Final Results
POLAR CAPITAL GLOBAL HEALTHCARE GROWTH AND INCOME TRUST PLC
ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2015
THIS ANNOUNCEMENT CONTAINS REGULATED INFORMATION
16 December 2015
Financial Highlights - For the year ended 30 September 2015
|
Performance |
|
||
|
Net asset value per ordinary share (total return) (note 1) |
8.1% |
||
|
Benchmark index (MSCI ACWI/Healthcare Index (total return in Sterling with dividends reinvested)) |
9.6% |
||
|
Total return for investors since inception (note 2) |
101.3% |
||
|
|
|
|
|
|
Financials |
As at |
As at |
% Change |
|
Net asset value per ordinary share |
174.24p |
164.41p |
6.0% |
|
Ordinary share price |
168.25p |
155.50p |
8.2% |
|
Discount |
-3.4% |
-5.4% |
|
|
Share Capital |
|
|
|
|
Total issued ordinary shares |
122,650,000 |
122,650,000 |
|
|
Ordinary shares held in treasury |
1,875,000 |
1,030,000 |
|
|
Ordinary shares in issue |
120,775,000 |
121,620,000 |
|
|
Expenses |
|
|
|
|
Ongoing charges (note 3) |
1.00% |
1.04% |
|
Dividends
The Company has paid the following dividends relating to the financial year ended 30 September 2015:
|
Pay date |
Amount per |
Record date |
Ex-date |
Declared date |
|
27 February 2015 |
0.60p |
6 February 2015 |
5 February 2015 |
23 January 2015 |
|
29 May 2015 |
0.60p |
15 May 2015 |
14 May 2015 |
11 May 2015 |
|
28 August 2015 |
1.80p |
7 August 2015 |
6 August 2015 |
27 July 2015 |
|
27 Nov 2015 |
0.65p |
6 Nov 2015 |
5 Nov 2015 |
27 October 2015 |
|
Total (2014: 3.5p) |
3.65p |
|
|
|
All data sourced from Polar Capital LLP
Note 1-The total return NAV performance per ordinary share for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant payment date and adjusting for the subscription share dilution.
Note 2-The total return for investors since Inception calculation is adjusted for dividends to have been reinvested on the payment date in ordinary shares at the prevailing share price and assumes that all investors have exercised their subscription rights.
Note 3-Ongoing charges represents the total expenses of the fund, excluding finance costs, expressed as a percentage of the average daily net asset value, in accordance with AIC guidance issued in May 2012.
Chairman's Statement
Performance
It was a financial year of two distinct halves. The first half saw very strong NAV performance of over 18% following which we warned shareholders that it was unrealistic to expect this pace of performance to continue. The second half saw our NAV fall by over 10% with the result that the total return for the financial year as a whole was pared back to 8.1%. This compares to 7.2% for the NYSE Pharmaceutical Index and 9.6% for our benchmark, the MSCI Global Healthcare Index. The total return of 8.1% represents 6% capital appreciation together with 2.1% in respect of dividends received by shareholders.
As far as market selection was concerned, we were underweight in the US which, after Japan, was the best performing major market, helped by the strength of the U.S. dollar which rose by 6.6% against sterling over the period. However this was more than offset by our excellent stock selection in the US with the result that this part of the portfolio was a big contributor overall. Our investments in the biotechnology sector, although small, benefited from excellent stock selection by our managers and therefore made a meaningful contribution to performance, notwithstanding the considerable correction in this area which started in late July and went on until the end of September. Where we did lose out, however, was through our underweight positioning in health care services and managed health care both of which performed well.
High performing funds often achieve their performance by taking big risks and are therefore particularly vulnerable to a setback at any time. It is therefore reassuring to note that, as a measure of risk, your Company has a relatively low Beta of 0.8 as compared with its benchmark.
Share Capital
It is pleasing to be able to report that the discount of our share price to NAV which had moved out to 9.8% at the half way stage had reduced to 3.4% by the end of the period, some 2% lower than at the start of the year.
We bought back a total of 845,000 shares into treasury during the year and we now have a total of 1,875,000 treasury shares available for re-issue should the opportunity arise. Meanwhile we will continue to use our share buyback facility where we judge this to be in the best interest of shareholders.
Dividends
The Company aims to increase the dividend on an annual basis progressively and we have again achieved this for the latest year by paying out a total of 3.65p per share compared with 3.50p the previous year, an increase of 4.3%. Although there can obviously be no guarantee, your Board is hoping to continue to increase annual dividend payouts in the future and will be prepared, if necessary, to dip into revenue reserves in order to achieve this.
Life
The Articles of Association provide for the Company to be wound up at its seventh Annual General Meeting which is expected to take place in January 2018. In our half yearly report we provided some initial guidance to shareholders. While the Board will make available a cash exit at that time, it is mindful of the adverse tax implications of winding-up the Company for some shareholders and therefore expects in due course to consider suitable rollover alternatives. By this time next year we should be in a position to provide more detail about this.
Outlook
In healthcare today it is all about giving value for money and being able to demonstrate this. Our Managers believe that companies that help to deliver better healthcare for less money are set to thrive. With this in mind they continue to focus on companies that are either consolidators or innovators that will decrease the cost or increase the quality of healthcare, respectively.
Since the stock market correction this summer healthcare stocks have bounced relatively little compared to the rest of the market. Selling on a price to earnings ratio of 14 times the healthcare sector is now cheaper than the overall market which seems good value given stronger forecast earnings growth.
Since inception in June 2010 your Company has aimed to deliver a total return of 10-12% per annum over the life of the Company and our managers believe that they can continue to achieve this level of return over the next two years.
Annual General Meeting
The Company's fifth Annual General Meeting (AGM) will take place at noon on Wednesday 27 January 2016 at the offices of our managers, Polar Capital, 16 Palace Street, London SW1E 5JD and the nearest tube and main line station is Victoria. A Map of the location is contained in the separate Notice of Annual General Meeting. This will be the first time we have held the meeting in the offices of our manager and we look forward to welcoming you to this new venue. Our manager, Dr Daniel Mahony, will be making a presentation and I would encourage as many of you as possible to come and hear what he has to say. He really is an excellent presenter! Attendance at this meeting also provides a good opportunity for you to meet the members of your Board and to ask any questions you might have, either of us or the manager. A buffet lunch will be served at the conclusion of the meeting.
James Robinson
Chairman
15 December 2015
Investment Manager's Report - For the year ended 30 September 2015
Performance review
For the fiscal year to 30 September 2015, the Company delivered a total return of 8.1%, which was behind the benchmark (MSCI Global Healthcare Index) that recorded a total return of 9.6% over the same period. The healthcare sector was a relative outperformer over the fiscal year with global markets flat to modestly up over this period of time. However, most of the Company's returns came in the first half of the fiscal year with the healthcare sector's strong run beginning to stall in August. Over the course of the fiscal year, the best performing healthcare sub-sectors were managed care and healthcare services with pharmaceutical stocks modestly underperforming the benchmark.
Global stock markets have continued to be volatile over the reporting period with the major drivers related to macroeconomic factors. Equity markets continued on a positive trend over the 6 months to 31 March 2015. Both the Bank of Japan and the European Central Bank embarked on additional quantitative easing (QE) programmes at the beginning of the fiscal year that provided a boost for equities in the final quarter of calendar 2014. Moreover, the Chinese stock market experienced an exuberant rally in March driven in part by hopes that the Chinese government would also provide a stimulus package.
However, investor sentiment turned more negative for the second half to 30 September 2015. Slowing GDP growth for the Chinese economy and the spectre of an asset bubble, especially in property, caused Chinese stock markets to stall in April with a rapid decline over the summer months. For U.S. investors, the prospect of an interest rate rise by the Federal Reserve and the potential for an economic recession drove the change towards a more negative stance. These macroeconomic concerns seemed to come to a head in August with a rapid sell off in equity markets around the world.
For the healthcare sector, the key positive drivers for outperformance during the reporting period have been an increase in patient volumes and utilisation as well as mergers and acquisitions (M&A). As we have discussed previously, President Obama's healthcare reforms have increased healthcare insurance coverage in the U.S. and this has had a positive impact on the top and bottom line for many companies across the healthcare value chain. We have also continued to see consolidation across the sector, especially in speciality pharmaceutical and managed care, as companies look to build scale to improve efficiency.
The one negative concern over the last year has been related to drug pricing. We discuss this in more detail below, but drug companies are beginning to see more pricing pressure from insurers and governments - especially in therapeutic areas where there are a number of competing drugs. However, the big negative in September came from U.S. Democratic Presidential Candidate Hillary Clinton who accused the pharmaceutical industry of "outrageous price gouging". These comments relate to the business model for certain generic and speciality pharmaceutical companies but the negative market reaction suggests that there is a perceived risk of government interference in drug pricing.
Despite this negativity at the end of the reporting period, we remain optimistic on the outlook for healthcare. Importantly, we believe that pharmaceutical companies that are delivering true innovation and, more importantly, value to patients and healthcare systems will be able to command strong pricing for their products. Over the last 12 months, positive clinical data support our view that drug pipelines are being replenished across the sector and this should translate into double-digit earnings growth for the sector.
We remain committed to our investment strategy and will continue to maintain a concentration in pharmaceutical stocks in the portfolio to the end of the Company's life in January 2018. Our goal continues to be to deliver a total return of 10-12% per annum over the life of the Company and we believe that we can achieve this level of return going forward.
Review of the portfolio
The Company's investments are split into an income portfolio and a growth portfolio with an 80:20 split of assets, respectively. All of the companies in the income portfolio pay a dividend and there is a large weighting in the major pharmaceutical companies. Dividend yields for the large pharmaceutical companies are projected to be in the region of 2 to 4% for the coming year with GlaxoSmithKline an outlier with a current dividend yield of 6%. We expect 4-5% dividend growth for the large pharmaceutical peer group over the next fiscal year. The growth portfolio comprises stocks in biotechnology, medical devices, services and pharmaceutical companies.
The Company's investment portfolio has a bias towards large capitalisation companies (greater than $5 billion) and pharmaceutical companies, with weightings of 76% and 70%, respectively, as of 30 September 2015. As a measure of risk, the beta of the portfolio was maintained at 0.8 throughout the year.
Income Portfolio
The sub-sector composition of the income portfolio has not changed significantly over the last 12 months. The large weighting in pharmaceutical stocks has been maintained and we continue to hold positions in healthcare services, medical technology and healthcare real estate investment trusts (REITs).
We have made changes to the top five positions in the income portfolio. Our largest position is now Pfizer and Johnson & Johnson is now a top five holding. We have reduced our holding in Merck and over the course of the reporting period we sold our entire position in GlaxoSmithKline.
We increased our position in Pfizer towards the end of March when it became clear that Pfizer was unlikely to pursue the acquisition of AstraZeneca - we had been concerned that Pfizer would have to offer a significant premium to persuade AstraZeneca's board to enter into any M&A discussions.
Pfizer generates significant cash flow and is one of the cheaper large pharmaceutical stocks based on price to earnings ratio. Moreover, the management team is focused on delivering shareholder value and has openly discussed the possibility of splitting the company into two separate businesses.
Such a break up could split Pfizer into an established products and vaccines business, which would be highly cash generative, and an innovative product development company, which as a stand-alone would have a much higher growth rate than the combined business.
After the end of the reporting period, Pfizer announced its intention to acquire Allergan - to create the largest pharmaceutical company globally. The structure of the deal will enable the new company to be located in Ireland for tax purposes and so benefit from a significantly lower tax rate. Pfizer's management team has not ruled out the possibility of a break-up, although the merger could push this out to the 2018 timeframe.
Probably the most significant change in the income portfolio was the complete exit from our position in GlaxoSmithKline. The company continues to face pricing pressure in its respiratory business and we think management has little financial flexibility given the commitment to the dividend. We see few exciting opportunities in the pipeline that will reach the market before 2021 and so we are concerned that the stock could trade sideways for the next year or two.
