Baillie Gifford European Growth posts a positive year as the region’s start-up ecosystem “explodes”

Baillie Gifford European Growth posts positive year as region’s start-up ecosystem “explodes” – Baillie Gifford European Growth (BGEU) has published its annual results for the fiscal year ended September 30, 2021. During this period, his NAV total return was 24% compared to a total return of 23% for the FTSE Europe ex UK Index (in pounds sterling). The total share price return for the same period was 25.2%.

The chairman said the performance over the two periods was due to several names, including Addlife, IMCD and Nibe. These companies are respectively involved in MedTech distribution, distribution of specialty chemicals and climate solutions including heat pumps. These are very different end markets, but all offer the potential for organic growth. He added that each of the named companies are led by astute management teams who add value through acquisitions that have helped consolidate and improve the fundamentals of the industry.

All dividend paid will be in the form of a final dividend and will be the minimum required for the company to maintain its status as an investment trust. Revenue per share for the year was 0.42p and the Read our guide to Boards and Directors

" class="glossary_term">plank recommends a final dividend of 0.35 pence per share to be paid on February 11, 2022, subject to shareholder approval at the company meeting AGM. This is scheduled to take place at 11:00 am on Thursday 3 February 2022 at the Institute of Directors, 116 Pall Mall, London, SW1Y 5ED.

This is the second set of annual results published by the company since Baillie Gifford took over as its manager.

Manager’s declaration

It is tempting to focus this report only on the two years since our appointment as managers. Indeed, there would be something to discuss. The Covid-19 has taken its toll on many businesses, both on the economy and on the stock markets. Our shock at the exponential rise of this horrific virus is matched only by our astonishment at humanity’s ability to design viable vaccines in record time and bring hope to billions of people around the world. . We too rarely harness the power of collaboration and the transformative capacity of innovative technologies. Throughout this turbulent period, we have had the privilege of witnessing the adaptability of our wallet companies, which have largely prospered in a context of chaos and generated strong performances. As tempting as it is to dwell on it, such short-term gyrations don’t tell us much. Most companies’ stock prices don’t change much in the short term. If they do, it is because of a disproportionate impact of emotion and investor sentiment on valuation multiples. Extend the time frame, however, and business fundamentals and corporate cultures play a much bigger role in creating value. Our recent marketing slogan – “real investors think in decades, not in quarters” – may sound like a fair warning, but it is absolutely at the heart of our investment philosophy. Having it written down and thus made public helps galvanize and reinforce a set of behaviors that underpin a successful long-term investment.

The widening of timelines also means that you can see how extreme positive returns can be from a few companies that are able to combine their inherent advantages and benefit from positive feedback loops. Our belief that stock market and portfolio returns are determined by a relatively small number of big winners, or outliers, is now deeply rooted in our philosophy and may be familiar to some of our people. shareholders. This has been heavily influenced by academics such as Professor Hendrik Bessembinder whose seminal article, “Do Stocks Outperform Goods of treasure? ”revealed the hidden asymmetry of the markets and the fact that very few companies really matter. This encouraged us to be more ambitious in our search for potential outliers and extreme outperformance.

One need only look at our European investments ten years ago to see how much this has influenced our thinking. At the time, our biggest holdings were Nestlé Svenska Handelsbanken and Roche. These are classic examples of what Europe has to offer. These “quality” companies, founded in the late 1800s and with low but stable growth rates, were seen as safe places to invest. What took us a while to really figure out is that companies like these had almost no chance of producing the extreme returns that would propel them to an outlier status. It was less a matter of our imagination than of average growth rates and returns on capital that we now consider insufficient to generate disproportionate returns.

Our three most important positions right now, IMCD, Adyen and Zalando, are anything but average. These are relatively young companies, run by founders, with the potential to be much, much bigger over the next five to ten years. IMCD may sound like a lackluster specialty chemicals distributor, but it is driving the consolidation of its extremely fragmented industry and is expected to dramatically increase its percentage of market share which is still in the low digits. Adyen, a digital payment processing platform, founded in 2006, listed in 2018 and now one of the most valued companies in Europe, processed over 300 billion euros in volume in 2020 but continues to grow at over 30% per year. Zalando, Europe’s leading online fashion platform, founded in 2008, continues to capitalize on its economies of scale and plans to increase its gross merchandise volume by 20-25% per year in the medium term. We believe that each of these, like all of the companies in the portfolio, has a good chance of at least doubling in value over the next five years, but this is just the start. Not all of the companies in our portfolio will be successful, but we believe the big winners will largely make up for their mistakes.

Much of the work done on outliers and skewed returns has focused on the companies that have generated the most wealth. This, however, is influenced by the size of the business initially. A 100 billion euro company whose “value” increases 10% to 110 billion euro creates the same amount of “wealth” as a smaller one billion euro company which increases 1000% to 11 billion euros. Examples of the former are companies like Nestlé and Roche, but we are much more interested in the latter. While we are looking for stocks that can at least double, we are really interested in those that have the potential to rise 10x in value, commonly known as “tenbaggers” or even more. What we always find fascinating and encouraging is the number of companies in Europe that achieve this remarkable feat. Over the past decade, 60 companies in our investment universe – which currently includes approximately 1,200 public companies – have seen their value increase more than 10 times. The last decade has of course been very favorable for growth investment, but a 5% success rate in finding such amazing businesses is very impressive for a region that suffers from a reputation as a low growth market.


Despite the rich opportunities that Europe has to offer, our industry has not done enough to support our most promising companies. Europe has not provided enough capital and strategic support to allow enough of our growth companies to grow without worrying about short-term profits. European business leaders must also take responsibility for not being as ambitious as their counterparts in other regions. It’s changing. The European start-up ecosystem is now booming, helped by an influx of funding from venture capital firms around the world. These investors have helped shape the next generation of European outliers and develop strategies to scale and build global champions. Niklas Östberg, CEO and co-founder of Delivery Hero, recently highlighted this shift in mindset when he said: “Don’t buy our stocks unless you think we are strategically well placed to increase. efficiency and become> 10 times bigger. It’s a company that doubled its turnover in 2020 but has the ambition to create something much bigger. Europe needs more of these companies, and those that have shown how innovative Europe can be, to inspire all these other entrepreneurs.

We want to match this with our own ambition to become the best growth manager in Europe. To do this, we must continue to create value, both for our customers and for society, by investing in outliers in Europe. When it comes to their growth potential, corporate economics, or corporate culture, these companies aren’t just better than average, they’re outliers at the end of the spectrum. Therefore, their potential returns are also extreme. However, to grasp that we need to focus on the things that matter most, be optimistic and creative in imagining what a business or industry might look like in a decade, have the confidence to hang on when the going goes wrong. and be comfortable ignoring large parts of the market.

BGEU: Baillie Gifford European Growth records a positive year as the region’s start-up ecosystem “explodes”

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