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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| The Schiehallion Fund Limited | LSE:MNTN | London | Ordinary Share | GG00BJ0CDD21 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.03 | -3.23% | 0.90 | 0.87 | 0.93 | 0.90 | 0.90 | 0.90 | 0.00 | 08:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -309.14M | -319.33M | -0.3104 | -3.00 | 956.81M |
TIDMMNTN
RNS Number : 9889G
Schiehallion Fund Limited (The)
20 March 2020
RNS Announcement: Preliminary Results
The Schiehallion Fund Limited
Legal Entity Identifier: 213800NQOLJA1JCWXQ56
Regulated Information Classification: Additional regulated information required to be disclosed under applicable laws.
The following is the Preliminary Results Announcement for the period from incorporation on 4 January 2019 to 31 January 2020 which was approved by the Board on 19 March 2020.
Chairperson's Statement
It is with pleasure that I present the Board's first Annual Report for The Schiehallion Fund Limited (the 'Company' or 'Schiehallion') for the period from incorporation on 4 January 2019 to 31 January 2020. The Company raised gross proceeds of US$477 million at launch on 27 March 2019.
Investment Performance
During the period from 27 March 2019 to 31 January 2020, the Company's share price and net asset value returned 21.5% and 3.7% respectively.
Since shares opened for trading on the London Stock Exchange, they have climbed steadily, on thin trading volume, to a premium of approximately 17.6% at 31 January 2020. Investors should bear in mind that shares bought at a high premium to net asset value can quickly lose substantial value if the premium is eroded. The Company has authority to issue further shares if the Directors determine such issues to be in the best interests of shareholders and the Company as a whole.
Deployment of Capital
When the Company was launched, your Board said it would be reasonable to expect that the Company would be two-thirds invested within the first two years. The Company is well on track to meet that milestone, with 35.5% of shareholders' funds invested in 17 private companies as at the end of January 2020. There is commentary on these investments in the Investment Manager's Review and Review of Investments below.
While the near-term priority remains the identification of investment opportunities and the deployment of the initial capital, once the Company is substantially invested, the Company may seek to raise additional capital, most likely by way of a C share issue to avoid cash drag on the ordinary shares, in order to enable it to continue to invest in new opportunities.
Earnings and Dividend
The Company's priority is to generate capital growth over the long term. The Company therefore has no dividend target and will not seek to provide shareholders with a particular level of distribution.
This period the net revenue return per share was 1.33 cents. The Board is recommending that no final dividend be paid.
Annual General Meeting
The Annual General Meeting of the Company will be held at Alter Domus' offices in Guernsey at 14:00 BST on Tuesday 19 May 2020. Further information on this and all the resolutions can be found on page 46 of the Annual Report and Financial Statements. The Directors consider that all resolutions put to shareholders are in their and the Company's best interests as a whole and recommend that shareholders vote in their favour.
Peter Singlehurst, the lead portfolio manager, will give a presentation and take questions. The Board will also be available to respond to any questions that you may have.
Investment Outlook
Notwithstanding the uncertainties in the global economic and business environment, including those from the outbreak of the Coronavirus, the Board and the Investment Manager are optimistic about the investment outlook, both for the companies in which the Company has already invested and the pipeline of opportunities that the Investment Manager has access to as long-term investors in exceptional private companies. The Company solely focuses on investing in companies with transformational growth potential, which are not widely accessible through public markets. The potential of these companies is generally dependent on their ability to take advantage of opportunities rather than on the performance of the economy. In terms of ESG (Environmental, Social and Governance) impact, the Investment Manager has a track record of incorporating these considerations into its assessment of potential investments because they provide insight into the long-term opportunities and risks.
The Board and the Investment Manager are confident in the future outlook for the Company.
Linda Yueh
Chairperson
19 March 2020
Past performance is not a guide to future performance.
For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
Investment Managers' Review
The Schiehallion Fund Limited ('Schiehallion') was launched in March 2019 with the aim of investing in exceptional high growth private companies. Such companies are increasingly staying private longer, leading to more growth and value creation before they enter the public markets. At Baillie Gifford we have been investing in these companies since 2012 for existing funds. Schiehallion was designed to give shareholders concentrated exposure to high growth private companies, but with the ability to own these for the long term if they choose to list on public markets. We believe that the evergreen structure of Schiehallion gives it preferential access to the best companies, whose founders are looking for investors with a time horizon that is philosophically and structurally aligned with theirs. The portfolio of 17 companies we have assembled as of 31 January 2020 would seem to validate both the structural shift in markets, as well as Schiehallion's advantage in access.
Portfolio Update
Since the Interim Report for the period to 31 July 2019, we have invested in nine new companies. All of these businesses happened to be domiciled in the US. This is both a coincidence, but also reflective of the calibre of companies to be found in the North American market. San Francisco and Silicon Valley are synonymous with technology led businesses, but we have found companies in Austin, Los Angeles, Boston, New York and Seattle every bit as innovative as their Bay Area counterparts. Whilst some still have a domestic focus, others are most certainly international businesses, most notably Airbnb, which has more than seven million listings, located over 190 countries around the world.
In the Interim Management Report we noted two themes, which have both continued since then. The first was the growing impact of internet facilitated business models on a wider range of industries. Two of our recent investments highlight this in particular. RigUp is changing how blue-collar workers find work in the energy industry, whilst Convoy is making it more efficient for truckers and shippers to connect. Network effects underpin the business models of both companies, making them better as they get bigger, and leading to robust competitive advantages in large industries that have witnessed little change for decades.
The other trend we have continued to see is our ability to buy shares in private companies where pre-existing shareholdings within Baillie Gifford has given us preferential access. Airbnb, Affirm, Warby Parker and Indigo Agriculture are all recent examples. These are businesses we have known for years and that we have seen execute over our time as shareholders.
We are often asked how Environmental, Social, and Governance ('ESG') considerations are factored into our investment thinking. Schiehallion does not have an explicit ESG mandate, but these questions are still woven through our research. There is a common perception that ESG analysis is somehow distinct from fundamental business analysis. This might be true over short time periods, but over our time horizon of ten years and beyond, these two types of analysis converge. How a business is run, its impact on broader stakeholders, and the perception of whether it is a force for good or ill, will come to have a direct impact on the growth prospects of a given business, just as much as the business's competitive advantage and margin structure. In our research framework, we ask of every company 'What is your impact on Society?' We ask this question, not to satisfy some abstract ESG criteria, but because it unlocks insight into long-term opportunities and risks for companies.
The growing relevance of ESG issues is highlighted by a number of our recent investments. Affirm is an online point of sale lender, founded by Max Levchin who was previously one of the founders of Paypal. Point of sale lenders have historically treated their customers very badly, offering opaque teaser rates and exorbitant late fees. Affirm have made it their mission to treat their customers well. They do not charge late fees and they are totally transparent with the interest they charge. In one sense, this is a tick on any two-dimensional ESG scoring system, but in another more important sense, it defines the company's customer proposition, generates goodwill and repeat business with their borrowers, and underpins their competitive advantage.
Another recent example is Allbirds, the direct-to-consumer shoe company, whose branding is based around the sustainability of their product. Again, Allbirds would get a tick from an environmental sustainability perspective, but more importantly, they are tapping into a shift in consumer's priorities and have developed a product, brand, and supply chain that enables them to offer a differentiated product and as a direct result grow rapidly.
The other side of this is the companies we choose not to invest in. We have declined, and will continue to decline, companies where we think the societal impact of a product or service, or the culture of the business, will have a net negative impact on the world in which that business operates. We have seen time and time again how consumer or regulatory backlash can negatively impact companies that do ill, which in turn makes these companies unattractive investments. We believe we have a much better chance of making attractive returns for shareholders by deploying their capital into companies that have a positive impact on a wider range of stakeholders and avoiding those companies that do not.
