Baillie Gifford US Growth Trust plc final results
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 2023
During the financial year to 31 May 2023, the Company's share price and net asset value ('NAV' after deducting borrowings at fair value) returned
-13.8% and -2.7% respectively. This compares with a total return of 4.7% for the S&P 500 Index* (in sterling terms). During the period from 23 March 2018, launch date, to 31 May 2023 the Company's share price and NAV (after deducting borrowings at fair value) returned 44.1% and 90.4% respectively. This compares with a total return of 102.0% for the S&P 500 Index* (in sterling terms).
- Turnover in the portfolio over the financial year was 7.1% which is consistent with our five year plus time horizon.
- As at 31 May 2023, we held 25 private company investments which collectively compromised 34.5% of total assets*.
- We made one additional private company investment: Oddity.
- We sold Peloton, Teladoc, Appian, Butterfly Network, Carvana and First Republic during the period.
- We added three listed holdings to the portfolio: Roblox, Sweetgreen and Doximity.
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 £608.9 million (before deduction of loans of £40.3 million) as at 31 May 2023.
You can find up to date performance information about Baillie Gifford US Growth on the US Growth Trust page of the Managers' website at bgusgrowthtrust.com‡.
Baillie Gifford US Growth Trust is managed by Baillie Gifford & Co, the Edinburgh based fund management group with approximately £230 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 8 August 2023).
* Source: Refinitiv 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 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.
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.
10 August 2023
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 2023 which was approved by the Board on 9 August 2023.
Chairman's Statement
Dear Shareholders
During the financial year to 31 May 2023, the Company's share price and net asset value total return, calculated by deducting borrowings at fair value, were -13.8% and -2.7% respectively. This compares with a total return of 4.7% 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 total return, calculated by deducting borrowings at fair value, returned 44.1% and 90.4% respectively compared to a total return of 102.0% for the S&P 500 Index* (in sterling terms).
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 12.3% last year to a discount of 22.4% at 31 May 2023 as sentiment continued to turn against the Company's growth investing style. Having bought back 2,206,300 shares, to be held in treasury, at a total cost of £3.6 million in May 2022 with limited impact on the discount, the Board took the decision to use the capital to invest in new growth opportunities instead. The Company issued no shares during the year to 31 May 2023.
The Board regularly reviews the Company's liquidity policy and it is a key discussion point at Board meetings. The Board acknowledges the discount is a challenge to many shareholders but notes that, from the data provided to the Board, there continues to be natural buyers of the Company's shares in the market.
As at 31 May 2023, the Company had authority, which was granted at the 2022 Annual General Meeting, to issue a further 30.5 million shares and to buy-back a further 45.7 million shares. These authorities expire in September 2023. The Company will be seeking to renew both the issuance and buy-back authorities at the forthcoming Annual General Meeting.
Since the year end and as we enter our sixth year of business, the Board concluded it would be timely to review our broking arrangements. After meeting with several suitable firms, the Board have agreed that we will be best supported by the specialist team at Panmure Gordon (UK) Limited going forward. We are grateful to Investec for their work on our behalf since IPO.
Gearing
The Company had two loan facilities in place with ING Bank N.V., London Branch, throughout the year to 31 May 2023. The first was a US$25 million five-year revolving credit facility which expired on 31 July 2023 and the second is a US$25 million three-year fixed rate facility which expires on 23 October 2023. The facilities are available to be used to fund purchases of securities as and when suitable opportunities arise. As at 31 May 2023, the facilities had been drawn down in full (31 May 2022 - US$50 million). Net gearing stayed at 6% over the course of the year. Subsequent to the year end on, 26 July 2023 the US$25 million five-year revolving credit facility was refinanced with a US$25 million three-year revolving credit facility from ING Bank N.V., London Branch.
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 2023 was a negative 1.55p (year to 31 May 2022 - a negative 1.88p). As the revenue account 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 (Unlisted) Investments
As at the Company's year end, the portfolio weighting in private company (unlisted) investments stood at 34.5% of total assets, invested in twenty-five companies (2022 - 36.4% invested in twenty-four companies). There was one new private company purchase in the year, Oddity. 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. In respect of the valuation process, the private company (unlisted) investments continue to be revalued on a three-month rolling cycle which is overseen by the valuations group at Baillie Gifford who take advice from an independent third party, S&P Global. As a Board we continue to scrutinise and challenge the Managers on the valuation of the private company (unlisted) investments. They are also subject to the scrutiny of the external auditor on an annual basis. More detail on this process can be found below.
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 below. The Managers' pursuit of long-term growth opportunities typically involves investment in entrepreneurial, disruptive and technologydriven businesses. These companies are often capital-light with a low carbon footprint.
Annual General Meeting
The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 9.30am on Monday, 18 September 2023. 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 trustenquiries@bailliegifford.com or by calling 0800 917 2112 (Baillie Gifford may record your call). In order to increase the accessibility of the Annual General Meeting the Board plan to hold the 2024 Annual General Meeting in London. Details of how shareholders can watch this year's Annual General Meeting online can be found in the Notice of Annual General Meeting on page 69 of the Annual Report and Financial Statements.
Outlook
In my outlook statements for the last three years, I have reflected on both the opportunity and risks of growth investing against the turbulent global backdrop that we have all been living through. As I wrote last year's statement, I'm certain that the optimist in me was hoping that the market for growth companies would have stabilised over the coming twelve months, but in general the valuations of more predictable assets have fared better than the firms we look to find and hold on your behalf over the long term. My inner optimist remains, though I fear this coming year will be equally hard to predict. That is not to say that our Managers have not been able to make good progress - not least in getting back to face-to-face engagement with the leadership of those companies already held and those they have decided to research. The Board continues to believe that the companies we hold are very well placed to generate extremely attractive returns to investors over the long term and as such, we remain confident in our outlook.
Tom Burnet
Chairman
9 August 2023
* Source: Refinitiv 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
During the period from 23 March 2018, launch date and first trade date, to 31 May 2023, the Company's share price and net asset value total return (after deducting borrowings at fair value) returned 44.1% and 90.4%, respectively. This compares with a total return of 102.0% for the S&P 500 Index* (in sterling terms).
We are disappointed. We asked you to judge us over the long term, and as shareholders and managers of the Baillie Gifford US Growth Trust, we are dissatisfied with our five-year performance. These are not the numbers we looked to deliver at the Company's fifth anniversary.
It has been a volatile period. We have experienced multiple once-in-a-generation events since the Company was founded: a global pandemic, war, and supply shocks. With such turbulence, it is easy to overlook the fundamental progress the underlying companies we invest your capital in have made.
We launched Baillie Gifford US Growth Trust in March 2018 with the belief that a fund with a five-plus year time horizon that could invest in the most exceptional public and private growth businesses in the US, brought something different to the market and had the opportunity to deliver outsized returns. We continue to believe that to be the case. When we began, 0% of the portfolio was invested in private companies. At the end of May 2023, that number stands at 34.5%. We now have two private companies in the top ten and six in the top twenty. We believe this is something to be celebrated, not feared. We are delighted that private companies have grown sufficiently to make considerable contributions to the Company's future performance. We believe these companies are among the most important forces behind future progress.
Whilst share prices have been volatile since inception, the fundamental progress of the companies within the Company has been phenomenal.
Zipline, the drone delivery company, was our first private investment. Today it represents 2.3% of total assets. In 2018, Zipline's operations were predominantly in Rwanda, where its autonomous drones played a pivotal role in delivering medical supplies, specifically blood, to hard-to-reach locations. Fast forward to 2023, and Zipline serves 3,400 hospitals and health facilities globally and is contracted to serve more than 10,000 by the end of the year. While initially focusing on medical supplies, the company has expanded into ecommerce, animal, and agricultural products. Zipline is now the largest autonomous drone delivery company on earth, having flown over forty million commercial, autonomous miles, and is on track to make twice as many deliveries this year as all previous years combined. And with Zipline's home delivery system launching two months ago in the US, it is just getting started.
In 2018, Shopify, the commerce platform for merchants and the largest public investment in the Company, had gross merchandise value ('GMV') of ~US$40 billion, a 2.6% take rate, and revenue had just crossed the one-billion-dollar mark. Fast forward to 2023, and GMV sits at close to US$200 billion, the company's take rate in quarter one was over 3.0% and FY22 revenue was close to US$3 billion. Additionally, the company launched numerous products, including Shop Pay Instalments in 2021 and Audiences (an advertising tool) in 2022. With net cash of US$3.9 billion, there is plenty of scope for innovation and new product launches.
