The Schiehallion Fund Limited
Legal Entity Identifier: 213800NQOLJA1JCWXQ56
Regulated Information Classification: Annual Financial and Audit Reports
Annual Report and Financial Statements
Further to the preliminary statement of audited annual results announced to the Stock Exchange on 29 March 2022, The Schiehallion Fund Limited ("Schiehallion" or "the Company") announces that the Company's Annual Report and Financial Statements for the year ended 31 January 2022, including the Notice of Annual General Meeting, has today been posted to shareholders and submitted electronically to the National Storage Mechanism where it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
It is also available on the Schiehallion page of the Baillie Gifford website at: www.schiehallionfund.com (as is the preliminary statement of audited annual results announced by the Company on 29 March 2022).
Covid-19 coronavirus - Important note regarding arrangements for the Annual General Meeting (AGM)
The Board of The Schiehallion Fund Limited (the 'Company') recognises the public health risk associated with the Covid-19 outbreak arising from public gatherings and notes the United Kingdom and Guernsey governments' measures which continue to restrict such gatherings, travel and attendance at workplaces.
At the same time, the Board is conscious of the legal requirement for the Company to hold its AGM before 31 July 2022. Given the current uncertainty around when public health concerns will have abated, the Board has for the time being decided to aim to follow the Company's customary corporate timetable and, accordingly, the Company's AGM is being convened to take place as scheduled at at 12 noon on Thursday, 12 May 2022 at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN. At present, the Board expects to be able to welcome shareholders to the meeting. Should public health advice and Government measures change however, arrangements will be made by the Company to ensure that the minimum number of shareholders required to form a quorum will attend the meeting in order that the meeting may proceed and the business be concluded. The Board will continue
to monitor developments and any changes will be updated on the Company's website schiehallionfund.com.
In the meantime, the Board encourages all shareholders to submit proxy voting forms, appointing the chairperson of the AGM, as soon as possible and, in any event, by no later than 12 noon on 10 May 2022.
We would encourage shareholders to monitor the Company's website at schiehallionfund.com. Should shareholders have questions for the Board or the Managers or any queries as to how to vote, they are welcome as always to submit them by email to adgg-aafa-f@alterdomus.com or call Hannah Dunnell at Alter Domus (Guernsey) Limited on +44 (0) 1481 742 255.
Alter Domus (Guernsey) Limited may record your call.
If you or, if appointed, your proxy wish to attend the Annual General Meeting electronically you, or your proxy, will have the same right to attend, be counted in the quorum, participate in the business of the Annual General Meeting, speak and vote as if you, or your proxy, had attended the meeting in person. Details of how to attend the Annual General Meeting electronically can be obtained from Alter Domus (Guernsey) Limited on the contact details provided above.
Responsibility Statement of the Schiehallion Directors in respect of the Annual Report and Financial Statements
The Schiehallion Fund Limited Directors confirm that, to the best of their knowledge:
¾ the Financial Statements set out in the Annual Report and Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
¾ the Strategic Report set out in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties they face.
The Directors consider the Annual Report and Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
Principal and Emerging Risks relating to the Company
As explained on pages 29 and 30 of the Annual Report and Financial Statements, there is a process for identifying, evaluating and managing the risks, including
emerging risks, faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal and emerging 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 in the table below.
The Board considers the ongoing coronavirus (Covid-19) pandemic to be a factor which continues to exacerbate existing risks, and its impact is considered within the relevant risks.
| Impact | How the risk is managed | Current assessment of risk | ||
| Investment and Strategic Risk | ||||
| Liquidity of Investments | The Company's investments are predominately in private investee companies or companies which have recently completed an IPO. Such investments may not be liquid or may have restrictions on sale or transfer of shares. This may limit the Company's ability to realise investments at short notice or at all. | By diversification of the portfolio, in accordance with the Company's investment limits and risk diversification policies. | | Stable: The Company has not seen any significant impact on underlying liquidity of investments during the Covid-19 pandemic and has continued to see IPO activity during the current year. |
| Market, Economic, Political and Environmental Risks | From time to time a large proportion of the total value of the Company's portfolio could be concentrated in a limited number of investee companies, which could be adversely affected by an unexpected change in their markets, by governmental intervention or by a reputational issue. This could have a material impact on the overall value of the Company's portfolio and consequential adverse effects on the Company's share price. | The Board oversees this risk by considering at each meeting metrics which have contributed to performance as well as discussion with the Investment Manager on specific conditions which the underlying investee companies face. This risk is also managed by the Company's investment diversification policy. | | Increasing: This risk is seen as increasing due to increased volatility as a result of the Russian invasion of Ukraine. The Covid-19 pandemic continues to have an impact on the global economic environment. |
| Impact | How the risk is managed | Current assessment of risk | ||
| Investment and Strategic Risk (continued) | ||||
| Valuation Risk | The Company invests in late-stage private businesses which are valued in accordance with International Private Equity and Venture Capital Valuation ('IPEV') Guidelines using appropriate valuation methods. Such methods include an element of judgement which may lead to a material misstatement of the valuation and consequently in the Company's net asset value. | The Investment Manager has a robust valuation methodology, which it applies consistently. The Board meet with the Investment Manager at special meetings solely to consider the valuations for the Interim and Annual Financial Statements. At these meetings there is an opportunity for the Board to challenge the valuations and to request further information. | | Increasing: This risk is seen as increasing due to the ongoing invasion of Ukraine by Russia and the impact events there are having on global markets. |
| Investment Strategy Risk | Pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or ineffective implementation of the Company's investment strategy, may lead to lower returns for shareholders and a consequential impact on share price. | The Board regularly reviews and monitors the Company's 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 also held annually. In addition, the Investment Manager keeps in close contact with key shareholders and provides regular feedback to the Board. | | Stable: Controls are working effectively with no change during the current year. |
