Annual Financial Report
WORLDWIDE HEALTHCARE TRUST PLC
Audited Results for the Year Ended 31 March 2013
NEWS RELEASE
For immediate release
6 June 2013
To: City Editors
Worldwide Healthcare Trust PLC today announces audited results for the year
ended 31 March 2013
Financial Highlights
As at As at
31 March 31 March %
2013 2012 Change
Share price 1009.0p 795.0p +26.9
Net asset value per share - diluted 1089.6p 871.0p +25.1
(dilution for subscription shares)
Net asset value per share - basic 1110.2p 909.4p +22.1
Discount of share price to the diluted net 7.4% 8.7% n/a
asset value per share
Year ended Year ended
31 March 31 March
2013 2012
Share price (total return)*^ +30.9% +18.2%
Net asset value per share (total return)*+^ +30.3% +14.4%
Benchmark index (total return)* +31.4% +13.4%
Dividends per share 16.5p 17.5p
*Source - Morningstar.
+The net asset value per share has been diluted for both subscription shares
and treasury shares.
^Includes the 2012 interim dividend of 17.5p per share which had an ex dividend
date of 6 June 2012 and also the 2013 first interim dividend of 7.0p per share
which had an ex dividend date of 12 December 2012.
Chairman's Statement
"I am delighted to report that during the year ended 31 March 2013, the
Company's net asset value per share total return was 30.3% and the share price
total return was 30.9%..."
REVIEW OF THE YEAR AND PERFORMANCE
I am delighted to report that during the year ended 31 March 2013, the
Company's net asset value per share total return was 30.3% and the share price
total return was 30.9%, both closely tracking the Company's benchmark, the MSCI
World Health Care Index on a net total return, sterling adjusted basis, which
rose by 31.4%. I should point out that the share price and the net asset value
total return generated during the year were enhanced by the change in the
Company's dividend payment policy whereby a first interim dividend of 7.0p per
share was paid in January 2013. This "extra" dividend payment enhanced
performance in total return terms by approximately 1.0%. The Company has
continued to benefit from strong performance from biopharmaceutical companies
such as Gilead Sciences and Onyx Pharmaceuticals, and also from large
capitalisation pharmaceutical companies such as Roche Holdings, Pfizer and
Sanofi. Further information on the Company's investments can be found in the
Review of Investments beginning on page 5 of this Annual Report.
Since the Company's inception in 1995, the total return of the Company's net
asset value per share is 1,250.4%, equivalent to a compound annual return of
15.1%. This compares to a cumulative "blended" benchmark return of 693.8%,
equivalent to a compound annual return of 11.4%. During this period the
Company's net asset value total return ranked second out of the approximately
250 UK Listed Investment Companies (Source: Winterflood Securities Limited and
Thomson Reuters).
At 31 March 2013, the discount of the Company's share price to the diluted net
asset value was 7.4% (31 March 2012: 8.7%). However, as a result of continued
strong performance, at the time of writing the discount has narrowed to 1.3%
The average discount of the share price to the diluted net asset value per
share during the year was 6.0% which compares to 7.1% during the previous year.
CAPITAL
In implementing our policy of actively managing the share price discount we
repurchased a total of 2,411,340 ordinary shares for treasury during the year,
at a discount greater than 6.0% to the prevailing diluted net asset value per
share, at a cost of £19.2 million (including expenses). In line with the
Board's policy, a total of 2,941,518 shares held in treasury at 18 July 2012,
the date of last year's Annual General Meeting, were cancelled. I am pleased to
report that, during the year and to the date of this report, we have been able
to reissue all of the 378,408 shares bought back into treasury since the 2012
Annual General Meeting at prices representing no more than a 4.9% discount to
the prevailing fully diluted cum income net asset value per share, raising £4.0
million of new funds for the Company. Shareholder approval to renew the
authority to buy-back both ordinary shares and subscription shares will be
sought at the Annual General Meeting. The execution and timing of any share
buy-back will continue to be at the absolute discretion of the Board.
I would like to remind shareholders that any shares held in treasury on 17 July
2013, the date of this year's Annual General Meeting, will be cancelled.
The next exercise date for the Company's subscription shares is 31 July 2013
and the exercise price is 699p, where it will remain until the expiry date of
the subscription shares on 31 July 2014. As a result of holders of subscription
shares exercising their subscription rights during the year and to the date of
this report) a total of 4,764,682 new shares were issued, raising £30.5 million
of additional funds for the Company.
REVENUE AND DIVIDEND
I reminded shareholders last year that it remained the Company's policy to
pursue capital growth for shareholders and to pay dividends to the extent
required to maintain investment trust status, I also confirmed that the Company
would in future declare two interim dividends per year. A first interim
dividend of 7.0p per share, for the year ended 31 March 2013, was paid on 11
January 2013 to ordinary shareholders on the register on 14 December 2012. The
Company's net revenue return for the year as a whole has fallen slightly to £
7.6 million (2012: £9.5 million) due to a reduction in the overall yield from
portfolio investments. The Board has declared a second interim dividend of 9.5p
per share which, together with the first interim dividend already paid, makes a
total dividend for the year of 16.5p (2012: 17.5p per share) which is
sufficient to ensure that the Company maintains its investment trust status.
Based on the current mid-market share price of 1052.0p the total dividend
payment for the year represents a yield of 1.6%.
The second interim dividend will be payable on 5 July 2013 to ordinary
shareholders on the register of members on 7 June 2013. The associated
ex-dividend date was 5 June 2013.
GEARING
The Company's borrowing requirements are met through a loan facility,
negotiated on competitive terms, which is repayable on demand, provided by the
custodian Goldman Sachs & Co New York. As at 31 March 2013 a total of £
31.4 million of this facility was drawn down, representing 6.2% of the
Company's net assets. Your Company has utilised gearing over many years and the
Board believes that the availability of a meaningful gearing facility is very
useful for a closed end investment company such as ours. The Company's gearing
policy is to borrow up to the lower of £120 million or 20% of the Company's net
asset value.
THE BOARD
Anthony Townsend, who has been a Director of the Company since its launch in
1995, will be retiring from the Board at the conclusion of this year's Annual
General Meeting. Anthony was instrumental in ensuring the launch of the Company
and I would like to thank him for his hard work during his time on the Board.
His experience and wise counsel will be greatly missed. Jo Dixon will be
succeeding him as the Senior Independent Director.
I am delighted to welcome Sarah Bates onto the Board. Sarah brings with her a
wealth of experience, both as a former Chairman of the Association of
Investment Companies and also as a non-executive Director of a number of public
companies including JPMorgan American Investment Trust plc, where she is
Chairman, and also New India Investment Trust PLC, Polar Capital Technology
Trust plc and Witan Pacific Investment Trust plc.
THE ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (AIFMD)
The AIFMD is European legislation which will create a European-wide framework
for regulating managers of `alternative investment funds', which includes
investment trusts. It came into force in July 2011 with the intention that it
be implemented into national legislation by July 2013. Your Board is currently
in the process of complying with this legislation and will keep shareholders
informed of developments.
OUTLOOK
While the prospects for global economic growth remain mixed, with a further
year of recession and continued political uncertainty expected in the Eurozone,
and the Chinese economy struggling with high energy costs and a deteriorating
trade balance. However, there is better news in Japan and also in the US where,
despite automatic budgetary cuts, the US economy is still expected to grow at
2% this year. Our Investment Manager continues to believe that the outlook for
the healthcare sector is positive and that there is potential for continued out
performance of the wider market over the long term. In particular, they believe
that the portfolio is well positioned to benefit from such factors as low
valuations, a rise in the prospects for emerging markets, attractive growth
potential for large capitalisation pharmaceutical and biotechnology companies
as a result of new product launches and continued merger and acquisition
activity.
Our focus continues to be on the selection of stocks with strong prospects and
we continue to believe that investors committed to the sector will be well
rewarded.
ANNUAL GENERAL MEETING
This year, the Annual General Meeting of the Company will be held at the
Carpenters' Hall, Throgmorton Avenue, London EC2N 2JJ on Wednesday, 17 July
2013 at 12 noon, and we hope as many shareholders as possible will attend. This
will be an opportunity to meet the Board and to receive a presentation from our
Investment Manager.
Sir Martin Smith
Chairman
6 June 2013
OrbiMed Capital LLC - Investment Manager
OrbiMed was born in 1989 and has evolved over time to be the largest dedicated
healthcare investment firm in the world. OrbiMed has managed the portfolio
since the Company's launch in 1995. Exceptional returns and recipient of many
investment awards signifies the aggregate talents of this exceptional team.
OrbiMed had over U.S.$7 billion in assets under management as of 31 March 2013,
across a range of funds, including investment trusts, hedge funds, mutual
funds, and private equity funds.
THE TEAM
The OrbiMed Public Equity Investment Team continues to expand. Led by founding
partner, Samuel D. Isaly, now over 60 investment professionals cover all
aspects of research, trading, finance, and compliance. This includes over 20
degree holders with MD and/or PhD credentials, healthcare industry veterans,
and finance professionals with over 20 years of experience.
The firm has a global investment horizon and the OrbiMed footprint now spans 3
continents with offices in New York, San Francisco, Tel Aviv, Shanghai, and
Mumbai.
INVESTMENT STRATEGY AND PROCESS
The Team works constantly to identify sources of alpha generation with a focus
on fundamental research. In healthcare, there are many primary sources of alpha
generation, especially in therapeutics. Clinical events such as the publication
of new clinical trial data is a prominent example and historically has been the
largest source of share price volatility. Regulatory events, such as new drug
approvals by U.S., European, or Japanese regulatory authorities are also stock
moving events. Subsequent new product launches are carefully tracked and
forecasted. Other sources include legal events and, of course, M&A activity.
The Team has a global focus with a universe of coverage that covers the entire
spectrum of companies, from early stage companies with pre-clinical assets to
full integrated bio-pharmaceutical companies. The universe of actively covered
companies is approaching 1,000.
OrbiMed emphasises investments in companies with underappreciated products in
the pipeline, high quality management teams, and adequate financial resources.
A disciplined portfolio construction process is utilised to ensure the
portfolio is focused on high conviction positions. Finally, the portfolio is
subject to rigorous risk management process to moderate portfolio volatility.
Review of Investments
".... healthcare outperformance in the period was both immediate and
sustained."
PERFORMANCE REVIEW
The year ended 31 March 2013 was marked by periods of volatility, but primarily
was a bullish period for the global equity markets. Early returns were negative
in the period, but a turn in the markets in May 2012 marked the beginning of a
bull run that bore witness to a nearly 30% swing in the MSCI World Index
measured in sterling terms on a net total return basis. Ultimately the MSCI
World Index finished up an impressive 17.7% for the year.
Despite such strong returns, global healthcare equities outperformed the
broader market during the year. Although following a similar pattern,
healthcare outperformance in the period was both immediate and sustained. The
MSCI World Healthcare Index rose by 31.4% on a net total return, sterling
adjusted basis during the year. This compares to the Company's net asset value
per share total return of 30.3% and the share price total return of 30.9% in
the same period.
While currency movements have been volatile in recent times, including some
precipitous swings in 2012 and early in 2013, the currency impact was modest
during the year. A significant majority of the portfolio holdings are
denominated in U.S. dollars, but the net move in sterling versus the dollar was
approximately 5% in the period.
CONTRIBUTION TO PERFORMANCE
Large capitalisation therapeutic stocks were the hallmark of 2013 performance.
Dusting off the doldrums with renewed positive fundamentals, these stocks shook
off historically low valuations and re-rated to better reflect a new era of
productivity and growth. This led to the largest contributions during the year.
Gilead Sciences, is a good example of this phenomenon. Worldwide leaders in
virology, the company maintained its leadership in HIV and grabbed the mantle
in hepatitis C, as well. During the period, the company was able to gain
regulatory approval for the next generation of anti-viral combination therapy
for HIV. Known as Stribild (elvitegravir, cobicistat, emtricitabine,
tenofovir), the product launch was solid. Moreover, Gilead's next generation
anti-viral combination therapy for hepatitis C began to usher in a new era for
the treatment of this chronic liver disease. The novel, all-oral therapy will
likely set a new standard in efficacy, safety, and tolerability for this unmet
medical need. The regimen is in late stage clinical trials and we expect it to
be available to patients in 2015. In recognition of such impressive
productivity, the stock doubled during the year. This performance led to Gilead
being the top contributor to performance in the period.
Roche Holdings is another example of a large capitalisation bio-pharmaceutical
company that demonstrated continued leadership in product development, in this
case, in cancer. Roche is the worldwide leader in oncology and sells the three
largest cancer drugs in the world (Avastin, Rituxan, Herceptin). Over the past
twelve months, the company made important strides in maintaining that
leadership with extensive life cycle management and pipeline developments to
protect its oncology franchise. Two drugs were approved for breast cancer,
Perjeta (pertuzumab) and Kadcyla (ado-trastuzumab), raising the efficacy and
safety bar first established by Herceptin. Most notably was the approval of
Kadcyla, the first antibody-drug conjugate (ADC) for the treatment of
metastatic breast cancer. This type of therapy, pioneered by Roche, helped the
stock outpace the NYSE Arca Pharmaceutical Index by over 50% in the period.
Shares of the specialty biotechnology company, Onyx Pharmaceuticals, increased
sharply due to the approval and launch of Kyprolis (carfilzomib) for treatment
of multiple myeloma (a type of bone marrow cancer). Entering 2012, there was
significant doubt that the regulatory package submitted to the U.S. Food and
Drug Administration ("FDA") would be sufficient for approval, as it was based
on a phase II trial rather than a large, randomised phase III trial. However,
because of the high unmet medical need represented by refractory myeloma, the
drug received a positive review by an advisory committee and accelerated
approval from the FDA. The initial launch of the product has gone well,
providing further support for the stock. Future approval in Europe is expected.
Additionally during the year under review, approval was received for Stivarga
(regorafenib) for the treatment of colorectal cancer by Bayer, from which Onyx
receives a meaningful royalty.
Another large capitalisation stock, Pfizer, utilised a host of levers to
produce outperformance in the period. The company successfully divested its
Infant Nutritionals business to Nestlé for U.S.$11.9 billion. The company also
successfully spun off (partially) its Animal Health business in a U.S.$2.2
billion initial-public-offering. The company continued to return this cash to
shareholders in the forms of increasing dividends and an industry leading share
buyback programme. Moreover, the company participated in two of the most
important drug approvals in recent memory. First, Pfizer was able to obtain
U.S. FDA approval for Xeljanz (tofacitinib), the first ever oral, disease
modifying agent for the treatment of rheumatoid arthritis. Second, the company,
along with partner Bristol-Myers Squibb, launched what we believe is the most
important therapy ever approved for the prevention of stroke in patients with
atrial fibrillation. Known globally as Eliquis (apixaban), this drug has shown
to be more efficacious at reducing strokes with less bleeding than the long
time gold standard, Coumadin (warfarin). We expect both Xeljanz and Eliquis to
reach "mega-blockbuster" status.
The Paris-based bio-pharmaceutical giant, Sanofi, entered the year in the midst
of one of the largest patent cliffs in the industry. However, while revenues
and earnings suffered with the loss of patent protection for its U.S.$10
billion franchise for blood thinner Plavix (clopidogrel), the company was able
to align a host of additional growth platforms to drive above average growth in
the future. Sanofi has shown leadership in diabetes, vaccines, and consumer
healthcare. The acquisition of Genzyme in 2011 also puts Sanofi in the
forefront of the biotechnology space, in particular for rare orphan diseases
and multiple sclerosis. The market was able to look past the headwind of
generics and the stock outpaced the NYSE Arca Pharmaceutical Index by over 50%
in the period. Thus, Sanofi was another top contributor to performance.
For stocks that were the largest detractors in the period, a common thread is
more difficult to identify but one recurring theme that hurt many stocks in the
portfolio was disappointing new product launches for small and
mid-capitalisation companies. Dendreon is a typical example. The company
received approval in 2010 for their novel vaccine for the treatment of prostate
cancer. While expectations did reset lower, the combination of high price,
difficult procurement logistics (for both the patient and physician), and new
competitor entries continued a long string of quarterly sales disappointments.
Further exacerbating the move down was decreasing likelihood of the company
being acquired and thus the valuation compressed further. Overall, the stock
fell over 50% in the period.
OraSure Technologies is a leading diagnostics company that significantly
underperformed the broader market during the year. The stock lagged due to a
muted over-the-counter HIV test launch coupled with deteriorating legacy
diagnostics business caused by a difficult public health funding environment.
OraSure's over-the-counter HIV test received its FDA approval in July 2012 on
the heels of a unanimous recommendation from the FDA advisory panel in May
2012. The initial enthusiasm of the first FDA cleared over-the-counter HIV test
became short-lived soon after initial data tracking the launch started coming
in below stock market expectations. Public health funding environment also
provided a difficult backdrop for OraSure's core diagnostics business causing
the company to provide lacklustre future guidance for two consecutive quarters
putting additional downward pressure on the stock.
VIVUS, is a specialty pharmaceutical player that was the first company in the
U.S. to launch a new drug for the treatment of obesity in over a decade. The
drug, known as Qsymia (phentermine and topiramate), was approved in July 2012
and the company's share price reached a 10-year high shortly thereafter.
However, the small company with less than 150 employees took a "go-it-alone"
alone strategy and launched the product without the marketing know-how of an
established partner. The result was woeful physician and patient awareness
about the new weight loss drug. An FDA mandated Risk Evaluation and Mitigation
Strategy turned into another obstacle for patients trying to get on therapy.
The net result was a spectacularly failed launch and a precipitous decline in
share price. This stock is no longer held in the portfolio.
Humana is a managed care company in the United States. The company reported
poor quarters in the first half of 2012 when it became apparent they had
underpriced premiums for the core "Medicare Advantage" product, a privately
offered health insurance programme that provides an eligible person with the
U.S. Medicare benefits. The shares partially rebounded later in the year as the
prospects improved for the Romney Presidential candidacy on the hopes that a
Republican administration would provide a more favourable operating environment
for managed care companies and Medicare Advantage plans. This enthusiasm was
reversed on Election Day when President Obama was re-elected. More recently,
there has been more volatility in Humana shares due to pressures on Medicare
rates.
Questcor Pharmaceuticals, a specialty pharmaceuticals company based in
California, was a notable detractor during the year. The position was initially
predicated on our belief that robust utilisation of their key drug Acthar
(corticotrophin) -particularly in the nephrology setting - could drive
exceptionally strong revenue and earnings growth for the company for several
years. In addition, we viewed the stock as attractively valued in light of
anticipated growth. Questcor was a solid performer during the first half of the
calendar year 2012, underpinned by strong prescription demand for Acthar.
However, in September, a broker's "short report" highlighted a reimbursement
policy change at an insurance carrier and the company disclosed a government
investigation into marketing practices for Acthar. The back-to-back events
triggered a massive sell-off with the stock falling more than 60% in only four
trading days. Although a sell-off of that magnitude was unwarranted, we exited
our Questcor position as the stock no longer traded on fundamentals. Questcor
Pharmaceuticals is no longer held in the portfolio.
Finally, a comment on derivatives and impact on performance. The Company uses
derivatives to enhance the capital return of the portfolio, facilitate the
management of portfolio volatility and improve the risk-return profile of the
Company relative to the benchmark. For year ended 31 March 2013, the option
overlay strategy added 1.1% to performance.
SECTOR UPDATE
The calendar year of 2012 represented a clear inflection point in the
pharmaceutical and biotechnology industries. Evidence of resurgence in research
and development ("R&D") productivity was the key. More positive late stage
clinical trial read outs and product approvals were the hallmark metrics. A
total of 40 new products were approved by the FDA in 2012, 10 more than in
2011. This is the most new approvals since 2004.
Certainly, the FDA has continued its upswing in "industry friendliness" that
commenced in 2010. Tellingly, many of the new product reviews were completed on
the "first cycle", or without delay. This represents a dramatic improvement
over as little as two years ago when "complete response letters" (implicit
rejections) were as common as approvals. Additionally, 2012 was witness to
multiple approvals that occurred before the mandated-by-law action dates for
the FDA. This phenomenon was previously unheard of. Finally, the FDA has
commenced a new "breakthrough therapy" designation for investigational
compounds in early stage development. This enables sponsor companies to gain
better access to FDA staffers to obtain important input in designing and
expediting pivotal trial programmes. A significant number of compounds received
this designation in the first four months of 2013.
