RNS Announcement

The Schiehallion Fund Limited

Legal Entity Identifier: 213800NQOLJA1JCWXQ56

Regulated Information Classification: Interim Financial Report

The following is the unaudited Interim Financial Report for the six months to 31 July 2024 which was approved by the Board on 12 September 2024.

Board update

David Chiswell resigned as non-executive Director of the Company in April 2024 due to ongoing health issues and has sadly since passed away. David made a significant contribution to the Board during his tenure and was an effective and widely admired Director who will be much missed by the Board and the Managers. David held positions across the biotechnology industry and his contributions to the field were recognised in 2006 when he was awarded the OBE by The Queen for services to the industry.

The Directors recognise the importance of succession planning and review the Board composition annually. The Board is committed to maintaining the Board's depth and breadth of knowledge, experience and professional expertise. The Board will communicate future succession plans in due course.

During the period, the Board engaged with the relevant shareholder following the significant number of votes against the re-appointment of Dr Yueh at the Annual General Meeting on 10 May 2024. The shareholder's concerns related to the number of simultaneous directorships. A review of the Chair's and other Directors' commitments was carried out and the Nomination Committee remains satisfied that Dr Yueh is capable of devoting sufficient time to the Company. There have been no significant changes to Dr Yueh's other commitments since 31 January 2024. Her total number of mandates from her directorships continues to comply with the UK Corporate Governance Code. The Directors continue to believe that the Board has a balance of skills and experience which enable it to provide effective strategic leadership and proper governance of the Company.  

Summary of unaudited results*

Period's high and low

Notes

*        For a definition of terms see Glossary of terms and Alternative Performance Measures at the end of this announcement.

†        Alternative Performance Measure, see Glossary of terms and Alternative Performance Measures at the end of this announcement.

All investment strategies have the potential for profit and loss. Past performance is not a guide to future performance.

Investment objective

The Schiehallion Fund Limited seeks to generate capital growth for investors through making long-term minority investments in later stage private businesses that the Company considers to have transformational growth potential and to have the potential to become publicly traded.

Principal risks and uncertainties

The principal and emerging risks facing the Company are:

Investment and strategic risks - liquidity of investments; market, economic, political and environmental risks; valuation risk; investment strategy risk; discount risk; and Environmental, Social and Governance ('ESG') risk.

External risks - political and associated economic risk; legal and regulatory risk.

Operational risks - performance and reliance on third party service providers; cyber security threats; and key professionals.

Emerging risks - geopolitical tensions, including the Russia-Ukraine conflict and US-China tensions, high energy prices, inflation and interest rates; cyber risk; and the proliferation of AI technology.

An explanation of these risks and how they are managed is set out on pages 39 to 44 of the Company's Annual Report and Financial Statements for the year to 31 January 2024 which is available on the Company's website: schiehallionfund.com

Responsibility statement

The Directors of The Schiehallion Fund Limited confirm that to the best of their knowledge:

a.       the Interim Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Directors have elected to prepare financial statements that comply with International Financial Reporting Standards as issued by the International Accounting Standards Board;

b.       the Interim Management Report includes a fair review of the information required by:

i.        DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

ii.       DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period.

On behalf of the Board

Dr Linda Yueh CBE

Chairperson

12 September 2024

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, and for the preparation and dissemination of financial statements. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.

Interim management report

The six months to 31 July 2024 saw NAV total return down 3.2%. However, the share price increased by 44.1% over the period, causing the discount to narrow to 10.1%.

Both private and public holdings contributed to the NAV decrease. On the public side, key negative contributors were buy-now pay-later provider Affirm and foreign exchange platform Wise. Affirm's share price dropped 42% and Wise's dropped 17%. Underlying operational performance at both companies was still strong. Affirm saw 51% revenue growth and achieving over one million users of its Affirm Card product, whilst Wise grew revenues 23% and more than tripled profits. Over the life of the fund, both stocks remain strong net contributors to performance. On the private side, German real estate broker McMakler was the main negative contributor, as it continues to battle macroeconomic headwinds in the domestic property market.

