Final Results

RNS Number : 6883P

Polar Capital Global Financials Tst

12 February 2019

 

POLAR CAPITAL GLOBAL FINANCIALS TRUST PLC

Legal Entity Identifier: 549300G5SWN8EP2P4U41

AUDITED ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED

30 NOVEMBER 2018

FINANCIAL HIGHLIGHTS

Performance (Sterling total return)		For the year ended 30 November 2018 %	Since Inception %
Net asset value per ordinary share (note 1)		-1.5	68.0
Ordinary share price (note 2)		-1.7	53.0
Ordinary share price including subscription share value (note 3)		-	56.4
Benchmark MSCI World Financials + Real Estate Net Total Return Index (note 4)		-0.1	68.5
Other Indices and peer group (in Sterling)
MSCI World Index		6.1	87.1
S&P 500 Index		12.6	128.1
Eurostoxx 600 Index		-4.2	48.0
FTSE All Share Index		-1.5	39.2
Lipper Financial Sector (note 5)		-3.9	47.9
Financials	30 November 2018	30 November 2017	% Change
Total net assets	£280,984,000	£293,292,000	-4.2
Net assets per ordinary share	138.6p	144.6p	-4.2
Ordinary share price	132.0p	138.2p	-4.5
Discount per ordinary share	-4.8%	-4.4%
Gearing	2.1%	1.9%
Ordinary shares in issue	202,775,000	202,775,000	-
Total dividend per ordinary share	4.15p	3.90p	+6.4
Expenses
Ongoing Charges (note 6)	0.99%	0.99%

Dividends

The Company has paid or declared the following dividends relating to the financial year ended 30 November 2018:

Pay date	Amount per ordinary share	Record date	Ex-date	Declared date
First Interim: 31 August 2018	2.25p	20 July 2018	19 July 2018	4 July 2018
Second Interim: 28 February 2019	1.90p	8 February 2019	7 February 2019	23 January 2019
Total (2017: 3.90p)	4.15p

Note 1    The total return NAV performance for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the initial NAV of 98p and the NAV on 30 November 2018. Dividends are deemed to be reinvested on the ex-dividend date as this is the protocol used by the Company's benchmark and other indices.

Note 2    The total return share price performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date. Performance since inception has been calculated using the launch price of 100p and the closing price on 30 November 2018.

Note 3    The total return share price performance since inception includes the value of the subscription shares issued free of payment at launch on the basis of 1 for 5 ordinary shares and assumes such were held throughout the period from launch to the conversion date of 31 July 2017. Performance is calculated by reinvesting the dividends in the shares of the Company from the relevant ex-dividend date and uses the launch price of 100p per ordinary share and the closing price per ordinary share on 30 November 2018.

Note 4    The Benchmark was the MSCI World Financials Index to 31 August 2016 and was changed to the MSCI World Financials Index + Real Estate for all periods from 1 September 2016. 

Note 5    Dynamic average of open ended funds in the Lipper Financial Sector universe which comprised 56 open ended funds in the year under review.

Note 6    Ongoing charges represents the total expenses of the Company, excluding finance costs, expressed as a percentage of the average daily net asset value, calculated in accordance with AIC guidance issued in May 2012. From 3 January 2018, the date of implementation of the MiFID II regulation, the research cost borne by the Company is included in the ongoing charges calculation.

Data sourced by HSBC Securities Services Limited, Polar Capital LLP and Lipper.

 

CHAIRMAN'S STATEMENT

Dear Shareholders

On behalf of the Board I am pleased to submit the Company's Annual Report for the year to 30 November 2018, the Trust's fifth full financial year. To paraphrase a sporting cliché, this has been a year of two halves. In my interim statement in July 2018 I referred to the better global economic background and improving sentiment towards the sector that characterised much of the first half of the Trust's financial year. However, as 2018 closed new concerns over the global growth outlook coupled with pockets of political uncertainty infected general equity market sentiment to which the financial sector was not immune. Our Manager has had to navigate these changing tides and, although NAV performance lagged the Company's benchmark index over the year, the portfolio has delivered a further year of strong earnings growth which has enabled the Company to increase the dividend meaningfully for the fifth year in a row.

At the time of writing the outcome of Brexit negotiations remains highly uncertain. The Board, with your Manager, has followed developments closely and discussed the risks associated with a variety of Brexit scenarios, including a no-deal outcome. The Board is comfortable that your Manager has managed these risks to its business and operating model so that it can continue to manage the Trust's portfolio effectively. The Board also takes comfort from the fact that the Trust has a global investment mandate.

Performance

It has been a topsy-turvy year for global equity markets. In sterling terms the MSCI World Index rose by 6.1% over the financial year. Yet, as the year ended, global equities were bordering on bear market territory. Financials reflected these wavering fortunes. Growing doubts over the sustainable pace of economic activity and the outlook for official interest rates and bond yields contributed to an underperformance by the Company's benchmark index, the MSCI World Financials Index plus Real Estate. After a roller coaster ride, the benchmark index ended broadly flat on the year.

In comparison the Company's NAV fell by 1.5% over the financial year. From launch to the recent year end, the Company has earned a net total return of 68.0% compared to a benchmark total return of 68.5%. Over this same period the Company's net total return has ranked 8th among a range of 48 open ended funds within the Lipper Financial Sector universe since launch of the Company.

Your Manager continued to add value through stock selection. However, the portfolio's overweight exposure to European stocks, largely focused on banks, and underweight exposure to US financials, in particular to REITs, contributed to the overall underperformance. Although currency exposure helped the value of the Company's portfolio in absolute terms, relative to the portfolio's benchmark currency made a small negative contribution. Currency exposure is a residual risk that arises from the Manager's bottom-up, stock selection investment style rather than from an active management decision.

Through the year your Manager has taken some action to mitigate portfolio risk relative to the benchmark, reducing the underweight and overweight positions in the US and Europe respectively, as well as lowering the Trust's leverage. Your Manager has also been using the recent market setback as an opportunity, for example by buying selectively in emerging markets and adding to our fixed income exposure following price declines.

Please refer to the Manager's report for more detailed information on investment policy and performance attribution.

Share Capital

Following the successful conversion in 2017 of subscription shares issued at launch, the Company's outstanding ordinary shares in issue at the start of the financial year was 202,775,000. No shares were redeemed or issued during the financial year under review. The Company's share price on 30 November 2018 was 132.0p (2017: 138.2p). The Company's market capitalisation at the financial year end was £267.7m (2017: £280.2m).

The Company's share price traded in a discount range of 0.8% to 7.4% throughout the year, ending at a discount of 4.8% compared to 4.4% at the start of the year. On balance the proximity of the Company's fixed life end date, expected to be in April 2020, balanced the deterioration in sentiment to the sector in the second half of the year.

The Company did not engage in any share buybacks during the year. The Board monitors the share price discount to NAV and market conditions and determines any appropriate action. The Board has reconfirmed its authority to the Manager to use its discretion to purchase further shares if necessary, in order to maintain a smooth market in the Trust's shares and where value can be added for shareholders.

Costs

The Board places a high priority on monitoring the Company's expenses. At launch we had estimated an ongoing charges ratio of 1.27% of net assets.  In our first financial period of five months to 30 November 2013, a ratio of 1.16% was achieved. This ratio has fallen steadily in each full year thereafter to a low of 0.99% at 30 November 2017.

Despite the increase in administrative costs related to significant new regulation requirements pertaining to MiFID II, PRIIPS and GDPR in particular, in the year to 30 November 2018 ongoing charges were maintained at 0.99% of net assets. A primary requirement of MiFID II is the unbundling of research costs previously included in transaction commissions.  As disclosed in last year's Annual Report, the Board reached agreement with the Manager that the cost of bespoke specialist research would be borne by the Trust while generic waterfront research would be paid for by the Manager. The budget agreed with the Manager was set at a rate to safeguard the availability of high value research in the interest of shareholders, while at the same time reducing transaction commissions so that the Trust's total NAV bore lower research costs overall. The research cost to be borne by the Trust has been included in the ongoing charges calculation. However, this is offset by a larger decline in transactions commissions and as a result, overall the Trust's NAV has benefitted. The Board has agreed to continue this arrangement for a further year.

Dividends

The Company aims to pursue a policy of dividend growth, although there is no guarantee that this can be achieved. The Board monitors, with the help of the Manager, the prospects for dividends from its equity holdings, interest income from cash and fixed income securities, and the potential to earn additional revenue from writing options. In its first full financial year the Company paid a total dividend of 3.1p per ordinary share as targeted at the time of the Company's launch. Since then the Company has raised the dividend in each financial year.

I am pleased to report that despite the significant increase in ordinary shares outstanding following the successful subscription share conversion in 2017, the Company will be increasing the total dividend for the latest financial year once again.  In August 2018 the Company paid an interim dividend of 2.25p per ordinary share. The Board has declared a further interim dividend of 1.90p per ordinary share payable to shareholders on the register as at 8 February 2019. This will bring the total dividend paid for the financial year under review to 4.15p per ordinary share, an increase of 6.4% over the previous financial year. As a result, over the four years since the first full financial year payment, the Company has been able to grow its dividend by an average of 7.6% p.a.

Outlook

It is unusual for a discussion of the outlook for financials to begin with a focus on the broad political environment. However, as the Company enters a new financial year we see changing political paradigms wherever we look. An unorthodox populist Republican US President about to take on a Democratic controlled House; the changing nature of international relations from one defined by globalisation to new drivers of nationalism and bilateralism;  the rise across Europe of an increasingly strident nationalist, 'me-first' populism challenging post War Europeanism; power paralysis at the very heart of Europe from an apparent Brexit impasse, streets on fire in Paris, growing tensions between the EU and one of its largest core members, Italy, and a 'lame duck' Chancellor in Germany struggling to deal with the rise of the far right and a growing isolationist movement.

This political backdrop, coupled with doubts over global growth and its impact on interest rate expectations, has damaged sentiment broadly in global equity markets and for financials in particular. Banks, the asset management and life insurance sectors have all been casualties of the general market setback as the Company's financial year begins. Lay on top of that evidence of an institutionalized money laundering scandal spreading across Scandinavia and the Baltics and you have had a perfect storm for European banks in particular.

The Manager's report discusses the underperformance of the financials sector over the past year and concludes that this is overdone given the improving underlying fundamentals in the sector that we have highlighted before. Banks in particular have, in general, clearly strengthened balance sheets, replenished capital, and improved operational efficiency. Together with the passing of the peak in the decade long financially penal and burgeoning regulatory regime, the improving fundamentals have led to growing dividends and stock buybacks.

As is typical at the early stages of a transformational theme, Fintech has seen some spectacular successes and failures, extraordinary value creation and destruction. The bulk of the gains for the financial services industry remain ahead of us, whether in the form of greater operational leverage and more efficient business models, to profound new ways of offering and receiving financial services which will create new businesses and new products. This seems to be recognised by a number of open ended funds in our sector which have launched or changed their investment thesis to be solely focused on Fintech.

Banks make up by far the largest component of the sector and their fortunes are important to overall performance. Their underlying improving fundamentals, Fintech, further M&A activity, and the rolling back of regulation (in the US at least) are sources of opportunity. The recent market and sector setback has added compelling valuations to the case for financials - for example, as our Manager points out, European bank valuations are back to financial crisis levels.

Sector valuations may have to contend with further lower economic growth expectations. However, with the sector much better placed than for some time to withstand economic softening, the Board believes that current valuations present a favourable entry point into the sector. In the short term there are a number of catalysts which could support a re-rating of the sector from a resolution of political uncertainties in Europe and a relaxation of US - China trade tensions, to better economic data or a pick-up in inflation. Longer term, the improvement in operational efficiency and balance sheets leaves the sector in a good position to leverage stronger loan growth and better capital market conditions in the recovery phase of the next economic cycle.

With the fixed life end date of the Company a little over a year away, the Board will be discussing options and considering how best to reflect this opportunity on behalf of shareholders.

Annual General Meeting

The Company's sixth Annual General Meeting will be held at 12 noon on Thursday, 11 April 2019 at the offices of Polar Capital LLP, 16 Palace Street, London SW1E 5JD. This will give shareholders an opportunity to hear directly from your Manager and to meet the Board. My fellow Directors and I look forward to welcoming you there and discussing the performance of your Company. We very much value your support and feedback.

Robert Kyprianou

Chairman

11 February 2019

 

INVESTMENT MANAGER'S REPORT - FOR THE YEAR TO 30 NOVEMBER 2018

Performance

The year ended 30 November 2018 was a disappointing one for equity markets and only sterling's weakness against the US dollar resulted it in being a reasonably positive one for UK investors. It was a particularly frustrating period for the financials sector which fell 0.1% over the course of the year under review as illustrated by our benchmark index, the MSCI World Financials Index + Real Estate Net Total Return Index. Against this background the Trust's net asset value total return over the period was -1.5%.

Investment performance was strong in the first three months, albeit we gave back this performance over the remainder of the year as European financials, where the Trust has a higher weighting than our benchmark, sold off and conversely real-estate investment trusts (REITs) rallied. The underperformance was driven by an underweight position in Japan and overweight positioning in Europe, as highlighted above, partially offset by good stock selection. Currency was also a small headwind for performance reflecting a lower weighting to the US dollar.

The biggest contributors to performance in part reflected the fact that US financials had performed relatively well globally while European financials had performed extremely poorly. As a result, the Trust's best performing holdings included Mastercard, the payments company, JP Morgan, the Trust's largest holding, and Bank of America. The biggest detractors included ING Groep, the Dutch bank and also one of the largest holdings in the Trust's portfolio, BNP Paribas, the French bank and Santander, the Spanish banking group.

Investment Review

Financials had a strong start to the financial year. The two biggest pieces of news in December 2017 were the passing of US tax reform and the announcement of Basel 4 rules on what final capital requirements for banks globally would be, bringing a conclusion to post financial crisis reforms for the banking sector. US tax reform was seen as being very beneficial for earnings and while there was an upfront hit to capital for some companies as the value of their deferred tax assets were reduced, this did not affect companies' ability to return capital to shareholders.

The outlook for interest rates is an important driver for the banks sector as it has historically been positively correlated to bond yields and therefore interest rate expectations. All things being equal, higher interest rates lead to wider net interest margins and therefore improved profitability. Positive economic data at the start of 2018 led to an expectation for interest rate rises being pulled forward which helped underpin the performance of the sector, in particular US banking stocks.

Nevertheless, there was a sharp correction in equity markets at the beginning of February as concerns mounted that rising inflation could prompt the Federal Reserve to accelerate the pace of interest rates hikes. The sell-off was exacerbated by the collapse of a number of structured products that sold volatility derivatives. Surprisingly financials outperformed against this background, likely reflecting the sector being seen as a beneficiary of higher interest rates which were perceived as the reason behind the correction.

Financials at this point started to underperform. Trade tariffs imposed on certain Chinese imports into the US and the departure of Secretary of State, Rex Tillerson, as well as Gary Cohn, Director of National Economic Council, added to concerns over an increasingly protectionist direction of policy by the Trump administration. The consequence of this led to interest rate expectations softening, adding to already weaker sentiment following a fall in leading economic indicators.

In May, equity markets were then hit by the political uncertainty in Italy, around the formation of a new government, and to a lesser extent Spain as well as signs of stress within certain emerging markets. The decision by the Italian president not to approve the appointment of an anti-euro finance minister in the proposed cabinet put forward by the leaders of the Five Star Movement and League parties raised concerns that fresh elections would be called which could lead to anti-euro sentiment in Italy rising. European financials and in particular Italian banks were sharply weaker on the back of this as Italian government bonds sold off sharply.

A sell-off in Turkish financial markets in August on the back of rising tensions between the US and Turkey put more pressure on an already weakened Turkish lira. This led to further weakness in European and emerging markets. The Trust has no exposure to Turkish financials, but a number of European banks have subsidiaries in the country and their exposure, while limited, was sufficient to undermine sentiment towards the sector.

