Annual Financial Report
07/06/2024 07:00
6 June 2024
Worldwide Healthcare Trust PLC
(the “Company”)
Annual Financial Report for the year ended 31 March 2024
The statements below are extracted from the Company’s annual report for the
year ended 31 March 2024 (the Annual Report). The Annual Report, will be
posted to shareholders on 13 June 2024. Copies of the Annual Report will be
available in hard copy format from the Company Secretary, Frostrow Capital
LLP, 25 Southampton Buildings, London WC2A 1AL or from the Company’s website
at www.worldwidewh.com where up to date information on the Company, including
daily NAV, share prices and fact sheets, can also be found.
The Annual Report will be submitted to the Financial Conduct Authority and
will shortly be available in full, unedited text for inspection on the
National Storage Mechanism (NSM):
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual General Meeting will be held on Wednesday, 10 July 2024.
COMPANY PERFORMANCE
HISTORIC PERFORMANCE
FOR THE YEARS ENDED 31 MARCH
2019 2020 2021 2022 2023 2024
Net asset value per share (total return)*^ 13.7% 6.5% 30.0% (5.8)% (0.1)% 12.0%
Benchmark (total return)* 21.1% 5.7% 16.0% 20.4% 2.5% 10.9%
Net asset value per share 272.3p 286.9p 370.3p 346.5p 343.5p 381.1p
Share price 273.0p 292.0p 369.5p 327.5p 311.5p 335.0p
Premium/(discount) of share price to
net asset value per share 0.3% 1.8% (0.2)% (5.5)% (9.3)% (12.1)%
Dividends per share 2.65p 2.5p 2.2p 2.7p 3.1p 2.8p
Leverage 4.9% 12.0% 7.6% 10.9% 10.5% 10.8%
Ongoing charges^ 0.9% 0.9% 0.9% 0.9% 0.8% 0.9%
Ongoing charges (including performance 1.1% 0.9% 0.9% 1.4% 0.8% 0.9%
fees paid or crystallised during the year)^
Comparative periods have been restated for the sub-division of each share of
25p each into 10 new shares of 2.5p each, approved at the AGM held on 18 July
2023 and effective on 27 July 2023.
* Source: Morningstar
^ Alternative Performance Measure (see Glossary).
* Source: Morningstar
STATEMENT FROM THE CHAIR
INVESTMENT PERFORMANCE
I am pleased to present your Company’s Annual Report and Financial
Statements for the year ended 31 March 2024.
Stock market volatility continued in the year under review, with company and
healthcare industry fundamentals often taking a back seat to macroeconomic
forces and geopolitical events. The first half of the year was dominated by
investor uncertainty and concerns regarding lingering inflation and continued
high interest rates. The second half of the year saw these concerns abate,
which helped markets to rise, in some cases, back to all-time highs.
Against this backdrop, I am pleased to report that the Company performed well,
with a net asset value per share total return of +12.0% (2023: -0.1%),
outperforming the Company’s Benchmark, the MSCI World Health Care Index
measured on a net total return, sterling adjusted basis, which returned +10.9%
(2023: +2.5%).
The Company’s share price total return during the year was +8.6% (2023:
-4.1%). The disparity between the performance of the Company’s net asset
value per share and its share price was reflected in the widening of our share
price discount to our net asset value per share from 9.3% at 31 March 2023 to
12.1% at 31 March 2024.
Principal contributors to our outperformance were Big Pharma, Medtech and
Emerging Biotech stocks. A key part of our Portfolio Manager’s strategy is
to be overweight the Emerging Biotech sector. This reflects both the high
levels of innovation and growth found in these companies as well as their
potential to be acquisition targets by larger pharmaceutical companies seeking
growth opportunities.
While the Company has underperformed the Benchmark on a five-year view (+45.8%
compared to +68.3%), our long-term performance continues to be strong. From
the Company’s inception in 1995 to 31 March 2024, the total return of our
net asset value per share has been +4,733%, equivalent to a compound annual
return of +14.4%. This compares to a cumulative blended Benchmark return of
+2,438% and a compound annual return of 11.9% over the same period.
Further information on the healthcare sector, the Company’s investments and
performance during the year can be found in the Portfolio Manager’s Review.
CAPITAL
Since the beginning of 2022, and for a variety of reasons, share price
discounts across the investment company sector in the UK have widened. The
average level of discount in the broader sector currently stands at c.14.0%*.
This compares to the Company’s share price discount of 9.4% as at 5 June
2024.
