Final Results

RNS Number : 8931R
Polar Cap Gbl Healthcare Growth&IT
15 December 2016
 

POLAR CAPITAL GLOBAL HEALTHCARE GROWTH AND INCOME TRUST PLC

ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2016

 

15 December 2016

Financial Highlights - For the year ended 30 September 2016

 

Performance

 

 

Net asset value per ordinary share (total return) (note 1)

20.5%

 

Benchmark index

(MSCI ACWI/Healthcare Index (total return in Sterling with dividends reinvested))

22.8%

 

Total return for investors since inception (note 2)

137.9%

 


 

 

 

 

 

 

 

Financials

As at
30 September 2016

As at
30 September 2015

% Change

 

Net asset value per ordinary share

205.71p

174.24p

18.1%

 

Ordinary share price

194.50p

168.25p

15.6%

 

Discount

-5.4%

-3.4%

 

 

Share Capital

 

 

 

 

Total issued ordinary shares

122,650,000

122,650,000

 

 

Ordinary shares held in treasury

2,175,000

1,875,000

 

 

Ordinary shares in issue

120,475,000

120,775,000

 

 

Expenses

 

 

 

 

Ongoing charges (note 3)

1.01%

1.00%

 

Exchange rates

 

 

 

US Dollar to £

1.2990

1.5148

14.2%

Euro to £

1.1559

1.3570

14.8%

Swiss Franc to £

1.2593

1.4801

14.9%

Japanese Yen to £

131.54

181.41

27.5%
             

 

 

 

 

Dividends

The Company has paid the following dividends relating to the financial year ended 30 September 2016:

Pay date

Amount per
ordinary share

Record date

Ex-date

Declared date

29 February 2016

0.65p

5 Feb 2016

4 Feb 2016

27 Jan 2016

3 June 2016

0.65p

20 May 2016

19 May 2016

10 May 2016

31 August 2016

2.00p

29 July 2015

28 July 2016

21 July 2016

30 Nov 2016

0.75p

4 Nov 2016

3 Nov 2016

27 Oct 2016

Total (2015: 3.65p)

4.05p

 

 

 

                

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

The NAV total return for the year amounted to 20.5% compared to a rise in our benchmark, the MSCI Global Healthcare Index, of 22.8% and a rise in the NYSE Pharmaceutical Index of 17.4%. The share price total return was 18.1% reflecting a widening in our discount from 3.4% to 5.4% over the course of the year.

The most notable macro event of the year was the UK referendum in favour of BREXIT. With the UK sporting sizeable current account and budget deficits, the uncertainty brought on by the BREXIT vote acted as the catalyst for a correction in Sterling. With 86.5% of our portfolio denominated in foreign currency this had a major beneficial impact on our NAV and helps to explain why our absolute performance was so strong in the second half of the financial year.

Share Capital

During the past year the discount of our share price to its underlying NAV ranged from 0.3% in January to 12.2% in June. It was in June that we bought back a total of 300,000 shares in order to take advantage of these wider discount levels. These shares were bought back into treasury and we now have a total of 2,175,000 treasury shares available for re-issue should the opportunity arise.

Dividends

As a Growth and Income Trust, dividends form an important part of shareholder return. We have paid out total dividends of 4.05p in respect of the year ended 30 September 2016 which represents an 11% increase on the amount paid the previous year. We have increased dividends every financial year since inception and your Board remains committed to this objective. Should Sterling remain at these levels it would have a helpful impact on our dividend income for the current year.

Life

At the end of September, members of the Board accompanied by our advisers, visited a number of our major shareholders to ascertain whether we should provide a rollover vehicle for the Trust when it reaches the end of its fixed life in January 2018. Shareholders were supportive of this idea and discussions are now in progress with Polar Capital to take this to the next stage.

Outlook

The healthcare sector remains 'unloved' and, now that the US presidential election is out of the way, we think it is poised for a recovery. We think that the reasonable valuations, combined with an attractive growth profile, new product pipelines and continuing merger and acquisition activity should combine to make this an attractive sector for investors looking to find growth in a low growth world. Stock selection remains as critical as ever and here we rely on the excellent Polar Capital healthcare team to identify the winners and, equally importantly, to avoid the disasters.

Annual General Meeting

The Company's sixth Annual General Meeting will take place at noon on Tuesday 31 January 2017 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. Our manager, Dr Dan Mahony, will be making a presentation and please do come and hear what he has to say as it is usually very interesting!

Attendance at this meeting also provides a good opportunity for you to meet the members of the 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

14 December 2016

 

 

Investment Manager's Report - For the year ended 30 September 2016

Performance Review

For the financial year to 30 September 2016, the Company delivered a total return of 20.5%, which was behind the benchmark (MSCI Global Healthcare Index) that recorded a total return of 22.8% over the same period.

The major driver of performance has been the weakness of Sterling following the result of the British referendum regarding membership of the European Union (EU). Over the reporting period, Sterling fell by 14-15% against the US Dollar, Euro and Swiss franc.

The vote to leave the European Union had an immediate effect on global stock markets with a sharp fall in the value of the pound. From a healthcare investor perspective, Britain's decision to leave the EU has only a limited impact on larger healthcare companies. For global pharmaceutical companies, Britain represents approximately 2-3% of the total pharmaceutical market.

On a relative basis, the healthcare sector has underperformed broader global stock markets significantly over the course of the reporting period. We think this performance has been driven more by a change in investor sentiment rather than any deterioration in the underlying fundamentals for healthcare. Investor enthusiasm for healthcare waned as the noise and rhetoric surrounding the U.S. Presidential election race increased.

At the end of September 2016, the sector was trading at a significant discount to the market on a price to earnings (P/E) basis. This discount was close to the levels seen in 1992 and 2008 when major healthcare reform was a key policy proposal in the election campaigns for President Clinton and President Obama, respectively. While both candidates in the 2016 Presidential election highlighted drug pricing as an area of concern, which we discuss below, neither articulated a detailed policy objective suggesting major healthcare reform.

 Macroeconomic and geopolitical factors have continued to weigh upon global stock markets over the course of the year. In particular, the U.S. Federal Reserve signalled that it would end its loose monetary policy and raise interest rates - this seemed to be responsible for the sell-off in January. While the broader markets recovered in February, investor risk appetite has remained suppressed over the course of the year with a commensurate lack of enthusiasm for small cap stocks.

Within the healthcare sector, pharmaceuticals and biotechnology stocks were hardest hit largely because of concerns related to drug pricing. As a point of reference, the NYSE Pharmaceutical Index was up 17.4% (in sterling terms) over the reporting period, well behind our benchmark. The reduction in investor risk appetite led to underperformance of small healthcare stocks across a number of sub-sectors, not just biotechnology.

The best performing sub-sectors over the reporting period were health insurers, life sciences tools and medical equipment - parts of the healthcare industry where pricing concerns are low and so investors have had greater confidence in the growth outlook.

The relative underperformance of the Company's portfolio compared to the benchmark can largely be explained by the large weighting to pharmaceuticals - a positioning we have maintained since inception. The portfolio was also affected by some negative stock- specific news flow in a couple of small cap stocks. We expect to maintain a concentration in pharmaceutical stocks in the portfolio to the end of the Company's life with a wind-up expected in January 2018.

Review of the Portfolio

We split the Company's investments into an income portfolio and a growth portfolio with an 80:20 division of assets, respectively. All companies held in the income portfolio pay a dividend and we have historically maintained a large weighting in large pharmaceuticals companies. The average dividend yield for the large pharmaceutical peer group is 3% with an estimated 4% dividend growth over the next fiscal year. The growth portfolio has holdings in all four healthcare sub-sectors and is diversified across a number of 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 79% and 62%, respectively, as of 30 September 2016.

