Final Results

RNS Number : 0136L

Polar Capital Global Health Tst PLC

19 December 2018

 

POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC

Legal Entity Identifier: 549300YV7J2TWLE7PV84

AUDITED RESULTS ANNOUNCEMENT FOR THE YEAR ENDED

30 SEPTEMBER 2018

19 December 2018

FINANCIAL HIGHLIGHTS

For the year to 30 September 2018

Performance
Net asset value per ordinary share (total return) (note 1)			19.80%
Benchmark index (MSCI ACWI/Healthcare Index (total return in Sterling with dividends reinvested))			17.24%
Since restructuring
Net asset value per ordinary share (total return) since restructuring (note 2)			13.10%
Benchmark index total return since restructuring			13.13%
Expenses	2018	2017
Ongoing charges (note 3)	1.08%	1.02%
Financials	As at 30 September 2018	As at 30 September 2017	Change
Total net assets (Group and Company)	£296,263,000	£250,129,000	18.4%
Net asset value per ordinary share	241.91p	203.77p	18.7%
Net asset value per ZDP share	103.87p	100.85p	3.0%
Price per ordinary share	223.00p	198.00p	12.6%
Discount per ordinary share	-7.8%	-2.8%
Price per ZDP share	104.50p	102.75p	1.7%
Gearing	8.29%	9.98%
Ordinary shares in issue	122,470,000	122,750,000	-0.2%
Ordinary shares held in treasury	1,679,256	1,399,256	20.0%
ZDP shares in issue	32,128,437	32,128,437	-

      Dividends

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

Pay date	Amount per ordinary share	Record date	Ex-date	Declared date
First interim: 31 August 2018	1.00p	27 July 2018	26 July 2018	17 July 2018
Second interim: 28 February 2019	1.00p	8 February 2019	7 February 2019	19 December 2018
Total (2017: 3.40p)	2.00p

Note 1 -   See Alternative Performance Measures

Note 2 - The Company's portfolio was restructured on 20 June 2017. The total return NAV performance since restructuring is calculated by reinvesting the dividends in the assets of the Group and Company from the relevant payment date.

Note 3 -   See Alternative Performance Measures

For further information please contact:
Ed Gascoigne-Pees Camarco Tele. 020 3757 4984	Tracey Lago Polar Capital Global Healthcare Trust Plc Tele. 020 7227 2742	John Regnier-Wilson Polar Capital LLP Tele. 020 7227 2725

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

The Directors' Remuneration Report and certain other helpful shareholder information has not been included in this announcement but forms part of the Annual Report which will be available on the Company's website and will be sent to shareholders in January 2019.

(www.polarcapitalhealthcaretrust.co.uk)

CHAIRMAN'S STATEMENT

Performance

The Net Asset Value ('NAV') per share rose by 19.8% over the period on a total return basis. Although this was usefully ahead of our benchmark, the MSCI ACWI Healthcare Index, which returned 17.2% over the same period, a widening in the discount to NAV at which our shares traded meant that the return to shareholders was 13.7%.

The Board are pleased that our Managers have now made up the under performance against the benchmark experienced in the first half of the year since the restructuring on 20 June 2017. We now need to build on this and our aim is to make sure that the improvement in performance from the second half of the financial year is sustained into the future. This remains the Board's top priority.

Portfolio positioning

Post the restructuring we have moved the portfolio away from its previous income bias to focus on capital growth. Our managers have significantly reduced our exposure to pharmaceuticals, switching the proceeds to other areas of healthcare such as biotechnology, life sciences tools and services, healthcare equipment and managed healthcare where they perceive there to be greater growth prospects. Although our exposure is predominantly to large-cap stocks, around 9.8% of the portfolio at the year end was invested in smaller companies with a capitalisation of less than $1bn. It probably won't surprise you to learn that our biggest geographic exposure is to the United States which accounts for 69.5% of the portfolio; it is not our policy to hedge our overseas currency exposure which means we have significant exposure to the US dollar.

 

Brexit

Faced with the chaotic situation over Brexit and the ensuing level of uncertainty, we can at least take some comfort from the fact that the portfolio is predominantly invested in large multi-national companies operating in global markets. 

Dividends

A first interim dividend of 1.0p for the year ended 30 September 2018 was paid on 31 August 2018. We are declaring a second interim dividend of 1.0p which will be payable in February 2019. Total dividends for the current financial year therefore amount to 2.0p. Our dividend policy reflects the focus on capital growth.

Board Succession

Our plan is to refresh our entire Board over a two-year period and to do this in two phases. Phase one is now complete with Neal Ransome (our new Audit Committee Chair) and Lisa Arnold having joined the Board during the year. Phase two is expected to complete at the AGM in early 2020.  We believe that phasing it in this way allows us to manage the transition in a sensible and pragmatic manner.

Research costs

This time last year we said that actual expenditure on research in 2018 was likely to be materially less than in previous years. We estimate that the Company's contribution to specialist healthcare research for the current calendar year will be substantially below budget, which had already been set at a lower level than the previous year. Given that the Company is also benefiting from much lower brokerage commission on dealing, this must be considered a satisfactory result. 

The Board has taken the view that access to the best healthcare research is critical in achieving investment outperformance. We are therefore happy to contribute towards this, especially as our North American competitors are not subject to the same regime and are still able to pass on the cost of research to their clients in full.

Outlook

With stock markets looking particularly fragile, and with many commentators anticipating the peak of the economic cycle, the attractions of the healthcare sector stand out more clearly than ever. The relative valuation of the sector has declined significantly while the absolute valuation is in line with the long-term average. This is despite the superior growth prospects, driven by demographics, innovation and the need for greater efficiency. The job of our managers is to identify those companies which are best placed to benefit from these trends, particularly where this has not yet been reflected in the share price.

 

Annual General Meeting

The Company's eighth Annual General Meeting will take place at noon on Wednesday, 27 February 2019 at the offices of our managers, Polar Capital, 16 Palace Street, London SW1E 5JD. The nearest tube and main line station is Victoria. A map of the location is contained in the separate Notice of Annual General Meeting. One of our fund managers, Dr Daniel Mahony, will be making a presentation which is typically very illuminating, so I would encourage as many as possible of you to attend and hear what he has to say. Attendance at this meeting also provides a good opportunity to meet 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

19 December 2018

INVESTMENT MANAGER'S REPORT - FOR THE YEAR ENDED 30 SEPTEMBER 2018

Performance review

For the fiscal year to 30 September 2018, the Company delivered a total return of 19.8%, which was ahead of the benchmark (MSCI Global Healthcare Index) that recorded a total return of 17.2% over the same period.

 

Over the course of the year, there have been some wide gyrations in foreign exchange rates that can have an impact on the Net Asset Value (NAV) of the portfolio, which is denominated in sterling. Over the reporting period, the dollar appreciated by 2.8% compared to sterling and this had a positive impact on returns, given that the majority of the Company's portfolio (and its benchmark) are heavily weighted towards dollar- denominated stocks.

 

At the beginning of the fiscal year, the stock market was focused on the potential for tax reform in the United States, which President Trump signed into law in December 2017.  The proposed reduction in the US corporate tax rate had a significant impact on earnings expectations for US companies coupled with the prospect of increased consumer spending. This drove expectations that US economic growth would accelerate in 2018 and that there would be a positive impact on global economic growth.

 

As a result, markets were strong in the first four months of the fiscal year with risk appetite remaining high. This enthusiasm evaporated in February 2018 as concerns about inflation and an overheating US economy contributed to a sharp decline in the stock market. Stock markets staged a recovery, but the talk of tariffs and the prospect of a trade war between the US and China served to dampen enthusiasm. Over the summer, there was a marked change in tone and investors began to shun higher growth sectors in favour of more defensive growth segments of the market.

 

Healthcare's performance over the period largely reflected the dynamics in the broader market. With risk appetite high, small and mid-cap growth stocks performed very well up until February. This was helped by a number of biotechnology company acquisitions by large pharmaceutical companies at the turn of the year. There was an expectation that tax reform would drive a further surge in M&A activity, as the reform removed the disincentives for repatriating overseas cash, but this did not materialise. Over the middle of the summer, there was renewed interest in pharmaceutical stocks as investors began to look for defensive growth.

 

The major political issue remained drug pricing with President Trump and members of his administration making a number of speeches on this topic. After the end of the reporting period, the Trump administration published a discussion document outlining a plan to reduce certain US drug prices, using an international pricing index as a benchmark. The details of how this will work in practice are still to be determined.

 

There was a wide dispersion of returns within the healthcare sub-sectors. The health insurance, life sciences tools and medical equipment sub-sectors continued their outperformance from last year with healthcare facilities also very strong. Performance of pharmaceutical stocks was lacklustre, although returns were strong in the last three months of the period, while biotechnology, healthcare distributors and healthcare technology significantly underperformed.

 

Review of the portfolio

The investment mandate for the Company is focused on capital growth by investing in a diversified global portfolio of investments in healthcare companies with no restriction on sub-sector weighting. The Company's portfolio comprises a single pool of investments but for operational purposes we have divided these investments into a growth portfolio and an innovation portfolio. The Company also has structural debt in the form of Zero Dividend Preference (ZDP) shares issued by the subsidiary company in June 2017.  The gearing level at the end of the period, as per the AIC methodology, was 8.3%.

 

The majority of the Company's assets are allocated to the growth portfolio and this comprised 28 large-cap healthcare stocks at the end of the reporting period. All companies in the growth portfolio have a market capitalisation greater than $5bn at the time of investment. The growth portfolio comprised 95.0% of total net assets at the end of the period.

 

The innovation portfolio provides exposure to healthcare companies with a market capitalisation less than $5bn and is invested in a range of medical device, healthcare services and biotechnology companies. There were 19 investments in the innovation portfolio at the end of the investment period that together comprised 13.0% of total net assets.

 

Sub-sector allocation contributed to performance.

In terms of sub- sector weightings, we maintained overweight positions in managed care and healthcare equipment with an underweight position in pharmaceuticals throughout most of the financial year. This positioning, coupled with good stock selection, were positive contributors to performance relative to the Benchmark. However, both weighting and stock selection within the healthcare services and biotechnology sub-sectors detracted from relative performance in the financial year.

 

We decreased our weighting in managed care towards the end of the reporting period and have added to our exposure in the large- cap biotechnology sub-sector. At the end of the financial year, our major overweight sub-sectors were biotechnology, life sciences tools and healthcare equipment. The weighting in large-cap biotechnology offsets the significant underweight in pharmaceuticals - companies such as Gilead and Amgen are classified as biotechnology but are more like large pharmaceutical companies, in our view.

 

Stock selection is an important driver of performance.

Over the reporting period, we continued to see a wide dispersion of returns not only across the healthcare sector but also within its sub-sectors. Our stock selection has improved compared to last year, with the absolute performance of the top ten contributors contributing 15.6% to overall returns more than offsetting the -7.7% contribution from the top ten detractors. On an absolute basis, the top three contributors in the portfolio were UnitedHealth, HCA Holdings, and Becton Dickinson with Celgene, Alnylam and Takeda the biggest detractors.

 

UnitedHealth is the largest US health insurance company and has consistently beaten earnings expectations over the last year. We continue to believe that the revenue opportunity for the company's Optum division, which is more of a technology company focused on data and analytics, is underappreciated and we think the company looks set for a period of continued growth.

 

HCA Holdings, a leading hospital chain in the US, delivered a strong performance driven by several factors. The improving US economy had a positive impact on HCA's volumes, a trend that started to accelerate in the last quarter of 2017. Furthermore, HCA's strong cash flow and balance sheet allow for acquisition opportunities to further strengthen the company's leading position in the market.

 

Becton Dickinson was also a positive contributor to performance. This US medical technology company has consistently delivered on or beaten market expectations. Importantly, this delivery was executed during a period of integration following the completion of the CR Bard acquisition in late 2017.

