Baillie Gifford UK Growth Trust plc

Legal Entity Identifier: 549300XX386SYWX8XW22

Results for the year to 30 April 2024

For the year to 30 April 2024, the Company's net asset value ('NAV') total return (capital and income) was 0.6% compared to 7.5% for the FTSE All-Share Index total return. The share price total return for the same period was negative 0.5%.

¾    The largest detractors to relative performance were: St James's Place, a UK wealth manager; Burberry, a luxury goods retailer; and Genus, a leading animal genetics company. Not holding HSBC was also a notable detractor. Abcam, an online platform selling antibodies to life science researchers, and 4imprint, the direct marketer of promotional merchandise, were the notable positive contributor to relative performance.

¾    One new position was initiated in the period: online greetings card and gifting platform, Moonpig. Four positions were exited: Abcam, which was taken over in the year; Boohoo.com, an online fashion retailer; Farfetch, an online luxury fashion retailer; and Naked Wines, an online wine retailer.

¾    The net revenue return for the year was 5.68p per share (2023: 4.05p). A final dividend of 5.60p per share is being recommended (2023: 3.60p). The dividend is paid by way of a single final payment.

¾    Over the year a total of 3,841,977 shares were bought back into treasury. Since period end to 12 June 2024, a further 635,000 shares have been bought back into treasury.

¾    The Board and Managers believe that the portfolio is populated with exciting growth businesses, with large market opportunities, strong competitive positions, and importantly, the cultural adaptability to succeed in a rapidly changing world. Once style headwinds abate, the portfolio should be well placed to benefit.

¾    At this year's Annual General Meeting ('AGM'), the Directors are proposing, in accordance with the Company's Articles, that the life of the Company be extended for a further five years.

¾    Should the life of the Company be extended, the Board is making the following commitments: 1) The Board will introduce a one-off 5-year performance triggered exit opportunity whereby, in the event the Company's NAV per share total return over the 5-year period from 30 April 2024 to 30 April 2029 does not equal or exceed the total return on the Company's benchmark (FTSE All-Share Index), the Company will provide shareholders with the opportunity to realise their investment in full at close to NAV per share; and 2) The Company will put forward a resolution at the Company's Annual General Meeting to be held in 2027 for the continuation of the Company. This is in addition to the five-yearly continuation votes in the Company's Articles of Association.

¾    As highlighted in last year's Chairman's Statement, Ms Carolan Dobson will not be standing for re-election at this year's Annual General Meeting and has decided to stand down from the Board on 14 June 2024. Mr Neil Rogan was appointed to the Board on 1 January 2024 and takes over as Chairman on 14 June 2024.

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

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

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £224 billion under management and advice as at 12 June 2024.

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

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

For further information please contact:

Anzelm Cydzik, Baillie Gifford & Co                                          

Tel: 0131 275 2000                                                                    

Jonathan Atkins, Director, Four Communications

Tel: 0203 920 0555 or 07872 495396                   

The following is the results announcement for the year to 30 April 2024 which was approved by the Board on 13 June 2024.

Chairman's statement

Performance

In this, my final period as Chairman, it is disappointing to report on a period of underperformance. For the year to 30 April 2024, the Company's net asset value ('NAV') total return (capital and income) was 0.6% compared to 7.5% for the FTSE All-Share Index total return. The Company's share price total return declined 0.5% and the shares ended the period at a 15.3% discount to the Company's NAV compared to 14.1% a year earlier.

In 2018 when the Board took the decision to appoint Baillie Gifford to manage the Company's assets, it was in the expectation that a growth-focussed UK equity mandate would deliver positive absolute and relative returns over the long term. Since then, whilst there have been periods of good performance, the longer-term results have not been as expected. Over five years to 30 April 2024, the Company's NAV total return was only 3.0% at a time when the FTSE All-Share Index total return was 30.1%.

