REG - Polar Cap Glb Health PCGH ZDP PLC - Final Results
13/12/2024 07:00
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RNS Number : 9402P Polar Capital Global Health Tst PLC 13 December 2024
POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC
Legal Entity Identifier: 549300YV7J2TWLE7PV84
AUDITED RESULTS ANNOUNCEMENT FOR THE YEAR ENDED
30 SEPTEMBER 2024
FINANCIAL HIGHLIGHTS
For the year to 30 September 2024
Performance
Net asset value per Ordinary share (total return)* 14.95%
Benchmark Index (MSCI ACWI Healthcare Index (total return in sterling with 9.88%
dividends reinvested))
Since restructuring
Net asset value per Ordinary share (total return) since restructuring *~ 92.62%
Benchmark index total return since restructuring 82.42%
Expenses 2024 2023
Ongoing charges* 0.88% 0.87%
Financials As at As at Change %
30 September 2024 30 September 2023
Total net assets £479,073,000 £419,182,000 14.29%
Net asset value per Ordinary share 395.05p 345.66p 14.29%
Price per Ordinary share 376.00p 319.00p 17.87%
Discount per Ordinary share* 4.82% 7.71%
Net (cash)/gearing* (0.91%) 9.37%
Ordinary shares in issue (excluding those held in treasury) 121,270,000 121,270,000 -
Ordinary shares held in treasury 2,879,256 2,879,256 -
Dividends
The Company has paid or declared the following dividends relating to the
financial year ended 30 September 2024:
Pay date Amount per Record Date Ex-Date Declared Date
Ordinary share
First interim: 31 August 2024 1.20p 2 August 2024 1 August 2024 12 July 2024
Second interim: 28 February 2025 1.20p 4 February 2025 3 February 2025 12 December 2024
Total (2023: 2.20p) 2.40p
* See Alternative Performance Measures provided in the Annual Report.
~ The Company's portfolio was restructured on 20 June 2017. The total return
NAV performance since restructuring is calculated by reinvesting the dividends
in the assets of the Company from the relevant payment date.
For further information please contact:
Ed Gascoigne-Pees Tracey Lago, FCG John Regnier-Wilson
Camarco Polar Capital Global Healthcare Trust Plc Polar Capital LLP
Tele. 020 3757 4984 Tele. 020 7227 2742 Tele. 020 7227 2725
STATUS OF ANNOUNCEMENT
The figures and financial information contained in this announcement are
extracted from the Audited Annual Report for the year ended 30 September
2024 and do not constitute statutory accounts for the period. The Annual
Report and Financial Statements include the Report of the Independent
Auditors which is unqualified and does not contain a statement under either
section 498(2) or Section 498(3) of the Companies Act 2006.
The Annual Report and Financial Statements for the year ended 30 September
2024 have not yet been delivered to the Registrar of Companies. The figures
and financial information for the period ended 30 September 2023 are extracted
from the published Annual Report and Financial Statements for the period ended
30 September 2023 and do not constitute the statutory accounts for that
year. The Annual Report and Financial Statements for the period ended 30
September 2023 have been delivered to the Registrar of Companies and included
the Report of the Independent Auditors which was unqualified and did not
contain a statement under either section 498(2) or Section 498(3) of the
Companies Act 2006.
The Directors' Remuneration Report and certain other helpful Shareholder
information have not been included in this announcement but forms part of
the Annual Report which will be available on the Company's website and will
be sent to Shareholders in December 2024.
CHAIR'S STATEMENT
Dear Shareholders
On behalf of the Board, I am pleased to provide to you the Company's Annual
Report for the year ended 30 September 2024.
Performance
I am delighted to report that the Company had a very strong twelve months to
30 September 2024, ending the year 5.07% ahead of its benchmark (MSCI ACWI
Healthcare Index, Total Return) and returning a NAV per share total return of
14.95%. Despite a relatively difficult year for the investment trust sector in
general, the discount narrowed slightly during the year, ending the financial
year at 4.82%.
Considering the challenging market backdrop as a whole, the Company's
performance during the year under review, together with its longer term track
record over the past three and five year periods, supports our belief in the
investment objective and strategy, as well as demonstrating the benefits of an
actively managed portfolio.
The outperformance was driven by strong stock selection across the entire
market-capitalisation range, particularly in biotechnology and
pharmaceuticals. For the second year in a row, Zealand Pharma was the highest
contributor to overall performance attribution, as investor appetite for
companies with exposure to the so-called weight loss drugs, and the potential
they offer, continued.
Further detail is provided within the Manager's Report.
Outlook
We continue to believe the fundamentals for healthcare remain very strong. As
we highlighted last year, innovation drives the future growth potential of
companies, but pressure on healthcare costs to fund new products and
initiatives means that access and affordability are increasingly critical if
the innovation is to flow through into earnings growth. This is a theme our
managers believe will be a driver for the next twelve months, together with
continued excitement over the potential applications of technology, especially
in Artificial Intelligence and also for opportunities in emerging markets,
particularly China, which could benefit from increased economic stimulus.
The performance of the healthcare benchmark, whilst delivering positive
absolute returns, has lagged the broader market in the last year. The
healthcare sector is delivering high levels of innovation and has consistently
shown the ability to yield strong revenue and earnings growth, regardless of
the economic, political and regulatory environment. We remain very excited
about the future prospects for healthcare and the ability to deliver superior
returns for our shareholders.
Further detail is provided in the Manager's Report.
Dividends
The Company's focus continues to remain on capital growth and consequently
dividends are expected to represent a relatively small part of shareholders'
total return. The Company has a policy to pay two small dividends per year,
but it is recognised that these will not necessarily be of equal amounts and
may be reduced.
In August 2024 the Company paid an interim dividend of 1.20p per ordinary
share. The Board has declared a further interim dividend of 1.20p per ordinary
share payable to shareholders on the register as at 4 February 2025. This will
bring the total dividend paid for the financial year under review to 2.40p per
ordinary share, a 9% increase compared to the previous financial year.
Share Capital
The Company has 121,270,000 ordinary shares in issue as at the date of writing
and no shares have been bought back or issued during the financial year under
review. The Company's share price on 30 September 2024 was 376.00p (2023:
319.00p). The Company's market capitalisation at the financial year end was
£456.0m (2023: £386.9m). The Board has reconfirmed the authority given to
the Manager to use discretion to purchase shares in the market when deemed
appropriate to do so.
Liquidation of Subsidiary Undertaking
As previously reported and announced, the Company's wholly owned subsidiary,
PCGH ZDP Plc was incorporated with a limited life of seven years. The purpose
of the subsidiary was to issue zero dividend preference ("ZDP") shares, the
proceeds from which formed a loan to the parent in the form of structural
gearing. This loan was repaid, and the subsidiary was liquidated on 19 June
2024 in accordance with the Articles of Association. Following repayment of
the loan provided by the subsidiary, the Company's portfolio remains ungeared.
The Company currently has no intention of seeking alternative forms of
short-term gearing but will keep this decision under review in conjunction
with any proposed corporate action.
The Board
There were no changes to the membership of the Board during the year under
review, but shortly following the year end, Andrew Fleming stepped down from
the Board. On behalf of the remaining Directors, we thank Andrew for his
efforts, guidance and valuable input over the past five years.
In last year's Annual Report & Accounts we highlighted we had taken on
Ei-Lene Heng as our first Board Apprentice. The Board Apprentice programme is
an initiative designed to develop aspiring board members and boost diversity
in boardrooms. We are pleased to confirm that Ei-Lene Heng has been invited
to, and has accepted, the continuation of her apprenticeship with the Board
through the next 12 to 15 months, which would include any corporate action
associated with an extension of the Company's life. We feel that this will
give Ei-Lene relevant and valuable experience to take into any future
non-executive director (NED) role.
As referenced in my statement to Shareholders last year, the Board is aware of
the FCA's Diversity and Inclusion Policy and notes that its current
composition does not meet the recommended gender or ethnicity requirements.
Given the Company's fixed life and any potential corporate reorganisation in
2025-26, the Board (via the Nomination Committee) has concluded that the
appropriate time for recruitment would be shortly before or after any
reconstruction plans. We have engaged with some of our major shareholders via
our Company Secretary and they are understanding of this timeframe. It is a
priority of the Board to be able to meet all aspects of the FCA's Diversity
policy as part of any future succession plans. At the appropriate time, the
Board will ensure that diversity is considered throughout any recruitment
process, especially when compiling a shortlist of candidates and selecting
individuals for interview.
The Directors' biographical details are available on the Company's website and
are provided in the Annual Report.
Cost Disclosure
The Board notes the recent announcement from the government and Financial
Conduct Authority ("FCA") to reform UK retail disclosure rules. This
announcement also included a forbearance statement to temporarily exempt
investment companies from PRIIPs and the cost disclosure aspects of MiFID. The
Board has engaged with the Manager to understand the implications and explore
any changes that could be applied to take advantage of the exemption. The full
rules and revised regulations are expected to be published and come into force
in mid-late 2025.
Life
The Board has started considering the future of the Company in light of its
fixed-life and has commenced work with its advisors on developing and
potentially bringing forward proposals for a corporate reorganisation in 2025.
This would be ahead of the requirement to propose liquidation at the first AGM
to be held after 1 March 2025 which would ordinarily take place in early 2026.
As part of these considerations, the Board notes that should any performance
fee be payable to the Investment Manager, it will crystallise on 1 March 2025,
as envisaged at the time of the previous reorganisation in 2017.This
crystallisation, in advance of the likely effective date for any
reorganisation proposals, will provide shareholders with the opportunity to
assess their returns in advance of any proposals being considered. No
performance fee has been accrued as at 30 September 2024 (2023: nil) or at the
time of writing.
Annual General Meeting
The Company's Annual General Meeting ("AGM") will be held at 16 Palace Street, London, SW1E 5JD at 2:00pm on Thursday, 13 February 2025. The notice of AGM has been provided to Shareholders and will also be available on the Company's website. Detailed explanations of the formal business and the resolutions to be proposed at the AGM are contained within the Shareholder Information in the Notice of AGM. We will once again upload a copy of the Manager's Investment Presentation (on or before 30 January 2025) to the Company's website ahead of the AGM to allow broader access, and as a result will only hold the formal business meeting in person. The Managers will be available at the AGM to answer questions and meet shareholders present.
We have provided a zoom link in the Notice of AGM which will enable anyone interested to view the formal business and ask questions via the on-line chat function. All formal business resolutions will be voted on by a poll and we therefore encourage shareholders to submit their votes ahead of the meeting by proxy card which is provided with the Notice of Meeting.
Lisa Arnold
Chair
12 December 2024
INVESTMENT MANAGER'S REPORT - FOR THE YEAR ENDED 30 SEPTEMBER 2024
Over the financial year to 30 September 2024, the Company delivered a Net
Asset Value (NAV) per share total return of 14.95%, a 5.07% outperformance of
its benchmark, the MSCI All Country World Daily Net Total Return Health Care
Index. The absolute performance of the healthcare sector was positive, up
9.88% over the reporting period, although it underperformed the broader
market, as tracked by the MSCI All Country World Net Total Return Index, which
was up 19.9% (all figures above are in sterling terms).
The Company's diversification strategy, coupled with its focus on large
capitalisation(1) (cap) healthcare companies with robust, medium-term growth
outlooks, helps drive the positive risk/return profile of the underlying
assets, relative to the more volatile areas of healthcare. Further, the broad
investment remit affords the opportunity to invest in growth areas regardless
of the economic, political and regulatory environment.
Importantly, the Company can also invest in earlier-stage, more innovative and
disruptive companies that tend to be lower down the market-cap and liquidity
scales. This is a key advantage of the Company's closed-ended structure.
Regardless of size, subsector or geography, stock selection is central to the
investment process as we look to identify companies where there is a
disconnect between valuations and the near and medium-term growth drivers.
Market Capitalisation
Market Cap at 30 September 2024 30 September 2023
Mega Cap (> US$100bn) 37.5% 34.5%
Large Cap (US$10bn - US$100bn) 38.7% 46.0%
Mid Cap (US$5bn - US$10bn) 15.3% 14.5%
Small Cap (< US$5bn) 7.5% 14.3%
Other net assets/(liabilities)* 1.0% (9.3)%
Total 100.0% 100.0%
Source: Polar Capital.
* Please note the change in other net assets/ (liabilities) was primarily
driven by the repayment of the ZDP shares.
In terms of structure, the majority of the Company's assets (calculated on a
gross basis and referred to as the Growth portfolio) will be invested in
companies with a market cap >$5bn at the time of investment, with the
balance invested in companies with a market cap <$5bn (a maximum of 20% of
gross assets and referred to as the Innovation portfolio).
At the end of the reporting period, 31 companies in the portfolio were in the
Growth portfolio (91.5% of net assets) and 6 were in the Innovation portfolio
(7.5%).
Following a sluggish start, global equity markets posted positive gains
throughout most of the Company's financial year. The main trend that
characterised the period was a significant rotation into some of the more
economically sensitive areas of the market such as information technology and
communication services. The latter was further boosted by investors' increased
appetite towards companies exposed to artificial intelligence (AI).
The risk-on environment of the first nine months of the year also reflected a
more benign macroeconomic picture than initially feared, with falling
inflation, resilient growth prospects and improving supply chain dynamics. The
three months to the end of September suggested a slower economic environment
which boosted more defensive stocks, although most of those relative gains
evaporated with the surprise 50 basis point (bp(2)) cut from the Federal
Reserve (Fed) in September and fresh stimulus from China.
Reflecting on the Company's overall positive performance, there was strong
stock selection across the entire spectrum, partially offset by negative
allocation, with the Company's above-benchmark exposure to small and mid-cap
stocks the biggest drag on performance. Within the benchmark, healthcare
facilities, healthcare equipment and biopharmaceuticals (biotechnology and
pharmaceuticals companies) were especially strong, reflecting an acceleration
in utilisation and consumption for the first two subsectors and the start of
new product cycles for biopharmaceuticals.
However, the past 12 months have been more challenging for the healthcare
services, managed healthcare and healthcare supplies subsectors. The
healthcare services and managed health care subsectors both struggled due to
the fear of elevated medical costs, driven by increased utilisation and
patient volumes. The sub-par performance for the supplies subsector is more a
reflection of a cautious consumer given its index is heavily populated with
dental and ophthalmology companies.
