Worldwide
Healthcare Trust PLC
Audited Results for the Year Ended
31 March 2020
The Company’s annual report will be posted to shareholders on
9 June 2020. Members of the public
may obtain copies from Frostrow Capital LLP, 25 Southampton
Buildings, London WC2A 1AL or from
the Company’s website at:
www.worldwidewh.com
The Company's annual report for the year ended 31 March 2020 has been submitted to the UK
Listing Authority, and will shortly be available for inspection on
the National Storage Mechanism (NSM):
www.morningstar.co.uk/uk/nsm
(Documents will usually be available for inspection within two
business days of this notice being given)
Mark Pope, Frostrow Capital LLP,
Company Secretary – 0203 008 4913
Strategic Report/COMPANY PERFORMANCE
HISTORIC PERFORMANCE FOR THE YEARS
ENDED 31 MARCH
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
Net asset value per
share (total return)*† |
53.0% |
(9.0%) |
28.9% |
2.8% |
13.7% |
6.5% |
Benchmark (total
return)*† |
35.9% |
(5.4%) |
24.5% |
(2.5%) |
21.1% |
5.7% |
Net asset value per
share |
2,039.3p |
1,850.9p |
2,367.2p |
2,411.1p |
2,722.9p |
2,868.9p |
Share price |
1,930.0p |
1,715.0p |
2,304.0p |
2,405.0p |
2,730.0p |
2,920.0p |
(Discount)/Premium of
share price to |
(5.4%) |
(7.3%) |
(2.7%) |
(0.3%) |
0.3% |
1.8% |
net asset value per
share† |
Dividends per
share |
12.5p |
16.5p |
22.5p |
17.5p |
26.5p |
25.0p |
Leverage† |
13.2% |
14.0% |
16.9% |
16.4% |
4.9% |
12.0% |
Ongoing charges† |
1.0% |
0.9% |
0.9% |
0.9% |
0.9% |
0.9% |
Ongoing charges
(including performance fees paid or crystallised during the
year)† |
2.2% |
2.1% |
1.0% |
1.2% |
1.1% |
0.9% |
* Source:
Morningstar
† Alternative
Performance Measure (see Glossary).
Strategic Report/CHAIRMAN’S STATEMENT
Sir Martin
Smith
INVESTMENT PERFORMANCE
Despite a slow start and the volatility in the market in March
and April due to the SARS-CoV-2 virus, I am pleased to report that
the year ended 31 March 2020 has been
a successful one for the Company.
During the year to 31 March 2020
the Company’s net asset value per share total return was +6.5% and
the share price total return was +8.0%, outperforming the Company’s
benchmark, the MSCI World Health Care Index on a net total return,
sterling adjusted basis, which rose by 5.7% during the year. The
disparity between the performance of the Company’s net asset value
per share and its share price reflected an increase in the premium
rating, from 0.3% at the start of the Company’s financial year to
1.8% at 31 March 2020.
The positive return over the year to 31 March as a whole
reflected a weak first half, when net asset value per share total
return was -2.7% and a very strong second half when the net asset
value total return was +9.5%. It should also be noted that whilst
the Company underperformed the benchmark by 8.7% in the first half
of the year, in the second half it outperformed by 9.5%. This
strong performance has continued post the Company’s year end with
both the Company’s net asset value per share and share price
reaching new all-time highs of 3,583.2p on 29 May 2020 and 3,610.0p on 18 May 2020 respectively and for the first time
in its history a total market capitalisation touching £2bn.
During the year the Company’s Portfolio Manager consistently
pursued a strategy of being underweight in large pharmaceutical and
biotechnology companies and overweight in emerging markets and
emerging biotechnology companies, as they had found that the number
of attractive investment opportunities there had increased markedly
over recent years due in part to a strong biotechnology IPO market
and also to increased levels of M&A activity. In the first
half, this strategy was penalised primarily because of our
conviction-based overweight positions in emerging biotechnology
stocks which suffered during a period of market instability as
investors switched out of these stocks in favour of large
pharmaceutical stocks where we were underweight. In the second half
our strategy paid off particularly in the third quarter of the
financial year when investors refocussed on industry fundamentals
leading to strong returns particularly from emerging biotechnology
stocks and from emerging markets.
Positive contributions during the year also came from our
holdings in medical technology companies and healthcare services
companies, whereas life sciences tools companies and also
Japan did not perform so well and
were negative contributors to performance during the year.
Because almost all of the Company’s assets are denominated in
U.S. dollars, the Company’s performance was helped during the year
by the weakness of sterling, particularly against the dollar, where
it depreciated by 4.8%. The Company had, on average, leverage of
8.6% during the year which contributed 0.5% to performance (2019:
15.4% contributing 1.6%. As at the year-end leverage stood at 12.0%
compared to 4.9% at the beginning of the year. Our Portfolio
Manager continues to adopt both a pragmatic and tactical approach
with regard to the use of leverage.
The impact of the coronavirus pandemic on markets in the first
three months of 2020 and subsequently has been dramatic. On balance
the Company has been a beneficiary as, following a fall in the
share price from 3130.0p, as at 31 December 2019, to 2,920.0p,
as at 31 March 2020, it has risen
strongly since the Company’s year-end to 3,505.0p, as at
2 June 2020 as investors recognised
that a key consequence of this crisis is most likely to be a
significant increase in investment in drug development and
healthcare provision together with the development of more
efficient methods of treatment delivery for patients.
I highlighted last year that our Portfolio Manager had
identified some opportunities for the Company to increase its
exposure to unquoted securities through the investment in a small
number of pre-initial public offering (IPO) healthcare companies.
Our Portfolio Manager has continued to identify more of these
exciting opportunities and they now represent 1.0% of the portfolio
(2019: 0.5%). Overall though, the Company’s total exposure to
unquoted securities, which also includes some fixed interest
holdings, is broadly the same as last year at 1.7% (2019:1.8%) as
we have reduced these latter holdings. Shareholders will be aware
the Company is able to invest up to 10% of the portfolio, at the
time of acquisition, in unquoted securities.
The long-term performance of the Company continues to be strong
and it is pleasing to note that from the Company’s inception in
1995 to 31 March 2020, the total
return of the Company’s net asset value per share has been
+3,419.7%, equivalent to a compound annual return of +15.4%. This
compares to a cumulative blended Benchmark return of +1,494.3%,
equivalent to a compound annual return of +11.8% over the same
period. Having just passed the Company’s 25th
anniversary this makes the Company the highest performing UK
investment trust of those that have survived this period.
Further information on the healthcare sector and on the
Company’s investments can be found in the Portfolio Manager’s
Review.
CAPITAL
The Company’s share price traded at a premium to the net asset
value per share for much of the year. In accordance with the
Company’s share price premium management policy 1,024,000 new
shares were issued during the year at an average premium of 0.8% to
the Company’s cum income net asset value per share. This issuance
gave rise to the receipt of £29.4m of new funds to the Company,
which have been invested in line with the Company’s investment
policy. Since the end of the year a further 3,167,000 new shares
have been issued raising 107.6m of
new funds. No shares were repurchased by the Company during the
year and to the date of this report.
The Company’s share issuance and share buy-back authorities will
as usual be proposed for renewal at the Company’s Annual General
Meeting to be held in July 2020.
REVENUE AND DIVIDEND
Shareholders will be aware that it remains the Company’s policy
to pursue capital growth for shareholders and to pay dividends at
least to the extent required to maintain investment trust status.
Therefore, the level of dividends declared can go down as well as
up. A first interim dividend of 6.5p per share, for the year ended
31 March 2020, was paid on
9 January 2020 to shareholders on the register on 22 November 2019. Despite the weakness of
sterling, the Company’s net revenue return for the year as a whole
decreased slightly to £14.3m (2019: £14.5 m) due, in part, to a
reduction in exposure to higher yielding stocks in the portfolio
referred to above. Accordingly, the Board has declared a slightly
reduced second interim dividend of 18.5p per share (2019: 20.0p per
share) which, together with the first interim dividend already
paid, makes a total dividend for the year of 25.0p (2019: 26.5p per
share). Based on the closing mid-market share price of
3,505.0p on 2 June 2020, the
total dividend payment for the year represents a current yield of
0.7%. The Board had intended this year to recommend the
second dividend payment for the year as a final dividend to
shareholders. However, in light of the ongoing response to the
coronavirus pandemic, and in line with many other companies, the
decision was taken to declare a second interim dividend, which
enables the dividend to be paid without the prior approval of
shareholders at the Annual General Meeting.
The second interim dividend will be payable on 16 July 2020 to shareholders on the register of
members on 5 June 2020. The
associated ex-dividend date will be 4 June
2020.
COMPOSITION OF THE BOARD
The Board continues to be conscious of the need to refresh its
own membership, including my position as Chairman. I am pleased to
report that a process, designed to achieve these changes in an
orderly manner, is underway. I mentioned in my statement at the
half-year stage that Dr Bina Rawal
had joined the Board in November
2019. She has already contributed greatly to the Board’s
affairs.
Dr David Holbrook, who serves as
the Company’s Senior Independent Director, and I joined the Board
in 2007. In order to ensure a smooth succession, we will retire in
consecutive years starting next year. David will retire at the
conclusion of the Annual General Meeting (“AGM”) to be held in 2021
and I will retire following the AGM in 2022. With regard to my
successor as Chairman, the Company’s Nominations Committee believes
that, particularly during a time of Board refreshment, any
candidate for the Chair should have served on the Board for some
period of time before being proposed. After detailed consideration
the Nominations Committee has asked current Director Doug McCutcheon to extend his term and assume
the Chairmanship following the 2022 AGM. As new members are
recruited, the Board will remain mindful of its commitment to a
policy of diversity.
COVID-19 AND OUTLOOK
The World Health Organisation (WHO) first declared COVID-19 a
world health emergency in January
2020. Since the virus was first diagnosed in Wuhan, China, it has been detected in over 190
countries and has claimed many thousands of lives. It is clear that
the pandemic has had a far more severe impact on markets than
previous virus outbreaks, with governments having taken
unprecedented measures to contain the SARS-CoV-2 virus. However,
despite significant negative economic implications in the short to
medium term, resulting in high levels of volatility in world
markets, our Portfolio Manager believes that the effects of the
outbreak should not have a long-term detrimental effect on the
healthcare industry. Indeed, they believe that healthcare, as a
defensive sector, should prove more resilient economically during
and following government-mandated lockdowns than other parts of the
economy. There has been some temporary negative impact to
commercial sales, some delays for clinical trials and a more
dilutive financing environment with the decline in share prices.
However, sales of drugs taken by patients at home have been
minimally impacted and supply chain disruption for the sector has
been largely non-existent. The U.S. Food and Drug Administration
(FDA) has stated that it intends to adhere to drug approval
timelines, and most healthcare companies have sufficient cash to
avoid any imminent financing needs. Overall, our Portfolio Manager
believes that any headwinds should be manageable for the
sector.
Our Portfolio Manager’s strategy in light of the coronavirus
outbreak remains largely unchanged. They are fundamental stock
pickers and have been capitalising on market volatility to improve
the quality of the portfolio and add to their best ideas. They have
neither made significant changes to the overall structure of the
portfolio nor altered their emphasis on emerging biotechnology and
emerging market stocks. They are encouraged by the healthcare
companies attempting to develop potential treatments and vaccines
for COVID-19, but they have not actively sought out these
companies, as the likelihood of success and the revenue potential
from these therapies remains unknown. It should be noted though
that portfolio company CanSino Biologics does have an
active coronavirus program (a Chinese vaccine company which has
already advanced a vaccine for coronavirus into human trials).
Outside of the coronavirus pandemic, our Portfolio Manager
believes that all of the fundamental investment themes for the
healthcare sector remain intact: unprecedented innovation based on
novel technologies, a collaborative FDA proactively approving new
drugs, compelling valuations relative to historical norms, and
expected continued merger and acquisition (M&A) activity. Our
Portfolio Manager’s focus remains on the selection of stocks with
strong prospects for capital enhancement and your Board firmly
believes that the long-term investors will be well rewarded.
ANNUAL GENERAL MEETING
The Company’s Annual General Meeting (“AGM”) will be held at the
offices of Frostrow Capital LLP (‘Frostrow’), 25 Southampton
Buildings, London WC2A 1AL on
Thursday, 9 July 2020 at 12 noon.
The Board has considered how best to deal with the potential
impact of the coronavirus outbreak on arrangements for the AGM. We
are required by law to hold an AGM, but we are concerned for the
safety and wellbeing of our shareholders and other attendees. Given
the unprecedented circumstances, the Board has decided that this
year we will conduct only the statutory, formal business to meet
the minimum legal requirements. There will be no presentation from
our Portfolio Manager and no opportunity to interact with the
Directors and no shareholders will be admitted to the meeting. It
may also prove to be necessary to postpone the meeting to a later
date or to amend the entry restrictions as considered necessary at
the time.
The Board strongly encourages all shareholders to exercise their
votes in respect of the meeting in advance and to submit any
questions they may have to the Company Secretary. Shareholders can
vote online by visiting www.signalshares.com and following
instructions. Any shareholders who require a hard copy form of
proxy may request one from the registrar, Link Asset Services.
Voting by proxy will ensure that your votes are registered in the
event that attendance at the AGM is not possible or restricted, or
if the meeting is postponed (your votes will still be valid when
the meeting is eventually held). The Board will continue to monitor
the Government’s advice and urges all shareholders to comply with
any restrictions in place at the time of the AGM.
Of course, in the event that the situation has improved, and we
are able to hold a meeting with full participation from the Board
and the Portfolio Manager, we will do so. We will keep shareholders
updated via the Company’s website, www.worldwidewh.com, in this
regard.
The Board is very keen to ensure that shareholders are kept
informed. There is currently a presentation from our Portfolio
Manager on the Company’s website and a further presentation will be
available on the day of the AGM. Further such presentations will be
produced as the year progresses.
Sir Martin
Smith
Chairman
3 June 2020
Strategic Report/INVESTMENT OBJECTIVE AND
POLICY
INVESTMENT OBJECTIVE
The Company invests in the global healthcare sector with the
objective of achieving a high level of capital growth.
In order to achieve its investment objective, the Company
invests worldwide in a diversified portfolio of shares in
pharmaceutical and biotechnology companies and related securities
in the healthcare sector. It uses gearing, and derivative
transactions to enhance returns and mitigate risk. Performance is
measured against the MSCI World Health Care Index on a net total
return, sterling adjusted basis (“Benchmark”).
INVESTMENT STRATEGY
The implementation of the Company’s Investment Objective has
been delegated to OrbiMed by Frostrow (as AIFM) under the Board’s
and Frostrow’s supervision and guidance.
Details of OrbiMed’s investment strategy and approach are set
out in the Portfolio Manager’s Review.
While the Board’s strategy is to allow flexibility in managing
the investments, in order to manage investment risk it has imposed
various investment, gearing and derivative guidelines and limits,
within which Frostrow and OrbiMed are required to manage the
investments, as set out below.
Any material changes to the Investment Objective, Policy and
Benchmark or the investment, gearing and derivative guidelines and
limits require approval from shareholders.
INVESTMENT POLICY
INVESTMENT LIMITS
AND GUIDELINES
- The Company will not
invest more than 15% of the portfolio in any one individual stock
at the time of acquisition;
- At least 50% of the
portfolio will normally be invested in larger companies (i.e. with
a market capitalisation of at least U.S.$10bn);
- At least 20% of the
portfolio will normally be invested in smaller companies (i.e. with
a market capitalisation of less than U.S.$10bn);
- Investment in unquoted
securities will not exceed 10% of the portfolio at the time of
acquisition;
- A maximum of 5% of the
portfolio, at the time of acquisition, may be invested in each of
debt instruments, convertibles and royalty bonds issued by
pharmaceutical and biotechnology companies;
- A maximum of 30% of the
portfolio, at the time of acquisition, may be invested in companies
in each of the following sectors:
- healthcare equipment and supplies
- healthcare providers and services;
- The Company will not
invest more than 10% of its gross assets in other closed ended
investment companies (including investment trusts) listed on the
London Stock Exchange, except where the investment companies
themselves have stated investment policies to invest no more than
15% of their gross assets in other closed ended investment
companies (including investment trusts) listed on the London Stock
Exchange, where such investments shall be limited to 15% of the
Company’s gross assets at the time of acquisition.
DERIVATIVE
STRATEGY AND LIMITS
In line with the Investment Objective, derivatives are employed,
when appropriate, in an effort to enhance returns and to improve
the risk-return profile of the Company’s portfolio. There are two
types of derivatives that were employed within the portfolio during
the year: Options and Equity Swaps. Only Equity Swaps were employed
as at the year end.
The Board has set the following limits within which derivative
exposures are managed:
- Derivative transactions
(excluding equity swaps) can be used to mitigate risk and/or
enhance capital returns and will be restricted to a net exposure of
5% of the portfolio; and
- Equity Swaps may be used
in order to meet the Company’s investment objective of achieving a
high level of capital growth, and counterparty exposure through
these is restricted to 12% of the gross assets of the Company at
the time of acquisition.
The Company does not currently hedge against foreign currency
exposure.
GEARING LIMIT
The Board has set a maximum gearing level, through borrowing, of
20% of the net assets.
LEVERAGE
LIMITS
Under the AIFMD the Company is required to set maximum leverage
limits. Leverage under the AIFMD is defined as any method by which
the total exposure of an AIF is increased.
The Company has two current sources of leverage: the overdraft
facility, which is subject to the gearing limit; and, derivatives,
which are subject to the separate derivative limits. The Board and
Frostrow have set a maximum leverage limit of 140% on both the
commitment and gross basis.
Further details on the gearing and leverage calculations, and
how total exposure through derivatives is calculated, is included
in the Glossary. Further details on how derivatives are employed
can be found in note 16.
Strategic Report/PORTFOLIO
INVESTMENTS HELD AS AT 31 MARCH 2020
Investments |
Country/region |
Market
value
£’000 |
% of
investments |
Takeda
Pharmaceutical |
Japan |
102,474 |
6.1 |
Merck |
USA |
93,243 |
5.6 |
Alexion
Pharmaceuticals |
USA |
76,394 |
4.5 |
Novartis |
Switzerland |
72,669 |
4.3 |
Boston Scientific |
USA |
70,744 |
4.2 |
Bristol-Myers
Squibb |
USA |
62,243 |
3.7 |
Vertex
Pharmaceuticals |
USA |
57,165 |
3.4 |
Biogen |
USA |
56,234 |
3.3 |
Pfizer |
USA |
52,992 |
3.2 |
Novo Nordisk* |
Denmark |
41,253 |
2.4 |
Top 10
investments |
|
685,411 |
40.7 |
Mirati
Therapeutics |
USA |
40,248 |
2.4 |
eHealth |
USA |
39,669 |
2.4 |
Intuitive
Surgical |
USA |
38,643 |
2.3 |
Humana |
USA |
38,360 |
2.3 |
Neurocrine
Biosciences |
USA |
38,294 |
2.3 |
DexCom |
USA |
38,003 |
2.3 |
Stryker |
USA |
32,910 |
2.0 |
Natera |
USA |
31,943 |
1.9 |
Cigna |
USA |
31,754 |
1.9 |
Centene |
USA |
30,926 |
1.8 |
Top 20
investments |
|
1,046,161 |
62.3 |
Gilead Sciences |
USA |
30,122 |
1.8 |
Shanghai Kindly
Medical Instruments |
China |
29,001 |
1.7 |
Horizon
Therapeutics |
USA |
28,622 |
1.7 |
HCA Healthcare |
USA |
28,605 |
1.7 |
Sarepta
Therapeutics |
USA |
25,406 |
1.5 |
CanSino Biologics |
China |
24,133 |
1.4 |
PTC Therapeutics |
USA |
23,820 |
1.4 |
Hansoh
Pharmaceutical |
Hong Kong |
22,318 |
1.3 |
Chugai
Pharmaceutical |
Japan |
21,375 |
1.3 |
uniQure |
Netherlands |
20,851 |
1.2 |
Top 30
investments |
|
1,300,414 |
77.3 |
Agios
Pharmaceuticals |
USA |
18,406 |
1.1 |
Alphamab Oncology |
China |
17,630 |
1.1 |
Edwards
Lifesciences |
USA |
16,933 |
1.0 |
Exelixis |
USA |
16,686 |
1.0 |
Bausch Health |
Canada |
16,317 |
1.0 |
Deciphera
Pharmaceuticals |
USA |
16,290 |
1.0 |
Pharmaron Beijing |
China |
16,125 |
1.0 |
Burning Rock Biotech
(unquoted) |
USA |
15,996 |
1.0 |
IQVIA Holdings |
USA |
15,220 |
0.9 |
Turning Point
Therapeutics |
USA |
14,974 |
0.9 |
Top 40
investments |
|
1,464,991 |
87.3 |
Jinxin Fertility
Group |
China |
14,357 |
0.9 |
Thermo Fisher
Scientific |
USA |
13,862 |
0.8 |
Sino
Biopharmaceutical |
China |
12,719 |
0.8 |
AtriCure |
USA |
12,354 |
0.7 |
Passage Bio |
USA |
12,294 |
0.7 |
BioMarin
Pharmaceutical |
USA |
12,130 |
0.7 |
MeiraGTx |
USA |
11,305 |
0.7 |
Ascendis Pharma |
Denmark |
10,989 |
0.7 |
Frontage Holdings |
USA |
10,754 |
0.6 |
Prothena |
Ireland |
10,600 |
0.6 |
Top 50
investments |
|
1,586,355 |
94.5 |
* includes Novo Nordisk ADR equating to 0.9% of
investments.
Investments |
Country/region |
Market
value
£’000 |
% of
investments |
Harpoon
Therapeutics |
USA |
10,078 |
0.6 |
Acadia Healthcare |
USA |
9,444 |
0.6 |
Adverum
Biotechnologies |
USA |
8,767 |
0.5 |
AbbVie |
USA |
7,628 |
0.5 |
Benefytt
Technologies |
USA |
7,213 |
0.4 |
Alcon |
Switzerland |
7,137 |
0.4 |
NanoString
Technologies |
USA |
6,889 |
0.4 |
Alliance HealthCare
Services FRN 20/04/2024 (unquoted) |
USA |
5,666 |
0.3 |
Athenex |
USA |
5,606 |
0.3 |
Acceleron Pharma |
USA |
5,388 |
0.3 |
Top 60
investments |
|
1,660,171 |
98.8 |
CRISPR
Therapeutics |
Switzerland |
4,641 |
0.3 |
NanoString
Technologies 2.625% 01/03/2025 (unquoted) |
USA |
4,148 |
0.3 |
EuroEyes International
Eye Clinic |
Germany |
3,642 |
0.2 |
REGENXBIO |
USA |
2,785 |
0.2 |
REVOLUTION
Medicines |
USA |
2,613 |
0.2 |
Wenzhou Kangning
Hospital |
China |
1,511 |
0.1 |
Medical Depot Holdings
FRN 03/01/2024 (unquoted) |
USA |
1,137 |
0.1 |
Peloton Therapeutics
(DCC** – unquoted) |
USA |
484 |
0.0 |
Total equities and
fixed interest investments |
|
1,681,132 |
100.2 |
OTC Equity Swaps –
Financed^ |
|
|
|
Jiangsu Hengrui
Medicine |
China |
14,603 |
0.8 |
Aier Eye Hospital
Group |
China |
13,467 |
0.8 |
Apollo Hospitals |
India |
13,419 |
0.8 |
Caregen Co Ltd |
South Korea |
80 |
0.0 |
Less: Gross exposure
on financed swaps |
|
(44,283) |
(2.6) |
Total OTC
Swaps |
|
(2,714) |
(0.2) |
Total investments
including OTC swaps |
|
1,678,418 |
100.0 |
|
|
|
|
|
** DCC = deferred
contingent consideration.
^ See Glossary and
note 16 for further details in relation to the OTC Swaps.
SUMMARY
Investments |
Market
value
£’000 |
%
of
investments |
Quoted equities |
1,653,701 |
98.5 |
Unquoted equities |
16,480 |
1.0 |
Unquoted debt
securities – variable rate |
6,803 |
0.4 |
Unquoted debt
securities – fixed rate |
4,148 |
0.3 |
Swaps |
(2,714) |
(0.2) |
Total of all
investments |
1,678,418 |
100.0 |
Strategic Report/PORTFOLIO MANAGER’S
REVIEW
PERFORMANCE REVIEW
The financial year end 31 March 2020 will be unequivocally remembered
for how it closed: the emergence of global pandemic in which a
coronavirus, termed SARS-Cov-2, brought the global economy to a
near standstill, roiling the equity markets in an unprecedented
manner resulting in a stock market crash of historic
proportions.
The pandemic, which punctuated the fourth quarter of the
financial year, belies an otherwise banner period for equity
investors as the stock market continued to recover throughout 2019
after the tumult and bear market crash of late 2018, the worst
since the Great Depression. The U.S. Federal Reserve helped
positive share price action by indicating no additional interest
rate hikes early in the year and then pivoted in the second half of
the calendar year by announcing multiple interest rate cuts.
Also of importance was the easing of geopolitical tensions in
2019. The continued trade war between the U.S. and China during the administration of U.S.
President Donald Trump has created
some notable volatility in the markets. However, positive newsflow
on both trade talks and a deal reached during the period helped
buoy stocks into the beginning of 2020. Furthermore, continued
macroeconomic factors were mostly encouraging throughout 2019 and
into the beginning of the new year. With a booming global economy
and U.S.-China trade relations in
simpatico, equity markets were enjoying a bull run reaching
all-time highs to begin 2020.
Unfortunately, that all came to a sudden and violent end in the
final quarter of the financial year. Whilst news reports of a novel
viral breakout in China began to
emerge in early 2020, its worldwide impact was not fully felt until
weeks later. Market mentality evolved with the news flow: from a
local matter in January, to concerns about manufacturing and supply
chain issues emanating from China
in February, to threat of global economic shutdown after the World
Health Organisation confirmed the global pandemic on 11 March 2020. This culminated in panic selling
of global equities in an unprecedented manner. Volatility spiked to
new highs and stock markets collapsed, officially entering bear
market territory before month end.
The net result was negative returns for global equities for the
financial year ended 31 March 2020,
unravelling 11 months of previous gains in a matter of days.
Despite reaching an all-time high in February, the MSCI World Index
fell 5.6% (total return, sterling) in the financial year. Moreover,
the FTSE All-Share Index dropped a staggering 18.7% (total return,
sterling) in the period, again despite reaching an all-time high in
February.
Despite the tumult, we are pleased to report positive returns,
both in absolute and relative terms. Specifically, the net asset
value per share total return was +6.5% whilst the share price total
return was +8.0%. This compares to the benchmark, the MSCI World
Healthcare Index, measured on a net total return, sterling adjusted
basis, which advanced +5.7% in the financial year.
Overall, since the Company’s inception in 1995 to 31 March 2020, the total return of the Company’s
net asset value per share is +3,419.7%, equivalent to a compound
annual return of +15.4%. This compares to the blended benchmark
rise of +1,494.3%, equivalent to a compound annual return of
+11.8%
PERFORMANCE TIMELINE
Whilst the hallmark of the financial year for the broad equity
markets will be the pandemic-induced sell-off in March 2020, healthcare stock share price
performance had other influencers. This included U.S. Presidential
election newsflow, macro factors, continued innovation in
therapeutics, mergers & acquisitions (M&A), the defensive
nature of the sector, and the industry’s response to the COVID-19
pandemic.
ELECTION RHETORIC AND OPIOID HEADLINES
DRIVE THE FIRST QUARTER OF THE FINANCIAL YEAR
In the first quarter of the financial year, despite a mostly
positive earnings season for biopharmaceutical stocks, healthcare
experienced a volatile three-month period. In April, U.S.
Presidential hopeful Bernie Sanders
(U.S. Senator for Vermont) hosted
a “town hall” meeting to discuss his plan for “Medicare for All”, a
strategy to provide free healthcare for all American citizens.
Healthcare stocks sold off en masse with high growth, small and
mid-capitalisation stocks falling more than lower growth, larger
capitalisation names, precipitating underperformance for the
portfolio. This was exacerbated with new news on opioid litigation
in the U.S., sparking extreme selling pressure across a host of
generic and specialty drug companies who have been directly or
indirectly implicated in exacerbating the opioid crisis there,
including Mylan. The quarter ended with a notable market rally when
volatility subsided in June 2019,
driven primarily by increased investor optimism over a potential
interest rate cut by the U.S. Federal Reserve and easing tensions
over U.S.-China trade
negotiations.
DRUG PRICING HEADLINES AND FACTOR
UNWIND IN THE SECOND QUARTER OF THE FINANCIAL YEAR
More political rhetoric kicked off the financial year second
quarter period. Specifically, The U.S. Department of Health and
Human Services (HHS) withdrew the proposed “rebate rule” which
could have replaced government purchasing of prescription medicines
with rebates to one with discounts, thereby lowering drug list
prices and reducing patient co-pays. Healthcare stocks sold off in
response to the news as many investors considered the rebate rule a
“win” for the industry. Exacerbating fears in the quarter was the
disclosure of a U.S. House of Representatives drug pricing bill
from House Speaker, Nancy Pelosi,
that contained some controversial aspects, the most notable being a
proposal around direct drug price negotiation.
