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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.005 | -0.55% | 0.905 | 0.88 | 0.93 | 0.91 | 0.905 | 0.91 | 301,964 | 10:07:04 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -309.14M | -319.33M | -0.3104 | -2.90 | 925.94M |
From Apr 2019 to Apr 2024
TIDMMNTN
RNS Number : 4146L
Schiehallion Fund Limited (The)
06 September 2019
RNS Announcement
The Schiehallion Fund Limited
Legal Entity Identifier: 213800NQOLJA1JCWXQ56
Regulated Information Classification: Half Yearly Financial Report
The following is the unaudited Interim Financial Report for the period from incorporation on 4 January 2019 to 31 July 2019 which was approved by the Board on 5 September 2019.
Message from the Chairperson
It is with pleasure that I present the Board's first Interim Report for The Schiehallion Fund Limited (the 'Company' or 'Schiehallion') for the period from incorporation on 4 January 2019 to 31 July 2019. The Company raised gross proceeds of US$477 million at launch on 27 March 2019 .
During the period from 27 March 2019 to 31 July 2019, the Company's share price and NAV returned 17.5% and 1.2% respectively.
Since shares opened for trading on the London Stock Exchange they have climbed steadily, on thin trading volume, to a premium of approximately 16.5%. The premium is a function of supply and demand for the Company's shares in the secondary market. 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.
Further information about the Company's portfolio is covered by our portfolio managers, Peter Singlehurst and Mark Urquhart, in their Interim Management Report.
Linda Yueh
Chairperson
5 September 2019
Summary of Results (unaudited)
For the period from 27 March 2019, launch and first day of trading, to 31 July 2019
Hot Features
Premium
%
31 July 2019 27 March change
2019
=================================== ============== =========== ==================
Shareholders' funds US$481.25m US$475.64m
Net asset value per ordinary share 100.84c 99.66c 1.2
Share price 117.50c 100.00c 17.5
Premium 16.5% 0.3%
Number of shares in issue 477,250,002 477,250,002
Market capitalisation US$560.77m US$477.25m
Period from
4 January
2019(#)
to 31 July
2019
=========================== ===========
Revenue earnings per share (0.04c)
=========================== ===========
Notes
* For a definition of terms see Glossary of Terms and Alternative Performance Measures at the end of this announcement.
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.
(#) Date of incorporation of the Company.
Past performance is not a guide to future performance.
Interim Management Report
Our Approach
The Schiehallion Fund Limited (Schiehallion) was conceived because many of the world's most exciting companies are choosing to remain private for longer. In our view, this has led to a concentration of exceptional and rapidly growing companies in the later stages of private markets. It is also causing a shift in where shareholder value might accrue. Schiehallion was also founded on a belief that these companies could arise anywhere in the world. The portfolio we have assembled to date supports both hypotheses. Furthermore, by breaking down the artificial divide between private and public company investing, the Company's shareholders are in a strong position to benefit from these changes.
Portfolio Update
As at the date of this report, we have invested in eight private companies, based in China, the United States, the United Kingdom and Germany. These holdings represent a diverse range of businesses - from space travel to bus travel, and from luggage to low cost foreign exchange. However, what they all have in common is their potential to become many times bigger over our investment horizon. Of these eight companies, five will have revenues in excess of US$100 million in 2019, three of which will be greater than US$1 billion. Between 2017 and 2018 their combined revenues more than doubled in US dollar terms. Our contention that there is a wide variety of exciting and high-growth businesses in the late-stages of private markets is borne out in the portfolio we have built over this initial short period.
We are bottom-up stock pickers - every company in which we invest must have excellent prospects on a fundamental basis. However, we do observe how wider changes are altering companies' operating environments and opportunity sets. One of the major trends we have seen over recent years is the extension of the disruption that has transformed media and retail into other industries. Many of these fields are both large and relatively untouched by the technological change of the last few decades. This presents enormous opportunities, but also inevitable complexity in navigating the vested interests of the status quo.
Looking to examples in the portfolio, something as traditional as bus travel has been given a new lease of life by Flix, as it uses technology to make booking tickets easier and route planning better. The result is a greatly enhanced customer experience. Luggage is an industry that, like so many others, might have been thought immune to the disruptive power of the internet. Yet today we see Away using online distribution and savvy social media strategies to create a new brand with high-quality products in a market that has not evolved in decades. Carbon is following where many others have failed, in trying to use 3D printing to disrupt the US$12 trillion industrial manufacturing market. However, it is doing so with an offering that is cheaper, faster and more versatile. As such its technology is being enthusiastically adopted by an ever-growing number of partners. We believe that investing in companies working to transform these relatively unchanged industries should be a rich seam for Schiehallion.
The nature of our investment approach means that we see these types of companies first in the private markets and can support, and benefit from, their rapid growth years before they become public companies. Our pipeline of opportunities continues to grow and contains companies operating in an increasingly diverse range of sectors.
Outlook
When Schiehallion was launched we stated it would be reasonable to expect that we could invest at least two-thirds of the capital raised within the first two years. Our current pace of investment puts the Company well on track to meet this milestone, but it would be a mistake to view it as an objective. Rather, the rate of investment will be an output of the number of high-quality companies we find worthy of the capital entrusted to Schiehallion by its shareholders.
