RNS Announcement: USA Results

Baillie Gifford US Growth Trust plc ('USA')

Legal Entity Identifier: 213800UM1OUWXZPKE539

Regulated Information Classification: Notice of Results

Results for the year ended 31 May 2024

During the financial year to 31 May 2024, the Company's share price and net asset value ('NAV' after deducting borrowings at fair value) returned 32.9% and 16.2% respectively. This compares with a total return of 24.8% for the S&P 500 Index* (in sterling terms).

-      Turnover in the portfolio over the financial year was 14% which is consistent with our five year plus time horizon.

-      As at 31 May 2024, we held 24 private company investments which collectively compromised 34.1% of total assets.

-      Oddity listed during the period and one additional private company investment was made: the digital retirement account manager revolutionising the US market, Human Interest.

-      Eight listed holdings were added to the portfolio: Block, Guardant Health, Inspire Medical Systems, Insulet, Meta Platforms, Samsara, Sprout Social and YETI Holdings.

-      Chegg, Illumina, MarketAxess, Novocure, Redfin, Snap, Twilio, Warby Parker and Zoom Video Communications were sold during the period. Convoy ceased operations during the period and was written off.

-      The US remains a fertile hunting ground for growth investors. Its companies are leading in new technological paradigms like AI, just as they led previous innovation waves such as the internet and mobile. Our aim is to identify the most exceptional amongst these companies and hold them for the long term, thereby capturing the unique upside that such companies offer.

Baillie Gifford US Growth Trust seeks to invest predominantly in listed and unlisted US companies which the Company believes have the potential to grow substantially faster than the average company, and to hold onto them for long periods of time, in order to produce long term capital growth. The Company has total assets of £683.2 million (before deduction of loans of £39.3 million) as at 31 May 2024.

You can find up to date performance information about Baillie Gifford US Growth on the Company website at bgusgrowthtrust.com‡.

Baillie Gifford US Growth Trust is managed by Baillie Gifford & Co, the Edinburgh based fund management group with approximately £217.8 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 19 August 2024).

* Source: LSEG and relevant underlying index providers. 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.

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

Past performance is not a guide to future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stock markets in which the Company invests and by the supply and demand for the Company's shares.

22 August 2024

For further information please contact:

Naomi Cherry, Baillie Gifford & Co  

Tel: 0131 275 2000

Jonathan Atkins, Four Communications

Tel: 020 3920 0555 or 07872 495 396

The following is the results announcement for the year to 31 May 2024 which was approved by the Board on 21 August 2024.

Chair's statement

I am pleased to report an improvement in performance during the financial year to 31 May 2024. The Company's share price and net asset value, calculated by deducting borrowings at fair value, total returns were 32.9% and 16.2% respectively. This compares with a total return of 24.8% for the S&P 500 Index* (in sterling terms).

Over the period from 23 March 2018 (launch date and first trade date), the Company's share price and net asset value, calculated by deducting borrowings at fair value, returned 91.4% and 121.2% respectively compared to a total return of 152.0% for the S&P 500 Index* (in sterling terms).

Further information about the Company's portfolio performance is covered by our portfolio managers, Gary Robinson and Kirsty Gibson, in their Managers' review.

Share issuance and buy-backs

The Company's shares moved from a discount of 22.4% at the start of the financial year to a discount of 11.2% at 31 May 2024 as sentiment towards the Company's growth investing style and the investment trust sector more generally improved. During the financial year the Company deployed its buy-back powers and 7,925,000 shares were bought back, representing 2.6% of the Company's issued share capital at the start of the year. The Board recognises the importance of the Company's liquidity policy and regularly discusses this topic at Board meetings.

As at 31 May 2024, the Company had authority, which was granted at the 2023 Annual General Meeting, to issue a further 30,515,370 shares and to buy-back a further 45,742,539 shares. These authorities expire in September 2024. The Company will be seeking to renew both the issuance and buyback authorities at the forthcoming Annual General Meeting.

Gearing

The Company has two loan facilities in place. The US$25 million five-year revolving credit facility with ING Bank N.V., London Branch, which matured on 31 July 2023, was refinanced with a US$25 million three-year revolving credit facility from ING Bank N.V., London Branch on 26 July 2023. The US$25 million three-year fixed rate facility with ING Bank N.V., London Branch matured on 23 October 2023 and was refinanced with a US$25 million three-year revolving credit facility from The Royal Bank of Scotland International Limited on 18 October 2023. The facilities are available to be used to fund purchases of securities as and when suitable opportunities arise. As at 31 May 2024, the facilities had been drawn down in full (31 May 2023 - US$50 million). Net gearing fell from 6% to 5% over the course of the year.