Another issue that impacted the markets significantly in the
second quarter occurred in September. There was a steep sell-off in
growth orientated stocks that had outperformed year-to-date,
coinciding with a rise in value stocks, especially those that had
previously underperformed. Fundamentals became momentarily
irrelevant as the effects of this event reverberated in the
markets. As both quantitative funds and active managers scrambled
to reduce their exposure to the affected stocks, several of the
Company’s largest holdings were caught in the unwind and sold off
significantly. This had a profoundly adverse effect on the
Company’s performance, given our relative positioning to the
benchmark, built around a clear preference for growth over
value.
Finally, an idiosyncratic but distinct sell-off in biotechnology
stocks, especially small and mid-capitalisation stocks, in the
second half of September saw those stocks sell off nearly 900 basis
points (as per the S&P Biotechnology ETF in U.S. dollar terms)
in the last two trading weeks of the quarter. Again, this had an
adverse impact on the Company’s performance, given our material
overweight positioning in biotechnology stocks.
INDUSTRY FUNDAMENTALS RETURN TO DRIVE
THE THIRD QUARTER OF THE FINANCIAL YEAR
The third quarter of the financial year brought some respite to
the macro factors dictating healthcare stock share price
performance. Rather, investors were squarely focused on industry
fundamentals, dismissing geopolitical concerns, and buying
healthcare stocks as the risk of near-term healthcare reform in the
U.S. diminished. Macro concerns moved back to the sidelines,
industry fundamentals shone in a renewed “risk-on” environment
fuelled by clinical catalysts and biotechnology M&A. Key
drivers of Company were abundant in the period and included a
bounce in biotechnology, continued outperformance in emerging
markets, positive allocation in large capitalisation
pharmaceuticals, and stock picking in Japan pharmaceuticals. Overall, positive
industry fundamentals mostly drove share prices in the quarter,
including some catalyst driven biotechnology stocks that moved
higher, and an important contribution from M&A in the period.
The Company’s performance over the period included over 1500 basis
points of absolute return and over 1000 basis points of excess
return.
COVID-19 DRIVES THE FOURTH QUARTER OF
THE FINANCIAL YEAR
Our playbook performs exceptionally in the face to a
“V” shape stock market recovery and WWH outperforms.
COVID-19 DRIVES THE FOURTH QUARTER OF
THE FINANCIAL YEAR
Whilst the final quarter of the financial year will ultimately
be characterised by the COVID-19 pandemic outbreak, there was a
nuanced market reaction during the period. January began where
December left off, with markets moving higher. Early coronavirus
fears did percolate in late January, and stocks sold off. However,
markets rebounded in early February as virus concerns were then
muted, but as supply chain concerns emanating from China grew, markets grew wary, and equities
began a broader market sell-off. However, emerging biotechnology
stocks were resilient as investors saw them mostly as insulated
from Asian supply chain and manufacturing concerns. Healthcare in
general acted modestly defensive and the Company outperformed by
over 400 basis points in the month. That phenomenon reversed in
March as the novel coronavirus bridged Chinese containment efforts
and spread globally in an uncontrolled fashion, officially being
declared a global pandemic by the World Health Organisation on
11 March 2020. Market reaction was
severe, with correlation spiking, and the ultimate “risk-off”
sentiment drove share prices. Healthcare did notably outperform the
broader markets, but the Company underperformed the benchmark given
our overweight positioning in biotechnology stocks.
Finally, it would be remiss to not comment on the start of the
new financial year, specifically April
2020 performance as equity markets have thus far reacted to
the COVID-19 pandemic in a “V-shaped” fashion.
Moreover, healthcare has clearly been defensive in these early
months of the pandemic. And with some repositioning of the
portfolio, the Company has commenced 2020 with meaningful absolute
returns and material outperformance.
Specifically, the Company returned a positive +12.6% (total
return in sterling terms) in April compared to the MSCI World
Healthcare Index +10.0% and the FTSE All-Share Index of only +4.9%
(both total return in sterling terms).
CONTRIBUTION BY SUBSECTOR
A review of performance by subsector also helps to illustrate
financial year returns. The largest contribution in the period was
from our investments in Emerging Markets, in particular,
China. Initial Public Offering
(IPO) rules have pivoted in China,
now allowing non-profitable biotechnology companies to become
publicly listed companies. The Company participated in many of
them, including being designated “cornerstone” investors.
Additionally, unlike 2018, Emerging Market healthcare stocks were
much less volatile during the U.S.- China trade discussion news flow. Finally, we
note Emerging Market stocks were resilient during the COVID-19
breakout in China and also during
the resulting global pandemic.
Other positive subsector contributors included Emerging
Biotechnology and Large Capitalisation Pharmaceutical stocks: both
sectors rose in the year, resulting in a positive contribution.
Astute stock picking in Medical Devices and Healthcare Services
also contributed to higher returns.
Sources of negative subsector contribution were fewer and
notably smaller in impact. The Specialty Pharmaceutical and
Generics sector experienced negative news flow throughout the year,
fell out of favour, and sold-off; hence our allocation there
experienced negative returns. In Large Capitalisation
Biotechnology, stock picking resulted in negative contribution,
similarly in Life Science Tools. Finally, in Japan, stock picking was disparate but
position sizing impacted returns.
KEY CONTRIBUTORS TO PERFORMANCE
With Emerging Markets being the largest sub-sector contributor
in the financial year, it should come as no surprise that the
single largest contributor in the year comes from the same.
CanSino Biologics is a China-based company that focuses on premium
vaccines in the private market in China where vaccine safety is a major public
health concern. It’s globally innovative Ebola vaccine was approved
in 2019, and the company targets to launch another six vaccines in
the next five years, including quadrivalent meningococcal conjugate
vaccine (MCV4), diphtheria-tetanus toxoids-component pertussis
(DTcP) vaccine, and improved pneumococcal conjugate vaccine
(PCV13i). Moreover, during the COVID-19 outbreak, the share price
moved higher on speculation that they would start a development
effort to produce a novel coronavirus vaccine. Ultimately, the
company confirmed the commencement of clinical trials for a
SARS-COV-2 vaccine and the company’s value re-rated even higher. At
the time of this publication, they were the global leaders in the
race for a vaccine for this pandemic.
Another top contributor comes from the Healthcare Services
sector. eHealth is a U.S.-based insurance broker that
specialises in enrolling individuals in Medicare Advantage
insurance. The company is the market leader in a market trend,
moving from in-person broker assistance to telephonic and digital
enrolment. Notably, eHealth is the only broker that has significant
online enrolment capability. The Medicare Advantage market is one
of the best trends in healthcare, with patient enrolment growing
high single digits as the U.S. population ages, and commission
rates also growing favourably. Importantly, the company has been
investing aggressively to capture this opportunity and was able to
achieve stunning growth in Medicare enrolment in 2019 of over 80%
via large increases in agent headcount and productivity. These
results were demonstrated in the company’s fourth quarter results
in January 2020, when Medicare
Advantage enrolment is seasonally highest in the Annual Enrolment
Period from October to December. The company recently raised a
significant amount of equity in March that the company intends to
use to drive further growth.
One of the hottest therapeutic areas amongst biopharmaceutical
companies remains oncology and one of the hotbeds of development is
in the state of Massachusetts.
Woburn, MA-based ArQule is
a leading biotechnology company investigating the known target
called Bruton Tyrosine Kinase (BTK), a critical part the signaling
pathway in white blood cells implicated in various forms of
leukemia, a haematological malignancy. Inhibition of the pathway
can lead to powerful treatments or even cures for these patients.
The company presented compelling but early phase data for their
novel BTK inhibitor, ARQ531, at a medical congress late in 2019.
The very next day, a worldwide leader in oncology, Merck, announced
their intention to acquire the company for U.S.$2.7 billion, a 130% premium to the previous
closing share price.
DexCom is the market leader in continuous glucose
monitoring (CGM) that is ushering in a paradigm shift in diabetes
care. Rather than monitoring blood glucose via occasional
finger-pricks that only give individual data points that are useful
but of limited value, patients can now receive a real time stream
of their blood glucose on their smartphone. This CGM technology can
detect whether the patient’s blood sugar is improving or worsening,
and even communicate with an insulin pump to mimic a pancreas by
automatically and algorithmically administering insulin. With 7-8
million diabetics requiring daily insulin in the company’s core
markets, and hundreds of millions of diabetics globally, DexCom has
been working tirelessly to drive adoption of this innovative
technology. The current financial year was a strong one for the
company with the continued launch of the newest “G6” model,
improved market access, and a partnership with insulin pump maker,
Tandem Diabetes.
Another oncology biotechnology company from Massachusetts is Deciphera
Pharmaceuticals The company’s share price re-rated higher
throughout 2019 after they announced pivotal data for their kinase
inhibitor, ripretinib, used to treat a form of stomach cancer
(known as GIST). The company has successfully filed the compound
with the U.S. Food & Drug Administration (FDA) for heavily
pre-treated patients with GIST and we expect approval for this
indication in 2020. Additional development in earlier lines of
therapy also increased investor enthusiasm for the stock.
KEY DETRACTORS FROM PERFORMANCE
The largest detractor from performance in the financial year was
Alexion Pharmaceuticals, a large capitalisation
biotechnology company whose lead franchise consists of complement
inhibitors for a variety of orphan haematological and neurological
indications. The stock declined over the period due to continued
concerns by investors about future competition to the company’s
lead products, Soliris (eculizumab) and Ultomiris (ravulizumab).
The company failed to obtain a key patent in Europe for Soliris, and there is an ongoing
patent challenge against Soliris patents in the U.S. that could
make the company vulnerable to biosimilar competition.
Additionally, other competitors are developing branded drugs that
would compete directly with the company’s core franchises in
paroxysmal nocturnal haemoglobinuria and myasthenia gravis. In
addition, investors have been concerned about the concentration
risk in the company’s product portfolio and have been disappointed
by the business development activities that have occurred to date
to diversify the portfolio.
Patient investors in the Japan-pharmaceutical giant, Takeda
Pharmaceutical, were finally rewarded in the second half of
2019 after much scrutiny of their record-breaking acquisition of
Shire Pharmaceuticals, originally announced in 2018. However, with
the onset of the COVID-19 pandemic prompting volatility and
uncertainty in the credit markets, highly levered companies
underperformed in the March 2020
broad-market sell-off. Takeda was a victim of this phenomenon,
although we believe liquidity and cash flow concerns for Takeda
were overblown. Moreover, the combination of current valuation,
near term growth, margin expansion, and merger synergies still
suggests material upside for the share price in the future.
Puma Biotechnology is an emerging biotechnology company
that markets the drug Nerlynx (neratinib) for breast cancer. The
stock declined over the period because the commercial launch of
Nerlynx has disappointed, with sales and uptake below expectations,
primarily due to the high rate of diarrhoea associated with the
compound. In addition, changes in standard of care for breast
cancer have diminished the market opportunity for the drug. Whilst
the company was able to expand the drug’s label to the metastatic
breast cancer setting since the original, the clinical benefit in
that setting is not that substantial, there are other drugs with
superior profiles emerging for that patient population, and as a
result, sales had not inflected like many investors had hoped.
The largest publicly traded hospital operator in the U.S. is
HCA Healthcare. Whilst most of the financial year was strong
for HCA, and the company exited 2019 with a favourable outlook, the
COVID-19 pandemic early in 2020 was a devastatingly negative
development for the hospital industry. The subsequent public
reaction to the virus outbreak - shelter-in-place, cancelled
elective surgeries, etc. – severely lowered hospital patient
volumes to leave capacity for treating COVID-19 patients, preserve
personal protective equipment, and minimise spread of disease.
However, this exchange of patient demographics dramatically altered
the financials of HCA, as the company has confirmed the fact that
COVID-19 infected patients are unprofitable to treat. The stock
sold off in response. While HCA will be impacted negatively in the
short term from lower procedures, the company is set to receive a
significant amount of stimulus from the U.S. government, and
expects to see most deferred procedures eventually rescheduled in
the near future. While the path to full recovery is highly
uncertain, the company expects to gradually resume procedures over
the second half of 2020, which will be key to future stock
performance.
Shares of Mylan, a Netherlands-domiciled generic drug company
with extensive U.S. operations underperformed. Heading into the new
financial year, we were optimistic that a fresh generic drug launch
cycle would drive robust operating performance, but these new
product introductions failed to gain traction and incremental
revenue contributions were below expectations. Furthermore,
negative news flow from ongoing pricing collusion and opioid
litigation pulled two sensitive topics back into the spotlight,
souring investor sentiment towards the generic drug sector as a
whole. We exited our Mylan position early in the year based on a
sobering view of the challenges besetting Mylan specifically and
the generic drug industry in general.
DERIVATIVE STRATEGY
The Company continues to employ a derivative overlay strategy to
glean market intelligence and offer additional outperformance. The
strategy has generated meaningful and consistent outperformance
since 2006, including a positive contribution during the year under
review. The options strategy is used to target effective entry
prices for favoured stocks, leverage specific catalysts and capture
special situation opportunities. Two derivative specialists
implement the strategy in careful consultation with the portfolio
management team. The Company adheres to strictly defined risk
limits and in practice maintains a net exposure well below the 5%
restriction. In addition to the derivative overlay strategy, we
utilise thematic over-the-counter basket swaps for both tactical
and strategic investment purposes. Swaps are an efficient and
effective way to gain exposure to a therapeutic category or to a
specific market theme (e.g., oncology; M&A; geography). These
strategies were used to a lesser extent during the year under
review than in previous years.
SECTOR OUTLOOK
As long-time industry observers, we have never seen such a deep,
rapid, and coordinated response to a major healthcare concern like
we have seen against SARS-CoV-2. In less than three months, the
healthcare industry has had over 80 diagnostic tests approved by
the U.S. FDA, across both molecular and antibody platforms (source
FDA.gov).
The biopharmaceutical industry has started over 1,100 clinical
trials over that time (source: ClinicalTrials.gov). This has
included the testing of vaccines, antibodies, antivirals, plasma
derived therapies, and other modalities to either treat COVID-19
related diseases or to offer prophylaxis against the virus. Even
Gilead’s anti-viral remdesivir went from clinical trials to
approval by the FDA in only three months.
At this juncture, we continue to believe there will be multiple
therapies that will be approved before year end after positive data
readouts. From a vaccine perspective, there will also be multiple
data readouts in 2020 with some, but limited, commercial
availability in 2021.
Another key factor that will shape the healthcare industry in
2020 is the U.S. Presidential election. News flow throughout the
period brought volatility into healthcare equities, in particular
the notion of “Medicare for All”; a Democratic ideology in which
the U.S. federal government would become the single payer for all
things healthcare and for all Americans. However, we now see the
political landscape as mostly benign, or perhaps even a tailwind,
for the remainder of 2020. Most important in this thesis is the
withdrawal of Bernie Sanders from
the Democratic nomination race and the emergence of Joe Biden. Senator Sanders (Vermont) had been the most ardent supporter of
“Medicare for All”, so his departure effectively killed this of
piece of disruptive industry legislation. Similarly, the emergence
of Vice President Biden is of equal import. We view Biden’s
healthcare policy to be a further advancement of the current
Affordable Care Act, commonly known as “Obamacare”. Whilst this may
expand Medicare, this would not fundamentally alter healthcare as
we know it in America.
Drug prices have been a hot button topic for the industry over
the past two election cycles, in particular the higher prices paid
for prescription medicines in the United
States compared to other developed nations. Both Republicans
and Democrats have stumped for various forms of legislation that
could materially alter the way in which drugs are priced in the
U.S. However, we think this particular issue is fading as we
approach the November election. First, despite media and political
rhetoric to the contrary, prescription medicines account for only
10% of the total healthcare spend (source: PhMRA).
Second, President Trump significantly shifted his talking points
on drug pricing since September 2019
– to protecting Medicare and focusing seniors’ out-of-pocket
expenses for their broad healthcare bill. And finally, we think the
healthcare industry is going through a renaissance with respect to
its public image. With the industry on the forefront on the battle
against the COVID-19 pandemic, it may be difficult, perhaps
impossible, for the next President to introduce sea-changing
legislation that would be deleterious to the biopharma industry. We
view the previous proposals now as “dead-on-arrival” given the
heroic perception that the industry is currently enjoying. Even
well-known television personality and market observer, Jim Cramer of CNBC, suggested during the height
of the pandemic that he would “punch anyone in the face” that came
after the industry given the impressive response against
COVID-19.
Perhaps another derivative of COVID-19 that may create a
tailwind for the healthcare equity markets in 2020 is the slowing
economy and a potential global recession. Of course, the defensive
characteristics of the industry would be in demand by investors.
Continued patient demand for medicines through this period will
also buoy these companies. Stable (and relatively high) dividends
will add to the bid. A close look at the most recently reported
financial period (for the quarter ended 31
March 2020) affirms that there was little to no disruption
for most of the industry.
Some healthcare subsectors will be more insulated from
recessionary pressures. Across biopharmaceutical companies, there
were no reported issue pertaining to supply chain, manufacturing,
or demand. In fact, if anything, demand has risen for chronic,
patient administered medicines; a product of the pandemic hoarding
mentality. Through the quarter, all large capitalisation
pharmaceutical companies (save for one) were able to maintain
full-year guidance despite the pandemic. The FDA has remained very
active despite the increased pressures and there have been no or
only minimal delays to new product approvals. In the Life Science
Tools space, of course, the demand for SARS-CoV-2 related
diagnostics has sky-rocketed. Emerging Biotechnology companies, for
the most part, do not even have revenue or earnings that are at
risk. Importantly, their valuation is predominantly based on
investors’ assessment of their drug pipelines. We do note that
there has been some slowing of patient enrolment in clinical trials
and some delays to new trial starts. Otherwise, clinical trials are
progressing as usual with the aid of technology and some virtual
patient visits.
Other sub-sectors will prove to be more volatile. The
uncertainty around elective surgeries and hospital availability may
linger and adversely impact the Medical Device sector. However, we
do expect a robust bounce back for procedure volumes in the second
half of the year. Similarly, the Hospitals and the Healthcare
Services sector may suffer in the near term. The treatment of
coronavirus patients has been their primary focus. And whilst those
patients are relatively unprofitable for the hospital, we do expect
meaningful stimulus from the U.S. federal government and a
back-half loaded return of general surgery volumes, the most
profitable patients for these companies.
M&A has been a common industry staple for decades,
especially for biopharmaceutical companies. The fragmented and
heterogeneous nature of the industry, coupled with clinical and
technological complexity, will continue to generate many business
development deals. We observed a slowdown in M&A in the second
half of 2018 due to a hot IPO-market and easier access to capital.
This was followed by a clear inflection in 2019. The pandemic has
slowed announced mergers early in 2020, we expect another
inflection in the second half of 2020.
The FDA has notably adopted a collaborative approach over the
past five years and we expect this trend to continue in 2020.
Notably, under President Trump’s first three-plus years in office,
the productivity of the FDA has demonstrably inflected. The number
of new drug approvals set records in 2017 and 2018, whilst 2019 was
the second highest on record. The number of generic drug approvals
also set records in those same years. In short, the FDA has not had
a more productive run of new product approvals than over the past
three years. And whilst the resignation of Commissioner
Dr. Scott Gottlieb in early 2019 was disappointing, the FDA
has established unprecedented levels of efficiency, modernisation,
and collaboration and has never been more aligned with industry to
get new drugs approved. We expect the career staffers to carry on
this current culture of achievement with appointment Dr.
Stephen M. Hahn, who was sworn in as
the 24th Commissioner of Food and Drugs on December 17, 2019. Dr. Hahn is a trained
oncologist, scientist and health care leader with an extensive
background in patient care, academic research and executive
leadership. He was previously the Chief Medical Executive (CME) at
The University of Texas MD Anderson
Cancer Center, one of the largest and most renowned cancer centers
in the world. Whilst another record may not be broken in 2020, we
do expect this approximate level of productivity to continue.
Finally, our positive outlook for healthcare equities primarily
revolves around the unprecedented level of innovation across the
industry spectrum, from therapeutics to services, from devices to
diagnostics. Certainly, technology has impacted many industries and
healthcare is no exception. However, advances in genomics and
biotechnology has pushed the therapeutics space to such frontiers
that the number of disease states and druggable targets is at an
all-time high. Meanwhile, novel platform technologies have enabled
even more therapies to target diseases that were previously thought
to be untreatable. And the number of medicines and therapies that
offer the potential for a “cure” is also at an all-time high.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
3 June 2020
Strategic Report/CONTRIBUTION BY
INVESTMENT
ABSOLUTE CONTRIBUTION BY
INVESTMENT
Principal contributors to and detractors from net asset value
performance
|
|
Contribution |
|
Contribution |
per
share* |
Top five
contributors |
£’000 |
£ |
CanSino Biologics |
49,014 |
0.92 |
eHealth |
29,101 |
0.55 |
Arqule † |
25,344 |
0.48 |
DexCom |
15,998 |
0.30 |
Deciphera
Pharmaceuticals |
15,727 |
0.30 |
Top five
detractors |
|
|
Mylan † |
(9,318) |
(0.18) |
HCA Healthcare |
(11,819) |
(0.22) |
Puma Biotechnology
† |
(13,932) |
(0.26) |
Takeda
Pharmaceutical |
(19,369) |
(0.36) |
Alexion
Pharmaceuticals |
(25,473) |
(0.48) |
*
Calculation based on 53,148,027 shares being the weighted average
number of shares in issue during the year ended 31 March 2020.
† Not held in
the portfolio as at 31 March
2020.
Strategic Report/BUSINESS REVIEW
The aim of the Strategic Report is to provide shareholders with
the ability to assess how the Directors have performed their duty
to promote the success of the Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors based on the
information available to them at the time of their approval of this
report and such statements should be treated with caution due to
the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
BUSINESS MODEL
Worldwide Healthcare Trust PLC is an investment trust and is
admitted to the premium segment of the Official List of the FCA and
to trading on the premium segment of the main market of the London
Stock Exchange. Its investment objective is set out in the Business
Review. In seeking to achieve this objective, the Company employs
Frostrow Capital LLP (Frostrow) as its Alternative Investment Fund
Manager (AIFM), OrbiMed Capital LLC (OrbiMed) as its Portfolio
Manager, J.P. Morgan Europe Limited as its Depositary and J.P.
Morgan Securities LLC as its Custodian and Prime Broker. Further
details about their appointments can be found in the Business
Review. The Board has determined an investment objective, policy
and related guidelines and limits, as described in the Business
Review.
The Company is subject to UK and European legislation and
regulations including UK company law, UK GAAP, the Alternative
Investment Fund Managers Directive, the UK Listing, Prospectus,
Disclosure and Transparency Rules, taxation law and the Company’s
own Articles of Association.
The Company is an investment company within the meaning of
Section 833 of the Companies Act 2006 and has been approved by HM
Revenue & Customs as an investment trust (for the purposes of
Sections 1158 and 1159 of the Corporation Tax Act 2010). As a
result the Company is not liable for taxation on capital gains. The
Directors have no reason to believe that approval will not continue
to be retained.
CONTINUATION OF THE COMPANY
A resolution was passed at the Annual General Meeting held in
2019 that the Company continues as an investment trust for a
further five year period. In accordance with the Company’s Articles
of Association, shareholders will have an opportunity to vote on
the continuation of the Company at the Annual General Meeting to be
held in 2024 and every five years thereafter.
THE BOARD
The Board of the Company comprises Sir Martin Smith (Chairman), Sarah Bates, Sven
Borho, Dr David Holbrook,
Doug McCutcheon, Dr Bina Rawal and Humphrey
van der Klugt. All of these Directors, with the exception of
Dr Rawal who joined the Board on 1 November
2019, served throughout the year. All are independent
non-executive Directors with the exception of Mr Borho who is not
considered to be independent by the Board.
All Directors seek election or re-election by shareholders at
each Annual General Meeting.
DIVIDEND POLICY
It is the Company’s policy to pay out dividends to shareholders
at least to the extent required to maintain investment trust status
for each financial year.
KEY PERFORMANCE INDICATORS (KPI)
The Board assesses the Company’s performance in meeting its
objectives against key performance indicators as follows. The Key
Performance Indicators have not changed from the previous year:
- Net asset value (‘NAV’)
per share total return against the Benchmark;
- Discount/premium of share
price to NAV per share; and
- Ongoing charges ratio.
Information on the Company’s performance is provided in the
Chairman’s Statement and the Portfolio Manager’s Review. Further
information can be found in the Glossary.
NAV PER SHARE
TOTAL RETURN* AGAINST THE BENCHMARK
The Directors regard the Company’s NAV per share total return as
being the overall measure of value delivered to shareholders over
the long term. This reflects both net asset value growth of the
Company and dividends paid to shareholders.
The Board considers the most important comparator, against which
to assess the NAV per share total return performance, to be the
MSCI World Health Care Index measured on a net total return,
sterling adjusted basis. Frostrow and OrbiMed have flexibility in
managing the investments and are not limited by the constraints of
the Benchmark. As a result, investment decisions may be made that
differentiate the Company from the Benchmark and therefore the
Company’s performance may also be different to that of the
Benchmark.
A full description of performance during the year under review
is contained in the Portfolio Manager’s Review.
SHARE PRICE
DISCOUNT/PREMIUM TO NAV PER SHARE*
The share price discount/premium to NAV per share is considered
a key indicator of performance as it impacts the share price total
return of shareholders and can provide an indication of how
investors view the Company’s performance and its Investment
Objective.
ONGOING CHARGES
RATIO*
The Board continues to be conscious of expenses and works hard
to maintain a balance between good quality service and costs.
*
Alternative Performance Measure (See Glossary)
PRINCIPAL SERVICE PROVIDERS
The principal service providers to the Company are the AIFM,
Frostrow Capital LLP (Frostrow), the Portfolio Manager, OrbiMed
Capital LLC (OrbiMed), the Custodian and Prime Broker J.P. Morgan
Securities LLC, and the Depositary, J.P. Morgan Europe Limited.
Details of their key responsibilities follow and further
information on their contractual arrangements with the Company are
included in the Report of the Directors.
ALTERNATIVE
INVESTMENT FUND MANAGER (AIFM)
Frostrow under the terms of its AIFM agreement with the Company
provides, inter alia, the following services:
- oversight of the portfolio
management function delegated to OrbiMed Capital LLC;
- investment portfolio
administration and valuation;
- risk management
services;
- marketing and shareholder
services;
- share price discount and
premium management;
- administrative and
secretarial services;
- advice and guidance in
respect of corporate governance requirements;
- maintenance of the
Company’s accounting records;
- maintenance of the
Company’s website;
- preparation and dispatch
of annual and half year reports (as applicable) and monthly fact
sheets; and
- ensuring compliance with
applicable legal and regulatory requirements.
During the year, under the terms of the AIFM Agreement, Frostrow
received a fee as follows:
On market capitalisation up to £150 million: 0.3%; in the range
£150 million to £500 million: 0.2%; in the range £500 million
to £1 billion: 0.15%; in the range £1 billion to £1.5 billion:
0.125%; over £1.5 billion: 0.075%. In addition, Frostrow receives a
fixed fee per annum of £57,500.
PORTFOLIO
MANAGER
OrbiMed under the terms of its portfolio management agreement
with the AIFM and the Company provides, inter alia, the following
services:
- the seeking out and
evaluating of investment opportunities;
- recommending the manner by
which monies should be invested, disinvested, retained or
realised;
- advising on how rights
conferred by the investments should be exercised;
- analysing the performance
of investments made; and
- advising the Company in
relation to trends, market movements and other matters which may
affect the investment objective and policy of the Company.
OrbiMed receives a base fee of 0.65% of NAV and a performance
fee of 15% of outperformance against the Benchmark.
DEPOSITARY,
CUSTODIAN AND PRIME BROKER
J.P. Morgan Europe Limited acts as the Company’s Depositary and
J.P. Morgan Securities LLC as its Custodian and Prime Broker.
J.P. Morgan Europe Limited, as Depositary, must take reasonable
care to ensure that the Company is managed in accordance with the
Financial Conduct Authority’s Investment Funds Sourcebook, the
AIFMD and the Company’s Articles of Association. The Depositary
must in the context of this role act honestly, fairly,
professionally, independently and in the interests of the Company
and its shareholders.
The Depositary receives a variable fee based on the size of the
Company.
J.P. Morgan Europe Limited has discharged certain of its
liabilities as Depositary to J.P. Morgan Securities LLC. J.P.
Morgan Securities LLC, as Custodian and Prime Broker, provides the
following services under its agreement with the Company:
- safekeeping and custody of
the Company’s investments and cash;
- processing of
transactions;
- provision of an overdraft
facility. Assets up to 140% of the value of the outstanding
overdraft can be taken as collateral; and
- foreign exchange
services.
AIFM AND PORTFOLIO MANAGER EVALUATION
AND RE-APPOINTMENT
The performance of the AIFM and the Portfolio Manager is
reviewed continuously by the Board and the Management Engagement
& Remuneration Committee (the “Committee”) with a formal
evaluation being undertaken each year. As part of this process, the
Committee monitors the services provided by the AIFM and the
Portfolio Manager and receives regular reports and views from them.
