TIDMBGCG
RNS Number : 3899V
Baillie Gifford China Grwth TrstPLC
05 April 2023
RNS Announcement
Baillie Gifford China Growth Trust plc
Legal Entity Identifier: 213800KOK5G3XYI7ZX18
Results for the year to 31 January 2023
Regulated Information Classification: Additional regulated
information required to be disclosed under the applicable laws and
regulations.
The following is the results announcement for the year to 31
January 2023 which was approved by the Board on 4 April 2023.
Over the year the Company's net asset value total return was
-5.7% and the share price total return was -7.9%, compared with a
total return of -2.2% for the MSCI China All Shares Index (in
sterling terms).
3/4 In the period from 16 September 2020 (the date of the
adoption of the China strategy), the Company's net asset value and
share price returned -14.2% and -16.4% respectively compared to a
total return of -12.7% for the MSCI China All Shares Index (in
sterling terms).
3/4 Notable positive contributors are varied and include Sanhua
Intelligent Controls, a heat pump manufacturer for electric
vehicles and air conditioners; Zijin Mining, a copper mining
business that is likely to experience significant demand as a
result of the green revolution globally; and Beigene, a biotech
firm specialising in cancer treatment.
3/4 In terms of negative contributors, the Company saw weak
share price performance from a number of its communication service
holdings including Tencent, Bilibili and ByteDance (the Company's
only unlisted investment which represented 5.7% of the total assets
as at 31 January 2023).
3/4 The Company has also bought a number of stocks over the
year. These include Centre Testing, a company that provides
testing, inspection and certification services to a broad range of
companies and industries; and Donguan Yiheda, a company that makes
a wide variety of parts used in factory automation equipment. Both
companies are contributing to the upgrading of traditional
industries in China.
3/4 Whilst investment in China may prove volatile over a short
term horizon, the Managers have a long-term investment approach and
are optimistic about the prospects for the future.
Alternative Performance Measure - see Glossary of Terms and
Alternative Performance Measures at the end of this announcement.
Source: Refinitiv/Baillie Gifford and relevant underlying index
providers.
Baillie Gifford China Growth Trust aims to achieve long term
capital growth through investment principally in Chinese companies
which are believed to have above average prospects for growth. At
31 January 2023 the Company had total assets of GBP210m.
The Company is managed by Baillie Gifford & Co, an Edinburgh
based fund management group with approximately GBP232 billion under
management and advice as at 4 April 2023.
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. The Company may borrow money to make further investments.
This is commonly referred to as gearing. The risk is that, when
this money is repaid by the Company, the value of these investments
may not be enough to cover the borrowing and interest costs, and
the Company makes a loss. If the Company's investments fall in
value, gearing will increase the amount of this loss. The more
highly geared the Company, the greater this effect will be.
Investment in investment trusts should be regarded as medium to
long term. You can find up to date performance information about
China Growth at bailliegiffordchinagrowthtrust.com
See disclaimer at the end of this announcement.
4 April 2023
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474 5548
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chair's Statement
The 12 months under review has been a volatile and disappointing
period for Chinese equities. For the majority of the Company's
financial year, the Chinese economy struggled with physical
lockdowns resulting from its Zero Covid policy and market sentiment
was negatively impacted by regulatory crackdowns, as well as
politics and geopolitics. In the last quarter of the Company's
financial year, there has been more positive news to report as
China began to reopen earlier and more quickly than expected
bringing the timing of the economic recovery forward.
Given travel restrictions to China, in April 2022 the Board met
virtually with the Managers' team based in Shanghai engaging with
the various individuals on a number of topics relevant to the
Company. The 'boots on the ground' in China is a key strength of
the Managers that the Board identified early on when considering
the change of manager in 2020. The Board were impressed with the
calibre of the individuals who are working, alongside the team
based in Edinburgh, to identify the best stocks for the Company's
portfolio.
During the financial year to 31 January 2023, the Company's net
asset value total return, calculated by deducting borrowings at
fair value, was -5.7% and the share price total return was -7.9%.
This compares with a total return of -2.2% for the MSCI China All
Shares Index (in sterling terms).
Over the period from 16 September 2020 (the date of the adoption
of the China strategy), the Company's net asset value and share
price returned -14.2% and -16.4% respectively compared to a total
return of -12.7% for the MSCI China All Shares Index (in sterling
terms).
As I noted in my statement last year, the Managers have a
long-term investment approach, and we would ask shareholders to
judge performance over periods of five years or more. Further
information about the Company's portfolio performance is covered by
our portfolio managers, Sophie Earnshaw and Roderick Snell, in
their Managers' Report.
Discount/Premium and Share Issuance
The Company's share price discount to net asset value at the
last financial year end was 4.1%, and the Company's share price
ended the year at a discount to net asset value of 6.3%.
Unlike the financial year ending 31 January 2022, no shares have
been issued by the Company during the period as the shares have
predominantly traded at a discount to net asset value. The discount
has been 15.5% at its widest but the shares have also traded at a
modest premium of up to 2.9% during the period. The Company has not
bought back any shares over the period, though the Board keeps its
liquidity policy under close review.
Dividend
Since the adoption of the China strategy and the appointment of
Baillie Gifford as Manager in September 2020, the Company's long
term returns are now expected to be predominantly generated from
capital growth as opposed to income. During the financial year, the
revenue return per share increased by 121% from 0.97p to 2.14p.
Last year, being the first complete financial year since the
adoption of the China mandate, the Board agreed to match the
dividend of the previous financial year and was able to do so given
the sizeable reserves of the Company. This year the dividend will
reset to a level that is in accordance with the dividend policy of
the Company, which is that any dividend paid will be by way of a
final dividend and be not less than the minimum required for the
Company to maintain its investment trust status.
The Board is proposing a final dividend of 1.7p which, subject
to shareholder approval, will be paid on 26 July 2023, with the
shares trading ex-dividend on 22 June 2023.
Ongoing Costs
The ongoing charges figure for the year is 0.94%. Last year, the
ongoing charges were 0.72% (and without the fee waiver provided by
Baillie Gifford in relation to the first six months of its
appointment in September 2020 it would have been 0.81%).
Gearing
In April 2021, the Company entered into a US$40m revolving
credit facility with The Royal Bank of Scotland International
('RBSI'). As at 31 January 2023, US$7.5m has been drawn down under
the facility, and gearing stood at 2.5%.
Unlisted Investments
The Company holds one unlisted investment, ByteDance, which
represented 5.7% of the total assets as at 31 January 2023. The
valuation process, which is based on an independent assessment by
S&P Global, is set out on page 7 of the Annual Report.
ESG
The consideration of Environmental, Social and Governance
('ESG') factors is an integral part of the Managers' long-term
investment approach. Further details on the Managers' approach can
be found on pages 9 to 14 of the Annual Report.
The Board
The Board welcomed Jonathan Silver to the Board in September
2022 following a search undertaken with the support of an external
recruitment consultant. Jonathan is a chartered accountant who has
held a number of senior financial positions and sits on other
boards including another investment trust.
Andrew Robson is to retire from the Board at the AGM in 2023.
The Board extends its thanks to Andrew for his valued contribution.
