Philosophy and Process

UK Growth Trust plc

This presentation is solely for the use of professional investors and should not be relied upon by any other person. It is not intended for use by retail clients. Baillie Gifford UK Growth Trust plc

Contents

Trust information 3 Investment philosophy 4 Reclaiming activism for 6 long-term growth investors A differentiated portfolio 8 Investment process 9 Managing risk 10 Baillie Gifford UK Growth Trust team 11 About Baillie Gifford & Co 13 How to contact us 15

Calton Square, 1 Greenside Row, Edinburgh EH1 3AN Telephone +44 (0)131 275 2000 bailliegifford.com

CM15818 UK Growth Trust P&P 0621 Ref: 53128 ALL PP 0005 2 2021

Trust information

Baillie Gifford UK Growth Trust plc is an investment trust listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority. As with any investment, your clients’ capital is at risk. A Key Investor Document is available on request.

Trust Aims The Trust aims to maximise capital growth over the long-term from investment primarily in shares of listed UK equities which have the potential to deliver a total return in excess of the FTSE All-Share Index, although the Trust’s portfolio is constructed without any reference to the index. The majority of the portfolio will be held in listed UK equities and may, if appropriate, include convertible securities and equity related derivatives. The yield on the Trust’s investments is of secondary importance.

Trust Details SEDOL 0791348 ISIN GB0007913485 AIC sector UK All Companies Launch date 11 March 1994 Year end 30 April AGM Typically August Final results June/July announced Dividends paid Typically paid in August if any Management details Baillie Gifford & Co Limited are appointed as investment managers and secretaries to the company. The management contract can be terminated at 6 months’ notice. Annual management 0.5% on net assets, calculated and fee payable on a quarterly basis.

Baillie Gifford took over the management of the Trust in July 2018.

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Investment philosophy

We aim to generate positive, market-beating long-term investment returns for shareholders through investing in a selection of what we believe to be the best UK growth companies.

Baillie Gifford has a long history of investing Investing in UK companies does not mean The key elements to our philosophy are: in UK equities. The Trust is managed by two that we are dependent on the success of co-managers supported by the additional the UK economy. Our goal is to invest in Long term five members of the UK Equity Team and well-managed companies with significant We are passionate advocates of the merits over 100 investment professionals at Baillie long-term growth opportunities that are run of investing for the long term. We don’t try to Gifford. Stock selection is done on a in the interests of shareholders. Typically guess the next quarter’s earnings but want fundamental, bottom-up basis and the Trust they will have strong competitive to identify where a company’s earnings holds what we believe to be the best advantages and whilst some will be purely might be in five years’ time or longer; companies listed in the UK. The portfolio will domestic, many will also benefit from sustainable earnings and cashflow growth comprise between 35–65 stocks and be very growing economies elsewhere in the world. are our main areas of focus. We believe that different from its comparative index and its That said, we are resolutely bottom-up in patient investors in a supportive peer group. Active share will typically be in identifying investment ideas and pay little environment can take advantage of the excess of 80%. We would not expect the attention to top-down assessments of market’s preoccupation with short-term turnover of the Trust to exceed 20% p.a.; as particular economies or sectors; it is almost noise and costly hyper-activity. It is only by investors, not speculators, we look to invest always company specific factors that being committed long-term investors that in companies for a minimum of five years. determine the success or otherwise of our we, and our shareholders, will truly benefit investments and the Trust is an output of from the scale of the opportunity available this process. from investing in UK equities.

