Schiehallion Fund Schiehallion - MNTN Schiehallion - MNTC - The Schiehallion Fund Limited Half-year Report
11/09/2023 07:00
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RNS Number : 0215M Schiehallion Fund Limited (The) 11 September 2023
RNS Announcement
The Schiehallion Fund Limited
Legal Entity Identifier: 213800NQOLJA1JCWXQ56
Regulated Information Classification: Interim Financial Report
The following is the unaudited Interim Financial Report for the six months to
31 July 2023 which was approved by the Board on 8 September 2023.
Summary of Unaudited Results*
31 January 2023
Ordinary shares 31 July 2023 (audited) % change
Shareholders' funds US$547.96$m US$597.61m
Net asset value per ordinary share 109.50¢ 119.42¢ (8.3%)
Share price 66.00¢ 92.00¢ (28.3%)
Discount† (39.9%) (23.0%)
Number of shares in issue 500,430,002 500,430,002
Market capitalisation US$330.28m US$460.40m
Six months to Six months to
31 July 2023
31 July 2022
Revenue earnings per share (0.30¢) (0.57¢)
31 January 2023
C shares 31 July 2023 (audited) % change
Shareholders' funds US$557.26m US$555.57m
Net asset value per C share 79.61¢ 79.37¢ 0.3%
Share price 39.50¢ 49.00¢ (19.4%)
Discount† (50.4%) (38.3%)
Number of shares in issue 700,000,000 700,000,000
Market capitalisation US$276.50m US$343.00m
Six months to Six months to
31 July 2023
31 July 2022
Revenue earnings per share 0.06¢ (0.31¢)
Notes
* For a definition of terms see Glossary of Terms and Alternative Performance
Measures below.
† Alternative performance measure, see Glossary of Terms and Alternative
Performance Measures below.
All investment strategies have the potential for profit and loss. Past
performance is not a guide to future performance.
Periods High and Low
Six months to 31 July 2023 Year to 31 January 2023
Ordinary shares
High Low High Low
Net asset value per ordinary share 117.98¢ 103.94¢ 153.18¢ 116.84¢
Share price 87.00¢ 59.50¢ 214.00¢ 91.50¢
(Discount)/premium† (22.5%) (44.9%) 40.5% (26.9%)
Six months to 31 July 2023 Year to 31 January 2023
C shares
High Low High Low
Net asset value per C share 79.60¢ 73.83¢ 97.20¢ 77.32¢
Share price 48.00¢ 39.50¢ 129.00¢ 49.00¢
(Discount)/premium† (39.2%) (50.4%) 36.1% (41.1%)
Performance since inception
Ordinary shares 31 July 2023 27 March 2019‡ % change
Net asset value per ordinary share 109.50¢ 99.66¢ 9.9
Share price 66.00¢ 100.00¢ (34.0)
C shares 31 July 2023 26 April 2021# % change
Net asset value per C share 79.61¢ 99.25¢ (19.8)
Share price 39.50¢ 124.00¢ (68.2)
Notes
* For a definition of terms see Glossary of Terms and Alternative Performance
Measures below.
† Alternative performance measure, see Glossary of Terms and Alternative
Performance Measures below.
‡ 27 March 2019, the date the Company's ordinary shares were admitted to
trading on the Specialist Fund Segment of the Main Market of the London Stock
Exchange.
# 26 April 2021, the date the Company's C shares were admitted to trading on
the Specialist Fund Segment of the Main Market of the London Stock Exchange.
Investment Objective
The Company's objective is to generate capital growth for investors through
making long-term minority investments in later stage private businesses that
the Company considers to have transformational growth potential and to have
the potential to become publicly traded.
Principal risks and uncertainties
The principal and emerging risks facing the Company are:
Investment and strategic risks - liquidity of investments; market, economic,
political and environmental risks; valuation risk; investment strategy risk;
discount risk; and Environmental, Social and Governance (ESG).
External risks - political and associated economic risk; legal and regulatory
risk.
Operational risks - performance and reliance on third party service providers;
cyber security threats; and key professionals.
Emerging risks - geopolitical tensions, including the Russia-Ukraine conflict
and US-China tensions, high energy prices, inflation and interest rates; cyber
risk; and Environmental Social and Governance issues (ESG).
An explanation of these risks and how they are managed is set out on pages 7
to 10 of the Company's Annual Report and Financial Statements for the year to
31 January 2023 which is available on the Company's website:
schiehallionfund.com.
The principal risks and uncertainties have not changed since the date of that
report.
Responsibility statement
The Directors of The Schiehallion Fund Limited confirm that to the best of
their knowledge:
a. the Interim Financial Report has been prepared in accordance with IAS 34
Interim Financial Reporting and the Directors have elected to prepare
financial statements that comply with International Financial Reporting
Standards as issued by the International Accounting Standards Board;
b. the Interim Management Report includes a fair review of the information
required by:
i. DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred during the
first six months of the financial year and their impact on the condensed set
of financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
ii. DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in the first six
months of the current financial year and that have materially affected the
financial position or the performance of the enterprise during that period.
By Order of the Board
Linda Yueh
Chairperson
8 September 2023
Interim Management Report
The six months to 31 July 2023 saw a reduction in the asset price volatility
of 2022. The NAV Total Return was -8.3% for the Ordinary Shares and 0.3% for
the C Shares, which retained material exposure to US Treasury Bills during the
period. The share price discounts to NAV of both the Ordinary Shares and the C
Shares widened during the period to 39.9% and 50.4% respectively.