 

Celgene delivered a series of negative updates at the beginning of the reporting period. Questions emerged regarding the strength of the company's intellectual property for its blockbuster drug, Revlimid, a Phase III programme for its inflammatory bowel disease asset, mongersen, was discontinued and management updated its long-term financial targets that highlighted the dependence on its maturing haematology franchise. We sold the stock from the portfolio following the third quarter results.

 

Alnylam shares have been affected by concerns regarding competition for the lead drug Onpattro. In addition, investors have begun to question management's ability to fast track the company's next drug candidate, givosiran, which should be FDA approved in 2019. We think these are short-term concerns and we continue to be constructive on Alnylam. The company is just about to move into the revenue growth phase and we see further pipeline opportunities emanating from the company's technology platform.

 

Takeda was the other major disappointment during the reporting period. In March, the company unexpectedly announced that it planned to acquire Shire and, given the size of the transaction, Japanese investors responded very negatively. We have held on to the shares as we think the deal will be highly accretive to earnings and on a two-year view will be transformative for Takeda.

Structural disruption of the healthcare industry continues to evolve

Our key investment thesis is that the healthcare industry has embarked on a period of major structural change. Governments and health insurers are finding ways to improve the efficiency of healthcare systems so that they can deliver better healthcare to more people for less money. We see three principal drivers - an ageing population, new technology and economic pressure.

 

The baby-boomer generation expects a far healthier and more active retirement than their parents, largely because of advances in medicine that are now standard. In addition, increased longevity means that a significant part of healthcare expenditure is now devoted to the management of long-term chronic conditions such as heart disease, diabetes and dementia.

 

At the same time, recent medical advances in areas such as gene therapy, cell therapy and immuno- oncology have seen the emergence of new expensive treatments for hitherto untreatable conditions. As a result, healthcare spending, both on an absolute basis and as a percentage of GDP, continues to rise in most countries driven by increasing demand.

 

We see information technology as the major catalyst for change. Advances in information technology, especially data analytics, are helping governments and health insurers to predict the healthcare needs of a population and to measure the value of a product or a service. The way healthcare is managed, delivered and paid for is already changing and is set for considerable disruption over the next decade.

 

In the past 12 months, we have seen continuing evidence of healthcare disruption and, more importantly, how different stakeholders are responding. This is an evolving process and while the ultimate goal seems clear - to improve the efficiency of healthcare systems - the near-term direction of travel and how we get there are critical in identifying companies that are well-positioned to thrive and those that may fall behind.

 

Value-based care forms the basis of a new reimbursement system

Most reimbursement systems around the world are based on a fee-for- service system where a payment is made based on the number of services provided or the number of procedures ordered. As healthcare has become more complex over the past few decades, the deficiencies of this payment model have become more obvious. In particular, the fee-for- service system creates incentives for overuse, which drives up healthcare costs, and offers no incentives for co-ordination of care within the healthcare system, which is essential when managing patients with multiple chronic conditions.

 

Governments and insurers around the world are now determined to replace fee-for-service with one based on value. The concept of value is easy to define, it means delivering the best clinical outcomes at the lowest cost. Fee-for-service encourages activity, but it does not take the concept of value into account. At the moment, value occurs only because it is the right thing to do - there is little accountability beyond ethics. This is not a sustainable system as it drives up cost with the potential for delivering worse results over time.

 

The move to value-based care and reimbursement has ramifications for every participant across the healthcare value chain. Any supplier of a product - be it medical device, medical technology or drug - and any provider of a healthcare service will begin to be evaluated and paid on the basis of how such products or services contribute to a clinical outcome. The drivers of this change are the payers - governments and health insurers - that are now starting to evaluate and measure best practice and clinical outcomes at the individual patient level.

 

While we have accounting systems that are excellent at measuring costs, the measurement of clinical outcomes is far more difficult, not least because a clinical outcome is rarely a single measurable event. This is where the use of IT and data analytics can have such a profound impact - they are enabling the move towards value-based healthcare. Measuring outcomes requires data and over the past year we have seen a step-up in the use of real-world data within the healthcare sector.

 

Real world data are driving reimbursement decisions and redefining best practice.

A randomised clinical trial remains the gold standard for evaluating the risk/benefit of a new drug or therapy. However, these controlled clinical studies are less helpful when it comes to determining the value of a new treatment in a broader patient population. While the payers initiated the move towards value, large drug and medical technology companies are becoming more proactive in their approach to using real-world data to demonstrate value.

 

The first area where we have seen real-world data being used is in cardiovascular disease, which is still the leading cause of death and chronic disease burden globally. In 2015, Novartis launched Entresto, one of the most significant new treatments for heart failure patients in at least a decade, on the basis of very strong clinical data. However, despite strong endorsements from major clinical societies, such as the American Heart Association and the American College of Cardiology, uptake of the drug was initially slow.

 

Payers were reluctant to provide reimbursement for the drug in the absence of any cost/benefit data showing the value of the new medication. In 2016, Novartis announced its FortiHFy programme - a series of at least 40 clinical studies to evaluate the efficacy, safety, quality of life and cost of using Entresto in the real world. These data have begun to convince payers of the drug's value and use of the drug has increased meaningfully with $1.5bn in sales projected for 2019. Entresto is a key growth driver for Novartis and one of the reasons we hold a large position in the portfolio.

 

We have also seen real-world data change the competitive dynamics of an existing therapeutic market. Blood thinners are a standard chronic medication for many patients with different types of cardiovascular disease. Bristol-Myers Squibb's blood thinner, Eliquis, is a twice-daily oral drug that competes in this market with Bayer's/Johnson & Johnson's once-daily oral drug, Xarelto.

 

Historically, a once-a-day therapy has been seen as a major selling advantage by the drug industry - it was no surprise that Xarelto gained traction in the market much more quickly. However, the collection of real-world safety and efficacy data for Eliquis has changed the market dynamics in Eliquis' favour quite significantly. Global sales of Eliquis are now on track to reach $10bn by 2021 compared to $9bn for Xarelto in the same year.

 

The use of real-world data is not confined to the pharmaceutical industry. Medtronic and UnitedHealth have been collaborating in the field of diabetes. Data collected from an analysis of over 6,000 diabetics on Medtronic's MiniMed 630G and prior-generation insulin pumps demonstrated 27% fewer preventable hospital admissions compared to plan participants with diabetes who were using daily injections of insulin.

 

Roche's acquisition of Flatiron Health moves real-world data into drug development.

In February of this year, Roche paid $1.9bn to acquire Flatiron Health, a healthcare technology company focused on the oncology market. Flatiron has established partnerships with over 265 community cancer clinics, 14 oncology companies and 6 academic centres, and compiled a database that covers 30% of the cancer patients in the US.

 

Flatiron has over 600 employees who collect, curate and validate the clinical data from each patient treated in these centres. This provides a unique insight into the treatment regimens, side effects, outcomes and survival rates of each of these patients. In a rapidly evolving field such as oncology, this information is invaluable when designing new clinical trials to evaluate novel therapies.

 

As a result, Flatiron has partnered with the Food and Drug Administration (FDA) in the US to expand the role of real-world evidence in drug development. The 21st Century Cures Act requires the FDA to establish a draft framework for combining real- world data and regulatory science.

 

Roche has already begun to use the data from Flatiron to help in reimbursement discussions. In particular, Roche has managed to secure reimbursement for its new lung cancer treatment, Alecensa, in 20 countries around the world far sooner than might have been expected. Roche even managed to persuade the UK's National Institute for Clinical Excellence (NICE) to back the use of the drug in the NHS, overturning a prior decision to reject it.

 

Value-based care will continue to evolve but is here to stay.

The shift towards value-based reimbursement seems inevitable and is the basis for our view that the management of healthcare will change significantly over the next 10 years. We expect to see greater use of real-world or in-market data to justify the use of certain products or services and ultimately this should help to drive more rapid adoption of best clinical practice.

 

From an investor perspective, it is important to understand that there is now a different alignment of incentives along the value chain between the government, payers, providers and product suppliers. The focus is moving to what can drive improved patient outcomes and, ultimately, greater efficiency.

 

The battle for the front door of healthcare

For most people, the entry point into healthcare is the General Practitioner (GP) or primary care physician. In the UK, at least 90% of patients have their first NHS contact with a GP but almost one in four people have to wait at least a week for that first appointment. This situation is not unique to the UK as access to primary care is a rate-limiting step in most parts of the world.

 

Primary care physicians are usually the lynchpin of healthcare systems in developed markets. Any referral to specialist care is generally made by a primary care physician and the burden of managing patients with multiple chronic conditions usually takes place in the primary care setting. As a result, the way that primary care is accessed and managed has a huge impact on the overall cost and efficiency of a healthcare system.

 

In many ways, the workflow of the GP visit has barely changed over the past 70 years. While GP surgeries now have computer systems, and some of the primary care is delivered by nurses or other healthcare professionals, the initial contact is generally a face-to- face meeting with the GP.

 

We think that this is now beginning to be disrupted - we see an emerging battle for the control of the front door of healthcare. The drivers are new technology, the need to improve efficiency and also a change in consumer expectations towards on- demand access to healthcare.

 

Telehealth is approaching an inflection point.

While telehealth is not a new idea, we see a group of companies emerging in a number of geographies that are trying to make this a mainstream approach for accessing healthcare.

 

In simple terms, telehealth technology enables a patient to book an appointment with a primary care physician online and then conduct a virtual visit using what is effectively a video-conferencing capability. This service can be provided in a matter of minutes - meeting the consumer desire for on-demand healthcare.  Moreover, for the patient, this is far more convenient and cheaper than a physical visit to their primary care physician.

 

While there are a number of private companies in this area, which may look to list on the public markets over the next year or so, the market leader from a stock market perspective is US-based Teledoc. Teledoc publishes the number of physician visits it facilitates each quarter. Over the past five years, this has increased from fewer than 100,000 visits per quarter in 2014 to over 500,000 visits per quarter in 2018. We think that telehealth is passing through an inflection point - especially in the US - and is becoming a standard way of accessing primary care for less serious medical conditions.

 

M&A activity in the US is also driving change in primary care.

While telehealth is providing a new entry point to primary care, the existing primary care infrastructure is also beginning to change. Over the past few years, there has been a race to acquire independent primary care practices, both by health insurers and hospital systems. For example, the largest US health insurance company, UnitedHealth, now has one of the largest primary care networks in the country.

We are also seeing the emergence of large integrated care systems - especially in urban areas - where the hospital system is taking on more of the financial risk of patient care. Interestingly, as providers become more exposed to financial risk they become more focused on value-based care. The management teams of these large integrated networks realise that primary care practices are a critical part of the network. Controlling primary care means that there can be oversight of how patients are referred through the system and ensures that they are sent down the best clinical pathway - from both a quality and cost perspective.

 

For us, the most intriguing acquisition over the past year has been the announcement that CVS Health, a leading pharmacy store chain, will acquire Aetna, one of the biggest US health insurers. This is a vertical integration that would have been unimaginable five years ago. CVS sees this transaction as a way to transform healthcare delivery, especially in primary care provision. A key part of this transformation will be the use of data and analytics to drive better clinical decision-making.

 

However, the front door to healthcare at CVS will be both physical and virtual. The company is already using telehealth - it is a large customer for Teledoc - but CVS sees the pharmacy store as an alternative physical location for delivering primary care.

 

While the success of this strategy will not be clear for at least a couple of years, we think it shows that the future disruption of healthcare will not be entirely digital. There will continue to be a need for people and physical infrastructure. The long-term winners will be those organisations that are able to use technology to augment their human capabilities and physical assets to build a far more efficient healthcare system.

 

Transforming healthcare delivery creates near and long-term investment opportunities.