Earnings and dividend

The Company's priority is to generate capital growth over the long term. The Company therefore has no dividend target and will not seek to provide shareholders with a particular level of dividend. The net revenue return per share for the year to 31 May 2024 was a negative 2.07p (period to 31 May 2023, a negative 1.55p). As the revenue reserve is again running at a deficit, the Board is recommending that no final dividend be paid. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status by way of a final dividend.

Private company investments

As at the Company's year end, the portfolio weighting in private company investments stood at 34.1% of total assets, invested in 24 companies (2023 - 34.5% invested in 25 companies). There was one new purchase in the year, Human Interest, and Oddity listed during the period (the Convoy holdings were written off during the period subsequent to the company ceasing operations). There is commentary on the new and existing holdings in the Managers' review and review of investments below. Your portfolio managers remain alert to further special and high potential opportunities not widely accessible through public markets.

Environmental, Social and Governance (ESG) matters

The Company's Managers believe that sustainability is inextricably linked to being a long-term investor, and their thoughts on this topic are set out in more detail in Baillie Gifford's stewardship principles below. The Managers' pursuit of long-term growth opportunities typically involves investment in entrepreneurial, disruptive and technology-driven businesses. These companies are often capital-light with a low carbon footprint.

Annual General Meeting

The Annual General Meeting of the Company has been scheduled to be held at the offices of Herbert Smith Freehills in London (Exchange House, Primrose Street, London, EC2A 2EG) at 9.00am on Friday, 27 September 2024. All shareholders are invited to attend, and the Board looks forward to welcoming you. The meeting will be followed by a presentation from the Managers. I encourage shareholders to submit their votes by proxy before the applicable deadline ahead of the meeting and to submit any questions for the Board or Managers in advance by email to [email protected] or by calling 0800 917 2112 (Baillie Gifford may record your call).

Outlook

In our last report I allowed myself to imagine that peaking interest rates might see valuations begin to recover during 2024. Clearly the Board is delighted that we have seen an improvement in our share price and a narrowing of our discount over the intervening period. Perhaps more importantly though, we continue to believe that the seismic changes in technology that underpin many of the companies we are invested in will continue and accelerate. We are at an inflexion point where many verticals, from transportation to drug discovery to communications and many others, are all ripe for disruption and we firmly believe that the portfolio of businesses we own includes many that will deliver outsize returns to long-term investors.

Tom Burnet

Chairman

21 August 2024

* Source: LSEG and relevant underlying index providers. 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.

Past performance is not a guide to future performance.

Managers' review

In recent years, we have observed a marked shift in emphasis among the companies in your portfolio. There has been a pivot from prioritising growth alone to embracing a more balanced approach that incorporates both growth and profitability. In our previous interim report, we characterised 2022 as the 'year of reorientation' and 2023 as the 'year of execution'. We are now witnessing the tangible benefits of this strategic shift, as evidenced by the improved financial metrics across your portfolio companies.

As of the end of March, 67% of the portfolio was generating positive cash flow or positive earnings per share ('EPS'), a notable increase from 48% in March 2023. Crucially, growth has remained robust during this period of improving profitability. The median revenue growth rate exceeded 18% over the year to March 2024, significantly outpacing the S&P 500 Index. This dual achievement - maintaining strong growth while enhancing profitability - is a testament to the quality and adaptability of our chosen companies.

It is our view that many of your holdings are emerging from the challenging post-Covid period in a stronger position than when they entered it. These businesses have not only addressed cost bases that had become inflated during the pandemic but have also evolved their strategies, organisational structures and processes. Companies that were buffeted by pandemic-induced demand fluctuations have become leaner and more agile, positioning themselves for higher profitability.

We see parallels between the current situation and the period following the Global Financial Crisis. Then, as now, many businesses faced unexpectedly weak demand, with cyclical companies in the consumer discretionary and industrial sectors particularly affected. However, we observed that the most adaptable of these businesses emerged from that period stronger. For instance, the multi-industrial business United Technologies Group, which we held in our American Fund, achieved higher margins in 2011 than in 2008, despite sales not having fully recovered. The market underestimated this recovery, leading to strong share performance.

A similar pattern is now unfolding with internet-focused companies. Consider Shopify, the ecommerce tools platform. Its free cash flow margin turned negative post-Covid as lockdown-driven demand waned. However, following a period of reorientation, margins have recovered to prior peak levels and could potentially surpass them this year.