On the political front, a plethora of uncertainty existed in the first half of
the year with the constitutionality of "Obamacare" (The Affordable Care Act or
ACA) debated at the Supreme Court of the United States (SCOTUS), followed by
the U.S. Presidential Election later in the year. June brought resolution to
the ACA as SCOTUS upheld the law in a close 5-4 vote. Thus, there will be no
repeal of the new Medical Device tax that commenced in 2013 and, moreover, we
will see Health Insurance Market reforms beginning in 2014 as the rate of
health insurance for Americans will increase significantly. Specifically,
Medicaid eligibility will be expanded effective 1 January 2014. Health
insurance exchanges will be established on a state level for people to
participate, with subsides for insurance premiums available to individuals who
buy a plan from an exchange and have a household income between 133% and 400%
of the poverty line.
PHARMACEUTICALS
Our new found bullishness for large capitalisation pharmaceutical stocks
continued this year. Despite the well-chronicled "patent cliff" reaching its
nadir in 2012, the overall fundamentals of the group have improved
dramatically. A number of metrics have impacted the group, but none more
important than increased R&D productivity and new product launches. The "new
normal" for pharmaceutical companies is that pipelines are delivering new and
innovative medicines that are being approved by the FDA. While valuations have
moved up to reflect this thinking, the re-rating of the sector is far from
complete given that the stocks still trade in the bottom quartile of their
historical range and only at a modest premium to the S&P 500. The outlook for
the group is one of accelerating sales and earnings, in particular off of the
patent cliff trough, fueled by new product launches.
Emerging markets reached critical mass from a global sales perspective earlier
this decade. Now, for many companies, emerging markets are a critical growth
driver going forward. Visibility into these markets has grown as well, and we
are better able to assess this component of a company's sales and income
statements.
While our enthusiasm for the group has increased, we remain cautious on some
companies that comprise the universe. Patent expirations will prove to be
cyclical over time, and while the majority of them for the industry have
passed, some companies still have significant generic headwinds in front of
them. Further, R&D productivity is not created equal amongst this peer group.
We have highlighted some companies as leaders in bringing new drugs to market,
but some are relatively thin on late stage pipeline opportunities.
Finally, we remain very much focused on catalysts, in particular clinical and
regulatory catalysts. Short term shifts in sentiment can follow unexpected
positive or negative events. Fundamentals are most critical, but we are mindful
of trading opportunities.
BIOTECHNOLOGY
Our bullishness for the outlook of the biotechnology sector is perhaps at an
all-time high, in particular for large capitalisation stocks. These stocks are
trading at multiples that are comparable to their pharmaceutical counterparts
despite superior growth profiles. The combination of robust, future growth and
still depressed valuations has created a rare investment opportunity in this
space.
Once again, R&D is a key component of the strategy. The number of drugs in
clinical development has been increasing over the past decade. With decreased
attrition and higher approval rates, more drugs are being approved now than
previously observed. Moreover, six of the top ten current bestselling drugs
worldwide were originally developed by biotechnology companies and a host of
recently launched or soon-to-launch biotechnology drugs have "blockbuster"
potential.
Biotechnology companies are also incrementally more astute at targeting "hot"
therapeutic categories - ones in which there is a high unmet medical need, in
specialist categories which do not require large sales and marketing
infrastructures, and pricing flexibility remains high. Such categories include
immunology, oncology and orphan diseases.
The topic of "biosimilars" (generic alternatives to large molecule drugs) has
been a hotly debated one for most of this century. However, most recent
observations suggest that generic companies attempting to develop, manufacture,
and sell biosimilars are finding the regulatory and cost barriers much higher
than originally expected. Compared to small molecule generics, we expect fewer
entrants, smaller share gains, lower pricing discounts, lower prospects for
interchangeability, and higher manufacturing hurdles. We continue to believe
that biosimilars of some sort are inevitable, but do not believe that they will
materially effect the biotechnology industry. Therefore the patent cliff
outlook for biotechnology versus pharmaceutical remains decidedly in favour of
the biotechnology industry.
GLOBAL GENERICS
Market conditions for generic drug manufacturers are improving across the
globe. In the U.S., pricing stability and a favourable patent cycle make the
world's largest generic market amongst the most attractive. In Europe,
austerity measures have nudged generic utilisation markedly higher,
overwhelming pricing erosion in many major markets. Throughout Asia, economic
expansion, favourable demographics, supportive governmental policies and other
contributing factors have boosted generic utilisation in some regions to
unprecedented levels.
Although we are encouraged by these positive dynamics, increased regulatory
scrutiny, especially manufacturing-related, and reimbursement uncertainties
have become global issues worth monitoring. In-line with our positive views, we
favour many of the mid-sized and large global generic players, especially those
with emerging branded franchises. We believe these companies are best
positioned to realise both near-term and longer-term growth opportunities.
Japan possesses the fastest growing generic drug market in the world and 2013
promises to be the most dynamic in history. In India, we favour companies with
geographic and product diversification with strong management teams in place.
SPECIALTY PHARMACEUTICALS
We look at this sub-sector on a number of levels. On one hand, we continually
search for high-growth companies with attractive, growth-adjusted valuations.
On the other, we seek out "contrarian" stocks with underappreciated businesses
often trading at depressed valuations. In Europe, we remain very selective, as
we find conditions in several major markets to be unfavourable for many
specialty pharmaceutical companies. Finally, merger and acquisition activity is
always a consideration and we continually look for companies that could become
acquisition targets.
MEDICAL DEVICES
We remain cautious on the Medical Device sector, an industry that has
underperformed due to multi-year head winds. Innovation and pricing go
hand-in-hand and this sector has been devoid of both. Uncertain economic times
have led to lower utilisation and decreased demand, clearly a headwind for
these companies. An inflection is possible if not inevitable, so we
continuously monitor utilisation trends across the healthcare sector. These
metrics are critical in considering the large capitalisation medical device
stocks. For small and mid-capitalisation companies, we look for undervalued
quality and misunderstood product cycles that allow for opportunistic buys.
HEALTHCARE SERVICES
It remains a dynamic time in history for the hospitals and managed care
companies in the U.S., the so-called "HMOs" or Health Maintenance
Organisations. For the next several years, the key variable for the services
sector is the implementation of healthcare reform emanating from the ACA. The
expansion of insurance coverage should improve the profitability of hospitals
which previously were uncompensated for care provided to uninsured patients.
For the HMOs, privatisation of Medicare/Medicaid/Dual eligibles is an area of
growth as stretched government budgets encourage shifting these individuals to
a managed care platform. The HMOs have been able to maintain premiums by
assuming a recovery in utilisation; however utilisation is unlikely to recover
until the broader macro and employment environment improves. With attractive
valuations, we are positive on the group.
LIFE SCIENCES TOOLS AND DIAGNOSTICS
We continue to favour the Life Sciences Tools & Diagnostics sub-sectors as we
enter 2013. The sector is beginning to rebound from depressed multiples of the
last few years as visibility in organic growth improves, fueled by innovations
in genomic research. The industry consolidation theme has been driving
sector-wide multiples expansion as large bell-weather conglomerates begin to
show explicit interests in acquiring smaller companies in growth areas.
Recovery in the macro economy, coupled with foreseeable resolution to
sequestration in the U.S., should continue to support outperformance in the
group especially as we head into second half of 2013.
Within the sub-sectors of Life Sciences Tools & Diagnostics, we favour
companies with new innovative products in genomic research over the traditional
life sciences names with more cyclical industrial markets exposures. We
continue to believe in the large market potential of next-generation
sequencing, as it moves from research markets into clinical applications still
in nascent stages.
EMERGING MARKETS
We substantially increased our exposure to emerging market stocks after the
2011 sell-off. The increased exposure was through a combination of either
direct holdings of companies in the local geographies such as China and India,
and indirectly through our global large capitalisation holdings.
The size of our direct holdings in individual stocks in countries such as China
and India, further increased from more than 8% at the end of fiscal year 2011
to roughly 11% through 2012. In particular, it is noteworthy that we have
ventured into the Chinese "A" share market via the Qualified Foreign
Institutional Investor (QFII) programme which allows licensed foreign investors
to buy and sell yuan-denominated "A" shares in China's mainland stock
exchanges.
Emerging market revenues for large capitalisation pharmaceutical stocks range
up to 34% of total sales for these companies. For the period ending with the
2013 fiscal year, we estimate that this contributed an additional 10% of
exposure to emerging markets.
Samuel D. Isaly
OrbiMed Capital LLC
Investment Manager
6 June 2013
CONTRIBUTION BY INVESTMENT
Principal contributors to and detractors from net asset value performance over
the year to 31 March 2013
Contribution Contribution
for the year to per share
31 March 2013 (pence)*
Top Five Contributors £'000
Gilead Sciences 13,923 31.07
Roche Holdings 13,405 29.91
Onyx Pharmaceuticals 8,249 18.41
Pfizer 6,573 14.67
Sanofi 6,139 13.70
107.76
Top Five Detractors
Dendreon (2,688) (6.00)
Orsure Technologies (2,446) (5.46)
VIVUS (2,285) (5.10)
Humana (1,846) (4.12)
Questcor Pharmaceuticals (1,750) (3.90)
(24.58)
*based on 44,819,199 being the weighted average number of shares in issue
during the year ended 31 March 2013.
Source: Frostrow Capital LLP
Historic Performance
% Change
for the
year
ended
31 31 31 31 31 31 31
March March March March March March March
2008 2009 2010 2011 2012 2013 2013
Net asset value per 482.4p 600.5p 752.7p 773.5p 871.0p 1089.6p +25.1
share - diluted
(dilution for warrants
/subscription shares)
Net asset value per 486.6p 635.9p 780.8p 799.2p 909.4p 1110.2p +22.1
share - basic
Share price 457.0p 550.5p 701.5p 686.0p 795.0p 1009.0p +26.9
Warrant/subscription 27.5p 62.0p 98.0p 84.5p 133.5p 307.5p +130.3
share price
Discount of share (5.3%) (8.3%) (6.8%) (11.3%) (8.7%) (7.4%) n/a
price to diluted net
asset value per share
Average month end (6.4%) (7.5%) (7.1%) (7.6%) (7.1%) (6.0%) n/a
discount of share
price to diluted net
asset value per share
Gearing †1.8% 15.3% 10.4% 13.3% 16.4% 9.8% n/a
Ongoing charges †1.3% 1.2% 1.0% 1.0% 1.1% 1.0% n/a
Ongoing charges 1.3% 1.2% 1.0% 1.8% 1.3% 1.2% n/a
(including performance
fees crystallised
during the period)â€
†See glossary on page 72.
Champions of Innovation
INDUSTRY LEADING INVESTMENTS IN THE PORTFOLIO DURING THE YEAR
ROCHE HOLDINGS (Large Capitalisation Bio-pharmaceutical)
The worldwide leaders in oncology, Roche Holdings, are not resting on their
past laurels. Rather, the company continues to push the frontiers of science in
developing novel therapies for the treatment of cancer. Antibody Drug
Conjugates (or ADC's) are a new type of targeted therapy which consist of
antibody linked to a cytotoxic drug (chemotherapy). The antibody will seek and
bind to the specific tumor cells, be internalised, and release the cytotoxin to
kill the host cell. Roche was the first company to get FDA approval for an ADC.
Known as Kadcyla (ado-trastuzumab), adding the drug to current treatment
regimens has increased the survival of metastatic breast cancer patients (who
are HER2+) by almost 300% over chemotherapy alone. Roche also has a follow- on
drug to the "mega-blockbuster" cancer product, Rituxan (rituximab), for blood
cancers. Referred to as obinutuzumab (GA- 101), filing with regulatory
authorities should occur late 2013. Roche is also involved in a new class of
cancer therapies - immunotherapy - with first data available later in 2013. But
Roche is not only a cancer company, with important pipeline projects in
neuroscience, Alzheimer's, and cardiovascular that could further their
reputation as leaders in innovative medicines.
GILEAD SCIENCES (Large Capitalisation Biotechnology)
Founded in 1987, the biotechnology company Gilead Sciences, has become a
category leader in virology, in particular the treatment of human
immunodeficiency virus (HIV). In 2012, the company posted global sales of
U.S.$8 billion for HIV therapies alone. In 2013, the company launched is what
will probably be the next gold standard therapy for HIV, the four drug
combination product known as Stribild (elvitegravir, cobicistat, emtricitabine,
tenofovir). We expect Stribild to reach well over U.S.$3 billion in peak global
sales. Gilead has also attempted to become category leaders in another virology
category, specifically hepatitis C. Once again through astute R&D and M&A,
Gilead is on the cusp of redefining the treatment of hepatitis C with a 2-3
month all-oral therapy (versus the current gold standard treatment regimen
which includes weekly injections for a minimum of 6 months). The Gilead
approach not only simplifies the regimen into a single, once daily pill, but
also avoids the very difficult side effects of today's regimen which causes
many patients to discontinue therapy. But most noteworthy is that Gilead's
therapy will also lead to a cure in the vast majority of patients with
hepatitis C. We expect the drug cocktail to be available to patients in 2015
and take the majority share of what we expect to be a U.S.$10 billion market.
INSULET CORPORATION (Medical Devices)
Insulet Corporation develops, manufactures, and markets a tubeless insulin
patch pump, called the OmniPod, to treat people with insulin-dependent
diabetes. The patch pump offers the patient freedom from tubes, ease of
training and a more payer-friendly pay-as-you-go plan. The Company has recently
launched a next generation pump that is smaller and lighter with lower cost of
manufacture. Insulet should benefit from greater demand and higher gross
margins. Going forward, Insulet may also eventually incorporate a continuous
glucose monitoring capability and is working with pharmaceutical partners to
use the patch pump technology to deliver other drugs.
JIANGSU HENGRUI MEDICINE (Chinese Pharmaceutical)
We view Jiangsu Hengrui Medicine as the most established innovative
pharmaceutical company in China. While we acknowledge that drug development in
China has very much lagged behind the developed countries, we like the
tremendous market potential and growth trajectory the market offers. Jiangsu
Hengrui is the largest oncology drug developer and marketer in China, and is
rapidly expanding its franchise into surgical anesthetic, autoimmune, and
diabetes drugs. Hengrui has one of the most solid drug pipelines among all
Chinese pharmaceutical companies. Among 60 plus drug applications filed with
the State Food and Drug Administration, some noteworthy examples include
apatinib (a VEGFR 2 tyrosine kinase inhibitor for gastric cancer), sunitinib
(inhibitor for multiple receptor tyrosine kinases for renal cell cancer),
long-lasting G-CSF (for neutropenia), and a DDP-4 inhibitor (for diabetes),
among others. In addition, Jiangsu Hengrui also has one of the most established
and best managed sales and marketing channels in China.
Portfolio
as at 31 March 2013
Market value % of
Investments Country £'000 investments
Roche Holdings Switzerland 49,995 9.0
Gilead Sciences USA 25,579 4.6
Pfizer USA 24,786 4.5
Sanofi France 23,456 4.2
HCA USA 20,769 3.8
Bristol-Myers Squibb USA 18,274 3.3
Amgen USA 16,741 3.0
Mylan USA 16,652 3.0
Merck & Co. USA 15,049 2.7
Incyte Corp + USA 13,649 2.5
Top 10 Investments 224,950 40.6
Ono Pharmaceutical Japan 12,491 2.3
AbbVie USA 11,317 2.0
Celgene USA 10,796 1.9
GlaxoSmithKline UK 10,539 1.9
Express Scripts USA 10,206 1.8
Novartis Switzerland 9,844 1.8
Abbott Laboratories USA 9,808 1.8
Actavis USA 9,581 1.7
Mitsubishi Tanabe Pharma Japan 9,562 1.7
Onyx Pharmaceuticals USA 9,066 1.6
Top 20 Investments 328,160 59.1
Illumina USA 8,537 1.5
Sawai Pharmaceutical Japan 8,237 1.5
Infinity Pharmaceuticals USA 8,218 1.5
Insulet USA 7,754 1.4
Actelion Switzerland 7,207 1.3
Wellpoint USA 7,190 1.3
Biogen Idec USA 6,987 1.3
Mako USA 6,525 1.2
UnitedHealth USA 6,476 1.2
Zimmer USA 6,437 1.2
Top 30 Investments 401,728 72.5
+includes Incyte 4.75% 01/10/15 (Conv) equating to 1.6% of investments
Market value % of
Investments Country £'000 investments
Towa Pharmaceutical Japan 6,285 1.1
Nichi-Iko Pharmaceutical Japan 6,218 1.1
Dendreon ^ USA 6,132 1.1
Allergan USA 5,807 1.0
Life Technologies USA 5,787 1.0
Vocera Communications USA 5,680 1.0
Baxter International USA 5,549 1.0
Medivation USA 5,544 1.0
BioMarin Pharmaceutical USA 5,494 1.0
Biosensors International Singapore 5,088 0.9
Top 40 Investments 459,312 82.7
Fluidigm USA 4,956 0.9
Thermo Fisher Scientific USA 4,835 0.9
Shandong Weigao Group China 4,573 0.8
Impax Laboratories USA 3,741 0.7
3SBio China 3,654 0.7
Aetna USA 3,367 0.6
Exact Sciences USA 3,333 0.6
Elan Ireland 3,232 0.6
Neurocrine Biosciences USA 3,138 0.6
China Shineway Pharmaceutical China 3,066 0.6
Top 50 Investments 497,207 89.7
^includes Dendreon 2.875% 15/01/16 (Conv) equating to 0.6% of investments
Market value % of
Investments Country £'000 investments
Affymetrix 4% 01/07/19 (Conv) USA 2,833 0.5
CIGNA USA 2,546 0.5
Given Imaging Israel 2,529 0.5
Orasure Technologies USA 2,520 0.5
Curis USA 2,444 0.4
Sequenom USA 2,069 0.4
Humana USA 1,502 0.3
Sino Biopharmaceuticals China 934 0.2
InterMune USA 745 0.1
Total equities and fixed interest investments 515,329 93.1
OrbiMed Emerging Market Basket 18,031 3.2
Jiangsu Hengrui 6,411 1.2
Lupin 4,760 0.9
Strides Arcolab 2,642 0.5
China Resources 2,526 0.4
Aurobindo 1,618 0.3
Total OTC Swaps 35,988 6.5
Options - (Put & Call) 2,442 0.4
Total investments including OTC Swaps and Options 553,759 100.0
SUMMARY
Market value % of
as at 31 March 2013 £'000 investments
Equities (including options & swaps) 538,744 97.3
Convertibles 15,015 2.7
Total of all investments 553,759 100.0
Your Board
The Board of Directors, all of whom are non-executive, supervise the management
of Worldwide Healthcare Trust PLC and look after the interests of shareholders.
SIR MARTIN SMITH*+ (CHAIRMAN)
Sir Martin Smith, aged 70, joined the Board in 2007. After acting as Head of
Corporate Finance for Citibank in Europe, and Chairman of Bankers Trust
International, he became a founder of Phoenix Securities, a private investment
banking firm. Following the acquisition of Phoenix in 1997 by Donaldson Lufkin
and Jenrette ("DLJ"), he chaired DLJ's European Investment Banking Group. He
subsequently became a founder and Vice Chairman of New Star Asset Management
Group PLC. He is a Director of a number of private companies. He attended
Oxford University and has an MBA from Stanford University.