Andrew has been an exemplary Chair of the Audit Committee since his
appointment in July 2014 and has acted as senior independent
director since June 2021. Jonathan Silver will take up the position
as Chair of the Audit Committee and Magdalene Miller will take over
as Senior Independent Director.
As Andrew and I both complete our nine year tenure this summer,
the Board considered that it would be appropriate for me to stay on
as Chair until 2024 in the interest of continuity given recent
changes to the Company's mandate, manager and a number of other
Board changes. Our next hire will be for my successor as Chair as I
plan to step down in the first half of next year after a suitable
handover period. A search is underway supported by an external
recruitment consultant and a new appointment to the Board will be
announced in due course.
All Directors are subject to annual re-election at the AGM in
June. Biographies of each of the Directors can be found on page 27
of the Annual Report.
Annual General Meeting
The AGM will be held at 4pm on Thursday, 15 June 2023 at the
Institute of Directors, 116 Pall Mall, London. The meeting will be
followed by a presentation from the Managers and all shareholders
are invited to attend.
I would remind shareholders that they are able to submit proxy
voting forms before the applicable deadline on Tuesday, 13 June
2023, and also to direct any questions to the Board or Managers in
advance by email to trustenquiries@bailliegifford.com or calling
0800 917 2112 (Baillie Gifford may record your call).
Outlook
China's macroeconomic, regulatory and pandemic policies are
looking to align with a pro-growth stance, for the first time in
three years. China is likely to be one of the very few major
economies where growth could accelerate in 2023, enjoying a
re-opening like much of the rest of the world experienced in 2022.
In addition and unlike the majority of the world, China is
experiencing extremely low inflation (averaging approximately 2% at
December 2022).
The rapid re-opening from Zero Covid, the increased household
savings and clear domestic policy support for growth for 2023 all
point towards the 'need' for a strong recovery. China has a very
different development model from the West and it is important to
understand the context of the changes happening in China. The
Managers Report details the principles to be borne in mind when
investing in China. There are several risks, not least
geopolitical, where misjudgements notably in respect of Taiwan
could lead to severe market disruption. However, whilst China is a
market where there is likely to be ongoing short term volatility,
the prospects for significant long term growth remain.
Susan Platts-Martin
Chair
4 April 2023
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.
See disclaimer at the end of this announcement.
Managers' Report
This has been another volatile year for Chinese growth equities;
one of significant change and, perhaps, under-appreciated
continuity. Market sentiment, as ever, has proven fickle. Headlines
announcing the demise of the asset class have been replaced by
frantic calls to reposition oneself for the great reopening.
At Baillie Gifford, we think it's important to remain
level-headed in all market environments. We aim to look through the
noise and identify long-term structural trends and the companies
that benefit from them. As such, we'll highlight a number of
broadly positive changes that have occurred in the second half of
last year, followed by a number of factors that are likely to
remain consistent.
So, what's changed? In October we witnessed the 20(th) National
Congress of the Chinese Communist Party ('CCP') in which the
constitution was changed to allow Xi Jinping to serve a third term
as President. Membership of the seven-person Politburo Standing
Committee also changed significantly. The market's reaction to this
news was overwhelmingly negative and, as we noted at the time,
discounted a number of significant positives. The most important of
which, in our view, was the government's ability, post
consolidation of power, to act decisively and swiftly to counter
severe economic weakness. Fast forward a couple of months and this
is exactly what we have witnessed. Rather than a sharp ideological
turn to the left, the CCP put forward a markedly pro-growth agenda
whilst dismantling two of the biggest detractors to economic
growth, namely Zero Covid and the 'Three Red Lines', (which set
caps on leverage for property developers). Support for the private
sector has been reiterated in numerous forums and the regulatory
environment has remained stable as was promised in May. Economic
growth is rebounding and market sentiment has improved.
From afar these changes might appear bewildering. But they
result from a set of principles that are under-appreciated in their
continuity and are important to bear in mind when building a
conceptual framework for investing in China. These are as
follows:
- The CCP has a longstanding commitment to wealth creation and
this continues under Xi. Let's not forget that the principle
contradiction, or the most important problem identified by the CCP
to solve under Xi's reign, is 'uneven and unbalanced growth and the
people's desire for a better life'.
- This 'desire for a better life' will be delivered in a
uniquely Chinese way, one that attempts to harness the benefits
whilst rectifying some of the biggest excesses of capitalism.
Common prosperity, or the attempt to rectify severe income
inequality, is key here. But contrary to popular belief, it is not
new. Instead, one can trace it back to the founder of the socialist
market economy, Deng Xiaoping, and his oft repeated but truncated
quote: 'Let some people get rich first'. The second half of this
quote is well-known in China but largely forgotten in the West:
'for the purpose of achieving common prosperity faster'.
- As Xi's report to the 20(th) National Congress made clear,
both the state and the private sector are vital to China achieving
its goal of becoming a prosperous society by 2049. The private
sector is crucial in that it creates the majority of GDP growth,
technological innovation and job creation. But its investment
priorities will continue to be guided by the state and by a
regulatory framework that prioritises wealth creation for all,
rather than wealth creation for the few.
- Whilst China's unique brand of authoritarianism has not
precluded economic growth or innovation as many thought it would,
it does present challenges to investors that are likely to persist.
We should expect periods in the future where the balance between
market versus state becomes unstable. We should expect periods of
volatility caused by abrupt changes to regulatory norms. But we
should also expect continued pragmatism and a willingness to roll
back policies that do not contribute to China's long-term goals;
goals which are, in the main, conducive to investment returns.
Reminding ourselves of these underlying principles and the
conceptual framework that results is important during periods of
volatile performance. It allows us to keep our heads when everyone
around us is losing theirs. Put another way, being cognisant that
China's development model is markedly different to our own and
likely to remain so helps us to take advantage of the opportunities
of investing there, whilst also being fully aware of the risks.
In our view, the opportunities open to growth investors in China
have remained remarkably consistent throughout this period of
volatility. Indeed, our analysis of company fundamentals over time
continues to point to China as a place to find high growth
companies. For example, over the last five years, over 10% of
Chinese companies with a starting market cap of $2bn or more have
grown their profits by over five fold. That compares to around 6%
for global markets and for the US.
In addition, the type of growth company on offer continues to
expand. We have companies such as Li Ning or Proya that are poised
to benefit both from China's growing middle class, but also from a
shift in brand preferences amongst younger Chinese consumers; we
have companies like Longi and CATL that have helped China build out
almost 2/3rds of the world's solar capacity and 2/3rds of the
world's battery capacity with the goal of helping China achieve net
zero by 2060; we have companies such as Inovance and Estun that
continue to move up the value chain in robotics and automation and
thereby contribute to broader productivity growth; we have
companies such as Sinocera and SG Micro that are helping China
develop expertise and self-sufficiency in materials science and
semi-conductors... The list goes on.
As noted above, the opportunities within China have remained
remarkably consistent. But so have the risks. This is an asset
class in which drawdowns and periods of market volatility are the
norm rather than the exception. Indeed, the propensity for
volatility has likely been heightened by the increasingly
competitive relationship between China and the US, and tensions
with Taiwan as noted more fully in our Interim Management Report
published in October 2022 . As such, this remains an asset class
with big risks and big opportunities, and one that is only suitable
for those with the appropriate risk tolerance and long-term time
horizon.