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Active Compound growth Global perspective The index is not our starting point. We are We believe that the power of compounding With the majority of earnings generated by not paid to copy the index and in order to in company cashflows and profits over the UK listed companies coming from overseas beat it we have to build genuinely long-term is hugely under-appreciated by activities, it is essential to understand the differentiated portfolios. It is our observation many market participants. Our long-term, world beyond the UK’s shores. In many that many investors pay too much attention patient approach allows compounding to cases, companies listed in the UK have to market indices, and are closer to being work in shareholders favour. We will resist virtually no connection at all to the UK index-trackers then genuinely active the temptation to ‘take profits’ as long as our economy. This same principle now applies investors. We believe active managers ongoing monitoring process indicates that to varying degrees in all regional equity should hold meaningful investments in their our investment thesis remains intact. We markets, and it is a key and increasing best ideas, regardless of the weightings of believe it is counterproductive to sell strength of Baillie Gifford that we have the an index. We do not invest in companies just successful investments on mechanistic majority of our portfolio managers in one because they are large or to reduce risk. grounds because a static price target has location in Edinburgh. This gives us our Differing substantially from consensus is a been reached. competitive edge in understanding the necessary prerequisite for adding value, and global context in which all of our shareholders should be comfortable investments are made and enables us to tolerating the inevitable ups and downs in share information between teams. short-term relative performance that will follow from that.

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Reclaiming activism for long-term growth investors

Baillie Gifford’s over-arching ethos is that we are ‘actual’ investors. We have a responsibility to behave as supportive and constructively engaged long-term investors. We invest in companies at different stages in their evolution, across vastly different industries and geographies and we celebrate their uniqueness. Consequently, we are wary of prescriptive policies and rules, believing that these often run counter to thoughtful and beneficial corporate stewardship. Our approach favours a small number of simple principles which help shape our interactions with companies.

Our stewardship principles A constructive and purposeful board Prioritisation of long-term value creation We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders. We encourage company management and their boards to be There is no fixed formula, but it is our expectation that boards have ambitious and focus their investments on long-term value creation. the resources, cognitive diversity and information they need to fulfil We understand that it is easy for businesses to be influenced by these responsibilities. We believe that a board works best when short-sighted demands for profit maximisation but believe these there is strong independent representation able to assist, advise often lead to sub-optimal long-term outcomes. We regard it as our and constructively test the thinking of management. responsibility to steer businesses away from destructive financial engineering towards activities that create genuine economic value over the long run. We are happy that our value will often be in supporting management when others don’t.

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Long-term focused remuneration with stretching Sustainable business practices targets We look for companies to act as responsible corporate citizens, We look for remuneration policies that are simple, transparent and working within the spirit and not just the letter of the laws and reward superior strategic and operational endeavour. We believe regulations that govern them. We believe that corporate success incentive schemes can be important in driving behaviour, and we will only be sustained if a business’s long-run impact on society encourage policies which create alignment with genuine long-term and the environment is taken into account. Management and shareholders. We are accepting of significant pay-outs to boards should therefore understand and regularly review this executives if these are commensurate with outstanding long-run aspect of their activities, disclosing such information publicly value creation, but plans should not reward mediocre outcomes. alongside plans for ongoing improvement. We think that performance hurdles should be skewed towards We take our responsibilities seriously. We will encourage focus on long-term results and that remuneration plans should be subject to the building of lasting competitive advantage, and we will shareholder approval. enthusiastically support those with a thoughtful approach, using Fair treatment of stakeholders voting to support our five core principles. At a time when the word ‘activism’ is synonymous with those targeting short-term gains, We believe it is in the long-term interests of companies to maintain we would like to reclaim the term for the long-term growth investor. strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner. We do not believe in one-size-fits-all governance and we recognise that different shareholder structures are appropriate for different businesses. However, regardless of structure, companies must always respect the rights of all equity owners.

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A differentiated portfolio

The portfolio is a high conviction, concentrated selection of our best ideas in the UK with a bias to mid and smaller cap growth companies, where we intuitively believe the growth spot for UK equities to be.

