RNS Announcement

Baillie Gifford European Growth Trust plc

Legal Entity Identifier: 213800QNN9EHZ4SC1R12

Results for the year to 30 September 2024

Over the year to 30 September 2024, the Company's net asset value per share (NAV) total return was 12.1% compared to a total return of 15.3% for the comparative index. The share price total return for the same period was 9.3%.

·    The Board has committed to a performance-triggered tender offer of 100% of the Company's issued share capital which will be triggered if the Company's NAV total return per share (measuring debt at fair value) underperforms the return of the FTSE European ex UK Index (in sterling terms) over the four years to 30 September 2028.

·    Public companies, now accounting for 94% of our portfolio, delivered a total return of approximately 20% over the period.

·    Positive contributors in the period included Spotify, which has been able to increase its subscription prices with limited impact on demand and Adyen, which has continued to grow its revenues by more than 20%.

·    Negative contributors in the period included battery startup Northvolt which was written down to reflect its struggles with operational performance and McMakler which has been operating against a tough economic backdrop in Germany.

·    The portfolio continues to hold five unlisted companies accounting for 5.6% of total assets as at 30 September 2024 (2023: 10.9% in four companies).

·    The net revenue for the year was 0.72p per share (2023: 2.68p). A final dividend of 0.6p per share is being recommended (2023: 0.40p).

·    Over the year a total of 6,365,921 shares have been bought back into treasury representing approximately 1.78% of the issued share capital.

For a definition of terms see Glossary of terms and alternative performance measures at the end of this announcement. Total return information is sourced from Baillie Gifford/LSEG and relevant underlying index providers; see disclaimer at the end of this announcement.

Baillie Gifford European Growth Trust's principal investment objective is to achieve capital growth over the long-term from a diversified portfolio of European securities.

The Company is managed by Baillie Gifford & Co, an Edinburgh based fund management group with around £224 billion under management and advice as at 22 November 2024.

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

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

For further information please contact:

Naomi Cherry, Baillie Gifford & Co

Tel: 0131 275 2000

Jonathan Atkins, Four Communications

Tel: 0203 920 0555 or 07872 495396

Chairman's statement

Performance

The net asset value per share ('NAV') total return over the Company's financial year was 12.1% compared to a total return of 15.3% for the FTSE Europe ex UK Index, in sterling terms. The share price total return over the year was 9.3% and so the discount to NAV of the Company's shares widened from 13.6% to 15.7%.

Our six-month interim period ending in March was a stronger period for the Company, and growth investing more generally. The second half of the year, however, felt like a pause for breath as various macroeconomic and election data points were digested. This is a reminder that the recovery of our performance will not be linear but it does not derail our belief in the Managers and the view that operational progress and growth in cashflows will be the main driver of value creation for the foreseeable future. The portfolio is well positioned to benefit from this. Further details on performance are provided in the Managers' report.

Since Baillie Gifford began managing the portfolio in November 2019, the NAV total return has been 22.4% compared to a total return of 44.3% for the FTSE Europe ex UK Index, in sterling terms. The share price total return has been 12.1%, with the discount widening from 7.5% to 15.7%. This has been disappointing overall, but given the differentiation of our portfolio from the index, periods of underperformance can be expected. The Board considers five years to be the minimum period over which investment performance should be properly assessed.

Performance-Triggered Tender Offer

At the annual strategy session of the Company held in September 2024, the Board undertook a review of the performance of the Company and various related matters including investment risk. Key areas of review included valuation and diversification. The Board found the discussion around investment risk to be highly informative. Aside from the damage done to valuation of long term growth by a major shift in interest rates there is no doubt that stock-picking mistakes have been made. We wanted reassurance that lessons had been learned, however, and are optimistic on this score.

In the 21 months since the end of 2022, the European equity market has posted positive returns. However, the Company has underperformed. While markets have been up, it has not been a typical post-recession recovery. Indeed, the threat of a recession has certainly played its part in creating a nervous environment. The bulk of the index performance has been accounted for by 11 of Europe's largest stocks. While market concentration has been a global phenomenon, in Europe it has been steady, cash-generative companies that have led this concentration rather than big tech (as in the US). As the Managers are European growth investors, they typically have a large portion of the Company's portfolio invested in small and mid-sized companies and therefore the continued outperformance of large caps has harmed the Company's own performance recovery to this point when gauged against an index weighted towards large cap companies.