Portfolio Positioning and Recent Activity
The current portfolio represents a selection of the best and
most innovative public and private Chinese growth companies. As one
would expect for a long-term growth manager, the themes that we are
excited about within the Company remain largely consistent with
those discussed in last year's Managers' Report. These include our
investments in companies exposed to the green revolution both in
China and abroad; companies that contribute to China's ambition to
advance its manufacturing capabilities in robotics and automation;
'little giants' that have developed significant expertise in
relatively niche but strategically important industries such as
semiconductors; software related companies that are helping
traditional industries upgrade; leading domestic brands that have
the scope to challenge foreign brands within China and abroad; long
duration growth companies within the platform economy that continue
to add value to consumers' lives; in short, companies that we
believe at the broadest level are likely to contribute to China's
economic, societal and environmental development over the next
decade.
In terms of new purchases, we bought holdings in Centre Testing
and Dongguan Yiheda, both of which are contributing to the
upgrading of traditional industries in China. Centre Testing is a
company that provides testing, inspection and certification
services to a broad range of companies and industries. Our first
in-depth report on the company was written in early 2020. Whilst we
admired the growth potential of the business and the quality of the
management team, we were less convinced by the valuation. Since
then, the shares have substantially de-rated providing us with a
good opportunity to make an attractive investment. Centre Testing
is a leading private player within an industry dominated by
state-owned enterprises and foreign companies. It has a scale and
reputation advantage over smaller domestic competitors and a
service edge over global companies and state-owned-enterprises.
This should allow it to take share. It is also able to supplement
this organic growth via acquisitions of smaller competitors in new
verticals. As such, we believe it is likely to grow at a
double-digit rate for a very long time, an outcome that is not
reflected in the current valuation.
Dongguan Yiheda makes a wide variety of parts used in factory
automation equipment. It offers a product catalogue to design
engineers of non-standard, customisable parts. It then
manufacturers these parts quickly and at scale thereby saving time
and reducing costs for its design engineer customers. The
opportunity for Yiheda is to increase the number and type of parts
it offers within its catalogue and thereby gain a greater share of
wallet within factory automation equipment. The overall addressable
market in machine parts is large and growing and the founder
believes it can treble its share. The growth runway for the company
is therefore very long and the business itself is profitable and
cash generative.
As noted in our Interim Report, we also made investments in
Jiangsu Azure, a leading small form battery maker in the power
tools market, and Kinlong, a hardware provider to the building
industry. For Jiangsu Azure, the electrification of the power tools
market is a strong structural growth driver, whilst the company
also has longer term opportunities in batteries for vacuum cleaners
and e-bikes. Its focus on these relatively niche markets and its
willingness to invest also gives it scope to take further share
from global competitors such as LG and Samsung. Kinlong has a
strong reputation for quality amongst its building industry
customers. It is the number one player in a number of the segments
in which it operates with c.10% share. Its growth opportunity is a
function of continued growth in end markets, the expansion of its
product portfolio, and continued market share gains. This is
another good quality, long-term growth company that we were able to
buy at a time of share price weakness.
We have also made additions to a number of stocks throughout the
year on valuation grounds. These include Alibaba, China's leading
ecommerce business; KE Holdings, an online real estate portal;
China Merchant's Bank, China's leading wealth management and
high-end banking business; and Ping An Bank, a leading retail bank
and part of the Ping An group of companies.
In order to fund the above, we sold a number of our lower
conviction, smaller holdings. These include both Tencent Music and
Bilibili. Tencent Music was bought due to its potential in
on-demand music streaming. However, both the regulatory backdrop
and the competitive environment deteriorated markedly
post-purchase. The regulator's anti-monopoly ruling impacted the
viability of Tencent Music's exclusivity contracts with labels and
has made it much easier for competitors to add popular songs to
their portals. ByteDance has also entered the market and is
increasingly seen as a platform via which new artists can be
incubated. As such, we believe the company's growth outlook and
longer term profitability are likely to be lower than we initially
thought and that investment returns from here are unlikely to be
attractive. Bilibili is a media and entertainment company popular
with generation Z. We sold the holding during the period due to
unexpectedly strong competition from ByteDance and Kuaishou, and
markedly weaker operational performance as a result. The company
appeared overly reliant on subsidies for growth and as such we
became less convinced by its long-term business model.
In the healthcare space, we sold BGI, Zai Labs, and Hutchison
China Meditech, partly due to weaker than expected operational
performance, and partly to reduce our healthcare overweight given
concerns around sanctions risk within this sector. We also sold
small holdings in Lufax, an SME lender, and Yatsen, a cosmetics
company.
Performance
Over the twelve months to the end of January 2023, the Company's
net asset value total return was -5.7%. Over the same period, the
benchmark total return was -2.2%. Our underperformance was largely
due to allocation including lack of exposure to energy and consumer
staples, and an overweight position in communication services.
Whilst we acknowledge that short-term underperformance is painful,
we would hope that shareholders judge our investment returns over a
period of five years or longer, the same period over which we judge
our companies' performance.
In terms of the net asset value, notable negative contributors
at stock level included Tencent, Bilibili and ByteDance, all of
which are classified as communication services. Tencent's
operational performance was severely hampered by the lack of game
approvals during the first nine months of the year, in addition to
cyclical weakness in its advertising and social media businesses.
The outlook for the company, however, is much brighter with game
approvals having restarted and the rebound in the Chinese economy
likely to feed through to Tencent's advertising business. ByteDance
is the Company's only private holding. In response to the decline
in peer valuations, Baillie Gifford also made negative adjustments
to our internal valuation. That being said, ByteDance's operational
performance has remained exceptionally strong, both domestically
and overseas, despite a very challenging macroeconomic backdrop.
The company has also been buying back shares at prior valuations
implying confidence in the business's future development. As such,
we continue to believe that the current valuation does not reflect
the company's very sizeable growth opportunity. In addition,
relative performance was also hurt by our lack of exposure to
Pinduoduo, a leading ecommerce company that mainly operates in
lower tier cities.
Other negative contributors to performance included Sunny
Optical, a manufacturer of lenses and modules that go into
smartphones and autos, CATL, China's largest electric vehicle
('EV') battery manufacturer, Asymchem, a leading contract
manufacturing organisation in the healthcare space, and Jiangsu
Azure, a leading small form battery manufacturer. As noted in our
interim report, Sunny Optical was experiencing a price war in its
core smartphone business which was started by a new entrant to the
market. We think this increase in competition will not persist as
the new entrant is loss making and unable to make an economic
return. More positively, we think the growth potential in Sunny's
auto business is underappreciated and therefore remain holders of
the stock.
CATL's shares were weak in line with other EV names globally.
Importantly, operational performance remains strong with the
company pre-announcing almost treble digit earnings growth in 2022.
NEV penetration remains low globally and the company's strength in
energy storage provides an additional growth driver for the next
decade.
Asymchem has been weak along with the broader healthcare space
as concerns around the regulators attitude to drug pricing have
weighed on sentiment. We believe the sell-off in Asymchem is
unjustified given it has significant scope to take volume share
within the industry due to its globally innovative manufacturing
processes for small molecule drugs. Operationally, the company is
firing on all cylinders and recently reported over 200% earnings
growth in 2022. That being said, this is one of the few holdings in
the Company with significant revenue exposure to the US and, as
such, it comes with added geopolitical risk.