While changes in healthcare delivery have clearly begun in the US, we would expect similar technologies to be embraced across the world. A combination of telehealth and a local pharmacy provides an efficient way of delivering high quality primary care at a lower cost. For investors, there are obvious near- term investment opportunities in the companies developing this technology as well as companies that benefit from the improvements in efficiency.

 

In the long term, the emergence of new delivery systems will accelerate the demand for new types of healthcare products and services, especially in the areas of wellness and preventative care. Current healthcare systems have been set up to provide care for those who are sick, but the systems of the future will also maintain the health of the well. With consumer expectations already beginning to change, these new markets and investment opportunities may emerge more rapidly than currently anticipated.

 

The rising power of the consumer

The technological disruption of many industries has driven a major change in consumer expectations. Companies such as Amazon and Netflix have set new standards in the delivery of products and services. We think expectations of healthcare systems are changing and the power of the consumer in healthcare is on the rise.

 

In general, consumers and patients still find medicine and healthcare systems very complicated and they are looking for simplicity. Moreover, they want healthcare to be affordable, which is a big issue in the US, accessible, which is behind the rise of telehealth, and, in many cases, they want the option to take control of their own health. These are important trends that are not only affecting the political landscape but also having an impact on the end markets for products and services.

 

Drug pricing in the US is an affordability issue for consumers.

Over the past 10 years, US health insurers have tried to change consumer behaviour through the use of financial incentives. For example, we estimate that one-third of commercially insured individuals now have a high deductible plan, where the patient is directly responsible for a large proportion of initial medical costs.

 

Following President Obama's introduction of the Affordable Care Act, often referred to as Obamacare, many middle class Americans have seen their health insurance premiums soar despite wider penetration of high deductible plans. Affordability is now the key issue for the average American - the current political discussion over drug pricing needs to be seen in this context.

List prices for pharmaceuticals are set by the manufacturers who then negotiate rebates and discounts with middlemen in the supply chain, such as the prescription benefit managers (PBMs). PBMs work for insurance plans and the size of the rebate often depends on the volume of plan enrolees who use the drug. The problem is that the discount does not necessarily get passed on to the patient - individuals without insurance or those who are on high deductible plans often get charged the higher list price and so never see the lower, rebated net price.

 

The Trump administration has responded to consumer concerns and is looking to make disruptive changes to the system but the exact path forward remains uncertain at this stage. It is reasonable to argue that the rebate system will garner

close attention, with the possibility of offering discounts directly to patients at the pharmacy counter. Two things are clear, however, and that is the administration will not rely on the altruism of the pharmaceutical sector (despite the recent price freezes) and that there is no simple, overnight solution.

 

Empowering patients creates new market opportunities.

The recent announcement that the new Apple watch series will incorporate an electrocardiogram (ECG) capability is an example of a growing trend that we refer to as democratised health. This is a new market opportunity that sits between the consumer health market and the traditional professional medical market. We are beginning to see devices with capabilities that are medical grade being made available to consumers.

 

An ECG is a standard technique used in medicine to monitor and diagnose common cardiovascular conditions. The Apple watch is not intended to provide a firm diagnosis, but it is more of a screening tool that may be able to detect an irregularity in an individual's heart rhythm. If there is a problem, then the software will suggest that a visit to the doctor is necessary so that a formal diagnosis can be made.

 

While a new product from Apple always creates excitement, we are more intrigued by Abbott's successful launch of its continuous glucose monitoring system, Freestyle Libre.  Libre is a patch product that can be used by diabetics to measure their blood sugar levels - replacing the need for pin-prick blood tests. It was launched in Europe in 2014 but reimbursement for the product has only started to be put in place over the past year. However, Libre sales in Europe have surpassed all expectations as diabetic patients have been paying for it out of their own pocket. Libre is on track to

generate more than $1bn in sales for Abbott in 2018 with only a modest contribution from the US market given the US launch was at the end of 2017.

 

The other area where we see growing consumer engagement is in the area of genetics. Companies such as 23andMe and ancestry.com offer individuals an opportunity to have their own DNA sequenced and analysed to provide information on genealogy, health traits and potential genetic risks. We are seeing increased interest in these services, especially in the US.

 

At the same time, there are a number of government programmes focused on the use of genomics in medicine. The UK is probably leading the world in this respect. The Secretary of State for Health recently announced a plan to sequence five million genomes over the next five years and has initiated a genomic medicine service targeting rare diseases.

 

As the cost of DNA sequencing comes down, it will be interesting to see how this market opportunity evolves. It is worth remembering the nature versus nurture debate - environmental factors are as important as genes in determining the observable differences in characteristics or traits of different individuals. The combination of genetic data with environmental or behavioural data (collected from wearables or a mobile phone) could prove to be a powerful approach for predicting the health status of an individual.

 

Nudging doctors and patients towards better decisions.

As new technology empowers individuals to take more control of their health, we have seen a change in the types of product offering emerging from health insurance companies. These go beyond simply offering an insurance premium discount for members who use a wearable device or go to the gym regularly.

 

Health insurance plans are now offering a range of different types of wellness options for enrolees. This covers services including exercise plans, diet plans, gym memberships, pregnancy care, stress counselling and online mental health services. In addition, there may be more specialist online services for patients with chronic conditions such as diabetes or asthma. Employers, who are paying for these plans, view them as a way of offering benefits to employees that will keep the work-force healthier and happier.

 

One of the leaders in this area is UnitedHealth. In 2014, it bought a majority stake in Rally Health, and has rolled out a series of products that 'nudge' members towards healthier lifestyles. In addition, the Rally platform can be used to schedule appointments, provide cost estimates for procedures and attempts to demystify the healthcare system. Rally Health now has more than 20 million users on its platform.

 

For insurers, the data gleaned from these types of programme is helping them to identify which plan enrolees are at high risk of generating significant medical costs. In general, 5% of the patients in an insurance plan generate the vast majority of  the costs - these are often patients with chronic conditions that are poorly managed. Identifying who these patients might be enables the insurer to intervene proactively and offer services that improve quality of life, manage or prevent more serious complications and defer significant medical costs over the long term.

 

In addition to services that can be used to change consumer behaviour, we are also seeing new tools to help physicians deliver more affordable care and employ best clinical practice. For example, at the primary care level, there are now software tools that will highlight to a physician the cost of a selected drug therapy for a particular patient based on their insurance plan. The system can then show cheaper alternatives that the doctor may decide to prescribe instead - the doctor still has control, but patient affordability becomes part of the decision-making process.

 

We also see new software tools emerging, again mainly targeted at primary care, which will recommend that a doctor may want to order certain diagnostic tests or recommend a particular clinical pathway or specialist referral based on the test results. The goal of this software is not to replace doctors but to augment their capabilities so they can make the best clinical decisions for the patient sitting in front of them.

 

Democratised health market is nascent but set to grow rapidly.

The issue of affordability has served to accelerate the change in consumer expectations in the US. We think similar trends are occurring elsewhere in the world although the financial impetus may not be the same. Consumers and patients want to start taking more control of their health and are being empowered to do so.  Even in countries where medical care is free at the point of service, such as the UK, people are prepared to pay for products and services that they believe can improve or help manage their health.

 

For investors, this may mean looking beyond traditional healthcare companies and expecting new entrants from other industries to enter and grow this market.

 

Large companies with a proactive mind-set are innovating

Structural change in any industry has the potential to create winners and losers and we think the healthcare sector will be no different. Last year, we articulated a two-pronged investment strategy for investing in healthcare during this period: (a) focus on the large-cap consolidators that are adjusting to change, and (b) identify the small/mid-cap innovators that are disrupting the industry.

 

Over the past year, we have seen a significant change at some of the larger companies that has begun to blur these two trends together. We are now seeing healthcare management teams that are becoming more proactive, developing innovative business strategies, disrupting healthcare value chains and building new competitive barriers to entry.

 

From an investment perspective, these large companies generally offer the potential of steady earnings growth, strong cash generation and, ultimately, compounding returns for investors. Moreover, we think that valuations remain attractive in large cap healthcare and we can find stocks with double-digit earnings growth at a reasonable price.

 

Changing complex value chains requires collaboration.

We believe we are entering a new phase of structural disruption that is not just about a new therapy - be it drug or device - or developing a new technology to address a problem (such as GP visits). While all of these are still important, and can be good investments at the right price, the next phase of disruption requires a realignment of interests across the value range and relies on collaboration.

 

Dealing with this type of complexity is more the preserve of large companies - all of the stakeholders need to be engaged and this means nudging patients, persuading doctors, corralling politicians and influencing payers. We are beginning to see certain management teams adopt a more proactive strategy where they are trying to be the agents of change. This may be driven partly by their own vested interest, but we think it also reflects a recognition that healthcare disruption is inevitable.

 

Not all large companies are capable or willing to drive such change - certainly some will get left behind in this fluctuating environment. There are still many companies that have more of a reactive approach, often reeling from the new regulations or procedures that are being forced upon them either by a regulator or by a payer.

 

We recognise that not all proactive strategies will succeed and creating an alignment of a diverse set of stakeholders is never an easy feat, even for an industry leader. Nevertheless, there are a few themes we see emerging that are a useful guide to which companies may be successful.

 

Pharmaceutical companies are responding to the value-based environment.

Drug pricing continues to be a hot issue for investors given the political sensitivity around the affordability of drugs. We are now seeing some pragmatic approaches to pricing that are a significant diversion from what has been standard industry practice. The migraine and hepatitis C markets in the US are great examples of how quickly the pricing landscape is changing.

 

Amgen and Novartis launched their novel migraine drug, Aimovig, in May with a list price of $6,900pa.  This was at a significant discount to the $8,500pa recommended by the Institute for Clinical and Economic Review based on its independent pharmacoeconomic analysis. In response, Eli Lilly launched its competitor drug, Emgality, in September at a similar price point. Moreover, both drugs are available to new patients on a patient access programme that initially provides drugs for free. With new competitors set to launch over the next year, we think the companies are trying to exploit their first-mover advantage and avoid any pushback on reimbursement from insurers.

 

Another interesting move has been Gilead's announcement in September that it plans to launch authorised generic versions of its hepatitis C medications, Epclusa and Harvoni, via a subsidiary in January 2019. Even though Gilead has offered rebates of up to 60% compared to the list price for its hepatitis C drugs, the complexities of the US healthcare system have meant that the price reductions have not necessarily translated into lower costs for patients.

 

With the launch of authorised generics, at a materially reduced list price, Gilead projects that Medicare part D patients (ie US seniors) could save up to $2,500 in out-of-pocket costs per course of therapy, making the treatment more affordable for the average American.

 

We have also observed another new dynamic related to the change in priorities when it comes to negotiating a product label with the regulators. One of the strict regulations for drug companies is that they can only promote medical data and indications that are contained on the product label. Historically, the industry's approach has been to apply for as broad a label as possible with a view to using sales and marketing muscle to drive wide adoption by the prescribing community.

 

We are now seeing companies looking for narrow labels that target very specific populations where a drug candidate can show strong efficacy. This improves product differentiation, demonstrates value when it comes to reimbursement discussions, and should drive high levels of adoption within the defined patient populations. Novartis' BAF312 for secondary progressive multiple sclerosis and AstraZeneca's Imfinzi for early-stage lung cancer (so-called stage III) are two good examples of this strategy. The filing for BAF312 has only recently been accepted by FDA, so the commercial success has yet to be assessed, but Imfinzi's rapid uptake underpins the value of this targeted strategy.

 

Medical technology companies are moving along the value chain.

While drugs are separately reimbursed, medical devices are generally purchased by a healthcare provider (ie a hospital) for use in a specific medical procedure. It is the procedure that is reimbursed, leading to a supplier/vendor mentality where a hospital views a medical device as an input cost.