As set out in last year's annual report, the focus was very much on three key
investment themes:
· Innovation: Recent history has witnessed a number of highly
significant medical breakthroughs in a broad range of therapeutic categories.
· AI and Machine Learning (ML): Advancements in ML algorithms,
greater access to data and the availability of more powerful mobile networks
could materially accelerate the pace of change in the healthcare industry.
· Emerging markets: After a challenging period, especially in
China, emerging markets should be a source of growth driven by an
ever-increasing demand for healthcare products and services.
The themes summarised above will continue to be relevant as we look forward to
the next financial year, especially as reimbursement and access improves for
products and technologies that address unmet medical needs, generate
efficiencies and improve patient outcomes.
We explore these themes in more detail below, in the 'Healthcare: Fundamentals
remain strong' section.
Over the financial year to the end of September 2024, the Company outperformed
its benchmark by 5.07%, achieving a positive return on net assets of 14.95%.
This strong performance is particularly notable given the challenging
environment, where the healthcare sector notably underperformed the broader
market. In dollar terms, global equity markets put a challenging Q3 2023
behind them and entered a sustained rally for the rest of the financial year,
a rally that was only interrupted by brief periods of weakness in April and
from mid-July to early August.
As referred to above, the positive performance of the general equity market
was largely driven by sectors directly or indirectly linked to the AI theme,
such as information technology, communication services and utilities. In
contrast, more defensive sectors lagged for the year as the macroeconomic
picture turned more upbeat than the markets initially expected.
From a subsector perspective, biotechnology and pharmaceuticals were the best
performers for the Company, bolstered by effective stock selection and
positive allocation. Managed healthcare also made a positive contribution,
with allocation being a more significant factor than selection. However,
stock-picking in healthcare equipment, supplies and facilities was less
successful, becoming the main detractor from performance, even though
allocation in these areas was favourable.
From a market-cap point of view, stock selection was positive across the
entire market capitalisation spectrum. For mega-cap investments, where the
Company was underweight compared to the benchmark, the allocation had a
negative impact, but stock-picking was notably strong. Large and mid-cap
companies contributed positively, driven entirely by effective stock
selection. Meanwhile, in small-cap stocks - where the Company was more exposed
than the benchmark - stock selection was robust, but it was not enough to
counteract the negative allocation effect.
On a geographical basis, Europe and North America contributed positively, with
the former having good allocation and selection while the latter benefitted
from good selection and favourable currency movements. Allocation to Asia
Pacific ex-Japan stocks was negative, while selection was only marginally
positive. The biggest detractor was Japan, entirely due to stock selection.
The active management of gearing had a marginally positive contribution to
performance after accounting for foreign exchange moves.
Top 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Top 10 Weight vs BM
Zealand Pharma A/S 4.70 4.69 155.24 145.36 5.80
UCB 2.37 2.17 100.51 90.63 2.02
UnitedHealth Group 3.99 -2.22 5.55 -4.33 1.06
Swedish Orphan Biovitrum 3.14 3.08 43.48 33.60 1.06
Intuitive Surgical 3.58 1.86 52.99 43.11 0.71
Pfizer 0.00 -2.08 -20.58 -30.47 0.69
Sanofi 1.98 0.53 -2.68 -12.57 0.66
Amgen 1.01 -1.01 9.13 -0.76 0.57
Johnson & Johnson 0.33 -4.45 -5.29 -15.17 0.54
Global Health/India 0.91 0.91 28.81 18.93 0.54
Source: Polar Capital; September 2024
Zealand Pharma is a Danish biotechnology company focused on developing drugs
for metabolic and gastrointestinal diseases. During the period, the company
reported encouraging clinical data for key assets, with pretelintide, a novel
weight-loss medication, garnering the most attention from the investment
community as it demonstrated not only robust efficacy but also a relatively
benign safety profile and good tolerability. Overall, the stock's strong
performance reflected the continued enthusiasm that surrounds obesity assets
and their potential to address a significant, unmet medical need.
Belgian pharmaceutical company UCB saw its stock price more than double in the
past 12 months thanks to the impressive launch of psoriasis drug Bimzelx in
the US. There was also increased appreciation of the drug's wider
opportunities in other autoimmune conditions such as hidradenitis suppurativa
(a very painful skin disease with limited therapeutic options), and for UCB's
other commercialised assets in epilepsy, osteoporosis and generalised
myasthenia gravis (a rare, chronic condition that causes muscle weakness).
Consistent with a view that the US healthcare systems would continue to
experience elevated levels of utilisation, the Company did not hold a position
in UnitedHealth Group, the largest provider of healthcare insurance in the US,
for the first five months of the fiscal year. During the period, the stock
came under pressure as higher medical costs dented the company's earning
power. However, we took a position in UnitedHealth Group in March, taking the
view that the healthcare insurer would be able to price its plans
appropriately to offset the higher medical expenses and return to more
predictable earnings growth. This thesis played out and the stock rebounded
through the second half of the fiscal year.
Swedish Orphan Biovitrum ("SOBI"), a biotechnology company based in Sweden,
performed well thanks to good execution, positive clinical data for some of
its assets and strong demand for Beyfortus, a prophylactic therapy against
respiratory syncytial virus (a seasonal virus mainly affecting babies and
elderly individuals). For context, Beyfortus is commercialised in the US by
Sanofi which pays SOBI a tiered royalty in the 25-35% range.
Intuitive Surgical, a leading protagonist in the field of soft- tissue
surgical robots, experienced strong returns as the stock inflected with the
company's approval and subsequent launch of its new robot, the DaVinci 5. The
initial launch of this new robot surpassed even the more optimistic
expectations as the latest product has numerous advantages over the previous
version (such as haptic feedback) and represents a leap forward in technology.
Such innovation should continue to drive conversion of open surgery and
laparoscopic surgery toward robotic approaches and possibly expand the use of
robotic surgery beyond the existing procedure types.
Bottom 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Bottom 10 Weight vs BM
Novo Nordisk A/S 1.03 -3.97 17.31 7.43 -1.25
DexCom 2.57 2.02 -34.60 -44.48 -1.08
Legend Biotech Corp 1.13 1.08 -33.96 -43.85 -0.97
Acadia Healthcare 2.25 2.25 -17.91 -27.79 -0.86
Align Technology 0.66 0.42 -24.18 -34.06 -0.81
Bio-Rad Laboratories 1.55 1.47 -15.04 -24.92 -0.69
Penumbra 1.01 1.01 -26.89 -36.77 -0.67
Becton Dickinson 2.58 1.69 -15.11 -25.00 -0.67
R1 RCM 0.35 0.35 -14.41 -24.30 -0.67
Bruker 0.89 0.89 0.90 -8.98 -0.65
Source: Polar Capital; September 2024
Whilst it did have positive exposure during the period under review to the so
called 'weight loss drugs', the Company lacked exposure for most of the period
to Novo Nordisk, a Danish pharmaceutical business focused on metabolic
diseases and, more specifically, obesity. As mentioned earlier, investors'
appreciation for the market opportunity for Novo Nordisk's weight-loss drug
Wegovy (a so-called glucagon-like peptide-1 receptor agonist, or GLP1 for
short) and similar assets continued unabated on the back of good commercial
success, despite supply of the drug still being a constraint, and compelling
new clinical results of the benefits of GLP1s beyond weight loss.
DexCom, a US company specialising in continuous glucose monitoring (CGM) for
the management of diabetes, started the fiscal year strongly, recovering from
the fears the novel GLP1 drugs could significantly slow down the funnel of its
patients with type-2 diabetes. However, the stock had a precipitous fall when
the company announced a weak set of financial results for Q2 2024 coupled with
a material cut to its outlook. The driver behind the reset was a poorly
executed salesforce restructure which led to both lost patients and a decline
in its revenue per patient.
Legend Biotech's main asset is Carvykti, a drug co-owned with Johnson &
Johnson for the treatment of a type of bone marrow cancer called multiple
myeloma. The company experienced manufacturing constraints which meant sales
for Carvykti disappointed for a couple of quarters. Additionally, the
competitive landscape intensified as Bristol Myers Squibb received approval
for its cell therapy drug for multiple myeloma as well as positive clinical
data from other, earlier- stage assets emerging.
Behavioural health provider Acadia Healthcare had a turbulent past 12 months.
Despite relatively solid execution in a challenging environment, the company
came under significant pressure for legal and regulatory reasons. First,
concerns arose regarding a proposed change in how opioid addiction treatments
are administered in the US, which could have adversely impacted Acadia's
medication-assisted treatment business. Second, the company is embroiled in
various lawsuits and received subpoenas related to its admissions practices,
lengths of stay and billing. These legal proceedings could mean the company is
liable to pay substantial damages.
As a leader in dental aligners, Align Technology offers a less invasive and
more discrete alternative to traditional teeth- straightening methods. When we
initiated a position in the stock, we took a view that consumers around the
world were in a healthier economic shape than most estimated and that the
demand for clear aligners, which are often considered discretionary purchases,
would start to rebound after a period of decline. Albeit sales did experience
some growth in the first half of the 2024 calendar year, the company
mismanaged its forward-looking guidance by raising its outlook in the first
quarter but cutting it in the second, which understandably frustrated the
markets. Additionally, data around consumer sentiment and its spending ability
worsened, driving down expectations of a full recovery of the clear aligner
market.
Healthcare: Fundamentals remain strong.
The 2023 Annual Report focused on three key themes we believed were
accelerating:
· Innovation: Recent history has witnessed a number of highly
significant medical breakthroughs in a broad range of therapeutic
categories.
· AI and ML: Advancements in ML algorithms, greater access to data and
the availability of more powerful mobile networks could materially accelerate
the pace of change in the healthcare industry.
· Emerging markets: After a challenging period, especially in China,
emerging markets should be a source of growth driven by an ever-increasing
demand for healthcare products and services.
We continue to believe the above themes will be important for some time,
especially for the lifeblood of the industry which is innovation, though
access and affordability are also essential for commercial success and
societal wellbeing. With that in mind, and thinking about the year ahead, we
believe the following investment themes will be the most important:
· Access and affordability: Low-cost, high-quality medicines allow
expanded access, with a new wave of biosimilars(3) set to deliver much needed
savings.
· Reimbursement of AI/ML-enabled technologies: Investment and innovation
is accelerating; the next steps are broader reimbursement and wider
utilisation.
· China: After a challenging period, China should now be a recovery
story driven by significant government stimuli.
Access and affordability: Critical for medical and financial health
Generic drugs and biosimilars account for c90% of all US prescriptions but
represent only 13% of spending, offering clear evidence of the value that
low-cost, high- quality medicines bring to patients, healthcare systems and
government budgets alike. As such, it is imperative that regulators and
manufacturers continue to work together to ensure long-term sustainability for
the generics and biosimilars industry.
Small molecule generics have been an important driver of cost savings in the
world of off-patent pharmaceuticals for decades, but it is the adoption of
biosimilars that is really starting to accelerate and could lead to the next
wave of savings. To be clear, the concept of biosimilars is far from new given
there have been 61 approvals and 42 launches in the US as at September 2024
and there have been 106 biosimilars approved in Europe. Focusing first on the
US market, since 2015 biosimilars have generated $36bn in savings but there
appears to be a shift in the healthcare system that is really starting to
accelerate the penetration of biosimilars, a change that could take the
biosimilar market north of $100bn towards the end of the decade.
Back in January 2024, CVS Caremark, which is the Pharmacy Benefit Manager
(PBM) within health solutions company CVS Health, announced it will remove
branded Humira (a biologic for the treatment of a number of autoimmune
disorders that generated sales in excess of $20bn at their peak) from its
major national commercial formularies and will only cover biosimilar Humira
instead. This decision should help accelerate the adoption of biosimilar
Humira given the significantly lower list price it offers its members. As a
reminder, commercial formularies are the drug lists used by employers, unions
and health plans for prescription drug coverage. As others follow suit, US
consumers will start to benefit from materially lower prices without
compromising their quality of care.
Switching gears to Europe, there is a school of thought that would argue the
biosimilar market is slightly more advanced given earlier adoption and greater
levels of cumulative savings of €50bn since 2012. More importantly, with
more than 100 biologic medicines anticipated to lose patent protection by the
end of 2032, the opportunity to generate further, much needed savings is
hugely significant. In terms of investment opportunities, the primary
beneficiaries are the companies involved in the manufacture and distribution
of biosimilars, with the second derivative beneficiaries being the life
sciences tools and services companies that provide the equipment and reagents
used during the quality control and manufacturing processes.
Relevant Company investments include Avantor, Bruker, Fresenius SE, Lonza
Group and Sandoz Group.
Reimbursement of AI/ML-enabled technologies: Critical to broader utilisation.
In last year's annual report, we touched on the idea that AI and ML can be
used to make healthcare more productive. On the services side, key areas
highlighted included the ability to automate coding and billing in hospitals,
improving the efficiency revenue cycle management and helping prevent fraud.
Diagnostics is also an area where AI and ML are starting to make a difference,
especially in colonoscopy and ultrasound.
Can an AI overly improve accuracy and, potentially, improve patient outcomes?
There is plenty of evidence to show the early detection of diseases,
especially cancer, can drive better outcomes for patients. Take breast cancer,
for example, where if the cancer is detected in stage one, i.e. it is
localised, the five-year survival rate is 99%. The Enhanced Breast Cancer
Detection (EBCD) program in the US is a breakthrough in early detection. It
uses AI to help radiologists detect even subtle lesions and combined with
high-quality mammography systems, EBCD's AI overlay optimises breast cancer
screening, giving women greater confidence in their results. Unfortunately,
despite what appears to be a significant medical advance, US insurance is yet
to cover the costs, with EBCD carrying a $40 patient out-of-pocket co-pay.
The technology and ability to innovate is clearly there, as evidenced by the
fact that the US Food and Drug Administration has approved 950 AI/ML-enabled
medical devices to date. The next challenge for the industry is to deliver
consistent results across a wide range of clinical environments and patient
populations, to demonstrate a deeper understanding of the clinical benefits
versus conventional screening methods and to obtain broad-based reimbursement,
which will ultimately lead to wider adoption and commercial success.
