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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Worldwide Healthcare Trust Plc | LSE:WWH | London | Ordinary Share | GB00BN455J50 | ORD 2.5P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.50 | -0.14% | 347.00 | 346.00 | 346.50 | 347.50 | 343.50 | 347.50 | 2,055,828 | 16:35:10 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | 34.35M | -8.79M | -0.0150 | -231.00 | 2.02B |
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TIDMWWH
Worldwide Healthcare Trust PLC
Audited Results for the Year Ended 31 March 2018
The Company's annual report will be posted to shareholders on 25 June 2018.
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 2018 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
2013 2014 2015 2016 2017 2018
Net asset value per share (total 30.3% 25.9% 53.0% (9.0%) 28.9% 2.8%
return)*?
Benchmark (total return)*? 31.4% 14.9% 35.9% (5.4%) 24.5% (2.5%)
Net asset value per share - basic 1110.2p 1374.3p 2039.3p 1850.9p 2,367.2p 2,411.1p
Net asset value per share - 1089.6p 1348.2p 2039.3p 1850.5p 2,367.2p 2,411.1p
diluted**
Share price? 1009.0p 1301.0p 1930.0p 1715.0p 2,304.0p 2,405.0p
Discount of share price to diluted 7.4% 3.5% 5.4% 7.3% 2.7% 0.3%
net asset value per share*?
Dividends per share 16.5p 15.0p 12.5p 16.5p 22.5p 17.5p
Leverage? 12.7% 13.9% 13.2% 14.0% 16.9% 16.4%
Ongoing charges? 1.0% 1.0% 1.0% 0.9% 0.9% 0.9%
Ongoing charges (including
performance fees
paid or crystallised during the 1.2% 1.1% 2.2% 2.1% 1.0% 1.2%
year)?
* Source: Morningstar
** Dilution to take account of the Company's Subscription Shares (which
expired on 31 July 2014) and any shares held in treasury.
? Alternative Performance Measure (see Glossary).
Strategic Report/Chairman's Statement
Against a background of a modest decline in the global healthcare sector, I am
pleased to report that both the Company's share price and the net asset value
per share produced a positive total return which outperformed the Company's
Benchmark, the MSCI World Health Care Index on a net total return, sterling
adjusted basis.
The Company's net asset value per share total return was +2.8% and the share
price total return was +5.3%. The Company's Benchmark fell by 2.5% during the
year. Both the Company's portfolio and the Benchmark have a high exposure to
companies denominated in U.S.$. As such, the strengthening of sterling against
the U.S.$ during the year, by 12.0%, acted as a headwind for the Company's
performance in absolute terms.
The Company had, on average, leverage of 16.1% (2017: 16.3%) during the year
which contributed 0.9% to performance (2017: the contribution to performance
was 3.2%).
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 2018,
the total return of the Company's net asset value per share has been 2,812.7%,
equivalent to a compound annual return of 15.8%. This compares to a cumulative
blended Benchmark return of 1,143.9%, equivalent to a compound annual return of
11.6% over the same 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 has 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 3,355,000 new shares were issued during the year at a
small premium to the Company's cum income net asset value per share. This
issuance gave rise to the receipt of GBP84.7m of new funds by the Company which
have been invested in line with the Company's investment objective. Since the
end of the year a further 107,500 new shares have been issued raising GBP2.6m of
new funds. No shares were repurchased by the Company during the year and to the
date of this report and no shares were held in treasury.
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
September 2018.
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. A first interim dividend of 6.5p
per share, for the year ended 31 March 2018, was paid on 9 January 2018 to
shareholders on the register on 24 November 2017. The Company's net revenue
return for the year as a whole fell slightly to GBP9.0 million (2017: GBP10.7 m)
due, in part, to a fall in the level of income received, and also to the
strength of sterling against the U.S.$. Accordingly, the Board has declared a
slightly reduced second interim dividend of 11.0p per share which, together
with the first interim dividend already paid, makes a total dividend for the
year of 17.5p (2017: 22.5p per share). Based on the closing mid-market share
price of 2680.0p on 14 June 2018, the total dividend payment for the year
represents a current yield of 0.7%.
The second interim dividend will be payable on 31 July 2018 to shareholders on
the register of members on 22 June 2018. The associated ex-dividend date will
be 21 June 2018.
Composition of the Board
In December 2017 Sam Isaly, the former Managing Partner at OrbiMed and the
Company's lead portfolio manager, announced his plans to step down as Managing
Partner of OrbiMed. He subsequently left the Board of the Company in January
2018 and has recently completed his retirement from OrbiMed. On behalf of the
Board, and also shareholders, I would like to thank him for the significant
contribution he has made to the affairs of the Company since its inception. The
portfolio remains very well positioned in the very capable hands of Sven Borho
(one of OrbiMed's Managing Partners) and Trevor Polischuk.
I am delighted that Sven Borho has joined the Board, as announced on 7 June
2018. Sven is a founding Partner of OrbiMed and has been part of the team that
manages the Company's portfolio since the Company's inception. A resolution
proposing Sven's appointment to the Board will be considered by shareholders at
this year's Annual General Meeting.
Key Information Document
Shareholders may be aware that new regulations, the Packaged Retail and
Insurance-based Investment Products ("PRIIPs") Regulation, came into effect
from 1 January 2018. Under these regulations, the Company is required to
prepare and publish a key information document ("KID") to help potential
investors understand the nature, risk and costs of this product and to allow
comparison with others.
The KID contains information about the Company in a highly prescribed format,
both in terms of the calculation of the numbers and also the narrative, with
limited ability to add additional context and explanations. The Board believes
that the KID should therefore be considered only in conjunction with other
material produced about the Company including the annual report, the half year
report and the monthly factsheet which, inter alia, describe the Company's
investment objective together with the investment philosophy of our Portfolio
Manager. All of these documents are available at www.worldwidewh.com. The Board
continues to keep this matter under review.
Outlook
Our Portfolio Manager expects the outlook to continue to be positive for the
healthcare sector. In particular, they believe that attractive valuations,
merger & acquisition activity, strong innovation, and a favourable regulatory
environment and a benign U.S. corporate tax environment will all be key
drivers.
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 investor will continue to be well rewarded.
Annual General Meeting
The Board is keen to welcome all shareholders to the Company's Annual General
Meeting which offers an opportunity to meet the Directors and also to hear the
views of our Portfolio Manager. The Annual General Meeting of the Company will
be held at Salters' Hall, 4 Fore Street, London EC2Y 5DE on Thursday, 20
September 2018 at 12 noon.
Following improvements in technology the Company will cease, with effect from
our 2019 Annual General Meeting, to issue paper proxy forms to shareholders.
Voting on resolutions to be considered at the Company's general meetings
(including the Annual General Meeting) will be able to be made via our
Registrar's website at www.signalshares.com. A paper proxy form, however, will
be available on request from our Registrar.
Sir Martin Smith
Chairman
15 June 2018
Strategic Report/Investment Objective and Policy
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 limits and guidelines
- 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;
- The Company will not invest more than 15% of the portfolio in any one
individual stock at the time of acquisition;
- At least 60% of the portfolio will normally be invested in larger
companies (i.e. with a market capitalisation of at least U.S.$5bn);
- At least 20% of the portfolio will normally be invested in smaller
companies (i.e. with a market capitalisation of less than U.S.$5bn);
- 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 20% of the portfolio, at the time of acquisition, may be
invested in companies in each of the following sectors:
- healthcare equipment and supplies
* healthcare technology
* healthcare providers and services.
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
currently employed within the portfolio: Options and Equity Swaps;
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.
Further details on how derivatives are employed can be found in note 16.
The Company does not currently hedge against foreign currency exposure.
Gearing limits
The Board and Frostrow believe that shareholder returns can be enhanced through
the use of borrowings at appropriate times for the purpose of investment. The
Board has set a maximum gearing level, through borrowing, of 20% of the net
assets. OrbiMed are responsible for deciding on the appropriate level of
gearing at any one time, subject to acting within the 20% limit.
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.
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.
Strategic Report/Portfolio
Investments held as at 31 March 2018
Market
value % of
Investments Country/region GBP'000 investments
Alexion Pharmaceuticals USA 57,271 4.4
Merck USA 55,992 4.3
Boston Scientific USA 54,757 4.2
Regeneron Pharmaceuticals USA 51,477 4.0
Novo Nordisk* Denmark 48,094 3.7
Bristol-Myers Squibb USA 41,553 3.2
Vertex Pharmaceuticals USA 40,269 3.1
Biogen USA 38,370 3.0
Celgene USA 35,762 2.8
Chugai Pharmaceutical Japan 34,355 2.6
Top 10 investments 457,900 35.3
Edwards Lifesciences USA 32,419 2.5
Wright Medical Netherlands 32,277 2.5
Puma Biotechnology USA 28,214 2.2
Nevro USA 26,786 2.1
Eisai Japan 26,617 2.0
Jazz Pharmaceuticals Ireland 25,473 2.0
Alnylam Pharmaceuticals USA 25,386 2.0
Agilent Technologies USA 24,067 1.9
Allergan Ireland 23,946 1.8
AbbVie USA 21,778 1.7
Top 20 investments 724,863 56.0
Intuitive Surgical USA 20,541 1.6
Galapagos** Belgium 20,315 1.5
Stryker USA 18,274 1.4
Amicus Therapeutics USA 17,958 1.4
Novartis Switzerland 17,772 1.4
Tenet Healthcare USA 17,771 1.4
Amgen USA 16,908 1.3
Shire USA 16,773 1.3
Bayer Germany 16,488 1.3
DaVita USA 16,142 1.2
Top 30 investments 903,805 69.8
Clovis Oncology USA 15,504 1.2
Santen Pharmaceutical Japan 15,328 1.2
Illumina USA 15,269 1.2
Mylan Netherlands 14,930 1.2
Universal Health Services USA 14,754 1.2
Sino Biopharmaceuticals China 14,687 1.1
Thermo Fisher Scientific USA 13,290 1.0
Xencor USA 13,090 1.0
Array BioPharma USA 12,756 1.0
BeiGene Cayman Islands 11,701 0.9
Top 40 investments 1,045,114 80.8
Coherus Biosciences USA 11,502 0.9
Nippon Shinyaku Japan 11,155 0.9
ACADIA Pharmaceuticals USA 10,425 0.8
Aerie Pharmaceuticals USA 9,927 0.8
Cigna USA 8,968 0.7
Wright Medical Contingent Value Rights Netherlands 8,542 0.7
Radius Health USA 8,194 0.6
Takeda Pharmaceutical Japan 8,173 0.6
HCA USA 8,018 0.6
Magellan Health USA 7,909 0.6
Top 50 investments 1,137,927 88.0
* includes Novo Nordisk ADR equating to 0.9% of investments.
** includes Galapagos ADR equating to 0.9% of investments.
Market
value % of
Investments Country/region GBP'000 investments
LifePoint Health USA 7,855 0.6
Genmab Denmark 7,548 0.6
Alliance Healthcare Services FRN 20/04/2024 USA 7,146 0.5
(unquoted)
Insmed USA 6,603 0.5
Siemens Healthineers Germany 6,314 0.5
Teleflex USA 6,181 0.5
Abbott Laboratories USA 6,155 0.5
Insmed 1.75% 15/01/2025 (unquoted) USA 5,951 0.5
Genoa A QOL Healthcare FRN 28/10/2024 (unquoted) USA 5,665 0.4
Medical Depot Holdings FRN 21/12/2023 (unquoted) USA 5,639 0.4
Top 60 investments 1,202,984 93.0
Bioventus FRN 21/11/2021 (unquoted) USA 5,602 0.4
Sarepta Therapeutics USA 5,249 0.4
Ironwood Pharmaceuticals USA 4,931 0.4
China Medical System Cayman Islands 4,582 0.4
Bluebird Bio USA 4,538 0.4
IHH Healthcare Malaysia 4,423 0.3
Deciphera Pharmaceuticals USA 3,811 0.3
Fluidigm USA 3,490 0.3
K2M Group USA 3,329 0.3
Amedisys USA 3,216 0.2
Top 70 investments 1,246,155 96.4
Yestar Healthcare China 3,079 0.2
Wenzhou Kangning Hospital China 3,046 0.2
Dentsply Sirona USA 2,367 0.2
Aegerion Pharmaceuticals 2% 15/08/2019 (unquoted) USA 2,007 0.1
ImmunoGen USA 1,636 0.1
CRISPR Therapeutics Switzerland 817 0.1
Innoviva FRN 18/08/2022 (unquoted) USA 711 0.1
Novelion Therapeutics Canada 62 0.0
Alimera Sciences USA 46 0.0
Total equities and fixed interest investments 1,259,926 97.4
Emerging Markets Healthcare (Basket)^* Emerging Markets 21,418 1.7
Jiangsu Hengrui Medicine^ China 18,123 1.4
JP China HC A-Share (Basket)^* China 17,118 1.3
JPM Gene (Basket)^* USA 16,942 1.3
Aier Eye Hospital Group^ China 13,493 1.0
India Health Care (Basket)^* India 10,953 0.8
M&A (Basket)^* USA 9,594 0.7
Strides Shasun China 6,493 0.5
Shenzhen Salubris Pharmaceuticals^ China 5,162 0.5
Jiangsu Nhwa Pharmaceutical^ China 4,717 0.3
Ajanta Pharma India 2,112 0.2
Less: Gross exposure on financed swaps (92,020) (7.1)
Total OTC Swaps 34,105 2.6
Total investments including OTC Swaps 1,294,031 100.0
Put Options (Long) 161 0.0
Put Options (Short) (1,058) (0.1)
Call Options (Long) 426 0.1
Call Options (Short) (40) 0.0
Total investments including OTC Swaps and Options 1,293,520 100.0
^ Financed
* See Glossary and note 16 for further details in relation to the OTC
Swaps and Options. Basket swaps may include underlying holdings that are also
held directly.