Board Composition

As highlighted in my report last year, I will not be standing for re-election to the Board at the upcoming AGM as I will have completed ten years of service and I am standing down from the Board on 14 June 2024. Earlier this year our Chair of the Audit Committee, Andrew Westenberger, led a recruitment process supported by an external recruitment consultant, Trust Associates, to find my successor. Mr Neil Rogan was appointed to the Board on 1 January 2024 and will take over as Chairman on 14 June 2024. Neil is an experienced Investment Trust Chairman and non-executive director. He also spent 30 years as an investment manager with Touche Remnant, Flemings and most recently Gartmore/Henderson where he was Head of Global Equities.

Subject to the outcome of the Company's continuation vote, I leave knowing that the Company has a strong Board dedicated to operating in the best interests of shareholders.

Board review

In February, the Board conducted a rigorous review of the services Baillie Gifford provides to the Company to inform the Board as to what it should recommend to shareholders for the continuation vote due at this year's Annual General Meeting ('AGM').

The Board reviewed the Managers' provision of company services, third party oversight, internal risk controls, marketing, shareholder support, quality of staff and overall commitment to our Company and the investment trust sector and found these to be of an excellent quality, provided with commitment and integrity.

Turning to our Company's investment performance, the Board reviewed the Managers' investment philosophy and processes, the portfolio risk analysis, the largest stock contributors to positive and negative performance, the quality of the companies held in the portfolio, turnover levels and style tilts. The Board found these to be in line with the Managers' committed growth style and that predicted risk of investments was set appropriately for a committed growth-orientated long-term fund. The Board examined the quality of the Managers' research before stock purchase and thereafter and found it very thorough and informed.

There has been much press comment about the difficulties the UK stock market is facing, the lack of traditional buyers for UK equities and the pressure that companies feel to move their listings to the US to achieve higher ratings. The Board examined these issues with the support of their corporate brokers and Baillie Gifford and found that whilst these problems were real, they were not overwhelming. There are several brokers providing research on each of our companies, and none of our portfolio companies, that are currently held, have moved their listing. The UK equity market is now generally considered to be inexpensive. That view is supported by the number of takeover approaches appearing for UK listed companies both from private equity buyers and international companies.

Over this five-year period the macroeconomic backdrop of sluggish economic growth, rising interest rates and a spike in inflation has not been conducive to Baillie Gifford's growth investment style. In addition, the UK benchmark index has a significant exposure to resource and financial companies whose profits tend to be cyclical with limited long term sustainable growth and as such are not areas that meet the Managers' long term growth requirements.

These broader style and macroeconomic factors explain a significant amount of the investment underperformance but not all. The balance between successful and unsuccessful individual stock investments over this period has not been in the Company's favour.

The Managers' report below provides further detail on the investment performance of the portfolio.

Unquoted Investments

In January 2022 we made our first investment in an unquoted company by investing into the shares of Wayve, a UK software company developing an AI system that allows vehicles to learn whilst driving. This is an extremely competitive area with many companies operating in it and it is a tribute to Wayve's technology excellence that a recent funding round has raised more than $1billion from Softbank, Microsoft and Nvidia.

Following how we valued this company since investment is a good example of how we approach unquoted valuations. We initially invested £1,516,000 but when similar listed companies' share prices fell, we lowered our valuation to £582,000 on 31 October 2023. Now this recent funding valuation has established a deal price, we have revalued the shares to the deal price, and they are now valued at £3,338,000.

A handsome uplift on our purchase price of 120% and a good reflection of how long-term growth investing with commitment and analysis can bear rewards.

Continuation votes and performance-triggered exit opportunity

In accordance with the Company's Articles of Association, shareholders have the right to vote on the continuation of the Company every five years, the next vote being at this year's Annual General Meeting in September.

Having concluded its review of Baillie Gifford's ability to deliver on the Company's investment objective, the Board continues to believe firmly in the Company's mandate and has confidence that over the longer term the portfolio managers, through application of Baillie Gifford's investment process, have the capacity to outperform. Accordingly, the Board is recommending that shareholders vote in favour of continuation at the Annual General Meeting.

