Final Results

RNS Number : 8057E

BB Healthcare Trust PLC

14 February 2018

 

BB HEALTHCARE TRUST PLC

LEGAL ENTITY IDENTIFIER ('LEI'): 213800HQ3J3H9YF2UI82

ANNUAL FINANCIAL REPORT ANNOUNCEMENT

For the period from 7 October 2016 to 30 November 2017

INVESTMENT OBJECTIVE, FINANCIAL INFORMATION, PERFORMANCE SUMMARY AND ALTERNATIVE PERFORMANCE MEASURES

Investment objective

The investment objective of BB Healthcare Trust plc (the "Company") is to provide Shareholders with capital growth and income over the long term, through investment in listed or quoted global healthcare companies. The Company's specific return objectives are: (i) to beat the total return of the MSCI World Healthcare Index (in sterling) on a rolling 3 year period (the index total return including dividends reinvested on a net basis); and (ii) to seek to generate a double-digit total shareholder return per annum over a rolling 3 year period.

Financial information

	As at 30 November 2017
Net asset value ("NAV") per Ordinary Share (cum income)1	115.4p
Ordinary Share price	118.8p
Ordinary Share price premium to NAV1	2.9%
Performance summary
	% change 2,3
Share price total return per Ordinary Share1,4	+20.5%
NAV total return per Ordinary Share1,4	+17.2%
MSCI World Healthcare Total Return Index (GBP)	+14.4%

¹ These are considered to be alternative performance measures.

² Total returns in sterling from commencement of operation on 2 December 2016 to 30 November 2017

³ Source: Bloomberg

⁴ Includes 1.75p interim dividend, paid out of capital on 31 August 2017 and a starting NAV of 100p.

Alternative performance measures ("APMs")

The Financial information and Performance summary, indicated in the footnote above, are considered to represent APMs of the Company. In addition to these APMs other performance measures have been used by the Company to assess its performance, these can be found in the key performance indicators section of the annual report. Definitions of these APMs together with how these measures have been calculated can be found in the Glossary of the Annual Report.

CHAIRMAN'S STATEMENT

I am pleased to present the inaugural Annual Report of the Company. BB Healthcare Trust raised £150m in its initial offer. The Company's Shares commenced trading on the London Stock Exchange on 2 December 2016 and the Company has grown steadily since, through a combination of solid investment returns and further capital issuance.

Review of investment performance

Since inception, the Company's ex-income Net Asset Value (NAV) increased from 98.23p at launch to 115.39p at the period end, an increase of 17.5%. In addition, the Company paid out an interim dividend of 1.75p, making the total return attributable to the Portfolio Manager 19.3% over the period. This represents an outperformance of 4.9% versus our benchmark (the MSCI World Healthcare Total Return Index in GBP).

The Company's share price increased from 100p to 118.75p by the period end. Thus, including the interim dividend, the total return for shareholders has been 20.5%, again comfortably in excess of the benchmark (+6.10%).

Share capital development

Following the issuance of 150m Ordinary Shares in the Initial Public Offering at 100p per share in December 2016, the Company subsequently issued a further 116.6m Ordinary Shares through a £64m secondary offer in September 2017 and continual tap issuance across the financial period via our block-listing facility.

The Portfolio Manager sees further opportunities to deploy additional capital and we would thus expect additional equity issuance over the coming year. The Board is investigating the possibility of a new placing programme and publishing a prospectus in due course, subject to market conditions. The continued issuance has been possible because the Company consistently traded at a premium to NAV over the financial period. The average premium was 2.3% over the financial period. At the time of writing, the Company's market capitalisation is in excess of £286m and the premium to NAV stood at 2.0%. At the period end, the Company's share capital comprised 259,569,268 Ordinary Shares and 50,001 Management Shares. A further 3,900,000 Ordinary Shares have been issued since the period end.

Dividends

As noted above, the Company paid out an interim dividend of 1.75p on 31 August 2017. The Board is intending to propose a final dividend of 1.75p per Ordinary Share in respect of the financial period ended 30 November 2017 and, if approved, this will be paid on 29 March 2018 to Shareholders on the register at 23 February 2018. The dividend will be largely funded from the Company's Special distributable reserves.

Regarding the financial year ending 30 November 2018, the Board is proposing the total dividend will be 4.0p per Ordinary Share, this being 3.5 per cent of the net asset value per Ordinary Share of 115.43p per Ordinary Share (including current financial year revenue items) as at 30 November 2017. The Board intends to declare an interim dividend of 2.0p per Ordinary Share in July 2018 and intends to pay this dividend in August 2018. The Board intends to propose a final dividend of 2.0p per Ordinary Share for the financial year ending 30 November 2018, in February / March 2019 and intends to pay this dividend in March / April 2019.

Investment strategy

The Company was incepted as an income-yielding investment into the wider structural growth opportunity in healthcare. It has a broad and largely unconstrained mandate that gives the Portfolio Manager the freedom to invest anywhere within the pubic equity realm that offers compelling risk/reward over the anticipated average holding period of three to five years. The Board sees no reason to make any changes to the investment guidelines at this stage; the Portfolio Manager feels that they have the flexibility they need and, although we are only one year in, the investment performance is satisfactory and we have not identified any structural factors that detracted from the overall performance.

Gearing, portfolio turnover and expenses

The Company agreed a £30 million two-year multi-currency revolving bank facility with Scotiabank. As of 30 November 2017, the aggregate amount drawn down from the facility was c£13 million, representing a gearing ratio of 3.9%. The overall level of gearing has been lower than the anticipated long-run average of 5 to 10%, a prudent decision in light of the volatile environment for healthcare, as discussed below.

Consistent with the planned 3 to 5 year holding period, the Company's turnover has been relatively low, and based on activity levels to date, it would take around two years to completely change the book of investments.

The ongoing charges ratio was 1.37% over the financial period. Around 1.1% of these costs are fixed and thus we would expect the ongoing charges ratio to decline gradually as the assets under management rise. In addition, the decision of the Portfolio Manager to cover all third-party research costs, should result in a modest reduction in overall expenses for the Company in 2018 vs 2017.

Outlook for 2018

As the Portfolio Manager details, 2017 was a challenging year for healthcare investors, due to a volatile macro-political backdrop in the critical US market. In sterling terms, the benchmark made good progress in Q1, outperforming the wider market. In the latter nine months though, it remained volatile but made little overall progress, finishing the year around the same level as the beginning of March.