Relevant Company investments include Intelligent Ultrasound Group and
Intuitive Surgical.
China: Are things starting to turn?
The lifting of the Covid lockdowns was the catalyst for a strong rebound in
economic activity in China in early 2023. However, growth stalled, with
falling consumer spending, a real estate crisis and slumping exports all
contributing factors. This macro slowdown adversely affected a number of
industries, including the life sciences tools and services sector. There were
also healthcare-specific challenges that have been weighing on the sector in
recent months, primarily an anti-corruption campaign that led to a decrease in
activity within the healthcare ecosystem.
With the anti-corruption campaign starting to move into the rearview mirror,
attention can now turn to the potential implications of economic stimulus
plans. Starting in March 2024, the Chinese authorities announced a series of
initiatives that could have positive, long-term implications for the
healthcare industry. While not exhaustive, and covering a broad range of
industries besides healthcare, the updates include plans to upgrade and renew
equipment plus a 500bn yuan relending programme which will go towards China's
science and technology industries. Further, late in September, Beijing held a
politburo meeting with many taking the view that there is now a greater sense
of urgency to deal with the country's economic challenges. With an explicit
target of stopping the property market decline, there is also a commitment to
cutting interest rates and addressing fiscal policy. All these offer
encouragement that there is a greater sense of urgency to address China's
deflationary environment.
Several healthcare subsectors could benefit from a recovery in China's
economic fortunes, including medical equipment and supplies, pharmaceuticals
and the life sciences tools and services industry. After a prolonged period of
softness, driven by cautious spending and industry-wide destocking, it is
perhaps the life sciences tools and services subsector that appears the most
likely to enjoy a positive inflection. More specifically, the bioprocessing
industry has been under pressure due to conservative spending and
industry-side destocking. Public commentary by industry CEOs, however, appears
to be turning more positive with specific references to increased annual
budgets for science and technology and long-term investments in
instrumentation equipment, technological advances and advanced research.
Predicting the precise timing of a potential inflection is challenging, though
there is high conviction that the region will continue to be an important
source of long-term growth for the healthcare industry.
Relevant Company investments include Avantor and Bruker.
US politics: What does a Republican trifecta mean for healthcare?
In early November it was confirmed that Donald Trump will be the next US
President. With the Republicans retaining control of the House of
Representatives and also flipping the Senate from being Democratic, the
trifecta is complete. Heading into the election, there was a school of thought
that healthcare was not a key priority for the Republicans, with the focus
more likely to be on the economy, taxes, immigration and the climate. This may
yet turn out to be the case, but when Trump announced that Robert F Kennedy,
Jr ("RFK Jr.") is his nominee to run the Department of Health and Human
Services (HHS), he introduced a greater level of uncertainty for healthcare
investors given some of RFK Jr's public comments on vaccines, especially
COVID-19 vaccines fluoride in water and the association between HIV and AIDS.
Ahead of RFK Jr's potential confirmation, far from guaranteed given the
controversy surrounding the nomination, it is maybe worth discussing the key
topics of access to care and drug pricing.
On the subject of access to care and insurance, Trump's views on the
Affordable Care Act (ACA) have been somewhat ambiguous, with comments ranging
from the ACA being a "disaster" that needs repealing and replacing only to
then backtrack by saying that he is "not running to terminate" the ACA but
wanted to make it "better" and "less expensive". Regardless, there is a
potential risk that the new administration allows the Federal subsidies that
provide financial assistance to millions of Americans to sunset at the end of
2025, a scenario that would create a headwind for the healthcare insurance
companies exposed to Medicaid and the exchanges. A second derivative of that
scenario would be less patient volumes running through the healthcare system,
potentially putting modest pressure on healthcare facilities and providers. On
the subject of drug pricing, things become even more opaque given the
Republicans' lack of public commentary. Maybe they will look to stall the 2022
Inflation reduction Act (IRA), which introduced measures aimed at reducing the
cost of prescription drugs for US seniors, or perhaps the Trump Administration
will look to negotiate even bigger price discounts? Regardless of the eventual
outcome, a Republican trifecta and Trump's surprising nominee to run the HHS,
has introduced a greater level of near-term uncertainty, near- term
uncertainty that could yield interesting medium-term investment opportunities.
Positioning and process
The Company began the financial year with significant exposure to healthcare
facilities, biotechnology and healthcare supplies alongside a modest positive
tilt towards managed care. The biggest underweight was in the pharmaceuticals
sector, with smaller underweights in healthcare distributors, healthcare
services and life sciences tools and services.
As the year progressed, the sustainability of high levels of utilisation that
characterised much of 2023 and the start of 2024 became a concern, plus
valuations appeared to be rather stretched, especially for facilities stocks.
As such, the overweight positions in healthcare facilities and medical devices
(i.e. healthcare supplies and equipment) were reduced, having had an elevated
exposure for the first half of the financial year. Nonetheless, we maintained
a positive stance on these sectors, especially supplies, focussing on
companies with reasonable valuations that are either in the middle of a new
product cycle or whose sales growth and earning power are under-appreciated by
the market. We would also note that medical technology companies are perhaps
the ones further ahead in their adoption of AI, although we would also caveat
that there remain reimbursement barriers that could slow the monetisation of
new AI applications.
Throughout the financial year, the Company was consistently underweight versus
the benchmark in pharmaceuticals and overweight in biotechnology. Variations
in the magnitude of the difference versus the benchmark were mostly driven by
stock specifics, with innovation and new product cycles central to the
decision-making process. As a collective, pharmaceutical companies tend to
have mature revenue and earnings growth profiles but there have been
significant breakthroughs in areas such as obesity, Alzheimer's disease and
respiratory disorders like COPD (smoker's cough) and RSV (respiratory
syncytial virus) that are changing the investment landscape for some. Not only
do these breakthroughs meet high unmet medical needs, but they offer
significant commercial opportunities that could drive very attractive revenue
and earnings growth.
As a reminder, the Company has exposure to this theme through holdings in
companies like Eli Lilly, Sanofi, SOBI and Zealand Pharma (a biotechnology
company).
Also, the Company adopted a less negative stance on life sciences tools and
services, an industry that has faced several challenges in recent years, from
customers reducing inventories for bioprocessing consumables and primary
packaging components, depressed emerging biotechnology funding, muted
replacement cycles for equipment, a more cautious approach to R&D
(research and development) from larger biopharmaceutical companies and a slump
in Chinese demand. Looking ahead, the industry's end-market fundamentals
remain intact and exposure to the subsector has increased on a view that the
tide will eventually turn. Thanks to the stimulus measures announced by the
Chinese government, there could be a rebound in demand for life science
equipment in China. Moreover, there are signs that early-stage biotechnology
funding is improving which should benefit outsourcing companies such as
Contract Research Organisations and Contract Development and Manufacturing
Organisations. Finally, commentaries from various sources suggest customer
inventory destocking is ending and that a new replacement cycle for basic life
science instrumentations is emerging.
Geographical Exposure at 30 September 2024 30 September 2023
United States 46.2% 65.1%
Switzerland 12.6% 7.1%
Denmark 8.7% 8.3%
Japan 6.1% 7.6%
France 6.0% 3.9%
Netherlands 3.9% -
Ireland 3.4% 0.8%
Germany 3.3% 2.3%
Belgium 2.8% -
United Kingdom 2.5% 10.6%
Sweden 2.1% 2.8%
Italy 1.4% -
Other net assets/(liabilities) 1.0% (9.3%)
India - 0.8%
Total 100.0% 100.0%
Source: Polar Capital, September 2024
Sector Exposure at 30 September 2024 30 September 2023
Pharmaceuticals 28.0% 30.8%
Biotechnology 20.5% 20.2%
Healthcare Equipment 14.3% 15.4%
Life Sciences Tools & Services 10.8% 6.8%
Managed Healthcare 7.7% 11.1%
Healthcare Supplies 5.4% 7.6%
Healthcare Facilities 3.5% 9.7%
Healthcare Services 3.3% 2.4%
Metal & Glass Containers 2.3% 2.5%
Healthcare Technology 2.3% 2.0%
Other net assets/(liabilities) 1.0% (9.3%)
Healthcare Distributors 0.9% 0.8%
Total 100.0% 100.0%
Source: Polar Capital; September 2024; Please note the change in other net
assets/(liabilities) was primarily driven by the repayment of the ZDP shares,
as discussed below
From a geographic perspective, the Company continues to have an overweight
stance in Europe and, albeit on a smaller scale, Japan. The biggest changes to
the portfolio were a substantial decrease in our exposure to North America and
a corresponding increase in European holdings. This shift in positioning was
an effect of stock selection and changes in the allocation to subsectors.
We also note that the exposure to small-cap stocks (<$5bn) was reduced
versus the start of the financial year. This was driven by a preference for
select investments in the Growth portfolio.
While our previous charts focus on subsector and geographical weightings,
bottom-up stock selection is central to our investment process. The healthcare
industry is complex and dynamic, characterised by varied news flow, and lends
itself to active management. We aim to capitalise on dislocations between
near-term valuations and medium-term fundamentals. Our in-house idea
generation is complemented by external research, with conviction built through
company meetings, investor conferences, and discussions with expert physicians
and consultants. Our team adheres to a strong valuation discipline, examining
a wide range of metrics, including sales and earnings revisions,
price-to-earnings ratios, enterprise values and free cash flow.
Net Gearing
The Company has historically used gearing in the form of Zero Dividend
Preference (ZDP) Shares through its subsidiary, PCGH ZDP Plc, which was
created as part of the Company's restructure in 2017 for the sole purpose of
providing a loan to the parent. As previously announced, the subsidiary
company was incorporated with a limited life of seven years and therefore the
ZDP Shares were repaid and the Company liquidated on 19 June 2024 in
accordance with its Articles of Association.
During the financial year, until the liquidation of the subsidiary and
repayment of the loan, gearing averaged 7.8%, adjusted to reflect the
risk/reward outlook throughout the past 12 months. Following repayment of the
loan provided by the subsidiary, the Company's portfolio has remained
ungeared. The team continues to adopt a top-down strategy in respect of the
Company's portfolio whereby active decisions are made on market cap, subsector
and geographic exposure, depending on the current macro-outlook of the team
which is formulated with the help of third-party research and monitoring many
key risk indicators. Alternative gearing sources may be considered in due
course.
Outlook for healthcare: Finding solutions to complex problems
On an absolute basis, this financial year has been a rewarding one for
healthcare investors, albeit that the sector has underperformed the broader
market which has favoured more consumer-driven sectors such as information
technology and communication services. With sentiment towards healthcare weak,
as illustrated by extreme exchange- traded fund (ETF) outflows from the
sector, the outlook from a contrarian perspective feels really compelling.
After all, the sector continues to design and develop innovative medicines and
technologies that are yielding attractive commercial rewards, the demand for
products and services continues unabated and the industry's global reach
offers multiple sources of long-term, durable growth.
The healthcare industry is incredibly dynamic and investing heavily in
developing innovative solutions to solve complex problems. However, innovation
without access is not sufficient, so addressing the challenge of access and
affordability is of equal importance, not just for the commercial success of
the companies but also for societal good. Thankfully, we are seeing evidence
that payers,
especially on the private side, are making concerted efforts to address the
challenge and, as we think about the financial year ahead, this theme will
become more and more important, in both developed and emerging markets.
The manufacture, approval and launch of safe and effective biosimilars will
not only generate material savings and expand access to care, but also offer
durable growth prospects for the leading protagonists. The challenge for the
payers, especially on the commercial side in the US, is to ensure that the
right mechanisms are put in place to drive access and volumes. Similarly with
AI/ML-enabled technologies, where the pace of innovation is very dynamic,
healthcare systems must first get comfortable with the quality of the data
outputs, and secondly introduce the appropriate levels of reimbursement to
reflect the value of the technologies and ensure broad utility. Emerging
markets, especially China which could benefit from economic stimulus, are
another area of interest which could see a renaissance in the coming months
and years as the healthcare system finds the right balance between cost
control, compliance and attracting innovative, best-in-class therapies,
devices and capital equipment.
In conclusion, whilst the healthcare sector currently appears to be out of
favour relative to the broader market, it is delivering high levels of
innovation and has consistently shown the ability to generate strong revenue
and earnings growth, regardless of the economic, political and regulatory
environment. Add in a greater focus on access and affordability and we believe
the prospects to be very bright indeed.