The Board believes that the current style headwinds will not last forever and growth will resume its historical outperformance. The Board is reassured that the current portfolio is populated with exciting growth businesses with strong competitive positions and large market opportunities. The fundamentals of the portfolio look strong, with 97% of the portfolio having positive earnings or cashflows and 1-year forward sales growth and earnings better than the index (6.0% and 7.6% 1-year forward sales and earnings growth compared to 2.7% and 5.6% for the FTSE All-Share Index).

However, the Board recognises shareholders' patience will have been tested by the last three years of underperformance and, following consultation with shareholders representing a material proportion of the Company's share capital, if the continuation vote is passed at the Annual General Meeting the Board makes the following commitments, which it believes will provide greater certainty for shareholders in the event that underperformance were to continue:

1.   The Board will introduce a one-off 5-year performance triggered exit opportunity whereby, in the event the Company's NAV per share total return over the 5-year period from 30 April 2024 to 30 April 2029 does not equal or exceed the total return on the Company's benchmark (FTSE All-Share Index), the Company will provide shareholders with the opportunity to realise their investment in full at close to NAV per share.

2.   The Company will put forward a resolution at the Annual General Meeting to be held by the Company in 2027 for the continuation of the Company. This is in addition to the five-yearly continuation votes in the Company's Articles of Association and, as such, a continuation vote is expected to be held in 2029 as well.

The Board believes these commitments are in the best interests of shareholders as a whole.

Share Issuance and Buy-backs

Since issuing shares in 2021 and 2022, the Company's shares have de-rated and moved to trading at a discount to NAV. Over the course of the year to 30 April, the Company has bought back on 67 occasions, buying into treasury 3,841,977 shares, which represents 2.6% of the Company's issued share capital as at 30 April 2023. Since the financial year end, a further 635,000 shares have been bought back. The Company currently has 14,873,677 shares held in treasury.

The Company's share buy-back policy seeks to operate in the best interests of shareholders by taking into account the relative level of the Company's share price discount to NAV when compared with peer group trusts, the absolute level of discount, volatility in the level of discount and the impact from share buy-back activity on the long-term liquidity of the Company's issued shares.

The Board recognises the importance to shareholders that the Company's shares should not persistently trade at a significant discount to NAV in absolute terms or relative to the peer group and, while the Board does not believe it is appropriate to publish a specific discount target, the Board would expect to be more active in buying back shares, when appropriate.

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

Gearing

During the year, the Company renewed its one-year £30 million revolving credit facility with The Royal Bank of Scotland International Limited. Drawn and invested gearing stood at 6% and 5% of shareholders' funds as at the Company's year-end compared to 5% and 3% respectively a year earlier.

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

Earnings and Dividends

The net revenue return per share for the year was 5.68p, versus 4.05p in 2023. The year-on-year increase was largely a consequence of increased dividends received as well as special dividends from Lancashire Holdings and 4imprint. A final dividend of 5.60p per share, payable on 13 September 2024 to shareholders on the register as at 16 August 2024, is being recommended to shareholders.

The Company's priority is capital growth so shareholders should not rely on receiving a regular or growing level of income from their investment in this Company.

Sustainability Disclosure Requirements ('SDR')

In November 2023, the Financial Conduct Authority ('FCA') published its sustainability disclosure requirements and investment labels regime ('SDR') to address concerns about misleading sustainability claims. SDR includes an opt-in labelling regime for sustainable investment products, additional disclosure requirements and restrictions on the use of sustainability terms. It also establishes anti-greenwashing ('AGW') rules. Investment trusts and their Managers are in scope of the SDR. Although investment trusts are not directly in scope of the AGW requirements, the rules apply indirectly to them, mostly via obligations imposed on their Managers.

Although Environmental, Social and Governance ('ESG') factors are taken into consideration by our portfolio managers as part of their investment analysis, the Company itself does not have an explicit sustainability objective and so under SDR is potentially going to be categorised as 'Non-labelled' rather than 'Labelled' or 'Other'.