With the Republicans having now largely exhausted their opportunities to enact further reform to limit the scope of the Affordable Care Act and the realities of drug price trends are better understood, we are hopeful that the sector's 2018 performance will be more driven by stock fundamentals.

One should not forget either, the reasons why the Company was incepted in the first place. As I see in my own practice on a daily basis, societal demand for healthcare as a service continues to rise inexorably. Moreover, its inefficiencies and the practical financial constraints are increasingly challenging to navigate.

On the other hand, though, I am optimistic about the future; we see innovations in every area of healthcare practice that offer the genuine potential to revolutionise the delivery of care and, in so doing, relieve the financial pressures that ail the system. With its unconstrained approach, the Company is well placed to benefit from the financial rewards that will accrue to those companies leading these innovations.

Annual General Meeting

The Company will hold its inaugural Annual General Meeting at 11am on 22 March 2018, at the offices of our legal advisors, Stephenson Harwood - 1 Finsbury Circus, London, EC2M 7SH (the nearest tube station is Moorgate). Our investment team; Paul Major, Daniel Koller and Brett Darke, will provide an update on the Portfolio and take questions at the end of the meeting. I do hope that you will come along.

That said, we do recognise that it is not possible for everyone to attend the AGM in London. Engaging with our shareholders is very important and we have therefore setup a dedicated email address for shareholders to submit any questions that they might have:

 [e-mail].

We would encourage you all to make use of this facility for questions and feedback at any time of the year and we will continue to post content from our Portfolio Manager onto the Company's website to keep you informed of the Company's progress.

On behalf of the Board, I wish you all a healthy and prosperous 2018 and thank you again for your continued support of BB Healthcare Trust plc.

Professor Justin Stebbing

13 February 2018

PORTFOLIO MANAGER'S REPORT

As noted in the Chairman's review, the Company delivered a satisfactory performance in its first full financial period, outperforming its benchmark index. The Company's performance is summarised in the Table below:

	Annual Return (in GBP)	Delta vs. Benchmark
BB Healthcare Trust NAV (Inc. dividends from capital)*	+19.3%	+4.90%
BB Healthcare Trust Total Shareholder return	+20.5%	+6.10%
MSCI World Healthcare Total Return Index (GBP)	+14.4%	n/a
MSCI World Total Return Index (GBP)	+15.4%	+0.95%
FTSE All Share Total Return Index	+13.8%	-0.66%

*Based on a starting NAV after share issue expenses of 98.2p per Ordinary Share

The MSCI World Healthcare benchmark used by the Company delivered a superior return to the UK's FTSE All Share Index of 0.66%, but underperformed the MSCI World Total Return Index (GBP), which delivered a return 0.95% higher across the period. Much of this can be attributed to the stellar performance of the technology sector during 2017 (+31%). In some ways, the themes that drove that outperformance - recognition of the value of data to generate algorithmically driven new products and services and thus the value of incumbency, apply to a number of our core holdings (Align, Illumina, Intuitive Surgical etc.).

It is indisputable that 2017 was an exceptional period in US political history, and healthcare has been at the heart of the debate. Although the Benchmark Index began the financial period strongly on the back of a "Not Hillary" rally (given her self-proclaimed form as a scourge of the industry going back to the 1990s and comments during the Presidential race), the momentum faded away by Q2 and, perhaps unsurprisingly, a generally cautious and macro-driven "risk-off" approach from investors characterised the rest of the year.

An unhelpful consequence of this phenomenon was the relatively strong performance of conglomerate and mega-cap companies; with investors seemingly preferring the perceived safety of diversification to the operational leverage of more focused entities. This environment was unsupportive of our strategy, which eschews diversified plays in favour of more focused investment theses and it is not surprising that our NAV progression was biased to the first half of the financial period (63% of the 18.9p NAV return was delivered in H1 and 37% in H2). This pattern was even more extreme for the benchmark, with the six months from December 2016 to May 2017 accounting for 88% of the total return in the financial period ending November 2017 and this statistic serves to highlight how challenging it was to deliver meaningful returns in the latter part of the period.

We used a very limited amount of leverage during 2017, closing the financial period at a leverage ratio of only 3.9%. With hindsight, we could have delivered a higher return through greater use of leverage, but the various macro uncertainties precluded such an approach.

We raised capital steadily throughout the period using our block-listing facility and via a secondary offer in September 2017. We also expanded the Portfolio team with the addition of Brett Darke; a senior hire with a medical background and wealth of healthcare investment experience who brings further bandwidth for our intensive investment evaluation process.

Company-level summary

During the financial period under review, the Company held a total of 40 companies. Two positions were exited as a result of acquisitions - Alere (Diagnostics) and Zeltiq (Med-Tech). 26 of the 40 delivered a positive capital return over the period. However, only two positions have been exited at a loss - Vectura (Specialty Pharma) and Mallinckrodt (Specialty Pharma); the remainder is still within the portfolio and we must judge gains and losses over the intended multi-year holding period.

Our top five and bottom five performers in terms of contribution to NAV are summarised below, along with their share price evolution in local currency and sterling over the financial period:

Top 5			Bottom 5
Company	Perf. (local currency)	Perf. (GBP)	Company	Perf. (local currency)	Perf. (GBP)
Align Technology (Dental)	+181.9%	+162.6%	Teva (Specialty Pharma)	-59.5%	-62.3%
Anthem (Managed Care)	+61.9%	+50.7%	Celgene (Biotech)	-15.2%	-21.0%
Intuitive Surgical (Med-Tech)	+89.7%	+76.7%	Mallinckrodt (Specialty Pharma)	-58.9%	-61.7%
Alnylam (Biotech)	+223.6%	+201.4%	Genmark (Diagnostics)	-60.8%	-63.5%
Illumina (Diagnostics)	+80.1%	+67.7%	Shire (Pharma)	-19.6%	-19.6%

It is gratifying that our highest returns have come from some of our largest holdings that we see as core positions on a multi-year timeframe. Alnylam is the exception here; we exited our position during September and October because the stock was (and continues to) trade at a valuation that we cannot rationalise. Align; Intuitive and Illumina typify the optimisation of essential healthcare processes through the integration of cutting-edge software and hardware in applications that can get better through incremental experience-driven improvements to the package. These are also market opportunities where incumbency offers material protection from a share perspective. When people ask us what we think the future of healthcare might look like, these companies are the perfect examples to cite.