James Douglas and Gareth Powell
Co-Managers of the Polar Capital Global Healthcare Trust plc
12 December 2024
1 The value of a listed company's shares owned by shareholders; market
capitalisation (cap) is the price per share multiplied by the number of shares
2 basis point is a common unit of measure for interest rates and other
percentages in finance
3 A biosimilar product is a biological product that is highly similar to, and
has no clinically meaningful differences in terms of safety or effectiveness,
from an existing reference product
PORTFOLIO REVIEW
Full Investment Portfolio
As at 30 September
Ranking Stock Sector Country Market Value % of total net assets
£'000
2024 2023 2024 2023 2024 2023
1 (1) Eli Lilly Pharmaceuticals United States 37,952 28,037 7.9% 6.7%
2 (-) UnitedHealth Managed Healthcare United States 36,900 - 7.7% -
3 (-) Novo Nordisk Pharmaceuticals Denmark 29,395 - 6.1% -
4 (4) AbbVie Biotechnology United States 22,508 25,463 4.6% 6.1%
5 (-) Roche Pharmaceuticals Switzerland 21,457 - 4.5% -
6 (-) Sanofi Pharmaceuticals France 17,095 - 3.6% -
7 (-) Fresenius Healthcare Services Germany 15,584 - 3.3% -
8 (-) Sandoz Pharmaceuticals Switzerland 14,947 - 3.1% -
9 (-) Terumo Healthcare Equipment Japan 14,764 - 3.1% -
10 (7) Intuitive Surgical Healthcare Equipment United States 14,273 17,482 3.0% 4.2%
Top 10 investments 224,875 46.9%
11 (-) Insulet Healthcare Equipment United States 13,633 - 2.8% -
12 (-) UCB Pharmaceuticals Belgium 13,521 - 2.8% -
13 (20) Lonza Life Sciences Tools & Services Switzerland 13,215 10,358 2.8% 2.5%
14 (6) Zealand Pharma Biotechnology Denmark 12,497 19,655 2.6% 4.7%
15 (-) ICON Life Sciences Tools & Services Ireland 12,122 - 2.5% -
16 (27) BioMerieux Healthcare Equipment France 11,678 8,777 2.4% 2.1%
17 (-) Bruker BioSciences Life Sciences Tools & Services United States 11,077 - 2.3% -
18 (18) AptarGroup Metal & Glass Containers United States 11,011 10,480 2.3% 2.5%
19 (-) Avidity Biosciences Biotechnology United States 10,732 - 2.2% -
20 (15) Acadia Healthcare Healthcare Facilities United States 10,654 10,787 2.2% 2.6%
Top 20 investments 345,015 71.8%
21 (9) Alcon Healthcare Supplies Switzerland 10,529 14,397 2.2% 3.4%
22 (-) Argenx Biotechnology Netherlands 10,497 - 2.2% -
23 (19) Swedish Orphan Biovitrum Biotechnology Sweden 9,865 10,400 2.1% 2.5%
24 (-) Vaxcyte Biotechnology United States 8,936 - 1.9% -
25 (-) ConvaTec Healthcare Supplies United Kingdom 8,900 - 1.9% -
26 (-) Penumbra Healthcare Equipment United States 8,675 - 1.8% -
27 (-) Avantor Life Sciences Tools & Services United States 8,407 - 1.8% -
28 (26) Legend Biotech Biotechnology United States 8,272 9,565 1.7% 2.3%
29 (34) Medley Healthcare Technology Japan 8,148 4,953 1.7% 1.2%
30 (-) Merus Biotechnology Netherlands 8,027 - 1.7% -
Top 30 investments 435,271 90.8%
31 (28) Cytokinetics Biotechnology United States 6,980 8,172 1.5% 1.9%
32 (-) Stevanato Life Sciences Tools & Services Italy 6,737 - 1.4% -
33 (41) Amvis Healthcare Facilities Japan 6,242 2,350 1.3% 0.6%
34 (-) RxSight Healthcare Supplies United States 6,009 - 1.3% -
35 (17) DexCom Healthcare Equipment United States 5,731 10,560 1.2% 2.5%
36 (38) Uniphar Healthcare Distributors Ireland 4,440 3,196 0.9% 0.8%
37 (37) Intelligent Ultrasound Healthcare Technology United Kingdom 2,726 3,272 0.6% 0.8%
Total equities 474,136 99.0%
Other net assets 4,937 1.0%
Net assets 479,073 100.0%
STRATEGIC REPORT
The Strategic Report section of this Annual Report comprises the Chair's
Statement, the Investment Manager's Report, including information on the
portfolio, and this Strategic Report. This Report has been prepared to provide
information to shareholders on the Company's strategy and the potential for
this strategy to succeed, including a fair review of the Company's performance
during the year ended 30 September 2024, the position of the Company at the
year end and a description of the principal risks and uncertainties, including
both economic and business risk factors underlying any such forward-looking
information.
Business Model and Regulatory Arrangements
The Company's business model follows that of an externally managed investment
trust providing Shareholders with access to a global portfolio of healthcare
stocks.
The Company is designated an Alternative Investment Fund ('AIF') under the
Alternative Investment Fund Management Directive ('AIFMD') and, as required by
the Directive, has contracted with Polar Capital LLP to act as the Alternative
Investment Fund Manager ('AIFM') and HSBC Bank Plc to act as the Depositary.
Both the AIFM and the Depositary have responsibilities under AIFMD for
ensuring that the assets of the Company are managed in accordance with the
investment policy and are held in safe custody. The Board remains responsible
for setting the investment strategy and operational guidelines as well as
meeting the requirements of the Financial Conduct Authority ('FCA') Listing
Rules and the Companies Act 2006.
The AIFMD requires certain information to be made available to investors in
AIFs before they invest and requires that material changes to this information
be disclosed in the Annual Report of each AIF. Investor Disclosure Documents,
which set out information on the Company's investment strategy and policies,
gearing, risk, liquidity, administration, management, fees, conflicts of
interest and other Shareholder information are available on the Company's
website.
There have been no material changes to the information requiring disclosure.
Any information requiring immediate disclosure pursuant to the AIFMD will be
disclosed to the London Stock Exchange. Statements from the Depositary and the
AIFM can be found on the Company's website.
Investment Objective and Policy
The Company's Investment Objective is to generate capital growth through
investments in a global portfolio of healthcare stocks.
The Company will seek to achieve its objective by investing in a diversified
global portfolio consisting primarily of listed equities. The portfolio is
diversified by geography, industry subsector and investment size.
The portfolio will comprise a single pool of investments, but for operational
purposes, the Investment Manager will maintain a Growth portfolio and an
Innovation portfolio. Innovation companies are broadly defined by the
Investment Manager as small/mid cap innovators that are driving disruptive
change, giving rise not only to new drugs and surgical treatments but also to
a transformation in the management and delivery of healthcare. The Growth
portfolio is expected to comprise a majority of the Company's assets. For this
purpose, once an innovation stock's market capitalisation has risen above US
$5bn, it will ordinarily then be treated as a growth stock.
The relative ratio between the two portfolios may vary over the life of the
Company due to factors such as asset growth and the Investment Manager's views
as to the risks and opportunities offered by investments in each pool and
across the combined portfolio. The original make-up of the combined portfolio
was of up to 50 stocks, with growth stocks being primarily US listed. In 2018,
the Board authorised an increase to the number of stocks able to be held to 65
and confirmed there is no restriction on geographical exposure.
The combined portfolio will therefore be made up of interests in up to 65
companies, with no single investment accounting for more than 10% (or 15% in
the case of an investment in another fund managed by the Investment Manager)
of the Gross Assets at the time of investment. The innovation portfolio may
include stocks which are neither quoted nor listed on any stock exchange but
the exposure to such stocks, in aggregate, will not exceed 5% of Gross Assets
at the time of investment. In the event that the Investment Manager launches a
dedicated healthcare innovation fund, the Company's exposure to innovation
stocks may be achieved in whole or in part by an investment in that fund. In
any event, the Company will not, without the prior consent of the Board,
acquire more than 15% of any such healthcare innovation fund's issued share
capital.
The Board remains positive on the outlook for healthcare and the Company will
continue to pursue its Investment Objective in accordance with the stated
investment policy and strategy. Future performance is dependent to a
significant degree on the world's financial markets and their reactions to
economic events and other geo-political forces. The Chair's Statement and the
Investment Manager's Report comment on the development and performance of the
business during the financial year, the outlook and potential risks to the
performance of the portfolio.
Strategy and Investment Approach
The Investment Manager's investment process is primarily based on bottom-up
fundamental analysis. The Investment Manager uses a qualitative filter
consisting of key criteria to build up a watch-list of securities that is
monitored on a regular basis. Due diligence is then carried out on the
individual securities on the watch-list. Each individual holding is assessed
on its own merits in terms of risk: reward including ESG criteria. While the
Company expects normally to be fully or substantially invested, the Company
may hold cash or money market instruments pending deployment in the portfolio.
In addition, it will have the flexibility, when the Investment Manager
perceives there to be actual or expected adverse equity market conditions, to
maintain cash holdings as it deems appropriate.
Service Providers
Polar Capital LLP has been appointed to act as the Investment Manager and AIFM
as well as to provide or procure company secretarial services, marketing and
administrative services, including accounting, portfolio valuation and trade
settlement which it has arranged to deliver through HSBC Securities Services
("HSS").
The Company also contracts directly, on terms agreed periodically, with a
number of third parties for the provision of specialist services, namely:
· Panmure Gordon & Co as Corporate Broker;
· Herbert Smith Freehills LLP as Solicitors;
· HSBC Securities Services as Custodian and Depositary;
· Equiniti Limited as Share Registrars;
· RD:IR for Investor Relations and Shareholder Analysis;
· Camarco as PR advisors;
· PricewaterhouseCoopers LLP as Independent Auditors;
· Huguenot Limited as website designers and internet hosting
services; and
· Perivan Limited as designers and printers for shareholder
communications.
Gearing
The Company has historically utilised gearing in the form of Zero Dividend
Preference (ZDP) Shares through its subsidiary, PCGH ZDP Plc, which was
created as part of the Company's restructure in 2017 for the sole purpose of
providing a loan to the parent. The subsidiary company was incorporated with a
limited life of seven years and, following repayment of the loan by the parent
and redemption of the ZDP shares, it was placed into liquidation on 19 June
2024 in accordance with the Articles of Association. Following repayment of
this loan the Company's portfolio has remained ungeared, however the Articles
of Association provide that the Company may borrow up to 15% of its NAV at the
time of drawdown for tactical deployment when the Board believes that gearing
will enhance returns to shareholders. The Company currently has no intention
of seeking alternative forms of short-term gearing but will keep this decision
under review in conjunction with any proposed corporate action.
Benchmark
The Company will measure the Investment Manager's performance against the MSCI
ACWI Healthcare Index total return, in sterling with dividends reinvested.
Although the Company has a benchmark, this is neither a target nor determinant
of investment strategy. The portfolio may diverge substantially from the
constituents of this index. The purpose of the Benchmark is to set a
reasonable measure of performance for shareholders above which the Investment
Manager earns a share for any outperformance it has delivered.
Investment Management Company and Management of The Portfolio
As the Company is an investment vehicle for shareholders, the Directors have
sought to ensure that the business of the Company is managed by a leading
specialist investment management team and that the investment strategy remains
attractive to shareholders. The Directors believe that a strong working
relationship with Polar Capital LLP (the Investment Manager) will achieve the
optimum return for shareholders. As such, the Board and the Investment Manager
operate in a supportive, co-operative and open environment.
The Investment Manager is Polar Capital LLP ('Polar Capital'), which is
authorised and regulated by the Financial Conduct Authority, to act as
Investment Manager and AIFM of the Company with sole responsibility for the
discretionary management of the Company's assets (including uninvested cash)
and sole responsibility to take decisions as to the purchase and sale of
individual investments. The Investment Manager also has responsibility for
asset allocation within the limits of the investment policy and guidelines
established and regularly reviewed by the Board, all subject to the overall
control and supervision of the Board. Polar Capital provides a team of
healthcare specialists and the portfolio is co-managed by Mr James Douglas and
Mr Gareth Powell. The Investment Manager has other resources which support the
investment team and has experience in managing and administering other
investment trust companies.
Under the terms of the IMA, the Investment Manager also provides or procures
accountancy services, company secretarial, marketing and day-to-day
administrative services, including the monitoring of third-party suppliers,
which are directly appointed by the Company. The Investment Manager has, with
the consent of the Directors, delegated the provision of certain of these
administrative functions to HSBC Securities Services and to Polar Capital
Secretarial Services Limited.
Fee Arrangements
Management Fee
Under the terms of the IMA, the Investment Manager will be entitled to a
management fee together with reimbursement of reasonable expenses incurred by
it in the performance of its duties. The management fee is payable monthly in
arrears and is charged at the rate of 0.75% per annum based on the lower of
the market capitalisation and adjusted net asset value. In accordance with the
Directors' policy on the allocation of expenses between income and capital, in
each financial year 80% of the management fee payable is charged to capital
and the remaining 20% to income.
Performance Fee
The Investment Manager may receive a performance fee paid in cash when various
performance parameters are met. No performance fee was accrued or is due to be
paid as at the year ended 30 September 2024 (2023: nil). Any performance fee
accrued will be paid in cash at the end of the Company's expected life (except
in the case of an earlier termination of the IMA).
Further details on the termination arrangements and performance fee
methodology and calculation are provided within the Shareholder Information in
the Annual Report.
Performance And Key Performance Objectives
The Board appraises the performance of the Company and the Investment Manager
as the key supplier of services to the Company against key performance
indicators ('KPIs'). The objectives of the KPIs comprise both specific
financial and Shareholder related measures. These KPI's have not differed from
the prior year.
KPI CONTROL PROCESS OUTCOME
The provision of investment returns to shareholders measured by long-term The Board reviews the performance of the portfolio in detail and hears the As at 30 September 2024, the total net assets of the Company amounted to
views of the Investment Manager at each meeting. £479,073,000 (2023: £419,182,000).
NAV growth and relative performance against the Benchmark.
The Board also considers the value delivered to shareholders through NAV The Company's NAV total return, over the year ended 30 September 2024, was
growth and dividends paid. 14.95% while the Benchmark Index over the same period was 9.88%. The Company's
performance is explained further in the Investment Manager's Report.
Since restructuring on 20 June 2017, the total return of the NAV was 92.62%
and the benchmark was 82.42%. Investment performance is explained in the
Chair's Statement and the Investment Manager's Report.
The achievement of the dividend policy. Financial forecasts are reviewed to track income and distributions. Two dividends have been paid or are payable in respect of the year ended 30
September 2024 totalling 2.40p per share (2023: two dividends totalling 2.20p
per share).
The Company's focus remains on capital growth. While the Company continues to
aim to pay two dividends per year these are expected to be a small part of a
shareholder total return.
Monitoring and reacting to issues created by the discount or premium of the The Board receives regular information on the composition of the share The discount of the ordinary share price to the NAV per ordinary share at the
ordinary share price to the NAV per ordinary share with the aim of reduced register including trading patterns and discount/premium levels of the year ended 30 September 2024 was 4.82% (2023: 7.71%).
discount volatility for shareholders. Company's ordinary shares. The Board discusses and authorises the issue or buy
back of shares when appropriate.
During the year ended 30 September 2024, no new shares were issued or bought
back.
The Board is aware of the vulnerability of a sector specialist investment
trust to a change in investor sentiment to that sector. While there is no
formal discount policy the Board discusses the market factors giving rise to
any discount or premium, the long or short-term nature of those factors and The number of shares in issue, as at the year end was 124,149,256 of which
the overall benefit to shareholders of any actions. The market liquidity is 2,879,256 were held in treasury. The total voting rights of the Company are
also considered when authorising the issue or buy back of shares when 121,270,000 shares.
appropriate market conditions prevail.