In terms of absolute attribution, the biggest contributors have been Eli Lilly and Bristol-Myers. We highlighted Eli Lilly as a pipeline-driven recovery story two years ago and the stock has performed well this year on the back of positive clinical trial announcements. Over the course of the reporting period, the company reported encouraging data for a novel Alzheimer's disease drug candidate as well as new clinical data for Jardiance, a treatment for diabetes. The latter showed that treatment with Jardiance resulted in a statistically significant reduction in cardiovascular events - a first for a diabetes drug.
It has not all been positive news for Eli Lilly. In September, the company announced the failure of a Phase III trial for a novel cholesterol-lowering drug candidate. The share price reacted negatively to this event but has since rebounded following the release of positive Phase III data for its novel rheumatoid arthritis treatment after the end of the reporting period.
We continue to like Eli Lilly and expect more clinical news flow over the coming year that should provide upside potential to consensus earnings projections.
Bristol-Myers continues to be the leader in the new field of immuno-oncology - novel treatments that enable a cancer patient's own immune system to attack tumour cells. Bristol-Myers has a first-to-market advantage and its new drugs are beginning to drive top-line growth. The company is entering a period of expanding margins and strong earnings growth and we think there is potential upside to earnings estimates over the mid-term.
The biggest detractors have been Sanofi and Teva. Sanofi was a particularly poor performer in the last quarter of calendar 2014 - the company continues to face pricing pressure in its core diabetes business and a series of disappointing earnings announcement led to the removal of the CEO in October 2014. A new CEO is now on board but the company has lowered expectations for the diabetes franchise in 2016. There is a pipeline opportunity at Sanofi but it may take time for new products to generate top-line growth if the company continues to see pressure in the diabetes business.
We bought the position in Teva in late July just before the rapid market decline in August - the company looks well positioned to generate good mid-term earnings growth following the acquisition of Allergan's generics portfolio and the launch of new branded drugs for central nervous system (CNS) diseases.
Growth Portfolio
The growth portfolio is invested in a number of biotechnology, healthcare services, medical device and pharmaceutical companies. There is a bias towards smaller companies in the growth portfolio - just over 50% have a market capitalisation of $1 billion or less. Over the reporting period, the number of positions was reduced from 40 to 36. We continue to hold a diversified portfolio of small companies that had a market capitalisation of less than $100 million at the time of investment. We have made no new investments in this segment of the portfolio over the last year.
On an absolute basis, the most important contributors during the period were biotechnology companies - notably, Esperion Therapeutics, Newron Pharmaceuticals and Receptos. All three of these companies reported positive news flow for their lead drug programmes over the course of the year. In March, Esperion announced positive data for its lead drug candidate to treat high cholesterol that surpassed expectations when used in combination with another drug. Newron announced the European approval for safinamide, its novel treatment for Parkinson's disease, in January as well as the acceptance of its new drug approval (NDA) filing by the Food and Drug Administration (FDA). Receptos announced positive Phase II data for its lead candidate to treat multiple sclerosis in October 2014. This caused a large increase in the share price and we exited the position in January - the company was subsequently acquired by Celgene in August.
The biggest detractors to performance were two UK small companies - Futura Medical and Synairgen. Synairgen announced a major collaboration with AstraZeneca last year for its lead clinical programme for asthma. However, in the absence of any major clinical news flow the stock has slowly declined over the reporting period. Futura Medical has developed a condom containing Zanifil, a formulation of glycerol trinitrate, to help maintain an erection during intercourse. The commercial launch of the product has proceeded more slowly than expected and the share price performance has been disappointing. However, we expect the company to announce clinical data for other compounds in its pipeline over the next year.
Pipeline progress is the primary focus for pharmaceutical companies
When the Company was launched in 2010, we argued that the market was too pessimistic on the potential for an improvement in R&D productivity and that the pharmaceutical sector would return to growth by the end of the decade. Five years later, it seems as though we had underestimated how quickly clinical pipelines could be replenished. More importantly, this is beginning to be translated into top and bottom-line growth for the industry.
Clinical pipelines are now the primary focus for investors and this has been the emphasis at all of the recent large pharmaceutical company annual update meetings we have attended. A few companies have even started to talk about drug launches in the 2021-2025 time frame, which we find a little surprising given the unpredictability of drug development.
In general, pipelines are improving across the industry and we believe that we are at the beginning of a new wave of drug development that has been driven in large part by advances in the biotechnology sector. Over the past year, we have seen positive clinical data announcements in therapeutic areas such as Alzheimer's disease, cancer, diabetes and inflammatory disease.
It is clear that some companies have more advanced pipelines than others - either through serendipity or because of strategic planning (or a bit of both). Going forward, we expect to see a greater dispersion of returns for stocks within the pharmaceutical sector based on the perceived strength of each company's pipeline and, therefore, its earnings growth potential.
Our investment strategy is focused on identifying the large pharmaceutical companies where the clinical pipeline may be underappreciated and mid- and long-term earnings estimates may be too low.
Drug pricing is currently a "hot" political issue
As we noted above, the healthcare sector's period of outperformance came to an abrupt halt in September 2015. The catalyst for this rapid decline appeared to be comments from U.S. Democratic Presidential Candidate Hillary Clinton. Mrs. Clinton accused the pharmaceutical industry of "outrageous price gouging" practices and published proposals on how she would reform prescription drug pricing and improve access to healthcare for lower income families.
Hillary Clinton was responsible for the first attempt at healthcare reform in the early 90s during President Bill Clinton's first term. The Clinton healthcare plan ultimately failed but at the time was responsible for a significant decline in healthcare stocks - the recent comments seem to have caused a "knee jerk" reaction in the stock market.
It is important to put these comments and proposals into context. The first point is that there is nothing particularly new in Mrs. Clinton's plan - many of the issues being discussed were part of the failed plan from the 1990s. Moreover, a key part of her proposal is to allow the U.S. government, through its Medicare programme, to negotiate pricing directly with drug companies. This idea was discussed and rejected during the negotiations surrounding President Obama's healthcare reform in 2009.
The second point is that Mrs. Clinton's principal targets are the generic and speciality pharmaceutical companies that have raised drug prices egregiously. Her comments seem to have been triggered by the public outcry over a 5,000% price hike for an old anti-parasitic drug, called Daraprim, by Turing Pharmaceuticals, a start-up specialty pharmaceutical company. We agree that this is a business practice that should be called into question.
In our view, pharmaceutical companies that are delivering true innovation and, more importantly, value to patients and healthcare systems will be able to command strong pricing for their products. We do not like business models that rely on pricing power in the absence of innovation. It was worth highlighting that following her initial comments, Mrs. Clinton re-affirmed her commitment to supporting innovation on social media saying that "…companies working on life-saving breakthroughs won't have anything to fear from my plan…".
While we continue to see political rhetoric and news headlines as a risk to sentiment for healthcare as we enter into a U.S Presidential election campaign in 2016, we think there is little appetite in Congress to revisit President Obama's healthcare reform law. Moreover, while the healthcare sector has declined over the last few weeks the fundamentals remain unchanged.
The underlying driver is an ageing population that needs and demands more healthcare - we continue to focus on companies that are either consolidators or innovators that will decrease the cost and increase the quality of healthcare, respectively.
The healthcare industry has embarked on structural change
The move to more cost-effective healthcare is the catalyst for major structural change in the industry. Over the last year, we have seen some significant events that indicate this change has started and highlight some of the challenges and opportunities for healthcare companies.
Health insurers are exercising greater pricing power
The first significant event was the competitive activity in the Hepatitis C Virus (HCV) drug market in late 2014/early 2015. For the vast majority of patients, the new generation of HCV drugs provides a cure for an infectious disease that ultimately leads to liver failure where liver transplantation is the only treatment option.
Gilead was first to market with its drug Sovaldi -the company made some convincing arguments related to the cost-effectiveness of the treatment. The ca. $85,000 treatment price could be justified on economic grounds given the high costs of treating a patient with liver failure and liver transplantation.
In December 2014, AbbVie received approval for VieKira Pak, its treatment for HCV - the first competitor for Gilead's HCV drug. AbbVie then announced an exclusive deal with Express Scripts, a pharmacy benefit manager (PBM), which positioned VieKira Pak as the Express Scripts' preferred product for its members. Within a few weeks, Gilead announced a series of similar agreements with a number of other PBMs including CVS.
Preferential pricing deals with PBMs are not new, they allow a pharmaceutical company to get preferential access to drug formularies and thus potentially greater market share. However, it is unusual to see such agreements so soon after the launch of a new drug category - in the case of AbbVie the negotiations must have started well before FDA approval.
With the recent consolidation in the PBM and health insurance industries, the PBMs have garnered much greater purchasing power. Moreover, they are using this power to control access to the market and are developing ways of influencing and measuring consumer behaviour.
It is worth noting that both GlaxoSmithKline and Sanofi have suffered from increased pricing pressure from PBMs over the last year in their respiratory and diabetes franchises, respectively. While pharmaceutical companies have historically looked to engage primarily with physicians to drive usage of their products, we think interaction with the PBMs and insurers is becoming essential to ensure market access.
Drug companies are becoming more proactive
The need to interact proactively with PBMs was demonstrated by Novartis after the approval of its new heart failure drug, Entresto, in July. As part of the Phase III clinical trial, Novartis collected data on the economic benefits of Entresto. In particular, the company showed that there was a reduction in the hospitalisation rate for heart failure patients treated with Entresto. Hospitalisation is one of the major drivers of cost in any chronic disease.
Shortly after launch, Novartis announced that it was in negotiations with PBMs on the pricing of Entresto. As part of these negotiations, Novartis is trying to get a higher price for Entresto - in the region of $12 per day - but is prepared to offer a significant rebate to the PBMs and insurers if the reduction in hospitalisation does not materialise in a real world setting.
In our view, Novartis has crossed the Rubicon - it is effectively offering a money back guarantee if its drug does not deliver the proposed benefits. While this is a normal state of affairs for most industries this is a major change for the drug industry. Such agreements are not without precedent, there are a few cases in the UK, but such agreements have been entered into rather reluctantly rather than proactively. This is, to our knowledge, the first time a large drug company has approached a PBM in the U.S. offering a money back guarantee on what could be a major blockbuster drug.
Digital health is a driver of change
This leads to a third observation, which relates to the emergence of digital health technology. Digital health is an all-encompassing term that covers a broad array of products and services arising from the convergence of information technology with healthcare.
As we have discussed in prior years, a key investment thesis for healthcare is identifying companies that are delivering better healthcare for less money. One aspect of digital health is the development of analytical tools that can help payers determine whether they are getting better value for money. Reimbursement systems across the world are changing and beginning to move away from a fee-for-service, which incentivises over-utilisation, and towards systems where there are payments for quality, best practice or clinical outcomes.
In principle, paying for performance makes sense for any health insurer or government. However, the critical issues are how you (a) measure clinical outcomes and (b) determine attribution. In the case of Entresto, for example, even if you could measure hospitalisation rates for a group of heart failure patients, how do you know this is because they have taken a specific drug? Moreover, patients rarely suffer from only a single disease. If a heart failure patient was admitted to hospital because of a complication of their asthma, for example, would this trigger a rebate from Novartis?
These are difficult questions to answer but over the last year we have seen a number of small companies trying to develop solutions to these problems. More importantly, some of the larger companies seem to be taking the potential applications of digital health very seriously. Novartis' CEO has been vocal about the need for pharmaceutical companies to use technology to prove that their drugs are delivering value. In July, Novartis announced a collaboration with Google and it has also invested in a digital health venture fund.
It is not just drug companies looking at this area. In the last year, we have visited OptumHealth - the health services division of UnitedHealth - and have seen some of the new analytical tools that the company is developing. Such tools help analyse the cost trends for an insurer and identify any healthcare provider who may be running ahead of budget or not delivering care according to the insurer's care guidelines or protocols. In addition, OptumHealth is developing tools and apps for patients via its patient portal that will help individuals manage their own medical conditions
Healthcare is being disrupted by technology
In last year's report, we talked about the potential for structural change within healthcare. We continue to see evidence that this change has already begun and is beginning to accelerate. While this is not a major threat to the pharmaceutical industry on a two year time horizon, this is an area that may evolve very rapidly over the next five years.