What drove Shopify to pursue such a rapid turnaround? While there was some pressure to cut costs given the shift in stock market sentiment, the company was motivated by a more pressing concern. Chief executive Tobi Lütke recognised that artificial intelligence ('AI') would be key to Shopify's future, and he wanted to ensure the company was well-positioned to capitalise on this opportunity. This required Shopify to become leaner to move faster. Lütke insightfully noted that companies often become sluggish not due to their size, but because of an accumulation of 'side quests' - projects adjacent to the main mission that don't directly serve it. While these may be manageable during stable economic times, they can hinder agility when the market landscape shifts.

In response, Shopify streamlined its operations, divesting its logistics business to focus on AI. The company also eliminated unnecessary meetings and cut bureaucracy, resulting in a one-third increase in engineer productivity. Customer service efficiency has also improved, with AI already assisting in over half of customer service inquiries in the January - March quarter. Shopify is optimistic that AI will help contain costs while maintaining robust top-line growth. The newly streamlined Shopify is emerging better positioned to exploit the product and cost opportunities afforded by generative AI.

The launch of ChatGPT at the end of 2022 brought AI into the spotlight, and we believe this attention is warranted. Indeed, recent advancements in AI represent some of the most important technological developments in a century. The internet and mobile drove near universal access to computing power. AI is rendering computers intelligent. It is outperforming humans in certain tasks and is improving at a remarkable rate. It has the potential to make large swathes of the economy more efficient.

Our decision to reinvest in Meta (previously Facebook) last year was partly driven by our view that the company is uniquely placed to leverage AI. AI requires substantial financial resources and data, both of which Meta possesses in abundance. The company also boasts a strong engineering culture and appears well-positioned to attract top talent.

We see numerous parallels between Shopify's strategic shift and Meta's 'year of efficiency'. Both companies, compelled by necessity, streamlined their teams to address the complexities bred from growth and to position themselves for the new AI paradigm. Mark Zuckerberg optimised Meta by trimming managerial layers, thus accelerating decision-making. Like Shopify, he made the company leaner by cancelling lower priority projects - the aforementioned 'side quests'. Zuckerberg shares Lütke's view that side quests can slow a company down. For instance, side quests require IT and HR support and, as these functions grow, they can become less responsive to the main mission. A leaner organisation, perhaps counterintuitively, often executes faster.

AI is already beginning to impact Meta's business. It was Meta's use of AI that enabled it to successfully navigate Apple's ad-targeting rule changes a few years ago. Meta is also using AI to refine its content recommendation algorithm and has already seen improvements in user engagement as a result.

Investments in AI are not inexpensive. Both Meta and Amazon have revised their capital expenditure budgets upward due to their AI spending plans. However, this expenditure remains manageable in the context of their prodigious cash flows. Indeed, Amazon's margins are on an upward trend and, like Shopify's, are poised to exceed their prior peak levels in the coming years.

NVIDIA, another holding in your portfolio, has been a key beneficiary of this AI spending boom. Its revenues grew by a remarkable 125% last year, and the shares responded accordingly. We reduced our position earlier this year to reflect the change in risk-reward profile.

As mentioned, we believe Shopify and Meta have emerged from their periods of reorientation stronger and better positioned for the future. Block has undergone a similar transformation over the past year, which was one of the key motivations for our recent investment. Block, which owns merchant software provider Square and financial app Cash App, has always been an exceptional product company. However, it historically lacked financial discipline, and this lack of focus had begun to impact its pace of innovation. This appears to be changing. Founder Jack Dorsey is now managing the business to stringent targets that balance both growth and profitability. Employee numbers have been capped, and he has restructured the company to refocus on its core mission. As a result, Block is now more agile and seems poised to become significantly more profitable.

One feature common to Shopify, Meta and Block, and indeed many of your other holdings, is the presence of a founder-leader. It has long been our contention that founder-led businesses are more adaptable than average. This is partly because founders wield what Ben Horowitz calls 'moral authority' - the credibility necessary to make substantial strategic changes. The rapid transformations we have witnessed at Shopify, Meta and Block in response to changing market conditions are rare in non-founder-led businesses.

Portfolio changes

While AI has dominated recent headlines, it is not the only disruptive force to have emerged in recent years. In the healthcare sector, a new class of medicines called GLP-1s has created a stir due to their ability to induce weight loss. While we do not have direct exposure to manufacturers of these drugs, the excitement surrounding GLP-1s indirectly led to the purchase of two new healthcare holdings: Insulet, which produces pumps for treating diabetes, and Inspire Medical Systems, which manufactures surgical implants for sleep apnoea. Both stocks experienced sell-offs due to fears that GLP-1s would shrink their addressable markets. While diabetes and sleep apnoea are linked to obesity, making this concern understandable, we believe that the patient cohorts from which Insulet and Inspire derive most of their revenues are unlikely to be significantly impacted by GLP-1s. We had been following both businesses for some time and used this weakness as an opportunity to initiate positions.