Outlook
We remain excited by the outlook for the current portfolio, though this is tempered by the uncertainty presented by Coronavirus. The idiosyncratic nature of each of these businesses makes it difficult to generalise about how each will fair over the coming year. This is by design. Whilst there will be external factors that influence the success or failure of a company, each holding in Schiehallion has been selected because of its ability to determine its own destiny over the longer term through product differentiation, business model innovation and execution. It is likely that some companies in the portfolio will face challenges in the near term as a result of Coronavirus, particularly those tied to the travel industry. But we believe that the long term opportunity and investment potential is unchanged for these businesses. We also continue to be encouraged by the pipeline of new opportunities, both from businesses that are new to us, and others that we have been following closely for many years. Again, this encouragement is tempered by the wider uncertainty presented by Coronavirus. Thank you for being a shareholder in Schiehallion.
Investment Objective and Policy
Investment Objective
The Company's investment 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.
Investment Policy
In making its initial investment in a business, the Company will seek to invest in private businesses which it considers have the potential to become admitted to trading on a public stock exchange. Those investments will typically take the form of equity or equity-related instruments (which may include, without limitation, preference shares, convertible debt instruments, equity-related and equity-linked notes and warrants) issued by investee companies.
The Company will only invest in private businesses that are considered to have some or all of the following features:
3/4 the potential to grow revenue and earnings multiple fold over the long term;
3/4 scalable business models that should enable those businesses to grow into their opportunity;
3/4 robust competitive advantages;
3/4 exceptional management teams;
3/4 an entry price which significantly undervalues the long-term opportunity for the business; and
3/4 an ambition and ability to become stand-alone public companies.
Investee companies may be from any sector and any geography (save as set out below). While there are no specific limits placed on exposure to any one sector, the Company will at all times seek to invest and manage the portfolio in a manner consistent with spreading investment risk.
With prior approval of the Board, the Company may permit the use of derivatives for the purpose of currency hedging, though it currently does not expect to do so. Save for this and for investments made using equity-related instruments as described above, the Company may not engage in derivative transactions for any purpose.
The Board does not intend to use structural gearing with a view to enhancing equity returns on investments. The Company may employ gearing on a short-term basis for the purpose of bridging investments and general working capital purposes. The Company may in aggregate borrow amounts equalling up to 10% of net asset value, calculated at the time of drawdown.
The Company is subject to the following investment restrictions:
3/4 an investee company must be a private investee company at the time of the Company's initial investment in that investee company. The Company may, however, make subsequent investments in the investee company, even if the investee company has been admitted to trading on a public stock exchange in the period since the Company's initial investment;
3/4 a private investee company must have a value of at least US$500 million at the time of the Company's initial investment in the private investee company. This restriction will not apply to the Company's subsequent investments in the investee company, if any;
3/4 the Company may not make an initial investment in a private investee company which exceeds in value 10% (calculated at the time of investment) of the most recently published net asset value (save to the extent that breach of this 10% limit is due to a change in the value of the Company's invested assets or currency fluctuations from the time of the Company's firm commitment to make the investment to the time of investment);
3/4 the Company may not make any investment in a private investee company that would cause the value of the Company's holding in that private investee company to exceed 19.9% (calculated at the time of investment) of the most recently published net asset value; and
3/4 the Company may not make any investment in an investee company that would cause the Company's holding in that investee company to exceed 20% (calculated at the time of investment) of the total issued share capital of the investee company.
A reference to the value of assets of the Company (including investee companies) referred to in the restrictions above shall be to value as determined in accordance with the Company's valuation policy from time to time.
The Company does not currently expect the portfolio to be majority invested in public investee companies at any point in time, but it has not set a limit on the percentage of the portfolio which can be invested in public investee companies at a given time.
It is intended that the Company will, subsequent to the initial investment period of two years from the date of Admission, be substantially invested in normal market conditions. However, the Company may at any time hold overnight or term deposits or, pending investment in investee companies, invest in a range of cash equivalent instruments such as US Treasury Bills or money market funds. There is no restriction on the amount of cash or cash equivalent instruments that the Company may hold.
Statement of Comprehensive Income
For the period from 4 January 2019 to 31 January 2020
Hot Features
Premium
Revenue Capital Total
US$'000 US$'000 US$'000
===================================================== ======== ======== ========
Gains on investments - 11,068 11,068
Currency gains - 10 10
Income (note 2) 7,747 - 7,747
Investment management fee (note 3) (929) - (929)
Other administrative expenses (note 4) (458) - (458)
===================================================== ======== ======== ========
Operating profit before taxation 6,360 11,078 17,438
===================================================== ======== ======== ========
Tax on ordinary activities - - -
===================================================== ======== ======== ========
Profit and total comprehensive income for the period 6,360 11,078 17,438
===================================================== ======== ======== ========
Earnings per ordinary share (note 5) 1.33c 2.32c 3.65c
===================================================== ======== ======== ========
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
As at 31 January 2020
2020 2020
US$'000 US$'000
Fixed assets
Investments held at fair value through profit or loss (note 7) 175,046
=============================================================== ======== ===========
Current assets
US Treasury Bills 308,135
Cash and cash equivalents 10,133
Debtors 271
=============================================================== ======== ===========
318,539
=============================================================== ======== ===========
Current liabilities
Amounts falling due within one year (505)
Net current assets 318,034
=============================================================== ======== ===========
Net assets 493,080
=============================================================== ======== ===========
Capital and reserves
Share capital 475,642
Capital reserve 11,078 Revenue reserve 6,360 =============================================================== ======== =========== Shareholders' funds 493,080 =============================================================== ======== =========== Net asset value per ordinary share 103.32c =============================================================== ======== =========== Ordinary shares in issue (note 8) 477,250,002 =============================================================== ======== ===========
Statement of Changes in Equity
For the year from 4 January 2019 to 31 January 2020
Share Capital Revenue Shareholders'
capital reserve reserve funds
US$'000 * US$'000 US$'000 US$'000
====================================== ======== ========== ======== =============
Shareholders' funds at 4 January 2019 - - - -
Ordinary shares issued (note 8) 475,642 - - 475,642
Total comprehensive income for the
period - 11,078 6,360 17,438
====================================== ======== ========== ======== =============
Shareholders' funds at 31 January
2020 475,642 11,078 6,360 493,080
====================================== ======== ========== ======== =============
The Capital Reserve balance at 31 January 2020 includes investment holding gains of US$11,068,000.
Statement of Cash Flows
For the period from 4 January 2019 to 31 January 2020
2020 2020
US$'000 US$'000
================================================================== ========= =========
Cash flows from operating activities
Operating profit before taxation 17,438
US Treasury Bills interest (7,292)
Net gains on investments (11,068)
Currency gains (10)
Changes in debtors and creditors 234
================================================================== ========= =========
Net cash from operating activities* (698)
Cash flows from investing activities
Acquisitions of US Treasury Bills (750,726)
Disposal of US Treasury Bills 449,883
Acquisitions of investments (163,978)
Disposals of investments -
Net cash used in investing activities (464,821)
================================================================== ========= =========
Cash flows from financing activities
Ordinary shares issued 475,642
Net cash inflow from financing activities 475,642
================================================================== ========= =========
Net increase in cash and cash equivalents 10,123
Effect of exchange rate fluctuations on cash and cash equivalents 10
Cash and cash equivalents at 4 January 2019 -
================================================================== ========= =========
Cash and cash equivalents at 31 January 2020 10,133
================================================================== ========= =========
* Cash from operations includes interest received of US$204,000.