Following this in-depth review, the Board continues to hold a strong belief in the Company's mandate and has confidence that, over the longer term, the Managers have the ability to outperform as the current headwinds to growth investing will not last forever. Valuations move around but time is on your side if underlying idiosyncratic operational growth and opportunity is at the heart of your investment analysis. Whilst maintaining this belief, the Board is painfully aware of the disappointing absolute and relative performance of the Company over the last three years and recognises that shareholders expect the Company to outperform broad market indices over the medium term. It is therefore proposed to commit to the following.

•         A one-off performance-triggered tender offer of 100% of the Company's issued share capital (excluding any shares held in Treasury) which will be triggered if the Company's NAV total return per share (measuring debt at fair value) underperforms the return of the FTSE European ex UK Index (in sterling terms) over the four years to 30 September 2028. The tender would be at a price close to NAV. If the tender offer is triggered, it is expected to be subject to shareholder approval at the Company's Annual General Meeting to be held in early 2029.

The Board believes that this commitment is in the best interests of shareholders as a whole.

Earnings and Dividend

Revenue per share for the year was 0.72p (2.68p 2023) and the Board is recommending a final dividend of 0.6p per share (0.40p 2023). Subject to shareholder approval at the Annual General Meeting, the dividend will be paid on 14 February 2025 to shareholders on the register on 10 January 2025. The ex-dividend date will be 9 January 2025.

As noted in the Company's 2019 Annual Report, any dividend paid will be by way of a final dividend and be the minimum required for the Company to maintain its investment trust status.

Borrowings

The Company has two €30 million long-term debt facilities: the first has a remaining duration of 16 years and is priced at a fixed rate of 1.57% and the other has over 11 years outstanding at a fixed rate of 1.55%. The Company also has an undrawn €30 million overdraft facility with The Northern Trust Company, which at present is capped at €15 million following Board agreement. At the year end, the Company had gearing of 13.6% of shareholders' funds.

Share Buybacks, Issuance and Discount

Over the course of the Company's financial year, the share price moved from a 13.6% discount to NAV to a 15.7% discount to NAV. During this period, the Company bought back 6,365,921 shares at a total cost of approximately £6.0m. The shares repurchased by the Company are held in Treasury and are available to be reissued, at a premium, when market conditions allow.

The Board is of the view that the Company should retain the power to buy back shares during the year and so, at the Annual General Meeting, is seeking to renew the annual authority to repurchase up to 14.99% of the shares in the Company in issue. When buying back shares, the Board does not have a formal discount target and is prepared to buy back shares opportunistically and accretively.

The Company also has authority to issue new shares and to reissue any shares held in treasury for cash on a non-pre-emptive basis. Shares are issued/reissued only at a premium to net asset value, thereby enhancing net asset value per share for existing shareholders. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting. As with the buy back authority, this authority would expire at the conclusion of the Annual General Meeting to be held in 2026.

The Board

As detailed in the 2023 Annual Report, I plan to step down from the Board at the upcoming Annual General Meeting and, as previously noted, David Barron will replace me as Chair. In the light of my retirement, the Board undertook a recruitment process seeking to appoint an additional non-executive director and was pleased to announce the appointment of Davina Curling with effect from 1 November 2024. Davina has over 25 years of fund management experience. She was managing director and head of Pan European equities at Russell Investments. Prior to that she was head of European equities at F&C, ISIS and Royal & Sun Alliance. Davina has also previously held positions at Nikko Capital Management (UK) and Kleinwort Benson and was previously a director of BlackRock Greater Europe Investment Trust plc. Her experience as both fund manager and investment trust director strongly underpin her appointment. Davina will stand for election at the upcoming Annual General Meeting.

Annual General Meeting

The AGM will be held at 11am on 5 February 2025 at Baillie Gifford's offices in Edinburgh. Please see pages 105 to 110 of the Annual Report and Financial Statements that sets out the AGM location and directions thereto. It is the Board's present intention to hold the Company's AGM in London and Edinburgh on alternate years in order to reach as many shareholders as possible. The Managers will make a presentation and I look forward to meeting shareholders who are able to attend.