As a measure of risk, the beta of the portfolio increased modestly from 0.80 to 0.86 throughout the year. We continue to manage the portfolio conservatively and this has helped to limit the volatility of the portfolio during some of the large stock market moves seen over the last 12 months.

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).

Pfizer continues to be the largest holding in the income portfolio and we have maintained large positions in both Novartis and Johnson & Johnson. The biggest change in our positioning over the reporting period has been an increase in our holding in Merck & Co. and a significant decrease in our Eli Lilly position.

While we continue to believe that we are at the beginning of a major wave of new drug development, our investment strategy for pharmaceutical companies has been to identify companies with clinical pipelines that we believe are under-appreciated and under-valued. Conversely, we have tried to avoid companies where we think expectations may be too high and so the risk/reward profile for a stock is unfavourable.

A good example of an area where there is a lot of investor excitement is in the field of oncology. In particular, the development of new so-called immuno-oncology drugs that enable a patient's own immune system to attack a tumour. The market opportunity for these drugs is estimated to be in excess of $20 billion.

While there are four major players in this field - AstraZeneca, Bristol-Myers Squibb, Merck & Co. and Roche - at the beginning of the year Bristol-Myers Squibb was widely expected to take the lion's share of this market as its drug, Opdivo, had a significant first mover advantage. Our view was that the opportunity for both Merck & Co and AstraZeneca was underappreciated and so reflected this in the relative size of these positions in the portfolio.

Over the summer, Merck & Co announced some highly- anticipated clinical data for Keytruda, its immuno-oncology drug approved for the treatment of melanoma and second-line non-small cell lung cancer (NSCLC). The KEYNOTE-24 study, which was evaluating the use of Keytruda in front-line NSCLC, was stopped early as it was showing superiority to chemotherapy for both progression-free survival and overall survival. What we did not expect was that Bristol Myers Squibb's trial for Opdivo in front-line NSCLC failed only a few weeks later, precipitating a significant sell- off in the shares.

We expect data from AstraZeneca's MYSTIC trial in NSCLC in March next year. We are a little concerned that expectations have begun to increase and so we will monitor the risk/reward around the stock carefully in the coming months.

In an analogous situation, we reduced the position in Eli Lilly because the company was due to announce Phase III data from a study investigating the use of its drug candidate, solanezumab, in Alzheimer's disease before the end of 2016. Investor expectations were very high ahead of this event but we were a little more cautious given the existing clinical data for the agent and how difficult it has been to show efficacy in clinical trials for this disease.  Eli Lilly reported a negative result for this trial after the end of the reporting period with the stock falling significantly on the news.

In terms of absolute attribution, the biggest contributors have been Johnson & Johnson, Merck & Co and Pfizer. Given the investor trepidation ahead of the US elections and concerns over drug pricing pressure, some of the better performing stocks in healthcare have been the more defensive pharmaceutical stocks with little clinical news flow that are perceived as safe havens. Johnson & Johnson and Pfizer fall into this camp, although performance of both of these stocks waned in the latter part of the reporting period ahead of the U.S. election.

Pfizer announced its intention to acquire Allergan at the beginning of the reporting period but reversed this decision in April 2016 when the U.S. Treasury issued new rules to prevent further tax inversion deals. In September, management also announced that it had decided not to break up the company into separate divisions as it felt that this would not create value for shareholders. Nevertheless, we believe that Pfizer's capacity for stable cash generation is underestimated and see this as a major holding in the portfolio over the coming year.

The biggest detractors have been Sanofi, Eli Lilly and Teva. Sanofi has been a laggard as the company continues to face up to pricing pressure in its core diabetes franchise - however, we think this may be fully factored into the shares and there is the potential for upside surprise from a number of new product launches. As noted above, we decreased our position in Eli Lilly earlier in the year and so recorded a small loss.

We had expected Teva to begin to perform better once it had closed the deal to acquire Allergan's generics business in the summer. However, the stock continues to be dogged by concerns over potential generic competition to its multiple sclerosis drug, Copaxone. We think the shares look cheap and that these concerns could dissipate over the next year - we have been adding to the position on weakness.

Growth Portfolio

The growth portfolio is invested across all four healthcare sub-sectors with holdings in biotechnology, healthcare services, medical device and pharmaceutical companies. There is a bias towards smaller companies in the growth portfolio - just under half of these have a market capitalisation of $1 billion or less. Over the reporting period, the number of positions was reduced from 36 to 33.

As we approach the end of the life of the Company, we have begun to reduce our exposure to the more illiquid stocks in the portfolio. Consistent with this, we have made no new investments in companies with a market capitalisation of less than $100 million over the last year.

On an absolute basis, the most important contributors during the period were Medtronic, Hutchison China Meditech and Nevro. Medtronic is the world's largest medical device manufacturer and is now the largest position in the growth portfolio. We think that the CEO, Omar Ishrak, is one of the best business leaders in healthcare because he has re-directed the company's strategy to adapt to the ongoing structural change in healthcare. Over the last year, investors are beginning to appreciate that this strategy can drive sustainable and predictable earnings and cash flow growth for Medtronic.

Hutchison China Meditech was a holding for nearly five years. Over that period, the company successfully expanded its speciality pharmaceutical business in China and began to develop a pipeline of innovative, next-generation cancer therapeutics. The company announced its intention to list on NASDAQ in October last year, which caused a rapid appreciation in the share price. While we like the company, we felt the valuation was a little stretched and we used this rally to exit the position.

Nevro is a U.S. medical device company that has developed a novel neuro-stimulation technology for the treatment of leg and back pain. The company has delivered impressive revenue growth over the last year as it has begun to expand the U.S market for its product.

The biggest detractors to performance were two UK small companies - Cambian and Oxford Pharmasciences. In  October 2015, Cambian, a UK-based mental health service provider, announced that it would not meet profit expectations for 2015 as it had failed to hire sufficient staff to cope with the rapid expansion in their facilities. Surprisingly, the expectations for 2015 were reset in February and then again in March with further disclosure that debt covenants had been breached. We decided to exit the position, at a significant loss.

Oxford Pharmasciences is a small UK-based company that has developed a drug formulation technology that can mask the taste of drugs such as ibuprofen. The stock fell on the news that its discussions with potential partners had faltered and it would need additional clinical data to secure a licensing deal.

The U.S. Election Has Put Drug Pricing in the Spotlight

The issue that has ignited investor concerns over the last year is drug pricing. This began in September 2015 when Hillary Clinton accused certain speciality pharmaceutical companies of "price gouging". A few manufacturers of particular life-saving drugs, which are no longer patent-protected, have significantly increased prices either because of drug shortages or by offering incentives via the distribution channel.

This put drug pricing on the political agenda and precipitated an investigation into this issue by the U.S. Senate's Special Committee on Aging, which has held some public hearings over the last year. We think it is highly likely that there will be some legislation to restrict these pricing practices over the next year or so.

 

From a political perspective, pharmaceutical and biotechnology companies are seen as part of an innovative industry that is critical to the U.S. economy. Therefore, it seems unlikely that any major legislation will jeopardise these companies and the high- end jobs they provide. We think that companies developing new drugs that deliver demonstrable value to patients and the healthcare system should continue to garner good pricing.