2020
US$'000
Cash and cash equivalents comprise the following:
Cash at bank 10,133
10,133
================================================== ========
List of Investments as at 31 January 2020
=========================================
2020 2020 2020
Value Value % of
net
assets
Name Business Country US$'000 US$'000
============== =================== ============== ====================== ====================== =================
Oncological records
aggregator
Tempus Labs and
Inc Series diagnostic testing United
E Preferred provider States 6,798
Oncological records
aggregator
Tempus Labs and
Inc Series diagnostic testing United
F Preferred provider States 10,843
======================
17,641 3.6
Microbial seed
treatments
Indigo to increase
Agriculture crop yields and
Inc grain United
Common marketplace States 449
Indigo Microbial seed
Agriculture treatments
Inc to increase
Warrants crop yields and
December grain United
2019 marketplace States 1,145
Indigo
Agriculture Microbial seed
Inc treatments
Sub to increase
Promissory crop yields and
Note grain United
December 2019 marketplace States 14,327
======================
15,921 3.3
Warby Parker Online and physical
(JAND Inc) corrective
Series A eyewear United
Preferred retailer States 6,594
Warby Parker Online and physical
(JAND Inc) corrective
Series C eyewear United
Preferred retailer States 5,573
======================
12,167 2.5
Away (JRSK
Inc) Series
Seed Travel and
Preferred lifestyle brand United States 4,970
Away (JRSK
Inc) Series Travel and
D Preferred lifestyle brand United States 6,710
======================
11,680 2.4
FlixMobility
GmbH Series European mobility
F2 Preferred provider Germany 11,096 2.3
RigUp Inc Jobs marketplace
Series D for the
Preferred energy sector United States 10,500 2.1
Designs,
Space manufactures
Exploration and launches
Technologies advanced rockets
Corp Series and United
K Preferred spacecraft States 10,490 2.1
Online
TransferWise international
Limited money
Ordinary transfer service United Kingdom 5,123
Online
TransferWise international
Limited Seed money
Preferred transfer service United Kingdom 1,761
TransferWise Online
Limited international
Series money
A Preferred transfer service United Kingdom 2,082
TransferWise Online
Limited international
Series money
B Preferred transfer service United Kingdom 598
TransferWise Online
Limited international
Series money
C Preferred transfer service United Kingdom 334
TransferWise Online
Limited international
Series money
D Preferred transfer service United Kingdom 92
TransferWise Online
Limited international
Series money
E Preferred transfer service United Kingdom 10
======================
10,000 2.0
Sustainable
Allbirds Inc direct-to-consumer
Series Seed footwear United
Preferred brand States 2,500
Sustainable
Allbirds Inc direct-to-consumer
Series D footwear United
Preferred brand States 7,500
======================
10,000 2.0
List of Investments as at 31 January 2020 (continued)
=====================================================
2020 2020 2020
Value Value % of
net
assets
Name Business Country US$'000 US$'000
=============================== ========================== ================ ======== ======== ========
Manufactures and develops
Carbon Inc Series E Preferred 3D printers United States 10,000 2.0
Marketplace for truckers
Convoy Inc Series D Preferred and shippers United States 10,000 2.0
Scopely Inc Series D Preferred Online gaming company United States 10,000 2.0
Social media and news
ByteDance Limited Series aggregation
E Preferred company China 10,000 2.0
Develops software for
cardiovascular
HeartFlow Inc Series E disease diagnosis and
Preferred treatment United States 9,786 2.0
Online platform which
Affirm Holdings Inc Series provides point of sale
A Preferred consumer finance United States 6,305 1.3
Stripe Inc Series G Preferred Online payment platform United States 4,894 1.0
Online market place for
travel
Airbnb Inc Class A Common accommodation United States 4,100
Online market place for
travel
Airbnb Inc Series D Preferred accommodation United States 302
Online market place for
travel
Airbnb Inc Series E Preferred accommodation United States 164
========
4,566 0.9
=========================================================================== ======== ======== ========
Total unlisted securities 175,046 35.5
============================================================================= ======== ======== ========
US Treasury Bill 26/03/2020 51,401
US Treasury Bill 21/05/2020 52,770
US Treasury Bill 16/07/2020 50,992
US Treasury Bill 10/09/2020 51,165
US Treasury Bill 03/12/2020 51,073
US Treasury Bill 28/01/2021 50,734
========
Total US Treasury Bills 308,135 62.5
Cash 10,133 2.0
Other current assets and liabilities (234) -
=========================================================== ================ ======== ======== ========
Net current assets 318,034 64.5
=========================================================== ================ ======== ======== ========
Net assets 493,080 100.0
=========================================================== ================ ======== ======== ========
Distribution of Net Assets
Geographical
As at
31 January
2020
%
==================== =================
China 2.0
Germany 2.3
United Kingdom 2.0
United States 29.2
US Treasury Bills 62.5
Net Current Assets 2.0
100.0
==================== =================
Sectoral
As at
31 January
2020
%
======================== =================
Communication Services 2.0
Consumer Discretionary 7.8
Consumer Staples 3.3
Financials 4.3
Health Care 5.6
Industrials 8.5
Information Technology 4.0
US Treasury Bills 62.5
Net Current Assets 2.0
100.0
======================== =================
The above sectoral distribution is not derived from any index.
Notes to the Financial Statements ====================================================================================================== The Schiehallion Fund Limited is a non-cellular investment company limited by shares, registered and incorporated in Guernsey under the Companies (Guernsey) Law, 2008 (the 'Companies Law') on 4 January 2019, with registration number 65915. The Company is a registered closed-ended investment scheme registered pursuant to the Protection of Investors (Bailiwick of Guernsey) Law, 1987 as amended, and the Registered Collective Investment Scheme Rules 2018 issued by the Guernsey Financial Services Commission. The Company's shares are listed on the Specialist Fund Segment of the Main Market of the London Stock Exchange. 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 Directors have considered the Company's principal and emerging risks. The Company's principal risks are market-related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is set out on pages 6 and 7 of the Annual Report and Financial Statements and contained in note 9. 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 and emerging risks and other matters set out in the Viability Statement below which assesses the prospects of the Company over a period of three years, that the Company will continue in operational existence for a period of at least twelve months from the date of approval of these Financial Statements. Viability Statement In accordance with the requirements of the AIC Code that the Directors assess the prospects of the Company over a defined period, the Board has evaluated the long-term prospects of the Company beyond the twelve month time horizon assumption within the going concern framework taking account of the longer term investment strategy of the Company. Details of how that assessment has been undertaken are set out below. The Board undertakes a robust risk assessment of the principal and emerging risks, detailed on pages 6 and 7 of the Annual Report and Financial Statements, facing the Company but believes that a sudden or prolonged downturn in global economies is the most significant risk facing the Company. Such a downturn could significantly affect valuations of the Company's investments and its net asset value as well as impacting liquidity since the Company may not be able to realise its investments at a reasonable price. The Board believes the Company would still be viable during such a downturn since it does not have any long-term gearing obligations which might require immediate repayment, or has any obligation to pay dividends. The Company also holds a well-diversified portfolio of investments in various industries in order to minimise the impact of any economic shock. The Board has considered the uncertainties regarding the UK's continuing negotiations after leaving the EU and does not consider that any outcome would significantly affect the going
concern status or viability of the Company.
All the Company's key operations are outsourced to third-party service providers and the Board
considers that alternative providers could be engaged at relatively short notice. Finally,
the Investment Manager monitors closely the Company's cash requirements to meet on-going fees
and expenses and expects to maintain around 2% of its assets in cash or near cash to meet
these obligations.
As a result of this analysis, the Board believes the Company can effectively manage the principal
and emerging risks and uncertainties and remains confident that the Company will be able to
continue in operation, and does not envisage any change in strategy, objectives or events
that would prevent the Company from operating, over the period of at least three years.
In determining the period of assessment, the Directors consider three years is appropriate
given the target for deployment for capital and projecting longer term financial and economic
scenarios would present difficulties given the lack of longer term economic visibility. The
Board also considered that the metrics used to value underlying companies would normally look
to a medium term time horizon.
Notes to the Financial Statements (continued)
========================================================================================================
1. Principal Accounting Policies
The Financial Statements for the period to from 4 January 2019 to 31 January 2020 have been
prepared in accordance with International Financial Reporting Standards ('IFRS'). The Company
was incorporated on 4 January 2019 and therefore no comparative information has been provided.
