Annual Financial Report
BB HEALTHCARE TRUST PLC
LEGAL ENTITY IDENTIFIER ('LEI'): 213800HQ3J3H9YF2UI82
ANNUAL FINANCIAL REPORT ANNOUNCEMENT
For the year ended 30 November 2018
INVESTMENT OBJECTIVE, FINANCIAL INFORMATION AND PERFORMANCE SUMMARY AND ALTERNATIVE PERFORMANCE MEASURES
Investment objective
The investment objective of BB Healthcare Trust plc (the "Company") is to provide shareholders with capital growth and income over the long term, through investment in listed or quoted global healthcare companies. The Company's specific return objectives are: (i) to beat the total return of the MSCI World Healthcare Index (in sterling) on a rolling 3 year period (the index total return including dividends reinvested on a net basis); and (ii) to seek to generate a double-digit total shareholder return per annum over a rolling 3 year period.
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Financial information |
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2018 |
2017 |
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Net asset value ("NAV") per Ordinary Share (cum income) |
138.7p |
115.4p |
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Ordinary Share price |
140.0p |
118.8p |
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Ordinary Share price premium to NAV1 |
0.9% |
2.9% |
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Performance summary |
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% change 20182,4 |
% change 20173,4 |
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Share price total return per Ordinary Share1,5 |
21.6% |
20.5% |
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NAV total return per Ordinary Share1,5 |
24.0% |
17.2% |
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MSCI World Healthcare total return Index (GBP) |
18.0% |
14.4% |
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1 These are Alternative Performance Measures. |
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2 Total returns in sterling terms for the year to 30 November 2018. |
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3 Total returns in sterling terms from commencement of operation on 2 December 2016 to 30 November 2017. |
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4 Source: Bloomberg. |
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5 Including dividends reinvested in the period. |
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Alternative Performance Measures ("APMs")
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The financial information and performance summary data highlighted in the footnote to above tables are considered to represent APMs of the Company. In addition to these APMs other performance measures have been used by the Company to assess its performance, these can be found in the key performance indicators section of the Annual Report. Definitions of these APMs together with how these measures have been calculated can be found in the Annual Report. |
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CHAIRMAN'S STATEMENT
I am pleased to present the 2018 Annual Report for BB Healthcare Trust plc (the "Company"). It has been another successful year where the Company outperformed its benchmark despite very challenging market conditions in the final quarter of 2018. The Company has continued to grow its shareholder base, improving liquidity and helping to lower the expense ratio. 2019 has started positively and the fundamentals for the Company's holdings remain robust.
Review of investment performance
The Company's cum-income Net Asset Value ("NAV)" per Ordinary Share increased from 115.4p at the prior year-end to 138.7p, an increase of 20.2%. In addition, the Company paid out dividends during the year of 3.75p. Therefore, the NAV total return for the year was 24.0%*. This represents an outperformance of 6.0% versus our benchmark (the MSCI World Healthcare Total Return Index measured in GBP).
The Company's share price increased from 118.75p at the start of the financial year to 140.0p at 30 November 2018. Thus, including the interim dividend, the total return for shareholders has been 21.6%*, again comfortably in excess of the benchmark, a 3.6% outperformance.
Share capital and other developments
At the financial year end, the Company's issued share capital had risen to 319.1 million shares, from 259.6 million at 30 November 2017. Shortly after the close of the period, a further 34.0m shares were issued through a primary issue and, with further tap issuances, the number of Ordinary Shares in issue stood at 362,560,819 as of 7 February 2019.
The updated prospectus published on 5 November 2018 gives the Company the capacity, subject to the requisite shareholder authorities, to issue up to a further 345 million shares over the 12 months from publication, subject to investor demand. The continued issuance has been possible because the Company's shares have consistently traded at a premium to NAV, averaging 1.2% over the year. As at 7 February 2019, the Company's market capitalisation was in excess of £496.7 million and the premium to NAV stood at 1.2%.
In July 2018, the Company appointed JP Morgan Cazenove as joint broker alongside Peel Hunt, who continue to do a sterling job for the Company. It is common for UK investment trusts to have more than one broker and the Board felt their international presence could help to open up additional potential pools of investors, further improving liquidity.
At the Company's forthcoming Annual General Meeting, shareholder authority will be sought for the issuance of up to 72,642,163 Ordinary Shares, equivalent to 20% of the issued and allotted Ordinary Shares at the date of approval of this Annual Report, with such shares being issued on a non-pre-emptive basis. Any Ordinary Shares pursuant to this authority will be issued at a premium to NAV, with such premium intended to cover the costs and expenses of the relevant issue. The benefits of the proposals include providing the Company with additional funds to take advantage of opportunities to make additional investments, further improving the liquidity of the Company's Ordinary Shares and spreading the Company's fixed costs over a larger capital base.
Dividends
The Company, as set out in the prospectus, targets an annual dividend of 3.5% of the preceding year end NAV, paid out in two equal instalments. As noted above, the Company paid out a final dividend of 1.75p per Ordinary Share in respect of the 2017 financial year on 29 March 2018 and an interim dividend of 2.00p per Ordinary Share in respect of the 2018 financial year on 24 August 2018. The Board proposes a final dividend of 2.00p per Ordinary Share in respect of the financial year ended 30 November 2018 and, if approved at the forthcoming Annual General Meeting, this will be paid to shareholders on 28 March 2019. The dividend will be largely funded from the Company's capital reserves.
Regarding the financial year ending 30 November 2019, the Board is proposing the total dividend to be 4.85p per Ordinary Share, this being 3.5% of the NAV per Ordinary Share of 138.7p (cum income) as at 30 November 2018. The Board intends to declare an interim dividend of 2.425p per Ordinary Share, in July 2019 and intends to pay this dividend in August 2019. The Board intends to propose a final dividend of 2.425p per Ordinary Share for the financial year ending 30 November 2019, in February / March 2020 and intends to pay this dividend in late March 2020.
* Including dividends reinvested.
Scrip option
Under the Articles of Association of the Company, the Company may, with the prior authority of an ordinary resolution of the Company, offer shareholders of the Company who have elected to receive them paid up Ordinary Shares instead of cash in respect of all or part of a dividend or dividends of the Company.
The Company is proposing to introduce a scrip dividend scheme with effect from the first interim dividend payment in respect of the year ending 30 November 2019 and is seeking shareholder approval for such a scheme at the Annual General Meeting to be held on 19 March 2019.
Under a scrip dividend scheme, shareholders who elect to do so will be able to receive Ordinary Shares in the Company in lieu of future cash dividends.
In addition to the benefit for shareholders of allowing them to increase their shareholdings in the Company without incurring costs (such as stamp duty or dealing costs), a scrip dividend scheme will allow the Company to retain the proceeds which would otherwise be paid out as dividends.
Under the Articles of Association, the Ordinary Shares to be issued pursuant to a scrip dividend scheme are to be valued at the average of the middle market quotations as derived from the Daily Official List of the London Stock Exchange, on the day on which the Ordinary Shares are first quoted "ex" the relevant dividend and the four subsequent dealing days or in such other manner as may be determined by ordinary resolution. The Directors are cognisant of the views of shareholders in relation to not issuing shares at a discount to net asset value and accordingly are also seeking approval at the Annual General Meeting for any Ordinary Shares to be issued pursuant to the proposed scrip dividend scheme to be issued at net asset value. The net asset value would be the last published net asset value per Ordinary Share at the latest practicable date prior to the payment date for any dividend and is currently expected to be that published on the deadline for elections under the scrip dividend scheme.
Voting in favour of this resolution will not prevent you, should you so wish, from electing to receive your dividends in cash.
If the resolution is approved at the Annual General Meeting, further information in relation to the scrip dividend scheme will be published in time for eligible shareholders to elect to receive new Ordinary Shares instead of cash in respect of the first interim dividend payment for the year ending 30 November 2019. In line with Investment Association guidelines, the authority contained in the resolution is sought for three years. Unless circumstances change, the Directors would expect to seek an extension of this authority at the Annual General Meeting of the Company to be held in 2022.
Investment strategy
The Company has a broad and largely unconstrained healthcare-oriented mandate that gives the Manager the freedom to invest anywhere within the public equity realm that offers compelling risk/reward over the Company's anticipated average holding period of three to five years. The Board keeps the investment strategy under review and sees no reason to make any changes to the investment guidelines at this stage; the Manager feels that it has the flexibility it needs. Moreover, although we are only two years from launch, the investment performance is satisfactory and, market volatility and macro-political factors aside (these are, after all, beyond anyone's control) we have not identified any structural or procedural factors that detracted from the overall performance.
Gearing, portfolio turnover and expenses
As of 30 November 2018, the aggregate amount drawn down from the Company's revolving credit facility ("RCF") was approximately £48 million, representing a gearing ratio of 10.2%. This is slightly above the anticipated long-run average of 5-10%, reflecting opportunities as a result of the volatile environment in equity markets over the last quarter of 2018. On 25 January 2019, the Company renegotiated and renewed its RCF with Scotiabank, which was approaching the end of its two-year term. Under the terms of the amended RCF, the Company may draw down loans up to an aggregate value of USD 100 million. The facility also has an uncommitted accordion option which, subject to the agreement of the lender, provides the Company with the flexibility to increase the facility by a further USD 50 million. The facility will expire on 25 January 2021.
Consistent with the planned 3-5 year holding period, the Company's average turnover (measured as traded value less capital inflows versus gross investment value) has remained around 6% per month since inception, but has been higher in the recent periods of volatility, as the Manager sought to take advantage of mispricing events. At this average rate, it would take around eighteen months to completely change the book of investments.