In the mid-term to long term there is a risk that the use of data and analytical tools to evaluate products and services will create unexpected pricing pressure for companies that have not grasped the scope of the impending change. Given the long development times for drugs and medical devices, companies that have not already embarked on proving the value of their products in clinical development could be left far behind.
Outlook
Over the next year, we think that macroeconomic factors and uncertainty will continue to drive the ebb and flow of global markets - the volatility we have seen over the last year is likely to continue. Given the economic uncertainty, and the prospect of low growth in most major economies, we think healthcare remains attractive. The fundamentals for the sector remain strong - an ageing population will continue to drive demand and companies that help to deliver better healthcare for less money are set to thrive. Innovation within the healthcare sector is certainly not slowing and arguably it is accelerating.
For the pharmaceutical industry, we expect more positive clinical news flow over the next 12 months that should support our view that strengthening pipelines and new drug launches can support double digit earnings growth. For the broader healthcare sector, we continue to see the risks and opportunities of a structural change in the way that healthcare is managed and delivered. We continue to advocate a two-pronged approach that focuses on (a) the consolidators or (b) the innovators - these are the companies that will decrease the cost and increase the quality of healthcare, respectively.
From a valuation perspective, healthcare is not expensive. On an absolute level, price to earnings (P/E) multiples are in-line with historical averages and compared to the broader market the sector looks very attractive given the projected growth profile. Therefore, we believe that our investment strategy - where we will maintain a low risk portfolio with a high weighting to pharmaceutical stocks - should be able to meet our goal of delivering a total return in the region of 10-12% per annum through to the end of the life of the Company in January 2018.
Dr Daniel Mahony
Gareth Powell
Investment Managers
15 December 2015
Portfolio as at 30 September 2015
|
|
|
Stock |
Country |
Market Value £'000 |
% of total net assets |
||
|
|
|
|
|
2015 |
2014 |
2015 |
2014 |
|
1 |
(6) |
Pfizer |
United States |
18,656 |
9,120 |
8.9% |
4.6% |
|
2 |
(5) |
Novartis |
Switzerland |
16,913 |
10,476 |
8.0% |
5.2% |
|
3 |
(3) |
Eli Lilly |
United States |
15,737 |
13,089 |
7.5% |
6.5% |
|
4 |
(2) |
Roche Holding |
Switzerland |
15,182 |
15,913 |
7.3% |
8.0% |
|
5 |
(11) |
Johnson & Johnson |
United States |
11,708 |
5,919 |
5.6% |
3.0% |
|
6 |
(4) |
AstraZeneca |
United Kingdom |
10,454 |
11,948 |
5.0% |
6.0% |
|
7 |
(8) |
Sanofi |
France |
9,383 |
8,863 |
4.5% |
4.4% |
|
8 |
(9) |
Astellas Pharma |
Japan |
7,218 |
7,798 |
3.4% |
3.9% |
|
9 |
(1) |
Merck & Co |
United States |
7,169 |
16,089 |
3.4% |
8.0% |
|
10 |
(13) |
Bristol-Myers Squibb |
United States |
6,250 |
5,051 |
3.0% |
2.5% |
|
Top 10 investments |
118,670 |
|
56.6% |
|
|||
|
11 |
- |
Teva |
Israel |
6,148 |
- |
2.9% |
- |
|
12 |
(7) |
AbbVie |
United States |
6,103 |
9,060 |
2.9% |
4.5% |
|
13 |
(16) |
Consort Medical |
United Kingdom |
5,298 |
3,395 |
2.5% |
1.7% |
|
14 |
(15) |
Takeda Pharmaceutical |
Japan |
4,319 |
4,011 |
2.1% |
2.0% |
|
15 |
(14) |
Bayer |
Germany |
4,210 |
4,325 |
2.0% |
2.2% |
|
16 |
(17) |
Abbott |
United States |
2,390 |
2,309 |
1.1% |
1.1% |
|
17 |
(23) |
Newron Pharmaceuticals |
Italy |
2,367 |
1,444 |
1.1% |
0.7% |
|
18 |
- |
Unitedhealth |
United States |
2,297 |
- |
1.1% |
- |
|
19 |
(42) |
Cambian Group |
United Kingdom |
2,252 |
1,040 |
1.1% |
0.5% |
|
20 |
(29) |
Quintiles Transnational |
United States |
1,994 |
1,306 |
0.9% |
0.7% |
|
Top 20 investments |
156,048 |
|
74.3% |
|
|||
|
21 |
(27) |
Oxford Pharmascience |
United Kingdom |
1,982 |
1,367 |
0.9% |
0.7% |
|
22 |
(18) |
Sonic Healthcare |
Australia |
1,945 |
2,184 |
0.9% |
1.1% |
|
23 |
(30) |
Hutchison China Meditech |
Hong Kong |
1,925 |
1,287 |
0.9% |
0.6% |
|
24 |
- |
Stryker |
United States |
1,815 |
- |
0.9% |
- |
|
25 |
(65) |
Revance Therapeutic |
United States |
1,809 |
685 |
0.9% |
0.3% |
|
26 |
(19) |
Summit |
United Kingdom |
1,702 |
1,887 |
0.8% |
0.9% |
|
27 |
(25) |
Medtronic |
Ireland |
1,635 |
1,414 |
0.8% |
0.7% |
|
28 |
(20) |
Religare Health Trust |
India |
1,544 |
1,600 |
0.8% |
0.8% |
|
29 |
(48) |
UDG Healthcare |
Ireland |
1,509 |
992 |
0.7% |
0.5% |
|
30 |
(69) |
AmSurg |
United States |
1,503 |
638 |
0.7% |
0.3% |
|
Top 30 investments |
|
173,417 |
|
82.6% |
|
||
|
31 |
(33) |
Medical Properties Trust |
United States |
1,459 |
1,224 |
0.7% |
0.6% |
|
32 |
- |
WellCare Health Plans |
United States |
1,403 |
- |
0.7% |
- |
|
33 |
(45) |
Acadia Healthcare |
United States |
1,365 |
1,016 |
0.7% |
0.5% |
|
34 |
(49) |
Endologix |
United States |
1,347 |
980 |
0.6% |
0.5% |
|
35 |
- |
Sienna Senior |
Canada |
1,243 |
- |
0.6% |
- |
|
36 |
(50) |
HCP |
United States |
1,229 |
980 |
0.6% |
0.5% |
|
37 |
(21) |
Omega Healthcare |
United States |
1,160 |
1,581 |
0.6% |
0.8% |
|
38 |
(53) |
Medical Facilities |
Canada |
1,149 |
931 |
0.5% |
0.5% |
|
39 |
(63) |
Sabra Health Care REIT |
United States |
1,147 |
749 |
0.5% |
0.4% |
|
40 |
(76) |
Virtus Health |
Australia |
1,127 |
358 |
0.5% |
0.2% |
|
Top 40 investments |
186,046 |
|
88.6% |
|
|||
|
41 |
(43) |
HCA Holdings |
United States |
1,117 |
1,026 |
0.5% |
0.5% |
|
42 |
- |
Envision Healthcare |
United States |
1,092 |
- |
0.5% |
- |
|
43 |
(35) |
Senior Housing Property Trust |
United States |
1,070 |
1,161 |
0.5% |
0.6% |
|
44 |
- |
St Jude Medical |
United States |
1,041 |
- |
0.5% |
- |
|
45 |
(70) |
Dynavax Technologies |
United States |
1,030 |
600 |
0.5% |
0.3% |
|
46 |
- |
Cardinal Health |
United States |
1,014 |
- |
0.5% |
- |
|
47 |
(55) |
Healthcare Reality Trust REIT |
United States |
984 |
876 |
0.5% |
0.4% |
|
48 |
(32) |
National Health Investors |
United States |
949 |
1,234 |
0.5% |
0.6% |
|
49 |
(51) |
Coltene Holding |
Switzerland |
946 |
944 |
0.4% |
0.5% |
|
50 |
- |
Celyad |
Belgium |
903 |
- |
0.4% |
- |
|
Top 50 investments |
|
196,192 |
|
93.4% |
|
||
|
51 |
(44) |
Novadaq Technologies |
Canada |
895 |
1,018 |
0.5% |
0.5% |
|
52 |
(66) |
Healthcare Services Group |
United States |
853 |
677 |
0.4% |
0.3% |
|
53 |
(68) |
Ablynx |
Belgium |
847 |
658 |
0.4% |
0.3% |
|
54 |
(59) |
NIB Holdings |
Australia |
755 |
786 |
0.4% |
0.4% |
|
55 |
(72) |
Photocure |
Norway |
721 |
491 |
0.3% |
0.2% |
|
56 |
(47) |
Brookdale Senior Living |
United States |
707 |
994 |
0.3% |
0.5% |
|
57 |
(57) |
Primary Health Care |
Australia |
617 |
827 |
0.3% |
0.4% |
|
58 |
- |
Jazz Pharmaceuticals |
Ireland |
613 |
- |
0.3% |
- |
|
59 |
- |
Civitas Solutions |
United States |
605 |
- |
0.3% |
- |
|
60 |
- |
HealthStream |
United States |
567 |
- |
0.3% |
- |
|
Top 60 investments |
203,372 |
|
96.9% |
|
|||
|
61 |
(41) |
Synairgen |
United Kingdom |
534 |
1,084 |
0.3% |
0.5% |
|
62 |
- |
Intersect |
United States |
524 |
- |
0.2% |
- |
|
63 |
(62) |
Circle Holdings |
United Kingdom |
504 |
770 |
0.2% |
0.4% |
|
64 |
(71) |
Extendicare |
Canada |
491 |
561 |
0.2% |
0.3% |
|
65 |
(64) |
Futura Medical |
United Kingdom |
488 |
704 |
0.2% |
0.4% |
|
66 |
- |
Oxford Immunotec |
United Kingdom |
484 |
- |
0.2% |
- |
|
67 |
(73) |
Meridian Biosciences |
United States |
484 |
467 |
0.2% |
0.2% |
|
68 |
(52) |
Conatus Pharmaceuticals |
United States |
458 |
935 |
0.2% |
0.5% |
|
69 |
- |
Esperion Therapeutics |
United States |
293 |
- |
0.1% |
- |
|
70 |
(74) |
Epistem Holdings |
United Kingdom |
255 |
450 |
0.1% |
0.2% |
|
Top 70 investments |
|
207,887 |
|
98.8% |
|
||
|
71 |
(56) |
Sigma Pharmaceuticals |
Australia |
190 |
842 |
0.1% |
0.4% |
|
72 |
(77) |
EOS Imaging |
France |
170 |
238 |
0.1% |
0.1% |
|
Total equities |
|
208,247 |
|
99.0% |
|
||
|
Other net assets |
|
2,191 |
|
1.0% |
|
||
|
Net assets |
|
210,438 |
|
100.0% |
|
||
Figures in brackets denote the comparative ranking as at 30 September 2014.
|
Geographical Exposure at |
30 September 2015 |
30 September 2014 |
|
United States |
48.1% |
46.3% |
|
Switzerland |
15.7% |
13.7% |
|
United Kingdom |
11.3% |
15.0% |
|
Japan |
5.5% |
6.7% |
|
France |
4.6% |
4.6% |
|
Israel |
2.9% |
- |
|
Australia |
2.2% |
2.5% |
|
Germany |
2.0% |
2.7% |
|
Denmark |
- |
2.7% |
|
Other |
6.7% |
5.6% |
|
Cash |
1.0% |
0.2% |
|
Total |
100.0% |
100.0% |
|
Sector Exposure at |
30 September 2015 |
30 September 2014 |
|
Pharmaceuticals |
70.1% |
69.4% |
|
Healthcare Equipment |
7.2% |
8.6% |
|
Healthcare Facilities |
5.4% |
5.4% |
|
Specialised REITs |
4.5% |
4.5% |
|
Biotechnology |
3.9% |
4.9% |
|
Healthcare Services |
2.4% |
3.3% |
|
Managed Healthcare |
1.7% |
- |
|
Healthcare Distributors |
1.3% |
0.9% |
|
Life Sciences Tools & Services |
1.1% |
0.9% |
|
Healthcare Supplies |
0.7% |
1.1% |
|
Life & Health Insurance |
0.4% |
0.4% |
|
Healthcare Technology |
0.3% |
0.3% |
|
Other |
- |
0.1% |
|
Cash |
1.0% |
0.2% |
|
Total |
100.0% |
100.0% |
|
Market Cap at |
30 September 2015 |
30 September 2014 |
|
Large (>US$5bn) |
76.3% |
75.4% |
|
Medium (US$1bn - US$5bn) |
7.8% |
10.2% |
|
Small (<US$1bn) |
15.9% |
14.4% |
|
|
100.0% |
100.0% |
Strategic Review
The Company is required by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 to set out a report to shareholders outlining a fair review of the strategy and performance of the Company during the year ended 30 September 2015, the position of the Company at the year end and a description of the principal risks and uncertainties.
