REG - Bellevue Healthcare - Annual Financial Report
17/03/2025 07:15
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RNS Number : 8317A Bellevue Healthcare Trust PLC 17 March 2025
Bellevue Healthcare Trust plc
Annual Report and Accounts
For the year ended 30 November 2024
Bellevue Healthcare Trust plc (the "Company") hereby submits its annual report
and financial statements for the year ended 30 November 2024 as required by
the Financial Conduct Authority's Disclosure and Transparency Rule 4.1.
The Company's annual report and financial statements for the year ended 30
November 2024 is being published in hard copy format and an electronic copy
will shortly be available to download from the Company website
www.bellevuehealthcaretrust.com (http://www.bellevuehealthcaretrust.com) . It
will also be made available to the public at the Company's registered office,
4th Floor, 46-48 James Street, London, W1U 1EZ.
The Company's annual report and financial statements will also be uploaded to
the Financial Conduct Authority's National Storage Mechanism and will shortly
be available for inspection at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
LEGAL ENTITY IDENTIFIER ('LEI'): 213800HQ3J3H9YF2UI82
Overview
INVESTMENT OBJECTIVE
The investment objective of Bellevue Healthcare Trust plc ("the Company") is
to provide Shareholders with capital growth and income over the long term,
through investment in listed or quoted global healthcare companies. The
Company's specific return objectives are: (i) to beat the total return of the
MSCI World Healthcare Index (in sterling) on a rolling 3 year period (the
index total return including dividends reinvested on a net basis); and (ii) to
seek to generate a double-digit total Shareholder return per annum over a
rolling 3 year period.
FINANCIAL INFORMATION
As at 30 November As at 30 November
2024 2023
Net asset value ("NAV") per Ordinary Share (cum income) 154.32p 143.87p
Ordinary Share price 141.20p 129.00p
Ordinary Share price discount to NAV(1) 8.5% 10.3%
Ongoing charges ratio ("OCR")(1) 1.03% 1.02%
PERFORMANCE SUMMARY
Year to(2) Year to(3)
30 November 2024 30 November 2023
Share price total return per Ordinary Share(1,4) 13.7% -15.1%
NAV total return per Ordinary Share(1,4) 11.1% -12.7%
MSCI World Healthcare Index total return (GBP)(4) 11.5% -7.1%
(1 ) These are Alternative Performance Measures.
(2 ) Total returns in sterling for the year ended 30 November 2024
(3 ) Total returns in sterling for the year ended 30 November 2023
(4 ) Including dividends reinvested in the year.
Source: Bellevue Healthcare Trust plc Factsheet November 2024
ALTERNATIVE PERFORMANCE MEASURES ("APMs")
The financial information and performance summary data highlighted in the
footnote to the above tables represent APMs of the Company. In addition to
these APMs other performance measures have been used by the Company to assess
its performance; these can be found in the Key Performance Indicators section
of the Annual Report. Definitions of these APMs together with how these
measures have been calculated can be found in the Annual Report.
Chairman's Statement
Dear Shareholders
This is the eighth Annual Report of your Company.
PERFORMANCE
Over the financial year to 30 November 2024, the share price (on a total
return basis) returned 13.7%; the NAV total return was 11.1%. This compares
with the MSCI World Healthcare index which produced a total return of 11.5%.
The returns are summarised in the following table:
Cumulative & annualised performance
Cumulative Annualised
1 Year 3 Years 5 Years Since inception 1 Year 3 Years 5 Years Since inception
(2 December 2016)
(2 December 2016)
Share Price 13.7% -15.0% 16.1% 81.9% 13.7% -5.3% 3.0% 7.8%
NAV (inc. dividend reinvested) 11.1% -7.0% 27.9% 98.1% 11.1% -2.4% 5.0% 8.9%
MSCI World Healthcare Index (GBP) 11.5% 18.3% 51.1% 120.5% 11.5% 5.8% 8.6% 10.4%
Source: Bloomberg. All performance figures are calculated as total return with
dividends being reinvested in the relevant security, calculated in GBP and
with the relevant period ending on 30 November 2024.
It is encouraging to note that share price and NAV performance matched the
index in the financial year to end November 2024. Nevertheless longer term
performance has been disappointing in both relative and absolute terms. The
portfolio focus is on a small number of high conviction ideas, mainly
concentrated in Small or Mid-Cap stocks where the Investment Manager believes
their research and investment expertise find added value. However, the index
performance has been dominated by the rerating of a few very Large‑Cap
stocks, similar to the 'Magnificent Seven' impact on the broader market.
I cannot emphasise enough the focus of the Board and Bellevue on improving
performance and tightening risk management. Two areas of discussion are
implementing a more rigorous sell discipline and increasing the number of
portfolio positions which would reduce volatility. The latter is explained in
the Investment Manager's Report and we will be seeking shareholder support via
an AGM resolution.
BOARD COMPOSITION AND EVALUATION
Three of the current directors (Jo Dixon, Paul Southgate and myself) joined
the Company ahead of its listing in December 2016 and hence would be expected
to retire over the next year (i.e. nine years from appointment).
With an eye to succession planning, we recently announced the appointment of
Sarah MacAulay as a non-executive director, and Clare Brady as non-executive
director and audit chair-elect. Both Sarah and Clare are experienced
investment trust directors (and in fact both currently chair investment
trusts).
Paul Southgate and I will not be putting ourselves up for re-election at the
forthcoming AGM. To ensure institutional continuity, Jo Dixon will remain as
senior independent director until the AGM of 2026.
The Board unanimously support the proposal to appoint Kate Bolsover as
Chairman to succeed me. She brings a wealth of investment trust experience and
knowledge and is indeed an experienced chairman.
Shareholders will have the opportunity to meet Clare, Sarah and Kate at our
next AGM in April 2025.
As per the AIC Code recommendations, this year we undertook an internal Board
review at the end of the year. The review covered the overall performance of
the Board, the committees, individual directors and the Chair. The overall
results were good but as always it provides food for thought on how and where
we might improve.
FEES AND CHARGES
The current Investment Management fee is 95 bps, based on market
capitalisation (i.e. not AUM), which more closely aligns the Investment
Manager's interests with that of Shareholders. Bellevue has absorbed a number
of costs over the years that help reduce the Ongoing Charges Ratio ("OCR").
The OCR this year was 1.03% (2023: 1.02%) and the Board has worked hard over
the year to ensure the OCR continues to stay relatively low. I would have
liked to get this ratio below 1% before I retired from the Board but a
decreasing market capitalisation has worked against that ambition.
PORTFOLIO POSITIONING
The portfolio is exposed to US stocks, especially in the Small / Mid-Cap area
and has a high active share. This also inevitably exposes the portfolio to
movements in the US dollar.
A new US presidency has macroeconomic, market specific and sector specific
implications.
As with many things in life, some of these issues may be negative and others
positive for healthcare; of course, the impact for different healthcare
subsectors will vary dramatically. We remain confident that these choppy
waters can be navigated by the Investment Managers.
GEARING
The Company has historically had a multi-currency revolving (unsecured) credit
facility ("RCF") with The Bank of Nova Scotia. Changes brought about by Basel
IV regulations have meant that some banks have withdrawn from the market. We
are therefore fortunate that The Bank of Nova Scotia continues to provide a
facility for the Company. Due to the Basel IV regulations, the new facility,
which commenced in December 2024 is on a secured basis. As we have no
unsecured debt, this has very limited practical impact on the Company.
SHARE CAPITAL AND ISSUANCE
The Company's issued share capital (excluding treasury shares of 31,782,418)
was 283,369,891 Ordinary Shares (post redemptions) as of 30 November 2024; a
decrease from 462,588,550 as of the end of the previous financial year.
We did not issue any shares during the year. In November we received
redemption notices for 163,834,887 shares. In addition, we bought back
15,383,772 shares during the year.
At the AGM, we will be seeking authority to issue 24,180,403 new Ordinary
Shares to meet potential investor demand, with share issuance only possible at
a premium to NAV.
REDEMPTIONS, BUYBACKS AND DISCOUNT MANAGEMENT
There have been both Company specific (performance) and market factors
(investment trust discounts have widened over the last few years) that have
led to the Company trading at a discount.
Furthermore, as I mentioned in last year's annual report, due to the High
Court process to reset our distributable reserves we temporarily paused share
buybacks at the year end. At the close of business on 30 November 2023 we were
trading at a discount to NAV of 10.3%. During the year the average discount
for the shares of the Company was 7%, whilst for the healthcare investment
trust peer group it was 9.8%.
Not surprisingly, this situation has led to increased levels of redemption
requests - this year that equated to 36.6% of the shareholder base as of the
Redemption Point.
It has become apparent that the redemption facility, whilst prima facie,
laudable by giving Shareholders an annual opportunity to exit near to NAV, has
unintended consequences. In particular it attracts Shareholders with a
short-term focus to buy shares with no regard to the underlying investment
proposition but rather to take advantage of the possibility of an unlimited
redemption structure within a defined time horizon.
Hence your Board, following extensive shareholder consultation, in the latter
months of 2024 called a General Meeting in December to address the redemption
facility. The proposal was to replace the redemption facility with a
performance-related tender offer to support the long-term nature of a
closed‑ended investment structure and portfolio ethos, while still providing
liquidity for Shareholders. For those who did not follow the detail of what
happened at the time there was a need to pull back from that proposal due to a
change in stance of one of our significant Shareholders and an increase in
holdings by short-term focused Shareholders. It is worth recalling that to
change the Company's Articles a special resolution is required, which to pass
requires a majority of not less than 75%.
With increased confidence in the performance of the underlying portfolio, the
Company has been active in share buybacks. Buying back shares at a discount is
accretive to longer-term Shareholders. For those Shareholders seeking to exit,
buybacks provide immediate liquidity rather than having to wait for an annual
redemption.
Your Board is determined to try and steer a fair course between redemptions
and buybacks whilst ensuring the long-term viability of the Company.
DIVIDEND
The Company targets an annual dividend of 3.5% of the preceding year-end NAV,
paid out in two equal instalments. In May 2024, the Company paid out a final
dividend of 2.995p in respect of the year 2023.
In August 2024, an interim dividend of 2.52p in respect of the financial year
2024 was paid. The Board has proposed a final dividend of 2.52p for the
financial year 2024 and, if approved at the forthcoming Annual General
Meeting, this will be paid to Shareholders in May 2025.
For the financial year 2025, the Board is proposing a total dividend of 5.40p
per Ordinary Share (this being 3.5% of the NAV as of the close on 30 November
2024), composed of interim and final dividends of 2.70p per Ordinary Share
each, to be paid in August 2025 and April/May 2026 respectively, subject to
shareholder approval.
OUTLOOK
There have been periods in market history where the performance of the very
largest companies wanes, and smaller, more agile competitors outperform. Over
the last few months the outperformance of the 'Magnificent 7' in the wider
market, and of the big 'weight-loss' linked companies in the healthcare sector
have indeed seemed to be waning. The healthcare sector as a whole is currently
trading at relative PE (price earnings (ratio)) multiples which are at a
discount to the wider market (as discussed in the Investment Manager's
section). Within the healthcare sector itself, the relative valuation of
smaller and Mid-Cap companies, in comparison to the large companies, also
looks particularly attractive. One hopes that this will lead to a rerating of
the companies within the portfolio.
Moreover, the new leadership at the Federal Trade Commission in the US is
expected to streamline the mergers and acquisitions process, bolstering
smaller companies' valuations. This, combined with the more positive outlook
for the sector as a whole provides reasons to be optimistic for the future
growth in the value of the portfolio.
ANNUAL GENERAL MEETING AND SHAREHOLDER COMMUNICATION
The next AGM will be on 23 April 2025. The Investment Manager will make a
short formal presentation before a question and answer session.
We recognise it is not possible for everyone to attend an AGM hence may I
remind readers that we have a dedicated email address for investors to submit
any enquiries or feedback they might have to info@bellevuehealthcaretrust.com
or to the Company Secretary Bellevue@nsm.com. I encourage you to make use of
this facility. In the meantime, we will continue to post content from the
Investment Manager onto the Company's website to keep you informed of the
Company's progress.
The Board is proposing a modification of the Company's investment policy to
increase the maximum number of holdings from the current 35 to 45 in order to
adjust to a more volatile market environment - this will be the subject of a
resolution at the forthcoming AGM and is discussed further in the Investment
Manager's Report. We are also proposing a change to the Company's return
objectives to provide one simple clear target to measure performance. Both
these changes are discussed further in the Annual Report ('Amendments to the
Investment Policy and Return Objectives'), are recommended by the Board and we
believe should be non-controversial.
AND FINALLY…
As highlighted above, this will be my final AGM as Chairman of your Company.
It has been a privilege to serve. I sincerely hope that the Company proceeds
to greater heights in the future. I leave secure in the knowledge that both
the Board and the Investment Manager are focused on improving performance and
helping drive greater returns for investors; having both confidence in the
investment thesis and a Manager who is well positioned to harvest this
opportunity. As I discuss above, the wider backdrop also provides reasons to
be optimistic.
On behalf of the whole Board, may I wish you a prosperous year ahead and thank
you for your continued support of Bellevue Healthcare Trust Plc.
Randeep Grewal
Chairman of the Board of Directors
14 March 2025
Investment Manager's Report
OVERVIEW
The general market's and the healthcare sector's performance has been
dominated by a few stocks in the last couple of years. We believe that as this
performance widens our portfolio should benefit. Furthermore healthcare is
well positioned at current levels and, combined with good stock selection, the
backdrop should provide a helpful boost to performance over the coming years.
REVIEW
The Bellevue Healthcare Trust is now eight years old. As such, we thought it
worth revisiting our views on the evolution of the healthcare industry at the
time of the Company's launch, discussing what has and has not come to pass,
and then provide an overview of how we see the industry's continuing
evolution.
Before we delve into these details, what remains abundantly clear today is
that the need for profound and fundamental reform of healthcare systems
remains urgent. We seek to invest in innovative companies whose products,
technologies and services are at the forefront of improving the standard of
care and the means of delivery, driving efficiency across the healthcare
system.
Groundbreaking advances in science are providing greater insights and
understanding into the underlying biology of disease, allowing better
treatments to be developed and helping an ever expanding number of patients.
Over the coming years, the application of genomics and Artificial Intelligence
will undoubtedly unleash benefits from the huge information datasets that
healthcare systems have been gathering over many decades.
Given this undeniably compelling backdrop, it should puzzle us all that,
despite all this opportunity and potential, the performance and valuations of
healthcare companies relative to the broader global equity market are at
near-decade lows as shown in Figures 1 and 2 below. Within this, Small and
Mid-Cap healthcare stocks in which we typically invest have been treated even
more harshly.
Figure 1 S&P 500 Healthcare Sector vs. S&P 500 Index - relative
performance on annual basis (1990 - 2024)
Source: Bloomberg
Figure 2 in the Annual Report illustrates the consequence of this relative
underperformance despite solid operational performance - a profound de-rating
in the valuation multiples ascribed to the sector when compared to the wider
market.
Why has this occurred? In part, it is due to the market's narrow focus in
recent years on a small cohort of Tech-oriented Mega-Cap companies (the
so-called 'Magnificent 7'). These have driven wider market performance and the
focus upon them has been to the detriment of much else being crowded out of
the narrative. We have even seen a microcosm of this within healthcare with
the Eli Lilly/Novo Nordisk led 'GLP-1 winners and losers' narrative, starving
other areas of healthcare of newsflow and investor attention.
Figure 2 PE-Ratio Healthcare vs. Global Equities 31 December 2014 - 31
December 2024
Source: Bellevue Asset Management AG, PE 2024/ EPS-Growth 2021-2026e
What we can also say with confidence is that it has not occurred because the
companies within this ecosystem have not continued their relentless and often
awe-inspiring progress, nor because regulatory or geopolitical issues have
changed the outlook for the industry. Perhaps, given all the geopolitical
turmoil and macro-economic uncertainty, it is time for investors to
re-evaluate the investment proposition that healthcare provides?
THE ORIGINAL THESIS
Our original top-down view was, and remains, that developed-world healthcare
systems need to undertake a fundamental reconsideration of the care delivery
paradigm, in order to make them operationally and financially sustainable.
Societies must balance the challenges of inexorable demand arising from a
growing and ageing population, and the consequential proliferation of
age-associated chronic conditions, with a rising dependency ratio. Healthcare
expenditure cannot rise faster than GDP growth indefinitely.
The reality was, and still is, that healthcare delivery is wasteful,
inefficient, over-reliant on a limited supply of skilled human capital and
administratively burdensome. This combination offers considerable
opportunities for enhanced productivity to slow spending growth and free up
resources to deliver improved care. For these reasons, we saw these changes to
the healthcare system as inevitable, as a society we simply could not carry on
as we were.