Financials came under severe pressure in October on the back of a sharp correction in equity markets. The sell-off in European financials intensified with broader macro concerns compounded by uncertainty related to the Italian government's confrontation with the EU and Brexit negotiations. An escalating money laundering scandal at Danske Bank, Denmark's largest bank, not held in the Trust, due to weak anti-money laundering controls in its Estonian branch also hit sentiment as this led to other Scandinavian banks coming under suspicion.

Emerging market financials were weak over the year. In India, a number of non-bank financials suffered sharp falls in their share prices on the back of funding concerns as a private infrastructure development and finance company missed a number of debt payments. This raised the spectre of a wider problem of solvency and liquidity, with particular concern focused on housing finance companies because of their assets/liabilities mismatch.

While banks globally performed poorly, asset management stocks also suffered sharp falls in share prices with few exceptions although, as with banks, the majority of the fall was driven by a derating of share prices as opposed to negative earnings revisions. Life assurance companies similarly were weak, reflecting their sensitivity to financial markets.

Conversely, non-life insurance companies, having underperformed in the first half, performed better reflecting their more defensive characteristics. REITs also performed relatively well despite the headwind of rising interest rates expectations and bond yields for most of the year. The sub-sector benefited from increased demand for logistics and industrial properties albeit offset by the poor performance of some retail REITs, especially in the UK.

Credit did not perform well last year despite the fundamentals of the sector remaining resilient and saw further weakness in November. Some of this weak performance was a reflection of yields having fallen so low at the beginning of 2018 and having to correct, but post that bonds continued to drift lower. In part this reflects the fact that due to higher capital requirements, investment banks put less capital behind their trading books post the financial crisis. This has resulted in less liquidity being provided to bond markets and therefore the recent outflows from bond funds having a bigger impact on bond prices.

Over the year we reduced the Trust's exposure to Europe, selling holdings in Alpha Bank, a Greek bank, AXA, a French insurer, Société Générale, a French bank, and Skandiabanken, a Norwegian bank. We also reduced a number of other holdings, albeit we increased our exposure to Spain by purchasing a holding in Caixabank. As a result, exposure to European financials reduced to 20.1% from 26.0% at the beginning of the year.

Offsetting this reduction, we increased exposure primarily to US financials, rising to 41.8% of the portfolio, but also Japanese financials, where the Trust has been very underweight, by purchasing a holding in Mitsubishi UFJ Financial. We also took the opportunity to add to our fixed-income holdings on the back of weakness in bond prices, adding to bonds issued by Amigo Holdings, the leading UK unsecured guarantor loan company, and subordinated bonds issued by Aegon, a Dutch insurer.

The increase in US exposure came from, amongst others, adding to our holdings in JP Morgan, Bank of America, Citizens Financial Group and Arch Capital, a US listed property & casualty insurance company. These purchases more than offset the sale of a holding in Validus, a US property & casualty insurance business, following the announcement it had agreed to be taken over by AIG. We also sold Meta Financial, a South Dakota based bank, and reduced our holding in Marsh & McLennan, the insurance broker.

We have started to increase selectively our exposure to emerging markets. At launch in 2013 the Trust had over 20% of its portfolio invested in emerging markets although this was reduced relatively quickly. We have used the recent weakness to purchase holdings in AIA Group, the life assurance company, and Standard Chartered, the UK-listed emerging markets bank while selectively adding to a couple of our Indian bank and non-bank financial holdings. At the end of the period 7.3% of the portfolio was invested in emerging market financials.

FinTech

The outperformance of technology shares last year, even after the correction in the sector, has been limited to a small number of companies in the financial sector, almost exclusively in the payments space, which has benefited from a significant rise in valuations. While incumbent banks and insurers are embracing technology to varying degrees, the impact on their businesses for the most part has yet to feed through to better operational leverage but there remains significant potential.

The threat to the banking sector from start-ups that are perceived to have disruptive businesses has seen very high valuations put on businesses. In the UK, Revolut and Monzo, both start-up banks, were valued at in excess of US$1 billion in their most recent fundraisings despite negligible revenues. Funding Circle, the peer-to-peer lender and a more mature business, albeit unprofitable, floated on the London Stock Exchange with a value of £1.5 billion.

In the payments space, Adyen, a Dutch payments business, floated with a valuation of over €7 billion soaring over 80% on its first day of dealing and putting it on a P/E valuation of over 100x. However, many of these stocks have seen their shares similarly fall substantially from the highs they attained in September. Funding Circle's shares have also fallen sharply post its IPO, rumoured to have been driven by staff selling shares.

M&A

We have continued to see M&A activity. In the insurance sector, other than the acquisition of Validus mentioned above, AXA announced the acquisition of XL Group, another property & casualty insurance business, and Marsh & McLennan announced the acquisition of Jardine Lloyd Thomson, the UK insurance broker. Private equity firms have taken esure, the UK motor insurer, and Aspen, a Bermudan insurer and reinsurer private.

In the banking sector we have seen a small pick-up in activity in the US and similarly in the UK, with CYBG, the owner of Clydesdale and Yorkshire Banks acquiring Virgin Money.  There have also been a number of acquisitions in the REIT sector, notably Unibail-Rodamco, one of Europe's largest retail REITs acquiring Australian listed Westfield, a shopping centre focused REIT; similarly private equity firms have made several bids to take listed property companies private.

Sector Underperformance

Up until March the banking sector's correlation with bond yields was extremely high reflecting the sensitivity of the sector to interest rates and expected changes in profitability. This correlation then broke down markedly over the remainder of the year with banking stocks failing to perform despite the more benign outlook for the sector. In the first half, the non-life insurance sector underperformed equity markets and with banks also starting to underperform in the second quarter, the simultaneous underperformance appeared incongruous.

The underperformance of UK and European banks is understandable over the year, due to concerns around Brexit negotiations, Italian politics, weaker economic outlook and greater exposure to certain emerging markets. Conversely the poor performance of US banks and banks in most other markets, Canada being one of the few exceptions, was much less understandable.

But what has surprised many commentators is the degree of underperformance. It has been suggested that indirect impact of quantitative tightening i.e. the withdrawal of excess central bank liquidity from the financial system is resulting in rising wholesale funding costs for the banking sector. While this is true the rise is very low by historical standards when looking at indicators such as the TED spread (difference between US 3-year month government bond yields and 3-month LIBOR).

A simpler explanation is that investors have turned significantly more cautious on the outlook and have increased concerns about the impact of a downturn in the credit cycle. Improved performance of non-life insurance stocks and other defensive sectors such as healthcare, consumer staples and utilities versus the weaker performance from more economically sensitive sectors such as banks, industrials and consumer discretionary stocks would support this view. The degree of underperformance suggests that investors are unwilling to believe the sector can generate reasonable earnings in a downturn.

Outlook

Looking back, the reasons for the banking sector's underperformance post the financial crisis up until a couple of years ago are easily understandable. The significant increase in capital requirements, regulatory costs, conduct issues and litigation, on top of a shallower economic recovery than previous cycles and finally an interest rate environment that has put significant pressure on net interest margins together are unprecedented.

But the degree of underperformance against underlying equity markets over the last year looks anomalous. Valuations have fallen sharply. For example, US, European and Japanese banks have seen their valuations on a P/E basis for 2019 fall by between 25-40% to less than 9.0x, 7.7x and 7.1x respectively, suggesting a far more substantial fall in earnings over the next few years than we believe is likely.

Nevertheless, in the short-term there is a lack of catalysts for banks to rerate until the outlook stabilises. US and European banks, where the largest percentage of the portfolio resides, have produced steady results with US banks seeing a significant boost to their earnings from the fall in corporate tax rates. Loan growth though has not picked up as expected, with increased competition in the US from non-bank lenders.

Asset quality, outside some emerging markets such as India and Turkey, remains resilient and, if anything, has continued to surprise by being better than expected, reflecting the relatively benign macro background. It is likely that in the next downturn more losses will occur off-balance sheets where direct or non-bank lenders have taken on more risk than banks as the latter no longer want to take certain risks or are no longer allowed by regulators to do so.

The underlying trend of banks continuing to return capital to shareholders through buybacks and dividends has continued and with significantly more clarity on the outlook for capital requirement this should help to underpin sentiment towards the banking sector. Bank balance sheets remain solid, particularly in the US where one would have to go back to the 1930s to find a time when banks had more capital than they do today.

In the US, after receiving Senate approval, the House of Representatives, earlier in the year, approved a series of banking reforms which roll back part of the Dodd-Frank post financial crisis legislation and continues a trend of gradual easing in financial regulation. One of the key aspects of the bill is a reform to increase the threshold for a bank to qualify as systemically important (raised to US$250bn in assets from US$50bn previously) which will materially reduce the cost of regulation for smaller banks.

Over the next couple of years, we expect to see a pick-up in M&A activity in the US. There are still around 5,000 banks in the US, a reduction from some 12,000 prior to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which lifted the restrictions on banks operating across state borders. One of the key drivers for increased activity will be the need for smaller banks to compete with their much larger peers where they are being outspent on technology. Mergers between large banks remain unlikely.

We remain constructive on the sector and while the short-term outlook remains uncertain and the sector is not without risk, it is vastly better capitalised than the last time it went into a downturn and shares have fallen to extremely low levels so offering tremendous value. The Trust is not just invested in the banking sector, but as the majority of the portfolio is invested there, that will be the key driver of performance.

The Financial Times' influential Lex Column discussing US banks in December stated, "The banks' harshest critics worry that the economy is slowing. If so, that will trigger the dual effects of both the Fed backing off rate rises in 2019 and increasing losses. But the probability of this worst-case scenario does not quite match up with such low equity valuations. Unless one just hates the banks".

As if on cue, in January, the Federal Reserve backed down on its hawkish commentary about interest rates and the speed with which it would reduce its balance sheet. Equity markets have rallied sharply and with them financial shares have performed well. Nevertheless, the rally has not removed the large discount the sector trades at to the underlying equity market and we would argue that even if not hated the sector remains unloved, undervalued and misunderstood.

Nick Brind & John Yakas

11 February 2019

Note

We would draw shareholders attention to http://www.polarcapitalglobalfinancialstrust.co.uk/ for regular monthly portfolio updates and commentary. *index performance figures are total return in sterling

 

Portfolio - As at 30 November 2018

Ranking				Geographical	Market Value £'000		% of total net assets
2018	(2017)	Stock	Sector	Exposure	2018	2017	2018	2017
1	(1)	JP Morgan Chase	Banks	North America	16,756	14,315	6.0%	4.9%
2	(2)	Bank of America	Banks	North America	12,397	11,209	4.4%	3.8%
3	(5)	CHUBB	Insurance	Europe	8,666	8,939	3.1%	3.0%
4	(6)	Citigroup	Banks	North America	7,952	8,404	2.8%	2.9%
5	(10)	Mastercard	Software & Services	North America	7,780	6,050	2.8%	2.1%
6	(4)	Wells Fargo	Banks	North America	7,688	9,351	2.7%	3.2%
7	(14)	Sumitomo Mitsui Financial	Banks	Japan	7,148	5,630	2.5%	1.9%
8	(8)	PNC Financial Services	Banks	North America	6,772	6,369	2.4%	2.2%
9	(11)	Toronto-Dominion Bank	Banks	North America	6,413	5,965	2.3%	2.0%
10	(17)	US Bancorp	Banks	North America	6,375	5,092	2.3%	1.7%
Top 10 investments					87,947		31.3%
11	(13)	KBC Groep	Banks	Europe	6,244	5,898	2.2%	2.0%
12	(9)	Marsh & McLennan	Insurance	North America	6,226	6,340	2.2%	2.2%
13	(50)	Arch Capital	Insurance	North America	6,177	2,914	2.2%	1.0%
14	(19)	Oversea-Chinese Banking	Banks	Asia (ex-Japan)	5,858	5,074	2.1%	1.7%
15	(16)	Keycorp	Banks	North America	5,785	5,400	2.0%	1.9%
16	(18)	Swedbank	Banks	Europe	5,702	5,077	2.0%	1.7%
17	(12)	Sampo	Insurance	Europe	5,487	5,945	2.0%	2.0%
18	(23)	Allianz	Insurance	Europe	4,994	4,517	1.8%	1.5%
19	(49)	Citizens Financial Group	Banks	North America	4,954	2,930	1.8%	1.0%
20	(15)	First Republic Bank	Banks	North America	4,938	5,431	1.8%	1.9%
Top 20 investments					144,312		51.4%
21	(3)	ING Groep	Banks	Europe	4,808	9,958	1.7%	3.4%
22	(21)	Banco Santander	Banks	Europe	4,634	4,926	1.6%	1.7%
23	(29)	Blackstone	Diversified Financials	North America	4,520	4,008	1.6%	1.4%
24	(26)	Solar Capital	Diversified Financials	North America	4,366	4,151	1.6%	1.4%
25	(39)	E Sun Financial	Banks	Asia (ex-Japan)	4,100	3,335	1.5%	1.1%
26	(34)	Ares Capital	Diversified Financials	North America	4,094	3,673	1.4%	1.3%
27	(20)	Pacific Premier Bancorp	Banks	North America	4,061	5,067	1.4%	1.7%
28	(7)	BNP Paribas	Banks	Europe	4,047	8,350	1.4%	2.8%
29	(33)	Mapletree Commercial	Real Estate	Asia (ex-Japan)	4,045	3,719	1.4%	1.3%
30	(30)	SVB Financial	Banks	North America	3,927	3,899	1.4%	1.3%
Top 30 investments					186,914		66.4%
31	(25)	Commonwealth Bank of Australia	Banks	Asia (ex-Japan)	3,844	4,397	1.4%	1.5%
32	(41)	East West Bancorp	Banks	North America	3,777	3,229	1.3%	1.1%
33	(52)	HDFC Bank	Banks	Asia (ex-Japan)	3,468	2,782	1.2%	0.9%
34	(27)	Fortune REIT	Real Estate	Asia (ex-Japan)	3,453	4,137	1.2%	1.4%
35	-	CaixaBank	Banks	Europe	3,446	-	1.2%	-
36	(28)	UBS Group	Banks	Europe	3,385	4,085	1.2%	1.4%
37	(24)	Intesa Sanpaolo	Banks	Europe	3,279	4,488	1.2%	1.5%
38	(42)	Atom Bank (unquoted)	Banks	United Kingdom	3,191	3,191	1.1%	1.1%
39	(47)	VPC Specialty Lending Investments	Fixed Income	Fixed Income	3,141	3,044	1.1%	1.0%
40	(31)	Direct Line Insurance	Insurance	United Kingdom	3,068	3,734	1.1%	1.3%
Top 40 investments					220,966		78.4%
41	(38)	HSBC Holdings	Banks	Asia (ex-Japan)	3,042	3,352	1.1%	1.1%
42	(37)	Tisco Financial	Banks	Asia (ex-Japan)	3,041	3,479	1.1%	1.2%
43	(51)	Frasers Centrepoint Trust	Real Estate	Asia (ex-Japan)	2,858	2,808	1.0%	1.0%
44	(44)	Nationwide Building Society 10.25% CCDS	Fixed Income	Fixed Income	2,811	3,140	1.0%	1.1%
45	(58)	P2P Global Investments	Fixed Income	Fixed Income	2,786	2,310	1.0%	0.8%
46	(57)	International Personal Finance 5.75% Bond	Fixed Income	Fixed Income	2,781	2,495	1.0%	0.9%
47	-	Standard Chartered	Banks	United Kingdom	2,717	-	1.0%	-
48	(40)	BOC Hong Kong	Banks	Asia (ex-Japan)	2,693	3,295	0.9%	1.1%
49	-	Bank of N. T. Butterfield	Banks	North America	2,666	-	0.9%	-
50	(43)	TBC Bank	Banks	Eastern Europe	2,606	3,177	0.9%	1.1%
Top 50 investments					248,967		88.3%
51	-	Mitsubishi UFJ	Banks	Japan	2,523	-	0.9%	-
52	(55)	City of London Investment Group	Diversified Financials	United Kingdom	2,451	2,645	0.9%	0.9%
53	(59)	Sparebank SMN	Banks	Europe	2,443	2,270	0.9%	0.8%
54	(68)	DNB	Banks	Europe	2,422	1,423	0.9%	0.5%
55	(53)	Indiabulls Housing Finance	Banks	Asia (ex-Japan)	2,397	2,758	0.9%	0.9%
56	(36)	Lloyds Banking Group	Banks	United Kingdom	2,392	3,537	0.9%	1.2%
57	(61)	Pennant Park Floating Rate Capital	Diversified Financials	North America	2,384	2,167	0.8%	0.7%
58	(60)	Aldemore Group Plc 8.5% Bond	Fixed Income	Fixed Income	2,204	2,213	0.8%	0.8%
59	(45)	OneSavings Bank	Banks	United Kingdom	2,077	3,132	0.7%	1.1%
60	-	AIA Group	Insurance	Asia (ex-Japan)	1,950	-	0.7%	-
Top 60 investments					272,210		96.7%
61	(56)	Charter Court Financial Services	Banks	United Kingdom	1,887	2,522	0.7%	0.9%
62	(35)	Arrow Global Group	Diversified Financials	United Kingdom	1,876	3,663	0.7%	1.3%
63	(63)	Phoenix Life 7.25% Bond	Fixed Income	Fixed Income	1,749	1,887	0.6%	0.6%
64	-	Aegon Floating Rate Bond	Fixed Income	Fixed Income	1,652	-	0.6%	-
65	-	IntegraFin	Diversified Financials	United Kingdom	1,559	-	0.6%	-
66	-	Amigo Luxembourg 7.625% Bond	Fixed Income	Fixed Income	1,461	-	0.5%	-
67	-	Amigo	Diversified Financials	United Kingdom	1,355	-	0.5%	-
68	(70)	Pension Insurance 6.5% Bond	Fixed Income	Fixed Income	1,066	1,128	0.4%	0.4%
69	(72)	International Personal Finance 6.125% Bond	Fixed Income	Fixed Income	871	886	0.3%	0.3%
70	-	Augmentum FinTech	Diversified Financials	United Kingdom	738	-	0.3%	-
Total investments					286,424		101.9%
Other net liabilities					(5,440)		(1.9%)
Total net assets					280,984		100.0%