(a) Basis of Accounting
The Financial Statements have been prepared in accordance with International Financial Reporting
Standards ('IFRS'). The Financial Statements give a true and fair view and comply with the
Companies (Guernsey) Law, 2008. Where presentational guidance set out in the Statement of
Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment
Companies ('AIC') updated in February 2018 (the 'AIC SORP') is consistent with the requirements
of IFRS, the Directors have sought to prepare the Financial Statements on a basis compliant
with the recommendations of the SORP.
Going Concern
The Directors have adopted the going concern basis in preparing the Company's Financial Statements.
It is the Directors' opinion that the Company has adequate resources to continue in operational
existence for a period of at least twelve months from the date of approval of these Financial
Statements. In reaching this conclusion the Directors considered the Company's investment
portfolio, cash position and expenses.
(b) Functional and Presentational Currency
The Company's functional and presentational currency is the US dollar. The US dollar is the
functional currency as the Company has issued its share capital in US dollars, its shareholders
are based globally and the Company's investment policy has global reach. The Company's performance
is evaluated and its liquidity is managed in US dollars. Therefore, the US dollar is considered
the currency that most closely represents the economic effects of the underlying transactions,
events and conditions.
(c) Basis of Measurement
The Financial Statements have been prepared under the historical cost convention, adjusted
for the revaluation of fixed asset investments at fair value through profit or loss.
(d) Accounting Estimates, Assumptions and Judgements
The preparation of the Financial Statements requires the use of estimates, assumptions and
judgements. These estimates, assumptions and judgements affect the reported amounts of assets
and liabilities, at the reporting date. While estimates are based on best judgement using
information and financial data available, the actual outcome may differ from these estimates.
The key sources of estimation and uncertainty relate to the fair valuation of the unlisted
investments.
Judgements
The Directors consider that the preparation of the Financial Statements involves the following
key judgements:
i) the determination of the functional currency of the Company as US dollars (see rationale
in 1(b) above); and
ii) the fair valuation of the unlisted investments.
The key judgements in the fair valuation process are:
i) the Investment Manager's determination of the appropriate application of the International
Private Equity and Venture Capital Valuation ('IPEV') Guidelines 2018 to each unlisted investment;
and
ii) the Directors' consideration of whether each fair value is appropriate following detailed
review and challenge. The judgement applied in the selection of the methodology used (see1(e)
below) for determining the fair value of each unlisted investment can have a significant impact
upon the valuation.
Notes to the Financial Statements (continued)
=============================================
Estimates
The key estimate in the Financial Statements is the determination of the fair value of the
unlisted investments by the Investment Manager for consideration by the Directors. This estimate
is key as it significantly impacts the valuation of the unlisted investments at the date of
the Statement of Financial Position. The fair valuation process involves estimation using
subjective inputs that are unobservable (for which market data is unavailable). The main estimates
involved in the selection of the valuation process inputs are:
i) the selection of appropriate comparable companies in order to derive revenue multiples
and meaningful relationships between enterprise value, revenue and earnings growth. Comparable
companies are chosen on the basis of their business characteristics and growth patterns;
ii) the selection of a revenue metric (either historical or forecast);
iii) the application of an appropriate discount factor to reflect the reduced liquidity of
unlisted companies versus their listed peers;
iv) the estimation of the probability assigned to an exit being through an initial public
offering ('IPO') or a company sale;
v) the selection of an appropriate industry benchmark index to assist with the valuation validation
or the application of valuation adjustments, particularly in the absence of established earnings
or closely comparable peers; and
vi) the calculation of valuation adjustments derived from milestone analysis (i.e. incorporating
operational success against the plan/forecasts of the business into the valuation).
Fair value estimates are cross-checked to alternative estimation methods where possible to
improve the robustness of the estimates. As the valuation outcomes may differ from the fair
value estimates a price sensitivity analysis is provided in Other Price Risk Sensitivity in
note 9 to illustrate the effect on the Financial Statements of an over or under estimation
of fair values. The risk of an over or under estimation of fair values is greater when methodologies
are applied using more subjective inputs.
Assumptions
The determination of fair value by the Investment Manager involves key assumptions dependent
upon the valuation technique used. As explained in 1(e) below, the primary technique applied
under the IPEV Guidelines is the Multiples approach. Where the Multiples approach is used
the valuation process recognises also, as stated in the IPEV Guidelines, that the price of
a recent investment may be an appropriate calibration for estimating fair value. The Multiples
approach involves subjective inputs and therefore presents a greater risk of over or under
estimation and particularly in the absence of a recent transaction. The key assumptions for
the Multiples approach are that the selection of comparable companies provides a reasonable
basis for identifying relationships between enterprise value, revenue and growth to apply
in the determination of fair value.
Other assumptions include:
i) the discount applied for reduced liquidity versus listed peers;
ii) the probabilities assigned to an exit being through either an IPO or a company sale; and
iii) that the application of milestone analysis and industry benchmark indices are a reasonable
basis for applying appropriate adjustments to the valuations.
Valuations are cross-checked for reasonableness to alternative Multiples-based approaches
or benchmark index movements as appropriate.
Notes to the Financial Statements (continued)
=============================================
(e) Investments
The Company's investments are classified, recognised and measured at fair value through profit
or loss in accordance with IFRS 9. Changes in fair value of investments and gains and losses
on disposal are recognised as capital items in the Statement of Comprehensive Income.
Recognition and Initial Measurement
Purchases and sales of investments are accounted for on a trade date basis. Expenses incidental
to purchase and sale are written off to capital at the time of acquisition or disposal. All
investments are designated as valued at fair value through profit or loss [upon initial recognition]
and are measured at subsequent reporting dates at fair value.
Measurement and Valuation
US Treasury Bills
Assets that are held in order to collect contractual cash flows that are solely payments of
principal and interest are measured at amortised cost. These assets are subsequently measured
at amortised cost using the effective interest rate method.
Listed Investments
The fair value of listed security investments is the last traded price on recognised overseas
exchanges, or in the case of UK holdings, at bid value.
Unlisted Investments
Unlisted investments are valued at fair value by the Directors following a detailed review
and appropriate challenge of the valuations proposed by the Investment Manager. The Investment
Manager's unlisted investment valuation policy applies techniques consistent with the IPEV
Guidelines.
The techniques applied are predominantly market-based approaches. The market-based approaches
available under IPEV Guidelines are set out below and are followed by an explanation of how
they are applied to the Company's unlisted portfolio:
* Multiples;
* Industry Valuation Benchmarks; and
* Available Market Prices.
The nature of the unlisted portfolio currently will influence the valuation technique applied.
The valuation approach recognises that, as stated in the IPEV Guidelines, the price of a recent
investment, if resulting from an orderly transaction, generally represents fair value as at
the transaction date and may be an appropriate starting point for estimating fair value at
subsequent measurement dates. However, consideration is given to the facts and circumstances
as at the subsequent measurement date, including changes in the market or performance of the
investee company. Milestone analysis is used where appropriate to incorporate the operational
progress of the investee company into the valuation. Additionally, the background to the transaction
must be considered. As a result, various Multiples-based techniques are employed to assess
the valuations particularly in those companies with established revenues. Discounted cashflows
are used where appropriate. An absence of relevant industry peers may preclude the application
of the Industry Valuation Benchmarks technique and an absence of observable prices may preclude
the Available Market Prices approach. All valuations are cross-checked for reasonableness
by employing relevant alternative techniques. The unlisted investments are valued according
to a three monthly cycle of measurement dates. The fair value of the unlisted investments
will be reviewed before the next scheduled three monthly measurement date on the following
occasions:
Notes to the Financial Statements (continued)
=============================================
* at the period end and half year end of the Company;
and
* where there is an indication of a change in fair
value as defined in the IPEV guidelines (commonly
referred to as 'trigger' events).