The Ongoing Charges Ratio ("OCR") was 1.21% for the financial year, as compared to 1.37% for 2017. In addition, the Board thanks the Manager for taking all third-party research costs onto its own profit and loss. All other factors being equal, we would expect the OCR to decline further in 2019 as the assets under management have risen.
Outlook for 2019
The calendar year 2018 was again somewhat challenging for healthcare investors, due to various macro-political uncertainties. Healthcare outperformed the wider market during the year, in part because of its perceived safe-haven status and the visibility over medium-term earnings irrespective of the economic cycle.
With macro-political uncertainties set to continue, healthcare should also remain a relative safe haven. Not only because the demand for services is not linked to the economic outlook, but also because the system has to change in order to remain viable for the longer-term.
We are investing in those changes and the trends that drive them. All other factors being equal, this should allow the portfolio to grow its sales and profits faster than the aggregate of a benchmark-aware strategy. We begin the year again hopeful that the healthcare sector's 2019 performance will be more driven by stock fundamentals.
Nonetheless, we always set out to follow an investment strategy guided by a medium to long-term approach and not waiver with the fashions of the moment or the whims of the market. This has served shareholders well to date and we continue to believe it is the right approach for generating continued performance into the future.
Annual General Meeting
The company will hold its Annual General Meeting at 11.00 a.m. on 19 March 2019, at the offices of our legal advisors, Stephenson Harwood - 1 Finsbury Circus, London, EC2M 7SH (the nearest tube station is Moorgate). Our Portfolio Managers; Paul Major, Daniel Koller and Brett Darke, will provide an update on the Portfolio and take questions at the end of the meeting. I do hope that you will come along.
That said, we do recognise that it is not possible for everyone to attend the AGM in London. Engaging with our shareholders is very important and we have a dedicated email address for shareholders to submit any questions that they might have: shareholder_questions@bbhealthcaretrust.co.uk. We would encourage you all to make use of this facility for questions and feedback at any time of the year and we will continue to post content from our Portfolio Manager onto the Company's website to keep you informed of the Company's progress.
On behalf of the Board, I wish you all a healthy and prosperous 2019 and thank you again for your continued support of BB Healthcare Trust Plc.
Professor Justin Stebbing
Chairman of the Board of Directors
14 February 2019
PORTFOLIO Manager's Performance Review
Performance overview
As noted in the Chairman's Statement, the Company delivered another satisfactory performance during the financial year ("FY") ended 30 November 2018, outperforming its benchmark index, despite very challenging macro conditions in the last two months of the financial year. The Company's performance is summarised below:
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Annual return (in GBP) |
Difference vs. Benchmark |
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BB Healthcare Trust NAV (inc. dividends from capital)* |
+24.0% |
+6.0% |
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BB Healthcare Trust Total shareholder return* |
+21.6% |
+3.6% |
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MSCI World Healthcare Total Return Index (GBP) |
+18.0% |
n/a |
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MSCI World Total Return Index (GBP) |
+6.1% |
-11.9% |
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FTSE All Share Total Return Index |
-1.5% |
-19.5% |
*Note: the stated total shareholder return assumes the reinvestment of dividends back into BB Healthcare Trust.
The healthcare sector again delivered a superior return to the UK's FTSE All Share Total Return Index, which declined 1.5% during the year, and the wider global marketplace, which delivered only a 6.1% positive return. The Company's total return for shareholders was lower than the NAV return because the shares were trading at a premium to NAV of 2.9% at the beginning of the year, versus 0.9% at the end, representing approximately a 2% drag on the total return. Over the year, the average premium to NAV was 1.2% (versus 2.4% over FY2017).
Figures 1 and 2 in the Annual Report illustrate the NAV evolution across the year versus the benchmark index, both in sterling and US dollars respectively (normalised to 100 at the start of the period). In our opinion, the year can be broken down into three periods; the challenging early months of calendar 2018 (BBH share price low of 101.5p), the six months from April to September (BBH share price high of 150.5p) and then another challenging period from the end of September. We outline these three epochs in more detail in the Annual Report.
We were somewhat caught by surprise in the early part of the year. We had concerns over valuations and consensus expectations in certain areas following the third quarter of 2017 reporting season, particularly in Large-Cap Biotechnology and Specialty Pharmaceuticals. We thus exited a number of positions toward the end of calendar 2017 (spanning the end of the previous financial year and the beginning of this one). December 2017 saw a painful 'growth into value' transition that hurt some of our medical technology holdings and, as the chart in the Annual Report illustrates, early January unexpectedly saw a pronounced (but short-lived) rally in Large-Cap Biotechnology stocks, spurred by hopes of tax reform-fuelled mergers and acquisitions ("M&A"). This hurt our relative performance over this period.
With the provenance of hindsight, these changes to the portfolio were absolutely the right thing to do. The NASDAQ Biotechnology Index rose more than 11% in January 2018 but had fallen back nearly 15% by April 2018, as it became clear that the uncertain environment was dissuading boards from committing to widespread deal-making.
Compounding this unfavourable positioning, the period from January 2018 to mid-April 2018 saw the highest cumulative negative translation impact of our predominantly US dollar-denominated portfolio into a sterling NAV (the benchmark is composed of around 60% US dollar-denominated assets, versus our portfolio being consistently greater than 90% US dollar-denominated). Sterling hit a high of US dollar 1.43 in mid-April 2018, a level not seen since the European Union referendum in 2016. This appreciation in sterling was driven by some short-lived but ultimately forlorn hope of positive progress regarding Brexit.
Setting currency (and the dreaded B-word) aside, the period from April 2018 through September 2018 was relatively benign in terms of macro-political developments. Even though it was dominated by the looming US mid-term elections, global markets made slow, but steady upward progress. In such an environment, strong operational performance was well rewarded and the portfolio made steady progress through to the end of September 2018.
As we have noted in our factsheets, it was not our belief throughout this period that the valuations of our holdings felt elevated when considered against their medium-term growth prospects. Nonetheless, the market can often be both very short-term and much less fundamental/rational when it comes to the determining factors that drive sentiment toward individual stocks. October 2018 brought a significant market correction that has continued to haunt investor confidence since and the levels of volatility that we have seen in both our holdings and the relevant currencies has been unprecedented versus the prior two years of the Company's life.
Through the October-November 2018 period, the Company's NAV declined 6.1% in absolute terms, substantially underperforming the benchmark. The best performing healthcare assets during this period were the blue-chip large-cap pharmaceutical companies, which we are highly unlikely to own since they are antithetical to our strategy. The healthcare benchmark is highly weighted to such companies and this compounded our relative underperformance.
In general, the factors driving the market have been top-down (i.e. macro-driven) rather than bottom-up and stock picking has taken something of a back seat to sub-sector asset allocation. Put simply, the only thing (apart from hiding in cash) that really worked from the end of September 2018 was low beta and 'value' oriented approaches.
The table below shows the performance of the benchmark by sub-sector across our financial year. In many ways, the table epitomises the oddities of the year, in the sense that the more utility like sub-sectors with predictable demand drivers but less opportunity for accelerating returns (Managed Care, Services, Facilities and Tools) have fared the best. This is in contrast to Diagnostics, Healthcare Technology/IT, Biotechnology and Specialty Pharmaceuticals, which amongst our holdings we characterise as the innovative end of the spectrum and where we see the most opportunity for outsized returns in the longer-term.
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MSCI World Healthcare Index performance by sub-sector |
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As at 30 November 2018 |
Weighting |
USD Performance |
GBP Performance |
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Facilities |
1.1% |
+34.8% |
+42.7% |
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Other Healthcare |
0.8% |
+29.9% |
+37.5% |
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Services |
2.5% |
+20.9% |
+28.0% |
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Tools |
3.8% |
+20.1% |
+27.2% |
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Managed Care |
9.6% |
+19.6% |
+26.7% |
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Generics |
0.6% |
+16.3% |
+23.2% |
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Medical Technology |
13.0% |
+12.7% |
+19.4% |
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Diagnostics |
1.7% |
+12.6% |
+19.2% |
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Pharmaceuticals |
35.7% |
+12.4% |
+19.1% |
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Healthcare IT/Technology |
1.2% |
+1.7% |
+7.7% |
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Specialty Pharmaceuticals |
3.5% |
+1.1% |
+7.1% |
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Biotechnology |
10.9% |
+0.9% |
+6.9% |
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Conglomerate |
13.2% |
+0.2% |
+6.1% |
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Distributors |
1.8% |
-0.2% |
+5.7% |
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Dental |
0.6% |
-13.4% |
-8.3% |
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Total |
100.0% |
+9.8% |
+16.3% |
Indeed, we felt strongly that the market reaction through October and November 2018 in some of the more NASDAQ-linked sectors like Medical Devices, Biotechnology and Diagnostics was irrational and offered a significant opportunity. We thus instituted a formal equity raise that closed just after the financial year end and increased our use of leverage, to close the period with a gearing ratio of 10.2% (having had an average gearing ratio of 6.1% across the financial year). We also raised capital steadily across the year through tap issuance. During the financial year in review, we issued 59.5 million additional shares. As at 7 February 2019, the Company has 362.6 million shares in issue (34 million of which came from the capital raise that closed just after the financial year-end) and a market capitalisation of GBP 496.7 million.
Company-level summary
During the year under review, the Company held 40 companies (the same number as FY2017) and began and ended the year with 27 stocks in the portfolio, although the number in the portfolio peaked at 30 from February to April 2018. We exited 11 positions during the course of the year and made eight new investments. Three of our exits were M&A related (and in two of the three instances, we were reluctant sellers at valuations that we thought were disappointing and at time points that were opportunistic). One of the eight new investments was a re-entry into the portfolio (the biotechnology company Alnylam).