Geographical Exposure*	30 November 2018	30 November 2017
North America	46.1%	42.3%
Europe	21.2%	26.7%
Asia (ex-Japan)	14.5%	13.7%
United Kingdom	8.5%	8.9%
Fixed Income	7.3%	7.2%
Japan	3.4%	1.9%
Eastern Europe	0.9%	0.4%
Latin America	-	0.6%
Other net liabilities	(1.9%)	(1.7%)
Total	100.0%	100.0%

Sector Exposure*	30 November 2018	30 November 2017
Banks	66.7%	65.5%
Insurance	13.1%	13.5%
Diversified Financials	8.4%	9.7%
Fixed Income	7.3%	7.2%
Real Estate	3.6%	3.7%
Software & Services	2.8%	2.1%
Other net liabilities	(1.9%)	(1.7%)
Total	100.0%	100.0%

Market Cap*	30 November 2018	30 November 2017
Large (>US$5bn)	82.9%	80.0%
Medium (US$0.5bn - US$5bn)	14.9%	19.6%
Small (<US$0.5bn)	4.1%	2.1%
Other net liabilities	(1.9%)	(1.7%)
Total	100.0%	100.0%

* Based on the net assets as at 30 November 2018 of £281.0m (2017: £293.3m)
 

STRATEGIC REPORT

The Strategic Report Section of this Annual Report comprises the Chairman's Statement, the Investment Manager's Report, including information on the portfolio and this Strategic Report. It has been prepared solely to provide information to shareholders on the Company's strategies and potential for those strategies to succeed, including a fair review of the strategy and performance of the Company during the year ended 30 November 2018, including a description of the principal risks and uncertainties. The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith, based on the information available to them at the time of their approval of this report and such statements should be treated with caution, due to inherent uncertainties, including both economic and business risk factors underlying any such forward looking statements.

Business Model and Regulatory Arrangements

The Company's business model follows that of an externally managed investment trust, and its investment objective is set out below. Its shares are listed on the main market of the London Stock Exchange.

The Company is designated an Alternative Investment Fund ('AIF') under the Alternative Investment Fund Managers Directive ('AIFMD') and as required by the Directive, has contracted Polar Capital LLP to act as the Alternative Investment Fund Manager ('AIFM') and HSBC Bank plc to act as the Depositary.

Both the AIFM and the Depositary have responsibilities to ensure that the assets of the Company are managed in accordance with the investment policy and are held in safe custody. The Board remains responsible for setting the investment strategy and operational guidelines as well as meeting the requirements of the applicable UK and European legislation, including the Listing Rules of the Financial Conduct Authority and the Companies Act. Statements from the AIFM and the Depositary can be found on within the Annual Report.

The Company seeks to manage its portfolio in such a way as to meet the tests set down in Sections 1158 and 1159 of the Companies Tax Act 2010 (as amended by section 49(2) of the Finance Act 2011) and continue to qualify as an investment trust. This qualification permits the accumulation of capital within the portfolio without any liability to UK Capital Gains Tax. Further information is provided in the Directors' Report.

The Company has no employees or premises and the Board is comprised of Non-executive Directors. The day to day operations and functions have all been delegated to third parties.

Future Developments

The Articles of Association require the Directors to put forward, at the Annual General Meeting of the Company in 2020, a resolution to place the Company into liquidation. The voting on that resolution will be enhanced such that, provided any single vote is cast in favour, the resolution will be passed. The Board remains positive on the longer-term outlook for the global financials sector and the Company will continue to pursue its investment objective in accordance with the stated investment policy and strategy. Future performance is dependent, to a significant degree, on the world's financial markets and their reactions to economic events and other geo-political forces as well as the regulatory environment. The Chairman's Statement and the Investment Manager's Report comment on the business, the outlook and threats.

The Board

As the day to day management of the Company is outsourced to service providers, the Board focuses at each meeting on performance, including the outlook, strategy and management of the service providers and the risks inherent in the various matters reviewed.

Service Providers

Polar Capital LLP has been appointed to act as Investment Manager and AIFM as well as to provide or procure company secretarial and administrative services, including accounting, portfolio valuation and trade settlement, which it has arranged to deliver through HSBC Securities Services.

The Company also contracts directly with a number of third parties for the provision of specialist services:

·      HSBC Bank plc as Depositary;

·      Panmure Gordon & Co as Corporate Broker;

·      Equiniti Limited as Share Registrars;

·      PricewaterhouseCoopers LLP as Independent Auditors;

·      Emperor as Designers and Printers for shareholder communications; and

·      Huguenot Limited as Website Designers and internet hosting services.

Investment Objective and Policy

Objective

The Company's investment objective is to generate a growing dividend income together with capital appreciation by investing in a global portfolio of financials stocks.

Policy

The Company seeks to achieve its objective by investing primarily in a global portfolio consisting of listed or quoted securities issued by companies in the financials sector operating in banking, insurance, property and other sub-sectors.

The portfolio is diversified by geography, industry sub-sector and stock market capitalisation.

The Company may have a small exposure to unlisted and unquoted companies, but in aggregate, this is not expected to exceed 10% of total assets at the time of investment.

The Company will not invest more than 10% of total assets, at the time of investment, in other listed closed-ended investment companies and no single investment will normally account for more than 10% of the portfolio at the time of investment.

The Company may employ levels of borrowing from time to time with the aim of enhancing returns, subject to an overall maximum of 15% of net assets at the time the relevant borrowing is taken out. Actual levels of borrowing may change from time to time based on the Investment Manager's assessment of risk and reward.

The Company may invest through equities, index-linked and other debt securities, cash deposits, money market instruments, foreign currency exchange transactions, forward transactions, index options and other instruments including derivatives. Forward transactions, derivatives (including put and call options on individual positions or indices) and participation notes may be used to gain exposure to the securities of companies falling within the Company's investment policy or to seek to generate income from the Company's position in such securities, as well as for efficient portfolio management. Any use of derivatives for investment purposes is made on the basis of the same principles of risk spreading and diversification that apply to the Company's direct investments. The Company may hedge exposure to foreign currencies if considered appropriate for efficient portfolio management.

Benchmark

The Company compares the Investment Manager's performance against the MSCI World Financials + Real Estate Net Total Return Index, in Sterling with dividends reinvested ('the Benchmark'). This is used to measure the performance of the Company, which does not seek to replicate the index in constructing its portfolio. The portfolio may, therefore, diverge substantially from the constituents of this Index. Although the Company has a Benchmark, this is neither a target nor a determinant of investment strategy. The purpose of the Benchmark is to set out a reasonable measure of performance for shareholders and an appropriate base which, together with an additional hurdle, forms the level above which the Investment Manager earns a share of any outperformance it has delivered.

Performance and Key Performance Objectives

The Board appraises the performance of the Company and the Investment Manager as the key supplier of services to the Company against key performance indicators (KPIs). The objectives comprise both specific financial and shareholder related measures.

KPI	Control	Outcome
The provision of investment returns to shareholders measured by long-term NAV total return relative to the Benchmark Index and a comparator group.	The Board reviews at each meeting the performance of the portfolio and considers the views of the Investment Manager. The Board also receives monthly reports on performance against both the benchmark and a comparator group of peers.	The Company's NAV total return, over the year ended 30 November 2018, was -1.50% while the Benchmark Index over the same period was -0.12%. The Company ranked 8th of 48 open ended funds within the Lipper Financial Sector universe and 1st of 9 within the short comparator group of peers considered by the Board regularly.
The achievement of a progressive dividend policy.	Financial forecasts are reviewed to track income and distributions at each meeting.	A total of two interim dividends amounting to 4.15p (2017: 3.90p) per ordinary share have been paid or are payable in respect of the financial year ended 30 November 2018, representing an increase of 6.4% year on year. In line with the progressive dividend policy, since the first full year payment, the dividend has grown by an average of 7.6% each year.
Meeting the requirements of Sections 1158 and 1159 of the Corporation Tax Act 2010.	The Board receives regular financial information which discloses the current and projected financial position of the Company against each of the tests set out in Sections 1158 and 1159.	Investment trust status has been granted to the Company subject to the Company continuing to satisfy the conditions of Sections 1158 and 1159 of the Corporation Tax Act 2010. The Directors believe that the conditions have been met in respect of the year ended 30 November 2018 and they believe that the Company will continue to meet the requirements.
Monitoring and reacting to issues created by the discount or premium of the ordinary share price to the NAV per ordinary share with the aim of reducing volatility for shareholders.	The Board receives regular information on the composition of the share register including trading patterns and discount/premium levels of the Company's ordinary shares. The Board discusses and authorises the issue or buy back of shares when appropriate. A daily NAV per share, calculated in accordance with the AIC guidelines, is issued to the London Stock Exchange.	The discount of the ordinary share price to the NAV per ordinary share at the year end was 4.76% compared with the widest discount over the year ended 30 November 2018 of 7.36%, reached on 4 October 2018 and the narrowest discount of 0.81% reached on 23 March 2018. In the year ended 30 November 2018, the Company did not buy back any ordinary shares.
Monitoring and managing ongoing charges.	The Board receives regular financial information which discloses expenses against budget.	Ongoing charges for the year ended 30 November 2018 were 0.99% (year ended 30 November 2017: 0.99%).

Principal Risks and Uncertainties

The Board is responsible for the management of risks faced by the Company in delivering long-term returns to shareholders. The identification, monitoring and appraisal of the risks, any mitigating factors and control systems is crucial.

The Board maintains a Risk Map which seeks to identify and allocate risks to four main risk categories: Business, Portfolio Management, Infrastructure and External. The Risk Map details each identified risk and any factors, both internal and external, which could provide mitigation, as well as outlining the reporting structure which monitors and mitigates, as far as practicable, such risks. During the year, the Board continued to consider the market uncertainty specifically arising as a result of the UK referendum decision to leave the European Union.

Principal Business Risks and Uncertainties	Management of risks through Mitigation & Controls
Business
Failure to achieve investment objective, investment performance below agreed benchmark objective or market/industry average.	The Board seeks to manage the impact of such risks through regular reporting and monitoring of investment performance against a comparator group of open-ended funds, the Benchmark and other agreed indicators of relative performance. In months when the Board is not scheduled to meet, it receives a monthly report containing financial information on the Company including gearing and cash balances. Performance and strategy are reviewed throughout the year at regular Board meetings where the Board can challenge the Investment Manager. The Board also receives a monthly commentary from the Investment Manager in the form of factsheets for all the specialist financial sector funds managed by Polar Capital. The Board is committed to a clear communication programme to ensure shareholders understand the investment strategy. This is maintained through the use of monthly factsheets which have a market commentary from the Investment Manager as well as portfolio data, an informative and relevant website as well as annual and half year reports. The Management Engagement Committee considers the suitability of the Investment Manager on the basis of performance and other services provided.
Loss of portfolio manager or other key staff.	Key personnel are incentivised by equity participation in the investment management company.
Persistent excessive share price discount to NAV.	In consultation with its advisors, including the corporate stock broker, the Board regularly considers the level of the share price discount to the NAV and the Board reviews ways to enhance shareholder value including share issuance and buy backs. The Board believe that having a fixed life with a wind-up date in 2020 should help to limit discount volatility.
Portfolio Management
While the portfolio is diversified across a number of stock markets worldwide, the investment mandate is focused on financials and thus the portfolio is more sensitive to investor sentiment and the commercial acceptance of the sector than a general investment portfolio. The Company's portfolio is exposed to risks such as market price, credit, liquidity, foreign currency and interest rates. The portfolio is actively managed. The Investment Manager's style focuses primarily on the investment opportunity of individual stocks and, accordingly, may not follow the makeup of the Benchmark. This may result in returns which are not in line with the Benchmark. The degree of risk which the Investment Manager incurs in order to generate the investment returns and the effect of gearing on the portfolio by borrowed funds can magnify the portfolio returns per share positively or negatively.	The Board has set appropriate investment limits and monitors the position of the portfolio against such. These include guidelines on exposures to certain investment markets and sectors. The Board discusses with the Investment Manager at each Board meeting its views on the sector. At each Board meeting the composition and diversification of the portfolio by geographies, sectors and capitalisations are considered along with sales and purchases of investments. Individual investments are discussed with the Investment Manager as well as the Investment Manager's general views on the various investment markets and the financials sector in particular. Analytical performance data and attribution analysis is presented by the Investment Manager. The policies for managing the risks posed by exposure to market prices, interest rates, foreign currency exchange rates, credit and liquidity are set out in Note 26 to the financial statements. Investors have sight of the entire portfolio and geographic exposure of investments
Gearing, either through bank debt or the use of derivatives may be utilised from time to time. Whilst the use of gearing is intended to enhance the NAV total return, it will have the opposite effect when the return on the Company's investment portfolio is negative.	The arrangement of any new banking facilities and gearing limits under such arrangements are controlled by the Board. Derivatives are considered as being a form of gearing and their use has been agreed by the Board. The deployment of borrowed funds (if any) is based on the Investment Manager's assessment of risk and reward. At 30 November 2018 the Company was 2.1% geared (2017: 1.9%).
The ability to continue the dividend policy is compromised due to lower income or as a result of the currency exposure underlying the portfolio. This could result in a lower level of dividend being paid than intended or previously paid.	The Board monitors income and currency exposure through monthly management accounts and discussion.
Infrastructure
There are risks from the failure of, or disruption to, operational and accounting systems and processes provided by the Investment Manager including any subcontractors to which the Investment Manager has delegated a task as well as directly appointed suppliers. The mis-valuation of investments or the loss of assets from the custodian or sub custodians could affect the NAV per share or lead to a loss of shareholder value. There is taxation risk that the Company may fail to continue as an investment trust and suffer capital gains tax or fail to recover as fully as possible withholding taxes on overseas investments. The legal and regulatory risks include failure to comply with the FCA's Prospectus Rules, Listing Rules and Transparency and Disclosure Rules; not meeting the provisions of the Companies Act 2006 and other UK, European and overseas legislation affecting UK companies and not complying with accounting standards. Further risks arise from not keeping abreast of changes in legislation and regulations which have in recent years been substantial.	At each Board meeting there is an administration report which provides details on general corporate matters including legislative and regulatory developments and changes. There is an annual review of suppliers and their internal control reports which includes the disaster recovery procedures of the Investment Manager. Regular reporting from the Depositary on the safe custody of the Company's assets and the operation of control systems related to the portfolio reconciliation are monitored. Specialist advice is sought on taxation issues as and when required. The Audit Committee has oversight of such work. Information and guidance on legal and regulatory risks is managed by using the Investment Manager or professional advisers where necessary and the submission of reports to the Board for discussion and, if required, any remedial action or changes considered necessary. The Board monitors new developments and changes in the regulatory environment. While it has no control over such changes, the Board seeks to ensure that their impact on the Company is understood and complied with.
External
There is significant exposure to the economic cycles of the markets in which the underlying investments conduct their business operations as well as the economic impact on investment markets where such investments are listed. The fluctuations of exchange rates can also have a material impact on shareholder returns.	The Board regularly discusses general economic conditions and developments. The impact on the portfolio from Brexit continues to be considered. Whilst it is difficult to quantify the impact of such a change, it is not believed to fundamentally impact the business of the Company or to make the financials sector any less attractive as an investment. At the year end over 60% of the portfolio was invested outside of the EEA. Note 26 describes the impact of changes in foreign exchange rates. The Investment Manager has the ability to hedge foreign currency if it is thought appropriate at the time.