A trigger event may include any of the following:
* a subsequent round of financing by the investee
company;
* a secondary transaction involving the investee
company where there is sufficient information
available to enable an assessment of the nature of
the transaction;
* a recent material change in the current or expected
financial and/or operational performance of the
investee company;
* a material milestone achieved or missed by the
investee company;
* a change in the management personnel of the investee
company;
* a material change in the market environment in which
the investee company operates; or
* a material change in market indices or economic
indicators.
Derecognition
Financial assets are derecognised when the contractual rights to cash flows from the asset
expire or the Company transfers the financial assets and substantially all of the risks and
rewards of ownership have been transferred.
On derecognition of a financial asset, the difference between the weighted average carrying
amount of the asset (or the carrying amount allocated to the proportion of the asset derecognised),
and the consideration received (including any new asset obtained less any liability assumed),
is recognised in profit and loss.
Financial liabilities are derecognised when the contractual obligations are discharged, cancelled
or expired.
Gains and Losses
Gains and losses on investments, including those arising from foreign currency exchange differences,
are recognised in the Statement of Comprehensive Income as capital items.
The Investment Manager monitors the investment portfolio on a fair value basis and uses the
fair value basis for investments in making investment decisions and monitoring financial performance.
(f) Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and deposits repayable on demand. Deposits
are repayable on demand if they can be withdrawn at any time without notice and without penalty
or if they have a maturity or period of notice of not more than one working day.
(g) Financial Liabilities
Bank loans and overdrafts are classified as loans and are initially recorded at the proceeds
received net of direct costs and subsequently measured at amortised cost.
(h) Income
i) Income from equity investments is brought into account on the date on which the investments
are quoted ex-dividend or, where no ex-dividend date is quoted, when the Company's right to
receive payment is established.
ii) If scrip dividends are taken in lieu of dividends in cash, the net amount of the cash
dividend declared is credited to the revenue account. Any excess in the value of the shares
received over the amount of the cash dividend foregone is recognised as capital.
iii) Special dividends are treated as repayments of capital or income depending on the facts
of each particular case.
iv) Overseas dividends include the taxes deducted at source.
Notes to the Financial Statements (continued)
=================================================================================================================
v) Interest receivable on bank deposits is recognised on an accruals basis.
vi) Interest from fixed interest securities is recognised on an effective interest rate basis.
Where income returns are for a non-fixed amount, the impact of these returns on the effective
interest rate is recognised once such returns are known. If there is reasonable doubt that
a return will be received, its recognition is deferred until that doubt is removed.
(i) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue
column of the Statement of Comprehensive Income except where: (i) they relate directly to
the acquisition or disposal of an investment (transaction costs), in which case they are recognised
as capital within losses/gains on investments; and (ii) they relate directly to the buyback/issuance
of shares, in which case they are added to the buyback cost or deducted from the share issuance
proceeds.
(j) Taxation
The Company has applied for and been granted exemption from liability to income tax in Guernsey
under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 in Guernsey for the current
period. The exemption must be applied for annually and will be granted, subject to the payment
of an annual fee, which is currently fixed at GBP1,200 per applicant, provided the Company
qualifies for exemption under the applicable legislation.
It is the intention of the Directors to conduct the affairs of the Company so as to ensure
that it continues to qualify for exempt company status for the purposes of Guernsey taxation.
(k) Foreign Currencies
Transactions involving foreign currencies other than US dollars are converted at the rate
ruling at the time of the transaction. Assets and liabilities in such currencies are translated
at the closing rates of exchange at the date of the Statement of Financial Position. Any gain
or loss arising from a change in exchange rate subsequent to the date of the transaction is
included as an exchange gain or loss in the capital reserve or revenue reserve as appropriate.
Foreign exchange movements on investments are included in the Statement of Comprehensive Income
within gains or losses on investments.
(l) Capital Reserve
Gains and losses on disposal of investments, changes in the fair value of investments held
and realised and unrealised foreign exchange differences of a capital nature are dealt with
in this reserve after being recognised in the Statement of Comprehensive Income. Purchases
of the Company's own shares may be funded from this reserve.
(m) Revenue Reserve
Income and expense items of a revenue nature are included in the Revenue Reserve after being
recognised in the Statement of Comprehensive Income. Any dividends paid by the Company would
be funded from this reserve.
(n) Single Segment Reporting
The chief operating decision maker is the Board of Directors. The Directors are of the opinion
that the Company is engaged in a single segment of business, being investment business, consequently
no segmental analysis is presented.
(o) New and Revised Standards
The following accounting standards were introduced and effective at the period end. The Directors
have considered their impact and have concluded they will not have a significant impact on
the Financial Statements.
* IFRS 16 Leases - effective 1 January 2019;
* IFRIC 23 Uncertainty over Income Tax Treatments -
effective January 2019;
* Amendments to References to Conceptual Framework in
IFRS Standards;
* Definition of a Business (Amendments to IFRS 3);
* Definition of Material (Amendments to IAS 1 and IAS
8);
* IFRS 17 Insurance Contracts; and
* Interest Rate Benchmark Reform (Amendments to IFRS 9,
IAS 39 and IFRS 7).
Notes to the Financial Statements (continued)
=================================================================================================================
2. Income 2020
US$'000
======================================================================= ======== ==========================
US Treasury Bills interest 7,292
Overseas interest 251
Deposit interest 204
=========================================================================== ======== ==========================
Total income 7,747
=========================================================================== ======== ==========================
3. Investment Management Fee 2020
US$'000
======================================================================= ======== ==========================
Investment management fee 929
=========================================================================== ======== ==========================
Details of the Investment Management Agreement are set out on page 16 of the Annual Report
and Financial Statements. Under the terms of the Investment Management Agreement and with
effect from 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, the Investment Manager is 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 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$1.3 billion. Management fees are calculated and payable quarterly.
=============================================================================================================
4. Other Administrative Expenses 2020
US$'000
======================================================================= ================== ================
General administrative expenses 184
Administrator's fee 63
Auditor's remuneration for audit services 93
Directors' fees 118
=========================================================================== ================== ================
458
In the period from 4 January 2019 to 31 January 2020 non-audit fees paid to KPMG Channel Islands
Limited amounted to US$74,000 in respect of procedural services related to the initial listing
of the Company. As these costs related to the initial listing of the Company, they are capital
in nature and included within the costs of issuing shares (see note 8). There were no other
non-audit fees incurred during the period from 4 January 2019 to 31 January 2020.
=============================================================================================================
5. Earnings per Ordinary Share
======================================================================= ======== ======== ================
2020 2020 2020
Revenue Capital Total
======================================================================= ======== ======== ================
Earnings per ordinary share 1.33c 2.32c 3.65c
=========================================================================== ======== ======== ================
Notes to the Financial Statements (continued)
=============================================
Revenue earnings per ordinary share is based on the net revenue gain on ordinary activities
after taxation of US$6,360,000 and on 477,250,002 ordinary shares, being the number of ordinary
shares in issue during the period from 4 January 2019 to 31 January 2020.
Capital earnings per ordinary share is based on the net capital gain for the financial period
of US$11,078,000 and on 477,250,002 ordinary shares, being the number of ordinary shares in
issue during the period from 4 January 2019 to 31 January 2020.
Total earnings per ordinary share is based on the total gain for the financial period of US$17,438,000
and on 477,250,002 ordinary shares, being the number of ordinary shares in issue during the
period from 4 January 2019 to 31 January 2020.
There are no dilutive or potentially dilutive shares in issue.
6. Ordinary Dividends
There were no dividends paid or proposed in respect of the period from 4 January 2019 to 31
January 2020.
================================================================================================================
7. Financial Instruments
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described
below. The levels are determined by the lowest (that is the least reliable or least independently
observable) level of input that is significant to the fair value measurement for the individual
investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly
or indirectly observable (based
on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies above.
