TIDMBGCG
RNS Number : 6197B
Baillie Gifford China Grwth TrstPLC
04 October 2022
Baillie Gifford China Growth Trust plc
Legal Entity Identifier: 213800KOK5G3XY17ZX18
Regulated Information Classification: Half Yearly Financial
Report
Results for the six months to 31 July 2022
Over the six months to 31 July 2022, the Company's net asset
value per share (NAV) fell by 10.7%* compared to a 5.4%* fall in
the comparative index, on a total return basis.
Baillie Gifford China Growth Trust aims to produce long-term
capital growth by investing predominately in shares of, or
depositary receipts representing the shares of, Chinese companies.
At 31 July 2022 the Company had total assets of GBP199m.
Baillie Gifford China Growth Trust is managed by Baillie
Gifford, an Edinburgh-based fund management group with
approximately GBP227 billion under management and advice as at 30
September 2022.
Past performance is not a guide to future performance.
4 October 2022
*The Company's comparative index is the MSCI China All Shares
index (in sterling terms). Total return information is sourced from
Refinitiv, Baillie Gifford and relevant underlying index providers.
See disclaimer at end of this announcement.
++ Neither the contents of the Managers' website nor the
contents of any website accessible from hyperlinks on the Managers'
website (or any other website) is incorporated into, or forms part
of, this announcement
Baillie Gifford China Growth Trust 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 China Growth
Trust at bailliegiffordchinagrowthtrust.com ++ .
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474 5548
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
The following is the unaudited Interim Financial Report for the
six months to 31 July 2022 which was approved by the Board on 4
October 2022.
Interim Management Report
Over the six months to 31 July 2022 the weakness in Chinese
equities has continued. Positive developments on the regulatory
front were swamped by macroeconomic concerns domestically and
geopolitical concerns regarding Taiwan.
On the macroeconomic front, Covid lockdowns in a number of the
major cities, including Shanghai, resulted in disruption to
businesses and to consumers. This exacerbated an already weak
economic backdrop. We saw the property market slump and weak
manufacturing and consumption numbers. The quarterly meeting of the
Politburo disappointed investors by offering little additional
support to the economy. This in turn led to concerns resurfacing
regarding financial risk to the broader economy. Our view is that
these risks are exaggerated for the following reasons:
3/4 Whilst debt to GDP remains elevated, it's important to note
that it has stabilised and that the quality of debt has markedly
improved. Indeed, the government has done a good job of
substantially reducing exposure to the most risky debt within the
system1. In addition, funding conditions have improved, and the
People's Bank of China (PBOC) continues to provide iron clad
liquidity support for the banking system. As such, the risk of a
Lehman's style moment in China is very low.
3/4 The property market is weak with sales down 30-40% from
their 2020 peak. However, it's important to note that this peak
resulted from stimulus provided by the government in 2020 in the
wake of Covid. If we compare sales figures to 2018, numbers are
down but not drastically so. More importantly, the loan to value
ratio is sitting at only c.25%2. Most people are still paying for
the majority of their properties out of cash. This contrasts
markedly with most other housing booms and busts we've seen in
emerging or developed markets where loan to value ratios tend to
reach c.90%.
3/4 Some property developers are impaired, but the majority are
not, and the system itself is both incredibly large and incredibly
fragmented. China Evergrande, one of the largest developers, and
one that is facing serious difficulties, represents less than c.2%
of total system assets. The next 10 combined do not even add up to
10% of the total.
So whilst China has dropped and is unlikely to achieve its
previous target for GDP of 5.5% growth in 2022, the risk of
financial instability is low in our view. At the micro level, we'd
also note that we have no direct exposure to property developers
and very little direct exposure to banks. In the main, the holdings
within the Company continue to perform well operationally in line
with our original investment theses.
The second factor that has weighed on Chinese equity markets is
geopolitical. Here, we saw China respond to Nancy Pelosi's visit to
Taiwan with obvious displeasure leading to concerns that the risk
of military action has increased. Whilst acknowledging the
complexity of the issue and the limitations of our own predictive
powers, we would say that we believe the risk of military action
remains low.
There are a number of factors that lead us to this view:
3/4 Firstly, we think it's important to remember what China
itself has said on Taiwan. Here there has been no significant
divergence from its longstanding policy. This was reiterated post
Pelosi's visit in a White Paper. This White Paper is significant
because it is only the third such White Paper on Taiwan and the
first since 2000. In the paper, China reiterated its longstanding
policy and preference which is for peaceful reunification. The
paper made clear that military action was an absolute last resort.
Indeed, this makes sense to us given the incredibly high risks
involved. For example, if military action were to occur and the
Chinese Communist Party (CCP) fail, it would have devastating
consequences for the CCP's legitimacy, for economic growth, and
potentially also for China's territorial integrity.