Investment Management Company and Management of the Portfolio

As the Company is an investment vehicle for shareholders, the Directors have sought to ensure that the business of the Company is managed by a leading specialist investment management team and that the investment strategy is attractive to shareholders. The Directors believe that a strong working relationship with the Investment Manager will achieve the optimum return for shareholders and the Board and the Investment Manager operate in a supportive, co-operative and open environment.

The Company has an Investment Management Agreement with Polar Capital LLP (the Investment Manager), which is authorised and regulated by the Financial Conduct Authority, to act as Investment Manager and AIFM of the Company with sole responsibility for the discretionary management of the Company's assets (including uninvested cash) and sole responsibility to take decisions as to the purchase and sale of individual investments. The Investment Manager also has responsibility for asset allocation within the limits of the investment policy and guidelines established and regularly reviewed by the Board, all subject to the overall control and supervision of the Board.

The Investment Manager has other investment resources which support the investment team and has experience in administering and managing other investment trust companies. The Investment Manager also procures or provides accountancy services, company secretarial and day to day administrative services, including the monitoring of third-party suppliers, which are directly appointed by the Company. The Investment Manager has, with the consent of the Directors, delegated the provision of certain of these administrative functions to HSBC Securities Services and to Polar Capital Secretarial Services Limited. The fees of HSBC Securities Services are for the account of the Company.

Information is provided to the Directors on a timely basis, covering all aspects of relevant management, regulatory and financial information. The Board receives a report from the Investment Manager at each Board meeting and may ask representatives of the Investment Manager to attend Board meetings enabling Directors to probe further on matters of concern or seek clarification as appropriate.

While the Board reviews the performance of the Investment Manager at each Board meeting, and the Company's performance against Benchmark and a peer group of funds with similar objectives, the Management Engagement Committee formally carries out an annual review of the Investment Manager's and other suppliers' performance during the year.

Strategy

The Investment Manager's investment process is a six-stage process primarily driven by a bottom-up fundamental analysis of individual companies, albeit with macroeconomic inputs. The Investment Manager regularly uses both quantitative and qualitative screens to rank companies on a risk-adjusted basis, since the fundamental view is that long-term returns in most financial stocks are driven by their success in writing risk, rather than short-term growth trends. The approach involves undertaking a detailed income statement and balance sheet analysis and values a company based on the Capital Asset Pricing Model that compares a company's return on equity versus its cost of capital (the latter taking account of both stock and country risk) to provide a fair price/book valuation. This valuation (coupled with other more standard valuation systems) is then ranked across the global universe and added to scores focused on other variables such as profitability, risk and growth metrics to provide a model portfolio and so a focus for additional stock-specific research. The Investment Manager undertakes regular trips to the US, Europe and Asia to meet companies as well as those they meet in London, leveraging off the combined experience of the Investment Manager's team of eight fund managers and analysts who focus on the global financials sector.

The Company's investment portfolio is both geographically and sectorally diversified with its largest concentration being to the banking sector, and the balance being in insurance, life assurance, real estate investment trusts, asset management and other sub-sectors, subject to the Investment Manager's assessment of where the best opportunities lie. There are no limits on the exposure of the investment portfolio to either smaller or mid-cap companies but the majority of the portfolio is invested in companies with a market capitalisation of above US$5bn. The Investment Manager has discretion to invest up to 10% of the portfolio in debt securities.

The vast majority of the investment portfolio is invested in companies that not only offer capital appreciation but pay a level of dividends, which are expected to rise over time, so as to meet the necessary income required to facilitate the payment of a rising level of dividends to shareholders.

Investment Team

The portfolio is managed jointly by Mr Nick Brind and Mr John Yakas, supported by six other financials specialists within the team.

Termination Arrangements

The Investment Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The Investment Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including: (i) if an order has been made or an effective resolution passed for the liquidation of the Investment Manager; (ii) if the Investment Manager ceases or threatens to cease to carry on its business; (iii) where the Company is required to do so by a relevant regulatory authority; (iv) on the liquidation of the Company; or (v) subject to certain conditions, where the Investment Manager commits a material breach of the Investment Management Agreement.

In the event the Investment Management Agreement is terminated before the expiry of the Company's fixed life then, except in the event of termination by the Company for certain specified causes, the management fee and the performance fee will be calculated pro rata for the period up to and including the date of termination.

Fee Arrangements

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager is entitled to a management fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The management fee is payable monthly in arrears at the rate of 0.85% per annum of the lower of the Company's market capitalisation and the Company's net asset value on the relevant day.

In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 80% of the management fee payable is charged to capital and the remaining 20% to income.

Performance Fee

The Investment Manager may be entitled to a performance fee. Any performance fee will be paid at the end of the Company's expected life (except in the case of an earlier termination of the Investment Management Agreement) and will be an amount equal to 10% of the excess return (based on the Adjusted net asset value per ordinary share at that time) over the performance fee hurdle.

The performance fee hurdle is 100 pence, increased or decreased by reference to the return on the Benchmark Index plus 1.25 pence per annum (reduced pro rata for periods of less than one full year) over the period from the day following Admission to the date on which it is resolved to wind up the affairs of the Company.

For the purposes of calculating the performance fee, the Company's Adjusted net asset value will be based on the net asset value adjusted as follows:

a)    the amount of any dividends paid by the Company shall be deemed to have been reinvested on the date of payment in ordinary shares at their net asset value (on such date) and the resulting amount added to the Company's net asset value;

b)    any dilutive effect caused by the exercise by shareholders of subscription rights in relation to subscription shares shall be deemed to have been added back to the Company's net asset value at the time of issue of the ordinary shares resulting from such exercise, so as to negate the effect of the dilution;

c)    any enhancement to the Terminal NAV arising from any issue of ordinary shares at a premium to the net asset value per ordinary share prevailing at the time of such issue since Admission shall be deducted; and

d)    any enhancement to the Terminal NAV arising from the repurchase of ordinary shares pursuant to a tender offer at a discount to net asset value per ordinary share prevailing at the time of such repurchase since Admission shall be deducted.

If, at the end of the Company's expected life, the amount available for distribution to shareholders is less than 100 pence per ordinary share, no performance fee will be payable. If the amount is more than 100 pence per ordinary share but payment of the performance fee in full would reduce it below that level, then the performance fee will be reduced (but to not less than nil) such that shareholders receive exactly 100 pence per share.

No performance fee has been accrued as at 30 November 2018.

Corporate Responsibility

Socially responsible investing and exercise of voting powers The Board has instructed the Investment Manager to take into account the published corporate governance of the companies in which it invests.

The Company has also considered the Investment Manager's Stewardship Code and Proxy Voting Policy. The Voting Policy is for the Investment Manager to vote at all general meetings of companies in favour of resolutions proposed by the management where it believes that the proposals are in the interests of shareholders. However, in exceptional cases, where it believes that a resolution could be detrimental to the interests of shareholders or the financial performance of the Company, appropriate notification will be given and abstentions or a vote against will be lodged.

During the year under review, the Investment Manager voted at 65 company meetings, in each case following the recommendations of the management of that company on the casting of votes.

The Investment Manager reports to the Board, when requested, on the application of the Stewardship Code and Voting Policy. The Investment Manager's Stewardship Code and Voting Policy can be found on the Investment Manager's website in the Document Library (www.polarcapital.co.uk).

Environment

The Company's core activities are undertaken by its Investment Manager which seeks to limit the use of non-renewable resources and reduce waste where possible.

Greenhouse Gas Emissions

The Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 require companies listed on the Main Market of the London Stock Exchange to report on the greenhouse gas (GHG) emissions for which they are responsible. The Company is an investment trust, with neither employees nor premises, nor has it any financial or operational control of the assets which it owns. Consequently, it has no GHG emissions to report from its operations nor does it have responsibility for any other emissions.

Diversity, Gender Reporting and Human Rights Policy

The Company has no employees and the Board comprises one male and two female Non-executive Directors.

Given the fixed life of the Company, it is possible that no new appointments will be made to the Board but, in the event that any new appointments are made, the Board will continue to have regard to the benefits of diversity, including gender, when seeking to make any such appointment(s).

The Company has not adopted formal policies on human rights or diversity as it has no employees or operational control of its assets.

Modern Slavery Act

As an investment company, the Company does not provide goods or services in the normal course of business and does not have any customers. Accordingly, it is considered that the Company is not required to make any slavery or human trafficking statements under the Modern Slavery Act 2015.

Approved by the Board on 11 February 2019.

By order of the Board

Tracey Lago ACIS

Polar Capital Secretarial Services Limited

Company Secretary

 

REPORT OF THE DIRECTORS

The Directors, who are listed in the Annual Report, have all served throughout the year and up to the date of this report. They present their Report including the Report on Corporate Governance, together with the Audited Financial Statements for the Company prepared under International Financial Reporting Standards as adopted by the European Union (IFRSs) for the year ended 30 November 2018.

Introduction and Status

The Strategic Report Section contains information on the Regulatory Arrangements, Future Development, Service Providers, Investment Policy, Objective and Strategy, Benchmark and Key Performance Objectives, Principal Risks and Uncertainties, Management Company, and Corporate Responsibilities of the Company.

The Company is incorporated in England and Wales as a public limited company and is domiciled in the United Kingdom. It is an investment company as defined in section 833 of the Companies Act 2006 and its ordinary shares are listed and traded on the main market of the London Stock Exchange.

Purpose

The business of the Company is to generate for shareholders a growing dividend income and capital appreciation through access to a discretionary managed diversified global portfolio consisting primarily of listed or quoted equities issued by companies in the financials sector operating in the banking, insurance, property and other sub-sectors. The portfolio is diversified by geographic location, sub-sector and size of investee companies.

The portfolio is managed within a framework of investment limits, restrictions and guidelines determined by the Board which strives to meet the investment objective while seeking to spread and mitigate risk.

The Company has no employees or premises and the Board is comprised of Non-executive Directors. The day to day operations and functions of the Company have been delegated to third parties.

The Company is registered under the United States' FATCA legislation and its Global Intermediary Identification Number (GIIN) is 8KP5BT.99999.SL.826. The Company's Legal Entity Identifier (LEI) code is 549300G5SWN8EP2P4U41.

The Company seeks to operate as an investment trust in accordance with Section 1158 of the Corporation Tax Act 2010. Confirmation has been received from HM Revenue and Customs that, on the basis of the information provided, the Company has been accepted as an approved investment trust for accounting periods commencing on or after 1 July 2013, subject to the Company continuing to meet the eligibility conditions of and the ongoing requirements for approved companies.

The Directors are of the opinion that the Company has conducted its affairs in respect of the year ended 30 November 2018 and will continue to conduct its affairs so as to maintain its status as an investment trust.

Life of the Company

The Articles of Association require the Directors to propose, at the seventh Annual General Meeting, a special resolution to place the Company into liquidation. The voting on that resolution will be enhanced such that, provided any single vote is cast in favour, the resolution will be passed. The seventh AGM is expected to be held in April 2020, but no later than 31 May 2020.

Dividends

The Company aims to increase the dividend (on an annual basis) progressively, but there is no guarantee that this will be achieved. Shareholders should recognise that circumstances may arise when it is necessary to reduce the level of dividend payment or equally there may be instances when the level of dividend must be increased in order to comply with Sections 1158 and 1159 of the Corporation Tax Act 2010. Where this would result in paying a dividend beyond the Board's aim, a 'special dividend' will be declared and paid. The dividend policy will be recommended to shareholders at the AGM to be held in April 2019.

The Company aims to pay two interim dividends each year, in February and August. These interim dividends will not necessarily be of equal amounts. The Directors do not recommend and the Company does not pay a final dividend. Details of the dividends paid and declared are set out above.

Listing Rule 9.8.4

Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report. The only disclosure to be made is with regard to the amount of interest capitalised and can be found in Note 9 below.

Independent Auditors

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as the Company's independent auditors. A resolution to appoint PricewaterhouseCoopers LLP as independent auditors to the Company will be proposed at the forthcoming AGM.

The fee agreed in respect of the audit of the 2018 annual financial statements was £26,280 (2017: £25,515).

Report on Corporate Governance

The Directors are accountable to shareholders for the governance of the Company's affairs. The UK Listing Rules require all listed companies to disclose how they have applied the principles and complied with the provisions of the UK Corporate Governance Code (the 'UK Code') which was effective during the financial year, issued by the Financial Reporting Council. The UK Code can be viewed at www.frc.org.uk.

The Association of Investment Companies (the 'AIC') publishes a Code of Corporate Governance ('AIC Code') and a Corporate Governance Guide for Investment Companies ('AIC Guide'). The AIC revised the AIC Code and Guide to reflect changes made to the UK Code in April 2016. In line with the UK Code, the revised AIC Code and Guide apply to accounting periods beginning on or after 17 June 2016, so accordingly the Company has adopted the new AIC Code.

The AIC Code and the AIC Guide address the principles set out in the UK Code as well as additional principles and recommendations on issues that are specific to investment trusts. The AIC Code can be viewed at www.theaic.co.uk. The Financial Reporting Council has confirmed that by following the AIC Code and the AIC Guide, boards of investment companies will meet their obligations in relation to the UK Code and paragraph 9.8.6 of the Listing Rules.

A revised FRC UK Code was published in July 2018 for accounting years commencing on or after 1 January 2019.A corresponding revised AIC Code was published on 5 February 2019 and will be reported against in the Annual Report of the Company for the year commencing 1 December 2019.

Statement of Compliance

The AIC Code comprises 21 principles. The Board considers that for the year under review the Directors, Board and Company have complied with the recommendations of the AIC Code in so far as they apply to the Company's business. For the reasons set out in the AIC Guide, the Board considers the following provisions are not relevant to the position of the Company, being an externally managed investment company:

·      As all Directors, including the Chairman, are Non-executive and day to day management has been contracted to third parties, the Company does not have a Chief Executive.

·      As there are no executive directors, the Company has no need to comply with the UK Code in respect of executive directors' remuneration.

·      The Company does not have an internal audit function as it relies on the systems of control operated by third party suppliers, in particular those of the Investment Manager. The Board monitors these systems of internal control to provide assurance that they operate as intended insofar as they relate to the affairs of the Company; and

·      Due to the structure of the Board, it is considered unnecessary to identify a senior independent Non-executive Director and the Company has therefore not reported further in respect of this provision.

The Report on Corporate Governance describes how the principles of the AIC Code have been applied.