It is the Board’s policy to buy back our shares if the Company’s share
price discount to the net asset value per share exceeds 6% on an ongoing
basis. Shareholders should note, however, that it remains possible for the
discount to be greater than 6% for extended periods of time, particularly when
sentiment towards the Company, the sector and to investment trusts generally
remains poor. In such an environment, buybacks may prove unable to prevent the
discount from widening. However, they enhance the net asset value per share
for remaining shareholders and go some way to dampening discount volatility,
which can adversely affect investors’ risk adjusted returns.
Over the year, the Company remained committed to its share buyback and
issuance policy, regularly repurchasing shares. This commitment was
demonstrated by the fact that a total of 80,265,298 shares were repurchased
for treasury at a cost of £253m and at an average discount of 10.5%. In
addition to increasing the Company’s net asset value per share, during the
period under review this activity made the Company the most active acquirer of
its own shares both in its sector and across the investment trust sector as a
whole.
* Source: Winterflood Investment Trusts
The shares repurchased during the year under review equated to 12.8% of the
Company’s share capital at the beginning of the year. The total number of
shares shown to have been repurchased during the year has been adjusted to
reflect the share split of each of the Company’s shares of 25p each into 10
shares of 2.5p each which took effect from 27 July 2023.
On 31 March 2024, there were 545,942,332 shares in issue (excluding the
55,722,868 shares held in treasury). From the beginning of the new financial
year to 5 June 2024, a further 10,677,869 shares have been bought back for
treasury, at a cost of £36.5m and at an average discount of 10.1%.
In a change to the Company’s stated policy, I confirm that all shares held
in treasury at the date of the Company’s Annual General Meeting to be held
on 10 July 2024, will not be cancelled and will continue to be held in
treasury for re-issue at a premium to the net asset value per share.
REVENUE AND DIVIDEND
Shareholders will be aware that it remains the Company’s investment policy
to pursue capital growth for shareholders and to pay dividends at least to the
extent required to maintain investment trust status. Therefore, the level of
dividends declared can go down as well as up. An unchanged interim dividend of
0.7p per share for the year ended 31 March 2024, was paid on 11 January 2024
to shareholders on the register on 24 November 2023.
The Company’s net revenue for the year as a whole decreased to £16.1m from
£19.7m. This was due largely to a decrease in exposure to higher yielding
stocks in the portfolio as well as a reduction in the size of the portfolio
due to shares bought back by the Company during the year. As a result, the
revenue return per share was 2.7p (2023: 3.0p per share).
Accordingly, the Board is proposing a slightly reduced final dividend for the
year of 2.1p per share (2023:2.4p per share). Together with the interim
dividend already paid, this makes a total dividend for the year of 2.8p per
share (2023: 3.1p per share).
The effect of share buybacks means that the reported dividend per share, which
is based on the number of shares in issue at the end of the financial year, is
higher than the reported revenue return per share, which is based on the
average number of shares in issue over the year.
Based on the closing mid-market share price of 353.5p on 5 June 2024, the
total dividend payment for the year represents a current yield of 0.8%.
The final dividend will be payable, subject to shareholder approval, on 24
July 2024, to shareholders on the register of members on 14 June 2024. The
associated ex-dividend date will be 13 June 2024.
The Company’s dividend policy will be proposed for approval at the
forthcoming Annual General Meeting.
BOARD OF DIRECTORS
Humphrey van der Klugt will retire at the conclusion of the Company’s Annual
General Meeting on Wednesday, 10 July 2024.
Humphrey has served on the Board since 2016 and was the Chair of the Audit &
Risk Committee from 2016 to 2023. Humphrey’s accounting, general finance and
portfolio management experience, including his deep knowledge of the
investment trust sector, have been invaluable to the Board. His friendship and
wise counsel will be greatly missed. The Board is in the process of recruiting
a new Director to join the Board later in the year and we will keep
shareholders informed of developments.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) MATTERS
ESG matters continue to be an important priority for the Board. Our objective
is to have full, transparent disclosure on the topic. Our Senior Independent
Director, Bina Rawal, works closely with our Portfolio Manager on this matter.
Our Portfolio Manager remains committed to taking a leading role in the
development of meaningful ESG engagement practices in the healthcare sector.
As part of this, they facilitate dialogue and an exchange of leading practices
among investors, companies and other relevant experts on ESG, in particular,
the large capitalisation pharmaceutical sector. They also engage with a broad
range of companies on a regular basis where areas of improvement can be
identified. Further information on both ESG matters and climate change can be
found in the Portfolio Manager’s ESG report.
CONTINUATION VOTE
The Board has committed to undertaking a continuation vote every five years,
with a resolution tabled at the Annual General Meeting falling in the fifth
year. Accordingly, such a resolution is included in the notice of Annual
General Meeting contained within this report.