In our early marketing materials, we sought to explain the 'shifting
healthcare delivery paradigm', with an illustration of the types of products,
technologies and services that could improve outcomes, and decision-making,
and lower costs within the different stages of the patient journey. We also
provided a list of the major changes that we anticipated the healthcare system
would undertake over the coming decade. Both are reproduced below:
Figure 3 The Shifting Healthcare Delivery Paradigm
Source: Bellevue Asset Management (UK) Ltd.
Figure 4 List of Anticipated Changes in Healthcare
1. "Everything must change" - Western healthcare systems are broken and
not fit for purpose in terms of serving the needs of an ageing population. The
human skills deficit is already too far gone to bridge with simply adding more
staff (if you can find them).
2. "Technology and healthcare will intersect as never before" - IT
innovations such as AI & big data that can cope with noisy (i.e.
incomplete) healthcare records data will increasingly drive insights and
prevention plans.
3. "It's written in your genes" - genetic data will be at the forefront of
diagnosis and population health (preventative interventions).
4. "Electronic first" - your first interaction with the healthcare system
will be digital; creating a footprint that can be tracked and allow you to get
the best care in the cheapest and most convenient manner possible.
5. "People are fallible" - we do not follow medical advice and do not
behave rationally. People need to be nudged and prompted to do the right thing
and making things easier is just as important as making treatments better.
6. "Knowledge is power" - the future consumer wants to be far more engaged
in decision-making and future care models will need to be more
patient-centric.
7. "Acuity must fall" - hospitals are expensive and full of sick people.
No-one wants to be there and newer 'site of care' models will be increasingly
used.
8. "Connected care and the internet of things" - the future treatment
setting will be loaded with passive sensing technology that enhances physician
decision-making.
9. The "democratisation of innovation" - the future favours those with the
best ideas in drugs and med tech being able to bring projects to middle stages
of development using outsourced models of R&D and production, tilting the
balance in favour of disrupters over incumbency.
10. Related to the point above, legacy infrastructure in the pharma/biotech
and hospital space has less value than it did historically.
Source: Bellevue Asset Management (UK) Ltd.
PROGRESS TO DATE
It is worth considering how the healthcare system has evolved since the
Company's inception. During the five years to the end of 2022 (which is the
last year for which complete data is currently available; comprehensive data
sets take time to put together), the World Health Organisation estimates that
global spending on healthcare rose from $7.1trn in 2015 to $9.8trn by 2022; a
compound growth rate of 4.6%, or a 37% increase over five years. Within the
OECD sub-set of developed countries, spending rose from $5.9trn to $7.9trn
over the same period, a compound growth rate of 4.2%. These numbers serve to
highlight the dependable nature of the sector's demand-led growth.
Within the OECD, the unweighted average increase in healthcare spending as a
proportion of GDP between 2015 and 2022 was 0.4%, which was also the median
increase, amply illustrating the challenges described previously: public
finances cannot cope with healthcare expenditures consuming an ever greater
proportion of our marginal wealth creation indefinitely.
The table below discusses a few of the key opportunities/ thematics
highlighted previously and the progress we have witnessed over the past eight
years in terms of these becoming mainstream elements of healthcare provision:
Opportunity/thematic What it means Why is it important Progress Made
Site of care shift Moving care away from higher cost setting (i.e. hospitals) to lower-cost (i.e. Treating patients in a lower cost setting saves significant money for Advancing. A growing percentage of procedure volume is now undertaken in
home, surgical-day centres, pharmacies). healthcare systems. Patient convenience and access to care are often improved alternate, lower-cost settings such as Ambulatory Surgical Centres (ASCs),
too. many of which are partly physician owned.
Remote monitoring for management of chronic conditions or recovery Wearables/home technology that monitors a patient without the need for a More efficient use of human resources that would otherwise need to "check-in" Limited. We were expecting more progress, but a combination of arcane
healthcare professional to physically attend to the patient. with patients. Timely data collection can provide earlier warning of problems. governance of social care, data security breaches and privacy concerns
alongside people's reluctance to have "monitoring technology" in their homes
has stalled progress, but the NHS virtual wards pilots do offer hope that the
idea is gaining traction.
Robotics and minimally invasive surgery Robotic/minimally invasive surgery results in less tissue trauma versus Less trauma = faster recovery, quicker procedure times and reduced risk of Advancing. There has been a brisk uptake of robotic surgery/minimally invasive
traditional 'open' surgery. infection due to smaller incision site in the skin, which saves money and approaches. Surgeons are keen to utilise these tools. What typically limits
increases efficiency. uptake is the meaningful capital outlay required, but various finance options
are typically available and we are seeing uptake at ASCs.
Electronic triage and Moving away from face-to-face appointments as the gateway to healthcare, often The Primary-care (GP) led model is very difficult to scale, and hugely Largely complete. At the time of the IPO, trying to get a UK resident to
redirecting patients to alternative (cheaper) services. expensive. Reducing the number of appointments saves time and money. imagine a world where there was an NHS app on their phone was difficult, never
virtual physician visits
mind one that enabled them to book virtual appointments, or that virtual
appointments would be more common, but here we are.
Novel therapeutics/ treatment modalities More targeted/specific therapeutics provide better efficacy with less side Greater efficacy leads to better outcomes and faster recovery, saving money. Advancing. There continues to be significant innovation in the biotechnology
effect burden/off target toxicities. Reducing side effects improves patient quality of life. arena. They key to success is tackling significant un-met or step change in
existing treatment needs versus delivering modest improvements to existing
options.
Connected hospitals Software and hardware that allows a network environment to be created so More efficient use of clinical staff where the burden of admin tasks (i.e. Moderate. In general, there is agreement on the potential benefits. The
patient information is accessible across the hospital in a faster, more taking bedside patient stats, test results available electronically and challenge in terms of roll-out/uptake comes around integrating multiple
stream-lined manner. More efficient monitoring of patients. quicker) can be more automated. disparate pre-existing systems under a unified single architecture. Further
integration and work on the part of vendors is required in order to provide a
true one-stop solution for hospitals.
Increased personalisation, speed and accuracy of diagnosis Earlier and more precise disease identification, typically at a molecular Generally, the earlier and more accurately you diagnose disease, the more Moderate. Whilst there have been significant advances in molecular testing
level utilising genomic or proteomic data. specific, targeted treatment options can be selected, hopefully being required available, particularly in the oncology setting, and penetration rates have
for a shorter duration, which saves significant costs. improved, there is still a long road ahead. Uptake in our minds should have
been faster. The UK NHS deserves credit here for being a global pioneer in
evaluating such services, even if they are yet to roll out nationally.
Looking at the table above, it is encouraging to see that many of the
improvement areas we identified have made significant progress over the past
eight years, driving strong financial performance in the companies we have
invested in.
However, remote patient monitoring has been a notable disappointment,
especially given the clear benefits that readily available products,
technologies, and services could provide. We underestimated patient concerns
regarding data security, which were amplified by high-profile data breaches at
large corporations and social media companies, but it is pleasing to see more
traction being gained now (cf. NHS Virtual Wards pilot).
The number of people willing to work in adult social care is a huge problem,
with 1 in 10 positions currently unfilled and a lack of social care resources
being the primary cause of 'bed blocking' in hospitals. Something is going to
have to change.
Progress on the uptake/penetration of these thematics/ opportunities has
largely been linear over the past eight years (apart from the peak COVID times
in 2020/21). Throughout the entirety of the Company's history, we have sought
to exploit these emerging and growing trends through the companies in which we
invest.
LONGER TERM PERFORMANCE
The first five years of the Company's history yielded very strong absolute and
relative performance of the Company's NAV, delivering a NAV total return of
+16.1%, compared to +13.2% for the MSCI World Healthcare Index. In the
subsequent period to date, despite following the same strategy and approach,
the performance of the Company's NAV has been disappointing, with 2022 being
most significantly impacted.
Our fundamental research and analysis leads us to a bias toward US Mid-Cap
growth stocks. In recent times these have been out of favour with investors by
comparison to the Large/Mega-Cap companies that dominate our benchmark.
Nonetheless, we remain confident that we are continuing to focus on the
correct underlying themes within the healthcare ecosystem.
With all the current global challenges, it is easy to be overwhelmed by the
noise and lose sight of the bigger picture. The Company's performance since
inception is summarised in Figure 5 below. Despite operating in a difficult
environment, the Company outperformed meaningfully in its first five years and
has delivered a positive absolute NAV return in six of its eight calendar
years.
The Company has only meaningfully underperformed the MSCI World Healthcare
Index in three of the past eight years (i.e. excluding 2018's
underperformance, which was only a modest 17 basis points on an NAV basis). In
each of those years of notable relative underperformance, short, sharp shocks
hindered our ability to regain sufficient momentum before the end of the
respective year.
We are not alone in facing these challenges. Among the six healthcare-focused
actively managed investment companies with a similar track record, only one
has outperformed its benchmark during our timeframe (and it focuses on
biotech, with some private investments). These have indeed been exceptionally
tough times for healthcare investors.
Figure 5 Relative and absolute return since inception (calendar year basis)
Source: Bloomberg
WHAT'S NEXT?
Healthcare has struggled to capture wider investor attention - dominated as it
currently is by a narrow group of technology companies - it is important to
emphasise that healthcare is far from broken as a business. Demand for
services remains robust, and the need for greater efficiency is undeniable.
Few sectors can offer as much confidence in the long-term demand outlook as
healthcare does, underpinned as it is by insurmountable demographic trends.
The current situation vis-a-vis equity returns reflects a shift in investor
sentiment, despite the industry fundamentals remaining solid. Investors have
simply chosen to direct their focus - and capital - elsewhere.
The silver lining is that the sector now appears significantly more attractive
on a relative value basis (Figure 2). Early signs in 2025 suggest that this
may be starting to attract renewed interest from generalist investors, even if
it remains skewed at the moment to Mega-Cap names. Lest one forget, around one
in three newly launched products from 'big pharma' comes from external
innovation (in-licensing or M&A), and the marked under-performance of
Small and Mid-Cap healthcare and biotechnology in particular may yet kick off
a wave of M&A as larger companies see relative value in acquiring their
benighted biotech brethren.
Growth stocks, by their nature, do not need a re-rating to generate alpha; the
growth itself should drive that. However, if investor interest in healthcare
becomes more positive and broadens out to the growth names, a meaningful
re-rating of depressed valuations should be on the horizon.
We are still in the early stages of what is likely to be a decades-long
transformation. The good news is that the momentum for change is already
heading in the right direction. We are enthusiastic about the industry's
future.
Terms like 'cost-effectiveness' and 'value-based care' are no longer taboo.
The pandemic underscored the challenges of recruiting and retaining talent,
highlighting the need to reduce the sector's over-reliance on human capital.
We can no longer expect frontline workers to "do more"; we must equip them
with the tools to be more productive with their valuable time.
Despite these advances, many healthcare systems face even greater challenges
than they did eight years ago due to the pandemic. Record waiting lists and
widespread dissatisfaction with the quality or cost of care, or both, have
created even higher barriers to overcome. The need for urgent reform has never
been clearer. As such, we expect to see an acceleration in the adoption of
products, technologies, and services that improve outcomes, reduce costs,
and empower carers to make better decisions for patients.
Emerging patient-centric treatment approaches promise new, personalised, and
targeted ways of delivering care, far beyond what was possible in the past.
Our growing understanding of genomics offers the potential to not only better
understand disease drivers, but also to more effectively treat or even prevent
them. It is an exciting time to invest in healthcare.
FY2024 PERFORMANCE SUMMARY
A narrowing of the discount compared to the end of fiscal 2023 meant that the
total shareholder return performance was indeed positive versus the
comparator, +213bp ahead for the fiscal year.
Unfortunately, the fiscal 2024 performance fell just short of generating a
relative NAV outperformance for the year, versus our key comparator index, the
MSCI World Healthcare Index. However, it is pleasing that performance in the
second half of the fiscal year was positive (GBP NAV total return +4.6%, vs
+1.7% for the MSCI World Healthcare Index).
Figure 6 The Company's returns for the fiscal year
Since Inception
Rolling 3 Year (1 December
Total Return (GBP) Fiscal 2024 Rolling 3 Year (annual eq.) 2016)
BBH Share Price +13.7% -15.0% -5.3% +81.9%
BBH NAV +11.1% -7.0% -2.4% +98.1%
MSCI World Healthcare Index +11.5% +18.3% +5.8% +120.5%
Relative to MSCI World Healthcare Index
BBH Share Price +2.1% -33.3% -13.2% -38.6%
BBH NAV -0.4% -25.3% -2.4% -22.3%
Source: Bloomberg. All performance figures are calculated as total return with
dividends being reinvested in the relevant security, calculated in GBP and
with the relevant period ending on 29 November 2024.
Alongside our ongoing analysis of the sector's fundamentals, we also undertook
a comprehensive review of our investment process in 2024, identifying areas
for improvement in risk-adjusted returns. We observed that stock-level
volatility around news flow has increased over the past two years. This led to
two key conclusions: first, it may be more effective to focus on selecting the
best two or three ideas from a given strategy to gain exposure to a desired
theme, rather than seeking a single "winner." In order to support this revised
approach, the Company's Board is proposing an increase in the maximum number
of active holdings from 35 to 45. The Company will still retain its
differentiated and concentrated investment approach, but we believe this
additional flexibility will improve risk-adjusted returns. Second, we need to
carefully consider our tolerance for binary event risks on a case-by-case
basis. Where possible, it may make sense to reduce exposure before such
events, especially since they often result in higher trading volumes in the
immediate aftermath. It is always possible to buy back positions after
trimming.
We began implementing these adjustments in the second half of 2024 and are
already seeing positive results, including reduced drawdowns and an improved
internal rate of return (IRR).
Portfolio summary
During fiscal 2024, the Company held active positions in 44 companies
(compared to 34 in FY2023), beginning the year with 27 active positions and
ending the year with 33 active positions (18 additions, 11 exits and the
write-down to zero of the Venus Medtech holding, which only represented 0.3%
of Net Asset Value at the end of FY2023).
Two of the exits were due to M&A (Axonics and Silk Road Medical) and three
of the additions were prior holdings for the Company (Humana, Neogenomics, and
Lundbeck). We would describe seven of the 18 additions as being due to the
revised approach of splitting thematic exposures over more than one holding,
as discussed previously.
In each of these cases, the percentage of gross exposure attributed to the new
holding was offset by an equal amount being sold down from an existing
holding, offering complimentary end market/customer/thematic exposure. As
noted previously, we believe this will smooth returns over time by reducing
exposure to stock-specific downside risk.
Of the remaining exits, the overwhelming rationale reflects the previously
outlined change in approach to managing binary risk - in an era of heightened
volatility and all too frequent over-reactions to even modestly negative
newsflow, we must have a much lower appetite for any perceived downside risk
or reduction in confidence in management.
The evolution of the portfolio at the sub-sector level is illustrated in
Figure 7 below. Investors can find detailed commentary on the month-by-month
evolution of the sub-sector exposure in the monthly factsheets and these
should be investors' primary source of information on the portfolio and the
strategy.
Figure 7: Portfolio sub-sector evolution
% Change
(Nov 2023 vs
Subsector Allocation (month end) November 2023 May 2024 November 2024 Nov 2024)
Conglomerates 0.0% 0.0% 0.0% n/a
Dental 0.0% 0.0% 0.0% n/a
Diagnostics 13.3% 13.6% 17.3% +4.0%
Distributors 0.0% 0.0% 1.0% +1.0%
Diversified Therapeutics 0.0% 0.0% 0.0% n/a
Facilities 0.0% 0.10% 0.0% n/a
Focused Therapeutics 22.2% 24.3% 27.8% +5.6%
Generics 0.0% 0.0% 0.0% n/a
Healthcare IT 10.4% 5.6% 3.4% -7.0%
Healthcare Technology 5.7% 14.5% 9.2% +3.5%
Managed Care 7.8% 10.5% 8.9% +1.1%
Medical Technology 19.0% 12.2% 17.8% -1.3%
Services 11.7% 14.0% 9.1% -2.6%
Tools 9.9% 5.1% 5.4% -4.5%
Other HC 0.0% 0.10% 0.10% n/a
Total 100.0% 100.0% 100.0%
With regard to the portfolio breakdown by market capitalisation, this has
intentionally become more balanced over the year. We are still significantly
more skewed toward Mid-Cap versus our key comparator index (which was 98.5%
Mega-Cap and Large-Cap at the fiscal year end), but there is greater balance
across the portfolio compared to the past few years. The already material
geographic bias to the United States increased slightly, as Chinese capital
markets continued to experience significant challenges.
Figure 8: Market capitalisation breakdown of portfolio
Our top five and bottom five contributors to the NAV are summarised in Figure
10 below, along with their share price performance in sterling over the fiscal
year (which does not necessarily correspond to their performance for the
Company, as the size and duration of our holdings varies over the year).