Application of the AIC Code's Principles

The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Guide. The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.

The Board believes that the Company's current practices are consistent in all material respects with the principles of the AIC Code and where non-compliance occurs, an explanation has been provided. The Board will continue to observe the principles and recommendations set out in the AIC Code in future.

Directors and Board; Independence and Composition

The Board is responsible to shareholders for the overall management of the Company's affairs and currently consists of three Non-executive Directors. Each Director has different qualities and areas of expertise on which they may lead where issues arise.

The Directors' biographies demonstrate the breadth of investment, commercial and professional experience relevant to their positions as Directors of the Company. The Directors' Remuneration Report is provided within the Annual Report.

The Board has considered the contribution and performance of each Director as part of the performance evaluation process. It has determined that each Director has relevant experience, effectively contributes to the operation of the Board and demonstrates independent views on a range of subjects. All the Directors are considered independent of the Investment Manager and have no relationship or conflicts which are likely to affect their judgement.

Succession

The Board believes that retaining Directors with sufficient experience of the Company, industry and the markets is of benefit to shareholders. While the Board recognises the value of progressive refreshing of and succession planning for Company boards, given the expected seven year life of the Company, the Board believes that there is no need for a policy on the length of service for Directors.

Election of Directors

The Articles of Association govern the appointment, re-election and removal of a Director and require each Director to be re-elected every three years. All the Directors were re-elected by shareholders at the AGM in 2017. Each of the Directors was in office throughout the year under review. The appointment date for each Director is given in the Annual Report.

Directors' Interests and Conflicts of Interests

The Chairman of the Company is a Non-executive Director and has no conflicting relationships.

The share interests of the Directors in the ordinary shares of the Company are set out in the Annual Report.

Directors have a duty to avoid a situation in which they have or could have a conflict of interest or possible conflict with the interests of the Company. Under the Act, public companies may authorise conflicts or potential conflicts if the Articles of Association contain provisions to this effect; the Company's Articles contain such provisions.

Each Director has provided the Company with a statement of all conflicts of interest and potential conflicts of interest. These have been approved by the Board and recorded in a register. The Board may impose conditions on authorising any conflict or potential conflict situation. Each Director has agreed to notify the Chairman and the Company Secretary of any changes to his or her circumstances which would impact on the notified conflicts or potential conflict with the interests of the Company. No Director has declared receipt of any benefits other than his or her emoluments in his or her capacity as a Director of the Company.

Only Directors not involved in the conflict or potential conflict may participate in the authorisation process. Directors, in deciding whether to authorise a situation or not, will take into account their duty to promote the Company's success.

The Board, as part of its year end review, considered the register of conflicts, any conditions imposed on such conflicts or potential conflicts and the operation of the notification and authorisation process. It concluded that the process had operated effectively since its introduction.

No Director has any links with the Investment Manager and there were no contracts during or at the end of the year in which a Director of the Company is or was materially interested and which is or was significant in relation to the Company's business or to the Director.

Role and Responsibilities

The Board

The Board meets regularly and as required. In the year to 30 November 2018, there were five scheduled Board meetings dealing with the ongoing stewardship of the Company and other matters, including the setting and monitoring of investment strategy and performance, review of financial statements, and shareholder issues including investor relations. The level of share price discount or premium to the net asset value together with policies for re-purchase or issuance of new shares are kept under review along with matters affecting the industry and the evaluation of third party service providers. In addition to the scheduled formal meetings the Board meet in person or by telephone informally to discuss matters relevant to the Company as necessary throughout the year.

A formal schedule of matters specifically reserved for decision by the full Board has been defined and a procedure has been adopted for Directors, in the furtherance of their duties, to take independent professional advice at the expense of the Company. No such advice was sought during the year.

The Directors have access to the advice and services of the corporate Company Secretary through its appointed representative who is responsible to the Board for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with.

The number of formal meetings of the Board and its Committees held during the year and the attendance of individual Directors are shown below:

Year ended 30 November 2018

	Board	Audit Committee	Management Engagement Committee
Number of scheduled meetings:	5	3	1
Robert Kyprianou	5	3	1
Katrina Hart	5	3	1
Joanne Elliott	5	3	1

All the Directors attended the Annual General Meeting.

Board Committees

The Board has delegated to the Audit and Management Engagement Committees specific remits for consideration and recommendation but the final responsibility in these areas remains with the Board. The Board has determined that due to its size and the fact that all the Directors are Nonexecutive and independent, the functions of the Nomination Committee and Remuneration Committee are carried out by the full Board.

The Board acting as the Nomination Committee will, when considering new or further appointment of directors, consider the balance of skills, knowledge and experience as well as gender diversity of the whole Board and will also consider the use of external consultants when drawing up a list of candidates.

The Board also creates ad hoc committees from time to time to enact policies or actions agreed in principle by the whole Board. Copies of the terms of reference for each of the Audit and Management Engagement Committees are available on the Company's website.

Audit Committee

The Audit Committee comprises all the independent Nonexecutive Directors under the chairmanship of Joanne Elliott. The Board is satisfied that at least one of the Committee's members has recent and relevant financial experience and the Committee as a whole has competence relevant to the sector in which the Company operates. The experience and qualifications of the Committee members are set out in the biographical details in the Annual Report.

None of the members of the Committee has any involvement in the preparation of the financial statements of the Company, as this has been contracted to the Investment Manager. The Chairman of the Committee will be present at the AGM to answer questions relating to the financial statements.

The Audit Committee has direct access to both the auditors and the key senior staff of the Investment Manager. The Committee reports its findings and recommendations to the Board which retains the ultimate responsibility for the financial statements of the Company.

A separate report on the work of the Audit Committee over the year is set out in the Annual Report.

Management Engagement Committee

The Management Engagement Committee comprises all the independent Non-executive Directors under the chairmanship of Katrina Hart and meets once a year and at such other times as may be necessary.

The Management Engagement Committee is responsible for the review of the relationship with the Investment Manager including the annual review of the Investment Management Agreement and other services and resources supplied by Polar Capital, prior to making its recommendation to the Board, as to whether the retention of the Investment Manager is in the best interests of shareholders.

Work of the Management Engagement Committee

The Management Engagement Committee meets annually and last met in December 2018, when it reviewed the Company's investment performance and the quality of the other services provided by Polar Capital LLP. Based on the Investment Manager's long-term investment performance relative to the Benchmark and peers, together with the high quality of Polar Capital's operating platform, it is the Directors' opinion that the continuing appointment of Polar Capital LLP on existing terms is in the interests of the Company and shareholders as a whole.

Directors' Professional Development

If a new Director is appointed, he or she is offered an induction course provided by the Investment Manager. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory obligations and internal controls. Changes affecting Directors' responsibilities are advised to the Board as they arise. Directors may also participate in the Investment Manager's online training, as well as participating in professional and industry seminars.

Performance Evaluation

The Board

The evaluation of the Board, its Committees and individual Directors is carried out annually and involves the use of a written questionnaire and the Chairman seeking the views of each Director. The anonymous responses to the questionnaire are reviewed by the full Board. The Directors are assessed on their relevant experience, their strengths and weaknesses in relation to the requirements of the Board and their commitment to the Company in terms of time spent on attending regular and ad hoc meetings of the Board.

The review of the Chairman's performance is conducted by the full Board and led by the Chairman of the Audit Committee. The Board considers the size and structure of the Board, as well as succession planning, bearing in mind the balance of skills, knowledge and experience existing on the Board and the Company's expected seven year life.

Reappointment as a Director is not automatic but follows a formal evaluation process. The Company does not have a policy on length of service for Directors due to the expected seven year life. All Directors were appointed for an initial term of three years and are subject to reappointment in accordance with the provisions of the Articles and Companies Act 2006.

The Investment Manager

The Board has contractually delegated the management of the portfolio to the Investment Manager, Polar Capital LLP (the 'Investment Manager'). It is the Investment Manager's sole responsibility to take decisions regarding the purchase and sale of individual investments. The Investment Manager has responsibility for asset allocation and stock selection within the limits established and regularly reviewed by the Board.

The investment team provided by the Investment Manager, led by Mr Nick Brind and Mr John Yakas, has experience of investing in the financials sector. In addition, the Investment Manager has other resources which support the investment team and has experience in managing and administering other investment trust companies.

The Investment Manager also provides or procures accountancy services, company secretarial and administrative services including the monitoring of third party suppliers which are directly appointed by the Company. The Investment Manager provides, in a timely manner, all relevant management, regulatory and financial information to the Directors. Representatives of the Investment Manager attend Board meetings, enabling the Directors to probe further on matters of concern or seek clarification on certain issues.

The Directors have access to the advice and services of the corporate company secretary, through its appointed representative who is responsible to the Board for ensuring Board procedures are followed and that applicable rules and regulations are complied with. The Board and Investment Manager operate in a supportive, co-operative and open environment.

The Board reviews the performance of the Investment Manager and the Company's performance against the Benchmark and peer group at each Board meeting.

Internal Controls

The Board has overall responsibility for the Company's system of internal control and for reviewing its effectiveness. The Company has no employees as its operational functions are carried out by third parties.

The Audit Committee does not consider it necessary for the Company to establish its own internal audit function as the Investment Manager, overseen by the Board, is responsible for monitoring all accounting and internal control operations. The Investment Manager has an internal control framework to provide reasonable but not absolute assurance on the effectiveness of the internal controls operated on behalf of its clients. The Investment Manager is authorised and regulated by the Financial Conduct Authority ('FCA') and its compliance department monitors compliance with the FCA rules.

The Board, through the Audit Committee, has established an ongoing process for identifying, evaluating and managing any major risks faced by the Company. The process is documented through the use of a Risk Map which is subject to regular review by the Audit Committee and accords with the FRC's Guidance on Audit Committees and Risk Management, Internal Control and Related Financial and Business Reporting.

The controls are embedded within the business and aim to ensure that identified risks are managed and systems are in place to report on such risks. The internal controls seek to ensure the assets of the Company are safeguarded, proper accounting records are maintained and the financial information used by the Company and for publication is reliable. Controls covering the risks identified, including financial, operational, compliance and risk management are monitored by a series of regular reports covering investment performance, attribution analysis, reports from various third parties and from the Investment Manager including risks not directly the responsibility of the Investment Manager.

Internal Controls Operation

The internal controls process was active throughout the year and up to the date of approval of this Annual Report. However, such an internal controls system is designed to manage rather than eliminate risks of failure to achieve the Company's business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board will continue to monitor the system of internal controls in order to provide assurance that they operate as intended.

The Board has received a formal report from the Investment Manager, with details of any known internal control failures and has also considered reports on the Investment Manager's internal controls and systems operated by other third party suppliers. The Board considers ad hoc reports from the Investment Manager and information is supplied to the Board as required.

The Investment Manager has delegated the provision of accounting, portfolio valuation and trade processing to HSBC Securities Services but remains responsible to the Company for these functions and provides the Board with information on these services.

The Board, assisted by the Investment Manager, has reviewed the Risk Map and the effectiveness of the system of internal controls taking into account any issues, none of which were considered significant, which arose during the year ended 30 November 2018 and up to the date of this Annual Report.

The Board has adopted a zero tolerance approach to bribery and corruption in its business activities and uses the antibribery policy formulated and implemented by Polar Capital LLP which has been sent to all suppliers of both Polar Capital LLP and the Company.

Share Capital History and Voting Interests

Issued share capital

The Company was incorporated on 17 May 2013. On 1 July 2013, it issued 153,000,000 ordinary shares plus one subscription share for every five ordinary shares which were admitted to trading on the Main Market of the London Stock Exchange. The original subscription price of each ordinary share was 100p and the net asset value (NAV) per share on 1 July 2013 was 98p, after launch costs.

In accordance with the Company's original prospectus, on 31 July 2017, the subscription shareholders had the opportunity to exercise their rights to subscribe for one ordinary share per subscription share at a price of 115p per ordinary share following which all subscription rights lapsed and the subscription shares were cancelled. As a result of the subscription exercise the Company issued 30,600,000 new ordinary shares. The Company did not buy back any subscription shares prior to the conversion and no ordinary shares were bought back during the year.

At 30 November 2018, there were 202,775,000 ordinary shares in issue. Since the year end, there have been no changes to the issued ordinary share capital of the Company.

Voting Rights

Ordinary shares carry voting rights which are exercised on a show of hands at a meeting, or on a poll, where each share has one vote. Details for the lodging of proxy votes are given when a notice of meeting is issued.

Transferability

Any shares in the Company may be held in uncertificated form and, subject to the Articles of Association (the 'Articles'), title to uncertificated shares may be transferred by means of a relevant system.

Subject to the Articles, any member may transfer all or any of his certificated shares by an instrument of transfer in any usual form or in any other form which the Board may approve. The instrument of transfer must be executed by or on behalf of the transferor and (in the case of a partly-paid share) the transferee.

The Board may, in its absolute discretion and without giving any reason, decline to register any transfer of any share which is not a fully paid share. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer: (i) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate and such other evidence of the right to transfer as the Board may reasonably require; (ii) is in respect of only one class of share; and (iii) if joint transferees, is in favour of not more than four such transferees.

The Board may decline to register a transfer of any of the Company's certificated shares by a person with a 0.25% interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Act, unless the transfer is shown to the Board to be pursuant to an arm's length sale (as defined in the Articles).

Powers to issue shares and make market purchases of ordinary shares

At the AGM in 2018, the Board was granted by shareholders the power to allot equity securities up to a nominal value of £1,013,875, being 10% of the Company's issued ordinary share capital on 25 April 2018, and to issue those shares for cash without first offering those shares to shareholders in accordance with their statutory pre-emption rights. These powers will expire at the 2019 AGM. The powers granted at the 2018 AGM have not been used but renewal of these authorities will be sought at the AGM in 2019. New ordinary shares will not be allotted and issued at below the net asset value per share after taking into account the costs of issue.

The Board also obtained shareholder authorities at the AGM in 2018 to make market purchases of up to 30,395,972 ordinary shares of the Company (14.99% of the issued share capital at 25 April 2018) in accordance with the terms and conditions set out in the shareholder resolution. This authority expires at the AGM in 2019 and its renewal will be sought.

Details of the resolutions and the Directors' policies for the issue and purchase of shares are set out in the separate Notice of Annual General Meeting.

Major interests in ordinary shares

The Company has received notifications from the following shareholders in respect of their interests in the voting rights of the Company at 30 November 2018.

Ordinary Shares

Shareholder	Type of Holding	Number of Shares	%of voting rights*
Investec Wealth & Investment Ltd	Direct	44,666,659	22.03
Rathbone Brothers plc	Indirect	14,405,587	7.10
Old Mutual plc	Indirect	10,126,736	4.99
Canaccord Genuity	Indirect	10,091,107	4.98
Brewin Dolphin Ltd	Indirect	10,011,088	4.94
1607 Capital Partners LLC	Indirect	8,373,456	4.13
JM Finn & Company Ltd	Direct	7,482,137	3.69

*Based on the issued ordinary share capital as at 30 November 2018, not necessarily in agreement with shareholder's TR1 notification.

The Company has not been notified of any changes to the major interests in shares held since the year end and up to the date of this report.

Annual General Meeting

The Annual General Meeting will be held at 12 noon on 11 April 2019 at the offices of Polar Capital, 16 Palace Street, London SW1E 5JD. The separate Notice of Annual General Meeting accompanies this Annual Report and contains the full text of the resolutions and an explanation of each of them. Resolutions are being proposed to receive the Report of the Directors and Annual Financial Report, approve the Directors' Remuneration Implementation Report, re-appoint the auditors and authorise the Directors to set their fees. The Directors are also seeking to renew their powers to allot ordinary shares for cash and to buy back ordinary shares.

Relations with Shareholders

The Board and the Investment Manager consider maintaining good communications with shareholders and engaging with larger shareholders through meetings and presentations a key priority. Shareholders are kept informed by the publication of annual and interim reports which include financial statements. These reports are supplemented by the daily release of the net asset value per share to the London Stock Exchange and the publication by the Investment Manager of a monthly factsheet and a Key Information Document.