Public markets performed relatively strongly over the period, and the largest
positive contributors to NAV performance of each of the share classes included
public holdings Wise, Affirm, Airbnb as well as a new holding, Oddity, which
is described in more detail in the Portfolio section below. Private company
valuations lagged public markets over the period, and the largest detractors
from NAV performance of the Ordinary Shares were Scopely and Indigo
Agriculture.
The operational performance within your portfolio remained solid. Mean average
revenue growth was 30%. By capital weighting, 22% of your portfolio comprised
profitable companies, and 4% of companies with less than a year of cash runway
remaining. Of the remaining companies, the mean average years of remaining
cash runway was over four years. In practice, we are seeing companies across
the board make strong progress towards becoming financially self-sustaining,
through a mix of cost-cutting and top-line growth delivering operating
leverage benefits.
We have continued to prospect globally for the best long-term growth
investment opportunities in the later stages of the private markets. This has
involved thematic work in supply chains, large language models, semiconductor
design and emerging sports formats. Team members have also been spending time
on the ground in South-East and East Asia, Australia, Israel, mainland Europe,
Mexico, Brazil and of course the USA.
Following the Silicon Valley Bank crisis and Stripe's very public 50%
down-round in the first quarter of 2023, pricing expectations among management
teams have begun to normalise. This has been uneven between geographies. The
US remains the market with the widest price expectations gap between companies
and investors. We have seen more reasonable pricing expectations in Europe,
Israel and Korea. China is its own story, with a continued forced sell-off of
the more liquid names by American investors. We are trying to strike a balance
between understanding our limited ability to assess geopolitical black swan
risks, and the increasingly bargain-basement prices we are being offered for
stakes in remarkable businesses.
Portfolio
During the six months to 31 July, we made one new investment in Oddity. We
committed to another in Bending Spoons, which completed shortly after the
period end.
Oddity is an Israeli-American company in the skincare space. This has been a
sector that has resisted the attack of direct-to-consumer online brands, in no
small part due to the large role try-before-you-buy plays in the shopping
journey. Where direct-to-consumer brands have emerged, they have struggled
with reliable product matching and hence have had to endure high return rates.
Advances in cameras and image recognition technology have now begun to enable
purely online channels to challenge the department store paradigm. Oddity has
additionally been developing expertise in personalised medical skincare, with
significant current investment in custom acne creams.
Bending Spoons is an Italian company that specialises in identifying American
software-as-a-service businesses with under-monetised products and expensive
cost bases. They acquire them, integrate them into their own technology
systems, and then work to grow them using much cheaper and higher quality
Italian software talent. Their track record of restoring slow-growing American
consumer apps to rapid and profitable growth is remarkable.
There are some common features to these businesses. Neither was on the venture
capital ecosystem's radar. Both have capital frugal cultures that have enabled
them to create profitable businesses without relying on regular infusions of
venture capital. Both chose to partner with Baillie Gifford as part of their
planned journey to public markets. Indeed, Oddity went public in July, with an
IPO at a higher price than our investment in private markets, making it the
largest contributor to NAV performance for the C Shares.
We have also continued to strategically reinvest in holdings. In January 2022,
we set aside a sleeve of capital to ensure we would be able to support
companies through the approaching period of market turbulence. At the end of
the reporting period, a third of this sleeve remains. As ever, follow-on
financing for portfolio companies is not guaranteed. It is conditional on
continued operating performance and is price sensitive. There have been hard
conversations during the period. In some cases, this has led holdings to
recapitalise at much lower valuations; in other cases, it has driven them to
seek strategic options. However, where performance has warranted, we have
continued to support. During the period, we topped up your positions in
McMakler, Stripe and Heartflow.
The period also saw the acquisition announcement for Scopely, the American
mobile games company in your portfolio. We first invested in Scopely in
October 2019 at a $1.8bn valuation. Savvy Games agreed to acquire it for a
$4.9bn valuation in April 2023.
Private Company Valuations
Whilst the Scopely sale was clearly a good investment result, the acquisition
price was beneath our NAV carrying value estimate, making it among the largest
detractors to performance from the Ordinary Shares during the six-month
period. Over the reporting period, there were 236 revaluation events, with 41%
of holdings being revalued three or more times. The average movement at the
private company level was -10.9%.
Unlike many of our peers, who often hold investments at last transaction
value, we adjust our estimated carrying values using live market data from
public market companies deemed comparable by an independent third party. The
net effect of this is to estimate a NAV for Schiehallion that is 18% below
where it would be, if we were recording values as-at-last-transaction.
This leads to questions of how predictive our NAV estimates are. We look to
undertake back-testing work whenever there is a real price discovery event.
When these events occur, our aim is to achieve a balance of increases and
decrease in carrying valuations, since this would indicate unbiased
estimation.
Since the start of 2022, we have had fifteen real price discovery events
across all Baillie Gifford private holdings. On five occasions this has led to
the need to mark down a valuation, and on ten it has led to the need to
increase. This suggests that our valuation estimation process is at present
marginally conservative. The overall average movement was +10%, with the
distribution of moves being fairly evenly distributed at +/- 30%. This is
wider than the +/- 20% margin the valuations team aims for in their estimates.
(However, if one strips out the two furthest outliers, they would have landed
within the target range, despite the last eighteen months of greatly increased
market volatility).
C Share Conversion
In August, the Board announced that the C Shares proceeds were 86.6% deployed.
The calculation date for the conversion of the C Shares into Ordinary Shares
was 31 August, and the conversion ratio of 0.7601 Ordinary Shares for each C
Share was announced on 7 September. The new Ordinary Shares will be admitted
to trading on 12 September.