Full details of the Investment Manager's activities and its views are given in the Investment Manager's Report. The Board considers that the Chairman's Statement and the Investment Manager's Report should be read in conjunction with this Strategic Review and the Report of the Directors which follows.
The Strategic Report Section of this annual report which comprises the Chairman's Statement, the Investment Manager's Report and this Strategic Review has been prepared solely to provide additional information to shareholders on the Company's strategies and potential for those strategies to succeed. The Strategic Report Section 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 information.
Regulatory Arrangements
The Company is designated an Alternative Investment Fund ('AIF') under the Alternative Investment Fund Management Directive ('AIFMD') and as required by the Directive has contracted with 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 under AIFMD for ensuring 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 FCA Listing Rules and the Companies Act.
Statements from the Depositary and the AIFM can be found on pages 84 to 87.
The Company seeks to manage its portfolio in such a way as to meet the tests set down in Section 1158 and 1159 of the Corporation 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 of the Company have been delegated to third parties.
Future Developments
The Board remains positive on the longer-term outlook for healthcare and the Company will continue to pursue its investment objective in accordance with the stated investment policy and strategy. The outlook for the 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. The Chairman's Statement and the Investment Manager's Report comment on the business and the outlook.
Service Providers
Polar Capital LLP has been appointed to act as the Investment Manager and AIFM as well as to provide or procure company secretarial services and administrative services, including accounting, portfolio valuation and trade settlement which it has arranged to deliver through HSBC Securities Services (UK) Limited.
The Company also contracts directly with a number of third parties for the provision of specialist services:
Panmure Gordon & Co as corporate broker;
Equiniti Limited as the share registrars;
PricewaterhouseCoopers LLP as independent auditors and tax advisers;
Accrue Fulton as designers and printers for shareholder communications and;
Huguenot Limited as website designers and internet hosting services.
Investment Objective, Policy and Strategy
Objective
The Company's investment objective is to generate capital growth and income by investing in a global portfolio of healthcare stocks.
Policy
The Company will seek to achieve its objective by investing in a diversified global portfolio of companies consisting primarily of listed equities issued by healthcare companies involved in pharmaceuticals, medical services, medical devices and biotechnology, with an emphasis on pharmaceutical stocks. Stocks will be selected for inclusion in the portfolio after a due diligence process. The portfolio is diversified by geography, industry sub-sector and investment size with no single investment normally accounting for more than 10% of the portfolio at the time of investment.
The portfolio has a bias towards large-capitalisation companies, with a market capitalisation in excess of US$5 billion, and the balance in mid and smaller capitalisation companies. Exposure to companies with a market capitalisation below US$200 million is not expected to exceed 5% of gross assets at the time of investment. The Company does not expect to have any material exposure to unlisted companies and, in aggregate, any such investments will not exceed 5% of gross assets at the time of investment.
The portfolio composition is by reference to market capitalisation rather than number of companies.
The Company may invest through equities, index-linked, equity-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 and derivatives (including put and call options on individual positions or indices) 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, as described in its investment policy.
The Company may hedge exposure to foreign currencies if considered appropriate for efficient portfolio management.
Strategy
The Investment Manager's investment process is primarily based on bottom-up fundamental analysis. The Investment Manager uses a qualitative filter consisting of six key criteria to build up a watch-list of securities that is monitored on a regular basis. Due diligence is then carried out on the individual securities on the watch-list.
The Company's portfolio comprises a single pool of investments, but for operational purposes there is an income portfolio and a growth portfolio. The income portfolio comprises investments where the majority will have a market capitalisation in excess of US$5 billion and will be in the pharmaceutical sector. The growth portfolio comprises investments to give exposure to small capitalisation medical services, medical devices and biotechnology companies.
Each individual holding is assessed on its own merits in terms of risk/reward. While the Company expects normally to be fully or substantially invested, the Company may hold cash or money market instruments pending deployment in the investment portfolio. In addition it will have the flexibility, when the Investment Manager perceives there to be actual or expected adverse equity market conditions, to maintain cash holdings as it deems appropriate.
Gearing
It is not intended that the Company incur borrowings to provide long-term structural gearing. No borrowings have been made and no arrangements made for any bank loans. However the Articles of Association provide that the Company may borrow up to 15% of its Net Asset Value at the time of drawdown, for tactical deployment when the Board believes that gearing will enhance returns to shareholders.
Benchmark
The Company will measure the Investment Manager's performance against the MSCI ACWI/Healthcare Index total return, in Sterling with dividends reinvested. This will be used to measure the performance of the Company, which will 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 an ideal investment strategy. The purpose of the Benchmark is to set a reasonable return for shareholders above which the Investment Manager is entitled to a share of the extra performance 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 process |
Outcome |
|
The provision of investment returns to shareholders measured by long-term NAV total return relative to the Benchmark Index. |
The Board reviews at each meeting the performance of the portfolio and considers the views of the Investment Manager. |
The Company's NAV total return, over the year ended 30 September 2015, was 8.1% while the Benchmark Index over the same period increased by 9.6%. The underperformance is explained in the Chairman's Report and the Investment Manager's Report. |
|
The achievement of the dividend policy. |
Financial forecasts are reviewed to track income and distributions. |
A total of four dividends amounting to 3.65p per share have been paid in respect of the year ended 30 September 2015 representing an increase of over 4.3% over the dividends paid in respect of the year to 30 September 2014 of 3.5p per share. |
|
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 reduced discount volatility for shareholders. |
The Board receives regular information of 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 |
The discount of the ordinary share price to the NAV per ordinary share over the year ended 30 September 2015 has ranged from -11.1% The Company has bought back into treasury 845,000 ordinary shares in the year ended 30 September 2015. This brought the number of shares in treasury at the year end to 1,875,000. |
|
To continue to meet the requirements for Sections 1158 and 1159 of the Corporation Tax |
The Board receives regular financial information which discloses the current and projected financial position of the Company against |
Investment trust status was granted to the Company in respect of subsequent periods from 1 October 2014 subject to the Company continuing to satisfy the conditions of Section 1158 of the Corporation Taxes Act 2010 and other associated ongoing requirements. The Directors believe that the conditions and other ongoing requirements have been met in respect of the year ended 30 September 2015 and they believe that the Company will continue to meet the requirements. |
|
Ongoing charges |
The Board receives regular financial information which discloses expenses against budget. |
Ongoing charges for the year ended 30 September 2015 were 1.00%, compared |
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 mitigation factors and control systems is crucial.
The Board maintains a Risk Map which seeks to record the principal risks in four main risk categories, Business, Portfolio Management, Infrastructure and External. The Risk Map details each identified risk and any factors, both internal and external, that could provide mitigation as well as recording a reporting structure to monitor and mitigate as far as practical such risks.
The Risk Map is regularly considered to monitor existing principal risks and identify new risks or developments and additions to the controls and reporting environment.
|
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.
Such failures could lead to: Possible loss of liquidity in shares and shrinkage Loss of portfolio manager or other key staff. Persistent excessive share price discount to NAV. |
The Board seeks to mitigate the impact of such risks through the regular reporting and monitoring of the investment performance against its peer group, benchmark and other agreed indicators of relative performance. For months when the Board is not scheduled to meet they receive a monthly report containing financial information Performance and strategy are reviewed throughout the year at regular Board meetings where the Board can challenge the Investment Manager. They also receive a monthly commentary from the Investment Manager published in the factsheets for all the healthcare funds. The Management Engagement Committee undertakes the year-end consideration of suitability of Investment Manager on the basis of performance and other services provided.
In consultation with its advisors, including the corporate stock broker, the Board regularly considers the level of premium and discount of the share price to the NAV and the Board reviews ways to enhance shareholder value including share issuance and buy backs. 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 portfolio data, an informative and relevant website as well as annual Windup date in 2018 should help to limit discount volatility. The Chairman regularly engages with the senior management of the Investment Manager. |
|
Portfolio Management |
|
|
While the portfolio is diversified across a number of stock markets worldwide, the investment mandate is focused on healthcare and thus the portfolio will be more sensitive to investor sentiment and the commercial acceptance of healthcare developments than a general investment portfolio. As the Company's assets comprise mainly listed equities the portfolio is exposed to risks such as market price, credit, liquidity, foreign currency The portfolio is actively managed. The Investment Managers' 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 which can magnify the portfolio returns per share positively or negatively. |
The Board has set appropriate investment guidelines and monitors the position of the portfolio against such guidelines which includes guidelines on exposures to certain investment markets and sectors. The Board discusses with the Investment Manager at each Board meeting developments in healthcare and drug pipelines. 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 healthcare 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 24 to the financial statements.
|
|
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. |
If any gearing is contemplated the Board agrees the overall levels of gearing with the AIFM. The arrangement of bank facilities and drawing of funds under such arrangements are controlled by the Board. Derivatives are considered as being a form of gearing and a policy for 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. |
|
The ability to fund dividend due to exposure to currency risk is impaired. Income less than expected due to currency exposure underlying the portfolio. Level of dividend lower than intended or previously paid. |
Board monitors exposure through monthly management accounts and discussion and currency hedging takes place Investors have sight of the entire portfolio and geographic exposure to investments. |
|
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 which 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 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, changes in substantial shareholdings and the share register. 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 Companies' 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 on 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. As an investment company, the Company is dependent The Board monitors new developments and changes in the regulatory environment and seeks to ensure that their impact on the Company is understood and complied with although the Board has no control over such legislative changes and such changes may be intended to affect the Company, or we may suffer unintended consequences from changes designed to affect others. |
|
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 the general economic conditions and developments. Note 24 describes the impact of changes in foreign exchange rates. |
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 remains attractive to shareholders. The Directors believe that a strong working relationship with the Investment Manager will achieve the optimum return for shareholders.
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 to advise the Company on a day to day basis in accordance with the investment policy of the Company, all subject to the overall control and supervision of the Board.
The Investment Manager also agreed to procure or provide the day to day administration of the Company and general secretarial functions. The Investment Manager has, with the consent of the Directors, delegated the provision of certain of these administrative functions to HSBC Securities Services (UK) Limited and to Polar Capital Secretarial Services Limited. The fees of HSBC Securities Services (UK) Limited in providing such services will be for the account of the Company.
Investment Team
The Investment Manager provides a team of healthcare specialists and the portfolio is managed jointly by Dr Daniel Mahony, the lead manager, and Mr Gareth Powell. The Investment Manager also has other specialist and geographically focused investment teams which may contribute to idea generation.
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 base 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 will be 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 and will be 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. The performance fee will be paid in cash 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 will be 100 pence, increased or decreased (as the case may be) by reference to the return on the Benchmark Index plus 15 pence, the 15 pence equating approximately to a simple 2% per annum return on the opening Net Asset Value per share over the period from 15 June 2010 to the expiry of the Company's expected life.