Moreover, drug spending is not the major driver of healthcare spending in industrialised nations. While it may be good politics to attack the pharmaceutical industry, spending on drugs accounts for only 12% of total U.S. healthcare expenditure.

Health insurers Are Exercising Pricing Power 

While the political noise looks set to continue, we think there is a more important trend emerging for healthcare investors. Over the last 3 years, we have seen the health insurers in the U.S. begin to exercise more pricing power against pharmaceutical companies.

Commercial drug pricing in the U.S. is set by a group of companies called pharmacy benefit managers (PBMs) that negotiate with drug companies on behalf of health insurance plans. The three largest PBMS are Express Scripts, CVS Caremark and UnitedHealth and these companies now represent 90 million, 65 million and 62 million lives, respectively.

Importantly, insurers and PBMs have developed financial incentives for patients that can direct the usage of certain drugs over others and so gives them some control over market access. With many people now covered by so-called high deductible health insurance plans - where a family is responsible for at least $2,600 of their healthcare expenses in a calendar year - they are very aware of the cost of any drugs.

 If there are three or more similar drugs in a therapeutic class, the PBM may designate one of these as having preferred formulary status. This means that a patient's prescription charge (or co-pay) is considerably lower for the preferred drug compared to other similar drugs.

This has been a major issue for some of the larger pharmaceutical companies and has forced them to come to the negotiating table and offer rebates in order to maintain market access. For example, last year GlaxoSmithKline had to offer substantial rebates for its respiratory drugs in order to maintain market share in the U.S.

This year, the PBMs have turned their attention to diabetes where Sanofi and Novo Nordisk are seeing pricing pressure in their core insulin franchises, largely because Eli Lilly has entered the market with a competitive product portfolio. Eli Lilly's Basaglar has been given preferred formulary status for 2017 with CVS Caremark, presumably by offering a more attractive discount.

This has had a significant impact on Novo Nordisk's share price. After the end of the reporting period, the company lowered its long-term financial guidance as  it now expects pricing pressure to continue into 2018. Novo Nordisk's shares have fallen significantly over the last six months.

One issue that we expect to receive more attention over the next year is who benefits from drug rebates. Over the last few years, there seems to be an emerging discrepancy between the increase in the list price of certain drugs and the growth in the net price that a pharmaceutical company actually receives - the former is a lot higher than the latter suggesting that rebates have increased.

There is very little transparency over the level of rebate that a PBM has extracted from a particular drug manufacturer - these are commercially-sensitive negotiations - and whether this is passed back to the consumer. It appears as though each company in the supply chain - pharmacy benefit managers, distributors, and health insurers - may be taking a share of the rebate.

 These issues highlight the complexity of the drug pricing issues in the U.S. system and indicate that some of the political debate is too simplistic. Clearly, there have been examples of specialty pharmaceutical companies behaving aggressively or egregiously, as highlighted with the situation at companies like Valeant, which we believe deserve criticism. However, the power of the supply chain and payers to drive high levels of rebating is in some cases driving certain drug companies to push list prices higher.

We expect the political focus on drug pricing to continue over the coming year. It seems to us that the private sector is already beginning to create a solution to escalating drug prices by encouraging competition and focusing on value. However, there may be a push to increase the transparency of this process to ensure that any bad actors are more easily identified.

Reimbursement Systems Are Becoming More Focused on Value

A discussion of drug pricing cannot ignore a more widespread change that we are seeing in healthcare. This is the move towards recognising and rewarding value delivered by a therapy - whether it is a drug, device or a healthcare service. Reimbursement systems across the world are beginning to move away from a "fee for service", volume-based system to one that rewards quality and improved clinical outcomes.

When medicine was practised using "pen and paper" it was impossible to collect all of the relevant data to evaluate quality and outcomes in a timely manner - the digitalisation of healthcare means that this is now becoming possible.

Importantly, going forward the price of a drug or device may not just be based on the efficacy data collected in a controlled clinical trial. New digital health technologies are emerging that will enable governments or insurers to evaluate the effectiveness of therapy in the "real world" and so may allow an adjustment in reimbursement and price post-approval.

 Earlier this year, the Centers for Medicare and Medicaid Services (CMS) announced that it was evaluating the use of value-based drug pricing for Medicare Part B drugs - these are drugs that are administered in a physician's office or hospital outpatient department (e.g. cancer drugs or injectable antibiotics).

The programme had a number of goals: to help physicians choose the best value treatment for patients, provide the potential for companies to charge different prices for the same drug used in different diseases (based on its relative effectiveness) and an opportunity for drug manufacturers to share risk with CMS where the price paid for a drug is linked to patient outcomes.

There was significant pushback from the pharmaceutical industry lobby on these proposals. However, recent comments from the CMS Acting Commissioner reaffirmed the U.S. government's commitment despite industry opposition. Importantly, the focus for CMS is not to reduce the costs of medicines but to be a partner with companies that can combine innovation with affordability to create value for patients.

While value-based reimbursement is not a near-term threat to pharmaceutical industry sales growth this is an area that is evolving rapidly. On a five year view, we see a risk that the use of data and analytical tools to evaluate products and services may create unexpected pricing pressure for healthcare companies that have not grasped the scope of the impending structural change across the industry.

As a result, we continue to focus on identifying companies that are developing products or services that can deliver better and/or more cost-effective care. In a cost constrained environment, these companies should be able to deliver sales and earnings growth.

 Our Investment Strategy is Evolving

Our original investment thesis in 2010 was that large pharmaceutical companies were significantly undervalued and that the price to earnings (P/E) ratio for the sector would return to the long-term average over the life of the Company. This thesis has now largely played out and so our investment strategy for the pharmaceutical sector has begun to evolve over the last 18 months. In particular, we are now seeing a much higher dispersion of returns and so stock-picking is becoming much more important.

In general, we are trying to limit our exposure to pharmaceutical companies that are under the threat of pricing pressure from insurers that we described previously. However, as can be seen with GlaxoSmithKline this year, when the insurers have effectively "reset" the price of a key drug a company may be worth revisiting as it could return to growth.

On the innovation front, we are looking for pharmaceutical companies where we think pipelines are underestimated or under-valued by the market. Conversely, we try to avoid companies where pipelines are "priced in" or where expectations are elevated and the risk/reward is unfavourable.

Healthcare Investing in a Low Growth World

Healthcare continues to be one of the few long-term secular growth sectors in a low growth world suffering from persistent deflationary pressures. The drivers of demographics, innovation and the need for greater efficiency create a number of different investment opportunities across the healthcare sector.

Importantly, we think the healthcare industry is at the beginning of a major structural transformation driven by the need to improve efficiency. The biggest perceived risks for healthcare - that current government spending is unsustainable and healthcare systems are at breaking point - are actually the biggest catalysts for change. Major structural transformation occurs when innovative technological change meets economic necessity - the healthcare industry has crossed a Rubicon and this process has already begun.

We see two strategies for investing in a low growth world - (a) focus on companies with stable and predictable cash flow growth and (b) identify the innovators and disruptors. We can find both types of companies within the healthcare sector and broadly divide them into two categories - large cap consolidators and small/mid cap innovators.

Large Companies Need to Adapt and Become Part of the Solution

With any major structural change there are risks and opportunities - especially for the incumbents. Large companies need to embrace this digital transformation of healthcare so that they can benefit from the long- term demographic changes and so deliver steady and reliable free cash flow growth.

We see a new trend for healthcare companies to use consolidation as a route to improving efficiency. In this way, companies can create economies of scale, broaden product portfolios, standardise products and processes, lower cost of goods, take market share and, most importantly, deliver cheaper solutions to their customers.