In the light of the Company’s long-term track record of outperformance, the
positive outlook for the healthcare sector globally and the Company’s unique
ability to provide shareholders with access to a broad range of healthcare
investment opportunities worldwide, the Board unanimously recommends that
shareholders vote in favour of the resolution allowing the Company to continue
as an investment trust for a further five years.
ANNUAL GENERAL MEETING (“AGM”)
The Company’s AGM will again be held at Saddlers’ Hall, 40 Gutter Lane,
London EC2V 6BR on Wednesday, 10 July 2024 at 1.00pm. As well as the formal
proceedings, there will be an opportunity to meet the Board and the Portfolio
Manager and to receive an update on the Company’s strategy. We look forward
to seeing as many of you as possible there.
For those investors who are not able to attend the meeting in person, a video
recording of the Portfolio Manager’s presentation will be uploaded to the
website after the meeting. Shareholders can submit questions in advance by
sending them to wwh@frostrow.com.
I encourage all shareholders to exercise their right to vote at the AGM and to
register your votes online in advance of the meeting. Registering your vote in
advance will not restrict you from attending and voting at the meeting in
person should you wish to do so. The votes on the resolutions to be proposed
at the AGM will again be conducted on a poll. The results of the proxy votes
will be published following the conclusion of the AGM by way of a stock
exchange announcement and will also be able to be viewed on the Company’s
website at www.worldwidewh.com.
OUTLOOK
While stock market volatility is to be expected, and in the coming year may be
influenced by elections in the US and UK, our Portfolio Manager, OrbiMed,
continues to remain positive on the outlook for the healthcare sector and our
Company’s strategy for maximizing shareholder value over time. They believe
that the overall future of the healthcare industry remains strong due to
increasing demand globally, driven by a combination of the world’s aging
population and improving access to healthcare products and services worldwide.
At the same time, the rapid pace of innovation continues unabated, leading to
the availability of new products and treatments.
OrbiMed further believes that the challenging investment backdrop for
healthcare stocks that had existed since the easing of the COVID pandemic
appears to be changing and that the recent upturn in share prices across the
industry is more representative of its positive fundamentals.
Lastly, OrbiMed expects the currently high level of merger and acquisition
activity in the healthcare sector to continue, supported by attractive
valuations, healthy balance sheets and, within the pharmaceutical sector, a
need to address future patent expirations.
Your Board shares OrbiMed’s optimism. We believe the prospects for the
global healthcare sector are strong and that your Company is uniquely placed
to take advantage of opportunities in a wide variety of companies around the
world. Accordingly, we believe that long-term investors in the Company will
continue to be rewarded.
Doug McCutcheon
Chair
6 June 2024
INVESTMENT OBJECTIVE AND POLICY
INVESTMENT OBJECTIVE
The Company invests in the global healthcare sector with the objective of
achieving a high level of capital growth.
In order to achieve its investment objective, the Company invests worldwide in
a diversified portfolio of shares in pharmaceutical and biotechnology
companies and related securities in the healthcare sector. It uses gearing,
and derivative transactions to enhance returns and mitigate risk. Performance
is measured against the MSCI World Health Care Index on a net total return,
sterling adjusted basis (“Benchmark”).
INVESTMENT STRATEGY
The implementation of the Company’s Investment Objective has been delegated
to OrbiMed by Frostrow (as AIFM) under the Board’s and Frostrow’s
supervision and guidance.
Details of OrbiMed’s investment strategy and approach are set out in the
Portfolio Manager’s Review.
While the Board’s strategy is to allow flexibility in managing the
investments, in order to manage investment risk it has imposed various
investment, gearing and derivative guidelines and limits, within which
Frostrow and OrbiMed are required to manage the investments, as set out below.
Any material changes to the Investment Objective, Policy and Benchmark or the
investment, gearing and derivative guidelines and limits require approval from
shareholders.
INVESTMENT POLICY
INVESTMENT LIMITS AND GUIDELINES
· The Company will not invest more than 15% of the portfolio in any one
individual stock at the time of acquisition;
· At least 50% of the portfolio will normally be invested in larger
companies (i.e. with a market capitalisation of at least U.S.$10bn);
· At least 20% of the portfolio will normally be invested in smaller
companies (i.e. with a market capitalisation of less than U.S.$10bn);
· Investment in unquoted securities will not exceed 10% of the portfolio at
the time of acquisition;
· A maximum of 5% of the portfolio, at the time of acquisition, may be
invested in each of debt instruments, convertibles and royalty bonds issued by
pharmaceutical and biotechnology companies;
· A maximum of 30% of the portfolio, at the time of acquisition, may be
invested in companies in each of the following sectors:
– healthcare equipment and supplies;
– healthcare providers and services;
· The Company will not invest more than 10% of its gross assets in other
closed ended investment companies (including investment trusts) listed on the
London Stock Exchange, except where the investment companies themselves have
stated investment policies to invest no more than 15% of their gross assets in
other closed ended investment companies (including investment trusts) listed
on the London Stock Exchange, where such investments shall be limited to 15%
of the Company’s gross assets at the time of acquisition.