Looking Forward
Following the conversion of the C Shares, Schiehallion will have total net
assets of approximately $1,095m, diversified across 46 companies, with cash
and Treasury Bills of approximately $162m. We believe that this leaves the
Company well placed to support and build positions in companies that are
executing well and where we see attractive valuations.
The principal risks and uncertainties facing the Company are set out above.
Peter Singlehurst
Robert Natzler
Valuing Private Companies
We aim to hold our private company investments at 'fair value', i.e. the price
that would be paid in an open-market transaction. Valuations are adjusted both
during regular valuation cycles and on an ad hoc basis in response to 'trigger
events'. Our valuation process ensures that private companies are valued in
both a fair and timely manner.
The valuation process is overseen by a valuations group at Baillie Gifford,
which takes advice from an independent third party (S&P Global). The
valuations group is independent from the investment team with all voting
members being from different operational areas of the firm, and the investment
managers only receive final valuation notifications once they have been
applied.
We revalue the private holdings on a three-month rolling cycle, with one-third
of the holdings reassessed each month. During stable market conditions, and
assuming all else is equal, each investment would be valued two times in a
6-month period. For Schiehallion and our investment trusts, the prices are
also reviewed twice per year by the respective boards and are subject to the
scrutiny of external auditors in the annual audit process.
Beyond the regular cycle, the valuations team also monitors the portfolio for
certain 'trigger events'. These may include changes in fundamentals, a
takeover approach, an intention to carry out an Initial Public Offering
('IPO'), company news which is identified by the valuation team or by the
portfolio managers, or meaningful changes to the valuation of comparable
public companies. Any ad hoc change to the fair valuation of any holding is
implemented swiftly and reflected in the next published net asset value
('NAV'). There is no delay.
The valuations team also monitors relevant market indices on a weekly basis
and updates valuations in a manner consistent with our external valuer's
(S&P Global) most recent valuation report where appropriate.
Continued market volatility has meant that recent pricing has moved much more
frequently than would have been the case with the quarterly valuations cycle.
The data below quantifies the revaluations carried out during the 6 months to
31 July 2023, however doesn't reflect the ongoing monitoring of the private
investment portfolio that hasn't resulted in a change in valuation.
The Schiehallion Fund*
Instruments held 74
Percentage of portfolio revalued up to 2 times 56%
Percentage of portfolio revalued up to 4 times 97%
Percentage of portfolio revalued 5+ times 3%
* Data reflecting period 1 February 2023 to 31 July 2023 a period of increased
valuations due to ongoing market volatility.
Year to date, most revaluations have been decreases, with a small number of
companies raising capital at an increased valuation. The average movement in
company valuations and share prices for those are shown below.
Average movement in company valuation Average movement in
share price
Schiehallion* (10.9%) (30.0%)
* Data reflecting period from 1 February 2023 to 31 July 2023.
During the 6 month period ended 31 July 2023 we've written down some of the
valuations as a result of company specific circumstances which have challenged
the economic reality of the liquidation preferences. This has contributed to
the divergence in the average movement in valuation at instrument level in
comparison to the underlying company value.
Baillie Gifford statement on stewardship
Baillie Gifford's overarching 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 of their evolution,
across many different industries and geographies, and we focus on their unique
circumstances and opportunities. 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 and give
appropriate latitude to diverse processes of our different investment teams.
The following principles do not all have to be positively reflected in each
holding our teams acquire.
Our stewardship principles for public companies
Prioritisation of long-term value creation
We encourage our holdings to be ambitious, focusing on long-term value
creation and capital deployment for growth. Helping management to resist
demands from shareholders with shorter horizons than ours can at times be an
important way to achieve better investment outcomes. We regard it as our
responsibility to encourage holdings away from destructive financial
engineering and towards activities that create genuine economic and
stakeholder value over the long run. We are happy that our value will often be
in supporting management when others don't.
A constructive and purposeful board
We believe that boards play a key role in supporting corporate success and
representing the interests of all capital providers. There is no fixed
formula, but we expect boards to have the resources, information, cognitive
and experiential diversity they need to fulfil these responsibilities. We
believe good governance works best when there are diverse skill sets and
perspectives, paired with an inclusive culture and strong independent
representation with sufficient time to assist, advise and constructively
challenge the thinking of management.
Long-term focused remuneration with stretching targets
We look for remuneration policies that are simple, transparent and reward
superior strategic and operational endeavour. We believe incentive schemes can
be important drivers of behaviour, and encourage policies which create genuine
long-term alignment with external capital providers. We are accepting of
significant payouts to executives if these are commensurate with outstanding
long-run value creation, but plans should not reward mediocre outcomes or
short-termism. We generally think that performance hurdles should be skewed
towards long-term results and that remuneration plans should be subject to
shareholder approval.
Fair treatment of stakeholders
We believe it is in the long-term interests of all companies to maintain
strong relationships with stakeholders - including employees, customers,
suppliers, regulators and the communities they work within. We do not believe
in one-size-fits-all policies and recognise that operating policies,
governance and ownership structures may need to vary according to
circumstance. Nonetheless, we believe the principles of fairness, transparency
and accountability should be prioritised at all appropriate times.
Sustainable business practices
We believe an entity's long-term success is dependent on maintaining its
social licence to operate and look for holdings to work within the spirit and
not just the letter of the laws and regulations that govern them. We expect
all holdings to consider how their actions impact society, both directly and
indirectly, and how such actions may impact their long-term success.
Environmental practices should recognise the current pace of change in
opportunities, risks and societal expectations. Climate change, environmental
impact, social inclusion, tax and fair treatment of workers should be
addressed at board level, with appropriately ambitious policies and targets
focused on the relevant material dimensions. Boards and senior management with
superior prospects for long-term value creation should understand, regularly
review and disclose information relevant to such targets publicly, alongside
plans for ongoing improvement.