SUMMARY
Market value % of
Investments GBP'000 investments
Equities (including options & swaps) 1,260,799 97.5
Unquoted debt securities - variable rate 24,763 1.9
Unquoted debt securities - fixed rate 7,958 0.6
Total of all investments 1,293,520 100.0
Strategic Report/OrbiMed Capital LLC
OrbiMed was founded in 1989 and has evolved over time to be one of the largest
dedicated healthcare investment firms in the world. OrbiMed has managed the
Company's portfolio since its launch in 1995. Strong returns and many
investment awards signify the aggregate talents of this exceptional team.
OrbiMed had over U.S.$14 billion in assets under management as of 31 March
2018, across a range of funds, including investment trusts, hedge funds, mutual
funds, and private equity funds.
Investment strategy and process
Within the guidelines set by the Board, the OrbiMed team work constantly to
identify sources of outperformance, or alpha, with a focus on fundamental
research. In healthcare, there are many primary sources of alpha generation,
especially in therapeutics. Clinical events such as the publication of new
clinical trial data is a prominent example and historically has been the
largest source of share price volatility. Regulatory events, such as new drug
approvals by U.S., European, or Japanese regulatory authorities are also stock
moving events. Subsequent new product launches are carefully tracked and
forecasted. Other sources include legal events and, of course, merger and
acquisition activity.
The team has a global focus with a universe of coverage that covers the entire
spectrum of companies, from early stage companies with pre-clinical assets to
fully integrated biopharmaceutical companies. The universe of actively covered
companies is approaching 1,000.
OrbiMed emphasises investments in companies with underappreciated products in
the pipeline, high quality management teams, and adequate financial resources.
A disciplined portfolio construction process is utilised to ensure the
portfolio is focused on high conviction positions. Finally, the portfolio is
subject to a rigorous risk management process to moderate portfolio volatility.
The team
The OrbiMed Investment Team continues to expand and now has over 80 investment
professionals that cover all aspects of research, trading, finance, and
compliance. This includes over 20 degree holders with MD and/or PhD
credentials, healthcare industry veterans, and finance professionals with over
20 years of experience.
The firm has a global investment horizon and the OrbiMed footprint now spans
three continents with offices in New York, San Francisco, Herzliya (Israel),
Shanghai, and Mumbai.
The lead managers with responsibility for the Company's portfolio are as
follows:
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. Sven studied business administration at
Bayreuth University in Germany and received a M.Sc. (Econs.), Accounting and
Finance, from The London School of Economics; he is a citizen of both Germany
and Sweden.
Trevor M. Polischuk, Ph.D., is a Partner at OrbiMed focused on the global
pharmaceutical industry. Trevor joined OrbiMed in 2003 and became a Partner in
2011. Previously, he worked at Lehman Brothers as a Senior Research Analyst
covering the U.S. pharmaceutical industry. Trevor began his career at Warner
Lambert as a member of the Global Marketing Planning team within Parke-Davis.
Trevor holds a Doctorate in Neuropharmacology & Gross Human Anatomy and an
M.B.A. from Queen's University, Canada.
Strategic Report/Portfolio Manager's Review
Performance Review
The financial year ended 31 March 2018 was defined by a return of industry
fundamentals driving share price returns; although global currency moves did
provide some notable volatility. With the shock of "Brexit" and a Republican
win in the U.S. Presidential election in 2016 moved to the backburner,
investors refocused on more pertinent growth drivers throughout the year. In
the healthcare sector that meant reported financials, new drug approvals,
pipeline advancements, and merger and acquisition (M&A) activity represented
the principal reasons for share price movements. However, despite a solid first nine months, healthcare equities were once again stumped by macro factors that clipped much of the gains in the final quarter of the financial year. Without question, the start of the Company's financial year began with renewed optimism due to the pro-business agenda from U.S. President Donald Trump that the market did embrace. Whilst the President's first year has not been without controversy - in part due to his excessive use of his Twitter account - the penultimate legislation of the year was the passage of a major U.S. tax reform bill that positively impacted corporates' bottom line across industries. Overall, volatility remained low throughout the year, until a late year spike that was short lived. In fact, the VIX (the Chicago Board Options Exchange measure of volatility of the S&P 500), remained remarkably low and range bound in the first nine months of the financial year, recording an all-time low in November 2017 (8.56) before spiking in February 2018 and reaching a multi-year high (50.30) in tandem with a broad market sell off. The cause was multifold, including monetary tightening by the U.S. Federal Reserve, regulatory uncertainties around major technology companies, inflationary fears, and continued opaqueness around U.S. policy. The result was a spike in correlation that saw equity markets across industry sectors and around the world swoon. The net result was a modest decline in global healthcare equities. The MSCI World Healthcare Index, measured on a net total return, sterling adjusted basis, declined by 2.5% for the year ended 31 March 2018. However, we are pleased to report that the Company was able to outperform the Benchmark result and post positive returns for this period. The net asset value per share total return was +2.8% and the share price total return was +5.3%. Overall, since the Company's inception in 1995 to 31 March 2018, the total return of the Company's net asset value per share is 2,812.7%, equivalent to a compound annual return of 15.8%. This compares to the blended benchmark rise of 1,143.9%, equivalent to a compound annual return of 11.6%. Contributors to Performance Overall, outperformance was generated by a mix of sub-sector allocation and stock picking across emerging biotechnology, healthcare services, emerging markets, and life science tools/diagnostics. In emerging biotechnology, overweight positioning and stock picking created approximately 3.5% of both positive absolute contribution and alpha generation. In healthcare services, astute stock picking and catalyst-driven trading led to over 3.0% of positive contribution and an additional 2.5% in alpha generation. In emerging markets, overweight allocation resulted in approximately 1.5% of positive absolute contribution and alpha generation. Finally, in life science tools/diagnostics, stock picking also created positive returns, with over 1.0% of contribution and nearly 0.5% of alpha generation. The top contributor during the year was BeiGene, a China-based, commercial-stage biopharmaceutical company focused on the development of cancer therapies with significant commercial exposure in the large Chinese market as well as worldwide. The shares performed strongly during the year following the announcement of a collaboration with Celgene on the development and commercialisation of its solid tumour treatment candidate tislelizumab, an anti-PD-1 antibody, and the expansion of the BeiGene's commercial footprint in the large Chinese market to include Celgene's oncology products Abraxane, Revlimid and Vidaza. BeiGene also continued to progress its own oncology pipeline including the BTK inhibitor zanubrutinib, which has shown promising data in B cell malignancies, and pamiparib, a PARP inhibitor in development for the treatment of solid tumours. Another top contributor was Intuitive Surgical. The company develops robotic systems and associated instrument sets for use in a broad array of surgical procedures. Robotic procedure volumes accelerated in 2017 against a strong 2016 comparison. Moreover, new system placements, a leading indicator for procedure utilisation strongly outperformed analyst expectations. Hospital adoption and enthusiasm for robotics have dramatically increased in new general surgical categories, notably hernia repair. Competition concerns have abated somewhat as launches have been further delayed and details reveal less comprehensive solutions than expected. Further, investor enthusiasm for the company's flexible catheter system (currently in development) has increased, leading to a strong multi-year outlook for the company. The result was a steady increase in the share price throughout the year. Juno Therapeutics is a development-stage biotechnology company focused on chimeric antigen receptor (CAR) T cells which are genetically engineered to combat cancer. Juno's lead candidate, JCAR017, has shown a potentially best-in-class profile with an impressive six-month complete response rate of 50% in relapsed or refractory diffuse large B cell lymphoma (DLBCL) and a substantially improved safety and tolerability profile over other CAR T products. In January 2018, Celgene acquired Juno for a 91% premium to its share price. Jiangsu Hengrui Medicine is the largest drug innovator in China in terms of research and development (R&D) expenditure, spending nearly U.S.$300 million in 2017. The company focuses on oncology and surgery drugs. Besides its leadership in the Chinese pharmaceutical market, the company has been expanding its footprint into the global market. It has approximately ten generic drugs approved in the U.S. and has licensed out many pipeline candidates to overseas pharmaceutical companies. In 2017, the company accomplished some significant milestones, leading to strong share price appreciation. First, Hengrui became the first among its Chinese peers to start a Phase III clinical trial in immuno-oncology, notably for their anti-PD-1 monoclonal antibody. The trial targeted over 400 patients with late-stage non-small cell lung cancer. Second, the company filed for conditional approval of pyrotinib, a novel, irreversible dual tyrosine kinase inhibitor, based on strong survival data from a Phase II study in metastatic breast cancer patients. Third, Hengrui's tyrosine kinase inhibitor for the treatment of gastric cancer, apatinib, was added to the National Drug Reimbursement List in China, resulting in a spike in patient demand. The company's dominant leadership in the China pharmaceutical market is likely sustainable, thanks to the company's strong in-house research, clinical development, and commercialisation capabilities, coupled with continued favourable government healthcare policies. We believe China will continue to gain market share in the global pharmaceutical market and become a driving force for the innovation in the healthcare sector, such as biological drugs, cell therapy, and healthcare artificial intelligence. Therefore, we expect to maintain a healthy exposure in the China market. The California-based Edwards Lifesciences develops products and services to treat late-stage cardiovascular disease, including transcatheter heart valve replacements, surgical heart valve repair products, and haemodynamic monitoring systems for critical care settings. The company's share price rebounded strongly off of a weak beginning to 2017 with a powerful cadence of earnings reports throughout the year after investors were initially concerned over slowing market growth. More recently, the company also held an investor day event that highlighted continued runway for market penetration and new opportunities in mitral heart valve therapy. This combination of strong outperformance and recovery in investor enthusiasm over the pipeline has resulted in material stock price appreciation. Detractors from Performance As is typical in healthcare investing, detractors in the financial year were largely idiosyncratic in nature, with individual stocks from different sectors declining primarily due to unexpected negative catalysts or news flow. A main culprit, often resulting in acute share price declines, is the failure of a clinical trial. That said, negative offsets to performance were limited. Of most import was our overweight allocation to large capitalisation biotechnology stocks. The group performed poorly when measured in pound sterling terms in the financial year and sold off during the market tumult in the last quarter of the year. This resulted in an approximate 3.0% absolute loss and 1.5% of negative alpha. Other detractors were more modest. Alpha headwinds from medical devices due to stock picking totalled 1.25%. For generic pharmaceuticals, our performance was impeded by approximately 0.75%. Finally, large capitalisation pharmaceuticals combined for less than 2.0% of negative contribution but the alpha impact was neutral given our underweight positioning in the sector. On a single stock basis, the largest detractor during the year belongs to a different descriptor, such as "reversion to the mean" or perhaps even "profit taking". Wright Medical develops joint replacement devices, primarily for shoulder, foot and ankle, trauma and sports medicine procedures, as well as orthobiologic products. In the previous financial year, our investment in the company resulted in the largest contribution to performance. Yet the company's share price had a challenging time in the current financial year, as the company embarked on a sales force expansion plan, accelerated it, and later experienced disruption and a lower ramp to productivity than expected. Anticipated competition also increased as a key competitor, Zimmer Holdings, launched a stemless shoulder product to compete with Wright's "Simpliciti" product, a key high growth product for the company. Nevertheless, there are reasons for optimism for the company as the new sales force matures, the
company garners new product approvals, and launches several key new products
over the course of 2018 and beyond.
Celgene is a large capitalisation biotechnology company with a global presence
and a focus on the therapeutic categories of haematology and immunology/
inflammation. The stock performed well during the first half of the Company's
financial year but announced a number of negative developments in October 2017
that led to a precipitous drop in investor confidence and a corresponding drop
in share price. First, the company announced that a key pipeline asset under
development for the treatment of Crohn's disease failed to show sufficient
efficacy in a Phase III trial. Second, the company announced
lower-than-expected sales for its blockbuster psoriasis drug Otezla
(apremilast) in the third quarter. And finally, but not coincidentally, the
company lowered its long term 2020 financial guidance. This combination of
events led to more than a 30% drop in share price (in local currency) over the
course of a month.
Unfortunately, the share price in Celgene bore more weakness when the company
announced that their multiple sclerosis late stage candidate, ozanimod,
received a "refusal-to-file" letter from the U.S. Food and Drug Administration
(FDA), effectively (and surprisingly) denying regulatory review for this novel
drug candidate. Moreover, the setbacks at Celgene contributed to a broader
selloff in large capitalisation biotechnology stocks as whole. Whilst Celgene's
valuation plummeted, a near correction did not happen to close the financial
year as investors put the stock in the "sin bin".
As a leader in the revolution in the field of immuno-oncology, investor
expectations for Merck's Keytruda (pembrolizumab) were understandably high.
Only Merck's Keytruda, through an accelerated process, has been able to obtain
approval for the treatment of frontline, advanced non-small cell lung cancer.
The share price had reflected this success for first half of the financial
year. However, when the company announced that the confirmatory trial for
Keytruda in frontline lung would be delayed for over a year and the European
filing for Keytruda was being withdrawn, the company lost more than U.S.$25
billion in market capitalisation.
Incyte is a commercial-stage biopharmaceutical company focused on novel
therapeutics for unmet needs in the treatment of cancer. Shares in Incyte
declined as the company faced multiple setbacks during the financial year,
including an unexpected delay in the U.S. regulatory filing of its rheumatoid
arthritis treatment Olumiant (baricitinib) with partner Eli Lilly. Incyte had
previously shown promising early data of its solid tumour treatment candidate
epacadostat, a IDO-1 enzyme inhibitor, in combination with PD-1 inhibitors in
metastatic melanoma. However, investors grew increasingly skeptical about this
pipeline product prior to its pivotal phase III trial readout.