3/4 In addition, and contrary to popular opinion, we'd also note
that Xi Jinping has not specified an imminent date by which
reunification must occur. Instead, he has loosely linked it to a
date that's 25 years away, namely national rejuvenation or 2049. In
terms of Xi's personal legacy, we'd note that it appears as closely
tied, if not more so, to the success of domestic policies such as
Common Prosperity, Made in China 2025, and the China Dream. Indeed,
we think it's significant for example that the principal
contradiction, or the most important problem for the CCP to solve
during Xi's reign, isn't anything to do with Taiwan or with foreign
policy. Instead, it's overwhelmingly focused on building a domestic
growth model that continues to benefit all members of society and
actively makes consumers lives better i.e. they want to tackle
'uneven and unbalanced growth' and to deliver 'the people's desire
for a better life.' These domestically focused policies would be
severely disrupted by an incursion into Taiwan, regardless of the
outcome. The global response to Russia's invasion of Ukraine has
made this abundantly clear. In the face of crippling economic
sanctions, the 'people's desire for a better life' would be set
back decades.
3/4 Finally, the work that we have commissioned from our third
party research providers suggests that, even if China wanted to act
militarily, it could not do so. It does not have the military
capability. Indeed, Russia's travails in Ukraine have thrown this
into stark relief and the difficulty of an amphibious assault on
Taiwan over c.100 miles of water is a multiple of that of a land
assault on Ukraine.
On balance, therefore, we continue to think that the likelihood
of military action is low. That being said, we do acknowledge that
this is a rapidly evolving issu e and one that requires continued
monitoring. It goes without saying that if military action were to
occur, it would have very serious consequences for Chinese
equities.
More positively, we have seen a marked improvement on the
regulatory front within China. Over the last six months,
significant political capital has built up behind the idea that
regulation needs to be better signalled and more transparent. This
culminated most recently with Xi Jinping stating that 'normal
supervision' of the platform economy will resume and that specific
measures to support it will be rolled out. This is a significant
positive for the platform companies in which we invest and it was
echoed by founders of companies such as Alibaba, Meituan, Tencent
and Bilibili, all of whom we met during the period.
Portfolio Positioning and Recent Activity
The portfolio continues to represent a selection of the best and
most innovative public and private Chinese growth companies. We
continue to upgrade the growth profile of the Company, and to make
investments in companies exposed to China's next decade of growth
and policy priorities including the green revolution, advanced
manufacturing and industrial upgrading. In addition, we have added
to a number of platform companies that have been weak despite good
operational performance.
In terms of new purchases, we have bought a new holding in
Jiangsu Azure. Jiangsu Azure is a leading small battery maker. It
mainly sells batteries into the power tools market. The
electrification of the power tools market is a strong structural
driver for this company. Indeed, we believe its end market can
double in 5 years as a result. In addition, Azure also has growth
opportunities in similar markets such as vacuum cleaners and
e-bikes. Benefiting from China's world-class battery supply chain
and with strong technology know-how, Azure has penetrated top
clients globally. Indeed, its focus on the small battery market and
its willingness to invest has resulted in it taking share from
global competitors such as LG and Samsung. We do not believe the
growth opportunity and the quality of management is reflected in
the current share price and have therefore decided to take a
holding.
We have also bought a new holding in a company called Kinlong.
This company sells hardware for doors and windows (hinges, guard
rails, locks) to the building industry. It sells its products to
businesses and has built up a strong reputation for quality amongst
its business customers. It is the number 1 player in a number of
the segments in which it operates with c.10% share. The growth
opportunity is a function of continued growth in end markets, the
expansion of its product portfolio, plus continued market share
gains. Its products are a small proportion of total cost but are
performance critical and therefore price sensitivity is relatively
low. This year, however, the company was hit by a rise in raw
material prices which it will take time to pass on. The shares were
also weak due to concerns regarding the property market which we
believe are overblown. In terms of management, this is a founder
run company with the founder retaining a c.37% stake and managing
the business in a long-term fashion. We believe now is a good time
to take advantage of share price weakness and buy a holding in a
good quality, long term growth company.
We also made additions to a number of platform companies that
had been weak despite good operational performance and an
improvement in the regulatory environment. These included Beike and
Alibaba.
In terms of funding for the above, we have sold our holding in
BGI, a leading gene sequencing and testing company. BGI's main
business at time of purchase was its non-invasive prenatal testing
(NIPT). This business continues to see strong volume growth, but
pricing has been unexpectedly weak. Growth in BGI's core business
has therefore undershot our expectations. In addition, we had hoped
that BGI would be able to leverage its success in NIPT to expand
into other areas such as early-stage cancer detection. Here,
operational progress has been weak relative to its competitors. As
such, we believe BGI's fundamentals have deteriorated and that this
is not reflected in the current share price. As such, we've decided
to sell.