DERIVATIVE STRATEGY AND LIMITS
In line with the Investment Objective, derivatives are employed, when
appropriate, in an effort to enhance returns and to improve the risk-return
profile of the Company’s portfolio. Only Equity Swaps were employed within
the portfolio during the year.
The Board has set the following limits within which derivative exposures are
managed:
· Derivative transactions (excluding equity swaps) can be used to mitigate
risk and/or enhance capital returns and will be restricted to a net exposure
of 5% of the portfolio; and
· Equity Swaps may be used in order to meet the Company’s investment
objective of achieving a high level of capital growth, and counterparty
exposure through these is restricted to 12% of the gross assets of the Company
at the time of acquisition.
The Company does not currently hedge against foreign currency exposure.
GEARING LIMIT
The Board has set a maximum gearing level, through borrowing, of 20% of the
net assets.
LEVERAGE LIMITS
Under the AIFMD the Company is required to set maximum leverage limits.
Leverage under the AIFMD is defined as any method by which the total exposure
of an AIF is increased.
The Company has two current sources of leverage: the overdraft facility, which
is subject to the gearing limit; and, derivatives, which are subject to the
separate derivative limits. The Board and Frostrow have set a maximum leverage
limit of 140% on both the commitment and gross basis.
Further details on the gearing and leverage calculations, and how total
exposure through derivatives is calculated, are included in the Glossary.
Further details on how derivatives are employed can be found in note 16.
PORTFOLIO
INVESTMENTS HELD AS AT 31 MARCH 2024
Investments Sector Country Market value % of
£’000 Investments
Eli Lilly Pharmaceuticals United States 192,261 9.2%
Boston Scientific Healthcare Equipment & Supplies United States 139,752 6.7%
Novo Nordisk Pharmaceuticals Denmark 130,534 6.2%
AstraZeneca Pharmaceuticals United Kingdom 129,973 6.2%
Intuitive Surgical Healthcare Equipment & Supplies United States 123,124 5.9%
Merck Pharmaceuticals United States 117,578 5.6%
Biogen Biotechnology United States 92,990 4.4%
Tenet Healthcare Healthcare Providers & Services United States 80,031 3.8%
Daiichi Sankyo Pharmaceuticals Japan 77,991 3.7%
Stryker Healthcare Equipment & Supplies United States 63,107 3.0%
Top 10 investments 1,147,341 54.7%
BioMarin Pharmaceutical Biotechnology United States 56,867 2.7%
Elevance Health Healthcare Providers & Services United States 52,559 2.5%
Eisai Pharmaceuticals Japan 52,016 2.5%
Thermo Fisher Scientific Life Sciences Tools & Services United States 51,937 2.5%
Evolent Health Healthcare Providers & Services United States 51,662 2.5%
GSK Pharmaceuticals United Kingdom 50,940 2.4%
Natera Life Sciences Tools & Services United States 46,733 2.2%
Ionis Pharmaceuticals Biotechnology United States 42,969 2.0%
Caris Life Sciences* Life Sciences Tools & Services United States 40,531 1.9%
Sarepta Therapeutics Biotechnology United States 38,152 1.8%
Top 20 investments 1,631,707 77.7%
ICON Life Sciences Tools & Services Ireland 37,515 1.8%
Apellis Pharmaceuticals Biotechnology United States 37,187 1.8%
Argenx Biotechnology Netherlands 32,035 1.5%
Neurocrine Biosciences Biotechnology United States 29,086 1.4%
SI-BONE Healthcare Equipment & Supplies United States 29,033 1.4%
Vertex Pharmaceuticals Biotechnology United States 28,781 1.4%
UnitedHealth Healthcare Providers & Services United States 27,397 1.3%
Vaxcyte Biotechnology United States 26,716 1.3%
Cytokinetics Biotechnology United States 26,621 1.3%
Shanghai INT Medical Instruments Healthcare Equipment & Supplies China 20,244 1.0%
Top 30 investments 1,926,322 91.9%
Janux Therapeutics Biotechnology United States 19,806 0.9%
Crossover Health* Healthcare Providers & Services United States 18,018 0.9%
EDDA Healthcare & Technology* Healthcare Equipment & Supplies China 15,129 0.7%
VISEN Pharmaceuticals* Biotechnology China 13,714 0.7%
Beijing Yuanxin Technology* Healthcare Providers & Services China 13,407 0.6%
Sino Biopharmaceutical Pharmaceuticals Hong Kong 12,723 0.6%
Dexcom Healthcare Equipment & Supplies United States 12,012 0.6%
Galderma Group Pharmaceuticals Switzerland 11,652 0.6%
New Horizon Health Life Sciences Tools & Services China 11,186 0.5%
Innovent Biologics Biotechnology China 11,053 0.5%