Our top five and bottom five performers in terms of contribution to the evolution of the NAV are summarised below, along with their share price evolution in local currency and sterling over the year (which does not necessarily correspond to their performance for the Company, since the size and duration of our investment may differ, not least because we do trade around our holdings to manage visible risks over time):
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==== Top 5 Performers ==== |
==== Bottom 5 Performers==== |
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Company |
Performance (LCY) |
Performance (GBP) |
Company |
Performance (LCY) |
Performance (GBP) |
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Pacific Biosciences |
+145.1% |
+159.7% |
Tesaro |
-45.2% |
-41.9% |
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Dexcom |
+121.8% |
+134.9% |
Alnylam |
-39.7% |
-36.1% |
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Teladoc |
+68.3% |
+78.3% |
Insmed |
-42.6% |
-39.2% |
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Illumina |
+46.7% |
+55.4% |
Incyte |
-35.1% |
-31.3% |
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Anthem |
+23.5% |
+30.8% |
Celgene |
-28.4% |
-24.1% |
Not surprisingly, the largest positive returns came from our biggest holdings, as one would hope and expect from a concentrated, conviction-orientated strategy. Clearly the outlier in the table above is Celgene, which has been in our top 10 holdings since the inception of the Company and was also in the bottom 5 contributors last year, having fallen 21% in sterling terms. We stuck with the company on the basis that it seemed an impossibly cheap stock on any reasonable medium-term metrics.
In January 2019, Bristol-Myers Squibb took advantage of this fact and proposed to acquire the company in a cash and share transaction. Although we felt that the acquisition price was lower than we had hoped for, we can continue to participate in the upside potential via Bristol-Myers, which remains a significant holding for the Company. It is notable that all of the major detractors are Biotechnology/Speciality Pharmaceuticals stocks, reflecting the broad "risk off" sentiment that has become pervasive in recent weeks.
Our top 10 holdings as of the end of the financial year and other key portfolio characteristics are illustrated in the table below:
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TOP TEN HOLDINGS |
% of net |
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As at 30 November 2018 |
asset |
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Illumina |
9.2 |
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Anthem |
8.3 |
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Align Technology |
8.1 |
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Teladoc |
8.0 |
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Celgene |
6.4 |
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Lonza |
5.6 |
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Intuitive Surgical |
4.4 |
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Bristol-Myers Squibb |
4.3 |
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Esperion Therapeutics |
3.9 |
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AmerisourceBergen |
3.9 |
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Top ten holdings |
62.1 |
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Other net assets |
37.9 |
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Total |
100.0 |
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Subsector exposure |
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Allocation as at 30 November
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2018
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2017 |
% Change |
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Biotechnology |
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20.6% |
17.3% |
+3.3% |
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Dental |
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7.3% |
9.2% |
-1.9% |
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Diagnostics |
12.4% |
7.3% |
+5.1% |
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Distributors |
3.5% |
4.2% |
-0.7% |
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Facilities |
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0.0% |
2.1% |
-2.1% |
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Generics |
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0.0% |
2.0% |
-2.0% |
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Health Technolgy |
2.6% |
5.9% |
-3.3% |
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Healthcare IT |
7.2% |
0.0% |
+7.2% |
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Managed Care |
10.9% |
7.3% |
+3.6% |
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Medical Technology |
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12.3% |
24.1% |
-11.8% |
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Other Healthcare |
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3.0% |
5.0% |
-2.0% |
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Pharmaceuticals |
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3.9% |
9.7% |
-5.8% |
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Services |
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5.1% |
0.0% |
+5.1% |
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Specialty Pharmaceuticals |
11.2% |
5.9% |
+5.3% |
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Total |
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100.0% |
100.0% |
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Sub-sector level summary
During the fiscal year, the Company held positions in 14 categories (Biotechnology, Dental, Diagnostics, Distributors, Facilities, Generics, Healthcare IT, Healthcare Technology, Managed Care, Medical Technology, Pharmaceuticals, Services, Specialty Pharmaceuticals and Other Healthcare - the latter covering our investment in the retailer Walgreens Boots). The subsector exposure table above illustrates how the sub-sector allocation has evolved over the financial year.
At inception, we stated it was not our intention to 'hug' the benchmark in any way, rather to construct a bottom up portfolio of healthcare holdings that would accrete significant value over time and we can confirm this is indeed the case. At year end, over 31% of our gross exposure was composed of stocks that are not included in the MSCI World Healthcare index and the Company's active share versus the Index again remained consistently above 90%. We recorded net capital losses in three categories: Biotechnology, Dental and Pharmaceuticals. All the other categories made a positive net contribution to the evolution of the NAV. The majority of the losses (almost 80%) came from our Biotechnology holdings.
Recent trading and Sector outlook
As at 7 February 2019, markets have remained very challenging. December was particularly tough, with the Company underperforming significantly in the worst year-end of the US market for more than 90 years. January has seen a continuation of the volatility that characterised the last quarter, albeit reversing much of what transpired in December 2018. Although we have seen something of a recovery in terms of valuations, we have yet to make up all the ground lost in the fourth quarter of 2018 and the market is still lacking a clear macro direction.
We classify healthcare investments into 16 different categories. Note: these are not the same as the GICS classification system used by MSCI and, sometimes, we re-classify stocks into different categories based on payor dynamics or similarity to peers - we used 13 classifications in 2017, but have since further sub-divided Healthcare Technology and separated Generics from the rest of Specialty Pharmaceuticals. In order to provide shareholders with some additional insights into our current thinking, we have summarised our high level thoughts on the outlook by sub-sector:
· Biotechnology: this sector continues to see surprising levels of volatility. In US dollar terms, the NASDAQ Biotechnology Index is currently around the level it finished in 2017 (and 2015), having declined almost 10% in 2018 and then making it all back again in a matter of days during 2019. If one takes a step away from all of the noise and focuses on fundamentals, it was another year of solid scientific progress in terms of novel therapeutic modalities and new products for unmet clinical needs (a record 55 novel drugs were approved by FDA in 2018, plus seven biosimilars).
Biotech M&A was a much hoped for theme in early 2018, but it failed to materialise. Things do look different in 2019 though, with more Large-Cap Pharmaceuticals and Biotechnology struggling to convince the market they have adequate pipeline depth and relatively lower asset valuations (Small/Mid-Cap Specialty Pharmaceuticals and Biotechnology have lagged their Large-Cap brethren). This makes deals more easily NPV accretive over time and thus, activity has picked up. In recent months, we have seen the oncology companies Tesaro, Loxo and even large-cap Celgene acquired by Large-Cap Pharmaceutical companies.
At some point, one has to think the continued scientific progress will be more appropriately rewarded by the market and we continue to have material exposure here and have recycled a significant proportion of our previous Celgene holding into other Biotechnology stocks.
· Conglomerates and Pharmaceuticals: dreary old pharmaceuticals came into its own in the second half of 2018 as a safe haven, with the MSCI World Pharmaceuticals sub-index returning 3.8% versus 0.4% for the wider MSCI World Healthcare index. We have written many times about the structural issues facing these large companies given their seemingly intractable Research and Development ("R&D") productivity issues, with returns persistently below any reasonable assessment of the cost of capital.
We remain resolutely focused on a rolling 3-5 year investment time horizon and not really interested in chopping and changing with shorter-term market sentiment. We will only consider investing in such companies if we see valuation as being in extremis or where the market consensus is discounting a future cashflow outlook that looks overly conservative (we believe both are true for our singular Pharmaceuticals holding, Bristol-Myers Squibb).
Despite many years of considered reflection on the topic, we are none the wiser as to how the R&D productivity conundrum can be solved. Until it is, we feel better served to make focused bets on specific drugs through small/mid-cap Specialty Pharmaceuticals and Biotechnology stocks.
· Dental: Align Technology has been one of our favourite ideas since the inception of the Company. The stock had returned 148% from inception to the end of November 2018, despite falling more than 40% in October 2018 (after which we significantly increased our exposure). Our views on Align and the opportunity before it are essentially unchanged.
We continue to like the structural dynamics of the dental marketplace and anticipate Align's strong growth will continue for many years yet, driven by the consumerisation of the market coupled with increasing penetration of aligner approaches that provide superior aesthetics and predictability of outcomes versus traditional solutions. The market is concerned (overly, in our view) about the emerging competitive dynamics and, inter alia, the potential impact this might have on Align's pricing. These fears have been compounded by a perception of Align being somewhat of a discretionary consumer play (i.e. one where a slowing economy might ameliorate demand) which we also take issue with.
Firstly, Align's business is built around rewarding practitioner loyalty through volume-based discounts. If you are a high volume user, the disincentives to consider an alternative product are significant. Align continues to expand its palette of treatments and thus the market opportunity for its users. In contrast, competition is rather limited to a sub-set of the more simple cases. The case for switching if you are a major user, or for starting with an alternative system if you are not, is very weak in our opinion.
Secondly, the majority of the opportunity and market growth for aligners is in the paediatric and teen setting. Whilst the notion of delaying treatment if you are an adult looking to address a long-standing (but likely minor) cosmetic issue is not unreasonable, this option is not wise when considering the crowded mouth of a growing teen. Waiting is likely to compound any problems and with it the cost of treatment.
· Diagnostics: compared to the year-end 2017, the two biggest changes in the composition of the portfolio have been the reduced exposure to Medical Technology and an increased exposure to Diagnostics. The latter sits at the centre of the axis of our core thesis for the evolution of the healthcare industry namely, that we must make better decisions to allocate capital more judiciously and intervene earlier before chronic conditions lead to acute episodes. This sub-sector typifies how technology can ultimately revolutionise the delivery of healthcare (alongside telemedicine, wearable diagnostics and population health).