We have assigned the companies in the current portfolio to a market opportunity but are agnostic as to the pace with which this number of ‘buckets’ which serves as an illustration of how we can opportunity is unlocked; we recognise that different companies will segment it. This is purely the outcome of our fundamental bottom exploit their particular opportunity in different ways and at different up stock picking process. What is worth noting, however, is that all speeds. We also search for companies with strong corporate of these businesses share a number of general characteristics cultures which are well aligned with both internal and external which we look for in all of our investments. We aim to identify stakeholders. Our preference is always for businesses which are companies which have built defensible competitive positions and run by managers with very long-term mindsets rather than by those have the potential to deliver sustainable above market average preoccupied with managing short-term market expectations. revenue and earnings growth over many years. We require a large

B2C* Compounders Niche B2B** champions

Retail, luxury goods, digital platforms Industrial engineers, healthcare (medtech), business services

Low ticket items (usually!) Under-the-radar businesses

High level of repeat purchase High brand awareness among market professionals

Well-known brands Often a large aftermarket/service element

High gross margins In-market M&A opportunities

Niche/growth financials Special situations

Stand out in a commoditised industry High quality assets/franchises

High level of repeat business Latent growth potential

Excellent capital allocators Management/operational improvements to crystalise long-term value

Images: © Bloomberg/Getty Images, © Renishaw plc, © Hargreaves Lansdown plc © 2016 Rio Tinto. *Business to Consumer, ** Business to Business. 8 2021

Investment process

The following flowchart summarises our UK equity process:

1 Discovery 2 Debate 3 Decision

earch/prospec res ts m m ee tea ti ng UK Co-managers

Weekly stock UK Equity discussion priority list Monthly portfolio review — Whole UK team participate

Inquisitive Academia/ — Occasional guest invites researcher industry experts

Other BG Teams Portfolio

— UK stock universe is 500+ — Structured, concise research Co-managers accountable for stock companies report selection and portfolio — Six-weekly Prospects Meeting — Peer review input ahead — Priority List of c.150 companies of discussion — Robust team debate — Detailed minutes taken

Discovery Debate Decision There are a wealth of interesting companies Our research notes have a standard structure and are The co-managers of the Trust sit in which to invest in the UK. We can work based on a set of pre-determined questions. The reports opposite one another but they out quickly whether a company is are deliberately succinct so that the author has to focus meet formally, once a month, potentially of interest based on a few key on the critical issues. We assess the opportunity on a away from the desk to discuss questions concerning industry background five-year basis, form a view on how we can make money the Baillie Gifford UK Growth and company specifics. This creates a for our shareholders, and ensure that we are aware of Trust and to review the holdings. ‘Priority List’ of around 150 companies any risks to the investment case that might trigger a It is typically at these meetings upon which we focus the vast majority of change in view. Research notes are circulated around the that they will take any decisions our research effort. This list is kept fresh team in advance of the weekly stock discussion and a regarding the portfolio. through six-weekly ‘Prospects Meetings’, brief peer review or ‘Devil’s Advocate’ is written by where the team steps back from day-to-day another team member. The objective of this review is to research to consider the economic avoid the dangers of ‘group think’ that can undermine a backdrop, review sectors and noteworthy team-based investment process. company operating developments, thereby The weekly stock discussion has a formal agenda and is the identifying stocks that should be setting for the team to debate freely and form a view on researched in depth in the coming weeks. individual stocks. These meetings are carefully minuted so that we have a record of the key issues that were discussed, to which we can refer when monitoring the progress of each investment. This is an important component of our process; we consciously try to avoid the trap of changing our investment case to match events over time.

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Managing risk

We do not simply believe risk is about short-term underperformance Complementing our focus on fundamentals, the firm has an against an index or the control of tracking error, but is fundamentally independent Investment Risk, Analytics and Research Team about avoiding investing in companies that materially disappoint on which has overall responsibility for reviewing all client portfolios operational delivery. The main element of risk control is therefore using a variety of tools. The team reports on a quarterly basis as investing only in opportunities that we have fully researched, and for a catalyst for discussions on portfolio risk. The Investment Risk, which we understand the key issues. Analytics and Research Team has a separate reporting line to our Investment Risk Committee, ensuring compatibility with objectives We acknowledge however that regardless of our high levels of is independently assessed, and providing a resolution mechanism fundamental due diligence, sometimes the outcome will differ should one be required. from our original investment thesis. We therefore apply portfolio diversification rules including the number of holdings and exposure to sectors. These limits are widely set: they exist to protect against unforeseen outcomes, not to limit our ability to invest meaningfully in our best ideas to add value. We are not required to own stocks simply because they are large components of an index.