Coherus Biosciences is a pure-play biosimilars company working on developing
biosimilar versions to a number of blockbuster biotechnology products,
including Neulasta, Enbrel, and Humira. The company encountered several
setbacks in the financial year, two of which were of most import. First, the
company's lead programme is the development of a biosimilar version of
Neulasta, a white blood cell growth factor marketed by Amgen. The stock gapped
lower after the FDA rejected the filing and asked the company to conduct
further testing of its product using a more sensitive assay prior to approval.
The delay reduces Coherus' time to market advantage versus other biosimilar
competitors. The company suffered additional setbacks in their attempt to
overturn a key patent for Humira, Abbvie's U.S.$18 billion biologic drug for
rheumatoid arthritis, psoriasis, and inflammatory bowel disease. This likely
delays the launch of Coherus' biosimilar version of the drug in the U.S. to the
early to mid-2020s.
Derivative Overlay Strategy
OrbiMed continues to employ a derivative overlay strategy to glean market
intelligence and offer additional outperformance. While the strategy has
generated meaningful outperformance since 2006, the cumulative contribution
over the last several years has been modestly positive. The options strategy is
primarily used to create 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. OrbiMed 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 theme (for example oncology; M&A;
geography).
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
15 June 2018
Contribution by Investment
Principal contributors to and detractors from net asset value performance
Contribution
Contribution per share*
Top five contributors GBP'000 GBP
BeiGene 21,178 0.44
Intuitive Surgical 15,777 0.33
Juno Therapeutics? 12,680 0.26
Jiangsu Hengrui Medicine 12,193 0.25
Edwards Lifesciences 9,306 0.19
71.134 1.47
Top five detractors
Coherus Biosciences (10,308) (0.22)
Incyte? (11,044) (0.23)
Merck (13,081) (0.27)
Celgene (16,609) (0.35)
Wright Medical (24,532) (0.51)
(75,574) (1.58)
* Calculation based on 47,849,845 shares being the weighted average
number of shares in issue during the year ended 31 March 2018.
? Not held in the portfolio as at 31 March 2018.
Strategic Report/Sector Outlook
Global Pharmaceuticals
For the most part, returns for global pharmaceutical stocks mirrored that the
of the MSCI World Healthcare Index, with some negative divergence in the final
quarter of the financial year, owing mostly to market volatility and rising
interest rates. For comparison, net total returns, on a sterling adjusted
basis, were -5.2% for global pharmaceutical stocks (as measured by the New York
Stock Exchange ARCA Pharmaceutical Index) compared to -2.5% for the MSCI World
Healthcare Index.
Underwhelming performance in the subsector during the year can be attributed to
a variety of issues. Whilst valuation remains undemanding, political rhetoric
coming from the Donald Trump presidency has created a modest but constant
overhang for drug stocks, mostly over fears of significant changes to drug
pricing legislation in the United States. This has led, in our observation, to
less generalist investor participation in the sector. Further, only modest M&A
efforts and certainly a lack of transformative business development deals kept
many investors at bay.
Nonetheless, we view the overall political landscape as a net positive for
therapeutic stocks. A major macro policy overhang for therapeutics stocks
entering 2017 was the possible "repeal and replace" of the Affordable
Healthcare Act (ACA), or "Obamacare". The ACA was President Barack Obama's
healthcare reform law that was designed to provide universal healthcare
insurance coverage in the U.S. However, despite the Republican party being in
control of both chambers of Congress and the White House, the repeal of
Obamacare failed despite many attempts to do so. The removal of this
uncertainty was a positive for the sector.
Whilst President Trump failed at his attempts to repeal the ACA, he was
successful in getting a major tax reform bill passed into law. Importantly for
global biopharmaceutical companies, the new law lowered corporate tax rates to
21% (from 35%) and lowered repatriation taxes to 15.5% (or lower, in some
cases) from 35%. This has resulted in higher earnings, increased share buy
backs, and larger dividends for large biopharmaceutical companies.
Moreover, the appointment of Dr. Scott Gottlieb as commissioner of the FDA has
been a positive for therapeutic stocks, as we had anticipated last year. The
calendar year 2017 ended with a record number of new FDA drug approvals with
46. Additionally, Dr. Gottlieb's efforts to address the backlog of generic drug
approvals was also successful, with over 1,000 distinct approvals in 2017.
Finally, we view the appointment of Alex Azar as the United States Secretary of
Health and Human Services by President Donald Trump as another de-risking event
on the political front. Mr. Azar is an ex-pharmaceutical industry executive
(from Eli Lilly & Co.) who will be able to walk the fine line between lowering
healthcare costs for patients while preserving a market based drug pricing
system in the United States.
Overall, we view the fundamentals of the global pharmaceutical companies as
positive, albeit unevenly distributed. Valuation, as mentioned, remains
undemanding with price to earnings ratios towards the low end of the historical
range for the group. Innovation remains strong with a number of data read outs
and new drug launches expected in 2018. Earnings growth rates, however, are somewhat disparate, ranging from low single digits to high teens as patent expirations, pipelines, and new product are somewhat dissimilar from company to company. Biotechnology After a difficult 2016, which was marked by election-related political overhangs on drug pricing policy in the United States, the biotechnology sector partially rebounded over the course of the financial year, especially in U.S. dollar terms. For the first half of the Company's financial year, the biotechnology recovery was characterised by broad participation by both the large capitalisation and emerging capitalisation names in the biotechnology industry. However, starting in the last quarter of 2017, a marked divergence in performance between the small and large capitalisation members of the sector emerged, with smaller capitalisation biotechnology significantly outperforming their larger capitalisation counterparts. Investor sentiment for large capitalisation biotechnology soured considerably when Celgene, a bellwether stock for the group, announced multiple negative surprises in the autumn of 2017, including a high profile clinical trial failure, lower than expected sales of a key growth driver, and ultimately a lowering of their long-term guidance. The result was a sudden loss of U.S.$30 billion in market capitalisation within a month which spooked investors, resulting in a broader selloff in large cap biotechnology stocks as generalist investors fled the sector. Smaller capitalistion biotechnology companies did comparatively better as investors believed that the larger capitalisation names would need to acquire emerging biotechnology companies to reaccelerate their growth and deal with future patent expirations on their key products. Valuations among large capitalisation biotechnology companies remain very attractive, with some companies' trading at historically low double-digit price-to-earnings multiples. While investors have been concerned about declining earnings growth and the exclusivity of many of the large capitalisation companies' lead drugs, we believe many of these concerns are well discounted into share prices. Valuations are so low that we would not be surprised if some of the large capitalisation biotechnology companies themselves became M&A targets. Takeda Pharmaceutical's proposed acquisition of Shire indicates there may be such M&A appetite. Overall M&A transaction volumes in biotechnology were somewhat muted during most of the financial year, likely due to uncertainty about corporate tax reform in the U.S. We had expected clarity on tax reform could spark an acceleration in M&A activity in the sector, and there does appear to be evidence for this thus far in 2018. Numerous M&A transactions have been announced since passage of the tax reform bill, including Celgene's acquisition of CAR-T company Juno Therapeutics for. U.S$9 billion, Sanofi's acquisition of haematology company Bioverativ for U.S.$11.6 billion, and Novartis' acquisition of gene therapy company AveXis for U.S.$8.7 billion. Lastly, the level of innovation in the biotechnology sector remains very strong. Completely new modalities of treatment delivering significant clinical benefit emerged. The first two CAR-T cellular therapies, a therapy that involves harvesting a cancer patient's own T-cells, modifying them externally to attack the patient's cancer, and then reinserting them back into the patient, were approved in 2017: Novartis' Kymriah for leukemia and Kite Pharmaceuticals' Yescarta for lymphoma. These cellular therapies have shown dramatic reduction in tumour burden in patients with advanced blood cancers. Additionally, the very first gene therapy was approved in the United States in late 2017: Spark Therapeutics' Luxturna was approved for the treatment of a rare genetic eye disorder leading to progressive blindness. Other biotechnology companies have also released promising results of gene therapies for disorders such as haemophilia, beta-thalassemia, and sickle cell disease. Lastly, we saw positive developments in treatments involving modifying the transcription and processing of ribonucleic acid (RNA)*. Biogen continued the launch of their antisense drug Spinraza, which helps restore muscle development in patients with the genetic disease spinal muscular atrophy, and Alnylam announced positive Phase III results for their RNA interference therapy patisiran for hereditary ATTR amyloidosis with polyneuropathy. We expect the outlook for the biotechnology sector for the Company's next financial year to remain positive, given low valuations, continued M&A activity, strong innovation, and a favourable regulatory environment. * See Glossary. Specialty Pharmaceuticals In the reported financial year, concerns over pricing for branded drug franchises remained a notable overhang for specialty pharmaceutical companies and has hampered performance of a majority of sector participants. In addition, U.S. political rhetoric, potential new U.S. government policies/initiatives and aggressive formulary management by third-party payors has not been helpful. That said, we continue to believe that several companies in this sector are well-positioned and primed for outperformance. For this select group, current valuation reflects worst-case scenarios with regards to franchise pricing power but ignores potential contributions from meaningful proprietary pipeline programmes/compounds poised to emerge as valuable growth drivers in the not-to-distant future. As a result, in instances where our due diligence and valuation analyses imply favourable risk-reward profiles, we have increased exposure to select companies with significant pipeline disclosures over the next 12 months. In Europe, we remain constructive on a select group of companies benefiting from improving trends, new launch cycles, and increased M&A. Some companies should benefit from newly-installed management teams implementing fresh, more effective strategies that enhance shareholder value over time. We expect M&A to remain a dominant theme, as companies continue to pursue creative business combinations driven by potential revenue, operating and tax synergies. Generic Pharmaceuticals The all-important US generic market remains in the throes of a systemic price erosion cycle, the result of consolidation of pharmaceutical and wholesaler distribution channels and exacerbated competitive dynamics, the latter stemming from an uptick in the number of generic approvals by the FDA. Despite this challenging backdrop, investors have warmed up to some of the better-positioned companies in the sector in response to initial indications that price declines are moderating. In general, companies with broad, diversified product portfolios have fared better than their more narrowly-focused peers. We anticipate that significant consolidation of the U.S. generic market will enable a more stable and favourable U.S. pricing environment, however this could take considerable time as sector leverage remains high. Furthermore, we believe segments of the industry have been permanently scarred, leaving acquisition premiums impaired indefinitely. As anticipated, players with greater geographic reach have benefited from solid performance in key EU and Asian markets, which has provided some offset to weaker US performance. In these markets, pricing erosion remains moderate and in line with expectations, in stark contrast to conditions observed by many US-focused participants. Some sizable markets (Italy, Spain) still offer solid growth potential as generic utilisation continues to ramp up from modest levels. Throughout Asia, economic expansion, favourable demographics, supportive governmental policies, and other contributing factors continue to drive robust generic utilisation. Medical Devices The reported financial year was a strong one for Medical Device stocks and was marked by continued, stable growth and further penetration into new high growth therapeutic areas. The sector benefited from a favourable macro environment and strong U.S. economy, and remained insulated from several political healthcare headwinds, notably healthcare reform and drug pricing. M&A flow was also healthy with Becton Dickinson's acquisition of C.R. Bard and many tuck-ins across the sector. Looking ahead to the second half of calendar 2018, we expect this positive fundamental backdrop to persist and for companies to lay the groundwork for revenue growth acceleration into 2019 and beyond, while also benefitting on the bottom line from U.S. tax reform. M&A should continue at a steady pace, with several large companies boasting ample firepower for tuck-ins and others ripe for portfolio optimisation and divestitures. We continue to favour companies that can sustainably deliver premium organic revenue growth through exposure to underpenetrated high growth markets such as transcatheter heart valves, surgical robotics, spinal cord stimulation devices, extremities implants, and left atrial appendage closure technologies. Our investments reflect a preference for companies that have demonstrated strong growth and are poised for further growth inflections with new product launches and/or indication expansions in the second half of 2018 and 2019. Healthcare Services The financial year favoured "payers" over "providers". In other words, companies that paid for healthcare services such as U.S. HMOs (Health Maintenance Organisations) significantly outperformed companies that administered services to patients, such as hospitals. This dynamic occurred for two main reasons: utilization of healthcare services came in lower than expected and corporate tax reform disproportionately benefited companies with low financial leverage (due to new rules against interest expense deductibility). Separately, scrutiny regarding drug prices drove underperformance in drug supply chain stocks that stand to profit from higher