Celgene and Genmark are both companies where we feel strongly that the market has over-reacted to admittedly disappointing news, leaving us with a valuation scenario that seems to discount an overly bearish outlook and we are happy to hold both. In contrast, Shire, Mallinckrodt and Teva are somewhat different situations.

Mallinckrodt and Teva are in the benighted specialty pharma category and all three stocks were bought as "value" propositions where we felt that the market was discounting an overly bearish scenario (Mallinckrodt), or that all of the risks were priced in (Shire and Teva). As noted previously, investors seem to have developed a particular risk aversion to perceived earnings risk, especially around high leverage, product sales concentration and costly treatment in categories such as rare diseases.

Many of the specialty pharma companies include all three elements and thus fell very much out of favour in late 2016 as the Valeant equity story unravelled. Shire too has quite a lot of debt. As ever though, generalisations can be unfair and we felt there were some good investment opportunities to be found in the wreckage of this market implosion. However, the apocryphal aphorism that the market can remain irrational longer than one can remain solvent seems apposite in the case of Mallinckrodt. What changed during 2017? Exiting its scheduled generic business looks more challenging and any interim step will compound reliance on its lead product Acthar, limiting near-term strategic options to unlock value, so we have moved on.

Teva was a complex situation where it transpired that management (now replaced) did not have a handle on the state of the business and so our due diligence proved to be unreliable. We also took the view that a dividend cut was priced in, but that was clearly not the case. Here, though, we have confidence in the new management team to turn things around and we are hopeful of a decent positive return on the position over the medium-term. Shire is probably somewhere between the two - too cheap if one is objective, but with some understandable questions around management given how the story has evolved following the rejection of the Abbvie bid in late 2014. Nevertheless, we still see multiple avenues to a re-rating and are thus happy to hold the shares.

Sub-sector level summary

In sub-sector terms, we held positions in 12 categories (Biotechnology, Dental, Diagnostics, Distributors, Facilities, Generics, Health-Tech, Managed Care, Med-Tech, Pharma, Specialty Pharma and Other Healthcare - the latter covering our investment in the retailer Walgreens Boots). At inception, we indicated that it was not our intention to 'hug' the benchmark in any way, rather to construct a bottom up portfolio of healthcare holdings that would create significant value over time and we can confirm this is indeed the case. At the period end, over 31% of our gross exposure was composed of stocks that are not included in the MSCI benchmark index.

We recorded net capital losses in three categories: Facilities, Specialty Pharma and Other Healthcare; all the others made a positive net contribution to the evolution of the NAV. The Facilities sub-sector still remains challenging given Republican efforts to defenestrate Obamacare, raising concerns over growth in the uninsured population and thus the potential for unrecoverable expenses. We have limited and selective exposure here and are fully cognisant of these risks, which we feel are more than priced into our holdings. Specialty Pharma has been a very challenging area, as described above. Our sub-sector and geographical exposures for the financial period ended 30 November 2017 are set out in the Annual Report.

Sector outlook

We classify healthcare investments into 16 different categories (note - these are not the same as the Global Industry Classification Standard (GICS) classification system used by MSCI, and sometimes we re-classify stocks into different categories based on payor dynamics or similarity to peers). In order to provide shareholders with some additional insights into our current thinking, we have summarised our high-level thoughts on the outlook by sub-sector in the following paragraphs:

·      Biotechnology: after a torrid 2016 when the Nasdaq Biotech Index fell almost 30% in two months, 2017 started positively. Like the broader healthcare sector, the momentum stalled in Q1, but re-started mid-year. Again, though, this momentum faded in H2 and the Biotech Index finished the second half of the year where it began, albeit up 20% for the year. The previously discussed drug pricing 'risk off' mind set pervaded with seemingly limited generalist interest in the sector in terms of fund flows. All of this macro activity overshadowed continued R&D progress and solid earnings delivery from the larger-cap names, which means that sector multiples are cheap relative to history. With large cap pharma and biotech both needing to bolster pipelines, it is quite possible that M&A is a major factor during 2018, especially now that tax reform has passed, providing clarity on the optimisation of funding and capital structure. This sub-sector remains attractive and we expect our Biotech portfolio to continue to perform in 2018, driven by strong innovation, a proactive FDA, attractive valuations and further consolidation. We have aligned our holdings to increase exposure to small/mid-cap companies.

·      Conglomerates and Pharma: over the financial period, the conglomerates sub-sector tracked the MSCI World Healthcare Index, acting as a safe haven and sector proxy for generalist investors. Our investment approach eschews conglomerates, which typically own disparate businesses, often with competing cash-flow cycles and capital requirements. In today's world of globalised marketplaces, we see limited rationale or synergies for such units being under common ownership and we would only consider investing in such a company if valuations were in extremis. Those of you following our monthly factsheets will know that we are not fans of the diversified pharma business model either, owing to serially disappointing R&D productivity and the issues that scale brings with respect to new products positively impacting earnings. Thus, like conglomerates, we can only imagine investing when we see compelling risk/reward (Eli Lilly through 2017) or in extremis valuation (Shire). We continue to evaluate selective investments on a case-by-case basis, although if one were to believe (as we do) that the wider drug sector is now a more inviting place for the generalist as macro-political uncertainties recede, it becomes harder to imagine that lower growth, lower operationally geared companies like these will deliver industry-leading returns in the coming year.

·      Dental: this sub-sector performed strongly in 2017 with Align Technology being the best performing share in the S&P 500 Index during the period in review, up 182%. We continue to like the structural dynamics of the dental marketplace and anticipate Align's strong growth will continue for many years to come, driven by the consumerisation of the market coupled with increasing penetration of aligner approaches that provide superior aesthetics and predictability of outcome versus traditional solutions. We maintain this opinion, despite increasing competition, as we feel the opportunity is big enough to support several players and incumbency has significant value of and in itself. Whilst near term valuations appear elevated, this is arguably not the case over our three-to-five year investment horizon and, as such, we remain very positive.

·      Diagnostics: if there is a sub-sector that typifies how technology will ultimately revolutionise the delivery of healthcare, then molecular diagnostics and genomic testing are it. As the costs and rapidity of disease and genetic test panels come down, so the utility of these tools increases, reducing uncertainty for physicians, in turn reducing medical waste and errors whilst improving outcomes. These technologies are only now coming of age and we expect 2018 to be another strong year of growth for this sub-sector. Conceptualising valuation again may worry some, but as with Dental, these concerns fade away rapidly over the medium-term and the upside risk of more rapid uptake argues for maintaining high levels of exposure. Indeed, we continue to monitor this sub-sector for further investment opportunities.