Private companies have the luxury of choosing their shareholders and our ability to access high-quality businesses remains of fundamental importance. Several of the investments we have made for Schiehallion have been in private companies in which Baillie Gifford is already a shareholder. As a result, we have good relationships with management and have been following the businesses' progress closely. These include SpaceX, Carbon, TransferWise, Tempus and HeartFlow.
Furthermore, we continue to be encouraged by the new deal flow we are experiencing. We have looked at approximately 150 private financing rounds in the first months of Schiehallion's existence. This provides fantastic opportunities and brings a welcome challenge - selecting only the very best investments for the Company's shareholders.
In addition to the holdings sourced from Baillie Gifford's existing relationships, the three brand new investments that we deemed worthy of shareholders' capital are Away, ByteDance and Flix. Whenever we look at a private financing round we ask ourselves whether we have a competitive advantage, either in accessing or analysing the businesses in question. These three companies nicely encapsulate the access advantages we believe we have as private market investors. The opportunity to invest in Away came from an introduction by the CEO of another Baillie Gifford-sourced private investment. We invested in ByteDance following a direct approach from 77the company, after a few years of getting to know the business and team. Likewise, we first began research on Flix in 2016 and the company subsequently approached us directly when planning its most recent financing. These relationships reflect the attractiveness of Baillie Gifford's approach as a long-term supportive investor, and the rare access it provides for our shareholders to invest in exceptional growth businesses.
We are optimistic about the outlook from this point, both for the companies in which the Company has already invested and the pipeline of opportunities that we are working on. Thank you for being a shareholder in Schiehallion.
The principal risks and uncertainties facing the Company are set out in note 15.
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.
Responsibility Statement
The Directors of The Schiehallion Fund Limited confirm that to the best of their knowledge:
a) the Interim Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Directors have elected to prepare financial statements that comply with International Financial Reporting Standards as issued by the International Accounting Standards Board;
b) the Interim Management Report and the Principal Risks section includes a fair review of the information required by:
i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first period of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first period of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period.
By Order of the Board
Linda Yueh
Chairperson
5 September 2019
Statement of Comprehensive Income (unaudited)
For the period from 4 January 2019 to 31 July 2019
Revenue Capital Total
Notes US$'000 US$'000 US$'000
============================================ ======== ======== ========
Gains on investments 7 - 1,896 1,896
Gains on US Treasury Bills 7 - 3,936 3,936
Currency gains 11 - 7 7
Income 2 128 - 128
Investment management fee 3 (203) - (203)
Other administrative expenses 4 (154) - (154)
======================================== ======== ======== ========
Operating profit before taxation (229) 5,839 5,610
============================================ ======== ======== ========
Tax on ordinary activities - - -
============================================ ======== ======== ========
Profit and total comprehensive income for
the period (229) 5,839 5,610
============================================ ======== ======== ========
Earnings per ordinary share 5 (0.04c) 1.22c 1.18c
======================================== ======== ======== ========
The total column of this Statement represents the Statement of Comprehensive Income of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing operations.
Statement of Financial Position (unaudited)
As at 31 July 2019
2019 2019
Notes US$'000 US$'000
====================================== ======== ========
Fixed assets
Investments held at fair value
through profit or loss 7 82,442
================================== ======== ========
Current assets
Cash and cash equivalents 14 399,029
Debtors 8 15
================================== ======== ========
399,044
====================================== ======== ========
Current liabilities
====================================== ======== ========
Amounts falling due within one year
9 (233)
====================================== ======== ========
Net current assets 398,811
====================================== ======== ========
Net assets 481,253
====================================== ======== ========
Capital and reserves
Share capital 10 475,643
Capital reserve 11 5,839
Revenue reserve 11 (229)
================================== ======== ========
Equity shareholders' funds 481,253
====================================== ======== ========
Net asset value per ordinary
share 12 100.84c
================================== ======== ========
Statement of changes in equity (unaudited)
For the period from 4 January 2019 to 31 July 2019
Share Capital Revenue Shareholders'
capital reserve reserve funds
Notes US$'000 US$'000 US$'000 US$'000
======================================== ======== ======== ======== =============
Equity shareholders' funds at 4 January - - - -
2019
Ordinary shares issued 10/11 475,643 - - 475,643
Total comprehensive income for the
period - 5,839 (229) 5,610
======================================== ======== ======== ======== =============
Equity shareholders' funds at 31 July
2019 475,643 5,839 (229) 481,253
======================================== ======== ======== ======== =============
Statement of Cash Flows (unaudited)
For the period from 4 January 2019 to 31 July 2019
2019 2019
Notes US$'000 US$'000
========================================== ================================================ =======================
Cash flows from operating activities
Operating profit before taxation 5,610
Net gains on investments (1,896)
Currency gains (7)
Changes in debtors and creditors 218
========================================== ================================================ =======================
Net cash used in operating activities* 3,925
========================================== ================================================ =======================
Cash flows from investing activities
Acquisitions of investments 7 (80,546)
Disposals of investment 7 -
========================================== ================================================ =======================
Net cash used in investing activities (80,546)
========================================== ================================================ =======================
Cash flows from financing activities
Ordinary shares issued 10/11 475,643
========================================== ================================================ =======================
Net cash inflow from financing activities 475,643
========================================== ================================================ =======================
Net increase in cash and cash equivalents 399,022
Effect of exchange rate fluctuations on
cash and cash equivalents 7
Cash and cash equivalents at 4 January -
2019
========================================== ================================================ =======================
Cash and cash equivalents at 31 July 2019 399,029
========================================== ================================================ =======================
* Cash from operations includes interest received of US$128,000.