Annual General Meeting

It is intended that the Company's AGM will be held on Wednesday 4 September 2024 at 12.00 noon at the Leonardo Royal Hotel London City, 8-14 Cooper's Row, London, EC3N 2BQ. Shareholders are warmly invited to attend however regular attendees should note that this is a different venue to the one used in recent years. To accurately reflect the views of shareholders of the Company, the Board intends to hold the AGM voting on a poll, rather than on a show of hands.

The meeting will include a presentation by the portfolio managers on the prospects for UK equities and the positioning of the portfolio. They and the Board will be available to answer any questions. Light refreshments will be available.

Outlook

The portfolio managers and the Board believe that the portfolio's current valuations fail to adequately reflect the value of the progress being made by the investee companies. If this observation is correct, once the macro backdrop becomes more favourable for growth investors, for example lower interest rates and reduced levels of inflation and/or a more stable geopolitical backdrop, then the significantly higher growth expectations for the portfolio against the broader market should act as a catalyst for long-term share price appreciation.

The current portfolio is comprised of exciting growth businesses with large market opportunities, strong competitive positions and, importantly, the cultural adaptability to succeed in a rapidly changing world. Having the nerve and patience to continue holding them through turbulent times is likely to be key in realising their long-term potential.

Carolan Dobson

Chairman

13 June 2024

Managers' report

This year we have segmented our Managers' report so that it starts with a summary of the drivers of shorter term performance before then reflecting on performance over the past five years and the factors behind this. It ends with some commentary on the outlook for the portfolio and the companies held.

Performance

We discussed the disappointing short-term performance of the first half of the Company's financial year in the interim report. In the second half of the year, the Company's NAV total return broadly matched the index, the FTSE All-share total return, so the result for the year remained unsatisfactory (over the six months to 30 April 2024, the Company's NAV per share total return was 14.2% compared to 14.2% for the FTSE All-Share total return). There are a number of strands to this: while the absolute performance of the index over the year was respectable, the performance of individual holdings in the portfolio was much more dispersed, reflecting in particular a slant to the downside with the stockmarket displaying displeasure at any unexpected bad news, particularly with growth businesses. For example, a further unexpected charge against profits led to a further lurch down in the share price of wealth manager St James's Place, while concerns about the health of the Chinese economy notably impacted the shares of pig breeder Genus, life insurer Prudential and to some extent the luxury goods retailer Burberry. While painful in the short term, we believe in all these cases there remains a long term growth investment case in and we are patiently sticking with them. For example with Prudential, the growth case involves its exposure to a wide variety of fast growing Asian life insurance markets where it has strong competitive positions that allows it to weather the shorter term vagaries of the GDP growth in one country. Moreover, an impressive new management team have articulated a clear and simple strategy that they are beginning to execute on. This is not meant to be dismissive of possible China risks for Prudential but as bottom up stock pickers we see this is an example of a business that is growing and getting stronger even if the share price appears disconnected to these fundamentals.

Although some other businesses that had guided to softer short-term trading fared better, such as the leader in UK kitchens Howden Joinery and IT services business Softcat, a greater number in the portfolio simply marked time as the market appeared to place more emphasis on the cloudy near term economic and geopolitical outlook, rather than the long term opportunities for the businesses. We did see particularly strong operational performance rewarded in the strong share price performance of specialist marketer 4imprint and the foreign exchange payment disruptor Wise. Lastly, Wayve, our sole unquoted investment, which is an autonomous driving technology business, was written up substantially following its latest funding round where a significant sum of new investment was raised at a higher valuation.   

5-Year Review
It is five years since the Company's last Continuation Vote. When we took over the management of the Company from Schroders, we asked shareholders to judge us over five years. The results are not what we, the Board or you as a fellow shareholder would have hoped for, having underperformed by 4.8% p.a.. We were therefore asked by the Board to examine the data, offer our perspectives and explain why we feel confident about the portfolio being in good shape from here, despite the disappointing outcome so far.