Figure 9: Geographic breakdown of portfolio (operational HQ)
Figure 10
Top 5 Performers (total return)
Company Sub-sector Performance (GBP)
CareDx Diagnostics +150.7%
Focused
Insmed Therapeutics +197.9%
Focused
Verona Pharma Therapeutics +190.7%
Healthcare
Tandem Diabetes Care Technology +50.1%
Silk Road Medical Medical Technology +181.6%
Bottom 5 Performers (total return)
Company Sub-sector Performance (GBP)
Pacific Biosciences Tools -77.7%
Healthcare
Dexcom Technology -33.0%
Accolade Healthcare IT -56.2%
Evolent Health Healthcare IT -53.9%
Atricure Medical Technology +1.0%
We would make the following comments regarding the companies in Figure 10:
only one of the top performers, Silk Road Medical, was an M&A target; it
was acquired by Boston Scientific in September 2024. The majority of the Top
Performing holdings have been in the portfolio for multiple years.
As one might expect based on the previous comments regarding lower risk
tolerance, we have exited our positions in three of the worst performers
(Pacific Biosciences, Accolade and Atricure) and materially reduced exposure
to the other two. We would be open to increasing our holdings in Dexcom and
Evolent Health again in the future, but only when we have tangible evidence
that the risks weighing on sentiment have been fully addressed.
Full investment portfolio as of 30 November 2024
Inevitably, the portfolio will have evolved over the four months since the
fiscal year end. Investors can find additional commentary on the development
of the portfolio in the monthly factsheets and these should be investors'
source of up-to-date information.
Company Sub-sector classification Fair value £'000 % Portfolio
1 UnitedHealth Group Managed Care 32,445 7.8%
2 CareDx Diagnostics 28,367 6.8%
3 Exact Sciences Diagnostics 19,858 4.8%
4 Sarepta Therapeutics Focused Therapeutics 19,811 4.7%
5 Intuitive Surgical Medical Technology 19,347 4.6%
6 Tandem Diabetes Care Healthcare Technology 18,771 4.5%
7 Castle Biosciences Diagnostics 17,741 4.2%
8 Inspire Medical Systems Medical Technology 17,576 4.2%
9 Axsome Therapeutics Focused Therapeutics 17,377 4.2%
10 Verona Pharma Focused Therapeutics 17,215 4.1%
Total Top 10 208,508 49.9%
11 Neogenomics Diagnostics 16,578 4.0%
12 Biomarin Pharmaceuticals Focused Therapeutics 14,935 3.6%
13 Insmed Focused Therapeutics 14,781 3.5%
14 Evolent Health Healthcare IT 14,206 3.4%
15 Edwards Lifesciences Medical Technology 14,058 3.4%
16 Abbott Laboratories Medical Technology 14,016 3.4%
17 Structure Therapeutics Focused Therapeutics 12,168 2.9%
18 Insulet Healthcare Technology 10,242 2.5%
19 Dexcom Healthcare Technology 9,584 2.3%
20 SI-Bone Medical Technology 9,383 2.2%
21 Bio-Rad Laboratories Focused Therapeutics 8,954 2.1%
22 Charles River Laboratories Services 7,866 1.9%
23 Astrana Health Services 6,972 1.7%
24 Thermo Fisher Tools 6,883 1.6%
25 Danaher Tools 6,876 1.6%
26 Iqvia Services 6,629 1.6%
27 Natera Diagnostics 6,494 1.6%
28 Altimmune Focused Therapeutics 6,364 1.5%
29 Hutchmed Focused Therapeutics 5,819 1.4%
30 Terns Pharmaceuticals Inc Focused Therapeutics 5,195 1.2%
31 Elevance Health Managed Care 4,640 1.1%
32 McKesson Distributors 4,161 1.0%
33 Lundbeck Focused Therapeutics 2,478 0.6%
Total portfolio 417,790 100.0%
Gross exposure £417.8m
Cash on hand £274.0m
Other net liabilities £(254.5)m
Net Asset Value of Company £437.3m
The Company's portfolio liquidity parameters remain very high. We estimate 95%
of the portfolio could be liquidated within nine trading days at a
participation rate of 25%.
Top 10 summary
UnitedHealth Group (7.8%)
Sub-sector: Managed Care
United Health Group ('UNH') is a diversified and vertically integrated
healthcare care provider focused on two distinct business platforms: (1)
health benefits and insurance under the United Healthcare brand and (2) health
services operating under the Optum brand. The health benefits are designed for
multiple customers (both private and public) and Optum offers its services to
the broad healthcare market (payers, providers, employers, governments, life
science companies) through its Optum Health, Optum Insight and OptumRx
businesses, which cover PBM services, analytics and the physical delivery of
services.
CareDx (6.8%)
Sub-sector: Diagnostics
CareDx ('CDNA') is a specialist diagnostics company and the leading provider
of non-invasive surveillance testing to organ transplant recipients. These
tests evaluate the effectiveness of anti-rejection drug cocktails, so that
changes can be made if early signs of organ rejection appear. In this way, it
should be possible to extend the viable life of transplanted organs, improving
patient quality of life and saving money. CDNA also offers advanced genetic
matching tools for recipient selection, and various software tools and
services to help transplant recipients manage their care.
Exact Sciences (4.8%)
Sub-sector: Diagnostics
Exact Sciences is a leading cancer diagnostic company. Its main product is
Cologuard, a stool-based DNA screening test for the detection of colorectal
cancer, which launched in 2014. Exact's Oncotype gene expression tests
(covering breast and colon cancer) allow more accurate diagnosis and
subsequent treatment pathway decisions and it is moving into minimal residual
disease (MRD) surveillance testing. Additionally, EXAS is also looking to
expand its menu of patient-centric early cancer diagnostics via Thrive, a
company focused on "liquid biopsy" for early cancer detection and also has a
blood-based colorectal test ready to launch.
Sarepta Therapeutics (4.7%)
Sub-sector: Focused Therapeutics
Sarepta ('SRPT') is focused on the treatment of rare genetic diseases,
especially muscular conditions. It was a pioneer of exon skipping RNA therapy
for Duchenne Muscular Dystrophy (DMD), a serious degenerative disease. More
recently, it pioneered a gene therapy (i.e. aiming to be a one-time treatment)
for DMD that now has a broad approval covering the majority of patients. It is
following this up with further gene therapies for other dystrophies and is
also moving into RNA therapies for genetic diseases of the central nervous
system and lungs, via a collaboration with Arrowhead Pharma.
Intuitive Surgical (4.6%)
Sub-sector: Medical Technology
Intuitive Surgical ('ISRG') is the global leader in robotic surgical systems.
These systems integrate software, hardware, and sensors to allow doctors to
perform robotically aided surgery from a remote console. Alongside the system
itself, ISRG also provides the accompanying consumables necessary for use in
each procedure, and these provide a recurring revenue stream alongside the
servicing contracts for the systems themselves. A fifth-generation system,
"Dv5", with a number of improvements in capabilities and workflows, was
launched in the US in mid-2024 to widespread acclaim from customers.
Tandem Diabetes Care (4.5%)
Sub-sector: Healthcare Technology
Tandem Diabetes Care ('TNDM') manufactures insulin pumps and was a pioneer of
'closed loop' systems where algorithms automate insulin delivery, thereby
increasing the time that diabetic patients' blood sugar remains within a
normal range. New standards for inter-operability of pumps, software and sugar
measurement should make such technology the standard of care. TNDM's newest
durable form factor, Mobi, was launched in 2024 and will be followed soon by a
tubeless version, with a more advanced patch pump called Sigi following later.
Alongside its best-in-class delivery algorithm ('ControlIQ'), TNDM should be
well positioned for market share gains in the coming years.
Castle Biosciences (4.2%)
Sub-sector: Diagnostics
Castle Biosciences ('CSTL') is a specialist diagnostics company that is
currently focused on the differential diagnosis of Melanoma by type. Through
an asset acquisition from Myriad Genetics, it is also offering a risk
stratification test for patients with cutaneous melanocytic lesions. More
recently, through the Cernostics acquisition, the Company is branching out
into GI oncologic diagnostics, launching a new test for Barrett's oesophagus.
Beyond this the Company is hoping to roll out further tests, particular in the
GI space in order to achieve scale in this area.
Inspire Medical Systems (4.2%)
Sub-sector: Medical Technology
Inspire ('INSP') is a medical device company that has developed and
commercialised a minimally invasive implantable device for the treatment of
chronic Obstructive Sleep Apnoea (OSA), which is characterised by interrupted
breathing due to a blockage of air flow. This is a serious condition
associated with increased cardiovascular disease risk and mortality. The
standard of care for many years has been 'CPAP'; patients wear a positive
pressure face mask during sleep that pushes air into the body. This is
obtrusive and noisy. In contrast, Inspire is an electrical stimulator that
senses inward breath and painlessly spasms muscles to ensure the airway
remains open.
Axsome Therapeutics (4.2%)
Sub-sector: Focused Therapeutics
Axsome Therapeutics ('AXSM') is a US-based specialty pharma company focused on
developing novel, improved formulations of already established oral products
for the treatment of various central nervous system and neurological
conditions. Its scientific focus is on improved pharmaco-kinetics to enhance
therapeutic index, using approaches such as competitive or molecular
inhibition, single isomers and drug formulations with enhanced
bioavailability. Its key products (Auvelity & pipeline drug AXS-07) are
focused on refractory patients in the fields of major depressive disorder
(MDD) and migraine treatment.
Verona Pharma (4.1%)
Sub-sector: Focused Therapeutics
Verona Pharmaceuticals ('VRNA') is a therapeutics company focused on
innovative treatments for chronic obstructive pulmonary disease (COPD). Their
lead product Ohtuvayre (ensifentrine) was approved in the US for the treatment
and maintenance of COPD in mid-2024. The molecule offers a differentiated
mechanism of action in so far as combining bronchodilator and
anti-inflammatory activity in a twice daily compound that is delivered via a
nebuliser. Compared to other COPD agents, the initial launch trajectory of
Ohtuvayre has been impressive and the drug has blockbuster potential.
Conclusion
As discussed previously, healthcare as an industry sector and Mid-Cap growth
stocks as an asset class have been significantly challenged in recent years,
for a number of reasons that are not directly related to the intrinsic quality
of the businesses themselves. This has adversely impacted the Company's
relative and absolute returns for its investors. It feels especially ironic
that the sector has been so overlooked when it is surely a poster-child for
learnings from big data and artificial intelligence; few industries are so
data-driven in formulating new products and technologies or were so early to
embed AI into core products and services.
Although the new administration in the United States is upending longstanding
conventions around trade and international co-operation in ways that make its
ultimate conclusions unclear, we can take some comfort from the inescapable
fundamentals that underpin healthcare demand, alongside a pledge from the
administration not to interfere with certain social welfare programs. It
should ultimately prove to be a safe port in a storm.
Beyond this, we continue to see boundless opportunities for incremental
innovations to continue to improve the healthcare delivery paradigm, and
remain convinced that investing into these trends will deliver positive
returns for investors.
Paul Major and Brett Darke
Bellevue Asset Management (UK) Ltd
14 March 2025
Investment Policy, Results and Key Performance Indicators
INVESTMENT POLICY
The Company invests in a concentrated portfolio of listed or quoted equities
in the global healthcare industry. The Company may also invest in ADRs, or
convertible instruments issued by such companies and may invest in, or
underwrite, future equity issues by such companies. The Company may utilise
contracts for differences for investment purposes in certain jurisdictions
where taxation or other issues in those jurisdictions may render direct
investment in listed or quoted equities less effective. Any use of derivatives
for investment purposes is made on the basis of the same principles of risk
spreading and diversification that apply to the Company's direct investments,
as described below, and such use is not expected in the normal course to form
a material part of the Gross Assets.
The investable universe for the Company is the global healthcare industry
including companies within industries such as pharmaceuticals, biotechnology,
medical devices and equipment, healthcare insurers and facility operators,
information technology (where the product or service supports, supplies or
services the delivery of healthcare), drug retail, consumer healthcare and
distribution.
No single holding will represent more than 10 per cent. of Gross Assets at the
time of investment and, when fully invested, the portfolio will have no more
than 35 holdings. The Company will typically seek to maintain a high degree of
liquidity in its portfolio holdings (such that 90 per cent of the portfolio
may be liquidated in a reasonable number of trading days) and as a consequence
of the concentrated approach, it is unlikely that a position will be taken in
a company unless a minimum holding of 1.0 per cent. of Gross Assets at the
time of investment can be achieved within an acceptable level of liquidity.
There are no restrictions on the constituents of the Company's portfolio by
index benchmark, geography, market capitalisation or healthcare industry
sub-sector. Whilst the MSCI World Healthcare Index (in sterling) will be used
to measure the performance of the Company, the Company does not seek to
replicate the index in constructing its portfolio. The portfolio may,
therefore, diverge substantially from the constituents of this index (and,
indeed, it is expected to do so). However, the portfolio is expected to be
well diversified in terms of industry sub-sector exposures. Given the nature
of the wider healthcare industry and the geographic location of the investable
universe, it is expected that the portfolio will have a majority of its
exposure to stocks with their primary listing in the United States and with a
significant exposure to the US dollar in terms of their revenues and profits.
Although the base currency of the Company is sterling which creates a
potential currency exposure, this will not be hedged using any sort of foreign
currency transactions, forward transactions or derivative instruments.
The Company will not invest in any companies which are, at the time of
investment, unquoted or untraded companies and has no intention of investing
in other investment funds.
AMENDMENTS TO THE INVESTMENT POLICY AND RETURN OBJECTIVES
The Board is seeking shareholder approval at the AGM to change the Company's
investment policy to raise the upper limit of the number of holdings in the
Company's portfolio from 35 to 45, to reduce volatility, and in addition
proposes to simplify the Company's specific return objectives that form part
of the Company's investment objective.
Investment policy
At present, the maximum number of stocks that may be held in the Company's
portfolio at any one time is 35. The Board proposes changing the investment
policy so the portfolio can comprise up to 45 stocks at any one time, to
reduce volatility of the portfolio.
One of the key aspects to the investment proposition is the selection of a
core, high conviction portfolio driven by the Investment Manager's fundamental
analysis. The fundamental strategy remains unchanged, and the Company will
continue to invest in a relatively concentrated portfolio of listed or quoted
equities in the global healthcare industry. This strategy has tended to result
in a portfolio of small and mid-cap healthcare companies, and eschewed
ownership of the mega-cap companies that dominate the weightings within major
healthcare benchmark indices. The Board agrees with the Investment Manager
that such an approach continues to be the most attractive option on a
fundamental basis.
However, there has been a widespread dislocation in financial markets since
the world exited the COVID-19 pandemic, which has led to a significant
concentration of investor returns in a limited number of mega-cap companies,
and healthcare is no exception to this. One consequence of this has been a
material increase in volatility for small and mid-cap stocks versus large and
mega-cap stocks. Over the past year, the Investment Manager has been seeking
to mitigate the impact of this trend through a different approach to the
concentration of the positions held by the Company, and this has been
successful in reducing volatility.
Following discussions with the Investment Manager, the Board considers it
beneficial for the Company's portfolio to be able to consist of up to 45
stocks at any one time to enable this approach to be taken further. The limit
of 45 will not include any stocks that are inactive, meaning that the stock is
in a company which (i) has either had its primary listing cancelled or
suspended for a continuous period of at least 90 days and/or (ii) is subject
to insolvency or winding-up proceedings or any proceedings having an analagous
effect.
The actual number of investments in the Company's portfolio may vary from time
to time depending on the availability of opportunities in the market.
Subject to shareholder approval of the proposed changes to the investment
policy at the AGM, the Company's investment policy will be amended as follows
(with the proposed new wording shown as underlined text and the proposed
deletions shown as struck through text):
"The Company invests in a concentrated portfolio of listed or quoted equities
in the global healthcare industry. The Company may also invest in ADRs, or
convertible instruments issued by such companies and may invest in, or
underwrite, future equity issues by such companies.
The Company may utilise contracts for differences for investment purposes in
certain jurisdictions where taxation or other issues in those jurisdictions
may render direct investment in listed or quoted equities less effective.
Any use of derivatives for investment purposes is made on the basis of the
same principles of risk spreading and diversification that apply to the
Company's direct investments, as described below, and such use is not expected
in the normal course to form a material part of Gross Assets.
The investable universe for the Company is the global healthcare industry
including companies within industries such as pharmaceuticals, biotechnology,
medical devices and equipment, healthcare insurers and facility operators,
information technology (where the product or service supports, supplies or
services the delivery of healthcare), drug retail, consumer healthcare and
distribution.
No single holding will represent more than 10 per cent. of Gross Assets at the
time of investment and, when fully invested, the portfolio will have no more
than 35 45 holdings. The Company typically seeks to maintain a high degree of
liquidity in its portfolio holdings (such that 90 per cent. of the portfolio
may be liquidated in a reasonable number of trading days) and as a consequence
of the concentrated approach, it is unlikely that a position will be taken in
a company unless a minimum holding of 1.0 per cent. of Gross Assets at the
time of investment can be achieved within an acceptable level of liquidity.