List of Investments as at 31 July 2019 (unaudited)
==================================================
2019 2019 2019
Value Value % of
net
assets
Name Business Country US$'000 US$'000
=============================== =============================== ================ ======== ======== ========
Oncological records aggregator
Tempus Labs Inc Series and
E Preferred diagnostic testing provider United States 4,387
Oncological records aggregator
Tempus Labs Inc Series and
F Preferred diagnostic testing provider United States 7,043
========
11,430 2.4
FlixMobility GmbH Series
F2 Preferred European mobility provider Germany 11,148 2.3
Space Exploration Technologies
Corp Rocket and spacecraft
Series K Preferred company United States 10,490 2.2
Online money transfer
TransferWise Limited Ordinary service United Kingdom 5,123
TransferWise Limited Seed Online money transfer
Preferred service United Kingdom 1,761
TransferWise Limited Series Online money transfer
A Preferred service United Kingdom 2,082
TransferWise Limited Series Online money transfer
B Preferred service United Kingdom 598
TransferWise Limited Series Online money transfer
C Preferred service United Kingdom 334
TransferWise Limited Series Online money transfer
D Preferred service United Kingdom 92
TransferWise Limited Series Online money transfer
E Preferred service United Kingdom 10
========
10,000 2.1
Social media and news
ByteDance Limited Series aggregation
E Preferred company China 10,000 2.1
Manufactures and develops
Carbon Inc Series E Preferred 3D printers United States 10,000 2.1
Develops software for
cardiovascular
HeartFlow Inc Series E disease diagnosis and
Preferred treatments United States 9,999 2.1
Away (JRSK Inc) Series Travel and lifestyle
D Preferred brand United States 5,625
Away (JRSK Inc) Series Travel and lifestyle
Seed Preferred brand United States 3,750
========
9,375 1.9
================================================================================ ======== ======== ========
Total unlisted securities 82,442 17.2
================================================================================== ======== ======== ========
US Treasury Bill 26/09/2019 64,665 13.4
US Treasury Bill 05/12/2019 64,740 13.4
US Treasury Bill 30/01/2020 64,825 13.5
US Treasury Bill 26/03/2020 64,908 13.5
US Treasury Bill 21/05/2020 66,446 13.8
US Treasury Bill 16/07/2020 64,433 13.4
Net current assets 8,794 1.8
================================================================ ================ ======== ======== ========
Total cash and cash equivalents 398,811 82.8
================================================================ ================ ======== ======== ========
Net assets 481,253 100.0
================================================================ ================ ======== ======== ========
Distribution of net assets (unaudited)
Geographical
As at
31 July 2019
%
==================== ===================
US Treasury Bills 81.0
United States 10.7
Germany 2.3
United Kingdom 2.1
China 2.1
Net Current Assets 1.8
100.0
==================== ===================
Sectoral
As at
31 July 2019
%
======================== ===================
Communication Services 2.1
Consumer Discretionary 1.9
Financials 2.1
Health Care 4.5
Industrials 4.5
Information Technology 2.1
US Treasury Bills 81.0
Net Current Assets 1.8
100.0
======================== ===================
The above sectoral distribution is not derived from any index.
Notes to the financial statements (unaudited)
=============================================
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
collective 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 risks including market risk, liquidity risk and credit risk. An explanation of these
risks and how they are managed is contained on pages 8 and 21 to 24 of the Interim Report.
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. After making enquiries and considering the future prospects of the
Company, the Financial Statements have been prepared on the going concern basis as it is the
Directors' opinion that the Company will continue in operational existence for a period of
at least 12 months from the date of approval of these Financial Statements.
1. Principal Accounting Policies
The Financial Statements for the period from 4 January 2019 to 31 July 2019 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 IAS 34 Interim Financial Reporting
and the Directors have elected to prepare Financial Statements that comply with International
Financial Reporting Standards ('IFRS'). 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.
(b) Functional Currency
The Company's functional and presentational currency is the United States Dollar (US$). US$
is the functional currency as the Company has issued its share capital in US$, its shareholders
are based globally and the Company's investment policy has global reach. The Company's performance
is evaluated and its liquidity is managed in US$. Therefore, US$ 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.
Notes to the financial statements (unaudited)
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.
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 14 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.
Notes to the financial statements (unaudited) (Ctd)
=============================================================================================================
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
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.