A recap of how we invest
Our investment philosophy is anchored around a core belief that share prices will follow fundamentals over the long term. We try to identify companies that will deliver superior earnings growth and hold onto them long enough for their unique competitive and cultural strengths to emerge as the dominant influence on share prices. The following chart provides some evidence to support this approach as it shows the striking correlation between superior long-term earnings growth and stock price returns for the FTSE All-Share. However, the path is not always a smooth one and there will be periods when our style of investing will be out of favour.

Delivered median total returns by earnings growth quintile

http://www.rns-pdf.londonstockexchange.com/rns/4040S_1-2024-6-13.pdf

Why hasn't our investment approach worked recently?

Since taking over the management of Baillie Gifford UK Growth Trust, we believe that the macroeconomic backdrop has had an unusually dominant influence on investment outcomes. For example, if we consider calendar year NAV performance, as detailed in the table below, we can see that the portfolio delivered robust relative returns during the initial shock of COVID-19 in 2020 as many of the high-margin, capital-light, well-capitalised companies held were better able to weather the pandemic and, in some cases, directly benefited from global lockdowns. However, relative performance started to struggle in 2021 as economies re-opened and supply chains struggled to operate smoothly.

Discrete Annual Performance to 31 December each year

Source: Morningstar, FTSE, Total return in sterling. Index: FTSE All-Share Index

In 2022, the conflict in Ukraine put still greater upward pressure on prices and interest rates rose sharply. It was at this point in 2022 that our performance was most challenged in both absolute and relative terms. Why? The stock market had to process the imperative to discount future cash flows at a higher rate. Conventional wisdom dictates that the multiples applied to future earnings streams should compress in a more inflationary environment, so the market had to grapple with the right 'new normal' multiple to attach to equities. Growth businesses, which are valued on the premise of long-duration earnings streams projected out into the future, underwent a sharp decline in their share prices. To put it simply, the market backdrop over the past few years has given rise to an environment where the share prices of growth companies have been hit indiscriminately, regardless of the fundamental operational progress they are making. We believe that much of the recent underperformance of the portfolio has been down to this - our investment style being out of favour - rather than too many poor investment decisions. To be clear, we have made individual mistakes that have hurt performance, and we have learnt from these experiences, but the magnitude of the underperformance cannot be explained by these.

Could we have mitigated the underperformance?

We asked the investment risk team at Baillie Gifford to undertake analysis to identify whether we could have done anything different from 2021 when performance turned down. The short answer is that after looking at various scenarios, the only way we could have achieved an outcome aligned with the index would have been to significantly change the portfolio by taking large new positions in some of the largest businesses in the UK, such as Shell, BP and HSBC. Many of these companies in our view do not have obvious long term growth potential but they have been beneficiaries of the macroeconomic turmoil described above because of their near term earnings certainty. Owning many of these large 'value' stocks would have mitigated underperformance, however, it would have also undermined our active, bottom up, long-term growth investment style. We consider it imperative to stick to our long-term growth investment philosophy because the alternative is trying to second guess, and trade around, short term swings in "style" in stock markets. Attempting to do so in our view could make things far worse for shareholders.

Why do we believe that performance will improve over the next five years?

With a high inflationary and interest rate environment, we understand why our style of growth investing has been out of favour with the market. However, we believe that current valuations fail to adequately reflect the value of the progress we are seeing in the businesses we invest in; they underestimate the adaptability of the management teams running these businesses, and they overlook the resilient financial characteristics that the portfolio possesses. Rather than a cause for despondency, this disconnect between share prices and fundamentals is a key reason why we remain confident in the long-term outlook for the performance of the portfolio.

The three charts below illustrate the superior quality and resiliency characteristics of the portfolio relative to the index. While we would urge caution in relying too heavily on spuriously precise earnings forecasts, it is encouraging that the portfolio is invested in companies with higher growth expectations than the broader market.

Why does this matter? As we noted earlier, our investment philosophy is anchored around a core belief that share prices will follow fundamentals over the long term. Enduring growth should act as a catalyst for long-term share price appreciation.