There are no restrictions on the constituents of the Company's portfolio by
index benchmark, geography, market capitalisation or healthcare industry
sub-sector. Whilst the MSCI World Health Care Index (in sterling) is used to
measure the performance of the Company, the Company does not seek to replicate
the index in constructing its portfolio. The portfolio may, therefore, diverge
substantially from the constituents of this index (and, indeed, it is expected
to do so).
However, the portfolio is expected to be well diversified in terms of industry
sub-sector exposures. Given the nature of the wider healthcare industry and
the geographic location of the investable universe, it is expected that the
portfolio will have a majority of its exposure to stocks with their primary
listing in the United States and with a significant exposure to the US dollar
in terms of their revenues and profits. Although the base currency of the
Company is sterling which creates a potential currency exposure, this will not
be hedged using any sort of foreign currency transactions, forward
transactions or derivative instruments.
The Company will not invest in any companies which are, at the time of
investment, unquoted or untraded companies and has no intention of investing
in other investment funds.
The Company may deploy borrowing to enhance long-term capital growth. Gearing
will be deployed flexibly up to 20 per cent. of the Net Asset Value, at the
time of borrowing, although the Investment Manager expects that gearing will,
over the longer term, average between 5 and 10 per cent. of Net Asset Value.
In the event that the 20 per cent limit. is breached as a result of market
movements, and the Board considers that borrowing should be reduced, the
Investment Manager shall be permitted to realise investments in an orderly
manner so as not to prejudice shareholders.
No material change will be made to the investment policy without the approval
of Shareholders by ordinary resolution."
Return objectives
Since its launch in 2016, the investment objective of the Company has been to
provide shareholders with capital growth and income over the long term,
through investment in listed or quoted global healthcare companies.
The Company's current specific return objectives are:
(i) to beat the total return of the MSCI World Health Care Index (in sterling)
on a rolling 3 year period (the index total return including dividends
reinvested on a net basis); and (ii) to seek to generate a double-digit total
shareholder return per annum over a rolling 3 year period.
The Board is proposing an amendment to update and simplify these to one
simple, clear target against which to measure performance.
The Company's return objectives (which form part of its investment objective)
will be amended as follows (with the proposed new wording shown as underlined
text and the proposed deletions shown as struck through text):
"The investment objective of the Company is to provide shareholders with
capital growth and income over the long term, through investment in listed or
quoted global healthcare companies. The Company's specific return objective
shall be for its NAV per share (on a total return basis): (i) to beat the
total return of the MSCI World Health Care Index (in sterling) on a rolling 3
year period (the index total return including dividends reinvested on a net
basis). and (ii) to seek to generate a double-digit total shareholder return
per annum over a rolling 3 year period."
The amendments to the investment policy are subject to shareholder approval at
the AGM but the proposed change to the return objectives is not conditional on
shareholder approval and will take effect from 17 March 2025.
BORROWING POLICY
The Company may deploy borrowing to enhance long-term capital growth. Gearing
will be deployed flexibly up to 20 per cent. of the Net Asset Value, at the
time of borrowing, although the Investment Manager expects that gearing will,
over the longer term, average between 5 and 10 per cent. of Net Asset Value.
In the event that the 20 per cent limit is breached as a result of market
movements, and the Board considers that borrowing should be reduced, the
Investment Manager shall be permitted to realise investments in an orderly
manner so as not to prejudice shareholders.
No material change will be made to the investment policy without the approval
of shareholders by ordinary resolution.
DIVIDEND POLICY
The Company will set a target dividend each financial year equal to 3.5% of
Net Asset Value as at the last day of the Company's preceding financial year.
The target dividend will be announced at the start of each financial year.
This is a target only and not a profit forecast and there can be no assurance
that it will be met.
Dividends will be financed through distributable reserves. In order to
increase the distributable reserves available to facilitate the payment of
dividends, the Company cancelled the amount of £146,412,136 standing to the
credit of its share premium account immediately following first admission of
its Ordinary Shares to trading on the London Stock Exchange in order to create
a special distributable reserve. With effect from 14 December 2023, a further
amount of £617,709,517 standing to the credit of the Company's share premium
account was cancelled in order to increase the special distributable reserve.
The Company may, at the discretion of the Board, pay all or part of any future
dividends out of the special distributable reserve, taking into account the
Company's investment objective.
The Company intends to pay dividends on a semi-annual basis, by way of two
equal dividends, with dividends declared in July and February/March and paid
in August and March/ April in each year.
In accordance with regulation 19 of the Investment Trust (Approved Company)
(Tax) Regulations 2011, the Company will not (except to the extent permitted
by those regulations) retain more than 15 per cent. of its income (as
calculated for UK tax purposes) in respect of an accounting period.
RESULTS AND DIVIDEND
The Company's revenue return after tax for the year amounted to a gain of
£160,000 (2023: loss of £1,147,000). The Company's capital return after tax
for the year amounted to a gain of £73,574,000 (2023: loss of £119,891,000).
Therefore, the total return after tax for the Company was a gain of
£73,734,000 (2023: loss of £121,038,000).
The Company targeted a total dividend for the year ended 30 November 2024 of
5.04p per Ordinary Share.
· Interim dividend of 2.52p paid on 29 August 2024
· Final dividend of 2.52p to be paid on 30 May 2025
(to Shareholders on the register at the close of business on 2 May 2025),
subject to Shareholder approval at the AGM to be held on 23 April 2025.
TARGET TOTAL DIVIDEND FOR THE YEAR ENDING 30 NOVEMBER 2025
For the financial year ending 30 November 2025, the target total dividend will
be 5.40p per Ordinary Share, this being 3.5% of the audited net asset value
per Ordinary Share of 154.32p (including current financial year revenue items)
as at 30 November 2024. The Board intends to declare an interim dividend of
2.70p per Ordinary Share, being half of the target total dividend for the
financial year ending 30 November 2025, in July 2025 and intends to pay this
dividend in August/September 2025. The Board intends to propose a final
dividend of 2.70p per Ordinary Share for the financial year ending 30 November
2025, in February/March 2026 and intends to pay this dividend in March/April
2026.
FIVE YEAR DIVIDEND PERFORMANCE
Interim dividend Final dividend Total dividend
Dividends paid/payable
Year ended 30 Nov 2020 2.500p 2.500p 5.00p
Year ended 30 Nov 2021 3.015p 3.015p 6.03p
Year ended 30 Nov 2022 3.235p 3.235p 6.47p
Year ended 30 Nov 2023 2.995p 2.995p 5.99p
Year ended 30 Nov 2024 2.520p 2.520p 5.04p
Target dividend*
Year ending 30 Nov 2025 2.70p 2.70p 5.40p
KEY PERFORMANCE INDICATORS ("KPIs")
The Board measures the Company's success in attaining its investment objective
by reference to the following KPIs:
(i) To beat the total return of the MSCI World Healthcare Index (in sterling)
on a rolling three year period
The NAV total return from 1 December 2021 to 30 November 2024 was -7.0%. The
total return of the MSCI World Healthcare Index (in sterling terms) over the
same period was 18.3%.
The Investment Manager's report incorporates a review of the highlights during
the financial year ended 30 November 2024. The Investment Manager's report
gives details on investments made during the year and how performance has been
achieved.
(ii) To seek to generate a double-digit total Shareholder return per annum
over a rolling three year period
The NAV total returns from 1 December 2021 to 30 November 2024 was -7.0%.
(iii) To meet its target total dividend in each financial year
The Company targeted a total dividend of 5.04p per Ordinary Share for the year
ended 30 November 2024. The Company paid an interim dividend of 2.520p per
Ordinary Share in August 2024 and proposes a final dividend in respect of the
year to 30 November 2024 of 2.520p per Ordinary Share.
(iv) Discount/premium to NAV
The discount/premium relative to the NAV per Ordinary Share represented by the
share price is monitored by the Board.
The share price closed at a 8.5% discount to the NAV as at 30 November 2024
(2023: 10.3% discount).
(v) Maintenance of reasonable level of ongoing charges
The Board monitors the Company's operating costs. Based on the Company's
average net assets during the year ended 30 November 2024 the Company's
ongoing charges figure calculated in accordance with the Association of
Investment Companies ("AIC") methodology was 1.03% (2023: 1.02%).
Risk and Risk Management
PRINCIPAL AND EMERGING RISKS AND UNCERTAINTIES
The Board is responsible for the management of risks faced by the Company and
delegates the review process of this to the Audit and Risk Committee (the
"Committee"). The Committee carries out, at least annually, a robust
assessment of principal and emerging risks and uncertainties and monitors the
risks on an ongoing basis. The Committee has a dynamic risk assessment
programme in place to help identify key risks in the business and oversee the
effectiveness of internal controls and processes, providing a visual
reflection of the Company's identified principal and emerging risks. The
Committee considers both the impact and the probability of each risk occurring
and ensures appropriate controls are in place to reduce risk to an acceptable
level.
As part of the risk review, the Board considered the challenging global
economic and geopolitical environment including: the continuing effects of the
Russia/Ukraine war; the Israel/Hamas conflict with resultant Middle East
effects; tensions between China/Taiwan and China/USA, with attendant global
supply chain issues; the increased probability of imposition of trade tariffs;
and the risks from climate change. Inflation and interest rates were also
discussed.
The principal and emerging risks, together with a summary of the processes and
internal controls used to manage and mitigate risks where possible are
outlined below.
(I) MARKET RISKS
Economic conditions
Changes in general economic and market conditions including, for example
interest rates, inflation, exchange rates, recession, taxes and changes in
supply and demand can all pose a threat to the Company's prospects and thereby
the performance of its Ordinary Shares.
Healthcare companies
The Company invests in global healthcare equities. This sector may be affected
by a number of particular risks including changes in government regulations
and government healthcare programs, increases or decreases in the cost of
medical products and services and product liability claims. Healthcare
companies in particular, have patent protection, very competitive forces on
pricing and susceptibility to product obsolescence.
In addition, successful development of healthcare products may be highly
uncertain. The market prices for securities of companies in the healthcare
sector can reflect this by being highly volatile.
Sub-sectoral diversification
The Company has no limits on the amount it may invest in the healthcare sector
and is not subject to any sub-sector investment restrictions. Although the
portfolio is expected to be well diversified in terms of industry sub-sector
exposures, the Company may have significant exposure to portfolio companies
from certain sub-sectors from time-to-time.
Concentrated Portfolio
One of the key aspects to the investment proposition is the selection of a
high conviction portfolio driven by the Investment manager's fundamental
analysis. The maximum number of stocks being held at any one time is 35
(currently). This Investment approach does not propose to follow a benchmark
and as such cannot be expected to reflect the benchmark performance.
Management of risk
The Directors acknowledge that market risk is inherent in the investment
process. The Company is invested in a concentrated, sector specific portfolio
of investments and has a well-defined investment policy that states that no
single holding will represent more than 10 per cent. of gross assets at the
time of investment.
The Investment Manager also has a well-defined investment objective and
process which is regularly and rigorously reviewed by the independent Board of
Directors and performance is reviewed at quarterly Board meetings. The
Investment Manager is experienced and employs its expertise in selecting the
stocks in which the Company invests.
During the year under review, the Committee considered the Company's
investment performance from the perspective of risk management. The Company's
concentrated high conviction portfolio is selected from bottom-up research
resulting in a tendency to select smaller mid-sized companies which has
adversely impacted the resulting performance. Another factor impacting
investment performance has been the Company's long-term focus.
Nonetheless, the Committee, in conjunction with the Investment Manager have
reviewed their approach, reflecting on potential changes that would improve
performance, without deviating from the mandate to invest into healthcare
transformation that the Company has followed since inception. In conjunction
with Bellevue Group, the Investment Management team reviewed a wide range of
metrics relating to trading, timing, risk management and fundamental approach.
Whilst the investment mandate has not changed, this analysis revealed a few
aspects in the investment process where small alterations may lead to improved
performance.
The analysis suggested that, whilst identification of themes and trends was
very robust, the Investment Manager tended to be rather early to buy into
these and, where they narrowed down the list of highly operationally-geared
assets into such trends, one might be better picking the best two or three
ideas, rather than trying to select a single holding. The Investment Manager
has gradually been implementing this revised approach across the second half
of 2024 and the Committee believe that it has helped recent performance.
The Board closely monitors the Company's share price relative to NAV and the
Company's discount/premium relative to their peer group. A discount management
policy including buy backs and a redemption facility is operated. Extensive
marketing is carried out by the Company's Investment Manager, Broker and a
specialist PR company and regular communication via the Company's factsheets
and website aims to inform Shareholders. An investment research consultant is
engaged to provide independent research for retail Shareholders.
In addition to regular market updates from the Investment Manager and reports
at Board meetings, the Board convenes on an ad hoc basis if required.
(II) FINANCIAL RISKS
The Company's investment activities expose it to a variety of financial risks
which include liquidity, currency, leverage, interest rate, credit risks and
country-specific withholding tax rates.
The Company invests in equities, with equities subject to strong price
fluctuations and specifically healthcare equities, which can be subject to
sudden substantial price movements owing to market, sector or company factors.
There is therefore a risk that the Company's holdings may not be able to be
realised at reasonable prices in a reasonable timeframe. Although the
Company's performance is measured in sterling, a high proportion of the
Company's assets may be either denominated in other currencies or be in
investments with currency exposure. The Company pays interest on its
borrowings and as such, the Company is exposed to interest rate risk due to
fluctuations in the prevailing market rates. The Company may take on leverage,
which may lead to higher price movements compared to the underlying market.
Financial risks in the year under review
Significantly, the US dollar vs sterling movement negatively impacted the
results. The Board policy is not to hedge currencies as that is not within the
remit of an equity proposition however some mitigation comes from the
utilisation of multi-currency debt to recognise the underlying investment
currency.
Management of risk
The Company typically maintains a high degree of liquidity in its portfolio
holdings.
Further details on the management of financial risks can be found in note 18
to the financial statements.
(III) CORPORATE GOVERNANCE AND INTERNAL CONTROL RISKS
The Board has contractually delegated to external service providers the
management of the investment portfolio, custodial services (which include the
safeguarding of the assets), registration services, and accounting and company
secretarial requirements. The major external service providers are outlined in
the Directors' Report.
The main risk areas arising from the above contracts relate to allocation of
the Company's assets by the Investment Manager, and the professional execution
of their duties of performance of administrative, registration and custodial
services. These could lead to various consequences including the loss of the
Company's assets, inadequate returns to Shareholders and loss of investment
trust status. Cyber security risks could lead to breaches of confidentiality,
data records being compromised and inability to make investment decisions. The
failure or breach of physical security could lead to damage or loss of
equipment, with consequential negative results.
Management of risk
The Board has appointed experienced service providers. Each of the contracts
were entered into after full and proper consideration of the quality and cost
of services offered, including the financial control systems in operation in
so far as they relate to the affairs of the Company.
All of the above services are subject to ongoing oversight of the Board and
the performance of the principal service providers is reviewed on a regular
basis. During the year, there have been changes to service providers, with NSM
Funds (UK) Limited appointed as Company Secretary and Fund Administrator on 10
April 2024. There have also been recent changes to the senior management of a
number of service providers including at the Bellevue Asset Management Board
level in Switzerland. The Board ensure that all these factors are considered
in ensuring service provision is maintained at the highest level.
All key service providers produce annual internal control reports for review
by the Audit and Risk Committee. These reviews include consideration of their
business continuity plans and the associated cyber security risks. The
Company's key service providers report on cyber risk mitigation and management
on a quarterly basis, covering information technology security, which provides
comfort to the Board that appropriate safeguards are in place. This includes
confirmation of business continuity capability in the event of a cyber-attack
and each service provider is reminded of their duty to disclose any cyber
security breaches to the Company Secretary at least annually. All physical
locations have security in place and all third-party service providers have
disaster recovery plans.
(IV) REGULATORY RISKS
Breaches of Section 1158 of the Corporation Tax Act could result in loss of
investment trust status. Loss of investment trust status would lead to the
Company being subject to tax on any gains on the disposal of its investments.
Breaches of the FCA's rules applicable to listed entities could result in
financial penalties or suspension of trading of the Company's shares on the
London Stock Exchange. Breaches of the Companies Act 2006, The Alternative
Investment Fund Managers' Directive, accounting standards, the Listing Rules,
Disclosure Guidance and Transparency Rules, and Prospectus Rules could result
in financial penalties or legal proceedings against the Company or its
Directors.
Management of risk
The Company has contracted out relevant services to appropriately qualified
professionals. The Investment Manager, Depositary and Administrator provide
regular reports to the Audit and Risk Committee on their monitoring
programmes.