Other notable new holdings in the period include: Guardant Health, a provider of molecular diagnostic tests for cancer; YETI, a consumer branded goods company renowned for its durable coolers and drinks containers; Sprout Social, a social media management platform; and Samsara, a provider of telematics and safety technology for the trucking industry.

We also made several complete sales during this period. We parted ways with communications software provider Twilio, which had been underperforming for some time. The catalyst for this sale was the departure of its founder, Jeff Lawson. We also divested our position in videoconferencing software company Zoom, which was struggling to grow amidst fierce competition from Microsoft's Teams. Other complete sales included Snap, Chegg, Illumina, MarketAxess, Novocure, Redfin and Warby Parker.

While this may seem like a substantial list of changes, it's important to note that our portfolio turnover remains low at 14%, consistent with our five to ten-year holding period. This underscores our commitment to long-term investing and our conviction in the companies we hold.

On the unlisted front, we made one additional investment during the year: Human Interest, which helps small and medium-sized businesses offer retirement plans to their employees.

The IPO market is beginning to show signs of life, although volumes remain well below pre-pandemic levels. As mentioned in our interim report, one of your holdings, online cosmetics company Oddity, went public during the year. We anticipate that more of your private businesses will transition to public markets in the coming years.

At the end of the reporting period, the Company held 24 private companies, which in aggregate comprised 34.1% of total assets. The allocation to private companies is concentrated, with the top five private companies comprising over half of the allocation, and the top ten comprising over three-quarters. We have provided a summary of the operational progress of the top ten private companies on pages 38 to 40 of the Annual Report and Financial Statements.

Outlook

The US remains a fertile hunting ground for growth investors. Its companies are leading in new technological paradigms like AI, just as they led previous innovation waves such as the internet and mobile. Our aim is to identify the most exceptional amongst these companies and hold them for the long term, thereby capturing the unique upside that such companies offer. In our experience, one of the key features that unites such firms is adaptability. To endure and thrive over the long term, businesses must be able to respond effectively to changing market circumstances and technological paradigms. The transformations we have witnessed at holdings including Shopify, Meta, Block and, indeed, NVIDIA over the past few years are extremely encouraging in this context. They have demonstrated their adaptability and are now better positioned for the future.

The next cohort of generationally important companies will share this ability to adapt, innovate, and position themselves for a rapidly evolving future. It is our conviction that many such companies are present in your portfolio, across both your public and private holdings.

Markets have been volatile lately, reflecting uncertainty about the future. We believe our investee companies have the qualities necessary to navigate through this uncertainty. The best companies create opportunities for themselves, even in challenging environments. We believe this feature is structurally underappreciated by markets and exploitable by patient investors.

As we look ahead, we remain excited about the prospects for your portfolio and confident in our ability to continue identifying and investing in the companies that will shape the future of the global economy.

US Equity Growth Team

Baillie Gifford & Co

21 August 2024

Purpose and investment principles

Baillie Gifford US Growth aims to deliver above average long-term returns for shareholders by keeping fees and costs low and harnessing the long-term growth potential of companies.

Our purpose

Baillie Gifford US Growth aims to find, own and support the most exceptional public and private growth companies in America.

We believe that our investment approach of long termism, embracing asymmetry, and global perspective gives us an advantage in uncovering exceptional growth companies. Our opportunity set is wide given the Company's structure means we can invest in exceptional growth companies regardless of their listed status.

Exceptional growth companies address huge market opportunities at an early stage, possess a sustainable competitive edge and enjoy powerful and effective cultures that enable them to realise their long-term potential. We believe such companies contribute to productive innovation in society, and over the full course of time, these companies will develop deep competitive moats and generate abnormal profits and unusually high shareholder returns.

We endeavour to generate returns for our clients by helping in the creation and improvement of such useful enterprises. If we are successful in identifying these companies, we believe that we can multiply our shareholders' wealth over the long term.

Our investment principles

Managing shareholders' money is a huge privilege and not one we take lightly. It is a relationship, not a transaction. Relationships can only be built on a foundation of trust and understanding. With this in mind, we seek to lay out the fundamental principles by which we will manage your money and the framework for how we make decisions so that you, our shareholders, can decide whether it aligns with your investment philosophy.

• We believe the fundamental measure of our success will be the value we create for our shareholders over the long term. It is only over periods of five years or more that the characteristics we look for in businesses become apparent. Our turnover has been low, consistent with our time horizon. We ask that our shareholders measure our performance over similar periods.