To accurately reflect the views of shareholders of the Company, the Board intends to hold the AGM voting on a poll, rather than by a show of hands as has been customary. This will ensure an exact and definitive result. The Board encourages all shareholders to exercise their votes on the AGM resolutions by completing and submitting the form of proxy enclosed with the Annual Report to ensure that your votes are represented at the meeting (whether or not you intend to attend in person). If you hold shares through a share platform or other nominee, the Board encourages you to contact these organisations directly as soon as possible to arrange for you to submit votes in advance of the AGM. Alternatively, the Association of Investment Companies' ('AIC') website theaic.co.uk/how-to-vote-your-shares has information on how to vote your shares if you hold them via one of the major platforms. The following link will also take you through to the AIC website where there is information on how your platform can help you attend the AGM in person theaic.co.uk/aic/ready-to-invest/shareholdervoting/attending-an-agm.

Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome, as always, to submit them by email to trustenquiries@bailliegifford.com or call 0800 917 2112.

Information on the resolutions can be found on pages 56 to 58 of the Annual Report and Financial Statements. The Directors consider that all resolutions to be put to shareholders are in their and the Company's best interests as a whole and recommend that shareholders vote in their favour.

Outlook

This is undeniably a time of accelerating change in geopolitics and much else besides. Companies' ability to adapt to change is the single biggest reason why equities beat inflation over sustained periods. Strong businesses with attractive prospects and properly aligned, talented and hard working people within them is the combination that wins over time. Winning is asymmetric in equity investment. The upshot, for the patient, is high and rising returns on capital and, typically, margins. We recognise that our shareholders are absorbing volatility in both absolute and relative returns in order to harness this effect. Our Managers have the skill to discern these businesses and the courage to withstand the volatility that a long term growth strategy brings with it. The Board feels that the measure we are setting in place will give our Managers the best chance to deliver on your behalf while also offering shareholders appropriate protection.

Michael MacPhee
Chairman
25 November 2024

Source: LSEG/Baillie Gifford and relevant underlying index providers. See disclaimer below. All figures are stated on a total return basis. Total return and discount are an alternative performance measures - see Glossary of terms and alternative performance measures below.

Past performance is not a guide to future performance.

Managers' report

Equity markets around the world continue to grind higher as the dampening effects on valuations from supply chain shocks and higher rates subside. The start of a coordinated approach by central banks to lower rates buoyed markets, as did the excitement around the progress of generative AI. In Europe, some of that excitement wore off in the second half of the year, following a snap election in France and some mixed economic data from the US and China. At that point, those pointing to a soft landing started to doubt themselves. In September, however, two major policy announcements restored some confidence: a 50bps policy rate cut by the US Federal Reserve and a range of stimulus measures from The People's Bank of China. Forecasting what comes next and how it will impact equity markets is difficult, however, the conditions we see in front of us appear to be much more favourable than they have been for some time.

Before we lead you to conclude that we have become readers of the economic tea leaves, let us reassure you. Our investment philosophy remains unchanged even if the process has evolved and will continue to do so in light of lessons learned. We are long-term growth investors focused on exploiting market inefficiencies in valuing the rate and duration of growth. We search for Europe's outliers - companies that can at least double in value over a five-year period principally by increasing their cashflows and increasing the returns on the cashflows they reinvest, beyond rates expected by the market. When we find them, we aim to hold them for a very long time. This also means that we will normally have a portfolio that looks very different from the index, and most other managers. Having said that, we have strengthened our processes around portfolio construction and valuation. This has helped us better shape our portfolio to capture the maximum amount of upside while minimising risk.

Some portfolio companies continue to grapple with complex short-term issues. However, when we think about the current environment we are in, and the fundamentals of the companies we own, we continue to look at the future with a great deal of optimism

Performance

Over the last financial year, the Company's NAV delivered a total return of 12.1% (14.5% with loans at book value) while the FTSE Europe ex-UK index returned 15.3% in sterling terms. The Company's share price total return was 9.3%, representing a discount of 15.7% to the NAV. This compares to a discount of 13.6% at the beginning of the period. This is again disappointing given many of the headwinds that caused underperformance in prior years have abated. Breaking attribution down further gives a clearer picture of what has been working and what hasn't.