Over the last five years, we have seen consolidation within different sub-sectors including health insurers, hospitals/healthcare services and PBMs. Greater purchasing power shifts the balance of power in pricing discussions, as we have discussed above.

We look for management teams that are reformulating business models to adapt to the new environment.

Innovation Continues to be a Key Theme

Looking for innovation has been a key part of healthcare investing for many years - especially for small and mid-sized companies. We look for the innovators that are disrupting healthcare with new drugs, devices or services that improve clinical outcomes and often create new markets with strong pricing power and revenue growth opportunities.

Again, advances in information technology are having a significant impact on innovation in healthcare - in our view the speed of innovation is accelerating. We are finding a number of investment opportunities across the biotechnology sector and in smaller medical device companies.

 We continue to be excited by the emergence of digital health - an all-encompassing term that covers a broad array of products and services arising from the convergence of information technology with healthcare. Digital health could make the concept of patient-centric care a reality and give individuals access to cutting-edge medical technology that could help them monitor and prevent disease in the home.

Outlook

The political situation in the United States has changed dramatically since the end of the reporting period. With Republicans controlling both the White House and the U.S. Congress it seems highly unlikely that we will see governmental control of drug pricing.

However, President-elect Trump seems keen to reform the Affordable Care Act, or Obamacare, and the details of what he proposes to do may create some uncertainty over the coming months - especially for healthcare services companies. There may be opportunities for some companies, however, particularly if there is an increased role for commercial health insurers in government programmes such as Medicare.

In general, the Republicans are in favour of innovation and the private sector - we expect a pro-business agenda to unfold when President-elect Trump takes control. The Republicans may look to reduce corporation tax and also allow the repatriation of foreign earnings. In addition, the 21st Century Cures Act may be passed into law and this should lead to increased funding for the National Institutes of Health (NIH) budget, a smoother approval process for drugs and devices, and the use of patient data to drive digital health solutions.

While the negative investor sentiment for healthcare should begin to dissipate, we believe that the ongoing structural transformation of healthcare creates both risks and opportunities. We expect a continued move towards value-based reimbursement from both the commercial insurance industry and governments around the world.

 Healthcare companies need to adapt to change and recognise that over the long-term they need to be part of a solution to the cost-effectiveness conundrum.

We do not expect the competitive pressures on pharmaceutical companies to abate - commercial insurers will continue to exercise pricing power when they can. Innovation is critical to maintaining pricing, margins and also driving greater efficiency throughout the system.

For healthcare investors, this means a greater dispersion of returns and the need to focus on stock picking. The sector is not expensive and we can find growth at a reasonable price. However, investing in the pharmaceutical sector has become more difficult and it is important to own the right companies.

Dr Daniel Mahony    

Gareth Powell

Investment Managers

14 December 2016

 

Portfolio as at 30 September 2016

 

 

 

 

Market Value £'000

% of total net assets

 

 

Stock

Country

2016

2015

2016

2015

1

(1)

Pfizer

United States

18,246

18,656

       7.4%

        8.9%

2

(9)

Merck & Co

United States

17,768

7,169

   7.2%

  3.4%

3

(2)

Novartis

Switzerland

17,595

16,913

   7.1%

  8.0%

4

(6)

AstraZeneca

United Kingdom

12,508

10,454

    5.0%

  5.0%

5

(5)

Johnson & Johnson

United States

12,275

11,708

    5.0%

  5.6%

6

-

GlaxoSmithKline

United Kingdom

11,497

           -  

        4.6%

              -  

7

(4)

Roche

Switzerland

11,478

15,182

   4.6%

  7.3%

8

(8)

Astellas Pharma

Japan

10,151

7,218

  4.1%

  3.4%

9

(11)

Teva

Israel

8,855

6,148

   3.6%

 2.9%

10

(7)

Sanofi

France

8,778

9,383

   3.5%

 4.5%

Top 10 investments

 

129,151

 

 52.1%

 

11

-

Merck KGAA

United States

6,634

           -  

    2.7%

       -  

12

(12)

AbbVie

United States

5,825

6,103

   2.4%

 2.9%

13

(14)

Takeda Pharmaceutical

Japan

5,497

4,319

   2.2%

 2.1%

14

(13)

Consort Medical

United Kingdom

5,072

5,298

   2.0%

 2.5%

15

(16)

Abbott

United States

4,882

2,390

   2.0%

 1.1%

16

(27)

Medtronic

Ireland

4,656

1,635

   1.9%

 0.8%

17

(3)

Eli Lilly

United States

4,632

15,737

   1.8%

 7.5%

18

(10)

Bristol-Myers Squibb

United States

4,151

6,250

   1.7%

 3.0%

19

(22)

Sonic Healthcare

Australia

2,982

1,945

   1.2%

 0.9%

20

(36)

HCP

United States

2,921

1,229

   1.2%

 0.6%

Top 20 investments

 

176,403

 

 71.2%

 

21

-

Celgene

United States

2,414

           -  

   1.0%

      -  

22

(31)

Medical Properties Trust

United States

2,273

1,459

   0.9%

 0.7%

23

(18)

Unitedhealth

United States

2,156

2,297

   0.9%

 1.1%

24

-

Spectranetics

United States

2,124

           -  

   0.9%

       -  

25

-

Laboratory Corp of America

United States

2,117

           -  

   0.9%

       -  

26

(28)

Religare Health Trust

India

2,065

1,544

   0.8%

 0.8%

27

-

Centene

United States

2,061

           -  

  0.8%

       -  

28

(34)

Endologix

United States

2,038

1,347

   0.8%

 0.6%

29

(40)

Virtus Health

Australia

2,001

1,127

   0.8%

0.5%

30

-

Biomarin Pharmaceutical

United States

1,994

           -  

   0.8%

       -  

Top 30 investments

 

197,646

 

 79.8%

 

31

-

Nevro

United States

1,928

           -  

   0.8%

       -  

32

(29)

UDG Healthcare

Ireland

1,923

1,509

   0.8%

 0.7%

33

(38)

Medical Facilities

Canada

1,916

1,149

   0.8%

  0.5%

34

-

Incyte Genomics

United States

1,814

           -  

   0.7%

       -  

35

-

Abiomed

United States

1,782

           -  

   0.7%

       -  

36

(43)

Senior Housing Property Trust

United States

1,747

1,070

   0.7%

  0.5%

37

(17)

Newron Pharmaceuticals

Italy

1,738

2,367

   0.7%

  1.1%

38

-

Bard

United States

1,726

          -  

   0.7%

      -  

39

(26)

Summit Therapeutics

United Kingdom

1,603

1,702

   0.6%

  0.8%

40

(47)

Healthcare Reality Trust REIT

United States

1,573

984

   0.6%

  0.5%

Top 40 investments

 

215,396

 

 86.9%

 

41

-

Ultragenyx Pharmaceutical

United States

1,572

           -  

   0.6%

       -  

42

-

Neurocrine Biosciences

United States

1,559

           -  

   0.6%

       -  

43

(51)

Novadaq Technologies

Canada

1,556

895

   0.6%

  0.5%

44

(48)

National Health Investors

United States

1,510

949

0.6%

0.5%

45

(35)

Sienna Senior Living

Canada

1,489

1,243

0.6%

0.6%

46

(39)

Sabra Health Care REIT

United States

1,453

1,147

0.6%

0.5%

47

(49)

Coltene Holding

Switzerland

1,390

946

0.6%

0.4%

48

(54)