A daily NAV per share, calculated in accordance with the AIC guidelines is
issued to the London Stock Exchange.
To qualify and continue to meet the requirements for sections 1158 and 1159 of The Board receives regular financial information which discloses the current The Company was granted investment trust status annually up to 1 October 2014
the Corporation Tax Act 2010 ('investment trust status'). and projected financial position of the Company against each of the tests set and is deemed to be granted such status for each subsequent year subject to
out in sections 1158 and 1159. the Company continuing to satisfy the conditions of section 1158 of the
Corporation Tax Act 2010 and other associated ongoing requirements.
The Directors confirm that the tests have been met in the financial year ended
30 September 2024 and believe that they will continue to be met.
To ensure the efficient operation of the Company by monitoring the services The Board considers annually the services provided by the Investment Manager, The Board has received, and considered satisfactory, the internal controls
provided by third party suppliers, including the Investment Manager, and both investment and administrative, and reviews on a cycle the provision of report of the Investment Manager and other key suppliers including the
controlling ongoing charges. services from third parties including the costs of their services. contingency arrangements to facilitate the ongoing operations of the Company
in the event of withdrawal or failure of services.
The annual operating expenses are reviewed and any non-recurring project
related expenditure approved by the Board. The ongoing charges for the year ended 30 September 2024 were 0.88%, compared
to 0.87% the previous year.
Risk Management
The Board is responsible for the management of risks faced by the Company and,
through delegation to the Audit Committee, has established procedures to
manage risk, oversee the internal control framework and determine the nature
and extent of the principal risks the Company is willing to take in order to
achieve its long-term strategic objectives.
The established risk management process the Company follows identifies and
assesses various risks, their likelihood, and possible severity of impact,
considering both internal and external controls and factors that could provide
mitigation. A post mitigation risk impact score is then determined for each
principal risk.
The Audit Committee carries out, at least annually, a robust assessment of the
principal risks and uncertainties with the assistance of the Investment
Manager, continually monitors identified risks and meets to discuss both
long-term and emerging risks outside of the normal cycle of Audit Committee
meetings.
During the year the Audit Committee, in conjunction with the Board and the
Investment Managers undertook a full review of the Company's Risk Map
including the mitigating factors and controls to reduce the impact of the
risks. The Committee continues to closely monitor these risks along with any
other emerging risks as they develop and implements mitigating actions as
necessary.
The Committee is mindful of the geopolitical political landscape specifically
the ongoing military activity in Ukraine and the Middle East. Geopolitical
events such as these can have a significant impact on global financial
markets, and hence on the Company's portfolio performance. Further information
on how the Committee has assessed the Company's ability to operate as a going
concern and the Company's longer-term viability can be found in the Report of
the Audit Committee in the full Annual Report.
The key risks, which are those classified as having the highest risk impact
score post mitigation, are detailed below with a high-level summary of the
management through mitigation and status arrows to indicate any change in
assessment over the past year.
Principal Risks and Uncertainties
Portfolio Management
Description Assessment Mitigation
Investment Performance Breach of Investment policy, Investment Manager unable to deliver the Unchanged from previous year. The Board seeks to mitigate the impact of such risks through the regular
Investment Objective leading to poor performance against the benchmark or reporting and monitoring of the Company's investment performance against its
market/industry average. peer group, benchmark and other agreed indicators of relative performance. A
detailed annual review of the investment strategy is undertaken by the
Investment Manager with the Board including analysis of investment markets and
sector trends.
At each meeting the Board discusses developments in healthcare and drug
pipelines with the Investment Manager in addition to the composition and
diversification of the portfolio with sales and purchases of investments and
the degree of risk which the Investment Manager incurs to generate investment
returns. Individual investments are discussed with the Investment Manager as
well as the Investment Manager's general views on the various investment
markets and the healthcare sector in particular. Analytical performance data
and attribution analysis is presented by the Investment Manager.
The Board is committed to a clear communication program to ensure shareholders
understand the investment strategy. This is maintained through the use of
monthly factsheets which have a market commentary from the Investment Manager
as well as portfolio data, an informative website as well as annual and half
year reports.
Trading Execution of unauthorised trade/dealing error. Error or breach may cause Unchanged from previous year. Investment limits and restrictions are encoded into the dealing and operations
regulatory investigation leading to fines, reputational damage and risk to systems of the Investment Manager and various oversight functions are
investment trust status. undertaken to ensure there is early warning of any potential issue of
compliance or regulatory matters.
Discount/Premium Persistent discount in excess of Board or Shareholder acceptable levels. Unchanged from previous year. The Board regularly considers, in comparison to the sector and peers, the
level of premium and discount of the share price to the NAV and ways to
enhance Shareholder value including share issuance and buy backs.
The Board has carefully monitored the discount level and market movements and
has discussed performance with the Managers and advisers. The discount of the
Company narrowed during the year under review and as at 30 September 2024, the
discount of the ordinary share price to the NAV per ordinary share was 4.82%
(2023: 7.71%). The Chair also meets regularly with key shareholders to
understand any concerns and views are detailed in the Chair's Statement and
within the s172 Report. Further detail on the performance and the impact of
market movements on the Company is given in the Investment Manager's Report.
Regulatory Risk
Description Assessment Mitigation
Non-compliance with statutes, regulations and disclosure requirements, Unchanged from previous year The Board monitors regulatory change with the assistance of the Investment
including FCA UK listed company regime and Companies Act 2006; s1158/1159 of Manager, Company Secretary and external professional suppliers and implements
the Corporation Tax Act 2010, the Companies Act 2006 and other UK, European necessary changes should they be required.
and overseas legislation affecting UK companies including MiFID II and the
GDPR.
The Board receives regulatory reports for discussion and, if required,
considers the need for any remedial action. In addition, as an investment
Not complying with accounting standards could result is a suspension of company, the Company is required to comply with a framework of tax laws,
listing or loss of investment trust status, reputational damage and regulation and company law.
Shareholder activism.
Further risks arise from not keeping abreast of changes in legislation and
regulations which have in recent years been substantial.
Economic And Market Risk
Description Assessment Mitigation
Financial loss due to unexpected natural disaster or other unpredictable event Unchanged from previous year. The Board regularly discusses global geopolitical issues and general economic
disrupting the ability to operate or significant exposure to the economic conditions and developments.
cycles of the markets in which the underlying investments conduct their
business operations as well as the economic impact on investment markets where
such investments are listed.
The impact on the portfolio from other geopolitical changes are monitored
through existing control systems and discussed regularly by the Board. While
it is difficult to quantify the impact of such changes, it is not anticipated
Fluctuations in stock markets and currency exchange rates could be that they will fundamentally affect the business of the Company or make
advantageous or disadvantageous to the Company and its performance. healthcare investing any less desirable. The longer term effects of
geopolitical events in Ukraine and the Middle East crisis will continue to be
assessed by the Audit Committee in light of how they will impact the Company's
portfolio and the overall economic and geopolitical environment in which the
Disruption to trading platforms and support services. Company operates.
The Company through the Investment Manager, has a disaster recovery plan in
place.
Operational Risk
Description Assessment Mitigation
Service Failure Failure in services provided by the Investment Manager, Custodian, Unchanged from previous year. The Board carries out an annual review of internal control reports from
suppliers which includes cyber protocols and disaster recovery procedures. Due
Depositary or other service providers; Accounting, Financial or Custody Errors diligence and service reviews are undertaken with third-party service
resulting in regulatory investigation or financial loss, failure of trade providers including the Custodian and Depositary.
settlement, potential loss of Shareholder assets and investment trust status.
A full review of the internal control framework is carried out at least
annually. Regular reporting is received by the Investment Manager on behalf of
the Board from the Depositary on the safe custody of the Company's assets.
The Board undertakes independent reviews of the Depositary and external
Administrator services and additional resources have been put in place by the
Investment Manager. Management accounts are produced and reviewed monthly,
statutory reporting and daily NAV calculations are produced by the external
Administrator and verified by the Investment Manager. Accounting records are
tested, and valuations verified independently as part of the year- end
financial reporting process.
Cyber Risk Cyber-attack causing disruption to or failure of operational and accounting Unchanged from previous year. The number, severity and success rate of cyberattacks have increased
systems and processes provided by the Investment Manager creating an considerably over recent years. However, controls are in place and the Board
unexpected event and/or adverse impact on personnel or the portfolio. proactively seeks to keep abreast of developments through updates with
representatives of the Investment Manager who undertakes meetings with
relevant service providers.
The Audit Committee once again sought assurance via the Investment Manager,
from each of the Company's service providers on the resilience of their
business continuity arrangements. These assurances and the subsequent detailed
updates that were given to the Committee provided a satisfactory level of
assurance that there had not been, and there was no anticipation of any
disruption in the ability of each service provider to fulfil their duties as
would typically be expected.
Key Person Loss of Investment Manager or other key management professionals. Impact on Unchanged from previous year. The strength and depth of investment team provides comfort that there is not
investor confidence leading to widening of the discount and/or poor over-reliance on one person with alternative portfolio managers available to
performance creating a period of uncertainty and potential termination of the act if needed. For each key business process roles, responsibilities and
Investment Management Agreement. reporting lines are clear and unambiguous. Key personnel are incentivised by
equity participation in the investment management company.
Shareholder Communications Failure to effectively communicate significant events to the shareholder and Unchanged from previous year. Polar Capital Sales Team and the Corporate Broker provide periodic reports to
investor base. the Board on communications with shareholders and feedback received.
The Board is committed to a clear communication programme to ensure
Shareholders understand the investment strategy. This is maintained through
the use of monthly factsheets which have a market commentary from the
Investment Manager as well as portfolio data, an informative website as well
as annual and half year reports.
Contact details and how to contact the Board are provided in regulatory
announcements and the Board are present at the AGM to speak to shareholders.
Section 172 of the Companies Act 2006
The statutory duties of the Directors are listed in s171-177 of the Companies
Act 2006. The Board recognises that under s172, Directors have a duty to
promote the success of the Company for the benefit of its members (our
shareholders) as a whole and in doing so have regard to the consequences of
any decision in the long term, as well as having regard to the Company's wider
stakeholders amongst other considerations. The fulfilment of this duty not
only helps the Company achieve its Investment Objective but ensures decisions
are made in a responsible and sustainable way for shareholders.
To ensure that the Directors are aware of, and understand, their duties, they
are provided with an induction when they first join the Board, including
details of all relevant regulatory and legal duties as a Director and continue
to receive regular and ongoing updates on relevant legislative and regulatory
developments. They also have continued access to the advice and services of
the Company Secretary and, when deemed necessary, the Directors can seek
independent professional advice. The Schedule of Matters Reserved for the
Board, as well as the Terms of Reference of its committees, are reviewed
annually and further describe Directors' responsibilities and obligations and
include any statutory and regulatory duties.
The Board seeks to understand the needs and priorities of the Company's
stakeholders and these are taken into account during discussions and as part
of the decision-making process. As an externally managed investment company,
the Company does not have any employees or customers, however the key
stakeholders and a summary of the Board's consideration and actions where
possible in relation to each group of stakeholders are described in the table
below.
STAKEHOLDER GROUP HOW WE ENGAGE WITH THEM
SHAREHOLDERS The Directors have considered this duty when making the strategic decisions
during the year that affect shareholders, including the continued appointment
of the Investment Manager and the recommendation that shareholders vote in
favour of the resolutions for the Company to continue and to renew the
allotment and buy back authorities at the AGM. The Directors have also engaged
with and taken account of shareholders' interests during the year.
The Company's AGM will be held at 2:00pm on Thursday 13 February 2025 at the
offices of Polar Capital, 16 Palace Street, London SW1E 5JD. The Board
recognises that the AGM is an important event for shareholders and the Company
and is keen to ensure that shareholders are able to exercise their right to
vote and participate. Any changes to these arrangements will be communicated
through the Company's website and via a Regulatory Information Service
announcement.
The Board believes that shareholder engagement remains important, especially
in the current market conditions and is keen that the AGM be a participative
event for all. As was the case in 2024, shareholders will once again have the
opportunity to hear the Managers' pre-recorded presentation, reviewing the
Company's performance in the year and the outlook for 2024-2025, in advance of
the AGM. The presentation will be uploaded to the Company's website ahead of
the AGM, on or before 30 January 2025. In addition, Shareholders will also be
able to watch the proceedings of the AGM live via Zoom Conference.
Details of how to access the online link are provided in the Notice of AGM.
Please note that the physical AGM will comprise the formal business and
questions only; there will be no live Managers presentation. Shareholders
are encouraged to send any questions ahead of the AGM to the Board via the
Company Secretary at cosec@polarcapital.co.uk stating the subject matter as
PCGH-AGM. The Chairs of the Board and of the Committees, along with the
Managers, will be in attendance at the AGM and will be available to respond to
questions and concerns from shareholders.
Should any significant votes be cast against a resolution, the Board will
engage with shareholders and explain in its announcement of the results of the
AGM the actions it intends to take to consult shareholders in order to
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
Annual Report will detail the impact the Shareholder feedback has had on any
decisions the Board has taken and any actions or resolutions proposed.
Relations with shareholders
The Board and the Manager consider maintaining good communications and
engaging with shareholders through meetings and presentations a key priority.
The Board regularly considers the share register of the Company and receives
regular reports from the Manager and the Corporate Broker on meetings attended
with shareholders and any concerns that are raised in those meetings. The
Board also reviews correspondence from shareholders and may attend investor
presentations.
Shareholders are kept informed by the publication of annual and half year
reports, monthly fact sheets, access to commentary from the Investment Manager
via the Company's website and attendance at events at which the Investment
Manager presents.
Shareholders are able to raise any concerns directly with the Chair or the
Board without intervention of the Manager or Company Secretary, they may do
this either in person at the AGM or at other events, or in writing either via
the registered office of the Company or to the Chair's specific email address
Chair.PCGH@polarcapital.co.uk.
The Company, through the sales and marketing efforts of the Investment
Manager, encourages retail investment platforms to engage with underlying
shareholders in relation to Company communications and enable those
shareholders to cast their votes on Shareholder resolutions; the Company
however has no responsibility over such platforms. The Board therefore
encourage shareholders invested via the platforms to regularly visit the
Company's website or to make contact with the Company directly to obtain
copies of Shareholder communications.