 

In a value-based reimbursement environment, this needs to move to a more collaborative relationship where a medical technology company develops new products that provide true and measurable value to a healthcare provider and system. It is not about just proving to a surgeon or an individual doctor that it has developed a great new device - companies need to persuade patients, doctors and payers that the new product provides value in terms of quality of life, clinical outcomes and reduced overall cost to the system.

 

In some cases, this may require companies to develop a solution rather than selling a single product.   A great example of this is Medtronic's new strategy in spine surgery - an area where it had been losing market share for a number of years. Medtronic no longer just sells implants or consumables used in spine surgery.  It has invested in developing an integrated platform that includes robotics and a navigation system that is designed to not only drive better outcomes but also reduce operating room time, ensuring that it is an attractive offering to providers. Medtronic is now winning market share, increasing its consumable pull-through, growing faster than the market in spine surgery and driving improvements in clinical practice.

 

Healthcare providers and insurers are investing in data and analytics.

We have already discussed some of the ways that health insurers are looking for ways to change the behaviour of consumers, patients and providers. We think the use of data and analytics are now a 'must have' for any health insurer

UnitedHealth is leading the field,  in our view, but Aetna is not far behind. We also think that Centene, which specialises in Medicaid (the US state-run programme for people on low incomes), is pioneering the use of diverse data sets to manage the intersection of health and social care.

 

For healthcare providers, the leading companies are investing in systems that help them manage patient populations more effectively. The payers are demanding better data output and so the providers need to show they are delivering best-in-class care in order to attract volume and maximise profitability. Also, with more provider systems taking on patient populations at risk, they need to develop new tools to understand how to manage an entire patient population.

 

We are positive on the outlook for large cap healthcare stocks.

Since the beginning of 2017, small market capitalisation healthcare stocks have significantly outperformed the larger market capitalisation end of the investment universe. While the level of innovation we are seeing in small companies remains impressive, and while we continue to see them as key disrupters of the industry, we do think some of the valuations of smaller companies are beginning to get a little stretched.

 

Valuations of large healthcare companies, on the other hand, continue to look attractive on both a relative and absolute basis. The healthcare sector's price-to-earnings ratio is currently lower than the broader stock market and is close to the long-term average over the past 25 years.

 

Given the potential uncertainties going into 2019 - Brexit, trade wars, rising interest rates, geopolitical uncertainty etc - we think there is a strong case to be made for investing in large healthcare stocks given they offer investors defensive growth. Our focus is on the large companies that are adopting proactive business strategies to embrace and drive change.

 

Daniel Mahony              

Gareth Powell

James Douglas

Fund Managers

19 December 2018

 

Portfolio as at 30 September 2018 (Figures in brackets denote the comparative ranking as at 30 September 2017)

Ranking		Stock	Sector	Country	Market Value £'000		% of total net assets
2018	2017				2018	2017	2018	2017
1	(1)	Johnson & Johnson	Pharmaceuticals	United States	21,718	19,862	7.3%	7.9%
2	(8)	Medtronic	Healthcare Equipment	Ireland	17,538	10,430	5.9%	4.2%
3	(7)	UnitedHealth	Managed Healthcare	United States	16,195	10,945	5.5%	4.4%
4	(2)	Novartis	Pharmaceuticals	Switzerland	14,728	14,040	5.0%	5.6%
5	(4)	Merck & Co	Pharmaceuticals	United States	13,677	11,929	4.6%	4.7%
6	(20)	Amgen	Biotechnology	United States	13,225	7,638	4.5%	3.1%
7	(-)	Agilent Technologies	Life Sciences Tools & Services	United States	12,331	-	4.2%	-
8	(12)	HCA	Healthcare Facilities	United States	11,419	9,490	3.9%	3.8%
9	(-)	AstraZeneca	Pharmaceuticals	United Kingdom	10,895	-	3.7%	-
10	(-)	Quest Diagnostics	Healthcare Services	United States	10,074	-	3.4%	-
Top 10 investments					141,800		48.0%
11	(-)	Gilead Sciences	Biotechnology	United States	9,716	-	3.3%	-
12	(14)	Alexion Pharmaceuticals	Biotechnology	United States	9,698	9,410	3.3%	3.8%
13	(-)	Grifols	Biotechnology	Spain	9,505	-	3.2%	-
14	(26)	Jazz Pharmaceuticals	Pharmaceuticals	Ireland	9,476	4,906	3.2%	1.9%
15	(19)	Humana	Managed Healthcare	United States	9,446	8,170	3.1%	3.2%
16	(-)	Novo Nordisk	Pharmaceuticals	Denmark	9,093	-	3.1%	-
17	(16)	Abbott	Healthcare Equipment	United States	9,001	8,352	3.0%	3.3%
18	(18)	Takeda Pharmaceutical	Pharmaceuticals	Japan	8,807	8,225	3.0%	3.3%
19	(-)	PRA Health Sciences	Life Sciences Tools & Services	United States	8,409	-	2.8%	-
20	(6)	Becton Dickinson	Healthcare Equipment	United States	8,208	10,953	2.8%	4.4%
Top 20 investments					233,159		78.8%
21	(22)	Centene	Managed Healthcare	United States	8,199	7,213	2.8%	2.8%
22	(-)	Incyte Genomics	Biotechnology	United States	7,010	-	2.3%	-
23	(11)	Danaher	Healthcare Equipment	United States	6,615	9,590	2.2%	3.8%
24	(-)	Bio-Rad Laboratories	Life Sciences Tools & Services	United States	6,359	-	2.1%	-
25	(37)	Quotient	Healthcare Supplies	United Kingdom	5,823	1,434	2.0%	0.6%

 

26	(25)	Consort Medical	Healthcare Equipment	United Kingdom	5,555	5,143	1.9%	2.1%
27	(-)	Eli Lilly	Pharmaceuticals	United States	5,430	-	1.8%	-
28	(-)	Terumo	Healthcare Equipment	Japan	5,399	-	1.8%	-
29	(-)	Alnylan Pharmaceuticals	Biotechnology	United States	5,186	-	1.8%	-
30	(17)	Biomarin Pharmaceutical	Biotechnology	United States	3,384	8,322	1.1%	3.3%
Top 30 investments					292,119		98.6%
31	(-)	C4X Discovery	Healthcare Technology	United Kingdom	2,526	-	0.9%	-
32	(33)	Oxford Immunotec	Healthcare Equipment	United Kingdom	2,483	1,753	0.8%	0.7%
33	(-)	Zogenix	Pharmaceuticals	United States	2,396	-	0.8%	-
34	(29)	Horizon Discovery	Life Sciences Tools & Services	United Kingdom	2,250	2,128	0.8%	0.9%
35	(-)	Hansa Medical	Biotechnology	Sweden	2,227	-	0.8%	-
36	(-)	Nevro	Healthcare Equipment	United States	2,185	-	0.8%	-
37	(34)	Newron Pharmaceuticals	Biotechnology	Italy	2,002	1,699	0.6%	0.7%
38	(-)	Viveve Medical	Healthcare Equipment	United States	1,832	-	0.6%	-
39	(-)	Stemline Therapeutics	Biotechnology	United States	1,652	-	0.6%	-
40	(40)	Teladoc	Healthcare Equipment	United States	1,596	988	0.5%	0.4%
Top 40 investments					313,268		105.8%
41	(41)	Photocure	Pharmaceuticals	Norway	1,347	643	0.4%	0.3%
42	(-)	Diurnal	Biotechnology	United Kingdom	1,235	-	0.4%	-
43	(-)	Loxo Oncology	Biotechnology	United States	1,231	-	0.4%	-
44	(-)	Autolus Therapeutics	Biotechnology	United Kingdom	1,130	-	0.4%	-
45	(-)	MedaPhor	Education Services	United Kingdom	827	-	0.3%	-
46	(-)	Verona Pharmaceuticals	Pharmaceuticals	United Kingdom	825	-	0.3%	-
47	(38)	Summit Therapeutics	Biotechnology	United Kingdom	458	1,434	0.1%	0.6%
Total Equities					320,321		108.1%
Other Net Liabilities					(24,058)		(8.1%)
Net Assets					296,263		100.0%

Note - Sectors are from the GICS (Global Industry Classification Standard).

Geographical Exposure at	30 September 2018	30 September 2017
United States	69.5%	72.8%
United Kingdom	11.6%	5.1%
Ireland	9.1%	6.1%
Switzerland	5.0%	6.3%
Japan	4.8%	3.3%
Spain	3.2%	-
Denmark	3.1%	-
Sweden	0.8%	-
Italy	0.6%	0.7%
Norway	0.4%	-
Other	-	15.4%
Other net liabilities	(8.1%)	(9.7%)
Total	100.0%	100.0%
Sector Exposure at	30 September 2018	30 September 2017
Pharmaceuticals	33.2%	35.0%
Biotechnology	22.8%	18.2%
Healthcare Equipment	20.3%	20.7%
Managed Healthcare	11.4%	17.8%
Life Sciences Tools & Services	9.9%	3.2%
Healthcare Facilities	3.9%	4.3%
Healthcare Services	3.4%	7.4%
Healthcare Supplies	2.0%	1.3%
Healthcare Technology	0.9%	0.9%
Education Services	0.3%	-
Life & Health Insurance	-	0.7%
Specialised Healthcare REITs	-	0.2%
Other net liabilities	(8.1%)	(9.7%)
Total	100.0%	100.0%

Market Cap at	30 September 2018	30 September 2017
Large (>US$5bn)	95.1%	98.0%
Medium (US$1bn - US$5bn)	3.2%	3.0%
Small (<US$1bn)	9.8%	8.7%
Other net liabilities	(8.1%)	(9.7%)
	100.0%	100.0%

 

 

 

 

STRATEGIC REPORT

The information provided in the Chairman's Statement, the Investment Manager's Report, including information on the portfolio and this report comprise the Strategic Report.

The Strategic Report 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 2018, including a description of the principal risks and uncertainties.  Throughout the Strategic Report there are 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. Such statements should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward- looking information.

History

In June 2017 a reconstruction of the Company and change in investment mandate was implemented having been approved by shareholders. Further information is provided within the Shareholder Information in the Annual Report and on the Company's website www.polarcapitalhealthcaretrust.co.uk

Following the reconstruction, the Articles of Association require the Directors to put forward at the first Annual General Meeting to be held after 1 March 2025, a resolution for the voluntary winding up of the Company and the appointment of a liquidator. Members voting in favour, whether in person or by proxy, shall collectively have sufficient votes, irrespective of number, to pass the resolution.

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.

Business Model and Regulatory Arrangements

The business model of the Company follows that of an externally managed, London Stock Exchange listed investment trust, and its investment objective is set out below. 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 the Depositary can be found within 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 Group and Company have been delegated to third parties.

Investment Objective

The Company's investment objective is to generate capital growth by investing in a global portfolio of healthcare stocks across all four healthcare sub- sectors, being pharmaceuticals, biotechnology, medical technology and healthcare services.

Investment Policy

The Company will seek to achieve its objective by investing in a diversified global portfolio consisting primarily of listed equities. The portfolio is diversified by factors such as geography, industry sub-sector and investment size. The portfolio will comprise a single pool of investments, but for operational purposes, the Investment Manager will maintain a growth portfolio and an innovation portfolio. Innovation companies are broadly defined by the Investment Manager as small/mid cap innovators that are driving disruptive change, giving rise not only to new drugs and surgical treatments but also to a transformation in the management and delivery of healthcare. The growth portfolio is expected to comprise a majority of the Company's assets; for this purpose, once an innovation stock's market capitalisation has risen above US $5bn, it will ordinarily then be treated as a growth stock.