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Baillie Gifford UK Growth Trust team

Management of the portfolio is by joint managers Iain McCombie and Milena Mileva supported by the UK Equities team.

Iain McCombie MILENA MILEVA Investment Manager Investment Manager Iain joined Baillie Gifford in 1994 and has spent the Milena joined Baillie Gifford in 2009 and is an majority of his career as an Investment Manager in Investment Manager in the UK Equity Team. our UK Equity Team. He became a Partner in 2005. She graduated BA in Social & Political Science Iain graduated MA in Accountancy from the from the University of Cambridge in 2007 and University of Aberdeen and qualified as a MPhil in Politics from the University of Oxford Chartered Accountant. in 2009.

MICHAEL WYLIE ANZELM CYDZIK Head of Fund Operations Director of Investment Trusts Michael is a Partner and Head of Fund Anzelm joined Baillie Gifford in 2000. He is part of Operations. Prior to joining Baillie Gifford in the Investment Trust Team where he has specific September 2015, he was a Corporate Partner in a client responsibility for Pacific Horizon Investment UK commercial law firm, where he was head of Trust PLC, Edinburgh Worldwide Investment Trust the firm’s Financial Sector and led the Investment PLC, The Baillie Gifford UK Growth Trust PLC and Funds Team. Michael graduated MA (Hons) in Baillie Gifford European Growth Trust. He is English Literature from the University of Edinburgh responsible for managing relationships with in 1993 before qualifying as a Corporate Lawyer in boards, shareholders and analysts and also helps 1997 after attending the College of Law, London. with marketing and public relations for the Baillie Gifford Investment Trust range. Anzelm graduated BA in History & Politics.

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Baillie Gifford UK Growth Trust board

The Board has overall responsibility for the Company's affairs. A number of matters are reserved for its approval including strategy, investment policy, gearing, treasury matters, dividend and corporate governance policy.

CAROLAN DOBSON ANDREW WESTENBERGER Chairman Director Carolan was appointed a Director on 13 March 2014 and became Andrew was appointed a Director on 5 May 2017 and became Chairman of Chairman in 2016. She is also Chairman of the Nomination Committee and the Audit Committee in August 2017. He is Chief Financial Officer of Management Engagement Committee. She is Chairman of Brunner Integro Insurance Brokers and Tysers, a leading independent specialist Investment Trust plc and Blackrock Latin American Investment Trust plc. broker and risk management firm. He is also a non-executive director and She was a fund manager holding a number of positions including Director trustee of the Chartered Institute of Securities and Investments. Previously, at Murray Johnstone Ltd and subsequently undertook several key roles at he was Group Finance Director of Brewin Dolphin Holdings PLC and Abbey Asset Managers Ltd. Evolution Group Plc and held senior finance roles at Barclays Capital and Deutsche Bank. He is a Chartered Accountant.

SCOTT COCHRANE RUARY NEILL Director Director Scott was appointed a Director on 15 November 2018 and became Senior Ruary was appointed a Director on 15 November 2018. He is currently a Independent Director on 1 August 2019. He is a senior partner at director of JP Morgan Emerging Markets Investment Trust plc, chairs the international law firm Herbert Smith Freehills. Until December 2019 he was Investment Committee at Great Ormond Street Children’s Charity and is a the Global Head of Corporate. He was also a member of the firm’s Global member of the Advisory Board, SOAS China Institute, London University. Executive Management Committee, responsible for leading the strategic Previously, he worked in investment banking at UBS Investment Bank prior direction of the firm across a global network of offices. He has over 25 to which he spent several years in the financial sector working in Asian years’ experience advising boards and asset managers on a broad range Equity Markets for UBS Investment Bank and Schroder Securities. of corporate matters.