• Short-term volatility is an inevitable feature of the market, and we will not manage the portfolio to reduce volatility at the expense of long-term gain. Many managers are risk-averse and fear loss more than they value gain. Therefore, they accept smaller, more predictable risks rather than the larger and less predictable ones. We believe that this is harmful to long-term returns, and we will not shy away from making investments that are perceived to be risky if we believe that the potential payoffs are worthwhile. This means that our performance may be lumpy over the short term.

• We believe, and academic work has shown, that long-term equity returns are dominated by a small handful of exceptional growth companies that deliver outsized returns. Most stocks do not matter for long-term equity returns, and investors will be poorly served by owning them. In our search for exceptional growth companies, we will make mistakes. But the asymmetry inherent in equity markets, where we can make far more in a company if we are right than lose if we are wrong, tells us that the costliest of mistakes is excessive risk aversion.

• We do not believe that the index is the right starting point for portfolio construction. The index allocates capital based on size. We believe that capital should be allocated based on marginal return and the ability to grow at those rates of return. Big companies are not immune to disruption. We do not manage the portfolio to an active share target, but we expect the active share of the Company to be high.

• We are largely indifferent to a company's private or public status. We will conduct diligent analysis and allocate capital to where the highest returns are likely to be.

• We believe our duty is to maximise the long-term wealth of our shareholders, and that placing emphasis on short-term performance serves our shareholders poorly.

• We will endeavour to operate in the most efficient, honest and economical way possible. That means keeping our ongoing costs including management fees low. We recognise that even modest amounts, when allowed to compound over long periods of time, add up to staggering sums, and we do not wish to dilute the compounding of returns with the compounding of costs.

With this foundation, we aim to build Baillie Gifford US Growth Trust into a world-class savings vehicle. We are grateful that you have joined us on this journey, and we look forward to a long and hopefully prosperous relationship with you.

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.

Review of investments

A review of the Company's ten largest investments and additions to the private company investments as at 31 May 2024.

Top ten holdings

Space Exploration Technologies ^U

7.6% of total assets*

An aerospace and space transportation company that manufactures advanced rockets, like the Falcon 9, and satellites, like Starlink, which provides global broadband services. We are excited by its pursuit of reduced launch costs, thus opening avenues for growth, such as tourism and transportation. A clear segment leader, it looks positioned to capture an attractive share of the growing space industry, while Starlink may become the first globally relevant utility.

NVIDIA

6.5% of total assets*

NVIDIA designs and manufactures graphics processing units for the gaming and professional markets. They are highly specialised semiconductor chips that can be used for a range of applications, from gaming to artificial intelligence ('AI'). After years of investment into both hardware and software, NVIDIA is well positioned to benefit from the rise of generative AI, as its chips form the infrastructure layer to power large language models. NVIDIA is using its scale to further reinvest in its opportunity; designing new hardware to make data centres more powerful and energy efficient, while building software to help companies adopt AI more quickly.

Amazon

5.2% of total assets*

In retail, Amazon competes on price, selection and convenience and is improving all three as it gets bigger. Amazon's AWS (Amazon Web Services) division is in a clear position of leadership in what could turn out to be one of the largest and most important market shifts of our time. Both opportunities are outputs of what is perhaps most distinctive of all about Amazon - its culture. The company is run with a uniquely long-term perspective. It is willing to be bold and scale its experiments (and failures) as it grows. These cultural distinctions allow Amazon to possess the rare and attractive combination of scale and immaturity.

The Trade Desk

5.0% of total assets*

The advertising industry is undergoing a wholesale shift. In the past advertising was bought and sold in bundles. In the digital world, advertising can be transacted on a one-to-one basis, targeting only the audiences that are relevant. The Trade Desk provides the technology that enables this targeted buying of advertising through real-time auctions. This is known as programmatic advertising. Programmatic advertising is growing rapidly, supported by higher efficacy and a tangible demonstration of return on investment. We believe that The Trade Desk will emerge as the leading buying platform for the independent internet.

Stripe ^U

4.6% of total assets*

Stripe is a payments technology company. Founded in 2010 by Irish brothers Patrick and John Collison, the company is in the process of developing a platform for sending money seamlessly and compliantly between any two internet-connected nodes in the world. The company processes massive volumes of payments from a broad customer base, ranging from US start-ups to global giants. Stripe's long-term ambition is to make entrepreneurship easier and thus significantly increase the amount of business conducted online.