The Committee also receives comprehensive performance measurement
reports to enable it to determine whether or not the performance
objectives set by the Board have been met. The Committee reviewed
the appropriateness of the appointment of the AIFM and the
Portfolio Manager in February 2020
with a positive recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and
the Portfolio Manager is in the interests of shareholders as a
whole. In coming to this decision, it took into consideration,
inter alia, the following:
- the quality of the service
provided and the depth of experience of the company management,
company secretarial, administrative and marketing team that the
AIFM allocates to the management of the Company; and
- the quality of the service
provided and the quality and depth of experience allocated by the
Portfolio Manager to the management of the portfolio and the
long-term performance of the portfolio in absolute terms and by
reference to the Benchmark.
PRINCIPAL RISKS
In fulfilling its oversight and risk management
responsibilities, the Board maintains a framework of key risks
which affect the Company and the related internal controls designed
to enable the Directors to manage and/or mitigate these risks. The
risks can be categorised under the following broad headings:
- Investment (including
leverage risks);
- Operational (including
financial, corporate governance, accounting, legal, cyber security
and regulatory risks); and
- Strategic (including
shareholder relations and share price performance).
Further information on the internal control and risk management
framework can be found below and information on the use of
financial instruments and their associated risks, including
exposures to market risk and counterparty risk can be found in note
16.
The following section details the risks the Board consider to be
the most significant to the Company.
As a result of the COVID-19 pandemic, the economic risk of a
global recession has risen sharply. Despite the mitigants of
monetary and fiscal stimulus, the Directors believe that the
duration of the pandemic and its effects will be a source of
uncertainty for some time to come and may increase some of the
risks set out below. The measures to mitigate these risks have not
changed, and the Company is active in a sector which typically
displays defensive characteristics in uncertain times.
MARKET RISKS
By the nature of its activities and Investment Objective, the
Company’s portfolio is exposed to fluctuations in market prices
(from both individual security prices and foreign exchange rates)
and due to exposure to the global healthcare sector, it is expected
to have higher volatility than the wider market. As such investors
should be aware that by investing in the Company they are exposing
themselves to market risks and those additional risks specific to
the sectors in which the Company invests, such as political
interference in drug pricing. In addition, the Company uses
leverage (both through derivatives and gearing) the effect of which
is to amplify the gains or losses the Company experiences.
To manage these risks the Board and the AIFM have appointed
OrbiMed to manage the investment portfolio within the remit of the
investment objective and policy, and imposed various limits and
guidelines. These limits ensure that the portfolio is diversified,
reducing the risks associated with individual stocks, and that the
maximum exposure (through derivatives and an overdraft facility) is
limited. The compliance with those limits and guidelines is
monitored daily by Frostrow and OrbiMed and reported to the Board
monthly.
In addition, OrbiMed reports at each Board meeting on the
performance of the Company’s portfolio, which encompasses the
rationale for stock selection decisions, the make-up of the
portfolio, potential new holdings and, derivative activity and
strategy (further details on derivatives can be found in note
16).
The Company does not currently hedge its currency exposure.
INVESTMENT
MANAGEMENT KEY PERSON RISK
There is a risk that the individuals responsible for managing
the Company’s portfolio may leave their employment or may be
prevented from undertaking their duties.
The Board manage this risk by:
- appointing OrbiMed, who
operate a team environment such that the loss of any individual
should not impact on service levels;
- receiving reports from
OrbiMed at each Board meeting, such report includes any significant
changes in the make-up of the team supporting the Company;
- meeting the wider team,
outside the designated lead managers, at OrbiMed’s offices and
encouraging the participation of the wider OrbiMed team in investor
updates; and
- delegating to the
Management Engagement & Remuneration Committee, responsibility
to perform an annual review of the service received from OrbiMed,
including, inter alia, the team supporting the lead managers and
succession planning.
COUNTERPARTY
RISK
In addition to market and foreign currency risks, discussed
above, the Company is exposed to risk arising from the use of
counterparties. If a counterparty were to fail, the Company could
be adversely affected through either delay in settlement or loss of
assets.
The most significant counterparty the Company is exposed to is
J.P. Morgan Securities LLC which is responsible for the safekeeping
of the Company’s assets and provides the overdraft facility to the
Company. As part of the arrangements with J.P. Morgan Securities
LLC they may take assets, up to 140% of the value of the drawn
overdraft, as collateral and have first priority security interest
or lien over all of the Company’s assets. Such assets taken as
collateral may be used, loaned, sold, rehypothecated or transferred
by J.P. Morgan Securities LLC. Although the Company maintains the
economic benefit from the ownership of those assets it does not
hold any of the rights associated with those assets. Any of the
Company’s assets taken as collateral are not covered by the custody
arrangements provided by J.P. Morgan Securities LLC. The Company
is, however, afforded protection in accordance with SEC rules and
U.S. legislation equal to the value of the assets that have been
rehypothecated.
This risk is managed by the Board through:
- reviews of the
arrangements with, and services provided by, the Depositary and the
Custodian and Prime Broker to ensure that the security of the
Company’s assets is being maintained. Legal opinions are sought,
where appropriate, as part of this review. Also, the Board
regularly monitors the credit rating of the Company’s Custodian and
Prime Broker;
- monitoring of the assets
taken as collateral (further details can be found in note 16);
- reviews of OrbiMed’s
approved list of counterparties, the Company’s use of those
counterparties and OrbiMed’s process for monitoring, and adding to,
the approved counterparty list;
- monitoring of
counterparties, including reviews of internal control reports and
credit ratings, as appropriate;
- by only investing in
markets that operate DVP (Delivery Versus Payment) settlement. The
process of DVP mitigates the risk of losing the principal of a
trade during the settlement process; and
- J.P. Morgan Securities LLC
is subject to regular monitoring by J.P. Morgan Europe Limited, the
Company’s Depositary, and the Board receives regular reports from
J.P. Morgan Europe Limited.
SERVICE PROVIDER
RISK
The Board is reliant on the systems of the Company’s service
providers and as such disruption to, or a failure of, those systems
could lead to a failure to comply with law and regulations leading
to reputational damage and/or financial loss to the Company.
The spread of an infectious disease, such as has been seen as a
result of the recent COVID-19 pandemic, may force governments to
introduce rules to restrict meetings and movements of people and
take other measures to prevent its spread, which may cause
disruption to the Company’s operations.
To manage these risks the Board:
- receives a monthly
compliance report from Frostrow, which includes, inter alia,
details of compliance with applicable laws and regulations;
- reviews internal control
reports, key policies, including measures taken to combat cyber
security issues, and also the disaster recovery procedures of its
service providers;
- maintains a risk matrix
with details of risks the Company is exposed to, the controls
relied on to manage those risks and the frequency of the controls
operation;
- receives updates on
pending changes to the regulatory and legal environment and
progress towards the Company’s compliance with these; and
- The operational and
regulatory risks arising from the COVID-19 pandemic, and measures
introduced to combat its spread, are discussed by the Board, with
updates on operational resilience received from the Portfolio
Manager, AIFM and other key service providers.
SHAREHOLDER
RELATIONS AND SHARE PRICE PERFORMANCE RISK
The Company is also exposed to the risk, particularly if the
investment strategy and approach are unsuccessful, that
the Company may underperform resulting in the Company becoming
unattractive to investors and a widening of the share price
discount to NAV per share. Also, falls in stock markets, such as
those experienced as a consequence of the COVID-19 pandemic, and
the risk of a global recession, are likely to adversely affect the
performance of the Company’s investments.
In managing this risk the Board:
- reviews the Company’s
Investment Objective in relation to market, and economic,
conditions and the operation of the Company’s peers;
- discusses at each Board
meeting the Company’s future development and strategy;
- reviews the shareholder
register at each Board meeting;
- actively seeks to promote
the Company to current and potential investors; and
- has implemented a
discount/premium control mechanism.
The operation of the discount/premium control mechanism and
Company promotional activities have been delegated to Frostrow, who
report to the Board at each Board meeting on these activities.
EMERGING RISKS
The Company has carried out a robust assessment of the Company’s
emerging and principal risks and the procedures in place to
identify emerging risks are described below. The International Risk
Governance Council definition of an ’emerging’ risk is
one that is new, or is a familiar risk in a new or unfamiliar
context or under new context conditions (re-emerging). Failure to
identify emerging risks may cause reactive actions rather than
being proactive and, in worse case, could cause the Company to
become unviable or otherwise fail or force the Company to change
its structure, objective or strategy.
The Audit Committee reviews a risk map at its half-yearly
meetings. Emerging risks are discussed in detail as part of this
process to try to ensure that emerging (as well as known) risks are
identified and, so far as practicable, mitigated.
The experience and knowledge of the Directors is useful in these
discussions, as are update papers and advice received from the
Board’s key service providers such as the Portfolio Manager, the
AIFM and the Company’s Broker. In addition, the Company is a member
of the AIC, which provides regular technical updates as well as
drawing members’ attention to forthcoming industry and/or
regulatory issues and advising on compliance obligations.
COVID-19
The market and operational risks and financial impact as a
result of the COVID-19 pandemic, and the measures introduced to
combat its spread, have been, and will continue to be, discussed by
the Board, with updates on operational resilience being received
from the Company’s principal services providers. The Company’s
Portfolio Manager continues to provide regular updates to the Board
on the financial impacts of the pandemic on portfolio performance
and investee companies as well as the effect on the biotechnology
and healthcare sectors.
The experience and knowledge of the Directors has been
invaluable in these discussions, as are updates from the Company’s
principal service providers, including the Portfolio Manager, the
AIFM, the Company’s Broker and Auditor. In addition, the Company is
a member of the Association of Investment Companies (AIC), which
provides regular technical updates including highlighting
forthcoming industry and/or regulatory issues and advising on
compliance obligations.
IMPACT OF
BREXIT
The Board has considered whether Brexit poses a discrete risk to
the Company. At the date of this report, there was still
considerable uncertainty around both the process and the effects of
Brexit and therefore the analysis at this stage is necessarily
general.
As the Company is priced in sterling and the Company’s portfolio
companies are priced in foreign currencies sharp movements in
exchange rates can affect the net asset value (note 16 for the
foreign currency sensitivity analysis).
Furthermore, whilst the Company’s current shareholders are
predominantly UK based, sharp or unexpected changes in investor
sentiment, or tax or regulatory changes, could lead to short term
selling pressure on the Company’s shares which potentially could
lead to the share price discount widening.
Overall, however, the Board believes that over the longer term,
Brexit is unlikely to affect the Company’s business model or
whether the Company’s shares trade at a premium or discount to the
net asset value per share. The Board will continue to monitor
developments as they occur.
COMPANY PROMOTION
The Company has appointed Frostrow to provide marketing and
investor relations services, in the belief that a well-marketed
investment company is more likely to grow over time, have a more
diverse and stable shareholder register and will trade at a
superior rating to its peers.
Frostrow actively promotes the Company in the following
ways:
Engaging regularly with institutional investors,
discretionary wealth managers and a range of execution-only
platforms: Frostrow regularly talks and meets with
institutional investors, discretionary wealth managers and
execution-only platform providers to discuss the Company’s strategy
and to understand any issues and concerns, covering both investment
and corporate governance matters;
Making Company information more accessible: Frostrow
works to raise the profile of the Company by targeting key groups
within the investment community, holding annual investment
seminars, overseeing PR output and managing the Company’s website
and wider digital offering, including Portfolio Manager videos and
social media;
Disseminating key Company information: Frostrow performs
the Investor Relations function on behalf of the Company and
manages the investor database. Frostrow produces all key corporate
documents, distributes monthly Fact Sheets, Annual Reports and
updates from OrbiMed on portfolio and market developments; and
Monitoring market activity, acting as a link between the
Company, shareholders and other stakeholders: Frostrow
maintains regular contact with sector broker analysts and other
research and data providers, and conducts periodic investor
perception surveys, liaising with the Board to provide up-to-date
and accurate information on the latest shareholder and market
developments.
DISCOUNT CONTROL MECHANISM (DCM)
The Board undertakes a regular review of the level of
discount/premium and consideration is given to ways in which share
price performance may be enhanced, including the effectiveness of
marketing, share issuance and share buy-backs, where
appropriate.
The Board implemented the DCM in 2004. This established a target
level of no more than a 6% share price discount to the ex-income
NAV per share.
Under the DCM, the Company’s shares being offered on the stock
market, when the discount reaches a level of 6% or more, may be
bought back and held as treasury shares (See Glossary).
Treasury shares can be sold back to the market at a later date
at a discount narrower than that at which they were bought and no
greater than a 5% discount to the cum income NAV per share.
Shareholders should note, however, that it remains possible for
the share price discount to the NAV per share to be greater than 6%
on any one day. This is due to the fact that the share price
continues to be influenced by overall supply and demand for the
Company’s shares in the secondary market. The volatility of the NAV
per share in an asset class such as healthcare is another factor
over which the Board has no control.
In recent years the Company’s successful performance has
generated substantial investor interest. Whenever there are
unsatisfied buying orders for the Company’s shares in the market,
the Company has the ability to issue new shares at a small premium
to the cum income NAV per share. This is an effective share price
premium management tool.
No shares were repurchased during the year and to the date of
this report.
SOCIAL, ECONOMIC AND ENVIRONMENTAL
MATTERS
The Directors, through the Company’s Portfolio Manager,
encourage companies in which investments are made to adhere to best
practice with regard to corporate governance. In light of the
nature of the Company’s business there are no relevant human rights
issues and the Company does not have a human rights policy.
The Company recognises that social and environmental issues can
have an effect on some of its investee companies.
The Company is an investment trust and so its own direct
environmental impact is minimal. The Board of Directors consists of
seven Directors, five of whom are resident in the UK, one in
Canada and one in the U.S. The
Board holds the majority of its regular meetings in the
United Kingdom, with one meeting
held each year in New York, and
has a policy that travel, as far as possible, is minimal, thereby
minimising the Company’s greenhouse gas emissions. Further details
concerning greenhouse gas emissions can be found within the Report
of the Directors.
RESPONSIBLE INVESTING
The Company’s Portfolio Manager, OrbiMed, believes there is a
high congruence between companies that seek to act responsibly and
those that succeed in building long-term shareholder value. To the
extent practicable and reasonable, OrbiMed takes into account
applicable environmental, social and corporate factors when
evaluating a prospective or existing investment for the Company.
These criteria form the foundation of OrbiMed’s Responsible
Investing Policy and are among the factors that members of
OrbiMed’s investment team may research and analyse when determining
whether to recommend that the Company makes an investment. In
particular, OrbiMed has a focus on the corporate governance
environment that exists at a prospective investee company when
making investment decisions.
LONG TERM VIABILITY
The Board has carried out a robust assessment of the principal
risks facing the Company including those that would threaten its
business model, future performance, solvency or liquidity. The
Board has drawn up a matrix of risks facing the Company and has put
in place a schedule of investment limits and restrictions,
appropriate to the Company’s investment objective and policy, in
order to mitigate these risks as far as practicable. The principal
risks and uncertainties which have been identified, and the steps
taken by the Board to mitigate these as far as possible.
The Board believes it is appropriate to assess the Company’s
viability over a five year period. This period is also deemed
appropriate due to our Portfolio Manager’s long-term investment
horizon and also what it believes to be investors’ horizons, taking
account of the Company’s current position and the potential impact
of the principal risks and uncertainties. The Directors also took
into account the liquidity of the portfolio when considering the
viability of the Company over the next five years and its ability
to meet liabilities as they fall due.
The Directors do not expect there to be any significant change
in the principal risks that have been identified or the adequacy of
the mitigating controls in place, and do not envisage any change in
strategy or objectives or any events that would prevent the Company
from continuing to operate over that period as the Company’s assets
are liquid, its commitments are limited and the Company intends to
continue to operate as an investment trust.
Based on this assessment, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five-year
period.
The assessment has included a detailed review of the issues
arising from the COVID-19 pandemic as referred to in the Chairman’s
Statement.
STAKEHOLDER INTERESTS AND BOARD
DECISION-MAKING (SECTION 172 STATEMENT)
The Directors have a duty to promote the success of the Company
for the benefit of shareholders as a whole and to describe how they
have performed this duty having regard to matters set out in
section 172(1) of the Companies Act 2006. In fulfilling this duty,
the Directors consider the likely consequences of their actions
over the long term and on other stakeholders. As an externally
managed investment company, the Company does not have employees.
Its main stakeholders therefore comprise its shareholders, who are
also its customers, and a small number of suppliers. These
suppliers are external firms engaged by the Board to provide,
amongst others, AIFM, portfolio management, secretarial,
depositary, custodial and banking services. The principal
relationships are with the AIFM and the Portfolio Manager and the
Strategic Report contains further information. The portfolio
management services are fundamental to the long-term success of the
Company through the pursuit of the investment objective. The Board
regularly monitors the Company’s investment performance in relation
to its objective and also to its investment policy and strategy. It
seeks to maintain a constructive working relationship with the AIFM
and the Portfolio Manager and on an annual basis reviews their
continuing appointment to ensure it is in the best long-term
interests of shareholders. The Board receives and reviews detailed
presentations and reports from the AIFM and the Portfolio Manager
and other suppliers to enable the Directors to exercise effective
oversight of the Company’s activities. Further information on the
Board’s review process is set out in the Corporate Governance
Report. The AIFM seeks to maintain constructive relationships with
the Company’s other suppliers on behalf of the Company, typically
through regular communications, provision of relevant information
and update meetings. To help the Board in its aim to act fairly as
between the Company’s members, it encourages communications with
all shareholders. The Annual and Half Year reports are issued to
shareholders and are available on the Company’s website together
with other relevant information including monthly fact sheets. The
AIFM offers to meet shareholders regularly to provide detailed
reports on the progress of the Company and receive feedback which
is provided to the Board. Directors are also available to meet with
shareholders during the year and at the AGM. Please refer to the
Chairman’s Statement for details of this year’s arrangements.
Shareholders’ views are considered as part of the Board’s regular
strategy reviews. Shareholders have the opportunity to validate the
Board’s strategy through a vote every five years on the
continuation of the Company and the Board encourages shareholders
to participate in this vote. The next opportunity will arise at the
AGM to be held in 2024. In seeking to enhance value for
shareholders over the long term, the Board has also established
guidelines to allow the AIFM and the Portfolio Manager to deploy
gearing on a tactical basis when opportunities arise and to
implement share buy-back and share issuance as appropriate.
As described in more detail within the Corporate Governance
Report, the Board is committed to maintaining and demonstrating
high standards of corporate governance in relation to the Company’s
business conduct. The approach taken by the Portfolio Manager in
the context of ESG investing is described in the Business
Review.
In summary, the Board’s primary focus in promoting the long-term
success of the Company for the benefit of its shareholders as a
whole is to direct the Company with a view to achieving the
investment objective in a manner consistent with its stated
investment policy and strategy. In doing so, and as described
above, it has due regard to the impact of its actions on other
stakeholders and the wider community.
ALTERNATIVE PERFORMANCE MEASURES
The Financial Statements set out the required statutory
reporting measures of the Company’s financial performance. In
addition, the Board assesses the Company’s performance against a
range of criteria which are viewed as particularly relevant for
investment trusts, these are set out in the Strategic Report.
PERFORMANCE AND FUTURE
DEVELOPMENTS
An outline of performance, investment activity and strategy, and
market background during the year, as well as the future outlook,
is provided in the Chairman’s Statement and the Portfolio Manager’s
Review.
By order of the Board
Frostrow Capital LLP
Company Secretary
3 June 2020
Governance/BOARD OF DIRECTORS
Sir Martin
Smith
Independent Non-Executive Chairman
Joined the Board in 2007 and became Chairman in 2008
Remuneration £49,140pa*
Shareholding in the Company
11,871 (Beneficial) 2,725 (Trustee)
Skills and Experience
Sir Martin Smith has been
involved in the financial services sector for more than 40 years.
He was a founder and senior partner of Phoenix Securities, becoming
Chairman of European Investment Banking for Donaldson, Lufkin &
Jenrette (DLJ) following the acquisition of Phoenix by DLJ. He was subsequently a founder
of New Star Asset Management Ltd.
Other Appointments
Sir Martin has a number of other directorships and business
interests, including acting as Chairman of GP Bullhound, the
technology investment banking firm.
Sir Martin’s pro-bono interests include being a founder of the
Orchestra of the Age of Enlightenment of which he is Life
President, and serving on the boards of a number of other arts
organisations including the Glyndebourne Arts Trust and the Royal
Academy of Music. He is a Director of ClientEarth. In 2008 Sir
Martin with his family were founding benefactors of the Smith
School of Enterprise and the Environment at Oxford University.
Standing for re-election: Yes
Sarah
Bates
Independent Non-Executive Director
Joined the Board in 2013
Remuneration: £31,040pa*
Shareholding in the Company
7,200
Skills and Experience
Sarah is a past Chair of the Association of Investment Companies
and has been involved in the UK savings and investment industry in
different roles for over 35 years.
Sarah is a fellow of CFA UK.
Other Appointments
Sarah is also non-executive Chair of Merian Global Investors and
of Polar Capital Technology Trust plc. She is a member of the
Investment Committees of the Universities Superannuation Scheme and
the BBC Pension Scheme. Sarah is Chair of Trustees of the Diversity
Group Charity, an Ambassador for Chapter Zero and a mentor for
Chairmen Mentors International.
Standing for re-election: Yes
*
Information as at 31 March 2020
Sven
Borho
Non-Executive Director
Joined the Board in 2018
Remuneration: Nil*
Shareholding in the Company
10,000
Skills and Experience
Sven H. Borho, CFA, is a founder
and Managing Partner of OrbiMed. Sven heads the public equity team
and he is the portfolio manager for OrbiMed’s public equity and
hedge funds. He has been a portfolio manager for the firm’s funds
since 1993 and has played an integral role in the growth of
OrbiMed’s asset management activities. He started his career in
1991 when he joined OrbiMed’s predecessor firm as a Senior Analyst
covering European pharmaceutical firms and biotechnology companies
worldwide.
Other Appointments
Sven is a Managing Partner of OrbiMed and does not have any
other appointments.
Standing for re-election: Yes
Dr David
Holbrook
Independent Non-Executive Director
Joined the Board in 2007
Remuneration: £33,290pa*
David is Chairman of the Nominations Committee and is the Senior
Independent Director.
Shareholding in the Company
1,094
Skills and Experience
A qualified physician, David was formerly Investment Director of
the life science activities of the seed fund of the University of Cambridge. David attended
London and Oxford Universities,
and has an MBA from Harvard Business
School. He has held senior positions in a number of blue
chip biopharmaceutical organisations including GlaxoSmithKline and
Roche.
Other Appointments
David manages the new seed fund established by LifeArc (formerly
known as MRC Technology). David is also a non-executive Director of
Oxford Biodynamics plc and is Chairman of Trustees of the Liver
Group Charity.
Standing for re-election: Yes
*
Information as at 31 March 2020
Humphrey van
der Klugt, FCA
Independent Non-Executive Director
Joined the Board in 2016
Remuneration: £38,030pa*
A Chartered Accountant, Humphrey is Chairman of the Audit
Committee.
Shareholding in the Company
3,000
Skills and Experience
Humphrey was formerly Chairman of Fidelity European Values PLC
and a Director of Murray Income Trust PLC, BlackRock Commodities
Income Investment Trust plc and JPM Claverhouse Investment Trust
plc. Prior to this Humphrey was a fund manager and Director of
Schroder Investment Management Limited and in a 22 year career was
a member of their Group Investment and Asset Allocation Committees.
Prior to joining Schroders, he was with Peat Marwick Mitchell &
Co (now KPMG) where he qualified as a Chartered Accountant in
1979.
Other Appointments
Humphrey is a non-executive Director of Allianz Technology Trust
PLC.
Standing for re-election: Yes
Doug
McCutcheon
Independent Non-Executive Director
Joined the Board in 2012
Remuneration: £31,040pa*
Doug is Chairman of the Management Engagement & Remuneration
Committee.
Shareholding in the Company
15,000
Skills and Experience
Doug is the President of Longview Asset Management Ltd., an
investment firm that manages the capital of families, charities and
endowments. Prior to this, Doug was an investment banker for 25
years at UBS and its predecessor firm, S.G. Warburg, where, most
recently, he was the head of Healthcare Investment Banking for
Europe, the Middle East, Africa and Asia-Pacific. Doug is involved in
philanthropic organisations with a focus on healthcare and
education. He attended Queen’s University, Canada.
Other Appointments
Doug is the President of Longview Asset Management Ltd. and
Gormley Limited, independent investment firms. He is also a
Director of Labrador Iron Ore Royalty Corporation.
Standing for re-election: Yes
Dr Bina
Rawal
Independent Non-Executive Director
Joined the Board in 2019
Remuneration: £31,040pa*
Shareholding in the Company
500
Skills and Experience
Dr Rawal, a physician with 25 years’ experience in life sciences
research and development, has held senior executive roles in drug
development and scientific evaluation in four global pharmaceutical
companies. She has also worked in senior roles with two medical
research funding organisations: Wellcome Trust and Cancer Research
UK.
Other Appointments
Dr Rawal is currently working part-time in Corporate
Partnerships at Cancer Research UK. She is a non-executive director
on the Board of the Innovation Agency (Northwest Coast Academic
Health Science Network) where she supports the adoption and spread
of innovation within the NHS. Dr Rawal is a Trustee of two
educational charities: the Social Mobility Foundation and the
Children’s University Trust, and is also a member of the Council of
St George’s University of London.
Standing for election: Yes
*
Information as at 31 March 2020
Governance/REPORT OF THE DIRECTORS
The Directors present their Annual Report on the affairs of the
Company together with the audited financial statements and the
Independent Auditors’ Report for the year ended 31 March 2020.
SIGNIFICANT AGREEMENTS
Details of the services provided under these agreements are
included in the Strategic Report.
ALTERNATIVE INVESTMENT FUND MANAGEMENT
AGREEMENT
As described below, Frostrow is the designated AIFM for the
Company on the terms and subject to the conditions of the
alternative investment fund management agreement between the
Company and Frostrow (the “AIFM Agreement”).
The notice period on the AIFM Agreement with Frostrow is 12
months, termination can be initiated by either party.
During the year under review, Frostrow charged a variable base
fee, which was dependent on the size of the Company. (Further
details of this fee can be found below).
PORTFOLIO MANAGEMENT AGREEMENT
Under the AIFM Agreement Frostrow has delegated the portfolio
management function to OrbiMed, under a portfolio management
agreement between it, the Company and Frostrow (the “Portfolio
Management Agreement”).
OrbiMed receives a periodic fee equal to 0.65% p.a. of the
Company’s NAV and a performance fee as set out in the Performance
Fee section below. Its agreement with the Company may be terminated
by either party giving notice of not less than 12 months.
PERFORMANCE FEE
Dependent on the level of long-term outperformance of the
Company, OrbiMed is entitled to a performance fee. The performance
fee is calculated by reference to the amount by which the Company’s
NAV performance has outperformed the Benchmark (see inside front
cover for details of the Benchmark).
The fee is calculated quarterly by comparing the cumulative
performance of the Company’s NAV with the cumulative performance of
the Benchmark since the launch of the Company in 1995. The
performance fee amounts to 15.0% of any outperformance over the
Benchmark. Provision is made within the daily NAV per share
calculation as required and in accordance with generally accepted
accounting standards.
In order to ensure that only sustained outperformance is
rewarded, at each quarterly calculation date any performance fee
payable is based on the lower of:
(i) The cumulative outperformance of the
portfolio over the Benchmark as at the quarter end date; and
(ii) The cumulative outperformance of
the portfolio over the Benchmark as at the corresponding quarter
end date in the previous year
less any cumulative outperformance on which a performance fee
has already been paid.
The effect of this is that outperformance has to be maintained
for a twelve month period before it is paid.
Although the Company has outperformed the Benchmark during the
year, no provision for potential future performance fee payments
has been made as at 31 March 2020
(2019: nil) as the level of cumulative outperformance is below that
at which a performance fee has already been paid.
No performance fee could become payable in the year ending
31 March 2021.
DEPOSITARY AGREEMENT
The Company appointed J.P. Morgan Europe Limited (the
“Depositary”) as its Depositary in accordance with the AIFMD on the
terms and subject to the conditions of the Depositary agreement
between the Company, Frostrow and the Depositary (the “Depositary
Agreement”).
Under the terms of the Depositary Agreement the Company has
agreed to pay the Depositary a fee calculated at 1.75bp on net
assets up to £150 million, 1.50 bps on net assets between £150
million and £300 million, 1.00bps on net assets between £300
million and £500 million and 0.50bps on net assets above £500
million.
The Depositary has delegated the custody and safekeeping of the
Company’s assets to J.P. Morgan Securities LLC (the “Custodian and
Prime Broker”) pursuant to a delegation agreement between the
Company, Frostrow, the Depositary and the Custodian and Prime
Broker (the “Delegation Agreement”).