inflation. We do not expect HMOs to duplicate their strong outperformance in the coming year for a variety of reasons. First, price competition may intensify driven by non-profit competitors (like Blue Cross Blue Shield) that are motivated to reinvest higher earnings. Second, tax reform benefits may be difficult to retain in a competitive marketplace as payors may give on price to capture share gains. Third, a strengthening economy creates stable or increasing utilisation of healthcare services, putting pressure on costs. Finally, we note valuations are elevated when compared to historical norms. While putative M&A activity may offer support to valuations, it is unclear if regulators will approve pending deals. We remain cautious on the drug supply chain because they could be negatively impacted by news flow and rhetoric on drug price reform legislation, ongoing opioid litigation, decelerating drug price inflation, and increased competition from new entrants (such as Amazon). Life Science Tools/Diagnostics The life sciences tools sector continued its momentum throughout much of the Company's previous financial year. The subsector's leadership position within healthcare diverged more as political, macro, and strategic uncertainties were largely avoided. The lack of a spotlight on the sector has paid dividends in allowing the sector to enjoy an elevated valuation. On a forward looking fundamental basis, bioprocessing, fueled by increased manufacturing focus for biosimilars and the buoyant capital markets for bio-pharma, continued to be the main driver in organic growth. The sector remains well positioned to capitalise on these secular trends in bio-pharma. However, given the premium valuation ascribed to the sector, headline noise around global tariffs, especially relating to China, is a risk factor that should be taken into consideration. Although impact of the proposed China tariff is difficult to quantify, the noise created in the market is a material downside event for the group given its relatively high exposure into that geography. Overall, we contend that end markets for tools remain and will continue to be attractive during 2018. Political insularity for the most part, is also attractive given market's sensitivity on difficult-to-assess twitter headlines. However, all things factored in, elevated valuation is reflective of the said security in the tools subsector. Emerging Markets Healthcare companies in emerging markets continue to grow faster than their counterparts in the West, driven by rising income levels, increase in the proportion of GDP spent on healthcare, and local governments' policy support. In China, our investment strategy focuses on innovation and high-quality generics in the pharmaceutical sector. The Chinese government has been undertaking various initiatives and reforms to improve the robustness and efficiency of their drug approval system and to increase the quality of generic drugs sold in China. By the end of 2017, China FDA granted priority review to over 350 drugs which fit into one of the categories including innovative drugs, drugs addressing urgent unmet clinical needs, and first-to-market generics. During the same year, China FDA issued comprehensive guidance for the mandating bioequivalence testing, also referred as quality consistency evaluation, for many of the generic drugs currently marketed in China to confirm that they truly have equivalent efficacy to the original brand. In December, China FDA published the first batch of 17 generic drugs that have passed quality consistent evaluation. We expect more batches and favourable policies for those drugs to come in 2018. The Chinese government also made significant progress towards reimbursement of pharmaceutical products. The long-anticipated new version National Drug Reimbursement List (NRDL) consisting of 2,535 drugs was released in February 2017. The number of reimbursable drugs expanded from the version in 2009 by 18% and we believe the expansion is positive for the industry growth in the next few years. In July 2017, another 36 high-priced drugs were enrolled into NRDL with a range of price cuts after negotiation with the government; this was the very first time that the price negation mechanism was adopted for NDRL in China. Meanwhile, capital markets are becoming more accessible to Chinese biotechnology companies. The Hong Kong Stock Exchange announced its decision to amend the Main Board Listing Rules (Listing Rules) to allow New Economy companies, including pre-revenue biotechnology companies, to list on the Main Board. We believe this will help expand our investment universe in the region. In India, our stock selection process takes into account geographic and product revenue/profit mix, pipeline quality and vesting, manufacturing compliance status, and balance sheet health. Manufacturing compliance violations remain a notable risk and we continue to closely monitor dynamics in the US generic market, which has been adversely impacted by a severe pricing erosion cycle. From an investment perspective, we prefer companies with significant revenue diversity, including meaningful exposure to higher-growth European markets, domestic (Indian) markets, and other emerging markets, as this reduces dependence on the currently challenged U.S. market. We also favour companies with generic portfolios biased toward near-term opportunities targeting difficult to formulate products, including injectables, depots, patches, and certain orals and topicals. We closely scrutinise companies' compliance histories and prefer those with manufacturing redundancies, at least for key products in important markets. Lastly, we keep a keen eye on leverage and are intensely focused on the cash generating abilities of our portfolio companies. Sven H. Borho and Trevor M. Polischuk OrbiMed Capital LLC Portfolio Manager 15 June 2018 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 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 has a premium listing on the London Stock Exchange. Its investment objective is set out in the Strategic Report. 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 Report of the Directors. The Board has determined an investment objective, policy and related guidelines and limits. 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. The Board The Board of the Company comprises Sir Martin Smith (Chairman), Sarah Bates, Dr David Holbrook, Doug McCutcheon and Humphrey van der Klugt. All of these Directors served throughout the year and are independent non-executive Directors. Mr Samuel D. Isaly left the Board on 12 January 2018. Mr Isaly was not considered by the Board to be independent. Subsequent to the year-end, Mr Sven Borho joined the Board (on 7 June 2018). He is not considered by the Board to be an independent Director. Further information on the Directors can be found in the Governance Section. All Directors seek election or re-election by shareholders at each Annual General Meeting. 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: - Investment Objective, Policy and Benchmark, incorporating the investment and derivative guidelines and limits, and changes to these; - maximum level of gearing and leverage the Company may employ; - review of performance against the Company's KPIs; - review of the performance and continuing appointment of service providers; and - maintenance of an effective system of oversight, risk management and corporate governance. The Investment Objective, Policy, and Benchmark, including the related limits and guidelines, are set out in the Strategic Report, 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, follow within this Business Review.
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.
Key performance indicators (KPI)
The Board assesses the Company's performance in meeting its objectives against
key performance indicators (also referred to as Alternative Performance
Measures) as follows:
- 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 regarding
these Alternative Performance Measures 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.
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;
- maintains the Company's accounting records;
- maintenance of the Company's website;
- preparation and dispatch of annual and half year reports 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 GBP150 million: 0.3%; in the range GBP150 million to
GBP500 million: 0.2%; in the range GBP500 million to GBP1 billion: 0.15%; in the
range GBP1 billion to GBP1.5 billion: 0.125%; over GBP1.5 billion: 0.075%. In
addition, Frostrow receives a fixed fee per annum of GBP57,500.
Frostrow is no longer entitled to performance fees, however it was entitled to
receive any performance fee that crystallised during the year ended 31 March
2018 in respect of cumulative outperformance attained by 31 March 2017.
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. Such assets may be used
by the Prime Broker and such use may include being loaned, sold, rehypothecated
or transferred by the Prime Broker; 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 Company's 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 March 2018 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 the 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.
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 credit 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. Credit 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. 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 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; and - receives updates on pending changes to the regulatory and legal environment and progress towards the Company's compliance with these. 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. 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 control mechanism. The operation of the discount control mechanism and Company promotional activities have been delegated to Frostrow, who report to the Board at each Board meeting on these activities. 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. Details of share buy-backs and issuance are set out in the Governance section of this Annual 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 six Directors, four 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.
Board diversity
The Company supports the objectives of the Davies Report to improve 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 on the Board, including gender, and will
continue to take them into account in its Board appointments.
Brexit
The Board continues to consider the potential risks to the Company as a result
of the UK's vote to leave the EU. Currently, other than the impact of exchange
rates on the Company's investment values (which is covered under Market Risks),
the Board does not consider that the Brexit vote has significantly altered the
risk profile of the Company as substantially all the Company's investments are
based outside the EU, and the majority of shareholders are UK based.
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, are shown in the Business Review.
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 we believe to be
investors' horizons, taking account of the Company's current position and the
potential impact of the principal risks and uncertainties as shown in the
Business Review.
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. In addition, the Board noted that
shareholders have an opportunity to vote on the continuation of the Company
every five years; a resolution regarding the continuance of the Company will
next be put to shareholders at the Annual General Meeting to be held in 2019.
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. The Directors believe
that only a substantial financial crisis affecting the global economy could
have an impact on this assessment.
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.
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 and explained in greater detail in
the Strategic Report, under the heading 'Key Performance Indicators'.
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 and Sector Outlook.
It is expected that the Company's strategy will remain unchanged in the coming
year.
By order of the Board
Frostrow Capital LLP
Company Secretary
15 June 2018
Governance/Board of Directors
Sir Martin Smith
Independent Non-Executive Chairman.
Joined the Board in 2007 and became Chairman in 2008. Remuneration: GBP47,700pa.
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. and has a number of other
directorships and business interests, including being Chairman of GP Bullhound,
and a directorship with Oxford Capital Partners.
His pro-bono interests include serving as Chairman of the Orchestra of the Age
of Enlightenment and serving on the boards of a number of other arts
organisations including the Glyndebourne Arts Trust and also ClientEarth. He
has chaired the English National Opera and is a Governor of the Ditchley
Foundation.
Shareholding in the Company: 11,871 (Beneficial) 2,725 (Trustee)
Sarah Bates
Independent Non-Executive Director.
Joined the Board in 2013.
Remuneration: GBP30,130pa.
Sarah is currently non-executive Chair of St James's Place plc. Sarah has
announced her intention to retire from her responsibilities at St.James's Place
and it is expected that this will take place in early July 2018. Sarah is also
non-executive Chair of Polar Capital Technology Trust plc, and a former Chair
of the Association of Investment Companies. Sarah is a member of the Investment
Committee of the Universities Superannuation Scheme and from 1 July 2018, of
the Investment Committee of the BBC Pension Scheme. Sarah is Chair of Trustees
of the Diversity Group Charity and is a Trustee of the Liver Group Charity. She
also has a number of voluntary appointments on charity investment committees.
Sarah attended Cambridge University and has an MBA from London Business School.
Shareholding in the Company: 7,200
Sven Borho
Non-Executive Director.
Joined the Board in 2018.
Remuneration: GBP30,130pa.
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. Sven studied business administration at
Bayreuth University in Germany and received a M.Sc. (Econs.), Accounting and
Finance, from The London School of Economics; he is a citizen of both Germany
and Sweden.
Sven does not sit on any of the Company's Board Committees.
Shareholding in the Company: Nil
Dr David Holbrook
Independent Non-Executive Director.
Joined the Board in 2007.
Remuneration: GBP32,320pa.
A qualified physician, David manages the new seed fund established by LifeArc
(formerly known as MRC Technology). David is also a Trustee of the Liver Group
Charity. He 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.
David is Chairman of the Nominations Committee and is the Senior Independent
Director.
Shareholding in the Company: 1,094
Humphrey van der Klugt, FCA
Independent Non-Executive Director.
Joined the Board in 2016.
Remuneration GBP36,920pa.
Humphrey is a Director of JPM Claverhouse Investment Trust plc and Allianz
Technology Trust PLC. He was formerly Chairman of Fidelity European Values PLC
and a Director of Murray Income Trust PLC and BlackRock Commodities Income
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.
Humphrey is Chairman of the Audit Committee.
Shareholding in the Company: 1,500
Doug McCutcheon
Independent Non-Executive Director.
Joined the Board in 2012.
Remuneration: GBP30,130pa.
Doug is the President of Longview Asset Management Ltd. and Gormley Limited,
independent investment firms. Until 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. Doug
is involved in several philanthropic organisations with a focus on healthcare
and education. He attended Queen's University, Canada.
Doug is Chairman of the Management Engagement & Remuneration Committee.
Shareholding in the Company: 15,000
All Directors seek either appointment or re-appointment to the Board at the
Annual General Meeting each year.
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 &
Board Audit Nominations Remuneration
Committee Committee Committee
Type and number of meetings held in 2017/18 (4) (2) (1) (1)
Sir Martin Smith^ 4 - 1 1
Sarah Bates 4 2 1 1
Dr David Holbrook 4 2 1 1
Samuel D. Isaly* 3 - - -
Humphrey van der Klugt 4 2 1 1
Doug McCutcheon 4 2 1 1
* Left the Board on 12 January 2018. Mr Isaly was not a member of any
of the Company's Committees.
^ Sir Martin is not a member of the Audit Committee
Sven Borho joined the Board on 7 June 2018. He does not sit on any of the
Company's Committees.
All of the serving Directors attended the Annual General Meeting held on 14
September 2017.
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 2018.
Significant agreements
Details of the services provided under these agreements are included in the
Strategic Report.
Alternative Investment Fund Management agreement
As described in the Business Review, 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.
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.
The effect of this is that outperformance has to be maintained for a
twelve-month period before it is paid.
In addition, a performance fee only becomes payable to the extent that the
cumulative outperformance gives rise to a total fee greater than the total of
all performance fees paid to date.
The performance fee charge for the year was GBP9.7m and is represented by a
provision for potential future performance fee payments of GBP9.7m as at 31 March
2018. The 2017 charge of GBP4.7m comprised of a GBP3.4m provision for potential
future performance fees as at 31 March 2017 and GBP1.3m of performance fees that
crystallised and became payable during the year ended 31 March 2017.
The maximum amount that could become payable by 31 March 2019 is GBP9.7m if the
current level of outperformance is maintained. The GBP3.4m provided for as at 31
March 2017 crystallised during the year. GBP2.4m has been paid in accordance with
the performance fee provisions and GBP1.0m is payable as at 31 March 2018.
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 GBP150 million, 1.50
bps on net assets between GBP150 million and GBP300 million, 1.00bps on net assets
between GBP300 million and GBP500 million and 0.50bps on net assets above GBP500
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.
Continuation of the Company
In accordance with the Company's Articles of Association, shareholders will
have an opportunity to vote on the continuation of the Company at the 2019
Annual General Meeting and every five years thereafter.
The rules concerning the amendment of the Company's Articles of Association are
contained in the Company's Articles of Association and in the Companies Act
2006.
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.
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.
Directors' & officers' liability insurance cover
Directors' & officers' liability insurance cover was maintained by the Company
during the year ended 31 March 2018. It is intended that this policy will
continue for the year ending 31 March 2019 and subsequent years.
Substantial interests in share capital
The Company was aware of the following substantial interests in the voting
rights of the Company as at 31 May 2018, the latest practicable date before
publication of the Annual Report:
31 May 2018 31 March 2018
Number of % of Number of % of
issued issued
Shareholder shares share shares share
capital capital
Investec Wealth & Investment Limited 6,074,115 12.2 6,080,733 12.2
Alliance Trust Savings Limited 3,105,309 6.2 3,044,751 6.1
Rathbone Brothers plc 2,969,141 5.9 2,959,766 5.9
Hargreaves Lansdown plc 2,428,970 4.9 2,435,123 4.9
Charles Stanley & Co Limited 2,359,221 4.7 2,267,585 4.6
Speirs & Jeffrey Limited 2,149,338 4.3 2,136,223 4.3
Quilter Cheviot Investment Management 2,033,143 4.1 2,076,343 4.2
As at 31 March 2018 the Company had 49,861,778 shares in issue. As at 31 May
2018 there were 49,968,778 shares in issue.