Space Exploration Technologies ('SpaceX') makes rockets and satellites. In 2018 SpaceX made 21 launches, about half of which made successful ground landings. In 2022 the company launched 61 orbital missions, nearly doubling its previous single-year record of 31, set in 2021. That number means that SpaceX launched, on average, every six days from one of three sites. It is driving the launch market, taking two-thirds market share. It has achieved this by making its service much cheaper, driven by reusable rockets. Nothing illustrates this more effectively than SpaceX recently relaunching one of its Falcon rockets for the fifteenth time. SpaceX is leveraging this cost advantage to move into the communicationns sector with Starlink, a low earth orbit satellite constellation to deliver fast broadband to rural areas. It already has over one million customers. Starlink recorded its first quarter of positive free cash flow in 2022 and President and COO Gwynne Shotwell has said publicly that the internet business "will make money" in 2023, joining the core launch business which already "makes money".
Amazon's cloud offering AWS has grown revenues from US$26 billion in 2018 to US$80 billion today. Wayfair, the online homeware business, has more than doubled its top line since 2018, seen gross margin expansion of more than 700 basis points and nearly doubled its active customer base from 13 million to over 21 million. CoStar, the commercial and residential real estate company, has increased its revenue 126%, adding over US$1 billion, since the Company's launch, expanded margins and reduced them again as it invests counter-cyclically in new growth opportunities. Watsco, the heating, ventilation and air conditioning ('HVAC') distribution business, has improved gross margins by 410 basis points, built an ecommerce business which is now over 33% of sales and grown EPS at a 24% compound annual growth rate.
Of course, the progress of companies in the Company's portfolio has not been a linear journey; there have been highs and lows. However, when surrounded by noise and volatility, it is easy to forget how far many of the companies we invest in on behalf of the Company have come. The fundamental progress on a five-year view has been remarkable for many businesses.
Opportunity Remains
In nature, there exists a mushroom: the matsutake. Matsutake are wild mushrooms that emerge in some of the most disturbed environments in the world. However, matsutake is not considered a pest; it is a gourmet treat: the most valuable mushroom in the world.
Nature shows us that valuable products can emerge even within the most disturbed environments. The same applies to companies; difficult times help us identify resilience and adaptability, two core tenets of long-run success. While the term disturbance has negative connotations, disturbance can renew as well as destroy. The razing of a forest, while on the face of it destructive, enables new life to flourish. In a burning and charred world, it is easy to forget the potential and opportunity that lies beneath. The pull toward the safety of established trees or, in our world, companies, threatens to overwhelm.
Patience is key: the most impactful innovations may lie dormant until the environment is right for them to flourish. A great number of innovations arrive before their time. Dormancy can result from inertia, powerful incumbency, and resistance to change. Idea creation is the easy task; creating success is where the hard work begins. Disturbance creates opportunities for innovation because it enables heterogeneity - it opens the possibility of alternative landscapes and new ways of doing things. As the pull toward convention and homogeneity continues, disturbance can create lasting transformations that enable exuberant growth and progress.
The rapidly changing macro environment over the past year is the stock market equivalent of disturbance. While uncomfortable to experience, it may be that periodic disturbance is necessary to separate the wheat from the chaff and to help the landscape evolve - enabling new forces the opportunity to flourish in time and drive progress. However, much like the razing of a forest, damage has been done. For some companies, the damage, whether the consequence of unsustainable business models or an overreliance on cheap access to capital, will be fatal. For some, the damage is painful but survivable, for others, the changed landscape marks a significant opportunity.
Like fungi, companies evolve in response to the environment in which they find themselves. In the past year, we have seen a clear shift in the portfolio toward profitable growth. Companies continue to invest in the future, but they are cognisant that the path of progress is less likely to be funded by others.
Companies have felt the squeeze of the macroeconomic environment. Growth rates have slowed. Estimates and expectations have been reset. Those who over-invested in their cost bases during the pandemic years must readjust now. Companies such as Wayfair, Twilio, Shopify and Snap have announced layoffs which bring about cultural challenges but also the opportunity for increased discipline and operational efficiency while continuing to invest in the long-run opportunity. Cloud companies such as Snowflake, Cloudflare and Datadog are experiencing slower growth rates as their underlying customers look for ways to reduce costs. Still the structural opportunity for cloud companies remains very much intact - Amazon CEO Andy Jassy has suggested around 90% of IT spend is still on-premise. Other companies like Duolingo, the gamified language learning app, and The Trade Desk, the programmatic advertising platform, which are earlier still in their structural opportunity, have seen limited impact from the macroeconomic environment. Duolingo has recently seen its seventh straight quarter of accelerating user growth, and revenue increase 34% year on year in 2022. It has shifted the number of paying users from around 4% at IPO in 2021 to around 8% today and continues to innovate with the launch of Duolingo Max, its AI-powered offering which enables roleplay and personalised feedback. The Trade Desk has grown its share of the global advertising market from 0.6% to 1.0% since 2020; its revenues have grown over 20% annually since March 2018. The company has continued to innovate, launching its first upfront advertising product this year.
Companies which survive and adapt to the macroeconomic shocks of the past year can emerge stronger than before, and like the matsutake mushroom, those that do are likely to be far more valuable in future.
Portfolio Changes
To the end of May, turnover was low at 7.1%, reflecting our belief in the companies we own. Having revisited the upside cases for most of the Company's holdings, we continue to believe in the underlying investment opportunities.
Almost every beneficiary of Covid-19 has seen a significant de-rating. When performance is challenged, it is easy to be drawn into focusing on the underperforming stocks and those where your conviction is waning. We believe new ideas and enthusiasms should drive portfolio changes. Thus, we have spent time on new ideas and underwriting the Company's investments. Bringing new ideas, or a new perspective on a current holding, to the table and comparing them to our existing portfolio enables constructive discussion of ideas, moving the conversation beyond short-term challenges to whether a stock merits a position in the portfolio and at what scale.
There have been some changes to the top ten over the last year, with NVIDIA, Netflix and CoStar moving into its ranks. All have become larger holdings because of solid share price performance; CoStar and Netflix over the past year and NVIDIA since the beginning of this year. A reduction in Illumina moved it out of the top ten. The ability to read DNA remains foundational for advances in healthcare, but the competitive landscape is evolving rapidly, and the company's execution has disappointed.
We added several new listed holdings to the portfolio over the last year: Roblox, Sweetgreen and Doximity. Roblox is an online gaming and game creation platform with a strong market share in the 9-12-year-old demographic. We began researching the company before its IPO and were excited at its opportunity to 'age up' its user base and broaden the experiences available on the platform. We used share price weakness to initiate a holding. We also bought a small holding in Sweetgreen, a salad restaurant chain. Again, we have followed the business for some time. The company is early in its store rollout. Still, its strong brand, positive store economics, creative management team and clear plan to self-sustainability led us to take a position. Doximity's vision is to become the 'Bloomberg of Medicine'. The company has created free-to-use products which improve quality and productivity within a social network for doctors and monetises by selling hypertargeted, unobtrusive advertising to pharmaceutical companies. With only 20% of pharmaceutical marketing budgets allocated to digital advertising compared to around 80% for Fortune 100 companies, the opportunity is significant.
We sold Peloton, Teladoc, Appian, Butterfly Network, Carvana and First Republic during the period. Abiomed was acquired by Johnson and Johnson. Butterfl y Network, the portable ultrasound company, struggled with its go-to-market strategy and significant turnover among its executive team. While we hope Butterfly can succeed, we felt the probability of doing so was diminishing, and we sold the holding. Our most recent sale was Carvana, the online used car dealership. While the opportunity for the business remains large, we concluded that it had become constrained by its financing position. The company has taken steps to address its finances, but we are concerned the cost controls may cut into its ability to compete effectively.
We sold First Republic as the bank grappled with a run on its deposits in the wake of the Silicon Valley Bank collapse. We have long admired First Republic's service model, deep customer relationships, conservative lending culture and management team, but these features did not provide protection when panic set in. Given the existential risk in the near term posed by deposit withdrawals and the higher cost of replacement funding depressing future profitability, we sold the holding with a heavy heart.