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; and
(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, provided, for the avoidance of doubt, that no adjustment to the Company's Net Asset Value per ordinary share will be made in respect of;
(i) any repurchase of ordinary shares at a discount to the Net Asset Value per ordinary share prevailing at the time of such repurchase; or
(ii) any issue of ordinary shares at a premium to the Net Asset Value per ordinary share prevailing at the time of such issue.
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 such that shareholders receive exactly 100 pence per share.
No performance fee has been accrued since inception and up to 30 September 2015.
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 they invest.
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.
The Investment Manager has voted at 86 Company meetings over the year ended 30 September 2015 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 (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 to reduce waste where possible.
Diversity, Gender Reporting and Human Rights Policy
The Company has no employees and a Board comprised entirely of male Non-executive Directors.
Given the relatively short life expectancy of the Company, it is not anticipated that any new appointments will be made to the Board but, in the event that new Directors are appointed, the Board would have regard to the benefits of diversity, including gender, when seeking to make any such appointment(s).
The Company has not adopted a policy on human rights as it has no employees or operational control of its assets.
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.
Approved by the Board on 15 December 2015
By order of the Board
N P Taylor FCIS
Polar Capital Secretarial Services Limited
Company Secretary
Report of the Directors
The Directors 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 September 2015.
Introduction and Status
The Strategic Report Section sets out the Regulatory Arrangements, Future Developments, Service Providers, Investment Objectives, Benchmark, Performance 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 London Stock Exchange.
The close company provisions do not apply.
The business of the Company is to provide shareholders with access to a discretionary managed diversified global portfolio consisting primarily of listed equities issued by healthcare companies involved in pharmaceuticals, medical services, medical devices and biotechnology. The portfolio is diversified by geographic location and size of investee companies.
The portfolio is managed within a framework of investment limits and guidelines determined by the Board which seeks 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 GIIN number is ID3ME4.99999.SL.826.
The Company seeks to operate as an investment trust in accordance with Section 1158 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 October 2014 and subject to the Company continuing to meet the eligibility conditions of and the ongoing requirements for approved companies in Chapter 3 of Part 2 Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory Instrument 2011/2999).
The Directors are of the opinion that the Company has conducted its affairs in respect of the year ended 30 September 2015 and will continue to conduct its affairs so as to maintain its status as an investment trust.
The Company's ordinary shares are eligible for inclusion within the stocks and shares component of an ISA (save where acquired pursuant to the IPO placing).
Life of the Company
The Articles of Association require the Directors to put forward at the seventh Annual General Meeting 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 seventh AGM is expected to be held in January 2018.
Annual General Meeting ('AGM')
The Annual General Meeting will be held at 12 noon on 27 January 2016 at the offices of Polar Capital, 16 Palace Street, London SW1E 5JD.
The separate Notice of Annual General Meeting contains the full text of the resolutions and an explanation of each.
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 Company aims to pay four interim dividends in February, May, August and November each year. These interim dividends will not necessarily be of equal amounts.
Details of the dividends paid are set out on page 1.
Share Capital History, Structure and Voting Interests
The Company was incorporated on 12 May 2010. On 15 June 2010 the Company issued 89,000,000 ordinary shares of 25p each and 17,800,000 subscription shares of 1p each which were admitted to trading on the Main Market of the London Stock Exchange. The original subscription price for each ordinary share was £1 and the Net Asset Value (NAV) per share on 15 June 2010 was 98p (after launch costs).
The subscription share rights expired on 31 January 2014, following the issue of 17,800,000 ordinary shares and the subscription shares were subsequently cancelled.
Issued
At 30 September 2015 the Company's share capital was divided into ordinary shares of 25p and there were 122,650,000 ordinary shares in issue of which 1,875,000 were held in treasury by the Company.
Changes During the Year and Since the Year End
The Company made four market purchases during the year amounting to 845,000 ordinary shares at prices between 164p and 179p per share all of which are held in treasury.
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.
Listing Rule 9.8.4
There is no information to be disclosed in respect of Listing Rule 9.8.4.
Capital Structure and Voting Interests
Transferability
Shares in the Company may be held in uncertificated form and, subject to the Articles of Association ('Articles'), title to uncertificated shares may be transferred by means of a relevant system.
The Articles can be changed by a shareholder resolution passed at a general meeting of the Company.
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 Companies Act 2006, 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 Ordinary Shares and Make Market Purchases of Ordinary Shares
At the AGM in 2015 the Board was granted by shareholders the power to allot equity securities up to a nominal value of £3,066,250 being 10% of the Company's issued ordinary share capital at that date, and to issue those shares for cash without offering those shares to shareholders in accordance with their statutory pre-emption rights.
These powers will expire at the AGM in 2016. These powers have been used as described above and renewal of the authorities will be sought at the AGM in 2016. 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 re-issue of shares from treasury will follow institutional guidelines.
The Board also obtained shareholder authorities at the AGM in 2015 to make market purchases of up to 18,224,092 ordinary shares of the Company in accordance with the terms and conditions set out in the shareholder resolution. This authority expires at the AGM in 2016 and renewal of the authority will be sought at the AGM in 2016.
Details of the resolutions and the Directors' policies for the issue and purchase of shares are set out in the separate formal Notice of the 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 September 2015:
|
|
|
Number of ordinary shares |
Percentage |
|
Investec Wealth & Investments Limited |
Indirect |
16,828,175 |
13.93% |
|
Brewin Dolphin Limited |
Indirect |
14,566,916 |
12.06% |
|
Rathbone Brothers Public Limited Company |
Indirect |
14,494,021 |
12.00% |
|
Schroders plc |
Indirect |
7,655,947 |
6.34% |
|
Charles Stanley |
Indirect |
6,151,086 |
5.09% |
|
Cheviot Asset Management Limited |
Direct |
4,805,275 |
3.98% |
Since the year end, and up to the date of this report, the Company has been notified of the following:
|
|
|
Number of ordinary shares |
Percentage |
|
Schroders plc |
Indirect |
8,933,914 |
7.40% |
* The above percentages are calculated by applying the ordinary shareholdings as notified to the Total Voting Rights of the issued ordinary share capital at 15 December 2015 of 120,775,000, being all the issued ordinary shares except for those held in treasury where voting rights are suspended.
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 ('AIC') publishes a Code of Corporate Governance ('AIC Code') and a Corporate Governance Guide for Investment Companies ('AIC Guide'). In March 2015 the AIC published a revised AIC Code and AIC Guide to reflect changes made to the UK Code in September 2014. In line with the UK Code the revised AIC Code and AIC Guide apply to accounting periods beginning on or after 1 October 2014, so accordingly, the Company has adopted the new AIC Code.
The AIC Code and 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 FCA Listing Rules.
As an investment company most of the day to day responsibilities are delegated to outside parties as the Company has no employees and all the Directors are non-executive. Many of the provisions of the UK Code are not directly applicable to the Company and the Board has determined that reporting against the AIC Code, which incorporates the UK Code, provides the most appropriate information to shareholders.
Statement of Compliance
The AIC Code comprises 21 principles. The Board consider 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 these provisions are not relevant to the position of the Company, being an externally managed investment company:
· as all Directors are non-executive and day to day management has been contracted to third parties the Company does not have a Chief Executive. The Chairman of the Board is non-executive;
· as there are no executive Directors it does not 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 was considered unnecessary to identify a senior independent non-executive. The Board considers that all Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns may be conveyed.
The corporate governance report 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.
It should be noted that, as an investment Company where the Directors are non-executive, most of the Company's day to day duties are delegated to third parties. The Company has agreed policies and operating procedures with the suppliers of these services.
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 four non-executive Directors. Each Director has different qualities and areas of expertise on which they may lead where issues arise.
The Directors' biographies, set out on page 24, demonstrate the breadth of investment, commercial and professional experience relevant to their positions as Directors of the Company. The Directors' Remuneration Report is set out on pages 38 to 41.
The Board has considered the contribution and performance of each Director as part of the Director and Board performance evaluation. It determined that each Director has relevant experience, effectively contributed to the operation of the Board and has demonstrated independent views on a range of subjects. All the Directors were considered independent of the Investment Manager and had no relationship or conflicts which were 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's boards, given the expected seven year life of the Company, the Board has determined that there is no need for a policy on the length of service for Directors.
Election of Directors at the AGM
The Articles of Association (the 'Articles') govern the appointment, re-election and removal of a Director.
· The Articles permit the Board to appoint further Directors without shareholder approval but subject to any such Directors standing for election by shareholders at the first AGM following their appointment.
· All Directors are appointed for an initial term of three years and are subject to re-election by shareholders at a general meeting in accordance with the Articles.
· The Articles and the Companies Act provide for the removal of a Director.
All Directors were required to offer themselves for re-election at the AGM in 2015, having last been elected at the AGM in 2012 and under the Articles of Association they are required to offer themselves for re-election at every third AGM after their last election. The Directors will thus be required to offer themselves up for re-election at the AGM in 2018. All the Directors have been in office throughout the year ended 30 September 2015. The appointment date for each Director is given on page 24.
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 Directors' Remuneration 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 Companies Act 2006 public companies may authorise conflicts or potential conflicts if the Articles of Association contain provisions to this effect and the Company's Articles of Association 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 situations. Each Director has agreed to notify the Chairman and the Company Secretary of any changes to his circumstances which would impact on the notified conflicts or potential conflicts and obtain approval before entering into any situation which might give rise to a conflict or potential conflict with the interests of the Company.
Directors are reminded at each Board meeting of their obligations to notify any changes in their statement of conflicts and also to declare any benefits from third parties in their capacity as a Director of the Company which might give rise to a conflict or potential conflict with the Company's interests.
Only Directors not involved in the conflict or potential conflict participate in the authorisation process. Directors in deciding whether to authorise a situation take into account their duty to promote the Company's success.
The Board as part of its year-end review has 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 has 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 period 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, Responsibilities and Committees
The Board
The Board meets regularly and as required. During the period Board and Board Committee meetings were held to deal 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 the ordinary share price discount or premium to the Net Asset Value together with policies for re-purchase or issuance (or re-issuance) of shares are kept under review along with matters affecting the industry and the evaluation of third party service providers.
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 has been sought during the period.
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 September 2015
|
Committee |
Board |
Audit Committee |
Management Engagement Committee |
|
Number of Meetings* |
7 |
4 |
2 |
|
James Robinson |
7 |
4 |
2 |
|
John Aston |
7 |
4 |
2 |
|
Anthony Brampton |
7 |
4 |
2 |
|
Antony Milford |
7 |
4 |
2 |
All the Directors attended the AGM.
* In addition to the above meetings, a number of ad hoc special purpose Board and committee meetings were held during the period to approve or enact matters agreed by the full Board including the approval of documents, the issue of new shares and approval of regulatory announcements.
Board Committees
The Board has delegated to the Audit Committee and the Management Engagement Committee specific remits for consideration and recommendation but the final responsibility in these areas remains with the Board. The Board determined that due to its size, and the fact that all the Directors are non-executive and independent, the functions of the Nomination Committee and Remuneration Committee would be 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 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 standing committees are available on the Company's website.
Audit Committee
The Audit Committee comprises all the independent non-executive Directors under the chairmanship of John Aston. The Board is satisfied that the Committees' members have recent and relevant financial experience. The experience and qualification of the Committee members are set out in the biographical details on page 24.
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 the auditors and to the key senior staff of the Investment Manager and it reports its findings and recommendations to the Board which retains the ultimate responsibility for the financial statements of the Company.
A separate report of the work of the Audit Committee over the year is set out on pages 42 to 47.
Management Engagement Committee
The Management Engagement Committee comprises all the independent Non-executive Directors under the chairmanship of John Aston and will usually meet 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 and other services and resources supplied by the Investment Manager, prior to making its recommendation to the Board, whether the retention of the Investment Manager is in the interests of shareholders.