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.
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
3,355,000 new shares were issued at an average premium of 0.7% to the
prevailing cum income NAV per share.
Since the year end, to the date of this report, 107,500 new shares have been
issued at an average premium of 0.7% 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 our 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 will be an
annual requirement going forward. The Registrars, Link Asset Services, have
been engaged to collate such information and file the reports with HMRC on
behalf of the Company.
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 in this regard.
By order of the Board
Frostrow Capital LLP
Company Secretary
15 June 2018
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 have:
- selected suitable accounting policies and applied them consistently;
- made judgements and estimates that are reasonable and prudent;
- followed applicable UK accounting standards; and
- prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements 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.
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. In
considering this, the Directors took into account the diversified portfolio of
readily realisable securities which can be used to meet funding commitments and
the ability of the Company to meet all of its liabilities, including the
overdraft and ongoing expenses from its assets.
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 2018;
- 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 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
15 June 2018
Governance/Corporate Governance
Corporate Governance Statement
The Corporate Governance Statement forms part of the Report of the Directors.
The Board is committed to achieving and demonstrating high standards of
Corporate Governance.
The Board has considered the principles and recommendations of the AIC Code of
Corporate Governance ('AIC Code'), and by reference to the AIC Corporate
Governance Guide for Investment Companies ('AIC Guide') (which incorporates the
UK Corporate Governance Code ('UK Code')), will provide better information to
shareholders.
The Financial Reporting Council has confirmed that by following the AIC Code
and the AIC Guide, boards of investment companies will meet their obligations
in relation to the UK Code and paragraph 9.8.6 of the UK Listing Rules.
The AIC Code and AIC Guide address the principles set out in the UK Code as
well as additional principles and recommendations on issues that are specific
to investment trusts. The AIC Code can be viewed at www.theaic.co.uk.
The Principles of the AIC Code
The AIC Code is made up of 21 principles split into three sections covering:
- The Board
- Board Meetings and relations with OrbiMed and Frostrow
- Shareholder Communications
Statement of Compliance
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as follows:
The UK Code includes certain provisions relating to:
- the role of the chief executive
- executive directors' remuneration
- the need for an internal audit function
For the reasons set out in the AIC Guide, the Board considers these provisions
are not relevant to the position of the Company, being an externally managed
investment company. In particular, all of the Company's day-to-day management
and administrative functions are outsourced to third parties. As a result, the
Company has no executive directors, employees or internal operations.
Therefore, with the exception of the need for an internal audit function which
is addressed further in the Audit Committee Report, the Company has not
reported further in respect of these provisions.
The Board
AIC Code Principle Compliance Statement
1. The Chairman should The Chairman, Sir Martin Smith, continues to be independent
be independent. of the AIFM and the Portfolio Manager. There is a clear
division of responsibility between the Chairman, the
Directors, the AIFM, the Portfolio Manager and the Company's
other third party service providers. The Chairman is
responsible for the leadership of the Board and for ensuring
its effectiveness in all aspects of its role.
2. A majority of the The Board consists of six non-executive Directors. With the
Board should be exception of Sven Borho, all Directors are considered by the
independent of the Board to be independent of the AIFM and the Portfolio
manager. Manager. No member of the Board is a Director of another
investment company managed by Frostrow or OrbiMed, nor (with
the exception of Samuel D. Isaly, until 12 January 2018, the
date he ceased to be a Director of the Company, and Sven
Borho) has any Board member been an employee of the Company,
OrbiMed, Frostrow or any of its service providers. Sir Martin
Smith and Dr David Holbrook have both served on the Board for
more than nine years from the date of their first election.
Given the strongly independent mindsets of Sir Martin Smith
and Dr Holbrook, the Board is firmly of the view that they
can be considered independent.
3. Directors should be All Directors submit themselves for annual election or
submitted for re-election by shareholders.
re-election at The individual performance of each Director standing for
regular intervals. election or re-election is evaluated annually by the
Nomination for remaining members of the Board and, if considered
re-election should appropriate, a recommendation is made that shareholders vote
not be assumed but be in favour of their election or re-election at the Annual
based on disclosed General Meeting.
procedures and Sven Borho joined the Board on 7 June 2018. Accordingly, a
continued resolution proposing his appointment as a Director of the
satisfactory Company will be considered by shareholders at the Annual
performance. General Meeting to be held on 20 September 2018.
4. The Board should have The Nominations Committee considers the structure of the
a policy on tenure, Board and recognises the need for progressive refreshment.
which is disclosed in The Board subscribes to the view expressed within the AIC
the annual report. Code that long-serving Directors should not be prevented from
forming part of an independent majority. It does not consider
that a Director's tenure necessarily reduces their ability to
act independently and, following formal performance
evaluations, believes that each of the independent Directors
is independent in character and judgment and that there are
no relationships or circumstances which are likely to affect
their judgment.
The Board's policy on tenure is that continuity and
experience are considered to add significantly to the
strength of the Board and, as such, no limit on the overall
length of service of any of the Company's Directors,
including the Chairman, has been imposed. In view of its
non-executive nature, the Board considers that it is not
appropriate for the Directors to be appointed for a specified
term, although new Directors are appointed with the
expectation that they will serve for a minimum period of
three years subject to shareholder approval.
The terms and conditions of the Directors' appointments are
set out in letters of appointment which are available for
inspection on request at the office of the Company's AIFM and
at the Annual General Meeting.
5. There should be full The Directors' biographical details, set out in the
disclosure of Governance section of this Annual Report, demonstrate the
information about the wide range of skills and experience that they bring to the
Board. Board.
Details of the Board's Committees and their composition are
set out in the Corporate Governance section of this Annual
Report.
6. The Board should aim The Nominations Committee considers annually the skills
to have a balance of possessed by the Board and identifies any skill shortages to
skills, experience, be filled by new Directors. Following a skills audit carried
length of service and out during the year it was agreed that the Board was equipped
knowledge of the with the necessary skills and experience required for the
company. sound stewardship of the Company and to enable the Directors
to hold meaningful debates at its meetings. When considering
new appointments, the Committee reviews the skills of the
Directors and seeks to add persons with complementary skills
or who possess the skills and experience which fill any gaps
in the Board's knowledge or experience and who can devote
sufficient time to the Company to carry out their duties
effectively.
The experience of the current Directors is detailed in their
biographies set out in the Governance section of this Annual
Report.
The Company's policy on diversity is set out in the Business
Review.
7. The Board should During the year an external independent review of the Board,
undertake a formal its committees and individual Directors was carried out by an
and rigorous annual independent third party, Lintstock.
evaluation of its own The Board reviewed the report from Lintstock in June 2018 and
performance and that the Chairman is leading on implementing those changes
of its committees and recommended by the report that the Board considered should be
individual directors. made. The review concluded that the Board worked in a
collegiate efficient and effective manner, and did not
identify any material weaknesses or concerns.
The Board is satisfied that the structure, mix of skills and
operation of the Board continue to be effective and relevant
for the Company.
Further independent review will be commissioned in 2021.
8. Director remuneration The Management Engagement & Remuneration Committee reviews
should reflect their the fees paid to the Directors and compares these with the
duties, fees paid by the Company's peer group and the investment
responsibilities and trust industry generally, taking into account the level of
the value of their commitment and responsibility of each Board member. Details
time spent. on the remuneration arrangements for the Directors of the
Company can be found in the Directors' Remuneration Report.
Individual Directors take no part in discussions regarding
their own remuneration. The Board periodically takes advice
from external independent advisers on Directors'
remuneration.
9. The Independent Subject to there being no conflicts of interest, all members
Directors should take of the Nominations Committee are entitled to vote on
the lead in the candidates for the appointment of new Directors and on the
appointment of new recommendation for shareholders' approval of the Directors
Directors and the seeking election or re-election at the Annual General
process should be Meeting. The membership of the Committee comprises solely
disclosed in the those Directors considered to be independent by the Board.
annual report. Details of the Board's commitment to Diversity are set out in
the Business Review.
The appointment of Sven Borho to the Board was considered and
agreed by the independent Directors. A specialist recruitment
firm was not engaged as part of this process.
10. Directors should be New appointees to the Board are provided with a full
offered relevant induction programme. The programme covers the Company's
training and investment strategy, policies and practices. The Directors
induction. 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 for 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 Frostrow, who 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.
11. The Chairman (and the Principle 11 applies to the launch of new investment
Board) should be companies and is not applicable to the Company.
brought into the
process of
structuring a new
launch at an early
stage.
Board Meetings and relations with the Frostrow and OrbiMed
12. Boards and managers The Board meets regularly throughout the year and a
should operate in a representative of the AIFM and the Portfolio Manager is in
supportive, attendance at each Board meeting. The Chairman encourages
co-operative and open open debate to foster a supportive and co-operative approach
environment. for all participants.
13. The primary focus at The Board has agreed a schedule of matters specifically
regular board reserved for decision by the Board. This includes
meetings should be a establishing the investment objectives, strategy and
review of investment benchmarks, the permitted types or categories of
performance and investments, the markets in which transactions may be
associated matters, undertaken, the amount or proportion of the assets that may
such as gearing, be invested in any category of investment or in any one
asset allocation, investment, and the Company's share issuance and share
marketing/ investor buy-back policies.
relations, peer group The Board, at its regular meetings, undertakes reviews of
information and key investment and financial data, revenue projections and
industry issues. 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.
14. Boards should give The Board is responsible for strategy and has established an
sufficient attention annual programme of agenda items under which it reviews the
to overall strategy. objectives and strategy for the Company at each meeting.
15. The Board should The Board has delegated the following activities to its
regularly review both committees:
the performance of, The Management Engagement & Remuneration Committee meets at
and contractual least once a year and reviews the performance of the AIFM
arrangements with, and the Portfolio Manager. This Committee considers the
the AIFM and the quality, cost and remuneration method (including the
Portfolio manager (or performance fee) of the service provided by the AIFM and the
executives of a Portfolio Manager against their contractual obligations. It
self-managed also considers the performance analysis provided by the AIFM
company). and the Portfolio Manager.
The Audit Committee reviews the risk matrix and oversees the
risk and control environment of the Company, including
monitoring the internal control system in operation at its
principal service providers. Further details can be found in
the Audit Committee Report.
16. The Board should The Portfolio Management Agreement between the Company, the
agree policies with AIFM and the Portfolio Manager sets out the limits of the
the AIFM and the Portfolio Manager's authority, beyond which Board approval
Portfolio Manager is required. The Board has agreed detailed guidelines and
covering key limits with the AIFM and the Portfolio Manager, which are
operational issues. considered at each Board meeting.
Representatives from the AIFM and the Portfolio Manager
attends each meeting of the Board to address questions on
specific matters and to seek approval for specific
transactions which the Portfolio Manager is required to
refer to the Board.
The AIFM has delegated the management of the Company's
portfolio and also the voting powers relating to the
securities held therein to the Portfolio Manager.
Contentious or sensitive matters are referred to the Board
for consideration.
The Board has reviewed the Portfolio Manager's Proxy Voting
and Class Action Policy which includes its Corporate
Governance and Voting Guidelines.
Reports on commissions paid by the Portfolio Manager are
submitted to the Board regularly.
17. Boards should monitor The Board considers any imbalances in the supply of and the
the level of the demand for the Company's shares in the market and has put in
share price discount place a discount control mechanism as described in the
or premium (if any) Business Review.
and, if desirable,
take action to reduce
it.
18. The Board should The Management Engagement & Remuneration Committee reviews,
monitor and evaluate the performance of all the Company's third party service
other service providers, including the level and structure of fees payable
providers. and the length of the notice period, to ensure that they
remain competitive and in the best interests of
shareholders.
The Audit Committee reviews reports from the principal
service providers on compliance and the internal and
financial control systems in operation and relevant
independent audit reports thereon, as well as reviewing
service providers' anti-bribery and corruption policies to
address the provisions of the Bribery Act 2010, and also
regarding the prevention of the facilitation of tax evasion.
Shareholder
Communications
19. The Board should Details of the Company activities undertaken to promote the
regularly monitor the Company and manage relations with shareholders are set out
shareholder profile in the Business Review. In addition, all shareholders are
of the company and encouraged to attend the Annual General Meeting, where they
put in place a system are given the opportunity to question the Chairman, the
for canvassing Board and representatives of OrbiMed.
shareholder views and Shareholders wishing to communicate with the Chairman, or
for communicating the any other member of the Board, may do so by writing to the
Board's views to Company, for the attention of the Company Secretary at the
shareholders. Offices of Frostrow.
The Directors welcome the views of all shareholders and
place considerable importance on communications with them.
20. The Board should All substantive communications regarding any major corporate
normally take issues are discussed by the Board taking into account
responsibility for, representations from the AIFM and the Portfolio Manager, the
and have a direct Company's Auditors, legal advisers and the Corporate
involvement in, the Stockbroker.
content of
communications
regarding major
corporate issues even
if the manager is
asked to act as
spokesman.