List of Investments as at July 2023 (unaudited)
Name Business Country 2023 Ordinary shares value US$'000 2023 C shares value US$'000 2023 Total value US$'000 2023
% of net assets
Space Exploration Designs, manufactures and launches advanced rockets United States 70,113 - 70,113 6.3
Technologies Corp and spacecraft
Wise PLC - Listed Online platform to send and receive money United Kingdom 45,115 14,996 60,111 5.4
ByteDance Limited Social media and news aggregation company China 45,561 - 45,561 4.1
Solugen Inc Combines enzymes and metal catalysts to United States - 39,947 39,947 3.6
make chemicals
Northvolt AB Lithium-ion battery manufacturer Sweden 22,780 16,418 39,198 3.5
McMakler GmbH Real estate services Germany - 38,166 38,166 3.5
Affirm Holdings Inc - Listed Online platform which provides point of sale consumer United States 17,279 20,858 38,137 3.5
finance
Brex Inc Corporate credit cards for startups United States 10,903 23,599 34,502 3.1
Flix SE GmbH European mobility provider Germany 15,660 15,716 31,376 2.8
Daily Hunt Telephone voice, data, text messaging, and roaming services India 30,975 - 30,975 2.8
(Ver se Innovation Limited)
Faire Wholesale Inc Online wholesale marketplace United States - 29,836 29,836 2.7
Stripe Inc Online payment platform United States 24,148 1,977 26,125 2.4
Chime Financial Inc Digital current account provider United States 6,982 18,525 25,507 2.3
Tempus Labs Inc Oncological records aggregator and diagnostic testing provider United States 20,998 4,329 25,327 2.3
Oddity - Listed Direct to Consumer Cosmetics United States - 24,810 24,810 2.2
Grammarly Inc Online platform for checking grammar, spelling and United States - 23,804 23,804 2.2
improving written communication
Databricks Inc Data software solutions United States - 22,791 22,791 2.1
Kepler Computing Inc Semiconductor company United States - 22,302 22,302 2.0
Genki Forest Technology Group Holdings Limited Non-alcoholic beverages China - 21,894 21,894 2.0
Epic Games Inc Video game developer United States 21,455 - 21,455 1.9
Rappi, Inc Provider of an on-demand delivery platform designed to United States - 21,114 21,114 1.9
connect consumers with local stores
Warby Parker Inc - Listed Online and physical corrective eyewear retailer United States 19,229 - 19,229 1.7
Workrise Technologies Inc Jobs marketplace for the energy sector United States 15,683 - 15,683 1.4
Tanium Inc Online security management United States 14,924 - 14,924 1.4
PsiQuantum Silicon photonic quantum computing United States - 13,641 13,641 1.2
Loft Holdings Ltd Online property platform Brazil - 13,602 13,602 1.2
Merlin Labs Inc Autonomous flight technology United States - 13,406 13,406 1.2
Away (JRSK Inc) Travel and lifestyle brand United States 13,164 - 13,164 1.2
Airbnb Inc - Listed Online market place for travel accommodation United States 11,704 - 11,704 1.1
Nuro Inc Developer of autonomous delivery vehicles United States 5,056 6,524 11,580 1.1
Pet Circle (Millell Pty Limited) Pet food and accessories Australia - 11,065 11,065 1.0
Wayve Technologies Ltd AI based software for self-driving cars United States - 10,667 10,667 1.0
Carbon Inc Series Manufactures and develops 3D printers United States 9,881 - 9,881 0.9
Convoy Inc Marketplace for truckers and shippers United States 6,455 3,094 9,549 0.9
Jiangxiaobai Holdings Ltd Producer of alcoholic beverages China 9,321 - 9,321 0.8
HeartFlow Inc Develops software for cardiovascular disease diagnosis United States 2,084 7,100 9,184 0.8
and treatment
Cohesity Inc Data storage United States 8,719 - 8,719 0.8
Illumina - Listed Gene sequencing equipment and consumables United States 6,761 - 6,761 0.6
Oscar Health Inc - Listed Healthcare insurance provider United States 6,174 - 6,174 0.6
Blockstream Corp Inc Financial software developer United States - 5,300 5,300 0.5
MasterClass Online education platform United States 4,806 - 4,806 0.4
(Yanka Industries Inc)
Allbirds Inc - Listed Sustainable direct-to-customer footwear brand United States 2,551 799 3,350 0.3
Graphcore Limited Computer chip developer United Kingdom 2,836 - 2,836 0.3
Honor Technology Inc Provider of home-care services United States 944 1,225 2,169 0.2
Ginkgo Bioworks Holdings Inc - Listed Genetic engineering for industrial applications United States 1,404 - 1,404 0.1
Indigo Agriculture Inc Microbial seed treatments to increase crop yields and grain marketplace United States 802 - 802 0.1
Total investments 474,467 447,505 921,972 83.4
Name 2023 2023 2023 2023 % of net assets *
Ordinary shares value US$'000 C shares value Total value US$'000
US$'000
US Treasury Bill 18/04/2024 - 14,249 14,249 1.3
US Treasury Bill 07/09/2023 - 14,096 14,096 1.3
US Treasury Bill 02/11/2023 - 14,053 14,053 1.3
US Treasury Bill 13/06/2024 - 14,049 14,049 1.3
US Treasury Bill 22/02/2024 - 14,025 14,025 1.2
US Treasury Bill 28/12/2023 - 13,873 13,873 1.2
Total US Treasury Bills - 84,345 84,345 7.6
Cash 73,618 36,931 110,549 10.1
Other current assets and liabilities (127) (11,523) (11,650) (1.1)
Net current assets 73,491 25,408 98,899 9.0
Total net assets 547,958 557,258 1,105,216 100.0
Allocation of net assets (unaudited)
2023 2023 Total value % of net assets
Ordinary shares value US$'000 C shares US$'00
Value
US$'00
Listed investments 110,218 61,462 171,680 15.5
Private company investments 364,249 386,043 750,292 67.9
US Treasury Bills - 84,345 84,345 7.6
Cash and cash equivalents 73,618 36,931 110,549 10.1
Net current assets (127) (11,523) (11,650) (1.1)
Total net assets 547,958 557,258 1,105,216 100.0
* See Glossary of Terms and Alternative Performance Measures below.
