Final Results

RNS Announcement: Preliminary Results

The Schiehallion Fund Limited

Legal Entity Identifier: 213800NQOLJA1JCWXQ56

Regulated Information Classification: Additional regulated information required to be disclosed under applicable laws.

The following is the Preliminary Results Announcement year to 31 January 2022 which was approved by the Board on 28 March 2022.

Chairperson's Statement

It is with pleasure that I present the Annual Report for The Schiehallion Fund Limited (the 'Company' or 'Schiehallion') for the year ended 31 January 2022. In April 2021, the Company raised gross proceeds of US$700 million by way of an issue of C shares. Although the C shares will convert into ordinary shares in due course, we are reporting on each share class separately in this year's Annual Report.

Investment Performance

During the financial year to 31 January 2022, the Company's ordinary share price and net asset value per ordinary share returned 17.8% and 7.6%, respectively. Over the period from 27 March 2019 (launch date) to 31 January 2022, the Company's ordinary share price and net asset value per ordinary share returned 112.0% and 58.7%, respectively.

During the period from admission to trading on 26 April 2021 to 31 January 2022, the Company's C share price and net asset value per C share returned -4.8% and -2.0%, respectively.

Deployment of Capital

When the C shares were issued in April 2021, your Board said it would be reasonable to expect that the C share proceeds would be two-thirds invested within two years. As at 31 January 2022, approximately 60% of C share proceeds had been invested in 20 companies. There is commentary on the Company's portfolio in the Investment Manager's Review and Review of Investments below.

The process for conversion of C shares into ordinary shares is set out in the Prospectus published by the Company on 23 March 2021. Once the C shares have converted into ordinary shares, the Company may seek to raise additional capital, by way of a further issue of C shares.

Share Price Premium and Share Issuance

The ordinary share price premium to net asset value increased from 22.5% at the start of the year to 34.0% at the year end, having peaked in excess of 60% during the year. The C share price premium to net asset value was 21.3% at the year end. Investors should bear in mind that shares bought at a high premium to net asset value can quickly lose substantial value if the premium is eroded.

The Company has a general 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. During the year, the Company issued a further 20.08 million ordinary shares at an average premium to net asset value of approximately 27.2%, raising further proceeds of US$41.36 million.

At 31 January 2021 the Company had authority, which was granted at the initial launch, to issue a further 242.75 million ordinary shares. This authority expires at the end of the period concluding immediately prior to the Annual General Meeting to be held in 2024 (or, if earlier, five years from 15 March 2019, the date the special resolution was passed).

Although there is no current intention to exercise the authority to purchase the Company's shares, the Company will be seeking authority to renew the buy-back authority at the forthcoming Annual General Meeting. No shares were bought back during the year ended 31 January 2022.

Earnings and Dividend

The Company's priority is to generate capital growth over the long term. The Company therefore has no dividend target and will not seek to provide shareholders with a particular level of distribution. This period the net revenue return per ordinary share was -1.47¢ (period to 31 January 2021, -0.33¢) and the net revenue return per C share was -0.28¢. The Board is recommending that no final dividend be paid.

Board

We welcomed David Chiswell and Richard Holmes to the Board in September 2021, both of whom seek election at the AGM in May. All the other Directors are subject to annual re-election at the AGM in May. Directors' biographies can be found on page 23 of the Annual Report and Financial Statements.

Annual General Meeting

The AGM will be held at 12 noon BST on Thursday 12 May 2022 at the offices of Baillie Gifford & Co in Edinburgh. Our current expectation is that a physical meeting will be possible. Should regulations relating to the Covid-19 pandemic change, the intention to hold a physical meeting will be reviewed and, if necessary, an announcement will be made on the Company's website. Shareholders are reminded that they are able to submit proxy voting forms before the applicable deadline on Tuesday 10 May 2022 and also to direct any questions for the Board or Manager in advance by email to [email protected] or calling (+44) 0800 917 2112. (Please note that Baillie Gifford may record your call).

Investment Outlook

Although Covid-19 remains with us, the vaccines in particular have helped to transform the outlook for society and for the economy. With the recovery taking place in a number of countries, inflation and interest rates are also prominent factors in the coming months. A tragedy is currently unfolding in Ukraine with devastating consequences. The Company does not have any direct exposure to Russia or Ukraine but Grammarly, a US business, does have Ukrainian founders and an office presence in Kyiv.