21. The Board should The Company places great importance on communication with
ensure that shareholders and aims to provide them with a full
shareholders are understanding of the Company's investment objective, policy
provided with and activities, its performance and the principal investment
sufficient risks by means of informative Annual and Half Year reports.
information for them This is supplemented by the daily publication, through the
to understand the London Stock Exchange, of the net asset value of the
risk/reward balance Company's shares.
to which they are In line with its primary focus, the Board retains
exposed by holding responsibility for all key elements of the Company's
the shares. strategy and business model. Further details can be found in
the Business Review.
The Annual Report provides information on the Portfolio
Manager's investment performance, portfolio risk and,
operational and compliance issues. Further details on the
risk/reward balance are set out in the Strategic Report
under Principal Risks in the Strategic Report and in note
16.
The Company's website, www.worldwidewh.com, is regularly
updated with monthly factsheets and provides useful
information about the Company including the Company's
financial reports and announcements.
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
Four additional non-executive Directors, all considered independent, except for
Sven Borho (and previously Samuel D. Isaly).
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 & Audit Committee Nominations Committee
Remuneration Committee Chairman Chairman
Chairman Humphrey van der Klugt, FCA* Dr David Holbrook
Doug McCutcheon All Independent Directors All Independent Directors
All Independent (excluding the Chairman, Sir Key responsibilities:
Directors Martin Smith)
Key responsibilities: Key responsibilities:
- to review
regularly the
contracts, the
performance and
remuneration of the
Company's principal
service providers; and
* 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,
will be available for inspection at the Annual General Meeting, and can be
found at the Company's website at www.worldwidewh.com.
Relations with shareholders
Details of the Company's activities undertaken to promote the Company and
manage relations with shareholders are set out in the Business Review.
The Board supports the principle that the Annual General Meeting be used to
communicate with investors, with all Directors attending the Annual General
Meeting, under the Chairmanship of the Chairman of the Board. Details of proxy
votes received in respect of each resolution are made available to shareholders
at the meeting and are also published on the Company's website at
www.worldwidewh.com.
Representatives from the Portfolio Manager attend the Annual General Meeting
and give a presentation on investment matters to those present.
The Company has adopted a nominee share code which is set out below.
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 DISCUSSED 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 stockbroker, 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 stockbroker, bank or other agent through whom the sale
or transfer was effected, for onward transmission to the purchaser or
transferee.
Resolutions relating to the following items of special business will be
proposed at the forthcoming Annual General Meeting.
Resolution 10 Authority to allot shares
Resolution 11 Authority to disapply pre-emption rights
Resolution 12 Authority to sell shares held in Treasury on a non pre-emptive basis
Resolution 13 Authority to buy back shares
Resolution 14 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 that are held on its behalf by J.P. Morgan Securities LLC.
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 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;
- to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company is
available; and
- that investors in the Alliance Trust Savings Scheme or ISA are
automatically sent shareholder communications, including details of general
meetings, together with a form of direction to facilitate voting and to seek
authority to attend.
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
15 June 2018
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 2018.
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 will
attend meetings by invitation. Attendance by each Director is shown in the
table in the Governance Section of this Annual Report. 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 two other public companies; 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 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 Internal Controls and Risk Management Section of
this Annual Report.
3. To recommend the appointment of external Auditors, agreeing the scope
of its work and its remuneration, reviewing its independence and the
effectiveness of the audit process.
4. 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.
5. 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. 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 Board has asked the Committee to confirm that in its opinion the Board can make the required statement that the Annual Report 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 given this confirmation on the basis of its review of the whole document, underpinned by involvement in the planning for its preparation and review of the processes to assure the accuracy of factual content. 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 or relevant counterparty; - reconfirming its understanding of the processes in place to record investment transactions and income, and to value 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. 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 independently recalculate 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. 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. Viability Statement The Board is required to make a longer-term viability statement in relation to the continuing operations of the Company. The Committee reviewed papers produced in support of the statement made by the Board which assesses the viability of the Company over a period of five years. The Company is a long-term investor and the Committee believes that is appropriate to recommend to the Board that the Company's viability should be assessed over a five-year period, also taking account of the Company's current position and the potential impact of the Company's principal risks and uncertainties as shown in the Strategic Report. 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 8 November 2017. I, as Chairman of the Committee, had a meeting with them specifically to discuss the audit and any issues that arose (of which there were none of any significance). The Committee then met PricewaterhouseCoopers LLP on 24 May 2018 to formally review 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 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 GBP3,500 were payable to the Auditors during the year for agreed upon procedures in relation to the Company's performance fee review. 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. Audit Tendering PricewaterhouseCoopers LLP have been the Auditors since July 2014, which was the last occasion an audit tender was held. Formal Audit tender guidelines have been adopted to govern the Audit tender process. As a public company listed on the London Stock Exchange, the Company is subject to the mandatory Auditor rotation requirements of the European Union. The Company will put the external audit out to tender at least every 10 years and change Auditors at least every 20 years. 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 Auditor's assessment of materiality and monitors the Auditor's 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. 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 15 June 2018. 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 15 June 2018 Governance/Directors' Remuneration Report Introduction from the Chairman This report has been prepared in accordance with 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. 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 adoption of the Directors'
Remuneration Report was put to shareholders at the Annual General Meeting of
the Company held on 14 September 2017, and was passed by 98.5% 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 GBP
250,000 in aggregate per annum.
A binding resolution to approve the Directors' Remuneration Policy was put to
shareholders at the Annual General Meeting held in 2017, and was passed by
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 the Annual General Meeting to be held in 2020.
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
At the most recent Management Engagement & Remuneration Committee held on 6
March 2018 it was agreed that the Directors' fees would be, with effect from 1
April 2018, as follows:
The Chairman of the Company, and Humphrey van der Klugt, as Chairman of the
Audit Committee, receive an annual fee of GBP47,700 and GBP36,920, respectively. Dr
David Holbrook, as the Senior Independent Director will receive an annual fee
of GBP32,320, Sarah Bates, Doug McCutcheon and Sven Borho each receive an annual
fee of GBP30,130.
The Directors, as at the date of this report, all 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)
Taxable Taxable
Date of Fees (GBP) Expenses? Total Fees (GBP) Expenses? Total
Appointment
to the Board 2018 2018 2018 2017 2017 2017
Sir Martin 8 November 45,850 695 46,545 43,650 655 44,305
Smith 2007
Humphrey Van 15 February 35,500 253 35,753 30,685 386 31,071
Der Klugt 2016
Sarah Bates 22 May 2013 28,970 - 28,970 27,570 - 27,570
Dr David 8 November 31,070 - 31,070 28,670 50 28,720
Holbrook 2007
Samuel D. 14 February 22,730 - 22,730 27,570 - 27,570
Isaly^ 1995
Doug 7 November 28,970 - 28,970 27,570 - 27,570
McCutcheon 2012
Jo Dixon* 25 February - - - 16,055 1,183 17,238
2004
Total 193,090 948 194,038 201,770 2,274 204,044
? 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.
* Retired from the Board on 21 September 2016.
^ Ceased to be a Director on 12 January 2018.
Sven Borho joined the Board on 7 June 2018.
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
2018 2017
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
Samuel D. Isaly* n/a 3,600
Humphrey van der Klugt 1,500 1,500
Doug McCutcheon 15,000 15,000
39,390 42,990
* Ceased to be a Director on 12 January 2018
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 2018:
(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
15 June 2018
Governance/Independent Auditors' Report to the Members of Worldwide Healthcare
Trust PLC
Report on the financial statements
Our 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 2018 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 2018; 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.
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.
Other than those disclosed in note 4 to the financial statements, we have
provided no non-audit services to the company in the period from 1 April 2017
to 31 March 2018.
Our audit approach
Overview
- Overall materiality: GBP12.0 million (2017: GBP11.0 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 has 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.
- Income from investments.
- Valuation and existence of investments.
- Performance fee.
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.
We gained an understanding of the legal and regulatory framework applicable to
the company and the industry in which it operates, and considered the risk of
acts by the company which were contrary to applicable laws and regulations,
including fraud. We designed audit procedures to respond to the risk,
recognising that 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. We focused on laws and regulations
that could give rise to a material misstatement in the Company's financial
statements, including, but not limited to the Companies Act 2006 and section
1158 of the Corporation Tax Act 2010. Our tests included, but were not limited
to, review of the financial statement disclosures to underlying supporting
documentation, enquiries with management and testing the Company's compliance
with section 1158 in the current year. We also tested the tax disclosures in
Note 6. 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.
We did not identify any key audit matters relating to irregularities, including
fraud. As in all of our audits we also addressed the risk of management
override of internal controls, including testing journals and evaluating
whether there was evidence of bias by the Directors that represented a risk of
material misstatement due to fraud.
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 area of focus
Income from investments We assessed the accounting policy for
Refer to Accounting Policies and Notes to income recognition for compliance with
the Accounts. accounting standards and the AIC SORP and
ISAs (UK) presume there is a risk of fraud performed testing to check that income had
in income recognition. We considered this been accounted for in accordance with this
risk to specifically relate to the risk of stated accounting policy.
overstating investment gains and the We found that the accounting policies
misclassification of dividend income as implemented were in accordance with
either income or capital if one is accounting standards and the AIC SORP, and
particularly underperforming in line with that income has been accounted for in
the total return objective of the Company. accordance with the stated accounting
We focused on the accuracy and policy.
completeness of dividend income amounting We tested the accuracy of dividend
to GBP12,204,000 for the year and its receipts by agreeing the dividend rates
presentation in the Income Statement as from investments to independent market
set out in the requirements of The data. No material misstatements were
Association of Investment Companies identified which required reporting to
Statement of Recommended Practice (the those charged with governance.
'AIC SORP'). To test for completeness, we tested all
We also focused on the calculation of investment holdings in the portfolio, to
realised and unrealised gains and losses ensure that all dividends declared in the
on the investment amounting to a gain of GBP market by investment holdings had been
30,702,000 for the year. recorded.
This is because incomplete or inaccurate We tested occurrence by testing that all
income (both revenue and capital) could dividends recorded in the year had been
have a material impact on the company's declared in the market by investment
net asset value. holdings, and we traced a sample of
dividends received to bank statements.
We tested the allocation and presentation
of dividend income between the revenue and
capital return columns of the Statement of
Comprehensive Income in line with the
requirements set out in the AIC SORP by
determining reasons behind dividend
distributions. Our procedures did not
identify any material misstatements which
required reporting to those charged with
governance.
Income from investments We also checked that the gains or losses on
investments held at fair value comprise
realised and unrealised gains or losses, we
tested a sample of disposal proceeds to
bank statements. For unrealised gains or
losses, we tested the valuation of the
portfolio at the year-end, and also tested
the reconciliation of opening and closing
investments.
Our testing did not identify any material
misstatements which required reporting to
those charged with governance.
Valuation and existence of investments - Quoted investments:
Refer to the Audit Committee Report), We tested the valuation of quoted
Accounting Policies, and the Notes to the investments by agreeing the prices used to
Financial Statements. third party sources.
The investment portfolio at 31 March 2018 We tested the existence of the quoted
principally comprised listed equity investment portfolio by agreeing the
investments, OTC swaps, options and holdings to an independent custodian
unquoted debt investments and totalled GBP confirmation from J.P. Morgan Securities
1,293,520,000. LLC as at 31 March 2018.
We focused on the valuation and existence No material differences were identified
of investments because investments which required reporting to those charged
represent the principal element of the net with governance.
asset value as disclosed on the Statement - Unquoted debt investments:
of Financial Position in the financial We tested the valuation of unquoted debt
statements. investments by agreeing the prices used to
third party sources.
We tested the existence of the unquoted
debt investments by agreeing the holdings
to independent confirmations from the
administrative agents for each investment
at 31 March 2018.
No material differences were identified
which required reporting to those charged
with governance.
- OTC derivative financial
instruments (swaps):
We tested the valuation of the OTC
derivatives by agreeing the prices used for
a sample in the valuation to independent
third party sources as at 31 March 2018.
We tested the existence of the OTC
derivatives by agreeing the holdings to an
independent custodian confirmation from
J.P. Morgan Securities LLC and the Broker,
Goldman Sachs International.
No material differences were identified
which required reporting to those charged
with governance.
Performance Fee We focused on this area because the
Refer to the Audit Committee Report, the performance fee is calculated using a
Accounting Policies and the Notes to the complex methodology as set out in the AIFM
Financial Statements. Agreement and Portfolio Management
The performance fee charge for the year was Agreement.
GBP9.7m. We independently recalculated the
As at 31 March 2018, there was a performance fee using the methodology set
performance fee accrual of GBP10.7m. GBP9.7m of out in the AIFM Agreement and Portfolio
which was recognised as a provision for Management Agreement and agreed the inputs
potential future payments and GBP1m was to the calculation, including the benchmark
payable, relating to outperformance data, to independent third party sources,
achieved as at that date. where applicable.
Performance fees totalling GBP3.4m were paid No material misstatements were identified
or payable relating to outperformance by our testing which required reporting to
achieved during the year those charged with governance.
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.
The Company's accounting is delegated to the Administrator who maintains the
Company's accounting records and who has implemented controls over those
accounting records.
We obtained our audit evidence from substantive tests. However, as part of our
risk assessment, we understood and assessed the internal controls in place at
the Administrator to the extent relevant to our audit. Following this
assessment, we applied professional judgement to determine the extent of
testing required over each balance in the financial statements.
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 - GBP12.0 million (2017: GBP11.0 million).
How we determined it - 1% of net assets.
Rationale for benchmark applied - We applied this benchmark, which is a
generally accepted auditing practice for investment trust audits.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above GBP601,000 (2017: GBP550,000) 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
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 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.
Outcome
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 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 Directors' Report, 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 Directors' Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic Report and Directors' Report for the year
ended 31 March 2018 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 Directors' Report. (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 contained in the Business Review 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 in the Business Review 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 4 years, covering the years ended 31 March 2015 to 31 March 2018.