NIB Holdings

Australia

1385

755

0.6%

0.4%

49

-

Cooper Companies

United States

1,380

                 -  

0.6%

-  

50

(37)

Omega Healthcare

United States

1,364

1,160

0.6%

0.6%

Top 50 investments

 

230,054

 

92.9%

 

51

-

Fresenius Medical

Germany

1,344

                 -  

0.5%

-  

52

-

Amedisys

United States

1,294

  -  

0.5%

-  

53

(52)

Healthcare Services Group

United States

1,169

853

0.5%

0.4%

54

(66)

Oxford Immunotec

United Kingdom

1,166

484

0.5%

0.2%

55

(25)

Revance Therapeutic

United States

1,149

1,809

0.5%

0.9%

56

-

Lunbeck

Denmark

1,141

 -  

0.5%

-  

57

-

Perkinelmer

United States

1,080

-  

0.4%

-  

58

(53)

Ablynx

Belgium

1,007

847

0.4%

0.4%

59

(55)

Photocure

Norway

978

721

0.4%

0.3%

60

-

Edwards Lifesciences

United States

835

-  

0.3%

-  

Top 60 investments

 

241,217

 

97.4%

 

61

(21)

Oxford Pharmascience

United Kingdom

826

1,982

0.3%

0.9%

62

(57)

Primary Health Care

Australia

813

617

0.3%

0.3%

63

(56)

Brookdale Senior Living

United States

806

707

   0.3%

0.3%

64

(64)

Extendicare

Canada

688

491

   0.3%

0.2%

65

(67)

Meridian Biosciences

United States

662

484

   0.3%

0.2%

66

(71)

Sigma Pharmaceuticals

Australia

458

190

   0.2%

10.0%

67

(61)

Synairgen

United Kingdom

328

534

   0.1%

0.3%

68

(63)

Circle Holdings

United Kingdom

260

504

   0.1%

0.2%

69

(68)

Conatus Pharmaceuticals

United States

240

458

   0.1%

0.2%

70

(70)

Epistem Holdings

United Kingdom

83

255

-  

0.1%

Top 70 investments

 

246,381

 

 99.4%

 

Total equities

 

246,381

 

 99.4%

 

Other net assets

 

1,444

 

   0.6%

 

Net assets

 

247,825

 

100.0%

 

Figures in brackets denote the comparative ranking as at 30 September 2015.

Geographical Exposure at

30 September 2016

30 September 2015

United States

                 49.1%

       48.1%

United Kingdom

                 13.2%

       11.3%

Switzerland

                 12.3%

       15.7%

Japan

                    6.3%

         5.5%

Israel

                    3.6%

         2.9%

France

                    3.5%

         4.6%

Germany

                    0.5%

         2.0%

Australia

                    3.1%

         2.2%

Denmark

                    0.5%

                -  

Other

                    7.3%

         6.7%

Cash

                    0.6%

         1.0%

Total

               100.0%

       100.0%

Sector Exposure at

30 September 2016

30 September 2015

Pharmaceuticals

                 62.2%

         70.1%

Healthcare Equipment

                 11.2%

           7.2%

Biotechnology

                    8.1%

           3.9%

Specialised REITs

                    6.0%

           4.5%

Healthcare Services

                    4.7%

           2.4%

Healthcare Facilities

                    2.9%

           5.4%

Managed Healthcare

                    1.7%

           1.7%

Healthcare Supplies

                    1.4%

           0.7%

Life & Health Insurance

                    0.5%

           0.4%

Life Sciences Tools & Services

                    0.5%

           1.1%

Healthcare Distributors

                    0.2%

           1.3%

Healthcare Technology

-

           0.3%

Cash

                    0.6%

           1.0%

Total

               100.0%

       100.0%

 

 

Market Cap at

30 September 2016

30 September 2015

Large (>US$5bn)

                 79.7%

         76.3%

Medium (US$1bn - US$5bn)

                    9.7%

           7.8%

Small (<US$1bn)

                 10.6%

         15.9%

 

               100.0%

       100.0%

 

Strategic Report

The Strategic Report Section of this annual report comprises the Chairman's Statement, the Investment Manager's Report, including information on the portfolio and this Strategic Report. It has been prepared solely to provide information to shareholders on the Company's strategies and potential for those strategies to succeed, including a fair review of the strategy and performance of the Company during the year ended 30 September 2016, including a description of the principle risks and uncertainties. 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.

Business Model and Regulatory Arrangements

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

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 UK and European legislation including the Financial Conduct Authority (FCA) Listing Rules.

Statements from the AIFM and Depositary can be found on pages 83 to 86 [of the annual report].

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 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. The Board remains positive on the outlook for healthcare and the Company will continue to pursue its investment objective in accordance with the stated investment policy and strategy. Future performance is dependent to a significant degree on the world's financial markets and their reactions to economic events and other geo-political forces. The Chairman's Statement and the Investment Manager's Report comment on the business, outlook and threats.

The Board

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

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.

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;

• 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 Board also considers the value delivered to shareholders through NAV growth and dividends paid.

The Company's NAV total return, over the year ended 30 September 2016 was 20.5% while the Benchmark Index over the same period increased by 22.8%. The underperformance is explained in 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 4.05p per share have been paid in respect of the year ended 30 September 2016 representing an increase of over 11.0% over the dividends paid in respect of the year to 30 September 2015 of 3.65p 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 in accordance with the AIC guidelines is issued to the London Stock Exchange.

The discount of the ordinary share price to the NAV per ordinary share over the year ended 30 September 2016 has ranged from -12.2% to -0.3%.

The Company has bought back into treasury 300,000 ordinary shares in the year ended 30 September 2016. This brought the number of shares in treasury at the year end to 2,175,000.

To continue to meet the requirements  for Sections 1158 and 1159 of the Corporation Tax

Act 2010.

 

The Board receives regular financial information which discloses the current and projected financial position of the Company against each of the tests set out in Sections 1158 and 1159.

 

Investment trust status 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 2016 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 2016 were 1.01%, compared to 1.0% the previous year.

 

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 in assets.

•        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 on the Company including gearing and cash balances.

Performance and strategy are reviewed throughout the year at regular Board meetings where the Board can challenge the Investment Manager. 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 and half year reports.

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 and interest rates.

•        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.

Board monitors exposure through monthly management accounts and discussion and currency hedging takes place if appropriate.

•        Income less than expected due to currency exposure underlying the portfolio.

•  Level of dividend lower than intended or previously paid.

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 on a framework of tax laws, regulation (both UK and EU) and Company law.

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.

The impact on the portfolio from Brexit and other geo- political changes including the US presidential election were reviewed and discussed. While it is difficult to quantify the impact of such changes they were not believed to fundamentally impact the business of the Company or to make healthcare investing any less desirable.

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 Polar Capital LLP (the Investment Manager) will achieve the optimum return for shareholders and the Board and Investment Manager operate in a supportive, co-operative and open environment.

The Company has an Investment Management Contract with the Investment Manager to act as Investment Manager and AIFM of the Company. The Investment Manager has responsibility for the discretionary management of the Company's assets (including uninvested cash) and sole responsibility to take decisions as to the purchase and sale of individual investments. The Investment Manager also has responsibility for asset allocation and sector selection within the limits of the investment policy and guidelines established and regularly reviewed by the Board. The activities of the Investment Manager are subject to the overall control and supervision of the Board.

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

Information is provided to the Directors in a timely manner covering all relevant management, regulatory and financial information. The Board has a report from the investment team at each meeting and also may ask representatives of the Investment Manager attend Board meetings enabling the Directors to probe further on matters of concern or seek clarification on certain issues.