The Investment Manager monitors investment positions and the Investment
Manager and Administrator monitor the level of forecast income and
expenditure. Major regulatory change could impose disproportionate compliance
burdens on the Company. In such circumstances representations would be made to
seek to ensure that the special circumstances of investment trusts are
recognised.
During the year there were no material changes to the risk level.
(V) KEY PERSON RISK
The Company depends on the diligence, skill and judgement of the Investment
Manager's investment professionals and the information and ideas they generate
during the normal course of their activities. The Company's future success
depends on the continued service of key personnel. The departure of any of
these individuals without adequate replacement may have a material adverse
effect on the Company's business prospects and results of operations.
Management of risk
The strength and depth of the investment management team provides comfort that
there is not over-reliance on one person with alternative investment managers
available to act if needed. The risk has reduced over time as the Investment
Manager's team grows in experience and resources expand in both the investment
management and administration teams. This risk rating remains unchanged from
the previous year. The Board meets regularly with other members of the wider
team employed by the Investment Manager.
(VI) BUSINESS INTERRUPTION
Disruption or failure in services provided by key service providers, could
mean information is not processed correctly or in a timely manner, resulting
in misappropriation of assets, regulatory investigation or financial loss,
failure of trade settlement, or potential loss of investment trust status.
The failure or breach of information security could potentially lead to
breaches of confidentiality, data records being compromised and the inability
to make investment decisions. The failure or breach of physical security could
lead to damage or loss of equipment, with consequential negative results.
Management of risk
Each service provider has comprehensive business continuity policies and
procedures in place which facilitate continued operation of the business in
the event of a service disruption or a major disruption event. Breaches of any
nature are reported to the Board.
The Investment Manager, Administrator and Company Secretary each have
comprehensive business continuity plans which facilitate continued operation
of the business in the event of a service disruption or a major disruption
event. The Audit and Risk Committee receives the Administrator's report on
internal controls and the reports by other key third-party providers are
reviewed by the Investment Manager and Company Secretary on behalf of the
Audit and Risk Committee. The Depositary reports regularly on custody matters,
including the continued safe custody of the Company's assets.
Cyber security risks are considered and continually monitored by the
Investment Manager as these threats evolve and become increasingly
sophisticated. The integrity of the Company's information security is closely
monitored by the Board, with each of the key service providers providing a
regular report through its internal audit function which covers information
technology security and provides comfort to the Board that appropriate
safeguards are in place.
(VII) ESG AND CLIMATE CHANGE RISK
The Company does not opt for a UK SDR investment label since it does not
pursue distinct sustainability objectives in accordance with the four UK SDR
categories. However, it considers ESG factors in its investment process.
The financial risks from climate change are typically classified as physical
or transitional risks. Physical risks are those arising from specific weather
events (such as wildfires) and transitional risks are those arising from the
changes to regulations (such as the move to net-zero carbon emissions). The
Company could suffer potential reputational damage from non-compliance with
regulations or incorrect disclosures or as a result of increased investor
demand for products which promote ESG investments. The impact of climate
change could affect the Company's investments and their valuations and
potentially shareholder returns. Further information on this can be found in
the principal and emerging risks and uncertainties section and Note 2 of this
report.
Management of risk
The portfolio is well diversified to mitigate against physical risks. Changes
in climate change focused regulation, governing both the Company and investee
companies, will create some uncertainty. In comparison to the broader economy,
the portfolio has a relatively low carbon footprint and the Investment
Manager's parent company has deployed a CO(2) reduction strategy. This
strategy encompasses measures such as an independent audit of its CO(2)
footprint according to ISO14064-1 and GHG protocols, implementation of
corporate CO(2) reduction and offsetting of excess emissions with high-quality
climate projects. Bellevue Group is targeting a reduction in CO(2) emissions
per FTE of at least 30% by 2030. Moreover, the Bellevue Group is certified as
carbon neutral by Swiss Climate.
In 2022, Bellevue introduced a minimum threshold of 50% "Investments with
Sustainable Characteristics" for the Company portfolio. This is defined by
sufficient ESG research coverage, a minimum ESG Rating of BB or higher, and
compliance with global norms. In addition, the Company must have a minimum of
25% of the portfolio qualifying as "Sustainable Investments", of which more
information can be found in the Annual Report. As of 30 November 2024, 76% of
the investment portfolio met the definition of "Sustainable Investments", well
above the 25% minimum threshold and reflects an improvement over the prior
period, which is likely influenced by the market capitalisation
characteristics of the portfolio.
The Company's ESG statement is updated annually and is available on the AIC
website and in the Annual Report. Investment trusts are currently exempt from
TCFD disclosure, but the Board will continue to monitor the situation.
(VIII) COMPANY STRUCTURE
The Company structure is such that it has a redemption facility through which
Shareholders may request the redemption of all or part of their holding of
Ordinary Shares on an annual basis. The Board has considered the possibility
that Shareholders holding a significant percentage of the Company's shares
continue to request redemption and therefore consider the structure of the
Company to be a principal risk.
Management of risk
As outlined in the Company's Prospectus, the Directors have absolute
discretion to accept or decline in whole or part any redemption request. While
the Board does not generally expect to exercise this discretion, reliance
cannot be placed on the Directors exercising their discretion to permit
redemption requests, should Shareholders continue to redeem.
Viability Statement
The Directors have assessed the viability of the Company for the five years to
30 November 2029 (the "Period"), which the Directors consider to be an
appropriate time horizon, taking into account the long-term nature of the
Company's investment objective and recommendation by the Financial Reporting
Council.
In reaching this conclusion, the Directors have considered each of the
principal and emerging risks, including climate change and the liquidity and
solvency of the Company over the next five years. The Directors do not expect
there to be any significant change in the current principal risks and adequacy
of the mitigants in place over the Period.
The Directors have considered the Company's income and expenditure projections
and the fact that the Company's investments comprise readily realisable
securities, which could, if necessary, be sold to meet the Company's funding
requirements. The expenses of the Company are predictable and modest in
comparison with the assets in the portfolio. Portfolio changes and market
developments are discussed at quarterly Board meetings. The internal control
framework of the Company is subject to a formal review on at least an annual
basis.
The Directors do not expect there to be a material increase in the annual
ongoing charges ratio of the Company over the Period. The Company's income
from investments and cash realisable from the sale of its investments provide
substantial cover to the Company's operating expenses under all stress test
scenarios reviewed by the Directors.
The Company has a redemption facility through which Shareholders are entitled
to request the redemption of all or part of their holding of Ordinary Shares
on an annual basis. At the last redemption point of 30 November 2024,
redemption requests in respect of 163,834,887 Ordinary Shares were received,
all of these Ordinary Shares were redeemed and cancelled by the Company. All
shareholders who validly applied to have shares redeemed received a Redemption
Price of 154.76 pence per share.
The Board has considered the possibility that Shareholders holding a
significant percentage of the Company's shares continue to request redemption.
The Board, however, has absolute discretion over the redemption facility to
accept or decline in whole or in part any redemption request, and decisions
are subject to Board approval, which must have regard to the overall operation
of the Company in this situation.
As previously outlined, the Board consider the Company to be viable for the
next five years and have given consideration to the asset base of the Company,
the Company structure and market opportunities. It is the view that the
Company is currently viable and the viability is not threatened by the
structure, as the directors have absolute discretion over the redemption
procedures including whether to offer a redemption facility at all.
Additionally, the portfolio continues to be able to be liquidated to meet
funding requirements as they fall due. The Directors' assessment assumes that
the redemption facility does not threaten the existence or viability of the
Company, it can be managed or changed at the absolute discretion of the Board.
In addition to considering the emerging and principal risks as outlined on in
the Annual Report and the financial position of the Company as described
above, the Board has also has regard to the following assumptions in
considering the Company's longer term viability:
· The continuing relevance of the Company's investment
objective and policy in the current environment;
· That healthcare will continue to be an investable sector
and investors will still wish to have an exposure to such investments;
· The level of demand for the Company's shares, and that
since launch the Company has been able to issue further shares;
· That closed ended investment trusts will continue to be
wanted by investors;
· The gearing policy of the Company;
· That regulation will not increase to such an extent that
makes the running of the Company uneconomical in comparison to other
competitor products
Based on their 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 in the Period.
Stakeholder Engagement
This section of the Annual Report covers the Board's considerations and
activities in discharging their duties under s.172(1) of the Companies Act
2006, in promoting the success of the Company for the benefit of its members
as a whole.
This statement includes consideration of the likely consequences of the
decisions of the Board in the longer term, how the Board has taken wider
stakeholders' needs into account and the impact of the Company's operations on
the environment.
The Board is ultimately responsible for all stakeholder engagement. As an
externally managed investment company, the Company does not have any
employees; rather it employs external suppliers to fulfil a range of
functions, including investment management, secretarial, administration,
public relations, corporate brokering, depositary and banking services. All of
these service providers who are stakeholders in the Company themselves help
the Board to fulfil its responsibility to engage with the Shareholders and
other stakeholders.
The Board has identified the major stakeholders in the Company's business. On
an ongoing basis the Board monitors both potential and actual impacts of the
decisions it makes in respect of the Company upon those major stakeholders
identified.
Importance of engagement Examples of engagement and key decisions
Shareholders
The Board's principal concern is the interests of the Company's Shareholders The Board believes that shareholder engagement remains of upmost importance
and potential investors and the Directors have considered this duty when and is keen that the AGM be a participative event for all. As was the case in
making the strategic decisions during the year that affect Shareholders, 2024, the Investment Manager will attend to answer any questions Shareholders
including the re-appointment of the Investment Manager and the recommendation may have. The Company values feedback and questions it may receive from
that Shareholders vote in favour of the resolutions to continue and to renew Shareholders ahead of and during the AGM. The Board however recognises that it
the share allotment and share buyback authorities at the AGM. is not possible for everyone to attend the AGM and therefore encourage
Shareholders to submit any enquiries or feedback to the dedicated email
As a public company listed on the London Stock Exchange, the Company is address: info@bellevuehealthcaretrust.com.
subject to the Listing Rules and the Disclosure Guidance and Transparency
Rules. The UK Listing Rules include a listing principle that a listed company Should any significant votes be cast against a resolution, the Board will
must ensure that it treats all Shareholders of the same class of shares that engage with Shareholders and explain in its announcement of the results of the
are in the same position equally in respect of the rights attaching to such AGM the actions it intends to take to consult Shareholders in order to
shares. understand the reasons behind the votes against. Following the consultation,
an update will be published no later than six months after the AGM and the
The investment objective of the Company is to provide Shareholders with Annual Report will detail the impact the Shareholder feedback has had on any
capital growth and income over the long term, through investment in listed or decisions the Board has taken and any actions or resolutions proposed.
quoted global healthcare companies.
With the assistance of regular discussions with and the formal advice of the
The Board maintains open dialogue between Shareholders, the Investment Manager Company's legal counsel, secretary and corporate broker; the Board abides by
and other service providers. the UK Listing Rules at all times.
The Investment Manager and Chairman, along with the Company's corporate broker The Board and the Investment Manager consider maintaining good communications
meets regularly with the Company's Shareholders to provide Company updates and and engaging with Shareholders through both meetings and presentations a key
to foster regular dialogue. Feedback from meetings is communicated with the priority. The Board regularly considers the share register of the Company and
Board. receives regular reports from the Investment Manager and Broker outlining
Shareholder meetings and feedback received.
Any concerns that are raised in Shareholder meetings are noted and considered
by the Board.
On a number of additional occasions during the year the Board wrote to the
Company's larger Shareholders offering meetings or calls with the Chairman or
other members of the Board. The Board appreciates that Shareholders vary by
size and resources but the Company's investor relations team, Investment
Manager and Board of Directors are pleased to engage with Shareholders,
whatever their size.
Shareholders are kept informed by the publication of annual and half year
reports, monthly factsheets, access to commentary from the Investment Manager
via the Company's website and attendance at events at which the Investment
Manager presents. The Company's Annual and Interim Reports are made available
on the Company's website and are also circulated to Shareholders as requested.
This information is supplemented by the daily calculation and publication of
the NAV per Ordinary Share, which is announced via a Regulatory Information
Service feed and is also available on the Company's website.
Shareholders are able to raise any concerns directly with the Chair or the
Board without intervention of the Investment Manager or Company Secretary,
they may do this either in person at the AGM or at other events, or in writing
via the registered office of the Company.
The Board has appointed an independent research consultancy, Kepler, to ensure
that information and news about the Company is regularly available for
existing and potential Shareholders.
Following the redemption in 2023 a number of larger Shareholders requested
that the Board review the annual voluntary redemption arrangements. Over the
summer 2024 the Board engaged in consultations with the larger Shareholders.
Once the scale of redemptions for 2024 became apparent, the desire for a
change increased and therefore the Board, following further consultations with
major Shareholders, proposed a General Meeting with various changes.
At the time of the announcement of the General Meeting, the Board and its
Brokers had reason to believe there was overwhelming support from all major
Shareholders. However, it later became apparent that some individual wealth
managers did not share the central view at one institution and furthermore a
number of short-term focused investors appeared on the shareholder register.
The Board understood that it was possible to achieve the passing of the
special resolution to amend the Company's articles but also agreed that the
role of a Board was not to push through change with the slimmest of majorities
but rather to try to work with Shareholders to try to come to a mutually
agreeable solution. The Board therefore withdrew the resolutions. More detail
can be found in the Chairman's Statement.
Investment Manager
The most significant service provider for the Company's long-term success is The Board monitors the Company's investment performance in relation to its
Bellevue Asset Management (UK) Limited, who have been engaged as the Company's objectives and investment policy and strategy. The Board regularly assesses
Investment Manager. The Investment Manager is responsible for the management the experience and resources of the Investment Management team and the
of the Company's portfolio in accordance with the Company's investment policy commitment of the Investment Manager; to promote the Company and foster
and the terms of the Investment Management Agreement. Shareholder relations and to ensure that the Company's objective of providing
capital growth combined with dividend income for its investors are met.
The Investment Manager has also been appointed as the Company's AIFM in
accordance with the Alternative Investment Fund Managers Directive ("AIFMD"), During the year the Board has had discussions around the investment process
for the purpose of providing investment advisory services to the Company. and risk management, and how and when to take losing positions off; this has
been supported by detailed analysis from the wider Bellevue Group. More detail
The Investment Manager has placed trust in the investee companies to respond can be found in the Investment Manager's Report.
appropriately to operational challenges and to ensure that high standards of
corporate governance and regard for Shareholders are at the forefront of The Board relies upon the AIFM to ensure the obligations under the Consumer
managerial decision-making. Duty regulations continue to be adopted appropriately. All communications
including the website, factsheets and other published documentation are
reviewed ahead of publication to ensure they are appropriate for all end
users. A 'value for money' assessment is also undertaken annually and is made
available to distributors on request.
The Board has engaged with the Investment Manager to understand the
implications of the FCA's forbearance statement and have explored changes to
be applied to key documentation to take advantage of the exemption from PRIIPs
and the cost disclosure aspects of MiFID, in line with industry guidance.
An open and active relationship is maintained with the Investment Manager and
additional meetings are arranged when needed. The Board receives and reviews
regular reports and presentations from the Investment Manager.
There have been recent changes to the senior management at the Bellevue Group
AG executive team level in Switzerland. The management team in both London and
Switzerland have attended Board meetings and strategy sessions as requested by
the Board of the Company during the year, ensuring that service provision is
maintained at the highest level.
The Management Engagement Committee met during the year and unanimously
endorsed the continued appointment of the Company's Investment Manager.
Service providers
As an externally managed investment trust, the Company conducts all its The Board has strong working relationships with the Investment Manager,
business through its key service providers. Before the engagement of a service Broker, Company Secretary, Administrator and Depositary. The Board receives
provider, the Board ensures that the Company's business outlook as well as its internal control reports from the service providers and the Investment
values are similar to those of the service provider. Manager.
A list of the Company's key service providers can be found in the Annual On 10 April 2024 and following a competitive tender process NSM Funds (UK)
Report. Limited were appointed as Company Secretary and Administrator.
On an annual basis, the Board reviews the continuing appointment of each During the year under review, the Board sought and received reassurance that
service provider to ensure reappointment is in the best interests of the all key service providers had appropriate business continuity plans in place.
Company's Shareholders. The Board has strong working relationships with the All key service providers have maintained a high standard of service and
Investment Manager, Broker, Company Secretary, Administrator and Depositary demonstrate operational resilience.
and receives reports on the performance of the key service providers by the
Investment Manager and Company Secretary. The Auditor is invited to attend the Audit and Risk Committee meeting twice a
year. The Audit and Risk Committee Chair maintains regular contact with the
Audit partner to ensure the audit process is undertaken effectively.
Wider community and environment
The Company and its appointed professional suppliers keep abreast of the rules In making investment decisions, the Investment Manager takes into account
and regulations affecting the investment company sector. qualitative measures such as the environmental and social impact of a company
as well as financial and operational measures.