Positive contributors included Italian consumer digital application company Bending Spoons and American expense management and credit card company Brex. Bending Spoons has continued to deliver strong operational performance and show signs of having successfully integrated its recent acquisitions. We added more to our position reflecting growing conviction in the investment case. Brex has posted stronger operational results and improved margins as it gains efficiency following a difficult workforce reduction exercise.

Across the portfolio, operating performance remains broadly strong. Portfolio-weighted revenue growth was 41% over the period, with 39% of the companies by portfolio weighting being EBITDA-positive, and nearly 50% of companies in total being cash generative. The vast majority of the companies within the portfolio have cash balances greater than a year, with just under 5% having less than 12 months cash runway.

Portfolio management

Over the six months to 31 July, we made one new investment and completed two sales.

The new investment was in Tekever. Tekever is a Portuguese aerial intelligence company. It produces software-defined autonomous surveillance drones for both non-lethal military and civilian use cases.

The sales were of public company Allbirds and private company Graphcore. Footwear company Allbirds had struggled to expand its customer base and product reach since its IPO, with a couple of false starts into apparel and high-performance footwear. We felt the capital could be better used elsewhere in our opportunity set. AI semiconductor design company Graphcore was acquired by Softbank. Despite having had setbacks in customer contracts and chip developments, at the sale price we were able to recoup the majority of our initial investment. Nonetheless, neither of these sales represent the kinds of outcomes that we seek.

We had one holding IPO in the period. Tempus AI, owner of one of the world's biggest libraries of clinical and molecular data, listed at a 20% premium to its end-of-May carrying valuation. The period also saw further private capital raising activity, with autonomous driving software company Wayve receiving a large investment from Softbank, Nvidia and Microsoft. We first took a position in Wayve for the fund in January 2022.

We have continued to execute on the share buyback program announced in November 2023. To 31 July 2024, the fund has bought back 4,526,000 shares. We will continue to allocate the remaining 12% of capital across new private opportunities, supporting existing companies and buying back shares.

Private company valuations

Over the reporting period, there were 170 revaluation events, with ~45% of the portfolio being revalued three times or more. The average movement at the private company level was -6.3%.

The gradual uptick in private markets activity over the past twelve months have given us opportunities to compare our carrying valuations with external price discovery moments. Over the last year, we have seen eleven such price discovery events. On nine occasions we needed to revalue our holdings up, with a median upwards revaluation of 18%. On two occasions we needed to revalue our holdings down, with a median downwards revaluation of 2%.

As a reminder of our valuation process, we aim for a targeted +/- 20% range to the new valuation, with some balance of being over and under - neither consistently conservative nor consistently bullish. The overall median movement over the twelve months has been an increase of 16%, giving us comfort over the fair value positions and their proximity to eventual transaction events.

Looking forward

We continue to see causes for optimism in the underlying holdings. The companies within the fund have reacted well to a tough couple of years in private markets, and we believe are well positioned to continue to take advantage of their competitive positions in the years ahead. We have been continuing to invest in our capability at Baillie Gifford, with four more investors joining our team during the period.

More and more excellent companies are coming back to the market to organise rounds - if not for their own primary capital needs, then to facilitate liquidity for their early venture backers, who are coming under pressure for liquidity from their own clients. The result is a much healthier crop of interesting companies raising capital than we have seen for the last couple of years. We believe the share price appreciation over the last six months hints at an improved sentiment in general towards growth equity in the markets. If so, it is a sentiment we share.

Peter Singlehurst

Robert Natzler

Portfolio executive summary

Performance

*        Inception date: 27 March 2019.

All figures are stated on a total return basis† for periods to 31 July 2024.

†        Alternative Performance Measure - see Glossary of terms and Alternative Performance Measures at the end of this announcement.

Source: Baillie Gifford/LSEG. See disclaimer at the end of this announcement.

Key contributors to and detractors from Company performance - six months to 31 July 2024

*        Absolute performance (in US$ terms) has been calculated on a total return basis (including reinvestment of any dividends paid by portfolio holdings) over the period 1 February 2024 to 31 July 2024.