Top 40 investments 2,065,022 98.5%
Ruipeng Pet Group* Healthcare Providers & Services China 10,844 0.5%
Jiangxi RiMAG Group* Healthcare Providers & Services China 10,503 0.5%
MabPlex* Healthcare Providers & Services China 5,395 0.3%
API Holdings* Healthcare Providers & Services India 5,072 0.2%
Shandong Weigao Group Medical Polymer Healthcare Equipment & Supplies China 2,961 0.1%
Shanghai Bio-heart Biological Technology Healthcare Equipment & Supplies China 2,381 0.1%
Passage Bio Biotechnology United States 2,218 0.1%
Ikena Oncology Biotechnology United States 1,815 0.1%
Dingdang Health Technology Healthcare Providers & Services China 1,510 0.1%
Peloton Therapeutics - Milestone* Biotechnology United States 514 0.0%
Total equities 2,108,235 100.5%
Biotech M&A Target Swap Basket Swaps United States 176,869 8.4%
Apollo Hospitals Healthcare Providers & Services India 16,416 0.8%
GLP-1 Dislocation;/MedTech Recovery Swap Basket Swaps China 4,797 0.2%
Less: Gross exposure on financed swaps (209,556) (10.0)%
Total Equity Swaps (11,474) (0.5)%
Total investments including OTC Swaps 2,096,761 100.0%
* Unquoted holding
SUMMARY
Investments Market value % of
£’000 Investments
Quoted Equities 1,975,108 94.2%
Unquoted equities 133,127 6.3%
Equity Swaps (11,474) (0.5)%
Total of all investments 2,096,761 100.0%
PORTFOLIO MANAGER’S REVIEW
MARKETS
Global equity markets continued their rollercoaster ways in the financial
year, with a volatile first half followed by a steep climb higher in the
second half. One constant throughout the year has been the macroeconomic and
political factors driving returns, trumping industry specific fundamentals.
The first half of the year was characterised mostly by investor fear and
uncertainty, with rising interest rates, geopolitical conflicts, and
persistent inflation providing the backdrop for the debate around a recession.
Broad market returns during this period were flat to down, exacerbated by a
precipitous market sell-off in October where “higher for longer” was the
rally cry for investors to sell. Healthcare stocks eschewed their traditional
defensive characteristics and lagged the market by over 5% (source: MSCI)
during this period.
But the second half of the year saw a dramatic reversal of market performance
as investors expressed enthusiasm over easing inflation data and the U.S.
Federal Reserve’s indication of a potential end to its two-year interest
rate hiking cycle. That momentum continued unabated into the financial year
end where the MSCI World Index and the S&P 500 closed on all-time highs whilst
the FTSE All-Share Index closed on a 52-week high. Healthcare stocks also
rose, but again trailed the broad market by 6%.
The net of it was a difficult year for healthcare stocks. The MSCI World Index
bucked the early tumult of the year to post an impressive total return of
+22.4% (sterling). Whilst the MSCI World Healthcare Index also rebounded
during the year, the total return of +10.9% (sterling) was the worst relative
performance versus the broad market in over 20 years.
Despite the difficult backdrop for healthcare, the Company was able to produce
a strong double-digit return that exceeded the Benchmark by over 1%, driven
primarily by stock picking across Big Pharma, Emerging Biotech, and Medtech.
ALLOCATION
We actively manage the Company’s allocation across healthcare sub-sectors
with reference to the Benchmark. In the reported financial year, we have
continued our strategic overweight positioning in Biotechnology stocks, in
particular Emerging Biotech. As innovation has become the real hallmark of the
Company, the real cradle of innovation has been in Emerging Biotech stocks,
companies that are typically without revenues but have been the technology
engine behind both the majority of the industry’s pipeline and ultimately
new product approvals. We ended the financial year with total Biotechnology
exposure of 29.0%, 20.7% above the Benchmark, representing an increase
year-over-year on both an absolute and relative basis. Within Emerging
Biotech, there was a modest increase year-over-year (+1.7%) on an absolute
basis and a large increase relative to the Benchmark (+3.9%) as valuations
compressed in the period. Overall, the exposure is very much consistent with
our long-held positioning that has typically ranged from high 20’s to low
30’s percentage on an absolute basis, which we expect to continue.