·      Distributors: 2017 was a tale of two halves for the distributors. Although the environment was challenging with generic price deflation, these headwinds were well understood and well flagged, and all things considered, the companies executed well in this tough environment. In stark contrast, the second half of the year initially seemed over-run with febrile paranoia, first that generic price deflation was seemingly unending and latterly that Amazon would do to pharmaceutical and medical consumable wholesaling (note - we do not have exposure to the latter) what it is has done for bricks and mortar general retailers, a combination rendering the wholesalers 'uninvestable'. Of course, this was overly pessimistic; the power of wholesaling lies in the buying not the selling and taking on a triopsony is hardly the inefficient low-hanging fruit Amazon usually wins through disruption. Although no longer significantly undervalued, we remain positively disposed to this sub-sector and see continued under-appreciation of the earnings upside from our holdings.

·      Facilities: favourable demographics, coupled with the implementation of the Affordable Care Act (ACA or 'Obamacare') in 2013 and the improving economy provided a multi-year patient volume tailwind to US Facilities operators, driving a period of solid earnings progression and valuation re-rating. However, in 2017, the anticipation of healthcare reform and subsequent repeal of the ACA's 'individual mandate' raises the spectre of more uninsured patients and an increased risk of unrecoverable losses. In addition, a move toward more value based care versus the historical 'fee for service' model places additional pressure on operating margins in what is largely a fixed cost business. This has driven a profound de-rating of the sector and made forecasting the likely operating environment very challenging, which dissuades some traditional value investors. Despite these headwinds, people must be treated somewhere and certain operators have long been preparing for the arrival of a value-based care model. As long as one is selective, we see significant return potential over the medium-term.

·      Generics: this is the most fiercely competitive area of healthcare; volume producers living order-to-order, with buying groups playing off suppliers to secure the lowest possible prices. A multi-year backlog of generic approvals at the FDA is finally being cleared and the laws of supply and demand do not augur well as one moves from a dynamic of perhaps one or two suppliers of a product to five or six. Price deflation in the US market is thus likely to persist for some time to come. However, we think valuations are too bearish in some cases. The flip-side of this fiercely capitalist business model is that excess capacity that cannot earn its cost of capital will ultimately disappear until a sustainable equilibrium is again reached, begging the question - who will come out on top? We think it is those best placed to adapt their cost structure to a new reality. We have seen first-hand how much fat there is to trim at Teva and back the new management team to create value from the rubble of the ill-considered Actavis acquisition.

·      Health Tech: this is a sub-sector categorisation of our own making; defined in essence as 'software as medical device', where it is the power of the algorithm that creates the product. Our investments in this area are selective, but compelling, and share the common feature that an ever-evolving continuum of patient data enables product innovation. The value here is very intangible (in the best possible sense of the word) and thus the barriers to entry are higher than perhaps appreciated. The newly proactive FDA is seemingly supportive of the 'software as devices' concept, which will ultimately herald a novel era of healthcare products that we think are potential game-changers. We continue to be very excited about this area.

·      Healthcare IT: related to the above, this grouping covers 'software as a service' and is a very broad church, including less interesting areas such as Management Information Systems (MIS) for healthcare providers, through to programmes to deliver value based care and predict patient behaviour. The '80/20' rule of thumb applies as much in healthcare as to anything else in life,  and it is generally the case that a small proportion of patients with complex chronic needs account for the bulk of healthcare costs. Identifying and then prophylactically managing such patients is undoubtedly critical to the broader aims of lowering overall healthcare costs. Although we have identified many potentially interesting companies in this latter arena, we have yet to invest. There are several reasons: valuations can be challenging, with high ratings compounded as the sub-sector rode the broader 2017 Tech upswing. Implied terminal values are hard to justify in marketplaces driven by short-to-medium term contracts where substantial market share can be won or lost year-to-year. Growth is also hard to predict, as many services are nascent concepts. Nonetheless, we see Healthcare IT as a necessary piece of the jigsaw for a more efficient healthcare system and it is an area under active consideration for future investments.

·      Managed Care: can we say anything interesting about health insurance? Probably not, and therein lies its attraction: a product that almost everyone needs to have, that is hedged against inflation and where market forces favour incumbency as risk is priced more efficiently with more data and outliers have less impact on overall profitability . Because the marketplace is already quite concentrated, large-scale capital deployment is hard to envisage (cf. last year's US anti-trust rulings against further market share concentration) and so capital returns to shareholders from profits are high. After many providers withdrew from ACA business due to lacklustre returns, healthcare reform can only be a win - the industry will stay out and avoid losses or alternatively re-enter if it finally makes economic sense. Managed care is inexpensive and a serial compounder. For these reasons, it remains a core exposure in our portfolio.

·      Med-Tech: this is the broadest sector in healthcare, covering everything from 20-cent plastic clips to $20m pieces of capital equipment. We have begun to carve out sub-categories (cf. Health-Tech, Dental and Diagnostics), based on market dynamics and this is likely to continue. What do we like within the scientific smorgasbord of what remains in our broad category? We tend to favour small, highly focused specialists that are leaders (in growth or market share terms) in their categories. We prefer smaller ticket procedural items to larger capital equipment given the constraints around hospital economics (although tax reform should provide a small boost to US hospital investment by allowing capex on equipment to be written off for the next five years; much of this we think is likely to go to software and systems). Demographic trends globally favour continued procedure volume growth and pricing trends are already deflationary. Finally, material science continually opens up new product opportunities: how can you not be excited about a 3D printed, titanium-infused replacement plastic bone that can be monitored with normal x-rays and allows the bone tissue to gradually regrow inside of it? 

·      Other Healthcare (Drug Retailers): one consequence of having such a wide mandate is that we have to create a catch-all category for those investments that do not fit logically elsewhere within the healthcare universe. At the moment, this category is composed of our holding in Walgreens Boots. Why do we own a drug retailer? Any European who has set foot in a US pharmacy and read a textbook about a focused business model will appreciate the anachronisms of the drugstore model in its current form. If there is any truth to James Gulliver's axiom that 'retail is detail', the wonder is surely that more of these companies haven't gone bust. The question that we have long been asking is two-fold: firstly, how does the healthcare industry create lower cost touch points with patients to unblock primary care (GPs)? Secondly, what might the application of more-focused business model to replace the general merchandising approach look like? There is much synergy in the answers and, in Stefano Pessina, we have the right management to bring about change. As regards Amazon and its ilk, many healthcare interactions will always require the physical presence of a patient and these interactions have to happen somewhere.