================================================================================================================
Level 1 Level 2 Level 3 Total
As at 31 January 2020 US$'000 US$'000 US$'000 US$'000
====================================================== ============= ============= ============ ============
Unlisted ordinary shares/warrants - - 10,817 10,817
Unlisted fixed interest shares - - 14,327 14,327
Unlisted preference shares * - - 149,902 149,902
========================================================== ============= ============= ============ ============
Total financial asset investments - - 175,046 175,046
========================================================== ============= ============= ============ ============
* The investments in preference shares are not classified as equity holdings as they include
liquidation preference rights that determine the repayment (or multiple thereof) of the original
investment in the event of a liquidation event such as a take-over.
There have been no transfers between levels of fair value hierarchy during the period from
4 January 2019 to 31 January 2020.
Investments in securities are financial assets held at fair value through profit or loss.
In accordance with IFRS 9, the table above provide an analysis of these investments based
on the fair value hierarchy described above, which reflects the reliability and significance
of the information used to measure their fair value.
====================================================================================================================
Notes to the Financial Statements (continued)
=============================================
Unlisted securities*
US$'000 Total
US$'000
======================================================================= ======================== =============
Cost of investments at 4 January 2019 - -
Investment holding gains and losses at 4 January 2019 - -
======================================================================= ======================== =============
Fair value of investments at 4 January 2019 - -
Movements in the period:
Purchases at cost 163,978 163,978
Sales - proceeds - -
- gains on sales - -
Changes in investment holding gains and losses 11,068 11,068
======================================================================== ======================== =============
Fair value of investments at 31 January 2020 175,046 175,046
======================================================================== ======================== =============
Cost of investments at 31 January 2020 163,978 163,978
Investment holding gains and losses at 31 January 2020 11,068 11,068
Fair value of investments at 31 January 2020 175,046 175,046
======================================================================== ======================== =============
* Includes holdings in preference shares, promissory notes, ordinary shares and warrants.
The Company incurred transactions costs on purchases of US$50,000 and on sales of nil, being
US$50,000 in total.
2020
US$'000
======================================================================= ======================== =============
Net gains on investments designated at fair value through profit or loss
Changes in investment holding gains 11,068
======================================================================== ======================== =============
Notes to the Financial Statements (continued)
=============================================
Significant Holdings
Details of significant holdings are noted below in accordance with the disclosure requirements
of paragraph 82 of the AIC Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' (updated in February 2018), in relation to the
unlisted investments. As required, this disclosure includes turnover, pre-tax profits and
net assets attributable to investors, as reported within the most recently audited financial
statement of the investee companies.
As at 31 January 2020 Income Net assets
recognised attributable
from to shareholders
holding in '000
the period
======================================================== ========== ======== ======== ========== ======== ============= ====================
Proportion
Latest of capital Book Pre-tax
Financial owned Cost Value Turnover profit/(loss)
Name Business Statements % US$'000 US$'000 '000 '000
================ ============= ======================================================== ========== ======== ======== ========== ======== ============= ====================
Oncological
records
aggregator
and
diagnostic
testing
Tempus Labs provider n/a 0.35 9,968 17,641 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
Microbial
seed
treatments
to increase
crop yields
Indigo and grain
Agriculture marketplace n/a 0.01* 15,000 15,921 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ==========
Online and
physical
corrective
Warby Parker eyewear
(JAND) retailer n/a 0.73 12,167 12,167 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
Travel and
lifestyle
Away (JRSK) brand n/a 0.74 9,375 11,680 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
European
mobility
FlixMobility provider n/a 0.48 11,153 11,096 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
Jobs
marketplace
for the
energy
RigUp sector n/a 0.59 10,500 10,500 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
Designs,
manufactures
and launches
Space advanced
Exploration rockets and
Technologies spacecraft n/a 0.03 10,000 10,490 Nil Information not publicly available
================ ============= ======================================================== ========== ======== ======== ========== =============================================
Notes to the Financial Statements (continued)
=============================================
As at 31 January 2020 Income recognised Net assets attributable
from holding in the to shareholders
period '000
====================== ===================== ================ ================= ===================== ================== ==================== =======================
Latest Proportion of capital Pre-tax
Financial owned Book Cost Value Turnover profit/(loss)
Name Business Statements % US$'000 US$'000 '000 '000
============= =============== ====================== ===================== ================ ================= ===================== ================== ==================== =======================
Online
international
money transfer
TransferWise service 31/03/2019 0.29 10,050 10,000 Nil GBP179,100 GBP10,100 GBP126,400
============= =============== ====================== ===================== ================ ================= ===================== ================== ==================== =======================
Sustainable
direct-to-
consumer
Allbirds footwear brand n/a 2.62 10,000 10,000 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Manufactures
and develops
Carbon 3D printers n/a 0.41 10,000 10,000 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Marketplace for
truckers and
Convoy shippers n/a 0.39 10,000 10,000 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Scopely Online gaming n/a 0.59 10,000 10,000 Nil Information not
company publicly
available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Social media
and news
aggregation
ByteDance company n/a 0.01 10,000 10,000 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Develops
software for
cardiovascular
disease
diagnosis and
HeartFlow treatment n/a 0.67 10,000 9,786 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Online platform
which
provides point
of sale
consumer
Affirm finance n/a 0.22 6,305 6,305 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Stripe Online payment n/a 0.01 4,894 4,894 Nil Information not
platform publicly
available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
Online market
place for
travel
Airbnb accommodation n/a 0.01 4,566 4,566 Nil Information not publicly available
============= =============== ====================== ===================== ================ ================= ===================== =================================================================
163,978 175,046
============================= ====================== ===================== ================ ================= ===================== =================================================================
* Excludes promissory notes and warrants.
Notes to the Financial Statements (continued)
=============================================
8. Share Capital 2020 2020
Number US$'000
============================================================================== ==============
Allotted, called up and fully paid ordinary shares of US$1 each 477,250,002 475,642
=============================================================================== ============== =========
On incorporation, the share capital of the Company was US$2 represented by two ordinary shares
with a nominal value of US$1, which were held by Baillie Gifford & Co Limited and Baillie
Gifford Overseas Limited to allow the Company to commence business and to exercise its borrowing
powers.
On 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, the Company issued 477,250,000
ordinary shares of US$1 and raised gross proceeds of US$477,250,000 which was used to finance
the initial investments of the Company. The issue costs in respect of the initial investment
were US$1,608,000, which were made up of set up costs. These costs consisted mainly of legal
fees (US$1,190,000) and listing fees (US$247,000).
By way of a special resolution dated 15 March 2019 the Directors have a general authority
to allot up to 720 million 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 hence the Company has the ability to issue a further 242,750,000 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). In the period 27 March 2019 to 31 January 2020, no further
shares have been issued, nor have any in the period from 31 January 2020 to 19 March 2020.
By way of an ordinary resolution passed on 15 March 2019 the Directors of the Company have
general authority to make market purchases of up to 47,725,000 ordinary shares, being 10%
of the ordinary shares in issue immediately following the initially placed shares being admitted
to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange
at a price not exceeding the last reported net asset value per ordinary share at the time
of purchase. This authority will expire at the end of the period concluding immediately prior
to the first Annual General Meeting of the Company. No shares have been bought back during
the period ended 31 January 2020 hence the authority remains at 47,725,000 ordinary shares.
9. Risk Management
The Company predominantly invests in long-term minority investments in later stage private
businesses. Pending investment in unlisted companies the Company may invest in a range of
cash equivalent instruments. The Company may employ gearing on a short-term basis for the
purpose of bridging investments and general working capital purposes. In pursuing its investment
objective, the Company is exposed to various types of risk that are associated with the financial
instruments and markets in which it invests.