We made one additional unlisted investment over the last twelve months: Oddity. We have included a description of this business below. Given the market environment, none of our existing private company holdings went public during the period. The net result was that, at the end of May, we held 25 private company investments which comprised 34.5% of total assets. Considering companies that were previously private company investments, but are now public, this figure rises to 38.0%.
Investment Principles
As we have done for the last three years, we have included our investment principles again, unaltered. We hope that by publishing our investment framework in this and future communications we provide shareholders with a useful reminder of our philosophy and a yardstick with which to measure us.
Our second principle begins: '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.' In recognizing the inescapability of volatility up front, we can be better prepared for it when it happens. The last few years have been particularly volatile and challenging. However, our philosophy and process remain our rock in these difficult times, and our confidence in it and the Company's underlying holdings has not weakened.
Outlook
When surrounded by noise and volatility, taking a step back and gaining perspective is difficult. But it is essential to do so. The barrier between what is and what could be has never felt lower. As a child, movies and sci-fi books talked about quantum computing, artificial intelligence, space travel, drone delivery, software code as medicine and biology's power to solve the world's problems. These topics are no longer a figment of imagination. The Company owns companies addressing each: PsiQuantum, NVIDIA, SpaceX, Zipline, Moderna and Ginkgo Bioworks. The future feels closer than it has ever been before, and that is indicative of a world ripe with opportunity.
It is true that success does not happen in a vacuum; more than creativity and innovation is needed. Success also depends upon the environment into which an idea is born. We are long-term investors, but we cannot lose sight of the fact that companies have to face their current circumstances as they are today, not as they will look in the future. Still, those businesses that can survive, adapt and thrive in the face of significant disturbance have the opportunity to emerge from this environment stronger than they went in.
As managers of the Baillie Gifford US Growth Trust, the worst thing we could do right now is to go against the philosophy that underpins our approach and try and 'fix' performance, focusing on the short term at the expense of the long term. Performance has been poor, and we are disappointed. No one sets out to underperform. Even if we know periods of underperformance are inevitable for a long-term growth investor, it does not make it easier. However, given the opportunities in front of the companies the Company invests in, we cannot panic and pro-cyclically turn defensive. We will not get every investment right. But we have underwritten the investment cases for the companies held in the portfolio and are excited about their long-term potential. The forest has been razed; we must not trample on the seedlings before they have had a chance to flourish.
The US Equity Team
Valuing Private Companies
We aim to 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 valuation 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 12-month period. For investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.
Beyond the regular cycle, the valuations committee 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 ('NAV'). There is no delay.
The valuations committee 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.
Continued market volatility has meant that recent pricing has moved much more frequently than would have been the case with the quarterly valuations cycle. The following data quantifies the revaluations carried out during the year to 31 May 2023, however does not reflect the ongoing monitoring of the private investment portfolio that has not resulted in a change in valuation.
|
Baillie Gifford US Growth Trust* |
|
|
Percentage of portfolio revalued up to 4 times# |
30% |
|
Percentage of portfolio revalued up to 6 times |
80% |
|
Percentage of portfolio revalued up to 7 times |
20% |
* Data reflecting period from 1 June 2022 to 31 May 2023 to align with the Company's reporting period.
# Includes additions in the year.
Year to date, most revaluations have been decreases, with a small number of companies raising capital at an increased valuation. The average movement in company valuations and share prices for those are shown below.
|
|
Average movement in company valuation |
Average movement in share price |
|
Baillie Gifford US Growth Trust* |
-15.5% |
-18.6% |
* Data reflecting period from 1 January 2022 to 31 May 2023 to align with the Company's reporting period.
During the year to 31 May 2023, as we continued to write down some of the valuations of the investments in the portfolio, the economic reality of the liquidation preferences having been reviewed, leading to a less pronounced divergence in the valuation decreases across the various share classes held in the portfolio and the underlying company valuations.
Investment Principles
To our shareholders
Our core task is to invest in the exceptional growth businesses in America. 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 enterprise. To the extent that we are successful in identifying these companies, we believe that we can multiply the wealth of our clients over the long term.
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. It is with this in mind that 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.
¾ 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.
¾ 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.
¾ 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.
¾ 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 this fund to be high.
¾ The role of capital markets has changed, and we have evolved with it. As companies are remaining private for longer, so too have we broadened our search for exceptional growth companies into private companies. 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.
¾ We may discuss long-term trends and themes present in the portfolio, but we do not plan on discussing short-term performance. We believe our duty is to maximise the long-term wealth of our shareholders, and that creating narratives around short-term performance serves our shareholders poorly.
¾ We will endeavour to operate in the most efficient, honest, and economical way possible. That means keeping our management fees and ongoing costs 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 hope to build Baillie Gifford US Growth 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 Statement on Stewardship
Baillie Gifford's over-arching ethos is that we are 'actual' investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.
Our Stewardship Principles
Prioritisation of Long-term Value Creation
We encourage our holdings to be ambitious and focus their investments on long-term value creation. We understand that it is easy to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer holdings away from destructive financial engineering towards activities that create genuine economic and stakeholder value over the long run. We are happy that our value will often be in supporting management when others do not.
A Constructive and Purposeful Board
We believe that boards play a key role in supporting corporate success and representing the interests of all capital providers. There is no fixed formula, but it is our expectation that boards have the resources, information, cognitive and experiential diversity they need to fulfil these responsibilities. We believe that good governance works best when there are diverse skillsets and perspectives, paired with an inclusive culture and strong independent representation able to assist, advise and constructively challenge the thinking of management.
Long-term Focused Remuneration with Stretching Targets
We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create genuine long-term alignment with external capital providers. We are accepting of significant payouts to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.
Fair Treatment of Stakeholders
We believe it is in the long-term interests of all enterprises to maintain strong relationships with all stakeholders - employees, customers, suppliers, regulators and the communities they exist within. We do not believe in one-size-fits-all policies and recognise that operating policies, governance and ownership structures may need to vary according to circumstance. Nonetheless, we believe the principles of fairness, transparency and respect should be prioritised at all times.
Sustainable Business Practices
We believe an entity's long-term success is dependent on maintaining its 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. We expect all holdings to consider how their actions impact society, both directly and indirectly, and encourage the development of thoughtful environmental practices and 'net-zero' aligned climate strategies as a matter of priority. Climate change, environmental impact, social inclusion, tax and fair treatment of employees should be addressed at board level, with appropriately stretching policies and targets focused on the relevant material dimensions. Boards and senior management should understand, regularly review and disclose information relevant to such targets publicly, alongside plans for ongoing improvement.
Purposeful Company Conversations
We talk often with the boards, managers and staff of the companies we invest in. These conversations are central to our research and monitoring. Gaining an insight into the motivations and abilities of the people running each company makes us more effective owners. We are both grateful for, and mindful of, the time that is made available to us.
We use that time as effectively as we can. We monitor every holding against our key investment contentions, which include statements on the broader societal impact of growth for each business. These frameworks help us to prioritise our questions when we meet with companies.
In return we communicate our reasons for owning the shares clearly to our holdings as a minimum. Simply knowing that you have a shareholder on the books who will support you if you make choices that enhance the long-term return opportunity can help management teams to be ambitious. More directly, we can provide capital support on occasion too, particularly for the private companies in the Company's portfolio.
It is far from a one-way street. We are not afraid to provide thoughtful challenge to the companies we invest in. We are clear about our views on topics we see as being key to each investment case. Some examples of the discussions we have found most useful this year are noted below.
Duolingo
We met with Duolingo, an online education business, in its Pittsburgh offices towards the end of 2022. We explored the company's use of AI. The company had shifted its product development focus towards generative AI earlier that year, and by the time we met with it every engineer in its organisation was using it. We discussed its content generation capabilities and the possibilities this might unlock. The founder Luis Von Ahn believes that human tutor equivalence could be five years away, well within our investment time horizon. The company aims to make great education universally available. We discussed how the high quality of its free product both furthers its mission and acts as an edge versus potential competition. The social benefits of Duolingo's growth do not just align with shareholder returns, they reinforce the company's potential. This is an exciting combination.
