Annual Financial Report

What is the risk?

How is it managed?

Current assessment of risk

Financial Risk: The Company's assets consist mainly of listed securities (93.7% of the investment portfolio) and its principal and emerging financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 18 to the Financial Statements on pages 100 to 107 of the Annual Report and Financial Statements.

The Board has, in particular, considered the impact of heightened macroeconomic and geopolitical concerns, including trade wars, the ongoing Russia-Ukraine war, and the conflict in the Middle East. The Board also considers the commercial impact of potential changes in regulatory positions, which can affect the local markets in which the portfolio companies operate. To oversee this risk, the Board considers various metrics at each meeting, including regional and industrial sector weightings, top and bottom stock contributors to performance, along with sales and purchases of investments. The Board reviews these risks at regular intervals with the portfolio manager, alongside examining general views on the various investment markets and sectors.

This risk is considered to have increased. The prospect of heightened market volatility remains from deteriorating geopolitical stability such as trade wars, the ongoing Russia-Ukraine war, and continuing hostilities in the Middle East.

What is the risk?

How is it managed?

Current assessment of risk

Investment strategy risk: Pursuit of an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value.

To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy, the investment portfolio and its performance, the level of discount/ premium to net asset value at which the shares trade and movements in the share register and raises any matters of concern with the Managers.

This risk is considered to have increased. The market appetite for growth investing is considered to have deteriorated over recent months as investors shift to assets perceived to be safe or offering insulation from market volatility. Despite a significant increase in buybacks the discount of the share price to net asset value has widened over the year.

What is the risk?

How is it managed?

Current assessment of risk

Political and associated economic financial risk: The Board is of the view that political change in areas in which the Company invests or may invest may have financial consequences for the Company.

Political developments are closely monitored and considered by the Board, particularly regarding trade tensions between the USA and China and between the USA and India over tariffs, continuing unrest in Hong Kong, repercussions from the Russian invasion of Ukraine, and the Israel and Palestine conflict. It monitors portfolio diversification by investee companies' primary location, to mitigate against the negative impact of military action or trade barriers. The Board believes that the Company's portfolio, which predominantly comprises companies listed on the stock markets of the Asia Pacific region (excluding Japan) and the Indian Sub-continent, partially helps to mitigate such political risks.

This risk is seen as increased as deteriorating geopolitical stability increases the prospect of trade conflict and sanctions.

What is the risk?

How is it managed?

Current assessment of risk

Discount risk: The discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company.

To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares, when deemed by the Board to be in the best interests of the Company and its shareholders. During the year, £29.8 million of shares were bought back, representing 5.5% of the issued share capital at the start of the period. On 16 April 2025, the Company announced a performance-related Conditional Tender Offer and stated that it is the current Board's ambition to maintain the Company's discount in single digits, in normal market conditions, on a sustained basis

This risk is seen as increased. The discount started the year at 7.8%, increased to 15.9% during the year, and reduced to 9.5% at the end of the year. The increased risk reflects broader market challenges, including outflows from the UK Investment Trust market. The Board continues to monitor the discount and take action as appropriate.

What is the risk?

How is it managed?

Current assessment of risk

Regulatory risk: Failure to comply with applicable legal and regulatory requirements such as the tax rules for investment trust companies, the UK Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains.

To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes and procedures are in place to ensure adherence to the Transparency Directive and the Market Abuse Directive with reference to inside information.

This risk in considered to be stable. All control procedures are working effectively. There have been no material regulatory changes that have impacted the Company during the year.

What is the risk?

How is it managed?

Current assessment of risk

Custody and depositary risk: Safe custody of the Company's assets may be compromised through control failures by the Depositary, including breaches of cyber security.

To mitigate this risk, the Audit Committee receives six-monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers who also agree uncertificated private portfolio holdings to confirmations from investee companies. The Custodian's assured internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated.

This risk in considered to be stable. All control procedures are working effectively.

What is the risk?

How is it managed?

Current assessment of risk

Operational risk: Failure of Baillie Gifford's systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets.

To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption. The Audit Committee reviews Baillie Gifford's Report on Internal Controls and 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. The other key third party service providers have not experienced significant operational difficulties affecting their respective services to the Company.

This risk in considered to be stable. All control procedures are working effectively.

What is the risk?

How is it managed?

Current assessment of risk

Leverage risk: The Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. The Company can also make use of derivative contracts.

To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 115 and the Glossary of terms and Alternative Performance Measures on pages 120 and 121 of the Annual Report and Financial Statements.

This risk has increased as during the year to 31 July 2025 net gearing has increased from nil to 5%. The risk level is low, as current borrowings are well below the levels where loan covenants may be breached. The current one-year revolving credit facility expires in March 2026. Initial conversations with the loan provider have taken place, and the Board does not anticipate any problems with the renewal of the facility.

What is the risk?

How is it managed?

Current assessment of risk

Climate and governance risk: Perceived problems on environmental, social and governance ('ESG') matters in an investee company could lead to that company's shares being less attractive to investors, adversely affecting its share price, in addition to potential valuation issues arising 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 Managers to identify ESG weaknesses in investee companies could lead to the Company's own shares being less attractive to investors, adversely affecting its own share price.

This is mitigated by the Managers' strong ESG stewardship and engagement policies which are available to view on the Managers' website, bailliegifford.com, and which have been reviewed and endorsed by the Company, and which have been fully integrated into the investment process. Due diligence includes assessment of the risks inherent in climate change (see page 51 of the Annual Report and Financial Statements).

This risk in considered to be stable. The Investment Manager continues to employ strong ESG stewardship and engagement policies.

What is the risk?

How is it managed?

Current assessment of risk

Cyber security risk: A cyber attack on Baillie Gifford's network or that of a third party service provider could impact the confidentiality, integrity or availability of data and systems. Emerging technologies, including AI and quantum computing capabilities, may introduce new and increase existing information security risks that impact operations.

To mitigate this risk, the Audit Committee reviews Reports on Internal Controls published by Baillie Gifford and other third party service providers. 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.

This risk in considered to be stable. All control procedures are working effectively.

What is the risk?

Emerging risk: As explained on page 66 of the Annual Report and Financial Statements the Board 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 external and emerging threats such as the societal and financial implications of escalating geopolitical tensions, cyber security risks including developing AI and quantum computing capabilities and new infectious diseases or similar public health threats. This is mitigated by the Managers' close links to the investee companies and their ability to ask questions on contingency plans. The Managers believe the impact of such events may be to slow growth rather than to invalidate the investment rationale over the long term.