Meta Platforms

3.7% of total assets*

Meta Platforms is the owner of Facebook, WhatsApp and Instagram. We think that AI could be a significant growth driver. In the nearer term, it should facilitate revenue growth as AI systems allow adverts to be targeted more effectively despite Apple's privacy restrictions. Facebook may be unique in having the engineering resources to take advantage of this opportunity. The company addressed its cost base last year, leaving it well-placed to take on this challenge. In the longer term, AI should facilitate the monetisation of WhatsApp, a platform that enjoys widespread usage but has struggled to find a revenue model.

Moderna

3.4% of total assets*

Moderna is a leader in the field of mRNA therapeutics. mRNA is a foundational technology that theoretically has the potential to induce the production of just about any protein - human or non-human - inside our cells. This versatility opens up a wide range of therapeutic opportunities for mRNA. mRNA is in a sense digital, and is therefore programmable. In moving from one drug to the next, the delivery mechanism and building blocks remain the same. The only thing that changes is the code. Because of this, Moderna's mRNA platform ought to be more scalable than past drug development approaches. Moderna may have more in common with a software company than a biotech business.

Netflix

3.4% of total assets*

Netflix has the potential to become the first truly global content and distribution media brand. Its base of more than 230 million subscribers allows it to invest in building a strong customer proposition through its library of exclusive and desirable content. This in turn attracts more subscribers, creating a powerful flywheel that distances itself from other likely competitors. The shift from linear TV to on-demand streaming is still in the early stages, and Netflix is a prime beneficiary.

Shopify

3.1% of total assets*

Shopify provides software tools which allow merchants to easily set up and manage their businesses across an increasingly complex and fragmented retail landscape. Shopify's software helps to make merchants more efficient by automating large swathes of their operations (e.g. marketing, inventory management, payments, order processing, shipping) thus allowing them to focus on product market fit. The company maintains a rapid pace of innovation and is run by an impressive founder who has built a distinctive merchant focused culture.

Brex ^U

3.1% of total assets*

Brex is building an all-in-one platform for businesses to manage their finances. It started by offering a corporate card for venture-backed business. It has expanded into larger businesses and is now offering a broader suite of products including business accounts, expense management and bill pay software. Existing options are expensive and do not work well with one another. Brex is aiming to build a fully integrated suite which will act as the financial operating system for growing businesses. Its business model and approach have demonstrated strong alignment with its customers, a rarity in this sector. This customer focus, coupled with the strength of the founding team and breadth of their ambition, leave Brex well placed to exploit this large opportunity.

Private company new buy

Human Interest ^U

0.7% of total assets*

Human Interest is a digital retirement account manager giving SME employers the ability to offer employees 401(k) and IRA (individual retirement account) plans. This is a massively underserved part of the market - 50% of American households have no retirement accounts. The possibilities of real-time payroll SaaS (software as a service) integrations enable automated and therefore very low cost 401(k) administration. Human Interest has become the clear leader in the space. It has: a large end market; a rapidly growing product that has a plausible regulatory tailwind; a business model that shows clear signs of operating leverage; and a decent argument for business model innovation against the incumbents.

^U  Denotes private company investment.

*Total assets less current liabilities, before deduction of borrowings. See Glossary of terms and alternative performance measures at the end of this announcement.

Portfolio executive summary

Key contributors to and detractors from performance - year to 31 May 2024

* Contribution to absolute performance (in sterling terms) has been calculated to illustrate how an individual stock has contributed to the overall return. It is influenced by both share price performance and the weighting of the stock in the portfolio, taking account of any purchases or sales over the period.

† Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 June 2023 to 31 May 2024. For the definition of total return see Glossary of terms and alternative performance measures at the end of this announcement. Table ordered by contribution to performance.

^U  Denotes private company investment.

Source: Revolution.

Distribution of total assets* by sector 2024

Source: Baillie Gifford/LSEG and relevant underlying index providers. 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 - valuing private companies

We hold our private company investments at 'fair value' i.e. the price that would be paid in an open- market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team with all voting members being from different operational areas of the firm, and the investment managers only receive final notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve-month period. For investment trusts, the prices are also reviewed twice per year by the respective investment trust boards and are subject to the scrutiny of external auditors in the annual audit process.

Beyond the regular cycle, the valuations team also monitors the portfolio for certain 'trigger events'. These may include: changes in fundamentals; a takeover approach; an intention to carry out an Initial Public Offering ('IPO'); company news which is identified by the valuation team or by the portfolio managers; or meaningful changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value.

The valuations group also monitors relevant market indices on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate.

Periods of market volatility during the year has meant that valuations continue to be reviewed much more frequently, in some instances resulting in a further valuation movement. The data below quantifies the revaluations carried out during the year to 31 May 2024, but does not reflect the ongoing monitoring of the private investment portfolio that has not resulted in a change in valuation.