SARAH BATES*+
Sarah Bates, aged 54, joined the Board in May 2013. A former Chairman of the
Association of Investment Companies, she is currently Chairman of JPMorgan
American Investment Trust plc and a non-executive Director of New India
Investment Trust PLC, Polar Capital Technology Trust plc, St James's Place plc,
Witan Pacific Investment Trust plc and Development Securities plc. She is also
Chairman of Rutley Russia Property Fund Limited and of Stena Line (UK) Pension
Scheme Trustees Limited. In addition, she is Chairman of, or a member of
Charitable and pension fund investment committees including that of the East
Riding Pension Fund and is Chairman of the Kings Corner Project. She attended
Cambridge University and has an MBA from London Business School.
JO DIXON*+
Jo Dixon, aged 53, joined the Board in 2004 and is Chairman of the Audit
Committee. She is currently a non-executive Director and Chairman of the Audit
Committee of Standard Life Equity Income Trust PLC and Baring Emerging Europe
PLC. Jo is a graduate Chartered Accountant having trained with Touche Ross in
London. Her career has spanned strategic development, finance and commercial
management at a number of companies including The Eden Project, Cornwall, Serco
Group plc and Newcastle United PLC and also within the Investment Bank of
NatWest Group.
DR DAVID HOLBROOK*+
Dr David Holbrook, aged 53, joined the Board in 2007. He is a qualified
physician and a Director of MTI Partners Limited, a leading technology venture
capital investor. He attended London and Oxford Universities, and has an MBA
from Harvard Business School. He has held senior positions in a number of blue
chip biopharmaceutical organisations including GlaxoSmithKline and Roche.
SAMUEL D. ISALY
Sam Isaly, aged 68, joined the Board at launch in 1995. Sam is Managing Partner
of OrbiMed Capital LLC, the Company's Investment Manager, and has been an
international pharmaceutical investment specialist for more than 20 years
having worked in New York and Europe with Chase Manhattan, Société Générale,
Crédit Suisse and UBS Warburg.
DOUG McCUTCHEON*+
Doug McCutcheon, aged 48, joined the Board in 2012. Based in Toronto, Canada,
Doug is both a Canadian and UK citizen. Doug is the President of Gormley
Limited, an investment company focused on investing in private companies, and
is also on the Board of Longview Asset Management. Doug is involved in several
philanthropic organisations, with a focus on healthcare and education. Until
2012, Doug was at UBS, where he was the former head of UBS Healthcare
Investment Banking for Europe, the Middle East, Africa and Asia-Pacific, with
over 25 years' experience as an investment banker.
ANTHONY TOWNSEND*+
Anthony Townsend, aged 65, joined the Board at launch in 1995. Anthony has
spent over 40 years working in the City and was Chairman of The Association of
Investment Companies from 2001 to 2003. Anthony is Chairman of Baronsmead VCT 3
plc, British & American Investment Trust PLC, F&C Global Smaller Companies PLC,
Finsbury Growth & Income Trust PLC and Miton Worldwide Growth Investment Trust
Plc.
Other than those stated above, none of the Directors has any other connections
with the Investment Manager and is not employed by any of the companies in
which the Company holds an investment.
*Member of the Audit Committee
+Member of the Nominations and Management Engagement and Remuneration
Committees
Report of the Directors
Incorporating the Business Review
In accordance with the requirements of the Companies Act 2006 (the `Act') and
the UK Listing and Transparency Rules, the Directors present their annual
report on the affairs of the Company together with the audited financial
statements and the Independent Auditors' Report for the year ended 31 March
2013.
INTRODUCTION
The Report of the Directors includes the Business Review and Corporate
Governance Statement. The Business Review contains a review of the Company's
business, the principal risks and uncertainties it faces and an analysis of its
performance during the financial period and the position at the period end and
the future business plans of the Company. To aid understanding of these areas
the Board has included an analysis using appropriate Key Performance
Indicators. The Business Review should be read in conjunction with the
Chairman's Statement on pages 2 and 3, the Review of Investments on pages 5 to
10 and the analyses on pages 11 to 17.
BUSINESS AND STATUS OF THE COMPANY
The Company is registered as a public limited company and is an investment
company within the terms of Section 833 of the Companies Act 2006 (the `Act').
Its shares are listed on the Official List of the UK Listing Authority and
traded on the main market of the London Stock Exchange, which is a regulated
market as defined in Section 1173 of the Act.
The Company has received approval from HM Revenue & Customs as an authorised
investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010
("CTA 2010") for the year ended 31 March 2012. This approval is subject to
there being no subsequent enquiry under corporation tax self-assessment. In the
opinion of the Directors, the Company continues to direct its affairs so as to
enable it to qualify for such approval. In accordance with recent changes to
CTA 2010, the Company has obtained ongoing approval from HM Revenue & Customs
for all accounting periods commencing on 1 April 2012.
CONTINUATION OF THE COMPANY
A resolution was passed at the Annual General Meeting held in 2009 that the
Company continues as an investment trust for a further five year period. In
accordance with the Company's Articles of Association, shareholders will have
an opportunity to vote on the continuation of the Company at the Annual General
Meeting in 2014 and every five years thereafter.
INVESTMENT OBJECTIVE AND BENCHMARK
The Company invests worldwide in pharmaceutical and biotechnology companies and
related securities in the healthcare sector with the objective of achieving a
high level of capital growth. With effect from 1 October 2010, the Company's
performance has been measured against the MSCI World Health Care Index (total
return, sterling adjusted). Prior to this date, performance was measured
against the Datastream World Pharmaceutical & Biotechnology Index (total
return, sterling adjusted).
INVESTMENT POLICY
In order to achieve its investment objective, the Company invests in a
diversified portfolio of shares in pharmaceutical and biotechnology companies
and related securities in the healthcare sector on a worldwide basis. It uses
gearing and derivative transactions to mitigate risk and also to enhance
capital returns.
Investment Limitations and Guidelines
The Board seeks to manage the Company's risk by imposing various investment
limits and restrictions:
• The Company will not invest more than 10% of its gross assets in other closed
ended investment companies (including investment trusts) listed on the London
Stock Exchange, except where the investment companies themselves have stated
investment policies to invest no more than 15% of their gross assets in other
closed ended investment companies (including investment trusts) listed on the
London Stock Exchange.
• The Company will not invest more than 15% of the portfolio in any one
individual stock at the time of acquisition;
• At least 60% of the portfolio will normally be invested in larger companies
(i.e. with a market capitalisation of at least U.S.$5bn);
• At least 20% of the portfolio will normally be invested in smaller companies
(i.e. with a market capitalisation of less than U.S.$5bn);
• Investment in unquoted securities will not exceed 10% of the portfolio at the
time of acquisition;
• A maximum of 5% of the portfolio, at the time of acquisition, may be invested
in each of debt instruments, convertibles and royalty bonds issued by
pharmaceutical and biotechnology companies;
• A maximum of 15% of the portfolio, at the time acquisition, of may be
invested in companies in each of the following sectors:
- healthcare equipment
- healthcare technology
- providers of healthcare and related services
• The Company's gearing policy is to borrow up to the lower of £120 million or
20% of the Company's net asset value;
• Derivative transactions can be used to mitigate risk and/or enhance capital
returns and will be restricted to 5% of the portfolio and
• Equity Swaps may be used in order to meet the Company's investment objective
of achieving a high level of capital growth and is restricted to 8% of the
gross assets of the Company at the time of acquisition.
Compliance with the Board's investment limitations and guidelines is monitored
continuously by Frostrow Capital LLP ("Frostrow" or the "Manager") and OrbiMed
Capital LLC ("OrbiMed" or the "Investment Manager") and is reported to the
Board on a monthly basis.
PERFORMANCE
In the year to 31 March 2013, the Company's net asset value total return was
30.3% compared to a rise of 31.4% in the Company's benchmark, the MSCI World
Health Care Index (net total return, sterling adjusted). The Company's share
price total return was 30.9% during the year. Both the share price and the net
asset value total return generated during the year were enhanced by virtue of
the change in the Company's dividend payment policy whereby a first interim
dividend of 7.0p per share was paid in January 2013. This "extra" dividend
payment enhanced performance in total return terms by approximately 1.0%.
The Review of Investments on pages 5 to 10 includes a review of the principal
developments during the year, together with information on investment activity
within the Company's portfolio.
RESULTS AND DIVIDEND
The results attributable to shareholders for the year and the transfer to
reserves are shown on page 41. In order to maintain investment trust status the
Directors have declared two interim dividends for the year totaling 16.5p per
share (2012: a single interim dividend of 17.5p) the second of which will be
payable on 5 July 2013.
KEY PERFORMANCE INDICATORS (`KPIs')
At each Board meeting the Board assesses the Company's performance in meeting
its investment objective and against the following key performance indicators:
• Net asset value total return (see pages 1 and 11)
• Share price total return (see pages 1, 11 and 38)
• Stock contribution analysis (see page 10)
• Share price premium/discount to net asset value per share (see page 11)
• Ongoing charges (see page 11)
• Benchmark performance (see pages 1, 11 and 38)
• Issue of new shares/repurchase of own shares (see pages 22 and 52)
The management of the portfolio is conducted by the Investment Manager and the
management of the Company's affairs, including marketing, administration and
company secretarial matters is conducted by the Manager. Each provider is
responsible to the Board which is ultimately responsible to the shareholders
for performing against, inter alia, the above KPIs within the terms of their
respective agreements by utilising the capabilities of the experienced
professionals within each firm.
PRINCIPAL RISKS AND THEIR MITIGATION
The Company's assets consist principally of listed equities; its main area of
risk is therefore stockmarket-related. The specific key risks faced by the
Company, together with the Board's mitigation approach, are as follows:
Investment Activity and Strategy
The Board regularly reviews the Company's investment mandate and its long-term
investment strategy in relation to market and economic conditions, and the
operation of the Company's peers, thereby monitoring whether the Company should
continue in its present form. An inappropriate investment strategy, for example
asset allocation or the level of gearing, may lead to underperformance against
the Company's benchmark index and peer companies, resulting in the Company's
shares trading on a wider discount. The Board manages these risks by
diversification of investments through its investment restrictions and
guidelines which are monitored and reported on by the Manager. Each month the
Board receives a monthly review report, which monitors the Company's investment
performance (both on an absolute basis and against the benchmark and peer
group) and its compliance with the investment guidelines. Additional reports
and presentations are regularly presented to investors by the Company's
Manager, Investment Manager and also by Winterflood Securities, the Company's
Corporate Stockbroker.
The Board undertakes a regular review of the level of discount/premium and
consideration is given to ways in which share price performance may be
enhanced, including the effectiveness of marketing and share buy-backs, where
appropriate. The Board has implemented a discount control mechanism intended to
establish a target level of no more than a 6% discount of share price to the
diluted net asset value per share. Shareholders should note, however, that it
remains possible for the share price discount to net asset value per share to
be greater than 6% on any one day and is due to the fact that the share price
continues to be influenced by overall supply and demand for the Company's
shares in the secondary market. The volatility of the net asset value per share
in an asset class such as healthcare is another factor over which the Board has
no control. The average month end share price discount during the year was 6%.
The making and timing of any share buy-backs is at the absolute discretion of
the Board.
A significant proportion of the Company's assets are, and will continue to be,
invested in securities denominated in foreign currencies, in particular U.S.
dollars. As the Company's shares are denominated and traded in sterling, the
return to shareholders will be affected by changes in the value of sterling
relative to those foreign currencies. The Board has made clear the Company's
position with regard to currency fluctuation, which is that it does not
currently hedge against currency exposure.
Shareholder Relations and Corporate Governance
The Board regularly reviews investment performance against the benchmark and
against peer group. The Board also receives regular reports that show an
analysis of performance compared with other relevant indices. The Investment
Manager provides an explanation of stock selection decisions and an overall
rationale for the make-up of the portfolio. The Investment Manager discusses
current and potential investment holdings with the Board on a regular basis in
addition to new initiatives, which may enhance shareholder returns.
Operational
Disruption to, or failure of accounting, dealing or payments systems or the
custodian's records could prevent accurate reporting and monitoring of the
Company's financial position. The Board reviews both the internal control and
the disaster recovery procedures put in place by its principal service
providers on a regular basis.
Financial
Industry risk exists in all specialist industries. Risks are inherent in
pharmaceutical companies with, for example, the potential for drug withdrawals
from the market or failures after launch and lack of expected profit growth.
The Board meets on a quarterly basis during the year and on an ad hoc basis if
necessary. At each meeting they consider the asset allocation of the portfolio.
The Investment Manager has responsibility for selecting investments in
accordance with the Company's investment objective and seeks to ensure that
individual stocks meet an acceptable risk-reward profile.
The Company's assets comprise mainly readily realisable liquid securities,
which can be sold to meet funding requirements if necessary.
The Company's assets can be held by Goldman Sachs & Co. New York as collateral
for the loan provided by them to the Company. Such assets taken as collateral
may be used, loaned, sold, rehypothecated or transferred by Goldman Sachs & Co.
New York, although the Company maintains the economic benefits from ownership
of those assets. Goldman Sachs & Co. New York may take up to 140% of the value
of the outstanding loan as collateral. The Company is afforded protection under
both the SEC rules and U.S. legislation equal to the value of the net assets
held by Goldman Sachs & Co. New York (also see glossary).
Assets held by Goldman Sachs & Co. New York, as custodian, that are not used as
collateral, are held in segregated client accounts.
Further information on financial instruments and risk, as required by FRS 29,
can be found in note 18 to the financial statements beginning on page 54.
The Company is also exposed to the risk that the custodian and/or
counterparties may fail and that title to stocks does not survive an ensuing
liquidation. The Company's Investment Manager is responsible for undertaking
reviews of the credit worthiness of the counterparties that it uses. The Board
regularly reviews the Investment Manager's approved list of counterparties.
Accounting, Legal and Regulatory
In order to qualify as an investment trust, the Company must comply with
Section 1158 of the Corporation Tax Act 2010 ("Section 1158"). Were the Company
to breach Section 1158, it might lose investment trust status and, as a
consequence, gains within the Company's portfolio could be subject to Capital
Gains Tax. The Section 1158 qualification criteria are continually monitored by
the Manager and the results reported to the Board each month. The Company must
also comply with the provisions of the London Stock Exchange, the UKLA Listing
Rules and Disclosure & Transparency Rules (`DTRs'). A breach of the Companies
Act could result in the Company and/or the Directors being fined or subject to
criminal proceedings. Breach of the UKLA Listing Rules or DTRs could result in
the Company's shares being suspended in listing which in turn would breach
Section 1158. The Board relies on the services of its Manager to ensure
compliance with The Companies Act and The UKLA Listing Rules.
LOAN FACILITY
The Company's borrowing requirements are met through the utilisation of a loan
facility, repayable on demand, provided by Goldman Sachs & Co. New York. At the
year end total borrowings amounted to the equivalent of £31.4 million
representing 6.2% of net assets. Further details can be found in note 11 on
page 52 and in note 18 beginning on page 54.
SHARE CAPITAL
On 4 September 2009, the Company made a bonus issue of subscription shares on
the basis of one subscription share for every five ordinary shares held at that
date. The subscription shares have quarterly subscription dates and the
following shares were allotted by the Company as a result of holders of the
subscription shares exercising their subscription rights during the year:
2,213,584 shares were allotted on 2 May 2012 raising £14,123,000.
2,457,096 shares were allotted on 1 August 2012 raising £15,676,000.
960 shares were allotted on 14 August 2012 raising £6,000.
9,946 shares were allotted on 1 November 2012 raising £70,000.
33,336 shares were allotted on 1 February 2013 raising £233,000.
Subsequent to the year-end 49,760 shares were allotted on 2 May 2013 raising £
348,000.
During the year under review the Company re-purchased a total of 2,411,340
shares to be held in treasury, at a cost of £19.2 million (including expenses).
Since the year end and to 6 June 2013 no further shares have been repurchased
by the Company. In aggregate, to 28 May 2013, the shares re-purchased equate to
a total of 5.6% of the issued share capital (excluding shares held in treasury)
at the beginning of the year. As indicated in the Chairman's Statement, the
Board has agreed that any treasury shares remaining on 17 July 2013, the date
of the Annual General Meeting, will be cancelled. A total of 2,941,518 shares
held in treasury were cancelled on 17 July 2012. During the year to date all of
the 378,408 shares bought back into treasury since the 2012 Annual General
Meeting were reissued at prices representing no more than a 4.9% discount to
the prevailing fully diluted cum income net asset value per share, raising £4.0
million of new funds for the Company.
No Subscription Shares were re-purchased for cancellation during the year.
PROSPECTS
The Company's Investment Manager continues to believe that the outlook for the
healthcare sector is positive and that there is potential for continued
outperformance of the wider markets over the long term.
INVESTMENT MANAGEMENT
Investment Management Agreement:
The Investment Manager receives a periodic fee equal to 0.65% p.a. of the
Company's net asset value. The Investment Management Agreement may be
terminated by either party giving notice of not less than 12 months. The
Investment Manager under the terms of the agreement provides, inter alia, the
following services:
• seeking out and evaluating investment opportunities;
• recommending the manner by which monies should be invested, disinvested,
retained or realised;
• advising on how rights conferred by the investments should be exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market movements and other
matters which may affect the investment policy of the Company.
MANAGEMENT
Company Management, Company Secretarial and Administrative Services Agreement:
The Manager, receives a periodic fee equal to 0.30% per annum of the Company's
market capitalisation up to £150 million, 0.20% per annum of the market
capitalisation in excess of £150 million and up to £500 million, and 0.125% per
annum of the market capitalisation in excess of £500 million, plus a fixed
amount equal to £57,500 per annum.
The notice period on the Company Management, Company Secretarial and
Administration Agreement with Frostrow is 12 months, termination can be
initiated by either party.
The Manager, under the terms of the agreement provides, inter alia, the
following services:
• marketing and shareholder services;
• administrative services;
• advice and guidance in respect of corporate governance requirements;
• maintaining the books of account and record in respect of Company dealing,
investments, transactions, dividends and other income, the income account,
balance sheet and cash books and statements;
• preparation and despatch of the audited annual and unaudited interim report
and accounts and interim management statements; and
• attending to general tax affairs where necessary.
Performance Fee:
Dependent on the level of long term outperformance of the Company, the
Investment Manager and the Manager are entitled to the payment of a performance
fee. The performance fee is calculated by reference to the amount by which the
Company's net asset value (`NAV') performance has outperformed the benchmark
index. (See page 1 for details of the benchmark).
The fee is calculated quarterly by comparing the cumulative performance of the
Company's NAV with the cumulative performance of the benchmark since the launch
of the Company in 1995. The performance fee amounts to 16.5% of any
outperformance over the benchmark, the investment manager receiving 15% and the
manager receiving 1.5% respectively. Provision is also made within the daily
NAV per share calculation as required and in accordance with generally accepted
accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee is based on the lower of:
i) The cumulative out-performance of the investment portfolio over the
benchmark as at the quarter end date; and
ii) The cumulative out-performance of the investment portfolio over the
benchmark as at the corresponding quarter end date in the previous year.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
During the year performance fees totaling £643,000 crystallised (year ended 31
March 2012: £909,000) in relation to maintained outperformance of which £
268,000 was payable at 31 March 2013 (see note 3 on page 48 for further
details).
CONTINUING APPOINTMENT OF THE MANAGER AND INVESTMENT MANAGER
The Board has concluded that it is in shareholders' interests that the Manager
and the Investment Manager continue in their roles. The review undertaken by
the Board considered the Company's investment performance over both the short
and longer terms, together with the quality and adequacy of other services
provided. The Board also reviewed the appropriateness of the terms of the
Investment Management and Management Agreements, in particular the length of
notice period and the fee structures.
GOING CONCERN
The Company's business activities together with the factors likely to affect
its future development, performance and position are set out in the Report of
the Directors on pages 19 to 28. The financial position of the Company, its
liquidity position and its borrowing facility are set out in the notes to the
financial statements beginning on page 45. In addition, the Corporate
Governance Report, the Financial Statements and the associated notes give
details of the Company's objectives, policies and processes, its financial risk
management objectives and its exposure to risks. The Company has considerable
financial resources and a good spread of investments across different
geographical areas. The majority of the Company's investments are listed on
recognised stock exchanges and are readily realisable. Having considered the
Company's prospects, the Directors believe that it is appropriate to adopt the
going concern basis in preparing the financial statements as the assets of the
Company consist mainly of securities that are readily realisable and,
accordingly, the Company has adequate financial resources to continue in
operational existence for the foreseeable future.