We have also sold Yatsen. This was an investment with the
potential to deliver very high returns, but around which there was
a lot of uncertainty. At time of purchase, the company appeared to
have a good chance to become a domestic leader in China's cosmetics
industry. Whilst we still believe that domestic companies are
better positioned than multinationals to take advantage of changes
in brand perception and domestic tastes, Yatsen has not been able
to execute as we would have hoped. Its operational performance has
been weak leading to lower growth and expected profitability. The
US listing was also a concern which added to extra downward
pressure on the share price and significantly reduced liquidity. We
have therefore decided to move on.
We have also made reductions to stocks such as Netease, a
leading gaming company, and Shenzhen Inovance, a leading automation
company. Shenzhen Inovance, in particular, delivered exceptional
operational and share price performance with revenue, profit and
share price growth of 2.5x and 3x respectively over three years.
Post a review of the holding, and acknowledging the cyclicality in
the business, we have decided to reduce our holding size.
Performance
Over the six months to the end of July 2022, the Company's net
asset value fell by approximately 10%. Over the same period, the
benchmark fell by approximately 5%. We would hesitate to draw too
much from short term numbers and would hope that shareholders judge
our investment returns over periods of five years or longer, the
same period over which we judge our companies' performance.
In terms of the net asset value, notable positive contributors
are largely limited to our domestically listed, A Share holdings.
Notable stocks here include Shenzhen Inovance, a leading automation
company, Sanhua Intelligent Controls, a heat and ventilation
control company and a supplier to Tesla, Estun Automation, a
leading robotics company, and LONGi Green Energy, the world's
largest solar panel manufacturer and enabler of China's green
revolution. Relative performance was also helped by the fact that
we did not have any exposure to distressed property developers such
as Country Garden.
The negative contributors to performance were largely stock
specific. In the period, we wrote down the valuation of ByteDance,
the Company's only private holding, by c.15% to reflect the
contraction in multiples that we have seen in platform companies
more broadly within China. China Merchants Bank (CMB), a leading
consumer bank, had a volatile period of performance. The share
price slumped post the news that the bank's president was removed
and under investigation. We think the market tends to overstate
keyman risk in the short term. The bank's long-established
management culture is unlikely to alter, and the impact on core
operational performance should be limited. Indeed, CMB reported
good results over the period despite a challenging macro
environment. This is a bank with a strong consumer and wealth
management platform and one that has a history of good and
profitable lending. As such, we remain happy holders. Sunny Optical
was another negative contributor to performance. This is a
manufacturer of lenses and modules that go into smartphones and
autos. It's currently experiencing a price war in its core
smartphone business as a new entrant has entered the market and is
trying to take share. 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, where it is one of the market leaders in
lenses for autos, is vast. The primary driver here is the trend
towards increasingly autonomous vehicles. We believe this growth
potential is underappreciated and therefore remain happy to hold
the stock. Other negative contributors include Yonyou, a provider
of enterprise software to large corporates, Shenzhou International,
a leading garment supplier to Adidas and Puma, and Tencent, a
leading social media and gaming company. All three companies were
weak due to covid lockdowns and macro weakness which affected their
ability to do business and their clients' propensity to spend. We
think this represents a short term blip to all three companies
strong operational performance and long term growth.
Outlook
In Baillie Gifford's two decades of investing in China, we have
experienced numerous regulatory cycles, significant volatility and,
at times, painful periods of adjustment. However, whilst investment
in China may prove volatile over a short term time horizon, we
continue to believe that a combination of a vast and growing
domestic market, significant investment in research and
development, and private and public equity markets that are poorly
understood and very short term, give long-term growth investors
like ourselves a real opportunity to generate returns for our
shareholders.
The principal risks and uncertainties facing the Company are set
out below.
Baillie Gifford & Co
(1) Non-standard debt e.g. quasi local government affiliated
financing vehicles, development funds.
(2) Net new extension of mortgages relative to the total value
of residential sales in the same period.
For a definition of terms see Glossary of Terms and Alternative
Performance Measures, see below.
Total return information is sourced from Refinitiv/Baillie
Gifford and relevant underlying index providers. See disclaimer at
the end of this announcement.
Past performance is not a guide to future performance.
Valuing Private Companies
We aim to hold our private company investments at `fair value'
i.e. the price that would be paid in an open- market transaction.
Valuations are adjusted both during regular valuation cycles and on
an ad-hoc basis in response to `trigger events'. Our valuation
process ensures that private companies are valued in both a fair
and timely manner.
The valuation process is overseen by a valuations group at
Baillie Gifford which takes advice from an independent third party
(S&P Global). The valuations group is independent from the
investment team, with all voting members being from different
operational areas of the firm, and the portfolio managers only
receive final valuation notifications once they have been
applied.
We revalue the private holdings on a three-month rolling cycle,
with one-third of the holdings reassessed each month. For
investment trusts, the prices are also reviewed twice per year by
the respective investment trust boards and are subject to the
scrutiny of external auditors in the annual audit process.