In terms of notable positive contributors, these are varied.
Sanhua Intelligent Controls, a heat pump manufacturer for air
conditioners and electric vehicles, was our top contributor. It
delivered significant operational performance with 33% growth in
sales and 26% growth in earnings for the year to September. Autos
account for around a third of its business. Here, its industry
leading technology and manufacturing scale allow it to fully
benefit from the electric vehicle boom in China. Its
air-conditioning business accounts for the remainder of its
business and here it is expanding capacity overseas and taking
share.
Zijin Mining is another top contributor. We own this company due
to its significant exposure to copper, one of the metals that is
likely to experience significant demand as a result of the green
revolution globally, and limited supply.
Beigene, a biotech firm specializing in cancer treatment, was
also a top performer. It published phase 3 trial results for one of
its drugs, demonstrating superior efficacy and safety versus the
competition. This led to earnings upgrades for the company. We
continue to believe that its growth potential is underappreciated
and that its internal pipeline plus its attractiveness to global
pharmaceutical companies looking to enter China, sets it apart.
Ping An, China's leading private insurance company, also
contributed strongly to relative performance. The company had been
disproportionately hit by China's Zero Covid policy which impacted
its agents' ability to sell their products, whilst the company's
internal restructuring also hurt short term revenue growth.
Internal restructuring is almost complete and we believe the
company's productivity and profitability are likely to benefit
going forward. Its sales agents have also been able to resume face
to face meetings as Zero Covid has been overturned. This is one of
our largest overweights and a stock that we believe has significant
upside potential ahead of it.
Outlook
We continue to believe that China offers an attractive mix of
substantial risk but also substantial reward for long-term
investors. Indeed, the big picture opportunities within China
remain incredibly compelling. That being said, this is a volatile
market and one must be comfortable with this volatility before
investing. In terms of the Company's underlying holdings, we remain
confident in the companies in which we invest and believe that,
over time, their continued strong operational performance will be
matched by strong share price returns.
Roderick Snell
Sophie Earnshaw
Baillie Gifford & Co
4 April 2023
For a definition of terms, see Glossary of Terms and Alternative
Performance Measures at the end of this announcement.
Source: Refinitiv/Baillie Gifford and relevant underlying index
providers.
Past performance is not a guide to future performance.
See disclaimer at the end of this announcement.
Review of Investments
Alibaba
Alibaba is a leading online retailer. Its ecommerce business
continues to grow strongly driven by increasing online penetration
in segments such as grocery and Fast Moving Consumer Goods, whilst
the integration of live streaming and social media to the platform
has materially strengthened its appeal to customers and merchants
alike. In addition, Alibaba has a strong position in infrastructure
as a service, or the cloud, where it has a similar business to
Amazon Web Services and significant growth potential. Alibaba's
partnership structure and its capable and experienced management
team are well-aligned with shareholders and continue to offer a
long-term and compelling vision for the company.
Tencent
Tencent is a leading social media and entertainment platform. It
has a dominant position in online gaming and an ecosystem in WeChat
that we believe is one of the strongest in China. Monetisation of
WeChat's over one billion monthly active users has only just begun
and represents a transformational growth opportunity for the
company. Further growth opportunities are provided by Tencent's
strong positions in cloud infrastructure and consumer and SME
lending, along with its portfolio of investee companies which span
online music streaming, ecommerce, and short form video. Pony Ma,
the founder and Chairman of the company, is indelibly focused on
the long term and has executed exceptionally well in one of China's
fastest moving industries.
ByteDance
ByteDance is a social media and short form video company and it
represents the Company's first private investment. It was founded
in 2012 by Yiming Zhang and the company has grown to rank amongst
the world's largest companies of its kind. Its short form video
app, Douyin, is market leader in China with over 1.7 billion daily
active users, and TikTok, its global equivalent, is dominating the
format globally. ByteDance benefits from a technological edge in
machine learning which it uses to bring out new applications
tailored to different media forms and different demographics. The
company's ability to innovate in this space is exceptional and we
believe one of the key drivers of its likely future success. We
believe ByteDance has the potential to be a generation defining
media company.
Ping An Insurance
Ping An Insurance is one of China's leading financial services
groups. It is China's second largest life insurer, a market with
multi-decade growth potential driven by China's emerging middle
class and rising disposable income. It also has a leading position
in property and casualty insurance where it has consistently
delivered strong returns. In addition, it has consistently invested
in artificial intelligence and machine learning in order to
increase the efficiency and long-term viability of its core
business. Again, this is a company with a long-term, growth
mind-set that we believe will deliver substantial returns to
shareholders.
Kweichow Moutai
Kweichow Moutai is one of the most important and iconic Chinese
brands. It manufactures premium baijiu (white alcohol) which has a
heritage and respect embedded within Chinese culture. Its unique
brewing conditions and process provide a core competitive
advantage. When combined with supply scarcity and limited
competition in the very high-end market, Moutai is able to price at
a premium and maintain a loyal customer base. It is an extremely
profitable business. We believe in the strength and heritage of the
brand, the sustainability of revenue growth, and the longevity of
its core competitive advantage.
Meituan
Meituan is an online marketplace for the local service industry
in China. It operates in an expanding range of categories and
cities with strong market shares in on-demand restaurant delivery,
in-store dining, hotel booking and film ticketing. These verticals
are each in an early stage of development, leading to strong growth
expectations for many years to come. Additionally, the company is
cementing its position as a key partner for merchants in all of
these segments by offering value-added services such as software
and back-end solutions. Wang Xing, the founder and CEO, continues
to invest heavily for growth. Indeed, his vision for the company is
that it becomes the default means by which Chinese consumers access
the local services industry.
Li Ning
Li Ning is China's second-largest domestic sportswear company
(and takes its name from the founder who - as some may remember -
won 6 gymnastics medals for China at the 1984 Summer Olympics). It
remains something of a turnaround story, having run into problems
between 2010 and 2015 as the model shifted from wholesale
distribution to direct stores. These problems now look to have been
largely remedied, and although Li Ning's returns remain lower than
many of its local and international peers, we are optimistic that
improvements in the supply chain and distribution channels will
continue under the well-regarded new CEO, Kosaka Takeshi, who
joined in September 2019. More broadly, we are intrigued by
indications that the company's brands - especially 'China Li Ning',
which blends traditional Chinese embroidery styles into their
products - is gaining traction among a younger and more affluent
demographic, perhaps reflecting the possibility that national pride
is beginning to play a greater part in patterns of consumption. Is
it conceivable that Li Ning - with a national market share of
around 8% at present - could even start to chip away at the 35-40%
of the market currently controlled by premium foreign brands like
Adidas and Nike?
China Merchants Bank
China Merchants Bank is a leading consumer bank in China with a
lengthy track record and solid market share. It has outcompeted its
state-owned rivals via a relentless focus on the consumer. As such,
it has built up an enviable position in consumer lending and in
wealth management, both segments with strong growth potential. In
terms of lending quality, this has been strong through the cycle
and we believe this is a bank that will continue to offer
attractive returns to shareholders.