·      Services: this is another broad category covering companies who serve the industry as suppliers (contract research, manufacturing or packaging, laboratories, Pharmacy Benefit Managers (PBMs) etc.) or directly deal with patients (dialysis companies, emergency services etc.). On a GICS basis, this grouping would include Managed Care and the Distributors, which we split out. Even with a narrower definition, it is difficult to generalise about such a disparate group of companies. We have eschewed these various areas, thus far, simply because we have yet to find a compelling proposition. However, we are not ruling out investment in this area in the future.

·      Specialty Pharma: this is again a catch-all category, probably best described as including non-diversified drug companies, those who do not undertake basic research and normally generics companies, which again we separate and as such, it is again difficult to make generalised high-level comments. As noted in the preceding pages, this has been a challenging space for investments in 2017 despite seemingly compelling valuations given the general aversion to concentration risk and higher-priced products in rare disease categories. We continue to maintain a number of positions in this area, focusing on companies where we believe there a multiple strategic options to unlock value if the market does not elect to respond to the low valuations.

·      Life Science Tools: these are the companies supplying the equipment that enables research and development - the picks and shovels of R&D. Normally this group would include companies like Illumina, but we carve these out into our Diagnostics category. Even without the Diagnostics stocks, this category performed strongly in 2017, by more than 23% during the period in review. We have been zero weighted, feeling that the levels of growth implied by current valuations (ex. Diagnostics) are unsustainable in the longer-term. This view proved to be incorrect in 2017, but we are taking a longer-term perspective and, whilst we like the fundamentals, we await a compelling entry point into one of the quality stocks.

We hope the preceding paragraphs give some colour around our thinking. The key message we would like readers to take away is that we enter 2018 feeling optimistic about the Company's ability to deliver further positive returns for investors. We too wish you all a happy and successful year and thank you for your support of the Company.

Paul Major, Daniel Koller and Brett Darke

Bellevue Advisors Limited

13 February 2018

Principal risks and uncertainties

(i)         Market risks

Economic conditions

Changes in general economic and market conditions including, for example, interest rates, cost increase, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts and other factors could substantially and adversely affect the Company's prospects and thereby the performance of its Ordinary Shares.

Healthcare companies

The Company invests in global healthcare equities. There are many factors that could adversely affect the performance of investee companies. The healthcare sector may be affected by government regulations and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and the expiration of a company's patent may adversely affect that company's profitability. Healthcare companies are subject to competitive forces that may result in price discounting, and may be thinly capitalised and susceptible to product obsolescence. The market prices for securities of companies in the healthcare sector may be highly volatile.

Sectoral diversification

The Company has no limits on the amount it may invest in the healthcare sector and is not subject to any sub-sector investment restrictions. Although the portfolio is expected to be well diversified in terms of industry sub-sector exposures, the Company may have significant exposure to portfolio companies from certain sub-sectors from time to time. Greater concentration of investments in any one sub-sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to Shareholders.

Management of risks

The Portfolio Manager has a well-defined investment strategy and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Portfolio Manager is experienced and employs its expertise in selecting the stocks in which the Company invests.

The Company is invested in a diversified portfolio of investments.

The Company's investment policy states that no single holding will represent more than 10 per cent of gross assets at the time of investment and, when fully invested, the portfolio will have no more than 35 holdings.

(ii)        Financial risks

The Company's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.

There is a risk that the Company's holdings may not be able to be realised at reasonable prices in a reasonable timeframe. Although the Company's performance is measured in sterling, a high proportion of the Company's assets may be either denominated in other currencies or be in investments with currency exposure. The Company pays interest on its borrowings and as such, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rates.

Further details on financial risks can be found in the notes to the Annual Report. 

Management of risks

The Company will typically seek to maintain a high degree of liquidity in its portfolio holdings. The Company's Portfolio Manager monitors the currency risk of the Company's portfolio on a regular basis. Prevailing interest rates are taken into account when deciding on borrowings. Further details on the management of financial risks can be found in the notes to the Annual Report. 

(iii)       Corporate governance and internal control risks

The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.

The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Portfolio Manager, and the performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status.

Management of risks

Each of the contracts were entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis.

(iv)       Regulatory risks

Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Alternative Investment Fund Managers Directive, accounting standards, the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its Directors.

Management of risks

The Company has contracted out relevant services to appropriately qualified professionals. The Secretary, AIFM and Depositary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.

(v)        UK exit from the European Union

A referendum was held on 23 June 2016 to decide whether the UK should remain in the EU. A vote was given in favour of the UK leaving the EU (''Brexit''). The extent of the impact on the Company will depend in part on the nature of the arrangements that are put in place between the UK and the EU following Brexit and the extent to which the UK continues to apply laws that are based on EU legislation. In addition, the macroeconomic effect of Brexit on the value of investments in the healthcare sector and, by extension, the value of investments in the Company's portfolio is unknown. As such, it is not possible to state the impact that Brexit will have on the Company and its investments. It could also potentially make it more difficult for the Company to raise capital in the EU and/or increase the regulatory compliance burden on the Company. This could restrict the Company's future activities and thereby negatively affect returns.

Management of risks

The Brexit vote is unlikely to significantly alter the risk profile of the Company, as substantially all the Company's investments are based outside the EU, and the majority of shareholders are UK based. The position is, however, being monitored as the exit negotiation proceeds and the impact on the Company will be reassessed accordingly. 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.

Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements under International Financial Reporting Standards as adopted by the European Union. 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 as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates which are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

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 accounts 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.

The accounts are published on the Company's website at www.bbhealthcaretrust.com which is maintained by the Company's Portfolio Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmation statement 

The Directors each confirm to the best of their knowledge that:

(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

(b) this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.

Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.

For and on behalf of the Board

Randeep Grewal

Director

13 February 2018

STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD FROM INCORPORATION ON 7 OCTOBER 2016 TO 30 NOVEMBER 2017

				2017
		Revenue	Capital	Total
		£'000	£'000	£'000
Gains on investments		-	33,960	33,960
Gains on currency movements		-	522	522
Net investment gains		-	34,482	34,482
Income		1,919	-	1,919
Total income		1,919	34,482	36,401
Portfolio management fees		(417)	(1,668)	(2,085)
Other expenses		(791)	-	(791)
Profit before finance costs and taxation		711	32,814	33,525
Finance costs		(43)	(170)	(213)
Operating profit before taxation		668	32,644	33,312
Taxation		(272)	-	(272)
Profit for the period		396	32,644	33,040
Return per Ordinary Share		0.21p	17.42p	17.63p

There is no other comprehensive income and therefore the 'Profit for the period' is the total comprehensive income for the period.