Beyond the regular cycle, the valuations committee also monitors
the portfolio for certain `trigger events'. These may include:
changes in fundamentals; a takeover approach; an intention to carry
out an Initial Public Offering ('IPO'); company news which is
identified by the valuation team or by the portfolio managers or
changes to the valuation of comparable public companies. Any ad-hoc
change to the fair valuation of any holding is implemented swiftly
and reflected in the next published net asset value ('NAV'). There
is no delay.
The valuations committee also monitors relevant market indices
on a weekly basis and updates valuations in a manner consistent
with our external valuer's (S&P Global) most recent valuation
report where appropriate. When market volatility is particularly
pronounced the team undertakes these checks daily.
List of Investments as at 31 July 2022 (unaudited)
% of
Value total assets
Name Business GBP'000 *
============================== ================================= ================== ==================
Social media and entertainment
Tencent company 15,695 7.9
Online retailer, payments
Alibaba and cloud business 11,859 6.0
Social media and entertainment
ByteDance (u) company 10,753 5.4
Kweichow Moutai Luxury baijiu maker 9,683 4.9
Meituan Online food delivery company 7,421 3.7
Ping An Insurance Life and health insurance 7,204 3.6
Li Ning Domestic sportswear manufacturer 6,278 3.2
Zhejiang Sanhua Intelligent Heating and cooling component
Controls manufacturer 6,190 3.1
Consumer lending and wealth
China Merchants Bank management 6,065 3.0
JD.com Online retailer 5,070 2.5
Electric vehicle battery
CATL maker 4,586 2.3
Robotics and factory automation
Estun Automation company 4,414 2.2
Cosmetics and personal care
Proya Cosmetics company 4,269 2.1
ENN Energy Holdings Gas distributor and provider 3,741 1.9
SG Micro Semiconductor fabless designer 3,484 1.7
Shenzhen Inovance Technology Factory automation company 3,327 1.7
Ping An Bank SME and consumer lender 3,307 1.7
Gaming and entertainment
NetEase business 3,295 1.7
White goods and robotics
Midea Group manufacturer 3,257 1.6
Zijin Mining Renewable energy enabler 3,227 1.6
Immunotherapy biotechnology
BeiGene company 3,216 1.6
Geely Automobile Domestic automotive manufacturer 3,174 1.6
Shenzhen Megmeet Electrical Power electronics manufacturer 2,967 1.5
Shandong Sinocera Functional
Material Advanced materials manufacturer 2,960 1.5
LONG i Green Energy Solar energy provider 2,892 1.5
Guangzhou Kingmed Diagnostics Diagnostics company 2,785 1.4
Fuyao Glass Industry Automotive glass manufacturer 2,774 1.4
HUAYU Automotive Systems Automotive parts manufacturer 2,681 1.4
Asymchem Laboratories Life sciences contract research
(Tianjin) organisation 2,541 1.3
Beijing United Information
Tec Industrial ecommerce platform 2,435 1.2
Kingdee International
Software Software for SMEs and corporates 2,427 1.2
Construction machinery and
Weichai Power heavy duty trucks 2,342 1.2
Yonyou Network Technology Software for SMEs and corporates 2,301 1.2
Shenzhou International Garment manufacturer 2,249 1.1
Electronic components for
Sunny Optical Technology smartphones and autos 2,120 1.1
Jiangsu Azure Air Freight & Logistics 2,075 1.0
Clinical trial contract research
Hangzhou Tigermed Consulting organisation 2,017 1.0
Software provider to the
Glodon construction industry 1,939 1.0
Life sciences contract research
WuXi AppTec organisation 1,936 1.0
Kingsoft Software for SMEs and corporates 1,924 1.0
Component supplier to renewables
Yunnan Energy New Material industry 1,923 1.0
Bilibili Social media company 1,862 0.9
Diagnostics and diabetes
Sinocare company 1,683 0.9
Component supplier to renewables
Sungrow Power Supply industry 1,679 0.8
Zai Lab Biotechnology business 1,660 0.8
Topchoice Medical Dental services provider 1,618 0.8
Robam Appliances White goods manufacturer 1,510 0.8
Minth Automotive parts manufacturer 1,390 0.7
Hua Medicine (Shanghai) Diabetes drug manufacturer 1,290 0.6
Yifeng Pharmacy Chain Drug retailer 1,272 0.6
KE Holdings Online real estate 1,223 0.6
Lufax SME and consumer lender 1,047 0.5
Kinlong Building Products 1,038 0.5
Medical dictionary and marketing
Medlive Technology organisation 971 0.5
Pop Mart Toy and collectibles maker 869 0.4
Brilliance China Automotive Automotive makers and BMW
# partner 812 0.4
New Horizon Health Early cancer detection 650 0.3
Tencent Music Entertainment Music streaming platform 632 0.3
Hutchison China MediTech Biotechnology company 487 0.2
Liquid biopsy cancer testing
Burning Rock Biotech company 415 0.2
Logistics and warehousing
Dada Nexus provider 373 0.2
============================== ================================= ================== ==================
Total investments 197,284 99.0
================================================================= ================== ==================
Net liquid assets 2,021 1.0
================================================================= ================== ==================
Total assets 199,305 100.0
================================================================= ================== ==================
Bank loans (6,163) (3.1)
================================================================= ================== ==================
Shareholders' funds 193,142 96.9
================================================================= ================== ==================
* Total assets before deduction of loans.