The Company may hold various classes of shares in investee companies, some of
which may have a preference on winding up.
Distribution of total net assets (unaudited)
Ordinary Shares
Geographical as at 31 July
Geographical % at % at
31 July 2023 31 January 2023
United States 55.1 65.2
China 10.0 10.6
United Kingdom 8.7 6.4
India 5.7 5.4
Sweden 4.2 3.8
Germany 2.9 2.2
Net Current Assets 13.4 6.4
Sectoral as at 31 July
Sectoral % at % at
31 July 2023 31 January 2023
Industrials 20.6 19.9
Financials 20.2 15.7
Communication Services 14.8 14.9
Consumer Discretionary 12.7 11.6
Information Technology 10.6 21.0
Healthcare 5.6 5.5
Consumer Staples 1.8 4.8
Materials 0.3 0.2
Net Current Assets 13.4 6.4
C shares
Geographical as at 31 July
Geographical % at % at
31 July 2023 31 January 2023
United States 56.6 50.7
US Treasury Bills 15.1 24.7
Germany 9.7 6.8
China 3.9 5.4
United Kingdom 2.7 3.6
Sweden 2.9 2.9
Brazil 2.5 2.8
Australia 2.0 2.0
Net Current Assets 4.6 1.1
Sectoral as at 31 July
Sectoral % at % at
31 July 2023 31 January 2023
Information Technology 21.4 20.5
US Treasury Bills 15.1 24.7
Financials 14.4 12.8
Consumer Discretionary 10.4 10.4
Real Estate 9.3 7.2
Consumer Staples 8.4 5.4
Materials 7.2 8.6
Industrials 7.0 7.8
Healthcare 2.3 1.5
Net Current Assets 4.5 1.1
Income Statement (unaudited)
For the six months to 31 July 2023 For the six months to 31 July 2022 For the year ended 31 January 2023
Notes Revenue Capital Total US$'000 Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Losses on investments - (46,896) (46,896) - (209,332) (209,332) - (311,938) (311,938)
Currency losses - (9) (9) - (33) (33) - (17) (17)
Income 2 3,512 - 3,512 218 - 218 2,800 - 2,800
Investment management fee 3 (3,937) - (3,937) (4,611) - (4,611) (8,931) - (8,931)
Other administrative expenses 4 (637) - (637) (595) - (595) (1,233) - (1,233)
Operating loss before finance costs and taxation (1,062) (46,905) (47,967) (4,988) (209,365) (214,353) (7,364) (311,955) (319,329)
Finance cost of borrowings - - - (9) - (9) (10) - (10)
Operating loss before taxation (1,062) (46,905) (47,967) (4,997) (209,365) (214,362) (7,374) (311,955) (319,329)
Tax on ordinary activities - - - - - - - - -
Loss and total comprehensive loss for the period (1,062) (46,905) (47,967) (4,997) (209,365) (214,362) (7,374) (311,955) (319,329)
For the six months to 31 July 2023 For the six months to 31 July 2022 For the year to 31 January 2023
Notes Revenue Capital Total Revenue Capital Total Revenue Capital Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Total comprehensive (loss)/income for the period
analysed as follows:
Attributable to ordinary shareholders 5 (1,483) (48,168) (49,651) (2,835) (136,408) (139,243) (4,923) (189,131) (194,054)
Attributable to C shareholders 5 421 1,263 1,684 (2,162) (72,957) (75,119) (2,451) (122,824) (125,275)
Loss and total comprehensive loss for the period (1,062) (46,905) (47,967) (4,997) (209,365) (214,362) (7,374) (311,955) (319,329)
Earnings/(loss) per ordinary share 5 (0.30¢) (9.62¢) (9.92¢) (0.57¢) (27.26¢) (27.83¢) (0.98¢) (37.79¢) (38.77¢)
Earnings/(loss) per C share 5 0.06¢ 0.18¢ 0.24¢ (0.31¢) (10.42¢) (10.73¢) (0.35¢) (17.55¢) (17.90¢)
The total column of this Statement represents the Statement of Comprehensive
Income of the Company. The supplementary revenue and capital columns are
prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing
operations.