JD.com
JD.com is the second largest ecommerce player in China after
Alibaba, with particular strengths in logistics and delivery. The
growth opportunity remains large and we believe that JD's
competitive edge is being sustained, despite operating in a very
competitive environment. The management team has taken some
proactive steps to ensure decision making is more devolved and we
have been encouraged by the openness at recent discussions
regarding future strategy and governance improvements. We believe
that there is an excellent chance that JD remains one of the go-to
ecommerce businesses in China.
Zhejiang Sanha Intelligent Controls
Zhejiang Sanhua is one of the world's largest manufacturers of
controls and components for heating, ventilation and air
conditioning (HVAC) systems, electric vehicles and home appliances.
Sanhua has a global customer base of top tier manufacturers, with
half of their revenues generated from China and half from overseas.
The company has over 50% market share in its key products. Sanhua's
ability to produce quality at scale is a key competitive advantage.
This is a founder-owned company whose global position has been
underappreciated in a China context. We expect Sanhua to benefit
from consumption growth in general, as well as growth in the
electric vehicle market, and an industry shift in home appliances
towards stricter environmental standards.
List of Investments at 31 January 2023
%
Value of total
Name Business GBP'000 assets
================================ ============================================= ========= =========
Online retailer, payments and cloud
Alibaba business 13,819 6.6
Tencent Social media and entertainment company 12,694 6.0
ByteDance (u) Social media and entertainment company 11,953 5.7
Ping An Insurance Life and health insurance 9,559 4.6
Kweichow Moutai Luxury baijiu maker 9,436 4.5
Meituan Online food delivery company 7,977 3.8
Li Ning Domestic sportswear manufacturer 7,692 3.7
China Merchants Bank Consumer lending and wealth management 7,631 3.6
JD.com Online retailer 5,074 2.4
Zhejiang Sanhua Intelligent
Controls Heating and cooling component manufacturer 4,946 2.4
BeiGene Immunotherapy biotechnology company 4,929 2.3
Zijin Mining Renewable energy enabler 4,580 2.2
CATL Electric vehicle battery maker 4,268 2.0
Estun Automation Robotics and factory automation company 4,158 2.0
Shandong Sinocera Functional
Material Advanced materials manufacturer 4,156 2.0
Ping An Bank SME and consumer lender 4,134 2.0
Proya Cosmetics Cosmetics and personal care company 3,991 1.9
SG Micro Corp Semiconductor designer 3,881 1.8
Shenzhen Inovance Technology Factory automation company 3,659 1.7
ENN Energy Gas distributor and provider 3,482 1.7
Guangzhou Kingmed Diagnostics Diagnostics company 3,430 1.6
Midea White goods and robotics manufacturer 3,223 1.5
NetEase Gaming and entertainment business 3,082 1.4
Centre Testing International Testing and inspecting services provider 3,037 1.4
Fuyao Glass Industry Automotive glass manufacturer 2,877 1.4
Shenzhen Megmeet Electrical Power electronics manufacturer 2,827 1.3
Software provider to the construction
Glodon industry 2,762 1.3
Yonyou Network Technology Software for SMEs and corporates 2,760 1.3
Shenzhou International Garment manufacturer 2,651 1.3
Geely Automobile Domestic automotive manufacturer 2,626 1.3
Beijing United Information Tec Industrial ecommerce platform 2,620 1.2
Asymchem Laboratories (Tianjin) Life sciences contract research organisation 2,476 1.2
Kingdee International Software Software for SMEs and corporates 2,472 1.2
Construction machinery and heavy
Weichai Power duty trucks 2,438 1.2
Longi Solar energy provider 2,279 1.1
Clinical trial contract research
Hangzhou Tigermed Consulting organisation 2,267 1.1
HUAYU Automotive Systems Automotive parts manufacturer 2,196 1.0
Kingsoft Software for SMEs and corporates 2,090 1.0
Electronic components for smartphones
Sunny Optical Technology and autos 2,083 1.0
Brilliance China Automotive Automotive makers and BMW partner 2,051 1.0
WuXi AppTec Life sciences contract research organisation 2,045 1.0
KE Holdings Online real estate 1,969 0.9
Sinocare Diagnostics and diabetes company 1,889 0.9
Topchoice Medical Dental services provider 1,766 0.8
Component supplier to renewables
Sungrow Power Supply industry 1,736 0.8
Jiangsu Azure Air Freight & Logistics 1,590 0.8
Robam Appliances White goods manufacturer 1,580 0.8
Minth Automotive parts manufacturer 1,505 0.7
Hua Medicine (Shanghai) Diabetes drug manufacturer 1,503 0.7
Dongguan Yiheda Automation Co Factory automation equipment manufacturer 1,426 0.7
Component supplier to renewables
Yunnan Energy New Material industry 1,381 0.7
Yifeng Pharmacy Chain Drug retailer 1,375 0.7
Kinlong Building Products 1,262 0.6
Pop Mart Toy and collectibles maker 1,210 0.5
Medical dictionary and marketing
Medlive Technology organisation 1,036 0.5
New Horizon Health Early cancer detection 838 0.4
Dada Nexus Logistics and warehousing provider 745 0.3
Burning Rock Biotech Liquid biopsy cancer testing company 377 0.2
-------------------------------- --------------------------------------------- --------- ---------
Total investments 209,499 99.7
Net liquid assets* 533 0.3
------------------------------------------------------------------------------- --------- ---------
Total assets * 210,032 100.0
------------------------------------------------------------------------------- --------- ---------
Borrowings (6,092) (2.9)
------------------------------------------------------------------------------- --------- ---------
Shareholders' funds 203,940 97.1
------------------------------------------------------------------------------- --------- ---------
* For a definition of terms used, see Glossary of Terms and
Alternative Performance Measures at the end of this
announcement.
(u) Denotes unlisted holding (private company).
Includes investments in American Depositary Receipts
('ADRs').
Listed Unlisted Net liquid Total
equities Securities Assets Assets
% % % %
---------------- --------- ----------- ---------- -------
31 January 2023 94.0 5.7 0.3 100.0
---------------- --------- ----------- ---------- -------
31 January 2022 93.0 5.7 1.3 100.0
---------------- --------- ----------- ---------- -------
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 don't.
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 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.