The Delegation Agreement transfers the Depositary’s liability
for the loss of the Company’s financial instruments held in custody
by the Custodian and Prime Broker to the Custodian and Prime Broker
in accordance with the AIFMD. The Company has consented to the
transfer and reuse of its assets by the Custodian and Prime Broker
(known as “rehypothecation”) in accordance with the terms of an
institutional account agreement between the Company, the Custodian
and Prime Broker and certain other J.P. Morgan entities (as defined
therein).
PRIME BROKERAGE AGREEMENT
The Company appointed J.P. Morgan Securities LLC on the terms
and subject to the conditions of the prime brokerage agreement
between the Company, Frostrow and the Depositary (the “Prime
Brokerage Agreement”). The Custodian and Prime Broker receives
interest on the drawn overdraft as detailed in note 12.
The Custodian and Prime Broker is a registered broker-dealer and
is regulated by the United States Securities and Exchange
Commission.
RESULTS AND DIVIDENDS
The results attributable to shareholders for the year and the
transfer to reserves are shown in the Financial Statements. Details
of the Company’s dividend record can be found in the Strategic
Report.
SUBSTANTIAL
INTERESTS IN SHARE CAPITAL
The Company was aware of the following substantial interests in
the voting rights of the Company as at 30
April 2020, the latest practicable date before publication
of the Annual Report:
|
30 April 2020 |
31 March 2020 |
|
|
% of
issued |
|
% of
issued |
|
Number
of |
share |
Number
of |
share |
Shareholder |
shares |
capital |
shares |
capital |
Rathbone Brothers
plc |
5,694,933 |
10.5 |
5,634,530 |
10.5 |
Investec Wealth &
Investment Limited |
4,104,897 |
7.6 |
4,108,528 |
7.7 |
Interactive
Investor |
3,085,430 |
5.7 |
3,010,415 |
5.6 |
Hargreaves Lansdown
plc |
2,978,330 |
5.5 |
2,798,460 |
5.2 |
Charles Stanley &
Co Limited |
2,519,445 |
4.6 |
2,509,090 |
4.7 |
Brewin Dolphin |
2,064,810 |
3.8 |
2,048,037 |
3.8 |
Quilter Cheviot
Investment Management |
1,966,057 |
3.6 |
1,931,085 |
3.6 |
Forsyth Barr |
1,946,095 |
3.6 |
1,949,647 |
3.6 |
As at 31 March 2020 the Company
had 53,619,278 shares in issue. As at 30
April 2020 there were 54,619,278 shares in issue.
DIRECTORS’ & OFFICERS’ LIABILITY
INSURANCE COVER
Directors’ & officers’ liability insurance cover was
maintained by the Company during the year ended 31 March 2020 and to the date of this report. It
is intended that this policy will continue for the year ending
31 March 2021 and subsequent
years.
DIRECTORS’ INDEMNITIES
During the year under review and to the date of this report,
indemnities were in force between the Company and each of its
Directors under which the Company has agreed to indemnify each
Director, to the extent permitted by law, in respect of certain
liabilities incurred as a result of carrying out his or her role as
a Director of the Company. The Directors are also indemnified
against the costs of defending any criminal or civil proceedings or
any claim by the Company or a regulator as they are incurred
provided that where the defence is unsuccessful the Director must
repay those defence costs to the Company. The indemnities are
qualifying third party indemnity provisions for the purposes of the
Companies Act 2006.
A copy of each deed of indemnity is available for inspection at
the Company’s registered office during normal business hours and
will be available for inspection at the Annual General Meeting.
Please refer to the Chairman’s Statement for details of this year’s
Annual General Meeting arrangements.
CAPITAL STRUCTURE
The Company’s capital structure is composed solely of ordinary
shares.
During the year under review and to the date of this report, no
shares were bought back by the Company to be held in treasury.
During the year, a total of 1,024,000 new shares were issued at
an average premium of 0.8% to the prevailing cum income NAV per
share.
Since the year end, to 2 June
2020, 3,167,000 new shares have been issued at an average
premium of 0.8% to the prevailing cum income NAV per share.
VOTING RIGHTS IN
THE COMPANY’S SHARES
Details of the voting rights in the Company’s shares at the date
of this Annual Report are given in note 9 to the Notice of Annual
General Meeting.
POLITICAL AND CHARITABLE DONATIONS
The Company has not in the past and does not intend in the
future to make political or charitable donations.
MODERN SLAVERY ACT 2015
The Company does not provide goods or services in the normal
course of business, and as a financial investment vehicle does not
have customers. The Directors do not therefore consider that the
Company is required to make a statement under the Modern Slavery
Act 2015 in relation to slavery or human trafficking.
ANTI-BRIBERY AND CORRUPTION POLICY
The Board has adopted a zero tolerance approach to instances of
bribery and corruption. Accordingly it expressly prohibits any
Director or associated persons when acting on behalf of the
Company, from accepting, soliciting, paying, offering or promising
to pay or authorise any payment, public or private in the UK or
abroad to secure any improper benefit for themselves or for the
Company.
The Board ensures that its service providers apply the same
standards in their activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy can
be found on its website at www.worldwidewh.com. The policy is
reviewed regularly by the Audit Committee.
CRIMINAL FINANCES ACT 2017
The Company has a commitment to zero tolerance towards the
criminal facilitation of tax evasion.
GLOBAL GREENHOUSE GAS EMISSIONS
The Company has no greenhouse gas emissions to report from its
operations, nor does it have responsibility for any other emissions
producing sources under Large and Medium sized Companies and Groups
(Accounts and Reports) Regulations 2008 (as amended), including
those within the underlying investment portfolio.
COMMON REPORTING STANDARD (CRS)
CRS is a global standard for the automatic exchange of
information commissioned by the Organisation for Economic
Cooperation and Development and incorporated into UK law by the
International Tax Compliance Regulations 2015. CRS requires the
Company to provide certain additional details to HMRC in relation
to certain shareholders. The reporting obligation began in 2016 and
is an annual requirement. The Registrars, Link Asset Services, have
been engaged to collate such information and file the reports with
HMRC on behalf of the Company.
GOING CONCERN
The financial statements have been prepared on a going concern
basis. The Directors consider this is the appropriate basis as the
Company has adequate resources to continue in operational existence
for the foreseeable future, being taken as 12 months after approval
of the financial statements. The Company’s shareholders are asked
every five years to vote for the continuation of the Company, this
will next be put to shareholders at the Annual General Meeting to
be held in 2024. The content of the Company’s portfolio, trading
activity, the Company’s cash balances and revenue forecasts, and
the trends and factors likely to affect the Company’s performance
are reviewed and discussed at each Board meeting. The Board has
considered a detailed assessment of the Company’s ability to meet
its liabilities as they fall due, including stress and liquidity
tests which modelled the effects of further substantial falls in
markets to that experienced to date in connection with the
coronavirus pandemic and significant reductions in market
liquidity, on the Company’s net asset value, its cash flows and its
expenses. Further information is provided in the Audit Committee
report.
Based on the information available to the Directors at the date
of this report, including the results of these stress tests, the
conclusions drawn in the Viability Statement, the Company’s cash
balances, and the liquidity of the Company’s listed investments,
the Directors are satisfied that the Company has adequate financial
resources to continue in operation for at least the next 12 months
and that, accordingly, it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.
ARTICLES OF ASSOCIATION
Amendments of the Company’s Articles of Association requires a
special resolution to be passed by shareholders.
REQUIREMENTS OF THE LISTING RULES
Listing Rule 9.8.4 requires the Company to include certain
information in a single identifiable section of the Annual Report
or a cross reference table indicating where the information is set
out. The Directors confirm that there are no disclosures to be made
under Listing Rule 9.8.4.
By order of the Board
Frostrow Capital LLP
Company Secretary
3 June 2020
Governance/STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the Financial
Statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors are required
to:
- select suitable accounting
policies and apply them consistently;
- make judgements and
estimates that are reasonable and prudent;
- follow applicable UK
accounting standards comprising FRS 102; and
- prepare the financial
statements on a going concern basis.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements and the Directors’ Remuneration Report
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for ensuring that the Report of
the Directors and other information included in the Annual Report
is prepared in accordance with company law in the United Kingdom. They are also responsible for
ensuring that the Annual Report includes information required by
the Listing Rules of the FCA.
The financial statements are published on the Company’s website
www.worldwidewh.com and via Frostrow’s website www.frostrow.com.
The maintenance and integrity of these websites, so far as it
relates to the Company, is the responsibility of Frostrow. 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 financial statements since they were initially
presented on these websites. Visitors to the websites need to be
aware that legislation in the United
Kingdom governing the preparation and dissemination of the
financial statements may differ from legislation in their
jurisdiction.
DISCLOSURE OF INFORMATION TO THE
AUDITORS
So far as the Directors are aware, there is no relevant
information of which the Auditors are unaware. The Directors have
taken all steps they ought to have taken to make themselves aware
of any relevant audit information and to establish that the
Auditors are aware of such information.
RESPONSIBILITY STATEMENT OF THE
DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT
The Directors confirm to the best of their knowledge that:
- the Financial Statements,
within this Annual Report, have been prepared in accordance with
applicable accounting standards, give a true and fair view of the
assets, liabilities, financial position and the return for the year
ended 31 March 2020;
- the Chairman’s Statement,
Strategic Report and the Report of the Directors include a fair
review of the information required by 4.1.8R to 4.1.11R of the
FCA’s Disclosure Guidance and Transparency Rules; and
- the Annual Report and
Financial Statements taken as a whole are fair, balanced and
understandable and provide the information necessary to assess the
Company’s performance, business model and strategy.
On behalf of the Board
Sir Martin Smith
Chairman
3 June 2020
Governance/CORPORATE GOVERNANCE
THE BOARD AND COMMITTEES
Responsibility for effective governance lies with the Board. The
governance framework of the Company reflects the fact that as an
investment company it has no employees and outsources portfolio
management to OrbiMed and risk management, company management,
company secretarial, administrative and marketing services to
Frostrow.
THE BOARD
Chairman – Sir Martin Smith
Senior Independent Director – Dr David Holbrook
Five additional non-executive Directors, all considered
independent, except for Sven Borho.
Key responsibilities:
- to provide leadership and set
strategy, values and standards within a framework of prudent
effective controls which enable risk to be assessed and
managed;
- to ensure that a robust
corporate governance framework is implemented; and
- to challenge constructively
and scrutinise performance of all outsourced activities. |
Management
Engagement & Remuneration Committee
Chairman
Doug McCutcheon
All Independent Directors
Key responsibilities:
- to review regularly the
contracts, the performance and remuneration of the Company’s
principal service providers; and
- to set the Directors’
Remuneration Policy of the Company. |
|
Audit
Committee
Chairman
Humphrey van der Klugt, FCA*
All Independent Directors (excluding the Chairman, Sir Martin
Smith)
Key responsibilities:
- to review the Company’s
financial reports;
- to oversee the risk and
control environment and financial reporting; and
- to review the performance of
the Company’s external Auditors. |
|
Nominations
Committee
Chairman
Dr David Holbrook
All Independent Directors
Key responsibilities:
- to review regularly the
Board’s structure and composition; and
- to make recommendations for
any changes or new appointments. |
* The
Directors believe that Humphrey van der
Klugt has the necessary recent and relevant financial
experience to Chair the Company’s Audit Committee.
Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the
Company Secretary and can be found at the Company’s website at
www.worldwidewh.com.
CORPORATE GOVERNANCE STATEMENT
The Board is committed to maintaining and demonstrating high
standards of corporate governance. The Board has considered the
principles and recommendations of the AIC Code of Corporate
Governance (‘AIC Code’). The AIC Code addresses all the principles
set out in the UK Corporate Governance Code (the ‘UK Code’), as
well as setting out additional provisions on issues that are of
specific relevance to the Company.
The Financial Reporting Council has confirmed that by following
the AIC Code boards of investment companies will meet their
obligations in relation to the UK Code and paragraph 9.8.6 of the
UK Listing Rules.
The Board considers that reporting in accordance with the
principles and recommendations of the AIC Code provides more
relevant and comprehensive information to shareholders. The AIC
Code can be viewed at www.theaic.co.uk. The Corporate Governance
Statement, forms part of the Report of the Directors.
BOARD LEADERSHIP AND PURPOSE
PURPOSE AND
STRATEGY
The purpose and strategy of the Company are described in the
Strategic Report.
THE BOARD
The Board is responsible for the effective Stewardship of the
Company’s affairs. Strategy issues and all operational matters of a
material nature are considered at its meetings.
The Board consists of seven non-executive Directors, each of
whom, with the exception of Sven
Borho, is independent of OrbiMed and the Company’s other
service providers. No member of the Board is a Director of another
investment company managed by OrbiMed, nor has any Board member
been an employee of the Company, OrbiMed or any of the Company’s
service providers.
The Board carefully considers the various guidelines for
determining the independence of non-executive Directors, placing
particular weight on the view that independence is evidenced by an
individual being independent of mind, character and judgement. All
Directors, with the exception of Sven
Borho, are presently considered to be independent. All
Directors retire at the AGM each year and, if appropriate, seek
re-election. Each Director has signed a letter of appointment to
formalise the terms of their engagement as a non-executive
Director, copies of which are available on request at the office of
Frostrow Capital LLP.
BOARD CULTURE
The Board aims to consider and discuss differences of opinion,
unique vantage points and to exploit fully areas of expertise. The
Chairman encourages open debate to foster a supportive and
co-operative approach for all participants. Strategic decisions are
discussed openly and constructively. The Board aims to be open and
transparent with shareholders and other stakeholders and for the
Company to conduct itself responsibly, ethically and fairly in its
relationships with service providers.
The Board has gained assurance on whistleblowing procedures at
the Company’s principal service providers to ensure employees at
those companies are supported in speaking up and raising concerns.
No concerns relating to the Company were raised during the
year.
SHAREHOLDER
RELATIONS
The Company has appointed Frostrow to provide marketing and
investor relations services, in the belief that a well marketed
investment company is more likely to grow over time, have a more
diverse, stable list of shareholders and its shares will trade at
close to net asset value per share over the long run. Frostrow
actively promotes the Company.
SHAREHOLDER
COMMUNICATIONS
The Board, the AIFM and the Portfolio Manager consider
maintaining good communications with shareholders and engaging with
larger shareholders through meetings and presentations a key
priority. Shareholders are being informed by the publication of
annual and half-year reports which include financial statements.
These reports are supplemented by the daily release of the net
asset value per share to the London Stock Exchange and the
publication of monthly fact sheets. All this information, including
interviews with the Portfolio Manager, is available on the
Company’s website at www.worldwidewh.com.
The Board supports the principle that the Annual General Meeting
be used to communicate with private investors, in particular.
Shareholders are usually encouraged to attend the Annual General
Meeting, where they are normally given the opportunity to question
the Chairman, the Board and representatives of the Portfolio
Manager. In addition, the Portfolio Manager usually makes a
presentation to shareholders covering the investment performance
and strategy of the Company at the Annual General meeting. However,
in light of government rules relating to the coronavirus pandemic
at the date of this report, the Board has made different
arrangements for the forthcoming AGM and these are explained in the
Chairman’s Statement. Details of the proxy votes received in
respect of each resolution will be made available on the Company’s
website.
The Board monitors the share register of the Company; it also
reviews correspondence from shareholders at each meeting and
maintains regular contact with major shareholders. Shareholders who
wish to raise matters with a Director may do so by writing to them
at the registered office of the Company.
SIGNIFICANT
HOLDINGS AND VOTING RIGHTS
Details of the shareholders with substantial interests in the
Company’s shares, the Directors’ authorities to issue and
repurchase the Company’s shares, and the voting rights of the
shares are set out in the Directors’ Report.
BOARD MEETINGS
The Board meets formally at least four times each year. During
the lockdown period introduced as a result of the COVID19
pandemic, the Board continued to meet virtually. A representative
of OrbiMed attends all meetings; representatives from Frostrow
Capital LLP are also in attendance at each Board meeting. The
Chairman encourages open debate to foster a supportive and
co-operative approach for all participants.
The Board has agreed a schedule of matters specifically reserved
for decision by the Board. This includes establishing the
investment objectives, strategy and the Benchmark, the permitted
types or categories of investments, the markets in which
transactions may be undertaken, the amount or proportion of the
assets that may be invested in any geography or category of
investment or in any one investment, and the Company’s share
issuance and share buyback policies.
The Board, at its regular meetings, undertakes reviews of key
investment and financial data, revenue projections and expenses,
analyses of asset allocation, transactions and performance
comparisons, share price and net asset value performance, marketing
and shareholder communication strategies, the risks associated with
pursuing the investment strategy, peer group information and
industry issues.
The Chairman is responsible for ensuring that the Board receives
accurate, timely and clear information. Representatives of OrbiMed
and Frostrow Capital LLP report regularly to the Board on issues
affecting the Company.
The Board is responsible for strategy and has established an
annual programme of agenda items under which it reviews the
objectives and strategy for the Company at each meeting.
CONFLICTS OF INTEREST
Company Directors have a statutory obligation to avoid a
situation in which they (and connected persons) have, or can have,
a direct or indirect interest that conflicts, or may possibly
conflict, with the interests of the Company. The Board has in place
procedures for managing any actual or potential conflicts of
interest. No conflicts of interest arose during the year under
review.
BOARD FOCUS AND RESPONSIBILITIES
With the day to day management of the Company outsourced to
service providers the Board’s primary focus at each Board meeting
is reviewing the investment performance and associated matters,
such as, inter alia, future outlook and strategy, gearing, asset
allocation, investor relations, marketing, and industry issues.
In line with its primary focus, the Board retains responsibility
for all the key elements of the Company’s strategy and business
model, including:
- the Investment Objective,
Policy and Benchmark, incorporating the investment and derivative
guidelines and limits, and changes to these;
- the maximum level of
gearing and leverage the Company may employ;
- a review of performance
against the Company’s KPIs;
- a review of the
performance and continuing appointment of service providers;
and
- the maintenance of an
effective system of oversight, risk management and corporate
governance.
The Investment Objective, Policy, and Benchmark, including the
related limits and guidelines along with details of the gearing and
leverage levels allowed.
Details of the principal KPIs and further information on the
principal service providers, their performance and continuing
appointment, along with details of the principal risks, and how
they are managed, are set out in the Strategic Report.
The Corporate Governance report includes a statement of
compliance with corporate governance codes and best practice, and
the Business Review includes details of the internal control and
risk management framework within which the Board operates.
BOARD COMPOSITION AND SUCCESSION
SUCCESSION
PLANNING
The Board regularly considers its structure and recognises the
need for progressive refreshment.
The Board has an approved succession planning policy to ensure
that (i) there is a formal, rigorous and transparent procedure for
the appointment of new directors; and (ii) the Board is comprised
of members who collectively display the necessary balance of
professional skills, experience, length of service and
industry/Company knowledge.
During the year, the Board reviewed the policy on Directors’
tenure and considered the overall length of service of the Board as
a whole.
POLICY ON THE
TENURE OF THE CHAIRMAN AND OTHER NON-EXECUTIVE DIRECTORS
The tenure of each non-executive director, including the
Chairman, is not ordinarily expected to exceed nine years. However,
the Board has agreed that the tenure of the Chairman may be
extended for an agreed time provided such an extension is conducive
to the Board’s overall orderly succession. The Board believes that
this more flexible approach to the tenure of the Chairman is
appropriate in the context of the regulatory rules that apply to
investment companies, which ensure that the chair remains
independent after appointment, while being consistent with the need
for regular refreshment and diversity.
The Board is, however, currently in the process of refreshing
its membership which will mean that certain directors will serve
for longer than nine years to ensure that the changes to be
implemented are made in an orderly and structured manner. Further
details of this process can be found in the Chairman’s
Statement.
The Board subscribes to the view that long serving directors
should not necessarily be prevented from forming part of an
independent majority. The Board considers that a director’s tenure
does not necessarily reduce his or her ability to act independently
and will continue to assess each director’s independence annually,
through a formal performance evaluation.
APPOINTMENTS TO
THE BOARD
The Nominations Committee considers annually the skills
possessed by the Board and identifies any skill shortages to be
filled by new Directors.
The rules governing the appointment and replacement of directors
are set out in the Company’s articles of association and the
aforementioned succession planning policy. Where the Board appoints
a new director during the year, that director will stand for
election by shareholders at the next Annual General Meeting (AGM).
Subject to there being no conflict of interest, all Directors are
entitled to vote on candidates for the appointment of new directors
and on the recommendation for shareholders’ approval for the
Directors seeking re-election at the AGM. When considering new
appointments, the Board endeavours to ensure that it has the
capabilities required to be effective and oversee the Company’s
strategic priorities. This will include an appropriate range,
balance and diversity of skills, experience and knowledge. The
Company is committed to ensuring that any vacancies arising are
filled by the most qualified candidates.
Dr. Bina Rawal was appointed to
the Board on 1 November 2019.
DIVERSITY
POLICY
The Company supports the objectives of improving the performance
of corporate boards by encouraging the appointment of the best
people from a range of differing perspectives and backgrounds. The
Company recognises the benefits of diversity (of which gender is
one aspect) on the Board and takes this into account in its Board
appointments. The Company is committed to ensuring that its
director search processes actively seek men and women with the
right qualifications so that appointments can be made, on the basis
of merit, against objective criteria from a diverse selection of
candidates. The Board actively considers diversity during director
searches.
The Board is currently in the process of refreshing its
membership. Its intention is for not less than one-third of its
membership to be women over time.
MEETING ATTENDANCE
The number of scheduled meetings held during the year of the
Board and its Committees, and each Director’s attendance level, is
shown below:
|
|
|
|
Management |
|
|
|
|
Engagement & |
|
|
Audit |
Nominations |
Remuneration |
|
Board |
Committee |
Committee |
Committee |
Type and number of
meetings held in 2019/20 |
(4) |
(2) |
(1) |
(1) |
Sir Martin Smith^ |
4 |
– |
1 |
1 |
Sarah Bates |
4 |
2 |
1 |
1 |
Sven Borho* |
4 |
– |
– |
– |
Dr David Holbrook |
4 |
2 |
1 |
1 |
Humphrey van der
Klugt |
4 |
2 |
1 |
1 |
Doug McCutcheon |
4 |
2 |
1 |
1 |
Dr Bina Rawal† |
2 |
1 |
– |
– |
^ Sir Martin is
not a member of the Audit Committee
*
Sven Borho does not sit on any of
the Company’s Committees.
† Dr Rawal
joined the Board on 1 November
2019.
All of the serving Directors attended the Annual General Meeting
held on 9 July 2019.
BOARD EVALUATION
During the year the performance of the Board, its committees and
individual Directors (including each Director’s independence) was
evaluated through a formal assessment led by the Senior Independent
Director. The performance of the Chairman was also evaluated by the
Senior Independent Director. The review concluded that the Board
was working well.
The Board is satisfied that the structure, mix of skills and
operation of the Board continue to be effective and relevant for
the Company.
As an independent external review of the Board was undertaken in
2018 the next such review will be held in 2021.
The Board pays close attention to the capacity of individual
Directors to carry out their work on behalf of the Company. In
recommending individual Directors to shareholders for re-election,
it considered their other Board positions and their time
commitments and is satisfied that each Director has the capacity to
be fully engaged with the Company’s business. The Board has
considered the position of all of the Directors as part of the
evaluation process, and believes that it would be in the Company’s
best interests to propose them for election and re-election at the
forthcoming Annual General Meeting for the following reasons:
Sir Martin Smith, has been a
Director since November 2007 and
Chairman since July 2008, though
having served on the Board for more than nine years from the date
of his first election, the Board is firmly of the view that he can
be considered independent. Sir Martin has extensive knowledge of
the financial sector and was a founder and senior partner of
Phoenix Securities, becoming Chairman of European Investment
Banking for Donaldson, Lufkin & Jenrette (DLJ) following the
acquisition of Phoenix by DLJ. He
was subsequently a founder of New Star Asset Management Limited. He
has been Chairman or Director of numerous growing companies over
the past 30 years.
Sarah Bates has been a Director
since May 2013. Sarah is a past Chair
of the Association of Investment Companies and has a wealth of
experience of the investment trust sector. She and has been
involved in the UK savings and investment industry in different
roles for over 30 years.
Sven Borho joined the Board in
June 2018. Sven is a founder and
Managing Partner of OrbiMed and heads their public Equity team and
is the portfolio Manager for OrbiMed’s public equity and hedge
funds.
Dr David Holbrook has been a
Director since November 2007, though
having served on the Board for more than nine years from the date
of his first election, the Board is firmly of the view that he can
be considered independent. A qualified physician, he was formerly
Investment Director of the life sciences activities of the seed
fund of the University of Cambridge. He
is Chairman of the Nominations Committee and is the Senior
Independent Director.
Humphrey van der Klugt joined the
Board in February 2016. A former fund
manager and Director of Schroder Investment Management Limited,
Humphrey has extensive experience of the investment trust sector.
He is a Chartered Accountant, and Chairman of the Audit
Committee.
Doug McCutcheon joined the Board
in November 2012. Doug was an
investment banker at S.G Warburg and then UBS for 25 years, most
recently as the head of Healthcare Investment Banking for
Europe, the Middle East, Africa and Asia-Pacific. He is Chairman of the Management
Engagement & Remuneration Committee.
Dr Bina Rawal joined the Board on
November 2019. A physician with 25
years’ experience in life sciences research and development, she
has held senior executive roles in drug development and scientific
evaluation in four global pharmaceutical companies.
The Chairman is pleased to report that following a formal
performance evaluation, the Directors’ performance continues to be
effective and they continue to demonstrate commitment to the
role.
TRAINING AND ADVICE
New appointees to the Board are provided with a full induction
programme. The programme covers the Company’s investment strategy,
policies and practices. The Directors are also given key
information on the Company’s regulatory and statutory requirements
as they arise including information on the role of the Board,
matters reserved for its decision, the terms of reference of the
Board Committees, the Company’s corporate governance practices and
procedures and the latest financial information. It is the
Chairman’s responsibility to ensure that the Directors have
sufficient knowledge to fulfil their role and Directors are
encouraged to participate in training courses where
appropriate.
The Directors have access to the advice and services of a
Company Secretary through its appointed representative which is
responsible to the Board for ensuring that Board procedures are
followed and that applicable rules and regulations are complied
with. The Company Secretary is also responsible for ensuring good
information flows between all parties.
There is an agreed procedure for Directors, in the furtherance
of their duties, to take independent professional advice if
necessary at the Company’s expense.
RISK MANAGEMENT AND INTERNAL
CONTROLS
The Board has overall responsibility for the Company’s risk
management and internal control systems and for reviewing their
effectiveness. The Company applies the guidance published by the
Financial Reporting Council on internal controls. Internal control
systems are designed to manage, rather than eliminate, the risk of
failure to achieve the business objective and can provide only
reasonable and not absolute assurance against material misstatement
or loss. These controls aim to ensure that the assets of the
Company are safeguarded, that proper accounting records are
maintained and that the Company’s financial information is
reliable. The Directors have a robust process for identifying,
evaluating and managing the significant risks faced by the Company,
which are recorded in a risk matrix. The Audit Committee, on behalf
of the Board, considers each risk as well as reviewing the
mitigating controls in place. Each risk is rated for its
“likelihood” and “impact” and the resultant numerical rating
determines its ranking into ‘Principal/Key’, ‘Significant’ or
‘Minor’. This process was in operation during the year and
continues in place up to the date of this report. The process also
involves the Audit Committee receiving and examining regular
reports from the Company’s principal service providers. The Board
then receives a detailed report from the Audit Committee on its
findings. The Directors have not identified any significant
failures or weaknesses in respect of the Company’s internal control
systems.
BENEFICIAL OWNERS OF SHARES –
INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the
registered holder of those shares to receive information rights
under section 146 of the Companies Act 2006 are required to direct
all communications to the registered holder of their shares rather
than to the Company’s registrar, Link Asset Services, or to the
Company directly.
The Company has adopted a nominee share code which is set out on
the following page.
The annual and half-year financial reports, and a monthly fact
sheet are available to all shareholders. The Board, with the advice
of Frostrow, reviews the format of the annual and half-year
financial reports so as to ensure they are useful to all
shareholders and others taking an interest in the Company. In
accordance with best practice, the annual report, including the
Notice of the Annual General Meeting, is sent to shareholders at
least 20 working days before the meeting. Separate resolutions are
proposed for substantive issues.
ANNUAL GENERAL MEETING
THE FOLLOWING INFORMATION TO BE
CONSIDERED AT THE FORTHCOMING ANNUAL GENERAL MEETING IS IMPORTANT
AND REQUIRES YOUR IMMEDIATE ATTENTION.
If you are in any doubt about the
action you should take, you should seek advice from your stock
broker, bank manager, solicitor, accountant or other financial
adviser authorised under the Financial Services and Markets Act
2000 (as amended). If you have sold or transferred all of your
ordinary shares in the Company, you should pass this document,
together with any other accompanying documents, including the form
of proxy, at once to the purchaser or transferee, or to the stock
broker, bank or other agent through whom the sale or transfer was
effected, for onward transmission to the purchaser or
transferee
The Company’s Annual General Meeting will be held at the offices
of Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Thursday, 9 July 2020 at 12 noon. Please refer to the
Chairman’s Statement for details of this year’s arrangements.