All this information, together with the Investment Manager's presentations, is available from the Company's website at www.polarcapitalglobalfinancialstrust.com. The Board is keen that the AGM be a participative event for all shareholders who attend. The Investment Manager will give a presentation and shareholders are encouraged to attend. All Directors will attend the AGM and are available to respond to queries and concerns from shareholders. In the event of any material dissent, the Board will engage directly with shareholders.

At least twenty working days' notice of the AGM will be given to shareholders and separate resolutions are proposed in relation to each substantive issue.

Where the vote is decided on a show of hands, the proxy votes received will be relayed to the meeting and subsequently published on the Company's website. Proxy forms will have a 'vote withheld' option. The Notice of Annual General Meeting sets out the business of the AGM together with the full text of any special resolutions.

Shareholders may submit questions for the AGM in advance of the meeting or make general enquiries of the Company via the company secretary at the Registered Office of the Company.

The Board monitors the share register of the Company; it also reviews all correspondence from shareholders and maintains regular contact with major shareholders. Shareholders who wish to raise matters with a Director may do so by writing to them at the Registered Office of the Company.

By order of the Board

Tracey Lago ACIS

Polar Capital Secretarial Services Limited

Company Secretary

11 February 2019

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES -

In respect of the Annual Report, Directors' Remuneration Report and Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) 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 and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

·      select suitable accounting policies and then apply them consistently;

·      make judgements and accounting estimates that are reasonable and prudent;

·    state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

·    prepare the Financial Statements on the 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 disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Financial Statements, Article 4 of the IAS Regulations. 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 Directors are responsible for the maintenance and integrity of the Company's website although day to day maintenance has been delegated to Polar Capital LLP. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

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.

Disclosure of Information to the Auditors

As far as the Directors are aware and to the best of their knowledge, having made enquiries, there is no relevant audit

information of which the auditors are unaware and the Directors have taken steps to make themselves aware of any relevant

audit information and to establish that the auditors are aware of such information.

Going Concern

As referenced within the Report of the Audit Committee in the Annual Report, the Board has considered the Company's position as at 30 November 2018 and the factors impacting the forthcoming year are set out in the Chairman's Statement and the Investment Manager's Report above and in the Strategic Review and in the Report of the Directors which incorporates the corporate governance statements.

The financial position of the Company, its cash flows, and its liquidity position are described in the Strategic Report above. Note 26 to the Financial Statements includes the Company's policies and process for managing its capital; its financial risk management objectives and details of financial instruments. Exposure to credit risk and liquidity risk are also disclosed.

The Company has a portfolio of investments listed and traded on stock exchanges around the world, the great majority of which can be sold within seven working days, providing considerable financial resources, and after making enquiries the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and financial statements.

Longer-Term Viability

The Board has also considered and addressed the ability of the Company to continue to operate over a longer period. The work of the Audit Committee in looking at the longer-term viability in the Annual Report.

As an investment company with a liquid portfolio, the majority of which can be sold within seven working days, limited expenses which are modest in relation to the asset base of the Company, and no employees the Directors are of the opinion that the Company can continue in operation up to the end of the fixed life and any vote on liquidation to be proposed at the AGM expected to be held in April 2020.

Responsibility Statement under the Disclosure and Transparency Rules

Each of the Directors of Polar Capital Global Financials Trust plc, confirm that, to the best of their knowledge:

·      the Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

·      the Chairman's Statement, Investment Manager's Report, Strategic Review and Report of the Directors (together constituting the Management Report) include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The financial statements were approved by the Board on 11 February 2019 and the responsibility statements were signed on its behalf by Robert Kyprianou, Chairman of the Board.

Robert Kyprianou

Chairman

11 February 2019

 

Statement of Comprehensive Income

For the year ended 30 November 2018

	Notes	Year ended 30 November 2018			Year ended 30 November 2017
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Investment income	3	11,674	-	11,674	9,757	8	9,765
Other operating income	4	23	-	23	6	-	6
(Losses)/gains on investments held at fair value	5	-	(11,630)	(11,630)	-	30,771	30,771
Gains on derivatives		-	-	-	-	309	309
Other currency (losses)/gains	6	-	(63)	(63)	-	25	25
Total income		11,697	(11,693)	4	9,763	31,113	40,876
Expenses
Investment management fee	7	(475)	(1,900)	(2,375)	(416)	(1,665)	(2,081)
Other administrative expenses	8	(506)	(15)	(521)	(520)	-	(520)
Total expenses		(981)	(1,915)	(2,896)	(936)	(1,665)	(2,601)
Profit/(loss) before finance costs and tax		10,716	(13,608)	(2,892)	8,827	29,448	38,275
Finance costs	9	(69)	(274)	(343)	(53)	(212)	(265)
Profit/(loss) before tax		10,647	(13,882)	(3,235)	8,774	29,236	38,010
Tax	10	(1,090)	227	(863)	(950)	185	(765)
Net profit/(loss) for the year and total comprehensive income/(expense)		9,557	(13,655)	(4,098)	7,824	29,421	37,245
Earnings/(losses) per ordinary share (pence)	11	4.71	(6.73)	(2.02)	4.29	16.14	20.43

The total return column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union.

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The amounts dealt with in the Statement of Comprehensive Income are all derived from continuing activities.

The notes following the primary statements form part of these financial statements.

 

Statement of Changes in Equity

For the year ended 30 November 2018

	Notes	Year ended 30 November 2018
		Called up share capital £'000	Capital redemption reserve £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 December 2017		10,139	251	55,852	139,235	81,124	6,691	293,292
Total comprehensive (expense)/ income:
(Loss)/profit for the year ended 30 November 2018		-	-	-	-	(13,655)	9,557	(4,098)
Transactions with owners, recorded directly to equity:
Conversion of subscription shares - Prior year adjustment	20	-	-	2	-	-	-	2
Equity dividends paid	12	-	-	-	-	-	(8,212)	(8,212)
Total equity at 30 November 2018		10,139	251	55,854	139,235	67,469	8,036	280,984

	Notes	Year ended 30 November 2017
		Called up share capital £'000	Capital redemption reserve £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 December 2016		8,915	251	21,946	139,235	51,703	5,238	227,288
Total comprehensive income:
Profit for the year ended 30 November 2017		-	-	-	-	29,421	7,824	37,245
Transactions with owners, recorded directly to equity:
Conversion of subscription shares	18, 20	1,224	-	33,906	-	-	-	35,130
Equity dividends paid		-	-	-	-	-	(6,371)	(6,371)
Total equity at 30 November 2017		10,139	251	55,852	139,235	81,124	6,691	293,292

The notes following the primary statements form part of these financial statements.

 

Balance Sheet

As at 30 November 2018

	Notes	30 November 2018 £'000	30 November 2017 £'000
Non current assets
Investments held at fair value	13	286,424	298,375
Current assets
Receivables	14	1,439	766
Corporation tax receivable		30	20
Overseas tax recoverable		184	98
Cash and cash equivalents	15	8,363	7,231
		10,016	8,115
Total assets		296,440	306,490
Current liabilities
Payables	16	(456)	(3,198)
Bank loan	17	(15,000)	(10,000)
		(15,456)	(13,198)
Net assets		280,984	293,292
Equity attributable to equity shareholders
Called up share capital	18	10,139	10,139
Capital redemption reserve	19	251	251
Share premium reserve	20	55,854	55,852
Special distributable reserve	21	139,235	139,235
Capital reserves	22	67,469	81,124
Revenue reserve	23	8,036	6,691
Total equity		280,984	293,292
Net asset value per ordinary share (pence)	24	138.57	144.64

The financial statements on pages 51 to 77 of the Annual Report were approved and authorised for issue by the Board of Directors on 11 February 2019 and signed on its behalf by:

Robert Kyprianou

Chairman

The notes following the primary statements form part of these financial statements.

Registered number: 8534332
 

Cash Flow Statement

For the year ended 30 November 2018

	Notes	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Cash flows from operating activities
Loss/(profit) before tax		(3,235)	38,010
Adjustment for non-cash items:
Loss/(gain) on investments held at fair value through profit or loss		11,630	(30,771)
Scrip dividends received		(146)	(126)
Amortisation on fixed interest securities		(93)	(30)
Adjusted profit before tax		8,156	7,083
Adjustments for:
Purchases of investments, including transaction costs		(56,569)	(79,835)
Sales of investments, including transaction costs		53,727	54,566
(Increase)/decrease in receivables		(76)	137
Increase/(decrease) in payables		63	(346)
Overseas taxation deducted at source		(959)	(873)
Net cash generated from/(used in) operating activities		4,342	(19,268)
Cash flows from financing activities
Cost of subscription shares conversion	20	2	35,130
Loan repaid	17	(22,500)	(7,500)
Loan drawn	17	27,500	-
Equity dividends paid	12	(8,212)	(6,371)
Net cash (used in)/generated from financing activities		(3,210)	21,259
Net increase in cash and cash equivalents		1,132	1,991
Cash and cash equivalents at the beginning of the year		7,231	5,240
Cash and cash equivalents at the end of the year	15	8,363	7,231

The notes following the primary statements form part of these financial statements.

 

Notes to the Financial Statements

For the year ended 30 November 2018

1     General Information

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies under IFRS.

The Board has determined that sterling is the Company's functional currency and the presentational currency of the financial statements because it is the currency which is most relevant to the majority of the Company's shareholders and creditors and is the currency in which the majority of the Company's operating expenses are paid. All figures are rounded to the nearest thousand pounds (£'000) except as otherwise stated.

2     Accounting Policies

The principal accounting policies, which have been applied consistently for all periods presented, are set out below:

(a)   Basis of Preparation

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments at fair value through profit or loss. In arriving at a decision on the basis of preparation, the Board has considered the financial position of the Company, its cash flow and liquidity position as well as the liquidation vote, in relation to the Company's fixed life, expected to be proposed at the AGM to be held in April 2020. The Board is satisfied that even if the Company were to enter liquidation at that time, there is no material impact on the preparation of the financial statements for the year ended 30 November 2018.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in November 2014 (and updated in February 2018), is consistent with the requirements of IFRS, in so far as those requirements are applicable to the financial statements, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

(b) Presentation of the Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with the guidance set out by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The results presented in the revenue return column is the measure the directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

(c) Income

Dividends receivable from equity shares are taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis.

Special dividends are recognised on an ex-dividend basis and may be considered to be either revenue or capital items. The facts and circumstances are considered on a case by case basis before a conclusion on appropriate allocation is reached.

Where the Company has received dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the revenue return column of the Statement of Comprehensive Income. Any excess in value of shares received over the amount of cash dividend foregone is recognised in the capital return column of the Statement of Comprehensive Income.

The fixed returns on debt securities and non-equity shares are recognised under the effective interest rate method.

Bank interest is accounted for on an accruals basis. Interest outstanding at the year end is calculated on a time apportionment basis using market rates of interest.

(d) Written Options

The Company may write exchange-traded options with a view to generating income. This involves writing short-dated covered-call options and put options. The use of financial derivatives is governed by the Company's policies, as approved by the Board.

These options are recorded initially at fair value, based on the premium income received, and are then measured at subsequent reporting dates at fair value. Changes in the fair value of the options are recognised in the capital return for the year.

The option premiums are recognised evenly over the life of the option and shown in the revenue return, with an appropriate amount shown in the capital return to ensure the total return reflects the overall change in the fair value of the options.

Where an option is exercised, any balance of the premium is recognised immediately in the revenue return with a corresponding adjustment in the capital return based on the amount of the loss arising on exercise of the option.

(e) Expenses and Finance Costs

All expenses, including the management fee, are accounted for on an accruals basis.

Expenses are allocated wholly to the revenue column of the Statement of Comprehensive Income except as follows:

Expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect the investment management fees have been charged to the Statement of Comprehensive Income 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, 20% of the investment management fees are charged to the revenue account and 80% charged to the capital account of the Statement of Comprehensive Income.

Finance costs are calculated using the effective interest rate method and are accounted for on an accruals basis and, in line with the management fee expense, are charged 20% to the revenue account and 80% to the capital account of the Statement of Comprehensive Income.

Any performance fee accrued is charged entirely to capital as the fee is based on the out-performance of the Benchmark and is expected to be attributable largely, if not wholly, to capital performance. A provision will be recognised when out-performance has been achieved in accordance with the calculations detailed above and in the Annual Report.

The research costs relate solely to specialist financial research and are accounted for on an accrual basis and, are allocated 20% to revenue and 80% capital in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio.

(f) Taxation

The tax expense represents the sum of the overseas withholding tax deducted from investment income, tax currently payable and deferred tax.

The tax currently payable is based on the taxable profits for the year ended 30 November 2018. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on temporary 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 balance sheet 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 Taxes Act 2010 are not liable for taxation on capital gains.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(g) Investments Held at Fair Value Through Profit or Loss

When a purchase or sale is made under contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date and are initially measured at fair value.

On initial recognition the Company has designated all of its investments as held at fair value through profit or loss as defined by IFRS. All investments are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

Written options are valued at fair value using quoted bid prices.

The Contracts for Difference are valued based on the price of the underlying security or index which they are purchased to reflect.

All investments, classified as fair value through profit or loss, are further categorised into the fair value hierarchy detailed below.

Changes in fair value of all investments and derivatives held at fair value and realised gains and losses on disposal are recognised in the capital return column of the Statement of Comprehensive Income.

In respect of unquoted investments, or where the market for a financial instrument is not active, fair value is established by using various valuation techniques, in accordance with the International Private Equity and Venture Capital ("IPEVC") Valuation Guidelines - Edition December 2015 (which superseded the previous 2012 Valuation Guidelines). These may include using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to recent rounds of re-financing undertaken by investee companies involving knowledgeable parties, reference to the current fair value of another instrument that is substantially the same or an earnings multiple.

(h) Receivables

Receivables are initially recognised at fair value and subsequently measured at amortised cost. Receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value (amortised cost) as reduced by appropriate allowances for estimated irrecoverable amounts.

(i) Cash and Cash Equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, maturity of 3 months or less, highly liquid investments that are readily convertible to known amounts of cash.

(j) Dividends Payable

Dividends payable to shareholders are recognised in the financial statements when they are paid or, in the case of final dividends, when they are approved by the shareholders.

(k) Payables

Payables are not interest-bearing and are initially valued at fair value and subsequently stated at their nominal value (amortised cost).

(l) Foreign Currency Translation

Transactions in foreign currencies are translated into sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, monetary liabilities and equity investments in foreign currencies at the balance sheet date are translated into sterling at the rates of exchange ruling on that date.

Realised profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Statement of Comprehensive Income.

Foreign exchange gains and losses arising on investments held at fair value are included within changes in fair value.

(m) Share Capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity, as a deduction, net of tax, from the proceeds.

(n) Capital Reserves

Capital reserves arising on investments sold includes:

- gains/losses on disposal of investments;

- exchange differences on currency balances; and

- other capital charges and credits charged to this account in accordance with the accounting policies above.

Capital reserve arising on investments held includes:

- increases and decreases in the valuation of investments held at the balance sheet date.

All of the above are accounted for in the Statement of Comprehensive Income.

(o) Repurchase of Ordinary Shares

The costs of repurchasing Ordinary shares including related stamp duty and transaction costs are taken directly to equity and reported through the Statement of Changes in Equity as a charge on the special distributable reserve. Share repurchase transactions are accounted for on a trade date basis.

The nominal value of Ordinary share capital repurchased and cancelled is transferred out of called up share capital and into the capital redemption reserve.

(p) Share Issue Costs

Costs incurred directly in relation to the exercise of the subscription shares and issue of new shares together with additional share listing costs have been deducted from the share premium reserve.