Income Statement
For the year ended 31 January
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Net (losses)/gains on investments - (12,378) (12,378) - (82,850) (82,850)
Currency losses - (216) (216) - (68) (68)
Income 2,407 - 2,407 1,599 - 1,599
Investment management fee 3 (311) (932) (1,243) (363) (1,089) (1,452)
Other administrative expenses (550) - (550) (479) (20) (499)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Net return before finance
costs and taxation 1,546 (13,526) (11,980) 757 (84,027) (83,270)
Finance costs of borrowings (116) (347) (463) (46) (138) (184)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Net return on ordinary activities
before taxation 1,430 (13,873) (12,443) 711 (84,165) (83,454)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Tax on ordinary activities (105) - (105) (119) - (119)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Net return on ordinary activities
after taxation 1,325 (13,873) (12,548) 592 (84,165) (83,573)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
Net return per ordinary share 5 2.14p (22.37p) (20.23p) 0.97p (138.22p) (137.25p)
---------------------------------- ----- -------- --------- -------- -------- --------- ---------
The total column of this statement represents the profit and
loss account of the Company. The supplementary revenue and capital
return columns are prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in this Statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as 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 January
2023 2023 2022 2022
Notes GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ----- -------- ---------- -------- ----------
Fixed assets
Investments held at fair value through
profit or loss 7 209,499 222,015
--------------------------------------- ----- -------- ---------- -------- ----------
Current assets
Debtors 26 100
Cash and cash equivalents 1,000 5,496
--------------------------------------- ----- -------- ---------- -------- ----------
1,026 5,596
======================================= ===== ======== ========== ======== ==========
Creditors
Amounts falling due within one year (6,585) (8,270)
--------------------------------------- ----- -------- ---------- -------- ----------
Net current (liabilities)/assets (5,559) (2,674)
--------------------------------------- ----- -------- ---------- -------- ----------
Total assets less current liabilities 203,940 219,341
--------------------------------------- ----- -------- ---------- -------- ----------
Capital and reserves
Share capital 17,087 17,087
Share premium account 31,780 31,780
Capital redemption reserve 41,085 41,085
Capital reserve 107,748 121,621
Revenue reserve 6,240 7,768
--------------------------------------- ----- -------- ---------- -------- ----------
Shareholders' funds 203,940 219,341
--------------------------------------- ----- -------- ---------- -------- ----------
Net asset value per ordinary share* 328.87p 353.70p
--------------------------------------- ----- -------- ---------- -------- ----------
Ordinary shares in issue 5 62,012,982 60,888,553
--------------------------------------- ----- -------- ---------- -------- ----------
* See Glossary of Terms and Alternative Performance Measures at
the end of this announcement.
Statement of Changes in Equity
For the year ended 31 January 2023
Share Capital
Share premium redemption Capital Revenue Shareholders'
capital account reserve reserve reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- -------- ----------- --------- --------- ---------------
Shareholders' funds at 1
February 2022 17,087 31,780 41,085 121,621 7,768 219,341
Dividends paid during the
year - - - - (2,853) (2,853)
Net return on ordinary activities
after taxation - - - (13,873) 1,325 (12,548)
---------------------------------- --------- -------- ----------- --------- --------- ---------------
Shareholders' funds at 31
January 2023 17,087 31,780 41,085 107,748 6,240 203,940
---------------------------------- --------- -------- ----------- --------- --------- ---------------
For the year ended 31 January 2022
Share Capital
Share premium redemption Capital Revenue Shareholders'
capital account reserve reserve reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBPí000
---------------------------------- -------- -------- ----------- -------- -------- -------------
Shareholders' funds at 1
February 2021 16,486 13,182 41,085 189,061 11,610 271,424
Dividends paid during the
year - - - - (4,434) (4,434)
Ordinary shares sold from
treasury - 8,043 - 16,725 - 24,768
Ordinary shares issued 601 10,555 - - - 11,156
Net return on ordinary activities
after taxation - - - (84,165) 592 (83,573)
---------------------------------- -------- -------- ----------- -------- -------- -------------
Shareholders' funds at 31
January 2022 17,087 31,780 41,085 121,621 7,768 219,341
---------------------------------- -------- -------- ----------- -------- -------- -------------
* The capital reserve balance as at 31 January 2023 includes
investment holding losses on fixed asset investments of
GBP26,491,000 (2022 - losses of GBP31,163,000).
Cash Flow Statement
For the year ended 31 January
2023 2023 2022 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------- -------- -------- --------
Cash flows from operating activities
Net return on ordinary activities
before taxation (12,443) (83,454)
Net losses on investments 12,378 82,850
Currency losses 216 68
Finance costs of borrowings 463 184
Overseas withholding tax suffered (181) (119)
Overseas withholding tax reclaims
received 76 -
Changes in debtors 74 (45)
Changes in creditors (25) 328
------------------------------------------- -------- -------- -------- --------
Cash from operations 558 (188)
Interest paid (451) (178)
------------------------------------------- -------- -------- -------- --------
Net cash inflow/(outflow) from operating
activities 107 (366)
------------------------------------------- -------- -------- -------- --------
Cash flows from investing activities
Acquisitions of investments (27,760) (81,766)
Disposals of investments 25,723 43,362
------------------------------------------- -------- -------- -------- --------
Net cash outflow from investing activities (2,037) (38,404)
------------------------------------------- -------- -------- -------- --------
Cash flows from financing activities
Ordinary shares issued - 37,216
Bank loans drawdown - 5,427
Equity dividends paid (2,853) (4,434)
------------------------------------------- -------- -------- -------- --------
Net cash (outflow)/inflow from financing
activities (2,853) 38,209
------------------------------------------- -------- -------- -------- --------
Decrease in cash and cash equivalents (4,783) (561)
Exchange movements 287 95
Cash and cash equivalents at start
of year 5,496 5,962
------------------------------------------- -------- -------- -------- --------
Cash and cash equivalents at end
of year 1,000 5,496
Comprising:
Cash at bank 1,000 5,496
------------------------------------------- -------- -------- -------- --------
* Cash from operations includes dividends received of
GBP2,402,000 (2022 - GBP1,599,000) and interest received of
GBP5,000 (2022 - nil).
Notes to the Financial Statements
1. Basis of Accounting
The Financial Statements for the year to 31 January 2023 have
been prepared in accordance with FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' on the basis
of the accounting policies set out in the Annual Report and
Financial Statements for the year 31 January 2023 which are
consistent with those applied for the year ended 31 January
2022.
2. Income
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Income from investments
Overseas dividends 2,402 1,599
Other income
Bank interest 5 -
--------------------------------------------------- -------- --------
Total income 2,407 1,599
--------------------------------------------------- -------- --------
Total income comprises:
Dividends from financial assets designated at fair
value through profit or loss 2,402 1,599
Interest from financial assets not at fair value
through profit or loss 5 -
--------------------------------------------------- -------- --------
2,407 1,599
--------------------------------------------------- -------- --------
3. Investment Manager
Baillie Gifford & Co Limited, a wholly owned subsidiary of
Baillie Gifford & Co, was appointed as the Company's
Alternative Investment Fund Manager ('AIFM') and Company Secretary
on 16 September 2020. Baillie Gifford & Co Limited has
delegated portfolio management services to Baillie Gifford &
Co. Dealing activity and transaction reporting has been further
sub-delegated to Baillie Gifford Overseas Limited and Baillie
Gifford Asia (Hong Kong) Limited.
The Investment Management Agreement between the AIFM and the
Company sets out the matters over which the Managers have authority
in accordance with the policies and directions of, and subject to
restrictions imposed by, the Board. The Investment Management
Agreement is terminable on not less than three months' notice or on
shorter notice in certain circumstances.
Compensation would only be payable if termination occurred prior
to the expiry of the notice period. The annual management fee is
(i) 0.75% of the first GBP50 million of net asset value; plus(ii)
0.65% of net asset value between GBP50 million and GBP250 million;
plus (iii) 0.55% of net asset value in excess of GBP250 million,
calculated and payable quarterly.