The relative ratio between the two portfolios may vary over the life of the Company due to factors such as asset growth and the Investment Manager's views as to the risks and opportunities offered by investments in each pool and across the combined portfolio.  While there is no restriction on geographical exposure, it is expected that the majority of the companies in the initial growth portfolio will be US listed or traded and/or headquartered in the US, although this may change over the life of the Company.

It was originally anticipated that the number of investments would be limited to 50 however, to enhance fund management flexibility the Board has authorised an increase to a maximum of 65 investments.  The combined portfolio will therefore be made up of interests in up to 65 companies, with no single investment accounting for more than 10% (or 15% in the case of an investment in another fund managed by the Investment Manager) of the Gross Assets at the time of investment. The innovation portfolio may include stocks which are neither quoted nor listed on any stock exchange but the exposure to such stocks, in aggregate, will not exceed 5% of Gross Assets at the time of investment. In the event that the Investment Manager launches a dedicated healthcare innovation fund, the Company's exposure to innovation stocks may be achieved in whole or in part by an investment in that fund. In any event, the Company will not, without the prior consent of the Board, acquire more than 15% of any such healthcare innovation fund's issued share capital.

Strategy

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 and strategy and considers the management and provision of services received from the third-party service providers and the risks inherent in the various matters reviewed and discussed.

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.

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 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.

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, on terms agreed periodically, with a number of third parties for the provision of specialist services:

-  Panmure Gordon & Co as corporate broker;

-  Herbert Smith Freehills LLP as solicitors;

-  Equiniti Limited as the share registrars;

-  PricewaterhouseCoopers LLP as independent Auditors; and

-  Emperor as internet service provider including website design, designers and printers for shareholder communications.

Gearing

Following the restructure of the Company in June 2017, the Company maintains long-term structural gearing in the form of a loan from the wholly owned subsidiary PCGH ZDP Plc. No short-term borrowings have been made and there are no arrangements made for any bank loans. 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. The portfolio may 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 2018, was 19.8% while the Benchmark Index over the same period increased by 17.2%. The outperformance is explained in the Investment Manager's Report. Since restructuring on 20 June 2017, the total return of both the NAV and the benchmark was 13.1%.
The achievement of the dividend policy.	Financial forecasts are reviewed to track income and distributions.	Two dividends have been paid or are payable in respect of the year ended 30 September 2018 totalling 2.0p per share (2017: 3 dividends totalling 3.4p per share) representing a decrease reflecting the change of investment mandate.
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 on the composition of the share register including trading patterns and discount/ premium levels of the Company's ordinary shares. The Board discusses and authorises the issue or buy back of shares when appropriate. A daily NAV per share, calculated in accordance with the AIC guidelines is issued to the London Stock Exchange.	The discount of the ordinary share price to the NAV per ordinary share at the year ended 30 September 2018 was -7.8% (2017: -2.8%). During the year ended 30 September 2018, the Company bought back 280,000 ordinary shares into treasury, no shares were issued. The number of shares in issue, at the year end was 124,149,256 of which 1,679,256 were held in treasury.
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.	The Company was granted investment trust status annually up to 1 October 2014 and is deemed to be granted for each subsequent year subject to the Company continuing to satisfy the conditions of Section 1158 of the Corporation Taxes Act 2010 and other associated ongoing requirements.
To control and monitor ongoing charges.	The Board received regular financial information which discloses expenses against budget.	Ongoing charges for the year ended 30 September 2018 were 1.08%, compared to 1.02% the previous year. From 3 January 2018 the research costs borne by the Company are included in the ongoing charges.

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 Polar Capital managed 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 windup date in 2025 should help to limit discount volatility. The Board is committed to a clear communication programme to ensure shareholders understand the investment strategy. This is maintained through the use of monthly factsheets which have a market commentary from the Investment Manager as well as portfolio data, an informative website as well as annual and half year reports. The Chairman regularly engages with the senior management of the Investment Manager.

Principal Business Risks and Uncertainties	Management of Risks through Mitigation & Controls
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 Manager's style focuses primarily on the investment opportunity of individual stocks and, accordingly, may not follow the makeup of the Benchmark. This may result in returns which are not in line with the Benchmark. •    The Investment Manager incurs a degree of risk in order to generate the investment returns.	The Board has set appropriate guidelines and monitors the position of the portfolio against 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 capitalisation 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 26 to the financial statements.
•    Gearing, either structural gearing through the issue of ZDP shares by the wholly owned subsidiary, PCGH ZDP Plc, or through bank debt or the use of derivatives may be utilised from time to time. Whilst the use of gearing is intended to enhance the NAV total return, it will have the opposite effect when the return on the Company's investment portfolio is negative.	The Board considered the benefits and drawbacks of the structural debt at the time of restructuring and concluded that the ability to lock-in an effective interest rate of 3% pa for the 7-year life would be beneficial to investment returns, the Board remains of the same belief. The asset cover necessary to repay the ZDP shares is reviewed at each Board meeting. If any flexible gearing is contemplated the Board would agree 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 any borrowed funds is based on the Investment Manager's assessment of risk and reward.
Such failures could lead to: •    The ability to fund dividends is impaired due to exposure to currency risk. •    Income is less than expected due to currency exposure underlying the portfolio. •    Level of dividend is lower than intended.	The Board monitors exposure through monthly management accounts and discussion and currency hedging takes place if appropriate. Investors have sight of the entire portfolio and geographic exposure to investments.

Principal Business Risks and Uncertainties	Management of Risks through Mitigation & Controls
Infrastructure
•    There are risks, including those stemming from breaches of cyber security, resulting in 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 misvaluation of investments or the loss of assets from the custodian or sub custodians which impact the NAV per share or lead to a loss of shareholder value. •    The Company may fail to continue as an investment trust and suffer Capital Gains tax or fail to recover as fully as possible withholding taxes on overseas investments. •    The legal and regulatory risks include failure to comply with the FCA's Prospectus Rules, Listing Rules and Transparency and Disclosure Rules; not meeting the provisions of the Companies Act 2006 and other UK, European and overseas legislation affecting UK companies and not complying with accounting standards. Further risks arise from not keeping abreast of changes in legislation and regulations which have in recent years been substantial. •    As an investment company, the Company is dependent on a framework of tax laws, regulation (both UK and EU) and Company law.	At each Board meeting there is an administration report which provides details on general corporate matters including legislative and regulatory developments, changes in substantial shareholdings and within 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. The Investment Manager reports on cyber security for its own systems and comments where appropriate on third party suppliers. Regular reporting from the Depositary on the safe custody of the Company's assets and the operation of control systems related to the portfolio reconciliation are monitored. Specialist advice is sought on taxation issues as and when required. The Audit Committee has oversight 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. 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.
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 geopolitical changes including the trade war between the US and China are reviewed and discussed. While it is difficult to quantify the impact of such changes, it is not anticipated that they will fundamentally affect the business of the Company or make healthcare investing any less desirable. Note 26 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 (IMC) 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, are 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 to 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 the investment objectives, the Management Engagement Committee formally carries out the annual review of the IMC and the continued appointment of the Investment Manager.

Investment Team

The Investment Manager provides a team of healthcare specialists and the portfolio is managed by Dr. Daniel Mahony, the lead manager, Mr. Gareth Powell and Dr. James Douglas.

Termination Arrangements

The IMC is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The IMC 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 IMC.

In the event the IMC 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 IMC, 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 Group's market capitalisation and the Company's adjusted 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 was reset at the date of reconstruction of the Company and will be paid in cash at the end of the Company's expected life (except in the case of an earlier termination of the IMC). The performance fee will be an amount equal to 10% of the excess total return (based on the Adjusted Net Asset Value per ordinary share at that time) over the total return of the benchmark plus 1.5% compounded annually on each anniversary of share admission and adjusted for periods of less than 12 months.

For the purposes of calculating the performance fee, the Company's Adjusted Net Asset Value will be based on the Net Asset Value adjusted by the amount of any dividends paid by the Company 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.

If at the end of the Company's expected life the amount available for distribution to shareholders is less than 215.9 pence per ordinary share, no performance fee will be payable. If the amount is more than 215.9 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 215.9p per share.

No performance fee has been paid or accrued since inception and up to 30 September 2018.

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 policies of the companies in which they invest. The Board 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 49 company meetings over the year ended 30 September 2018 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 and Greenhouse Gas Emissions

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

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

Diversity and gender reporting

The Company has no employees and the Board is comprised of one female and three male non-executive Directors. If any new appointments are made to the Board, the Board will continue to have regard to the benefits of diversity, including gender, when seeking to make any such appointments. The Company has not adopted a policy on human rights as it has no employees or operational control of its assets.

Modern Slavery Act

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

Anti-bribery, Corruption and Tax Evasion

The Board has adopted a zero- tolerance policy, which is available on the Company's website to bribery, corruption and the facilitation of tax evasion in its business activities and uses the principles of the policies formulated and implemented by the Investment Manager and expects the same standard of zero-tolerance to be adopted by third party service providers.

The Company has implemented a Conflicts of Interest policy to which the Directors must adhere, in the event of divergence between the Investment Manager's policy and the Company's policy the Company's policy shall prevail. The Company is committed to acting with integrity and in the interests of shareholders and will seek to ensure that the law is enforced should such a need arise.

Approved by the Board on 19 December 2018

By order of the Board

T A Lago

Polar Capital Secretarial Services Limited

Company Secretary

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the Directors to prepare the Group and Company Financial Statements for each financial year. Under that law the Directors have prepared the Group and 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 Group and Company Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group and 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

-       assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; 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 Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group and Company Financial Statements, Article 4 of the IAS Regulations.

They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for such internal control as they determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The Directors consider that the Annual Report including the Group and Company Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company's performance, business model and strategy. Under applicable law and regulations, the Directors are responsible for preparing a Strategic Report, Report of the Directors, Directors' Remuneration Report and a Corporate Governance Statement that are each compliant with the associated laws and regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website although day to day maintenance has been delegated to Polar Capital LLP. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

The work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

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 Group and Company's position as at 30 September 2018 and the factors impacting the forthcoming year are set out in the Chairman's Statement and the Investment Manager's Report within the Annual Report and in the Strategic Review and in the Report of the Directors which incorporates the corporate governance statement.

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

The Group 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. After making enquiries, the Directors have a reasonable expectation that the Group and Company have 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 within 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 March 2025.

Responsibility Statement Under the Disclosure and Transparency Rules

Each of the Directors in office for the period under review of Polar Capital Global Healthcare Trust plc, confirm that, to the best of their knowledge:

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

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

The Financial Statements were approved by the Board on 19 December 2018 and the responsibility statements were signed on its behalf by James Robinson, Chairman of the Board.

James Robinson

Chairman

19 December 2018

 

STATEMENTS OF COMPREHENSIVE INCOME - FOR THE YEAR ENDED 30 SEPTEMBER 2018

	Note	Group			Company
		Year ended 30 September 2018			Year ended 30 September 2017
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Investment income	3	3,877	102	3,979	5,796	813	6,609
Other operating income	4	459	-	459	3	-	3
Gains on investments held at fair value	5	-	49,559	49,559	-	1,030	1,030
Losses on derivatives		-	(19)	(19)	-	-	-
Other currency losses	6	-	(259)	(259)	-	(1,192)	(1,192)
Total income		4,336	49,383	53,719	5,799	651	6,450
Expenses
Investment management fee	7	(478)	(1,910)	(2,388)	(428)	(1,713)	(2,141)
Other administrative expenses	8	(607)	(182)	(789)	(1,351)	-	(1,351)
Total expenses		(1,085)	(2,092)	(3,177)	(1,779)	(1,713)	(3,492)
Profit/(loss) before finance costs and tax		3,251	47,291	50,542	4,020	(1,062)	2,958
Finance costs	9	(3)	(983)	(986)	(1)	(277)	(278)
Profit/(loss) before tax		3,248	46,308	49,556	4,019	(1,339)	2,680
Tax	10	(437)	(3)	(440)	(709)	(7)	(716)
Net profit/(loss) for the year and total comprehensive income		2,811	46,305	49,116	3,310	(1,346)	1,964
Earnings/(loss) per ordinary share (pence)	12	2.29	37.77	40.06	2.74	(1.11)	1.63

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

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

The Group does not have any other income or expense that is not included in net profit for the year.  The net profit/(loss) for the year disclosed above represents the Group's total comprehensive income.