The Company has also made arrangements with its registrar for shareholders,
who own their shares directly rather than through a nominee or share scheme,
to view their account online at www.shareview.co.uk. Other services are also
available via this service.
Outcomes and strategic decisions during the year
AGM
To enable more shareholders the opportunity to hear the Investment Manager's
AGM presentation, the Board has opted to pre-record and upload this to the
website ahead of the voting deadline and in-person formal business AGM. In
addition, shareholders will also have the opportunity to watch the proceedings
of the AGM live via Zoom Conference. Details of how to access the online link
are provided in the Notice of AGM.
INVESTMENT MANAGER Through the Board meeting cycle, regular updates and the work of the
Management Engagement Committee reviewing the services of the Investment
Manager annually, the Board is able to safeguard Shareholder interests by:
· Ensuring excessive risk is not undertaken in the pursuit of investment
performance;
· Ensuring adherence to the Investment Management Policy and
reviewing the agreed management and performance fees;
· Ensuring compliance with statutory legal requirements, regulations
and other advisory guidance such as consumer duty and aspects of operational
resilience; and
· Reviewing the Investment Manager's decision making and consistency in
investment process.
Maintaining a close and constructive working relationship with the Manager is
crucial as the Board and the Investment Manager both aim to continue to
achieve consistent, long-term returns in line with the Investment Objective.
The culture which the Board maintains to ensure this involves encouraging open
discussion with the Investment Manager; recognising that the interests of
shareholders and the Investment Manager are aligned, providing constructive
challenge and making Directors' experience available to support the Investment
Manager. This culture is aligned with the collegiate and meritocratic culture
which Polar Capital has developed and maintains.
Outcomes and strategic decisions during the year
ESG
The Board continued to engage with the Investment Manager to understand how
ESG has been integrated into the overall house style, the healthcare team
investment approach and decision making as well as the methodology behind
this. The Board also receives information on how ESG affects Polar Capital as
a business and the healthcare team in particular.
Consumer Duty
The Board continues to work with the Investment Manager to ensure the
obligations of the new Consumer Duty regulations are adopted appropriately.
All communications including the website, fact sheets and other published
documentation, are reviewed ahead of publication to ensure they are
appropriate for all end users. A 'value for money' assessment is undertaken
annually and is made available to distributors on request for their due
diligence processes.
Cost Disclosure
The Board has engaged with the Manager to understand the implications of the
FCA's forbearance statement and explore any changes that could be applied to
key documentation to take advantage of the exemption from PRIIPs and the cost
disclosure aspects of MiFID. The Board has reviewed the changes to the
Company's Key Information Document and Factsheet, both of which have been
updated in line with industry guidance.
Management
The Management Engagement Committee has recommended and the Board has approved
the continued appointment of the Investment Manager on the terms set out
within the Investment Management Agreement.
INVESTEE COMPANIES The Board has instructed the Investment Manager to take into account the
published corporate governance policies of the companies in which it invests.
The Board has also considered the Investment Manager's Stewardship Code and
Proxy Voting Policy. The Voting Policy is for the Investment Manager to vote
at all general meetings of companies in favour of resolutions proposed by the
management where it believes that the proposals are in the interests of
shareholders. However, in exceptional cases, where the Investment Manager
believes that a resolution would be detrimental to the interests of
shareholders or the financial performance of the Company, appropriate
notification will be given and abstentions or a vote against will be lodged.
The Investment Manager has voted at 41 company meetings over the year ended 30
September 2024, with 35.7% of meetings having at least one against, withheld
or abstain vote.
The Investment Manager reports to the Board, when requested, on the
application of the Stewardship Code and Voting Policy. The Investment
Manager's Stewardship Code and Voting Policy can be found on the Investment
Manager's website in the Corporate Governance section
(www.polarcapital.co.uk). Further information on how the Investment Manager
considers ESG in its engagement with investee companies can be found in the
ESG report in the Annual Report and Accounts.
Outcomes and strategic decisions during the year
The Board receives information on the ratings of investee companies and is
able to use this as a tool to inform discussions with the Manager during Board
meetings.
SERVICE PROVIDERS The Directors have frequent engagement with the Company's other service
providers through the annual cycle of reporting and due diligence meetings or
site visits. This engagement is completed with the aim of having effective
oversight of delegated services, seeking to improve the processes for the
benefit of the Company and to understand the needs and views of the Company's
service providers, as stakeholders in the Company. Further information on the
Board's engagement with service providers is included in the Corporate
Governance Statement and the Report of the Audit Committee. During the year
under review, due diligence meetings have been undertaken by the Investment
Manager and where possible, service providers have joined meetings to present
their reports directly to the Board or the Audit Committee as appropriate.
Outcomes and strategic decisions during the year
The reviews of the Company's service providers have been positive and the
Directors believe their continued appointment is in the best interests of the
Company. The accounting and administration services of HSBC Securities
Services (HSS) are contracted through Polar Capital and provided to the
Company under the terms of the IMA. The Board continue to monitor service
levels and due diligence reviews conducted by the Company Secretary and is
satisfied that the service received continues to be of a high standard.
PROXY ADVISORS The support of proxy adviser agencies is important to the Directors, as the
Company seeks to retain a reputation for high standards of corporate
governance, which the Directors believe contributes to the long-term
sustainable success of the Company. The Directors consider the recommendations
of these various proxy voting agencies when contemplating decisions that will
affect shareholders and also when reporting to shareholders through the Half
Year and Annual Reports.
Recognising the principles of stewardship, as promoted by the UK Stewardship
Code, the Board welcomes engagement with all of its investors. The Board
recognises that the views, questions from, and recommendations of many
institutional investors and proxy adviser agencies provide a valuable feedback
mechanism and play a part in highlighting evolving shareholders' expectations
and concerns.
Outcomes and strategic decisions during the year
Where possible the Chair and other representatives of the Company have engaged
with the stewardship teams of some larger investors to understand and address
their expectations in terms of board governance, recruitment and diversity.
Prior to AGMs, the Company engages with these agencies to fact check their
advisory reports and clarify any areas or topics contained within the report.
This ensures that whilst the proxy advisory reports provided to shareholders
are objective and independent, the Company's actions and intentions are
represented as clearly as possible to assist with shareholders' decision
making when considering the resolutions proposed at the AGM.
AIC The Company is a member of the AIC and has supported lobbying activities.
Representatives of the Manager sit on a variety of forums run by the AIC which
aids development and understanding of new policies and procedures. The
Directors may cast votes in the AIC Board Elections each year and regularly
attend AIC events.
Approved by the Board on 12 December 2024
By order of the Board
TRACEY LAGO, FCG
Polar Capital Secretarial Services Limited
Company Secretary
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have prepared the Company's
Financial Statements in accordance with UK-adopted IAS and applicable law.
Additionally, the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules require the directors to prepare the Financial Statements
in accordance with UK-adopted 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 and of the profit or loss of the Company for that
period. In preparing the financial statements, the directors are required to:
· select suitable accounting policies and then apply them
consistently;
· state whether they have been prepared in accordance with UK-adopted
IAS, subject to any material departures disclosed and explained in the
Financial Statements;
· make judgements and accounting estimates that are reasonable and
prudent; and
· prepare the Financial Statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements and the Directors'
Remuneration Report comply with the Companies Act 2006. They are responsible
for such internal controls as they determine is necessary to enable the
preparation of Financial Statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Company
and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that comply with that law and those
regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Directors' Confirmations
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 position and performance,
business model and strategy.
Each of the directors, whose names and functions are listed in the Strategic
Report confirm that, to the best of their knowledge:
· the Company Financial Statements, which have been prepared in
accordance with the applicable set of accounting standards, give a true and
fair view of the assets, liabilities, financial position and profit/loss of
the company;
· the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.
In the case of each Director in office at the date the Directors' Report is
approved:
· so far as the director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
director in order to make themselves aware of any relevant audit information
and to establish that the Company's auditors are aware of that information.
Lisa Arnold
Chair
12 December 2024
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2024
Note
Year ended Yea
30 September 2024 r
end
ed
30
Sep
tem
ber
202
3
Revenue return Capital return Total Revenue return Capital return Total
£'000 £'000 return £'000 £'000 return
£'000 £'000
Gains on investments held at fair value 5 - 63,240 63,240 - 19,574 19,574
Investment income 3 5,369 - 5,369 4,804 - 4,804
Other operating income 4 122 - 122 104 - 104
Other currency gains/(losses) 6 - 281 281 - (1,130) (1,130)
Total income 5,491 63,521 69,012 4,908 18,444 23,352
Expenses
Investment management fee 7 (687) (2,747) (3,434) (650) (2,598) (3,248)
Other administrative expenses 8 (833) (100) (933) (712) (13) (725)
Total expenses (1,520) (2,847) (4,367) (1,362) (2,611) (3,973)
Profit before finance costs and tax 3,971 60,674 64,645 3,546 15,833 19,379
Finance costs 9 (14) (882) (896) (9) (1,161) (1,170)
Profit before tax 3,957 59,792 63,749 3,537 14,672 18,209
Tax 10 (708) (240) (948) (598) (715) (1,313)
Net profit for the year and total comprehensive income 3,249 59,552 62,801 2,939 13,957 16,896
Earnings per Ordinary share (pence) 12 2.68 49.11 51.79 2.42 11.51 13.93
The total column of this statement represents Company's Statement of
Comprehensive Income, prepared in accordance with UK‑adopted International
Accounting Standards.
The revenue return and capital return columns are supplementary to this and
are prepared under guidance published by the Association of Investment
Companies.
The Company does not have any other income or expense that is not included in
net profit for the year. The net profit for the year disclosed above
represents the Company's total comprehensive income.
There are no dilutive securities and therefore the Earnings per Share and the
Diluted Earnings per share are the same.
All revenue and capital items in the above statement derive from continuing
operations. No operations were acquired or discontinued in the year.
The notes below form part of these Financial Statements.
STATEMENTS OF CHANGES IN EQUITY
For the year ended 30 September 2024
Note Year ended 30 September 2024
Called up share capital Capital redemption reserve Share premium reserve Special distributable reserve Capital reserves Revenue reserve Total Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Total equity at 1 October 2023 31,037 6,575 80,685 3,672 294,748 2,465 419,182
Total comprehensive income:
Profit for the year ended 30 September 2024 - - - - 59,552 3,249 62,801
Transactions with owners, recorded directly to equity:
Equity dividends paid 11 - - - - - (2,910) (2,910)
Total equity at 31,037 6,575 80,685 3,672 354,300 2,804 479,073
30 September 2024
Note Year ended 30 September 2023
Called up share capital Capital redemption reserve Share premium reserve Special distributable reserve Capital reserves Revenue reserve Total Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Total equity at 1 October 2022 31,037 6,575 80,685 3,672 280,791 2,073 404,833
Total comprehensive income:
Profit for the year ended 30 September 2023 - - - - 13,957 2,939 16,896
Transactions with owners, recorded directly to equity:
Equity dividends paid 11 - - - - - (2,547) (2,547)
Total equity at 31,037 6,575 80,685 3,672 294,748 2,465 419,182
30 September 2023
The notes below form part of these Financial Statements.
BALANCE SHEET
As at 30 September 2024
Notes
30 September 2024 30 September 2023
£'000 £'000
Non-current assets
Investments held at fair value 13 474,136 458,255
Investment in subsidiary 13 - 50
Current assets
Cash and cash equivalents 16 9,552 4,630
Overseas tax recoverable 842 678
Receivables 180 505
10,574 5,813
Total assets 484,710 464,118
Current liabilities
Payables (5,263) (3,981)
Bank overdraft 16 (374) (2,014)
Loan from subsidiary - (38,687)
(5,637) (44,682)
Non-current liabilities
Indian capital gains tax provision - (254)
Total liabilities (5,637) (44,936)
Net assets 479,073 419,182
Equity attributable to equity Shareholders
Called up share capital 14 31,037 31,037
Share premium reserve 80,685 80,685
Capital Redemption reserve 6,575 6,575
Special distributable reserve 3,672 3,672
Capital reserves 354,300 294,748
Revenue reserve 2,804 2,465
Total equity 479,073 419,182
Net asset value per Ordinary share (pence) 15 395.05 345.66
The Financial Statements were approved and authorised for issue by the Board
of Directors on 12 December 2024 and signed on its behalf by
Lisa Arnold
Chair
The notes below form part of these Financial Statements.
Registered number 7251471
CASH FLOW STATEMENTS
For the year ended 30 September 2024
Note Year ended Year ended
30 September 2024 30 September 2023
£'000 £'000
Cash flows from operating activities
Profit before finance costs and tax 64,645 19,379
Adjustment for non-cash items:
Gains on investments held at fair value through profit or loss (63,240) (19,574)
Adjusted profit/(loss) before tax 1,405 (195)
Adjustments for:
Purchases of investments, including transaction costs (688,173) (503,002)
Sales of investments, including transaction costs 737,080 501,992
Decrease/(increase) in receivables 325 (272)
(Decrease)/increase in payables (266) 259
Indian capital gains tax (494) (461)
Overseas tax deducted at source (872) (610)
Net cash generated from/(used in) operating activities 49,005 (2,289)
Cash flows from financing activities
Redemption of ZDP shareholders (39,515) -
Interest paid (68) (44)
Equity dividends paid 11 (2,910) (2,547)
Net cash used in financing activities (42,493) (2,591)
Net increase/(decrease) in cash and cash equivalents 6,512 (4,880)
Cash and cash equivalents at the beginning of the year 2,666 7,546
Cash and cash equivalents at the end of the year 16 9,178 2,666
The notes below form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2024
1. General Information
The Financial Statements for the year ended 30 September 2024 comprise the
Financial Statements of the Company. On 19 June 2024, the Company's only
subsidiary, PCGH ZDP plc, was placed into liquidation following the full
repayment of the loan owed to it by the Company and the redemption of the ZDP
shares. As a result of this, consolidated financial statements are no longer
necessary as the subsidiary's financial information is deemed immaterial to
the overall financial position of the Company.