Shopify
We met with the Chief Operating Officer of the ecommerce platform Shopify in London in late 2022. Shopify's platform helps merchants of all sizes to sell online effectively and with little hassle. Its tools level the online playing field, which should lead to more competition and greater consumer choice. Having enjoyed strong demand for their services during the Covid-19 pandemic, the company has had to readjust to a much tougher environment. Shopify has made staff redundant and discontinued some of its investment projects. These choices present serious challenges to a growth business, but the discussion highlighted the considered approach that Shopify is taking as well as its efforts to maintain the pace of innovation at the projects it considers most important to its merchants.
Twilio
Twilio is a cloud-based software platform. It provides software that developers use when adding communication capabilities into their applications, allowing businesses to communicate with their customers in ways that were not possible until recently. Twilio has grown its sales substantially but has made little progress toward profitability. It has had to change focus in a toughening environment, making staff redundant and renegotiating compensation. We spoke with the company's Chief Operating Officer about these issues in 2022, including the dilutive effect of their stock-based compensation agreements. We followed up with a call in February this year to talk with the CEO and the leaders of Twilio's newly formed business divisions. Twilio still has serious challenges to address, but we believe that the stage is set for a more disciplined and efficient company to emerge.
Ginkgo Bioworks
The synthetic biology business has only been a public company since 2021, though the Company has invested in Ginkgo since 2019. Ginkgo designs, tests and ferments programmed cells for a wide range of end uses; from healthcare to chemicals manufacturing. It is a complicated and nascent business, and during the year we discussed with the company how it communicates its progress to public market participants. We suggested that the company might benefit from providing more disclosure about the potential value of its projects. Ginkgo often retains a right to participate in the future success of a product it develops via milestones, royalties or ownership. We think this is poorly understood. Improving awareness here could put the company on the strongest possible footing as it grows.
Solugen
Solugen is a synthetic biology company that has remained private. It has been held in the Company's portfolio since 2021. Solugen aims to bring greener, cleaner and safer chemical production processes into the mainstream without sacrificing quality or raising costs. It does this by developing processes that harness both enzymes and metal catalysts. It already has products at commercial scale serving the oil and gas sector; an important validation of the concept. It is a highly ambitious, and potentially transformational business. We accepted the offer of a board observer position at the company. This has helped to deepen our understanding of how this innovative business is governed. It has also broadened our network of contacts who are experts in this space, providing valuable additional opportunities to learn more about this fast-developing industry.
Review of Investments
A review of the Company's ten largest investments and additions to the private company securities as at 31 May 2023 is given below.
Top Ten Holdings
Space Exploration Technologies
6.5% of total assets*
Space Exploration Technologies designs, manufactures and launches advanced rockets and spacecraft. By fully embracing innovation and vertical integration, the company has opened up a series of cost and capability improvements which are transforming the space industry. These improvements have unlocked a diverse range of revenue generating opportunities in areas such as global satellite connectivity and space logistics.
Space Exploration Technologies is a private company investment.
Shopify
5.4% 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.
The Trade Desk
5.3% of total assets*
The advertising industry is undergoing a wholesale shift in the way that advertising is bought and sold. Whereas 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. Its platform connects media buyers to a wide range of digital inventory and provides a set of tools to help buyers determine what price to pay for those ad opportunities. This is known as programmatic advertising - the buying of advertising using data. Programmatic advertising is still in its infancy and is growing rapidly, supported by higher efficacy and a tangible demonstration of return on investment. As the programmatic industry becomes mainstream, it will consolidate around a handful of buying platforms, and we believe that The Trade Desk will emerge as the leading buying platform for the independent internet.
Stripe
4.2% 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.
Stripe is a private company investment.
Tesla
4.1% of total assets*
Tesla makes electric cars, battery storage and solar power systems. The company has proven that cars can be environmentally friendly without compromising on style, safety, or performance. We are in the early stages of a major shift in the transportation industry towards EVs, and Tesla is the best positioned globally to capitalize on this. It is an innovative and mission-driven company whose success is aligned with the interests of the planet.
NVIDIA
4.0% of total assets*
NVIDIA designs and manufactures graphics processing units (GPUs) for the gaming and professional markets. They are highly specialised semiconductor chips that can be used for a range of applications, from gaming to machine learning and 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, whilst building software to help companies adopt AI more quickly.
Amazon
3.7% of total assets*
Amazon addresses huge market opportunities in the form of global retail and global IT spending. In retail, it competes on price, selection and convenience and is improving all three as it gets bigger. Amazon's AWS (Amazon Web Services) division is less mature than its retail business, but it is no less exciting. Here, Amazon 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. Amazon optimises for customer delight. 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.
Moderna
3.5% of total assets*
Moderna is a leader in the field of mRNA therapeutics, a new class of medicines that leverage the body's natural protein-production apparatus to treat diseases. It is known for its Covid-19 vaccine, but its long-term growth opportunity is far broader. 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. Furthermore, mRNA, like DNA, 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. Indeed, Moderna may have more in common with a software company than a traditional biotech business.
Netflix
2.8% 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.
CoStar Group
2.6% of total assets*
CoStar provides information, analytics and online marketplaces to the commercial real estate industry in the US. The market for commercial real estate information and analytics is vast. Each transaction has numerous participants and copious information requirements and, to facilitate transactions, participants must have accurate and current information. CoStar provides this information through its CoStar Suite, a dataset that has been built up over three decades. It aims to provide industry professionals with the knowledge to research and complete transactions, price optimally and stay up to date with market changes. The company has leveraged its position to expand into online marketplaces in both commercial real estate, apartment listings and most recently residential real estate. The company is led by its ambitious founder, Andy Florance, who has shown himself to be a shrewd operator who is willing to sacrifice short-term profitability for long-term growth.
Private Company Securities Purchased in the Year to 31 May 2023
Oddity
0.9% of total assets*
Oddity is a cosmetics and skincare holding company, focused on launching online-only direct-to-consumer brands. Fundamentally, the company believes the western beauty industry has failed to make the transition to online and remains stuck in a paradigm of online replenishment purchases rather than customer acquisition. Oddity's brands present customers with high quality products in high-retention categories, at prestige price points (foundation at US$45 vs US$8-16 for mass market) and take away the primary frictions of online purchasing through a returns guarantee and product matching. The promise and ambition is to use the common data-driven backbone to iteratively launch brands with US$1 billion plus sales potential and form a new type of Consumer Packaged Goods ('CPG') company.