There are no dilutive securities and therefore the Earnings per Share and the Diluted Earnings per Share are the same.

All revenue and capital items in the above statement derive from continuing operations.  No operations were acquired or discontinued in the year.

STATEMENTS OF CHANGES IN EQUITY - FOR THE YEAR ENDED 30 SEPTEMBER 2018

	Note	Group and Company Year ended 30 September 2018
		Called up share capital £'000	Capital redemption reserve £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 October 2017		31,037	6,575	80,685	6,754	122,754	2,324	250,129
Total comprehensive income:
Profit for the year ended 30 September 2018		-	-	-	-	46,305	2,811	49,116
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury	20	-	-	-	(529)	-	-	(529)
Equity dividends paid	11	-	-	-	-	-	(2,453)	(2,453)
Total equity at 30 September 2018		31,037	6,575	80,685	6,225	169,059	2,682	296,263

	Note	Group and Company Year ended 30 September 2017
		Called up share capital £'000	Capital redemption reserve £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 October 2016		30,663	-	28,916	61,337	124,100	2,809	247,825
Total comprehensive (expense)/ income:
(Loss)/profit for the year ended 30 September 2017		-	-	-	-	(1,346)	3,310	1,964
Transactions with owners, recorded directly to equity:
Issue of ordinary shares	17,1920	6,949	-	51,769	1,229	-	-	59,947
Shares bought back from tender offer	17,18,20	(6,575)	6,575	-	(55,812)	-	-	(55,812)
Equity dividends paid	11	-	-	-	-	-	(3,795)	(3,795)
Total equity at 30 September 2017		31,037	6,575	80,685	6,754	122,754	2,324	250,129

 

BALANCE SHEETS - AS AT 30 SEPTEMBER 2018

	Notes	Group		Company
		30 September 2018 £'000	30 September 2017 £'000	30 September 2018 £'000	30 September 2017 £'000
Non current assets
Investments held at fair value	13	320,321	274,516	320,321	274,516
Investment in subsidiary	13	-	-	50	50
Current assets
Receivables	14	459	8,967	459	8,967
Overseas tax recoverable		557	433	557	433
Cash and cash equivalents	24	13,851	856	13,801	806
		14,867	10,256	14,817	10,206
Total assets		335,188	284,772	335,188	284,772
Current liabilities
Payables	15	(3,841)	(2,218)	(3,841)	(2,218)
Bank overdraft	24	(1,712)	(25)	(1,712)	(25)
		(5,553)	(2,243)	(5,553)	(2,243)
Non-current liabilities
Zero dividend preference shares	16	(33,372)	(32,400)	-	-
Loan from subsidiary		-	-	(33,372)	(32,400)
Total liabilities		(38,925)	(34,643)	(38,925)	(34,643)
Net assets		296,263	250,129	296,263	250,129
Equity attributable to equity shareholders
Called up share capital	17	31,037	31,037	31,037	31,037
Share premium reserve	19	80,685	80,685	80,685	80,685
Capital Redemption reserve	18	6,575	6,575	6,575	6,575
Special distributable reserve	20	6,225	6,754	6,225	6,754
Capital reserves	21	169,059	122,754	169,059	122,754
Revenue reserve	22	2,682	2,324	2,682	2,324
Total equity		296,263	250,129	296,263	250,129
Net asset value per ordinary share (pence)	23	241.91	203.77	241.91	203.77
Net asset value per ZDP share (pence)	23	103.87	100.85	-	-

The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own income statement in the financial statements. The parent company's profit for the year was £2,811k (2017: £3,310k).

The financial statements were approved and authorised for issue by the Board of Directors on 19 December 2018 and signed on its behalf by

James Robinson

Chairman.

CASH FLOW STATEMENTS - FOR THE YEAR ENDED 30 SEPTEMBER 2018

		Group and Company
	Note	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Cash flows from operating activities
Profit before finance costs and tax		50,542	2,958
Adjustment for non-cash items:
Gain on investments held at fair value through profit or loss		(49,559)	(1,030)
Adjusted profit before tax		983	1,928
Adjustments for:
Purchases of investments, including transaction costs		(329,500)	(226,076)
Sales of investments, including transaction costs		343,187	185,763
(Increase)/decrease in receivables		(4)	210
Increase in payables		202	62
Overseas tax deducted at source		(564)	(875)
Net cash generated from/(used in) operating activities		14,304	(38,988)
Cash flows from financing activities
Proceeds from issue of share capital (net of issue costs)		-	59,947
Proceeds from ZDP share issue*		-	32,128
Shares bought back from tender offer		-	(55,812)
Cost of shares repurchased		(529)	-
Interest paid		(14)	(6)
Equity dividends paid	11	(2,453)	(3,795)
Net cash (used in)/generated from financing activities		(2,996)	32,462
Net increase/(decrease) in cash and cash equivalents		11,308	(6,526)
Cash and cash equivalents at the beginning of the year		831	7,357
Cash and cash equivalents at the end of the year	24	12,139	831

* Within the Company accounts this balance represents proceeds from the loan from its subsidiary.

 

NOTES TO THE FINANCIAL STATEMENTS - FOR THE YEAR ENDED 30 SEPTEMBER 2018

        1. General Information

The consolidated financial statements for the year ended 30 September 2018 comprise the financial statements of the Company and it's wholly-owned subsidiary PCGH ZDP plc (together referred to as the 'Group').

The Group and Company 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 Group and Company's presentational currency is pounds sterling (rounded to the nearest £'000). Pounds sterling is also the functional currency of the Group and Company because it is the currency which is most relevant to the majority of the Group and Company's shareholders and creditors and the currency in which the majority of the Group and 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 and updated in February 2018, is consistent  with the requirements of IFRS, in so far as those requirements are applicable to the financial statements, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

Basis of consolidation - The Group financial statements consolidate the Financial Statements of the Company and its wholly owned subsidiary, PCGH ZDP plc, drawn up to the same accounting date. The subsidiary is consolidated from the date of its incorporation.

The company has taken advantage of the exemption under section 408 of the Companies Act 2006 and accordingly has not presented a separate parent company income statement.

(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 Group and Company's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

(c) Income

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

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

Income from US/Canadian REITs is initially taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis. An adjustment may then be made to reallocate a proportion of this income to capital, depending on the information announced by the REITs.

Where the Group and 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 Group and 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 Group and Company's policies, as approved by the Board.

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

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

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

(e) Expenses

All expenses, including the management fee, are accounted for on an accruals basis and are recognised when they fall due.

All expenses have been presented as revenue items except as follows:

Expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect the investment management fees have been charged to the Statement of Comprehensive Income in line with the Board's expected long-term split of returns, in the form of capital gains and income from the Group and 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.

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

Finance costs

The ZDP shares are designed to provide a pre- determined capital growth from their original issue price of 100p on 16 June 2017 to a final capital repayment of 122.99p on 19 June 2024. The initial capital will increase at a compound interest rate of 3% per annum.

No dividends are payable on the ZDP shares. The provision for the capital growth entitlement of the ZDP shares is included as a finance cost and charged 100% to capital within the Statement of Comprehensive Income (AIC SORP paragraph 53 issued in November 2014 and updated in February 2018).

Overdraft interest costs are allocated 20% to revenue and 80% to capital in line with the Board's expected long-term split of revenue and capital return from the Company's investment portfolio.

Share issue costs

Costs incurred directly in relation to the issue of shares in the subsidiary are borne by the Company and taken 100% to capital. Share issue costs relating to ordinary share issues by the Company are taken 100% to the share premium account.

Zero Dividend Preference (ZDP) shares

Shares issued by the subsidiary are treated as a liability of the Group, and are shown in the Balance Sheet at their redemption value at the Balance Sheet date. The appropriations in respect of the ZDP shares necessary to increase the subsidiary's liabilities to the redemption values are allocated to capital in the Statement of Comprehensive Income. This treatment reflects the Board's long-term expectations that the entitlements of the ZDP shareholders will be satisfied out of gains arising on investments held primarily for capital growth.

(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 2018.  Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group and 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 Group and 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 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, maturity of 3 months or less, highly liquid investments that are readily convertible to known amounts of cash.

(j) Dividends Payable

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

(k) Payables

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

-  transfer to subsidiary in relation to ZDP funding requirement

-  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 Group and Company's accounts. At the date of authorisation of these financial statements, the following new and amended IFRSs are in issue but are not yet effective and have not been applied in these accounts:

Effective for periods commencing on or after 1 January 2018:

IFRS9 (2014) Financial Instruments.

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

IFRS15, Revenue with Contracts with Customers.

IFRS 15 sets out the requirements for revenue recognition.  The Company's only revenue streams are dividend income and gains and losses from sale of investments. Given the nature of the Company's revenue streams from financial instruments, the provisions of this standard are not expected to have a material impact.

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

IFRIC22 Foreign currency transactions and advance consideration.

Annual Improvement Cycles 2015-2017.

Effective for periods commencing on or after 1 January 2019:

IFRS 16 Leases.

IFRIC 23 Uncertainty over Income Tax Treatments.

IAS 19 (amended) Employee Benefits.

IAS 28 (amended) Investments in Associates and Joint Ventures.

The Directors expect that the adoption of the standards listed above will have either no impact or that any impact will not be material on the Financial Statements of the Company 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 Group and Company has only one operating segment and as such no distinct segmental reporting is required.

        3      Investment Income

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Revenue:
Franked: Listed investments
Dividend income	491	750
Unfranked: Listed investments
Dividend income	3,386	5,046
Total investment income allocated to revenue	3,877	5,796
Capital:
Special dividends allocated to capital	-	509
Dividends from REITs allocated to capital	102	304
Total investment income allocated to capital	102	813

        4      Other Operating Income

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Option premium income	437	-
Bank interest	22	3
Total other operating income	459	3

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.

        5      Gains on Investments Held at Fair Value

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Net gains on disposal of investments at historic cost	30,676	41,149
Less fair value adjustments in earlier years	(13,268)	(42,619)
Gains/(losses) based on carrying value at previous balance sheet date	17,408	(1,470)
Valuation gains on investments held during the year	32,151	2,500
	49,559	1,030

        6      Other Currency losses

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Exchange losses on currency balances	(259)	(1,192)

        7      Investment Management Fee

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Management fee
- charged to revenue	478	428
- charged to capital	1,910	1,713
Investment management fee payable to Polar Capital LLP	2,388	2,141

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

 

8     Other Administrative Expenses (Including VAT where appropriate)

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Directors' fees	130	115
Directors' NIC	13	11
Auditors' remuneration*:
For audit of the Group and Company financial statements	30	24
Depositary fee	23	30
Registrar fee	20	32
Custody and other bank charges	28	32
UKLA and LSE listing fees	48	23
Legal & professional fees*	4	838
AIC fees	19	20
Directors' and officers' liability insurance	9	7
Corporate broker's fee	29	28
Marketing expenses**	28	21
Research costs***	45	-
Shareholder communications	31	22
HSBC administration fee	143	129
Other expenses	7	19
	607	1,351
Transaction charges - allocated to capital	1	-
Research cost - allocated to capital**	181	-
	789	1,351

* 2018 includes £4,500 paid to the Auditor for the audit of PCGH ZDP Plc.

** Includes marketing expenses payable to Polar Capital LLP of £22,500. This is based on an annual marketing budget of £30,000 agreed with the Board and applied from 1 January 2018.