The patient must sit at the centre of this decision tree and the easier it is to identify the problem, the faster all the other pieces of the puzzle can come together. Genetics lies at the heart of this not just your inherited lifetime disease risks (genome sequencing) but also gene expression (the 'coding transcriptome', also known as mRNA sequencing) - the question of what is your body doing right now and why? Rather like computing, the rapidly falling cost of this diagnostic data is opening up ever greater usage. This is an almost unquantifiable growth opportunity finally coming of age.
Nor is it just high tech sequencing that is growing. The emergence of multiple rapid point of care panel tests that can identify pathogens is another huge opportunity to speed up treatment decision-making. With potentially life-threatening conditions like sepsis or respiratory disease, this can save lives and reduce time in expensive high-dependency care settings. At the time of writing, we have four companies focused on such testing within the portfolio and have owned six over the Company's lifetime (the other two having been acquired).
· Distributors: 2018 saw a continuation of the three themes ailing this segment; potential disruption/disintermediation from new business models (Amazon/PillPack and alternative models from Pharmacy Benefit Managers ("PBMs") vis-a vis-pricing), legislation to curb drug price inflation and possibly even lower drug prices in the US and ongoing generic price deflation, which has a limited impact on some contracts and on inventory values. Let us consider the latter two (and arguably related) issues first.
Since a proportion of contracts for these distributors are still on a margin basis, it is a truism that any lowering of prices is a negative, as would lower price inflation be a drag on future earnings growth. The question though, is one of relevance. Our distributor holding, AmerisourceBergen, conducts 95% of its business on a fee-for-service basis and this figure is expected to continue to rise. As such, the extent to which the company can benefit from (or, more importantly, will cease to benefit from) a change in the pricing environment is limited.
And what about the threat of competitive disruption? It would be unfair to characterise the dominant companies as 'Luddites' with a poor grasp of the transformation power of IT systems to allow just-in-time inventory management and thus improve cash conversion. Indeed, when your core business has sub 1.5% operating margins, the quest for efficiency is unrelenting. As such, we find it difficult to accept the argument that the existing model is ripe for disintermediation.
Moreover, the requirements to meet customer needs in a timely fashion requires the holding of significant inventory, making this a business where scale becomes essential to effective service, creating high barriers to entry. Whilst the market frets, these companies are trading at valuation levels well below historical norms and we are happy to hold the shares until we feel that an appropriate re-rating has occurred.
· Facilities: the hospital and clinic setting remains challenging. All payors are striving to move patients down the acuity curve (the so-called 'in-patient to outpatient' shift) and, as a consequence, overall capacity is shrinking. Rather like shopping centres, the repurposing of hospital capacity is not easy. These are global issues (cf. the weakness in Fresenius SE's German hospitals business) but, in the US market, we have the additional complication of Republican meddling with the Affordable Care Act ("ACA") ('Obamacare') casting a shadow over the outlook for elective procedure volumes and the risks around uncompensated emergency care provided to uninsured people. The overhang relating to the Texas court ruling on the ACA exchanges and Medicare expansion is unlikely to be resolved in the coming year.
The offsetting Democratic agenda to expand Medicare will not go anywhere whilst the Senate and White House are in Republican hands, but could be a positive on a 3-5 year view. However, we are not yet at a point where we are prepared to invest on such a basis. The direction of travel should become clearer from Q2 2019 as the various potential challenger candidates for the 2020 Presidential race emerge and set out their stalls. Clearly, we would favour a proposal based on the current public/private model.
· Generics: this remains the most fiercely competitive area of healthcare; volume producers living order-to-order, with buying groups playing off suppliers to secure the lowest possible prices. A multi-year backlog of generic approvals at the FDA is finally being cleared and the laws of supply and demand do not augur well as one moves from a dynamic of perhaps one or two suppliers of a product to five or six. Price deflation in the US market is showing signs of moderation, but this is merely the potential absence of a negative rather than a positive. Significant growth opportunities exist in markets like China, but we are unconvinced that multi-national companies will be allowed to compete fairly to take advantage of these opportunities. In China for instance, the government has piloted a centralised tendering process that has the potential to consolidate market share in domestic hands.
· Healthcare Technology: this is a sub-sector categorisation of our own making; defined in essence as a 'software as medical device', where it is the power of the algorithm that creates the product. Our investments in this area are selective, but compelling, and share the common feature that an ever-evolving continuum of patient data enables product innovation. The value here is very intangible (in the best possible sense of the word) and thus the barriers to entry are higher than perhaps appreciated- it's not so easy to copy algorithms and the more data one has showing something works, the more compelling a proposition it becomes (cf. Google search). The newly proactive FDA is seemingly supportive of the 'software as devices' concept, having approved two App-based products with medical claims in the past two years, with another two under review as we went to press. We continue to be very excited about this area and feel that we could be, if anything, a bit early into the opportunity.
· Healthcare IT: related to the above, this grouping covers 'software as a service' and is a very broad church, including interesting areas such as telemedicine, MIS systems for healthcare providers, through to programmes to deliver value based care and predict patient behaviour. Pareto's law applies as much in healthcare as to anything else in life, and it is generally the case that a small proportion of patients with complex chronic needs account for the bulk of healthcare costs.
Identifying these patients and then prophylactically managing such patients is undoubtedly critical to the broader aims of lowering overall healthcare costs. We made our first investment in this area during 2018 and our second in early 2019. We continue to see Healthcare IT as a necessary piece of the jigsaw for a more efficient healthcare system and it is an area under active consideration for future investments.
· Managed Care: the corollary to our concerns over shifting payor requirements impacting the Facilities sub-sector is of course the potentially positive impact on the payors themselves, i.e. the Managed Care companies. Although many private and government schemes have capped returns that require improved management to be recycled into benefit design, the growing array of tools to better manage cost trends are allowing the bigger players to reap the rewards through improving the relative attractions of their products, driving market share gains as their offer becomes more compelling. With our holdings now largely inured to any ACA-related risks, we see managed care as an inexpensive and a serial compounder and, for these reasons, it remains a core exposure in our portfolio.
The commercial health insurance industry is potentially at some risk from progress on the 'Medicare for all' agenda. As a worst (highly unlikely) case, the government cuts insurance providers out of the loop entirely (NHS-like model) and they essentially cease to exit. More likely is an expansion of the existing arrangements, where Medicare expansion gradually replaces the market for employer and individual policies (c.90m lives). We are aware of this possibility and feel that our two holdings are well placed to win share in such circumstances, being already materially exposed.
· Medical Technology: this is our broadest sub-sector in healthcare, covering everything from disposable single use items to $20m pieces of capital equipment. What do we like within the scientific smorgasbord? We tend to favour small, highly focused specialists that are leaders (in growth or market share terms) in their categories. We prefer smaller ticket procedural items to larger capital equipment given aforementioned constraints around hospital economics. Demographic trends globally favour continued procedure volume growth and pricing trends are already deflationary. We also try to focus only on market segments where we see the potential for continued innovation (such as complex joints, interventional cardiology, neurology, robotics and critical care).
As noted previously, our exposure to Medical Technology has declined significantly versus a year ago. This is not so much a conscious decision to reduce our exposure to the sector (although the number of holdings has declined to four versus seven a year before) but really reflects the emergence of other opportunities in areas like Healthcare IT and the compelling valuations in Biotechnology and Specialty Pharmaceuticals. There continue to be attractive opportunities in this space on an absolute basis, we just find better ones right now on a relative basis.
· Other Healthcare (Drug Retailers): one consequence of having such a wide healthcare-oriented mandate is that we have to create a catch-all category for those investments that do not fit logically elsewhere within the healthcare universe and this is where we place our holding in Walgreens Boots. Why do we own a drug retailer? As we have described before, and as the recently-closed CVS-Aetna deal attests, the pharmacy is an obvious venue for low acuity care delivery on a cost effective basis. During 2018, Walgreens Boots found few friends as management stressed it was too early to commit to a CVS-like deal, with the company instead preferring to conduct multiple pilots with various third parties to explore and compare new business models (there is an area just outside Chicago where all these formats are evaluated back to back).
Some months on, what many saw as indecision may prove prescient given the pace of change in the industry. We do expect Boots to make some sort of major strategic pivot in the coming years but we are reassured that management are not hurrying to make what will be a very important decision.
· Services: this is another broad category covering companies who serve the industry as suppliers (contract research, manufacturing or packaging, laboratories, PBMs etc.) or directly deal with patients (dialysis companies, emergency services etc.). On a GICS basis, this grouping would include Managed Care and the Distributors, which we split out. Even with a narrower definition, it is difficult to make generalisations about such a disparate group of companies.
That said, we now have some exposure through our holding in the contract development and manufacturer Lonza. We also find some other areas of what we would characterise as the outsourced supply chain interesting and see a very positive longer-term trend for the providers of outsourced R&D and manufacturing capabilities. The future for drug innovation belongs to those who can think out of the box and move quickly. We expect to see more and more academic spin-outs and these companies need not waste time and money building up capabilities in these areas when they can effectively rent them.
We are much less interested in the more directly patient-facing areas, which we see as facing many of the same challenges ascribed above to the facilities operators. The fast-paced race down the acuity curve offers lots of opportunity for new business models and does not bode well for those with substantial legacy tangible assets.
· Specialty Pharmaceuticals (ex. Generics): this is also somewhat of a catch-all category, and a much-maligned one at that. We would describe it as including non-diversified drug companies and those who tend not to do basic research (the 'buy in, develop and promote' model). Many of these would prefer to call themselves biotechnology companies and some are in the NASDAQ Biotechnology Index. In our classification system though, if it does not utilise recombinant genetic material to make its products then it is not a 'true' Biotechnology company.
Our holdings are very much away from the 'buy in, develop and promote' model and toward the focused innovators, with strategies focusing on areas including cardiovascular, respiratory and neurology. In addition to having compelling products of and in themselves, we believe there are multiple strategic options to unlock value for these companies, as 'big pharma' is perennially on the hunt for new products to support growth.