We continue to believe the portfolio is populated with exciting growth businesses, with large market opportunities, strong competitive positions, and importantly, the cultural adaptability to succeed in a rapidly changing world. Having the nerve and patience to continue holding them through turbulent times is key to realising their long-term potential.

Characteristics of the portfolio

http://www.rns-pdf.londonstockexchange.com/rns/4040S_1-2024-6-13.pdf

Outlook for the portfolio

We see an abundance of significant and unrecognised potential within the current portfolio. We see it in long-standing holdings like Auto Trader, Experian and Ashtead which have been working successfully to expand their already substantial market opportunities, are embedding themselves ever more deeply into their customers' businesses and whose competitive advantages are now deeper than they have ever been. We also see it in relatively more recent purchases like IT service providers Kainos and Softcat which enjoy multi-decade growth tailwinds from the adoption of technology by both enterprises and the public sector, and where the market fails to appreciate unique cultural strengths which make both stand out from competitors and be most trusted advisors to customers.

Despite all the doom and gloom surrounding the state of innovation in the UK, we look to long-standing holdings like Renishaw and Genus whose commitment to research and development spending, we believe, will yield significant results in the coming decade by enabling manufacturers and farmers across the globe to solve some of their most pressing productivity and sustainability challenges.

Earlier in their lifecycles are companies like AI autonomous driving start-up Wayve, the surgical endoscopy business Creo Medical, and next generation sequencing company Oxford Nanopore. All three are at the vanguard of progress in their respective fields and are true world leaders.

We invest in companies for decades, so trust in management is of great importance for us. We are fortunate to be invested alongside some of the most accomplished leadership teams such as those at Games Workshop and 4imprint whose long-term mindset and dedication to doing the right thing have been a crucial ingredient in the enormous success both businesses have achieved over time.

Your portfolio managers work in an investment firm which allocates capital to some of the most promising public and private enterprises across the world. We can both say, with some confidence, that the companies in this portfolio can hold their own across that global investment stage.

Iain McCombie and Milena Mileva

Baillie Gifford & Co

13 June 2024

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 is significantly below the UK industry average. This patient, long-term approach affords a greater chance for the superior growth and competitive traits of companies to emerge as the dominant influence on their share prices and allows compounding to work in the investors' favour.

Active investment management

It is our observation that too much attention is paid to the composition of market indices and active managers should make meaningful investments in their best ideas regardless of the weightings of the index. As a result, shareholders should expect the composition of the portfolio to be significantly different from the benchmark and hence the outcome in returns (in both good and bad periods) will also be significantly different from the benchmark. This differentiation is a necessary condition for delivering superior returns over a long-term time horizon.

Portfolio construction flows from the investment beliefs stated above.

Baillie Gifford's stewardship principles

Baillie Gifford's overarching ethos is that we are 'Actual' investors. That means we seek to invest for the long term. Our role as an engaged owner is core to our mission to be effective stewards for our clients. As an active manager, we invest in companies at different stages of their evolution across many industries and geographies, and focus on their unique circumstances and opportunities. Our approach favours a small number of simple principles rather than overly prescriptive policies. This helps shape our interactions with holdings and ensures our investment teams have the freedom and retain the responsibility to act in clients' best interests.

Long-term value creation

We believe that companies that are run for the long term are more likely to be better investments over our clients' time horizons. We encourage our holdings to be ambitious, focusing on long-term value creation and capital deployment for growth. We know events will not always run according to plan. In these instances we expect management to act deliberately and to provide appropriate transparency. We think helping management to resist short-term demands from shareholders often protects returns. We regard it as our responsibility to encourage holdings away from destructive financial engineering towards activities that create genuine value over the long run. Our value will often be in supporting management when others don't.

Alignment in vision and practice

Alignment is at the heart of our stewardship approach. We seek the fair and equitable treatment of all shareholders alongside the interests of management. While assessing alignment with management often comes down to intangible factors and an understanding built over time, we look for clear evidence of alignment in everything from capital allocation decisions in moments of stress to the details of executive remuneration plans and committed share ownership. We expect companies to deepen alignment with us, rather than weaken it, where the opportunity presents itself.