CREDITORS PAYMENT POLICY
Terms of payment are negotiated with suppliers when agreeing settlement details
for transactions. While the Company does not follow a formal code, it is the
Company's continuing policy to pay amounts due to creditors as and when they
become due. As at 31 March 2013, the Company did not have any trade creditors
(2012: nil).
CHARITABLE AND POLITICAL DONATIONS
The Company has not in the past and does not intend in future to make any
charitable or political donations.
ENVIRONMENTAL AND ETHICAL POLICY
The Company's primary objective is to achieve a high level of capital growth by
investment in pharmaceutical and biotechnology companies and the Board
recognises that this should be done in an environmentally responsible way. The
Directors support the action being taken by the major pharmaceutical companies
to make products more affordable to patients in developing countries. The
Directors believe that the Company would be in breach of its fiduciary duties
to shareholders if investment decisions were based solely on ethical or
environmental considerations. The Company encourages a positive approach to
corporate governance and engagements with investee companies.
INDIVIDUAL SAVINGS ACCOUNTS
The Company's shares are eligible to be held in the stocks and shares component
of an ISA or Junior ISA, subject to applicable annual subscription limits (£
11,520 for an ISA and £3,600 for a Junior ISA for the 2013/2014 tax year).
Investments held in ISAs or Junior ISAs will be free of UK tax on both capital
gains and income. The opportunity to invest in Ordinary Shares through an ISA
is restricted to certain UK resident individuals aged 18 or over. Junior ISAs
are available for UK resident children aged under 18 and born before 1
September 2002 or after 2 January 2011. Sums received by a shareholder on a
disposal of Ordinary Shares held within an ISA or Junior ISA will not count
towards the shareholder's annual limit. Individuals wishing to invest in
Ordinary Shares through an ISA should contact their professional advisers
regarding their eligibility as should individuals wishing to invest through a
Junior ISA for children under 18 years old.
DIRECTORS
The Directors of the Company, all of whom served throughout the year, except as
noted, are all non-executive and are listed below. Their biographies can be
found on page 18.
Sir Martin Smith (Chairman)
Sarah Bates (appointed on 22 May 2013)
Jo Dixon
Professor Duncan Geddes (retired on 17 July 2012)
Dr David Holbrook
Samuel D. Isaly
Doug McCutcheon (appointed on 7 November 2012)
Anthony Townsend
DIRECTORS' INTERESTS
The beneficial interests of the Directors and their families in the Company
were as set out below:
Shares of 25p each Subscription Shares
31 March 1 April 31 March 1 April
2013 2012 2013 2012
Sir Martin Smith 5,859 5,859 400 400
Sarah Bates (appointed 22 May 7,200 - - -
2013)
Jo Dixon 3,000 3,000 600 600
Dr David Holbrook 1,094 - - -
Samuel D. Isaly 353,600 353,600 720 100,720
Doug McCutcheon (appointed 7 15,000 - - -
November 2012)
Anthony Townsend 21,619 21,619 25,793 25,793
As at 6 June 2013 there had been no changes in the above details.
Samuel D. Isaly is a partner in OrbiMed Capital LLC which is party to the
Investment Management Agreement with the Company and receives fees as described
on pages 22 and 23. A number of the partners at OrbiMed Capital LLC have a
minority financial interest totalling 20% in Frostrow Capital LLP, the
Company's Manager.
DIRECTORS' & OFFICERS' LIABILITY INSURANCE COVER
Directors' & officers' liability insurance cover was maintained by the Company
during the year ended 31 March 2013. It is intended that this policy will
continue for the year ending 31 March 2014 and subsequent years.
DIRECTORS' INDEMNITIES
As at the date of this report, indemnities are in force between the Company and
each of its Directors under which the Company has agreed to indemnify each
Director, to the extent permitted by law, in respect of certain liabilities
incurred as a result of carrying out his or her role as a Director of the
Company. The Directors are also indemnified against the costs of defending any
criminal or civil proceedings or any claim by the Company or a regulator as
they are incurred provided that where the defence is unsuccessful the Director
must repay those defence costs to the Company. The indemnities are qualifying
third party indemnity provisions for the purposes of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
SUBSTANTIAL SHARE INTERESTS
The Company was aware of the following substantial interests in the voting
rights of the Company:
30 April 2013* 31 March 2013
Beneficial Registered Number of % of Number of % of
shareholder holder shares issued shares issued
share share
capital capital
Investec Wealth & Various 4,315,131 9.43 4,216,604 9.21
Investment Nominees
Alliance Trust Savings Alliance Trust 2,401,636 5.25 2,370,495 5.18
Savings
Nominees
Smith & Williamson Various 2,069,159 4.52 2,113,833 4.62
Nominees
Brewin Dolphin Various 2,020,827 4.42 2,058,011 4.49
Nominees
Henderson Global Various 1,944,188 4.25 2,149,188 4.70
Investors Nominees
Charles Stanley, Various 1,820,180 3.98 1,783,132 3.90
Stockbrokers Nominees
Newton Investment Various 1,728,842 3.78 1,764,947 3.86
Management Nominees
Speirs & Jeffrey, Various 1,507,516 3.39 1,537,031 3.36
Stockbrokers Nominees
Legal & General Various 1,446,387 3.16 1,446,387 3.16
Investment Management Nominees
As at 31 March 2013 the Company had 45,434,746 shares in issue. As at 30 April
2013 the Company had 45,504,746 shares in issue.
*30 April being the latest practicable date before publication of the Annual
Report.
INDEPENDENT AUDITORS
Ernst & Young LLP have indicated their willingness to continue to act as
Independent Auditors to the Company and a resolution for their re-appointment
will be proposed at the forthcoming Annual General Meeting.
Ernst & Young LLP have been in post for over 18 years and the Board, after
consideration, has agreed that a tender process for the post of Auditor to the
Company should take place in early 2014. As part of its deliberations, the
Board has noted that the audit partners responsible for the audit are rotated
at least every five years, in accordance with professional and regulatory
standards, in order to protect independence and objectivity and also to provide
fresh challenge to the business, but the Board still believes that the holding
of a tender process is appropriate. The results of the tender will be published
in next year's Annual Report and Accounts and will be voted on by shareholders
at next year's Annual General Meeting.
AUDIT INFORMATION
The Directors who held office at the date of approval of this Directors' Report
confirm that, so far as they are aware, there is no relevant audit information
of which the Auditors are unaware; and that each Director has taken all steps
they ought to have taken as a Director to make themselves aware of any relevant
audit information and to establish that the auditors are aware of such
information.
SECTION 992 OF THE COMPANIES ACT 2006
The following disclosures are made in accordance with Section 992 of the
Companies Act 2006.
Capital Structure
The Company's capital structure is summarised in note 13.
Voting Rights in the Company's shares
Details of the voting rights in the Company's shares at the date of this Annual
Report are given in note 9 to the Notice of Annual General Meeting.
BENEFICIAL OWNERS OF SHARES - INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar, Capita Registrars, or to
the Company directly.
NOTICE PERIOD FOR GENERAL MEETINGS
Recent amendments made to the Company's Articles of Association included a
provision allowing general meetings of the Company to be called on the minimum
notice period provided for in the Companies Act 2006. For meetings other than
annual general meetings this is currently a period of 14 clear days.
A Special Resolution was passed by shareholders at last year's Annual General
Meeting approving this. The Board is proposing Resolution 15 as a Special
Resolution to renew this approval for a further year. The notice period for
annual general meetings will remain 21 clear days.
ANNUAL GENERAL MEETING
Resolutions relating to the following items of special business will be
proposed at the forthcoming Annual General Meeting:
Issue of Shares
Ordinary Resolution 10 in the Notice of Annual General Meeting gives authority
to the Directors to allot the unissued share capital up to an aggregate nominal
amount of £1,145,323 (equivalent to 4,581,291 shares, or 10% of the Company's
existing issued share capital on 6 June 2013, being the nearest practicable
date prior to the signing of this Report). Such authority will expire on the
date of the next Annual General Meeting or after a period of 15 months from the
date of the passing of the resolution, whichever is earlier. This means that
the authority will be renewed at the next Annual General Meeting.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006
(the "Act") provides that existing shareholders have pre-emption rights and
that the new shares must be offered first to such shareholders in proportion to
their existing holding of shares. However, shareholders can, by special
resolution, authorise the Directors to allot shares otherwise than by a pro
rata issue to existing shareholders. Special Resolution 10 will, if passed,
give the Directors power to allot for cash equity securities up to 10% of the
Company's existing share capital on 6 June 2013 (reduced by any treasury shares
sold by the Company pursuant to Special Resolution 12, as described below), as
if Section 551 of the Act does not apply. This is the same nominal amount of
share capital which the Directors are seeking the authority to allot pursuant
to Resolution 11. This authority will also expire on the date of the next
Annual General Meeting or after a period of 15 months, whichever is earlier.
This authority will not be used in connection with a rights issue by the
Company.
Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations
2003 (as amended) (the "Treasury Share Regulations") the Company is permitted
to buy back and hold shares in treasury and then sell them at a later date for
cash, rather than cancelling them. The Treasury Share Regulations require such
sale to be on a pre-emptive, pro rata, basis to existing shareholders unless
shareholders agree by special resolution to disapply such pre-emption rights.
Accordingly, in addition to giving the Directors power to allot unissued share
capital on a non pre-emptive basis pursuant to Resolution 11, Resolution 12, if
passed, will give the Directors authority to sell shares held in treasury on a
non pre-emptive basis. No dividends may be paid on any shares held in treasury
and no voting rights will attach to such shares. The benefit of the ability to
hold treasury shares is that such shares may be resold. This should give the
Company greater flexibility in managing its share capital, and improve
liquidity in its shares. It is the intention of the Board that any re-sale of
treasury shares would only take place at a narrower discount to the net asset
value per share than that at which they had been bought into treasury, and in
any event at a discount no greater than 5% to the prevailing net asset value
per share, and this is reflected in the text of Resolution 12. It is also the
intention of the Board that sales from treasury would only take place when the
Board believes that to do so would assist in the provision of liquidity to the
market. The number of treasury shares which may be sold pursuant to this
authority is limited to 10% of the Company's existing share capital on 6 June
2013 (reduced by any equity securities allotted for cash on a non-pro rata
basis pursuant to Resolution 11, as described above). This authority will also
expire on the date of the next Annual General Meeting or after a period of 15
months, whichever is earlier.
The Directors intend to use the authority given by Resolutions 10, 11 and 12 to
allot shares and disapply preemption rights only in circumstances where this
will be clearly beneficial to shareholders as a whole. The issue proceeds would
be available for investment in line with the Company's investment policy. No
issue of shares will be made which would effectively alter the control of the
Company without the prior approval of shareholders in General Meeting.
Authority for the Company to purchase its own shares
The Company's Articles of Association permit the purchase by the Company of its
own Ordinary and Subscription shares subject to shareholders' prior approval
being obtained. Resolutions 13 and 14, if passed, would authorise the Company
to buy back up to 6,867,356 Ordinary shares and 350,791 Subscription shares,
which represents approximately 14.99% of the Company's issued ordinary share
capital (excluding shares held in treasury) and 14.99% of the Company's
Subscription shares as at 6 June 2013 respectively. If given, these authorities
will expire at the conclusion of the next AGM of the Company after the passing
of the resolution or, if earlier, 15 months from the date of the passing of the
resolution. The Directors intend to seek a renewal of such powers at each AGM.
The resolutions specify the maximum and minimum prices at which shares may be
bought, reflecting the requirements of the Companies Act 2006 and the Listing
Rules. Any buy back would only be made on the London Stock Exchange.
Any purchases of Ordinary shares will be made within guidelines established
from time to time by the Directors, but they will only exercise the authority
if, in their opinion, it would be in the interests of the Company to do so and
would result in an increase in net asset value per Ordinary share for the
remaining shareholders and if it is in the best interests of shareholders
generally. Such purchases will only be made at prices below the prevailing net
asset value per Ordinary share and within the price constraints set out in
paragraphs (b) and (c) of the resolution.
Under the Companies Act 2006, the Company is allowed to hold its own Ordinary
shares in treasury following a buy back, instead of cancelling them. This gives
the Company the ability to reissue treasury shares quickly and cost-effectively
and provides the Company with additional flexibility in the management of its
capital base. Shares held in treasury may be resold for cash but all rights
attaching to them including voting rights and any right to receive dividends,
are suspended while they are held in treasury. If the Directors exercise the
authority conferred by resolution 13, the Company will have the option of
either holding in treasury or of cancelling any of its own shares purchased
pursuant to the authority and will decide at the time of purchase which option
to pursue. The Directors will have regard to any guidelines issued by investor
groups at the time of any such purchase, holding or re-sale of treasury shares.
Purchases of Subscription shares will only be made through the market at prices
where the Directors believe such purchases will enhance Ordinary shareholder
value and within the price constraints set out in paragraphs (b) and (c) of the
resolution. Any Subscription shares repurchased by the Company will be
cancelled and will not be held in treasury for reissue or resale.
General Meetings
Special Resolution 15 seeks shareholder approval for the Company to hold
General Meetings (other than Annual General Meetings) at 14 clear days' notice.
The authorities being sought under Resolutions 10, 11, 12, 13, 14 and 15 will
last until the conclusion of the next Annual General Meeting or, if less, a
period of 15 months.
Amendment to Articles of Association
It is proposed to make certain changes to the Company's Articles of Association
in order to (i) take advantage of HM Government's reform of the tax and company
law rules affecting investment trusts by removing the prohibition on
distributing capital profits, which the Company is no longer required to
include (the Board is, however, not currently proposing any change to the
Company's dividend policy); (ii) remove the upper limit of the Company's share
capital, which is no longer required pursuant to the Companies Act 2006; (iii)
delete provisions that were formerly contained within the Company's memorandum
of association; (iv) clarify the procedure for dealing with Subscription
Shares, once the Subscription Share Rights attaching to them have lapsed; and
(v) make other technical amendments so that the Articles of Association conform
to the Companies Act 2006 and other legislation applicable to companies in its
current form and current best practice. Accordingly, Special Resolution 16 will
be put to the Annual General Meeting to be held on 17 July 2013.
Subscription Shareholder Class Meeting
As the proposed amendments to the Company's Articles of Association vary the
rights attached to the Subscription Shares, the passing of Special Resolution
16 at the Annual General Meeting is conditional on the approval of the
Subscription Shareholders in a separate class meeting. If adopted, the new
Articles of Association will not affect the rights attached to the Ordinary
Shares, and therefore a separate class meeting of the Ordinary Shareholders is
not necessary and will not be held. Only Subscription Shareholders are entitled
to attend and vote at this class meeting.
The quorum for the Class Meeting is not less than two persons present (in
person or by proxy) holding at least one-third of the nominal amount paid up on
the Subscription Shares in issue. If a quorum is not present at the time and
place for which the class Meeting has been convened, the Class Meeting will be
adjourned until Monday, 29 July 2013 when one person holding Subscription
Shares (whatever the number of shares held) who is present in person or by
proxy will constitute a quorum".
Recommendation
The Board considers that the resolutions set out above are, in the Board's
opinion, in the best interests of shareholders as a whole. Accordingly, the
Board unanimously recommends to shareholders that they vote in favour of the
above resolutions to be proposed at the forthcoming Annual General Meeting as
the Directors intend to do in respect of their own beneficial holdings totaling
407,372 Shares.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 June 2013
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report and the financial
statements in accordance with applicable United Kingdom law and regulations.
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. Under this law the Directors have elected
to prepare the financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice, (United Kingdom standards and applicable law).
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and the profit and loss of the Company for that period.
In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and applied them consistently;
• make judgments and estimates that are reasonable and prudent; and
• state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the financial statements.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and which disclose
with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
Under applicable law and regulation, the Directors are also responsible for
preparing a Report of the Directors, including a formal statement on Corporate
Governance and a Directors' Remuneration Report that comply with such law and
regulations.
The financial statements are published on the Company's website (website
address: www.worldwidewh.com), which is a website maintained by the Manager.
The maintenance and integrity of the website is, so far as it relates to the
Company, the responsibility of the Manager. The work carried out by the
Auditors does not involve consideration of the maintenance and integrity of
this website and accordingly, the Auditors accept no responsibility for any
changes that have occurred to the financial statements since they were
initially presented on the website. Visitors to the website need to be aware
that legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in their
jurisdiction.
The Directors, whose details can be found on page 18, each confirm that to the
best of their knowledge the financial statements, within the Annual Report,
have been prepared in accordance with applicable accounting standards, give a
true and fair view of the assets, liabilities, financial position and the
profit for the year ended 31 March 2013, and that the Chairman's Statement,
Review of Investments and the Report of the Directors include a fair review of
the information required by 4.1.8R to 4.1.11R of the FSAs Disclosure and
Transparency Rules.
On behalf of the Board
Sir Martin Smith
Chairman
6 June 2013
Corporate Governance
This Corporate Governance Statement forms part of the Report of the Directors.
COMPLIANCE
The Board has considered the principles and recommendations of the Association
of Investment Companies ("AIC") Code of Corporate Governance ("AIC Code") by
reference to the AIC Corporate Governance Guide for Investment Companies ("AIC
Guide"), both of which can be found on the AIC website www.theaic.co.uk. The
AIC Code, as explained by the AIC Guide, addresses all the principles set out
in the UK Corporate Governance Code (the "UK Governance Code") as well as
setting out additional principles and recommendations on issues that are of
specific relevance to the Company. The Board considers that reporting against
the principles and recommendations of the AIC Code, and by reference to the AIC
Guide (which incorporates the UK Governance Code), provides better information
to shareholders. A copy of the UK Governance Code can be found at
www.frc.org.uk.
The Board has noted the recommendations of the UK Corporate Governance Code
published in October 2012 (applicable for financial years beginning after 1
October 2012) and will duly report on these recommendations in the Company's
2014 Annual Report.
The Board considers that it has managed its affairs throughout the year ended
31 March 2013 in compliance with the recommendations of the AIC Code and the
relevant provisions of the UK Governance Code, except as set out below:
• the role of the chief executive;
• executive directors' remuneration;
• the need for an internal audit function; and
• the Chairman of the Company acting as Chairman of the Management Engagement
and Remuneration Committee.
For the reasons set out in the AIC Guide, and in the preamble to the AIC Code,
the Board considers the first three provisions mentioned above are not relevant
to the position of the Company, being an externally managed investment trust.
The Company has therefore not reported further in respect of these provisions.
With regard to the Chairman of the Company acting as the Chairman of the
Management Engagement and Remuneration Committee, the Board considers this to
be appropriate in light of the remit of the Committee. Further details covering
the Committee can be found on page 32.
In view of its non-executive nature, the Board considers that it is not
appropriate for the Directors to be appointed for a specified term as
recommended by provision B.7.1 of the UK Corporate Governance Code and
principle 3 of the AIC Code. The Board has agreed that all Directors of the
Company will seek re-election annually. Mr Anthony Townsend, however, will not
be seeking re-election at this years' Annual General Meeting.
INTERNAL AUDIT
As the Company delegates its day-to-day operations to third parties and has no
employees, the Board has determined that there are no requirements for an
internal audit function. The Board reviews annually whether a function
equivalent to an internal audit is needed and it will continue to monitor its
systems of internal controls in order to provide assurance that they operate as
intended.
BOARD INDEPENDENCE, COMPOSITION AND TENURE
Sir Martin Smith as Chairman is responsible for leadership of the Board and for
ensuring its effectiveness in all aspects of its role, currently consists of
seven non-executive Directors. The Directors' biographical details, set out on
page 18, demonstrate a breadth of investment, commercial and professional
experience. Mr Anthony Townsend has been designated as the Senior Independent
Director who can act as a sounding board for the Chairman and also acts as an
intermediary for the other Directors when necessary. Mr Townsend will not be
seeking re-election at this year's Annual General Meeting. He will be succeeded
as the Senior Independent Director by Jo Dixon. The Directors review their
independence annually.