· Life Science Tools: these are the companies supplying the equipment that enables research and development - the picks and shovels of R&D. Normally this group would include companies like Illumina, but we carve these out into our Diagnostics category. We have been zero weighted in this area since inception, feeling that the levels of growth implied by current valuations (ex. Diagnostics) are unsustainable in the longer-term. Whilst there has been some moderation in longer-term growth expectations over recent months, we still do not see a compelling risk/reward balance in this area.
We hope the preceding paragraphs give some colour around our thinking. The key message we would like readers to take away is that, despite the extreme volatility and macro-driven market drawdown through Q4 2018, we enter 2019 with an undiminished belief in the medium-to-long-term opportunity for change and innovation in healthcare to generate material investment returns for our shareholders. The market is famously fickle in the short-term and we are trying to look past the volatility and noise and remain focused on the fundamentals.
We wish you all a happy and successful year and thank you for your support of the Company.
Paul Major, Daniel Koller and Brett Darke
Bellevue Advisors Limited
14 February 2019
Principal risks and uncertainties
(i) Market risks
Economic conditions
Changes in general economic and market conditions including, for example, interest rates, cost increase, rates of inflation, industry conditions, competition, political events and trends, tax laws, national and international conflicts and other factors could substantially and adversely affect the Company's prospects and thereby the performance of its Ordinary Shares.
Healthcare companies
The Company invests in global healthcare equities. There are many factors that could adversely affect the performance of investee companies. The healthcare sector may be affected by government regulations and government healthcare programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many healthcare companies are heavily dependent on patent protection, and the expiration of a company's patent may adversely affect that company's profitability. Healthcare companies are subject to competitive forces that may result in price discounting, and may be thinly capitalised and susceptible to product obsolescence. The market prices for securities of companies in the healthcare sector may be highly volatile.
Sectoral diversification
The Company has no limits on the amount it may invest in the healthcare sector and is not subject to any sub-sector investment restrictions. Although the portfolio is expected to be well diversified in terms of industry sub-sector exposures, the Company may have significant exposure to portfolio companies from certain sub-sectors from time to time. Greater concentration of investments in any one sub-sector may result in greater volatility in the value of the Company's investments and consequently its NAV and may materially and adversely affect the performance of the Company and returns to Shareholders.
Management of risks
The Portfolio Manager has a well-defined investment strategy and process which is regularly and rigorously reviewed by the independent Board of Directors and performance is reviewed at quarterly Board meetings. The Portfolio Manager is experienced and employs its expertise in selecting the stocks in which the Company invests.
The Company is invested in a diversified portfolio of investments.
The Company's investment policy states that no single holding will represent more than 10 per cent of gross assets at the time of investment and, when fully invested, the portfolio will have no more than 35 holdings.
(ii) Financial risks
The Company's investment activities expose it to a variety of financial risks which include liquidity, currency, leverage, interest rate and credit risks.
There is a risk that the Company's holdings may not be able to be realised at reasonable prices in a reasonable timeframe. Although the Company's performance is measured in sterling, a high proportion of the Company's assets may be either denominated in other currencies or be in investments with currency exposure. The Company pays interest on its borrowings and as such, the Company is exposed to interest rate risk due to fluctuations in the prevailing market rates.
Further details on financial risks can be found in the Annual Report.
Management of risks
The Company will typically seek to maintain a high degree of liquidity in its portfolio holdings. The Company's Portfolio Manager monitors the currency risk of the Company's portfolio on a regular basis. Prevailing interest rates are taken into account when deciding on borrowings. Further details on the management of financial risks can be found in the Annual Report.
(iii) Corporate governance and internal control risks (including cyber security)
The Board has contractually delegated to external agencies the management of the investment portfolio, the custodial services (which include the safeguarding of the assets), the registration services and the accounting and company secretarial requirements.
The main risk areas arising from the above contracts relate to allocation of the Company's assets by the Portfolio Manager, and the performance of administrative, registration and custodial services. These could lead to various consequences including the loss of the Company's assets, inadequate returns to shareholders and loss of investment trust status. Cyber security risks could lead to breaches of confidentiality, loss of data records and inability to make investment decisions.
Management of risks
Each of the contracts were entered into after full and proper consideration of the quality and cost of services offered, including the financial control systems in operation in so far as they relate to the affairs of the Company. All of the above services are subject to ongoing oversight of the Board and the performance of the principal service providers is reviewed on a regular basis. The Company's key service providers report periodically to the Board on their procedures to mitigate cyber security risks.
(iv) Regulatory risks
Breaches of Section 1158 of the Corporation Tax Act could result in loss of investment trust status. Loss of investment trust status would lead to the Company being subject to tax on any gains on the disposal of its investments. Breaches of the FCA's rules applicable to listed entities could result in financial penalties or suspension of trading of the Company's shares on the London Stock Exchange. Breaches of the Companies Act 2006, The Alternative Investment Fund Managers Directive, accounting standards, the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules could result in financial penalties or legal proceedings against the Company or its directors.
Management of risks
The Company has contracted out relevant services to appropriately qualified professionals. The Secretary, AIFM and Depositary report on regulatory matters to the Board on a quarterly basis. The assessment of regulatory risks forms part of the Board's risk assessment programme.
(v) UK exit from the European Union
A referendum was held on 23 June 2016 to decide whether the UK should remain in the EU. A vote was given in favour of the UK leaving the EU (''Brexit''). The extent of the impact on the Company will depend in part on the nature of the arrangements that are put in place between the UK and the EU following Brexit and the extent to which the UK continues to apply laws that are based on EU legislation. In addition, the macroeconomic effect of Brexit on the value of investments in the healthcare sector and, by extension, the value of investments in the Company's portfolio is unknown. As such, it is not possible to state the impact that Brexit will have on the Company and its investments. It could also potentially make it more difficult for the Company to raise capital in the EU and/or increase the regulatory compliance burden on the Company. This could restrict the Company's future activities and thereby negatively affect returns.
Management of risks
The Brexit vote is unlikely to significantly alter the risk profile of the Company, as substantially all the Company's investments are based outside the EU, and the majority of shareholders are UK based. The position is, however, being monitored as the exit negotiation proceeds and the impact on the Company will be reassessed accordingly.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare accounts for each financial year. Under that law the Directors have elected to prepare the financial statements under International Financial Reporting Standards as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company as at the end of the year and of the net return for the year. In preparing these accounts, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates which are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and
• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the accounts comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The accounts are published on the Company's website at www.bbhealthcaretrust.com, which is maintained by the Company's Portfolio Manager. The work carried out by the auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since being initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmation statement
The Directors each confirm to the best of their knowledge that:
(a) the accounts, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
(b) this Annual Report includes a fair review of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that it faces.
Having taken advice from the Audit Committee, the Directors consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board
Randeep Grewal
Director
14 February 2019
STATEMENT OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|||
|
|
|
|
|||||
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
||||
|
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Gains on investments |
|
- |
79,404 |
79,404 |
- |
33,960 |
33,960 |
|
(Losses)/gains on currency movements |
|
- |
(1,876) |
(1,876) |
- |
522 |
522 |
|
Net investment gains |
|
- |
77,528 |
77,528 |
- |
34,482 |
34,482 |
|
Income |
|
1,770 |
- |
1,770 |
1,919 |
- |
1,919 |
|
Total income |
|
1,770 |
77,528 |
79,298 |
1,919 |
34,482 |
36,401 |
|
Portfolio management fees |
|
(661) |
(2,643) |
(3,304) |
(417) |
(1,668) |
(2,085) |
|
Other expenses |
|
(884) |
- |
(884) |
(791) |
- |
(791) |
|
Profit before finance costs and taxation |
|
225 |
74,885 |
75,110 |
711 |
32,814 |
33,525 |
|
Finance costs |
|
(196) |
(777) |
(973) |
(43) |
(170) |
(213) |
|
Operating profit before taxation |
|
29 |
74,108 |
74,137 |
668 |
32,644 |
33,312 |
|
Taxation |
|
(222) |
- |
(222) |
(272) |
- |
(272) |
|
Profit for the year |
|
(193) |
74,108 |
73,915 |
396 |
32,644 |
33,040 |
|
Return per Ordinary Share |
|
(0.07)p |
26.75p |
26.68p |
0.21p |
17.42p |
17.63p |
|
|
|
|
|
|
|
|
|
|
There is no other comprehensive income and therefore the 'Profit for the year' is the total comprehensive income for the year.
|
|||||||
|
The total column of the above statement is the statement of comprehensive income of the Company. The supplementary revenue and capital columns, including the earnings per Ordinary Shares, are prepared under guidance from the Association of Investment Companies.