Statement of financial position (unaudited)
Notes At 31 July At 31 July At 31 January At 31 January
2023
2023 2023
US$'000 2023
US$'000 US$'000 US$'000
Fixed assets
Investments held at fair value through profit or loss 7 921,972 972,032
Current assets
US Treasury Bills 84,345 136,797
Cash and cash equivalents 110,549 45,799
Debtors 22,149 884
217,043 183,480
Current liabilities
Amounts falling due within one year (33,799) (2,329)
Net current assets 183,244 181,151
Net assets 1,105,216 1,153,183
Capital and reserves
Share capital 8 1,216,503 1,216,503
Capital reserve (98,441) (51,536)
Revenue reserve (12,846) (11,784)
Shareholders' funds 1,105,216 1,153,183
Shareholders' funds - ordinary shares 547,957 597,608
Net asset value per ordinary share 109.50¢ 119.42¢
Number of ordinary shares in issue 500,430,002 500,430,002
Shareholders' funds - C shares 557,257 555,575
Net asset value per C share 79.61¢ 79.37¢
Number of C shares in issue 700,000,000 700,000,000
Statement of changes in equity (unaudited)
Six months to 31 July 2023
Share capital US$'000 Capital reserve* US$'000 Revenue reserve US$'000 Shareholders' funds
US$'000
Shareholders' funds at 31 January 2023 1,216,503 (51,536) (11,784) 1,153,183
Total comprehensive loss for the period - ordinary shares - (48,168) (1,483) (49,651)
Total comprehensive income/(loss) for the period - C shares - 1,263 421 1,684
Shareholders' funds at 31 July 2023 1,216,503 (98,441) (12,846) 1,105,216
Six months to 31 July 2022
Share capital US$'000 Capital reserve* US$'000 Revenue reserve US$'000 Shareholders' funds
US$'000
Shareholders' funds at 31 January 2022 1,216,503 260,419 (4,410) 1,472,512
Total comprehensive loss for the period - ordinary shares - (136,408) (2,835) (139,243)
Total comprehensive loss for the period - C shares - (72,957) (2,162) (75,119)
Shareholders' funds at 31 July 2022 1,216,503 51,054 (9,407) 1,258,150
*Includes investment holdings loss of US$113,452,000 (31 July 2022 - gains of
US$133,855,000).
Statement of cash flows (unaudited)
Six months to 31 July 2023 Six months to 31 July 2022
US$'000 US$'000 US$'000 US$'000
Cash flows from operating activities
Operating loss before taxation (47,967) (214,362)
US Treasury Bills interest (2,236) (60)
Net losses on investments 46,896 209,332
Currency losses 9 33
Changes in debtors and creditors (592) (422)
Net cash outflow in operating activities* (3,890) (5,479)
Cash flows from investing activities
Acquisitions of US Treasury Bills (53,111) (93,886)
Disposals of US Treasury Bills 118,826 214,739
Acquisitions of investments (45,621) (158,358)
Disposals of investments 48,555 1,848
Net cash inflow/(outflow) in investing activities 68,649 (35,657)
Net increase/(decrease) in cash and cash equivalents 64,759 (41,136)
Effect of exchange rate fluctuations on cash and cash equivalents (9) (33)
Cash and cash equivalents at start of period 45,799 86,898
Cash and cash equivalents at 31 July 110,549 45,729
* Cash from operations includes interest received of US$878,000 (2022 -
US$33,000).
Notes to the financial statements (unaudited)
1. Basis of accounting
The condensed Financial Statements for the six months to 31 July 2023
comprises the statements set out above together with the related notes below.
They have been prepared in accordance with International Financial Reporting
Standards (IFRS). The Financial Statements for the six months to 31 July 2023
have been prepared on the basis of the same accounting policies as set out in
the Company's Annual Report and Financial Statements at 31 January 2023.
Equity investment
The ordinary shares and C shares of the Company are classified as equity in
accordance with the definition of equity instruments under IAS 32 Financial
Instruments: presentation (IAS 32). The proceeds from the issue of shares are
recognised in the Statement of Changes in Equity net of incremental issuance
costs.
Going concern
In accordance with The Financial Reporting Council's guidance on going concern
and liquidity risk, the Directors have undertaken a rigorous review of the
Company's ability to continue as a going concern.
In undertaking this review, the Board has considered the Company's principal
risks and uncertainties, as set out on the inside front cover, and in
particular considered the impact of heightened market volatility due to
macroeconomic and geopolitical concerns, including the Russia-Ukraine war and
heightened tensions between China and both the USA and Taiwan. Liquidity
stress testing has been carried out and having done so the Board does not
believe the Company's going concern status is affected. The Company maintains
sufficient cash balances to enable it to meet its liabilities as they fall
due.
In managing the Company's assets, the Investment Manager will seek to ensure
that the Company holds at all times a proportion of assets that is
sufficiently liquid to enable it to discharge its payment obligations.
Accordingly, the Financial Statements have been prepared on the going concern
basis as it is the Directors' opinion, having assessed the principal risks and
uncertainties, that the Company will continue in operational existence for a
period of at least 12 months from the date of approval of these Financial
Statements.
2. Income
Six months to 31 July 2023 Six months to 31 July 2022 Year to
US$'000 US$'000 31 January 2023
US$'000
US Treasury Bills interest 2,236 60 1,618
Overseas interest 398 124 482
Deposit interest 878 34 700
Total income 3,512 218 2,800
3. Investment Management Fee
Six months to 31 July 2023 Six months to 31 July 2022 Year to
US$'000 US$'000 31 January 2023
US$'000
Investment management fee 3,937 4,611 8,931
The Company has appointed Baillie Gifford & Co Limited as its Investment
Manager (the 'Investment Manager'). As the entity appointed to be responsible
for risk management and portfolio management, the Investment Manager has also
been appointed as the Company's Alternative Investment Fund Manager ('AIFM').
Baillie Gifford & Co Limited has delegated portfolio management services
to Baillie Gifford Overseas Limited. The Investment Management Agreement is
terminable on not less than six months' notice.
Under the terms of the Investment Management Agreement, the Investment Manager
will be entitled to an annual fee (exclusive of VAT, which shall be added
where applicable) of: 0.9% on the net asset value excluding cash or cash
equivalent assets up to and including US$650 million;
0.8% on the net asset value of the Company excluding cash or cash equivalent
assets exceeding US$650 million up to and including US$1.3 billion; and 0.7%
on the net asset value excluding cash or cash equivalent assets exceeding
US$1.3 billion. Management fees are calculated and
payable quarterly.