Work of the Management Engagement Committee
During the year ended 30 September 2015 the Management Engagement Committee has met twice. Both times to carry out the review of the Investment Manager and consider its continued appointment for the year ended 30 September 2015 and again for the year ended 30 September 2016.
The Board, through the Management Engagement Committee, has reviewed the performance of the Investment Manager in managing the portfolio over the period since launch. The review also considered the quality of the other services provided by the Investment Manager.
It has concluded that it is in the best interests of shareholders as a whole that the appointment of Polar Capital LLP as Investment Manager is continued on the existing terms.
Senior Independent Director
Due to the structure of the Board it was considered unnecessary to identify a senior non-executive. The Board considers that all Directors have different qualities and areas of expertise on which they may lead where issues arise and to whom concerns may be conveyed. Each Director may be contacted through the Registered Office of the Company.
Directors' Professional Development
When 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 also regularly participating in professional and industry seminars.
Performance Evaluation
The Board
The evaluation of the Board, its Committees and individual Directors is carried out annually. The process involves the use of a written questionnaire and the Chairman seeking the views of each Director. The responses to the questionnaire were reviewed and discussed by the full Board.
The review of the Chairman's performance was conducted by the full Board led by the Chairman of the Audit Committee. The Chairman was absent from this discussion.
In carrying out these evaluations each Director is assessed on their relevant experience, their strengths and weaknesses in relation to the overall requirements of the Board and their commitment to the Company in terms of time by regular attendance at Board meetings. The process is constructed to assess the contribution of individual Directors to the overall operation of the Board and its Committees.
The Board has considered 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 and follows a process of evaluation of each Director's performance, the Company does not have a policy on length of service for Directors due to the expected seven year life. All Directors are appointed for an initial term of three years, subject to reappointment and Companies Act provisions.
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 as to the purchase and sale of individual investments. The Investment Manager has responsibility for asset allocation and sector selection within the limits established and regularly reviewed by the Board. The investment team provided by the Investment Manager, led by Dr Daniel Mahony, has experience of investing in the healthcare sector. In addition, the Investment Manager has other investment 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 that 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 at each Board meeting and the Company's performance against the Benchmark and a peer group of investment companies and funds with similar investment objectives.
The Management Engagement Committee reviews the terms of the contract with the Investment Manager.
Accountability and Audit
The Statement of Directors' Responsibilities in respect of the financial statements is set out on pages 48 and 49 and the Independent Auditors' Report is on pages 50 to 55.
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 and its compliance department monitors its 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 Revised Guidance for Directors on the Combined Code published by the Financial Reporting Council.
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 in 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.
Operation
The process was active throughout the period and up to the date of approval of this annual report. However, such a 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 (UK) Limited but remains responsible to the Company for these functions and provides the Board with information on these services.
The Board undertakes an annual review of the Company's system of internal control where the Risk Map is reviewed and control processes considered. The Board, assisted by the Investment Manager, has conducted the annual review of 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 course of the year ended 30 September 2015 and up to the date of this report.
The Board has adopted a zero tolerance to bribery and corruption in its business activities and uses the anti-bribery policy formulated and implemented by Polar Capital LLP which was sent to all suppliers of both Polar Capital LLP and the Company.
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.
All this information together with the Investment Manager's presentations is available from the Company's website at www.polarcapitalhealthcaretrust.co.uk
The Board is also keen that the AGM be a participative event for all shareholders who attend. The Investment Manager will make a presentation and shareholders are encouraged to attend. The Chairmen of the Board and of the Committees attend the AGM and are available to respond to queries and concerns from shareholders.
At least twenty working days' notice of the AGM is 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 are relayed to the meeting and subsequently published on the Company's website. Proxy forms 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 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
N P Taylor FCIS
Polar Capital Secretarial Services Limited
Company Secretary
15 December 2015
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
The Board has, through the Audit Committee, considered the Company's position as at 30 September 2015 and the factors impacting the forthcoming year are set out in the Chairman's Statement and the Investment Manager's Report on pages 2 to 10 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 is described in the Strategic Report section on pages 2 to 23. Note 24 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 and hedging activities. 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 through the Audit Committee 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 is described on pages 46 and 47.
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 its wind up date expected to be in January 2018.
Responsibility Statement under the Disclosure and Transparency Rules
Each of the Directors of Polar Capital Global Healthcare Growth and Income Trust plc, who are listed on page 24, 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 15 December 2015 and the responsibility statements were signed on its behalf by James Robinson, Chairman of the Board.
James Robinson
Chairman
15 December 2015
Statement of Comprehensive Income - For the year ended 30 September 2015
|
|
Notes |
Year ended 30 September 2015 |
Year ended 30 September 2014 |
||||
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
||
|
Investment income |
3 |
5,494 |
164 |
5,658 |
5,118 |
179 |
5,297 |
|
Other operating income |
4 |
374 |
- |
374 |
657 |
- |
657 |
|
Gains on investments held at fair value |
5 |
- |
13,653 |
13,653 |
- |
28,531 |
28,531 |
|
Other movements on written options |
6 |
- |
(7) |
(7) |
- |
- |
- |
|
Other currency (losses)/gains |
7 |
- |
(528) |
(528) |
- |
21 |
21 |
|
Total income |
|
5,868 |
13,282 |
19,150 |
5,775 |
28,731 |
34,506 |
|
Expenses |
|
|
|
|
|
|
|
|
Investment management fee |
8 |
(351) |
(1,402) |
(1,753) |
(296) |
(1,183) |
(1,479) |
|
Other administrative expenses |
9 |
(452) |
- |
(452) |
(419) |
- |
(419) |
|
Total expenses |
|
(803) |
(1,402) |
(2,205) |
(715) |
(1,183) |
(1,898) |
|
Profit before finance costs and tax |
|
5,065 |
11,880 |
16,945 |
5,060 |
27,548 |
32,608 |
|
Finance costs |
|
- |
- |
- |
- |
- |
- |
|
Profit before tax |
|
5,065 |
11,880 |
16,945 |
5,060 |
27,548 |
32,608 |
|
Taxation |
10 |
(662) |
(2) |
(664) |
(583) |
26 |
(557) |
|
Net profit for the year and |
|
4,403 |
11,878 |
16,281 |
4,477 |
27,574 |
32,051 |
|
Earnings per ordinary share |
12 |
3.63 |
9.81 |
13.44 |
3.86 |
23.76 |
27.62 |
The total 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 notes on pages 60 to 80 form part of these financial statements.
Statement of Changes in Equity - For the year ended 30 September 2015
|
|
Notes |
Year ended 30 September 2015 |
|||||
|
Called up share capital £'000 |
Share premium reserve £'000 |
Special distributable reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at |
|
30,663 |
28,916 |
63,288 |
74,727 |
2,365 |
199,959 |
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
Profit for the year ended 30 September 2015 |
|
- |
- |
- |
11,878 |
4,403 |
16,281 |
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares bought back |
|
- |
- |
(1,444) |
- |
- |
(1,444) |
|
Equity dividends paid |
11 |
- |
- |
- |
- |
(4,358) |
(4,358) |
|
Total equity at |
|
30,663 |
28,916 |
61,844 |
86,605 |
2,410 |
210,438 |
|
|
|
|
|
|
|
|
|
|
|
Notes |
Year ended 30 September 2014 |
|||||
|
Called up share capital £'000 |
Share premium reserve £'000 |
Special distributable reserve £'000 |
Capital reserves £'000 |
Revenue reserve £'000 |
Total £'000 |
||
|
Total equity at |
26,391 |
15,417 |
64,792 |
47,153 |
1,994 |
155,747 |
|
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
Profit for the year ended 30 September 2014 |
|
- |
- |
- |
27,574 |
4,477 |
32,051 |
|
Transactions with owners, recorded directly to equity: |
|
|
|
|
|
|
|
|
Issue of ordinary shares on exercise of subscription shares |
16,17 |
4,272 |
13,499 |
- |
- |
- |
17,771 |
|
Shares bought back |
18 |
- |
- |
(1,504) |
- |
- |
(1,504) |
|
Equity dividends paid |
11 |
- |
- |
- |
- |
(4,106) |
(4,106) |
|
Total equity at |
|
30,663 |
28,916 |
63,288 |
74,727 |
2,365 |
199,959 |
The notes on pages 60 to 80 form part of these financial statements.
Balance Sheet - As at 30 September 2015
|
|
Notes |
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Non-current assets |
|
|
|
|
Investments held at fair value |
13 |
208,247 |
199,459 |
|
Current assets |
|
|
|
|
Receivables |
14 |
509 |
846 |
|
Overseas tax recoverable |
|
212 |
175 |
|
Cash and cash equivalents |
22 |
1,950 |
13 |
|
|
|
2,671 |
1,034 |
|
Total assets |
|
210,918 |
200,493 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Payables |
15 |
(206) |
(424) |
|
Bank overdraft |
22 |
(274) |
(110) |
|
|
|
(480) |
(534) |
|
Net assets |
|
210,438 |
199,959 |
|
|
|
|
|
|
Equity attributable to equity shareholders |
|
|
|
|
Called up share capital |
16 |
30,663 |
30,663 |
|
Share premium reserve |
17 |
28,916 |
28,916 |
|
Special distributable reserve |
18 |
61,844 |
63,288 |
|
Capital reserves |
19 |
86,605 |
74,727 |
|
Revenue reserve |
20 |
2,410 |
2,365 |
|
Total equity |
|
210,438 |
199,959 |
|
Net asset value per ordinary share (pence) |
21 |
174.24 |
164.41 |
The financial statements on pages 56 to 59 were approved and authorised for issue by the Board of Directors on 15 December 2015 and signed on its behalf by
James Robinson
Chairman
The notes on pages 60 to 80 form part of these financial statements.
Registered number 7251471
Cash Flow Statement - For the year ended 30 September 2015
|
|
Notes |
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Cash flows from operating activities |
|
|
|
|
Profit before tax |
|
16,945 |
32,608 |
|
Adjustment for non-cash items: |
|
|
|
|
Gain on investments held at fair value through profit or loss |
|
(13,653) |
(28,531) |
|
Adjusted profit before tax |
|
3,292 |
4,077 |
|
|
|
|
|
|
Adjustments for: |
|
|
|
|
Purchases of investments, including transaction costs |
|
(82,727) |
(60,886) |
|
Sales of investments, including transaction costs |
|
87,945 |
44,168 |
|
Increase in receivables |
|
(16) |
(29) |
|
(Decrease)/increase in payables |
|
(218) |
163 |
|
Overseas tax deducted at source |
|
(701) |
(595) |
|
Net cash generated from/(used in) operating activities |
7,575 |
(13,102) |
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of share capital (net of issue costs) |
|
- |
17,771 |
|
Cost of shares repurchased |
|
(1,444) |
(1,504) |
|
Equity dividends paid |
11 |
(4,358) |
(4,106) |
|
Net cash (used in)/ generated from financing activities |
(5,802) |
12,161 |
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
1,773 |
(941) |
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
(97) |
844 |
|
|
Cash and cash equivalents at the end of the year |
22 |
1,676 |
(97) |
The notes on pages 60 to 80 form part of these financial statements.
Notes to the Financial Statements - For the year ended 30 September 2015
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 Company's presentational currency is pounds sterling. Pounds sterling is also the functional currency of the Company because it is the currency which is most relevant to the majority of the Company's shareholders and creditors and the currency in which the majority of the Company's operating expenses are paid.
2 Accounting Policies
The principal accounting policies which have been applied consistently for all years 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.
Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in January 2009 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 recognised and 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.
Income from US/Canadian REITs is initially taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis. An adjustment may then be made to reallocate a proportion of this income to capital, depending on the information announced by the REITs.
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 the cash dividend foregone is recognised in the capital return column of the Statement of Comprehensive Income.
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 period.
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
All expenses, including the management fee, are accounted for on an accruals basis and are recognised when they fall due.
All expenses have been presented as revenue items 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.
The performance fee (when payable) 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.
(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 September 2015. 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.
