Baillie Gifford European Growth Trust : Annual report - 30 September 2022

NAV, Share Price and Benchmark Total Return

(figures rebased to 100 at 30 September 2021)

Share price

NAV (after deducting borrowings at fair value)†

Benchmark*

Discount to NAV (after deducting borrowings at fair value)

(figures plotted on a weekly basis)

Discount

120

100

80

60

40

20

0

0%

(5%)

(10%)

(15%)

(20%)

Chairman's Statement

Michael MacPhee,

Chairman

Performance

The net asset value per share ('NAV') total return over the Company's financial year was -40.4% 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 -47.7% as the discount to NAV of the Company's shares widened from 1.3% to 13.5%. A reversal of fortune and a very disappointing year in absolute and relative terms.

Since Baillie Gifford began managing the portfolio in November 2019, the NAV total return has been 0.8% compared to a total return of 3.9% for the FTSE Europe ex UK Index, in sterling terms. The share price total return has been -5.6%, with the discount widening from 7.5% to 13.5%.

It has certainly been a challenging year for all investors but it has been particularly hard for growth investors. Reasons for this are discussed at length in the Managers' report and a little below.

Despite strong operational performance from our holdings (further detail provided in the Managers' report on pages 11 to 13), the share prices of the types of companies we own have fallen very significantly, with those companies which have a technology angle to them being punished severely.

Earnings and Dividend

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. Revenue per share for the year was 0.79p (2021 - 0.44p) and the Board is recommending a final dividend of 0.70p per share (2021 - 0.35p). Subject to shareholder approval at the Annual General Meeting, the dividend will be paid on 10 February 2023 to shareholders

on the register on 6 January 2023. The ex-dividend date will be 5 January 2023.

Borrowings

The Company has two €30 million long-term debt facilities: the first has a duration of 20 years and is priced at a fixed rate of 1.57% and the other has a term of 15 years 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 invested borrowings of 15.7% with a further 1.1% drawn and held in cash.

Share Buybacks, Issuance and Discount

Over the course of the Company's financial year, the share price moved from a 1.3% discount to NAV to a 13.5% discount to NAV. During this period, the Company bought back 5,911,659 shares at a total cost of approximately £7,444,000 and an average discount of 7.9%. 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 current financial 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 issue. When buying back shares, the Board does not have a formal discount target and is prepared to buy back shares opportunistically.

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 NAV, thereby enhancing NAV for existing shareholders. The Directors are, once again, seeking 10% share issuance authority at the Annual General Meeting. As with the buyback authority, this authority will expire at the conclusion of the Annual General Meeting to be held in 2024, unless renewed.

The Board and Portfolio Managers

The Company has been managed by Stephen Paice, Chris Davies and Moritz Sitte as co-portfolio managers. In July 2022, Moritz took up a new opportunity with a family office. The Board would like to wish Moritz well in his new endeavours. The Company will continue to be managed by the experienced team of Stephen and Chris as co-portfolio managers.

There have been no changes to the composition of the Board during the Company's financial year, though succession planning is underway for the end of next year, as Dr Woodward will stand down from the Board at the 2024 Annual General Meeting.

Annual General Meeting ('AGM')

The AGM will be held at 11.00 a.m. on 2 February 2023 at The Institute of Directors, 116 Pall Mall, London, SW1Y 5ED. Baillie Gifford will make a presentation and I look forward to meeting shareholders who are able to attend. The Board encourages all shareholders to exercise their votes on the AGM resolutions by completing and submitting a form of proxy.

Should the situation change and it not be possible to meet in person, further information will be made available through the Company's website at bgeuropeangrowth.com

and the London Stock Exchange regulatory news service. 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 55 and 56 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 favour.

The First 50 Years

To commemorate its first 50 years, John Newlands has written a short history of the Company. A copy of this is available

on the Company's page of the Managers' website at bgeuropeangrowth.com and is enclosed with this Annual Report for those shareholders who have asked to receive a printed copy.

Outlook

In retrospect, we will look back on the last 25 years of low and falling interest rates as something of a mirage. Central bankers have enjoyed fame far in excess of their historically important but unglamorous role as financial plumbers. Their job, according to Paul Volcker, who proved his worth as a practitioner, is to remove the punchbowl before the party gets started. For decades there was no sign of the punchbowl being removed and the world became accustomed to unlimited punch. We must all consequently now get used to the feeling of being punch drunk. An unparalleled period of near-zero interest rates sits oddly with a 400-year average of over 4%. The present challenges set by a sharp deterioration in geo-political harmony are shaking us out of that reverie. Something was always bound to, but it was impossible to guess when. The music has stopped, the party is well and truly over, the police have arrived and reality has intervened. Interest rates are on their way back to or above long term norms. In the stock market, present cash flows are prized as rising inflation and interest rates currently, though temporarily, outweigh all other factors. The market's barometer is set to maximum fear and storm hatches have been battened. The underlying prognosis for economic activity is being impaired. Relative strength and growth will, in time, become rarer and better appreciated.

If this all sounds and is dispiriting, the good news is that we are living through a golden age of innovation and disruption in business. Living standards are high, albeit inflated by an asset bubble and cheap debt, and technological progress remains extraordinary. Opportunities to grow and strengthen businesses and to build enduring barriers to entry at pace have seldom been greater. And positive change is being catalysed by today's adversity. A $100 oil price, for example, can only hasten the end of the carbon economy and accelerate its replacement. Equities, and this portfolio specifically, remain a bet on human ingenuity. It is challenging to endure this painful period of flux, but even in its midst we might yet struggle to answer the question differently: 'what would I rather own for the long term?'

Michael MacPhee

Chairman

21 November 2022