†        The contributors to and detractors from Company performance are listed in descending order.

§        Denotes listed investment previously held in the portfolio as a private company investment.

Source: Revolution.

Distribution of total net assets (unaudited)

Geographical as at 31 July 2024

Sectoral as at 31 July 2024

The above sectoral distribution is not derived from any index.

Baillie Gifford - valuing private companies

We aim to hold our private company investments at 'fair value', i.e. the price that would be paid in an open-market transaction. Valuations are adjusted both during regular valuation cycles and on an ad hoc basis in response to 'trigger events'. Our valuation process ensures that private companies are valued in both a fair and timely manner.

The valuation process is overseen by a valuations group at Baillie Gifford, which takes advice from an independent third party (S&P Global). The valuations group is independent from the investment team with all voting members being from different operational areas of the firm, and the investment managers only receive final valuation notifications once they have been applied.

We revalue the private holdings on a three-month rolling cycle, with one-third of the holdings reassessed each month. During stable market conditions, and assuming all else is equal, each investment would be valued four times in a twelve-month period. For Schiehallion and our investment trusts, the prices are also reviewed twice per year by the respective boards and are subject to the scrutiny of external auditors in the annual audit process.

Beyond the regular cycle, the valuations team also monitors the portfolio for certain 'trigger events'. These may include changes in fundamentals, a takeover approach, an intention to carry out an Initial Public Offering ('IPO'), company news which is identified by the valuation team or by the portfolio managers, or meaningful changes to the valuation of comparable public companies. Any ad hoc change to the fair valuation of any holding is implemented swiftly and reflected in the next published net asset value ('NAV'). There is no delay.

The valuations team also monitors relevant market indices on a weekly basis and updates valuations in a manner consistent with our external valuer's (S&P Global) most recent valuation report where appropriate.

Generally speaking, public markets have continued to be less volatile in the six months to 31 July 2024, and overall, an improvement in market conditions has led to an increase in private market deal activity. The data below quantifies the revaluations carried out during the six months to 31 July 2024, however, it does not reflect the ongoing monitoring of the private investment portfolio which has not resulted in a change in valuation.

*        Data reflecting period 1 February 2024 to 31 July 2024.

List of investments

as at 31 July 2024 (unaudited)

§        Denotes listed investment previously held in the portfolio as a private company investment.

*        See Glossary of terms and Alternative Performance Measures at the end of this announcement.

†        The tax liability provision at 31 July 2024 relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates.

Allocation of net assets (unaudited)

*        See Glossary of terms and Alternative Performance Measures at the end of this announcement.

The Company may hold various classes of shares in investee companies, some of which may have a preference on winding up.

Statement of comprehensive income (unaudited)

*        The Company's C shares converted into Ordinary shares on 8 September 2023 and therefore there is no C shares income/(loss) to report for the six months to 31 July 2024 and the year to 31 January 2024.

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.

The accompanying notes below are an integral part of the Financial Statements.

Statement of financial position (unaudited)

The accompanying notes below are an integral part of the Financial Statements.

§        The tax liability provision at 31 July 2024 relates to a potential liability for Indian capital gains tax that may arise on the Company's Indian investments should they be sold in the future, based on the net unrealised taxable capital gain at the period end and on enacted Indian tax rates. The amount of any future tax amounts payable may differ from this provision, depending on the value and timing of any future sales of such investments and future Indian tax rates.

Statement of changes in equity (unaudited)

Six months to 31 July 2024

Six months to 31 July 2023

*        Includes investment holdings gains of US$1,188,000 (31 July 2023 - losses of US$113,452,000).

†        The C shares converted to Ordinary shares on 8 September 2023 and therefore there is no C share (loss)/income to report for the six months to 31 July 2024.

The accompanying notes below are an integral part of the Financial Statements.

Statement of cash flows (unaudited)

*        Cash from operations includes interest received of US$263,000 (2023 - US$878,000).

The accompanying notes below are an integral part of the Financial Statements.