All investments, classified as fair value through profit or loss, are further categorised into the following fair value hierarchy:
Level 1: Unadjusted prices quoted in active markets for identical assets and liabilities.
Level 2: Having inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).
Level 3: Having inputs for the asset or liability that are not based on observable market data.
Changes in fair value of all investments held at fair value and realised gains and losses on disposal are recognised in the capital return column of the Statement of Comprehensive Income.
(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, 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
Other 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) Capital Reserves
Capital reserve arising on investments sold includes:
- gains/losses on disposal of investments
- exchange differences on currency balances
- 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.
(n) Repurchase of Ordinary Shares (Including Those Held in Treasury)
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.
Where shares are repurchased and held in treasury, the transfer to capital redemption reserve is made if and when such shares are subsequently cancelled.
(o) 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 and amended IFRSs are in issue but are not yet effective and have not been applied in these accounts:
· IFRS 9 (2014) Financial Instruments
· IFRS 10 (amended) Consolidated Financial Instruments
· IFRS 12 (amended) Disclosures of Interests in Other Entities
· IFRS 14 Regulatory Deferral Accounts
· IFRS 15 Revenue from Contracts with Customers
· IAS 1 (amended) Presentation of Financial Statements
· IAS 16 (amended) Property, Plant and Equipment
· IAS 27 (amended) Equity Method in Separate Financial Statements
· IAS 28 (amended) Investments in Associates and Joint Ventures
· IAS 38 (amended) Intangible Assets
· IAS 39 (amended) Hedge accounting
The Directors do not expect that the adoption of the Standards listed above will have a significant impact on the Company's accounts in future periods.
(p) Segmental Reporting
Under IFRS 8, '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.
3 Investment Income
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Revenue: |
|
|
|
Franked: Listed investments |
|
|
|
Dividend income |
688 |
1,022 |
|
Unfranked: Listed investments |
|
|
|
Dividend income |
4,806 |
4,096 |
|
Total investment income allocated to revenue |
5,494 |
5,118 |
|
Capital: |
|
|
|
Special dividends allocated to capital |
- |
24 |
|
Dividends from REITs allocated to capital |
164 |
155 |
|
Total investment income allocated to capital |
164 |
179 |
4 Other Operating Income
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Option premium income |
372 |
656 |
|
Bank interest |
2 |
1 |
|
Total other operating income |
374 |
657 |
Option premium income for the year arises from writing short-dated covered-call options and put options in the expectation that the options will not be exercised or, in overall terms, any losses that may arise following exercise will be outweighed by the premiums received. A loss of £7k (2014: £nil) has been recognised in the capital return for the year in respect of these options.
5 Gains on Investments Held at Fair Value
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Net gains on disposal of investments at historic cost |
24,040 |
11,664 |
|
Less fair value adjustments in earlier years |
(13,986) |
(5,038) |
|
Gains based on carrying value at previous balance sheet date |
10,054 |
6,626 |
|
Valuation gains on investments held during the year |
3,599 |
21,905 |
|
|
13,653 |
28,531 |
6 Other Movements on Written Options
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Other movement on written options |
(7) |
- |
This movement arises from differences between the change in fair value of written options and the amount of premium income recognised in the revenue return, in accordance with the policy explained in note 2(d).
7 Other Currency Gains/(Losses)
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Exchange (losses)/gains on currency balances |
(528) |
21 |
8 Investment Management Fee
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Management fee |
|
|
|
- charged to revenue |
351 |
296 |
|
- charged to capital |
1,402 |
1,183 |
|
Investment management fee payable to Polar Capital LLP. |
1,753 |
1,479 |
Management fees are allocated 20% to revenue and 80% to capital.
9 Other Administrative Expenses (Including VAT where appropriate)
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Directors' fees |
107 |
107 |
|
Directors' NIC |
10 |
11 |
|
Auditors' remuneration: |
|
|
|
For audit of the Company financial statements |
22 |
21 |
|
For taxation compliance services |
- |
- |
|
Depositary fee |
27 |
5 |
|
Registrar fee |
17 |
27 |
|
Custody and other bank charges |
30 |
23 |
|
UKLA and LSE listing fees |
20 |
13 |
|
Legal & professional fees |
7 |
23 |
|
AIC fees |
20 |
15 |
|
Directors' and officers liability insurance |
8 |
9 |
|
AGM expenses |
1 |
1 |
|
Corporate brokers fee |
27 |
27 |
|
Marketing expenses |
20 |
19 |
|
Shareholder communications |
24 |
24 |
|
HSBC administration fee |
111 |
91 |
|
Other expenses |
1 |
3 |
|
|
452 |
419 |
Ongoing charges represents the total expenses of the fund, excluding finance costs, expressed as a percentage of the average daily net asset value, in accordance with AIC guidance issued in May 2012.
The ongoing charges ratio for the year ended 30 September 2015 was 1.00% (2014: 1.04%).
10 Taxation
|
|
Year ended 30 September 2015 |
Year ended 30 September 2014 |
||||
|
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
Revenue return £'000 |
Capital return £'000 |
Total return £'000 |
|
a) Analysis of tax charge for the year: |
|
|
|
|
|
|
|
Overseas tax |
662 |
2 |
664 |
553 |
4 |
557 |
|
Tax relief in capital |
- |
- |
- |
30 |
(30) |
- |
|
Total tax for the year (see note 10b) |
662 |
2 |
664 |
583 |
(26) |
557 |
b) Factors affecting tax charge for the year: |
|
|
|
|
|
|
|
The charge for the year can be reconciled |
|
|
|
|
|
|
|
Profit before tax |
5,065 |
11,880 |
16,945 |
5,060 |
27,548 |
32,608 |
|
Tax at the UK corporation tax rate of 20%* (2014: 21%)* |
507 |
1,188 |
1,695 |
531 |
2,893 |
3,424 |
|
Tax at the UK corporation tax rate of 21% (2014: 23%) |
532 |
1,247 |
1,779 |
582 |
3,168 |
3,750 |
|
Tax effect of non-taxable dividends |
(1,035) |
(34) |
(1,069) |
(1,025) |
(39) |
(1,064) |
|
Gains on investments that are not taxable |
- |
(2,688) |
(2,688) |
- |
(6,281) |
(6,281) |
|
Unrelieved current period expenses and deficits |
6 |
287 |
293 |
(8) |
190 |
182 |
|
Overseas tax suffered |
662 |
2 |
664 |
553 |
4 |
557 |
|
Tax relief on overseas tax suffered |
(10) |
- |
(10) |
(50) |
39 |
(11) |
|
Total tax for the year (see note 10a) |
662 |
2 |
664 |
583 |
(26) |
557 |
* The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015. Accordingly, the Company's profits for this accounting period are taxed at an effective rate of 20.58%.
c) Factors that may affect future tax charges:
The Company has an unrecognised deferred tax asset of £869,000 (2014: £583,000) based on a prospective corporation tax rate of 20% (2014: 21%).
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 accounts.
The reduction in the standard rate of corporation tax was substantively enacted in July 2013 and will be effective from 1st April 2015.
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 Amounts Recognised as Distributions to Ordinary Shareholders in the Year
Dividends paid in the year ended 30 September 2015
|
Payment date |
No of shares |
Pence per share |
Year ended 30 September 2015 £'000 |
|
28 November 2014 |
121,620,000 |
0.60p |
730 |
|
27 February 2015 |
121,575,000 |
0.60p |
729 |
|
29 May 2015 |
120,825,000 |
0.60p |
725 |
|
28 August 2015 |
120,775,000 |
1.80p |
2,174 |
|
|
|
|
4,358 |
The revenue available for distribution by way of dividend for the year is £4,403,000 (2014: £4,477,000).
The total dividends payable in respect of the financial year ended 30 September 2015 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:
|
Payment date |
No of shares |
Pence per share |
Year ended 30 September 2015 £'000 |
|
27 February 2015 |
121,575,000 |
0.60p |
729 |
|
29 May 2015 |
120,825,000 |
0.60p |
725 |
|
28 August 2015 |
120,775,000 |
1.80p |
2,174 |
|
27 November 2015 |
120,775,000 |
0.65p |
785 |
|
|
|
|
4,413 |
Dividends paid in the year ended 30 September 2014
|
Payment date |
No of shares |
Pence per share |
Year ended 30 September 2014 £'000 |
|
29 November 2013 |
104,850,000 |
0.55p |
577 |
|
7 March 2014 |
122,000,000 |
0.55p |
671 |
|
30 May 2014 |
121,720,000 |
0.55p |
669 |
|
29 August 2014 |
121,620,000 |
1.80p |
2,189 |
|
|
|
|
4,106 |
The total dividends payable in respect of the financial year ended 30 September 2014 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:
|
Payment date |
No of shares |
Pence per share |
Year ended 30 September 2014 £'000 |
|
7 March 2014 |
122,000,000 |
0.55p |
671 |
|
30 May 2014 |
121,720,000 |
0.55p |
669 |
|
29 August 2014 |
121,620,000 |
1.80p |
2,189 |
|
28 November 2014 |
121,620,000 |
0.60p |
730 |
|
|
|
|
4,259 |
All dividends are paid as interim dividends.
The dividends paid in November each year relate to a dividend declared in respect of the previous financial year but paid in the current accounting year.
12 Earnings per Ordinary Share
|
|
Year ended 30 September 2015 |
Year ended 30 September 2014 |
||||
|
Revenue return |
Capital return |
Total return |
Revenue return |
Capital return |
Total return |
|
|
The calculation of basic earnings per share is based on the following data: |
|
|
|
|
|
|
|
Net profit for the year (£'000) |
4,403 |
11,878 |
16,281 |
4,477 |
27,574 |
32,051 |
|
Weighted average ordinary shares |
121,133,452 |
121,133,452 |
121,133,452 |
116,029,389 |
116,029,389 |
116,029,389 |
|
Basic earnings per ordinary share (pence) |
3.63 |
9.81 |
13.44 |
3.86 |
23.76 |
27.62 |
As at 30 September 2015 there were no potentially dilutive shares in issue.
13 Investments Held at Fair Value
(a) Movements on investments
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Cost brought forward |
146,596 |
119,312 |
|
Valuation gains |
52,863 |
35,996 |
|
Valuation brought forward |
199,459 |
155,308 |
|
Additions at cost |
82,727 |
57,408 |
|
Proceeds on disposal |
(87,592) |
(41,788) |
|
Gains on disposal |
10,054 |
6,626 |
|
Valuation gains |
3,599 |
21,905 |
|
Valuation at 30 September |
208,247 |
199,459 |
|
Cost at 30 September |
165,771 |
146,596 |
|
Closing fair value adjustment |
42,476 |
52,863 |
|
Valuation at 30 September |
208,247 |
199,459 |
The following transaction costs, including stamp duty and broker commissions were incurred during the year:
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
On acquisition |
171 |
124 |
|
On disposal |
153 |
81 |
|
|
324 |
205 |
(b) Fair value hierarchy
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Level 1 assets |
208,247 |
199,459 |
|
Valuation at 30 September |
208,247 |
199,459 |
All Level 1 assets are traded on a recognised Stock Exchange.
14 Receivables
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Sales for future settlement |
- |
353 |
|
Accrued income |
487 |
470 |
|
Prepayments |
22 |
23 |
|
|
509 |
846 |
The carrying values of receivables approximate their fair value.
15 Payables
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Accruals |
206 |
424 |
|
|
206 |
424 |
The carrying values of payables approximate their fair value.
16 Called up Share Capital
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Allotted, Called up and Fully paid: |
|
|
|
Ordinary shares of 25p each: |
|
|
|
Opening balance of 121,620,000 (30 September 2014: 104,850,000) |
30,405 |
26,213 |
|
Issue of nil (2014: 17,800,000) ordinary shares on exercise of subscription shares |
- |
4,450 |
|
Repurchase of 845,000 (2014: 1,030,000) ordinary shares, into treasury |
(211) |
(258) |
|
Allotted, Called up and Fully paid: 120,775,000 |
30,194 |
30,405 |
|
1,875,000 (2014: 1,030,000) ordinary shares, held in treasury |
469 |
258 |
|
At 30 September 2015 |
30,663 |
30,663 |
The subscription shares were issued as a bonus issue to ordinary shareholders at a rate of one bonus subscription share for every 5 ordinary shares held on 15 June 2010.