The total column of the above statement is the statement of comprehensive income of the Company. The supplementary revenue and capital columns, including the earnings per Ordinary Shares, are prepared under guidance from the Association of Investment Companies.

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

STATEMENT OF FINANCIAL POSITION

AS AT 30 NOVEMBER 2017

		£'000
Non-current assets
Investments held at fair value through profit or loss		312,238
Current assets
Cash and cash equivalents		842
Income receivable		228
		1,070
Total assets		313,308
Current liabilities
Purchases for future settlement		484
Bank loans payable		12,786
Other payables		425
Total liabilities		13,695
Net assets		299,613
Equity
Share capital		2,609
Share premium account		120,934
Special distributable reserve		143,355
Capital reserve		32,644
Revenue reserve		71
Total equity		299,613
Net asset value per Ordinary Share		115.43p

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD FROM INCORPORATION ON 7 OCTOBER 2016 TO 30 NOVEMBER 2017

	Share capital	Share premium account	Special distributable reserve	Capital reserve	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Opening balance as at 7 October 2016	-	-	-	-	-	-
Profit for the period	-	-	-	32,644	396	33,040
Transfer to special distributable reserve	-	(146,412)	146,412	-	-	-
Issue of Ordinary Shares	2,596	271,014	-	-	-	273,610
Issue of Management Shares	13	-	-	-	-	13
Share issue costs	-	(3,668)	-	-	-	(3,668)
Dividend paid	-	-	(3,057)	-	(325)	(3,382)
Closing balance as at 30 November 2017	2,609	120,934	143,355	32,644	71	299,613

STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM INCORPORATION ON 7 OCTOBER 2016 TO 30 NOVEMBER 2017

	2017
	£'000
Cash flows from operating activities
Income*	1,690
Management expenses	(2,520)
Purchase of investments**	(371,220)
Sale of investments**	93,426
Foreign exchange losses	(204)
Taxation	(272)
Net cash flow used in operating activities	(279,100)
Cash flows from financing activities
Bank loans drawn	13,512
Finance costs paid	(130)
Dividend paid	(3,382)
Proceeds from issue of shares	273,610
Share issue costs	(3,668)
Net cash flow from financing activities	279,942
Increase in cash and cash equivalents	842
Cash and cash equivalents at start of period	-
Cash and cash equivalents at end of period	842

*   Cash inflow from dividends for the financial period was £1,688,000.

** Sales proceeds and purchases costs have been classified as components of cash flows from operating    activities as investing activities form part of the Company's operations.

NOTES TO THE FINANCIAL STATEMENTS

1.   Reporting entity

BB Healthcare Trust plc is a closed-ended investment company, registered in England and Wales on 7 October 2016. The Company's registered office is Mermaid House, 2 Puddle Dock, London EC4V 3DB. Business operations commenced on 2 December 2016 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The financial statements of the Company are presented for the period from 7 October 2016 to 30 November 2017.

The Company invests in a concentrated portfolio of listed or quoted equities in the global healthcare industry. The Company may also invest in American Depositary Receipts (ADRs), or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies. The Company may utilise contracts for differences for investment purposes in certain jurisdictions where taxation or other issues in those jurisdictions may render direct investment in listed or quoted equities less effective.

2.   Basis of preparation

Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards 'IFRS', and the Disclosure Guidance and Transparency Rules ('DTRs') of the UK's Financial Conduct Authority.

When presentational guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('the AIC') in November 2014 and updated in January 2017 is consistent with the requirements of 'IFRS', the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

Going concern

The Directors have adopted the going concern basis in preparing the financial statements.

The Directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of these financial statements.

Use of estimates and judgements

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. There have been no estimates, judgements or assumptions, which have had a significant impact on the financial statements for the period.

Basis of measurement

The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value.

Functional and presentation currency

The financial statements are presented in sterling, which is the Company's functional currency. The Company's investments are denominated in multiple currencies. However, the Company's shares are issued in sterling and the majority of its investors are UK based. In addition all expenses are paid in GBP as are dividends.  All financial information presented in sterling have been rounded to the nearest thousand pounds.

Comparatives

There are no comparatives as this is the Company's first accounting period.

3.   Accounting policies

(a) Investments

Upon initial recognition investments are designated by the Company "at fair value through profit or loss". They are accounted for on the date they are traded and are included initially at fair value which is taken to be their cost. Subsequently quoted investments are valued at fair value which is the bid market price, or if bid price is unavailable, last traded price on the relevant exchange. Unquoted investments are valued at fair value by the Board which is established with regard to the International Private Equity and Venture Capital Valuation Guidelines by using, where appropriate, latest dealing prices, valuations from reliable sources and other relevant factors.

Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within "gains on investments".

Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset. Gains or losses are recognised in the capital column of the Statement of Comprehensive Income.

(b) Foreign currency

Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities, and non-monetary assets held at fair value denominated in foreign currencies are translated into sterling using London closing foreign exchange rates at the period end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Statement of Comprehensive Income within "gains on currency movements".

(c) Income from investments

Dividend income from shares is accounted for on the basis of ex-dividend dates. Overseas income is grossed up at the appropriate rate of tax.

Special dividends are assessed on their individual merits and may be credited to the Statement of Comprehensive Income as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Statement of Comprehensive Income as a revenue item. Interest receivable is accrued on a time apportionment basis and reflects the effective interest rate.

(d) Capital reserves

Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.

(e)  Expenses

All expenses are accounted for on an accruals basis. Expenses are recognised through the Statement of Comprehensive Income as revenue items except as follows:

Management fees

In accordance with the Company's stated policy and the Directors' expectation of the split of future returns, 80% of investment management fees are charged as a capital item in the Statement of Comprehensive Income.

Finance costs

Finance costs include interest payable and direct loan costs. In accordance with Directors' expectation of the split of future returns, 80% of finance costs are charged as capital items in the Statement of Comprehensive Income. Loan arrangement costs are amortised over the term of the loan.

(f) Cash and cash equivalents

Cash comprises cash at hand and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(g) Taxation

Irrecoverable taxation on dividends is recognised on an accruals basis in the Statement of Comprehensive Income.