Similarly, we have continued our strategic underweight positioning in
Pharmaceutical stocks in the reported financial year. There are two main
rationales for this. First is a nod to the Benchmark where Pharmaceuticals
(global large capitalisation stocks, generics, and specialty) comprise
approximately 45% of the weighting, the largest segment of MSCI World
Healthcare Index. This fact creates the most likely candidate for funding
other segments of our investment. Second, and more importantly, the
underweight positioning is primarily due to our fundamental outlook for the
sector. Big Pharma companies, in our view, are a collection of companies that
are easily divided into the classic “Have or Have Not” designation from a
variety of metrics including but certainly not limited to valuation, growth
profile, management credibility, pipelines, new product launches, strength of
balance sheet, capital allocation priorities, and forward-looking catalysts.
Our focus on the “Haves” has enabled us to capture performance in the
financial year both in absolute terms and relative to the Benchmark, despite
the underweight positioning. Year-over-year, our exposure in Big Pharma
companies did increase by 3.3% (absolute) and 1.3% (relative) given high
conviction ideas in companies that are significant weightings in the Benchmark
including Eli Lilly, Novo Nordisk, and AstraZeneca.
In the Life Sciences Tools & Services (“Tools”) sector, we increased our
exposure over the course of the year but remained underweight versus the
Benchmark, reflecting the difficult macro environment for tools companies
across many markets, including bioprocessing, instruments, China, and general
biopharma weakness. We added one new significant position, Icon Life Sciences,
a contract research organisation where market trends and opportunities have
improved for the company. We await opportunities to add exposure as the Tools
sector returns to more normal growth towards the end of calendar 2024.
ALLOCATION BY SUB-SECTOR
(WWH vs. MSCI World Healthcare Index)
As of 31 March 2024 As of 31 March 2023
Subsector ^ WWH % NAV MSCI HC Over/Under ^ WWH % NAV MSCI HC Over/Under
vs.BM vs.BM
Pharmaceuticals 31.0 44.8 (13.8) 26.8 43.0 (16.2)
Big Pharma 29.9 41.7 (11.8) 26.6 39.7 (13.1)
Spec Pharma 1.1 2.9 (1.8) 0.2 3.2 (3.0)
Generics – 0.2 (0.2) – 0.1 (0.1)
Biotechnology 29.0 8.3 20.7 24.1 9.4 14.7
Big Biotech 6.1 6.2 (0.1) 2.9 5.1 (2.2)
Emerging Biotech 22.9 2.1 20.8 21.2 4.3 16.9
Life Science Tools & Services 6.5 11.1 (4.6) 3.8 12.3 (8.5)
Health Care Equipment & Supplies 17.8 16.9 0.9 19.3 16.2 3.1
Healthcare Services & Supplies 10.2 15.1 (4.9) 15.4 14.9 0.5
Japan 6.3 3.8 2.5 6.3 4.2 2.1
Emerging Market 3.7 – 3.7 8.0 – 8.0
Privates 6.4 – 6.4 6.8 – 6.8
Total 110.9 100.0 10.9 110.5 100.0 10.5
^ Figures expressed as a % of total Net Asset Value. This includes all
derivatives as an economically equivalent position in the underlying holding
and allocated to the underlying holdings’ respective sectors and regions.
The portfolio allocation in Health Care Equipment & Supplies (“Medtech”)
varied through the financial year given a variety of shifting tailwinds and
headwinds. Whilst this is unlike our strategic positioning in Biotechnology
and Pharmaceuticals, it is a typical trading pattern for us, historically, in
Medtech. We started the financial year overweight given high conviction,
single stock ideas and a sub-sector valuation that appeared reasonable against
a backdrop of improving procedural utilisation rates. Exposure was reduced
mid-year due to profit taking, ahead of a seasonally slower second quarter,
and the negative fall-out from GLP-1 data sets, such as the SELECT trial,
which created significant tumult in the sector during the year. Our exposure
to the group increased in November 2023 to take advantage of what we saw to be
a rebound in the hardest hit parts of the sub-sector. Into the year-end, the
portfolio was back to a slight overweight position, albeit slightly down
year-over-year (approximately 1.5% absolute and 2.2% relative). Looking ahead,
subsector fundamentals are highly bifurcated between a select group of large
capitalisation companies such as Boston Scientific, Intuitive Surgical, and
Stryker which are benefiting from sizable new product cycles, while most of
the other large cap companies should remain at much lower growth rates and out
of favour with investors.