(q) New and revised accounting Standards

There were no new IFRSs or amendments to IFRSs applicable to the current year which had any significant impact on the Company's accounts. At the date of authorisation of these financial statements, the following new IFRS that potentially impacts the Company is in issue but is not yet effective and has not been applied in these accounts:

Effective for periods commencing on or after 1 January 2018:

IFRS9 Financial Instruments

The requirements of IFRS9 and its application to the assets and liabilities held by the Company were considered ahead of its adoption on 1 January 2018. The classification of all assets and liabilities remains unchanged under IFRS9 and all figures will be directly comparable to the existing basis of valuation.

IFRS15, Revenue with Contracts with Customers

IFRS15 sets out the requirements for revenue recognition. The Company's only revenue streams are dividend income and gains and losses from sale of investments. Given the nature of the Company's revenue streams from financial instruments, the provisions of this standard are not expected to have a material impact.

IFRS2 (amended) Classification and Measurement of Share-based payment transactions

IFRIC22 Foreign currency transactions and advance consideration

Annual Improvement Cycles 2015-2017

Effective for periods commencing on or after 1 January 2019:

IFRS16 Leases

IFRIC23 Uncertainty over Income Tax Treatments

IAS19 (amended) Employee Benefits

IAS28 (amended) Investments in Associates and Joint Ventures

The Directors expect that the adoption of the standards listed above will have either no impact or that any impact will not be material on the Financial Statement of the Company in future periods.

(r) Segmental Reporting

Under IFRS8, 'Operating Segments', operating segments are considered to be the components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker has been identified as the Investment Manager (with oversight from the Board).

The Directors are of the opinion that the Company has only one operating segment and as such no distinct segmental reporting is required.

(s) Critical Accounting Estimates and Judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Estimates and assumptions used in preparing the financial statements are reviewed on an ongoing basis and are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The results of these estimates and assumptions form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

The key judgements and sources of estimation uncertainty that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities and expenses in future periods are as follows:

Valuation of Level 3 Investments

Investments valued using valuation techniques include unlisted financial investments, which by their nature, do not have an externally quoted price based on regular trades.

The valuation techniques used may include the techniques described in note 2(g). When determining the inputs into the valuation techniques used, priority is given to publicly available prices from independent sources when available, but overall the source of pricing is chosen with the objective of arriving at a fair value measurement that reflects the price at which an orderly transaction would take place between market participants at the balance sheet date.

3     Investment Income

	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
UK dividends	1,712	1,271
Overseas dividends	8,912	7,144
Scrip dividends	146	126
Interest on debt securities	904	1,138
Dividends on contracts for difference	-	78
Total investment income	11,674	9,757
Capital:
Special dividends allocated to capital	-	8
Total investment income allocated to capital	-	8

4     Other Operating Income          

	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Bank interest	23	6
Total other operating income	23	6

5     (Losses)/Gains on Investments Held at Fair Value               

	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Net gains on disposal of investments at historic cost	10,088	10,970
Less fair value adjustments in earlier years	(12,275)	(6,561)
(Losses)/gains based on carrying value at previous balance sheet date	(2,187)	4,409
Valuation (losses)/gains on investments held during the year	(9,443)	26,362
	(11,630)	30,771

6     Other Currency (Losses)/Gains

	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Exchange (losses)/gains on currency balances	(63)	25

7     Investment Management Fee

	Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Management fee
- charged to revenue	475	416
- charged to capital	1,900	1,665
Investment management fee payable to Polar Capital LLP	2,375	2,081

Management fees are allocated 20% to revenue and 80% to capital. Details of the fee arrangements are given in the Strategic Report above.

8     Other Administrative Expenses (including VAT where appropriate)

		Year ended 30 November 2018 £'000	Year ended 30 November 2017 £'000
Directors' fees*		95	90
Directors' NIC		6	6
Auditors' remuneration - for the audit of the financial statements		26	25
Depositary fee **		28	33
Registrar fee		25	26
Custody and other bank charges**		42	50
UKLA and LSE listing fees		24	21
Legal & professional fees***		6	14
AIC fees		18	18
Directors' and officers' liability insurance		8	8
Corporate broker's fee		51	48
Marketing expenses		9	26
Research costs****		4	-
Shareholder communications		25	20
HSBC administration fee		128	124
Other expenses		11	11
		506	520
Research costs - allocated to capital****		15	-
		521	520

*Full disclosure is given in the Directors' Remuneration Report in the Annual Report.

**Fees determined on the pre-approved rate card with HSBC.

***Includes Taiwan tax agent fee.

****Research costs (which applied from 3 January 2018) payable by the Company relate solely to specialist financial research. The estimated spend for the calendar year 2018 was US $26,811 (£21,013), the cost of general mon-specialist research was absorbed by Polar Capital.  These costs are allocated 20% to revenue and 80% to capital and are included in the ongoing charges calculation.

Research costs were previously wrapped up in trade commission. Under MIFID II which applied from 3 January 2018, changes were made to how investment managers pay for their research. This new regime requires investment managers to budget separately for research and trading costs.

9     Finance Costs               

	Year ended 30 November 2018			Year ended 30 November 2017
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Interest on loans and overdrafts	61	241	302	47	189	236
Loan arrangement fees	8	33	41	6	23	29
	69	274	343	53	212	265

Finance costs are allocated 20% to revenue and 80% to capital.

10   Taxation        

	Year ended 30 November 2018			Year ended 30 November 2017
	Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
a) Analysis of tax charge/(credit) for the year:
Overseas tax	833	-	833	671	-	671
Adjustment in respect of previous year end	-	-	-	13	-	13
Tax relief in capital	257	(257)	-	266	(266)	-
Double taxation relief	-	-	-	-	-	-
Overseas capital gain tax	-	30	30	-	81	81
Total tax for the year (see note 10b)	1,090	(227)	863	950	(185)	765

b) Factors affecting tax charge/(credit) for the year:
The charge/(credit) for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows:
	Year ended 30 November 2018			Year ended 30 November 2017
	Revenue Return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Profit/(loss) before tax	10,647	(13,882)	(3,235)	8,774	29,236	38,010
Tax at the UK corporation tax rate of 19%* (2017: 19%)	2,023	(2,637)	(614)	1,111	3,703	4,814
Tax at the UK corporation tax rate of 20% (2017: 20%)	-	-	-	585	1,949	2,534
Tax effect of non-taxable dividends	(1,681)	-	(1,681)	(1,333)	(2)	(1,335)
Losses/(gains) on investments that are not taxable	-	2,222	2,222	-	(6,013)	(6,013)
Adjustment in respect of previous year end	-	-	-	13	-	13
Overseas tax suffered	833	-	833	671	-	671
Overseas capital gain tax	-	30	30	-	81	81
Unrelieved current period expenses and deficits	-	90	90	-	-	-
Tax relief on overseas tax suffered	(85)	68	(17)	(97)	97	-
Total tax for the year (see note 10a)	1,090	(227)	863	950	(185)	765

*The standard rate of corporation tax in the UK is 19% with effect from 1 April 2018. Accordingly, the Company's profits for this accounting year are taxed at an effective rate of 19%.

c) Factors that may affect future tax charges:              

The Company has an unrecognised deferred tax asset of £126,000 (30 November 2017: £nil) based on a prospective corporation tax rate of 17% (2017: 17%).

The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the financial statements.

Given the Company's intention to continue to meet the conditions required to retain its status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.

11   Earnings/(Losses) Per Ordinary Share    

The calculation of basic earnings/(losses) per share is based on the following data:            

	Year ended 30 November 2018			Year ended 30 November 2017
	Revenue return	Capital return	Total return	Revenue return	Capital return	Total return
Net profit for the year (£'000)	9,557	(13,655)	(4,098)	7,824	29,421	37,245
Weighted average ordinary shares in issue during the year ended 30 November 2018	202,775,000	202,775,000	202,775,000	182,294,641	182,294,641	182,294,641
From continuing operations
Basic - ordinary shares (pence)	4.71	(6.73)	(2.02)	4.29	16.14	20.43

As at 30 November 2018 there were no potentially dilutive shares in issue (2017: nil).

12   Amounts Recognised as Distributions to Ordinary Shareholders in the Year

        Dividends paid in the year ended 30 November 2018

Payment date	No of shares	Amount per share	Year ended 30 November 2018 £'000
28 February 2018	202,775,000	1.80p	3,650
31 August 2018	202,775,000	2.25p	4,562
			8,212

The revenue available for distribution by way of dividend for the year is £9,557,000 (2017: £7,824,000).

The total dividends payable in respect of the financial year ended 30 November 2018, which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, are set out below:

Payment date	No of shares	Amount per share	Year ended 30 November 2018 £'000
31 August 2018	202,775,000	2.25p	4,562
28 February 2019	202,775,000	1.90p	3,853
			8,415

The total dividends payable in respect of the financial year ended 30 November 2017 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, are set out below:         

Payment date	No of shares	Amount per share	Year ended 30 November 2017 £'000
25 August 2017	172,175,000	2.10p	3,616
28 February 2018	202,775,000	1.80p	3,650
			7,266

13   Investments

        (a) Investments

	30 November 2018 £'000	30 November 2017 £'000
Cost brought forward	222,644	183,433
Valuation gains	75,731	55,930
Valuation at 1 December	298,375	239,363
Additions at cost	53,910	80,143
Proceeds on disposal	(54,324)	(51,932)
(Losses)/gains on disposal	(2,187)	4,409
Amortisation on fixed interest securities	93	30
Add: Valuation (losses)/gains	(9,443)	26,362
Valuation at 30 November	286,424	298,375
Cost at 30 November	232,411	222,644
Closing fair value adjustment	54,013	75,731
Valuation at 30 November	286,424	298,375

The following transaction costs, including stamp duty and broker commissions, were incurred during the year:

	30 November 2018 £'000	30 November 2017 £'000
On acquisitions	51	179
On disposals	31	94
	82	273

 (b) Fair value hierarchy     

The Company's financial instruments within the scope of IFRS7 that are held at fair value comprise its investment portfolio and derivative financial instruments.

They are categorised into a hierarchy consisting of the following three levels:

Level 1 - valued using quoted prices in active markets for identical assets or liabilities.

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted market prices included within Level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset.

Details of the valuation techniques used by the Company are given in note 2(g) above.

The following tables set out the fair value measurements using the IFRS7 hierarchy at 30 November 2018 and 2017:

	As at 30 November 2018
	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity Investments	262,711	-	3,191	265,902
Interest bearing securities	20,522	-	-	20,522
Total	283,233	-	3,191	286,424
The Level 3 investment relates to the shares in Atom Bank.
	As at 30 November 2017
	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equity Investments	274,149	-	3,191	277,340
Interest bearing securities	21,035	-	-	21,035
Total	295,184	-	3,191	298,375

The Level 3 investment relates to the shares in Atom Bank.

Level 3 investments at fair value through profit or loss	30 November 2018 £'000	30 November 2017 £'000
Opening balance	3,191	2,774
Total gains included in the Statement of Comprehensive Income
- on assets held at the year end	-	417
Closing balance	3,191	3,191

Level 3 investments are recognised at fair value through profit or loss on a recurring basis.

Level 3 investments are valued by comparison to recent arm's length transactions. As such, the valuation of the investment in Atom Bank reflects the price per share at which Atom Bank agreed terms with external shareholders and at which additional capital was raised during the year.

A +/- 10% change in the price used to value the investment in Atom Bank as at the year end would result in a +/- £319,000 (2017: £319,000) impact on the profit or loss.

c)     Unquoted investments             

The value of the unquoted investments as at 30 November 2018 was £3,191,000 (2017: £3,191,000) and the portfolio comprised the following holdings:

	30 November 2018 £'000	30 November 2017 £'000
Atom Bank	3,191	3,191
	3,191	3,191

At 30 November 2018, the Company owned 0.71% (2017: 1.51%) of Atom Bank's issued share capital. Atom Bank was granted a full banking licence on 4 April 2016 and started to accept savings and loan business from this date.

As at 31 March 2018 (Atom Bank's financial year end), Atom Bank announced that the Bank had made pre-tax losses of £52,680,000 (2017: £42,212,000) and had net assets attributable to shareholders of £134,971,000 (2017: £103,946,000).

The valuation of Atom Bank was reviewed by the Investment Manager and Board.  Taking into account the operating performance of the bank and its expected future performance, market movements in the share prices of UK banks and the valuations at which other start-up banks have raised capital, the valuation was left unchanged from the price at which it last raised capital from shareholders during the year.

14   Receivables  

	30 November 2018 £'000	30 November 2017 £'000
Securities sold awaiting settlement	597	-
VAT recoverable	2	10
Dividends and interest receivable	814	733
Prepayments	26	23
	1,439	766

15   Cash and Cash Equivalents        

	30 November 2018 £'000	30 November 2017 £'000
Cash at bank	5,977	4,903
Cash held at derivative clearing houses	2,386	2,328
	8,363	7,231

16   Payables        

	30 November 2018 £'000	30 November 2017 £'000
Securities purchased awaiting settlement	-	2,805
Accruals	456	393
	456	3,198

17   Bank Loans

i)              Bank loans

	30 November 2018 £'000	30 November 2017 £'000
The Company has the following unsecured Sterling loans:
£10m at 1.4% repayable 13 July 2018	-	10,000
£15m at 1.775% repayable 12 July 2019	15,000	-
	15,000	10,000

The loan amounts have been drawn on the Company's £30 million (2017: £25 million) facility with ING Bank N.V. The facility is unsecured but is subject to covenants and restrictions which are customary for a facility of this nature, all of which have been complied with during the year. £15m was drawn down from the facility at the year end. See 'About us' on inside front cover of the Annual Report for further information.

Bank loan is due for settlement within 12 months and is stated at its fair value, which equates to amortised cost.

The main covenants to the loan are:

(i) Total borrowings shall not exceed 35%.

(ii) The Company's minimum net asset value shall be £50m.

(iii) The Company shall not change the investment manager without the prior consent of the shareholders.

(iv) The Company shall ensure that the collateral posted with CFD and derivative transaction counterparties shall not exceed an aggregate of 8% of the net asset value.

ii)             Reconciliation of bank loans

	30 November 2018 £'000	30 November 2017 £'000
Bank loans held as at 1 December 2017	10,000	17,500
Loan repaid	(22,500)	(7,500)
Loan drawn	27,500	-
Bank loans held as at 30 November 2018	15,000	10,000

18   Called Up Share Capital             

	30 November 2018 £'000	30 November 2017 £'000
Allotted, Called up and Fully paid:
Ordinary shares of 5p each:
Opening balance of 202,775,000 (30 November 2017: 172,175,000)	10,139	8,609
Issue of nil (2017: 30,600,000) ordinary shares on conversion of subscription shares	-	1,530
Allotted, Called up and Fully paid: 202,775,000 (30 November 2017: 202,775,000) ordinary shares of 5p	10,139	10,139
Subscription shares of 1p each:
Opening balance of nil subscription shares (30 November 2017: 30,600,000)	-	306
Conversion of nil (2017: 30,600,000) subscription shares into ordinary shares	-	(306)
Closing balance of nil (2017: nil) subscription shares	-	-
At 30 November 2018	10,139	10,139

This reserve is not distributable.

No ordinary shares were repurchased or cancelled in the year (2017: Nil)

There were no subscription shares in issue as at 30 November 2018 (2017: 30,600,000 subscription shares were converted into ordinary shares, no subscription shares in issue as at 30 November 2017).

19   Capital Redemption Reserve    

	30 November 2018 £'000	30 November 2017 £'000
At 1 December 2017	251	251
At 30 November 2018	251	251

This reserve is not distributable.

20   Share Premium Reserve           

	30 November 2018 £'000	30 November 2017 £'000
At 1 December 2017	55,852	21,946
Adjustment to prior year subscription share conversion cost*	2	-
Conversion of nil (2017: 30,600,000) subscription shares	-	33,906
At 30 November 2018	55,854	55,852

This reserve is not distributable.

*The adjustment related to the refund of the fee paid out from share premium reserve and VAT adjustment as part of the subscription share conversion and has been paid back in the current period.