(a) 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
Listed Investments
The fair value of listed security investments is the last traded price on recognised overseas
exchanges.
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:
* iples;
* 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.
Notes to the financial statements (unaudited)(Ctd)
==================================================
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:
* 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).
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.
(a) Cash and Cash Equivalents
Cash and cash equivalents include cash in hand, US Treasury Bills 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.
(b) 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.
(c) 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.
v) Interest receivable on bank deposits is recognised on an accruals basis.
(d) 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 buy-back/issuance
of shares, in which case they are added to the buy-back cost or deducted from the share issuance
proceeds.
Notes to the financial statements (unaudited) (Ctd)
===================================================
(e) 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.
(f) 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.
(g) 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.
(h) Single Segment Reporting
The Company is engaged in a single segment of business, being investment business, being investment
business, consequently no segmental analysis is presented.
==============================================================================================================
2. Income 2019
US$'000
================================================================================== =========================
Other income
Deposit interest 128
=================================================================================== === =========================
Total income 128
=================================================================================== === =========================
3. Investment Management Fee
================================================================================== =========================
2019
US$'000
================================================================================== =========================
Investment Management Fee 203
=================================================================================== === =========================
The Company has appointed Baillie Gifford & Co Limited as its Investment Manager (the 'Investment
Manager'). as the entity appointed to be responsible for risk management and portfolio management,
the Investment Manager has also been appointed as the Company's Alternative Investment Fund
Manager. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie
Gifford Overseas Limited.
Under the terms of the Investment Management Agreement and with effect from the date of 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 will be entitled to an annual
fee (exclusive of VAT, which shall be added where applicable) of: 0.9% on the net asset value
excluding cash or cash equivalent assets up to and including US$650 million; 0.8% on the net
asset value 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$1.3 billion. Management fees are calculated and payable quarterly.
===================================================================================================================
Notes to the financial statements (unaudited) (Ctd)
===================================================
A.
4. Other Administrative Expenses
=============================================================================================================
2019
US$'000
======================================================================== ================= ================
General administrative expenses 79
Administrator's fee 28
Auditor's remuneration for audit services -
Directors' Fees 47
============================================================================= ================= ================
154
============================================================================= ================= ================
In the period from 4 January 2019 to 31 July 2019 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 11). There were no other
non-audit fees incurred during the period from 4 January 2019 to 31 July 2019.
=============================================================================================================
5. Earnings per Ordinary Share 2019 2019 2019
Revenue Capital Total
============================================= ========================= ================= ================
Earnings per ordinary share (0.04c) 1.22c 1.18c
Revenue earnings per ordinary share is based on the net revenue loss on ordinary activities
after taxation of US$229,000 and on 477,250,002 ordinary shares, being the number of ordinary
shares in issue during the period from 4 January 2019 to 31 July 2019.
Capital earnings per ordinary share is based on the net capital gain for the financial period
of US$5,839,000 and on 477,250,002 ordinary shares, being the number of ordinary shares in
issue during the period from 4 January 2019 to 31 July 2019.
Total earnings per ordinary share is based on the total gain for the financial period of US$5,610,000
and on 477,250,002 ordinary shares, being the number of ordinary shares in issue during the
period from 4 January 2019 to 31 July 2019.
There are no dilutive or potentially dilutive shares in issue.
==================================================================================================================
6. Ordinary Dividends
There were no dividends paid or proposed in respect of the period from 4 January 2019 to 31
July 2019.
=============================================================================================================
7. Financial Instruments
=============================================================================================================
Fair Value Hierarchy
The fair value hierarchy used to analyse the fair values of financial assets is described
below. The levels are determined by the lowest (that is the least reliable or least independently
observable) level of input that is significant to the fair value measurement for the individual
investment in its entirety as follows:
Level 1 - using unadjusted quoted prices for identical instruments in an active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that are directly
or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is unavailable).
The valuation techniques used by the Company are explained in the accounting policies above.
==================================================================================================================
Notes to the financial statements (unaudited) (Ctd)
===================================================
Level 1 Level 2 Level 3 Total
As at 31 July 2019 US$'000 US$'000 US$'000 US$'000
================================ ========================== ======================== ======== ===========
US Treasury Bills 390,017 - - 390,017
Unlisted ordinary shares - - 5,123 5,123
Unlisted preference shares* - - 77,319 77,319
================================ ========================== ======================== ======== ===========
Total financial asset
investments 390,017 - 82,442 472,459
================================ ========================== ======================== ======== ===========
* The investments in preference shares are not classified as equity holdings as they include
liquidation preference rights that determine the repayment (or multiple thereof) of the original
investment in the event of a liquidation event such as a take-over.
There have been no transfers between levels of fair value hierarchy during the period from
4 January 2019 to 31 July 2019.
Investments in securities are financial assets held at fair value through profit or loss.
In accordance with IFRS 9, the tables above provide an analysis of these investments based
on the fair value hierarchy described below, which reflects the reliability and significance
of the information used to measure their fair value.