|
|||||||
|
All revenue and capital items in the above statement derive from continuing operations. |
|||||||
STATEMENT OF FINANCIAL POSITION
|
AS AT 30 NOVEMBER 2018 |
|
|
|
|
|
|
|
|
30 November 2018 |
30 November 2017 |
|
|
£'000 |
£'000 |
|
Non-current assets |
|
|
|
Investments held at fair value through profit or loss |
487,630 |
312,238 |
|
Current assets |
|
|
|
Cash and cash equivalents |
3,802 |
842 |
|
Dividend receivable |
137 |
228 |
|
Other receivables |
81 |
- |
|
|
4,020 |
1,070 |
|
Total assets |
491,650 |
313,308 |
|
Current liabilities |
|
|
|
Purchase of investments for future settlement |
- |
484 |
|
Bank loans payable |
48,138 |
12,786 |
|
Other payables |
831 |
425 |
|
Total liabilities |
48,969 |
13,695 |
|
Net assets |
442,681 |
299,613 |
|
Equity |
|
|
|
Share capital |
3,204 |
2,609 |
|
Share premium account |
199,625 |
120,934 |
|
Special distributable reserve |
133,293 |
143,355 |
|
Capital reserve |
106,752 |
32,644 |
|
Revenue reserve |
(193) |
71 |
|
Total equity |
442,681 |
299,613 |
|
Net asset value per Ordinary Share |
138.72p |
115.43p |
STATEMENT OF CHANGES IN EQUITY
|
FOR THE YEAR ENDED 30 NOVEMBER 2018 |
|
|
|
|
|
|
|||||
|
|
|
|
Share |
Special |
|
|
|
||||
|
|
|
Share |
premium |
distributable |
Capital |
Revenue |
|
||||
|
|
|
Capital |
account |
reserve |
reserve |
reserve |
Total |
||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
Opening balance as at 1 December 2017 |
2,609 |
120,934 |
143,355 |
32,644 |
71 |
299,613 |
|||||
|
Profit for the year |
|
- |
- |
- |
74,108 |
(193) |
73,915 |
||||
|
Dividend paid |
|
- |
- |
(10,062) |
- |
(71) |
(10,133) |
||||
|
Issue of Ordinary Shares |
|
595 |
79,392 |
- |
- |
- |
79,987 |
||||
|
Share issue costs |
|
- |
(701) |
- |
- |
- |
(701) |
||||
|
Closing balance as at 30 November 2018 |
3,204 |
199,625 |
133,293 |
106,752 |
(193) |
442,681 |
|||||
|
|
|
|
|
|
|
|
|
||||
|
FROM THE PERIOD OF INCORPORATION ON 7 OCTOBER 2016 TO PERIOD ENDING 30 NOVEMBER 2017 |
|||||||||||
|
|
|
|
Share |
Special |
|
|
|
||||
|
|
|
Share |
premium |
distributable |
Capital |
Revenue |
|
||||
|
|
|
Capital |
account |
reserve |
reserve |
reserve |
Total |
||||
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||
|
Opening balance as at 7 October 2016 |
- |
- |
- |
- |
- |
- |
|||||
|
Profit for the period |
|
- |
- |
- |
32,644 |
396 |
33,040 |
||||
|
Dividend paid |
|
- |
- |
(3,057) |
- |
(325) |
(3,382) |
||||
|
Transfer to special distributable reserve |
- |
(146,412) |
146,412 |
- |
- |
- |
|||||
|
Issue of Ordinary Shares |
|
2,596 |
271,014 |
- |
- |
- |
273,610 |
||||
|
Issue of Management Shares |
|
13 |
- |
- |
- |
- |
13 |
||||
|
Share issue costs |
|
- |
(3,668) |
- |
- |
- |
(3,668) |
||||
|
Closing balance as at 30 November 2017 |
2,609 |
120,934 |
143,355 |
32,644 |
71 |
299,613 |
|||||
STATEMENT OF CASH FLOWS
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
|
|
|
£'000 |
£'000 |
|
Cash flows from operating activities |
|
|
|
|
Income* |
|
1,861 |
1,690 |
|
Management expenses |
|
(4,150) |
(2,520) |
|
Foreign exchange losses |
|
(1,876) |
(204) |
|
Taxation |
|
(222) |
(272) |
|
Net cash flow used in operating activities |
|
(4,387) |
(1,306) |
|
Cash flows from investing activities |
|
|
|
|
Purchase of investments |
|
(315,283) |
(371,220) |
|
Sale of investments |
|
218,811 |
93,426 |
|
Net cash flow used in investing activities |
|
(96,472) |
(277,794) |
|
Cash flows from financing activities |
|
|
|
|
Bank loans drawn |
|
35,352 |
13,512 |
|
Finance costs paid |
|
(686) |
(130) |
|
Dividend paid |
|
(10,133) |
(3,382) |
|
Proceeds from issue of shares |
|
79,987 |
273,610 |
|
Share issue costs |
|
(701) |
(3,668) |
|
Net cash flow from financing activities |
|
103,819 |
279,942 |
|
Increase in cash and cash equivalents |
|
2,960 |
842 |
|
Cash and cash equivalents at start of year |
|
842 |
- |
|
Cash and cash equivalents at end of year |
|
3,802 |
842 |
|
|
|
|
|
|
* Cash inflow from dividends for the financial year was £1,827,000 (2017: £1,688,000). |
|||
NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
BB Healthcare Trust plc is a closed-ended investment company, registered in England and Wales on 7 October 2016. The Company's registered office is Mermaid House, 2 Puddle Dock, London EC4V 3DB. Business operations commenced on 2 December 2016 when the Company's Ordinary Shares were admitted to trading on the London Stock Exchange. The financial statements of the Company are presented for the year from 1 December 2017 to 30 November 2018.
The Company invests in a concentrated portfolio of listed or quoted equities in the global healthcare industry. The Company may also invest in American Depositary Receipts (ADRs), or convertible instruments issued by such companies and may invest in, or underwrite, future equity issues by such companies. The Company may utilise contracts for differences for investment purposes in certain jurisdictions where taxation or other issues in those jurisdictions may render direct investment in listed or quoted equities less effective.
2. Basis of preparation
|
Statement of compliance |
|
These financial statements have been prepared in accordance with International Financial Reporting Standards 'IFRS', and the Disclosure Guidance and Transparency Rules ('DTRs') of the UK's Financial Conduct Authority. |
|
When presentational guidance set out in the Statement of Recommended Practice ('SORP') for Investment Companies issued by the Association of Investment Companies ('the AIC') in November 2014 and updated in February 2018 is consistent with the requirements of 'IFRS', the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. |
|
|
|
Going concern |
|
The Directors have adopted the going concern basis in preparing the financial statements. |
|
The Directors have a reasonable expectation that the Company has adequate operational resources to continue in operational existence for at least twelve months from the date of approval of these financial statements. |
|
|
|
Use of estimates and judgements |
|
The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. |
|
Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. There have been no estimates, judgements or assumptions, which have had a significant impact on the financial statements for the year. |
|
|
|
Basis of measurement |
|
The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss, which are measured at fair value. |
|
|
|
Functional and presentation currency
|
|
The financial statements are presented in sterling, which is the Company's functional currency. The Company's investments are denominated in multiple currencies. However, the Company's shares are issued in sterling and the majority of its investors are UK based. In addition all expenses are paid in GBP as are dividends. All financial information presented in sterling have been rounded to the nearest thousand pounds.
Comparatives
The Comparative period to 30 November 2017, being fourteen months is not directly comparable to the year ended 30 November 2018, which is twelve months. |
3. Accounting policies
|
(a) Investments
|
|
Upon initial recognition investments are designated by the Company "at fair value through profit or loss". They are accounted for on the date they are traded and are included initially at fair value which is taken to be their cost. Subsequently quoted investments are valued at fair value which is the bid market price, or if bid price is unavailable, last traded price on the relevant exchange. Unquoted investments are valued at fair value by the Board which is established with regard to the International Private Equity and Venture Capital Valuation Guidelines by using, where appropriate, latest dealing prices, valuations from reliable sources and other relevant factors.
|
|
Changes in the fair value of investments held at fair value through profit or loss and gains or losses on disposal are included in the capital column of the Statement of Comprehensive Income within "gains on investments".
|
|
Investments are derecognised on the trade date of their disposal, which is the point where the Company transfers substantially all the risks and rewards of the ownership of the financial asset. |
|
|
|
(b) Foreign currency |
|
Transactions denominated in foreign currencies are translated into sterling at actual exchange rates as at the date of the transaction. Monetary assets and liabilities, and non-monetary assets held at fair value denominated in foreign currencies are translated into sterling using London closing foreign exchange rates at the year end. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss to capital or revenue in the Statement of Comprehensive Income as appropriate. Foreign exchange movements on investments are included in the Statement of Comprehensive Income within "gains on currency movements". |
|
|
|
(c) Income from investments |
|
Dividend income from shares is accounted for on the basis of ex-dividend dates. Overseas income is grossed up at the appropriate rate of tax. |
|
Special dividends are assessed on their individual merits and may be credited to the Statement of Comprehensive Income as a capital item if considered to be closely linked to reconstructions of the investee company or other capital transactions. All other investment income is credited to the Statement of Comprehensive Income as a revenue item. Interest receivable is accrued on a time apportionment basis. |
|
|
|
(d) Reserves |
|
Capital reserves |
|
Profits achieved in cash by selling investments and changes in fair value arising upon the revaluation of investments that remain in the portfolio are all charged to the capital column of the Statement of Comprehensive Income and allocated to the capital reserve.
|
|
Special distributable reserve
|
|
Following admission of the Company's Ordinary Shares to trading on the London Stock Exchange, the Directors applied to the Court to cancel the share premium account so as to create a new special distributable reserve which may be treated as distributable reserves and out of which tender offers and share buybacks may be funded. This reserve may also be used to fund dividend payments.