Despite the considerable uncertainties, the Board and the Investment Manager are optimistic about the investment outlook. The Company solely invests in companies with exceptional growth potential which are not widely accessible in public markets. The potential of the companies in our portfolio is generally dependent on their ability to take advantage of opportunities. Therefore, the Board is positive about the growth prospects of these companies, and the pipeline of private companies that the Investment Manager has access to. The Board and the Investment Manager are confident in the outlook for the Company.

Linda Yueh

Chairperson

28 March 2022

Past performance is not a guide to future performance.

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

Investment Managers' Review

The Schiehallion Fund was founded to generate returns for shareholders by investing in high growth companies early, whilst they are still private, and then being patient in order to benefit from the growth that can still come after these businesses become public.

This approach can only be practiced with a long-term view. Any sufficiently long investment period will see both 'bull' and 'bear' markets. The recent market turbulence is the first for Schiehallion, but it will not be the last. In periods of fear, as in periods of euphoria, the most dangerous thing an investment manager can do is deviate from their philosophy and process. Consistency is what is needed.

During the year, five of our holdings, Wise, Allbirds, Warby Parker, Oscar Health and Zymergen entered the public markets. In addition, Grail was taken over by Illumina, also a public company.

In the recent market sell-off we have seen the quoted values of many of our public investments decline meaningfully. Affirm, which has been the largest contributor to performance since inception, was the biggest detractor from performance of the ordinary shares over the year to the end of January. Despite its weak share price performance, operationally, Affirm continues to perform well and has recently signed a partnership with Amazon and is seeing significant traction through their Shopify integration. Oscar Health and Zymergen share prices also detracted from performance.

Most of our private company holdings continue to grow rapidly, and saw their valuations rise during 2021. However, in line with our valuation policy, we reduced the carrying value of many of our private holdings in January as valuations of comparable public companies fell. When this happens, we ask ourselves whether anything fundamental has changed. Does the investment case still hold up and is significant upside still available? If the answer to both questions is yes, then we recognise these movements for what they are - noise, not signal. To borrow a metaphor from Benjamin Graham, the market's voting machine might be gyrating wildly, but our focus remains on operating and honing our weighing machine.

Portfolio Changes

When we launched the C share raise, we conservatively estimated that we would be able to deploy two thirds of the capital within two years. We also noted that we were aiming to under promise and over deliver. This has played out. As of the time of writing, the C share pool was 59.7% deployed. The pace of deployment of the C share proceeds has been faster than it was for the ordinary pool because we have been putting more capital into fewer companies, reflecting holding sizes that are optimised for the combined ordinary and C share portfolios.

In the Interim Report we mentioned that we had invested in seven new companies in the first half of the financial year: Brex, Faire, Loft, Daily Hunt, Rappi, MasterClass and PsiQuantum.

In the six months since the Interim Report, we have invested in eight new companies: Grammarly, Databricks, Solugen, McMakler, Pet Circle, Wayve, Blockstream and Genki Forest. The geographic diversity we highlighted in the Interim Report is again evident. Companies range from the heartland of Silicon Valley to Houston; Berlin; Sydney; London; Victoria; and Beijing.

 The breadth of industries is also notable. Genki Forest is one of China's fastest growing soft drinks companies. Solugen makes speciality chemicals. Grammarly is using machine learning to help us all write clearly, effectively, and error free. Pet Circle is bringing the Australian pet industry online. What unites these companies is their ability to grow rapidly into large end markets whilst boasting robust and strengthening competitive advantages.

A summary of each of the new investments is included in the Review of Investments in the Annual Report and Financial Statements. We could write at length on any of these companies, but have chosen to highlight Solugen in this report. The founders were introduced to us by another private company in which our clients are shareholders. They have found a way to use enzymes in combination with metal catalysts to convert corn sugars to valuable chemicals, which could previously be made only out of fossil fuels. The enzymes are so efficient, they need to use a lot less heat in the process, allowing Solugen to run on renewable electricity rather than burning more fossil fuels. All this means they can make speciality chemicals that are purer, cheaper, and carbon negative. This might sound like a science project, but the company is already scaling up and generating meaningful revenue. Solugen has the potential to decarbonise one of the world's most polluting industries and build a very valuable business in the process.