=============================================================================================================
Unlisted securities*
US Treasury Bills US$'000 Total
US$'000 US$'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 583,906 80,546 664,452
Sales - proceeds (197,825) - (197,825)
- gains on sales 1,012 - 1,012
Changes in investment holding
gains and losses 2,924 1,896 4,820
================================ ========================== ======================== =====================
Fair value of investments at 31
July 2019 390,017 82,442 472,459
================================ ========================== ======================== =====================
Cost of investments at 31 July
2019 387,093 80,546 467,639
Investment holding gains and
losses at 31 July 2019 2,924 1,896 4,820
Fair value of investments at 31
July 2019 390,017 82,442 472,459
================================ ========================== ======================== =====================
* Includes holdings in preference shares and ordinary shares.
The Company incurred transaction costs on purchases of US$50,000 and on sales of US$nil, being
US$50,000 in total.
Significant Holdings
Details of significant holdings are noted below in accordance with the disclosure requirements
of paragraph 82 of the AIC Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts' (updated in February 2018), in relation to the
unlisted investments. As required, this disclosure includes turnover, pre-tax profits and
net assets attributable to investors, as reported within the most recently audited financial
statement of the investee companies.
Notes to the financial statements (unaudited) (Ctd)
===================================================
As at 31 July 2019 Income Net assets
recognised attributable
from to
holding in shareholders
the period '000
=========== ========== ======= ======= ========== ========== ============
Proportion
Latest of capital Book Market Pre-tax
Financial owned Cost Value Turnover profit/(loss)
Name Business Statements % US$'000 US$'000 '000 '000
============= =============== =========== ========== ======= ======= ========== ========== ============= ============
Oncological
records
aggregator
and diagnostic
testing
Tempus Labs provider n/a 0.37 9,968 11,430 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
European
mobility
FlixMobility provider n/a 0.48 11,153 11,148 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ==========
Space Rocket and
Exploration spacecraft
Technologies company n/a 0.03 10,000 10,490 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
Online money
transfer
TransferWise service 31/03/18 0.28 10,050 10,000 Nil GBP117,280 GBP7,860 GBP107,450
============= =============== =========== ========== ======= ======= ========== ========== ============= ============
Social media
and news
aggregation
ByteDance company n/a 0.01 10,000 10,000 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
Manufactures
and develops
Carbon 3D printers n/a 0.42 10,000 10,000 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
Develops
software for
cardiovascular
disease
diagnosis and
HeartFlow treatment n/a 0.70 10,000 9,999 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
Travel and
lifestyle
Away (JRSK) brand n/a 0.74 9,375 9,375 Nil Information not publicly available
============= =============== =========== ========== ======= ======= ========== =======================================
Notes to the financial statements (unaudited) (Ctd)
===================================================
8. Debtors 2019
US$'000
================================================================================ =========== ===========
Amounts falling due within one year:
Income accrued (net of withholding taxes) -
Other debtors and prepayments 15
================================================================================= ==== =========== ===========
15
====================================================================================== =========== ===========
None of the above debtors are financial assets designated at fair value through profit or
loss. The carrying amount of debtors is a reasonable approximation of fair value. There were
no debtors that were past due or impaired at 31 July 2019.
===========================================================================================================
9. Creditors - Amounts falling due within one year 2019
US$'000
================================================================================ =========== ===========
Investment management fee 185
Administrator's fee 7
Other creditors and accruals 41
================================================================================= ==== =========== ===========
233
====================================================================================== =========== ===========
None of the above creditors at 31 July 2019 are financial liabilities designated at fair value
through profit or loss.
===========================================================================================================
10. Share Capital 2019 2019
Number US$'000
================================================================================= =========== ===========
Allotted, called up and fully paid ordinary shares of US$1 each 477,250,002 475,643
================================================================================= =========== ===========
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 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$1,607,000, which were made up of set up costs.
By way of a special resolution dated 15 March 2019 the Directors have a general authority
to allot up to 720 million ordinary shares or C shares, such figure to include the ordinary
shares issued at the initial placing. 477,250,000 ordinary shares were issued at the Company's
initial placing hence the Company has the ability to issue a further 272,750,000 shares under
this existing authority which expires at the end of the period concluding immediately prior
to the Annual General Meeting of the Company to be held in 2024 (or, if earlier five years
from the date of the resolution). In the period 27 March 2019 to 31 July 2019, no further
shares have been issued, nor have any in the period from 31 July 2019 to 4 September 2019.
By way of an ordinary resolution passed on 15 March 2019 the Directors of the Company have
general authority to make market purchases of up to 44,725,000 ordinary shares, being 10%
of the ordinary shares in issue immediately following the initially placed shares being admitted
to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange
at a price not exceeding the last reported net asset value per ordinary share at the time
of purchase. This authority will expire at the end of the period concluding immediately prior
to the first Annual General Meeting of the Company. No shares have been bought back during
the period ended 31 July 2019 hence the authority remains at 44,725,000 ordinary shares.