While 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 formally carries out the annual review of the performance and continued appointment of the Investment Manager.

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.

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 2016.

Corporate Responsibility

Socially Responsible Investing and Exercising 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 77 Company meetings over the year ended 30 September 2016 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.

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

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 14 December 2016

 

By order of the Board

 

N P Taylor

Polar Capital Secretarial Services Limited

Company Secretary

 

 

 

 

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 resented 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 2016 and the factors impacting the forthcoming year are set out in the Chairman's Statement and the Investment Manager's Report on pages 3 to 10 [of the annual report] 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 3 to 23 [of the annual report].  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 44 and 45 [of the annual report]

As an investment company with a liquid portfolio, the majority of which can be sold within seven working days, limited expenses which are modest in relation to the asset base of the Company, and no employees the Directors are of the opinion that the Company can continue in operation up to 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 [of the annual report], 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 14 December 2016 and the responsibility statements were signed on its behalf by James Robinson, Chairman of the Board.

James Robinson

 
 

 

Statement of Comprehensive Income - For the year ended 30 September 2016

 

 

Year ended 30 September 2016

Year ended 30 September 2015

 

 

Revenue

Capital

Total

Revenue

Capital

Total

 

 

return

return

return

return

return

return

 

Notes

£'000

£'000

£'000

£'000

£'000

£'000

Investment income

3

6,358

162

6,520

5,494

164

5,658

Other operating income

4

314

-

314

374

-

374

Gains on investments held at fair value

5

-

38,721

38,721

-

13,653

13,653

Other movements on written options

6

-

-

-

-

(7)

(7)

Other currency gains/(losses)

7

-

68

68

-

(528)

(528)

Total income

 

6,672

38,951

45,623

5,868

13,282

19,150

Expenses

 

 

 

 

 

 

 

Investment management fee

8

(361)

(1,444)

(1,805)

(351)

(1,402)

(1,753)

Other administrative expenses

9

(467)

(5)

(472)

(452)

-

(452)

Total expenses

 

(828)

(1,449)

(2,277)

(803)

(1,402)

(2,205)

Profit before finance costs and tax

 

5,844

37,502

43,346

5,065

11,880

16,945

Finance costs

 

-

-

-

-

-

-

Profit before tax

 

5,844

37,502

43,346

5,065

11,880

16,945

Tax

10

(681)

(7)

(688)

(662)

(2)

(664)

Net profit for the year and total comprehensive income

 

5,163

37,495

42,658

4,403

11,878

16,281

Earnings per ordinary share (basic) (pence)

12

4.28

31.07

35.35

3.63

9.81

13.44

 

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.

 

 

Statement of Changes in Equity - For the year ended 30 September 2016

 

Notes

Year ended 30 September 2016

 

Called up share capital

£'000

Share premium reserve

£'000

Special distributable reserve

£'000

Capital reserves

£'000

Revenue reserve

£'000

Total

£'000

Total equity at 1 October 2015

 30,663

 28,916

 61,844

 86,605

 2,410

 210,438

Total comprehensive income:

 

 

 

 

 

 

Profit for the year ended 30 September 2016

 -

 -

 -

37,495

 5,163

42,658

Transactions with owners, recorded directly to equity:

 

 

 

 

 

 

Shares bought back
and held in treasury

 -

 -

(507)

 -

 -

(507)

Equity dividends paid

11

 -

 -

 -

 -

(4,764)

(4,764)

Total equity at 30 September 2016

 30,663

 28,916

 61,337

 124,100

 2,809

 247,825

 

 

 

 

 

 

 

 

 

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 1 October 2014

 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
and held in treasury

-

-

(1,444)

-

-

(1,504)

Equity dividends paid

11

-

-

-

-

(4,358)

(4,358)

Total equity at 30 September 2015

 30,663

 28,916

 61,844

 86,605

 2,410

 210,438
                     

 

 

 

Balance Sheet - As at 30 September 2016

 

Notes

30 September 2016

£'000

30 September 2015

£'000

Non-current assets

 

 

 

Investments held at fair value

13

246,381

208,247

Current assets

 

 

 

Receivables

14

665

509

Overseas tax recoverable

 

274

212

Cash and cash equivalents

22

7,367

1,950

 

 

8,306

2,671

Total assets

 

254,687

210,918

Current liabilities

 

 

 

Payables

15

(6,852)

(206)

Bank overdraft

22

(10)

(274)

 

 

(6,862)

(480)

Net assets

 

247,825

210,438

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

61,337

61,844

Capital reserves

19

124,100

86,605

Revenue reserve

20

2,809

2,410

Total equity

 

247,825

210,438

Net asset value per ordinary share (pence)

21

205.71

174.24

 

The financial statements were approved and authorised for issue by the Board of Directors on 14 December 2016 and signed on its behalf by

 

James Robinson

Chairman

 

 

Registered number 7251471

 

 

Cash Flow Statement - For the year ended 30 September 2016

 

 

Notes

Year ended

30 September 2016

£'000

Year ended

30 September 2015

£'000

Cash flows from operating activities

 

 

 

Profit before tax

 

43,346

16,945

Adjustment for non-cash items:

 

 

 

Gain on investments held at fair value through profit or loss

 

(38,721)

(13,653)

Adjusted profit before tax

 

4,625

3,292

Adjustments for:

 

 

 

Purchases of investments, including transaction costs

 

(84,266)

(82,727)

Sales of investments, including transaction costs

 

91,466

87,945

Increase in receivables

 

(156)

(16)

Increase /(Decrease) in payables

 

33

(218)

Overseas tax deducted at source

 

(750)

(701)

Net cash generated from/(used in) operating activities

10,952

7,575

Cash flows from financing activities

 

 

 

Cost of shares repurchased

 

(507)

(1,444)

Equity dividends paid

11

(4,764)

(4,358)

Net cash (used in) financing activities

(5,271)

(5,802)

Net increase in cash and cash equivalents

 

5,681

1,773

Cash and cash equivalents at the beginning of the year

1,676

(97)

Cash and cash equivalents at the end of the year

22

7.357

1,676

 

 

 

Notes to the Financial Statements - For the year ended 30 September 2016

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 November 2014 (which superseded   the SORP issued in 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.

 

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 AIC SORP states that, even if an Investment Company is approaching a wind-up or continuation vote, and where shareholders have yet to vote on the issue, it will usually be more appropriate for the Financial Statements to be prepared on a going concern basis. As the vote approaches, if required, the Directors will consider the appropriate point to adopt a basis other than going concern.

 

(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 and this requires judgement to be applied.

 

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 year.

 

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

 

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

 

(e)     Expenses

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 2016. 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.

 

In the event that a security held within the portfolio is suspended then judgement is applied in the valuation of that security.

 

(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 financial statements.