Encouragingly, our public companies, now accounting for 94% of our portfolio, delivered a total return of around 20% over the year. Offsetting this were significant write-downs to two of our private companies, Northvolt and McMakler, and a widening of the Company's discount to NAV. These resulted in a negative contribution of -6.5% and -2.8% respectively. An increase in the fair value of our loans also resulted in a negative contribution of -2.4%, making the total from these factors around -12%. In highlighting this we do not mean to wash our hands of the responsibility for the Company's investment performance - quite the opposite. Conditions for our style of investing are much improved which provides a great platform for both us and the companies we invest in. Our underperformance has mainly come from stock-picking, including two private companies we chose to invest in that are having problems with their end markets and raising capital.

Public companies

As we noted in the Interim report, many of our listed holdings are now starting to benefit from inflection points both in terms of demand but also profitability. Companies that chose to invest in their businesses over the past few years are now in the position to increase prices faster than costs.

Spotify, for example, has been able to increase its subscription prices with limited impact on demand, but it has also become much more efficient in how it spends money. This means that the world's largest streaming platform with over 600 million monthly active users, has now exceeded its medium-term target of 10% operating profit margins after an extended period of losses.

Adyen, the Dutch payment company, is in a similar place. It continues to grow revenues more than 20% by winning new clients and expanding business with existing clients. It is, however, growing its profits faster than this as it slows down its aggressive hiring programme.

Schibsted, the Nordic online classifieds platform, also performed well. Part of this related to the sale of its News Media business and a majority stake in Adevinta, its European classifieds platform, which was bought by a private equity consortium. What is left is a much cleaner business with a lot of scope to increase prices for its services while benefitting from a recovery in demand.

Another inflection point drove the share price of Hypoport significantly higher. As Germany's largest online marketplace for mortgages and home loans, it benefited as transaction volumes picked up following the worst downturn in decades.

Overall, we take encouragement that fundamentals are back to driving share prices, rather than valuation multiples.

Some companies didn't fare as well. Kering, the parent of luxury brands like Gucci and Saint Laurent, suffered from weaker Chinese demand which affected most of its peers to varying degrees. This downturn has been especially tough as Gucci's extraordinary growth of recent years came to an end and those who led it left the business. We think the turnaround will take longer than expected so we sold our position.

HelloFresh, which we noted as another sale in the interim report, also provided a drag to performance. Its core meal kit business appeared to be more mature than expected and we were not convinced on the attractions of its new ready-to-eat business.

Soitec, a manufacturer of engineered substrates or wafers for semiconductors used in mobile phones, cars and connected devices, didn't perform like many other semiconductor companies. It is still dealing with excess inventories at its customers so is yet to see orders rebound. We believe this is just a matter of time, and with almost all its customers now making positive comments, we've been adding to our position during this period of share price weakness.

Private companies

At the end of the financial year, our five private companies accounted for around 5.7% of total investments. We are very pleased with the operational progress at three of them.

Bending Spoons, the Italian software company which owns mobile digital applications like Evernote, Splice, and Meetup, continues to both improve the growth and profitability of the apps it owns, and acquire new apps at attractive prices.

sennder, the digital freight-forwarder, recently acquired CH Robinson's European ground transportation business, effectively doubling its revenue and accelerating its path to profitability.

Flix, the global travel-tech business which manages bus operations like FlixBus and Greyhound, also continues to grow profitably. It had been exploring a summer IPO but decided to remain private and team up with a consortium of investors including EQT, the listed Swedish private equity business which we also own directly, which acquired a significant stake. We think this structure increases the probability of an excellent long-term outcome even if it deprives us of the opportunity for external validation in the near term.

Our other two private companies - Northvolt and McMakler - have faced highly contrasting fortunes. We have been forced to take significant write-downs in both investments. McMakler, the German real-estate broker, has, much like Hypoport, been operating against a tough economic backdrop in Germany. That the entire investment was written off reflects the precarious position the company found itself in and the conservative approach we take to valuation. Helped by our relationship with the company, we were able to support its recapitalisation and give it the cash runway to see it through to better times. This was done on extremely favourable terms, and if business continues to improve as it has for Hypoport, we would expect the value of our new investment to rise materially.