=================================================================================================================
Notes to the financial statements (unaudited) (Ctd)
========================================================================================
11. Capital and Reserves Capital reserve Revenue reserve Shareholders'
Share capital US$'000 US$'000 funds
US$'000 US$'000
===================== ==================== ===================== ===================== ====================
At 4 January 2019 - - - -
Net gains on sales of US
Treasury Bills - 1,012 - 1,012
Changes in investment
holding gains and losses - 1,896 - 1,896
Changes in holding gains on
US Treasury Bills - 2,924 - 2,924
Exchange differences - 7 - 7
Ordinary shares issued at
initial offering 477,250 - - 477,250
Costs in relation to issue
of ordinary shares (1,607) - - (1,607)
Revenue earnings on
ordinary activities after
taxation - - (229) (229)
=========================== ==================== ===================== ===================== ====================
At 31 July 2019 475,643 5,839 (229) 481,253
=========================== ==================== ===================== ===================== ====================
The capital reserve includes holding gains on investments and US Treasury Bills of US$4,820,000
as disclosed in note 7.
The revenue reserve and the capital reserve (to the extent it constitutes realised profits)
may be distributed by way of dividend.
===============================================================================================================
12. Net Asset Value per
Ordinary Share
===================== ==================== ===================== ===================== ====================
The net asset value per ordinary share and the net assets attributable to the ordinary shareholders
at 31 July 2019 calculated in accordance with the Articles of Association were as follows:
===============================================================================================================
2019 2019
Net asset value Net assets
per share attributable US$'000
===================== ==================== ===================== ===================== ====================
Ordinary shares 100.84c 481,253
=========================== ==================== ===================== ===================== ====================
The change in assets attributable to the ordinary shares during the period is shown in note
11.
Net asset value per ordinary share is based on the net assets as shown above and 477,250,002
ordinary shares, being the number of ordinary shares in issue at 31 July 2019.
=====================================================================================================================
Notes to the financial statements (unaudited) (Ctd)
===================================================
13. Transactions with Related Parties and the Investment Manager and
Administrator
Each of the Directors is entitled to receive a fee from the
Company at such rate as may be
determined in accordance with the Articles. The Directors' level
of remuneration during the
period 4 January 2019 to 31 July 2019 was GBP30,000 per annum for
each Director other than
the Chairperson, who is entitled to receive an additional
GBP15,000 per annum, and Chairperson
of the Audit Committee, who is entitled to receive an additional
GBP5,000 per annum. In addition
to the above each Director received a one off fee of GBP7,500
(US$9,815) which was to cover
services related to the initial listing of the Company. As these
costs related to the initial
listing of the Company, they were included within the costs of
issuing shares (see note 11).
All of the Directors will also be entitled to be paid all
reasonable expenses properly incurred
by them in connection with the performance of their duties. These
expenses will include those
associated with attending general Board or committee meetings and
legal fees. The Board may
determine that additional remuneration may be paid, from time to
time, to any one or more
Directors in the event such Director or Directors are requested
by the Board to perform extra
or special services on behalf of the Company.
None of the Directors has a shareholding or other interest in the
share capital of the Company.
No Director has a contract of service with the Company.
Details of the management contract are set out in note 3. The
management fee payable to the
Investment Manager by the Company for the period from 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, to 31 July 2019, as disclosed in
note 3, was US$203,000 of which
US$185,000 was outstanding at 31 July 2019, as disclosed in note
9.
The fee payable to Alter Domus, the Company's Administrator, for
the period to 27 March 2019,
the date of admission to trading of the Company's ordinary shares
on the Specialist Fund Segment
of the Main Market of the London Stock Exchange, to 31 July 2019
as disclosed in note 4, was
US$28,000 of which US$7,000 was outstanding at 31 July 2019 as
disclosed in note 9.
14. 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 borrow money when
the Board and Investment Manager
have sufficient conviction that the assets funded by borrowed
monies will generate a return
in excess of the cost of borrowing. 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.
Details of the Company's investment portfolio are shown in note
7. 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 July 2019 no
such transactions were entered
into. The Company's Investment Manager may not enter into
derivative transactions without
the prior approval of the Board.
Notes to the financial statements (unaudited) (Ctd)
=====================================================
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. 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 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.
US dollar borrowings can limit the Company's exposure to anticipated future changes in exchange
rates which might otherwise adversely affect the value of the portfolio of investments.
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.
=======================================================================================================================
At 31 July 2019 Cash, US Treasury Bills and Other
Investments deposits debtors and creditors* Net exposure
US$'000 US$'000 US$'000 US$'000
============================ ============ =========================== ======================= ============
Sterling - - (218) (218)
Euros 11,148 - - 11,148
============================ ============ =========================== ======================= ============
Total exposure to currency
risk 11,148 - (218) 10,930
US dollar 71,294 399,029 - 470,323
============================ ============ =========================== ======================= ============
82,442 399,029 (218) 481,253
============================ ============ =========================== ======================= ============
* Includes net non-monetary
assets of US$15,000.
Currency Risk Sensitivity
At 31 July 2019, if the US dollar had strengthened by 5% in relation to all other currencies,
with all other variables held constant, total net assets and the profit and total comprehensive
income for the period from 4 January 2019 to 31 July 2019 would have decreased by US$546,000.