* 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 2023
|
Name |
Business |
2023 Value £'000 |
% of total assets * |
2022 Value £'000 |
|
Space Exploration Technologies Class A Common U |
Rocket and spacecraft company |
2,374 |
0.4 |
2,122 |
|
Space Exploration Technologies Class C Common U |
Rocket and spacecraft company |
732 |
0.1 |
655 |
|
Space Exploration Technologies Series J Preferred U |
Rocket and spacecraft company |
20,041 |
3.3 |
17,917 |
|
Space Exploration Technologies Series K Preferred U |
Rocket and spacecraft company |
4,568 |
0.8 |
4,083 |
|
Space Exploration Technologies Series N Preferred U |
Rocket and spacecraft company |
11,505 |
1.9 |
10,285 |
|
|
|
39,220 |
6.5 |
35,062 |
|
Shopify Class A |
Cloud-based commerce platform provider |
33,135 |
5.4 |
19,215 |
|
The Trade Desk |
Advertising technology company |
32,448 |
5.3 |
26,818 |
|
Stripe Class B Common U |
Online payment platform |
2,281 |
0.4 |
4,452 |
|
Stripe Series G Preferred U |
Online payment platform |
11,110 |
1.8 |
21,678 |
|
Stripe Series H Preferred U |
Online payment platform |
1,430 |
0.2 |
1,865 |
|
Stripe Series I Preferred U |
Online payment platform |
10,860 |
1.8 |
- |
|
|
|
25,681 |
4.2 |
27,995 |
|
Tesla |
Electric cars, autonomous driving and solar energy |
24,967 |
4.1 |
30,401 |
|
NVIDIA |
Graphics chips |
24,334 |
4.0 |
12,481 |
|
Amazon |
Online retailer and cloud computing provider |
22,361 |
3.7 |
21,988 |
|
Moderna |
Therapeutic messenger RNA |
21,025 |
3.5 |
25,556 |
|
Netflix |
Subscription service for TV shows and movies |
17,247 |
2.8 |
9,620 |
|
CoStar Group |
Commercial property information provider |
15,817 |
2.6 |
12,610 |
|
Brex Class B Common U |
Corporate credit cards for start-ups |
8,050 |
1.3 |
10,922 |
|
Brex Series D Preferred U |
Corporate credit cards for start-ups |
7,574 |
1.3 |
10,276 |
|
|
|
15,624 |
2.6 |
21,198 |
|
Zipline International Series C Preferred U |
Drone-based medical delivery |
8,771 |
1.4 |
5,995 |
|
Zipline International Series E Preferred U |
Drone-based medical delivery |
4,970 |
0.8 |
3,695 |
|
Zipline International Series F Preferred U |
Drone-based medical delivery |
807 |
0.1 |
- |
|
|
|
14,548 |
2.3 |
9,690 |
|
Workday |
Enterprise information technology |
13,548 |
2.2 |
10,155 |
|
Faire Wholesale U |
Online wholesale marketplace |
4,546 |
0.7 |
7,590 |
|
Faire Wholesale Series F Preferred U |
Online wholesale marketplace |
5,114 |
0.9 |
7,886 |
|
Faire Wholesale Series G Preferred U |
Online wholesale marketplace |
3,789 |
0.6 |
4,569 |
|
|
|
13,449 |
2.2 |
20,045 |
|
Cloudflare |
Cloud-based provider of network services |
12,589 |
2.1 |
9,551 |
|
Duolingo |
Mobile learning platform |
11,944 |
2.0 |
3,162 |
|
Doordash |
Online local delivery |
11,482 |
1.9 |
7,065 |
|
Watsco |
Air conditioning, heating and refrigeration equipment distributor |
11,076 |
1.8 |
10,024 |
|
Alnylam Pharmaceuticals |
Therapeutic gene silencing |
11,066 |
1.8 |
7,650 |
|
Discord Series I Preferred U |
Communication software |
11,006 |
1.8 |
11,740 |
|
Solugen Series C-1 Preferred U |
Combines enzymes and metal catalysts |
7,257 |
1.2 |
7,010 |
|
Solugen Series D Preferred U |
Combines enzymes and metal catalysts |
3,487 |
0.6 |
- |
|
|
|
10,744 |
1.8 |
7,010 |
|
Lyra Health Series E Preferred U |
Digital mental health platform for enterprises |
6,688 |
1.1 |
7,101 |
|
Lyra Health Series F Preferred U |
Digital mental health platform for enterprises |
1,591 |
0.3 |
1,656 |
|
|
|
8,279 |
1.4 |
8,757 |
|
Datadog |
IT monitoring and analytics platform |
8,193 |
1.3 |
7,645 |
|
Roblox |
User generated content game company |
8,115 |
1.3 |
- |
|
Databricks Series H Preferred U |
Data and AI platform |
7,974 |
1.3 |
8,193 |
|
Snowflake P |
Developer of a SaaS-based cloud data warehousing platform |
7,598 |
1.3 |
6,124 |
|
Twilio |
Cloud-based communications platform |
7,399 |
1.2 |
9,969 |
|
Novocure |
Electric field based cancer therapies |
7,182 |
1.2 |
8,406 |
|
Convoy Common U |
Marketplace for truckers and shippers |
557 |
0.1 |
- |
|
Convoy Series D Preferred U |
Marketplace for truckers and shippers |
2,962 |
0.5 |
4,834 |
|
Convoy Series E Preferred U |
Marketplace for truckers and shippers |
2,792 |
0.5 |
3,967 |
|
Convoy Convertible Loan Note U |
Marketplace for truckers and shippers |
403 |
0.1 |
- |
|
|
|
6,714 |
1.2 |
8,801 |
|
Snyk Ordinary Shares U |
Developer of security software |
2,424 |
0.4 |
1,659 |
|
Snyk Series F Preferred U |
Developer of security software |
4,061 |
0.6 |
3,889 |
|
|
|
6,485 |
1.0 |
5,548 |
|
Illumina |
Gene sequencing equipment and consumables |
6,183 |
1.0 |
14,453 |
|
Chewy |
Online pet supplies retailer |
6,168 |
1.0 |
4,868 |
|
Epic Games U |
Video game platform and software developer |
6,060 |
1.0 |
10,555 |
|
Workrise Technologies Series D Preferred U |
Jobs marketplace for the energy sector |
2,662 |
0.4 |
3,595 |
|
Workrise Technologies Series D-1 Preferred U |
Jobs marketplace for the energy sector |
592 |
0.1 |
799 |
|
Workrise Technologies Series E Preferred U |
Jobs marketplace for the energy sector |
2,741 |
0.5 |
3,531 |
|
|
|
5,995 |
1.0 |
7,925 |
|
Denali Therapeutics |
Clinical stage neurodegeneration company |
5,803 |
1.0 |
4,590 |
|
|
Image sharing and social media company |
5,698 |
0.9 |
3,550 |
|
Penumbra |
Medical tools to treat vascular diseases |
5,696 |
0.9 |
4,847 |
|
Oddity Tech Ltd Class A U |
Online cosmetics and skincare company |
5,648 |
0.9 |
- |
|
Zoom Video Communications |
Remote conferencing service provider |
5,385 |
0.9 |
9,006 |
|
MarketAxess Holdings |
Electronic bond trading platform |
5,071 |
0.9 |
5,475 |
|
BillionToOne Series C Preferred U |
Molecular diagnostics technology platform |
3,438 |
0.6 |
3,662 |
|
BillionToOne Promissory Note U |
Molecular diagnostics technology platform |
1,614 |
0.3 |
- |
|
|
|
5,052 |
0.9 |
3,662 |
|
Away (JRSK) Series D Preferred U |
Travel and lifestyle brand |
1,698 |
0.3 |
1,327 |
|
Away (JRSK) Convertible Promissory Note 2021 U |
Travel and lifestyle brand |
1,075 |
0.2 |
1,085 |
|
Away (JRSK) Convertible Promissory Note U |
Travel and lifestyle brand |
1,075 |
0.2 |
1,085 |
|
Away (JRSK) Series Seed Preferred U |
Travel and lifestyle brand |
1,165 |
0.2 |
617 |
|
|
|
5,013 |
0.9 |
4,114 |
|
Roku |
Online media player |
4,895 |
0.8 |
8,337 |
|
Wayfair |
Online furniture and homeware retailer |
4,831 |
0.8 |
7,430 |
|
HashiCorp |
Open source infrastructure software |
4,709 |
0.8 |
3,549 |
|
Affirm P |
Consumer finance |
2,116 |
0.3 |
4,466 |
|
Affirm Class B P |
Consumer finance |
2,373 |
0.4 |
4,467 |
|
|
|
4,489 |
0.7 |
8,933 |
|
10X Genomics |
Single cell sequencing company |
4,361 |
0.7 |
4,441 |
|
Coursera |
Online educational services provider |
4,176 |
0.6 |
5,824 |
|
Tanium Class B Common U |
Online security management |
3,814 |
0.6 |
6,737 |
|
Nuro Series C Preferred U |
Self-driving vehicles for local delivery |
2,040 |
0.3 |
3,930 |
|
Nuro Series D Preferred U |
Self-driving vehicles for local delivery |
1,645 |
0.3 |
3,201 |
|
|
|
3,685 |
0.6 |
7,131 |
|
PsiQuantum Series D Preferred U |
Silicon photonic quantum computing |
3,535 |
0.6 |
3,770 |
|
Snap Class A |
Camera and social media company |
3,399 |
0.6 |
4,889 |
|
Ginkgo Bioworks P |