Sandra Dowling (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London 15 June 2018
Financial Statements/Income Statement
For the year ended 31 March 2018
2018 2017
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Gains on investments 9 - 30,702 30,702 - 260,256 260,256
Exchange gains/(losses) on
currency balances - 7,942 7,942 - (9,113) (9,113)
Income from investments 2 12,204 - 12,204 13,098 - 13,098
AIFM, Portfolio management
and performance fees 3 (493) (19,099) (19,592) (423) (12,751) (13,174)
Other expenses 4 (908) - (908) (718) - (718)
Net return before finance
charges and taxation 10,803 19,545 30,348 11,957 238,392 250,349
Finance costs 5 (82) (1,552) (1,634) (43) (785) (828)
Net return before taxation 10,721 17,993 28,714 11,914 237,607 249,521
Taxation on net return 6 (1,764) 229 (1,535) (1,231) 79 (1,152)
Net return after taxation 8,957 18,222 27,179 10,683 237,686 248,369
Return per share 7 18.7p 38.1p 56.8p 22.9p 509.0p 531.9p
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 2018
Share Share Capital Capital Revenue Total
capital premium reserve redemption reserve shareholders'
GBP'000 account GBP'000 reserve GBP'000 funds
GBP'000 GBP'000 GBP'000
At 31 March 2017 11,627 233,539 833,484 8,221 14,032 1,100,903
Net return after taxation - - 18,222 - 8,957 27,179
Dividend paid in respect of
year ended 31 March 2017 - - - - (7,447) (7,447)
First interim dividend paid in
respect
of year ended 31 March 2018 - - - - (3,153) (3,153)
New shares issued 839 83,867 - - - 84,706
At 31 March 2018 12,466 317,406 851,706 8,221 12,389 1,202,188
For the year ended 31 March 2017
Share Share Capital Capital Revenue Total
capital premium reserve redemption reserve shareholders'
GBP'000 account GBP'000 reserve GBP'000 funds
GBP'000 GBP'000 GBP'000
At 31 March 2016 11,960 233,537 617,314 7,888 11,059 881,758
Net return after taxation - - 237,686 - 10,683 248,369
Dividend paid in respect of
year ended 31 March 2016 - - - - (4,702) (4,702)
First interim dividend paid in
respect
of year ended 31 March 2017 - - - - (3,008) (3,008)
Shares purchased for treasury - - (27,533) - - (27,533)
Shares issued from treasury - 2 6,017 - - 6,019
Shares cancelled from treasury (333) - - 333 - -
At 31 March 2017 11,627 233,539 833,484 8,221 14,032 1,100,903
The accompanying notes are an integral part of these statements.
Financial Statements/Statement of Financial Position
As at 31 March 2018
2018 2017
Notes GBP'000 GBP'000
Fixed assets
Investments 9 1,259,926 1,157,562
Derivative - OTC swaps 9 & 10 34,105 34,410
1,294,031 1,191,972
Current assets
Debtors 11 6,601 5,865
Derivative - put and call options 9 & 10 587 1,191
Cash 9,932 10,780
17,120 17,836
Current liabilities
Creditors: amounts falling due within one year 12 (107,865) (108,623)
Derivatives - put and call options 9 & 10 (1,098) (282)
(108,963) (108,905)
Net current liabilities (91,843) (91,069)
Total net assets 1,202,188 1,100,903
Capital and reserves
Share capital 13 12,466 11,627
Share premium account 317,406 233,539
Capital reserve 17 851,706 833,484
Capital redemption reserve 8,221 8,221
Revenue reserve 12,389 14,032
Total shareholders' funds 1,202,188 1,100,903
Net asset value per share 14 2,411.1p 2,367.2p
The financial statements were approved by the Board of Directors and authorised
for issue on 15 June 2018 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'), updated in January 2017, 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 and on a going concern basis.
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 (GBP'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.
(b) Investments
Investments are measured initially, and at subsequent reporting dates, at fair
value, and 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. 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. Unquoted debt investments are fair valued using
prices from independent market sources. Changes in fair value and gains or
losses on disposal are included in the Income Statement as a capital item.
(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 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. UK dividends are shown net of tax credits
and foreign dividends are grossed up at the appropriate rate of withholding
tax.
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 accrued or paid 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, if applicable, including interest payable and
premiums on settlement or redemption, 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 if it is considered more likely than not 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 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. Any gains in the fair value of investments that are not readily
convertible to cash are treated as unrealised gains in the capital reserve.
(j) 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.
(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 are paid and are shown in the Statement of
Changes in Equity.
2. INCOME FROM INVESTMENTS
2018 2017
GBP'000 GBP'000
Income from investments
Overseas dividends 9,600 10,735
Fixed interest income 2,250 2,023
11,850 12,758
Other income
Derivatives 233 290
Deposit interest 121 50
Total income from investments 12,204 13,098
Total income comprises:
Dividends 9,600 10,735
Interest 2,604 2,363
12,204 13,098
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIFM fee 109 2,076 2,185 89 1,693 1,782
Portfolio management fee 384 7,293 7,677 334 6,340 6,674
Performance fee - 9,730 9,730 - 4,718 4,718
493 19,099 19,592 423 12,751 13,174
Further Details on the above fees are set out in the Report of the Directors.
4. OTHER EXPENSES
2018 2017
Revenue Revenue
GBP'000 GBP'000
Directors' remuneration 193 202
Auditors' remuneration for the audit of the Company's financial 30 27
statements
Auditors' remuneration for non-audit services 3 4
Marketing expenses 50 58
Registrar fees 55 63
Broker fees 30 14
Legal and professional costs 7 18
Stock Exchange listing fees 151* 23
Depositary and custody fees 132 139
Other costs 257 170
908 718
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
* Includes GBP124,000 (2017: Nil) 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
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Finance costs 82 1,552 1,634 43 785 828
6. TAXATION ON NET RETURN
(a) Analysis of charge in year
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Corporation tax at 19%
(2017: 20%)
Tax relief to capital 229 (229) - 79 (79) -
Overseas taxation 1,535 - 1,535 1,152 - 1,152
1,764 (229) 1,535 1,231 (79) 1,152
(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 (2017: lower) than the standard rate of
corporation tax of 19% (2017: 20%).
The difference is explained below.
Revenue Capital Total Revenue Capital 2017
Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return before taxation 10,721 17,993 28,714 11,914 237,607 249,521
Corporation tax at 19% (2017: 20%) 2,037 3,419 5,456 2,383 47,522 49,905
Non-taxable gains on investments - (7,342) (7,342) - (50,229) (50,229)
Overseas withholding taxation 1,535 - 1,535 1,152 - 1,152
Non taxable overseas dividends (1,748) - (1,748) (2,103) - (2,103)
Excess management expenses (278) 3,923 3,645 (280) 2,707 2,427
Tax relief to capital 229 (229) - 79 (79) -
Double taxation relief expensed (11) - (11) - - -
Total tax charge 1,764 (229) 1,535 1,231 (79) 1,152
(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 GBP18,995,000 (17% tax
rate) (2017: GBP15,813,000 (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
2018 2017
GBP'000 GBP'000
The return per share is based on the following figures:
Revenue return 8,957 10,683
Capital return 18,222 237,686
27,179 248,369
Weighted average number of ordinary shares in issue during the year 47,849,849 46,695,120
Revenue return per ordinary share 18.7p 22.9p
Capital return per ordinary share 38.1p 509.0p
56.8p 531.9p
The calculation of the total, revenue and capital return per ordinary share is
carried out in accordance with IAS 33, "Earnings per Share".
8. INTERIM DIVID
Under UK GAAP, 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:
2018 2017
GBP'000 GBP'000
Second interim dividend in respect of the year ended - 4,702
31 March 2016
First interim dividend in respect of the year ended - 3,008
31 March 2017
Second interim dividend in respect of the year ended 7,447 -
31 March 2017
First interim dividend in respect of the year ended 3,153 -
31 March 2018
10,600 7,710
In respect of the year ended 31 March 2018, the first interim dividend of 6.5p
per share was paid on 9 January 2018. A second interim dividend of 11.0p is
payable on 31 July 2018, the associated ex dividend date will be 21 June 2018.
The total dividends payable in respect of the year ended 31 March 2018 amount
to 17.5p per share (2017: 22.5p per share). The aggregate cost of the second
interim dividend, based on the number of shares in issue at 15 June 2018, will
be GBP5,497,000. In accordance with FRS 102 the second interim dividend will be
reflected in the financial statements for the year ending 31 March 2019. 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 below:
2018 2017
GBP'000 GBP'000
Revenue available for distribution by way of 8,957 10,683
dividend for the year
First interim dividend in respect of the year ended (3,153) -
31 March 2018
Second interim dividend in respect of the year ended (5,497) -
31 March 2018*
First interim dividend in respect of the year ended - (3,008)
31 March 2017
Second interim dividend in respect of the year ended - (7,447)
31 March 2017
Net retained revenue 307 228
* based on 49,968,778 shares in issue as at 15 June 2018.
9. INVESTMENTS
Quoted Unquoted Derivative Total
Investments Debt Financial GBP'000
GBP'000 Investments Instruments
GBP'000 GBP'000
Cost at 1 April 2017 924,045 28,137 28,037 980,219
Investment holding gains at 1 April 2017 203,042 2,338 7,282 212,662
Valuation at 1 April 2017 1,127,087 30,475 35,319 1,192,881
Movement in the year:
Purchases at cost 1,072,461 15,413 1,206 1,089,080
Sales - proceeds (980,261) (10,333) (28,937) (1,019,531)
- realised gains on sales 186,517 2,065 12,750 201,332
Net movement in investment holding gains (178,599) (4,899) 13,256 (170,242)
Valuation at 31 March 2018 1,227,205 32,721 33,594 1,293,520
Cost at 31 March 2018 1,202,762 35,282 13,056 1,251,100
Investment holding gains/(losses) at 31 March 24,443 (2,561) 20,538 42,420
2018
Valuation at 31 March 2018 1,227,205 32,721 33,594 1,293,520
2018 2017
GBP'000 GBP'000
Gains on investments
Gains on disposal 201,332 180,694
Effective interest rate amortisation (388) (90)
Less: amounts recognised as investment holding gains in previous years (128,450) (81,728)
Gains based on carrying value at previous Statement
of Financial Position date 72,494 98,876
Movement in investment holding gains in the year (41,792) 161,380
Gains on investments 30,702 260,256
Purchase transaction costs for the year to 31 March 2018 were GBP836,000 (year
ended 31 March 2017: GBP713,000). Sales transaction costs for the year to 31
March 2018 were GBP804,000 (year ended 31 March 2017: GBP587,000). These comprise
mainly commission.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2018 2017
GBP'000 GBP'000
Fair value of OTC equity swaps 34,105 34,410
Fair value of put and call options (long) 587 1,191
Fair value of put and call options (short) (1,098) (282)
33,594 35,319
See note 9 above for movements during the year.
11. DEBTORS
2018 2017
GBP'000 GBP'000
Amounts due from brokers 3,415 2,751
Withholding taxation recoverable 1,762 1,575
VAT recoverable 25 15
Prepayments and accrued income 1,399 1,524
6,601 5,865
12. CREDITORS Amounts falling due within one year
2018 2017
GBP'000 GBP'000
Amounts due to brokers 3,545 4,783
Overdraft drawn* 91,351 98,337
Performance fee provision 9,731 3,387
Performance fee payable 959 -
Other creditors and accruals 2,279 2,116
107,865 108,623
* 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.
As at 31 March 2017, the overdraft of GBP98.3m is net of GBP6.3 million of cash
held as collateral against certain derivative positions. No cash was offset at
31 March 2018. 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.
13. SHARE CAPITAL
Total
Treasury shares
Shares shares in issue
number number number
Issued and fully paid at 1 April 2017 46,506,278 - 46,506,278
New shares issued 3,355,000 - 3,355,000
At 31 March 2018 49,861,278 - 49,861,278
2018 2017
GBP'000 GBP'000
Issued and fully paid:
Shares of 25p 12,466 11,627
During the year ended 31 March 2018 3,355,000 shares were issued raising GBP
84,706,000. During the year ended 31 March 2017 1,425,062 shares were bought
back at cost of GBP27,533,000 and 291,295 shares were issued from treasury
raising proceeds of GBP6,019,000.
14. NET ASSET VALUE PER SHARE
2018 2017
Net asset value per share 2,411.1p 2,367.2p
The net asset value per share is based on the assets attributable to equity
shareholders of GBP1,202,188,000 (2017: GBP1,100,903,000) and on the number of
Ordinary Shares in issue at the year end of 49,861,278 (2017: 46,506,278).
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. Samuel D. Isaly was until 12 January 2018 a
Director of the Company. He was also formerly the Managing Partner at OrbiMed
Capital LLC. Sven Borho, who joined the Board on 7 June 2018, is a Managing
Partner at OrbiMed. 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.
Details of the remuneration of all Directors can be found in the Remuneration
Report. Details of the Directors' interests in the capital of the Company can
also be found in the Remuneration Report.
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, 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. 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:
(i) market risk (including foreign currency risk, interest rate risk and
other price risk)
(ii) liquidity risk
(iii) 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 employs, 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 employs 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, because the Company is not locally registered to trade in
either market, and to gain exposure to thematic baskets of stocks.
Details of funded and financed* swap positions are noted in the Portfolio.
Cash of GBP9.9 million (2017: GBP17.1 million) was held as collateral against the
financed swap positions, of which nil (2017: GBP6.3 million) was offset against
the overdraft position.