4. Net Return Per Ordinary Share
2023 2023 2023 2022 2022 2022
Revenue Capital Total Revenue Capital Total
------------------------ -------- -------- -------- -------- --------- ---------
Net return per ordinary
share 2.14p (22.37p) (20.23p) 0.97p (138.22p) (137.25p)
------------------------ -------- -------- -------- -------- --------- ---------
Revenue return per ordinary share is based on the net revenue
return on ordinary activities after taxation of GBP1,325,000 (2022
- GBP592,000), and on 62,012,982 (2022 - 60,888,553) ordinary
shares, being the weighted average number of ordinary shares in
issue during each year.
Capital return per ordinary share is based on the net capital
loss for the financial year of GBP13,873,000 (2022 - loss
GBP84,165,000) and on 62,012,982 (2022 - 60,888,553) ordinary
shares, being the weighted average number of ordinary shares in
issue during each year.
There are no dilutive or potentially dilutive shares in
issue.
5. Ordinary Dividends
2023 2022
2023 2022 GBP'000 GBP'000
------------------------------------- ----- ----- -------- --------
Amounts recognised as distributions
in the year:
Previous year's final dividend (paid
27 July 2022) 4.60p 4.60p 2,853 2,853
Interim dividend - 2.55p - 1,581
------------------------------------- ----- ----- -------- --------
4.60p 7.15p 2,853 4,434
------------------------------------- ----- ----- -------- --------
Also set out below are the total dividends paid and proposed in
respect of the financial year, which is the basis on which the
requirements of section 1158 of the Corporation Tax Act 2010 are
considered. The revenue available for distribution by way of
dividends for the year is
GBP1,325,000 (2022 - GBP592,000).
2023 2022
2023 2022 GBP'000 GBP'000
-------------------------------------- ----- ----- -------- --------
Dividends paid and payable in respect
of the year:
Interim dividend per ordinary share - 2.55p - 1,581
Proposed final dividend per ordinary
share (payable 26 July 2023) 1.70p 4.60p 1,054 2,853
-------------------------------------- ----- ----- -------- --------
1.70p 7.15p 1,054 4,434
-------------------------------------- ----- ----- -------- --------
6. Fixed Assets - Investments
Investments in securities are financial assets designated at
fair value through profit or loss on initial recognition. In
accordance with FRS 102 the tables below 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 levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is
significant to the fair value measurement for the individual
investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical
instruments in an active market;
Level 2 - using inputs, other than quoted prices included within
Level 1, that are directly or indirectly observable (based on
market data); and
Level 3 - using inputs that are unobservable (for which market
data is unavailable).
The valuation techniques used by the Company are explained in
the accounting policies on page 52 of the Annual Report and
Financial statements. The Company's unlisted ordinary share
investment at 31 January 2023 was valued using the market approach
using comparable traded multiples. A sensitivity analysis of the
unlisted security is on page 63 of the Annual report and Financial
Statements. During the year, a suspended investment with a fair
value at 31 January 2022 of GBP1,482,000 was transferred from Level
3 to Level 1 when the shares re-listed.
Level Level Level
1 2 3 Total
As at 31 January 2023 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Securities
Listed equities 197,546 - - 197,546
Unlisted ordinary shares - - 11,953 11,953
---------------------------------- -------- -------- -------- --------
Total financial asset investments 197,546 - 11,953 209,499
---------------------------------- -------- -------- -------- --------
Level Level Level
1 2 3 Total
As at 31 January 2022 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Securities
Listed equities 207,678 - - 207,678
Suspended ordinary shares - - 1,482 1,482
Unlisted ordinary shares - - 12,855 12,855
---------------------------------- -------- -------- -------- --------
Total financial asset investments 207,678 - 14,337 222,015
---------------------------------- -------- -------- -------- --------
7. In the year to 31 January 2023 no shares were issued from
Treasury (in the year to 31 January 2022 - 2,404,151 shares were
issued from Treasury). The Company's shareholder authority permits
it to hold shares bought back in treasury. Under such authority,
treasury shares may be subsequently either sold for cash (at a
premium to net asset value per ordinary share) or cancelled. At 31
January 2023 the Company had authority to buy back 9,295,746
ordinary shares. During the year to 31 January 2023, no ordinary
shares (2022 - nil) were bought back for cancellation and no
ordinary shares (2022 - nil) were bought back into treasury. Under
the provisions of the Company's Articles of Association share
buy-backs are funded from the capital reserve.
8. Cash and cash equivalents table
1 February Exchange 31 January
2022 Cash flows movement 2023
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- ---------- --------- ----------
Cash and cash equivalents 5,496 (4,783) 287 1,000
Loans due within one year (5,590) - (502) (6,092)
-------------------------- ---------- ---------- --------- ----------
(94) (4,783) (215) (5,092)
-------------------------- ---------- ---------- --------- ----------
9. The Annual Report and Financial Statements will be available on the Company's website bailliegiffordchinagrowthtrust on or around 19 April 2023.
10. The financial information set out above does not constitute
the Company's statutory accounts for the years ended 31 January
2023 or 2022 but is derived from those accounts. Statutory accounts
for 2022 have been delivered to the Registrar of Companies, and
those for 2023 will be delivered in due course. The auditor has
reported on those accounts; their 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.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the Company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
Glossary of Terms and Alternative Performance Measures
('APM')
Total Assets
This is the Company's definition of Adjusted Total Assets, being
the total of all assets less current liabilities, before deduction
of all borrowings.
Net Asset Value
Net Asset Value ('NAV') is the value of total assets less
liabilities (including borrowings). The NAV per share is calculated
by dividing this amount by the number of ordinary shares in issue
(excluding treasury shares).
Net Liquid Assets
Net liquid assets comprise current assets less current
liabilities, excluding borrowings.
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's
share price is rarely the same as its NAV. When the share price is
lower than the NAV per share it is said to be trading at a
discount. The size of the discount is calculated by subtracting the
share price from the NAV per share and is usually expressed as a
percentage of the NAV per share. If the share price is higher than
the NAV per share, it is said to be trading at a premium.
2023 2022
---------------------- ------- -------
Closing NAV per share 328.87p 353.70p
Closing share price 308.00p 339.25p
---------------------- ------- -------
(Discount)/Premium (6.3%) (4.1%)
---------------------- ------- -------
Total Return (APM)
The total return is the return to shareholders after reinvesting
the net dividend on the date that the share price goes
ex-dividend.
2023 2022
2023 Share 2022 Share
NAV price NAV price
---------------------------- ---------- -------- -------- -------- --------
Closing NAV per share/share
price (a) 328.87p 308.00p 353.70p 339.25p
Dividend adjustment factor* (b) 1.014030 1.014557 1.016038 1.015984
Adjusted closing NAV (c = a
per share/share price x b) 333.48p 312.48p 395.37p 344.67p
Opening NAV per share/share
price (d) 353.70p 339.25p 492.66p 548.00p
---------------------------- ---------- -------- -------- -------- --------
(c ÷
Total return d)-1 (5.7%) (7.9%) (27.0%) (37.1%)
---------------------------- ---------- -------- -------- -------- --------
* The dividend adjustment factor is calculated on the assumption
that the dividend of 4.60p (2022 - 7.15p) paid by the Company
during the year was reinvested into shares of the Company at the
cum income NAV per share/share price, as appropriate, at the
ex-dividend date.