 

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 Financial Statements:

 

IFRS 5 (amended) Non-current Assets Held for Sale and Discontinued Operations

IFRS 7 (amended) Financial Instruments: Disclosures

IFRS 9 (2014) Financial Instruments

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 19 (amended) Employee Benefits

IAS 28 (amended) Investments in Associates and Joint Ventures

IAS 34 (amended) Interim Financial Reporting

The Directors do not expect that the adoption of the Standards listed above will have a significant impact on the Company's Financial Statements 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

Year ended

30 September

30 September

2016

2015

£'000

£'000

Revenue:

Franked: Listed investments Dividend income

 

 

1,308

 

 

688

Unfranked: Listed investments Dividend income

5,050

4,806

Total investment income allocated to revenue

6,358

5,494

 

Capital:

Dividends from REITs allocated to capital

 

 

 

162

 

 

 

164

Total investment income allocated to capital

162

164

 

 

4 Other Operating Income

 

Year ended

Year ended

30 September

30 September

2016

2015

£'000

£'000

Option premium income

311

372

Bank interest

3

2

Total other operating income

314

374

 

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 profit of £nil (2015: £7k loss) 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

2016

£'000

Year ended 30 September

2015

£'000

Net gains on disposal of investments at historic cost

16,386

24,040

Less fair value adjustments in earlier years

(16,948)

(13,986)

(Losses)/gains based on carrying value at previous balance sheet date

(562)

10,054

Valuation gains on investments held during the year

39,283

3,599

 

38,721

13,653

 

 

 

6 Other Movements on Written Options

Year ended 30 September

2016

£'000

Year ended 30 September

2015

£'000

Other movements 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

2016

£'000

Year ended 30 September

2015

£'000

Exchange gains/(losses) on currency balances

68

(528)

 

 

8 Investment Management Fee

Year ended

Year ended

30 September

30 September

2016

2015

£'000

£'000

Management fee

 

 

361

 

 

351

- charged to revenue

- charged to capital

1,444

1,402

Investment management fee payable to Polar Capital LLP.

1,805

1,753

 

Management fees are allocated 20% to revenue and 80% to capital.

 

 

9 Other Administrative Expenses (Including VAT where appropriate)

 

Year ended 30 September

2016

£'000

Year ended 30 September

2015

£'000

Directors' fees

115

107

Directors' NIC

11

10

Auditors' remuneration:

 

 

For audit of the Company financial statements

22

22

Depositary fee

26

27

Registrar fee

19

17

Custody and other bank charges

26

30

UKLA and LSE listing fees

20

20

Legal & professional fees

10

7

AIC fees

20

20

Directors' and officers liability insurance

8

8

AGM expenses

-

1

Corporate brokers fee

27

27

Marketing expenses

18

20

Shareholder communications

25

24

HSBC administration fee

119

111

Other expenses

1

1

 

467

452

 

Transaction charges - allocated to capital

 

5

 

-

 

472

452

 

Ongoing charges represents the total expenses of the Company, 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 2016 was 1.01% (2015: 1.00%).

 

 

10  Taxation

 

Year ended

30 September 2016

Year ended

30 September 2015

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

 

 

681

 

 

7

 

 

688

 

 

662

 

 

2

 

 

664

Total tax for the year (see note 10b)

681

7

688

662

2

664

b) Factors affecting tax charge for the year:

The charge for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows:

Profit before tax

 

 

 

 

 

 

5,844

 

 

 

 

 

 

37,502

 

 

 

 

 

 

43,346

 

 

 

 

 

 

5,065

 

 

 

 

 

 

11,880

 

 

 

 

 

 

16,945

Tax at the UK corporation tax rate of 20%

 

 

1,169

 

 

7,500

 

 

8,669

 

 

507

 

 

1,188

 

 

1,695

(2015: 20%)

Tax at the UK corporation tax rate of 21%

 

 

 

 

 

 

(2015: 21%)*

-

-

-

532

1,247

1,779

Tax effect of non-taxable dividends

(1,143)

(32)

(1,175)

(1,035)

(34)

(1,069)

Gains on investments that are not taxable

-

(7,758)

(7,758)

-

(2,688)

(2,688)

Unrelieved current year expenses and deficits

-

290

290

6

287

293

Overseas tax suffered

681

7

688

662

2

664

Tax relief on overseas tax suffered

(26)

-

(26)

(10)

-

(10)

Total tax for the year (see note 10a)

681

7

688

662

2

664
               

 

* 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 year are taxed at an effective rate of 20.50%.

 

c)   Factors that may affect future tax charges:

The Company has an unrecognised deferred tax asset of £1,033,000 (2015: £869,000) based on a prospective corporation tax rate of 18% (2015: 20%).

 

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

 

The reduction in the standard rate of corporation tax was substantively enacted in October 2015 and effective from 1 April 2020.

 

Given the Company's intention to continue to meet the conditions requires 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 2016

 

Payment date

No of shares

Pence per share

Year ended 30 September 2016

£'000

27 November 2015

120,775,000

0.65p

785

29 February 2016

120,775,000

0.65p

785

3 June 2016

120,775,000

0.65p

785

31 August 2016

120,475,000

2.00p

2,409

 

 

 

4,764

 

The revenue available for distribution by way of dividend for the year is £5,163,000 (2015: £4,403,000).

 

The total dividends payable in respect of the financial year ended 30 September 2016, 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 2016

£'000

29 February 2016

120,775,000

0.65p

785

3 June 2016

120,775,000

0.65p

785

31 August 2016

120,475,000

2.00p

2,409

30 November 2016

120,475,000

0.75p

904

 

 

 

4,883

 

 

Dividends paid in the year ended 30 September 2015

 

Payment date

No of shares

Pence per share

Year ended 30 September 2016

£'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 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 2016

£'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

 

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 2016

Year ended

30 September 2015

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:

 

 

 

 

5,163

 

 

 

 

37,495

 

 

 

 

42,658

 

 

 

 

4,403

 

 

 

 

11,878

 

 

 

 

16,281

Net profit for the year (£'000)

Weighted average ordinary shares in issue during the year

120,693,033

120,693,033

120,693,033

121,133,452

121,133,452

121,133,452

 

 

 

 

 

 

 

Basic - ordinary shares (pence)

4.28

31.07

35.35

3.63

9.81

13.44

 

As at 30 September 2016 there were no potentially dilutive shares in issue.

 

 

         13 Investments Held at Fair Value

       (a) Movements on investments

 

30 September

2016

£'000

30 September

2015

£'000

Cost brought forward

Valuation gains

165,771

42,476

146,596

52,863

Valuation brought forward

208,247

199,459

Additions at cost

90,879

82,727

Proceeds on disposal

(91,466)

(87,592)

(Losses)/gains on disposal

(562)

10,054

Valuation gains

39,283

3,599

Valuation at 30 September

246,381

208,247

Cost at 30 September

181,570

165,771

Closing fair value adjustment

64,811

42,476

Valuation at 30 September

246,381

208,247

 

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

 

30 September

30 September

2016

2015

£'000

£'000

On acquisition

201

171

On disposal

115

153

 

316

324

 

 

 

 

 

(b) Fair value hierarchy

30 September

2016

£'000

30 September

2015

£'000

Level 1 assets

246,381

208,247

Valuation at 30 September

246,381

208,247

 

All Level 1 assets are traded on a recognised stock exchange.

 

 

       14 Receivables

 

30 September

2016

£'000

30 September

2015

£'000

Accrued income

Prepayments

652

13

487

22

 

665

509

 

The carrying values of receivables approximate their fair value.

 

 

       15 Payables

 

30 September

2016

£'000

30 September

2015

£'000

Purchases for future settlement

Accruals

6,613

239

-

206

 

6,852

206

 

The carrying values of payables approximate their fair value.