A subscription share carried the right to subscribe in cash for one ordinary share at a price of 100p on 31 January 2014, when the rights lapsed. There are no subscription shares remaining.
In addition, 845,000 ordinary shares were repurchased into treasury at a cost of £1,444,000.
The ordinary shares held in treasury have no voting rights and are not entitled to dividends.
17 Share Premium Reserve
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
As at 1 October 2014 |
28,916 |
15,417 |
|
Issue of nil (2014: 17,800,000) ordinary shares on exercise of subscription shares |
- |
13,499 |
|
At 30 September 2015 |
28,916 |
28,916 |
18 Special Distributable Reserve
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
As at 1 October 2014 |
63,288 |
64,792 |
|
Repurchase of 845,000 (2014: 1,030,000) ordinary shares into treasury |
(1,444) |
(1,504) |
|
At 30 September 2015 |
61,844 |
63,288 |
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.
19 Capital Reserves
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
As at 1 October 2014 |
74,727 |
47,153 |
|
Net gains on disposal of investments |
10,054 |
6,626 |
|
Valuation gains on investments held during the year |
3,599 |
21,905 |
|
Other movements on derivatives held during the year |
(7) |
- |
|
Exchange (losses)/gains on currency balances |
(528) |
21 |
|
Capital dividends |
164 |
179 |
|
Irrecoverable tax on special capital dividends |
(2) |
(4) |
|
Tax relief due from revenue |
- |
30 |
|
Investment management fee allocated to capital |
(1,402) |
(1,183) |
|
At 30 September 2015 |
86,605 |
74,727 |
The balance on the capital reserve represents a profit of £42,476,000 (2014: £52,863,000) on investments held and a profit of £44,129,000 (2014: £21,864,000) on investments sold.
20 Revenue Reserve
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
As at 1 October 2014 |
2,365 |
1,994 |
|
Revenue profit |
4,403 |
4,477 |
|
Interim dividends paid |
(4,358) |
(4,106) |
|
At 30 September 2015 |
2,410 |
2,365 |
21 Net Asset Value Per Ordinary Share
|
|
30 September 2015 |
30 September 2014 |
|
Net assets attributable to ordinary shareholders (£'000) |
210,438 |
199,959 |
|
Ordinary shares in issue at end of year |
120,775,000 |
121,620,000 |
|
Net asset value per ordinary share (pence) |
174.24 |
164.41 |
|
Total issued ordinary shares |
122,650,000 |
122,650,000 |
|
Ordinary shares held in treasury |
1,875,000 |
1,030,000 |
|
Ordinary shares in issue |
120,775,000 |
121,620,000 |
As at 30 September 2015 there were no potentially dilutive shares in issue.
22 Cash and Cash Equivalents
Cash and cash equivalents include the following for the purpose of the Cash Flow Statement:
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Cash at bank |
1,567 |
- |
|
Cash held at derivative clearing houses |
383 |
13 |
|
Bank overdraft |
(274) |
(110) |
|
|
1,676 |
(97) |
23 Transactions with the Investment Manager and Related Party Transactions
(a) Transactions with the Manager
Under the terms of an agreement dated 26 May 2010 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 September 2015 were £1,753,000 (2013: £1,479,000) of which £143,000 (2014: £260,000) was outstanding at the year-end.
(b) Related party transactions
The Company has no employees and therefore key management personnel. The Company paid £107,000 (2014: £107,000) to the Directors and the Remuneration Report is set out on pages 38 to 41.
24 Derivatives and other financial instruments
Risk management policies and procedures for the Company
The Company invests in equities and other financial instruments for the long-term to further the investment objective set out on page 16.
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.
- Bank overdrafts, the main purpose of which is to raise finance for the Company's operations.
- Cash, liquid resources and short-term receivables and payables that arise directly from the
Company's operations.
- Derivative transactions which the Company enters into may include equity or index options, 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 24(a)(i)), currency risk (see note 24(a)(ii)), and interest rate risk (see note 24(a)(iii)).
(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 given on pages 11 to 14. Investments are valued in accordance with the accounting policies as stated in Note 2(g).
At the year end, the Company did not hold any derivative instruments (2014: 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 healthcare sub sector. The allocation of assets to international markets, together with stock selection covering small, medium and large companies, and the use of index options, are other factors which act to reduce price risk. The Investment Manager actively monitors market prices throughout the year and reports to the Board which meets regularly in order to consider investment strategy.
Market price risks exposure
The Company's exposure to changes in market prices at 30 September on its investments was as follows:
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Non-current asset investments at fair value through profit or loss |
208,247 |
199,459 |
|
|
208,247 |
199,459 |
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% 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, with all other variables held constant.
|
|
Year ended 30 September 2015 |
Year ended 30 September 2014 |
||
|
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 |
(53) |
53 |
(51) |
51 |
|
Capital return |
31,025 |
(31,025) |
29,716 |
(29,716) |
|
Change to the profit after tax for the year |
30,972 |
(30,972) |
29,665 |
(29,665) |
|
Change to equity attributable to shareholders |
30,972 |
(30,972) |
29,665 |
(29,665) |
(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.
Settlement risk on investment trades is managed through short-term hedging.
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.
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Monetary Assets: |
|
|
|
Cash and short-term receivables |
|
|
|
Swiss francs |
217 |
169 |
|
US dollars |
434 |
136 |
|
Japanese yen |
134 |
129 |
|
Australian dollars |
89 |
46 |
|
Canadian dollars |
13 |
12 |
|
Euros |
50 |
7 |
|
Monetary Liabilities: |
|
|
|
Other payables |
|
|
|
Swedish krona |
(274) |
- |
|
Foreign currency exposure on net monetary items |
663 |
499 |
|
Non-Monetary Items: |
|
|
|
Investments at fair value through profit or loss that are equities |
|
|
|
US dollars |
109,106 |
93,595 |
|
Swiss francs |
35,407 |
28,777 |
|
Euros |
15,513 |
16,392 |
|
Japanese yen |
11,536 |
13,369 |
|
Danish krone |
- |
5,312 |
|
Australian dollars |
4,633 |
4,997 |
|
Canadian dollars |
2,884 |
2,602 |
|
Singapore dollars |
1,544 |
1,600 |
|
Norwegian krona |
721 |
491 |
|
Brazilian real |
- |
115 |
|
Total net foreign currency exposure |
182,007 |
167,749 |
During the financial year, movements against sterling in the four major currencies noted above were:
US dollar appreciated by 6.6% (2014: depreciated by 0.1%),
Swiss franc appreciated by 5.5% (2014: depreciated by 5.8%),
Japanese yen depreciated by 2.0% (2014: depreciated by 11.9%),
Euro depreciated by 5.7% (2014: depreciated by 7.3%).
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit after tax for the year and the value of equity attributable to shareholders in regard to the financial assets and financial liabilities and the exchange rates for the £/US dollar, £/Swiss francs, £/Japanese yen and £/Euro.
Based on the year end position, if sterling had depreciated by a further 10% against the currencies shown, this would have the following effect:
|
|
Year ended 30 September 2015 |
|||
|
US dollars |
Swiss Francs |
Japanese Yen |
Euros |
|
|
Statement of Comprehensive Income - profit after tax |
|
|
|
|
|
Revenue return |
48 |
24 |
15 |
6 |
|
Capital return |
12,123 |
3,934 |
1,282 |
1,724 |
|
Change to the profit after tax for the year and to equity attributable to shareholders |
12,171 |
3,958 |
1,297 |
1,730 |
|
|
Year ended 30 September 2014 |
|||
|
US dollars |
Swiss Francs |
Japanese Yen |
Euros |
|
|
Statement of Comprehensive Income - profit after tax |
|
|
|
|
|
Revenue return |
15 |
19 |
14 |
1 |
|
Capital return |
10,399 |
3,197 |
1,485 |
1,821 |
|
Change to the profit after tax for the year and to equity attributable to shareholders |
10,414 |
3,216 |
1,499 |
1,822 |
Based on the year end position, if sterling had appreciated by a further 10% against the currencies shown, this would have the following effect:
|
|
Year ended 30 September 2015 |
|||
|
US dollars |
Swiss Francs |
Japanese Yen |
Euros |
|
|
Statement of Comprehensive Income - profit after tax |
|
|
|
|
|
Revenue return |
(39) |
(20) |
(12) |
(5) |
|
Capital return |
(9,919) |
(3,219) |
(1,049) |
(1,410) |
|
Change to the profit after tax for the year and to equity attributable to shareholders |
(9,958) |
(3,239) |
(1,061) |
(1,415) |
|
|
Year ended 30 September 2014 |
|||
|
US dollars |
Swiss Francs |
Japanese Yen |
Euros |
|
|
Statement of Comprehensive Income - profit after tax |
|
|
|
|
|
Revenue return |
(12) |
(15) |
(12) |
(1) |
|
Capital return |
(8,509) |
(2,616) |
(1,215) |
(1,490) |
|
Change to the profit after tax for the year and to equity attributable to shareholders |
(8,521) |
(2,631) |
(1,227) |
(1,491) |
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
Although the majority of the Company's financial assets are equity shares which pay dividends, not interest, the Company will be affected by interest rate changes as interest is earned on any cash balances and paid on any overdrawn balances.
Given the interest rate risk exposure noted below, the impact of any interest rate change is not considered to be significant and as such, no sensitivity analysis has been provided. Interest rate changes will also have an impact on the valuation of equities, although this forms part of price risk, which has already been 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 are not used to hedge against the exposure to interest rate risk.
Interest rate exposure
At the year-end, financial assets and liabilities exposed to floating interest rates were as follows:
|
|
Year ended 30 September 2015 £'000 |
Year ended 30 September 2014 £'000 |
|
Cash at bank |
1,950 |
13 |
|
Bank overdraft |
(274) |
(110) |
|
|
1,676 |
(97) |
The above year-end amounts may not be representative of the exposure to interest rates in the year ahead since the level of cash held during the year will be affected by the strategy being followed in response to the Board's and Manager's perception of market prospects and the investment opportunities available at any particular time.
(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 September the financial liabilities comprised:
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Due within 1 month: |
|
|
|
Accruals |
206 |
424 |
|
Bank overdraft |
274 |
110 |
|
|
480 |
534 |
(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 September 2015 was £2,437,000 (2014: £836,000) comprising:
|
|
30 September 2015 £'000 |
30 September 2014 £'000 |
|
Balances due from brokers |
- |
353 |
|
Accrued Income |
487 |
470 |
|
Cash at bank |
1,950 |
13 |
|
|
2,437 |
836 |
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 assets are past due or impaired. All deposits were placed with banks that had a rating of A or higher.
(d) Capital Management Policies and Procedures
The Company's capital, or equity, is represented by its net assets which amounted to £210,438,000 for the year ended 30 September 2015 (2014: £199,959,000), which are managed to achieve the Company's investment objective set out on page 16.
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); and
(ii) the determination of dividend payments.
The Company is subject to externally imposed capital requirements through the Companies Act 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 two capital restriction tests imposed on investments by company law.
These requirements are unchanged since the previous year end and the Company has complied with them.
Status of announcement
The figures and financial information contained in this announcement are extracted from the Audited Annual Report for the year ended 30 September 2015 and do not constitute statutory accounts for the period. 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 September 2015 have not yet been delivered to the Registrar of Companies. The figures and financial information for the period ended 30 September 2014 are extracted from the published Annual Report and Financial Statements for the period ended 30 September 2014 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the period ended 30 September 2014 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 December.
(www.polarcapitalglobalhealthcaretrust.co.uk).
AGM
The Annual Report and separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in December 2015 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 on pages 2 to 23 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 Healthcare Growth and Income 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.
This information is provided by RNS
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