We have also continued to support existing holdings, amongst them Nuro, Honor, Convoy, Chime, Allbirds, Northvolt, and Flix. In some of these cases, such as Nuro and Northvolt, we have been topping up the holdings to ensure they are the right size post the merger of the C-share and ordinary pools of capital. In others, such as Chime, we have been increasing the holding to reflect deepened conviction relative to the valuation.

Outlook

Perhaps counterintuitively, the recent market pull-back in gives us cause for optimism. Over the second half of 2021 we had seen some disconcerting trends. Companies that we liked on a fundamental basis were attracting valuations that we found unjustifiable, making the upside cases we required implausible. Perhaps more worryingly, we also saw funding rounds happen at lightning speed, leaving insufficient time for proper analysis and forcing us to walk away from several rounds. Both of these trends have the potential to damage returns - not only for investors, but also for the companies themselves, as valuations are struck that teams cannot live up to even with perfect execution, whilst burdening them with shareholders who have not taken the time to properly understand what they are invested in. We are already seeing signs of these trends reversing. More time for diligence combined with more reasonable valuation expectations means we are excited about the opportunities for Schiehallion over the coming year.

Peter Singlehurst

March 2022

Approach to Environmental, Social and Governance Considerations (ESG)

The environmental, social and governance considerations at play when Baillie Gifford's Private Companies Team researches late-stage private companies.

ESG In Our Philosophy

Over our long-term horizon, we believe there is a convergence between what is good for a business and what is good for the world at large. The conventional wisdom that there is tension between profitability and doing the right thing is based on short-term thinking. Over our investment horizon, we believe profitability depends not only on a company's ability to serve customers well but also on its ability to do this without jeopardising its social licence to operate.

As such, we don't break out consideration of a company's role in the broader system from our core investment work, under ESG or any other rubric. These considerations are core to long-term investing. It is the long-term nature of the growth ambition within our investment philosophy that causes us to pay special attention to the positive and/or negative externalities produced by a company's operations. Over five-year-plus periods, these can have profound impacts on a company's relationship with customers, regulators and staff. They can hugely help or hinder the growth of a business.

This is not about being a moral conscience for our clients. Rather, it is a vital part of practising the philosophy that we believe will grow the value of their capital over the long term.

ESG In Our Process

The Private Companies Team structures our research into potential investments by using a proprietary '10 Questions' research framework. These questions aim to address issues such as the scale of the opportunity, the competitive edge and potential returns, whilst others focus specifically on ESG related topics.

Question Four ('How does the company's culture help it achieve the leadership's long-term business vision?') asks about the stakeholders within a firm, the culture within the workplace, and whether it cultivates a healthy organisational mindset capable of delivering the mission. We have declined companies in the past based on negative behaviours toward staff as part of this question. Meanwhile, Question Five asks about external stakeholders ('Do the company's customers like them?'). This question is geared towards ecosystem impact in terms of opportunities and potential strengths, not just uncovering risks. Question Six explores the E and S of ESG in greater depth ('How do environmental and social factors create opportunities and risks?').

Ultimately, this approach enables us to explore the inevitable grey areas. Companies, like economies, are complex ecosystems. Judging such a system as 'good' or 'bad' based on a single metric or factor strikes us as profoundly unwise. Factors must be weighed together. Consideration must be subjective and nuanced. The key data points are inherently qualitative. We would be doing our clients and our companies a disservice if we portrayed it as anything else.

Our Stewardship Principles for Public Companies

Prioritisation of long-term value creation

We encourage company management and their boards to be ambitious and focus their investments on long-term value creation. We understand that it is easy for businesses to be influenced by short-sighted demands for profit maximisation but believe these often lead to sub-optimal long-term outcomes. We regard it as our responsibility to steer businesses away from destructive financial engineering towards activities that create genuine economic value over the long run. We are happy that our value will often be in supporting management when others do not.