Northvolt, the Swedish battery company, is a much bigger and higher profile company. While confidentiality agreements limit what we can disclose about all our private companies, there have been numerous newspaper articles reporting on Northvolt's recent troubles. Operational progress is not where it should be, and its customers are increasingly facing Chinese competition. The scaling back of European subsidies has also resulted in weaker demand, making fundraising for any business involved with electric battery production much more difficult. Northvolt's ambition is admirable, but while it remains of strategic importance to Europe, there are still significant challenges to overcome. It also seems clear now that this ambition caused them to overreach. The company has been forced to reduce the size of its workforce by around 20% and focus almost exclusively on the first phase of its Swedish gigafactory. This will have a significant impact on Northvolt's output by the end of the decade, and its ability to generate cash. Given these difficulties, it was decided to make a substantial write-down on the value of our investment. Since the end of our financial year however, Northvolt has continued to face liquidity problems and has filed for Chapter 11 reorganisation. It's CEO, Peter Carlsson, has also resigned. While companies can often emerge from this process in a much stronger position, we have decided to write this investment down to zero. From such a promising start, this has been incredibly frustrating and disappointing for us as managers, our fellow shareholders, and for Europe. 

With two of our five private company investments in distress, it is fair to ask whether we ought to stick to public markets. We have tended to be selective in our private company investments, but always cognisant that over time, some would produce great returns, and some would not. Fundamentally, we believe strongly that this is an area where we can offer something quite unique with the potential for worthwhile and asymmetric payoffs. If anything, our long-termism and privileged access to companies, mean that we should have an even stronger advantage in private markets. It is here that we are meeting some of the most innovative companies in the world. The last few years have been difficult for many public growth companies, but even more so for private companies. It is normal that some companies need to reset and refocus, and others fail. Entrepreneurialism and innovation will, however, enable some of these companies to achieve great things. On this we remain confident. A successful IPO or realisation event in this segment of the market may have a significant impact on sentiment given the current situation.

Portfolio activity

Over the past year our turnover has doubled, to just over 18%. This still indicates an average holding period of more than five years but also that competition for capital is increasing. We are finding more and more companies that we admire trading on extremely low valuation multiples. In the first half of our financial year, we bought Lonza, Genmab, Camurus, and Assa Abloy. Continued innovation in healthcare underpins the first three, while the capacity to carry out value-accretive acquisitions underpins the latter. These themes are also evident in the four new purchases we made in the second half of the year:

•         Vitec, a serial acquirer in the VMS (vertical market software) industry, is very similar to Topicus, one of our highest conviction names. We expect similar growth rates - around the 20% level - driven mostly by acquisitions. Vitec's headline valuation multiples might appear high, but we think the market is still underestimating the company's prospects for profitably consolidating an extremely fragmented industry.

•         Instalco is another serial acquirer from Sweden, this time in the technical installation industry, which comprises a broad range of markets including plumbing and scaffolding. This also has a huge market to consolidate, is owned and managed by a founder and a young entrepreneurial CEO, and like many other serial acquirers we invest in, gets better as it gets bigger. We considered buying it last year, but we were cautious about the ongoing downturn in Nordic construction markets, so waited and continued to learn from the sidelines. This turned out to be the right thing to do, as we got a better entry point when we recently bought some shares.

•         Dino Polska, a founder-run retailer with a network of convenience stores across Poland's countryside, has a slightly different approach to capital allocation. Rather than acquire, it reinvests all its free cashflow organically at very high rates of return, mainly by rolling out new stores. Deflation and price competition between Lidl and Biedronka have made life difficult for Polish retailers, but these forces should abate. Dino is one of the highest quality retailers we have ever seen, and the current valuation looks attractive to us.

•         Novo Nordisk is the current global leader in insulin and GLP-1 drugs for diabetes and obesity. It has performed extremely well in recent years and thus been a painful omission from our portfolio. We initially doubted the scale of potential for its obesity franchise. What matters now is whether the share price can continue to perform strongly over the next decade, and our view is that there is a lot to like. First, we have more conviction in the growth potential from its obesity drugs despite the competition. There are decades of innovation left in GLP-1s and combination therapies, and the potential 1bn patient population has barely been penetrated. Health economic data and better drug efficacy will help broaden access here and to support cost benefits. Secondly, as well as its track record in innovation, Novo has distribution and manufacturing advantages through increasing scale which will help cement its position as lowest cost provider. Finally, having looked at several other ways to access the potential of this paradigm shifting technology, we think Novo is the best value. There are very few companies in Europe, or even in the world, that have the potential to grow revenue at 15% for more than a decade while making incredibly high returns on capital.