The principal activity of the Company is that of an investment trust company
within the meaning of Section 1158/1159 of the Corporation Tax Act 2010 and
its investment approach is detailed in the Strategic Report.
The Company's presentational currency is pounds sterling (rounded to the
nearest £'000). Pounds sterling is also the functional currency of the
Company, because it is the currency which is most relevant to the majority of
the Company's shareholders and creditors and the currency in which the
majority of the Company's operating expenses are paid.
2. Accounting Policies
The material accounting policy information and other explanatory information
have been applied consistently for all years presented are set out below:
(a) Basis of Preparation
The Company's Financial Statements have been prepared and approved by the
Directors in accordance with UK-adopted international accounting standards
("UK-adopted IAS") and with the requirements of the Companies Act 2006.
The Financial Statements have been prepared on a going concern basis under the
historical cost convention, as modified by the revaluation of investments and
derivative financial instruments at fair value through profit or loss.
Where presentational guidance set out in the Statement of Recommended Practice
(SORP) for investment trusts issued by the Association of Investment Companies
(AIC) in July 2022 is consistent with the requirements of UK-adopted IAS, the
Directors have sought to prepare the Financial Statements on a basis compliant
with the recommendations of the SORP.
The financial position of the Company as at 30 September 2024 is shown in the
Annual Report. As at 30 September 2024 the Company's total assets exceeded its
total liabilities by a multiple of over 85. The assets of the Company consist
mainly of securities that are held in accordance with the Company's Investment
Policy, and these securities are readily realisable. The Directors have
considered a detailed assessment of the Company's ability to meet its
liabilities as they fall due. The assessment took account of the Company's
current financial position, its cash flow and its liquidity position. In light
of the results of these tests, the Company's cash balances, and the liquidity
positions, the Directors consider that the Company has adequate financial
resources to enable it to continue in operational existence for a period of 12
months from the approval of these financial statements.
Per the Company's Articles of Association, there would be a requirement for a
special resolution for the winding-up of the Company to be proposed to the
shareholders at the first AGM to take place at after 1 March 2025 unless
alternative reconstruction proposals have been approved by the shareholders
prior to that date. Although taking place more than 12 months after the
signing date of the 2024 annual report and financial statements, it is
relevant to consider this as part of the going concern assessment. Should a
liquidation resolution be proposed to the AGM and a single vote be cast in
favour, irrespective of the performance of the trust, the resolution will
pass and the Company be placed into liquidation. Therefore, it has been
concluded that a material uncertainty exists in relation to going concern
surrounding the liquidation vote which may cast significant doubt on the
Company's ability to continue as a going concern.
However, subject to consultation with shareholders and advisors, the Directors
intend to review alternative reconstruction proposals during 2025. On the
assumption that these deliberations result in alternative resolutions being
put to and approved by shareholders, a liquidation resolution would not be
required. As such, the Board concluded that it remained appropriate to
continue to prepare the financial statements on a going concern basis.
The financial statements do not include the adjustments that would result if
the Company were unable to continue as a going concern.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust company and
in accordance with the guidance set out by the AIC, supplementary information
which analyses the Statement of Comprehensive Income between items of a
revenue and capital nature has been presented alongside the Statement of
Comprehensive Income. The results presented in the revenue return column is
the measure the Directors believe appropriate in assessing the Company's
compliance with certain requirements set out in section 1158 of the
Corporation Tax Act 2010.
(c) Income
Dividends receivable from equity shares are recognised and taken to the
revenue return column of the Statement of Comprehensive Income on an
ex-dividend basis.
Special dividends are recognised on an ex-dividend basis and may be considered
to be either revenue or capital items. The facts and circumstances are
considered on a case by case basis before a conclusion on appropriate
allocation is reached.
Where the Company has received dividends in the form of additional shares
rather than in cash, the amount of the cash dividend foregone is recognised in
the revenue return column of the Statement of Comprehensive Income. Any excess
in value of shares received over the amount of the cash dividend foregone is
recognised in the capital return column of the Statement of Comprehensive
Income.
Bank interest is accounted for on an accruals basis. Interest outstanding at
the year end is calculated on a time apportionment basis using market rates of
interest.
(d) Written Options
The Company may write exchange-traded options with a view to generating
income. This involves writing short-dated covered-call options and put
options. The use of financial derivatives is governed by the Company's
policies, as approved by the Board.
These options are recorded initially at fair value, based on the premium
income received, and are then measured at subsequent reporting dates at fair
value. Changes in the fair value of the options are recognised in the capital
return for the period.
The option premiums are recognised evenly over the life of the option and
shown in the revenue return, with an appropriate amount shown in the capital
return to ensure the total return reflects the overall change in the fair
value of the options.
Where an option is exercised, any balance of the premium is recognised
immediately in the revenue return with a corresponding adjustment in the
capital return based on the amount of the loss arising on exercise of the
option.
(e) Expenses
All expenses, including the management fee, are accounted for on an accruals
basis and are recognised when they fall due.
All expenses have been presented as revenue items except as follows:
Expenses are charged to the capital column of the Statement of Comprehensive
Income where a connection with the maintenance or enhancement of the value of
investments can be demonstrated. In this respect the investment management
fees have been charged to the Statement of Comprehensive Income in line with
the Board's expected long-term split of returns, in the form of capital gains
and income from the Company's portfolio. As a result 20% of the investment
management fees are charged to the revenue account and 80% charged to the
capital account of the Statement of Comprehensive Income.
The performance fee (when payable) is charged entirely to capital as the fee
is based on the out-performance of the Benchmark and is expected to be
attributable largely, if not wholly, to capital performance.
The research costs relate solely to specialist healthcare research and are
accounted for on an accrual basis and, are allocated 20% to revenue and 80%
capital. This is in line with the Board's expected long-term split of revenue
and capital return from the Company's investment portfolio.
Finance costs
The ZDP shares were designed to provide a pre-determined capital growth from
their original issue price of 100p on 20 June 2017 to a final capital
repayment of 122.99p on 19 June 2024. The initial capital increased at a
compound interest rate of 3% per annum.
On 19 June 2024, the subsidiary PCGH ZDP plc was placed into liquidation
following the repayment of the loan that it had advanced to the Company and
the redemption of the ZDP shareholders.
No dividends were payable on the ZDP shares. The provision for the capital
growth entitlement of the ZDP shares is included as a finance cost and charged
100% to capital within the Statement of Comprehensive Income (AIC SORP
paragraph 53 - issued July 2022).
Overdraft interest costs are allocated 20% to revenue and 80% to capital in
line with the Board's expected long-term split of revenue and capital return
from the Company's investment portfolio.
Share issue costs
Costs incurred directly in relation to the issue of shares in the subsidiary
are borne by the Company and taken 100% to capital. Share issue costs relating
to ordinary share issues by the Company are taken 100% to the share premium
account.
Zero Dividend Preference (ZDP) shares
Shares issued by the subsidiary were treated as a liability and were shown in
the Balance Sheet at their redemption value at the Balance Sheet date. The
appropriations in respect of the ZDP shares necessary to increase the
subsidiary's liabilities to the redemption values were allocated to capital in
the Statement of Comprehensive Income. The ZDP shares were fully repaid and
redeemed during the year on 19 June 2024.
(f) Taxation
The tax expense represents the sum of the overseas withholding tax deducted
from investment income, tax currently payable and deferred tax.
The tax currently payable is based on the taxable profits for the year ended
30 September 2024. Taxable profit differs from net profit as reported in the
Statement of Comprehensive Income because it excludes items of income or
expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
In line with the recommendations of the SORP, the allocation method used to
calculate tax relief on expenses presented against capital returns in the
supplementary information in the Statement of Comprehensive Income is the
"marginal basis". Under this basis, if taxable income is capable of being
offset entirely by expenses presented in the revenue return column of the
Statement of Comprehensive Income, then no tax relief is transferred to the
capital return column.
Deferred tax is the tax expected to be payable or recoverable on temporary
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation
of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised.
Investment trusts which have approval as such under section 1158 of the
Corporation Taxes Act 2010 are not liable for taxation on capital gains.
The Company is liable to Indian capital gains tax under Section 115 AD of the
Indian Income Tax Act 1961. The Indian capital gains tax provision represents
an estimate of the amount of tax payable by the Company. Tax amounts payable
may differ from this provision depending on when the Company disposes of its
investments. The current provision for Indian capital gains tax is calculated
based on the long term (securities held more than one year) or short term
(securities held less than one year) nature of the investments and the
applicable tax rate at the year end. With effect from 23 July 2024, the
short-term tax rate is 20% (previously 15%) and the long-term tax rate is
12.5% (previously 10%). The estimated tax charge is subject to regular review
including a consideration of the likely period of ownership, tax rates and
market valuation movements. The provision at the year end is recognised in the
Balance Sheet and the year-on-year movement in the provision is recognised in
the Statement of Comprehensive Income.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised based on tax
rates that have been enacted or substantively enacted at the balance sheet
date.
Deferred tax is charged or credited in the Statement of Comprehensive Income,
except when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
(g) Investments Held at Fair Value Through Profit or Loss
When a purchase or sale is made under contract, the terms of which require
delivery within the timeframe of the relevant market, the investments
concerned are recognised or derecognised on the trade date and are initially
measured at fair value.
On initial recognition the Company has designated all of its investments as
held at fair value through profit or loss as defined by UK-adopted IAS. All
investments are measured at subsequent reporting dates at fair value, which is
either the bid price or the last traded price, depending on the convention of
the exchange on which the investment is quoted.
All investments, classified as fair value through profit or loss, are further
categorised into the following fair value hierarchy:
Level 1: Unadjusted prices quoted in active markets for identical assets and
liabilities.
Level 2: Having inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
Level 3: Having inputs for the asset or liability that are not based on
observable market data.
Changes in fair value of all investments held at fair value and realised gains
and losses on disposal are recognised in the capital return column of the
Statement of Comprehensive Income.
In the event a security held within the portfolio is suspended then judgement
is applied in the valuation of that security.
(h) Receivables
Receivables are initially recognised at fair value and subsequently measured
at amortised cost. Receivables do not carry any interest and are short-term in
nature and are accordingly stated at their nominal value (amortised cost) as
reduced by appropriate allowances for estimated irrecoverable amounts.
(i) Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are
short-term, maturity of three months or less, highly liquid investments that
are readily convertible to known amounts of cash.
(j) Dividends Payable
Dividends payable to shareholders are recognised in the Financial Statements
when they are paid or, in the case of final dividends, when they are approved
by the shareholders.
(k) Payables
Other payables are not interest-bearing and are initially valued at fair value
and subsequently stated at their nominal value (amortised cost).
(l) Foreign Currency Translation
Transactions in foreign currencies are translated into sterling at the rate of
exchange ruling on the date of each transaction. Monetary assets, monetary
liabilities and equity investments in foreign currencies at the balance sheet
date are translated into sterling at the rates of exchange ruling on that
date. Realised profits or losses on exchange, together with differences
arising on the translation of foreign currency assets or liabilities, are
taken to the capital return column of the Statement of Comprehensive Income.
Foreign exchange gains and losses arising on investments held at fair value
are included within changes in fair value.
(m) Capital Reserves
Capital reserve arising on investments sold includes:
· gains/losses on disposal of investments
· exchange differences on currency balances
· transfer to subsidiary in relation to ZDP funding requirement
· other capital charges and credits charged to this account in
accordance with the accounting policies above.
Capital reserve arising on investments held includes:
· increases and decreases in the valuation of investments held at
the balance sheet date.
All of the above are accounted for in the Statement of Comprehensive Income.
When making a distribution to shareholders, the Directors determining the
profits available for distribution by reference to the 'Guidance on realised
and distributable profits under the Companies Act 2006' issued by the
Institute of Chartered Accountants of England & Wales and the Institute of
Chartered Accountants of Scotland in April 2017. The availability of
distributable reserves in the Company is dependent on those dividends meeting
the definition of qualifying consideration within the guidance and on the
available cash resources of the Company and other accessible sources of funds.
The distributable reserves are therefore subject to any future restrictions or
limitations at the time such distribution is made.
(n) Repurchase of Ordinary Shares (Including Those Held in Treasury)
The costs of repurchasing Ordinary shares including related stamp duty and
transaction costs are taken directly to equity and reported through the
Statement of Changes in Equity as a charge on the special distributable
reserve. Share repurchase transactions are accounted for on a trade date
basis.
The nominal value of Ordinary share capital repurchased and cancelled is
transferred out of called up share capital and into the capital redemption
reserve.
Where shares are repurchased and held in treasury, the transfer to capital
redemption reserve is made if and when such shares are subsequently cancelled.
(o) Segmental Reporting
Under IFRS 8, 'Operating Segments', operating segments are considered to be
the components of an entity about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The chief
operating decision maker has been identified as the Investment Manager (with
oversight from the board).
The Directors are of the opinion that the Company has only one operating
segment and as such no distinct segmental reporting is required.
(p) Key Estimates and judgements
Estimates and assumptions used in preparing the Financial Statements are
reviewed on an ongoing basis and are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances. The results of these estimates and assumptions form the basis
of making judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. The Company do not consider that
there have been any significant estimates or assumptions in the current
financial year.
(q) New and revised accounting Standards
There were no new UK-adopted IAS or amendments to UK-adopted IAS applicable to
the current year which had any significant impact on the Company's Financial
Statements.
i) The following new or amended standards became effective for the current
annual reporting period and the adoption of the standards and interpretations
have not had a material impact on the Financial Statements of the Company.
Standards & Interpretations Effective for periods commencing on or after
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Requirement amended to disclose material accounting policies instead of 1 January 2023
Statement 2) significant accounting policies and provided guidance in making materiality
judgements to accounting policy disclosure.
Definition of Accounting Estimates (amendments to IAS 8) Introduced the definition of accounting estimates and included other 1 January 2023
amendments to IAS 8 to help entities distinguish changes in accounting
estimates from changes in accounting policy.