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About Baillie Gifford & Co

Baillie Gifford & Co is one of the leading privately owned investment management firms in the UK. Structured as a partnership, investment management is our sole business.

Baillie Gifford & Co is wholly owned by 44 Accounting and company secretarial Long-term investment horizon private partners, all of whom work full time services are provided by our in-house Our aim is to select good quality stocks within the firm. We believe that the personal Investment Trust Department. This team which will outperform over the long term. involvement in the business by the owners currently provides these services to the When assessing a stock, we look at a is crucial to maintaining the motivation and other seven investment trusts managed by company’s prospects over the next five high standards essential to a modern Baillie Gifford and one externally managed years as opposed to the next five months. investment house and maintaining a firm trust. client focus. Differentiation Active portfolios A hallmark of the firm is the stability of our Having identified good quality stocks, we organisation and our commitment to We believe a number of features look to hold them in sufficient size to have a continuing as an independent, private differentiate Baillie Gifford’s investment meaningful, positive impact on business based in Edinburgh. We are philosophy and process: performance. We back our judgement. particularly proud of our low turnover of Fundamental Style staff, both investment and administrative. Team-based decision making We are fundamental investors. We Baillie Gifford has a strong service culture. We We operate a genuine team approach. undertake our own research with make every effort to ensure that the service to Portfolios reflect the views and considerable emphasis on analysing investment trust boards and shareholders is contributions of each investment team. companies’ financial statements and of the highest possible standard. assessing management.

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Stability of investment staff Other Investment trusts managed by Baillie Gifford & Co Limited: Our partnership structure encourages a Scottish Mortgage Investment Trust PLC Global high degree of stability within the The Monks Investment Trust PLC Global investment teams. All staff have the The Scottish American Investment Company P.L.C. Global Equity Income opportunity to become a Partner and this provides a major incentive. We believe this Edinburgh Worldwide Investment Trust PLC Global Smaller ability to own part of a successful, growing The Baillie Gifford Japan Trust PLC Japan business is significantly more than just a The Baillie Gifford Shin Nippon Trust PLC Japanese Smaller Companies financial incentive. In addition, even at Pacific Horizon Investment Trust PLC Asia Pacific ex Japan non-Partner level, profits are shared across a wide base of the employees. Baillie Gifford US Growth Trust PLC North American Baillie Gifford European Growth Trust PLC Europe Continuity and repeatability Baillie Gifford China Growth Trust PLC China Our approach to investment has been established over many years. The consistent application of this successful philosophy and process explains our historic performance record and underpins our confidence that performance can be maintained into the future.

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How to contact us

Grant Walker Nigel Cathcart Head of Intermediary Sales South East 0131 275 3200 0207 054 6015 07771 647 065 07771 647 074

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Scott Mackenzie Simon Gaunt London London

0207 054 6018 0207 054 6003 07961 025 745 07896 709 008

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Kevin Mitchell Laura Swiers Scotland, Ireland North and Midlands and NE England 0207 054 6020 0131 275 3251 07843 501 643 07919 397 178 [email protected] SALES TEAM [email protected]

Chris Whittingslow Harry Driscoll South West, South Wales South Midlands and East Anglia and Channel Islands 0131 474 5158 0207 054 6014 07483 049920 07583 072 213 [email protected] [email protected]

Megan Rooney Richard Atack Scotland Scotland 0131 275 3838 0131 275 3256 07483 054 720 07941 035 860

[email protected] [email protected]

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Managers, Secretaries and Registered Office Registrar Baillie Gifford & Co Computershare Investor Services PLC Calton Square PO Box 82 1 Greenside Row The Pavillions Edinburgh EH1 3AN Bridgwater Road Bristol BS99 6ZZ Website www.bailliegifford.com/intermediaries Website www-uk.computershare.com/investor Email [email protected] Telephone 0370 707 1170 Telephone 0800 917 2112

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