Sources of funds

As well as Kering, we have also moved on from adidas, Delivery Hero, and Evotec. adidas has had its problems over the years with inventory building up, brand-tarnishing ambassadors, and a perceived lack of innovation. The turnaround is well underway under new CEO Bjørn Gulden, but expectations are quite high now and the market seems to be pricing in a return to peak margins. Elsewhere, our thesis that competition would become more rational in the online food delivery business was disproven, so we moved on from Delivery Hero in favour of better companies. We also sold Evotec, a CRO (contract research organisation), following revelations of insider trading by the now fired CEO. He was an important part of the investment case given his vision and experience; however, we remain interested bystanders as the attractive core business may well prove to be less dependent on one man than we currently think

Reasons for rational exuberance, or at least optimism

We try to be as objective as possible when it comes to investing, and to learn from our mistakes. This is why we think a team-based approach is the optimal structure for fostering long-term outperformance. We also spend a lot of time thinking about how we can improve and where we can exploit market inefficiencies. We would offer the following analysis:

•         Our diversified portfolio is exposed to themes that should underpin structural growth for years, if not decades. We have serial acquirers consolidating fragmented markets, innovative healthcare companies meeting unmet medical needs and driving costs out of the system, some of the largest and most powerful e-commerce and digital entertainment platforms in the world, companies providing hardware and software for the further advancement of Moore's Law, solutions providers helping us to transition to a lower carbon economy, capital allocators investing in private markets, and a collection of the highest quality luxury brands.

•         In terms of cyclical tailwinds, broader macroeconomic conditions are more supportive than they have been for many years. Interest rates and inflation are either falling or stabilising, normal ordering patterns are resuming in many industries we are exposed to, M&A activity is picking up, as are the number of IPOs, and the outlook for demand seems to be improving from a low base.

•         The most compelling reason, however, is that we believe valuations do not reflect this upside. Looking at the portfolio in aggregate (characteristics below), we can see that when compared to the index, our companies have been and are likely to continue growing faster, are generating higher returns on equity and invested capital, and have stronger balance sheets. For these qualities we would expect to pay a valuation premium versus the index, but even this has been narrowing significantly. In our minds, this understates the fundamental, durable attractions of our portfolio. We also see record levels of discounts right across Europe, across the small and mid-cap sector, and on Investment Trusts and other listed holding companies. This Investment Trust is now trading on a record wide discount of around 16% to its own NAV.

We are clearly very disappointed with the recent period of sharp underperformance.  The Board has set us a four-year performance-based challenge, and as Managers, we acknowledge and accept this. We strongly believe that the starting point for future investment returns hasn't been this favourable for many years. We are confident that we will return to delivering the performance our shareholders have every right to expect.

Stephen Paice

Chris Davies

Baillie Gifford

25 November 2024

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.

List of investments

As at 30 September 2024

^§    Denotes unlisted investment (private company).

·      New holdings bought during the year (Adevinta, adidas, AUTO1, Cellectis, Delivery Hero, Evotec, HelloFresh, Hemnet, Hexpol, Keri and Zalando were sold during the period).

†           Includes convertible loan note.

Income statement

For the year ended 30 September

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

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

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

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

Balance sheet

As at 30 September

The Financial Statements of Baillie Gifford European Growth Trust plc (Company registration number 1055384) were approved and authorised for issue by the Board and were signed on 25 November 2024.

Michael MacPhee

Chairman

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

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

Statement of changes in equity

For the year ended 30 September 2024

For the year ended 30 September 2023

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

Cash flow statement

For the year ended 30 September

^*    Change in debtors is made up of changes in accrued income, prepaid expenses and taxation recoverable (excluding overseas withholding tax received in the year) - see note 10 in Annual Report. Change in creditors is made up of changes in other creditors and accruals - see note 11 in Annual Report.

^†    Cash from operations includes dividends received of £3,760,000 (2023 - £2,839,000) and interest received of £75,000 (2023 - £919,000).