A 5% weakening of the US dollar to other currencies, with all other variables held constant,
would have had an equal but opposite effect on the Financial Statement amounts.
A change of 5% in foreign currency rates has been considered to be a reasonably plausible
change.
(ii) Interest Rate Risk
Interest rate movements may affect directly the level of income receivable on cash deposits
and treasury bills and the interest payable on any variable rate borrowings.
They may also impact upon the market value of investments as the effect of interest rate movements
upon the earnings of a company may have a significant impact upon the valuation of that company's
equity.
The possible effects on fair value and cash flows that could arise as a result of changes
in interest rates are taken into account when making investment decisions and when entering
borrowing agreements.
The Board reviews on a regular basis the amount of investments in cash and the income receivable
on cash deposits.
The Company may finance part of its activities through borrowings at approved levels. The
amount of any such borrowings and the approved levels are monitored and reviewed regularly
by the Board.
The interest rate risk profile of the Company's financial assets and liabilities at 31 July
2019 is shown below.
Notes to the financial statements (unaudited) (Ctd)
====================================================
Financial Assets 2019
Fair value 2019
US$'000 Weighted average interest rate
============================= =================== =====================================================
Cash
US dollar 9,012 0.8%
=============================== =================== =====================================================
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 July 2019 by US$160,000. 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.
(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.
81.0% of the Company's net assets are invested in US Treasury Bills. A 5% increase in valuations
at 31 July 2019 would have increased net assets and profit and total comprehensive income
for the period from 4 January 2019 to 31 July 2019 by US$19,500,000. A decrease of 5% would
have had an equal but opposite effect.
17.2% of the Company's net assets are invested in unlisted investments. The fair valuation
of the unlisted investments is influenced by the estimates, assumptions and judgements made
in the fair valuation process (see note 1(d)). A sensitivity analysis is provided below which
recognises that the valuation methodologies employed involve different levels of subjectivity
in their inputs. The sensitivity analysis below applies a wider range of input variable sensitivity
to the Multiples methodology as it involves more significant subjective estimation than the
recent Transaction method (the risk of over or under estimation is higher due to the greater
subjectivity involved, for example, in selecting the most relevant measure of sustainable
revenues and identifying appropriate comparable companies).
Notes to the financial statements (unaudited) (Ctd)
===================================================
As at 31 July 2019
Valuation Approach Impact
===================== ===================== ==================== =====================
Fair value of Variable input
investments sensitivity
US$'000 Key variable input* (%) US$'000 % of net assets
===================== ===================== ==================== ===================== ======= ===============
Selection of
appropriate
benchmark
Selection of
comparable companies
Probability
estimation of
Trading Multiples and liquidation event(#)
adjusted Recent Application of
Transaction 82,442 valuation basis +/-10 8,244 1.7
===================== ===================== ==================== ===================== ======= ===============
Total 82,442 8,244 1.7
===================== ===================== ==================== ===================== ======= ===============
Impact on net assets and profit and total comprehensive income for the period 4 January 2019
to 31 July 2019.
# A liquidation event is typically a company sale or an initial public offering ('IPO'). In
assessing fair value the Company has determined the likely enterprise value attributed to
the different investment classes held by the Company.
* Key Variable 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).
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 and
can vary in the range of 1x to 10x.
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.
Notes to the financial statements (unaudited) (Ctd)
===================================================
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.
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. 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 July 2019.
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 July 2019
all cash deposits were held with the custodian bank.
Notes to the financial statements (unaudited) (Ctd)
=====================================================================================================
Credit Risk Exposure
The exposure to credit risk at 31 July 2019 was:
=========================================================================================================
2019
US$'000
============================================================================== ======================
US Treasury Bills 390,017
Cash and short-term deposits 9,012
Debtors and prepayments 15
================================================================================= ======================
399,044
==================================================================================== ======================
The maximum exposure in cash and cash equivalents during the period from 4 January 2019 to
31 July 2019 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. 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 below. The Company has the authority to issue and buy back
its shares and changes to the share capital during the period are set out in note 10.
===============================================================================================================
15. Principal Risks
There is a process for identifying, evaluating and managing the risks faced by the Company
on a regular basis. The Directors have carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its business model, future performance,
solvency or liquidity. A description of these risks and how they are being managed or mitigated
is set out below:
Financial Risk - the Company's assets consist mainly of Private Investee Companies' securities
and its principal financial risks are therefore market-related and include market risk (comprising
currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An
explanation of those risks and how they are managed is contained in note 14 above. As oversight
of this risk, the Board considers at each meeting various metrics including top and bottom
stock contributors to performance along with sales and purchases of investments. Individual
investments are discussed with the portfolio managers together with their general views on
the various investment markets and sectors.
Investee Companies - the Company's investments in private investee companies will not be liquid
and there may be restrictions on transfer of those investments. This may limit the Company's
ability to realise investments at short notice, at a fair value or at all. A large proportion
of the overall value of the portfolio may at any time be accounted for by a relatively limited
number of investee companies. If the value of one or more such investee companies were to
be adversely affected, it could have a material adverse impact on the overall value of the
portfolio and the Company's financial condition, results of operations and prospects, with
a consequential adverse effect on the market value of the ordinary shares. Risk is diversified
by having a portfolio of investments which at the end of the Initial Investment Period, two
years from the date of admission of the ordinary shares to trading on the Specialist Fund
Segment of the Main Market of the London Stock Exchange, is expected to number between 20
and 60 holdings in investee companies.