Bioengineering company developing microorganisms that produce various proteins |
2,946 |
0.5 |
5,842 |
|
Airbnb Class B Common P |
Online marketplace for travel accommodation |
2,725 |
0.4 |
2,951 |
|
Doximity |
Social network and digital workflow tools for medical professionals |
2,680 |
0.4 |
- |
|
Niantic Series C Preferred U |
Augmented reality games |
2,608 |
0.4 |
3,841 |
|
Warby Parker P |
Online and physical glasses retailer |
2,406 |
0.4 |
3,846 |
|
Indigo Agriculture Common U |
Agricultural technology company |
11 |
<0.1 |
42 |
|
Indigo Agriculture Series E Preferred U |
Agricultural technology company |
1,415 |
0.2 |
1,414 |
|
Indigo Agriculture Series F Preferred U |
Agricultural technology company |
398 |
0.1 |
416 |
|
Indigo Agriculture Series G Preferred U |
Agricultural technology company |
551 |
0.1 |
592 |
|
|
|
2,375 |
0.4 |
2,464 |
|
Lemonade |
Insurance company |
2,335 |
0.4 |
3,111 |
|
Capsule Series 1-D Preferred U |
Digital pharmacy |
1,305 |
0.2 |
- |
|
Capsule Series E Preferred U |
Digital pharmacy |
807 |
0.1 |
- |
|
|
|
2,112 |
0.3 |
- |
|
Recursion Pharmaceuticals |
Drug discovery platform |
2,111 |
0.3 |
1,340 |
|
Redfin |
Technology-based real estate brokerage firm |
2,048 |
0.3 |
2,136 |
|
Thumbtack Class A Common U |
Online directory service for local businesses |
810 |
0.1 |
1,108 |
|
Thumbtack Series A Preferred U |
Online directory service for local businesses |
58 |
<0.1 |
79 |
|
Thumbtack Series B Preferred U |
Online directory service for local businesses |
4 |
<0.1 |
5 |
|
Thumbtack Series C Preferred U |
Online directory service for local businesses |
17 |
<0.1 |
23 |
|
Thumbtack Series I Preferred U |
Online directory service for local businesses |
1,113 |
0.2 |
1,135 |
|
|
|
2,002 |
0.3 |
2,350 |
|
Chegg |
Online education company |
1,777 |
0.3 |
4,987 |
|
Rivian Automotive |
Developer of security platform |
1,560 |
0.3 |
3,472 |
|
Sweetgreen |
Salad fast food chain |
1,212 |
0.2 |
- |
|
Aurora P |
Self-driving technology |
368 |
0.1 |
1,003 |
|
Aurora Innovation Class B Common P |
Self-driving technology |
785 |
0.1 |
1,767 |
|
|
|
1,153 |
0.2 |
2,770 |
|
Blockstream Series B-1 Preferred U |
Bitcoin and digital asset infrastructure |
1,140 |
0.2 |
2,254 |
|
Sana Biotechnology |
Gene editing technology |
929 |
0.2 |
825 |
|
Honor Technology Series D Preferred U |
Home care provider |
609 |
0.1 |
2,451 |
|
Honor Technology Series E Preferred U |
Home care provider |
264 |
<0.1 |
1,037 |
|
|
|
873 |
0.1 |
3,488 |
|
Total Investments |
|
605,908 |
99.5 |
|
|
Net Liquid Assets# |
|
3,033 |
0.5 |
|
|
Total Assets* |
|
608,941 |
100.0 |
|
* Total assets less current liabilities, before deduction of borrowings. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
P Denotes listed (private company) security previously held in the portfolio as an unlisted (private company) security.
U Denotes unlisted (private company) security.
# See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
|
|
Listed equities % |
Unlisted securities† % |
Net liquid assets# % |
Total assets* % |
|
31 May 2023 |
65.0 |
34.5 |
0.5 |
100.0 |
|
31 May 2022 |
63.2 |
36.4 |
0.4 |
100.0 |
Figures represent percentage of total assets. 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.
# See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Key contributors and detractors to performance - year to 31 May 2023
|
Contributors |
Absolute Performance %* |
|
Detractors |
Absolute Performance %* |
|
Shopify Class A NVIDIA Netflix The Trade Desk Duolingo |
2.6 2.4 1.5 1.3 1.0 |
|
Stripe U First Republic Bank# Faire Wholsesale U Brex U Tesla |
(2.7) (1.2) (1.2) (1.1) (0.9) |
* Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 June 2022 to 31 May 2023. For the definition of total return see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
P Denotes listed (private company) security previously held in the portfolio as an unlisted (private company) security.
U Denotes unlisted (private company) security.
# First Republic Bank was sold during the period.
Distribution of Total Assets*
|
|
At 31 May 2023 % |
At 31 May 2022 % |
|
Communication Services |
11.7 |
4.2 |
|
Consumer Discretionary |
18.8 |
20.7 |
|
Consumer Staples |
1.3 |
0.4 |
|
Financials |
3.9 |
6.1 |
|
Healthcare |
13.7 |
18.2 |
|
Industrials |
16.2 |
14.8 |
|
Information Technology |
31.3 |
33.8 |
|
Materials |
2.3 |
1.1 |
|
Real Estate |
0.3 |
0.3 |
|
Net Liquid Assets |
0.5 |
0.4 |
|
|
100.0 |
100.0 |
*Total assets less current liabilities before deduction of all borrowings. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Private Companies Summary
Portfolio activity - year to 31 May 2023
£24.8m of new capital deployed in private companies during the year.
|
New buys |
Follow on funding rounds |
|
|
Oddity Tech Ltd
|
BillionToOne Convoy Capsule |
Solugen Stripe Zipline |
Concentration
At 31 May we held 25 private companies which equated to 34.5% of total assets.
¾ Five companies account for 51.6% of the private company exposure.
¾ Ten companies account for 73.3% of the private company exposure.
|
Private exposure |
% of total assets* |
|
Space Exploration Technologies |
6.5 |
|
Stripe |
4.2 |
|
Brex |
2.6 |
|
Zipline International |
2.3 |
|
Faire Wholesale |
2.2 |
|
Other |
16.7 |
*Total assets less current liabilities before deduction of all borrowings. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
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.
|
Cap |
Total equity value (USD) |
% of total assets* |
Number of holdings |
|
Micro |
<$300m |
0.1 |
1 |
|
Small |
$300m-$2bn |
8.5 |
11 |
|
Medium |
$2bn-$10bn |
11.1 |
8 |
|
Large |
>$10bn |
14.8 |
5 |
|
|
|
34.5 |
25 |
As at 31 May 2023.
* Total assets less current liabilities before deduction of all borrowings. See Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Income Statement
For the year ended 31 May
|
|
Notes |
2023 Revenue £'000 |
2023 Capital £'000 |
2023 Total £í000 |
2022 Revenue £'000 |
2022 Capital £'000 |
2022 Total £í000 |
|
Losses on investments |
|
- |
(10,169) |
(10,169) |
- |
(314,153) |
(314,153) |
|
Currency losses |
|
- |
(700) |
(700) |
- |
(2,976) |
(2,976) |
|
Income |
2 |
850 |
- |
850 |
568 |
- |
568 |
|
Investment management fee |
3 |
(3,345) |
- |
(3,345) |
(4,865) |
- |
(4,865) |
|
Other administrative expenses |
|
(670) |
- |
(670) |
(676) |
- |
(676) |
|
Net return before finance costs |
|
(3,165) |
(10,869) |
(14,034) |
(4,973) |
(317,129) |
(322,102) |
|
Finance costs of borrowings |
|
(1,482) |
- |
(1,482) |
(741) |
- |
(741) |
|
Net return before taxation |
|
(4,647) |
(10,869) |
(15,516) |
(5,714) |
(317,129) |
(322,843) |
|
Tax |
|
(71) |
- |
(71) |
(67) |
- |
(67) |
|
Net return after taxation |
|
(4,718) |
(10,869) |
(15,587) |
(5,781) |
(317,129) |
(322,910) |
|
Net return per ordinary share |
4 |
(1.55p) |
(3.56p) |
(5.11p) |
(1.88p) |
(103.24p) |
(105.12p) |
The total column of this Statement represents the profit and loss account of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this Statement derive from continuing operations.
A Statement of Comprehensive Income is not required as the Company does not have any other comprehensive income and the net return after taxation is both the profit and comprehensive income for the year.