A constructive and purposeful board

We believe that boards play a key role in supporting corporate success and representing the interests of minority shareholders. There is no fixed formula, but it is our expectation that boards have the resources, cognitive diversity and information they need to fulfil these responsibilities. We believe that a board works best when there is strong independent representation able to assist, advise and constructively test the thinking of management.

Long-term focused remuneration with stretching targets

We look for remuneration policies that are simple, transparent and reward superior strategic and operational endeavour. We believe incentive schemes can be important in driving behaviour, and we encourage policies which create alignment with genuine long-term shareholders. We are accepting of significant pay-outs to executives if these are commensurate with outstanding long-run value creation, but plans should not reward mediocre outcomes. We think that performance hurdles should be skewed towards long-term results and that remuneration plans should be subject to shareholder approval.

Fair treatment of stakeholders

We believe it is in the long-term interests of companies to maintain strong relationships with all stakeholders, treating employees, customers, suppliers, governments and regulators in a fair and transparent manner. We do not believe in one-size-fits all governance and we recognise that different shareholder structures are appropriate for different businesses. However, regardless of structure, companies must always respect the rights of all equity owners.

Sustainable business practices

We look for companies to act as responsible corporate citizens, working within the spirit and not just the letter of the laws and regulations that govern them. We believe that corporate success will only be sustained if a business's long-run impact on society and the environment is taken into account. Management and boards should therefore understand and regularly review this aspect of their activities, disclosing such information publicly alongside plans for ongoing improvement.

* Listed security in line with the conditions of the IPO, investors with holdings prior to the listing are subject to a lock-up period preventing trading of the holding. This expired on 25 February 2022.

† The total value in 2021 relates to the investment in Grail which was taken over by Illumina for cash, shares and Contingent Value Rights (CVRs).

As at 31 January 2022

* Alternative performance measure, see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Distribution of Net Assets

Ordinary Shares

Geographical Sectoral

C Shares

Geographical Sectoral

The above sectoral distribution is not derived from any index.

Statement of Comprehensive Income

The total column of this Statement represents the Statement of Comprehensive Income of the Company. The supplementary revenue and capital columns are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in this statement derive from continuing operations.

Statement of Financial Position

As at 31 January

Statement of Changes in Equity

For the year ended 31 January 2022

For the year ended 31 January 2021

The capital reserve includes investment holding gains of US$255,767,0000 (2021 - US$220,969,000).

Statement of Cash Flows

* Cash from operations includes interest received of US$1,000 (2021 - US$18,000).

* Includes holdings in preference shares, promissory notes, ordinary shares and warrants.

† During the period the Company disposed of its investment in Grail in exchange for proceeds comprising cash of US$8,740,000 and Illumina shares, the equivalent value of which on the transaction date was US$12,684,000. The Illumina shares received are a non-cash item and hence are not reflected with the Statement of Cash Flows above.

The purchases and sales proceeds figures above include transaction costs of US$99,000 (2021 - US$31,000) and US$nil (2021 - US$nil) respectively.

An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

Total Assets

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

Net Asset Value

Also described as shareholder funds, net asset value ('NAV') is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares or C shares as applicable, in issue.

Net Current Assets

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

Premium/(Discount) (APM)

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

Capital Deployed (APM)

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

Internal Rate of Return (IRR) (APM)

The IRR indicates the annualised rate of return for the Company's investment portfolio.

Gross Multiple on Invested Capital (MOIC) (APM)

The MOIC expresses, as a multiple, how much return the Company has made on investment realisations and income, relative to its book cost.

Ongoing Charges (APM)

The total recurring expenses (excluding the Company's costs of dealing in investments and borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value).

* The total expenses above cover the period 26 April 2021 to 31 January 2022, a period of 280 days.

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of US dollar cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

You can find up to date performance information about The Schiehallion Fund on the Schiehallion Fund page of the Managers' website at schiehallionfund.com‡

The Schiehallion Fund Limited is managed by Baillie Gifford, the Edinburgh based fund management group with around £267 billion under management and advice in active equity and bond portfolios for clients in the UK and throughout the world (as at 28 March 2022). 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.

28 March 2022

For further information please contact:

Alex Blake, Baillie Gifford & Co

Tel: 0131 275 2859

Mark Knight, Director, Four Communications

Tel 0203 697 4200 or 07803 758810