|
|
Following approval by the Court, the cancellation became effective on 3 May 2017 and an amount of £146,412,136 was transferred to the above special reserve at that time. |
|
|
|
(e) Expenses |
|
All expenses are accounted for on an accruals basis. Expenses are recognised through the Statement of Comprehensive Income as revenue items except as follows: |
|
Management fees |
|
In accordance with the Company's stated policy and the Directors' expectation of the split of future returns, 80% of investment management fees are charged as a capital item in the Statement of Comprehensive Income. |
|
Finance costs |
|
Finance costs include interest payable and direct loan costs. In accordance with Directors' expectation of the split of future returns, 80% of finance costs are charged as capital items in the Statement of Comprehensive Income. Loan arrangement costs are amortised over the term of the loan. |
|
|
|
(f) Cash and cash equivalents |
|
Cash comprises cash at hand and demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risks of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. |
|
|
|
(g) Taxation |
|
Irrecoverable taxation on dividends is recognised on an accruals basis in the Statement of Comprehensive Income. |
|
Deferred taxation |
|
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under Section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains. |
|
|
|
(h) Financial liabilities |
|
Bank loans and overdrafts are classified as loans and are measured at amortised cost. They are initially recorded at the proceeds received net of direct issue costs. |
|
|
|
(i) New standards and interpretations effective in the current financial year |
|
In the opinion of the Directors, there are no new standards that became effective during the year that had a material impact on the financial statements. At the date of approval of these financial statements, the following standard, which has not been applied in these financial statements, was in issue but not yet effective: |
|
• IFRS 9, 'Financial instruments', effective for annual periods beginning on or after 1 January 2018, specifies how an entity should classify and measure financial assets and liabilities, including some hybrid contracts. The standard improves and simplifies the approach for classification and measurement of financial assets compared with the requirements of IAS 39. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged. The standard applies a consistent approach to classifying financial assets and replaces the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. |
|
The Board is currently considering the impact of the above standard. Based on the initial assessment, the standard is not expected to have a material impact on the Company's financial statements. |
|
|
|
(j) Equity shares
|
|
The Company has treated the Ordinary Shares and Management Shares as equity in accordance with IAS 32 Financial Instruments: Presentation, which classifies financial instruments into financial assets, financial liabilities and equity instruments. Both Share classes have an entitlement to the residual interest in the assets of the Company after deducting liabilities, suffice that the Management Shares have no participation in any surplus beyond their paid up capital. Although both share classes are subordinate to other share classes, the Ordinary Shares are further subordinate to the Management Shares. The Management Shares are not redeemable but the Ordinary Shares are subject to an annual redemption option at the discretion of the Directors. Ordinary Shares participate in dividends and any other profits of the Company. |
|
4. Investment held at fair value through profit or loss |
||||
|
|
|
|
|
|
|
(a) Summary of valuation |
|
|
|
|
|
|
|
30 November 2018 |
30 November 2017 |
|
|
As at |
|
£'000 |
£'000 |
|
|
Investments held at fair value through profit or loss |
|
|
|
|
|
- Quoted in UK |
|
- |
15,984 |
|
|
- Quoted overseas |
|
487,630 |
296,254 |
|
|
Closing valuation |
|
487,630 |
312,238 |
|
|
|
|
|
|
|
|
(b) Movements in valuation |
|
|
|
|
|
|
|
£'000 |
£'000 |
|
|
Opening valuation |
|
312,238 |
- |
|
|
Opening unrealised gains on investments |
(18,591) |
- |
|
|
|
Opening book cost |
|
293,647 |
- |
|
|
Additions, at cost |
|
314,799 |
371,704 |
|
|
Disposals, at cost |
|
(179,958) |
(78,057) |
|
|
Closing book cost |
|
428,488 |
293,647 |
|
|
Closing unrealised gains on investments |
|
59,142 |
18,591 |
|
|
Closing valuation |
|
487,630 |
312,238 |
|
|
|
|
|
|
|
|
Transaction costs on investment purchases for the year ended 30 November 2018 amounted to £140,000 (2017: £343,000) and on investment sales for the year to 30 November 2018 amounted to £106,000 (2017: £24,000). |
||||
|
|
|
|
|
|
|
(c) Gains on investments |
|
|
|
|
|
|
|
£'000 |
£'000 |
|
|
Realised gains on disposal of investments |
|
38,853 |
15,369 |
|
|
Unrealised gains on investments held |
|
40,551 |
18,591 |
|
|
Total gains on investments |
|
79,404 |
33,960 |
|
|
|
|
|
|
|
|
Under IFRS 13 'Fair Value Measurement', an entity is required to classify investments using a fair value hierarchy that reflects the significance of the inputs used in making the measurement decision. |
||||
|
|
|
|
|
|
|
The following shows the analysis of financial assets recognised at fair value based on: |
||||
|
|
|
|
|
|
|
Level 1 |
||||
|
|
|
|
|
|
|
Level 2 |
||||
|
|
|
|
|
|
|
Level 3 |
||||
|
|
|
|
|
|
|
The classification of the Company's investments held at fair value is detailed in the table below: |
||||
|
|
|
|
|
|
|
|
As at 30 November 2018 |
|||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments at fair value through profit and loss - Quoted |
487,630 |
- |
- |
487,630 |
|
|
|
|
|
|
|
|
As at 30 November 2017 |
|||
|
|
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments at fair value through profit and loss - Quoted |
312,238 |
- |
- |
312,238 |
|
|
|
|
|
|
|
There were no transfers between levels during the year ending 30 November 2018 (2017: nil). |
||||
|
Fair values of financial assets and financial liabilities |
|
|
|
|
|
All financial assets and liabilities are recognised in the financial statements at fair value, with the exception of short-term assets and liabilities, which are held at nominal value that approximates to fair value, and loans that are initially recognised at the fair value of the consideration received, less directly attributable costs, and subsequently recognised at amortised cost. The carrying value of the loans approximates to the fair value of the loans. |
||||
|
5. Income |
|
|
|
|
|
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
|
|
£'000 |
£'000 |
|
Income from investments |
|
|
|
Overseas dividends |
1,612 |
1,778 |
|
UK dividends |
124 |
139 |
|
Other income |
34 |
2 |
|
Total income |
1,770 |
1,919 |
|
6. Portfolio management fee |
|
|
|
|
|
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Management fee |
661 |
2,643 |
3,304 |
417 |
1,668 |
2,085 |
|
|
|
|
|
|
|
|
|
The Company's Portfolio Manager is Bellevue Asset Management AG (the 'Portfolio Manager'). The Portfolio Manager is entitled to receive a management fee payable monthly in arrears and calculated at the rate of one-twelfth of 0.95% per calendar month of market capitalisation. Market capitalisation means the average of the mid-market prices for an Ordinary Share, as derived from the daily official list of the London Stock Exchange on each business day in the relevant calendar month multiplied by the number of Ordinary Shares, in issue on the last business day of the relevant calendar month excluding any Ordinary Shares held in treasury. |
||||||
|
|
|
|
|
|
|
|
|
There is no performance fee payable to the Portfolio Manager. |
|
|
|
|||
|
7. Other expenses
|
|
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
|
|
£'000 |
£'000 |
|
Administration & secretarial fees |
214 |
172 |
|
AIFM fees |
97 |
104 |
|
Auditor's remuneration* |
|
|
|
- Statutory audit fee |
39 |
37 |
|
- Non-audit fee |
- |
29 |
|
Broker fees |
36 |
36 |
|
Custody services |
109 |
82 |
|
Directors' fees |
158 |
158 |
|
Printing and public relations |
10 |
10 |
|
Registrar fees |
51 |
24 |
|
Other expenses |
170 |
139 |
|
Total |
884 |
791 |
|
* Auditor's remuneration includes VAT of £6,000 (2017: £11,000). |
||
|
8. Finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Loan interest |
179 |
715 |
894 |
37 |
150 |
187 |
|
Other finance costs |
17 |
62 |
79 |
6 |
20 |
26 |
|
Total |
196 |
777 |
973 |
43 |
170 |
213 |
|
9. Taxation |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
(a) Analysis of charge: |
|
|
|
|
|
|
||||||
|
|
Year ended 30 November 2018 |
Period from 7 October 2016 to 30 November 2017 |
||||||||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||
|
Withholding tax expense |
222 |
- |
222 |
272 |
- |
272 |
||||||
|
Total tax charge for the year (note 9b) |
222 |
- |
222 |
272 |
- |
272 |
||||||
|
|
|
|
|
|
|
|
||||||
|
(b) Factors affecting the tax charge for the year: |
|
|
|
|
|
|||||||
|
The effective UK corporation tax rate for the year is 19.00% (2017: 19.33%). The tax charge differs from the charge resulting from applying the standard rate of UK corporation tax for an investment trust company. The differences are explained below: |
||||||||||||
|
|
|
|
|
|
|
|
||||||
|
|
2018 |
2017 |
|
|
|
|
||||||
|
|
Total |
Total |
|
|
|
|
||||||
|
|
£'000 |
£'000 |
|
|
|
|
||||||
|
Operating profit before taxation |
74,137 |
33,312 |
|
|
|
|
||||||
|
UK Corporation tax at 19.00% (2017: 19.33%) |
14,086 |
6,439 |
|
|
|
|
||||||
|
Effects of: |
|
|
|
|
|
|
||||||
|
Gains on investments not taxable |
(14,730) |
(6,665) |
|
|
|
|
||||||
|
UK dividends not taxable |
(24) |
(27) |
|
|
|
|
||||||
|
Overseas dividends not taxable |
(306) |
(344) |
|
|
|
|
||||||
|
Withholding tax expense |
222 |
272 |
|
|
|
|
||||||
|
Unutilised excess expenses |
974 |
597 |
|
|
|
|
||||||
|
Total tax charge |
222 |
272 |
|
|
|
|
||||||
|
|
|
|
|
|
|
|
||||||
|
The Company is not liable to tax on capital gains due to its status as an investment trust. The Company has an unrecognised deferred tax asset of £1,360,000 (2017: £586,000) based on the prospective UK corporation tax rate of 17% (2017:19%). This asset has accumulated because deductible expenses exceeded taxable income for the year ended 30 November 2018. No asset has been recognised in the accounts because, given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future.