Balance Sheet
As at 31 May
|
|
Notes |
2023 £'000 |
2023 £'000 |
2022 £'000 |
2022 £'000 |
|
Fixed assets |
|
|
|
|
|
|
Investments held at fair value through profit or loss |
6 |
|
605,908 |
|
621,587 |
|
Current assets |
|
|
|
|
|
|
Debtors |
|
657 |
|
359 |
|
|
Cash and cash equivalents |
|
3,440 |
|
3,007 |
|
|
|
|
4,097 |
|
3,366 |
|
|
Creditors |
|
|
|
|
|
|
Amounts falling due within one year |
8 |
(41,406) |
|
(20,930) |
|
|
Net current liabilities |
|
|
(37,309) |
|
(17,564) |
|
Total assets less current liabilities |
|
|
568,599 |
|
604,023 |
|
Creditors |
|
|
|
|
|
|
Amounts falling due after more than one year |
8 |
|
- |
|
(19,837) |
|
Net assets |
|
|
568,599 |
|
584,186 |
|
Capital and reserves |
|
|
|
|
|
|
Share capital |
|
|
3,073 |
|
3,073 |
|
Share premium account |
|
|
250,827 |
|
250,827 |
|
Special distributable reserve |
|
|
168,942 |
|
168,942 |
|
Capital reserve |
|
|
165,931 |
|
176,800 |
|
Revenue reserve |
|
|
(20,174) |
|
(15,456) |
|
Shareholders' funds |
|
|
568,599 |
|
584,186 |
|
Net asset value per ordinary share (after deducting borrowings at book value*) |
|
|
186.33p |
|
191.44p |
|
Ordinary shares in issue |
10 |
|
305,153,700 |
|
305,153,700 |
Statement of Changes in Equity
For the year to 31 May 2023
|
|
Share £'000 |
Share premium account £'000 |
Special distributable reserve £'000 |
Capital Reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 June 2022 |
3,073 |
250,827 |
168,942 |
176,800 |
(15,456) |
584,186 |
|
Net return after taxation |
- |
- |
- |
(10,869) |
(4,718) |
(15,587) |
|
Shareholders' funds at 31 May 2023 |
3,073 |
250,827 |
168,942 |
165,931 |
(20,174) |
568,599 |
For the year to 31 May 2022
|
|
Share £'000 |
Share premium account £'000 |
Special distributable reserve £'000 |
Capital Reserve* £'000 |
Revenue reserve £'000 |
Shareholders' £'000 |
|
Shareholders' funds at 1 June 2021 |
3,068 |
249,020 |
168,942 |
497,528 |
(9,675) |
908,883 |
|
Ordinary shares issued (note 10) |
5 |
1,807 |
- |
- |
- |
1,812 |
|
Ordinary shares bought back into treasury (note 10) |
- |
- |
- |
(3,599) |
- |
(3,599) |
|
Net return after taxation |
- |
- |
- |
(317,129) |
(5,781) |
(322,910) |
|
Shareholders' funds at 31 May 2022 |
3,073 |
250,827 |
168,942 |
176,800 |
(15,456) |
584,186 |
* The Capital Reserve balance at 31 May 2023 includes investment holding gains of £26,558,000 (2022 - £13,165,000).
Cash Flow Statement
For the year ended 31 May
|
|
|
2023 £'000 |
2023 £'000 |
2022 £'000 |
2022 £'000 |
|
Cash flows from operating activities |
|
|
|
|
|
|
Net return before taxation |
|
|
(15,516) |
|
(322,843) |
|
Net losses on investments |
|
|
10,169 |
|
314,153 |
|
Currency losses |
|
|
700 |
|
2,976 |
|
Finance costs of borrowings |
|
|
1,482 |
|
741 |
|
Overseas withholding tax incurred |
|
|
(71) |
|
(67) |
|
Changes in debtors and creditors |
|
|
(308) |
|
(387) |
|
Cash from operations* |
|
|
(3,544) |
|
(5,427) |
|
Finance costs paid |
|
|
(1,481) |
|
(745) |
|
Net cash outflow from operating activities |
|
|
(5,025) |
|
(6,172) |
|
Cash flows from investing activities |
|
|
|
|
|
|
Acquisitions of investments |
|
(63,894) |
|
(146,903) |
|
|
Disposals of investments |
|
69,383 |
|
129,027 |
|
|
Net cash inflow/(outflow) from investing activities |
|
|
5,489 |
|
(17,876) |
|
Cash flows from financing activities |
|
|
|
|
|
|
Ordinary shares issued |
|
- |
|
1,812 |
|
|
Ordinary shares bought back into treasury and stamp duty thereon |
|
- |
|
(3,599) |
|
|
Bank loans drawn down# |
|
- |
|
9,082 |
|
|
Bank loans repaid# |
|
- |
|
- |
|
|
Net cash inflow from financing activities |
|
|
- |
|
7,295 |
|
Increase/(decrease) in cash and cash equivalents |
|
|
464 |
|
(16,753) |
|
Exchange movements |
|
|
(31) |
|
1,276 |
|
Cash and cash equivalents at start of the period |
|
|
3,007 |
|
18,484 |
|
Cash and cash equivalents at 31 May |
|
|
3,440 |
|
3,007 |
* Cash from operations includes dividends received in the period of £472,000 (2022 - £448,000) and interest received of £154,000 (2022 - £1,000).
# Cash movements in bank loans are shown on a net basis. Prior year balances have been updated to reflect this.
Notes to the Financial Statements
1. Principal accounting policies
The Financial Statements for the year to 31 May 2023 have been prepared in accordance with Financial Reporting Standard 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
2. Income
|
|
2023 £'000 |
2022 £'000 |
|
Income from investments Overseas dividends Overseas interest |
472 224 |
448 119 |
|
|
696 |
567 |
|
Other income Deposit interest |
154 |
1 |
|
Total income |
850 |
568 |
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 has been further sub-delegated to Baillie Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
With effect from 1 September 2021 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. Prior to 1 September 2021 the fee was 0.70% on the first £100 million of net assets and 0.55% 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
|
|
2023 Revenue |
2023 Capital |
2023 Total |
2022 Revenue |
2022 Capital |
2022 Total |
|
Net return after taxation |
(1.55p) |
(3.56p) |
(5.11p) |
(1.88p) |
(103.24p) |
(105.12p) |
Revenue return per ordinary share is based on the net revenue loss after taxation of £4,718,000 (2022 - net revenue loss after taxation of £5,781,000) and on 305,153,700 (2022 - 307,185,443) 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 loss for the financial period of £10,869,000 (2022 - net capital loss of £317,129,000) and on 305,153,700 (2022 - 307,185,443) 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 loss for the financial period of £15,587,000 (2022 - total loss of £322,910,000) and on 305,153,700 (2022 - 307,185,443) 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 2023 due to the revenue loss of £4,718,000 in the year (2022 - revenue loss of £5,781,000).
6. Fair Value Hierarchy
|
As at 31 May 2023 |
Level 1 £'000 |
Level 2 £'000 |
Level 3 £'000 |
Total £'000 |
|
Listed securities |
396,272 |
- |
- |
396,272 |
|
Unlisted ordinary shares |
- |
- |
37,307 |
37,307 |
|
Unlisted preference shares* |
- |
- |
168,162 |
168,162 |
|
Unlisted convertible promissory notes |
- |
- |
4,167 |
4,167 |
|
Total financial asset investments |
396,272 |
- |
209,636 |
605,908 |
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
As at 31 May 2022 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Listed securities |
394,228 |
- |
- |
394,228 |
|
Unlisted ordinary shares |
- |
- |
45,842 |
45,842 |
|
Unlisted preference shares* |
- |
- |
179,347 |
179,347 |
|
Unlisted convertible promissory notes |
- |
- |
2,170 |
2,170 |
|
Total financial asset investments |
394,228 |
- |
227,359 |
621,587 |
* 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.
During the year to 31 May 2023 no investments (31 May 2022 - investments with a book cost of £10,542,000) 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 Financial Reporting Standard 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 below.
Listed Investments
The fair value of listed security investments is the last traded price on recognised overseas exchanges.
Unlisted Investments
Unlisted investments are valued at fair value by the Directors following a detailed review and appropriate challenge of the valuations proposed by the Managers. The Managers' unlisted investment valuation policy applies techniques consistent with the IPEV Guidelines.
The techniques applied are predominantly market-based approaches. The market-based approaches available under IPEV are set out below and are followed by an explanation of how they are applied to the Company's unlisted portfolio:
- Multiples;
- Industry Valuation Benchmarks; and
- Available Market Prices.