These risks are categorised as market risk (comprising currency risk, interest rate risk and
other price risk), liquidity risk and credit risk. The Board monitors closely the Company's
exposures to these risks but does so in order to reduce the likelihood of a permanent loss
of capital rather than to minimise short-term volatility. Risk provides the potential for
both losses and gains. In assessing risk, the Board encourages the Investment Manager to exploit
the opportunities that risk affords.
Market Risk
The fair value or future cash flows of a financial instrument or other investment held by
the Company may fluctuate because of changes in market prices. This market risk comprises
three elements - currency risk, interest rate risk and other price risk. The Board of Directors
reviews and agrees policies for managing these risks and the Company's Investment Manager
both assesses the exposure to market risk when making individual investment decisions and
monitors the overall level of market risk across the investment portfolio on an ongoing basis.
Notes to the Financial Statements (continued)
=============================================
Details of the Company's investment portfolio are shown above. The Company may, from time
to time, enter into derivative transactions to hedge specific market, currency or interest
rate risk. In the period from 4 January 2019 to 31 January 2020 no such transactions were
entered into. The Company's Investment Manager may not enter into derivative transactions
without the prior approval of the Board.
(i) Currency Risk
The Company's assets, liabilities and income are principally denominated in US dollars, the
Company's functional currency and that in which it reports its results. Consequently, movements
in the exchange rate of its functional currency relative to other foreign currencies will
affect the US dollar value of those items.
The Investment Manager monitors the Company's exposure to foreign currencies and reports to
the Board on a regular basis. The Investment Manager assesses the risk to the Company of the
foreign currency exposure by considering the effect on the Company's net asset value and income
of a movement in the rates of exchange to which the Company's assets, liabilities, income
and expenses are exposed. However, the country in which a company is listed is not necessarily
where it earns its profits. The movement in exchange rates on overseas earnings may have a
more significant impact upon a company's valuation than a simple translation of the currency
in which the company is quoted.
Exposure to currency risk through asset allocation, which is calculated by reference to the
currency in which the asset or liability is quoted, is shown below.
As at 31 January 2020 Cash, US Treasury Bills
and deposits Other debtors and Net exposure
Investments US$'000 creditors* US$'000
US$'000 US$'000
=========================== ============== ========================== ========================== ==============
Sterling - 40 (234) (194)
Euros 11,096 - - 11,096
=========================== ============== ========================== ========================== ==============
Total exposure to currency
risk 11,096 40 (234) 10,902
US dollar 163,950 318,228 - 482,178
=========================== ============== ========================== ========================== ==============
175,046 318,268 (234) 493,080
=========================== ============== ========================== ========================== ==============
* Includes net non-monetary assets of
US$20,000.
Notes to the Financial Statements (continued)
=============================================
Currency Risk Sensitivity
At 31 January 2020, if the US dollar had strengthened by 5% in relation to all other currencies,
with all other variables held constant, total net assets and profit and total comprehensive
income for the period from 4 January 2019 to 31 January 2020 would have decreased by US$545,000.
A 5% weakening of the US dollar to other currencies, with all other variables held constant,
would have had an equal but opposite effect on the Financial Statement amounts.
A change of 5% in foreign currency rates has been considered to be a reasonably plausible
change.
(ii) Interest Rate Risk
Interest rate movements may affect directly the level of income receivable on cash deposits
and the interest payable on any variable rate borrowings.
They may also impact upon the market value of investments as the effect of interest rate movements
upon the earnings of a company may have a significant impact upon the valuation of that company's
equity.
The possible effects on fair value and cash flows that could arise as a result of changes
in interest rates are taken into account when making investment decisions and when entering
borrowing agreements.
The Board reviews on a regular basis the amount of investments in cash and the income receivable
on cash deposits.
The Company may finance, on a short-term basis, part of its activities through borrowings
at approved levels. The amount of any such borrowings and the approved levels are monitored
and reviewed regularly by the Board.
The interest rate risk profile of the Company's financial assets and liabilities at 31 January
2020 is shown below.
========================================================================================================
Financial Assets 2020 2020
Fair value Weighted average interest rate
US$'000
============================= =================== ====================================================
Cash
US dollar 10,093 1.0%
Sterling 40 -
============================= =================== ====================================================
The cash deposits generally comprise overnight call or short-term money market deposits and
earn interest at floating rates based on prevailing bank base rates.
Financial Liabilities
The Company currently has no financial liabilities.
Interest Rate Risk Sensitivity
An increase of 100 basis points in interest rates, with all other variables being held constant,
would have increased the Company's total net assets and profit and total comprehensive income
for the period from 4 January 2019 to 31 January 2020 by US$103,000. This is mainly due to
the Company's exposure to interest rates on its cash balances. A decrease of 100 basis points
would have had an equal but opposite effect.
Notes to the Financial Statements (continued)
=============================================
(iii) Other Price Risk
Changes in market prices other than those arising from interest rate risk or currency risk
may also affect the value of the Company's net assets. The Board manages the market price
risks inherent in the investment portfolio by ensuring full and timely access to relevant
information from the Investment Manager. The Company's portfolio of unlisted Level 3 investments
is not necessarily affected by market performance, however the valuations are affected by
the performance of the underlying securities in line with the valuation criteria in note 1(e).
The Board meets regularly and at each meeting reviews investment performance, the investment
portfolio and the rationale for the current investment portfolio positioning to ensure consistency
with the Company's objectives and investment policies. Investments are selected based upon
the merit of individual companies. The portfolio does not seek to reproduce any index.
Other Price Risk Sensitivity
A full list of the Company's investments is given above. In addition, an analysis of the investment
portfolio by broad geographical, industrial or commercial sector is shown above.
35.5% of the Company's net assets are invested in unlisted investments. The fair valuation
of the unlisted investments is influenced by the estimates, assumptions and judgements made
in the fair valuation process (see note 1(d) above). A sensitivity analysis is provided below
which recognises that the valuation methodologies employed involve different levels of subjectivity
in their inputs. The sensitivity analysis below applies a wider range of input variable sensitivity
to the Multiples methodology as it involves more significant subjective estimation than the
recent Transaction method (the risk of over or under estimation is higher due to the greater
subjectivity involved, for example, in selecting the most relevant measure of sustainable
revenues and identifying appropriate comparable companies).
=================================================================================================================
As at 31 January 2020 Fair value of investment Significant unobservable Range Sensitivity to changes
Valuation Approach US$'000 inputs in significant
unobservable inputs
========================= ======================== ======================== ======== =======================
Adjusted recent 163,366 Not applicable for this valuation
transaction method
Multiples 11,680 Enterprise value/ last If the EV/LTM revenue
twelve months revenue 4.8x - multiple were to
multiple 8.5x increase, the value
would increase
If the transaction
Transaction implied 8.0% implied premium were to
premium be reduced, the value
would decrease
========================= ======================== ======================== ======== =======================
Total 175,046
========================== ======================== ======================== ======== =======================
Notes to the Financial Statements (continued)
=============================================
Significant Unobservable Inputs
The variable inputs applicable to each broad category of valuation basis will vary dependent
on the particular circumstances of each unlisted company valuation. An explanation of each
of the key variable inputs is provided below and includes an indication of the range in value
for each input, where relevant. The assumptions made in the production of the inputs are described
in note 1(d) above.
Selection of Appropriate Benchmarks
The selection of appropriate benchmarks is assessed individually for each investment. The
industry and geography of each company are key inputs to the benchmark selection .
Selection of Comparable Companies
The selection of comparable companies is assessed individually for each investment at the
point of investment, and the relevance of the comparable companies is continually evaluated
at each valuation. The key criteria used in selecting appropriate comparable companies are
the industry sector in which they operate, the geography of the company's operations, the
respective revenue and earnings growth rates and the operating margins. Typically, between
4 and 10 comparable companies will be selected for each investment, depending on how many
relevant comparable companies are identified. The resultant revenue or earnings multiples
derived will vary depending on the companies selected and the industries they operate in.