*Data reflecting period 1 June 2023 to 31 May 2024 to align with the Company's reporting period end.

Whilst pockets of heightened volatility remain, the general improvement in market sentiment is reflected in the private company valuations at 31 May 2024. The average movement in company valuations and share prices across the portfolio are shown below.

*Data reflecting period 1 June 2023 to 31 May 2024 to align with the Company's reporting period end.

Private companies summary

Historical snapshot

Since our first investment in private companies in 2018, Baillie Gifford US Growth has deployed £242.5m of capital in this area.

Portfolio activity - year to 31 May 2024

£8.2m of new capital was deployed in private companies during the year.

Oddity listed during the period. Subsequent to Convoy ceasing operations the holdings in it were written off during the year (see note 9 of the Financial Statements on page 100 of the Annual Report and Financial Statements).

Concentration

At 31 May 2024 we held 24 private companies which equated to 34.1% of total assets.

-     Five companies account for 57.3% of the private company exposure.

-     Ten companies account for 78.1% of the private company exposure.

Size

Our private company exposure tends to be weighted to the upper end of the maturity curve, focused on late stage private companies who are scaling up and becoming profitable.

*Total assets less current liabilities, before deduction of borrowings. See Glossary of terms and alternative performance measures at the end of this announcement.

List of investments

as at 31 May 2024

* Total assets less current liabilities, before deduction of borrowings. See Glossary of terms and alternative performance measures at the end of this announcement.  

† See Glossary of terms and alternative performance measures at the end of this announcement.  

# Includes holdings in ordinary shares, preference shares and convertible promissory notes.

^U  Denotes private company investment.

^P  Denotes listed investment previously held in the portfolio as a private company investment.

Past performance is not a guide to future performance.

Income statement

For the year ended 31 May

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 31 May

* Net asset value per ordinary share after deducting borrowings at book value. 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 31 May 2024

For the year ended 31 May 2023

* The capital reserve includes investment holding gains on fixed asset investments of £144,945,000 (2023 - gains of £26,558,000).

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

Cash flow statement

For the year ended 31 May

* Cash from operations includes dividends received of £331,000 (2023 - £472,000) and interest received of £35,000 (2023 - £154,000).

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

Notes to the Financial Statements

1.  Principal accounting policies

The Financial Statements for the year to 31 May 2024 have been prepared in accordance with FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and on the basis of the accounting policies set out below which are unchanged from the prior year and have been applied consistently.

2.  Income

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 Secretaries. 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 annual management fee is 0.70% on the first £100 million of net assets, 0.55% on the next £900 million of net assets and 0.50% on the remaining net assets. Management fees are calculated and payable quarterly. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance.

4.  Net return per ordinary share

Revenue return per ordinary share is based on the net revenue loss after taxation of £6,282,000 (2023 - net revenue loss after taxation of £4,718,000) and on 303,075,968 (2023 - 305,153,700) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during each period.

Capital return per ordinary share is based on the net capital profit for the financial period of £96,166,000 (2023 - net capital loss of £10,869,000) and on 303,075,968 (2023 - 305,153,700) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during each period.

Total return per ordinary share is based on the total profit for the financial period of £89,884,000 (2023 - total loss of £15,587,000) and on 303,075,968 (2023 - 305,153,700) ordinary shares, being the weighted average number of ordinary shares in issue (excluding treasury shares) during each period.

There are no dilutive or potentially dilutive shares in issue.

5.  Ordinary dividends

There are no dividends paid or proposed in respect of the financial year. There is no investment income available for distribution by way of dividend for the year to 31 May 2024 due to the revenue loss of £6,282,000 in the year (2023 - revenue loss of £4,718,000).

6.  Fair value hierarchy

*     The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.

†    The Abiomed CVR (see 'Contingent value rights' below for details) had a fair value of nil at 31 May 2024 and 31 May 2023.

During the year to 31 May 2024 investments with a book cost of £5,725,000 (31 May 2023 - no investments) were transferred from Level 3 to Level 1 on becoming listed. Investments in securities are financial assets held at fair value through profit or loss. In accordance with FRS 102, the tables above provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair value hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The valuation techniques used by the Company are explained in the accounting policies on pages 95 and 96 of the Annual Report and Financial Statements. A sensitivity analysis by valuation technique of the unlisted securities is given on pages 106 to 109 of the Annual Report and Financial Statements.

7.  Transaction costs

Transaction costs of £21,000 (2023 - £12,000) and £28,000 (2023 - £14,0000) were suffered on purchases and sales respectively.