(u) Denotes unlisted holding (private company).
# Suspended.
Income Statement (unaudited)
For the year ended
For the six months ended For the six months ended 31 January 2022
31 July 2022 31 July 2021 (audited)
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Net losses on
investments - (23,719) (23,719) - (45,207) (45,207) - (82,850) (82,850)
Currency (losses)/gains - (325) (325) - 64 64 - (68) (68)
Income from investments
and interest receivable 1,944 - 1,944 1,325 - 1,325 1,599 - 1,599
Investment management
fee (note 3) (161) (484) (645) (165) (495) (660) (363) (1,089) (1,452)
Other administrative
expenses (290) - (290) (265) (20) (285) (479) (20) (499)
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Net return before
finance costs and
taxation 1,493 (24,528) (23,035) 895 (45,658) (44,763) 757 (84,027) (83,270)
Finance costs of
borrowings (59) (173) (232) (25) (76) (101) (46) (138) (184)
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Net return on ordinary
activities before
taxation 1,434 (24,701) (23,267) 870 (45,734) (44,864) 711 (84,165) (83,454)
Tax on ordinary
activities (78) - (78) (99) - (99) (119) - (119)
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Net return on ordinary
activities after
taxation 1,356 (24,701) (23,345) 771 (45,734) (44,963) 592 (84,165) (83,573)
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Net return per ordinary
share (note 4) 2.18p (39.83p) (37.65p) 1.29p (76.54p) (75.25p) 0.97p (138.22p) (137.25p)
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
Note:
Dividends paid and
payable per share (note
5) nil 2.55p 7.15p
======================== ========= ======== ======== ========= ======== ======== ======== ========= =========
The total column of this Statement represents the profit and
loss account of the Company. The supplementary revenue and capital
columns are prepared under guidance published by the Association of
Investment Companies.
All revenue and capital items in this Statement derive from
continuing operations.
A Statement of Comprehensive Income is not required as the
Company does not have any other comprehensive income and the net
return on ordinary activities after taxation is both the profit and
comprehensive income for the period.
Balance Sheet (unaudited)
At 31 January
At 31 July 2022
2022 (audited)
GBP'000 GBP'000
========================================== ============ ==============
Fixed assets
Investments held at fair value through
profit or loss (note 6) 197,284 222,015
============ ==============
Current assets
Debtors 307 100
Cash and cash equivalents 2,177 5,496
========================================== ============ ==============
2,484 5,596
========================================== ============ ==============
Creditors
Amounts falling due within one year (note
7) (6,626) (8,270)
============ ==============
Net current liabilities (4,142) (2,674)
========================================== ============ ==============
Net assets 193,142 219,341
========================================== ============ ==============
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 96,920 121,621
Revenue reserve 6,270 7,768
========================================== ============ ==============
Shareholders' funds 193,142 219,341
========================================== ============ ==============
Net asset value per ordinary share* 311.45p 353.70p
========================================== ============ ==============
Ordinary shares in issue (note 8) 62,012,982 62,012,982
========================================== ============ ==============
* See Glossary of Terms and Alternative Performance Measures at
the end of this announcement.