Cash equivalents include US Treasury Bills.
4. Other administrative expenses
Six months to 31 July 2023 Six months to 31 July 2022 Year to 31 January 2023
US$'000 US$'000 US$'000
General administrative expenses 228 202 517
Administrator's fee 28 74 86
Auditor's remuneration for audit services 154 121 236
Directors' fees 227 198 394
637 595 1233
Expenses relating directly to a share class are charged directly to that share
class. Expenses pertaining to both ordinary and C shares are split equally
between the share classes.
5. Earnings per share
Six months to 31 July 2023 Six months to 31 July 2022 Year to 31 January 2023
Ordinary shares US$'000 ¢ US$'000 ¢ US$'000 ¢
Revenue return on ordinary activities after taxation (1,483) (0.30c) (2,835) (0.57) (4,923) (0.98)
Capital return on ordinary activities after taxation (48,168) (9.62c) (136,408) (27.26) (189,131) (37.79)
Loss and total comprehensive loss for the period (49,651) (9.92c) (139,243) (27.83) (194,054) (38.77)
Weighted average number of ordinary shares in issue 500,430,002 500,430,002 500,430,002
Six months to Six months to Year to
31 July 2023 31 July 2022 31 January 2023
Ordinary shares US$'000 ¢ US$'000 ¢ US$'000 ¢
Revenue return on ordinary activities after taxation 421 0.06c (2,162) (0.31) (2,451) (0.35)
Capital return on ordinary activities after taxation 1,263 0.18c (72,957) (10.42) (122,824) (17.55)
Profit/(loss) and total comprehensive (loss) for the period 1,684 0.24c (75,119) (10.73) (125,275) (17.90)
Weighted average number of C shares in issue 700,000,000 700,000,000 700,000,000
Net return per share is based on the above totals of revenue and capital and
the weighted average number of shares in issue during each period. There are
no dilutive or potentially dilutive shares in issue.
6. Ordinary dividends
There were no dividends paid or proposed in respect of the six months for
either the ordinary shares or for the C shares (2022 - nil).
7. Financial Instruments
Fair value hierarchy
The fair value hierarchy used to analyse the fair values of financial assets
is described below. The levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is significant
to the fair value measurement for the individual investment in its entirety as
follows:
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
Level 1 US$'000 Level 2 US$'000 Level 3 US$'000 Total
As at 31 July 2023 US$'000
Listed equities 171,680 - - 171,680
Unlisted ordinary shares - - 102,223 102.223
Unlisted preference shares* - - 635,916 635,916
Unlisted convertible promissory notes - - 12,143 12,143
Total financial asset investments 171,680 - 750,292 921,972
Level 1 US$'000 Level 2 US$'000 Level 3 US$'000 Total US$'000
As at 31 January 2023
Listed equities 119,018 - - 119,018
Unlisted ordinary shares - - 131,977 131,977
Unlisted preference shares* - - 708,914 708,914
Unlisted convertible promissory notes - - 12,123 12,123
Total financial asset investments 119,018 - 853,014 972,032
* The investments in preference shares are not classified as equity holdings
as they include liquidation preference rights that determine the repayment (or
multiple thereof) of the original investment in the event of a liquidation
event such as a take-over.
During the six months to 31 July 2023, the investment in Oddity was
transferred from Level 3 to Level 1 on becoming listed. During the year ended
31 January 2023, no investments were transferred from Level 3 to Level 1 on
becoming listed.
The valuation techniques used by the Company are explained in the accounting
policies on page 49 of the Company's Annual Report and Financial Statements
for the year to 31 January 2023. Listed investments are categorised as Level 1
if they are valued using unadjusted quoted prices for identical instruments in
an active market and as Level 2 if they do not meet all these criteria but
are, nonetheless, valued using market data. The Company's holdings in unlisted
investments are categorised as Level 3 unobservable data is a significant
input to their fair value measurements.
8. Share Capital
31 July 31 July 31 January 2023 31 January 2023
2023 2023 Number US$'000
Number US$'000
Alloted, called up and fully paid ordinary shares of US$1 each 500,430,002 521,701 500,430,002 521,701
Allotted, called up and fully paid C shares of US$1 each 700,000,000 694,802 700,000,000 694,802
By way of a special resolution dated 15 March 2019 the Directors have a
general authority to allot up to 720,000,000 ordinary shares or C shares, such
figure to include the ordinary shares issued at the initial placing.
477,250,000 ordinary shares were issued at the Company's initial placing, with
a further 23,180,002 ordinary shares subsequently issued, the Company has the
ability to issue a further 219,569,998 shares under this existing authority
which expires at the end of the period concluding immediately prior to the
Annual General Meeting of the Company to be held in 2024 (or, if earlier, five
years from the date of the resolution).
By way of a special resolution dated 18 March 2021 the Directors have a
general authority to allot up to 700,000,000 C shares. On 26 April 2021, the
Company issued 700,000,000 C shares of US$1 each and raised gross proceeds of
US$700,000,000. The issue costs in respect of the C share issue were
US$5,198,000. These costs consisted of mainly broker commission
(US$4,066,000), legal fees (US$601,000) and listing fees (US$396,000).
During the six months to 31 July 2023 the Company did not issue any ordinary
shares or C shares. In the period from 1 August 2023 to 7 September 2023 the
Company issued no ordinary shares or C shares.