^#    Acquisitions of investments is made up of the current year purchases at cost (see note 9 in the Annual Report), plus opening purchases for subsequent settlement, less closing purchases for subsequent settlement (see note 11 in the Annual Report). Disposals of investments is made up of the current year sales proceeds (see note 9 in the Annual Report), plus opening investment sales awaiting settlement, less closing investment sales awaiting settlement (see note 10 in the Annual Report).

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

Notes to the Condensed Financial Statements

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

2.       Income

Interest for 2023 includes £869,000 interest received from HMRC with the tax repayment (see note 6 on page 92 of the Annual Report).

3.       Investment management fee

Details of the Investment Management Agreement are disclosed on pages 54 and 55 of the Annual Report and Financial Statements. Baillie Gifford & Co Limited's annual management fee is 0.55% of the lower of (i) the Company's market capitalisation and (ii) the Company's net asset value (which shall include income), in either case up to £500 million, and 0.50% of the amount of the lower of the Company's market capitalisation or net asset value above £500 million, calculated and payable quarterly.

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 Secretaries on 29 November 2019. 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 0.55% of the lower of (i) the Company's market capitalisation and (ii) the Company's net asset value (which shall include income), in either case up to £500 million, and 0.50% of the amount of the lower of the Company's market capitalisation or net asset value above £500 million, calculated and payable quarterly.

4.       Net return per ordinary share

Revenue return per ordinary share is based on the net revenue return after taxation of £2,547,000 (2023 - £9,625,000), and on 355,716,719 (2023 - 358,552,904) 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 gain for the financial year of £43,924,000 (2023 - £18,259,000), and on 355,716,719 (2023 - 358,552,904) ordinary shares, being the weighted average number of ordinary shares in issue during each year.

There are no dilutive or potentially dilutive shares in issue.

5.       Ordinary dividends

Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £2,547,000 (2023 - £9,625,000).

6.       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 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 levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

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

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

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

The valuation techniques used by the Company are explained in the accounting policies on pages 88 and 89 of the Annual Report and Financial Statements. A sensitivity analysis by valuation technique of the unlisted securities is on pages 100 to 102 of the Annual Report and Financial Statements.

7.       Creditors - amounts falling due after more than one year

The Company has €30 million of long-term, fixed rate, senior, unsecured privately placed loan notes, with a fixed coupon of 1.57% to be repaid on 8 December 2040 and a further €30 million of long-term, fixed rate, senior, unsecured privately placed loan notes with a fixed coupon of 1.55% to be repaid on 24 June 2036.

The main covenants which are tested monthly are: (i) Net tangible assets shall not fall below £200,000,000. (ii) Total borrowings shall not exceed 30% of the Company's adjusted assets (as defined by the loan agreement). (iii) The Company's number of holdings shall not fall below 30.

8.       Share capital

The Company's shareholder authority permits it to hold shares bought back in treasury. Under such authority, treasury shares may be subsequently either sold for cash (at a premium to net asset value per ordinary share) or cancelled. At 30 September 2024 the Company had authority to buy back 48,283,377 ordinary shares. During the year to 30 September 2024 no ordinary shares (2023 - nil) were bought back for cancellation and 6,365,921 (2023 - 538,471) ordinary shares were bought back into treasury at a cost of £6,001,000 (2023 - £501,000). Under the provisions of the Company's Articles of Association share buy-backs are funded from the capital reserve. The Company has authority to allot shares under section 551 of the Companies Act 2006. The Board has authorised use of this authority to issue new shares at a premium to net asset value per share in order to enhance the net asset value per share for existing shareholders and improve the liquidity of the Company's shares. During the year to 30 September 2024 no shares were issued (in the year to 30 September 2023 - no shares were issued).

9.       Analysis of change in net debt

10.     Transactions with related parties and the managers and secretaries

The Directors' fees for the year and interests in the Company's shares at the end of the year are detailed in the Directors' Remuneration Report on pages 72 and 73 of the Annual Report and Financial Statements. The Directors' Fees are included in note 4. No Director has a contract of service with the Company. During the years reported, no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

The Management fee due to Baillie Gifford & Co Limited is set out in note 3 and the amount accrued at 30 September 2023 is set out in note 11. Details of the Investment Management Agreement are set out on page 5 of the Annual Report and Financial Statements

The Company is part of a marketing programme which includes all the investment trusts managed by the Manager. The Company's marketing contribution, recharged by the Manager, was £95,000 (2023 - £95,000) as disclosed in note 4.