|
||||||||||||
|
10. Return per share |
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|||||
|
Return per share is based on the weighted average number of Ordinary Shares in issue during the year ending 30 November 2018 of 277,060,711 (2017: 187,377,682). |
|
|||||||||||
|
|
|
|
|
|
|
|
|
|||||
|
|
As at 30 November 2018 |
As at 30 November 2017 |
|
|||||||||
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
|||||
|
Profit for the year (£'000) |
(193) |
74,108 |
73,915 |
396 |
32,644 |
33,040 |
|
|||||
|
Return per Ordinary Share |
(0.07)p |
26.75p |
26.68p |
0.21p |
17.42p |
17.63p |
|
|||||
|
11. Bank loans |
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|||||||||||
|
The Company agreed a multi-currency revolving credit facility with Scotiabank (Ireland) Designated Activity Company on 23 February 2017. Under the terms of the facility, the Company may draw down up to an aggregate of £50 million (2017: £30 million). A replacement facility was agreed with Scotiabank in January 2019 under which the Company may draw down loans up to an aggregate value of USD 100 million. The replacement facility will expire in January 2021. |
|
|||||||||||||||
|
|
|
|
|
|
|
|||||||||||
|
As at 30 November 2018, the Company's aggregate loans outstanding was £48,138,000. The table below shows the breakdown of the loans at 30 November 2018. |
|
|||||||||||||||
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
Interest rate |
|
|
|||||||||||
|
Currency of |
Local currency |
|
per annum |
|
|
|||||||||||
|
loans |
amount |
£'000 |
(%) |
Maturity date |
|
|||||||||||
|
GBP loan |
£500,000 |
500 |
2.09863 |
22 Feb. 2019 |
|
|||||||||||
|
GBP loan |
£1,700,000 |
1,700 |
2.09863 |
22 Feb. 2019 |
|
|||||||||||
|
GBP loan |
£4,500,000 |
4,500 |
2.07249 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$5,600,000 |
4,391 |
3.70278 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$4,000,000 |
3,136 |
3.71045 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$4,700,000 |
3,685 |
3.73050 |
04 Feb. 2019 |
|
|||||||||||
|
USD loan |
$8,000,000 |
6,273 |
3.70969 |
07 Jan. 2019 |
|
|||||||||||
|
USD loan |
$8,300,000 |
6,508 |
3.71017 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$6,500,000 |
5,096 |
3.71483 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$5,500,000 |
4,312 |
3.71308 |
22 Feb. 2019 |
|
|||||||||||
|
USD loan |
$10,250,000 |
8,037 |
3.77988 |
22 Feb. 2019 |
|
|||||||||||
|
Total |
|
48,138 |
|
|
|
|||||||||||
|
As at 30 November 2017 |
|
|
|
|
||||||||||||
|
|
|
|
Interest rate |
|
|
|||||||||||
|
Currency of |
Local currency |
|
per annum |
|
|
|||||||||||
|
loans |
amount |
£'000 |
(%) |
Maturity date |
|
|||||||||||
|
GBP loan |
£500,000 |
500 |
1.60575 |
23 Feb. 2018 |
|
|||||||||||
|
GBP loan |
£1,700,000 |
1,700 |
1.60575 |
23 Feb. 2018 |
|
|||||||||||
|
USD loan |
$5,600,000 |
4,145 |
2.65389 |
28 Feb. 2018 |
|
|||||||||||
|
USD loan |
$4,000,000 |
2,961 |
2.68000 |
22 Mar. 2018 |
|
|||||||||||
|
USD loan |
$4,700,000 |
3,480 |
2.65167 |
02 Feb. 2018 |
|
|||||||||||
|
Total |
|
12,786 |
|
|
|
|||||||||||
|
A commitment fee is calculated at 0.35 per cent per annum, if the unutilised amount equals or exceeds 50 per cent of the total commitment; or 0.45 per cent per annum if the unutilised amount is less than 50 per cent of the total commitment. |
|
|||||||||||||||
|
|
|
|
|
|
|
|||||||||||
|
In the opinion of the Directors, the fair value of the bank loans is not materially different to their amortised costs. |
|
|||||||||||||||
|
12. Dividend |
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Total for year ended |
Total for year ended |
|
|||||||||||||
|
|
Pence per Ordinary Share |
Special reserve |
Revenue reserve |
Total |
Pence per Ordinary Share |
Special reserve |
Revenue reserve |
Total |
|
|||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
|||||||||
|
Interim dividend - 2017 |
- |
- |
- |
- |
1.75p |
3,057 |
325 |
3,382 |
|
|||||||
|
Final dividend - 2017 |
1.75p |
4,579 |
71 |
4,650 |
- |
- |
- |
- |
|
|||||||
|
Interim dividend - 2018 |
2.00p |
5,483 |
- |
5,483 |
- |
- |
- |
- |
|
|||||||
|
Total |
3.75p |
10,062 |
71 |
10,133 |
1.75p |
3,057 |
325 |
3,382 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
The dividend relating to the year ended 30 November 2018, which is the basis on which the requirements of Section 1159 of the Corporation Tax Act 2010 are considered is detailed below: |
|
|||||||||||||||
|
|
Total for year ended |
Total for year ended |
|
|||||||||||||
|
|
Pence per Ordinary Share |
Special reserve |
Revenue reserve |
Total |
Pence per Ordinary Share |
Special reserve |
Revenue reserve |
Total |
||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||||||||||
|
Interim dividend - paid |
2.00p |
5,483 |
- |
5,483 |
1.75p |
3,057 |
325 |
3,382 |
||||||||
|
Final dividend - payable/paid |
2.00p |
7,264 |
- |
7,264 |
1.75p |
4,579 |
71 |
4,650 |
||||||||
|
Total |
4.00p |
12,747 |
- |
12,747 |
3.50p |
7,636 |
396 |
8,032 |
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
The Directors recommend the payment of a final dividend for the year of 2.00p per share. Subject to approval at the Company's Annual General Meeting, the dividend will have an ex-dividend date of 28 February 2019 and will be paid on 28 March 2019 to shareholders on the register at 1 March 2019. The dividend will be funded from the Company's distributable reserves as per the table above. |
|
|||||||||||||||
|
13. Share capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 November 2018 |
As at 30 November 2017 |
|||
|
|
No. of shares |
£'000 |
No. of shares |
£'000 |
|
|
Allotted, issued and fully paid: |
|
|
|
|
|
|
Redeemable Ordinary Shares of 1p each ('Ordinary Shares') |
319,107,794 |
3,191 |
259,569,268 |
2,596 |
|
|
Management Shares of £1 each |
50,001 |
13 |
50,001 |
13 |
|
|
Total |
319,157,795 |
3,204 |
259,619,269 |
2,609 |
|
|
|
|
|
|
|
|
|
Share movement |
|
|
|
|
|
|
During the year to 30 November 2018, 59,538,526 Ordinary Shares (2017: 259,569,268) were issued with an aggregate proceeds of £79,987,000 (2017: £273,610,000). |
|||||
|
Since 30 November 2018, a further 44,103,025 Ordinary Shares have been issued with an aggregate proceeds of £59,383,564. |
|||||
|
14. Net assets per Ordinary Share |
|
||||
|
|
|
||||
|
Net assets per Ordinary Share as at 30 November 2018 is based on £442,669,000 (2017: £299,613,000) of net assets of the Company attributable to the 319,107,794 (2017: 259,569,268) Ordinary Shares in issue (excluding treasury shares) as at 30 November 2018. At 30 November 2018 £12,500 (2017: £12,500) of net assets was attributable to the Management Shares. |
|
||||
|
15. Related party transactions |
|
|
|
|
|
|
|
Fees payable to the Portfolio Manager are shown in the Statement of Comprehensive Income. As at 30 November 2018, the fee outstanding to the Portfolio Manager was £345,000 (2017: £237,000). |
||
|
Since commencement of operations on 2 December 2016 fees have been payable at an annual rate of £40,000 to the Chairman, £32,500 to the Chair of the Audit Committee, £30,000 to the Chair of the Management Engagement Committee and £27,500 to the other Directors. Net fees payable to the Directors, other than the US resident Director, Siddhartha Mukherjee, is settled in Ordinary Shares quarterly, using the prevailing market price per share at the relevant quarter end. Directors' fees outstanding as 30 November 2018 was £26,250 (2017: £26,250). |
||
|
16. Post balance sheet events |
|
|
|
There are no post balance sheet events, other than those disclosed in this report. |
17. Directors' shares
|
|
Ordinary Shares as at 30 November 2018 |
Ordinary Shares as at date of this report |
Ordinary Shares as at 30 November 2017 |
|
Professor Justin Stebbing |
31,056 |
34,923 |
14,833 |
|
Josephine Dixon |
49,544 |
52,592 |
37,318 |
|
Randeep Grewal |
49,857 |
52,851 |
36,418 |
|
Paul Southgate |
46,449 |
48,830 |
35,567 |
|
Siddhartha Mukherjee |
25,000 |
25,000 |
25,000 |
18. Financial information
This announcement does not constitute the Company's statutory accounts. The financial information is derived from the statutory accounts, which will be delivered to the registrar of companies and will be put forward for approval at the Company's Annual General Meeting. The auditors have reported on the accounts for the period ended 30 November 2017 and the year ended 30 November 2018, their reports were unqualified and did not include a statement under Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 30 November 2018 was approved on 14 February 2019. The report will be available in electronic format on the Company's website:
http://www.bbhealthcaretrust.com.
The Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM
This announcement contains regulated information under the Disclosure Guidance and Transparency Rules of the FCA.
19. Annual General Meeting
The Annual General Meeting will be held on 19 March 2019 at 11 a.m. at the offices of Stephenson Harwood LLP, 1 Finsbury Circus, London, EC2M 7SH.
Secretary and registered office:
PraxisIFM Fund Services (UK) Limited
Mermaid House
2 Puddle Dock
London
EC4V 3DB
For further information contact:
Anthony Lee / Ciara McKillop
PraxisIFM Fund Services (UK) Limited
Tel: 020 7653 9690
END
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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