Samuel D. Isaly is Managing Partner of OrbiMed, the Company's Investment
Manager, and has also served on the Board for over nine years. Mr Isaly is
therefore not considered to be an Independent Director. Ms Jo Dixon and Mr
Townsend have also served on the Board for nine years. The Board subscribes to
the view expressed within the AIC Code that long-serving Directors should not
be prevented from forming part of an independent majority. It does not consider
that a Director's tenure necessarily reduces his or her ability to act
independently and, following formal performance evaluations, believes that,
with the exception of Samuel D. Isaly, each of the Directors is independent in
character and judgment and that there are no relationships or circumstances
which are likely to effect their judgment. Sir Martin Smith and Dr David
Holbrook joined the Board in 2007 and are both considered by the Board to be
independent. The Board has considered the position of Ms Dixon, Sir Martin
Smith, Mr Isaly and Dr Holbrook as part of the evaluation process, and believes
that it would be in the Company's best interests to propose them for reelection
at the forthcoming Annual General Meeting. Mrs Sarah Bates and Mr Doug
McCutcheon were appointed directors with effect from 22 May 2013 and 7 November
2012 respectively and they will be seeking election at this year's Annual
General Meeting. They are both considered to be independent by the Board. In
line with the Company's strong commitment to its corporate governance
responsibilities, the Board regularly reviews its performance and composition
to ensure it has the correct mix of relevant skills and experience for the good
conduct of the Company's business. As part of this process the Board has agreed
a programme of refreshment, which will see its membership change as current
Directors retire in an orderly manner, and new Directors are appointed.
None of the Directors has a service contract with the Company. New Directors
are appointed with the expectation that they will serve for a minimum period of
three years. Any Director may resign in writing to the Board at any time. The
terms of their appointment are detailed in a letter sent to them when they join
the Board. These letters are available for inspection at the offices of the
Company's Manager and will be available at the Annual General Meeting. When a
new Director is appointed to the Board, they are provided with all relevant
information regarding the Company and their duties and responsibilities as a
Director. In addition, a new Director will also spend time with representatives
of the Manager and Investment Manager in order to learn more about their
processes and procedures. The Chairman also regularly reviews the training and
development needs of each Director. The Board receives regular briefings from,
amongst others, the Auditors and the Company Secretary regarding any proposed
developments or changes in laws or regulations that could affect the Company
and/or the Directors.
THE BOARD'S RESPONSIBILITIES
The Board is responsible for efficient and effective leadership of the Company
and regularly reviews the schedule of matters reserved for its decision. The
Board meets at least on a quarterly basis and at other times as necessary. The
Board is responsible for all aspects of the Company's affairs, including the
setting of parameters for and the monitoring of investment strategy, the review
of investment performance (including peer group performance) and investment
policy. It also has responsibility for all corporate strategy issues, dividend
policy, share issuance and buy-back policy, gearing, share price and discount/
premium monitoring and corporate governance matters. To enable them to
discharge their responsibilities, prior to each meeting the Directors are
provided, in a timely manner, with a comprehensive set of papers giving
detailed information on the Company's transactions, financial position and
performance. Representatives of the Manager and Investment Manager attend each
Board meeting, enabling the Directors to seek clarification on specific issues
or to probe further on matters of concern; a full written report is also
received from the Manager and Investment Manager at each quarterly meeting. In
light of these reports, the Board gives direction to the Investment Manager
with regard to the Company's investment objectives and guidelines. Within these
established guidelines, the Investment Manager takes decisions as to the
purchase and sale of individual investments.
There is an agreed procedure for Directors, in the furtherance of their duties,
to take independent professional advice, if necessary, at the Company's
expense. The Directors have access to the advice and services of the Company
Secretary, through its appointed representative, who is responsible to the
Board for ensuring that Board procedures are followed.
BOARD EVALUATION
During the year under review, the performance of the Board, Committees and
individual Directors was evaluated through a formal assessment process led by
Mr Anthony Townsend, as the Senior Independent Director. The review concluded
that the Board worked in a collegiate, efficient and effective manner. The
results of the external independent evaluation process, conducted by Board
Alpha, were presented to and discussed by the Board in March 2012 and, as a
result, it was agreed that the current Directors contributed effectively and
that all had the skills and experience which are relevant to the leadership and
direction of the Company. It has been agreed that an external independent
evaluation of the Board will be held every three years.
CONFLICT OF INTEREST
It is a statutory requirement that a Director must avoid a situation in which
he or she has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the Company's interests (a "situational conflict").
The Company's Articles of Association have been amended to give the Directors
authority to approve such situations, where appropriate.
It is the responsibility of each individual Director to avoid an unauthorised
conflict situation arising. He or she must request authorisation from the Board
as soon as he or she becomes aware of the possibility of a situational conflict
arising.
The Board is responsible for considering Directors' requests for authorisation
of situational conflicts and for deciding whether they should be authorised.
The factors to be considered will include whether the situational conflict
could prevent the Director from performing his or her duties, whether it has,
or could have, any impact on the Company and whether it could be regarded as
likely to affect the judgment and/or actions of the Director in question. When
the Board is deciding whether to authorise a conflict or potential conflict,
only Directors who have no interest in the matter being considered are able to
take the relevant decision, and in taking the decision the Directors must act
in a way they consider, in good faith, will be most likely to promote the
Company's success. The Directors are able to impose limits or conditions when
giving authorisation if they think this is appropriate in the circumstances.
A register of conflicts is maintained by the Company Secretary and is reviewed
at quarterly Board meetings, to ensure that any authorised conflicts remain
appropriate. Directors are required to confirm at these meetings whether there
has been any change to their position.
The Directors must also comply with the statutory rules requiring company
directors to declare any interest in an actual or proposed transaction or
arrangement with the Company.
COMMITTEES OF THE BOARD
During the year the Board delegated certain responsibilities and functions to
committees. Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting, and can be
found at the Company's website at www.worldwidewh.com. The membership of the
Company's committees comprises those Directors considered independent by the
Board. The Nominations Committee is chaired by Anthony Townsend, the Management
Engagement and Remuneration Committee by the Chairman of the Company, Sir
Martin Smith, and the Audit Committee by Jo Dixon.
The table overleaf details the number of Board and Committee meetings attended
by each Director. During the year there were four Board meetings, two Audit
Committee meetings, one meeting of the Nominations Committee and one meeting of
the Management Engagement and Remuneration Committee.
NOMINATIONS COMMITTEE
The Nominations Committee is responsible for the Board appraisal process and
for making recommendations to the Board on the appointment of new Directors.
Where appropriate, each Director is invited to submit nominations and external
advisers may be used to identify potential candidates.
MANAGEMENT ENGAGEMENT AND REMUNERATION COMMITTEE
The level of Directors' fees is reviewed on a regular basis relative to other
comparable investment companies and in the light of Directors'
responsibilities. Neither the Chairman nor individual Directors participate in
discussions involving personal remuneration. Details of the fees paid to the
Directors in the year under review are detailed in the Directors' Remuneration
Report on pages 37 and 38.
This committee also reviews the terms of engagement of the Investment Manager,
the Manager and the Company's other service providers.
MEETING ATTENDANCE
The number of meetings held during the year of the Board and its Committees,
and each Director's attendance level, is shown below:
Type and number of meetings Board Audit Nominations Management
held in 2012/13 (4) Committee Committee Engagement
(2) (1) and
Remuneration
Committee
(1)
Sir Martin Smith†4 2 1 1
Sarah Bates (appointed on 22 May - - - -
2013)
Jo Dixon 4 2 1 1
Professor Duncan Geddes (retired on 1 0 - -
17 July 2012)
Dr David Holbrook 4 2 1 1
Samuel D. Isaly* 4 - - -
Doug McCutcheon (appointed on 7 2 1 1 1
November 2012)
Anthony Townsend 4 2 1 1
All of the serving Directors attended the Annual General Meeting held on 17
July 2012.
*Mr Isaly is not a member of the Audit, Management Engagement & Remuneration
and Nominations Committees.
†Sir Martin Smith was appointed as a member of the Audit Committee on 17 July
2012.
AUDIT COMMITTEE
The Audit Committee meets at least twice a year and is responsible for the
review of the interim and annual financial statements, the nature and scope of
the external audit and the findings therefrom and the terms of appointment of
the Auditors, including their remuneration and the provision of any non-audit
services by them.
The Audit Committee meets representatives of the Manager and Investment Manager
and their Compliance Officers who report as to the proper conduct of business
in accordance with the regulatory environment in which the Company, Manager and
Investment Manager operate. The Company's external Auditors also attend
meetings of this Committee at its request and report on their work procedures
and their findings in relation to the Company's statutory audit. They also have
the opportunity to meet with the Committee without representatives of the
Manager or the Investment Manager being present. The Audit Committee reviews
the need for non-audit services to be provided by the auditor and authorises
such on a case by case basis, having consideration to the cost effectiveness of
the services and the independence and objectivity of the Auditors. Non-audit
fees of £8,000 were paid to Ernst & Young LLP during the year for agreed upon
procedures in relation to the Company's option positions, performance fee
review and tax services. The Board has concluded, on the recommendation of the
Audit Committee, that the Auditors continued to be independent and that their
reappointment be proposed at the Annual General Meeting.
THE BRIBERY ACT 2010
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private in the UK or abroad to secure any improper benefit for themselves or
for the Company.
The Board applies the same Standards to its service providers in their
activities for the Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at www.worldwidewh.com.
BOARD DIVERSITY
The Company welcomes the objectives of the Davies Report to improve the
performance of Corporate boards by encouraging the appointment of the best
people from a range of differing perspectives and backgrounds. The Company
recognises the benefits of diversity on the board, including gender, and takes
this into account in its board appointments. The Company is committed to
ensuring that any Director search processes actively seek persons with the
right qualifications so that appointments can be made, on the basis of merit,
against objective criteria from a diverse selection of candidates. To this end
the Board will continue to dedicate time to consider diversity during any
director search process.
INTERNAL CONTROLS
The Directors are responsible for the Company's system of internal control
which is designed to safeguard the Company's assets, maintain proper accounting
records and ensure that financial information used within the business, or
published, is reliable. However, such a system can only be designed to manage
rather than eliminate the risk of failure to achieve business objectives and
therefore can only provide reasonable, but not absolute, assurance against
fraud, material misstatement or loss.
Risk assessment and the review of internal controls are undertaken by the Board
in the context of the Company's overall investment objective. The review covers
the key business, operational, compliance and financial risks facing the
Company. In arriving at its judgment of what risks the Company faces, the Board
has considered the Company's operations in the light of the following factors:
• the nature and extent of risks which it regards as acceptable for the Company
to bear within its overall business objective;
• the threat of such risks becoming a reality; and
• the Company's ability to reduce the incidence and impact of risk on its
performance.
Against this background, the Board has split the review of risk and associated
controls into five sections reflecting the nature of the risks being addressed.
These sections are as follows:
• corporate strategy;
• investment activity;
• published information, compliance with laws and regulations;
• service providers; and
• financial activity.
The Company has appointed Frostrow Capital LLP to provide Company management,
Company secretarial and administrative services to the Company. The Company has
obtained from its various service providers assurances and information relating
to their internal systems and controls to enable the Board to make an
appropriate risk and control assessment, including the following:
• details of the control environment in operation;
• identification and evaluation of risks and control objectives;
• review of communication methods and procedures; and
• assessment of the control procedures.
The key procedures which have been established to provide internal financial
controls are as follows:
• investment management is provided by OrbiMed Capital LLC. The Board is
responsible for setting the overall investment policy and monitors the actions
of the Investment Manager at regular Board meeting;
• administration, company secretarial and marketing duties for the Company are
performed by Frostrow Capital LLP;
• custody of assets is undertaken by Goldman Sachs & Co. New York;
• the Board clearly defines the duties and responsibilities of their agents and
advisers. The appointment of agents and advisers to the Company is conducted by
the Board after consideration of the quality of the parties involved; the Board
monitors their ongoing performance and contractual arrangements;
• mandates for authorisation of investment transactions and expense payments
are set by the Board; and
• the Board reviews financial information produced by the Investment Manager
and the Manager in detail on a regular basis.
All of the Company's management functions are performed by third parties whose
internal controls are reviewed by the Board or on its behalf by Frostrow
Capital LLP.
In accordance with guidance issued to directors of listed companies, ("the
Turnbull Guidance") the Directors confirm that they have carried out a review
of the effectiveness of the system of internal financial control during the
year and up to the date of approval of the financial statements, as set out
above.
RELATIONS WITH SHAREHOLDERS
The Board reviews the shareholder register at each Board meeting. The Company
has regular contact with its institutional shareholders particularly through
the Manager. The Board supports the principle that the Annual General Meeting
be used to communicate with private investors. The full Board attends the
Annual General Meeting under the Chairmanship of the Chairman of the Board.
Details of proxy votes received in respect of each resolution are made
available to shareholders at the meeting and are also published on the
Company's website at www.worldwidewh.com. Representatives from the Investment
Manager attend the Annual General Meeting and give a presentation on investment
matters to those present. The Company has adopted a nominee share code which is
set out below.
The Board receives marketing and public relations reports from the Manager to
whom the marketing function has been delegated. The Board reviews and considers
the marketing plans of the Manager on a regular basis.
The annual and interim financial reports, the interim management statements and
a monthly fact sheet are available to all shareholders. The Board considers the
format of the annual and interim financial reports so as to ensure they are
useful to all shareholders and others taking an interest in the Company. In
accordance with best practice, the annual report, including the Notice of the
Annual General Meeting, is sent to shareholders at least 20 working days before
the meeting. Separate resolutions are proposed for substantive issues.
EXERCISE OF VOTING POWERS
The Board has delegated authority to the Investment Manager to vote the shares
owned by the Company that are held on its behalf by its custodian, Goldman
Sachs & Co. New York. The Board has instructed that the Investment Manager
submit votes for such shares wherever possible. This accords with current best
practice whilst maintaining a primary focus on financial returns. The
Investment Manager may refer to the Board on any matters of a contentious
nature. The Company does not retain voting rights on any shares that are
subject to rehypothecation in connection with the loan facility provided by
Goldman Sachs & Co. New York.
ACCOUNTABILITY AND AUDIT
The Statement of Directors' Responsibilities in respect of the financial
statements is set out on page 29. The report of the Auditors is set out on
pages 39 and 40. The Board has delegated to external agencies, including the
Manager and the Investment Manager, the management of the portfolio, custodial
services (which includes the safeguarding of the Company's assets), the day to
day marketing, accounting administration, company secretarial requirements and
registration services. Each of these contracts was entered into after full and
proper consideration by the Board of the quality and cost of the services
offered, including the control systems in operation in so far as they relate to
the affairs of the Company. The Board receives and considers regular reports
from the Manager and the Investment Manager and ad hoc reports and information
are supplied to the Board as required.
NOMINEE SHARE CODE
Where shares are held in a nominee company name, the Company undertakes:
• to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance;
• to allow investors holding shares through a nominee company to attend general
meetings, provided the correct authority from the nominee company is available;
and
• that investors in the Alliance Trust Savings Scheme or ISA are automatically
sent shareholder communications, including details of general meetings,
together with a form of direction to facilitate voting and to seek authority
to attend.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meetings.
Directors' Remuneration Report
The Board has prepared this report in accordance with the requirements of
Section 420 to 422 of the Companies Act 2006. An ordinary resolution for the
approval of this report will be put to the members at the forthcoming Annual
General Meeting.
The law requires the Company's auditors to audit certain of the disclosures
provided. Where disclosures have been audited, they are indicated as such. The
Auditors' opinion is included in their report on pages 39 and 40.
MANAGEMENT ENGAGEMENT AND REMUNERATION COMMITTEE
The Company has seven non-executive Directors, six of whom are considered by
the Board to be independent. The whole Board, with the exception of Mr Isaly,
fulfills the function of the Management Engagement and Remuneration Committee.
The Board may utilise the services of the Company Secretary or external
advisers to provide advice when the Directors consider the level of Directors'
fees.
The Directors' fees are reviewed annually by the Management Engagement and
Remuneration Committee and such review will not necessarily result in a change
to the rates paid. During the year, the Management Engagement and Remuneration
Committee carried out a review of the level of Directors' fees in relation both
to fees paid to the boards of other investment trust companies and also to the
Board's corporate governance obligations. The Board decided, on the advice of
the Management Engagement and Remuneration Committee, that the fees paid to the
Directors should be increased with effect from 1 April 2013. The revised fee
levels are set out on page 38.
POLICY ON DIRECTORS' FEES
The Board's policy is that the remuneration of Directors should reflect the
experience of the Board as a whole, be fair and comparable to that of other
investment trusts that are similar in size, have a similar capital structure
and have a similar investment objective. It is intended that this policy will
continue for the year ending 31 March 2014 and subsequent years.
The fees for the Directors are determined within the limits set out in the
Company's Articles of Association, the maximum aggregate amount currently being
£200,000. Directors are not eligible for bonuses, pension benefits, share
options, long-term incentive schemes or other benefits. The policy is for the
Chairman of the Board, Chairman of the Audit Committee and the Senior
Independent Director to be paid higher fees than the other Directors to reflect
their additional responsibilities.
DIRECTORS' SERVICE CONTRACTS
It is the Board's policy that none of the Directors has a service contract. The
terms of their appointment provide that Directors shall retire and be subject
to election at the first Annual General Meeting after their appointment and
re-election annually thereafter. The terms also provide that a Director may
resign by notice in writing to the Board at any time and may be removed without
notice and that compensation will not be due on leaving office. Up until 31
March 2013 the Company's policy was for the Directors to be remunerated in the
form of fees payable quarterly in arrears, to the Director personally or to a
specified third party. With effect from 1 April 2013 Directors will be paid
monthly in arrears in accordance with new legislation by HMRC.
YOUR COMPANY'S PERFORMANCE
The Regulations require a line graph be included in the Directors' Remuneration
Report comparing, for a period of five years, on a cumulative basis, the total
share price return (assuming all dividends are reinvested) to shareholders and
the total shareholder return on a notional investment made up of shares of the
same kind and number as those by reference to the Company's stated benchmark.
With effect from 1 October 2010, the performance of the Company has been
measured against the MSCI World Health Care Index on a net total return,
sterling adjusted basis. Prior to this date, performance was measured against
the Datastream World Pharmaceutical & Biotechnology Index (total return,
sterling adjusted). Therefore, the benchmark return for the year ended 31 March
2013 represented in the graph overleaf consists of a blended figure containing
both indices.
DIRECTORS' EMOLUMENTS FOR THE YEAR (AUDITED)
The Directors who served in the year received the following emoluments in the
form of fees:
Level of fees
with effect
from 1 April 2013 Fees Fees
(unaudited) 2013 2012
£'000 £'000 £'000
Martin Smith (Chairman of the Board) 39.2 38.0 36.5
Sarah Bates (appointed 22 May 2013) 24.8 - -
Jo Dixon (Chairman of the Audit 27.9 27.0 26.0
Committee)
Paul Gaunt (retired on 7 July 2011) - - 8.0
Professor Duncan Geddes (retired on 17 - 7.0 23.5
July 2012)
Dr David Holbrook 24.8 24.0 23.0
Samuel D. Isaly 24.8 24.0 23.0
Doug McCutcheon (appointed on 7 November 24.8 10.0 -
2012)
Anthony Townsend (Senior Independent 25.3 24.0 23.0
Director)
154.0 163.0
APPROVAL
The Directors' Remuneration Report on pages 37 and 38 was approved by the Board
of Directors on 6 June 2013 and signed on its behalf by:
Sir Martin Smith
Chairman
Independent Auditors' Report
to the Members of Worldwide Healthcare Trust PLC
We have audited the financial statements of Worldwide Healthcare Trust PLC for
the year ended 31 March 2013 which comprise the Income Statement, the
Reconciliation of Movements in Shareholders' Funds, the Balance Sheet, the Cash
Flow Statement and the related notes 1 to 19. The financial reporting framework
that has been applied in their preparation is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As explained more fully in the Directors' Responsibilities Statement set out on
page 29, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices
Board's Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial
information in the Annual Report to identify material inconsistencies with the
audited financial statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.