| Discount Risk | The discount/premium at which the Company's shares trade relative to its net asset value can change. Such an imbalance can diminish the attractiveness of the Company's shares to existing investors and lead to a lack of liquidity in the Company's share trading. | The Board monitors the level of discount/premium at each Board meeting. The Company has authorities in place to buy back or issue shares, when deemed to be in the best interest of the Company and its shareholders. | | Stable: The Company's shares have traded at a premium throughout the year under review. The Company has used its powers to issue ordinary shares during the period and has also issued C shares. |
| Environmental, Social and Governance (ESG) | Failure by the Investment Manager to identify potential future problems on ESG matters in an investee company could lead to the Company's shares being less attractive to investors as well as potential valuation issues in the underlying investee company. | The Investment Manager has an application process integrated into the investment process, as well as upfront and ongoing due diligence which the Investment Manager undertakes on each investee company. This includes the risk inherent in climate change. | | Stable: This risk is mitigated by the Investment Manager's strong ESG stewardship and engagement policies. |
| External Risks | ||||
| Political and Associated Economic Risk | Political changes in areas in which the Company invests or may invest may have practical consequences for the Company and impact financial performance. | Political developments and other social trends are closely monitored by the Board and are regularly discussed at Board meetings. | | Increasing: This risk is increasing as Governments and consumers around the world continue to assess the impact of the Russian invasion of Ukraine, including sanctions applied in response, as well as the ongoing assessment of the longer term impacts of Covid-19 and US-China tensions. |
| Impact | How the risk is managed | Current assessment of risk | ||
| External Risks (continued) | ||||
| Legal and Regulatory Risk | Failure to comply with tax or regulatory rules could lead to suspension of the Company's stock exchange listing, financial penalties or a qualified audit report. Changes in tax legislation may lead to the Company being subject to tax on capital gains.
| The Board receives regular updates from the Investment Manager and Administrator on Compliance and the Investment Manager's monitoring programmes. External legal advice is sought on any areas of concern. | | Stable: All control procedures working effectively. There have been no material regulatory changes that have occurred during the year. |
| Covid-19 | Since the beginning of 2020, Covid-19 is seen as a dominant risk for the global economy, whose full economic and social effects are still unknown. As with all investment portfolios, Covid-19 has impacted on investee companies in some positive and negative ways, which may ultimately affect valuations. | The Board receives regular updates from the Investment Manager on underlying investee companies contingency plans and, in particular, close attention is paid to cash flow requirements of these early stage companies. Each portfolio company is subject to higher or lower estimation uncertainty by considering a range of factors including potential disruption due to measures adopted to tackle Covid-19 and the Investment Managers have been monitoring the valuations with greater frequency. | | Stable: There are still operational challenges, but investee companies appear to be performing well. |
| Operational Risks | ||||
| Performance and Reliance on Third Party Service Providers | In common with other investment trusts the Company has no direct employees and relies entirely for its operations on third party service providers. Failure of the Investment Manager's systems or those of another service provider could lead to an inability to accurately report or lead to a misappropriation of assets. | The Audit Committee receives reports from the Investment Manager's Business Risk Department on their monitoring programme of internal controls. The Audit Committee also receives ISAE 3402 or equivalent reports on the Investment Manager and other service providers. These 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 are investigated. | | Stable: All control procedures working effectively. During the recent pandemic, our Managers and other third party service providers have moved seamlessly to working remotely and both portfolio management and all regulatory and administrative tasks have continued uninterrupted.
|
| Cyber Security Threats | Errors, fraud or control failures by the Company's key service providers or loss of data through increasing cyber threats or business continuity could damage the Company's reputation or investors interests or result in losses. | The Audit Committee and the Board receive confirmation that all service providers have appropriate Cyber/IT policies to ensure that controls are in place including business continuity and disaster recovery arrangements. | | Increasing: Increasing risk due to recent indications that developments relating to the Russian invasion of Ukraine could lead to cyber attacks. Also, due to the ongoing Covid-19 pandemic, service providers are using a hybrid approach of remote and office working, thereby retaining a higher potential of a Cyber Security Threat. |
| Key Professionals | Loss of Key Professionals, particularly in relation to the Investment Manager could impact the Company's ability to implement its investment strategy. | The Board reviews the Investment Manager's performance annually as well as the resources of the Investment Manager for attracting and retaining talent. | | Stable: All procedures are satisfactory. |
Emerging Risks
As explained on pages 6 to 8 of the Annual Report and Financial Statements, the Board has regular discussions on principal risks and uncertainties, including any risks which are not an immediate threat but could arise in the longer term.
The Board considers that the key emerging risks arise from two areas:
- From the global reach of the investment portfolio and its exposure to external and emerging threats such as the Russian invasion of Ukraine, cyber risk and coronavirus. Rising inflation and increasing interest rates are likely to add pressures to the companies in the investment portfolio. This is mitigated by the Investment Manager's close links to the investee companies and their ability to ask questions on contingency plans. The Investment Manager believes the impact of such events may be to slow growth rather than to invalidate the investment rationale; and
- As investors place increased emphasis on Environmental, Social and Governance issues (ESG), any failure by the Investment Manager to identify potential future problems on ESG matters in an investee company could lead to the Company's shares being less attractive to investors as well as potential valuation issues in the underlying investee company. This is mitigated by the Investment Manager's strong ESG policies, which have been adopted by the Company, and which are fully integrated into the investment process as well as the extensive up-front and ongoing due diligence which the Investment Manager undertakes on each investee company. These include the risks inherent in climate change (see page 31 of the Annual Report and Financial Statements).
Baillie Gifford & Co Limited
04 April 2022
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