In Healthcare Providers & Services (“Services”), we reduced our managed
care exposure meaningfully over the course of the year. Our current
underweight positioning reflects the significant challenges that this sector
has faced, especially for companies exposed to Medicare Advantage –
including an unprecedented spike in utilisation and insufficient reimbursement
updates from a more negative government stance on the industry. We are
watching carefully for opportunities to increase our exposure again as
utilisation appears to be stabilising.
Historically, our exposure to Japanese pharmaceuticals has been idea based.
That is, our long history in both due diligence and investing in companies
from Japan has shown episodic opportunities of novel innovation and outsized
returns from concentrated investments there, regardless of the Benchmark. As
of the year-end, our overweight positioning here was stable, as two investment
opportunities have carried through the start and end of the period,
specifically Daiichi-Sankyo, the worldwide leaders in antibody drug conjugate
technology for the treatment of multiple cancers, and Eisai, the longtime
pioneers in Alzheimer’s disease, now presiding over a historic global launch
of Leqembi (lecanemab).
Another sector in which we have historically been overweight is Emerging
Markets, in particular China healthcare. Fundamentally, there are a multitude
of reasons for this, including a sizable and growing market, patient
demographics, local consumer demand, and ultimately government support in
building healthcare infrastructure and reforms to improve access to healthcare
services for its citizens. More recently, we have also discovered the
incredible innovation that is also coming out of China in the healthcare
space, drug discovery and development which is rivalling, and sometimes
surpassing, their Western counterparts. That said, we have also acknowledged
(and capitulated) to the plethora of headline risk that has been coming out of
China, primarily the given geopolitical tensions between U.S. and China. As a
result, we have lowered our exposure to Emerging Markets significantly over
the past four years, ending the year at 3.7% and down over 4.3%
year-over-year. Nevertheless, the secular tailwinds remain strong and we
expect to continue to look for and invest in meaningful opportunities in China
and India.
PERFORMANCE
For the year ended 31 March 2024, we are pleased to report that the Company
generated a net asset value total return of +12.0% whilst the share price
total return was +8.6%. The net asset value performance surpassed the
Benchmark return of +10.9%. Drivers of both absolute and relative performance
were similar to the most recent years, namely the fluctuations between
fundamental industry drivers and macroeconomic factors heavily influenced the
returns during the year. With interest rates being the most significant
corollary to performance, the only sustained returns were achieved in the
second half of the financial year when investors and the market began to
expect – and price in – interest rate cuts in 2024.
As detailed below, key upside drivers for performance included stock picking
in Big Pharma, allocation and stock picking in Biotechnology, and stock
picking in Medtech. This was partially offset by allocation in China, stock
picking in Japan, and exposure to unquoteds.
SUBSECTOR PERFORMANCE
On a sub-sector level, the largest contributor to absolute performance was
from Big Pharma, contributing 7% (of the +12% net asset value return). Obesity
drugs and the landmark data from the newest GLP-1 medications was the true
hallmark for healthcare stocks in 2023 and was a key contributor to the
Company’s absolute performance. Stock picking here was key as relative
contribution from Big Pharma was also positive, despite the sizable
underweight positioning versus the Benchmark throughout the financial year
(average portfolio weight 28% compared to Benchmark weight 41%).
An outsized contribution also came from Medtech at just over 4% of the 12.0%
NAV return. The space was particularly volatile in 2023 as small
capitalisation stocks underperformed and obesity-laterals disrupted the share
prices of many stocks. Additionally, stock picking here was particularly
astute and combined with allocation effect (average year-long overweight of
approximately 1.6%), investments in Medtech yielded nearly 2% of excess
return.
A contribution of import was also generated within Biotechnology, more
specifically Emerging Biotech stocks which generated nearly 3% of absolute
return. Moreover, this return also represented nearly 3% of relative return,
primarily due to stock picking. The majority of this contribution came from
OrbiMed’s custom and proprietary mergers and acquisitions (“M&A”) swap
basket, first constructed in April 2022, which consists of handpicked
biotechnology companies (by OrbiMed) that we believe are likely M&A targets as
an efficient way to gain exposure to a plethora of single stocks. The strategy
proved very successful, with the basket returning over 65% (USD) since
inception, outperforming broad small and mid-capitalisation stocks (+28% per
the XBI) and large capitalisation (+17% per the NBI) Biotechnology stocks,
contributing over 2% or nearly £35 million alone. The total net contribution
for Biotechnology was partially offset by our investments in Big Biotech
names, which were negative.