OPINION ON FINANCIAL STATEMENTS
In our opinion the financial statements:
• give a true and fair view of the state of the company's affairs as at 31
March 2013 and of its profit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act
2006.
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:
• the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Report of the Directors for the financial year
for which the financial statements are prepared is consistent with the
financial statements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
We have nothing to report in respect of the following: Under the Companies Act
2006 we are required to report to you if, in our opinion:
• adequate accounting records have not been kept, or returns adequate for our
audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration Report
to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made;
or
• we have not received all the information and explanations we require for our
audit.
Under the Listing Rules we are required to review:
• the Directors' Statement, set out on page 23, in relation to going concern;
• the parts of the Corporate Governance Statement relating to the Company's
Compliance with the nine provisions of the UK Corporate Governance Code
specified for our review; and
• certain elements of the report of the shareholders by the Board on Directors'
remuneration.
Amarjit Singh (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
6 June 2013
Income Statement
for the year ended 31 March 2013
2013 2013 2013 2012 2012 2012
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments held 9 - 109,322 109,322 - 52,193 52,193
at fair value through
profit or loss
Exchange losses on - (2,322) (2,322) - (535) (535)
currency balances
Income from investments 2 9,614 - 9,614 11,653 - 11,653
held at fair value through
profit or loss
Investment management, 3 (190) (2,284) (2,474) (162) (5,953) (6,115)
management and performance
fees
Other expenses 4 (595) - (595) (548) - (548)
Net return before finance 8,829 104,716 113,545 10,943 45,705 56,648
charges and taxation
Finance costs 5 (9) (177) (186) (14) (272) (286)
Net return before taxation 8,820 104,539 113,359 10,929 45,433 56,362
Taxation on net return on 6 (1,171) 18 (1,153) (1,456) 406 (1,050)
ordinary activities
Net return after taxation 7,649 104,557 112,206 9,473 45,839 55,312
Return per share - basic 7 17.1p 233.3p 250.4p 21.8p 105.7p 127.5p
Return per share - diluted 7 16.9p 231.1p 248.0p 21.4p 103.7p 125.1p
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those disclosed in
the Income Statement and Reconciliation of Movements in Shareholders' Funds.
Accordingly no separate Statement of Total Recognised Gains and Losses has been
presented.
No operations were acquired or discontinued in the year.
The accompanying notes are an integral part of this statement.
Reconciliation of Movements in Shareholders' Funds
For the year ended 31 March 2013
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
capital capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2012 10,997 71 186,300 174,230 7,068 13,131 391,797
Net return from - - - 104,557 - 7,649 112,206
ordinary activities
after taxation
Dividend paid in - - - - - (7,705) (7,705)
respect of year
ended 31 March 2012
First interim - - - - - (3,175) (3,175)
dividend paid in
respect of year
ended 31 March 2013
Subscription shares 1,179 (47) 28,929 47 - - 30,108
exercised for
ordinary shares
Shares purchased to (735) - - (19,239) 735 - (19,239)
be held in treasury
and treasury shares
cancelled
Shares issued from - - 8 415 - - 423
treasury
At 31 March 2013 11,441 24 215,237 260,010 7,803 9,900 504,415
For the year ended 31 March 2012
Ordinary Subscription Share Capital
share share premium Capital redemption Revenue
capital capital account reserve reserve reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 March 2011 10,875 82 181,395 135,319 6,978 10,132 344,781
Net return from - - - 45,839 - 9,473 55,312
ordinary activities
after taxation
Dividend paid in - - - - - (6,474) (6,474)
respect of year
ended 31 March 2011
Subscription shares 212 (9) 5,199 9 - - 5,411
exercised for
ordinary shares
Shares purchased to (90) - - (6,939) 90 - (6,939)
be held in treasury
and treasury shares
cancelled
Subscription shares - (2) (294) 2 - - (294)
repurchased for
cancellation
At 31 March 2012 10,997 71 186,300 174,230 7,068 13,131 391,797
The accompanying notes are an integral part of this statement.
Balance Sheet
as at 31 March 2013
2013 2012
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or 9 515,329 454,301
loss
Derivative - OTC swaps 9 & 12 35,988 13,691
551,317 467,992
Current assets
Debtors 10 9,010 2,512
Derivative - financial instruments 9 & 12 2,442 940
11,452 3,452
Current liabilities
Creditors: amounts falling due within one year 11 (58,354) (79,647)
(58,354) (79,647)
Net current liabilities (46,902) (76,195)
Total net assets 504,415 391,797
Capital and reserves
Ordinary share capital 13 11,441 10,997
Subscription share capital 13 24 71
Share premium account 215,237 186,300
Capital reserve 19 260,010 174,230
Capital redemption reserve 7,803 7,068
Revenue reserve 9,900 13,131
Total shareholders' funds 504,415 391,797
Net asset value per share - basic 14 1110.2p 909.4p
Net asset value per share - diluted for 14 1089.6p 871.0p
subscription shares
Net asset value per share - fully diluted for 14 1089.1p 869.7p
subscription shares and treasury shares
The financial statements on pages 41 to 60 were approved by the Board of
Directors and authorised for issue on 6 June 2013 and were signed on its behalf
by:
Sir Martin Smith
Chairman
The accompanying notes are an integral part of this statement.
Worldwide Healthcare Trust PLC - Company Registration Number 3023689
(Registered in England)
Cash Flow Statement
for the year ended 31 March 2013
2013 2012
Notes £'000 £'000
Net cash inflow from operating activities 15 4,202 4,112
Servicing of finance
Interest paid (186) (286)
Taxation
Taxation suffered (431) (422)
Financial investments
Purchases of investments and derivatives (349,759) (301,803)
Sales of investments and derivatives 381,024 288,756
Net cash inflow/(outflow) from financial 31,265 (13,047)
investment
Equity dividends paid 8 (10,880) (6,474)
Net cash inflow/(outflow) before financing 23,970 (16,117)
Financing
Repurchase of own shares 13 (19,239) (7,233)
Issue of shares from treasury 13 423 -
Subscription shares exercised for ordinary shares 13 30,108 5,411
Net cash inflow/(outflow) from financing 11,292 (1,822)
Decrease/(increase) in net debt 16 35,262 (17,939)
The accompanying notes are an integral part of this statement.
Notes to the Financial Statements
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these financial statements, are set
out below:
(a) Basis of Preparation
The financial statements have been prepared in accordance with United Kingdom
generally accepted accounting standards (UK GAAP) and with the Statement of
Recommended Practice `Financial Statements of Investment Trust Companies and
Venture Capital Trusts' dated January 2009 (the `SORP').
The Company's financial statements are presented in sterling. All values are
rounded to the nearest thousand pounds (£'000) except where otherwise
indicated.
(b) Investments Held at Fair Value Through Profit or Loss
Listed investments have been designated by the Board as held at fair value
through profit or loss and accordingly are valued at fair value, deemed to be
bid market prices.
Unquoted investments are designated by the Board as held at fair value through
profit or loss, and are valued by the Directors using primary valuation
techniques such as earnings multiples, option pricing models, discounted cash
flow analysis and recent transactions.
Changes in the fair value of investments held at fair value through profit or
loss and gains and losses on disposal are recognised in the Income Statement as
`gains or losses on investments held at fair value through profit or loss'.
Also included within this caption are transaction costs in relation to the
purchase or sale of investments, including the difference between the purchase
price of an investment and its bid price at the date of purchase. All purchases
and sales are accounted for on a trade date basis.
The Company has classified its financial assets designated at fair value
through profit or loss and the fair value of derivative financial instruments
using a fair value hierarchy that reflects the significance of the inputs used
in making the fair value measurements. The hierarchy has the following levels:
• Level 1 - quoted prices (unadjusted) in active markets for identical assets
or liabilities;
• Level 2 - inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
• Level 3 - inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
(c) Investment Income
Dividends receivable on equity shares are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when the
Company's right to receive payment is established. UK dividends are shown net
of tax credits and foreign dividends are grossed up at the appropriate rate of
withholding tax.
Income from fixed interest securities is recognised on a time apportionment
basis so as to reflect the effective interest rate.
Deposit interest is accounted for on an accruals basis.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
(i) expenses which are incidental to the acquisition or disposal of an
investment, categorised as fixed assets held at fair value through profit or
loss are charged to the capital column of the Income Statement; and
(ii) expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investments
can be demonstrated. In this respect the investment management and management
fees have been charged to the Income Statement in line with the Board's
expected long-term split of returns, in the form of capital gains and income,
from the Company's portfolio. As a result 5% of the investment management and
management fees are charged to the revenue column of the Income Statement and
95% are charged to the capital column of the Income Statement.
Any performance fee accrued or paid is charged in full to the capital column of
the Income Statement.
(e) Finance Costs
Finance costs are accounted for on an accruals basis. Finance costs are charged
to the Income Statement in line with the Board's expected long-term split of
returns, in the form of capital gains and income, from the Company's portfolio.
As a result 5% of the finance costs are charged to the revenue column of the
Income Statement and 95% are charged to the capital column of the Income
Statement. Finance charges, if applicable, including interest payable and
premiums on settlement or redemption, are accounted for on an accruals basis in
the Income Statement using the effective interest rate method and are added to
the carrying amount of the instrument to the extent that they are not settled
in the period in which they arise.
(f) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue using the marginal basis.
Deferred taxation is provided on all timing differences that have originated
but not been reversed by the Balance Sheet date other than those differences
regarded as permanent. This is subject to deferred tax assets only being
recognised if it is considered more likely than not that there will be suitable
profits from which the reversal of timing differences can be deducted. Any
liability to deferred tax is provided for at the average rate of tax expected
to apply. Deferred tax assets and liabilities are not discounted to reflect the
time value of money.
(g) Foreign Currency
The results and financial position of the Company are expressed in sterling,
which is the functional and presentational currency of the Company. Sterling is
the functional currency because it is the currency of the primary economic
environment in which the Company operates.
Transactions recorded in overseas currencies during the year are translated
into sterling at the appropriate daily exchange rates. Assets and liabilities
denominated in overseas currencies at the Balance Sheet date are translated
into sterling at the exchange rates ruling at that date.
Any gains or losses on the translation of foreign currency balances, whether
realised or unrealised, are taken to the capital or the revenue column of the
Income Statement, depending on whether the gain or loss is of a capital or
revenue nature.
(h) Functional and Presentational Currency
The financial information is shown in sterling, being the Company's
presentational currency. In arriving at the functional currency the Directors
have considered the following:
(i) the primary economic environment of the Company;
(ii) the currency in which the original capital was raised;
(iii) the currency in which distributions are made;
(iv) the currency in which performance is evaluated; and
(v) the currency in which the capital would be returned to Shareholders on a
break up basis.
The Directors are of the opinion that sterling best represents the Company's
functional currency.
(i) Derivative Financial Instruments
The Company uses derivative financial instruments (namely put and call options
and equity swaps). The merits and rationale behind such strategies are to
enhance the capital return of the portfolio, facilitate management of portfolio
volatility and improve the risk-return profile of the Company relative to its
benchmark.
All derivative instruments are valued at fair value in the Balance Sheet in
accordance with FRS 26: `Financial instruments: measurement'.
The equity swaps are accounted for as Fixed Assets in the Balance Sheet and
Options are accounted for as Current Assets and/or Current Liabilities in the
Balance Sheet.
Each investment in options is reviewed on a case-by-case basis and are all
deemed to be capital in nature. As such, all gains and losses on the above
strategies have been debited or credited to the capital column of the Income
Statement.
All gains and losses on over-the-counter (OTC) equity swaps, during the swap
term, are accounted for as investment holding gains or losses on investments.
Where there has been a re-positioning of the swap, gains and losses are
accounted for on a realised basis. All such gains and losses have been debited
or credited to the capital column of the Income Statement.
(j) Capital Reserves
The following are transferred to this reserve:
- gains and losses on the realisation of investments;
- realised and unrealised exchange differences of a capital nature;
- expenses, together with the related taxation effect, in accordance with the
above policies; and
- increases and decreases in the valuation of investments held at the year end.
2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
2013 2012
£'000 £'000
Income from investments
UK listed dividends 507 505
Overseas dividends 8,124 8,863
Fixed interest income 977 2,283
9,608 11,651
Other income
Deposit interest 6 2
Total income from investments held at fair value 9,614 11,653
through profit or loss
Total income comprises:
Dividends 8,631 9,368
Interest 983 2,285
9,614 11,653
3. INVESTMENT MANAGEMENT, MANAGEMENT AND PERFORMANCE FEES
2013 2013 2013 2012 2012 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Investment Management fee 141 2,674 2,815 119 2,251 2,370
Management fee 49 943 992 43 817 860
Performance fee (write back)/ - (1,333) (1,333) - 2,885 2,885
accrual
190 2,284 2,474 162 5,953 6,115
During the year, performance fees totaling £643,000 crystallised (year ended 31
March 2012: £909,000).
The fees crystallised at the following quarterly calculation dates:
£'000
30 June 2012 375
30 September 2012 -
31 December 2012 -
31 March 2013 (see note 11) 268
Fees crystallised during year ended 31 March 2013 643
The performance fee amount of £1,333,000 which was written back as at 31 March
2013 represents outperformance generated as at 31 March 2012 which was not
maintained for the twelve month period. In accordance with the performance fee
arrangements this amount was written back as at 31 March 2013.
Further details of the performance fee basis can be found in the Report of the
Directors under the heading `Performance Fee'.
4. OTHER EXPENSES
2013 2012
Revenue Revenue
£'000 £'000
Directors' remuneration 154 163
Auditors' remuneration for the audit of the Company's 26 26
financial statements
Auditors' remuneration for audit related assurance 8 11
services
Marketing costs 42 44
Registrar fees 63 54
Broker retainer 30 30
Legal and professional costs 36 13
Printing 41 35
Stock exchange listing fees 35 17
Custody fees 2 3
Other costs 158 152
595 548
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
5. FINANCE CHARGES
2013 2013 2013 2012 2012 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Finance charges 9 177 186 14 272 286
6. TAXATION ON ORDINARY ACTIVITIES
(a) Analysis of charge in year:
2013 2013 2013 2012 2012 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax at 24%
(2012: 26%)
Tax relief to capital 18 (18) - 406 (406) -
Overseas taxation 1,153 - 1,153 1,050 - 1,050
1,171 (18) 1,153 1,456 (406) 1,050
(b) Factors affecting current tax charge for the year
The tax charged for the year is lower than the standard rate of corporation tax
in the UK for a large company 24% (2012: 26%).
The difference is explained below.
2013 2013 2013 2012 2012 2012
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Total return before taxation 8,820 104,539 113,359 10,929 45,433 56,362
Corporation tax at 24% 2,117 25,089 27,206 2,842 11,813 14,655
(2012: 26%)
Non-taxable gains on - (25,680) (25,680) - (13,431) (13,431)
investments held at fair
value through profit or loss
Overseas withholding 1,153 - 1,153 1,050 - 1,050
taxation
Non taxable overseas (1,977) - (1,977) (2,535) - (2,535)
dividends
Non taxable UK dividend (122) - (122) (131) - (131)
Expenses charged to capital - 573 573 (6) 1,212 1,206
available to be utilised
Timing differences on - - - 231 - 231
overseas dividends
Disallowed expenses - - - 5 - 5
Current tax charge 1,171 (18) 1,153 1,456 (406) 1,050
(c) Provision for deferred tax
As at 31 March 2013, the Company has not recognised a deferred tax asset of £
9,146,000 (23% tax rate) (2012: £8,805,000 (24% tax rate)) as a result of
unutilised management expenses and a non-trade loan relationship. It is not
anticipated that this asset will be utilised in the foreseeable future.
Deferred tax has not been provided for in these financial statements, because
the Company meets and intends to continue meeting the conditions for approval
as an investment trust.
7. RETURN PER SHARE
2013 2012
£'000 £'000
The return per share is based on the following
figures:
Revenue return 7,649 9,473
Capital return 104,557 45,839
Total return 112,206 55,312
Weighted average number of ordinary shares in issue 44,819,199 43,362,962
during the year - basic
Revenue return per share 17.1p 21.8p
Capital return per share 233.3p 105.7p
Total return per share - basic 250.4p 127.5p
Weighted average number of shares in issue during the 45,243,785 44,223,263
year - diluted
Revenue return per share 16.9p 21.4p
Capital return per share 231.1p 103.7p
Total return per share - diluted 248.0p 125.1p
8. INTERIM DIVIDEND
Under UK GAAP, final dividends are not recognised until they are approved by
shareholders and interim dividends are not recognised until they are paid. They
are also debited directly from reserves. Amounts recognised as distributable to
ordinary shareholders for the year ended 31 March 2013 were as follows:
2013 2012
£'000 £'000
Interim dividend in respect of the year ended 31 March - 6,474
2011
Interim dividend in respect of the year ended 31 March 7,705 -
2012
First interim dividend in respect of the year ended 31 3,175 -
March 2013
10,880 6,474
In respect of the year ended 31 March 2013, an interim dividend of 7.0p per
share was paid on 11 January 2013, with a second interim dividend of 9.5p
payable on 5 July 2013 the associated ex dividend date was 5 June 2013. The
total dividends payable in respect of the year ended 31 March 2013 is 16.5p per
share (2012: 17.5p per share). The aggregate cost of the second interim
dividend based on the number of shares in issue at 5 June 2013 will be £
4,352,000. In accordance with FRS 21 the second interim dividend will be
reflected in the interim accounts for the period ending 30 September 2013.
Total dividends in respect of the financial year, which is the basis on which
the requirements of s1158 of the Corporation Tax Act 2010 are considered, are
set out below:
2013 2012
£'000 £'000
Revenue available for distribution by way of dividend 7,649 9,473
for the year
Interim dividend in respect of year ended 31 March - (7,740)
2012
First interim dividend in respect of the year ended 31 (3,175) -
March 2013
Second interim dividend in respect of the year ended (4,352) -
31 March 2013*
122 1,733
*based on 45,812,914 shares in issue as at 5 June 2013.
9. INVESTMENTS
Derivative
Listed financial
investments instruments Total
£'000 £'000 £'000
Cost at 1 April 2012 401,933 13,960 415,893
Investment holdings gains at 1 April 2012 52,368 671 53,039
Valuation at 1 April 2012 454,301 14,631 468,932
Movement in the year:
Purchases at cost 280,877 82,039 362,916
Sales - proceeds (318,815) (68,596) (387,411)
- realised gains on sales 28,188 4,693 32,881
Net movement in investment holding gains 70,778 5,663 76,441
Valuation at 31 March 2013 515,329 38,430 553,759
Cost at 31 March 2013 392,183 32,096 424,279
Investment holding gains at 31 March 2013 123,146 6,334 129,480
Valuation at 31 March 2013 515,329 38,430 553,759
2013 2012
Gains on investment £'000 £'000
Realised gains based on historical cost - 32,881 33,733
sales
Less: amounts recognised as investment holding gains (27,881) (13,237)
in previous years
Realised gains based on carrying value at previous 5,000 20,496
Balance Sheet date
Movement in investment holding gains in 104,322 31,697
the year
Gains on investments 109,322 52,193
Purchase transaction costs for the year to 31 March 2013 were £819,000 (year
ended 31 March 2012: £575,000). These comprise mainly commission and stamp
duty.