Statement of Changes in Equity (unaudited)
For the six months ended 31 July 2022
Share Share premium Capital redemption Shareholders'
capital account reserve Capital reserve* Revenue 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
Net return on
ordinary
activities after
taxation - - - (24,701) 1,356 (23.345)
Dividends paid
(note 5) - - - - (2,854) (2,854)
Shareholders' funds
at 31 July 2022 17,087 31,780 41,085 96,920 6,270 193,142
=================== ========= =============== =================== ================ =============== =============
For the six months ended 31 July 2021
Share Share premium Capital redemption Capital Shareholders'
capital account reserve Reserve* Revenue reserve funds
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
======================= ========= =============== ====================== ========= =============== =============
Shareholders' funds at
1 February 2021 16,486 13,182 41,085 189,061 11,610 271,424
Ordinary shares issued
(note 8) 601 18,598 - 16,724 - 35,923
Net return on ordinary
activities after
taxation - - - (45,734) 771 (44,963)
Dividends paid (note 5) - - - - (2,854) (2,854)
Shareholders' funds at
31 July 2021 17,087 31,780 41,085 160,051 9,527 259,530
======================= ========= =============== ====================== ========= =============== =============
* The Capital Reserve as at 31 July 2022 includes investment
holding gains of GBP52,916,000 (31 July 2021 - gains of
GBP1,455,000)
Condensed Cash Flow Statement (unaudited)
Six months to Six months to
31 July 31 July
2022 2021
GBP'000 GBP'000
=========================================== ============= =============
Cash flows from operating activities
Net return on ordinary activities before
taxation (23,267) (44,864)
Net losses on investments 23,719 45,207
Currency losses/(gains) 325 (64)
Finance costs of borrowings 232 101
Overseas withholding tax (79) (99)
Changes in debtors and creditors (258) 16
=========================================== ============= =============
Cash from operations * 672 297
Interest paid (222) (73)
=========================================== ============= =============
Net cash inflow from operating activities 450 224
=========================================== ============= =============
Cash flows from investing activities
Acquisitions of investments (18,629) (59,422)
Disposals of investments 17,466 15,502
=========================================== ============= =============
Net cash outflow from investing activities (1,163) (43,920)
=========================================== ============= =============
Cashflows from financing activities
Ordinary shares issued - 37,215
Bank loans drawn down - 5,427
Equity dividends paid (note 5) (2,854) (2,854)
=========================================== ============= =============
Net cash (outflow)/inflow from financing
activities (2,854) 39,788
=========================================== ============= =============
Decrease in cash and cash equivalents (3,567) (3,908)
Exchange movements 248 33
Cash and cash equivalents at start of
period 5,496 5,962
=========================================== ============= =============
Cash and cash equivalents at end of
period 2,177 2,087
=========================================== ============= =============
* Cash from operations includes dividends received in the period
of GBP1,642,000 (31 July 2021 - GBP939,000) and deposit interest
received of GBP1,000 (31 July 2021 - nil).
Cash and cash equivalents represent cash at bank and short term
money market deposits repayable on demand.
Notes to the condensed financial statements (unaudited)
1 Basis of Accounting
The condensed Financial Statements for the six months to 31 July
2022 comprise the statements and related notes set out below. They
have been prepared in accordance with FRS 104 'Interim Financial
Reporting' and the AIC's Statement of Recommended Practice issued
in November 2014, and April 2021 with consequential amendments, and
have not been audited or reviewed by the Auditor pursuant to the
Auditing Practices Board Guidance on 'Review of Interim Financial
Information'. The Financial Statements for the six months to 31
July 2022 have been prepared on the basis of the same accounting
policies as set out in the Company's Annual Report and Financial
Statements at 31 January 2022.
Going Concern
The Directors have considered the nature of the Company's
assets, its liabilities, projected income and expenditure together
with its investment objective and policy, dividend policy and
principal risks and uncertainties, as set out on the inside front
cover. The Board has, in particular, considered the ongoing impact
of market volatility during the Covid-19 pandemic, geo political
events including the impact of the hostilities in Ukraine and
current economic conditions but does not believe the Company's
going concern status is affected. The Company's assets, the
majority of which are investments in quoted securities which are
readily realisable, exceed its liabilities significantly. All
borrowings require the prior approval of the Board. Gearing levels
and compliance with borrowing covenants are reviewed by the Board
on a regular basis. The Company has continued to comply with the
investment trust status requirements of section 1158 of the
Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011. Accordingly, the Directors
consider it appropriate to adopt the going concern basis of
accounting in preparing these Financial Statements and confirm that
they are not aware of any material uncertainties which may affect
the Company's ability to continue to do so over a period of at
least twelve months from the date of approval of these Financial
Statements.
2 Financial Information
The financial information contained within this Interim
Financial Report does not constitute statutory accounts as defined
in sections 434 to 436 of the Companies Act 2006. The financial
information for the year ended 31 January 2022 has been extracted
from the statutory accounts which have been filed with the
Registrar of Companies. The Auditor's Report on those accounts was
not qualified, did not include a reference to any matters to which
the Auditor drew attention by way of emphasis without qualifying
the report, and did not contain a statement under sections 498(2)
or (3) of the Companies Act 2006.
3 Investment Manager
Baillie Gifford & Co Limited, a wholly owned subsidiary of
Baillie Gifford & Co, was appointed by the Company as its
Alternative Investment Fund Manager and Company Secretary on 16
September 2020. The investment management function has been
delegated to Baillie Gifford & Co. Dealing activity and
transaction reporting have been further sub-delegated to Baillie
Gifford Overseas Limited and Baillie Gifford Asia (Hong Kong)
Limited. The management agreement is terminable on not less than
three months' notice or on shorter notice in certain circumstances.
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. Baillie Gifford agreed to waive its investment
management fee for the first six months following its appointment
as a contribution to the costs that the Company has borne in
respect of the Manager changes .