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.
(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.
? International Swap Dealers Association Inc.
* See Glossary for a description of funded and financed swaps.
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.
2018 Notional* 2017 Notional
Assets Liabilities exposure Assets Liabilities exposure
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Investments 1,259,926 - 1,259,926 1,157,562 - 1,157,562
Put and call options 587 (1,098) 22,584 1,191 (282) 11,590
OTC equity swaps 34,105 - 126,125 34,410 - 116,926
1,294,618 (1,098) 1,408,635 1,193,163 (282) 1,286,078
* The notional exposure is calculated as the maximum loss the Company
could experience.
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 (2017: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by GBP1,343,000 (2017: GBP
123,000); the capital return would have increased by GBP346,181,000 (2017: GBP
318,300,000)/decreased by GBP346,882,000 (2017: GBP317,372,000); and, the return on
equity would have increased by GBP344,838,000 (2017: GBP318,177,000)/decreased by GBP
345,539,000 (2017: GBP317,249,000). 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:
2018 2017
Current Current Current Current
assets liabilities Investments assets liabilities Investments
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
U.S. dollar 11,236 (94,894) 1,075,131 14,886 (103,492) 998,352
Swiss franc 1,032 - 17,772 969 (168) 41,448
Japanese yen 3,988 - 95,628 659 - 76,385
Other 217 - 104,989 525 (147) 76,697
16,473 (94,894) 1,293,520 17,039 (103,807) 1,192,881
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 (2017: 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.
2018 2017
USD YEN CHF USD YEN CHF
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Sterling depreciates 120,388 11,068 2,089 110,251 8,560 4,694
Sterling appreciates (98,499) (9,056) (1,709) (90,206) (7,004) (3,841)
(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 2018, the Company held 2.5% of the portfolio in convertible bonds
and securitised debt (2017: 3.8% of the portfolio). The exposure is shown in
the table below:
2018 2017
Weighted Weighted Weighted Weighted
average average average average
period fixed period fixed
for interest Fixed Floating for interest Fixed Floating
which which
rate is rate rate rate rate is rate rate rate
fixed fixed
Years % GBP'000 GBP'000 Years % GBP'000 GBP'000
Convertible - - - - 1.3 6.2 15,403 -
securities
Unquoted debt 5.4 1.8 7,958 24,763 5.1 9.7 12,085 18,390
investments
Cash - 9,932 - 10,780
Overdraft facility - (91,351) - (98,337)
Financed swap - (92,020) - (82,516)
positions
7,958 (148,676) 27,488 (151,683)
All interest rate exposures are held in U.S. dollars.
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 2018 and the net
assets would increase/decrease by GBP1,487,000 (2017: increase/decrease by GBP
1,517,000).
(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.
Liquidity exposure and maturity
Contractual maturities of the financial liability exposures as at 31 March
2018, based on the earliest date on which payment can be required, are as
follows:
2018 2017
3 months 3 months
or less or less
GBP'000 GBP'000
Overdraft facility 91,351 98,337
Amounts due to brokers and accruals 3,545 4,783
Derivatives - Put options (short) 1,058 282
Derivatives - Call options (short) 40 -
95,994 103,402
(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 2018, assets with a total market value of GBP129.3 million (2017: GBP146.1
million) were available to J.P. Morgan Securities LLC to be used as collateral
against the overdraft facility which equates to 140% (2017: 140%) of the
overdrawn position (calculated on a settled basis) of GBP92.3 million (2017: GBP
104.6 million). Such assets held by J.P. Morgan Securities LLC are available
for rehypothecation (see Glossary for further information).
Credit risk exposure
2018 2017
GBP'000 GBP'000
Convertible securities and unquoted debt investments 32,721 45,878
Derivative - OTC equity swaps 34,105 34,410
Current assets:
Other receivables (amounts due from brokers, dividends
and interest receivable) 6,601 5,865
Derivative - Put options (long) 161 -
Derivative - Call options (long) 426 1,191
Cash 9,932 10,780
(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 2018 GBP'000 GBP'000 GBP'000 GBP'000
Investments held at fair value through profit or 1,227,205 - 32,721 1,259,926
loss
Derivatives: put and call options (short) - (1,098) - (1,098)
Derivatives: put and call options (long) - 587 - 587
Derivatives: OTC swaps - 34,105 - 34,105
Financial instruments measured at fair value 1,227,205 33,594 32,721 1,293,520
As at 31 March 2018, the put and call options and equity swaps have been
classified as Level 2.
As at 31 March 2018, the seven debt investments (included in the portfolio)
have been classified as Level 3. All level 3 positions have been valued using
the estimated fair values as provided by independent market sources.
Level 1 Level 2 Level 3 Total
As of 31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Investments held at fair value through profit or 1,127,087 - 30,475 1,157,562
loss
Derivatives: put and call options (short) - (282) - (282)
Derivatives: put and call options (long) - 1,191 - 1,191
Derivatives: OTC swaps - 34,410 - 34,410
Financial instruments measured at fair value 1,127,087 35,319 30,475 1,192,881
As at 31 March 2017, the put and call options and equity swaps have been
classified as Level 2.
As at 31 March 2017, the five debt investments were classified as Level 3. All
level 3 positions were valued using the estimated fair values as provided by
independent market sources.
(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 2018, the Company had a leverage percentage of 16.4% (2017:
16.9%).
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*
Other Investment Total
GBP'000 Holding GBP'000
Gains
GBP'000
At 31 March 2017 620,822 212,662 833,484
Net gains on investments 72,494 (41,792) 30,702
Expenses charged to capital less tax relief thereon (20,422) - (20,422)
Exchange gain on currency balances 7,942 - 7,942
At 31 March 2018 680,836 170,870 851,706
* Investment holding gains relate to the revaluation of investments
and derivatives held at the reporting date. (See note 9 for further
information).
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.
Further Information/Shareholder Information
Financial calendar
31 March Financial Year End
June Final Results Announced
September Annual General Meeting
30 September Half Year End
November Half Year Results Announced
January/July Dividends Payable
Annual General Meeting
The Annual General Meeting of Worldwide Healthcare Trust PLC will be held at
Salters' Hall, 4 Fore Street, London EC2Y 5DE on Thursday, 20 September 2018
from 12 noon.
Dividends
The Company pays two interim dividends in January and July each year.
Shareholders who wish to have dividends paid directly into a bank account,
rather than by cheque to their registered address, can complete a mandate form
for the purpose. Mandates may be obtained from the Company's Registrars, Link
Asset Services, on request.
Share prices
The Company's shares are listed on the London Stock Exchange under 'Investment
Companies'. The price is given daily in the Financial Times and other
newspapers.
Change of address
Communications with shareholders are mailed to the address held on the share
register. In the event of a change of address or other amendment this should be
notified to the Company's Registrars, Link Asset Services, under the signature
of the registered holder.
Daily net asset value
The daily net asset value of the Company's shares can be obtained on the
Company's website at www.worldwidewh.com and is published daily via the London
Stock Exchange.
Further Information/Glossary
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 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.
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 in which one party (counterparty) transfers the
total return of an underlying equity position to the other party (swap holder)
in exchange for a one off payment 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.
Your 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
emerging markets, where the Company is not locally registered to trade; 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.
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.
Health Maintenance Organisation (HMO)
In the United States an HMO is a medical insurance group that provides health
services for a fixed fee.
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 2018 31 March 2017
GBP GBP
Fair Exposure* Fair Exposure*
Value Value
Investments 1,259,926 1,259,926 1,157,562 1,157,562
OTC equity swaps 34,105 126,125 34,410 116,926
Put + Call options (511) 13,098 909 13,151
1,293,520 1,399,149 1,192,881 1,287,339
Shareholders' funds 1,202,188 1,100,903
Leverage % 16.4 16.9
* Calculated in accordance with AIFMD requirements using the Commitment
Method
MSCI World Health Care Index
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 GBP the prevailing U.S.$/GBP exchange rate is applied to
obtain a GBP based return.
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 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.
NAV Total Return 31 March 31 March
2018 2017
p p
Opening NAV 2,367.2 1,850.9
Increase in NAV 43.9 516.3
Closing NAV 2,411.1 2,367.2
% increase in NAV 1.9% 27.9%
Impact of reinvested dividends 0.9% 1.0%
NAV Total Return 2.8% 28.9%
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
2018 2017
GBP'000 GBP'000
AIFM & Portfolio Management fees (Note 3) 9,862 8,456
Other Expenses (Note 4) 908 718
Total Ongoing Charges 10,770 9,174
Performance fees paid/crystallised 3,387 1,331
Total 14,157 10,505
Average net assets 1,183,992 1,006,812
Ongoing Charges 0.9% 0.9%
Ongoing Charges (including performance fees paid or crystallised 1.2% 1.0%
during the year)
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 (your company does not sell uncovered options) 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.
Ribonucleic Acid
Ribonucleic Acid, or RNA is one of the three major macromolecules that are
essential for all known life (along with DNA and proteins).
Share Price Total Return
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested.
Share price Total Return 31 March 31 March
2018 2017
p p
Opening share price 2,304.0 1,715.0
Increase in share price 101.0 589.0
Closing share price 2,405.0 2,304.0
% increase in share price 4.4% 34.3%
Impact of reinvested dividends 0.9% 1.2%
Share price Total Return 5.3% 35.5%
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.
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 Salters' Hall, 4 Fore Street, London EC2Y 5DE on
Thursday, 20 September 2018 from 12 noon for the following purposes:
Ordinary business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and, if thought fit, to accept the Audited Accounts and the
Report of the Directors for the year ended 31 March 2018
2. To re-elect Dr David Holbrook as a Director of the Company
3. To re-elect Sir Martin Smith as a Director of the Company
4. To re-elect Mrs Sarah Bates as a Director of the Company
5. To re-elect Mr Humphrey van der Klugt as a Director of the Company
6. To re-elect Mr Doug McCutcheon as a Director of the Company
7. To elect Mr Sven Borho as a Director of the Company
8. To re-appoint PricewaterhouseCoopers LLP as the Company's Auditors and
to authorise the Audit Committee to determine their remuneration
9. To approve the Directors' Remuneration Report for the year ended 31
March 2018
Special business
To consider and, if thought fit, pass the following resolutions of which
resolutions 11, 12, 13 and 14 will be proposed as special resolutions:
Authority to allot shares
10. 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 GBP1,249,219 (being 10% of the issued
share capital of the Company at 15 June 2018) and representing 4,996,877 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 2019 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
11. THAT in substitution of all existing powers (but in addition to any
power conferred on them by resolution 12 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 10 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:
(a) 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;
(b) 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 GBP1,249,219, being 10% of the issued share capital of the
Company as at 15 June 2018 and representing 4,996,877 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 12 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.
12. THAT in substitution of all existing powers (but in addition to any
power conferred on them by resolution 10 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:
(a) 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
(b) this power shall be limited to the sale of relevant shares having an
aggregate nominal value of GBP1,249,219 being 10% of the issued share capital of
the Company as at 15 June 2018 and representing 4,996,877 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 11 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
13. 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:
(a) 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;
(b) the minimum price (exclusive of expenses) which may be paid for a Share
is 25 pence;
(c) 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);
(d) the authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2019 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
(e) 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
14. 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
15 June 2018
Notes
1. 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 proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice.
2. 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.
3. 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, 18 September 2018.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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, 18
September 2018 (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.
9. As at 15 June 2018 (being the last business day prior to the
publication of this notice) the Company's issued share capital consists of
49,968,779 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 15 June 2018 are 49,968,778.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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).
15. 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. 16. 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. 17. 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. 18. 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 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 2018 will be presented to the Annual General Meeting (AGM). These accounts accompany this Notice of Meeting and shareholders will be given an opportunity at the meeting to ask questions. Resolutions 2 to 7 - Re-election and election of Directors Resolutions 2 to 7 deal with the re-election and election of each Director. Biographies of each of the Directors can be found in the Governance section of the annual report. The Board has confirmed, following a performance review, that the Directors standing for re-election and election continue to perform effectively. Resolution 8 - Re-appointment of Auditors and the determination of their remuneration Resolution 8 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. Resolution 9 - Remuneration Report The Directors' Remuneration Report can be found in this annual report. Resolutions 10, 11 and 12 - Issue of Shares Ordinary Resolution 10 in the Notice of AGM will renew the authority to allot the unissued share capital up to an aggregate nominal amount of GBP1,249,219 (equivalent to 4,996,877 shares, or 10% of the Company's existing issued share capital on 15 June 2018, 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 11 will, if passed, give the Directors power to allot for cash equity securities up to 10% of the Company's existing share capital on 15 June 2018 (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 10. 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 11, Resolution 12, 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 12. 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 15 June 2018 (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 10, 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 10, 11 and 12 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 13 - 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 13 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 14 - General Meetings Special Resolution 14 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 36,665 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 Strategic Report 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 Commitment
Method Method
Maximum level of leverage 140.0% 140.0%
Actual level at 31 March 2018 117.4% 116.4%
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 2018 are detailed below.
Global Data
Amount of assets engaged in TRS
The following table represents the total value of assets engaged in TRS:
GBP'000 % of AUM
TRS 34,105 2.6
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 GBP'000
Goldman Sachs U.S.A. 78,572
JPMorgan U.S.A. 47,553
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 2018. The collateral provided by the Company to the above
counterparties is set out below.
Type Currency Maturity Quality GBP'000
Cash USD less n/a 9,932
than
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 GBP'000
1 to 3 months 44,939
3 to 12 months 81,186
126,125
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
15 June 2018
ANNOUNCEMENT ENDS
END
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June 15, 2018 08:22 ET (12:22 GMT)
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