*** Research costs (which applied from 3 January 2018) payable by the Company relate solely to specialist healthcare research and are capped at US $394,867 (£303,000) with the cost of general non-specialist research and any amounts exceeding the agreed cap being absorbed by Polar Capital. These costs are allocated 20% to revenue and 80% to capital and are included in the ongoing charges calculation.

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

Ongoing charges represents the total expenses of the fund, excluding finance costs and tax, 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 2018 was 1.08% (2017: 1.02%). See Alternative Performance Measures.

        9      Finance Costs

	Year ended 30 September 2018			Year ended 30 September 2017
	Revenue return	Capital return	Total return	Revenue return	Capital return	Total return
	£'000	£'000	£'000	£'000	£'000	£'000
Interest on overdrafts	3	11	14	1	5	6
Appropriation to ZDP shares	-	972	972	-	272	272
Total finance costs	3	983	986	1	277	278

        10    Taxation

	Year ended 30 September 2018			Year ended 30 September 2017
	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	437	3	440	709	7	716
Total tax for the year (see note 10b)	437	3	440	709	7	716
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/(loss) before tax	3,248	46,308	49,556	4,019	(1,339)	2,680
Tax at the UK corporation tax rate of 19% (2017: 19%)*	617	8,799	9,416	382	(127)	255
Tax at the UK corporation tax rate of 20% (2017: 20%)*	-	-	-	402	(134)	268
Tax effect of non-taxable dividends	(756)	(20)	(776)	(1,055)	(159)	(1,214)
(Gains)/loss on investments that are not taxable	-	(9,363)	(9,363)	-	32	32
Unrelieved current period expenses and deficits	139	399	538	116	335	451
Overseas tax suffered	437	3	440	709	7	716
Expenses not allowable	-	185	185	163	53	216
Tax relief on overseas tax suffered	-	-	-	(8)	-	(8)
Total tax for the year (see note 10a)	437	3	440	709	7	716

                * Under the Finance Act 2015, the rate of corporation tax was lowered to 19% from 1 April 2017.

               c) Factors that may affect future tax charges:

The Company has an unrecognised deferred tax asset of £2,018,000 (2017: £1,377,000) based on a prospective corporation tax rate of 17% (2017: 17%).

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

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

        11    Amounts Recognised as Distributions to Ordinary Shareholders in the Year

               Dividends paid in the year ended 30 September 2018

Payment date	No of shares	Pence per share	Year ended 30 September 2018 £'000
28 February 2018	122,750,000	1.00p	1,228
31 August 2018	122,470,000	1.00p	1,225
			2,453

The revenue available for distribution by way of dividend for the year is £2,811,000 (2017: £3,310,000).

The total dividends payable in respect of the financial year ended 30 September 2018 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 2018 £'000
31 August 2018	120,470,000	1.00p	1,225
28 February 2019	120,470,000	1.00p	1,225
			2,450

                      Dividends paid in the year ended 30 September 2017

Payment date	No of shares	Pence per share	Year ended 30 September 2017 £'000
30 November 2016	120,475,000	0.75p	904
28 February 2017	120,475,000	0.75p	904
9 June 2017	120,475,000	1.65p	1,987
			3,795

The total dividends payable in respect of the financial year ended 30 September 2017 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 2017 £'000
28 February 2017	120,475,000	0.75p	904
9 June 2017	120,475,000	1.65p	1,987
28 February 2018	122,750,000	1.00p	1,228
			4,119

All dividends are paid as interim dividends.

The dividends paid in February 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 2018				Year ended 30 September 2017
	Revenue return	Capital return	Total return	Revenue return		Capital return	Total return
The calculation of basic earnings per share is based on the following data:
Net profit/(loss) for the year (£'000)	2,811	46,305	49,116	3,310		(1,346)	1,964
Weighted average ordinary shares in issue during the year	122,602,712	122,602,712	120,602,712	120,996,259		120,996,259	120,996,259
Basic - ordinary shares (pence)	2.29	37.77	40.06	2.74		(1.11)	1.63

As at 30 September 2018 there were no potentially dilutive shares in issue.

        13    Investments Held at Fair Value

        (a) Movements on investments                                                                                                                                                                              

	30 September 2018 £'000	30 September 2017 £'000
Cost brought forward	249,824	181,570
Valuation gains	24,692	64,811
Valuation brought forward	274,516	246,381
Additions at cost	330,921	221,380
Proceeds on disposal	(334,675)	(194,275)
Gains/(losses) on disposal	17,408	(1,470)
Valuation gains	32,151	2,500
Valuation at 30 September	320,321	274,516
Cost at 30 September	276,747	249,824
Closing fair value adjustment	43,574	24,692
Valuation at 30 September	320,321	274,516

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

	30 September 2018 £'000	30 September 2017 £'000
On acquisition	197	350
On disposal	151	251
	348	601

               (b) Fair value hierarchy

	30 September 2018 £'000	30 September 2017 £'000
Level 1 assets	320,321	274,516
Valuation at 30 September	320,321	274,516

All Level 1 assets are traded on a recognised Stock Exchange. 

               (c) Subsidiary undertaking

Company and business	Country of registration, incorporation and operation	Number and class of shares held by the Company	Holding
PCGH ZDP Plc	England and Wales	50,000 Ordinary shares of £1	100%

The Company is a public limited company with the sole purpose of issuing Zero Dividend Preference (ZDP) shares. The registered office is at Polar Capital, 16 Palace Street, London SW1E 5JD.

The investment is stated in the Company's Financial Statements at cost, which is considered by the Directors to equate to fair value.    

The subsidiary is non-trading and the value of the net assets have not changed since the acquisition of the ordinary share capital by the Company. The cost is therefore considered to equate to the fair value of the shares held.

        14    Receivables

	30 September 2018 £'000	30 September 2017 £'000
Sales for future settlement	-	8,512
Accrued income	436	368
VAT recoverable	-	74
Prepayments	23	13
	459	8,967

        15    Payables

	30 September 2018 £'000	30 September 2017 £'000
Purchases for future settlement	3,338	1,917
Accruals	503	301
	3,841	2,218

        16    Zero Dividend Preference Shares ("ZDP Shares")

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	32,400	-
ZDP shares - initial placing at 100p on 16 June 2017	-	32,128
Capital growth of ZDP shares	972	272
At 30 September	33,372	32,400

        17    Called up Share Capital

(i) Ordinary shares - Allotted, Called up and Fully paid:	30 September 2018 £'000	30 September 2017 £'000
Ordinary shares of nominal value 25p each:
Opening balance of 122,750,000 (30 September 2017: 120,475,000)	30,687	30,119
Issue of nil (2017: 27,798,298) ordinary shares from open offer	-	6,949
Issue of nil (2017: 775,744) ordinary shares from treasury	-	194
Repurchase and cancellation of nil (2017: 26,299,042) ordinary shares from tender offer	-	(6,575)
Repurchase of 280,000 (2017: nil) ordinary shares, into treasury	(70)	-
Allotted, Called up and Fully paid: 122,470,000 (30 September 2017: 122,750,000) ordinary shares of 25p	30,617	30,687
1,679,256 (2017: 1,399,256) ordinary shares, held in treasury	420	350
At 30 September	31,037	31,037

                280,000 ordinary shares were repurchased into treasury at a cost of £529,000.

The ordinary shares held in treasury have no voting rights and are not entitled to dividends.

(ii) ZDP shares - Allotted, Called up and Fully paid:	30 September 2018 £'000	30 September 2017 £'000
ZDP shares of nominal value 1p each:
Opening balance of 32,128,437 ZDP shares (30 September 2017: nil)	32,128	-
Issue of nil (30 September 2017: 32,128,437 issued from initial placing on 16 June 2017) ZDP shares	-	32,128
Allotted, Called up and Fully paid: 32,128,437 (30 September 2017: 32,128,437) ZDP shares of 1p	32,128	32,128
At 30 September	32,128	32,128

        18    Capital Redemption Reserve

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	6,575	-
Repurchase and cancellation of nil (2017: 26,299,042) ordinary shares from tender offer	-	6,575
At 30 September	6,575	6,575

          This reserve is not distributable.

 

19   Share Premium Reserve                                                                                           

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	80,685	28,916
Issue of nil (2017: 27,798,298 at 213.80p each) ordinary shares	-	52,483
Issue of nil (2017: 150,744 at 212.00p each) ordinary shares	-	80
Issue of nil (2017: 100,000 at 213.25p each) ordinary shares	-	54
Issue of nil (2017: 225,000 at 212.50p each) ordinary shares	-	121
Issue of nil (2017: 100,000 at 210.50p each) ordinary shares	-	52
Issue of nil (2017: 200,000 at 209.00p each) ordinary shares	-	100
Issue costs	-	(1,121)
At 30 September	80,685	80,685

          This reserve is not distributable.

        20    Special Distributable Reserve                                                                                          

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	6,754	61,337
Repurchase and cancellation of nil (2017: 26,299,042) ordinary shares	-	(55,812)
Issue of nil (2017: 775,744) ordinary shares from treasury	-	1,229
Repurchase of 280,000 (2017: nil) ordinary shares into treasury	(529)	-
At 30 September	6,225	6,754

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

        21    Capital Reserves

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	122,754	124,100
Net gains/(losses) on disposal of investments	17,408	(1,470)
Valuation gains on investments held during the year	32,151	2,500
Exchange losses on currency balances	(259)	(1,192)
Derivatives realised loss	(19)	-
Capital dividends	102	813
Irrecoverable tax on special capital dividends	(3)	(7)
Overdraft interest allocated to capital	(11)	(5)
Transaction charges allocated to capital	(1)	-
Research costs to capital	(181)	-
Investment management fee allocated to capital	(1,910)	(1,713)
Capital contribution to ZDP entitlement	(163)	(45)
ZDP appropriation	(809)	(227)
At 30 September	169,059	122,754

The balance on the capital reserve represents a profit of £43,574,000 (2017: £24,692,000) on investments held and a profit of £125,485,000 (2017: £98,062,000) 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 Group and Company's shares) and those that are unrealised.

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

        22    Revenue Reserve

	30 September 2018 £'000	30 September 2017 £'000
At 1 October	2,324	2,809
Revenue profit	2,811	3,310
Interim dividends paid	(2,453)	(3,795)
At 30 September	2,682	2,324

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

        23    Net Asset Value Per Share

(i) Ordinary shares	30 September 2018	30 September 2017
Net assets attributable to ordinary shareholders (£'000)	296,263	250,129
Ordinary shares in issue at end of year	122,470,000	122,750,000
Net asset value per ordinary share (pence)	241.91	203.77
Total issued ordinary shares	124,149,256	124,149,256
Ordinary shares held in treasury	1,679,256	1,399,256
Ordinary shares in issue	122,470,000	122,750,000

As at 30 September 2018 there were no potentially dilutive shares in issue.

(ii) ZDP shares	30 September 2018	30 September 2017
Calculated entitlement of ZDP shareholders (£)	33,372,440	32,400,428
ZDP shares in issue at the end of the year	32,128,437	32,128,437
Net asset value per ZDP share (pence)	103.87	100.85

        24    Cash and Cash Equivalents

	30 September 2018 £'000	30 September 2017 £'000
Cash at bank	12,777	264
Cash held at derivative clearing houses	1,024	542
Bank overdraft	(1,712)	(25)
Cash held at subsidiary	50	50
	12,139	831

        25    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 Group 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 2018 were £2,388,000 (2017: £2,141,000) of which £212,000 (2017: £198,000) was outstanding at the year-end.

In addition, the total research costs in respect of the period from 1 January 2018 to the year ended 30 September 2018 were £226,000 (2017: £nil) of which £168,000 (2017: £nil) was outstanding at the year-end.