Deferred taxation

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

(h) Financial liabilities

Bank loans and overdrafts are classified as loans and are measured at amortised cost. They are initially recorded at the proceeds received net of direct issue costs.

(i) New standards and interpretations effective in the current financial period

In the opinion of the Directors, there are no new standards that became effective during the period that had a material impact on the financial statements. At the date of approval of these financial statements, the following standard, which has not been applied in these financial statements, was in issue but not yet effective:

• IFRS 9, 'Financial instruments', effective for annual periods beginning on or after 1 January 2018, specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria.

•  Amendments to IAS 7 'Statement of Cash flows', is effective for annual periods beginning on or after 1 January 2017. The main objective of these amendments is to provide disclosures that enable users of financial statements to evaluate changes arising from financing activities.  This should improve the information provided to users of financial statements about an entity's financing activities.

The Board is currently considering the impact of the above standard. Based on the initial assessment, the standard is not expected to have a material impact on the Company's financial statements.

(j) Equity shares

The Company has treated the Ordinary Shares and Management Shares as equity in accordance with IAS 32 Financial Instruments: Presentation, which classifies financial instruments into financial assets, financial liabilities and equity instruments. Both Share classes have an entitlement to the residual interest in the assets of the Company after deducting liabilities, suffice that the Management Shares have no participation in any surplus beyond their paid up capital. Although both share classes are subordinate to other share classes, the Ordinary Shares are further subordinate to the Management Shares.  The Management Shares are not redeemable but the Ordinary Shares are subject to an annual redemption option at the discretion of the Directors. Ordinary Shares participate in dividends and any other profits of the Company.

4.   Investment held at fair value through profit or loss

(a)           Summary of valuation	£'000
Investments held at fair value through profit or loss
- Quoted in UK	15,984
- Quoted overseas	296,254
Closing valuation	312,238
(b)           Movements in valuation	£'000
Opening valuation	-
Opening unrealised gains/(losses) on investments	-
Opening book cost	-
Additions, at cost	371,704
Disposals, at cost	(78,057)
Closing book cost	293,647
Revaluation of investments	18,591
Closing valuation	312,238

Transaction costs on investment purchases for the period ended 30 November 2017 amounted to £343,000 and on investment sales for the financial period to 30 November 2017 amounted to £24,000.

(c)           Gains on investments	£'000
Realised gains on disposal of investments	15,369
Unrealised gains on investments held	18,591
Total gains on investments	33,960

Under IFRS 13 'Fair Value Measurement', an entity is required to classify investments using a fair value hierarchy that reflects the significance of the inputs used in making the measurement decision.

The following shows the analysis of financial assets recognised at fair value based on:

Level 1

The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Inputs other than quoted prices included within Level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly.

Level 3

Inputs are unobservable (i.e. for which market data is unavailable) for the asset or liability.

The classification of the Company's investments held at fair value is detailed in the table below:

	As at 30 November 2017
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Investments at fair value through profit
and loss - Quoted	312,238	-	-	312,238

There were no transfers between levels during the period to 30 November 2017.

Fair values of financial assets and financial liabilities

All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost. The carrying value of the loans approximates to the fair value of the loans.

5.   Income

	2017
	£'000
Income from investments
Overseas dividends	1,778
UK dividends	139
Other Income	2
Total income	1,919

6.   Portfolio management fee

		2017
	Revenue	Capital	Total
	£'000	£'000	£'000
Management fee	417	1,668	2,085

The Company's Portfolio Manager is Bellevue Asset Management AG (the 'Portfolio Manager'). The Portfolio Manager is entitled to receive a management fee payable monthly in arrears and calculated at the rate of one-twelfth of 0.95% per calendar month of market capitalisation. Market capitalisation means the average of the mid-market prices for an Ordinary Share, as derived from the daily official list of the London Stock Exchange on each business day in the relevant calendar month multiplied by the number of Ordinary Shares, in issue on the last business day of the relevant calendar month, excluding any Ordinary Shares held in treasury.

There is no performance fee payable to the Portfolio Manager.

7.   Other expenses

	2017
	£'000
Administration & secretarial fees	172
AIFM fees	104
Auditor's remuneration*
- Statutory audit fee	37
- Non-audit fee	29
Broker fees	36
Custody services	82
Directors' fees	158
Printing and public relations	10
Registrar fees	24
Other expenses	139
Total	791

* Auditor's remuneration includes VAT of £11,000.

Non-audit fees of £29,000 related to the audit of the Company's initial accounts and Half-yearly Report and reporting accountant work in respect of the updated prospectus issued in September 2017. Prior to appointment as the Company's Auditor, the auditors received £44,000 (including VAT of £7,000) for non-audit initial public offering-related services, which have been treated as a capital expense and included in 'share issue costs' disclosed in the Statement of Changes in Equity.

8.   Finance costs

		2017
	Revenue	Capital	Total
	£'000	£'000	£'000
Loan interest	37	150	187
Other finance costs	6	20	26
Total	43	170	213

9.   Taxation

(a)   Analysis of charge in the period:
			2017
	Revenue	Capital	Total
	£'000	£'000	£'000
Withholding tax expense	272	-	272
Total tax charge for the period (note 9b)	272	-	272
(b)   Factors affecting the tax charge for the period:
The effective UK corporation tax rate for the period is 19.33%. The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The differences are explained below:
			2017
			Total
			£'000
Operating profit before taxation			33,312
UK Corporation tax at 19.33%			6,439
Effects of:
Gains on investments not taxable			(6,665)
UK dividends not taxable			(27)
Overseas dividends not taxable			(344)
Withholding tax expense			272
Unutilised excess expenses			597
Total tax charge			272

The Company is not liable to tax on capital gains due to its status as an investment trust. The Company has an unrecognised deferred tax asset of £586,000 based on the prospective UK corporation tax rate of 19%. This asset has accumulated because deductible expenses exceeded taxable income for the period ended 30 November 2017. No asset has been recognised in the accounts because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future.

10.        Return per share

Return per share is based on the profit for the period of £33,040,000 attributable to the weighted average number of Ordinary Shares in issue (excluding treasury shares) of 187,377,682 in the period from commencement of operation on 2 December 2016 to 30 November 2017. Revenue and capital profits are £396,000 and £32,644,000 respectively.

11.        Bank loans

The Company agreed a multi-currency revolving credit facility with Scotiabank (Ireland) Designated Activity Company on 23 February 2017. Under the terms of the facility, the Company may draw down up to an aggregate of £30 million. The facility expires on 22 February 2019.