The Investment Manager, as steward of the Company's assets engages with the
investee companies to ensure high standards of governance. The Board, Company The Company Secretary and AIFM regularly report to the Board any changes in
Secretary and AIFM are responsible for ensuring that various regulatory and the regulatory environment and as AIC members, the Board can draw on the
statutory obligations are met. resources available detailing any regulatory changes.
The Investment Manager takes voting obligations seriously and there are
multiple structures in place to ensure votes are cast in all investee
companies shareholder meetings. While the Investment Manager evaluates
external proxy agency reports when considering how they might vote, they do
not outsource voting to a third party and are happy to go against both their
recommendations and the wishes of management, when they consider it important
to do so. Over the period in review, the Investment Manager has participated
in 35 votable meetings (covering 297 resolutions), More information and the
Company's ESG policy.
In summary, the Directors are cognisant of their duties enshrined in Section
172 of the Companies Act 2006 to make decisions taking into account the
long-term consequences of all the Company's key stakeholders and reflect the
Board's belief that the long-term sustainable success of the Company is linked
directly to its key stakeholders.
Environmental, Social and Governance ("ESG") Policy
OVERVIEW
This section summarises the incorporation of ESG factors from both a company
perspective, i.e. Bellevue Healthcare Trust ('the Company' or 'the Trust') and
from the Bellevue Asset Management ("Bellevue") perspective, as the appointed
investment manager. "We" and "Our" refer to employees of the Bellevue Group of
companies. Both Bellevue Asset Management (UK) Ltd. and the Trust remain out
of scope for both the UK climate-related reporting requirements and the EU
Corporate Sustainability Reporting Directive.
MANAGEMENT OF ESG FACTORS WITHIN THE BELLEVUE HEALTHCARE TRUST INVESTMENT
PORTFOLIO
The Bellevue Healthcare Trust does not opt for an UK SDR investment label
since it does not pursue distinct sustainability objectives in accordance with
the four UK SDR categories. However, ESG considerations are embedded in the
fundamental investment process across Bellevue's diverse range of managed
products and the Trust is no exception.
Formal ESG guidelines cover areas such as compliance with global norms,
value-based exclusions, controversies, climate change factors and active
ownership. These also preclude investments into Companies involved in serious
violations of internationally recognised norms regarding the environment,
human rights and business ethics, as well as those engaging in controversial
business activities that exceed Bellevue's stated revenue thresholds.
The Trust's healthcare focus makes it very unlikely that any excluded
companies would ever come into scope in the first place. However, there have
been a number of investment opportunities since the Trust's inception that
were rejected because the companies did not comply with our broader ESG
principles. The most common reasons for negative screen-outs continue to be
governance structure and/or reporting quality.
The assessment of ESG considerations is often over-simplified to the level of
significant controversies or an aggregated ESG score provided by third party
agencies. We remain firmly of the view that the process must avoid the
pitfalls of an over-simplified "one size fits all" approach.
Bellevue continues to use MSCI ESG reports for qualitative and quantitative
external data. The scope and quality of external ESG assessments remain
variable, although the situation continues to improve. Where MSCI ESG data is
not comprehensive, we utilise other third-party data providers alongside our
internal evaluations.
Bellevue encourages investee companies to interact with these third-party
agencies to clarify any misunderstandings in their reports. We have seen
further progress in this area, with some portfolio companies that were
previously viewed as ESG laggards - often unjustly, in our opinion -
experiencing significant enhancements in their ratings through direct
engagement.
External ESG reports are only part of the process; we have our own qualitative
criteria that form the basis of decision-making. We do not apply specific
scoring criteria for exclusion from our portfolio because we feel such an
approach has significant limitations. Rather, we see scores as tools to
consider within a much more comprehensive and holistic framework.
THIRD PARTY DATA METRICS
Portfolio-level data and comparables for the reference Index are summarised in
Figure 1 below.
As noted previously, assessments of quantitative ESG parameters require
careful consideration due to various issues present in third-party data that
can complicate comparisons.
ESG Rating and Quality Scores for the reference MSCI World Healthcare Index
have again declined slightly when compared to the prior period. MSCI altered
its ESG rating methodology in May 2023 by removing the so-called adjustment
factors from the calculation of the ESG Quality Score, which was inadvertently
favouring the larger companies that dominate such benchmarks.
The Governance Score of the portfolio remains high. The individual components
within the table are outputs from MSCI ESG; we do not target any specific
thresholds for these individual items in our ESG assessment process.
Figure 1 ESG ratings of portfolio and index
November 30, 2022 November 30, 2023 November 30, 2024
Portfolio MSCI WHC Portfolio MSCI WHC Portfolio MSCI WHC
ESG Rating A AAA BBB A A A
Proportion not rated 0% 0% 1% 0% 6.7% 0%
ESG Quality Score 6.5 10.0 5.5 7.1 5.9 6.9
Environmental Score 5.4 7.1 5.3 7.0 6.0 6.8
Social Score 4.5 5.2 4.4 5.0 4.8 4.9
Governance Score 6.1 5.8 6.1 6.0 5.9 6.0
Overall Sustainable Impact 34.1% 17.3% 29.3% 16.4% 35.7% 16.6%
We are hopeful that scoring methodologies will continue to be adjusted to
better aid comparability across the company size spectrum.
RESPONSIBLE STEWARDSHIP
Responsible investing does not end with due diligence; the importance of
ongoing engagement with management teams cannot be overstated. Active fund
management arguably derives a material proportion of its longer-term alpha
generation opportunities through the ability to proactively consider, debate
and influence (via the exercising of voting powers) potential issues at
investee companies.
Bellevue takes voting obligations seriously and there are multiple structures
in place to ensure that we vote in all shareholder meetings. While we evaluate
external proxy agency reports when considering how we might vote, we do not
outsource our voting to a third party and are happy to go against both their
recommendations and the wishes of management, when we consider it important to
do so. Over the period in review, we participated in 35 votable meetings
(covering 297 resolutions) and Figures 2 and 3 below summarise how we voted in
these meetings:
Figure 2 Overall voting statistics
Meeting Overview
Category Number Percentage
Number of votable meetings 35
Number of meetings voted 35 100.00%
Number of meetings with at least 1 vote Against, Withhold or Abstain 10 28.57%
Ballot Overview
Category Number Percentage
Number of votable ballots 35
Number of ballots voted 35 100.00%
Figure 3 Detailed voting breakdown
Proposal Overview
Category Number Percentage
Number of votable items 297
Number of items voted 296 99.66%
Number of votes FOR 280 94.59%
Number of votes AGAINST 13 4.39%
Number of votes ABSTAIN 0 0.00%
Number of votes WITHHOLD 3 1.01%
Number of votes on MSOP Frequency 1 Year 0 0.00%
Number of votes on MSOP Frequency 2 Years 0 0.00%
Number of votes on MSOP Frequency 3 Years 0 0.00%
Number of votes With Policy 283 95.61%
Number of votes Against Policy 13 4.39%
Number of votes With Mgmt 281 94.93%
Number of votes Against Mgmt 15 5.07%
Number of votes on MSOP (exclude frequency) 29 9.80%
Number of votes on Shareholder Proposals 7 2.36%
Engagement with voting is only part of the process. Pragmatically, we are but
one of many voices and it may be the case that even after a multi-year
engagement with management and exercising our voting power we have not been
able to elicit change. In such a situation, we would consider divesting our
holding, depending on the materiality of the issues.
We have yet to divest a holding due to ESG considerations, which attests to
the robustness of the initial screening approach in avoiding controversies. We
are quite happy to exit positions when we lose confidence in management or
strategy and there are several historical examples of such situations during
the Company's lifetime.
TRUST-SPECIFIC EXCLUSION CRITERIA AND TOLERANCE THRESHOLDS
It would be very easy to claim that one has a blanket ban on investing in
everything that's bad or that all one's investments are sustainable. However,
some points of view are subjective and some things are what they are: for
instance, every human healthcare company is involved in supporting animal
testing to some degree.
Finally, one must recognise that rarely are matters so clear cut as to be able
to definitively state a company has zero involvement or exposure to a
controversial area; one can easily take exposures off the balance sheet via
outsourcing; animal testing is often outsourced, for example.
With these realities in mind, it makes more sense to operate by a set of
guiding principles based on data that can be simply ascertained from
management and that are realistically achievable for the portfolio overall.
Bellevue agreed an expansive list of thresholds with the Board of the Company
that came into effect from 1 January 2022 and set revenue threshold exposure
levels to specific criteria. More information can be found on the Bellevue
Group website www.bellevue.ch/ch-en/private/about-us/sustainability
With respect to the EU Sustainable Finance Disclosure Regulation (SFDR), the
Bellevue Healthcare Trust is an Article 8 product. It does not include any
sustainability claims in its investment objectives, but does take ESG factors
and thresholds into account when making investment decisions. All related
disclosure documents (incl. ESG disclosure report, pre-contractual disclosure,
periodic disclosure and corporate ESG report) are published on the Company's
website.
Both Bellevue Asset Management (UK) Ltd. and the Trust remain out of scope for
both the UK climate-related reporting requirements and the EU Corporate
Sustainability Reporting Directive.
Other Information
ENVIRONMENTAL MATTERS
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations
2013.
Investment trusts are currently exempt from TCFD disclosure, but the Board
will continue to monitor the situation.
EMPLOYEES
The Company has no employees. As at 30 November 2024 the Company had five
Directors, three of whom were male (60%) and two of whom were female (40%).
The Board's policy on diversity is contained in the Corporate Governance
Report.
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
Having no employees, the Company, as an investment company, has no direct
impact on social, community, environmental or human rights matters.
MODERN SLAVERY DISCLOSURE
Due to the nature of the Company's business, being a company that does not
offer goods or services to consumers, the Board considers that it is not
within the scope of modern slavery.
The Board considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial service industry,
to be low risk in relation to this matter.
CONSUMER DUTY
The Company and Investment Manager are fully cognisant of the rules which came
into force on 31 July 2023 and have taken the necessary steps to ensure
compliance.
OUTLOOK
The outlook for the Company is discussed in the Investment Manager's Report.
STRATEGIC REPORT
The Strategic Report set out on in the Annual Report was approved by the Board
of Directors on 14 March 2025.
For and on behalf of the Board
Randeep Grewal
Chairman
14 March 2025
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable laws and regulations.
Company law requires the Directors to prepare accounts for each financial
year. Under that law the Directors have elected to prepare the financial
statements under UK adopted International Accounting Standards ("IAS"). Under
company law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs
of the Company as at the end of the year and of the net return for the year.
In preparing these accounts, the Directors are required to:
· select suitable accounting policies in accordance with IAS
8 Accounting Policies, Changes in Accounting Estimates and Errors and then
apply them consistently;
· present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and understandable
information;
· make judgements and estimates which are reasonable and
prudent;
· state whether UK adopted IAS have been followed, subject to
any material departures disclosed and explained in the accounts; and
· prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and which disclose
with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the accounts comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The accounts are published on the Company's website at
www.bellevuehealthcaretrust.com, which is maintained by the Company's
Investment Manager. The work carried out by the auditor does not involve
consideration of the maintenance and integrity of these websites and,
accordingly, the auditor accepts no responsibility for any changes that have
occurred to the accounts since being initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
DIRECTORS' CONFIRMATION STATEMENT
The Directors each confirm to the best of their knowledge that:
· the accounts, prepared in accordance with UK adopted IAS,
give a true and fair view of the assets, liabilities, financial position and
profit of the Company; and
· this Annual Report includes a fair review of the
development and performance of the business and position of the Company,
together with a description of the principal risks and uncertainties that it
faces.
Having taken advice from the Audit and Risk Committee, the Directors consider
that the Annual Report and financial statements taken as a whole is fair,
balanced and understandable and provides the information necessary for
Shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board.
Randeep Grewal
Chairman
14 March 2025
Financial Statements
Statement of Comprehensive Income
for the year ended 30 November 2024
Year ended Year ended
30 November 2024
30 November 2023
Revenue Capital Total Revenue Capital Total
Note £'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments - 81,306 81,306 - (109,626) (109,626)
Losses on currency movements - (1,241) (1,241) - (789) (789)
Net investment gains/(losses) - 80,065 80,065 - (110,415) (110,415)
Investment and interest income 5 3,031 - 3,031 2,469 - 2,469
Total income 3,031 80,065 83,096 2,469 (110,415) (107,946)
Investment management fees (1,256) (5,022) (6,278) (1,559) (6,236) (7,795)
Other expenses 7 (1,135) - (1,135) (1,090) - (1,090)
Gain/(loss) before finance costs and taxation 640 75,043 75,683 (180) (116,651) (116,831)
Finance costs 8 (367) (1,469) (1,836) (810) (3,240) (4,050)
Operating profit/(loss) before taxation 273 73,574 73,847 (990) (119,891) (120,881)
Taxation 9 (113) - (113) (157) - (157)
Gain/(loss) for the year 160 73,574 73,734 (1,147) (119,891) (121,038)
Return per Ordinary Share 10 0.03p 16.05p 16.08p (0.21)p (21.85)p (22.06)p
There is no other comprehensive income and therefore the 'Profit for the year'
is the total comprehensive income for the year.
The supplementary revenue and capital columns, including the earnings per
Ordinary Shares, are prepared under guidance from the Association of
Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations. The notes in the Annual Report form and integral part of these
financial statements.
Statement of Financial Position
as at 30 November 2024
30 November 2024 30 November 2023
Note £'000 £'000
Non-current assets
Investments held at fair value through profit or loss 4 417,790 696,916
Current assets
Cash and cash equivalents 273,993 110,954
Sales for future settlement - 22
Other receivables 11 102 111
274,095 111,087
Total assets 691,885 808,003
Current liabilities
Bank loans payable 12 - (31,696)
Redemption payable 13 (253,551) (110,008)
Other payables 13 (1,034) (762)
Total liabilities (254,585) (142,466)
Net assets 437,300 665,537
Equity
Share capital 14 3,165 4,803
Share premium account - 617,709
Special distributable reserve 314,658 -
Capital redemption reserve 2,718 -
Capital reserve 119,036 45,462
Revenue reserve (2,277) (2,437)
Total equity 437,300 665,537
Net asset value per Ordinary Share 16 154.32p 143.87p
Approved by the Board of Directors on and authorised for issue on 14 March
2025 and signed on their behalf by:
Randeep Grewal
Chairman
Registered in England and Wales with registered number 10415235.
The notes form and integral part of these financial statements.
Statement of Changes in Equity
for the year ended 30 November 2024
Share Special Capital
Share premium distributable Redemption Capital Revenue
Capital account reserve reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance as at 01 December 2023 4,803 617,709 - - 45,462 (2,437) 665,537
Gain for the year - - - - 73,574 160 73,734
Transfer to special distributable reserve 3 - (617,709) 617,709 - - -
Reallocation of redeemed Ordinary Shares from 2022 and 2023 - - (1,080) 1,080 - - -
Redemption of Ordinary Shares 14 (1,638) - (253,551) 1,638 - - (253,551)
Buybacks of Ordinary Shares - - (22,768) - - (22,768)
Buybacks, Redemption and special distributable reserve - - (239) - - (239)
transfer costs Dividend paid 15 - - (25,413) - - (25,413)
Closing balance as at 30 November 2024 3,165 - 314,658 2,718 119,036 (2,277) 437,300
For the year ended 30 November 2023
Share Special Capital
Share premium distributable Redemption Capital Revenue
Capital account reserve reserve reserve reserve Total
Notes £'000 £'000 £'000 £'000 £'000 £'000 £'000
Opening balance as at 01 December 2022 5,881 617,371 28,347 - 354,017 (1,290) 1,004,326
Loss for the year - - - - (119,891) (1,147) (121,038)
Issue of Ordinary Shares 14 2 340 - - - - 342
Redemption of Ordinary Shares 14 (1,080) - (10,491) - (148,688) - (160,259)
Buybacks of Ordinary Shares - - - - (23,439) - (23,439)
Ordinary Share issue, Buybacks and Redemption costs - (2) (81) - (102) - (185)
Dividend paid 15 - - (17,775) - (16,435) - (34,210)
Closing balance as at 30 November 2023 4,803 617,709 - - 45,462 (2,437) 665,537
The Company's distributable reserves consist of the special distributable
reserve, revenue reserve and capital reserve attributable to realised profit
totalling £431,417,000 (30 November 2023: £43,025,000). The capital
redemption reserve is non-distributable.
The Company can use its distributable reserves to fund dividends, redemptions
of Ordinary Shares and share buy backs.