International Tax Reform - Pillar A mandatory temporary exception to the accounting for deferred taxes arising 1 January 2023
from the jurisdictional implementation of the Pillar Two model rules; and
Two Model Rules (Amendments to IAS 12) disclosure requirements for affected entities to help users of the financial
statements better understand an entity's exposure to Pillar Two income taxes
arising from that legislation, particularly before its effective date.
ii) At the date of authorisation of the Company's Financial Statements, the
following relevant standards that potentially impact the Company are in issue
but are not yet effective and have not been applied in the Financial
Statements.
Standards & Interpretations Effective for periods commencing on or after
Amendments to IAS 1 Presentation of Financial Statements The amendments clarify that only covenants with which an entity must comply on 1 January 2024
or before the reporting date will affect a liability's classification as
-Non-current liabilities with Covenants current or non-current and the disclosure requirement in the financial
statements for the risk that non-current liabilities with covenant could
-Deferral of Effective Date Amendment (published 15 July 2020) become repayable within twelve months.
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
(publicised 23 January 2020)
Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7) The amendments address the disclosure requirements to enhance the transparency 1 January 2024
of supplier finance arrangements and their effects on a company's liabilities,
cash flows and exposure to liquidity risk.
The Directors expect that the adoption of the standards listed above will have
either no impact or that any impact will not be material on the Financial
Statements of the Company in future periods.
3. Investment
Income
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Revenue:
UK Dividend income 306 591
Overseas Dividend income 5,063 4,213
Total investment income allocated to revenue 5,369 4,804
All investment income is derived from listed
investments.
4. Other Operating Income
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Bank interest 122 104
Total other operating income 122 104
5. Gains on Investments Held at Fair Value
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Net gains on disposal of investments at historic cost 48,604 33,182
Less fair value adjustments in earlier years (10,156) (14,297)
Gains based on carrying value at previous balance sheet date 38,448 18,885
Valuation gains on investments held during the year 24,792 689
63,240 19,574
6. Other Currency Gains/(Losses)
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Exchange gains/(losses) on currency balances 281 (1,130)
7. Investment Management Fee
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Management fee
- charged to revenue 687 650
- charged to capital 2,747 2,598
Investment management fee payable to Polar Capital LLP 3,434 3,248
Management fees are allocated 20% to revenue and 80% to capital.
Details of the fee arrangements are given in the
Strategic Report above.
8. Other Administrative Expenses
Year ended Year ended
30 September 30 September
2024 2023
£'000 £'000
Directors' fees and expenses(1) 150 143
Directors' NIC 16 14
Auditors' remuneration(2): For audit of the Company Financial Statements 55 60
Depositary fee 29 30
Registrar fee 39 37
Custody and other bank charges 65 42
UKLA and LSE listing fees(3) 53 40
Legal & professional fee 7 5
AIC fees 21 21
Directors' and officers liability insurance 20 18
Corporate brokers fee 25 25
Marketing expenses(4) 111 47
Research costs - allocated to revenue(5) - 3
Shareholder communications 24 17
HSBC administration fee 215 208
Other expenses 3 2
Total other administrative expenses allocated to revenue 833 712
Costs related to redemption of ZDP shares and liquidation of PCGH ZDP plc 100 -
subsidiary
Research cost - allocated to capital(5) - 13
Total other administrative expenses 933 725
1 Full disclosure is given in the Directors' Remuneration Report in the Annual
Report.
2 2024 includes £nil (2023: £8,000) paid to the Auditors for the audit of
PCGH ZDP Plc.
3 Reflects increased FCA and LSE fees incurred.
4 Includes bespoke marketing budget of £50,000 (2023: £15,500) and third
party fees of £30,000 (2023: £nil).
5 Research costs payable by the Company amounted to £nil. (2023: £16,000 - 3
months to 31 December 2022). With effect from 1 January 2023, specialist
research costs are absorbed by Polar Capital. These costs are allocated 20% to
revenue and 80% to capital and are included in the ongoing charges
calculation.
Ongoing charges represents the total expenses of the fund, excluding finance
costs and tax, expressed as a percentage of the average daily net asset value,
in accordance with AIC guidance issued in May 2012.
The ongoing charges ratio for the year ended 30 September 2024 was 0.88%
(2023: 0.87%). See Alternative Performance provided in the Annual Report.
9. Finance Costs
Year ended 30 September 2024 Year ended 30 September 2023
Revenue return Capital return Total return Revenue return Capital return Total return
£'000 £'000 £'000 £'000 £'000 £'000
Interest on overdrafts 14 54 68 9 35 44
Appropriation to ZDP shares - 828 828 - 1,126 1,126
Total finance costs 14 882 896 9 1,161 1,170
10. Taxation
Year ended Year ended
30 September 2024
30 September 2023
Revenue return Capital Total return Revenue return Capital return Total return
£'000 return £'000 £'000 £'000 £'000
£'000
a) Analysis of tax charge for the year:
Overseas tax 708 - 708 598 - 598
Indian capital gains tax - 240 240 - 715 715
Total tax for the year (see note 10b) 708 240 948 598 715 1,313
b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the profit per the Statement of
Comprehensive Income as follows:
Profit before tax 3,957 59,792 63,749 3,537 14,672 18,209
Tax at the UK corporation tax rate of 25% (2023: effective tax rate of 22%) 989 14,948 15,937 778 3,228 4,006
Tax effect of non-taxable dividends (1,342) - (1,342) (1,057) - (1,057)
Gains on investments that are not taxable - (15,879) (15,879) - (4,058) (4,058)
Non taxable expenses not utillised in the year 353 699 1,052 279 582 861
Overseas tax suffered 708 - 708 598 - 598
Indian capital gains tax - 240 240 - 715 715
Expenses not allowable - 232 232 - 248 248
Total tax for the year (see note 10a) 708 240 948 598 715 1,313
c) Factors that may affect future tax charges:
The Company has an unrecognised deferred tax asset of £8,364,000 (2023:
£7,312,000). The deferred tax asset is based on the current corporation tax
rate of 25% (2023: 25%).
It is unlikely that the Company will generate sufficient taxable profits in
the future to utilise these expenses and deficits and therefore no deferred
tax asset has been recognised.
Due to the Company's tax status as an investment trust and the intention to
continue meeting the conditions required to obtain approval of such status in
the foreseeable future, the Company has not provided tax on any capital gains
arising on the revaluation or disposal of investments held by the Company.
The Company is liable to Indian capital gains tax under Section 115 AD of the
Indian Income Tax Act 1961. A tax provision on Indian capital gains is
calculated based on the long term (securities held more than one year) or
short term (securities held less than one year) nature of the investments and
the applicable tax rate at the year end. The current rates from 23 July 2024
of short-term tax rates are 20% (previously 15%) and the long term tax rates
are 12.5% (previously 10%) respectively. At the year ended 30 September 2024,
the Company has a deferred tax liability of £nil (2023: £254,000) on capital
gains which may arise if Indian investments are sold.
11. Amounts Recognised as Distributions to Ordinary Shareholders in the
Year
Dividends paid in the year ended 30 September 2024
Payment date No of shares Pence per share Year ended
30 September 2024
£'000
29 February 2024 121,270,000 1.20p 1,455
30 August 2024 121,270,000 1.20p 1,455
2,910
The revenue available for distribution by way of dividend for the year is
£3,249,000 (2023: £2,939,000).
The total dividends payable in respect of the financial year ended 30
September 2023 which is the basis on which the
requirements of Section 1158 Corporation Tax Act 2010 are considered, is set
out below:
Payment date No of shares Pence per share Year ended
30 September 2024
£'000
30 August 2024 121,270,000 1.20p 1,455
28 February 2025 121,270,000 1.20p 1,455
2,910
Dividends paid in the year ended 30 September 2023
Payment date No of shares Pence per share Year ended
30 September 2023
£'000
28 February 2023 121,270,000 1.10p 1,334
31 August 2023 121,270,000 1.00p 1,213
2,547
The total dividends payable in respect of the financial year ended 30
September 2023, which is the basis on which the requirements of Section 1158
Corporation Tax Act 2010 are considered, is set out below:
Payment date No of shares Pence per share Year ended
30 September 2023
£'000
31 August 2023 121,270,000 1.00p 1,213
29 February 2024 121,270,000 1.20p 1,455
2,668
All dividends are paid as interim dividends, and all have been charged to
revenue, where necessary utilising the revenue reserves.
The dividends paid in February each year relate to a dividend declared in
respect of the previous financial year but paid in the
current accounting year.
12. Earnings per Ordinary Share
Year ended Year ended
30 September 2024 30 September 2023
Revenue return Capital return Total return Revenue return Capital return Total return
The calculation of basic earnings per share is based
on the following data:
Net profit for the year (£'000) 3,249 59,552 62,801 2,939 13,957 16,896
Weighted average Ordinary 121,270,000 121,270,000 121,270,000 121,270,000 121,270,000 121,270,000
shares in issue during the year
Basic - Ordinary shares (pence) 2.68 49.11 51.79 2.42 11.51 13.93
As at 30 September 2024 there were no potentially dilutive shares in issue.
13. Investments held at fair value
a) Investments held at far value through profit or loss
30 September 2024 30 September 2023
£'000 £'000
Opening book cost 438,965 401,521
Opening investment holding gains 19,290 32,898
Opening fair value 458,255 434,419
Analysis of transactions made during the year
Purchases at cost 689,721 506,254
Sales proceeds received (737,080) (501,992)
Gains on investments held at fair value 63,240 19,574
Closing fair value 474,136 458,255
Closing book cost 440,211 438,965
Closing investment holding gains 33,925 19,290
Closing fair value 474,136 458,255
The Company received £737,080,000 (2023: £501,992,000) from disposal of
investments in the year. The book cost of these investments when they were
purchased were £688,475,000 (2023: £468,810,000). These investments have
been revalued over time and until they were sold, any unrealised
gains/(losses) were included in the fair value of the investments.
The following transaction costs, including stamp duty and broker commissions
were incurred during the year:
30 September 30 September
2024 2023
£'000 £'000
On acquisition 540 481
On disposal 383 257
923 738
b) Fair value hierarchy
30 September 30 September
2024 2023
£'000 £'000
Level 1 assets 474,136 458,255
Valuation at the end of the year 474,136 458,255
All Level 1 assets are traded on a recognised Stock Exchange.
c) Subsidiary undertaking
Company and business Country of registration, incorporation and operation Number and class of shares held by the Company Holding
PCGH ZDP Plc England and Wales 50,000 Ordinary shares of £1 100%
Following the full repayment of the ZDP shareholders on 19 June 2024, the
subsidiary was placed into liquidation. Refer to Note 1 for further details.
14. Called up Share Capital
Ordinary shares - Allotted, Called up and Fully paid: 30 September 30 September
2024 2023
£'000 £'000
Ordinary shares of nominal value 25p each:
Opening balance of 121,270,000 (2023: 121,270,000) 30,317 30,317
Allotted, Called up and Fully paid: 121,270,000 (2023: 121,270,000) ordinary 30,317 30,317
shares of 25p
2,879,256 (2023: 2,879,256) Ordinary shares, held in treasury 720 720
At 30 September 2024 31,037 31,037
No Ordinary shares were repurchased or issued during the year
(2023: nil).
The Ordinary shares held in treasury have no voting rights and
are not entitled to dividends.
15. Net Asset Value Per Ordinarily Share
Ordinary shares 30 September 30 September
2024 2023
Net assets attributable to Ordinary Shareholders (£'000) 479,073 419,182
Ordinary shares in issue at end of year 121,270,000 121,270,000
Net asset value per Ordinary share (pence) 395.05 345.66
Total issued Ordinary shares 124,149,256 124,149,256
Ordinary shares held in treasury 2,879,256 2,879,256
Ordinary shares in issue 121,270,000 121,270,000
As at 30 September 2024 there were no potentially dilutive shares in issue.
16. Cash and Cash Equivalents
17. Transactions with the Investment Manager and Related Party
Transactions
(a) Transactions with the Manager
Under the terms of an agreement dated 26 May 2010 the Company has appointed
Polar Capital LLP ("Polar Capital") to provide investment management,
accounting, secretarial and administrative services. Details of the fee
arrangement for these services are given in the Strategic Report. The total
fees, paid under this agreement to Polar Capital in respect of the year ended
30 September 2024 were £3,434,000 (2023: £3,248,000) of which £288,000
(2023: £537,000) was outstanding at the year-end.
In addition, the total research cost in respect of the year ended 30 September
2024 was £nil (2023: £16,000). As at the year end, £nil (2023: £nil) was
outstanding. From 1 January 2023 all research costs are payable by Polar
Capital. Refer to note 8 above for more details.
(b) Related party transactions
The Company has no employees and therefore no key management personnel other
than the Directors. The Company paid £150,000 (2023: £143,000) to the
Directors and the Remuneration Report including Directors' shareholdings and
movements within the year is set out within the full Annual Report.
Refer to note 13(c) for details of the subsidiary undertaking.
18. Post Balance Sheet Events
There are no significant events that have occurred after the end of the
reporting period to the date of this report which require disclosure.
AGM
The Annual Report and separate Notice for the Annual General Meeting will be
posted to Shareholders in December 2024 and is available from the Company
Secretary at the Company's Registered Office, (16 Palace Street London SW1E
5JD) or from the Company's website. The AGM will be held at the Company's
Registered Office at 2:00pm on 13 February 2025.
FORWARD LOOKING STATEMENTS
Certain statements included in this Annual Report and Financial Statements
contain forward-looking information concerning the Company's strategy,
operations, financial performance or condition, outlook, growth opportunities
or circumstances in the countries, sectors or markets in which the Company
operates.
By their nature, forward-looking statements involve uncertainty because they
depend on future circumstances, and relate to events, not all of which are
within the Company's control or can be predicted by the Company.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct.
Actual results could differ materially from those set out in the
forward-looking statements. For a detailed analysis of the factors that may
affect our business, financial performance or results of operations, we urge
you to look at the principal risks and uncertainties included in the Strategic
Report Section the Annual Report and Financial Statements.
No part of this Annual Report constitutes, or shall be taken to constitute, an
invitation or inducement to invest in Polar Capital Global Healthcare Trust
plc or any other entity and must not be relied upon in any way in connection
with an investment decision. The Company undertakes no obligation to update
any forward-looking statements.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the company's website (or any other website) is
incorporated into, or forms part of, this announcement.
-END-
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