Resolutions relating to the following items of special business
will be proposed at the forthcoming Annual General Meeting.
Resolution 12 |
Authority to allot shares |
Resolution 13 |
Authority to disapply pre-emption
rights |
Resolution 14 |
Authority to sell shares held in
Treasury on a non pre-emptive basis |
Resolution 15 |
Authority to buy back shares |
Resolution 16 |
Authority to hold General Meetings
(other than the Annual General Meeting) on at least 14 clear days’
notice. |
The full text of the resolutions can be found in the Notice of
Annual General Meeting.
EXERCISE OF VOTING POWERS
The Board and the AIFM have delegated authority to OrbiMed to
vote the shares owned by the Company. The Board has instructed that
OrbiMed submit votes for such shares wherever possible. This
accords with current best practice whilst maintaining a primary
focus on financial returns. OrbiMed may refer to the Board on any
matters of a contentious nature. The Board has reviewed OrbiMed’s
Voting Guidelines and is satisfied with their approach.
The Company does not retain voting rights on any shares that are
held as collateral in connection with the overdraft facility
provided by J.P. Morgan Securities LLC.
NOMINEE SHARE CODE
Where shares are held in a nominee company name, the Company
undertakes:
- to provide the nominee
company with multiple copies of shareholder communications, so long
as an indication of quantities has been provided in advance;
and
- to allow investors holding
shares through a nominee company to attend general meetings,
provided the correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the necessary
authority to underlying shareholders to attend the Company’s
general meetings.
By order of the Board
Frostrow Capital LLP
Company Secretary
3 June 2020
Governance/AUDIT COMMITTEE REPORT
INTRODUCTION FROM THE CHAIRMAN
I am pleased to present my formal report to shareholders as
Chairman of the Audit Committee, for the year ended 31 March
2020.
COMPOSITION AND MEETINGS
The Committee comprises those Directors considered to be
independent by the Board. The Chairman of the Board is not a member
of the Committee but attends meetings by invitation. Attendance by
each Director is shown in the table. The Board has taken note of
the requirements that the Committee as a whole should have
competence relevant to the sector in which the Company operates and
that at least one member of the Committee should have recent and
relevant financial experience. The Committee is satisfied that the
Committee is properly constituted in both respects. I was appointed
Chairman of the Committee in 2016 and am a Fellow of the Institute
of Chartered Accountants in England and Wales, I am also the Chairman of the Audit
Committee of one other public company; the other Committee members
have a combination of financial, investment and other relevant
experience gained throughout their careers.
RESPONSIBILITIES
The Audit Committee’s main responsibilities during the year
were:
1. To review the Company’s
half-year and annual report. In particular, the Audit Committee
considered whether the annual report is fair, balanced and
understandable, allowing shareholders to more easily assess the
Company’s strategy, investment policy, business model and financial
performance.
2. To advise the Board on whether
the Annual Report and the Financial Statements, taken as a whole,
is fair, balanced and understandable.
3. To review the risk management
and internal control processes of the Company and its key service
providers. Further details of the Audit Committee’s review are
included in the Principal Risks section.
4. To develop and implement a
policy for the engagement of the external Auditors and agreeing the
scope of its work and its remuneration. Also, to be responsible for
the selection process of the external Auditors (including the
leadership of an audit tender process) and to have primary
responsibility for the Company’s relationship with the external
Auditors.
5. To review the effectiveness of
the external audit and the process.
6. To review the independence and
objectivity of the external Auditors.
7. To consider any non-audit work
to be carried out by the Auditors. The Audit Committee reviews the
need for non-audit services to be provided by the Auditors and
authorises such on a case by case basis, having consideration to
the cost effectiveness of the services and the independence and
objectivity of the Auditors.
8. To consider the need for an
internal audit function. Since the Company delegates its day-to-day
operations to third parties and has no employees, the Audit
Committee has determined there is no requirement for such a
function.
9. To report its findings to the
Board.
The Audit Committee’s terms of reference are available for
review on the Company’s website at www.worldwidewh.com.
SIGNIFICANT ISSUES CONSIDERED BY THE
AUDIT COMMITTEE DURING THE YEAR
FINANCIAL
STATEMENTS
The production of the Company’s Annual Report (including the
audit by the Company’s external Auditors) is a thorough process
involving input from a number of different areas. In order to be
able to confirm that the Annual Report is fair, balanced and
understandable, the Board has requested that the Committee advise
on whether it considers these criteria have been satisfied. As part
of this process the Committee has considered the following:
- the procedures followed in
the production of the Annual Report, including the processes in
place to assure the accuracy of the factual content;
- the extensive levels of
review that were undertaken in the production process, by the
Company’s AIFM and also by the Committee; and
- the internal control
environment as operated by the Portfolio Manager, AIFM and other
service providers.
As a result of the work undertaken by the Committee, it has
confirmed that the Annual Report for the year ended 31 March
2020, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company’s financial position, performance, business model and
strategy. The Committee has confirmed this to the Board.
SIGNIFICANT REPORTING MATTERS
OVERALL ACCURACY
OF THE ANNUAL REPORT
The Audit Committee dealt with this matter by considering the
draft Annual Report, a letter from Frostrow in support of the
letter of representation made by the Board to the Auditors and the
Auditors’ Report to the Audit Committee.
VALUATION AND
OWNERSHIP OF THE COMPANY’S INVESTMENTS AND DERIVATIVES
The Audit Committee dealt with this matter by:
- ensuring that all
investment holdings and cash/ deposit balances had been agreed to
an independent confirmation from the Custodian and Prime Broker or
relevant counterparty. In addition, receiving and reviewing details
of the internal control procedures in place at the Portfolio
Manager, the AIFM and the Custodian and Prime Broker and also
regular reports from both the Custodian and Prime Broker and also
the Depositary (whose role it is to ensure that the Company’s
assets are safeguarded and to verify their valuation);
- reconfirming its
understanding of the processes in place to record investment
transactions and income, and to value both the quoted and unquoted
holdings in the portfolio;
- reviewing and amending,
where necessary, the Company’s register of key risks in light of
changes to the portfolio and the investment environment;
- gaining an overall
understanding of the performance of the portfolio both in capital
and revenue terms through comparison to the Benchmark; and
- conducting a review of how
the Company’s derivative positions were monitored.
VALUATION OF
UNQUOTED INVESTMENTS
The Company has the ability to make unquoted investments within
its investment portfolio, up to a limit of 10% of the portfolio at
the time of acquisition. Both the Company’s Directors and the AIFM
need to ensure that an appropriate value is placed on such
investments within the Company’s net asset value. The Committee
worked with the Company’s Portfolio Manager and the AIFM to
establish clear guidelines for the valuation of unquoted
investments, including the use of valuations produced by
independent external valuers, where appropriate.
OTHER REPORTING MATTERS
CALCULATION OF
AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
The AIFM, Portfolio Management and Performance fees are
calculated in accordance with the AIFM and Portfolio Management
Agreements. The Auditors perform agreed upon procedures over any
performance fee prior to payment. The Auditors also recalculate the
AIFM and Portfolio Management fee as part of the audit.
TAXATION
The Committee approached and dealt with ensuring compliance with
Section 1158 of the Corporation Tax Act 2010, by seeking
confirmation that the Company continues to meet the eligibility
conditions on a monthly basis.
INVESTMENT
PERFORMANCE
The Committee gained an overall understanding of the performance
of the investment portfolio both in capital and revenue terms
through ongoing discussions and analysis with the Company’s
Portfolio Manager and also with comparison to suitable key
performance indicators.
ACCOUNTING
POLICIES
During the year the Committee ensured that the accounting
policies, were applied consistently throughout the year. In light
of there being no unusual transactions during the year or other
possible reasons, the Committee agreed that there was no reason to
change the policies.
GOING CONCERN
Having reviewed the Company’s financial position and
liabilities, the Committee is satisfied that it is appropriate for
the Board to prepare the financial statements on the going concern
basis.
VIABILITY
STATEMENT
The Committee also considered the longer-term viability of the
Company in connection with the Board’s statement in the Strategic
Report. The Committee reviewed the Company’s financial position
(including its cash flows and liquidity position), the principal
risks and uncertainties and the results of stress tests and
scenarios which considered the impact of severe stock market
volatility on shareholders’ funds. This included modelling further
substantial market falls, and significantly reduced market
liquidity, to that experienced recently in connection with the
coronavirus pandemic. The scenarios assumed that there would be no
recovery in asset prices and that listed portfolio companies which
have cut or cancelled any dividends due since the coronavirus
outbreak would not reinstate them.
The results demonstrated the impact on the Company’s NAV, its
expenses, its cash flows and its ability to meet its liabilities.
In even the most stressed scenario, the Company was shown to have
sufficient cash, or to be able to liquidate a sufficient portion of
its listed holdings, in order to be able to meet its liabilities as
they fall due. Based on the information available to the Directors
at the time, the Committee therefore concluded it was reasonable
for the Board to expect that the Company will be able to continue
in operation and meet its liabilities as they fall due over the
next five financial years. The Committee expects that the Company
will continue to exist for the foreseeable future and at least for
the period of the assessment.
INTERNAL CONTROLS AND RISK
MANAGEMENT
The Board is responsible for the risk assessment and review of
internal controls of the Company, undertaken in the context of the
overall investment objective.
The review covers the key business, operational, compliance and
financial risks facing the Company. In arriving at its judgement of
what risks the Company faces, the Board has considered the
Company’s operations in the light of the following factors:
- the nature of the Company,
with all management functions outsourced to third party service
providers;
- the nature and extent of
risks which it regards as acceptable for the Company to bear within
its overall investment objective;
- the threat of such risks
becoming a reality; and
- the Company’s ability to
reduce the incidence and impact of risk on its performance.
Against this background, a risk matrix has been developed which
covers all key risks the Company faces, the likelihood of their
occurrence and their potential impact, how these risks are
monitored and mitigating controls in place. The Board has delegated
to the Audit Committee the responsibility for the review and
maintenance of the risk matrix and it reviews, in detail, the risk
matrix each time it meets, bearing in mind any changes to the
Company, its environment or service providers since the last
review. Any significant changes to the risk matrix are discussed
with the whole Board.
PRINCIPAL SERVICE
PROVIDERS
In addition to reviewing the systems of internal control in
place at the Company’s principal service providers, the Committee
also reviewed the cyber security strategies adopted by them.
EXTERNAL AUDITORS
MEETINGS
This year the nature and scope of the audit together with
PricewaterhouseCoopers LLP’s audit plan were considered by the
Committee on 6 November 2019. I, as
Chairman of the Committee, had a separate meeting with them
specifically to discuss the audit and any issues that arose. The
Committee then met PricewaterhouseCoopers LLP on 21 May 2020 via video conference to review
formally the outcome of the audit and to discuss the limited issues
that arose. The Committee also discussed the presentation of the
Annual Report with the Auditors and sought their perspective.
INDEPENDENCE AND
EFFECTIVENESS
In order to fulfil the Committee’s responsibility regarding the
independence of the Auditors, the Committee reviewed:
- the senior audit personnel
in the audit plan for the year,
- the Auditors’ arrangements
concerning any conflicts of interest,
- the extent of any
non-audit services, and
- the statement by the
Auditors that they remain independent within the meaning of the
regulations and their professional standards.
NON-AUDIT SERVICES
POLICY
The Company operates on the basis whereby the provision of all
non-audit services by the Auditors has to be pre-approved by the
Audit Committee. Such services are only permissible where no
conflicts of interest arise, the service is not expressly
prohibited by audit legislation, where the independence of the
Auditors is not likely to be impinged by undertaking the work and
the quality and the objectivity of both the non-audit work and
audit work will not be compromised.
Non-audit fees of £nil (2019: £3,500) were payable to the
Auditors during the year for agreed upon procedures in relation to
their review of the Company’s performance fee payment.
The Audit Committee has considered the extent and nature of
non-audit work performed by the Auditors and is satisfied that this
did not impinge on their independence and is a cost effective way
for the Company to operate.
APPOINTMENT AND
TENURE
PricewaterhouseCoopers LLP were appointed on 14 July 2014 following a formal tender process
and this appointment has been renewed at each subsequent AGM. The
Committee reviews the re-appointment of the Auditors every year and
the need to put the audit out to tender. Based on existing
legislation, another tender process will be conducted no later than
2024. The Company is therefore in compliance with the provisions of
“The Statutory Audit Services for Large Companies Market
Investigation” (Mandatory use of competitive tender process and
audit committee responsibilities) Order 2014 as issued by the
Competition & Markets Authority.
Sandra Dowling had been the audit
partner allocated to the Company since 2014. Audit legislation
requires the audit partner to rotate after serving a maximum of
five years with the Company. Last year’s audit was therefore Sandra
Dowling’s last. PricewaterhouseCoopers appointed Allan McGrath as her successor. I met with
Allan McGrath prior to his formal
appointment.
AUDITORS’
REAPPOINTMENT
PricewaterhouseCoopers LLP have indicated their willingness to
continue to act as Auditors to the Company for the forthcoming year
and a resolution for their re-appointment will be proposed at the
Annual General Meeting.
The Committee reviews the scope and effectiveness of the audit
process, including agreeing the Auditors’ assessment of materiality
and monitors the Auditors’ independence and objectivity. It
conducted a review of the performance of the Auditors during the
year and concluded that performance was satisfactory and there were
no grounds for change.
PERFORMANCE EVALUATION
The Committee conducted a review of its performance during the
year. In addition, the Committee’s activities fell within the scope
of the review of Board effectiveness carried out during the year,
as detailed in the Strategic Report. It was concluded that the
Committee was performing satisfactorily and that no recommendations
needed to be made to the Board.
AUDIT COMMITTEE CONFIRMATION
The Audit Committee confirms that it has carried out a review of
the effectiveness of the system of internal financial control and
risk management during the year, as set out above and that:
(a) An ongoing procedure for identifying,
evaluating and managing significant risks faced by the Company was
in place for the year under review and up to 3 June 2020. This procedure is regularly reviewed
by the Board; and
(b) It is responsible (on behalf of the Board)
for the Company’s system of internal controls and for reviewing its
effectiveness and that it is designed to manage the risk of failure
to achieve business objectives. This can only provide reasonable
not absolute assurance against material misstatement or loss.
Humphrey van der Klugt,
FCA
Chairman of the Audit Committee
3 June 2020
Governance/DIRECTORS’ REMUNERATION
REPORT
INTRODUCTION FROM THE CHAIRMAN
This report has been prepared in accordance with Schedule 8 of
the Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulation 2013, the requirements of Section
421 of the Companies Act 2006 and the Enterprise and Regulatory
Reform Act 2013. A non-binding Ordinary Resolution for the approval
of this report will be put to shareholders at the Company’s
forthcoming Annual General Meeting (AGM). The law requires the
Company’s Auditors to audit certain of the disclosures provided in
this report. Where disclosures have been audited, they are
indicated as such and the Auditors’ audit opinion is included in
its report to shareholders.
The Management Engagement & Remuneration Committee considers
the framework for the remuneration of the Directors on an annual
basis. It reviews the ongoing appropriateness of the Directors’
Remuneration Policy and the individual remuneration of Directors by
reference to the activities and particular complexities of the
Company and comparison with other companies of a similar structure
and size. This is in-line with the AIC Code.
A non-binding Ordinary Resolution proposing the adoption of the
Directors’ Remuneration Report was put to shareholders at the
Annual General Meeting of the Company held on 9 July 2019, and was passed with 98.4% of the
votes cast by shareholders voting in favour of the Resolution.
As noted in the Strategic Report, all of the Directors are
non-executive and therefore there is no Chief Executive Officer.
The Company does not have any employees. There is therefore no
Chief Executive Officer or employee information to disclose.
DIRECTORS’
REMUNERATION POLICY
The Directors’ Remuneration Policy provides that fees payable to
the Directors should reflect the time spent by the Board on the
Company’s affairs and the responsibilities borne by the Directors
and should be sufficient to enable candidates of high calibre to be
recruited. Directors are remunerated in the form of fees payable
monthly in arrears, paid to the Director personally or to a
specified third party. There are no long-term incentive schemes,
share option schemes, pension arrangements, bonuses, or other
benefits in place and fees are not specifically related to the
Directors’ performance, either individually or collectively.
The remuneration for the non-executive Directors is determined
within the limits set out in the Company’s Articles of Association.
The present limit is £350,000 in aggregate per annum. The amount
paid in aggregate to the Directors in 2020 is set out in the table
on the following page.
A binding resolution to approve the Directors’ Remuneration
Policy was put to shareholders at the Annual General Meeting held
in 2017, and was passed with 98.4% of shareholders voting in favour
of the Resolution. The aforementioned Directors’ Remuneration
Policy provisions apply until the next time that they are put to
shareholders for the renewal of that approval, which must be at
intervals of not more than three years, or if the Directors’
Remuneration Policy is varied. As approval of this policy was last
granted by shareholders at the Annual General Meeting held in
September 2017, shareholder approval
will again be sought at this year’s Annual General Meeting.
DIRECTORS’
APPOINTMENT
None of the Directors has a service contract. The terms of their
appointment provide that Directors shall retire and be subject to
election at the first Annual General Meeting after their
appointment and to re-election annually thereafter. The terms also
provide that a Director may be removed without notice and that
compensation will not be due on leaving office.
DIRECTORS’
FEES
Following a review by the Management Engagement &
Remuneration Committee it was agreed that the Directors’ fees would
be as follows, with effect from 1 April
2020:
The Chairman of the Company, and Humphrey van der Klugt, as Chairman of the Audit
Committee, receive an annual fee of £51,106 and £39,551,
respectively. Dr David Holbrook, as
the Senior Independent Director, receives an annual fee of £34,622.
Sarah Bates, Doug McCutcheon and Dr Bina Rawal each receive an annual fee of
£32,282. Sven Borho has waived his
Director’s fee.
With the exception of Dr Rawal, all of the Directors, as at the
date of this report, served throughout the year. The table overleaf
excludes any employer’s national insurance contributions, if
applicable.
The Directors are entitled to be reimbursed for reasonable
expenses incurred by them in connection with the performance of
their duties and attendance at Board and General Meetings.
DIRECTORS’
EMOLUMENTS FOR THE YEAR (AUDITED)
|
Date
of |
|
Taxable |
|
|
Taxable |
|
|
Appointment |
Fees
(£) |
Expenses† |
Total |
Fees
(£) |
Expenses† |
Total |
|
to the
Board |
2020 |
2020 |
2020 |
2019 |
2019 |
2019 |
Sir Martin Smith |
8
November 2007 |
49,140 |
204 |
49,344 |
47,700 |
571 |
48,271 |
Humphrey Van Der
Klugt |
15
February 2016 |
38,030 |
648 |
38,678 |
36,920 |
344 |
37,264 |
Sarah Bates |
22 May
2013 |
31,040 |
– |
31,040 |
30,130 |
– |
30,130 |
Dr David Holbrook |
8
November 2007 |
33,290 |
– |
33,290 |
32,320 |
– |
32,320 |
Doug McCutcheon |
7
November 2012 |
31,040 |
– |
31,040 |
30,130 |
– |
30,130 |
Sven Borho* |
7 June
2018 |
– |
– |
– |
– |
– |
– |
Dr Bina Rawal** |
1
November 2019 |
12,933 |
– |
12,933 |
– |
– |
– |
Total |
|
195,473 |
852 |
196,325 |
177,200 |
915 |
178,115 |
† Taxable
expenses primarily comprise travel and associated expenses incurred
by the Directors in attending Board and Committee meetings in
London. These are reimbursed by
the Company and, under HMRC Rules, are subject to tax and National
Insurance and therefore are treated as a benefit in kind within
this table.
*
Sven Borho joined the Board on
7 June 2018. Mr Borho has waived his
Director’s fee.
** Dr Rawal joined the
Board on 1 November 2019.
In certain circumstances, under HMRC rules travel and other out
of pocket expenses reimbursed to the Directors may be considered as
taxable benefits. Where expenses are classed as taxable under HMRC
guidance, they are shown in the taxable expenses column of the
Directors’ remuneration table along with the associated tax
liability.
No communications have been received from shareholders regarding
Directors’ remuneration.
SUMS PAID TO THIRD
PARTIES
None of the fees referred to in the above table were paid to any
third party in respect of the services provided by any of the
Directors.
DIRECTORS’
INTERESTS IN THE COMPANY’S SHARES (AUDITED)
|
Ordinary |
|
Shares of 25p each |
|
31
March |
31
March |
|
2020 |
2019 |
Sir Martin Smith |
11,871 |
11,871 |
–
Trustee |
2,725 |
2,725 |
Sarah Bates |
7,200 |
7,200 |
Dr David Holbrook |
1,094 |
1,094 |
Sven Borho* |
10,000 |
10,000 |
Humphrey van der
Klugt |
3,000 |
3,000 |
Doug McCutcheon |
15,000 |
15,000 |
Dr Bina Rawal† |
– |
N/A |
|
50,890 |
50,890 |
* Joined the
Board on 7 June 2018
† Joined the
Board on 1 November 2019. Subsequent
to the year-end, on 23 April 2020, Dr
Rawal bought 500 ordinary shares.
ANNUAL
STATEMENT
On behalf of the Board, I confirm that the Directors’
Remuneration Policy and Directors’ Remuneration Report summarise,
as applicable, for the year to 31 March
2020:
(a) the major decisions on Directors’
remuneration;
(b) any substantial changes relating to
Directors’ remuneration made during the year; and
(c) the context in which the changes occurred
and decisions have been taken.
Doug McCutcheon
Chairman of the Management Engagement & Remuneration
Committee
3 June 2020
Governance/INDEPENDENT AUDITORS’
REPORT TO THE MEMBERS OF WORLDWIDE HEALTHCARE TRUST PLC
REPORT ON THE AUDIT OF THE FINANCIAL
STATEMENTS
OPINION
In our opinion, Worldwide Healthcare Trust PLC’s financial
statements:
- give a true and fair view
of the state of the Company’s affairs as at 31 March 2020 and of its net return for the year
then ended;
- have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards,
comprising FRS 102 “The Financial Reporting Standard applicable in
the UK and Republic of Ireland”, and applicable law); and
- have been prepared in
accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the
Annual Report, which comprise: the Statement of Financial Position
as at 31 March 2020; the Income
Statement, the Statement of Changes in Equity for the year then
ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit
Committee.
OUR AUDIT
APPROACH
BASIS FOR
OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further described in the
Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical
Standard, as applicable to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements.
To the best of our knowledge and belief, we declare that
non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Company.
We have provided no non-audit services to the Company in the
period from 1 April 2019 to
31 March 2020.
- Overall materiality: £15.3
million (2019: £14.3 million), based on 1% of net assets.
- The Company is a
standalone Investment Trust Company and engages Frostrow Capital
LLP (the “AIFM”) to manage its assets.
- We conducted our audit of
the financial statements using information from the AIFM and J.P.
Morgan Europe Limited with whom the AIFM have engaged to provide
certain administrative functions.
- We tailored the scope of
our audit taking into account the types of investments within the
Company, the involvement of the third parties referred to above,
the accounting processes and controls, and the industry in which
the Company operates.
- We obtained an
understanding of the control environment in place at the AIFM and
adopted a fully substantive testing approach using reports obtained
from the AIFM and service providers.
- Income from
investments.
- Valuation and existence of
investments.
- Consideration of impacts
of COVID-19.
THE SCOPE OF OUR
AUDIT
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
CAPABILITY OF THE
AUDIT IN DETECTING IRREGULARITIES, INCLUDING FRAUD
Based on our understanding of the Company and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to breaches of section 1158 of the Corporation
Tax Act 2010, and we considered the extent to which non-compliance
might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on
the preparation of the financial statements such as the Companies
Act 2006. We evaluated management’s incentives and opportunities
for fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the
principal risks were related to posting inappropriate journal
entries to increase revenue (investment income and capital gains)
or to increase net asset value, and management bias in accounting
estimates. Audit procedures performed by the engagement team
included:
- Discussions with the AIFM
and the Audit Committee, including consideration of known or
suspected instances of non-compliance with laws and regulation and
fraud;
- Reviewing relevant meeting
minutes, including those of the Audit Committee;
- Assessment of the
Company’s compliance with the requirements of section 1158 of the
Corporation Tax Act 2010, including recalculation of numerical
aspects of the eligibility conditions;
- Identifying and testing
journal entries, in particular any material or revenue impacting
manual journal entries posted as part of the Annual Report
preparation process; and
- Designing audit procedures
to incorporate unpredictability around the nature, timing or extent
of our testing.
There are inherent limitations in the audit procedures described
above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the
financial statements, the less likely we would become aware of it.
Also, the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for example,
forgery or intentional misrepresentations, or through
collusion.
KEY AUDIT
MATTERS
Key audit matters are those matters that, in the auditors’
professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditors, including those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the
results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters. This is not a complete list of all risks identified
by our audit.
KEY AUDIT MATTER |
|
HOW OUR AUDIT ADDRESSED THE KEY AUDIT
MATTER |
Income from
investments |
|
|
(Audit
Committee Report), (Principal Accounting Policies) and (Notes
to the Financial Statements).
ISAs (UK) presume there is a risk of fraud in income recognition
because of the pressure management may feel to achieve a certain
objective. In this instance, we consider that ‘income’ refers to
all the Company’s income streams, both revenue and capital
(including gains and losses on investments). As the Company has a
capital objective, there might be an incentive to overstate income
in that category if capital is particularly underperforming. As
such, we focussed this risk on the existence/ occurrence of
gains/losses on investments and completeness of dividend income
recognition and its presentation in the Income Statement as set out
in the requirements of The Association of Investment Companies’
Statement of Recommended Practice (the “AIC SORP”). |
|
We
assessed the accounting policy for income recognition for
compliance with accounting standards and the AIC SORP and performed
testing to confirm that income had been accounted for in accordance
with this stated accounting policy.
We found that the accounting policies implemented were in
accordance with accounting standards and the AIC SORP, and that
income has been accounted for in accordance with the stated
accounting policy.
We understood and assessed the design and implementation of key
controls surrounding income recognition.
The gains/losses on investments held at fair value comprise
realised and unrealised gains/losses. For unrealised gains and
losses, we sample tested the valuation of the portfolio at the
year-end (see below), together with testing the reconciliation of
opening and closing investments. For realised gains/losses, we
tested a sample of disposal proceeds by agreeing the proceeds to
bank statements and we re-performed the calculation of a sample of
realised gains/losses.
In addition, we tested a sample of dividend receipts by agreeing
the dividend rates from all investments to independent third party
sources.
To test for completeness, we tested that the appropriate dividends
had been received in the year by reference to independent data of
dividends declared for all listed investments during the year. Our
testing did not identify any unrecorded dividends.
We tested the allocation and presentation of dividend income
between the revenue and capital return columns of the Income
Statement in line with the requirements set out in the AIC SORP. We
did not find any special dividends that were not treated in
accordance with the AIC SORP.
No material misstatements were identified from this testing. |
Valuation and
existence of investments |
|
|
(Audit
Committee Report), (Accounting Policies) and (Notes to the
Financial Statements).
The investment portfolio at 31 March 2020 principally comprised
listed equity investments, OTC swaps and unquoted debt and equity
investments and totalled £1,678,418,000.
We focused on the valuation and existence of investments because
investments represent the principal element of the net asset value
as disclosed in the Statement of Financial Position in the
financial statements. |
|
We tested
the valuation of all listed investments by agreeing the prices used
in the valuation to independent third party sources.
We tested the existence of all listed investments by agreeing the
holdings of each investment to an independent confirmation from the
Custodian and Prime Broker, J.P. Morgan Securities LLC, as at 31
March 2020.
For unquoted investments we understood and evaluated the valuation
methodology applied, by reference to the International Private
Equity and Venture Capital Valuation guidelines (IPEV), and tested
the techniques used by the Directors in determining the fair value
of unquoted investments. Our testing, performed on a sample basis,
included:
- assessing the appropriateness
of the valuation models used
- testing the inputs either
through validation to appropriate third party sources, or where
relevant, assessing the reasonableness of significant estimates and
judgements used; and
- assessing the impact of
COVID-19 on the valuation of investments.
We found that the Directors’ valuations of unquoted investments
were materially consistent with the IPEV guidelines and that the
assumptions used to derive the valuations within the financial
statements were reasonable based on the investee’s circumstances or
consistent with appropriate third party sources. No material
misstatements were identified from this testing.
We tested the existence of the unquoted investment portfolio by
agreeing a sample of the holdings to independently obtained third
party confirmations as at 31 March 2020. No variances were
identified from this testing. |
KEY AUDIT MATTER |
|
HOW OUR AUDIT ADDRESSED THE KEY AUDIT
MATTER |
Consideration of
impacts of COVID-19 |
|
|
Refer to
the Chairman’s Statement , Principal Risks and Uncertainties , the
Viability Statement and the Going Concern Statement, which disclose
the impact of the COVID-19 pandemic.