Ongoing Charges (APM)
The total expenses (excluding borrowing costs) incurred by the
Company as a percentage of the average net asset value. The ongoing
charges have been calculated on the basis prescribed by the
Association of Investment Companies.
A reconciliation from the expenses detailed in the Income
Statement above is provided below.
2023 2022
--------------------------------------------- ---- -------------- --------------
Investment management fee GBP1,243,000 GBP1,452,000
Other administrative expenses GBP550,000 GBP479,000
--------------------------------------------- ---- -------------- --------------
Total expenses (a) GBP1,793,000 GBP1,931,000
Average daily cum-income net asset value (b) GBP190,419,970 GBP267,217,990
--------------------------------------------- ---- -------------- --------------
Ongoing charges ((a) ÷ (b) expressed as
a percentage) 0.94% 0.72%
--------------------------------------------------- -------------- --------------
Baillie Gifford & Co Limited was appointed on 16 September
2020 and agreed to waive its management fee for six months from the
date of its appointment. The calculation for 2022 above is
therefore not representative of future management fees. The
reconciliation below shows the ongoing charges figure if the
management fee waiver had not been in place.
2022
-------------------------------------------- ---- --------------
Investment management fee GBP1,452,000
Investment management fee waiver GBP223,000
Other administrative expenses GBP479,000
-------------------------------------------- ---- --------------
Total expenses (a) GBP2,154,000
-------------------------------------------- ---- --------------
Average daily cum-income net asset value (b) GBP267,217,990
-------------------------------------------- ---- --------------
Ongoing charges ((a) ÷(b) expressed as
a percentage) 0.81%
--------------------------------------------------- --------------
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other
public company, an investment trust can borrow money to invest in
additional investments for its portfolio. The effect of the
borrowing on the shareholders' assets is called 'gearing'. If the
Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. But if the
value of the Company's assets falls, the situation is reversed.
Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Equity gearing is the Company's borrowings adjusted for cash and
cash equivalents expressed as a percentage of shareholders'
funds.
Potential gearing is the Company's borrowings expressed as a
percentage of shareholders' funds.
2023 2022
Potential Potential
Gearing* Gearing Gearing* Gearing
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ----------- ------------ ----------- ------------
Borrowings (a) 6,092 6,092 5,590 5,590
Cash and cash equivalents (b) 1,000 - 5,496 -
Sales for subsequent settlement (c) - - 2,175 -
Shareholders' funds (d) 203,940 203,940 219,341 219,341
-------------------------------- ---- ----------- ------------ ----------- ------------
2.5% 3.0% 1.0% 2.5%
------------------------------------- ----------- ------------ ----------- ------------
* Gearing: ((a)-(b)+(c)) divided by (d), expressed as a
percentage.
Potential gearing: (a) divided by (d), expressed as a percentage
.
Leverage (APM)
For the purposes of the UK Alternative Investment Fund Managers
(AIFM) Regulations, leverage is any method which increases the
Company's exposure, including the borrowing of cash and the use of
derivatives. It is expressed as a ratio between the Company's
exposure and its net asset value and can be calculated on a gross
and a commitment method. Under the gross method, exposure
represents the sum of the Company's positions after the deduction
of sterling cash balances, without taking into account any hedging
and netting arrangements. Under the commitment method, exposure is
calculated without the deduction of sterling cash balances and
after certain hedging and netting positions are offset against each
other.
Active Share (APM)
Active share, a measure of how actively a portfolio is managed,
is the percentage of the portfolio that differs from its
comparative index. It is calculated by deducting from 100 the
percentage of the portfolio that overlaps with the comparative
index. An active share of 100 indicates no overlap with the index
and an active share of zero indicates a portfolio that tracks the
index.
Unlisted (Private) Company
An unlisted (private) company means a company whose shares are
not available to the general public for trading and not listed on a
stock exchange.
Participatory Notes (or P-Notes)
A P-Note is a certificate-based instrument that can be issued by
a counterparty bank and provides a synthetic stock exposure to an
underlying equity instrument. The synthetic exposure results in the
P-Note having the same performance as the underlying stock but
carries an additional currency exposure due to the P-Note being
denominated in US$. P-Notes are unleveraged instruments.
Variable Interest Entity ('VIE')
VIE structures are used by some Chinese companies to facilitate
access to foreign investors in sectors of the Chinese domestic
economy which prohibit foreign ownership. The purpose of the VIE
structure is to give the economic benefits and operational control
of ownership without direct equity ownership itself. The structures
are bound together by contracts and foreign investors are not
directly invested in the underlying company.
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.
Third Party Data Provider Disclaimer
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express or implied, as to the accuracy, completeness or timeliness
of the data contained herewith nor as to the results to be obtained
by recipients of the data.
No Provider shall in any way be liable to any recipient of the
data for any inaccuracies, errors or omissions in the index data
included in this document, regardless of cause, or for any damages
(whether direct or indirect) resulting therefrom. No Provider has
any obligation to update, modify or amend the data or to otherwise
notify a recipient thereof in the event that any matter stated
herein changes or subsequently becomes inaccurate.
Without limiting the foregoing, no Provider shall have any
liability whatsoever to you, whether in contract (including under
an indemnity), in tort (including negligence), under a warranty,
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suffered by you as a result of or in connection with any opinions,
recommendations, forecasts, judgements, or any other conclusions,
or any course of action determined, by you or any third party,
whether or not based on the content, information or materials
contained herein.
MSCI Index Data
Source: MSCI. The MSCI information may only be used for your
internal use, may not be reproduced or redisseminated in any form
and may not be used as a basis for or a component of any financial
instruments or products or indices. None of the MSCI information is
intended to constitute investment advice or a recommendation to
make (or refrain from making) any kind of investment decision and
may not be relied on as such. Historical data and analysis should
not be taken as an indication or guarantee of any future
performance analysis, forecast or prediction. The MSCI information
is provided on an 'as is' basis and the user of this information
assumes the entire risk of any use made of this information. MSCI,
each of its affiliates and each other person involved in or related
to compiling, computing or creating any MSCI information
(collectively, the 'MSCI Parties') expressly disclaims all
warranties (including, without limitation, any warranties of
originality, accuracy, completeness, timeliness, non-infringement,
merchantability and fitness for a particular purpose) with respect
to this information. Without limiting any of the foregoing, in no
event shall any MSCI Party have any liability for any direct,
indirect, special, incidental, punitive, consequential (including,
without limitation, lost profits) or any other damages
(msci.com).
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 China Growth Trust 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 Governance and
Sustainable 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 up an in-depth knowledge of an
individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors
(environmental, social and/or governance matters) which it believes
will positively or negatively influence the financial returns of an
investment.
More detail on the Investment Manager's approach to
sustainability can be found in the Governance and Sustainability
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 the SFDR by introducing additional
disclosure obligations in respect of Alternative Investment Funds
('AIFs') 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.
Regulated Information Classification : Additional regulated
information required to be disclosed under the applicable laws.
- ends -
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END
FR IIMPTMTBMBFJ
(END) Dow Jones Newswires
April 05, 2023 02:00 ET (06:00 GMT)
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