11.     On 15 November 2024 the value of the holdings in Northvolt were written down to nil, the value of the holdings as at 30 September 2024 was £965,000, 0.3% of total assets. This was reflected in the published NAV as at 15 November 2024. The Company is not aware of any other subsequent events.

12.     The Annual Report and Financial Statements will be available on the Company's page of the Managers' website at bgeuropeangrowth.com on or around 9 December 2024.

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

Automatic exchange of information

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

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

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

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

Third party data provider disclaimer

No third party data provider ('Provider') makes any warranty, 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, under statute or otherwise, in respect of any loss or damage 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.

FTSE Index data

Source: London Stock Exchange Group plc and its group undertakings (collectively, the 'LSE Group'). ©LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. 'FTSE^®' 'Russell^®', 'FTSE Russell^®, are trade marks of the relevant LSE Group companies and are used by any other LSE Group company under license. All rights in the FTSE Russell indices or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indices or data and no party may rely on any indices or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

Sustainable Finance Disclosure Regulation ('SFDR') (unaudited)

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 European Growth Trust is marketed in the EU by the AIFM, Baillie Gifford & Co Limited, via the National Private Placement Regime ('NPPR') the following disclosures have been provided to comply with the high-level requirements of SFDR.

The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines as its policy on integration of sustainability risks in investment decisions.

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

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

The likely impact on the return of the portfolio from a potential or actual material decline in the value of investment due to the occurrence of an environmental, social or governance event or condition will vary and will depend on several factors including but not limited to the type, extent, complexity and duration of an event or condition, prevailing market conditions and existence of any mitigating factors. Whilst consideration is given to sustainability matters, there are no restrictions on the investment universe of the Company, unless otherwise stated within in its Investment Objective & Policy. Baillie Gifford & Co can invest in any companies it believes could create beneficial long^-term returns for investors. However, this might result in investments being made in companies that ultimately cause a negative outcome for the environment or society. More detail on the Manager's approach to sustainability can be found in the ESG Principles and Guidelines document, available publicly on the Baillie Gifford website bailliegifford.com and by scanning the QR code below. The underlying investments do not take into account the EU criteria for environmentally sustainable economic activities established under the EU Taxonomy Regulation.

Glossary of terms and alternative performance measures ('APM')

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

Total assets

This is the Company's definition of Adjusted Total Assets, being the total value of all assets less current liabilities, before deduction of all borrowings.

Shareholders' funds

Shareholders' Funds is the value of all assets held less all liabilities, with borrowings deducted at book value.

Net asset value

Net Asset Value is the value of total assets less liabilities with borrowings deducted at either book value or fair value as described below. The net asset value per share (NAV) is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares).

Net asset value (borrowings at fair value) (APM)

Borrowings are valued at an estimate of market worth. The fair value of the Company's loan notes is set out in note 19 on page 103 of the Annual Report and Financial Statements.

A reconciliation from shareholders' funds (borrowings at book value) to net asset value after deducting borrowings at fair value is provided below.

The per share figures above are based on 351,783,279 (2023 - 358,149,200) ordinary shares of 2.5p, being the number of ordinary shares in issue at the year end.

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 it is said to be trading at a discount. The size of the discount is calculated by subtracting the NAV from the share price and is usually expressed as a percentage of the NAV. If the share price is higher than the NAV, it is said to be trading at a premium.

Total return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

^*    The dividend adjustment factor is calculated on the assumption that the final dividend of 0.4p (2023 - dividends of 0.7p and 2.20p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV/share price, as appropriate, at the ex-dividend date.

The NAV(fair) total return for the period since Baillie Gifford began managing the portfolio in November 2019 can be calculated using the methodology shown in the table above and an opening NAV of 93.7p, a dividend adjustment factor of 1.0615 and a closing NAV of 108.0p.

Ongoing charges (APM)

The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value with borrowings at fair 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 is provided below.

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on shareholders' funds is called 'gearing'. If the Company's assets grow, shareholders' funds 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 adjusted for cash at bank expressed as a percentage of shareholders' funds.

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

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (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.

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