Governance fit for purpose

Corporate governance is a combination of structures and behaviours; a careful balance between systems, processes and people. Good governance is the essential foundation for long-term company success. We firmly believe that there is no single governance model that delivers the best long-term outcomes. We therefore strive to push back against one-dimensional global governance principles in favour of a deep understanding of each company we invest in. We look, very simply, for structures, people and processes which we think can maximise the likelihood of long-term success. We expect to trust the boards and management teams of the companies we select, but demand accountability if that trust is broken.

Sustainable business practices

A company's ability to grow and generate value for our clients relies on a network of interdependencies between the company and the economy, society and environment in which it operates. We expect holdings to consider how their actions impact and rely on these relationships. We believe long-term success depends on maintaining a social licence to operate and look for holdings to work within the spirit and not just the letter of the laws and regulations that govern them. Material factors should be addressed at the board level as appropriate.

List of investments as at 30 April 2024

^u  Denotes unlisted (private company) investment.
Stocks in bold are the 20 largest investments.

Income statement

For the year ended 30 April 2024 (with comparatives for the year ended 20 April 2023)

Dividends declared in respect of the financial year ended 30 April 2024 amount to 5.60p (2023 - 3.60p).

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

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

Balance sheet

As at 30 April 2024 (with comparatives as at 30 April 2023)

* See Glossary of terms and Alternative Performance Measures at the end of this announcement.

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

Statement of changes in equity

For the year ended 30 April 2024

For the year ended 30 April 2023

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

Cash flow statement

For the year ended 30 April 2024 (with comparatives for the year ended 30 April 2023)

* Cash from operations includes dividends received of £9,539,000 (2023 - £7,523,000) and £82,000 deposit interest (2023 - £77,000).

† Cash and cash equivalents represents cash at bank and short-term deposits repayable on demand.

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

Notes to the Financial Statements

1.   The Financial Statements for the year to 30 April 2024 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out below which are consistent with those applied for the year ended 30 April 2023.

2.  Income

Special dividends received in the year amounted to £1,491,000 (2023 - £311,000) with £1,491,000 (2023 - £311,000) classified to revenue and nil (2023 -nil) classified to capital.

3.  Investment management fee

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 have 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 by the Managers on not less than six months' notice or on shorter notice in certain circumstances. With effect from 6 June 2024, the Investment Management Agreement is terminable by the Company on not less than three months' notice or on shorter notice in certain circumstances. Prior to this, the Investment Management Agreement was terminable by the Company on not less than six months' notice or on shorter notice in certain circumstances. Compensation would only be payable if termination occurred prior to the expiry of the notice period. The annual management fee is 0.5% of net assets, calculated and payable quarterly.

4.    Net return per ordinary share

Revenue return per ordinary share is based on the net revenue return on ordinary activities after taxation of £8,484,000 (2023 - £6,145,000), and on 149,401,543 (2023 - 151,603,018) 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 £8,095,000 (2023 - net capital loss of £3,900,000), and on 149,401,543 (2023 - 151,603,018) 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

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 £8,484,000 (2023 - £6,145,000).

If approved, the final dividend of 5.60p will be paid on 13 September 2024 to all shareholders on the register at the close of business on 16 August 2024. The ex-dividend date is 15 August 2024.

6.    At 30 April 2024, the Company had a one year £30 million unsecured revolving credit loan facility with The Royal Bank of Scotland International Limited which expires in July 2024. At 30 April 2024, £16,350,000 was drawn down under this facility. At 30 April 2023, the Company had a one year £30 million unsecured revolving credit loan facility with The Royal Bank of Scotland International Limited which expired in July 2023. At 30 April 2023, £14,450,000 was drawn down under this facility.

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

7.    Transaction costs of £118,000 (2023 - £115,000) and £9,000 (2023 - £10,000) were suffered on purchases and sales respectively.