From a small number of cases of an unknown virus in 2019, the
COVID-19 viral infection has become a global pandemic. It has
caused disruption to supply chains and travel, slowed global growth
and caused volatility in global markets and in exchange rates
during the first quarter of 2020 and to date.
The coronavirus impacted global capital markets significantly in
March 2020. The Company’s net assets were £1,538,298,000 at 31
March 2020.
The Directors have prepared the financial statements of the Company
on a going concern basis, and believe this assumption remains
appropriate. This conclusion is based on the assessment that,
notwithstanding the significant market uncertainties, they are
satisfied that the Company has adequate resources to continue in
operational existence for the foreseeable future and that the
Company and its key third party service providers have in place
appropriate business continuity plans and will be able to maintain
service levels through the coronavirus pandemic. |
|
We
evaluated the Directors’ assessment of the impact of the COVID-19
pandemic on the Company by:
- Evaluating the Company’s
updated risk assessment and considering whether it addresses the
relevant threats presented by COVID-19.
- Evaluating management’s
assessment of operational impacts, considering their consistency
with other available information and our understanding of the
business and assessing the potential impact on the financial
statements.
- Assessing the impact of
COVID-19 on the valuation of sampled unquoted investments.
We obtained and evaluated the Directors’ going concern assessment
which reflects conditions up to the point of approval of the Annual
Report.
- We obtained evidence to
support the key assumptions and forecasts driving the Directors’
assessment. This included reviewing the Directors’ assessment of
the Company’s financial position and forecasts, their assessment of
liquidity and loan covenant compliance as well as their review of
the operational resilience of the Company and oversight of key
third party service providers.
We assessed the disclosures presented in the Annual Report in
relation to COVID-19 by:
- Reading the other
information, including the Principal Risks and Viability Statement
set out in the Strategic Report, and assessing its consistency with
the financial statements and the evidence we obtained in our
audit.
Our conclusions relating to other information are set out in the
‘Reporting on other information’ section of our report.
Our conclusions relating to going concern are set out in the
‘Conclusions relating to going concern’ section below. |
HOW WE TAILORED THE AUDIT SCOPE
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Company, the accounting processes and controls, and the industry in
which it operates.
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the Directors made
subjective judgements, for example in respect of significant
accounting estimates that involved making assumptions and
considering future events that are inherently uncertain.
MATERIALITY
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Overall materiality – £15.3 million (2019: £14.3
million).
How we determined it – 1% of net assets.
Rationale for benchmark applied – We have applied this
benchmark, a generally accepted auditing practice for investment
trust audits, in the absence of indicators that an alternative
benchmark would be appropriate and because we believe this provides
an appropriate and consistent year-on-year basis for our audit.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above £765,000 (2019:
£716,000) as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
GOING CONCERN
In accordance with ISAs (UK) we report as follows:
REPORTING
OBLIGATION |
OUTCOME |
We are required to report if we have
anything material to add or draw attention to in respect of the
Directors’ statement in the financial statements about whether the
Directors considered it appropriate to adopt the going concern
basis of accounting in preparing the financial statements and the
Directors’ identification of any material uncertainties to the
Company’s ability to continue as a going concern over a period of
at least twelve months from the date of approval of the financial
statements. |
We have nothing
material to add or to draw attention to.
However, because not all future events or conditions can be
predicted, this statement is not a guarantee as to the Company’s
ability to continue as a going concern. |
We are required to report if the
Directors’ statement relating to Going Concern in accordance with
Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit. |
We have nothing to report. |
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the
Annual Report other than the financial statements and our auditors’
report thereon. The Directors are responsible for the other
information. Our opinion on the financial statements does not cover
the other information and, accordingly, we do not express an audit
opinion or, except to the extent otherwise explicitly stated in
this report, any form of assurance thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit, or otherwise appears to be materially misstated. If we
identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude
whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact. We have nothing to report based on these
responsibilities.
With respect to the Strategic Report and Report of the
Directors, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work
undertaken in the course of the audit, the Companies Act 2006
(CA06), ISAs (UK) and the Listing Rules of the Financial Conduct
Authority (FCA) require us also to report certain opinions and
matters as described below (required by ISAs (UK) unless otherwise
stated).
STRATEGIC REPORT AND REPORT OF THE
DIRECTORS
In our opinion, based on the work undertaken in the course of
the audit, the information given in the Strategic Report and Report
of the Directors for the year ended 31 March
2020 is consistent with the financial statements and has
been prepared in accordance with applicable legal requirements.
(CA06)
In light of the knowledge and understanding of the Company and
its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and
Report of the Directors. (CA06)
The directors’ assessment of the
prospects of the Company and of the principal risks that would
threaten the solvency or liquidity of the Company
We have nothing material to add or draw attention to
regarding:
- The Directors’
confirmation of the Annual Report that they have carried out a
robust assessment of the principal risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity.
- The disclosures in the
Annual Report that describe those risks and explain how they are
being managed or mitigated.
- The Directors’ explanation
of the Annual Report as to how they have assessed the prospects of
the Company, over what period they have done so and why they
consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be
able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
We have nothing to report having performed a review of the
Directors’ statement that they have carried out a robust assessment
of the principal risks facing the Company and statement in relation
to the longer-term viability of the Company. Our review was
substantially less in scope than an audit and only consisted of
making inquiries and considering the Directors’ process supporting
their statements; checking that the statements are in alignment
with the relevant provisions of the UK Corporate Governance Code
(the “Code”); and considering whether the statements are consistent
with the knowledge and understanding of the Company and its
environment obtained in the course of the audit. (Listing
Rules)
Other Code
Provisions
We have nothing to report in respect of our responsibility to
report when:
- The statement given by the
Directors that they consider the Annual Report taken as a whole to
be fair, balanced and understandable, and provides the information
necessary for the members to assess the Company’s position and
performance, business model and strategy is materially inconsistent
with our knowledge of the Company obtained in the course of
performing our audit.
- The section of the Annual
Report describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit
Committee.
- The Directors’ statement
relating to the Company’s compliance with the Code does not
properly disclose a departure from a relevant provision of the Code
specified, under the Listing Rules, for review by the auditors.
Directors’
Remuneration
In our opinion, the part of the Directors’ Remuneration Report
to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
RESPONSIBILITIES FOR THE FINANCIAL
STATEMENTS AND THE AUDIT
Responsibilities
of the directors for the financial statements
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the preparation
of the financial statements in accordance with the applicable
framework and for being satisfied that they give a true and fair
view. The Directors are also responsible for such internal control
as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditors’
responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditors’ report.
Use of this
report
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with Chapter
3 of Part 16 of the Companies Act 2006 and for no other purpose. We
do not, in giving these opinions, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
OTHER REQUIRED REPORTING
Companies Act 2006
exception reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
- we have not received all
the information and explanations we require for our audit; or
- adequate accounting
records have not been kept by the Company, or returns adequate for
our audit have not been received from branches not visited by us;
or
- certain disclosures of
Directors’ remuneration specified by law are not made; or
- the financial statements
and the part of the Directors’
Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this
responsibility.
Appointment
Following the recommendation of the Audit Committee, we were
appointed by the members on 14 July
2014 to audit the financial statements for the year ended
31 March 2015 and subsequent
financial periods. The period of total uninterrupted engagement is
6 years, covering the years ended 31 March
2015 to 31 March 2020.
Allan McGrath (Senior
Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
3 June 2020
Financial Statements/INCOME
STATEMENT
FOR THE YEAR ENDED 31 MARCH
2020
|
|
|
|
2020 |
|
|
2019 |
|
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
Notes |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Gains on
investments |
9 |
– |
96,981 |
96,981 |
– |
159,254 |
159,254 |
Exchange losses on
currency balances |
|
– |
(7,077) |
(7,077) |
– |
(687) |
(687) |
Income from
investments |
2 |
18,099 |
– |
18,099 |
18,394 |
– |
18,394 |
AIFM, Portfolio
management and performance fees |
3 |
(616) |
(11,696) |
(12,312) |
(559) |
(4,028) |
(4,587) |
Other expenses |
4 |
(931) |
– |
(931) |
(908) |
– |
(908) |
Net return before
finance charges and taxation |
|
16,552 |
78,208 |
94,760 |
16,927 |
154,539 |
171,466 |
Finance costs |
5 |
(93) |
(1,770) |
(1,863) |
(175) |
(3,327) |
(3,502) |
Net return before
taxation |
|
16,459 |
76,438 |
92,897 |
16,752 |
151,212 |
167,964 |
Taxation on net
return |
6 |
(2,156) |
35 |
(2,121) |
(2,267) |
543 |
(1,724) |
Net return after
taxation |
|
14,303 |
76,473 |
90,776 |
14,485 |
151,755 |
166,240 |
Return per
share |
7 |
26.9p |
143.9p |
170.8p |
28.4p |
297.8p |
326.2p |
The “Total” column of this statement is the Income Statement of
the Company. The “Revenue” and “Capital” columns are supplementary
to this and are prepared under guidance published by The
Association of Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations.
The Company has no recognised gains and losses other than those
shown above and therefore no separate Statement of Total
Comprehensive Income has been presented.
The accompanying notes are an integral part of these
statements.
Financial Statements/Statement Of Changes In
Equity
FOR THE YEAR ENDED 31 MARCH
2020
|
|
Capital |
Share |
|
|
Total |
|
Share |
redemption |
premium |
Capital |
Revenue shareholders’ |
|
capital |
reserve |
account |
reserve |
reserve |
funds |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
At 31 March
2019 |
13,150 |
8,221 |
389,243 |
1,003,461 |
18,018 |
1,432,093 |
Net return after
taxation |
– |
– |
– |
76,473 |
14,303 |
90,776 |
Second interim dividend
paid in respect of year ended 31 March 2019 |
– |
– |
– |
– |
(10,568) |
(10,568) |
First interim dividend
paid in respect of year ended 31 March 2020 |
– |
– |
– |
– |
(3,457) |
(3,457) |
New shares issued |
256 |
– |
29,198 |
– |
– |
29,454 |
At 31 March
2020 |
13,406 |
8,221 |
418,441 |
1,079,934 |
18,296 |
1,538,298 |
FOR THE YEAR ENDED 31 MARCH
2019
|
|
Capital |
Share |
|
|
Total |
|
Share |
redemption |
premium |
Capital |
Revenue shareholders’ |
|
capital |
reserve |
account |
reserve |
reserve |
funds |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
At 31 March
2018 |
12,466 |
8,221 |
317,406 |
851,706 |
12,389 |
1,202,188 |
Net return after
taxation |
– |
– |
– |
151,755 |
14,485 |
166,240 |
Second interim dividend
paid in respect of year ended 31 March 2018 |
– |
– |
– |
– |
(5,497) |
(5,497) |
First interim dividend
paid in respect of year ended 31 March 2019 |
– |
– |
– |
– |
(3,359) |
(3,359) |
New shares issued |
684 |
– |
71,837 |
– |
– |
72,521 |
At 31 March
2019 |
13,150 |
8,221 |
389,243 |
1,003,461 |
18,018 |
1,432,093 |
Financial Statements/STATEMENT OF
FINANCIAL POSITION
AS AT 31 MARCH 2020
|
|
2020 |
2019 |
|
Notes |
£’000 |
£’000 |
Fixed
assets |
|
|
|
Investments |
9 |
1,681,132 |
1,378,681 |
Derivative – OTC
swaps |
9 &
10 |
3,452 |
11,898 |
|
|
1,684,584 |
1,390,579 |
Current
assets |
|
|
|
Debtors |
11 |
14,630 |
12,330 |
Derivative – put and
call options |
9 &
10 |
– |
1,908 |
Cash |
|
3,810 |
49,018 |
|
|
18,440 |
63,256 |
Current
liabilities |
|
|
|
Creditors: amounts
falling due within one year |
12 |
(158,560) |
(18,230) |
Derivative – put and
call options |
9 &
10 |
– |
(663) |
Derivative – OTC
swaps |
9 &
10 |
(6,166) |
(2,849) |
|
|
(164,726) |
(21,742) |
Net current
(liabilities)/assets |
|
(146,286) |
41,514 |
Total net
assets |
|
1,538,298 |
1,432,093 |
Capital and
reserves |
|
|
|
Share capital |
13 |
13,406 |
13,150 |
Capital redemption
reserve |
|
8,221 |
8,221 |
Share premium
account |
|
418,441 |
389,243 |
Capital reserve |
17 |
1,079,934 |
1,003,461 |
Revenue reserve |
|
18,296 |
18,018 |
Total shareholders’
funds |
|
1,538,298 |
1,432,093 |
Net asset value per
share |
14 |
2,868.9p |
2,722.9p |
The financial statements were approved by the Board of Directors
and authorised for issue on 3 June
2020 and were signed on its behalf by:
Sir Martin Smith
Chairman
The accompanying notes are an integral part of this
statement.
Worldwide Healthcare Trust PLC – Company Registration Number
3023689 (Registered in England)
Financial Statements/NOTES TO THE
FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been
applied consistently throughout the year in the preparation of
these financial statements, are set out below:
(A) BASIS OF PREPARATION
These financial statements have been prepared in accordance with
the Companies Act 2006, FRS 102 ‘The Financial Reporting Standard
applicable in the UK and Ireland’ (‘UK GAAP’) and the guidelines
set out in the Statement of Recommended Practice (‘SORP’), issued
in October 2019, for Investment Trust
Companies and Venture Capital Trusts issued by the Association of
Investment Companies (‘AIC’), the historical cost convention, as
modified by the valuation of investments and derivatives at fair
value. The Board has considered a detailed assessment of the
Company’s ability to meet its liabilities as they fall due,
including stress and liquidity tests which modelled the effects of
substantial falls in markets and significant reductions in market
liquidity (including further stressing the current economic
conditions caused by the coronavirus pandemic) on the Company’s
financial position and cash flows. Further information on the
assumptions used in the stress scenarios is provided in the Audit
Committee report. The results of the tests showed that the Company
would have sufficient cash, or the ability to liquidate a
sufficient proportion of its listed holdings, to meet its
liabilities as they fall due. Based on the information available to
the Directors at the time of this report, including the results of
the stress tests, the Company’s cash balances, and the liquidity of
the Company’s listed investments, the Directors are satisfied that
the Company has adequate financial resources to continue in
operation for at least the next 12 months and that, accordingly, it
is appropriate to adopt the going concern basis in preparing these
financial statements.
The Company has taken advantage of the exemption from preparing
a Cash Flow Statement under FRS 102, as it is an investment fund
and its investments are substantially all highly liquid and carried
at fair (market) value.
The Company’s financial statements are presented in sterling,
being the functional and presentational currency of the Company.
All values are rounded to the nearest thousand pounds (£’000)
except where otherwise indicated.
In addition, investments and derivatives held at fair value are
categorised into a fair value hierarchy based on the degree to
which the inputs to the fair value measurements are observable and
the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
- Level 1 – Quoted prices in
active markets.
- Level 2 – Inputs other
than quoted prices included within Level 1 that are observable
(i.e. developed using market data), either directly or
indirectly.
- Level 3 – Inputs are
unobservable (i.e. for which market data is unavailable).
Presentation of the Income
Statement
In order to reflect better the activities of an investment trust
company and in accordance with the SORP, supplementary information
which analyses the Income Statement between items of a revenue and
capital nature has been presented alongside the Income Statement.
The net revenue return is the measure the Directors believe
appropriate in assessing the Company’s compliance with certain
requirements set out in Sections 1158 and 1159 of the Corporation
Tax Act 2010.
Critical Accounting Judgements and Key
Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation
uncertainty used in preparing the financial information are
continually evaluated and are based on historical experience and
other factors, including expectations of future events that are
believed to be reasonable. The resulting estimates will, by
definition, seldom equal the related actual results.
There is one significant judgement involved in the presentation
of the Company’s accounts being the judgement on the functional and
presentational currency of the Company.
- The Company’s investments
are primarily made in foreign currencies, however the Board
considers the Company’s functional and presentational currency to
be sterling. In arriving at this conclusion, the Board considered
that the shares of the Company are listed on the London Stock
Exchange, it is regulated in the United
Kingdom and pays dividends and expenses in sterling. All
values are rounded to the nearest thousand pounds (£’000) except
where otherwise indicated.
In addition the Company uses judgements and estimates in valuing
the unquoted (Level 3) investments. Given the relative size of the
unquoted investments to the Company’s overall portfolio, the Board
does not consider that these judgements result in a significant
risk of a material adjustment arising. 1.7% (2019: 1.8%) of the
Company’s portfolio is comprised of unquoted investments. These are
all valued in line with the accounting policy set out below.
(B) INVESTMENTS
Investments are measured under FRS 102 and are measured
initially, and at subsequent reporting dates, at fair value.
Investments are recognised and de-recognised at trade date where a
purchase or sale is under a contract whose terms require delivery
within the time frame established by the market concerned. Changes
in fair value and gains or losses on disposal are included in the
Income Statement as a capital item.
For quoted securities fair value is either bid price or last
traded price, depending on the convention of the exchange on which
the investment is listed.
Fair value is the price for which an asset could be exchanged
between knowledgeable, willing parties in an arm’s length
transaction. In estimating the fair value of unquoted investments,
the AIFM and Board apply valuation techniques which are appropriate
in light of the nature, facts and circumstances of the investment
and use reasonable current market data and inputs combined with
judgement and assumptions. Valuation techniques are applied
consistently from one reporting date to another except where a
change in technique results in a better estimate of fair value. In
general, the value of the investment in question will be determined
using one of a range of valuation techniques, utilising independent
third party pricing sources where available and cost efficient for
the Company.
Where the investment being valued was itself made recently, or
there has been a third party transaction in the investment, the
price of the transaction may provide a good indication of fair
value. Using the Price of Recent Investment technique is not a
default and at each reporting date the fair value of recent
investments is estimated to assess whether changes or events
subsequent to the relevant transaction would imply a material
change in the investment’s fair value.
When using the price of a recent transaction in the valuations
the Company looks to ‘re-calibrate’ this price at each valuation
point by reviewing progress within the investment, comparing
against the initial investment thesis, assessing if there are any
significant events or milestones that would indicate the value of
the investment value has changed materially and considering whether
an alternative methodology would be more appropriate.
(C) DERIVATIVE FINANCIAL
INSTRUMENTS
The Company uses derivative financial instruments (namely put
and call options and equity swaps).
All derivative instruments are valued initially, and at
subsequent reporting dates, at fair value in the Statement of
Financial Position.
The equity swaps are accounted for as Fixed Assets or Current
Liabilities and Options are accounted for as Current Assets or
Current Liabilities.
Options are reviewed on a case-by-case basis and gains and
losses are charged to the capital column of the Income Statement,
where the option has been entered into to generate or protect
capital returns. All of the put and call options bought and sold
during the current and comparative year were capital in nature.
All gains and losses on over-the-counter (OTC) equity swaps are
accounted for as gains or losses on investments. Where there has
been a re-positioning of the swap, gains and losses are accounted
for on a realised basis. All such gains and losses have been
debited or credited to the capital column of the Income
Statement.
Cash collateral held by counterparties is included within cash,
except where there is a right of offset against the overdraft
facility.
(D) INVESTMENT INCOME
Dividends receivable are recognised on the ex-dividend date.
Where no ex-dividend date is quoted, dividends are recognised when
the Company’s right to receive payment is established. Foreign
dividends are grossed up at the appropriate rate of withholding
tax, with the withholding tax recognised in the taxation
charge.
Income from fixed interest securities is recognised on a time
apportionment basis so as to reflect the effective interest
rate.
Deposit interest is accounted for on an accruals basis.
(E) EXPENSES
All expenses are accounted for on an accruals basis. Expenses
are charged through the revenue column of the Income Statement
except as follows:
- expenses which are
incidental to the acquisition or disposal of an investment are
charged to the capital column of the Income Statement; and
- expenses are charged to
the capital column of the Income Statement where a connection with
the maintenance or enhancement of the value of the investments can
be demonstrated. In this respect the portfolio management and AIFM
fees have been charged to the Income Statement in line with the
Board’s expected long-term split of returns, in the form of capital
gains and income, from the Company’s portfolio. As a result 5% of
the portfolio management and AIFM fees are charged to the revenue
column of the Income Statement and 95% are charged to the capital
column of the Income Statement.
Any performance fee is charged in full to the capital column of
the Income Statement.
(F) FINANCE COSTS
Finance costs are accounted for on an accruals basis. Finance
costs are charged to the Income Statement in line with the Board’s
expected long-term split of returns, in the form of capital gains
and income, from the Company’s portfolio. As a result 5% of the
finance costs are charged to the revenue column of the Income
Statement and 95% are charged to the capital column of the Income
Statement. Finance charges are accounted for on an accruals basis
in the Income Statement using the effective interest rate method
and are added to the carrying amount of the instrument to the
extent that they are not settled in the period in which they
arise.
(G) TAXATION
The tax effect of different items of expenditure is allocated
between capital and revenue using the marginal basis.
Deferred taxation is provided on all timing differences that
have originated but not been reversed by the Statement of Financial
Position date other than those differences regarded as permanent.
This is subject to deferred tax assets only being recognised when
it is probable that there will be suitable profits from which the
reversal of timing differences can be deducted. Any liability to
deferred tax is provided for at the rate of tax enacted or
substantially enacted.
(H) FOREIGN CURRENCY
Transactions recorded in overseas currencies during the year are
translated into sterling at the appropriate daily exchange rates.
Assets and liabilities denominated in overseas currencies at the
Statement of Financial Position date are translated into sterling
at the exchange rates ruling at that date.
Exchange gains/losses on foreign
currency balances
Any gains or losses on the translation of foreign currency
balances, including the foreign currency overdraft, whether
realised or unrealised, are taken to the capital or the revenue
column of the Income Statement, depending on whether the gain or
loss is of a capital or revenue nature.
(I) CAPITAL REDEMPTION RESERVE
This reserve arose when ordinary shares were redeemed by the
Company and subsequently cancelled. When ordinary shares are
redeemed by the Company and subsequently cancelled, an amount equal
to the par value of the ordinary share capital is transferred from
the ordinary share capital to the capital redemption reserve.
(J) CAPITAL RESERVE
The following are transferred to this reserve:
- gains and losses on the
disposal of investments;
- exchange differences of a
capital nature, including the effects of changes in exchange rates
on foreign currency borrowings;
- expenses, together with
the related taxation effect, in accordance with the above policies;
and
- changes in the fair value
of investments and derivatives.
This reserve can be used to distribute realised capital profits
by way of dividend or share buy backs. Any gains in the fair value
of investments that are not readily convertible to cash are treated
as unrealised gains in the capital reserve.
(K) REVENUE RESERVE
The revenue reserve is distributable by way of dividend.
(L) DIVIDEND PAYMENTS
Dividends paid by the Company on its shares are recognised in
the financial statements in the year in which they become payable
and are shown in the Statement of Changes in Equity.
2. INCOME FROM INVESTMENTS
|
2020 |
2019 |
|
£’000 |
£’000 |
Income from investments |
|
|
Overseas dividends |
15,363 |
13,650 |
Fixed interest income |
1,850 |
3,803 |
UK dividends |
320 |
351 |
|
17,533 |
17,804 |
Other income |
|
|
Derivatives |
17 |
7 |
Deposit interest |
549 |
583 |
Total income from
investments |
18,099 |
18,394 |
Total income comprises: |
|
|
Dividends |
15,683 |
14,001 |
Interest |
2,416 |
4,393 |
|
18,099 |
18,394 |
3. AIFM, PORTFOLIO MANAGEMENT AND
PERFORMANCE FEES
|
|
|
2020 |
|
|
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
AIFM fee |
128 |
2,425 |
2,553 |
120 |
2,282 |
2,402 |
Portfolio management fee |
488 |
9,271 |
9,759 |
439 |
8,342 |
8,781 |
Performance fee |
– |
– |
– |
– |
(6,596) |
(6,596) |
|
616 |
11,696 |
12,312 |
559 |
4,028 |
4,587 |
Further details on the above fees are set out in the Strategic
Report and in the Report of the Directors.
The performance fee amount of (£6,596,000) in 2019 is the
accrued fee on outperformance generated as of 31 March 2018 which was not maintained for a
twelve month period. This amount was therefore written back during
the year ended 31 March 2019 in
accordance with the terms of the performance fee arrangements as
set out in the Business Review.
4. OTHER EXPENSES
|
2020 |
2019 |
|
Revenue |
Revenue |
|
£’000 |
£’000 |
Directors’ remuneration |
195 |
177 |
Auditors’ remuneration for the audit
of the Company’s financial statements |
41 |
29 |
Auditors’ remuneration for non-audit
services |
– |
4 |
Depositary and custody fees |
184 |
139 |
Stock Exchange listing fees* |
53 |
132 |
Registrar fees |
47 |
47 |
Legal and professional costs |
41 |
9 |
Broker fees |
30 |
30 |
Other costs |
340 |
341 |
|
931 |
908 |
Details of the amounts paid to Directors are included in the
Directors’ Remuneration Report.
* Includes
£nil (2019: £91,000) in respect of Stock Exchange Block Listing
fees required as a result of the issuance of new shares by the
Company during the year.
5. FINANCE COSTS
|
|
|
2020 |
|
|
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Finance costs |
93 |
1,770 |
1,863 |
175 |
3,327 |
3,502 |
6. TAXATION ON NET RETURN
(A) ANALYSIS OF CHARGE IN YEAR
|
|
|
2020 |
|
|
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Corporation tax at 19%
(2019: 19%) |
– |
– |
– |
– |
– |
– |
Tax relief to capital |
38 |
(38) |
– |
523 |
(523) |
– |
Overseas taxation |
2,118 |
– |
2,118 |
1,744 |
– |
1,744 |
Capital gains tax |
– |
3 |
3 |
– |
(20) |
(20) |
|
2,156 |
(35) |
2,121 |
2,267 |
(543) |
1,724 |
(B) FACTORS AFFECTING CURRENT TAX
CHARGE FOR THE YEAR
Approved investment trusts are exempt from tax on capital gains
made within the Company.
The tax charged for the year is lower (2019: lower) than the
standard rate of corporation tax of 19% (2019: 19%).
The difference is explained below.
|
|
|
2020 |
|
|
2019 |
|
Revenue |
Capital |
Total |
Revenue |
Capital |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Net return before taxation |
16,459 |
76,438 |
92,897 |
16,752 |
151,212 |
167,964 |
Corporation tax at 19% (2019:
19%) |
3,127 |
14,523 |
17,650 |
3,183 |
28,730 |
31,913 |
Non-taxable gains on
investments |
– |
(17,082) |
(17,082) |
– |
(30,128) |
(30,128) |
Overseas withholding taxation |
2,118 |
– |
2,118 |
1,744 |
– |
1,744 |
Non taxable dividends |
(2,980) |
– |
(2,980) |
(2,660) |
– |
(2,660) |
Excess management expenses |
(147) |
2,559 |
2,412 |
(523) |
1,398 |
875 |
Tax relief to capital |
38 |
(38) |
– |
523 |
(523) |
– |
Capital gains tax |
– |
3 |
3 |
– |
(20) |
(20) |
Total tax charge |
2,156 |
(35) |
2,121 |
2,267 |
(543) |
1,724 |
(C) PROVISION FOR DEFERRED TAX
No provision for deferred taxation has been made in the current
or prior year. The Company has not provided for deferred tax on
capital profits and losses arising on the revaluation or disposal
of investments, as it is exempt from tax on these items because of
its status as an investment trust company.
The Company has not recognised a deferred tax asset of
£24,533,000 (19% tax rate) (2019: £19,793,000 (17% tax rate)) as a
result of excess management expenses and loan expenses. It is not
anticipated that these excess expenses will be utilised in the
foreseeable future.
7. RETURN PER SHARE
|
2020 |
2019 |
|
£’000 |
£’000 |
The return per share is based on the
following figures: |
|
|
Revenue return |
14,303 |
14,485 |
Capital return |
76,473 |
151,755 |
|
90,776 |
166,240 |
Weighted average number of ordinary
shares in issue during the year |
53,148,027 |
50,961,790 |
Revenue return per ordinary
share |
26.9p |
28.4p |
Capital return per ordinary
share |
143.9p |
297.8p |
|
170.8p |
326.2p |
The calculation of the total, revenue and capital return per
ordinary share is carried out in accordance with IAS 33, “Earnings
per Share”, in accordance with the requirements of FRS 102.