4 Net Return per Ordinary Share
Year to
Six months to Six months to 31January 2022
31 July 2022 31 July 2021 (audited)
GBP'000 GBP'000 GBP'000
===================================================== =============== ============== ===============
Revenue return on ordinary activities after taxation 1,356 771 592
Capital return on ordinary activities after taxation (24,701) (45,734) (84,165)
===================================================== =============== ============== ===============
Total net return (23,345) (44,963) (83,573)
===================================================== =============== ============== ===============
Weighted average number of ordinary shares in issue 62,012,982 59,745,488 60,888,553
===================================================== =============== ============== ===============
Net return per ordinary share is based on the above totals of
revenue and capital and the weighted average number of ordinary
shares in issue during each period.
There are no dilutive or potentially dilutive shares in
issue.
5 Dividends
Six months Six months to
to 31 July 2021
31 July GBP'000
2022
GBP'000
=========================================== =========== ==============
Amounts recognised as distributions
in the period:
Previous year's final of 4.60p (2021
- 4.60p), paid on 27 July 2022 2,854 2,854
=========================================== =========== ==============
2,854 2,807
=========================================== =========== ==============
Dividends proposed and payable in respect
of the period:
Interim of nil (2020 - 2.55p) - 1,581
=========================================== =========== ==============
- 1,581
=========================================== =========== ==============
As stated in the last Annual Report and Financial Statements,
the Board's policy is now that any dividend will be paid by way of
a final dividend, and therefore no interim dividend will be paid
this year.
6 Fair Value Hierarchy
The fair value hierarchy used to analyse the basis on which the
fair values of financial instruments held at fair value through the
profit or loss account are measured is described below. Fair value
measurements 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).
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
above.
Investments held at fair value through profit or loss
As at 31 July 2022 Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
========================== ================== =============== =============== ================
Listed equities 185,719 - - 185,719
Unlisted ordinary shares - - 10,753 10,753
Suspended ordinary shares - - 812 812
========================== ================== =============== =============== ================
Total financial asset
investments 185,719 - 11,565 197,284
========================== ================== =============== =============== ================
As at 31 January 2022 Level 1 Level 2 Level 3 Total
(audited) GBP'000 GBP'000 GBP'000 GBP'000
========================== ================ =============== =============== ================
Listed equities 207,678 - - 207,678
Unlisted ordinary shares - - 12,855 12,855
Suspended ordinary shares - - 1,482 1,482
========================== ================ =============== =============== ================
Total financial asset
investments 207,678 - 14,337 222,015
========================== ================ =============== =============== ================
7 Bank Loans
During the period the Company entered into a two year US$40
million revolving credit facility with The Royal Bank of Scotland
International Limited which expires on 13 April 2024. At 31 July
2022 creditors falling due within one year include borrowings of
GBP6.2 million (US$7.5 million) (31 January 2022 - GBP5.3 million
(US$7.5 million)) drawn down under the facility.
8 Share Capital
The Company has authority to allot shares under section 551 of
the Companies Act 2006 or sell shares held in treasury. Such
authorities will only be used to issue shares or sell shares from
treasury at, or at a premium to, net asset value and only when the
Directors believe that it would be in the best interests of the
Company to do so. In the six months to 31 July 2022 no ordinary
shares were issued. In the year to 31 January 2022 - 4,515,000
shares were issued from Treasury and 2,404,151 shares were issued
on a non pre-emptive basis.
The Company also has authority to buy back shares. In the six
months to 31 July 2022 no ordinary shares were bought back (in the
year to 31 January 2022 no ordinary shares were bought back for
cancellation) therefore the Company's authority remains unchanged
at 8,889,644 ordinary shares.
9 Transaction Costs
During the period the Company incurred transaction costs on
purchases of investments of GBP13,000 (31 July 2021 - GBP60,000; 31
January 2022 - GBP76,000) and transaction costs on sales of
GBP22,000 (31 July 2021 - GBP23,000; 31 January 2022 -
GBP52,000).
10 Related Party Transactions
There have been no transactions with related parties during the
first six months of the current financial year that have materially
affected the financial position or the performance of the Company
during that period and there have been no changes in the related
party transactions described in the last Annual Report and
Financial Statements that could have had such an effect on the
Company during that period.
None of the views expressed in this document should be construed
as advice to buy or sell a particular investment.
Principal Risks and Uncertainties
The principal risks facing the Company are inappropriate
business strategy, adverse market conditions, poor investment
performance, operational failure, tax and regulatory change or
breach, single country risk, emerging market risk, unlisted
securities, gearing and climate and governance risk. An explanation
of these risks and how they are managed is set out on pages 21 and
22 of the Company's Annual Report and Financial Statements for the
year to 31 January 2022 which is available on the Company's
website: bailliegiffordchinagrowthtrust.com. The principal risks
and uncertainties have not changed since the date of the Annual
Report. However, as referred to in the Interim Management Report
above, geopolitical tensions have increased since the date of the
Annual Report.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of Financial Statements has been prepared
in accordance with FRS 104 'Interim Financial Reporting';
b) the Interim Management Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.7R (indication of important events during the first six months,
their impact on the Financial Statements and a description of the
principal risks and uncertainties for the remaining six months of
the year); and
c) the Interim Financial Report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule
4.2.8R (disclosure of related party transactions and changes
therein).