21   Special Distributable Reserve   

	30 November 2018 £'000	30 November 2017 £'000
At 1 December 2017	139,235	139,235
At 30 November 2018	139,235	139,235

Surpluses to the credit of the special distributable reserve can be used to purchase the Company's own shares. In addition, the Company may use this reserve for the payment of dividends.

22   Capital Reserves          

	30 November 2018 £'000	30 November 2017 £'000
At 1 December 2017	81,124	51,703
Net (losses)/gains on disposal of investments	(2,187)	4,409
Valuation (losses)/gains on investments held during the year	(9,443)	26,362
Gains on contracts for difference	-	309
Special dividends allocated to capital	-	8
Exchange (losses)/gains on currency balances	(63)	25
Investment management fee charged to capital	(1,900)	(1,665)
Research costs charged to capital	(15)	-
Finance costs	(274)	(212)
Overseas capital gain tax	(30)	(81)
Tax relief due from revenue	257	266
At 30 November 2018	67,469	81,124

The balance on the capital reserve represents a profit of £54,013,000 (2017: profit of £75,007,000) on investments held and a

gain of £13,456,000 (2017: gain of £6,117,000) on investments sold.

The balance on investments held comprises holding gains on investments (which may be deemed to be realised and other amounts, which are unrealised. An analysis has not been made between the amounts that are realised (and may be distributed or used to repurchase the Company's shares) and those that are unrealised.

The balance on investments sold are realised distributable capital reserves which may be used to repurchase Company's shares or be distributed as dividends.

23   Revenue Reserve        

	30 November 2018 £'000	30 November 2017 £'000
At 1 December 2017	6,691	5,238
Revenue profit	9,557	7,824
Interim dividends paid	(8,212)	(6,371)
At 30 November 2018	8,036	6,691

The revenue reserve may be distributed or used to repurchase the Company's shares (subject to being a positive balance).

24   Net Asset Value Per Ordinary Share      

	30 November 2018	30 November 2017
Net assets attributable to ordinary shareholders (£'000)	280,984	293,292
Ordinary shares in issue at end of year	202,775,000	202,775,000
Net asset value per ordinary share (pence)	138.57	144.64

As at 30 November 2018, there were no potentially dilutive shares in issue (2017: 30,600,000 subscription shares were converted into ordinary shares at 115p per share at the conversion date 31 July 2017. There was no dilutive effect on the net asset value per ordinary share as no potentially dilutive shares were in issue as at 30 November 2017).

25   Transactions with the Investment Manager and Related Party Transactions

(a) Transactions with the manager 

Under the terms of an agreement dated 11 June 2013 the Company has appointed Polar Capital LLP ("Polar Capital") to provide investment management, accounting, secretarial and administrative services. Details of the fee arrangement for these services are given in the Strategic Report. The total fees, paid under this agreement to Polar Capital in respect of the year ended 30 November 2018 were £2,375,000 (2017: £2,081,000) of which £184,000 (2017: £197,000) was outstanding at the year end.

In addition, the total research costs in respect of the period from 1 January 2018 to the year ended 30 November 2018 were £19,000 (2017: £nil) of which £13,000 (2017: £nil) was outstanding at the year end.

(b) Related party transactions         

The Company has no employees and therefore no key management personnel other than the Directors. The Company paid £95,000 (2017: £90,000) to the Directors of which £26,000 (2017: £25,000) was outstanding at the year end and the Remuneration Report is provided in the Annual Report. When dividends are paid by the Company these are received by the Directors at the same rates and terms as by all other shareholders.

26   Derivatives and Other Financial Instruments       

Risk management policies and procedures for the Company   

The Company invests in equities, debt securities and other financial instruments for the long-term to further the investment objective set above.

This exposes the Company to a range of financial risks that could impact on the assets or performance of the Company.

The main risks arising from the Company's pursuit of its investment objective are market risk, liquidity risk and credit risk and the Directors' approach to the management of them is set out below. 

The Company's exposure to financial instruments can comprise:

- Equity and non-equity shares and fixed interest securities which may be held in the investment portfolio in accordance with the investment objective.

- Borrowings, the main purpose of which is to enhance returns.

- Cash, liquid resources and short-term debtors and creditors that arise directly from the Company's operations

- Derivative transactions which the Company enters into may include equity or index options, contracts for difference, index futures contracts, and forward foreign exchange contracts. The purpose of these is to manage the market price risks and foreign exchange risks arising from the Company's investment activities.

The overall management of the risks is determined by the Board and its approach to each risk identified is set out below. The Board and the Investment Manager co-ordinate the risk management and the Investment Manager assesses the exposure to market risk when making each investment decision.   

(a) Market Risk

Market risk comprises three types of risk: market price risk (see note 26(a)(i)), currency risk (see note 26(a)(ii)), and interest rate risk (see note 26(a)(iii)). Further details are included in the Strategic Report above.

(i) Market Price Risk

The Company is an investment company and as such its performance is dependent on its valuation of its investments. Consequently market price risk is the most significant risk that the Company faces.

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Company's operations. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

A detailed breakdown of the investment portfolio is provided above. Investments are valued in accordance with the accounting policies as stated in note 2(g).

At the year end, there was no derivative instrument included in the Company's portfolio (2017: nil).

Management of the risk

In order to manage this risk it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a particular financial sub sector. The allocation of assets to international markets, together with stock selection covering small, medium and large companies, and the use of options, are additional factors which act to reduce price risk. The Investment Manager actively monitors market prices and reports to the Board, which meets regularly in order to consider investment strategy.

Market price risk exposure

The Company's exposure to changes in market prices at 30 November was as follows:

	30 November 2018 £'000	30 November 2017 £'000
Investments held at fair value through profit or loss	286,424	298,375

Market price risk sensitivity              

The following table illustrates the sensitivity of the return after taxation for the year and the value of shareholders' funds to an increase or decrease of 15% (2017: 15%) in the fair values of the Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions and historic trends. The sensitivity analysis is based on the Company's investments at each balance sheet date, adjusting for a change in management fee, with all other variables held constant.

	30 November 2018		30 November 2017
	Increase in fair value £'000	Decrease in fair value £'000	Increase in fair value £'000	Decrease in fair value £'000
Statement of Comprehensive Income - profit after tax
Revenue return	(73)	73	(76)	76
Capital return	42,671	(42,671)	44,452	(44,452)
Change to the profit after tax for the year	42,598	(42,598)	44,376	(44,376)
Change to equity attributable to shareholders	42,598	(42,598)	44,376	(44,376)

(ii) Currency Risk 

The Company's total return and net assets can be significantly affected by currency translation movements as the majority of the Company's assets and revenue are denominated in currencies other than Sterling.

Management of the risk    

The Investment Manager mitigates risks through an international spread of investments.

Derivative contracts may be used to hedge against the exposure to currency risk at the Investment Manager's discretion.

Foreign currency exposure

The table below shows, by currency, the split of the Company's monetary assets, liabilities and investments that are priced in currencies other than Sterling.

	30 November 2018 £'000	30 November 2017 £'000
Monetary Assets:
Cash and short-term receivables
US dollars	530	505
Taiwan dollars	507	427
Euros	303	201
Japanese yen	171	814
Norwegian krona	29	28
Monetary Liabilities:
Payables
US dollar	(14)	(2,068)
Japanese yen	-	(737)
Foreign currency exposure on net monetary items	1,526	(830)
Non-Monetary Items:
Investments held at fair value through profit or loss
US dollars	133,913	126,689
Euros	39,720	56,148
Hong Kong dollars	13,855	10,784
Singapore dollars	12,761	11,601
Japanese yen	9,671	5,630
Canadian dollars	6,413	5,965
Swedish krone	5,702	6,556
Indian rupee	5,865	7,012
Norwegian krona	4,865	6,699
Taiwan dollars	4,100	3,335
Australian dollars	3,844	4,398
Swiss francs	3,385	4,085
Thai baht	3,041	3,479
Brazilian real	-	1,853
Total net foreign currency exposure	248,661	253,404

Foreign currency sensitivity              

The following tables illustrate the sensitivity of net profit for the year and net assets with regard to the Company's monetary financial assets and liabilities and exchange rates. The sensitivity analysis is based on the Company's monetary currency financial instruments held at the balance sheet date and assumes a 15% (2017: 15%) appreciation or depreciation in Sterling against the currencies to which the Company is exposed, which is considered to be a reasonable illustration based on the volatility of exchange rates during the year.

If Sterling had weakened by 15% this would have had the following effect:

	30 November 2018 £'000	30 November 2017 £'000
Statement of Comprehensive Income - profit after tax
Revenue return	1,261	1,040
Capital return	229	(125)
Change to the profit after tax for the year	1,490	915
Change to equity attributable to shareholders	1,490	915

Conversely if Sterling had strengthened by 15% this would have had the following effect:

	30 November 2018 £'000	30 November 2017 £'000
Statement of Comprehensive Income - profit after tax
Revenue return	(1,261)	(1,040)
Capital return	(229)	125
Change to the profit after tax for the year	(1,490)	(915)
Change to equity attributable to shareholders	(1,490)	(915)

In the opinion of the Directors, while these are regarded as reasonable estimates, neither of the above sensitivity analyses are representative of the year as a whole since the level of exposure changes frequently as part of the currency risk management process used to meet the Company's objectives.

(iii) Interest Rate Risk

The Company will be affected by interest rate changes as it holds interest-bearing financial assets. Interest rate changes will also have an impact on the valuation of investments, although this forms part of price risk, which is considered separately above.

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.

Derivative contracts may be used to hedge against the exposure to currency risk at the Investment Manager's discretion.

Interest rate exposure

The exposure, at 30 November 2018, of financial assets and liabilities to interest rate risk is shown by reference to:

- Floating interest rates (i.e. giving cash flow interest rate risk) - when the rate is due to be re-set; and

- Fixed interest rates (i.e. giving fair value interest rate risk) - when the financial instrument is due for repayment.

	30 November 2018
	Within one year £'000	More than one year £'000	Total £'000
Exposure to floating interest rates:
Cash and cash equivalents	8,363	-	8,363
Non-current asset investments held at fair value through profit or loss	-	14,343	14,343
Exposure to fixed interest rates:
Non-current asset investments held at fair value through profit or loss	-	6,179	6,179
Bank loans	(15,000)	-	(15,000)
Total exposure to interest rates	(6,637)	20,522	13,885

	30 November 2017
	Within one year £'000	More than one year £'000	Total £'000
Exposure to floating interest rates:
Cash and cash equivalents	7,231	-	7,231
Non-current asset investments held at fair value through profit or loss	-	15,538	15,538
Exposure to fixed interest rates:
Non-current asset investments held at fair value through profit or loss	-	5,497	5,497
Bank loans	(10,000)	-	(10,000)
Total exposure to interest rates	(2,769)	21,035	18,266

The weighted average interest rate for the fixed rate financial assets was 9.2% (30 November 2017: 6.3%) and the effective period for which the rate was fixed was 3.4 years (30 November 2017: 4.4 years).

During the year the Company agreed a £30 million (2017: £25 million) loan facility with ING Bank N.V. Interest is payable at a rate of LIBOR as quoted in the market for the relevant currency and period, plus a margin, plus mandatory costs, which are the lender's costs of complying with certain regulatory requirements of the Bank of England. Details of the amounts drawn on this facility as at 30 November 2018, and the interest rates applying, are given in note 17.

The above amounts are not necessarily representative of the exposure to interest rates in the year ahead, as the level of cash and investment in fixed interest securities varies during the year according to the performance of the stock market, events within the wider economy and the Investment Manager's decisions on the best use of cash or borrowings over the year.

Interest rate sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and net assets to an increase or decrease of 25 basis points in interest rates in regard to the Company's monetary financial assets, which are subject to interest rate risk. This level of change is considered to be reasonably possible based on observation of current market conditions.

The sensitivity analysis is based on the Company's monetary financial instruments held at each balance sheet date, with all other variables held constant.

	30 November 2018		30 November 2017
	Increase in rate £'000	Decrease in rate £'000	Increase in rate £'000	Decrease in rate £'000
Effect on revenue return	21	(21)	18	(18)
Effect on capital return	-	-	-	-
Effect on net profit and on equity attributable to shareholders	21	(21)	18	(18)

In the opinion of the Directors, the above sensitivity analyses may not be representative of the year as a whole, since the level of exposure may change.

(b) Liquidity Risk 

Liquidity risk is the possibility of failure of the Company to realise sufficient assets to meet its financial liabilities.

Management of the risk    

The Company's assets mainly comprise readily realisable securities which may be sold to meet funding requirements as necessary.

Liquidity risk exposure      

At 30 November the financial liabilities comprised of:

	30 November 2018 £'000	30 November 2017 £'000
Due within 1 month:
Balances due to brokers	-	2,805
Accruals	456	393
Due after 3 months and within 1 year:
Bank loan	15,000	10,000
	15,456	13,198

(c) Credit Risk       

Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits.

Management of the risk    

The Company manages credit risk by using brokers from a database of approved brokers and by dealing through Polar Capital. All cash balances are held with approved counterparties.

HSBC Bank plc is the custodian of the Company's assets. The Company's assets are segregated from HSBC's own trading assets and are therefore protected in the event that HSBC were to cease trading.

These arrangements were in place throughout the current and prior year.

Credit risk exposure

The maximum exposure to credit risk at 30 November 2018 was £9,774,000 (2017: £7,964,000) comprising:

	30 November 2018 £'000	30 November 2017 £'000
Balances due from brokers	597	-
Accrued Income	814	733
Cash and cash equivalents	8,363	7,231
	9,774	7,964

All of the above financial assets are current, their fair values are considered to be the same as the values shown and the likelihood of a material credit default is considered low. None of the Company's financial assets are past due or impaired. All deposits were placed with banks that had ratings of A or higher.

(d) Gearing Risk

The Company's policy is to increase its exposure to markets through the judicious use of borrowings. When borrowings are invested, the impact is to magnify the impact on Shareholder's funds of changes, both positive and negative, in the value of the portfolio.

Management of the risk    

The Company uses short-term loans to manage gearing risk, details of which can be found in note 17.

Gearing risk exposure        

The loans are valued at amortised cost, using the effective interest rate method in the financial statements.

(e) Capital Management Policies and Procedures

The Company's capital, or equity, is represented by its net assets which amounted to £280,984,000 as at 30 November 2018 (£293,292,000 as at 30 November 2017), which are managed to achieve the Company's investment objective.

The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis.

This review includes:

(i)                  the need to issue or buy back equity shares for cancellation, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium),

(ii)                 the determination of dividend payments and

(iii)               the planned level of gearing through the Company's fixed rate loan facility.

The Company is subject to externally imposed capital requirements through the Companies Act 2006 with respect to its status as a public company. In addition, in order to pay dividends out of profits available for distribution by way of dividend, the Company has to be able to meet one of the two capital restriction tests imposed on investment companies by company law. 

27           Capital Commitments, Contingent Assets and Liabilities           

Capital Commitments       

The Company has no commitments to further investment in Atom Bank (2017: nil).

Status of announcement 

The figures and financial information contained in this announcement are extracted from the Audited Annual Report for the year ended 30 November 2018 and do not constitute statutory accounts for the year. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.  

The Annual Report and Financial Statements for the year ended 30 November 2018 have not yet been delivered to the Registrar of Companies. The figures and financial information for the year ended 30 November 2017 are extracted from the published Annual Report and Financial Statements for the year ended 30 November 2017 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements for the year ended 30 November 2017 have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.

The Directors' Remuneration Report and certain other helpful shareholder information has not been included in this announcement but forms part of the Annual Report which will be available on the Company's website and will be sent to shareholders in or around late February 2019. (www.polarcapitalglobafinancialstrust.com).

AGM 

The Annual Report and separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in or around late February 2019 and will be available thereafter from the Company Secretary at the Registered Office, 16 Palace Street, London, SW1E 5JD or from the Company's website.

Forward Looking Statements

Certain statements included in the Annual Report and Financial Statements contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks and uncertainties included in the Strategic Report Section of the Annual Report and Financial Statements.

No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Global Financials Trust plc or any other entity and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements.

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

END

 

 

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