(b) Related party transactions

The Group and Company has no employees and therefore no key management personnel other than the Directors. The Group and Company paid £130,000 (2017: £115,000) to the Directors and the Remuneration Report is set out within the Annual Report.

        26    Derivatives and Other Financial Instruments

Risk management policies and procedures for the Group and Company

The Group and Company invests in equities and other financial instruments for the long term to further the investment objective set out in the Annual Report.

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

The main risks arising from the Group and 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 Group and Company's exposure to financial instruments can comprise:

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

o  Bank overdrafts, the main purpose of which is to raise finance for the Group and Company's operations.

o  Cash, liquid resources and short-term receivables and payables that arise directly from the Group and Company's operations.

o  Derivative transactions which the Group and 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 Group and Company's investment activities.

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

(a) Market Risk

Market risk comprises three types of risk: market price risk (see note 26(a)(i)), currency risk (see note 26(a)(ii)), and interest rate risk (see note 26(a)(iii)).

(i) Market Price Risk

The Group and 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 Group and Company faces.

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Group and Company's operations.

It represents the potential loss the Group and Company might suffer through holding market positions in the face of price movements.

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

At the year end, the Group and Company did not hold any derivative instruments (2017: nil).

Management of the risk

In order to manage this risk it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a particular 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 Group and Company's exposure to changes in market prices at 30 September on its investments was as follows:

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Non-current asset investments at fair value through profit or loss	320,321	274,516
	320,321	274,516

               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 Group and 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 Group and Company's investments at each balance sheet date, with all other variables held constant.

	Year ended 30 September 2018		Year ended 30 September 2017
	Increase in fair value £'000	Decrease in fair value £'000	Increase in fair value £'000	Decrease in fair value £'000
Statement of Comprehensive Income - profit after tax
Revenue return	(81)	81	(70)	70
Capital return	47,721	(47,721)	40,897	(40,897)
Change to the profit after tax for the year	47,640	(47,640)	40,827	(40,827)
Change to equity attributable to shareholders	47,640	(47,640)	40,827	(40,827)

(ii) Currency Risk

The Group and Company's total return and net assets can be significantly affected by currency translation movements as the majority of the Group and 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 Group and Company's monetary assets, liabilities and investments that are priced in currencies other than sterling.

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Monetary Assets:
Cash and short term receivables
Swiss francs	725	537
Danish krone	448	2
Japanese yen	166	107
Euros	135	137
US dollars	69	9,125
Singapore dollars	-	44
Australian dollars	-	31
Canadian dollars	-	7
Monetary Liabilities:
Other payables
US dollars	(733)	(7,892)
Danish krone	(422)	-
Foreign currency exposure on net monetary items	388	2,098
Non-Monetary Items:
Investments at fair value through profit or loss that are equities
US dollars	252,232	201,015
Swiss francs	16,730	17,547
Japanese yen	14,206	8,225
Danish krone	9,093	-
Swedish krona	2,227	-
Norwegian krona	1,347	643
Euros	-	33,710
Australian dollars	-	2,292
Canadian dollars	-	1,318
Singapore dollars	-	598
Total net foreign currency exposure	296,223	267,446

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

US dollar appreciated by 2.8% (2017: depreciated by 3.3%),
Swiss franc appreciated by 1.9% (2017: depreciated by 3.1%),
Japanese yen appreciated by 1.9% (2017: depreciated by 14.8%),
Danish Krone appreciated by 0.9% (2017: appreciated by 1.9%).

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% (2017: 15%) against the currencies shown, this would have the following effect:

	Year ended 30 September 2018 £'000
	US  Dollars	Swiss  Francs	Japanese Yen	Danish Krone
Statement of Comprehensive Income - profit after tax
Revenue return	12	128	29	79
Capital return	44,512	2,952	2,507	1,605
Change to the profit after tax for the year and to equity attributable to shareholders	44,524	3,080	2,536	1,684

 

	Year ended 30 September 2017 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	1,610	95	19	24
Capital return	35,473	3,097	1,451	5,949
Change to the profit after tax for the year and to equity attributable to shareholders	37,083	3,192	1,470	5,973

Based on the year end position, if sterling had appreciated by a further 15% (2017: 15%) against the currencies shown, this would have the following effect:

	Year ended 30 September 2018 £'000
	US Dollars	Swiss Francs	Japanese Yen	Danish Krone
Statement of Comprehensive Income - profit after tax
Revenue return	(9)	(95)	(22)	(58)
Capital return	(32,900)	(2,182)	(1,853)	(1,186)
Change to the profit after tax for the year and to equity attributable to shareholders	(32,909)	(2,277)	(1,875)	(1,244)

	Year ended 30 September 2017 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	(1,190)	(70)	(14)	(18)
Capital return	(26,219)	(2,746)	(1,073)	(4,397)
Change to the profit after tax for the year and to equity attributable to shareholders	(27,409)	(2,816)	(1,087)	(4,415)

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 Group's objectives.              

(iii) Interest Rate Risk

Although the majority of the Group and Company's financial assets are equity shares which pay dividends, not interest, the Group and Company will be affected by interest rate changes as interest is earned on any cash balances and paid on any overdrawn balances.

Given the interest rate risk exposure noted below, the impact of any interest rate change is not considered to be significant and as such, no sensitivity analysis has been provided. Interest rate changes will also have an impact on the valuation of equities, although this forms part of price risk, which has already been considered separately above.

Management of the risk

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.

Derivative contracts are not used to hedge against the exposure to interest rate risk.

Interest rate exposure

At the year-end, financial assets and liabilities exposed to floating interest rates were as follows:

	Year ended 30 September 2018 £'000	Year ended 30 September 2017 £'000
Cash at bank and at derivative clearing houses	13,801	806
Cash held at subsidiary	50	50
Bank overdraft	(1,712)	(25)
	12,139	831

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 Group and Company to realise sufficient assets to meet its financial liabilities.

Management of the risk

The Group and 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 2018 £'000	30 September 2017 £'000
Due within 1 month:
Other creditors and accruals	3,841	2,218
Bank overdraft	1,712	25
Due in more than 1 year
ZDP's entitlement	33,372	32,400
	38,925	34,643

The ZDP shares have a planned repayment date of 19 June 2024 in the amount of £39,514,000.

 

 (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 Group and 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 Group and Company's assets. The Group and 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 2018 was £14,287,000 (2017: £1,224,000) comprising:

	30 September 2018 £'000	30 September 2017 £'000
Accrued Income	436	368
Cash at bank	13,851	856
	14,287	1,224

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 Group and 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 Group and Company's capital, or equity, is represented by its net assets which amounted to £296,263,000 for the year ended 30 September 2018 (2017: £250,129,000), which are managed to achieve the Group's and Company's investment objective.

The Board monitors and reviews the broad structure of the Group's and 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 Group and 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 Group and 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 Group and Company has complied with them.

 

Alternative Performance Measures (APMs)

In assessing the perfomance of the Company and Group the Investment Manager and the Directors use the following APMs which are considered to be known industry metrics:

Net Asset Value (NAV)

The NAV is the value attributed to the underlying assets of the Company less the liabilities, presented either on a per share or total basis.

The value of the Company's assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV is also described as 'Shareholders' funds' per share. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price which is the price at which the Company's shares can be bought or sold by an investor.

As at 30 September 2018, the Group's total equity was £296,263,000 and there were 122,470,000 ordinary shares in issue. The Group's NAV per share was therefore 241.91p (£296,263,000/122,470,000). At 30 September 2018, the value of the ZDP shares was £33,372,000 (note 16 of the notes to the financial statements on page xx) and the number of ZDP shares in issue was 32,128,437. The NAV per ZDP share was therefore 103.87p (£33,372,000/32,128,437).

Total Net Assets (Group and Company)

The value of the Group's and Company's assets, principally investments made in other companies and cash being held, minus any liabilities.

At 30 September 2018, the total assets were £335,188,000 and the total liabilities were £38,925,000, the total net assets therefore were £296,263,000 (£335,188,000 - £38,925,000= £296,263,000)

NAV Total Return

The NAV total return shows how the net asset value has performed over a period of time taking into account both capital returns and dividends paid to shareholders. NAV total return is calculated as the change in NAV from the start of the period, assuming that dividends paid to shareholders are reinvested on the payment date in ordinary shares at their net asset value. The NAV at the start of the period was 203.77p.

As at 30 September 2018, the Group's NAV per share was 241.91p, the impact of the dividend reinvestment in NAV was 2.21p, and the adjusted NAV per share was therefore 244.12p (241.91p+2.21p=244.12p). The NAV total return over the year was 19.80% ((244.12p-203.77p)/203.77p).

Share Price Total Return

Share price total return shows how the share price has performed over a period of time. It assumes that dividends paid to shareholders are reinvested in the shares at the time the shares are quoted ex dividend.

As at 30 September 2018, the Company's share price was 223.00p and the opening share price as at 30 September 2017 was 198.00p; a reinvestment factor of 1.009678, relating to the impact of the reinvested dividends during the year, was applied to reach a closing adjusted share price for the purposes of the calculation of share price performance with income reinvested of 225.16p. The share price total return is (225.16p-198.0p)/198.0p=13.72%.

Discount /Premium

A description of the difference between the share price and the net asset value per share usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the NAV per share the result is a premium. If the share price is lower than the NAV per share, the shares are trading at a discount.

The share price at 30 September 2018 was 223.00p and NAV was 241.91p; the discount was therefore 7.8%, (223.00p-241.91p)/241.91p.

Total Expenses (Group and Company)

Comprising all the operating expenses, which includes research costs, of the Group and Company plus those expenses which are excluded from the ongoing charges calculation, including transaction costs, finance costs, tax and non-recurring expenses. Costs in relation to share issues and share buybacks are excluded from the calculation.

At 30 September 2018, the total operating expenses including management fees were £3,177,000, finance costs were £986,000 and taxes were £440,000; the total expenses therefore were £4,603,000 (£3,177,000 + £986,000 + £440,000=£4,603,000).

Ongoing Charges

Ongoing charges are calculated in accordance with AIC guidance by taking the Company's annual ongoing charges, excluding performance fees and exceptional items, if any, and expressing them as a percentage of the average daily net asset value of the Company over the year. Ongoing charges include all regular operating expenses of the Company. Transaction costs, interest payments, tax and non-recurring expenses are excluded from the calculation as are the costs incurred in relation to share issues and share buybacks. Where a performance fee is paid or is payable, a second ongoing charge is provided, calculated on the same basis as the above but incorporating the amount of performance fee due or paid.

Ongoing charges for the year equals the management fee of £2,388,000 plus other operating expenses of £788,000 divided by the Group's average NAV in the period. (£3,176,000/£294,392,064=1.08%). Since there was no performance fee paid or payable for the year the ongoing charges including performance fee is the same as the ongoing charges.

Gearing

Gearing is calculated in line with AIC guidelines and represents net gearing. This is defined as total assets less cash and cash equivalents divided by net assets. The total assets are calculated by adding back the structural gearing which is the ZDP value. Cash and cash equivalents are cash and purchases and sales for future settlement outstanding at year end.

As at 30 September 2018 the net assets were £296,263,000, ZDP value was £33,372,000 and cash and cash equivalents (including amounts for future settlement) were £8,801,000, and the gearing was therefore 8.29%, (((£296,263,000+£33,372,000- £8,801,000) / £296,263,000) -1).

 AGM 

The Annual Report and separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in January 2019 and will be available thereafter from the company secretary at the Registered Office, 16 Palace Street London SW1E 5JD or from the Company's website. The AGM will be held at 16 Palace Street, London SW1E 5JD at 12 noon on 27 February 2019.

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 Trust plc or any other entity, and must not be relied upon in any way in connection with any investment decision.

The Company undertakes no obligation to update any forward-looking statements.

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

 

END

 

 

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