Statement of Cash Flows
for the year ending 30 November 2024
Year ended Year ended
30 November 2024 30 November 2023
£'000 £'000
Operating activities Cash flows
Income* 3,031 2,469
Operating expenses (7,195) (8,852)
Taxation (113) (157)
Net cash flow used in operating activities (4,277) (6,540)
Investing activities Cash flows
Purchase of investments (588,784) (303,144)
Sale of investments 949,238 533,774
Net cash flow from investing activities 360,454 230,630
Financing activities Cash flows
Bank loans drawn 11,784 15,722
Bank loans repaid (43,140) (63,121)
Loan interest and other charges paid (1,773) (4,552)
Dividend paid (25,413) (34,210)
Proceeds from issue of Ordinary Shares - 342
Annual redemption of ordinary shares (110,008) (50,251)
Buybacks of Ordinary Shares held in treasury (22,768) (23,439)
Share issue, Buybacks and Redemption costs (239) (185)
Net cash flow used in financing activities (191,557) (159,694)
Increase in cash and cash equivalents 164,620 64,396
Cash and cash equivalents at start of year 110,954 46,368
Effect of foreign currency revaluations (1,581) 190
Cash and cash equivalents at end of year 273,993 110,954
* Cash inflow from dividends for the financial year was £756,000 (2023:
£765,000). Bank deposits interest income received during the year was
£2,275,000 (2023: £1,547,000).
The table below shows the movement in liabilities arising from financing
activities during the year.
Year ended Year ended
30 November 2024 30 November 2023
£'000 £'000
Opening balance 31,696 83,731
Repayment of bank loans (43,140) (63,121)
Proceeds from bank loans 11,784 15,722
Finance costs 1,836 4,050
Loan interest and other charges paid (1,773) (4,552)
Foreign exchange movements (403) (4,134)
Closing balance - 31,696
The notes form and integral part of these financial statements.
Notes to the Financial Statements
1. REPORTING ENTITY
Bellevue Healthcare Trust plc, formerly BB Healthcare Trust plc, is a
closed-ended investment company, registered in England and Wales on 7 October
2016. The Company's registered office is 4th Floor 46-48 James Street, London,
W1U 1WEZ. Business operations commenced on 2 December 2016 when the Company's
Ordinary Shares were admitted to trading on the London Stock Exchange. The
financial statements of the Company are presented for the year from 1 December
2023 to 30 November 2024.
The Company invests in a concentrated portfolio of listed or quoted equities
in the global healthcare industry. The Company may also invest in American
Depositary Receipts (ADRs), or convertible instruments issued by such
companies and may invest in, or underwrite, future equity issues by such
companies. The Company may utilise contracts for differences for investment
purposes in certain jurisdictions where taxation or other issues in those
jurisdictions may render direct investment in listed or quoted equities less
effective.
2. BASIS OF PREPARATION
Statement of compliance
These financial statements have been prepared in accordance with UK adopted
International Accounting Standards ("IAS").
In preparing these financial statements the directors have considered the
impact of climate change as a risk as set out in the Annual Report, and have
concluded that there was no further impact of climate change to be taken into
account. In line with IAS investments are valued at fair value, which for the
Company is quoted bid prices for investments in active markets at the
Statement of Financial Position date and therefore reflect market
participants' view of climate change risk on the investments we hold.
When presentational guidance set out in the Statement of Recommended Practice
('SORP') for Investment Companies issued by the Association of Investment
Companies ('the AIC') in July 2022 is consistent with the requirements of UK
adopted International Accounting Standards, the Directors have sought to
prepare the financial statements on a basis compliant with the recommendations
of the SORP.
Going concern
The Directors have adopted the going concern basis in preparing the financial
statements.
In forming this opinion, the Directors have considered the adequacy of the
Company's operational resources, liquidity of the investment portfolio, debt
covenants and any potential impact of the ongoing wars in Ukraine and the
Middle East may have on the going concern and viability of the Company. In
making their assessment, the Directors have reviewed income and expense
projections and the liquidity of the investment portfolio, and considered the
mitigation measures which key service providers, including the Investment
Manager, have in place to maintain operational resilience.
The Company's ability to continue as a going concern for the period assessed
by the Directors, being the period to 30 November 2026, which is at least 12
months from the date the financial statements were authorised for issue.
Significant accounting estimates, judgements and assumptions
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the year in which the
estimates are revised and in any future periods affected. There have been no
material estimates, judgements or assumptions, which have had a significant
impact on the financial statements for the year.
Functional and presentation currency
The financial statements are presented in sterling, which is the Company's
functional currency. The Company's investments are denominated in multiple
currencies. However, the Company's shares are issued in sterling and the
majority of its investors are UK based. In addition, all expenses are paid in
GBP as are dividends. All financial information presented in sterling have
been rounded to the nearest thousand pounds.
3. ACCOUNTING POLICIES
(a) Investments
Upon initial recognition investments are classified by the Company "at fair
value through profit or loss". They are accounted for on the date they are
traded and are included initially at fair value which is taken to be their
cost. Subsequently quoted investments are valued at fair value which is the
bid market price, or if bid price is unavailable, the last traded price on the
relevant exchange. Unquoted investments are valued at fair value by the Board
which is established with regard to the International Private Equity and
Venture Capital Valuation Guidelines by using, where appropriate, latest
dealing prices, valuations from reliable sources and other relevant factors.
Changes in the fair value of investments held at fair value through profit or
loss and gains or losses on disposal are included in the capital column of the
Statement of Comprehensive Income within gains/(losses) on investments.
Investments are derecognised on the trade date of their disposal, which is the
point where the Company transfers substantially all the risks and rewards of
the ownership of the financial asset.
(b) Foreign currency
Transactions denominated in foreign currencies are translated into sterling at
actual exchange rates as at the date of the transaction. Monetary assets and
liabilities, and non-monetary assets held at fair value denominated in foreign
currencies are translated into sterling using London closing foreign exchange
rates at the year end. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is included as an exchange
gain or loss to capital or revenue in the Statement of Comprehensive Income as
appropriate.
(c) Income from investments
Dividend income from shares is recognised on ex-dividend dates. Overseas
income is grossed up at the appropriate rate of tax.
Special dividends are assessed on their individual merits and may be credited
to the Statement of Comprehensive Income as a capital item if considered to be
closely linked to reconstructions of the investee company or other capital
transactions. All other investment income is credited to the Statement of
Comprehensive Income as a revenue item. Interest receivable is accrued on a
time apportionment basis.
(d) Reserves
Capital reserves
Profits achieved in cash by selling investments and changes in fair value
arising upon the revaluation of investments that remain in the portfolio are
all charged to the capital column of the Statement of Comprehensive Income and
allocated to the capital reserve.
Special distributable reserve
Following admission of the Company's Ordinary Shares to trading on the London
Stock Exchange, the Directors applied to the Court to cancel the share premium
account so as to create a new special distributable reserve which may be
treated as distributable reserves and out of which tender offers and share
buybacks may be funded. This reserve may also be used to fund dividend
payments. In December 2023 the Board obtained approval from the High Court to
transfer a further £617,709,000 from the share premium account into the
special distributable reserve.
The Company's distributable reserves consist of the special distributable
reserve, revenue reserve and capital reserve attributable to realised profit.
Capital redemption reserve
The capital redemption reserve reflects the nominal value of redeemed Ordinary
Shares.
Share premium
The share premium account arose from the net proceeds of issuing new shares.
The excess of the issue price of a share over its nominal value is the share
premium.
Revenue reserves
The revenue reserve reflects all income and expenditure recognised in the
revenue column of the income statement and is distributable by way of
dividends.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses directly related
to the acquisition or disposal of an investment (transaction costs) are taken
to the income statement as a capital item.
Expenses are recognised through the Statement of Comprehensive Income as
revenue items except as follows:
Investment management fees
In accordance with the Company's stated policy and the Directors' expectation
of the split of future returns, 80% of investment management fees are charged
as a capital item in the Statement of Comprehensive Income.
Finance costs
Finance costs include interest payable and direct loan costs. In accordance
with Directors' expectation of the split of future returns, 80% of finance
costs are charged as capital items in the Statement of Comprehensive Income.
Loan arrangement costs are amortised over the term of the loan.
(f) Cash and cash equivalents
Cash comprises cash at hand and on-demand deposits. Cash equivalents are short
term (three months or less); highly liquid investments that are readily
convertible to known amounts of cash, are subject to insignificant risks of
changes in value, and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
(g) Taxation
Irrecoverable taxation on dividends is recognised on an accruals basis in the
Statement of Comprehensive Income.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit and is accounted for using the statement of financial position
liability method. Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent
that it is probable that taxable profits will be available against which
deductible temporary differences can be utilised. Investment trusts which have
approval as such under Section 1158 of the Corporation Tax Act 2010 are not
liable for taxation on capital gains in UK.
(h) Financial assets and financial liabilities
All financial assets and liabilities are recognised in the financial
statements at fair value, with the exception of short-term assets and
liabilities, which are held at cost that approximates to fair value, and bank
loans payable that are initially recognised at the fair value of the
consideration received, net of directly attributable costs, and subsequently
recognised at amortised cost.
(i) Adoption of new IFRS standards
A number of new standards and amendments are effective for the annual periods
beginning on or after 1 January 2023. None of these have a material impact on
the measurement of the amounts recognised in the financial statements of the
Company.
(j) Future Developments in IFRS standards
A number of new standards and/or amendments to standards are effective for the
annual periods beginning after 1 January 2024. None of these are expected to
have a significant effect on the measurement of the amounts recognised in the
financial statements of the Company.
New standard and/or amendment Effective on or after
Amendments to IAS 1 Presentation of Financial Statements-Classification of 01 January 2024
Liabilities as Current or Non-current on or after 1 January 2024
Amendments to IAS 1 Presentation of Financial Statements-Non-current 01 January 2024
Liabilities with Covenants
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: 01 January 2024
Disclosures-Supplier Finance Arrangements
IFRS 18 Presentation and Disclosure in Financial Statements 01 January 2027
Amendments to IFRS 9 and IFRS 7-Amendments to the Classification and 01 January 2026
Measurement of Financial Instruments
(k) Equity shares
The Company has treated the Ordinary Shares and Management Shares as equity in
accordance with IAS 32 Financial Instruments: Presentation, which classifies
financial instruments into financial assets, financial liabilities and equity
instruments. Both share classes have an entitlement to the residual interest
in the assets of the Company after deducting liabilities, suffice that the
Management Shares have no participation in any surplus beyond their paid up
capital. The Management Shares are not redeemable but the Ordinary Shares are
subject to an annual redemption option at the discretion of the Directors.
Ordinary Shares participate in dividends and any other profits of the Company.
Redeemed Ordinary Shares are derecognised, and a liability recognised, once
the redemption process has been completed, and there is a legal obligation to
cancel the shares. The nominal value of the redeemed Ordinary Shares is
transferred to the capital redemption reserve.
(l) Segmental reporting
The Board has considered the requirements of IFRS 8 - "Operating Segments".
The Company has entered into an Investment Management Agreement with the
Investment Manager under which the Investment Manager is responsible for the
management of the Company's investment portfolio, subject to the overall
supervision of the Board of Directors. Accordingly, the Board is deemed to be
the "Chief Operating Decision Maker" of the Company.
The Directors are of the opinion that the Company is engaged in a single
segment of business being that of an investment trust, as disclosed in note 1.
4. INVESTMENT HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
(a) Summary of valuation
30 November 30 November
2024 2023
As at £'000 £'000
Investments held at fair value through profit or loss
- Listed overseas 417,790 696,916
Closing valuation 417,790 696,916
(b) Movements in valuation
£'000 £'000
Opening valuation 696,916 1,043,349
Opening unrealised losses on investments 287,597 131,376
Opening book cost 984,513 1,174,725
Additions, at cost 588,595 301,659
Disposals, at cost (1,101,985) (491,871)
Closing book cost 471,123 984,513
Revaluation of investments (53,333) (287,597)
Closing valuation 417,790 696,916
In respect of the investments sold during the year, they have been revalued
over time and until they were sold any unrealised gains/losses were included
in the fair value of the investments. Total investments sold during the year
ended 30 November 2024 amounted to £949,527,000 (30 November 2023:
£533,108,000).
Transaction costs on investment purchases for the year ended 30 November 2024
amounted to £189,000 (30 November 2023: £90,000) and on investment sales for
the financial year to 30 November 2024 amounted to £311,000 (30 November
2023: £167,000).
(c) Gains / (losses) on investments
£'000 £'000
Realised gains/(losses) on disposal of investments (152,958) 40,980
Movement in unrealised gains/(losses) on investments held 234,264 (150,606)
Total gains/(losses) on investments 81,306 (109,626)
Under IFRS 13 'Fair Value Measurement', an entity is required to classify
investments using a fair value hierarchy that reflects the significance of the
inputs used in making the measurement decision.
The following shows the analysis of financial assets recognised at fair value
based on:
Level 1
The unadjusted quoted price in an active market for identical assets or
liabilities that the entity can access at the measurement date.
Level 2
Inputs other than quoted prices included within Level 1 that are observable
(i.e. developed using market data) for the asset or liability, either directly
or indirectly.
Level 3
Inputs are unobservable (i.e. for which market data is unavailable) for the
asset or liability.
The classification of the Company's investments held at fair value is detailed
in the table below:
As at 30 November 2024
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments at fair value through profit and loss 417,790 - - 417,790
As at 30 November 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments at fair value through profit and loss 694,884 - 2,032 696,916
The level 3 investment comprises the Company's holding in Venus MedTech, which
was suspended from trading during the prior year. For 2023, the board applied
a discount taking into account the projected impact of the suspension on the
price movement, as well as other factors directly related to Venus MedTech. As
at the 30 November 2024 year end the Board in consultation with the AIFM's
Valuation Committee has decided to write down the investment to a nil
valuation.
The movement in the Level 3 unquoted investments during the year is shown
below:
30 November 30 November
As at 2024 2023
£'000 £'000
Opening balance as at 2,032 -
Transfers to level 3 during the year - 9,724
Revaluation losses on level 3 investments held (2,032) (7,692)
Closing valuation - 2,032
There were no transfers between levels during the year ended 30 November 2024
(30 November 2023: one)
5. INVESTMENT AND INTEREST INCOME
Year ended Year ended
30 November 30 November
2024 2023
£'000 £'000
Income from investments
Overseas dividends 756 922
Other income:
Bank interest on deposits 2,275 1,547
Total income 3,031 2,469
6. INVESTMENT MANAGEMENT FEE
2024 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Management fee 1,256 5,022 6,278 1,559 6,236 7,795
The Company's Investment Manager is Bellevue Asset Management (UK) Ltd (the
"Investment Manager"). The Investment Manager is entitled to receive a
management fee payable monthly in arrears and calculated at the rate of
one-twelfth of 0.95% per calendar month of market capitalisation. Market
capitalisation means the average of the mid-market prices for an Ordinary
Share, as derived from the daily official list of the London Stock Exchange on
each business day in the relevant calendar month multiplied by the number of
Ordinary Shares, in issue on the last business day of the relevant calendar
month excluding any Ordinary Shares held in treasury.
There is no performance fee payable to the Investment Manager.
7. OTHER EXPENSES
2024 2023
£'000 £'000
Administration Fees 255 259
Audit Fees 66 53
Broker Fees 51 6
Custody services 164 202
Directors' Fees 236 236
Printing Fees 29 23
Registrar Fees 95 85
Other operating expenses 239 226
Total 1,135 1,090
The audit fee for the current year comprises an additional non-recurring fee
for procedures performed for the change of administrator of £2,000 and
£6,000 in relation to the additional procedures on the calculation of the
Redemption Pool, this has been recognised as a redemption costs in the special
distributable reserve.
8. FINANCE COSTS
Year ended 30 November 2024
Revenue Capital Total
£'000 £'000 £'000
Loan interest 362 1,449 1,811
Other finance costs 5 20 25
Total 367 1,469 1,836
Year ended 30 November 2023
Revenue Capital Total
£'000 £'000 £'000
Loan interest 703 2,810 3,513
Other finance costs 107 430 537
Total 810 3,240 4,050
9. TAXATION
(a) Analysis of tax charge for the year:
Year ended 30 November 2024 Year ended 30 November 2023
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Withholding tax expense 113 - 113 157 - 157
Total tax charge for the year 113 - 113 157 - 157
(b) Factors affecting the tax charge for the year:
The effective UK corporation tax rate for the year is 25% (2023: 23.00%). The
tax charge differs from the charge resulting from applying the standard rate
of UK corporation tax for an investment trust company. The differences are
explained below:
2024 2023
Total Total
£'000 £'000
Operating profit/(loss) before taxation 73,847 (120,881)
UK Corporation tax at 25% (2023: 23.00%) 18,462 (27,803)
Effects of:
(Gains)/losses on investments not taxable (20,016) 25,395
Overseas dividends not taxable (189) (212)
Withholding tax expense 113 157
Unutilised excess expenses 1,743 2,620
Total tax charge for the year 113 157
The Company is not liable to tax on capital gains due to its status as an
investment trust. The Company has a total gross tax loss of £64,058,267
(2023: £53,398,267) and as a result an unrealised deferred tax asset of
£16,014,567 (2023: 13,350,000) based on the prospective UK corporation tax
rate of 25%. This asset has accumulated because deductible expenses exceeded
taxable income for the year ended 30 November 2024. No asset has been
recognised in the accounts because, given the composition of the Company's
portfolio, it is not likely that this asset will be utilised in the
foreseeable future.
