------------------  -------------------------------- 
 Discount                                                       (7.8%)                            (5.5%) 
 ==========================================  =========================  ================================ 
 Total Return (APM) 
  The total return is the return to shareholders after reinvesting the net dividend on the date 
  that the share price goes ex-dividend. 
 ======================================================================================================= 
                                                                  2020            2020    2019      2019 
                                                                   NAV           Share     NAV     Share 
                                                                                 Price             Price 
 =========================================  =================  =======  ==============  ======  ======== 
 Closing NAV per share/share price          (a)                 175.2p          161.5p  203.1p    192.0p 
 Dividend adjustment factor*                (b)                 1.0143          1.0155  1.0236    1.0255 
 Adjusted closing NAV per share/share 
  price                                     (c = a x b)         177.7p          164.0p  207.9p    196.9p 
 Opening NAV per share/share price          (d)                 203.1p          192.0p  207.5p    187.5p 
 =========================================  =================  =======  ==============  ======  ======== 
 Total return                               (c ÷ d) - 1   (12.5%)        (14.6% )    0.2%      5.0% 
 =========================================  =================  =======  ==============  ======  ======== 
 * The dividend adjustment factor is calculated on the assumption that the dividends of 2.95p 
  (2019 - 4.50p) paid by the Company during the year were reinvested into shares of the Company 
  at the cum income NAV per share/share price, as appropriate, at the ex-dividend date. 
 ======================================================================================================= 
 Ongoing Charges (APM) 
  The total expenses (excluding borrowing costs) incurred by the Company as a percentage of 
  the average net asset value. The ongoing charges have been calculated on the basis prescribed 
  by the Association of Investment Companies. 
  A reconciliation from the expenses detailed in the Income Statement above is provided below. 
 ======================================================================================================= 
                                                                                  2020              2019 
 ============================================================  =======  ==============  ================ 
 Investment management fee                                                GBP1,459,000        GBP795,000 
 Other administrative expenses                                              GBP463,000        GBP689,000 
 ------------------------------------------------------------  -------  --------------  ---------------- 
 Total expenses                                                (a)        GBP1,922,000      GBP1,484,000 
 Average net asset value                                       (b)      GBP292,419,000    GBP293,237,000 
 ============================================================  =======  ==============  ================ 
 Ongoing Charges ((a) ÷ (b) expressed as a percentage)                      0.66%             0.51% 
 ============================================================  =======  ==============  ================ 
 
 

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

 
 Baillie Gifford and Co Limited was appointed on 29 June 2018 and agreed to waive its management 
  fee for the year ended 30 April 2019 to the extent of GBP732,000 (approximately equal to six 
  months' management fee payable to Baillie Gifford based on the Company's net asset value on 
  29 June 2018). The calculation for 2019 is therefore not representative of future management 
  fees. The reconciliation below shows the ongoing charges figure if the waived management fee 
  is included in the ongoing charges calculation. 
                                                                                                              2019 
 ===============================================================================  =======   ====================== 
  Investment management fee                                                                             GBP795,000 
  Investment management fee waived during the year                                                      GBP732,000 
  Other administrative expenses                                                                         GBP689,000 
 ===============================================================================  =======   ====================== 
  Total expenses                                                                   (a)                GBP2,216,000 
  Average net asset value                                                          (b)              GBP293,237,000 
 ===============================================================================  =======   ====================== 
  Ongoing Charges ((a) ÷ (b) expressed as a percentage)                                                 0.76% 
 =========================================================================================  ====================== 
 Gearing (APM) 
  At its simplest, gearing is borrowing. Just like any other public company, an investment trust 
  can borrow money to invest in additional investments for its portfolio. The effect of the 
  borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the 
  shareholders' assets grow proportionately more because the debt remains the same. But if the 
  value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance 
  performance in rising markets but can adversely impact performance in falling markets. 
  Equity gearing is the Company's borrowings adjusted for cash and cash equivalents as a percentage 
  of shareholders' funds. 
  Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds. 
  The Company currently has no borrowings drawn down. 
  Leverage (APM) 
  For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is 
  any method which increases the Company's exposure, including the borrowing of cash and the 
  use of derivatives. It is expressed as a ratio between the Company's exposure and its net 
  asset value and can be calculated on a gross and a commitment method. Under the gross method, 
  exposure represents the sum of the Company's positions after the deduction of sterling cash 
  balances, without taking into account any hedging and netting arrangements. Under the commitment 
  method, exposure is calculated without the deduction of sterling cash balances and after certain 
  hedging and netting positions are offset against each other. 
  Active Share (APM) 
  Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio 
  that differs from its comparative index. It is calculated by deducting from 100 the percentage 
  of the portfolio that overlaps with the comparative index. An active share of 100 indicates 
  no overlap with the index and an active share of zero indicates a portfolio that tracks the 
  index. 
 Automatic Exchange of Information 
  In order to fulfil its obligations under UK Tax Legislation relating to the automatic exchange 
  of information, the Company is required to collect and report certain information about certain 
  shareholders. 
  The legislation will require investment trust companies to provide personal information to 
  HMRC on certain investors who purchase shares in investment trusts. As an affected company, 
  Baillie Gifford UK Growth Fund plc will have to provide information annually to the local 
  tax authority on the tax residencies of a number of non-UK based certificated shareholders 
  and corporate entities. 
  Shareholders, excluding those whose shares are held in CREST, who come on to the share register 
  will be sent a certification form for the purposes of collecting this information. 
  For further information, please see HMRC's Quick Guide: Automatic Exchange of Information 
  - information for account holders 
  https://www.gov.uk/government/publications/exchange-of-information-account-holders 
  . 
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