The nature of the unlisted portfolio currently will influence the valuation technique applied. The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent investment, if resulting from an orderly transaction, generally represents fair value as at the transaction date and may be an appropriate starting point for estimating fair value at subsequent measurement dates. However, consideration is given to the facts and circumstances as at the subsequent measurement date, including changes in the market or performance of the investee company. Milestone analysis is used where appropriate to incorporate the operational progress of the investee company into the valuation. Additionally, the background to the transaction must be considered. As a result, various Multiples-based techniques are employed to assess the valuations particularly in those companies with established revenues. Discounted cashflows are used where appropriate. An absence of relevant industry peers may preclude the application of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude the Available Market Prices approach. All valuations are cross-checked for reasonableness by employing relevant alternative techniques.
The unlisted investments are valued according to a three monthly cycle of measurement dates. The fair value of the unlisted investments will be reviewed before the next scheduled three monthly measurement date on the following occasions:
- at the year end and half year end of the Company; and
- where there is an indication of a change in fair value as defined in the IPEV Guidelines (commonly referred to as 'trigger' events).
7. Transaction costs
The purchases and sales proceeds figures above include transaction costs of £12,000 (2022 - £29,000) and £14,000 (2022 - £25,000) respectively, being £26,000 (2022 - £54,000) in total.
8. Borrowing facilities
The Company entered into a US$25 million five-year revolving credit facility with ING Bank N.V., London Branch on 1 August 2018. Subsequent to the year end on 26 July 2023, this loan was refinanced with a new unsecured US$25 million three-year revolving credit facility from ING Bank N.V., London Branch. The Company entered into a US$25 million three-year fixed rate facility with ING Bank N.V., London Branch on 23 October 2020.
At 31 May 2023 creditors falling due within one year include borrowings of US$25 million (sterling value £20,171,000) at an interest rate of 6.87017% (2022 - US$25 million (sterling value £19,837,000) at an interest rate of 3.09786%) drawn down under the five year revolving credit facility. At 31 May 2023 and 31 May 2022 there were drawings of US$25 million at an interest rate of 1.902% drawn down under the three-year fixed rate facility.
The main covenants relating to the loan are that borrowings should not exceed 30% of the Company's adjusted net asset value and the Company's minimum adjusted net asset value shall be £140 million. The adjusted net asset value calculation includes the deduction of 100% of any unlisted securities. There were no breaches in the loan covenants during the year to 31 May 2023 (31 May 2022 - none).
9. Analysis of Change in Net Debt
|
|
At 31 May 2022 £'000 |
Cash flows £'000 |
Exchange movement £'000 |
Other |
At 31 May 2023 £'000 |
|
Cash and cash equivalents |
3,007 |
464 |
(31) |
- |
3,440 |
|
Loans due within one year |
(19,837) |
- |
(669) |
(19,836) |
(40,342) |
|
Loans due within two to three years |
(19,837) |
- |
- |
19,837 |
- |
|
|
(36,667) |
464 |
(700) |
1 |
(36,902) |
10. Share Capital
|
|
2023 Number |
2023 £'000 |
2022 Number |
2022 £'000 |
|
Allotted, called up and fully paid ordinary shares of 1p each |
305,153,700 |
3,051 |
305,153,700 |
3,051 |
|
Treasury shares of 1p each |
2,206,300 |
22 |
2,206,300 |
22 |
|
|
307,360,000 |
3,073 |
307,360,000 |
3,073 |
In the year to 31 May 2023, the Company issued no shares (in the year to 31 May 2022, the Company issued a total of 525,000 shares with nominal value £5,250 representing 0.2% of the issued share capital at 31 May 2021, raising net proceeds of £1,812,000, which was invested in accordance with the Company's investment policy).
Over the period from 31 May 2023 to 7 August 2023 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 16 September 2022. In the year to 31 May 2023 no shares were bought back (2022 - 2,206,300 shares with a nominal value of £22,063 were bought back at a total cost of £3,599,000 and held in treasury). At 31 May 2023 the Company had authority to buy back 45,742,539 ordinary shares.
Over the period from 31 May 2023 to 7 August 2023 the Company bought back no shares..
11. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 May 2023 or the year ended 31 May 2022 but is derived from those accounts. Statutory accounts for the period to 31 May 2022 have been delivered to the Registrar of Companies, and those for the year to 31 May 2023 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
No Director has a contract of service with the Company. During the year 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 Managers' website bgusgrowthtrust.com‡ on or around 17 August 2023.
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 APM's 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.
Borrowings at Fair Value (APM)
Borrowings are valued at an estimate of their market worth.
Net Asset Value (Reconciliation of NAV at Book Value to NAV at Fair Value)
|
|
31 May 2023 |
31 May 2022 |
|
Net Asset Value per ordinary share (borrowings at book value) |
186.33p |
191.44p |
|
Shareholders' funds (borrowings at book value) |
£568,599,000 |
£584,186,000 |
|
Add: book value of borrowings |
£40,342,000 |
£39,674,000 |
|
Less: fair value of borrowings |
(£39,904,000) |
(£39,081,000) |
|
Shareholders' funds (borrowings at fair value) |
£569,037,000 |
£584,779,000 |
|
Number of shares in issue |
305,153,700 |
305,153,700 |
|
Net Asset Value per ordinary share (borrowings at fair value) |
186.48p |
191.63p |
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, this situation is called a premium.
|
|
|
31 May 2023 |
31 May 2022 |
|
Net asset value per ordinary share (after deducting borrowings at fair value) |
(a) |
186.48p |
191.63p |
|
Share price |
(b) |
144.80p |
168.00p |
|
Discount (borrowings at fair value) |
((b)-(a)) ÷ (a) |
22.4% |
12.3% |
|
|
|
31 May 2023 |
31 May 2022 |
|
Net asset value per ordinary share (after deducting borrowings at book value) |
(a) |
186.33p |
191.44p |
|
Share price |
(b) |
144.80p |
168.00p |
|
Discount (borrowings at book value) |
((b)-(a)) ÷ (a) |
22.3% |
12.2% |
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).
Ongoing Charges Calculation
|
|
|
31 May 2023 £'000 |
31 May 2022 £'000 |
|
Investment management fee |
|
3,345 |
4,865 |
|
Other administrative expenses |
|
670 |
676 |
|
Total expenses |
(a) |
4,015 |
5,541 |
|
Average daily cum-income net asset value |
(b) |
578,722 |
898,007 |
|
Ongoing charges |
((a) ÷ (b)) |
0.69% |
0.62% |
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.
|
|
31 May 2023 |
31 May 2022 |
|
Borrowings (at book cost) |
£40,342,000 |
£39,674,000 |
|
Less: cash and cash equivalents |
(£3,440,000) |
(£3,007,000) |
|
Adjusted borrowings (a) |
£36,902,000 |
£36,667,000 |
|
Shareholders' funds (b) |
£568,599,000 |
£584,186,000 |
|
Gearing: (a) as a percentage of (b) |
6% |
6% |
Gross gearing is the Company's borrowings at par expressed as a percentage of shareholders' funds.
|
|
31 May 2023 |
31 May 2022 |
|
Borrowings (at book cost) (a) |
£40,342,000 |
£39,674,000 |
|
Shareholders' funds (b) |
£568,599,000 |
£584,186,000 |
|
Potential gearing: (a) as a percentage of (b) |
7% |
7% |
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.
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 Trust plc is marketed in the EU by the AIFM, BG & Co Limited, via the National Private Placement Regime (NPPR) the following disclosures have been provided to comply with the high-level requirements of SFDR. The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines as its policy on integration of sustainability risks in investment decisions. Baillie Gifford & Co's approach to investment is based on identifying and holding high quality growth businesses that enjoy sustainable competitive advantages in their marketplace. To do this it looks beyond current financial performance, undertaking proprietary research to build 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 ornegatively influence the financial returns of an investment. More detail on the Managers' approach to sustainability can be found in the ESG Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com.
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework or criteria for environmentally sustainable economic activities in respect of six environmental objectives. It builds on the disclosure requirements under SFDR by introducing additional disclosure obligations in respect of alternative investment funds that invest in an economic activity that contributes to an environmental objective. The Company does not commit to make sustainable investments as defined under SFDR. As such, the underlying investments do not take into account the EU criteria for environmentally sustainable economic activities.
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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S&P Index data
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FTSE Index Data
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9 August 2023
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