TIDMBGCG
RNS Number : 7804W
Baillie Gifford China Grwth TrstPLC
19 April 2023
Baillie Gifford China Growth Trust plc (BGCG)
Legal Entity Identifier: 213800KOK5G3XYI7ZX18
Regulated Information Classification: Annual Financial and Audit
Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results
announced to the Stock Exchange on 5 April 2023, Baillie Gifford
China Growth Trust ("the Company") announces that the Company's
Annual Report and Financial Statements for the year ended 31
January 2023, including the Notice of Annual General Meeting, has
today been posted to shareholders and submitted electronically to
the National Storage Mechanism where it will shortly be available
for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
It is also available on the Company page of the Baillie Gifford
website at: bailliegiffordchinagrowthtrust.com (as is the
preliminary statement of audited annual results announced by the
Company on 5 April 2023).
Responsibility Statement of the Directors in respect of the
Annual Financial Report
The Directors confirm that, to the best of their knowledge:
3/4 the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and net return of
the Company;
3/4 the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company, together with a description of the principal risks and
uncertainties it faces; and
3/4 the Annual Report and Financial Statements, taken as a
whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy.
Principal Risks relating to the Company
As explained on page 33 of the Annual Report and Financial
Statements, there is an ongoing process for identifying, evaluating
and managing the risks faced by the Company. The Directors have
undertaken a robust assessment of the principal and emerging risks
facing the Company, including those that would threaten the
business model, future performance, solvency or liquidity. There
have been no significant changes to the principal risks during the
year other than cyber security risk having moved from emerging to
principal risks. A description of these risks and how they are
being managed or mitigated is set out below:
Risk Mitigation
------------------------------------- ---------------------------------------------------
Inappropriate business strategy The Board reviews its strategy at an annual
and/or changes in the financial strategy meeting. It considers investor
services market leads to lack feedback, consults with its broker and
of demand for the Company's reviews its marketing strategy. It regularly
shares and its shares trading reviews its buy back and issuance policy.
at a persistent and anomalous The strategy is considered in the context
discount to of developments in the wider financial
the NAV . services industry.
------------------------------------- ---------------------------------------------------
Adverse market conditions The Company's exposure to equity market
, particularly in equities risk and foreign currency risk is an integral
and currencies, lead to a part of its investment strategy. Adverse
fall in NAV. markets may be caused by a range of factors
including economic conditions, political
change, geopolitical events, natural disasters
and health epidemics. Volatility in markets
from such factors can be higher in less
developed markets including China. Market
risk is mitigated to a degree by appropriate
portfolio diversification .
------------------------------------- ---------------------------------------------------
Poor investment performance The performance of the Manager is reviewed
, including through inappropriate at each Board meeting and compared against
asset allocation, leads to the benchmark and peer group. Exposures
value loss for shareholders are reviewed against benchmark exposures
in comparison to the benchmark to identify the highest risk exposures.
or the peer group. The Board regularly reviews and monitors
the Company's objective and investment
policy and strategy.
------------------------------------- ---------------------------------------------------
Operational failure, failure The Manager has a comprehensive business
of Baillie Gifford's systems continuity plan which
or those of other third party facilitates continued operation of the
service providers could lead business in the event of a
to an inability to provide service disruption or major disaster. The
accurate reporting and monitoring Audit Committee reviews
or a misappropriation of assets. Baillie Gifford's Report on Internal Controls
and the reports by other key third party
providers are reviewed by Baillie Gifford
on behalf of the Board and a summary of
the key points is reported to the Audit
Committee and any concerns investigated.
In the year under review, the other key
third party service providers have not
experienced significant operational difficulties
affecting their respective services to
the Company.
------------------------------------- ---------------------------------------------------
Tax and regulatory change Compliance with investment trust status
or breach leads to the loss regulations is regularly
of investment trust status reviewed by the Board. The Board reviews
and, as a consequence, the compliance with other
loss of the exemption from regulatory, tax and legal requirements
taxation of capital gains. and is kept informed of
Change in tax, regulation forthcoming regulatory changes.
or laws could make the activities
of the Company more complicated,
more costly or even not possible.
Other regulatory breaches
(including breaching the listing
rules, market abuse regulations
and UK AIFM Regulations) could
result in reputational
damage and costs. Regulatory
change can also increase the
costs of operating the Company.
------------------------------------- ---------------------------------------------------
Single country risk . The The Company's exposure to a single country,
Company invests predominantly China, is an integral part of its investment
in equities of companies which strategy. Risk is mitigated to a degree
are incorporated or domiciled, by appropriate portfolio diversification
or which conduct a significant and careful analysis of investment opportunities.
portion of their business,
in China. Investing in a single
country is generally considered
a higher risk investment strategy
than investing more widely,
as it exposes the investor
to the fluctuations of a single
geographical market, in this
case the Chinese market.