8.  Borrowing facilities

The US$25 million five-year revolving credit facility with ING Bank N.V., London Branch matured on 31 July 2023 and was refinanced with a new unsecured US$25 million three-year revolving credit facility from ING Bank N.V., London Branch on 26 July 2023. At 31 May 2024 there were drawings of US$25 million at an interest rate of 7.01% (2023 - US$25 million at an interest rate of 6.87%). The US$25 million three-year fixed rate facility with ING Bank N.V., London Branch matured on 23 October 2023 and was refinanced with a new unsecured US$25 million three-year revolving credit facility, from The Royal Bank of Scotland International Limited, on 18 October 2023. At 31 May 2024 there were drawings of US$25 million at an interest rate of 6.61% (2023 - US$25 million at an interest rate of 1.90%).

The main covenants relating to the loans are that borrowings should not exceed 30% of the Company's adjusted net asset value or adjusted portfolio value and the Company's minimum adjusted net asset value or adjusted portfolio value shall be £140 million. The adjusted net asset value and adjusted portfolio value calculations include the deduction of 100% of the value of any unlisted securities. There were no breaches in the loan covenants during the year to 31 May 2024 (31 May 2023 - none).

9.  Analysis of change in net debt

10.        Share capital

In the year to 31 May 2024, the Company issued no shares (2023 - nil).

Over the period from 1 June 2024 to 16 August 2024 the Company has issued no shares.

The Company's authority to buy back shares up to a maximum of 14.99% of the Company's issued share capital was renewed at the Annual General Meeting held on 18 September 2023. In the year to 31 May 2024 7,925,000 shares with a nominal value of £79,250 were bought back at a total cost of £14,550,000 and held in treasury (2023 - nil). At 31 May 2024 the Company had authority to buy back 37,817,539 ordinary shares.

Over the period from 1 June 2024 to 16 August 2024 the Company bought back 1,950,000 shares.

11.   The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 May 2024 or the year ended 31 May 2023 but is derived from those accounts. Statutory accounts for the period to 31 May 2023 have been delivered to the Registrar of Companies, and those for the year to 31 May 2024 will be delivered in due course. The auditor has reported on those accounts; the reports were (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 section 498 (2) or (3) of the Companies Act 2006.

12.   Transactions with related parties and the Managers and Secretaries

The Directors' fees and shareholdings are detailed in the Directors' remuneration report on pages 76 to 79 of the Annual Report and Financial Statements. No Director has a contract of service with the Company. During the period no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Details of the management fee arrangements are included in note 3 above.

13.   The Annual Report and Financial Statements will be available on the Company website bgusgrowthtrust.com‡ on or around 28 August 2024.

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

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).

Shareholders' funds and net asset value

Shareholders' funds is the value of all assets held less all liabilities, with borrowings deducted at book cost. Net asset value ('NAV') is the value of all assets held less all liabilities, with borrowings deducted at either fair value or book value as described below. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue.

Borrowings at book value

Borrowings are valued at adjusted net issue proceeds. The value of the borrowings at book is set out on page 111 of the Annual Report and Financial Statements.

Borrowings at fair value (APM)

Borrowings are valued at an estimate of their market worth. The value of the borrowings at fair is set out on page 111 of the Annual Report and Financial Statements.

Net asset value (reconciliation of NAV at book value to NAV at fair value)

Net liquid assets

Net liquid assets comprise current assets less current liabilities (excluding borrowings).

Discount/premium (APM)

As stock markets 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 any dividend on the date that the share price goes ex-dividend. The Company does not pay a dividend, therefore, the one year and since inception total returns for the share price and NAV per share at book and fair value are the same as the percentage movements in the share price and NAV per share at book and fair value as detailed above.

Ongoing charges (APM)

The total recurring expenses (excluding the Company's cost of dealing in investments and borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).

Turnover (APM)

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

Gearing (APM)

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

Gearing is the Company's borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds.

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

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers 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.

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.

Treasury shares

The Company has the authority to make market purchases of its ordinary shares for retention as treasury shares for future reissue, resale, transfer, or for cancellation. Treasury shares do not receive distributions and the Company is not entitled to exercise the voting rights attaching to them.

Private (unlisted) company

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

Contingent value rights

'CVR' after an instrument name indicates a security, usually arising from a corporate action such as a takeover or merger, which represents a right to receive potential future value, should the continuing company achieve certain milestones. The Abiomed CVR arose on Johnson & Johnson's takeover of Abiomed. The milestones relate to the performance of the technologies acquired through the takeover. Any value attributed to this holding reflects both the amount of the future value potentially receivable and the probability of the milestones being met within the time frames in the CVR agreement.

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 US Growth 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 & 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.

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

‡ 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.

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