8.    The Company's shareholder authority permits it to hold shares bought back 'in treasury'. Under such authority, treasury shares may be subsequently either sold for cash (at a premium to net asset value per ordinary share) or cancelled. At 30 April 2024 the Company had authority to buy back 19,001,576 ordinary shares. During the year to 30 April 2024, 3,841,977 shares were bought back into treasury at a total cost of £6,248,000 (2023 - 2,975,000 shares were bought back into treasury at a total cost of £4,805,000).

In the year to 30 April 2024, no shares were sold from treasury (2023 - no shares were sold from treasury). At 30 April 2024 the Company had authority to issue or sell from treasury 15,041,548 ordinary shares.

9.    The financial information set out above does not constitute the Company's statutory accounts for the year ended 30 April 2024 or 2023. The financial information for 2023 is derived from the statutory accounts for 2023 which have been delivered to the Registrar of Companies. The Auditor has reported on the 2023 accounts, their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report; and (iii) did not contain a statement under sections 498(2) or (3) to 497 of the Companies Act 2006.

10.   The Annual Report and Financial Statements will be available on the Company's website bgukgrowthtrust.com on or around 4 July 2024. None of the view expressed in this document should be construed as advise to buy or sell a particular investment.

Glossary of terms and Alternative Performance Measures ('APM')

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

Total assets

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

Net Asset Value

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

Net Liquid Assets

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

Discount/premium ('APM')

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

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.

* The dividend adjustment factor is calculated on the assumption that the dividend of 3.60p (2023 - 3.91p) 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:

Gearing (APM)

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

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

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

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (AIFM) Regulations, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. The Company's maximum and actual leverage as at the year end are set out on page 103 of the Annual Report and Financial Statements.

Active share (APM)

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

Unlisted (Private) Company

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

Sustainable Finance Disclosure Regulation ('SFDR')

The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a direct impact in the UK due to Brexit, however, it applies to third-country products marketed in the EU. As Baillie Gifford UK Growth Trust plc is marketed in the EU by the AIFM, Baillie Gifford & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR.

The AIFM has adopted Baillie Gifford & Co's stewardship principles and guidelines as its policy on integration of sustainability risks in investment decisions.

Baillie Gifford & Co believes that a company cannot be financially sustainable in the long run if its approach to business is fundamentally out of line with changing societal expectations. It defines 'sustainability' as a deliberately broad concept which encapsulates a company's purpose, values, business model, culture, and operating practices.

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

The likely impact on the return of the portfolio from a potential or actual material decline in the value of investment due to the occurrence of an environmental, social or governance event or condition will vary and will depend on several factors including but not limited to the type, extent, complexity and duration of an event or condition, prevailing market conditions and existence of any mitigating factors.

Whilst consideration is given to sustainability matters, there are no restrictions on the investment universe of the Company, unless otherwise stated within in its investment objective and policy. Baillie Gifford & Co can invest in any companies it believes could create beneficial long-term returns for investors. However, this might result in investments being made in companies that ultimately cause a negative outcome for the environment or society.

More detail on the Manager's approach to sustainability can be found in the stewardship principles and guidelines document, available publicly on the Baillie Gifford website bailliegifford.com.

The underlying investments do not take into account the EU criteria for environmentally sustainable economic activities established under the EU Taxonomy Regulation.

Automatic exchange of information

In order to fulfil its obligations under UK Tax Legislation relating to the automatic exchange of information, the Company is required to collect and report certain information about certain shareholders.

The legislation will require investment trust companies to provide personal information to HMRC on certain investors who purchase shares in investment trusts. As an affected company, Baillie Gifford UK Growth Trust plc will have to provide information annually to the local tax authority on the tax residencies of a number of non-UK based certificated shareholders and corporate entities.

Shareholders, excluding those whose shares are held in CREST, who come on to the share register will be sent a certification form for the purposes of collecting this information.

For further information, please see HMRC's Quick Guide: Automatic Exchange of Information - information for account holders gov.uk/government/publications/exchange-of-information-account-holders.

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