Notes to the Financial Statements (unaudited)

01      Basis of accounting

The condensed Financial Statements for the six months to 31 July 2024 comprises the statements set out above together with the related notes below. They have been prepared in accordance with International Financial Reporting Standards (IFRS). The Financial Statements for the six months to 31 July 2024 have been prepared on the basis of the same accounting policies as set out in the Company's Annual Report and Financial Statements at 31 January 2024.

Equity investment

The ordinary shares and C shares of the Company are classified as equity in accordance with the definition of equity instruments under IAS 32 Financial Instruments: presentation (IAS 32). The proceeds from the issue of shares are recognised in the Statement of Changes in Equity net of incremental issuance costs.

Going concern

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

In undertaking this review, the Board has considered the Company's principal risks and uncertainties, as set out on the inside front cover, and in particular considered the impact of heightened market volatility due to macroeconomic and geopolitical concerns, including the Russia-Ukraine war and heightened tensions between China and both the USA and Taiwan. Liquidity stress testing has been carried out and having done so the Board does not believe the Company's going concern status is affected. The Company maintains sufficient cash balances to enable it to meet its liabilities as they fall due.

In managing the Company's assets, the Investment Manager will seek to ensure that the Company holds at all times a proportion of assets that is sufficiently liquid to enable it to discharge its payment obligations.

Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and uncertainties, that the Company will continue in operational existence for a period of at least 12 months from the date of approval of these Financial Statements.

02      Income

03      Investment management fee

The Company has appointed Baillie Gifford & Co Limited as its Investment Manager (the 'Investment Manager'). As the entity appointed to be responsible for risk management and portfolio management, the Investment Manager has also been appointed as the Company's Alternative Investment Fund Manager ('AIFM'). Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford Overseas Limited. The Investment Management Agreement is terminable on not less than six months' notice.

Under the terms of the Investment Management Agreement, the Investment Manager will be entitled to an annual fee (exclusive of VAT, which shall be added where applicable) of: 0.9% on the net asset value excluding cash or cash equivalent assets up to and including US$650 million; 0.8% on the net asset value of the Company excluding cash or cash equivalent assets exceeding US$650 million up to and including US$1.3 billion; and 0.7% on the net asset value excluding cash or cash equivalent assets exceeding US$1.3 billion. Management fees are calculated and payable quarterly.

Cash equivalents include US Treasury Bills.

04      Other administrative expenses

*        Expenses relating directly to a share class were charged directly to that share class. Expenses pertaining to both Ordinary and C shares were split equally between the share classes.

05      Earnings per share

Net return per share is based on the above totals of revenue and capital and the weighted average number of shares in issue during each period. There are no dilutive or potentially dilutive shares in issue.

*        The Company's C shares were converted into Ordinary shares on 8 September 2023 and therefore there were no C shares in issue at 31 January 2024 and 31 July 2024 and no allocable (loss)/income to report for those periods.

06      Ordinary dividends

There were no dividends paid or proposed in respect of the six months to 31 July 2024 (2023 - nil).

07      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 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.

†        See Glossary of terms and Alternative Performance Measures below.

During the six months to 31 July 2024, the investment in Tempus AI with a fair value (IPO price) of US$32,553,000 was transferred from Level 3 to Level 1 on becoming listed.

During the year to 31 January 2024, the investment in Oddity with a fair value (IPO price) of US$11,800,000 was transferred from Level 3 to Level 1 on becoming listed.

The valuation techniques used by the Company are explained in the accounting policies on pages 85 and 86 of the Company's Annual Report and Financial Statements for the year to 31 January 2024. Listed investments are categorised as Level 1 if they are valued using unadjusted quoted prices for identical instruments in an active market and as Level 2 if they do not meet all these criteria but are, nonetheless, valued using market data. The Company's holdings in unlisted investments are categorised as Level 3 unobservable data is a significant input to their fair value measurements.