10. RETURN PER SHARE
Return per share is based on the weighted average number of Ordinary Shares in
issue during the year ended 30 November 2024 of 458,515,182 (30 November 2023:
548,691,353). Management Shares and shares held in treasury do not participate
in the profit or loss of the Company, hence they are not included in the
calculation below.
As at 30 November 2024
Revenue Capital Total
Profit for the year (£'000) 160 73,574 73,734
Return per Ordinary Share (basic and diluted) 0.03p 16.05p 16.08p
As at 30 November 2023
Revenue Capital Total
Loss for the year (£'000) (1,147) (119,891) (121,038)
Loss per Ordinary Share (basic and diluted) (0.21)p (21.85)p (22.06)p
11. OTHER RECEIVABLES
As at As at
30 November 2024 30 November 2023
£'000 £'000
Prepayments 41 46
VAT recoverable 26 28
Recoverable tax on dividend 35 37
Total 102 111
12. BANK LOANS
The Company has a multi-currency Revolving Credit Facility ("RCF") with The
Bank of Nova Scotia, London Branch. Under the terms of the RCF, the Company
could draw down loans up to an aggregate value of USD 280 million. On 24
October 2024 the Company amended the RCF, under the terms of the amended RCF,
the Company could draw down loans up to an aggregate value of USD 100 million.
The RCF was renewed in December 2024 and the Company amended the terms so that
it could draw down loans up to an aggregate value of USD 125 million. The
facility will expire in December 2025.
As at 30 November 2024, the aggregate of loans draw down was £Nil (2023:
£31,696,000).
A commitment fee is calculated at 0.35 per cent per annum, if the unutilised
amount equals or exceeds 50 per cent of the total commitment; or 0.45 per cent
per annum if the unutilised amount is less than 50 per cent of the total
commitment.
13. OTHER PAYABLES
As at As at
30 November 2024 30 November 2023
£'000 £'000
Loan interest payable 89 26
Accrued expenses 945 736
Redemption payable 253,551 110,008
254,585 110,770
Redemption payable
On 14 October 2024 the Company announced that 163,834,887 Ordinary Share
redemption requests had been received for the 2024 redemption point (the "2024
Redemption"). The Board resolved to effect the 2024 Redemption using a
redemption pool to which the Company notionally divided its assets and
liabilities into two pools, the redemption pool and continuing pool. The value
to be returned was determined to be the realisation value of the redemption
pool assets, after deducting the costs of the redemption, and a pro-rata share
of the costs and expenses of the Company not attributable to a particular
pool. On 29 November 2024 the calculated redemption price was 154.76 pence per
share (including dividends and bank interest received) and the 163,834,887
redeeming Ordinary Shares were cancelled with effect from 29 November 2024. As
per IAS 32 and relevant accounting standards the redemption liability
crystalised when the shares were cancelled and the former holders of
Redemption Shares are now creditors of the Company.
The 2023 redemption payable is in relation to the Company's announcement on 3
November 2023 that valid redemption requests in respect of 77,428,034 Ordinary
Shares had been received for the 30 November 2023 redemption point. All of
these shares were redeemed and cancelled by the Company. The calculated
redemption price was 142.07718 pence per share.
14. SHARE CAPITAL
As at 30 November 2024 As at 30 November 2023
No. of shares £'000 No. of shares £'000
Allotted, issued and fully paid:
Redeemable Ordinary Shares of 1p each ('Ordinary Shares') 283,369,891 2,834 462,588,550 4,626
Shares held in treasury 31,782,418 318 16,398,646 164
Management Shares of £1 each 50,001 13 50,001 13
Total 315,202,310 3,165 479,037,197 4,803
Share Movement
During the year to 30 November 2024, 15,383,772 Ordinary Shares (30 November
2023: 16,398,646) were bought back into treasury through the Company's share
buyback programme.
2024 Redemption
The Company received redemption requests for 163,834,887 Ordinary shares in
respect of the 2024 redemption offer which represented 36.34% of the issued
capital, see note 13 for further details. The 163,834,887 Ordinary Shares
redeemed were cancelled with effect from 29 November 2024.
15. DIVIDEND
Year ended 30 November 2024 Year ended 30 November 2023
Pence per Special Revenue Pence per Special Revenue
Ordinary reserve reserve Total Ordinary reserve reserve Total
Share £'000 £'000 £'000 Share £'000 £'000 £'000
Final dividend - 2022 - - - - 3.235p 17,775 - 17,775
Interim dividend - 2023 - - - - 2.995p 16,435 - 16,435
Final dividend - 2023 2.995p 13,846 - 13,846 - - - -
Interim dividend - 2024 2.520p 11,567 - 11,567 - - - -
Total 5.515p 25,413 - 25,413 6.230p 34,210 - 34,210
The dividend relating to the year ending 30 November 2024, which is the basis
on which the requirements of Section 1159 of the Corporation Tax Act 2010 are
considered is detailed below:
Year ended 30 November 2024 Year ended 30 November 2023
Pence per Special Revenue Pence per Special Revenue
Ordinary reserve reserve Total Ordinary reserve reserve Total
Share £'000 £'000 £'000 Share £'000 £'000 £'000
Interim dividend - paid 2.520p 11,567 - 11,567 2.995p 16,435 - 16,435
Final dividend - payable/paid 2.520p 7,141 - 7,141 2.995p 13,855 - 13,855
Total 5.04p 18,708 - 18,708 5.990p 30,290 - 30,290
The Directors recommend the payment of a final dividend for the year of 2.52p
per share. Subject to approval at the Company's Annual General Meeting, the
dividend will have an ex-dividend date of 1 May 2025 and will be paid on 30
May 2025 to shareholders on the register at 2 May 2025. The dividend will be
funded from the Company's distributable reserves as per the table above.
16. NET ASSETS PER ORDINARY SHARE
Net assets per Ordinary Share as at 30 November 2024 is based on £437,300,000
of net assets of the Company attributable to the 283,369,891 Ordinary Shares
in issue (excluding treasury shares) as at 30 November 2024. £12,500 of net
assets as at 30 November 2024 is attributable to the Management Shares.
17. RELATED PARTY TRANSACTIONS
Fees payable to the Investment Manager are shown in note 6. As at 30 November
2024, the fee outstanding to the Investment Manager was £478,000 (30 November
2023: £461,000).
Directors' fees paid during the year are disclosed within the Directors'
Remuneration Report. Fees payable as at 30 November 2024 were £Nil (2023:
£39,383). The Directors' shareholdings are disclosed in the Directors'
Remuneration Implementation Report.
18. FINANCIAL INSTRUMENTS AND CAPITAL DISCLOSURE
The Company is subject to a number of risks in relation to economic conditions
and healthcare companies.
These risks are categorised as market risks, liquidity risks, currency risks,
leverage risk, interest rate risk and credit risk. The Board monitors closely
the Company's exposure to these risks but does so in order to reduce the
likelihood of a permanent reduction in the Company's net assets rather than to
minimise the short term volatility.
Further details on these risks and the management of these risks are included
in the Directors' report.
(i) Market risks
Market risk is the risk that the fair value or future cash flows of the
Company's financial assets and liabilities may fluctuate because of changes in
market prices.
The Company's financial assets and liabilities at 30 November 2024 comprised:
2024 2023
Interest Non-interest Interest Non-interest
Investments bearing bearing Total bearing bearing Total
£'000 £'000 £'000 £'000 £'000 £'000
Hong Kong - 5,819 5,819 2,032 2,032
Danish krone - 2,478 2,478 - -
US dollar - 409,493 409,493 694,884 694,884
Total investment - 417,790 417,790 696,916 696,916
Floating rate
Cash at bank 273,993 - 273,993 110,954 - 110,954
Short term debtors - 102 102 - 133 133
Bank loans payable-US dollar - - - (31,696) - (31,696)
Short term creditors - (254,585) (254,585) - (110,770) (110,770)
Total 273,993 (254,483) 19,510 79,258 (110,637) (31,379)
Market price risk sensitivity
The effect on the portfolio of a 10.0% increase or decrease in market prices
would have resulted in an increase or decrease of £41,779,000 (2023:
£69,692,000) in the investments held at fair value through profit or loss at
the period end, which is equivalent to 9.6% (2023: 10.5%) in the net assets
attributable to equity holders. This analysis assumes that all other variables
remain constant.
(ii) Liquidity risks
Liquidity risk is the risk that the Company will not be able to meet its
obligations when due. There is a risk that the Company's holdings may not be
able to be realised at reasonable prices in a reasonable timeframe.
Financial liabilities by maturity at the period end are shown below:
30 November 30 November
2024 2024
£'000 £'000
Within one month-purchases due for settlement and other payables (254,585) (110,770)
Between one and three months - Bank loans payable - (31,696)
Total (254,585) (142,466)
Management of liquidity risks
The Company will typically seek to maintain a high degree of liquidity in its
portfolio holdings (such that a position could typically be exited within 1 to
5 trading days, with minimal price impact) and as a consequence of the
concentrated approach, it is unlikely that a position will be taken in a
company unless a minimum holding of 1.0 per cent of gross assets at the time
of investment can be achieved within an acceptable level of liquidity.
The Company's Investment Manager monitors the liquidity of the Company's
portfolio on a regular basis. See note 12 for the maturity profiles of the
loans. Other payables are typically settled within a month.
(iii) Currency risks
Although the Company's performance is measured in sterling, a high proportion
of the Company's assets may be either denominated in other currencies or be in
investments with currency exposure.
Currency sensitivity
The below table shows the strengthening/(weakening) of sterling against the
local currencies over the financial year for the Company's financial assets
and liabilities held at 30 November 2024.
30 November
2024
% change
Danish krone 3.91
Euro 3.84
Swiss franc 1.60
Hong Kong Dollar 0.57
US dollar 0.89
Foreign currency risk profile
30 November 2024 30 November 2023
Total Total
Investment Net monetary currency Investment Net monetary currency
exposure exposure exposure exposure exposure exposure
Investments £'000 £'000 £'000 £'000 £'000 £'000
Danish krone 2,478 307 2,785 - - -
Euro - 3 3 - - -
Swiss franc - 4 4 - 6 6
Hong Kong dollar 5,819 21 5,840 2,032 - 2,032
US dollar 409,493 15,993 425,486 694,884 35,888 730,772
Total investment 417,790 16,328 434,118 696,916 35,894 732,810
Based on the financial assets and liabilities at 30 November 2024 and all
other things being equal, if sterling had weakened against the local
currencies by 10%, the impact on the Company's net assets at 30 November 2024
would have been as follows:
30 November 30 November
2024 2023
£'000 £'000
Danish krone 279 -
Swiss franc - 1
Hong Kong Dollar 584 203
US dollar 42,549 73,077
Management of currency risks
The Company's Investment Manager monitors the currency risk of the Company's
portfolio on a regular basis. Foreign currency exposure is regularly reported
to the Board by the Investment Manager.
Currency risk will not be hedged using any sort of foreign currency
transactions, forward transactions or derivative instruments.
(iv) Leverage risks
The Company may use borrowings to seek to enhance investment returns. While
the use of borrowings should enhance the total return on the Ordinary Shares
where the return on the Company's underlying assets is rising and exceeds the
cost of borrowing, it will have the opposite effect where the return on the
Company's underlying assets is rising at a lower rate than the cost of
borrowing or falling, further reducing the total return on the Ordinary
Shares. As a result, the use of borrowings by the Company may increase the
volatility of the Net Asset Value per Ordinary Share.
Any reduction in the carrying value of the Company's investments may lead to a
correspondingly greater percentage reduction in its Net Asset Value (which is
likely to adversely affect the price of an Ordinary Share). Any reduction in
the number of Ordinary Shares in issue (for example, as a result of buy backs
or redemptions) will, in the absence of a corresponding reduction in
borrowings, result in an increase in the Company's level of gearing.
To the extent that a fall in the carrying value of the Company's investments
causes gearing to rise to a level that is not consistent with the Company's
gearing policy or borrowing limits, the Company may have to sell investments
in order to reduce borrowings, which may give rise to a loss of value compared
to the book value of the investments, as well as a reduction in income from
investments.
The Company will pay interest on its borrowings. As such, the Company is
exposed to interest rate risk due to fluctuations in the prevailing market
rates. As at 30 November 2024, the Company held cash balance of £274million
(2023: £111million) of which £254million (2023: £110million) were payable
to Redeeming Shareholders, consequently the Company considers it to bear no
significant interest rate risk exposure.
As at the year end, the Company's gearing ratio was nil (2023: 4.7%), based on
the drawn down loans as a percentage of gross asset value.
As at the year end, the Company did not hold any derivative instruments.
Management of leverage risks
Gearing will be deployed flexibly up to 20 per cent of the Net Asset Value, at
the time of borrowing, although the Investment Manager expects that gearing
will, over the longer term, average between 5 and 10 per cent of the Net
Asset Value.
In the event the 20 per cent limit is breached as a result of market
movements, and the Board considers that borrowing should be reduced, the
Investment Manager shall be permitted to realise investments in an orderly
manner so as not to prejudice Shareholders.
Further details of the Company's bank loans is disclosed in note 12.
(v) Interest rate risks
As at 30 November 2024 no loans were outstanding, and the Company had a cash
balance of £274million of which £254million were payable to redeeming
shareholders in December 2024. Consequently, the Company considers it to bear
no significant interest rate risk exposure.
(vi) Credit risks
Credit risk is the potential of a counterparty failing to meet its obligations
in accordance with the agreed terms. Cash and other assets that are required
to be held in custody will be held by the depositary or its sub-custodians.
Where the Company utilises derivative instruments, it is likely to take a
credit risk with regard to the parties with whom it trades and may also bear
the risk of settlement default.
Management of credit risks
The Company has appointed CACEIS Bank as its depositary. The Standard &
Poor's credit rating of CACEIS is A+ (2023: A+). The credit rating of CACEIS
was reviewed at the time of appointment and is reviewed on a regular basis by
the Investment Manager and/or the Board.
The Investment Manager monitors the Company's exposure to its counterparties
on a regular basis and trades in equities are performed on a delivery versus
payment basis.
The Company's assets are segregated from those of the Depositary or any of its
sub-custodians.
At 30 November 2024, the Depository held £417,790,000 (2023: £696,916,000)
in respect of investments and £273,993,000 (2023: £110,954,000) in respect
of cash on behalf of the Company.
(vii) Capital management policies and procedures
The Company considers its capital to consist of its share capital of Ordinary
Shares of 1p each, Management Shares of £1 each, and reserves totalling
£437,300,000 (2023: £665,537,000) and bank loans payable £Nil (2023:
£31,696,000).
The Company has a redemption facility through which Shareholders will be
entitled to request the redemption of all or part of their holding of Ordinary
Shares on an annual basis. The redemption point for the Ordinary Shares was 29
November 2024 and will be annual thereafter. The Redemption facility is
entirely at the discretion of the Directors.
The Investment Manager and the Company's broker monitor the demand for the
Company's shares and the Directors review the position at Board meetings
Use of distributable reserves is disclosed in the footnote on the Statement of
Changes in Equity.
The principal compliance required by the loan covenants at the year end were:
1. the borrower will not permit the adjusted asset coverage to be
less than 3.50 to 1.00; and
2. the borrower will not permit the net asset value to be less
than GBP 400,000,000 at any time.
Following the renewal of the RCF the loan covenants from December 2024 are:
1. the borrower will not permit the adjusted asset coverage to be
less than 3.50 to 1.00; and
2. the borrower will not permit the net asset value to be less
than GBP 250,000,000 at any time.
19. POST BALANCE SHEET EVENTS
The 2024 redemption liability was paid on 20 December 2024 with the redeeming
shareholders being paid 154.76 pence per cancelled share with a total of
£253,550,871 being paid.
FINANCIAL INFORMATION
This announcement does not constitute the Company's statutory accounts. The
financial information is derived from the statutory accounts, which will be
delivered to the registrar of companies and will be put forward for approval
at the Company's Annual General Meeting. The auditors have reported on the
accounts for the year ended 30 November 2023 and the year ended 30 November
2024, their reports were unqualified and did not include a statement under
Section 498(2) or (3) of the Companies Act 2006.
The Annual Report for the year ended 30 November 2024 was approved on 14 March
2025.
ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 23 April 2025 at 12 noon at the
offices of Stephenson Harwood LLP, 1 Finsbury Circus, London EC2M 7SH, United
Kingdom.
For further information contact:
NSM Funds (UK) Limited
4th Floor, 46-48 James Street, London, W1U 1EZ
Email: Bellevue@nsm.group (mailto:Bellevue@nsm.group)
Tel: +44 (0) 20 3697 5770
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