8. DIVIDENDS
Under UK Company Law, final dividends are not recognised until
they are approved by shareholders and interim dividends are not
recognised until they are paid. They are also debited directly from
reserves. Amounts recognised as distributable in these financial
statements were as follows:
|
2020 |
2019 |
|
£’000 |
£’000 |
Second interim dividend in respect
of the year ended 31 March 2018 |
– |
5,497 |
First interim dividend in respect of
the year ended 31 March 2019 |
– |
3,359 |
Second interim dividend in respect
of the year ended 31 March 2019 |
10,568 |
– |
First interim dividend in respect of
the year ended 31 March 2020 |
3,457 |
– |
|
14,025 |
8,856 |
In respect of the year ended 31 March
2020, a first interim dividend of 6.5p per share was paid on
9 January 2020. A second interim
dividend of 18.5p will be payable on 16 July
2020, the associated ex dividend date will be 4 June 2020. The total dividends payable in
respect of the year ended 31 March
2020 amount to 25.0p per share (2019: 26.5p per share). The
aggregate cost of the second interim dividend, based on the number
of shares in issue at 2 June 2020,
will be £10,505,000. In accordance with FRS 102 dividends will be
reflected in the financial statements for the year in which they
become payable. Total dividends in respect of the financial year,
which is the basis on which the requirements of s1158 of the
Corporation Tax Act 2010 are considered, are set out on the next
page.
|
2020 |
2019 |
|
£’000 |
£’000 |
Revenue available for distribution
by way of dividend for the year |
14,303 |
14,485 |
First interim dividend in respect of
the year ended 31 March 2020 |
(3,457) |
– |
Second interim dividend in respect
of the year ended 31 March 2020 |
(10,505) |
– |
First interim dividend in respect of
the year ended 31 March 2019 |
– |
(3,359) |
Second interim dividend in respect
of the year ended 31 March 2019 |
– |
(10,554) |
Net retained revenue |
341 |
572 |
* based on
56,786,278 shares in issue as at 2 June
2020.
9. INVESTMENTS AND DERIVATIVE
FINANCIAL INSTRUMENTS
|
|
|
Derivative |
|
|
Quoted |
Unquoted |
Financial |
|
|
Investments |
Investments |
Instruments |
Total |
|
£’000 |
£’000 |
£’000 |
£’000 |
Cost at 1 April 2019 |
1,173,702 |
26,817 |
863 |
1,201,832 |
Investment holdings gains/(losses)
at 1 April 2019 |
180,163 |
(2,001) |
9,431 |
187,593 |
Valuation at 1 April
2019 |
1,353,865 |
24,816 |
10,294 |
1,388,975 |
Movement in the year: |
|
|
|
|
Purchases at cost |
1,390,071 |
19,549 |
2,354 |
1,411,974 |
Sales - proceeds |
(1,182,107) |
(12,602) |
(24,680) |
(1,219,389) |
Transfer between levels* |
4,605 |
(4,605) |
– |
– |
Net movement in investment holding
gains |
87,267 |
273 |
9,318 |
96,858 |
Valuation at 31 March
2020 |
1,653,701 |
27,431 |
(2,714) |
1,678,418 |
Cost at 31 March 2020 |
1,482,727 |
32,882 |
– |
1,515,609 |
Investment holding gains/(losses) at
31 March 2020 |
170,974 |
(5,451) |
(2,714) |
162,809 |
Valuation at 31 March
2020 |
1,653,701 |
27,431 |
(2,714) |
1,678,418 |
* See note
16 (VII)
The Company received £1,219,839,000 (2019: £1,510,494,000) from
investments and derivatives sold in the year. The book cost of
these was £1,097,747,000 (2019: £1,459,617,000). These investments
and derivatives have been revalued over time and until they were
sold any unrealised gains/losses were included in the fair value of
the investments.
|
2020 |
2019 |
|
£’000 |
£’000 |
Net movement in investment holding
gains/(losses) in the year |
87,540 |
164,502 |
Net movement in derivative holding
gains/(losses) in the year |
9,318 |
(4,452) |
Effective interest rate
amortisation |
123 |
(796) |
Gains/(losses) on investments |
96,981 |
159,254 |
Purchase transaction costs were £1,875,000 (2019: £1,564,000).
Sales transaction costs were £1,138,000 (2019: £1,006,000). These
comprise mainly commission.
10. DERIVATIVE FINANCIAL
INSTRUMENTS
|
2020 |
2019 |
|
£’000 |
£’000 |
Fair value of OTC equity swaps
(asset) |
3,452 |
11,898 |
Fair value of OTC equity swaps
(liability) |
(6,166) |
(2,849) |
Fair value of put and call options
(long) |
– |
1,908 |
Fair value of put and call options
(short) |
– |
(663) |
|
(2,714) |
10,294 |
See note 9 for movements during the year.
11. DEBTORS
|
2020 |
2019 |
|
£’000 |
£’000 |
Amounts due from brokers |
7,212 |
6,609 |
Issue of own shares awaiting
settlement |
717 |
– |
Withholding taxation
recoverable |
2,869 |
2,523 |
VAT recoverable |
48 |
30 |
Prepayments and accrued income |
3,784 |
3,168 |
|
14,630 |
12,330 |
12. CREDITORS AMOUNTS FALLING DUE
WITHIN ONE YEAR
|
2020 |
2019 |
|
£’000 |
£’000 |
Amounts due to brokers |
1,340 |
15,573 |
Overdraft drawn* |
154,326 |
– |
Other creditors and accruals |
2,894 |
2,657 |
|
158,560 |
18,230 |
* The
Company’s borrowing requirements are met through the utilisation of
an overdraft facility provided by J.P. Morgan Securities LLC. The
overdraft is drawn down in U.S. dollars. Interest on the drawn
overdraft is charged at the United States Overnight Bank Funding
Rate plus 45 basis points.
J.P. Morgan Securities LLC may take investments up to 140% of
the value of the overdrawn balance as collateral and has been
granted a first priority security interest or lien over the
Company’s assets. (See note 16 under credit risk for additional
details).
13. SHARE CAPITAL
|
|
|
Total |
|
|
Treasury |
shares |
|
Shares |
shares |
in issue |
|
number |
number |
number |
Issued and fully paid at 1 April
2019 |
52,595,278 |
– |
52,595,278 |
New shares issued |
1,024,000 |
– |
1,024,000 |
At 31 March 2020 |
53,619,278 |
– |
53,619,278 |
|
|
|
|
|
|
2020 |
2019 |
|
|
£’000 |
£’000 |
Issued and fully paid: |
|
|
|
Ordinary Shares of 25p |
|
13,406 |
13,150 |
During the year ended 31 March
2020 1,024,000 shares were issued raising £29,454,000.
During the year ended 31 March 2019 2,734,000 shares were
issued raising £72,521,000. No shares were repurchased by the
Company during these years.
14. NET ASSET VALUE PER SHARE
|
2020 |
2019 |
Net asset value per share |
2,868.9p |
2,722.9p |
The net asset value per share is based on the assets
attributable to equity shareholders of £1,538,298,000 (2019:
£1,432,093,000) and on the number of Ordinary Shares in issue at
the year end of 53,619,278 (2019: 52,595,278).
15. RELATED PARTIES
The following are considered to be related parties:
- Frostrow Capital LLP
(under the Listing Rules only)
- OrbiMed Capital LLC
- The Directors of the
Company
Details of the relationship between the Company and Frostrow
Capital LLP, the Company’s AIFM, and OrbiMed Capital LLC, the
Company’s Portfolio Manager, are disclosed in the Business Review.
Sven Borho, who joined the Board on
7 June 2018, is a Managing Partner at
OrbiMed. Sven Borho has waived his
directors fee of £31,040 (2019: £30,130). Details of fees paid to
OrbiMed by the Company can be found in note 3. All material related
party transactions have been disclosed in notes 3 and 4.
Three current and two former partners at OrbiMed Capital LLC
have a minority financial interest totalling 20% in Frostrow
Capital LLP, the Company’s AIFM. Details of the fees paid to
Frostrow Capital LLP by the Company can be found in note 3.
16. FINANCIAL INSTRUMENTS
RISK MANAGEMENT POLICIES AND
PROCEDURES
The Company’s financial instruments comprise securities and
other investments, derivative instruments, cash balances, loans and
debtors and creditors that arise directly from its operations.
As an investment trust, the Company invests in equities and
other investments for the long term so as to secure its investment
objective as stated in the Business Review. In pursuing its
investment objective, the Company is exposed to a variety of risks
that could result in a reduction in the Company’s net assets.
The main risks that the Company faces arising from its financial
instruments are:
- market risk (including foreign currency risk, interest rate
risk and other price risk)
- liquidity risk
- credit risk
These risks, with the exception of liquidity risk, and the
Directors’ approach to the management of them, are set out in the
Strategic Report and have not changed from the previous accounting
year. The AIFM, in close co-operation with the Board and the
Portfolio Manager co-ordinate the Company’s risk management.
USE OF DERIVATIVES
As noted in the Strategic Report options and equity swaps are
used within the Company’s portfolio.
More details on options and swaps can be found in the
Glossary.
PUT AND CALL OPTIONS
OrbiMed can employ, when appropriate, options strategies in an
effort to enhance returns and to improve the risk-return profile of
the Company’s portfolio.
The Board monitor the use of options through a monthly report,
summarising the options activity and strategic intent, provided by
OrbiMed.
OrbiMed can employ the following option strategies, or a
combination of such:
- Buy calls: provides
leveraged long exposure while minimising capital at risk;
- Buy puts: provides
leveraged protection, against price falls while minimising capital
at risk;
- Sell calls: against an
existing position, provides partial protection from a decline in
stock price, facilitates commitment to an exit strategy and exit
price that is consistent with fundamental analysis;
- Sell puts: provides an
effective entry price at which to add to an existing position, or
provides an effective entry price at which to initiate a new
position.
OTC EQUITY SWAPS
The Company uses OTC equity swap positions to gain access to the
Indian and Chinese markets either because the Company is not
locally registered to trade or to gain exposure to thematic baskets
of stocks.
Details of financed swap positions* are noted in the
Portfolio.
* See
glossary.
OFFSETTING DISCLOSURE
Swap trades and OTC derivatives are traded under ISDA† Master
Agreements. The Company currently has such agreements in place with
Goldman Sachs and JP Morgan.
These agreements create a right of set-off that becomes
enforceable only following a specified event of default, or in
other circumstances not expected to arise in the normal course of
business. As the right of set-off is not unconditional, for
financial reporting purposes, the Company does not offset
derivative assets and derivative liabilities.
†International Swap Dealers Association Inc.
(I) OTHER PRICE RISK
In pursuance of the Company’s Investment Objective the Company’s
portfolio, including its derivatives, is exposed to the risk of
fluctuations in market prices and foreign exchange rates.
The Board manage these risks through the use of limits and
guidelines, monthly compliance reports from Frostrow and reports
from Frostrow and OrbiMed presented at each Board meeting, as set
out in the Business Review.
OTHER PRICE RISK EXPOSURE
The Company’s gross exposure to other price risk is represented
by the fair value of the investments and the underlying exposure
through the derivative investments held at the year end as shown in
the table below.
|
|
2020 |
|
|
2019 |
|
|
|
|
Notional* |
|
|
Notional* |
|
Assets |
Liabilities |
exposure |
Assets |
Liabilities |
exposure |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Investments |
1,681,132 |
– |
1,681,132 |
1,378,681 |
– |
1,378,681 |
Put and call options |
– |
– |
– |
1,908 |
(663) |
7,088 |
OTC equity swaps |
3,452 |
(6,166) |
41,569 |
11,898 |
(2,849) |
116,762 |
|
1,684,584 |
(6,166) |
1,722,701 |
1,392,487 |
(3,512) |
1,502,531 |
* The
notional exposure is calculated in accordance with the AIFMD
requirements for calculating exposure via derivatives.
OTHER PRICE RISK SENSITIVITY
If market prices of all of the Company’s financial instruments
including the derivatives at the Statement of Financial Position
date had been 25% higher or lower (2019: 25% higher or lower) while
all other variables remained constant: the revenue return would
have decreased/increased by £166,000 (2019: £145,000); the capital
return would have increased by £427,504,000 (2019:
£372,926,000)/decreased by £427,504,000 (2019: £371,192,000); and,
the return on equity would have increased by £427,338,000 (2019:
£372,781,000)/decreased by £427,338,000 (2019: £371,767,000). The
calculations are based on the portfolio as at the respective
Statement of Financial Position dates and are not representative of
the year as a whole.
(II) FOREIGN CURRENCY RISK
A significant proportion of the Company’s portfolio and
derivative positions are denominated in currencies other than
sterling (the Company’s functional currency, and the currency in
which it reports its results). As a result, movements in exchange
rates can significantly affect the sterling value of those
items.
FOREIGN CURRENCY EXPOSURE
The fair values of the Company’s monetary assets and liabilities
that are denominated in foreign currencies are shown below.
|
|
2020 |
|
|
2019 |
|
|
Current |
Current |
|
Current |
Current |
|
|
assets |
liabilities |
Investments |
assets |
liabilities |
Investments |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
U.S. dollar |
50,196 |
(194,080) |
1,297,338 |
66,518 |
(28,053) |
1,068,342 |
Swiss franc |
2,104 |
– |
79,807 |
1,449 |
– |
64,057 |
Japanese yen |
2,782 |
(259) |
123,849 |
2,306 |
– |
142,415 |
Hong Kong dollar |
– |
– |
152,190 |
2,999 |
(976) |
61,337 |
Other |
724 |
– |
25,234 |
1,072 |
– |
52,824 |
|
55,806 |
(194,339) |
1,678,418 |
74,344 |
(29,029) |
1,388,975 |
FOREIGN CURRENCY SENSITIVITY
The following table details the sensitivity of the Company’s net
return for the year and shareholders’ funds to a 10% increase and
decrease in sterling against the relevant currency (2019: 10%
increase and decrease).
These percentages have been determined based on market
volatility in exchange rates over the previous 12 months. The
sensitivity analysis is based on the Company’s significant foreign
currency exposures at each Statement of Financial Position
date.
|
|
2020 |
|
|
|
2019 |
|
|
|
USD |
YEN |
CHF |
HK |
USD |
YEN |
CHF |
HK |
|
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
£’000 |
Sterling depreciates |
133,082 |
14,041 |
9,101 |
16,910 |
134,947 |
16,080 |
7,278 |
7,040 |
Sterling appreciates |
(108,885) |
(11,488) |
(7,446) |
(13,835) |
(110,411) |
(13,156) |
(5,955) |
(5,780) |
(III) INTEREST RATE RISK
Interest rate changes may affect:
- the interest payable on the Company’s variable rate
borrowings;
- the level of income receivable from floating and fixed rate
securities and cash at bank and on deposit;
- the fair value of investments in fixed interest
securities.
INTEREST RATE EXPOSURE
The Company’s main exposure to interest rate risks is through
its overdraft facility with J.P. Morgan Securities LLC, which is
repayable on demand, and, its holding in fixed interest securities.
The exposure of financial assets and liabilities to fixed and
floating interest rates, is shown below.
At 31 March 2020, the Company held
0.7% of the portfolio in securitised debt (2019: 1.3% of the
portfolio). The exposure is shown in the table below.
|
2020 |
2019 |
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
average |
Weighted |
|
|
average |
Weighted |
|
|
|
|
period |
average |
|
|
period |
average |
|
|
|
|
for which |
fixed |
|
|
for which |
fixed |
|
|
|
|
rate is |
interest |
Fixed |
Floating |
rate is |
interest |
Fixed |
Floating |
|
|
fixed |
rate |
rate |
rate |
fixed |
rate |
rate |
rate |
|
|
Years |
% |
£’000 |
£’000 |
Years |
% |
£’000 |
£’000 |
|
Unquoted debt investments |
4.9 |
2.6 |
4,148 |
6,803 |
0.4 |
2.0 |
66 |
17,459 |
|
Cash |
|
|
– |
20,190 |
|
|
– |
49,018 |
|
Overdraft facility |
|
|
– |
(170,706) |
|
|
– |
– |
|
Financed swap positions |
|
|
– |
(44,283) |
|
|
– |
(107,713) |
|
|
|
|
4,148 |
(187,996) |
|
|
66 |
(41,236) |
|
All interest rate exposures are held in U.S. dollars.
Cash of £20.2 million (2019: £27.7 million) was held as
collateral against the financed swap positions, of which
£16.4 million (2019: Nil) was offset against the overdraft
position.
INTEREST RATE SENSITIVITY
If interest rates had been 1% higher or lower and all other
variables were held constant, the Company’s net return for the year
ended 31 March 2020 and the net
assets would increase/decrease by £1,880,000 (2019:
increase/decrease by £412,000).
(IV) LIQUIDITY RISK
This is the risk that the Company will encounter difficulty in
meeting obligations associated with financial liabilities.
MANAGEMENT OF THE RISK
Liquidity risk is not considered significant as the majority of
the Company’s assets are investments in quoted securities that are
readily realisable within one week, in normal market conditions.
There maybe circumstances where market liquidity is lower than
normal. Stress tests have been performed to understand how long the
portfolio would take to realise in such situations. The Board are
comfortable that in such a situation the Company would be able to
meet its liabilities as they fall due.
LIQUIDITY EXPOSURE AND MATURITY
Contractual maturities of the financial liability exposures as
at 31 March 2020, based on the
earliest date on which payment can be required, are as follows:
|
2020 |
2019 |
|
3 to 12 |
3 months |
3 months |
|
months |
or less |
or less |
|
£’000 |
£’000 |
£’000 |
Overdraft facility |
– |
170,706 |
– |
Amounts due to brokers and
accruals |
– |
1,340 |
15,573 |
OTC equity swaps |
6,166 |
– |
2,849 |
Derivatives – Put options
(short) |
– |
– |
611 |
Derivatives – Call options
(short) |
– |
– |
52 |
|
6,166 |
178,212 |
19,085 |
£16.4m of cash held as collateral is offset against the
overdraft facility in the Statement of Financial Position, as set
out in Note 16(iii) on the prior page.
(V) CREDIT RISK
Credit risk is the risk of failure of a counterparty to
discharge its obligations resulting in the Company suffering a
financial loss.
The carrying amounts of financial assets best represent the
maximum credit risk at the Statement of Financial Position
date.
The Company’s quoted securities are held on its behalf by J.P.
Morgan Securities LLC acting as the Company’s Custodian and Prime
Broker.
Certain of the Company’s assets can be held by J.P. Morgan
Securities LLC as collateral against the overdraft provided by them
to the Company. As at 31 March 2020
assets with a total market value of £248.1 million were available
to J.P. Morgan Securities LLC to be used as collateral against the
overdraft facility which equates to 140% of the overdrawn position
(calculated on a settled basis). Such assets held by J.P. Morgan
Securities LLC are available for rehypothecation (see Glossary for
further information). As at 31 March
2019, no assets were held as collateral.
CREDIT RISK EXPOSURE
|
2020 |
2019 |
|
£’000 |
£’000 |
Unquoted debt investments |
10,951 |
17,525 |
Derivative – OTC equity swaps |
3,452 |
11,898 |
Current assets: |
|
|
Other receivables (amounts due from
brokers, dividends and interest receivable) |
14,630 |
12,330 |
Derivative – Put options (long) |
– |
1,350 |
Derivative – Call options
(long) |
– |
558 |
Cash |
3,810 |
49,018 |
(VI) FAIR VALUE OF FINANCIAL ASSETS
AND FINANCIAL LIABILITIES
Financial assets and financial liabilities are either carried in
the Statement of Financial Position at their fair value
(investments and derivatives) or the Statement of Financial
Position amount is a reasonable approximation of fair value (due
from brokers, dividends and interest receivable, due to brokers,
accrual, cash at bank, bank overdraft and amounts due under the
loan facility).
(VII) HIERARCHY OF INVESTMENTS
The Company has classified its financial assets designated at
fair value through profit or loss and the fair value of derivative
financial instruments using a fair value hierarchy that reflects
the significance of the inputs used in making the fair value
measurements. The hierarchy has the following levels:
- Level 1 – quoted prices
(unadjusted) in active markets for identical assets or
liabilities;
- Level 2 – inputs other
than quoted prices included with Level 1 that are observable for
the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3 – inputs for the
asset or liability that are not based on observable market data
(unobservable inputs).
|
Level 1 |
Level 2 |
Level 3 |
Total |
As of 31 March 2020 |
£’000 |
£’000 |
£’000 |
£’000 |
Investments held at fair value
through profit or loss |
1,653,701 |
– |
27,431 |
1,681,132 |
Derivatives: OTC swaps (assets) |
– |
3,452 |
– |
3,452 |
Derivatives: OTC swaps
(liabilities) |
– |
(6,166) |
– |
(6,166) |
Financial instruments measured at
fair value |
1,653,701 |
(2,714) |
27,431 |
1,678,418 |
As at 31 March 2020, three debt,
one equity and a deferred consideration investment (included in the
portfolio) have been classified as Level 3. All level 3 positions
have been valued using an independent third party pricing source or
using the price of a recent transaction.
During 2020 one unquoted investment was transferred to Level 1
following its successful initial public offering.
|
Level 1 |
Level 2 |
Level 3 |
Total |
As of 31 March 2019 |
£’000 |
£’000 |
£’000 |
£’000 |
Investments held at fair value
through profit or loss |
1,353,865 |
– |
24,816 |
1,378,681 |
Derivatives: put and call options
(short) |
– |
(663) |
– |
(663) |
Derivatives: put and call options
(long) |
– |
1,908 |
– |
1,908 |
Derivatives: OTC swaps (assets) |
– |
11,898 |
– |
11,898 |
Derivatives: OTC swaps
(liabilities) |
– |
(2,849) |
– |
(2,849) |
Financial instruments measured at
fair value |
1,353,865 |
10,294 |
24,816 |
1,388,975 |
As at 31 March 2019, five debt and
two equity investments have been classified as Level 3. All level 3
positions have been valued using an independent third party pricing
source or using the price of a recent transaction.
(VIII) CAPITAL MANAGEMENT POLICIES AND
PROCEDURES
The Company’s capital management objectives are to ensure that
it will be able to continue as a going concern and to maximise the
income and capital return to its equity shareholders through an
appropriate level of gearing or leverage.
The Board’s policy on gearing and leverage is set out in the
Strategic Report.
As at 31 March 2020, the Company
had a leverage percentage of 12.0% (2019: 4.9%).
The capital structure of the Company consists of the equity
share capital, retained earnings and other reserves as shown in the
Statement of Financial Position.
The Board, with the assistance of the AIFM and the Portfolio
Manager, monitors and reviews the broad structure of the Company’s
capital on an ongoing basis. This includes a review of:
– the planned level of
gearing, which takes into account the Portfolio Manager’s view of
the market;
– the need to buy back
equity shares, either for cancellation or to hold in treasury, in
light of any share price discount to net asset value per share in
accordance with the Company’s share buy-back policy;
– the need for new issues of
equity shares, including issues from treasury; and
– the extent to which
revenue in excess of that which is required to be distributed
should be retained.
The Company’s objectives, policies and processes for managing
capital are unchanged from the preceding accounting year.
17. CAPITAL RESERVE
|
Capital Reserves* |
|
|
Investment |
|
|
|
Holding |
|
|
Other |
Gains |
Total |
|
£’000 |
£’000 |
£’000 |
At 31 March 2019 |
700,805 |
302,656 |
1,003,461 |
Net gains on investments |
73,605 |
23,376 |
96,981 |
Expenses charged to capital less tax
relief thereon |
(13,431) |
– |
(13,431) |
Exchange gain on currency
balances |
(7,077) |
– |
(7,077) |
At 31 March 2020 |
753,902 |
326,032 |
1,079,934 |
*
Investment holding gains relate to the revaluation of investments
and derivatives held at the reporting date. (See note 9 for further
details).
Under the terms of the revisions made to the Company’s Articles
of Association in 2013, sums within “capital reserves – other” are
also available for distribution.
18. NON-ADJUSTING SUBSEQUENT REPORTING
EVENT
Subsequent to the year end, healthcare stocks have experienced
substantial volatility associated with the impact of COVID-19 on
the sector. As at 1 June 2020, the
Company’s unaudited net asset value had increased by 23.4%. The
Directors have considered the impact of this event on the Company’s
financial position and, based on the information available to them
at the date of this report, have concluded that this is a
non-adjusting event. Further comments and analysis are provided in
the Chairman’s Statement beginning and the Portfolio Manager’s
Review.
Further Information/GLOSSARY OF TERMS
AND ALTERNATIVE PERFORMANCE MEASURES (‘APMS’)
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE (AIFMD)
Agreed by the European Parliament and the Council of the
European Union and transported into UK legislation, the AIFMD
classifies certain investment vehicles, including investment
companies, as Alternative Investment Funds (AIFs) and requires them
to appoint an Alternative Investment Fund Manager (AIFM) and a
depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for
strategy, operations and compliance and the Directors retain a
fiduciary duty to shareholders.
ALTERNATIVE PERFORMANCE MEASURE
(‘APM’)
An APM is a numerical measure of the Company’s current,
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial framework. In selecting these Alternative
Performance Measures, the Directors considered the key objectives
and expectations of typical investors in an investment trust such
as the Company.
BREXIT
BREXIT – British exit – refers to the UK leaving the EU. A
public vote was held in June 2016,
when 17.4 million people opted for BREXIT. This gave the Leave Side
52% compared with 48% for Remain. The UK left the EU at midnight on
31 January 2020. A transition period is now in place until
31 December 2020. During this period,
all EU rules and regulations continue to apply to the UK.
DISCOUNT OR PREMIUM*
A description of the difference between the share price and the
net asset value per share. The size of the discount or premium is
calculated by subtracting the share price from the net asset value
per share and is usually expressed as a percentage (%) of the net
asset value per share. If the share price is higher than the net
asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading
at a discount.
EQUITY SWAPS
An equity swap is an agreement where one party (counterparty)
transfers the total return of an underlying equity position to the
other party (swap holder) in exchange for a payment of the
principal, and interest for financed swaps, at a set date. Total
return includes dividend income and gains or losses from market
movements. The exposure of the holder is the market value of the
underlying equity position.
The company uses two types of equity swap:
- funded, where payment is
made on acquisition. They are equivalent to holding the underlying
equity position with the exception of additional counterparty risk
and not possessing voting rights in the underlying; and,
- financed, where payment is
made on maturity. As there is no initial outlay, financed swaps
increase exposure by the value of the underlying equity position
with no initial increase in the investments value – there is
therefore embedded leverage within a financed swap due to the
deferral of payment to maturity.
The Company employs swaps for two purposes:
- To gain access to
individual stocks in the Indian, Chinese and other emerging
markets, where the Company is not locally registered to trade or is
able to gain in a more cost efficient manner than holding the
stocks directly; and,
- To gain exposure to
thematic baskets of stocks (a Basket Swap). Basket Swaps are used
to build exposure to themes, or ideas, that the Portfolio Manager
believes the Company will benefit from and where holding a Basket
Swap is more cost effective and operationally efficient than
holding the underlying stocks or individual swaps.
*
Alternative Performance Measure
GEARING*
Gearing is calculated as the overdraft drawn, less net current
assets (excluding dividends), divided by Net Assets, expressed as a
percentage. For years prior to 2013, the calculation was based on
borrowings as a percentage of Net Assets.
INTERNATIONAL SWAPS AND DERIVATIVES
ASSOCIATION (ISDA)
ISDA has created a standardised contract (the ISDA Master
Agreement) which sets out the basic trading terms between the
counterparties to derivative contracts.
LEVERAGE*
Leverage is defined in the AIFMD as any method by which the AIFM
increases the exposure of an AIF. In addition to the gearing limit
the Company also has to comply with the AIFMD leverage
requirements. For these purposes the Board has set a maximum
leverage limit of 140% for both methods. This limit is expressed as
a % with 100% representing no leverage or gearing in the Company.
There are two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by
Shareholders’ Funds. Total exposure is calculated as net assets,
less cash and cash equivalents, adding back cash borrowing plus
derivatives converted into the equivalent position in their
underlying assets.
The Commitment Method is calculated as total exposure divided by
Shareholders Funds. In this instance total exposure is calculated
as net assets, less cash and cash equivalents, adding back cash
borrowing plus derivatives converted into the equivalent position
in their underlying assets, adjusted for netting and hedging
arrangements.
See the definition of Options and Equity Swaps for more details
on how exposure through derivatives is calculated.
|
31
March 2020
£ |
31
March 2019
£ |
|
Fair Value |
Exposure* |
Fair Value |
Exposure* |
Investments |
1,681,132 |
1,681,132 |
1,378,681 |
1,378,681 |
OTC equity swaps |
(2,714) |
41,569 |
9,049 |
116,762 |
Put + Call options |
– |
– |
1,245 |
7,088 |
|
1,678,418 |
1,722,701 |
1,388,975 |
1,502,531 |
Shareholders’ funds |
|
1,538,298 |
|
1,432,093 |
Leverage % |
|
12.0% |
|
4.9% |
*
Calculated in accordance with AIFMD requirements using the
Commitment Method
MSCI WORLD HEALTH CARE INDEX (THE
COMPANY’S BENCHMARK)
The MSCI World Health Care Index is designed to capture the
large and mid capitalisation segments across 23 developed markets
countries: All securities in the index are classified as healthcare
as per the Global Industry Classification Standard (GICS).
Developed Markets countries include: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Israel, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland the UK and the U.S. The net total
return of the Index is used which assumes the reinvestment of any
dividends paid by its constituents after the deduction of relevant
withholding taxes. The performance of the Index is calculated in
U.S.$ terms. Because the Company’s reporting currency is £ the
prevailing U.S.$/£ exchange rate is applied to obtain a £ based
return.