08      Share capital

By way of a Special Resolution passed on 10 May 2024 the Directors of the Company were granted a general authority to allot or sell from treasury, without regard to the pre-emption rights contained in the Articles of Incorporation of the Company, up to 102,882,390 Ordinary shares or C shares (as defined in the Articles of Incorporation). This authority will expire at the end of the period concluding immediately prior to the Annual General Meeting of the Company to be held in 2029 (or, if earlier, five years from the date of the passing of the resolution).

During the six months to 31 July 2024 the Company did not issue any Ordinary shares or C shares. In the period from 1 August 2024 to 10 September 2024 the Company issued no Ordinary shares or C shares.

By way of a Special Resolution passed on 10 May 2024 the Directors of the Company have general authority to make market purchases of up to 154,145,753 Ordinary shares, being 14.99% of the Ordinary shares in issue as at 10 May 2024, being the date of the passing of the resolution. This authority will expire at the conclusion of the Annual General Meeting of the Company to be held in respect of the year ending 31 January 2025.

1,925,000 Ordinary shares were bought back during the six months to 31 July 2024 (31 July 2023 - nil). In the period from 1 August 2024 to 10 September 2024 200,000 Ordinary shares were bought back.

Holders of Ordinary shares have the right to receive income and capital from assets attributable to such share class. Ordinary shareholders have the right to receive notice of general meetings of the Company and have the right to attend and vote at all general meetings.

09      Transactions with related parties and the investment manager and administrator

There have been no transactions with related parties during the first six months of the current financial year that have materially affected the financial position or the performance of the Company during that period and there have been no changes in the related party transactions described in the last Annual Report and Financial Statements that could have such an effect on the Company during that period.

Further shareholder information

Automatic Exchange of Information

In order to fulfil its legal obligations under the Guernsey Common Reporting Standard Legislation relating to the Automatic Exchange of Information, the Company is required to collect and report certain information about certain shareholders.

The legislation will require investment companies to provide personal information to the Guernsey authorities on certain investors who purchase shares in investment funds. As an affected company, The Schiehallion Fund Limited will have to provide information annually to the local authority on the tax residencies of non-UK based certificated shareholders and corporate entities.

Foreign Account Tax Compliance Act

Pursuant to the reciprocal information sharing inter-governmental agreement entered into by the States of Guernsey and the US Treasury, and for the purposes of the US Foreign Account Tax Compliance Act ('FATCA') of the Company registered with the Internal Revenue Service ('IRS') as a Foreign Financial Institution ('FFI') and received a Global Intermediary Identification Number (R2NXXB.9999.SL.831). The Company can be located on the IRS FFI list.

Third party data providers disclaimer

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgements, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

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.

Shareholders' funds and Net Asset Value

Shareholders' Funds is the value of all assets held less all liabilities, with borrowings deducted at book cost. Net Asset Value (NAV) is the value of all assets held less all liabilities, with borrowings deducted at either fair value or par value. Per share amounts are calculated by dividing the relevant figure by the number of ordinary shares in issue.

Total Return

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend. The Company does not pay a dividend, therefore, the total returns for the share price and NAV per share are the same as the percentage movements in the share price and NAV per share as detailed above.

Capital deployed (APM)

Capital deployed reflects cumulative amounts invested since inception of the Company.

Contingent value rights

'CVR' after an instrument name indicates a security, usually arising from a corporate action such as a takeover or merger, which represents a right to receive potential future value, should the continuing company achieve certain milestones.

Total net assets

Total value of all assets held less current liabilities, other than liabilities in the form of borrowings.

Net current assets

Net current assets comprise current assets less current liabilities (excluding borrowings).

(Discount)/premium (APM)

As stock markets and share prices vary, an investment company's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, it is said to be trading at a premium.

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 Company website at schiehallionfund.com‡

The Schiehallion Fund Limited is managed by Baillie Gifford, the Edinburgh based fund management group with around £207.8 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 10 September 2024). 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.

13 September 2024

For further information please contact:

Alex Blake, Baillie Gifford & Co

Tel: 0131 275 2000

Jonathan Atkins, Four Communications

Tel: 0203 920 0555 or 07872 495396

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