Probability Estimation of Liquidation Events
The probability of a liquidation event such as a company sale, or alternatively an initial
public offering ('IPO'), is a key variable input in the Transaction-based and Multiples-based
valuation techniques. The probability of an IPO versus a company sale is typically estimated
from the outset to be 50:50 if there has been no indication by the company of pursuing either
of these routes. If the company has indicated an intention to IPO, the probability is increased
accordingly to 75% and if an IPO has become a certainty the probability is increased to 100%.
Likewise, in a scenario where a company is pursuing a trade sale the weightings will be adjusted
accordingly in favour of a sale scenario, or in a situation where a company is underperforming
expectations significantly and therefore deemed very unlikely to pursue an IPO.
Application of Valuation Basis
Each investment is assessed independently, and the valuation basis applied will vary depending
on the circumstances of each investment. When an investment is pre-revenue, the focus of the
valuation will be on assessing the recent transaction and the achievement of key milestones
since investment. Adjustments may also be made depending on the performance of comparable
benchmarks and companies. For those investments where a trading Multiples approach can be
taken, the methodology will factor in revenue, earnings or net assets as appropriate for the
investment, and where a suitable correlation can be identified with the comparable companies
then a regression analysis will be performed. Discounted cash flows will also be considered
where appropriate forecasts are available.
Estimated Sustainable Earnings
The selection of sustainable revenue or earnings will depend on whether the company is sustainably
profitable or not, and where it is not then sustainable revenues will be used in the valuation.
The valuation approach will typically assess companies based on the last twelve months of
revenue or earnings, as they are the most recent available and therefore viewed as the most
reliable. Where a company has reliably forecasted earnings previously or there is a change
in circumstance at the business which will impact earnings going forward, then forward estimated
revenue or earnings may be used instead.
Notes to the Financial Statements (continued)
=============================================
Application of Liquidity Discount
The application of a liquidity discount will be applied either through the calibration of
a valuation against the most recent transaction, or by application of a specific discount.
The discount applied where a calibration is not appropriate is typically 10%, reflecting that
the majority of the investments held are substantial companies with some secondary market
activity.
Liquidity Risk
This is the risk that the Company will encounter difficulty in meeting obligations associated
with financial liabilities. Investments in private businesses are expected to comprise a material
proportion of the Company's portfolio. Interests in private businesses are highly illiquid
and have no public market, which may affect the Company's ability to vary its portfolio or
dispose of or liquidate part of its portfolio in a timely fashion, or at all, and at satisfactory
prices in response to changes in economic or other conditions. At 31 January 2020, the Company
held US$308,135,000 of US Treasury Bills which are fully realisable. The Board provides guidance
to the Investment Manager as to the maximum exposure to any one holding and to the maximum
aggregate exposure to substantial holdings.
The Company has the power to take out borrowings, which give it access to additional funding
when required. There are no borrowings as at 31 January 2020.
Credit Risk
This is the risk that a failure of a counterparty to a transaction to discharge its obligations
under that transaction could result in the Company suffering a loss. This risk is managed
as follows:
* where the Investment Manager makes an investment in a
bond or other security with credit risk, that credit
risk is assessed and then compared to the prospective
investment return of the security in question;
* the Depositary is liable for the loss of financial
instruments held in custody. The Depositary will
ensure that any delegate segregates the assets of the
Company. The Investment Manager monitors the
Company's risk by reviewing the Custodian's internal
control reports and reporting its findings to the
Board;
* investment transactions are carried out with brokers
whose creditworthiness is reviewed by the Investment
Manager. Transactions are ordinarily undertaken on a
delivery versus payment basis whereby the Company's
custodian bank ensures that the counterparty to any
transaction entered into by the Company has delivered
on its obligations before any transfer of cash or
securities away from the Company is completed;
* the creditworthiness of the counterparty to
transactions involving derivatives, structured notes
and other arrangements, wherein the creditworthiness
of the entity acting as broker or counterparty to the
transaction is likely to be of sustained interest,
are subject to rigorous assessment by the Investment
Manager; and
* cash is only held at banks that are regularly
reviewed by the Investment Manager. At 31 January
2020, all cash deposits were held with the custodian
bank.
Credit Risk Exposure
The exposure to credit risk at 31 January 2020 was:
=====================================================================================================
2020
US$'000
============================================================================== =====================
US Treasury Bills 308,135
Cash and short-term deposits 10,133
Debtors and prepayments 271
============================================================================== =====================
318,539
============================================================================== =====================
Notes to the Financial Statements (continued)
=============================================
The maximum exposure in cash and cash equivalents during the period from 4 January 2019 to
31 January 2020 was US$477,250,000 and the minimum was US$2. None of the Company's financial
assets are past due or impaired.
Fair Value of Financial Assets and Financial Liabilities
The Directors are of the opinion that the carrying amount of financial assets and liabilities
of the Company in the Statement of Financial Position approximate their fair value.
Capital Management
The capital of the Company is its share capital and reserves as set out in note 11 of the
Annual Report and Financial Statements. The objective of the Company is to invest predominantly
in long-term minority investments in later stage private businesses in order to achieve capital
growth. The Company's investment policy is set out above. In pursuit of the Company's objective,
the Board has a responsibility for ensuring the Company's ability to continue as a going concern
and details of the related risks and how they are managed are set out on page 21 of the Annual
Report and Financial Statements, pages 6 and 7 of the Annual Report and Financial Statements
and pages 20 and 21 of the Annual Report and Financial Statements respectively. The Company
has the authority to issue and buyback its shares and changes to the share capital during
the period are set out in note 8.
==============================================================================================================
10. The financial information set out above does not constitute the Company's statutory accounts
for the period from incorporation on 4 January 2019 to 31 January 2020 but is derived from
those accounts.
==============================================================================================================
11. The Annual Report and Financial Statements will be available on the Managers' website www.schiehallionfund.com
++ on or around 7 April 2020.
==============================================================================================================
Notes to the Financial Statements (continued)
=============================================
Glossary of Terms and Alternative Performance Measures ('APM')
An alternative performance measure is a financial measure of historical or future financial
performance, financial position, or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework.
Total Assets
Total value of all assets held less current liabilities, other than liabilities in the form
of borrowings.
Net Asset Value
Also described as shareholder funds, net asset value ('NAV') is the value of total assets
less liabilities (including borrowings). The NAV per share is calculated by dividing this
amount by the number of ordinary shares in issue.
Net Current Assets
Net current assets comprise current assets less current liabilities excluding borrowings.
Premium/(Discount) (APM)
As stockmarkets and share prices vary, the 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, this situation is called a premium.
Ongoing Charges (APM)
The total recurring expenses (excluding the Company ' s costs of dealing in investments and
borrowing costs) incurred by the Company as a percentage of the average net asset value (with
debt at fair value).
==================================================================================================
2020
US$'000
========================================================================================== ====== =========
Investment management fee* 929
Other administrative expenses 458
========================================================================================= ====== =========
Total expenses 1,387
========================================================================================= ====== =========
Total expenses annualised (a) 1,633
Average net asset value (with borrowings deducted at fair value) (b) 482,220
========================================================================================== ====== =========
Ongoing charges ((a) ÷ (b) expressed as a percentage) 0.34%
========================================================================================= ====== =========
* The investment management fee reflects the initial period during which the Investment Manager did not receive fees on cash or cash equivalent elements of the portfolio.
The total expenses above cover the period 27 March 2019 to 31 January 2020, a period of 310 days.
Leverage (APM) For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of US dollar cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.
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 wwww.schiehallionfund.com (++)
The Schiehallion Fund Limited is managed by Baillie Gifford, the Edinburgh based fund management group with around GBP185 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 19 March 2020). 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.
20 March 2020
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Mark Knight, Director, Four Communications
Tel 0203 697 4200 or 07803 758810
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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March 20, 2020 06:06 ET (10:06 GMT)
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