By way of ordinary resolutions passed on 12 May 2023 the Directors of the
Company have general authority to make market purchases of up to 75,014,457
ordinary shares and 104,930,000 C shares, being 14.99% of the ordinary and C
shares in issue as at 24 March 2023, being the latest practicable date prior
to the publication of the Company's Annual Report and Financial Statements for
the year ended 31 January 2023. These authorities will expire at the
conclusion of the Annual General Meeting of the Company to be held in respect
of the year ending 31 January 2024. No ordinary shares or C shares have been
bought back during the six months ended 31 July 2023 (31 July 2022 - nil)
hence the authorities remain at 75,014,457 ordinary shares and 104,930,000 C
shares. In the period from 1 August 2023 to 7 September 2023 no ordinary
shares or C shares were bought back.
Holders of ordinary shares have the right to receive income and capital from
assets attributable to such share class. Ordinary shareholders have the right
to receive notice of general meetings of the Company and have the right to
attend and vote at all general meetings.
Holders of C shares have the right to receive income and capital from assets
attributable to such share class. C shareholders have the right to receive
notice of general meetings of the Company and have the right to attend and
vote at all general meetings.
9. Transaction Costs
During the period the Company incurred transaction costs on purchases of
investments of US$nil (31 July 2022 - US$57,000; 31 January 2023 - US$57,000)
and transaction costs on sales of US$nil (31 July 2022- US$nil; 31 January
2023 - US$nil).
10. Transactions with related parties and the investment manager and
administrator
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company during that period and
there have been no changes in the related party transactions described in the
last Annual Report and Financial Statements that could have such an effect on
the Company during that period.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
Glossary of terms and alternative performance measures ('APM')
Shareholders' funds and Net Asset Value
Shareholders' Funds is the value of all assets held less all liabilities, with
borrowings deducted at book cost. Net Asset Value (NAV) is the value of all
assets held less all liabilities, with borrowings deducted at either fair
value or par value. Per share amounts are calculated by dividing the relevant
figure by the number of ordinary shares in issue.
Net current assets
Net current assets comprise current assets less current liabilities (excluding
borrowings).
(Discount)/premium (APM)
As stock markets and share prices vary, an investment company's share price is
rarely the same as its NAV. When the share price is lower than the NAV per
share it is said to be trading at a discount. The size of the discount is
calculated by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the share price is
higher than the NAV per share, it is said to be trading at a premium.
31 July 31 January
Ordinary shares 2023 2023
Closing NAV per share (a) 109.50¢ 119.42¢
Closing share price (b) 66.00¢ 92.00¢
Discount expressed as a percentage (b - a) ÷ a (39.9%) (23.0%)
C shares 31 July 31 January
2023 2023
Closing NAV per share (a) 79.61¢ 79.37¢
Closing share price (b) 39.50¢ 49.00¢
Discount expressed as a percentage (b - a) ÷ a (50.4%) (38.3%)
Other shareholder information
Automatic Exchange of Information
In order to fulfil its legal obligations under the Guernsey Common Reporting
Standard Legislation relating to the Automatic Exchange of Information, the
Company is required to collect and report certain information about certain
shareholders.
The legislation will require investment companies to provide personal
information to the Guernsey authorities on certain investors who purchase
shares in investment funds. As an affected company, The Schiehallion Fund
Limited will have to provide information annually to the local authority on
the tax residencies of non-UK based certificated shareholders and corporate
entities.
Foreign Account Tax Compliance Act
Pursuant to the reciprocal information sharing inter-governmental agreement
entered into by the States of Guernsey and the US Treasury, and for the
purposes of the US Foreign Account Tax Compliance Act ('FATCA') of the Company
registered with the Internal Revenue Service ('IRS') as a Foreign Financial
Institution ('FFI') and received a Global Intermediary Identification Number
(R2NXXB.9999.SL.831). The Company can be located on the
IRS FFI list.
Sustainable finance disclosure regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As The Schiehallion Fund Limited is marketed in
the EU by the AIFM, BG & Co Limited, via the National Private Placement
Regime (NPPR) the following disclosures have been provided to comply with the
high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's ESG Principles and Guidelines
as its policy on integration of sustainability risks in investment decisions.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build an in-depth knowledge
of an individual company and a view on its long-term prospects. This includes
the consideration of sustainability factors (environmental, social and/or
governance matters) which it believes will positively or negatively influence
the financial returns of an investment.
More detail on the Managers' approach to sustainability can be found in the
Governance and Sustainability Principles and Guidelines document, available
publicly on the Baillie Gifford website bailliegifford.com
The underlying investments established under the EU Taxonomy Regulation do not
take into account the EU criteria for environmentally sustainable economic
activities.
None of the views expressed in this document should be construed as advice to
buy or sell a particular investment.
You can find up to date performance information about The Schiehallion Fund on
the Schiehallion Fund page of the Managers' website at schiehallionfund.com‡
The Schiehallion Fund Limited is managed by Baillie Gifford, the Edinburgh
based fund management group with around £226billion under management and
advice in active equity and bond portfolios for clients in the UK and
throughout the world (as at 5 September 2023). The Administrator, Secretary
and Designated Manager is Alter Domus (Guernsey) Limited.
‡ Neither the contents of the Managers' website nor the contents of any
website accessible from hyperlinks on the Managers' website (or any other
website) is incorporated into, or forms part of, this announcement.
Past performance is not a guide to future performance. The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. This is because the
share price is determined by the changing conditions in the relevant stock
markets in which the Company invests and by the supply and demand for the
Company's shares.
8 September 2023
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859 or 07773 246035
Jonathan Atkins, Four Communications
Tel: 0203 920 0555 or 07872 495396
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