Sales transaction costs for the year to 31 March 2013 were £733,000 (year ended
31 March 2012: £504,000). These comprise mainly commission.
10. DEBTORS
2013 2012
£'000 £'000
Amounts due from brokers 6,641 254
Withholding taxation recoverable 1,378 947
VAT recoverable 66 47
Prepayments and accrued income 925 1,264
9,010 2,512
11. CREDITORS
2013 2012
Amounts falling due within one year £'000 £'000
Amounts due to brokers 25,605 12,448
Stamp duty due on repurchase of own shares - 5
Bank loan facility* 31,419 64,359
Performance fee accrued 268 1,976
Other creditors and accruals 1,062 859
58,354 79,647
*The Company's borrowing requirements are met through the utilisation of a loan
facility, repayable on demand, provided by Goldman Sachs & Co. New York
("Goldman Sachs"). Interest on the facility is charged at the Federal Funds
effective rate plus 1 week LIBOR-OIS Spread†plus 35 basis points. As at 31
March 2013, assets to the value of approximately 140% of the Company's debt
were held by Goldman Sachs as collateral.
†See glossary
12. DERIVATIVE FINANCIAL INSTRUMENTS
2013 2012
£'000 £'000
Fair value of OTC equity swaps 35,988 13,691
Fair value of call and put options 2,442 940
38,430 14,631
See note 9 on page 51 for movements during the
year.
13. SHARE CAPITAL
Total Total
Ordinary Subscription
Ordinary Treasury shares shares
shares shares in issue in issue
number number number number
Issued and fully paid:
At 1 April 2012 43,081,164 908,586 43,989,750 7,104,848
Ordinary shares bought back and (2,411,340) 2,411,340 - -
held in treasury
Ordinary shares re-issued from 50,000 (50,000) - -
treasury
Treasury shares cancelled following - (2,941,518) (2,941,518) -
2012 AGM
Subscription shares converted to 4,714,922 - 4,714,922 (4,714,922)
Ordinary shares
At 31 March 2013 45,434,746 328,408 45,763,154 2,389,926
£'000
Issued and fully paid:
45,763,154 Ordinary shares of 25p (including 328,408 11,441
ordinary shares held in treasury)
2,389,926 Subscription shares of 1p 24
During the year ended 31 March 2013 a total of 2,411,340 shares were bought
back by the Company (2012: 908,586) at a cost of £19,143,000 and expenses of £
96,000 (2012: 6,908,000 and £31,000). 328,408 shares were held in treasury at
31 March 2013 (2012: 908,586). There were 50,000 shares issued from treasury
raising proceeds of £423,000 (2012: nil). 4,714,922 new shares were issued
during the year as a result of holders of subscription shares exercising their
subscription rights, raising £30,108,000 (2012: 848,139, raising £5,411,000).
There were no subscription shares bought back for cancellation during the year
(2012: 238,125 shares, at a cost of £292,000 and expenses of £2,000).
At the year end there were 2,389,926 subscription shares in issue (2012:
7,104,848).
14. NET ASSET VALUE PER SHARE
2013 2012
Net asset value per share - basic 1,110.2p 909.4p
Net asset value per share - diluted for subscription shares 1,089.6p 871.0p
Net asset value per share - fully diluted for subscription 1,089.1p 869.7p
shares and treasury shares
The net asset value per share is based on the assets attributable to equity
shareholders of £504,415,000 (2012: £391,797,000) and on the number of shares
in issue at the year end of 45,434,746 (excluding shares held in treasury)
(2012: 43,081,164). As at 31 March 2013, there were 2,389,926 subscription
shares in issue (2012: 7,104,848).
The net asset value per share diluted assumes all outstanding subscription
shares were exercised at 699p resulting in assets attributable to equity
shareholders of £521,121,000 and on 47,824,672 shares (2012: assumed all
outstanding subscription shares were exercised at 638p resulting in assets
attributable to shareholders of £437,126,000 and on 50,186,012 shares).
The net asset value per share fully diluted for subscription shares and
treasury shares assumes that all outstanding subscription shares were exercised
at 699p and the treasury shares were sold back to the market at 1,009p
resulting in assets attributable to equity shareholders of £524,435,000 (2012:
£444,349,000) and on 48,153,080 shares (2012: 51,094,598).
15. RECONCILIATION OF OPERATING RETURN TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
2013 2012
£'000 £'000
Gains before finance costs and taxation 113,545 56,648
Less: capital gain before finance costs and taxation (104,716) (45,705)
Revenue return before finance costs and taxation 8,829 10,943
Expenses charged to capital (2,284) (5,953)
Decrease in prepayments and accrued income 339 703
(Increase)/decrease in other debtors (19) 2
Decrease in creditors and accruals (1,510) (533)
Net taxation suffered on investment income (1,153) (1,050)
Net cash inflow from operating activities 4,202 4,112
16. RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET DEBT
2013 2012
£'000 £'000
Decrease/(increase) in net debt 35,262 (17,939)
resulting from cashflows
Exchange movements (2,322) (535)
Movement in net debt in the year 32,940 (18,474)
Net debt at start of year (64,359) (45,885)
Net debt at end of year (31,419) (64,359)
Represented by:
At 1 Exchange At 31
April March
2012 Cash movements 2013
flows
£'000 £'000 £'000 £'000
Net bank overdraft (64,359) 35,262 (2,322) (31,419)
17. RELATED PARTIES
Details of the relationship between the Company and OrbiMed Capital LLC, the
Company's Investment Manager, are disclosed in the Report of the Directors.
Samuel D. Isaly is a Director of the Company, as well as Managing Partner
OrbiMed Capital LLC. During the year ended 31 March 2013, OrbiMed Capital LLC
earned £2,815,000 in respect of Investment Management fees, of which £807,000
was outstanding at the year end. In addition performance fees of £341,000 were
paid to OrbiMed Capital LLC during the year and £244,000 was payable at 31
March 2013.
18. FINANCIAL INSTRUMENTS' EXPOSURE TO RISK AND RISK MANAGEMENT POLICIES
The Company's financial instruments comprise securities and other investments,
derivative instruments, cash balances, loans, debtors and creditors that arise
directly from its operations.
As an investment trust, the Company invests in equities and other investments
for the long term so as to secure its investment objective. In pursuing its
investment objective, the Company is exposed to a variety of risks that could
result in a reduction in the Company's net assets.
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk (including foreign currency risk, interest rate risk and other
price risk)
(ii) liquidity risk
(iii) credit risk
These risks and the Directors' approach to the management of them, are set out
in the Report of Directors and have not changed from the previous accounting
period. The Investment Manager, in close co-operation with the Board of
Directors, co-ordinates the Company's risk management.
(i) Market risk:
The Company's portfolio is exposed to market price fluctuations which are
monitored by the Investment Manager in pursuance of the investment objective.
Management of risk:
Derivative instruments are used to mitigate market price risk, the following
option strategies or a combination of such have been used during the financial
year:
• Buy calls: provides leveraged long exposure, facilitates exposure while
minimising capital at risk.
• Buy puts: provides leveraged protection, facilitates exposure while
minimising capital at risk.
• Sell puts: provides an effective entry price at which to add to an existing
position, or provides an effective entry price at which to initiate a new
position.
(a) Foreign currency risk
A significant proportion of the Company's portfolio is denominated in
currencies other than sterling (the Company's functional currency, and the
currency in which it reports its results). As a result, movements in exchange
rates can significantly affect the sterling value of those items.
Rate of exchange against sterling at 31 March
2013 2012
U.S. dollar 1.518 1.598
Japanese yen 142.765 131.487
Swiss franc 1.438 1.444
Euro 1.183 1.120
Foreign currency exposure and sensitivity
The fair values of the Company's monetary items that are denominated in foreign
currency as at 31 March 2013 are shown below:
2013 2013 2013 2012 2012 2012
Current Current Investments Current Current Investments
assets liabilities £'000 assets liabilities £'000
£'000 £'000 £'000 £'000
U.S. dollar 6,980 (56,689) 396,264 575 (74,797) 345,222
Swiss franc 1,238 - 67,045 - (596) 45,774
Japanese yen 441 (545) 42,793 351 - 36,508
Euro 117 - 23,457 - - 17,712
Hong Kong dollar - - 8,573 23 (128) 11,215
Singapore dollar - - 5,088 - (647) 2,901
8,776 (57,234) 543,220 949 (76,168) 459,332
Management of risk:
The Investment Manager and Manager monitor the Company's exposure to foreign
currencies on a daily basis and report to the Board on a regular basis. The
Investment Manager does not hedge against foreign currency movements, but takes
account of the risk when making investment decisions.
Foreign currency borrowing facilities are available and are currently being
utilised, to limit the Company's exposure to anticipated future changes in
exchange rates, which might otherwise adversely affect the value of portfolio
investments.
Income denominated in foreign currencies is converted into sterling on receipt.
The Company does not use financial instruments to mitigate the currency
exposure in the period between the time that the income is included in the
financial statements and its receipt.
Foreign currency sensitivity
The following table details the sensitivity of the Company's profit or loss
after taxation for the year and shareholders' funds to a 10% increase and
decrease in sterling against the U.S. dollar (2012: 10% increase and decrease),
a 10% increase and decrease in sterling against the Japanese yen (2012: 10%
increase and decrease), and a 10% increase and decrease in sterling against the
Swiss franc (2012: 10% increase and decrease).
These percentages have been determined based on market volatility in exchange
rates over the previous 12 months. The sensitivity analysis is based on the
Company's foreign currency financial instruments held at each Balance Sheet
date.
2013 2013 2013 2012 2012 2012
USD YEN CHF USD YEN CHF
£'000 £'000 £'000 £'000 £'000 £'000
Sterling depreciates 41,788 4,831 7,857 31,662 4,102 5,213
Sterling appreciates (32,259) (3,953) (6,207) (25,906) (3,356) (4,265)
(b) Interest rate risk
Interest rate movement may affect:
- the interest payable on the Company's variable rate borrowings;
- the level of income receivable from floating and fixed rate securities and
cash at bank and on deposit;
- the fair value of investments of fixed interest securities.
Management of the risk
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 borrowing under the multicurrency loan facility.
The Company, generally, does not hold significant cash balances (except when
required for collateral against the Company's derivative positions), with short
term borrowing being used when required.
Interest rate exposure
The Company has a loan facility with Goldman Sachs which is repayable on
demand. £31.4 million was drawn down under this facility at 31 March 2013. The
exposure of financial assets and liabilities to floating interest rates, giving
cash flow interest rate risk when rates are re-set, is shown below.
Floating rate
The floating interest rate exposure of the financial assets and financial
liabilities to interest rate risk at 31 March 2013 in respect of cash was nil
(2012: nil). At 31 March 2013 there was an overdraft position at Goldman Sachs
of £31,419,000 (2012: £64,359,000).
Fixed rate
At 31 March, the Company held 2.7% of the portfolio in convertible bonds (2012:
3.3% of the portfolio). This percentage is deemed not to be material and
accordingly no sensitivity analysis has been presented.
(c) Other price risk
Other price risk may affect the value of the Company's investments. If market
prices at the Balance Sheet date had been 25% higher or lower (2012: 25% higher
or lower) while all other variables remained constant, the revenue return would
have decreased/increased by £66,000 (2012: £49,000), and the capital return
would have increased/decreased by £137,191,000 (2012: £116,168,000) and the
return on equity would have increased/decreased by £137,125,000. The
calculations are based on the portfolio valuations as at the respective Balance
Sheet dates and are not representative of the year as a whole.
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not significant as the majority of the Company's assets are
investments in quoted equities and other quoted securities that are readily
realisable. The Company has a loan facility repayable on demand with Goldman
Sachs.
Interest on the facility is charged at the Federal Funds effective rate plus 1
week LIBOR-OIS Spread†plus 35 basis points.
†See glossary.
In order to ensure diversification within the portfolio, the Board gives
guidance to the Investment Manager concerning exposure limits to individual
companies. Geographical and sectoral exposure are also reviewed regularly by
the Directors.
Liquidity exposure
Contractual maturities of the financial liabilities as at 31 March 2013, based
on the earliest date on which payment can be required are as follows:
2013
31 March 2013 3 months Not more Total
or less than £'000
£'000 one year
£'000
Current liabilities:
Borrowings under the loan facility 31,419 - 31,419
Amounts due to brokers and accruals 26,935 - 26,935
58,354 - 58,354
2012
31 March 2012 3 months Not more Total
or less than £'000
£'000 one year
£'000
Current liabilities:
Borrowings under the loan facility 64,359 - 64,359
Amounts due to brokers and accruals 15,288 - 15,288
79,647 - 79,647
(iii) Credit risk
The failure of the counterparty to a transaction to discharge its obligations
under that transaction could result in the Company suffering a loss.
The carrying amounts of financial assets best represent the maximum credit risk
at the Balance Sheet date. The Company's listed investments are held on its
behalf by Goldman Sachs acting as the Company's custodian.
Bankruptcy or insolvency of a custodian may cause the Company's rights with
respect to securities held by that custodian to be delayed, however, the Board
monitors the Company's risk to its custodians by reviewing continuously their
internal control reports and their credit ratings.
Certain of the Company's assets are held by Goldman Sachs as collateral for the
loan provided by them to the Company. Such assets held by Goldman Sachs are
available for rehypothecation†. As at 31 March 2013, assets with a total market
value of £50.1 million (31 March 2012: £93.9 million) were held as collateral.
In addition £4.5 million cash was held as collateral at Goldman Sachs (31 March
2012: £2.7 million).
Management of the risk
The risk is not significant, and is managed as follows:
• by only dealing with brokers which have been approved by OrbiMed Capital LLC
and banks with high credit ratings;
• by setting limits to the maximum exposure to any one counterparty at any
time; and
• by monitoring the assets subject to rehypothecation†.
†See glossary.
Credit risk exposure
2013 2012
Balance Balance
Sheet Sheet
£'000 £'000
Fixed interest and convertible securities 15,015 31,574
Derivative - OTC equity swaps 35,988 13,691
Current assets:
Other receivables (amounts due from brokers, dividends and 11,452 3,452
interest receivable and derivative financial instruments)
As of 31 March 2013 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Assets
Financial investments designated at 506,475 8,854 - 515,329
fair value through profit or loss
Fair value of derivative financial - 38,430 - 38,430
instruments
Assets measured at fair value 506,475 47,284 - 553,759
As at 31 March 2013, the put and call options, the equity swaps, and Incyte
Corporation 4.75% 01/10/15 convertible bond, have been classified as level two.
All of the remaining investments have been classified as level one.
As of 31 March 2012 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Assets
Financial investments designated at 454,301 - - 454,301
fair value through profit or loss
Fair value of derivative financial - 14,631 - 14,631
instruments
Assets measured at fair value 454,301 14,631 - 468,932
Fair value of financial assets and financial liabilities
The fair value of the financial assets and financial liabilities are either
carried in the Balance Sheet at their fair value (investments and derivatives)
or the Balance Sheet amount is a reasonable approximation of fair value (due
from brokers, dividends and interest receivable, due to brokers, accrual, cash
at bank, bank overdraft and amounts due under the loan facility).
Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to the lower of £90 million or 20% of
the Company's net assets.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as disclosed on the Balance Sheet on page
43.
Gearing for this purpose is defined as net debt as a percentage of
shareholders' funds. As at 31 March 2013 the gearing percentage of the Company
was 9.8% (2012: 16.4%).
The Board with the assistance of the Investment Manager monitors and reviews
the broad structure of the Company's capital on an ongoing basis. This includes
a review of:
- the planned level of gearing, which takes into account the Investment
Manager's view of the market;
- the need to buy back equity shares, either for cancellation or to hold in
treasury, in light of any share price discount to net asset value per share in
accordance with the Company's share buyback policy;
- the need for new issues of equity shares, including issues from treasury; and
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
The Company's objectives, policies and processes for managing capital are
unchanged from the preceding accounting period.
The Company is also subject to several externally imposed capital requirements
and are as follows:
- as a public company, the Company has a minimum share capital of £50,000; and
- in order to be able to pay dividends out of profits available for
distribution, the Company has to be able to meet one of the two capital
restriction tests imposed on investment companies by company law.
These requirements are unchanged since last year and the Company has complied
with them.
19. CAPITAL RESERVE
Capital Capital Total
Reserve - Reserve* - £'000
Other Investment
£'000 Holding Gains
£'000
At 31 March 2012 121,191 53,039 174,230
Transfer on disposal of investments 27,881 (27,881) -
Net gains on investments 5,000 104,322 109,322
Expenses charged to capital less tax (2,443) - (2,443)
relief thereon
Subscription shares exercised 47 - 47
Shares issued from treasury 415 - 415
Shares purchased including expenses (19,239) - (19,239)
Exchange loss on currency balances (2,322) - (2,322)
At 31 March 2013 130,530 129,480 260,010
* Investment holding gains relate to the revaluation of investments held at the
reporting date. (See note 9 for further details).
Explanatory Notes of Principal Changes to the Company's Articles of Association
Set out below is a summary of the main differences between the current and the
proposed new Articles of Association (the "Articles"). The principal changes in
the new Articles to be adopted at the Annual General Meeting to be held on 17
July 2013 relate to:
Distribution of Capital Profits
The Company is no longer required to include a prohibition on distributing
capital profits in its Articles, following HM Government's reform of the tax
and company law rules affecting investment trusts. This prohibition has been
removed in the proposed new Articles. Please note that the Board is not
currently proposing any change to the Company's dividend policy.
Authorised Share Capital
The Companies Act 2006 abolished the requirement for Companies to have an
authorised share capital, with effect from 1 October 2009. The Company is
therefore taking the opportunity to remove the upper limit of the Company's
share capital included in its current Articles.
Deletion of Provisions Formerly in the Memorandum of Association
Most of the provisions of the memorandum of association of a company
incorporated before 1 October 2009 are now deemed to form part of its articles
of association. Of these the Company is only required to retain in its articles
the statements that the liability of members is limited and that the company's
registered office is situated in England and Wales. The Company is therefore
taking this opportunity to remove from its Articles of Association all those
provisions formerly in its Memorandum of Association which it is not required
to retain. In particular the clause setting out the objects of the Company is
to be removed so that the Company's objects will in future be wholly
unrestricted.
Subscription Shares
The Company is proposing to amend the provisions of the Articles that relate to
the Subscription Shares issued in 2009. The Directors understand that HM
Revenue & Customs has recently indicated that where the Subscription Rights
attached to the Subscription Shares have lapsed such shares must remain
admitted to trading on a regulated market. While the Company already has
authority to redeem or transfer such shares without further authorisation, the
Board is proposing an amendment to clarify the Articles so that on the date
that the rights attaching to the Subscription Shares lapse, such Subscription
Shares will be converted into Deferred Shares and the Company may then transfer
such Deferred Shares to its nominee without making any payment to the holders
thereof. Following the transfer of Deferred Shares to its nominee, the Company
may cancel and/or purchase the Deferred Shares without making any payment to or
obtaining the sanction of such nominee or any holder of Deferred Shares or for
such consideration as the Directors may determine. Following the cancellation
or repurchase of such shares, they will cease to exist.
Other Changes
Other technical changes have been made so that the Articles of Association
conform to the Companies Act 2006 and other legislation applicable to
companies, as currently in force and current best practice.
A copy of the current Articles and of the proposed new Articles marked up to
show the proposed amendments will be available for inspection at the offices of
Frostrow Capital LLP during normal business hours and will be available for
inspection at the Annual General Meeting, in each case until conclusion of the
meeting.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of Worldwide Healthcare
Trust PLC will be held at the Carpenters' Hall, Throgmorton Avenue, London EC2W
2JJ on Wednesday, 17 July 2013 from 12 noon for the following purposes:
ORDINARY BUSINESS
1. To receive and, if thought fit, to accept the Audited Accounts and the
Report of the Directors for the year ended 31 March 2013
2. To re-elect Ms Jo Dixon as a Director of the Company
3. To re-elect Dr David Holbrook as a Director of the Company
4. To re-elect Mr Samuel D. Isaly as a Director of the Company
5. To re-elect Sir Martin Smith as a Director of the Company
6. To elect Mrs Sarah Bates as a Director of the Company
7. To elect Mr Doug McCutcheon as a Director of the Company
8. To re-appoint Ernst & Young LLP as the Company's Auditors and to authorise
the Directors to determine their remuneration
9. To approve the Directors' Remuneration Report for the year ended 31 March
2013
SPECIAL BUSINESS
To consider, and if thought fit, pass the following resolutions of which
resolutions 11, 12, 13, 14, 15 and 16 will be proposed as special resolutions:
Authority to Allot Shares
10. THAT in substitution for all existing authorities the Directors be and are
hereby generally and unconditionally authorised in accordance with section 551
of the Companies Act 2006 (the "Act") to exercise all powers of the Company to
allot relevant securities (within the meaning of section 551 of the Act) up to
a maximum aggregate nominal amount of £1,145,323 (being 10% of the issued share
capital of the Company at 6 June 2013) and representing 4,581,291 shares of 25
pence each (or, if less, the number representing 10% of the issued share
capital of the Company at the date at which this resolution is passed),
provided that this authority shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2014 or 15 months from the date of
passing this resolution, whichever is the earlier, unless previously revoked,
varied or renewed, by the Company in General Meeting and provided that the
Company shall be entitled to make, prior to the expiry of such authority, an
offer or agreement which would or might require relevant securities to be
allotted after such expiry and the Directors may allot relevant securities
pursuant to such offer or agreement as if the authority conferred hereby had
not expired.