On behalf of the Board
Susan Platts-Martin
Chair
4 October 2022
Glossary of Terms and Alternative Performance Measures
('APM')
An alternative performance measure 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.
Total Assets
The total value of all assets held less all liabilities, other
than liabilities in the form of borrowings.
Shareholders' Funds and Net Asset Value
Shareholders' Funds is the value of all assets held less all
liabilities, with borrowings deducted at book cost. Net
Asset Value ('NAV') is the value of all assets held less all
liabilities, with borrowings deducted at either book value
or fair value. Per share amounts are calculated by dividing the
relevant figure by the number of ordinary shares in
issue.
Net Liquid Assets
Net liquid assets comprise current assets less current
liabilities, excluding borrowings.
Net Asset Value (Borrowings at Book Value)
Borrowings are valued at adjusted net issue proceeds. Book value
approximates amortised cost.
31 July 2022 31 January 2022
------------------------------------ --------------- ----------------
Shareholders' funds (borrowings at GBP193,142,000 GBP219,341,000
book value)
Shares in issue 62,012,982 62,012,982
Net Asset Value per ordinary share
(borrowings at book value) 311.45p 353.70p
------------------------------------ --------------- ----------------
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's
share price is rarely the same as its net asset value. When the
share price is lower than the net asset value 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 net asset value per share
and is usually expressed as a percentage of the net asset value per
share. If the share price is higher than the net asset value per
share, this situation is called a premium.
31 July 2022 31 January 2022
----------------------- ------------- ----------------
Closing NAV per share 311.45p 353.70p
Closing share price 312.00p 339.25p
Premium/(discount) 0.2% (4.1%)
----------------------- ------------- ----------------
Total Return (APM)
The total return is the return to shareholders after reinvesting
the dividend on the date that the share price goes ex-dividend.
31 July 31 July 31 January 31 January
2022 2022 2022 2022
NAV Share NAV Share
price price
====================================== =============== ========= ========= =========== ===========
Closing NAV per share/share
price (a) 311.45p 312.00p 353.70p 339.25p
Dividend adjustment factor* (b) 1.014002 1.014556 1.016038 1.015984
Adjusted closing NAV per share/share (c =
price a x b) 315.82p 316.54p 395.37p 344.67p
Opening NAV per share/share
price (d) 353.70p 339.25p 492.66p 548.00p
====================================== =============== ========= ========= =========== ===========
Total return (c ÷d)-1 (10.7%) (6.7%) (27.0%) (37.1%)
====================================== =============== ========= ========= =========== ===========
* The dividend adjustment factor is calculated on the assumption
that the dividends paid out by the Company are reinvested into the
shares of the Company at the cum income NAV 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 are calculated on the basis prescribed by the Association
of Investment Companies.
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.
Potential gearing is the Company's borrowings expressed as a
percentage of shareholders' funds.
Invested gearing is the Company's borrowings at book value less
cash and cash equivalents (as adjusted for investment and share
buy-back/ issuance transactions awaiting settlement) expressed as a
percentage of shareholders' funds.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers
Regulations, leverage is any method which increases the Company's
exposure, including the borrowing of cash and the use of
derivatives.
It is expressed as a ratio between the Company's exposure and
its net asset value and can be calculated on a gross and a
commitment method. Under the gross method, exposure represents the
sum of the Company's positions after the deduction of sterling cash
balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated
without the deduction of sterling cash balances and after certain
hedging and netting positions are offset against each other.
Active Share (APM)
Active share, a measure of how actively a portfolio is managed,
is the percentage of the portfolio that differs from its
comparative index. It is calculated by deducting from 100 the
percentage of the portfolio that overlaps with the comparative
index. An active share of 100 indicates no overlap with the index
and an active share of zero indicates a portfolio that tracks the
index.
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.
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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
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU 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, 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 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 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/en/uk/about-us/
literature-library/corporate-governance/
governance-sustainability-principles- and guidelines/).
Taxonomy Regulation
The Taxonomy Regulation establishes an EU-wide framework of
criteria for environmentally sustainable economic activities in
respect of six environmental objectives. It builds on the
disclosure requirements under SFDR by introducing additional
disclosure obligations in respect of Alternative Investment Funds
that invest in an economic activity that contributes to an
environmental objective. The Company does not commit to make
sustainable investments as defined under SFDR. As such, the
underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities.
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END
IR MJBATMTAMBRT
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