*
Alternative Performance Measure
NAV PER SHARE (PENCE)
The value of the Company’s assets, principally investments made
in other companies and cash being held, minus any liabilities. The
NAV is also described as ‘shareholders’ funds’ per share. The NAV
is often expressed in pence per share after being divided by the
number of shares which have been issued. The NAV per share is
unlikely to be the same as the share price which is the price at
which the Company’s shares can be bought or sold by an investor.
The share price is determined by the relationship between the
demand and supply of the shares.
NAV PER SHARE TOTAL RETURN*
The theoretical total return on shareholders’ funds per share,
reflecting the change in NAV assuming that dividends paid to
shareholders were reinvested at NAV at the time the shares were
quoted ex-dividend. A way of measuring investment management
performance of investment trusts which is not affected by movements
in discounts/premiums.
|
31 March |
31 March |
|
2020 |
2019 |
NAV Total Return |
p |
p |
Opening NAV |
2,722.2 |
2,411.1 |
Increase in NAV |
146.7 |
311.8 |
Closing NAV |
2,868.9 |
2,722.9 |
% increase in NAV |
5.4% |
12.9% |
Impact of reinvested dividends |
1.1% |
0.8% |
NAV Total Return |
6.5% |
13.7% |
ONGOING CHARGES*
Ongoing charges are calculated by taking the Company’s
annualised ongoing charges, excluding finance costs, taxation,
performance fees and exceptional items, and expressing them as a
percentage of the average daily net asset value of the Company over
the year.
|
31 March |
31 March |
|
2020 |
2019 |
|
£’000 |
£’000 |
AIFM & Portfolio Management fees
(Note 3) |
12,312 |
11,183 |
Other Expenses (Note 4) |
931 |
908 |
Total Ongoing Charges |
13,243 |
12,091 |
Performance fees
paid/crystallised |
– |
3,135 |
Total |
13,243 |
15,226 |
Average net assets |
1,497,219 |
1,340,300 |
Ongoing Charges |
0.9% |
0.9% |
Ongoing Charges (including
performance fees paid or crystallised during the year) |
0.9% |
1.1% |
*
Alternative Performance Measure
OPTIONS
An option is an agreement that gives the buyer, who pays a fee
(premium), the right – but not the obligation – to buy or sell a
specified amount of an underlying asset at an agreed price (strike
or exercise price) on or until the expiration of the contract
(expiry). A call option is an option to buy, and a put option an
option to sell.
The potential loss of the buyer is limited to the higher of the
premium paid or the market value of the bought option. On the other
side for the seller of a covered call option any loss would be
offset by gains in the covering position, and for sold puts the
potential loss is the strike price times the number of option
contracts held. For the purposes of calculating exposure to risk in
note 16, the potential loss is used. The exposure, used in
calculating the AIFMD leverage limits, between these two bounds is
determined as the delta (an options delta measures the sensitivity
of an option’s price solely to a change in the price of the
underlying asset) adjusted equivalent of the underlying
position.
REHYPOTHECATION
Rehypothecation is the practice by banks and brokers of using,
for their own purposes, assets that have been posted as collateral
by clients.
SHARE PRICE TOTAL RETURN*
Return to the investor on mid-market prices assuming that all
dividends paid were reinvested.
|
31 March |
31 March |
|
2020 |
2019 |
Share price Total Return |
p |
p |
Opening share price |
2,730.0 |
2,405.0 |
Increase in share price |
190.0 |
325.0 |
Closing share price |
2,920.0 |
2,730.0 |
% increase in share price |
7.0% |
13.5% |
Impact of reinvested dividends |
1.0% |
0.8% |
Share price Total Return |
8.0% |
14.3% |
TREASURY SHARES
Shares previously issued by a company that have been bought back
from shareholders to be held by the company for potential sale or
cancellation at a later date. Such shares are not capable of being
voted and carry no rights to dividends.
*
Alternative Performance Measure
Further Information/NOTICE OF THE
ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of
Worldwide Healthcare Trust PLC will be held at 25 Southampton
Buildings, London WC2A 1AL on
Thursday, 9 July 2020 from 12 noon
for the following purposes:
ORDINARY BUSINESS
To consider and, if thought fit, pass the following as ordinary
resolutions:
- To receive and, if thought fit, to accept the Audited Accounts
and the Report of the Directors for the year ended 31 March
2020
- To re-elect Dr David Holbrook as
a Director of the Company
- To re-elect Sir Martin Smith as
a Director of the Company
- To re-elect Mrs Sarah Bates as a
Director of the Company
- To re-elect Mr Humphrey van der
Klugt as a Director of the Company
- To re-elect Mr Doug McCutcheon
as a Director of the Company
- To re-elect Mr Sven Borho as a
Director of the Company
- To elect Dr Bina Rawal as a
Director of the Company
- To re-appoint PricewaterhouseCoopers LLP as the Company’s
Auditors and to authorise the Audit Committee to determine their
remuneration
- To approve the Directors’ Remuneration Report for the year
ended 31 March 2020
- To approve the Directors’ Remuneration Policy
SPECIAL BUSINESS
To consider and, if thought fit, pass the following resolutions
of which resolutions 13, 14, 15 and 16 will be proposed as special
resolutions:
AUTHORITY TO ALLOT SHARES
12. THAT in substitution for all existing
authorities the Directors be and are hereby generally and
unconditionally authorised in accordance with section 551 of the
Companies Act 2006 (the “Act”) to exercise all powers of the
Company to allot relevant securities (within the meaning of section
551 of the Act) up to a maximum aggregate nominal amount of
£1,419,656 (being 10% of the issued share capital of the Company at
2 June 2020) and representing
5,678,627 shares of 25 pence each
(or, if changed, the number representing 10% of the issued share
capital of the Company at the date at which this resolution is
passed), provided that this authority shall expire at the
conclusion of the Annual General Meeting of the Company to be held
in 2021 or 15 months from the date of passing this resolution,
whichever is the earlier, unless previously revoked, varied or
renewed, by the Company in General Meeting and provided that the
Company shall be entitled to make, prior to the expiry of such
authority, an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the
Directors may allot relevant securities pursuant to such offer or
agreement as if the authority conferred hereby had not expired.
DISAPPLICATION OF PRE-EMPTION
RIGHTS
13. THAT in substitution of all existing
powers (but in addition to any power conferred on them by
resolution 15 set out in the notice convening the Annual General
Meeting at which this resolution is proposed (“Notice of Annual
General Meeting”)) the Directors be and are hereby generally
empowered pursuant to Section 570 of the Companies Act 2006 (the
“Act”) to allot equity securities (within the meaning of Section
560 of the Act) for cash pursuant to the authority conferred on
them by resolution 12 set out in the Notice of Annual General
Meeting or otherwise as if Section 561(1) of the Act did not apply
to any such allotment:
- pursuant to an offer of equity securities open for acceptance
for a period fixed by the Directors where the equity securities
respectively attributable to the interests of holders of shares of
25p each in the capital of the Company (“Shares”) are proportionate
(as nearly as may be) to the respective numbers of Shares held by
them but subject to such exclusions or other arrangements in
connection with the issue as the Directors may consider necessary,
appropriate or expedient to deal with equity securities
representing fractional entitlements or to deal with legal or
practical problems arising in any overseas territory, the
requirements of any regulatory body or stock exchange, or any other
matter whatsoever;
- provided that (otherwise than pursuant to sub-paragraph (a)
above) this power shall be limited to the allotment of equity
securities up to an aggregate nominal value of £1,419,656, being
10% of the issued share capital of the Company as at 2 June 2020 and representing 5,678,627 Shares or,
if changed, the number representing 10% of the issued share capital
of the Company at the date of the meeting at which this resolution
is passed, and provided further that (i) the number of equity
securities to which this power applies shall be reduced from time
to time by the number of treasury shares which are sold pursuant to
any power conferred on the Directors by resolution 14 set out in
the Notice of Annual General Meeting and (ii) no allotment of
equity securities shall be made under this power which would result
in Shares being issued at a price which is less than the net asset
value per Share as at the latest practicable date before such
allotment of equity securities as determined by the Directors in
their reasonable discretion; and
and such power shall expire at the conclusion of the next Annual
General Meeting of the Company after the passing of this resolution
or 15 months from the date of passing this resolution, whichever is
earlier, unless previously revoked, varied or renewed by the
Company in General Meeting and provided that the Company shall be
entitled to make, prior to the expiry of such authority, an offer
or agreement which would or might otherwise require equity
securities to be allotted after such expiry and the Directors may
allot equity securities pursuant to such offer or agreement as if
the power conferred hereby had not expired.
14. THAT in substitution of all existing
powers (but in addition to any power conferred on them by
resolution 13 set out in the Notice of Annual General Meeting) the
Directors be and are hereby generally empowered pursuant to Section
570 of the Companies Act 2006 (the “Act”) to sell relevant shares
(within the meaning of Section 560 of the Act) if, immediately
before the sale, such shares are held by the Company as treasury
shares (as defined in Section 724 of the Act (“treasury shares”)),
for cash as if Section 561(1) of the Act did not apply to any such
sale provided that:
- where any treasury shares are sold pursuant to this power at a
discount to the then prevailing net asset value of ordinary shares
of 25p each in the capital of the Company (“Shares”), such discount
must be (i) lower than the discount to the net asset value per
Share at which the Company acquired the Shares which it then holds
in treasury and (ii) not greater than 5% to the prevailing diluted
cum income net asset value per Share at the latest practicable time
before such sale (and for this purpose the Directors shall be
entitled to determine in their reasonable discretion the discount
to their net asset value at which such Shares were acquired by the
Company and the net asset value per Share at the latest practicable
time before such Shares are sold pursuant to this power); and
- this power shall be limited to the sale of relevant shares
having an aggregate nominal value of £1,419,656 being 10% of the
issued share capital of the Company as at 2
June 2020 and representing 5,678,627 Shares or, if changed,
the number representing 10% of the issued share capital of the
Company at the date of the meeting at which this resolution is
passed, and provided further that the number of relevant shares to
which power applies shall be reduced from time to time by the
number of Shares which are allotted for cash as if Section 561(1)
of the Act did not apply pursuant to the power conferred on the
Directors by resolution 13 set out in the Notice of Annual General
Meeting,
and such power shall expire at the conclusion of the next Annual
General Meeting of the Company after the passing of this resolution
or 15 months from the date of passing this resolution, whichever is
earlier, unless previously revoked, varied or renewed by the
Company in General Meeting and provided that the Company shall be
entitled to make, prior to the expiry of such authority, an offer
or agreement which would or might otherwise require treasury shares
to be sold after such expiry and the Directors may sell treasury
shares pursuant to such offer or agreement as if the power
conferred hereby had not expired.
AUTHORITY TO REPURCHASE ORDINARY
SHARES
15. THAT the Company be and is hereby
generally and unconditionally authorised in accordance with section
701 of the Companies Act 2006 (the “Act”) to make one or more
market purchases (within the meaning of section 693(4) of the Act)
of ordinary shares of 25 pence each
in the capital of the Company (“Shares”) (either for retention as
treasury shares for future reissue, resale, transfer or
cancellation), provided that:
- the maximum aggregate number of Shares authorised to be
purchased shall be that number of shares which is equal to 14.99%
of the issued share capital of the Company as at the date of the
passing of this resolution;
- the minimum price (exclusive of expenses) which may be paid for
a Share is 25 pence;
- the maximum price (exclusive of expenses) which may be paid for
a Share is an amount equal to the greater of (i) 105% of the
average of the middle market quotations for a Share as derived from
the Daily Official List of the London Stock Exchange for the five
business days immediately preceding the day on which that Share is
purchased and (ii) the higher of the price of the last independent
trade and the highest then current independent bid on the London
Stock Exchange as stipulated in Article 5(1) of Regulation No.
2233/2003 of the European Commission (Commission Regulation of
22 December 2003 implementing the
Market Abuse Directive as regards exemptions for buy-back
programmes and stabilisation of financial instruments);
- the authority hereby conferred shall expire at the conclusion
of the Annual General Meeting of the Company to be held in 2021 or,
if earlier, on the expiry of 15 months from the date of the passing
of this resolution unless such authority is renewed prior to such
time; and
- the Company may make a contract to purchase Shares under this
authority before the expiry of such authority which will or may be
executed wholly or partly after the expiration of such authority,
and may make a purchase of Shares in pursuance of any such
contract.
GENERAL MEETINGS
16. THAT the Directors be authorised to call
general meetings (other than the Annual General Meeting of the
Company) on not less that 14 clear days’ notice, such authority to
expire on the conclusion of the next Annual General Meeting of the
Company, or, if earlier, on the expiry 15 months from the date of
the passing of the resolution.
By order of the
Board |
Registered Office: |
|
One Wood
Street |
Frostrow Capital
LLP |
London
EC2V 7WS |
Company Secretary |
|
3 June 2020 |
|
NOTES
- Members are entitled to appoint a proxy to exercise all or any
of their rights to attend and to speak and vote on their behalf at
the meeting. A shareholder may appoint more than one proxy in
relation to the meeting provided that each proxy is appointed to
exercise the rights attached to a different share or shares held by
that shareholder. A proxy need not be a shareholder of the
Company.
- A vote withheld is not a vote in law, which means that the vote
will not be counted in the calculation of votes for or against the
resolutions. If no voting indication is given, a proxy may vote or
abstain from voting at his/her discretion. A proxy may vote (or
abstain from voting) as he or she thinks fit in relation to any
other matter which is put before the meeting.
- This year, hard copy forms of proxy have not been included with
this notice. Members can vote by: logging onto www.signalshares.com
and following instructions; requesting a hard copy form of proxy
directly from the registrars, Link Asset Services at
enquiries@linkgroup.co.uk or in the case of CREST members,
utilising the CREST electronic proxy appointment service in
accordance with the procedures set out below. To be valid any proxy
form or other instrument appointing a proxy must be completed and
signed and received by post or (during normal business hours only)
by hand at Link Asset Services, PXS1, 34 Beckenham Road, Beckenham,
Kent BR3 4ZF no later than 12 noon Tuesday, 7 July 2020.
- In the case of a member which is a company, the instrument
appointing a proxy must be executed under its seal or signed on its
behalf by a duly authorised officer or attorney or other person
authorised to sign. Any power of attorney or other authority under
which the instrument is signed (or a certified copy of it) must be
included with the instrument.
- The return of a completed proxy form, other such instrument or
any CREST Proxy Instruction (as described below) will not prevent a
shareholder attending the meeting and voting in person if he/she
wishes to do so.
- Any person to whom this notice is sent who is a person
nominated under section 146 of the Companies Act 2006 to enjoy
information rights (a “Nominated Person”) may, under an agreement
between him/her and the shareholder by whom he/she was nominated,
have a right to be appointed (or have someone else appointed) as a
proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may,
under any such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
- The statement of the rights of shareholders in relation to the
appointment of proxies in paragraphs 1 and 3 above does not apply
to Nominated Persons. The rights described in these paragraphs can
only be exercised by shareholders of the Company.
- Pursuant to regulation 41 of the Uncertificated Securities
Regulations 2001, only shareholders registered on the register of
members of the Company (the “Register of Members”) at the close of
business on Tuesday, 7 July 2020 (or,
in the event of any adjournment, on the date which is two days
before the time of the adjourned meeting) will be entitled to
attend and vote or be represented at the meeting in respect of
shares registered in their name at that time. Changes to the
Register of Members after that time will be disregarded in
determining the rights of any person to attend and vote at the
meeting.
- As at 2 June 2020 (being the last
business day prior to the publication of this notice) the Company’s
issued share capital consists of 56,786,278 ordinary shares,
carrying one vote each. Therefore, the total voting rights in the
Company as at 2 June 2020 are
56,786,278.
- CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so by using
the procedures described in the CREST Manual. CREST Personal
Members or other CREST sponsored members, and those CREST members
who have appointed a service provider(s), should refer to their
CREST sponsor or voting service provider(s), who will be able to
take the appropriate action on their behalf.
- In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message (a “CREST
Proxy Instruction”) must be properly authenticated in accordance
with the specifications of Euroclear UK and Ireland Limited
(“CRESTCo”), and must contain the information required for such
instruction, as described in the CREST Manual. The message,
regardless of whether it constitutes the appointment of a proxy or
is an amendment to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be
received by the issuer’s agent (ID RA10) no later than 48 hours
before the time appointed for holding the meeting. For this
purpose, the time of receipt will be taken to be the time (as
determined by the timestamp applied to the message by the CREST
Application Host) from which the issuer’s agent is able to retrieve
the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other
means.
- CREST members and, where applicable, their CREST sponsors, or
voting service providers should note that CRESTCo does not make
available special procedures in CREST for any particular message.
Normal system timings and limitations will, therefore, apply in
relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST
sponsor or voting service provider(s) take(s)) such action as shall
be necessary to ensure that a message is transmitted by means of
the CREST system by any particular time. In this connection, CREST
members and, where applicable, their CREST sponsors or voting
system providers are referred, in particular, to those sections of
the CREST Manual concerning practical limitations of the CREST
system and timings.
- The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5)(a) of the
Uncertificated Securities Regulations 2001.
- In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment submitted
by the most senior holder will be accepted. Seniority is determined
by the order in which the names of the joint holders appear in the
Register of Members in respect of the joint holding (the first
named being the most senior).
- Members who wish to change their proxy instructions should
submit a new proxy appointment using the methods set out above.
Note that the cut-off time for receipt of proxy appointments (see
above) also applies in relation to amended instructions; any
amended proxy appointment received after the relevant cut-off time
will be disregarded.
- Members who have appointed a proxy using the hard-copy proxy
form and who wish to change the instructions using another
hard-copy form, should contact Link Asset Services on 0871 664 0300
or +44 371 664 0300 if calling from outside the United Kingdom. Calls cost 12p per minute plus
your phone company’s access charge. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open 09.00 to 17.30 Monday
to Friday excluding public holidays in England and Wales.
- If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of
proxies will take precedence.
- In order to revoke a proxy instruction, members will need to
inform the Company. Members should send a signed hard copy notice
clearly stating their intention to revoke a proxy appointment to
Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3
4ZF.
In the case of a member which is a company, the revocation
notice must be executed under its common seal or signed on its
behalf by an officer of the company or an attorney for the company.
Any power of attorney or any other authority under which the
revocation notice is signed (or a duly certified copy of such power
of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the
revocation is received after the time for receipt of proxy
appointments (see above) then, subject to paragraph 4, the proxy
appointment will remain valid.
Further Information/EXPLANATORY NOTES
TO THE RESOLUTIONS
Resolution 1 – To receive the Annual
Report and Accounts
The Annual Report and Accounts for the year ended 31 March 2020 will be presented to the Annual
General Meeting (AGM). These accounts accompany this Notice of
Meeting.
Resolutions 2 to 6 – Re-election and
election of Directors
Resolutions 3 to 9 deal with the re-election and election of
each Director.
The Board has confirmed, following a performance review, that
the Directors standing for re-election and election continue to
perform effectively.
Resolution 9 – Re-appointment of
Auditors and the determination of their remuneration
Resolution 10 relates to the re-appointment of
PricewaterhouseCoopers LLP as the Company’s independent Auditors to
hold office until the next AGM of the Company and also authorises
the Audit Committee to set their remuneration.
Resolutions 10 and 11 – Remuneration
Report and Remuneration Policy
The Directors’ Remuneration Report and them Directors’
Remuneration Policy are set out in the Governance section of the
Annual Report.
Resolutions 12, 13 and 14 – Issue of
Shares
Ordinary Resolution 12 in the Notice of AGM will renew the
authority to allot the unissued share capital up to an aggregate
nominal amount of £1,419,656 (equivalent to 5,678,627 shares, or
10% of the Company’s existing issued share capital on 3 June 2020, being the nearest practicable date
prior to the signing of this Report (or if changed, the number
representing 10% of the issued share capital of the Company at the
date at which the resolution is passed). Such authority will expire
on the date of the next AGM or after a period of 15 months from the
date of the passing of the resolution, whichever is earlier. This
means that the authority will have to be renewed at the next
AGM.
When shares are to be allotted for cash, Section 551 of the
Companies Act 2006 (the “Act”) provides that existing shareholders
have pre-emption rights and that the new shares must be offered
first to such shareholders in proportion to their existing holding
of shares. However, shareholders can, by special resolution,
authorise the Directors to allot shares otherwise than by a pro
rata issue to existing shareholders. Special Resolution 13 will, if
passed, give the Directors power to allot for cash equity
securities up to 10% of the Company’s existing share capital on
2 June 2020 (or if changed, the
number representing 10% of the issued share capital of the Company
at the date at which the resolution is passed), as if Section 551
of the Act does not apply. This is the same nominal amount of share
capital which the Directors are seeking the authority to allot
pursuant to Resolution 12. This authority will also expire on the
date of the next Annual General Meeting or after a period of 15
months, whichever is earlier. This authority will not be used in
connection with a rights issue by the Company.
Under the Companies (Acquisition of Own Shares) (Treasury
Shares) Regulations 2003 (as amended) (the “Treasury Share
Regulations”) the Company is permitted to buy-back and hold shares
in treasury and then sell them at a later date for cash, rather
than cancelling them. The Treasury Share Regulations require such
sale to be on a pre-emptive, pro rata, basis to existing
shareholders unless shareholders agree by special resolution to
disapply such pre-emption rights. Accordingly, in addition to
giving the Directors power to allot unissued share capital on a non
pre-emptive basis pursuant to Resolution 13, Resolution 14, if
passed, will give the Directors authority to sell shares held in
treasury on a non pre-emptive basis. No dividends may be paid on
any shares held in treasury and no voting rights will attach to
such shares. The benefit of the ability to hold treasury shares is
that such shares may be resold. This should give the Company
greater flexibility in managing its share capital, and improve
liquidity in its shares. It is the intention of the Board that any
re-sale of treasury shares would only take place at a narrower
discount to the net asset value per share than that at which they
had been bought into treasury, and in any event at a discount no
greater than 5% to the prevailing diluted cum income net asset
value per share, and this is reflected in the text of Resolution
14. It is also the intention of the Board that sales from treasury
would only take place when the Board believes that to do so would
assist in the provision of liquidity to the market. The number of
treasury shares which may be sold pursuant to this authority is
limited to 10% of the Company’s existing share capital on
3 June 2020 (or if changed, the
number representing 10% of the issued share capital of the Company
at the date at which the resolution is passed) (reduced by any
equity securities allotted for cash on a non-pro rata basis
pursuant to Resolution 13, as described above). This authority will
also expire on the date of the next Annual General Meeting or after
a period of 15 months, whichever is earlier.
The Directors intend to use the authority given by Resolutions
12, 13 and 14 to allot shares and disapply pre-emption rights only
in circumstances where this will be clearly beneficial to
shareholders as a whole. The issue proceeds would be available for
investment in line with the Company’s investment policy. No issue
of shares will be made which would effectively alter the control of
the Company without the prior approval of shareholders in general
meeting.
New Shares will only be issued at a premium to the Company’s Cum
income net asset value per share at the time of issue.
Resolution 15 – Share Repurchases
The Directors wish to renew the authority given by shareholders
at the previous AGM. The principal aim of a share buy-back facility
is to enhance shareholder value by acquiring shares at a discount
to net asset value, as and when the Directors consider this to be
appropriate. The purchase of Shares, when they are trading at a
discount to net asset value per share should result in an increase
in the net asset value per share for the remaining shareholders.
This authority, if conferred, will only be exercised if to do so
would result in an increase in the net asset value per share for
the remaining shareholders and if it is in the best interests of
shareholders generally. Any purchase of shares will be made within
guidelines established from time to time by the Board. It is
proposed to seek shareholder authority to renew this facility for
another year at the AGM.
Under the current Listing Rules, the maximum price that may be
paid on the exercise of this authority must not exceed the higher
of (i) 105% of the average of the middle market quotations for the
shares over the five business days immediately preceding the date
of purchase and (ii) the higher of the last independent trade and
the highest current independent bid on the trading venue where the
purchase is carried out. The minimum price which may be paid is 25p
per Share. Existing shares which are purchased under this authority
will either be cancelled or held as Treasury Shares.
Special Resolution 15 in the Notice of AGM will renew the
authority to purchase in the market a maximum of 14.99% of Ordinary
Shares in issue as at the date of the passing of the resolution.
Such authority will expire on the date of the next AGM or after a
period of 15 months from the date of passing of the resolution,
whichever is earlier. This means in effect that the authority will
have to be renewed at the next AGM or earlier if the authority has
been exhausted.
Resolution 16 – General Meetings
Special Resolution 16 seeks shareholder approval for the Company
to hold General Meetings (other than the AGM) at 14 clear
days’ notice. The Board confirms that the shorter notice period
would only be used where it was merited by the purpose of the
meeting.
Recommendation
The Board considers that the resolutions relating to the above
items are in the best interests of shareholders as a whole.
Accordingly, the Board unanimously recommends to the shareholders
that they vote in favour of the above resolutions to be proposed at
the forthcoming AGM as the Directors intend to do in respect of
their own beneficial holdings totalling 51,390 shares.
Further Information/REGULATORY
DISCLOSURES (UNAUDITED)
ALTERNATIVE INVESTMENT FUND MANAGERS
DIRECTIVE (AIFMD) DISCLOSURES
INVESTMENT OBJECTIVE AND LEVERAGE
A description of the investment strategy and objectives of the
Company, the types of assets in which the Company may invest, the
techniques it may employ, any applicable investment restrictions,
the circumstances in which it may use leverage, the types and
sources of leverage permitted and the associated risks, any
restrictions on the use of leverage and the maximum level of
leverage which the AIFM and Portfolio Manager are entitled to
employ on behalf of the Company and the procedures by which the
Company may change its investment strategy and/or the investment
policy can be found in the Business Review under the heading
“Investment Strategy”.
The table below sets out the current maximum permitted limit and
actual level of leverages for the Company: as a percentage of net
assets
|
Gross Method |
Commitment Method |
Maximum level of leverage |
140.0% |
140.0% |
Actual level at 31 March 2020 |
113.3% |
112.0% |
REMUNERATION OF AIFM STAFF
Following completion of an assessment of the application of the
proportionality principle to the FCA’s AIFM Remuneration Code, the
AIFM has disapplied the pay-out process rules with respect to it
and any of its delegates. This is because the AIFM considers that
it carries out non-complex activities and is operating on a small
scale.
Further disclosures required under the AIFM Rules can be found
within the Investor Disclosure Document on the Company’s website:
www.worldwidewh.com.
SECURITY FINANCING TRANSACTIONS
DISCLOSURES
As defined in Article 3 of Regulation (EU) 2015/2365, securities
financing transactions (SFT) include repurchase transactions,
securities or commodities lending and securities or commodities
borrowing, buy-sell back transactions or sell-buy back transactions
and margin lending transactions. Whilst the Company does not engage
in such SFT’s, it does engage in Total Return Swaps (TRS)
therefore, in accordance with Article 13 of the Regulation, the
Company’s involvement in and exposure to Total Return Swaps for the
accounting year ended 31 March 2020
are detailed below.
GLOBAL DATA
Amount of assets engaged in TRS
The following table represents the total value of assets engaged
in TRS:
|
£’000 |
% of AUM |
TRS |
(2,714) |
(0.2) |
CONCENTRATION DATA
Counterparties
The following table provides details of the counterparties and
their country of incorporation (based on gross volume of
outstanding transactions with exposure on a gross basis) in respect
of TRS as at the balance sheet date:
|
Country of |
|
|
Incorporation |
£’000 |
Goldman Sachs |
U.S.A. |
14,683 |
JPMorgan |
U.S.A. |
26,886 |
AGGREGATE TRANSACTION DATA
Type, quality, maturity, tenor and
currency of collateral
No collateral was received by the Company in respect of TRS
during the year to 31 March 2019. The
collateral provided by the Company to the above counterparties is
set out below.
Type |
Currency |
Maturity |
Quality |
£’000 |
Cash |
USD |
less than |
n/a |
20,190 |
|
|
1 day |
|
|
Maturity tenor of TRS
The following table provides an analysis of the maturity tenor
of open TRS positions (with exposure on a gross basis) as at the
balance sheet date:
|
TRS |
|
Value |
Maturity |
£’000 |
3 to 12 months |
41,569 |
Settlement and clearing
OTC derivative transactions (including TRS) are entered into by
the Company under an International Swaps and Derivatives
Associations, Inc. Master Agreement (“ISDA Master Agreement”). An
ISDA Master Agreement is a bilateral agreement between the Company
and a counterparty that governs OTC derivative transactions
(including TRS) entered into by the parties. All OTC derivative
transactions entered under an ISDA Master Agreement are netted
together for collateral purposes, therefore any collateral
disclosures provided are in respect of all OTC derivative
transactions entered into by the Company under the ISDA Master
agreement, not just total return swaps.
Safekeeping of collateral
There was no non-cash collateral provided by the Company in
respect of OTC derivatives (including TRS) with the counterparties
noted above as at the statement of financial position date.
Return and cost
All returns from TRS transactions will accrue to the Company and
are not subject to any returns sharing arrangements with the
Company’s AIFM, Portfolio Manager or any other third parties.
Returns from those instruments are disclosed in Note 9 to the
Company’s financial statements.
Frostrow Capital LLP,
Company Secretary
3 June 2020
ANNOUNCEMENT ENDS