As at 30 November 2017, the Company's aggregate loans outstanding was £12,786,000. The table below shows the breakdown of the loans at 30 November 2017.

Currency of loans	Local currency amount	£'000	Interest rate per annum (%)	Maturity date
GBP loan	£500,000	£500	1.60575	23 Feb. 2018
GBP loan	£1,700,000	1,700	1.60575	23 Feb. 2018
USD loan	$5,600,000	4,145	2.65389	28 Feb. 2018
USD loan	$4,000,000	2,961	2.68000	22 Mar. 2018
USD loan	$4,700,000	3,480	2.65167	02 Feb. 2018
Total		12,786

A commitment fee is calculated at 0.35 per cent per annum, if the unutilised amount equals or exceeds 50 per cent of the total commitment; or 0.45 per cent per annum if the unutilised amount is less than 50 per cent of the total commitment.

In the opinion of the Directors, the fair value of the bank loans is not materially different to their amortised costs.

12.       Dividend

The dividend relating to the period ended 30 November 2017, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below:

	Pence per	Total for period ended 30 November 2017	Allocation against special reserve	Allocation against revenue reserve
	Ordinary share	£'000	£'000	£'000
Interim dividend - paid	1.75p	3,382	3057	325
Final dividend - payable	1.75p	4,611	4,540	71
	3.50p	7,993	7,597	396

The Directors recommend the payment of a final dividend for the period of 1.75p per share. Subject to approval at the Company's Annual General Meeting, the dividend will have an ex-dividend date of 22 February 2018 and will be paid on 29 March 2018 to shareholders on the register at 23 February 2018. The dividend will be funded from the Company's distributable reserves as per the table above.

13.        Share capital

As at	2017	2017
	No. of Shares	£'000
Allotted, issued and fully paid:
Redeemable Ordinary Shares of 1p each  ('Ordinary Shares')	259,569,268	2,596
Management Shares of £1 each	50,001	13
Total	259,619,269	2,609

On incorporation, the issued share capital of the Company was 1 Ordinary Share of 1 penny issued to the subscriber to the Company's memorandum. On 2 November 2016, the Company's issued share capital was increased by £50,000 represented by 50,000 Management Shares of nominal value £1.00 each, which were subscribed for by the Portfolio Manager of which one quarter of the nominal value is fully paid up. This Ordinary Share was subsequently redesignated prior to the Company's listing and an additional Management Share was issued.

On 2 December 2016, 150,000,000 Ordinary Shares were allotted and issued to shareholders as part of the placing and offer for subscription in accordance with the Company's prospectus dated 10 November 2016. A further 109,569,268 Ordinary Shares have been allotted, issued and fully paid between 2 December 2016 and 30 November 2017.

Since 30 November 2017, a further 3,900,000 Ordinary Shares have been issued raising aggregate proceeds of £4,507,500.

The Ordinary Redeemable Shares have attached to them full voting, dividend and capital distribution (including on winding-up) rights.  They confer rights of redemption.

The Management Shares do not carry a right to receive notice of, or attend or vote at any general meeting of the Company unless no other shares are in issue at that time. The Management Shares have been treated as equity in accordance with the requirements of IFRS. Management Shares shall not confer the right to participate in any surplus remaining following payment of such amount.

In accordance with the Company's Prospectus, the Company have the right to issue C Shares of nominal value 10 pence each pursuant to any Subsequent Issue under the Share Issuance Programme. The Company had no C Shares in issue during the period to 30 November 2017.

14.        Special distributable reserve

As indicated in the Company's prospectus dated 10 November 2016, following admission of the Company's Ordinary Shares to trading on the London Stock Exchange, the Directors applied to the Court to cancel the share premium account so as to create a new special distributable reserve which may be treated as distributable reserves and out of which tender offers and share buybacks may be funded. This reserve may also be used to fund dividend payments.

Following approval by the Court, the cancellation became effective on 3 May 2017 and an amount of £146,412,136 was transferred to the above special reserve at that time.

On 3 August 2017 a dividend payable of 1.75p per share was paid, of which £3,057,000 was allocated against the Special distributable reserves.

15.        Distributable reserves

The Company's distributable reserves consist of the special distributable reserve, capital reserve and revenue reserve.

The Company can use its distributable reserves to fund dividends, redemptions of Ordinary Shares and share buy backs.

16.        Net assets per ordinary shares

Net assets per ordinary share as at 30 November 2017 is based on £299,613,000 of net assets of the Company attributable to the 259,569,268 Ordinary Shares in issue (excluding treasury shares) as at 30 November 2017. £12,500 of net assets as at 30 November 2017 was attributable to the Management Shares.

17.        Related party transactions

Fees payable to the Portfolio Manager are shown in the Statement of Comprehensive Income. As at 30 November 2017, the fee outstanding to the Portfolio Manager was £237,000.

Since commencement of operations on 2 December 2016 fees have been payable at an annual rate of £40,000 to the Chairman, £32,500 to the Chair of the Audit Committee, £30,000 to the Chair of the Management Engagement Committee and £27,500 to the other Directors. Net fees payable to the Directors, other than the US resident Director, Siddhartha Mukherjee, are settled in Ordinary Shares quarterly, using the prevailing market price per share at the relevant quarter end.

18.        Post balance sheet events

 There are no post balance sheet events, other than those disclosed in Note 13.

DIRECTORS' SHARES

	Ordinary Shares as at 30 November 2017	Ordinary Shares as at 13 February 2018
Professor Justin Stebbing*	14,833	18,915
Josephine Dixon	37,318	40,634
Randeep Grewal	36,418	39,479
Paul Southgate	35,567	38,373
Siddhartha Mukherjee	25,000	25,000

*restated from previously reported position

Financial information

This announcement does not constitute the Company's statutory accounts.  The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting.   The auditors have reported on the accounts for the period ended 30 November 2017, their report was unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.

The Annual Report for the year ended 30 November 2017 was approved on 13 February 2018.  The report will be available in electronic format on the Company's website, http://www.bbhealthcaretrust.com.

 The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.

Annual General Meeting

The Annual General Meeting will be held on 22 March 2018 at 11 a.m. at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.

Secretary and registered office:

PraxisIFM Fund Services (UK) Limited

Mermaid House

2 Puddle Dock

London

EC4V 3DB

For further information contact:

Anthony Lee / Ciara McKillop

PraxisIFM Fund Services (UK) Limited

Tel: [phone]

END

 

END

 

 

FR FKNDKBBKBQBD