Disapplication of Pre-emption Rights
11. THAT in substitution of all existing powers (but in addition to any power
conferred on them by resolution 12 set out in the notice convening the Annual
General Meeting at which this resolution is proposed ("Notice of Annual General
Meeting")) the Directors be and are hereby generally empowered pursuant to
Section 570 of the Companies Act 2006 (the "Act") to allot equity securities
(within the meaning of Section 560 of the Act) for cash pursuant to the
authority conferred on them by resolution 10 set out in the Notice of Annual
General Meeting or otherwise as if Section 561(1) of the Act did not apply to
any such allotment:
(a) pursuant to an offer of equity securities open for acceptance for a period
fixed by the Directors where the equity securities respectively attributable to
the interests of holders of shares of 25p each in the capital of the Company
("Shares") are proportionate (as nearly as may be) to the respective numbers of
Shares held by them but subject to such exclusions or other arrangements in
connection with the issue as the Directors may consider necessary, appropriate
or expedient to deal with equity securities representing fractional
entitlements or to deal with legal or practical problems arising in any
overseas territory, the requirements of any regulatory body or stock exchange,
or any other matter whatsoever; and
(b) provided that (otherwise than pursuant to sub-paragraph (a) above) this
power shall be limited to the allotment of equity securities up to an aggregate
nominal value of £1,145,323, being 10% of the issued share capital of the
Company as at 6 June 2013 and representing 4,581,291 Shares or, if changed, the
number representing 10% of the issued share capital of the Company at the date
of the meeting at which this resolution is passed, and provided further that
(i) the number of equity securities to which this power applies shall be
reduced from time to time by the number of treasury shares which are sold
pursuant to any power conferred on the Directors by resolution 12 set out in
the Notice of Annual General Meeting and (ii) no allotment of equity securities
shall be made under this power which would result in Shares being issued at a
price which is less than the net asset value per Share as at the latest
practicable date before such allotment of equity securities as determined by
the Directors in their reasonable discretion,
and such power shall expire at the conclusion of the next Annual General
Meeting of the Company after the passing of this resolution or 15 months from
the date of passing this resolution, whichever is earlier, unless previously
revoked, varied or renewed by the Company in general meeting and provided that
the Company shall be entitled to make, prior to the expiry of such authority,
an offer or agreement which would or might otherwise require equity securities
to be allotted after such expiry and the Directors may allot equity securities
pursuant to such offer or agreement as if the power conferred hereby had not
expired.
12. THAT in substitution of all existing powers (but in addition to any power
conferred on them by resolution 11 set out in the Notice of Annual General
Meeting) the Directors be and are hereby generally empowered pursuant to
Section 570 of the Companies Act 2006 (the "Act") to sell relevant shares
(within the meaning of Section 560 of the Act) if, immediately before the sale,
such shares are held by the Company as treasury shares (as defined in Section
724 of the Act ("treasury shares")), for cash as if Section 561(1) of the Act
did not apply to any such sale provided that:
(a) where any treasury shares are sold pursuant to this power at a discount to
the then prevailing net asset value of ordinary shares of 25p each in capital
of the Company ("Shares"), such discount must be (i) lower than the discount to
the net asset value per Share at which the Company acquired the Shares which it
then holds in treasury and (ii) not greater than 5% to the prevailing net asset
value per Share at the latest practicable time before such sale (and for this
purpose the Directors shall be entitled to determine in their reasonable
discretion the discount to their net asset value at which such Shares were
acquired by the Company and the net asset value per Share at the latest
practicable time before such Shares are sold pursuant to this power); and
(b) this power shall be limited to the sale of relevant shares having an
aggregate nominal value of £1,145,323 being 10% of the issued share capital of
the Company as at 6 June 2013 and representing 4,581,291 Shares or, if changed,
the number representing 10% of the issued share capital of the Company at the
date of the meeting at which this resolution is passed, and provided further
that the number of relevant shares to which power applies shall be reduced from
time to time by the number of Shares which are allotted for cash as if Section
561(1) of the Act did not apply pursuant to the power conferred on the
Directors by resolution 11 set out in the Notice of Annual General Meeting,
and such power shall expire at the conclusion of the next Annual General
Meeting of the Company after the passing of this resolution or 15 months from
the date of passing this resolution, whichever is earlier, unless previously
revoked, varied or renewed by the Company in General Meeting and provided that
the Company shall be entitled to make, prior to the expiry of such authority,
an offer or agreement which would or might otherwise require treasury shares to
be sold after such expiry and the Directors may sell treasury shares pursuant
to such offer or agreement as if the power conferred hereby had not expired.
Authority to Repurchase Ordinary Shares
13. THAT the Company be and is hereby generally and unconditionally authorised
in accordance with section 701 of the Companies Act 2006 (the "Act") to make
one or more market purchases (within the meaning of section 693(4) of the Act)
of ordinary shares of 25 pence each in the capital of the Company ("Shares")
(either for retention as treasury shares for future reissue, resale, transfer
or cancellation), provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is
6,867,356 (representing approximately 14.99% of the issued share capital of the
Company at the date of the notice convening the meeting at which this
resolution is proposed);
(b) the minimum price (exclusive of expenses) which may be paid for a Share is
25 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share is
an amount equal to the greater of (i) 105% of the average of the middle market
quotations for a Share as derived from the Daily Official List of the London
Stock Exchange for the five business days immediately preceding the day on
which that Share is purchased and (ii) the higher of the price of the last
independent trade and the highest then current independent bid on the London
Stock Exchange as stipulated in Article 5(1) of Regulation No. 2233/2003 of the
European Commission (Commission Regulation of 22 December 2003 implementing the
Market Abuse Directive as regards exemptions for buyback programmes and
stabilisation of financial instruments);
(d) the authority hereby conferred shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2014 or, if earlier, on the expiry
of 15 months from the date of the passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
Authority to Repurchase Subscription Shares
14. THAT the Company be and is hereby generally and unconditionally authorised
in accordance with section 701 of the Companies Act 2006 (the "Act") to make
one or more market purchases (within the meaning of section 693(4) of the Act)
of subscription shares of 1p each in the capital of the Company ("Subscription
Shares") for cancellation provided that:
(a) the maximum aggregate number of Subscription Shares authorised to be
purchased is 350,791 (representing approximately 14.99% of the issued
Subscription Share capital of the Company at the date of the notice convening
the meeting at which this resolution is proposed;
(b) the minimum price (exclusive of expenses) which may be paid for a
Subscription Share is 1p;
(c) the maximum price (exclusive of expenses) which may be paid for a
Subscription Share is an amount equal to the greater of (i) 105% of the average
of the middle market quotations for a Subscription Share as derived from the
Daily Official List of the London Stock Exchange for the five business days
immediately preceding the day on which that Subscription Share is purchased and
(ii) the higher of the price of the last independent trade and the highest then
current independent bid on the London Stock Exchange as stipulated in Article 5
(1) of Regulation No. 2233/2003 of the European Commission (Commission
Regulation of 22 December 2003 implementing the Market Abuse Directive as
regards exemptions for buyback programmes and stabilisation of financial
instruments);
(d) the authority hereby conferred shall expire at the conclusion of the Annual
General Meeting of the Company to be held in 2014 or, if earlier, on the expiry
of 15 months from the date of the passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Subscription Shares under this
authority before the expiry of such authority which will or may be executed
wholly or partly after the expiration of such authority, and may make a
purchase of Subscription Shares in pursuance of any such contract.
General Meetings
15. THAT as permitted by the EU Shareholders' Rights Directive (2007/36/EC) any
General Meeting of the Company (other than the Annual General Meeting of the
Company) shall be called by notice of at least 14 clear days in accordance with
the provisions of the Articles of Association of the Company provided that the
authority shall expire on the conclusion of the next Annual General Meeting of
the Company, or, if earlier, on the expiry 15 months from the date of the
passing of the resolution.
Adoption of New Articles of Association
16. THAT, subject to and conditional upon the passing of the special resolution
set out in the notice dated 6 June 2013 convening a meeting of the holders of
the subscription shares of 1p each in the capital of the Company:
(i) the Articles of Association of the Company be and are hereby amended by
deleting all the provisions of the Company's Memorandum of Association which,
by virtue of section 28 Companies Act 2006, are to be treated as provisions of
the Company's Articles of Association; and
(ii) the Articles of Association set out in the document produced to this
meeting and signed by the Chairman of the meeting for the purposes of
identification be and are hereby approved and adopted as the Articles of
Association of the Company in substitution for and to the exclusion of the
existing Articles of Association of the Company.
Full explanatory notes of principal changes to the Articles of Association are
set out on page 61 of this Annual Report.
By order of the Board
Registered Office:
One Wood Street
London EC2V 7WS
Frostrow Capital LLP
Company Secretary
6 June 2013
Notes
1. Members are entitled to appoint a proxy to exercise all or any of their
rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company. A proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice.
2. A vote withheld is not a vote in law, which means that the vote will not be
counted in the calculation of votes for or against the resolutions. If no
voting indication is given, a proxy may vote or abstain from voting at his/her
discretion. A proxy may vote (or abstain from voting) as he or she thinks fit
in relation to any other matter which is put before the meeting.
3. To be valid any proxy form or other instrument appointing a proxy must be
completed and signed and received by post or (during normal business hours
only) by hand at Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3
4TU no later than 12 noon Monday, 15 July 2013.
4. In the case of a member which is a company, the instrument appointing a
proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power of
attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any CREST
Proxy Instruction (as described below) will not prevent a shareholder attending
the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated
Person") may, under an agreement between him/her and the shareholder by whom he
/she was nominated, have a right to be appointed (or have someone else
appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the appointment
of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons. The
rights described in these paragraphs can only be exercised by shareholders of
the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001,
only shareholders registered on the register of members of the Company (the
"Register of Members") at 5.30 p.m. on Monday, 15 July 2013 (or, in the event
of any adjournment, on the date which is two days before the time of the
adjourned meeting) will be entitled to attend and vote or be represented at the
meeting in respect of shares registered in their name at that time. Changes to
the Register of Members after that time will be disregarded in determining the
rights of any person to attend and vote at the meeting.
9. As at 6 June 2013 (being the last business day prior to the publication of
this notice) the Company's issued share capital consists of 45,812,914 ordinary
shares, carrying one vote each. Therefore, the total voting rights in the
Company as at 6 June 2013 are 45,812,914.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the issuer's agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the most senior
holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Register of Members in respect of the
joint holding (the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a new
proxy appointment using the methods set out above. Note that the cut-off time
for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the relevant
cut-off time will be disregarded.
16. Members who have appointed a proxy using the hard-copy proxy form and who
wish to change the instructions using another hard-copy form, should contact
Capita Registrars on 0871 664 0300 (calls cost 10p per minute plus network
extras). Lines are open 8.30 a.m. to 5.30 p.m. Monday to Friday.
17. If a member submits more than one valid proxy appointment, the appointment
received last before the latest time for the receipt of proxies will take
precedence.
18. In order to revoke a proxy instruction, members will need to inform the
Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Capita Registrars, PXS, 34 Beckenham
Road, Beckenham, Kent BR3 4TU.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified copy
of such power of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments then, subject to
paragraph 4, the proxy appointment will remain valid.
19. In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified copy
of such power of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments (see above) then,
subject to paragraph 4, the proxy appointment will remain valid.
Notice of Separate Meeting of Subscription Shareholders
Notice is hereby given that a separate general meeting of holders of
subscription shares of 1p each in the capital of the Company (the "Subscription
Shares") will be held at the Carpenters' Hall, Throgmorton Avenue, London EC2W
2JJ on Wednesday, 17 July 2013 at 12.20 p.m. or as soon as the Annual General
Meeting of the Company convened for 12 noon on the same day has concluded or
been adjourned, and if this separate class meeting is adjourned due to a lack
of quorum notice is hereby given that any such adjourned meeting shall be held
on 29 July 2013 at 11.00 a.m. at 25 Southampton Buildings, London WC2A 1AL, for
the purpose of considering and, if though fit, passing the following
resolution, which will be proposed as a special resolution namely:
Adoption of New Articles of Association
THAT the meeting of the holders of Subscription Shares hereby sanctions and
consent to every alteration, modification, variation or abrogation of the
special rights, privileges and restrictions attaching to the Subscription
Shares to be effected by the passing and implementation of the special
resolution of the Company numbered 16 in the notice of the Annual General
Meeting of the Company contained in the annual report and accounts of the
Company dated 6 June 2013, a copy of which has been initialled by the chairman
of the meeting for the purpose of identification and produced to the meeting.
By order of the Board
Registered Office:
One Wood Street
London EC2V 7WS
Frostrow Capital LLP
Company Secretary
6 June 2013
Notes
1. Only holders of Subscription Shares are entitled to attend and vote at the
meeting. Holders of Ordinary Shares are not entitled to attend and vote at the
meeting unless they also hold Subscription Shares. A Subscription Shareholder
may appoint one or more proxies to exercise all or any of the rights of the
Subscription Shareholder to attend and speak and vote in his place. A proxy
need not be a member of the Company. A Subscription Shareholder may appoint
more than one proxy provided that each proxy is appointed to exercise the
rights attached to a different share or shares held by that member. If a
Subscription Shareholder wishes to appoint more than one proxy and so requires
additional proxy forms, the shareholder should contact the Company's
Registrars, Capita Registrars.
2. A form of proxy is enclosed for use by Subscription Shareholders. To be
valid, the form of proxy and any power of attorney or other authority (if any)
under which it is signed (or a notarially certified copy thereof) must be
deposited with the Company's Registrars, Capita Registrars or (by hand during
normal business hours only) to the same address not later than 12.20 a.m. on
Monday, 15 July 2013 or, if the meeting is adjourned, 48 hours before the time
of the adjourned meeting. Alternatively, a proxy may be appointed online at
www.investorcentre.co.uk/eproxy by that time. Completion and return of a form
of proxy (including online) will not preclude a Subscription Shareholder from
attending and voting at the meeting if he or she wishes to do so.
3. The Company has specified that only those Subscription Shareholders entered
on the register of members of the Company as at 5.30 p.m. on 15 July 2013 or,
if the meeting is adjourned, on the register of members 48 hours before the
time of the adjourned meeting shall be entitled to attend and vote at the
meeting in respect of the number of Subscription Shares registered in their
name at that time. Changes to the register of members after 5.30 p.m. on 15
July 2013 or, if the meeting is adjourned, after 48 hours before the time of
the adjourned meeting will be disregarded in determining the rights of any
person to attend and vote at the meeting or adjourned meeting (as the case may
be).
4. Any person receiving a copy of this Notice as a person nominated by a member
to enjoy information rights under section 146 Companies Act 2006 (a Nominated
Person) should note that the provisions in Notes 1 and 2 above concerning the
appointment of a proxy or proxies to attend the meeting in place of a member,
do not apply to a Nominated Person, as only shareholders have the right to
appoint a proxy. However, a Nominated Person may have a right under an
agreement between the Nominated Person and the member by whom he or she was
nominated to be appointed, or to have someone else appointed, as a proxy for
the meeting. If a Nominated Person has no such proxy appointment right or does
not wish to exercise it, he/she may have a right under such an agreement to
give instructions to the member as to the exercise of voting rights at the
meeting.
5. Terms used in this notice shall have the same meaning as in the annual
report and accounts for the year ended 31 March 2013 unless otherwise defined.
6. As at 6 June 2013 (the latest practicable date before the printing of this
document) the Company's total subscription share capital consisted of 2,340,166
Subscription Shares of 1p each in the capital of the Company with voting rights
for this meeting. On a poll, each Subscription Shareholder shall be entitled to
one vote for every subscription share held by them.
7. Subscription Shareholders have the right to ask questions at the meeting in
accordance with Section 319A of the Companies Act 2006.
Glossary
Diluted Net Asset Value
This is a method of calculating the net asset value ("NAV") of a company that
has issued, and has outstanding, convertible loan stocks, warrants,
subscription shares or options. The calculation assumes that the holders have
exercised their right to convert or subscribe, thus increasing the number of
shares among which the assets are divided.
Discount or Premium
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Gearing
Calculated using the Association of Investment Companies definition.
Total assets, less current liabilities (before deducting any prior charges)
minus cash/cash equivalents divided by Shareholders' funds, expressed as a
percentage.
For years prior to 2013, the calculation was based on prior charges as a
percentage of average net assets.
LIBOR-OIS Spread
This is the difference between LIBOR and the Overnight Indexed Swap (OIS)
rates. The spread between the two rates is considered to be a measurement of
health of the banking system.
London Interbank Offered Rate (LIBOR)
The interest rate at which banks can borrow unsecured funds from other banks in
London wholesale money markets, as measured by daily surveys of the British
Bankers' Association. The published rate is a trimmed average of the rates
obtained in the survey.
NAV per share (pence)
The value of the Company's assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also described
as `shareholders' funds' per share. The NAV is often expressed in pence per
share after being divided by the number of shares which have been issued. The
NAV per share is unlikely to be the same as the share price which is the price
at which the Company's shares can be bought or sold by an investor. The share
price is determined by the relationship between the demand and supply of the
shares.
NAV Total Return
The theoretical total return on shareholders' funds per share, including the
assumed £100 original investment at the beginning of the period specified,
reflecting the change in NAV assuming that dividends paid to shareholders were
reinvested at NAV at the time the shares were quoted ex-dividend. A way of
measuring investment management performance of investment trusts which is not
affected by movements in discounts/premiums.
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised ongoing
charges, excluding performance fees and exceptional items, and dividing by the
average month end net asset value of the Company over the year.
The publishing of ongoing charges information rather than a total expense ratio
(TER) is advocated by the Association of Investment Companies who believe that
using a single methodology to calculate ongoing charges will help reduce
inconsistencies and allow investors and advisers to compare investment
companies more easily with open-ended funds.
Overnight Indexed Swap (OIS)
An interest rate swap that serves as a measure of investor expectations of an
average effective overnight rate over the term of the swap.
Rehypothecation
The pledging to banks by securities brokers of the assets in a customer's
margin account used as collateral for a loan.
Total Assets
Total assets less current liabilities before deducting prior charges. Prior
charges include all loans for investment purposes.
Treasury Shares
Shares previously issued by a company that have been bought back from
shareholders to be held by the company for potential sale or cancellation at a
later date. Such shares are not capable of being voted and carry no rights to
dividends.
Frostrow Capital LLP
Company Secretary
6 June 2013
0203 008 4913
www.frostrow.com
The Annual Report will be posted to shareholders on 10 June 2013 Further copies
may be obtained from Frostrow Capital LLP, the Company Secretary at 25
Southampton Buildings, London WC2A 1AL.
A copy of the Annual Report will be submitted to the National Storage Mechanism
and will shortly be available for inspection at www.hemscott.com/nsm.do
The Annual Report is also available on the Company's website at
www.worldwidewh.com where up to date information on the Company, including
daily NAV, share prices and fact sheets, can also be found.
End