=========================================================================================================
Notes to the financial statements (unaudited) (Ctd)
Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective
which the market perceives to be unattractive or inappropriate, or the ineffective implementation
of an attractive or appropriate strategy, may lead to reduced returns for shareholders and,
as a result, a decreased demand for the Company's shares. This may lead to the Company's shares
trading at a widening discount to their net asset value. To mitigate this risk, the Board
regularly reviews and monitors the Company's objective and investment policy and strategy,
the investment portfolio and its performance, the level of discount/premium to net asset value
at which the shares trade and movements in the share register. A strategy meeting is held
annually.
Discount Risk - the discount/premium at which the Company's shares trade relative to its net
asset value can change. The risk of a widening discount is that it may undermine investor
confidence in the Company. The Board monitors the level of discount/premium at which the shares
trade and the Company has authority to buy back its existing shares, when deemed by the Board
to be in the best interests of the Company and its shareholders.
Legal and Regulatory Risk - failure to comply with applicable legal and regulatory requirements
such as the tax rules for applicable to Guernsey domiciled investment funds, the laws and
regulations applicable to Guernsey and the continuing obligations imposed on all investment
companies whose shares are admitted to trading on the Specialist Fund Segment of the Main
Market of the London Stock Exchange could lead to suspension of trading in the Company's shares
on the Specialist Fund Segment of the Main Market of the Stock Exchange listing, financial
penalties, a qualified audit report or the Company being subject to tax on capital gains.
To mitigate this risk, Baillie Gifford's Business Risk, Internal Audit and Compliance Departments
and Alter Domus, the designated manager, provide regular reports to the Audit Committee on
their monitoring programmes. Major regulatory change could impose disproportionate compliance
burdens on the Company. Shareholder documents and announcements, including the Company's published
Interim and Annual Report and Financial Statements, are subject to stringent review processes
and procedures are in place to ensure adherence to the Transparency Directive and the Market
Abuse Directive with reference to inside information.
Custody and Depositary Risk - safe custody of the Company's assets may be compromised through
control failures by the Depositary, including breaches of cyber security. To monitor potential
risk, the Audit Committee receives six monthly reports from the Depositary confirming safe
custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently
reconciled to the Custodian's records by the Investment Manager. The Custodian's audited internal
controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary
of the key points is reported to the Audit Committee and any concerns investigated.
Operational Risk - failure of Baillie Gifford's systems or those of other third party service
providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation
of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity
plan which facilitates continued operation of the business in the event of a service disruption
or major disaster. The Audit Committee reviews Baillie Gifford's Report on Internal Controls
and the reports by other key third party providers are reviewed by Baillie Gifford on behalf
of the Board.
Political and Associated Economic Risk - the Board is of the view that political change in
areas in which the Company invests or may invest may have practical consequences for the Company.
Political developments are closely monitored and considered by the Board. The Board has noted
the UK Government's intention that the UK should leave the European Union. Whilst there is
considerable uncertainty at present, the Board will continue to monitor developments as they
occur and assess the potential consequences for the Company's future activities.
============================================================================================================
16. Subsequent Events
Up to the date of this report the Company is not aware of any subsequent events.
============================================================================================================
17. The Interim Report and Financial Statements will be available on the Managers' website
www.schiehallionfund.com++ on or around 16 September 2019.
============================================================================================================
Glossary of Terms and Alternative Performance Measures ('APM')
Total Assets
The total value of all assets held less all liabilities (other than liabilities in the form
of borrowings).
Shareholders' Funds and Net Asset Value
Shareholders' funds is the value of all assets held less all liabilities, with borrowings
deducted at book cost. Net Asset Value (NAV) is the value of all assets less all liabilities,
with borrowings deducted at either fair value or par value as described below. Per share amounts
are calculated by dividing the relevant figure by the number of ordinary shares in issue.
Net Liquid Assets
Net liquid assets comprise current assets less current liabilities (excluding borrowings).
Discount/Premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is rarely the same
as its NAV. When the share price is lower than the NAV per share it is said to be trading
at a discount. The size of the discount is calculated by subtracting the share price from
the NAV per share and is usually expressed as a percentage of the NAV per share.
If the share price is higher than the NAV per share it is said to be trading at a premium.
Total Return (APM)
The total return is the return to shareholders after reinvesting the dividend on the date
that the share price goes ex-dividend.
Ongoing Charges (APM)
The total recurring expenses (excluding the Company's cost 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).
==============================================================================================================
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 GBP205 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 5 September 2019). 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.
6 September 2019
For further information please contact:
Alex Blake, Baillie Gifford & Co
Tel: 0131 275 2859
Roland Cross, Director, FourBroadgate Marketing
Tel: 0207 776 0512 or 07831 401309
- ends -
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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