 

 

       16 Called up Share Capital

 

30 September

30 September

2016

2015

£'000

£'000

Allotted, Called up and Fully paid:

 

 

 

30,194

 

 

 

30,405

Ordinary shares of 25p each:

Opening balance of 120,775,000 (30 September 2015: 121,620,000)

Repurchase of 300,000 (2015: 845,000) ordinary shares, into treasury

(75)

(211)

Allotted, Called up and Fully paid: 120,475,000

(30 September 2015: 120,775,000) ordinary shares of 25p

 

30,119

 

30,194

2,175,000 (2015: 1,875,000) ordinary shares, held in treasury

544

469

At 30 September 2016

30,663

30,663

 

In addition, 300,000 ordinary shares were repurchased into treasury at a cost of £507,000. The ordinary shares held in treasury have no voting rights and are not entitled to dividends. This reserve is not distributable.

 

       17 Share Premium Reserve

 

30 September

2016

£'000

30 September

2015

£'000

As at 30 September 2016

28,916

28,916

This reserve is not distributable.

 

 

18 Special Distributable Reserve

 

30 September

30 September

2016

2015

£'000

£'000

As at 30 September 2015

61,844

63,288

Repurchase of 300,000 (2015: 845,000) ordinary shares into treasury

(507)

(1,444)

At 30 September 2016

61,337

61,844

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

2016

£'000

30 September

2015

£'000

As at 30 September 2015

86,605

74,727

Net gains on disposal of investments

(562)

10,054

Valuation gains on investments held during the year

39,283

3,599

Other movements on derivatives held during the year

-

(7)

Exchange gains/(losses) on currency balances

68

(528)

Capital dividends

162

164

Irrecoverable tax on special capital dividends

(7)

(2)

Transaction charges to capital

(5)

-

Investment management fee allocated to capital

(1,444)

(1,402)

At 30 September 2016

124,100

86,605

 

The balance on the capital reserve represents a profit of £64,811,000 (2015: £42,476,000) on investments held and a profit of £59,289,000 (2015: £44,129,000) on investments sold.

 

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

 

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

 

 

       20 Revenue Reserve

 

30 September

2016

£'000

30 September

2015

£'000

As at 30 September 2015

2,410

2,365

Revenue profit

5,163

4,403

Interim dividends paid

(4,764)

(4,358)

At 30 September 2016

2,809

2,410

 

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

 

 

       21 Net Asset Value Per Ordinary Share

 

30 September

2016

30 September

2015

Net assets attributable to ordinary shareholders (£'000)

Ordinary shares in issue at end of year

247,825

120,475,000

210,438

120,775,000

Net asset value per ordinary share (pence)

205.71

174.24

Total issued ordinary shares

122,650,000

122,650,000

Ordinary shares held in treasury

2,175,000

1,875,000

Ordinary shares in issue

120,475,000

120,775,000

 

As at 30 September 2016 there were no potentially dilutive shares in issue.

 

 

       22 Cash and Cash Equivalents

 

30 September

2016

£'000

30 September

2015

£'000

Cash at bank

6,872

1,567

Cash held at derivative clearing houses

495

383

Bank overdraft

(10)

(274)

 

7,357

1,676

 

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 2016 were £1,805,000 (2015:

£1,753,000) of which £161,000 (2015: £143,000) was outstanding at the year-end.

 

b.  Related party transactions

The Company has no employees and therefore key management personnel. The Company paid £115,000 (2015: £107,000) to the Directors and the Remuneration Report is set out on pages 37 to 40 [of the annual report].

 

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 [of the annual report].

 

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 [of the annual report]. 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 (2015: 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

2016

£'000

Year ended 30 September

2015

£'000

Non-current asset investments at fair value through profit or loss

246,381

208,247

 

246,381

208,247

 

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 2016

Year ended

30 September 2015

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

(62)

62

(53)

53

Revenue return

Capital return

36,706

(36,706)

31,025

(31,025)

Change to the profit after tax for the year

36,644

(36,644)

30,972

(30,972)

Change to equity attributable to shareholders

36,644

(36,644)

30,972

(30,972)

 

(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

2016

£'000

Year ended 30 September

2015

£'000

Monetary Assets:

 

 

 

3,290

 

 

 

434

Cash and short-term receivables

US Dollars

Swiss Francs

396

217

Euros

96

50

Japanese Yen

191

134

Australian Dollars

75

89

Canadian Dollars

15

13

Monetary Liabilities:

 

 

Other payables

 

 

US Dollars

(6,613)

-

Swedish Krona

-

(274)

Foreign currency exposure on net monetary items

(2,550)

663

Non-Monetary Items:

 

 

Investments at fair value through profit or loss that are equities

 

 

US Dollars

130,753

109,106

Swiss Francs

32,200

35,407

Euros

17,762

15,513

Japanese Yen

15,649

11,536

Australian Dollars

7,639

4,633

Canadian Dollars

4,094

2,884

Singapore Dollars

2,064

1,544

Danish Krone

1,141

-

Norwegian Krona

978

721

Total net foreign currency exposure

209,730

182,007

 

During the financial year, movements against Sterling in the four major currencies noted above were:

 

US Dollar appreciated by 14.2% (2015: appreciated by 6.6%),

Swiss Franc appreciated by 14.9% (2015: appreciated by 5.5%),

Japanese Yen appreciated by 27.5% (2015: depreciated by 2.0%),

Euro appreciated by 14.8% (2015: depreciated by 5.7%).

 

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 15% (2015: 10%) against the currencies shown, this would have the following effect:

 

 

Year ended 30 September 2016

£'000

US

Dollars

Swiss Francs

Japanese

Yen

 

Euros

Statement of Comprehensive Income - profit after tax

 

581

 

70

 

34

 

17

Revenue return

Capital return

23,074

5,682

2,762

3,134

Change to the profit after tax for the year and to equity attributable to shareholders

 

23,655

 

5,752

 

2,796

 

3,151

 

 

 

Year ended 30 September 2015

£'000

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

 

 

 

Based on the year end position, if Sterling had appreciated by a further 15% (2015: 10%) against the currencies shown, this would have the following effect:

 

 

Year ended 30 September 2016

£'000

US

Dollars

Swiss Francs

Japanese

Yen

 

Euros

Statement of Comprehensive Income - profit after tax

 

 

(429)

 

 

(52)

 

 

(25)

 

 

(13)

Revenue return

Capital return

(17,055)

(4,200)

(2,041)

(2,317)

Change to the profit after tax for the year and to equity attributable to shareholders

 

(17,484)

 

(4,252)

 

(2,066)

 

(2,330)

 

 

 

Year ended 30 September 2015

£'000

 

 

 

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)

 

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

Year ended

30 September

30 September

2016

2015

£'000

£'000

Cash at bank

7,367

1,950

Bank overdraft

(10)

(274)

 

7,357

1,676

 

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

2016

£'000

30 September

2015

£'000

Due within 1 month:

Other creditors and accruals Bank overdraft

 

6,852

10

 

206

274

 

6,862

480

(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 2016 was £8,019,000 (2015: £2,437,000) comprising:

 

 

30 September

30 September

2016

2015

£'000

£'000

Accrued income

652

487

Cash at bank

7,367

1,950

 

8,019

2,437

 

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 £247,825,000 for the year ended 30 September 2016 (2015: £210,438,000), which are managed to achieve the Company's investment objective set out on page 16 [of the annual report].

 

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 2016 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 2016 have not yet been delivered to the Registrar of Companies. The figures and financial information for the period ended 30 September 2015 are extracted from the published Annual Report and Financial Statements for the period ended 30 September 2015 and do not constitute the statutory accounts for that year.  The Annual Report and Financial Statements for the period ended 30 September 2015 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 2016 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. The AGM will be held at 16 Palace Street, London SW1E 5JD at 12 noon on 31 January 2017.

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 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
The company news service from the London Stock Exchange
 
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