------------------------------------- ---------------------------------------------------
Emerging market risk . Investing The Managers are cognisant of the risks
in an emerging market such associated with investing in emerging markets
as China subjects the Company such as China, and they shape their investment
to a higher level of market strategy and due diligence accordingly.
risk than investment in a The Board is kept informed of political
more developed market. This and regulatory issues impacting China and
is due, among other things, the portfolio. The Board monitors the risks
to the existence of greater associated with any complex investment
market volatility, lower trading structures, including the proportion of
volumes, the risk of political investments held in VIEs (estimated to
and economic instability, be 31% as at 31 January 2023).
legal and regulatory risks,
risks relating to accounting
practices, disclosure and
settlement, a greater risk
of market shut down, standards
of corporate governance and
more governmental limitations
on foreign investment than
are typically found in developed
markets. Geopolitical tensions
between the US and China,
in particular relating to
Taiwan, remain heightened
with the potential for further
sanctions to be imposed.
Investing in China is often
through contractual structures,
such as Variable Interest
Entities ('VIEs', see Glossary
of Terms and Alternative
Performance Measures on page
76 of the Annual Report and
Financial Statements) that
are complex and could be open
to challenge.
------------------------------------- ---------------------------------------------------
Unlisted securities The Company Baillie Gifford conducts appropriate due
may invest in unlisted securities, diligence in respect of all unlisted investments,
which are not readily realisable and has an established valuation approach
and are more difficult to (as described on page 51 of the Annual
value given the absence of Report and Financial Statements ), which
a quoted price. There may is carefully reviewed by the Board.
be less available information
and there will be less regulation
in respect of disclosures
and corporate governance.
------------------------------------- ---------------------------------------------------
Gearing . The Company may Under the Investment Policy, the maximum
utilise borrowings in order gearing is 25% of gross assets, though
to increase the Company does not expect borrowing to
its investment exposure. While be in excess of 20% of gross assets. All
such leverage presents opportunities borrowing facilities are approved by the
for increasing total returns, Board and gearing levels are discussed
it can also have the opposite by the Board and the Managers at every
effect of increasing losses. meeting. Covenant levels are monitored
If income and capital appreciation regularly.
on investments acquired with
borrowed funds are less than
the costs of the leverage,
the Company's net asset value
will decrease. The use of
leverage also increases the
investment exposure, which
means that
if the market moves adversely,
the resulting loss to capital
would be greater than if leverage
were not used .
------------------------------------- ---------------------------------------------------
Cyber security risk . A cyber-attack The Audit Committee reviews Reports on
on Baillie Gifford's network Internal Controls
or that of a third party service published by Baillie Gifford and other
provider could impact the third party service providers. Baillie
confidentiality, integrity Gifford's Business Risk Department report
or availability of data and to the Audit Committee on the effectiveness
systems. of information security controls in place
at Baillie Gifford and its business continuity
framework. Cyber security due diligence
is performed by Baillie Gifford on third
party service providers which includes
a review of crisis management and business
continuity frameworks.
------------------------------------- ---------------------------------------------------
Climate and Governance risk As described on pages 9 to 14 of the Annual
. As investors place increased Report and Financial Statements, the consideration
emphasis on climate change of ESG (including
and other Environmental, Social climate change) is a core component of
and Governance (ESG) issues, Baillie Gifford's investment process, with
perceived problems with these the Board overseeing and challenging Baillie
matters Gifford on ESG matters. The Board meet
in an investee company could with the Investment Manager and discuss
lead to that company's shares the investment portfolio, including the
being less attractive to investors, application of Baillie Gifford's ESG framework.
adversely affecting its share Baillie Gifford's Governance and Sustainability
price. team undertake specific ESG reviews on
In addition, potential valuation investment portfolios.
issues could arise from any
direct impact of the failure
to address the ESG weakness
on the operations or management
of the investee company (for
example in the event of an
industrial accident or spillage).
Repeated failure by
the Investment Manager to
identify climate/ESG weaknesses
in
investee companies could lead
to the Company's own shares
being
less attractive to investors,
adversely affecting its own
share price.
------------------------------------- ---------------------------------------------------
Emerging Risks - The Audit Committee has regular discussions
on principal risks and uncertainties, including any risks which
are
not an immediate threat but could arise in the longer term.
The Board considers that the key emerging risks arise from
the interconnectedness of global economies and the related
exposure of the investment portfolio to emerging threats
such
as the societal and financial implications of escalation of
the
Russia-Ukraine military conflict and pandemic or similar
public
health threats. The Board considers the impact of such threats
on
both markets globally and also more specifically on the
Chinese
market. These risks are mitigated by the Investment
Manager's
close links to the investee companies and their ability to
ask
questions on contingency plans. The Investment Manager
believes
the impact of such events may be to impact growth rather than
to
invalidate the investment rationale over the long term.
The Company also monitors its service providers to ensure
there
is adequate business continuity.
Baillie Gifford & Co Limited
Company Secretaries
19 April 2023
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END
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