Detractors of note on a sub-sector level (China, Japan, Unquoted) were modest.
The equity markets in China remained difficult as investor concerns over the
economy were exacerbated by ongoing geopolitical tensions with the U.S. and
proposed legislation that could limit China’s role in the U.S.
biopharmaceutical industry. Overall, the Hang Seng Healthcare Index dropped
35% in the financial year under review.
Thus, allocation effect primarily led to more than a 2% negative impact from
China-based investments.
In Japan, the TOPIX Pharm Index total return was negative at -6% (sterling)
despite the Nikkei-225 Index advancing more than 25% (sterling) and reaching
all-times highs in March 2024. Thus, the allocation effect, and stock picking,
combined for more than a 1% impact to performance in the financial year.
UNQUOTEDS
During the financial year, the Company strategically refrained from making new
investments in unquoted companies, as we continued to cautiously navigate the
challenging public offering market for small and mid-capitalisation healthcare
firms. While the capital market funding landscape has been improving, most of
our unquoted companies are well capitalised and are being selective with
regards to pursuing listings. We are optimistic about the ability of some of
our unquoted investments to achieve listings within the next year as we
anticipate the capital market funding environment will continue to improve.
As of the end of the financial year, unquoted investments made up 6.3% of the
Company’s portfolio, a slight decrease from 6.7% as at 31 March 2023. The
existing unquoted portfolio demonstrates a diverse and forward-looking
approach. Geographically, exposure is evenly distributed among Emerging
Markets and North American companies. On a sub-sector basis, the exposure is
concentrated in Services and Tools, with small exposures to Biotechnology and
Medtech.
We participated in one additional investment (£3.3 million) in API Holdings
(better known as PharmEasy) which was also the only material write-down in
valuation. The company was compelled to accept a capital infusion at a
distressed valuation after a planned initial public offering (“IPO”) was
delayed due to adverse market conditions, leading to a funding shortfall,
including a potential breach of a debt covenant.
During the year under review, the unquoted investments made a loss of £14.7
million, from an opening market value of £145.2 million across 10 companies.
The unquoted strategy as a whole had an implied return of -9.9% which
detracted -0.7% from performance. API Holdings was the main detractor in the
unquoted strategy while other emerging markets names had minor downward
valuation revisions largely due to a historically challenging public market
environment in China and Hong Kong. On the contrary, North American unquoted
holdings had a positive return during the financial year.
ABSOLUTE CONTRIBUTION BY INVESTMENT FOR THE YEAR ENDED 31 MARCH 2024
Principal contributors to and detractors from net asset value performance
Top five contributors Sector Country Contribution £’000 Contribution per share p
Eli Lilly Pharmaceuticals United States 77,301 13.2
Novo Nordisk Pharmaceuticals Denmark 59,568 10.2
Intuitive Surgical Healthcare Equipment & Supplies United States 49,032 8.4
Boston Scientific Healthcare Equipment & Supplies United States 36,022 6.2
Tenet Healthcare Healthcare Providers & Services United States 32,586 5.6
Top five detractors Sector Country Contribution £’000 Contribution per share p
Bristol-Myers Squibb* Pharmaceuticals United States (12,246) (2.1)
uniQure* Biotechnology Netherlands (15,647) (2.7)
Eisai Pharmaceuticals Japan (16,628) (2.8)
Madrigal Pharmaceuticals* Biotechnology United States (16,642) (2.8)
Biogen Biotechnology United States (21,702) (3.7)
* Not held at 31 March 2024
MAJOR CONTRIBUTORS TO PERFORMANCE
The pursuit of innovation is the longtime hallmark of the Company. Nowhere has
this been better exemplified than in the study and development of the incretin
class of medicines, better known as the GLP-1 agonists or the now famous
“obesity drugs” Wegovy (semaglutide) and Zepbound (tirzepatide). The
journey of these medicines began in 1996 when the target was first isolated
from the venom of a Gila monster and is now culminating in unprecedented
benefit for patients with diabetes and obesity and a plethora of other
indications, including cardiovascular disease, heart failure, chronic kidney
disease, liver disease, just to name a few.
Eli Lilly can call themselves one of the true pioneers in this class of drugs
and currently markets the undisputed “best-in-class” agents in the space.
The company’s most recent offering is Mounjaro (tirzepatide), a dual GLP-1
and “GIP” agonist. Whilst approved for diabetes in 2022, the company
presented additional data in obesity in 2023, showing weight loss eclipsing
20% and even approaching 25% in some cases. This dual-agonist therapy has
pushed weight loss to new levels and the company benefited materially from the
SELECT trial, with investors (and the company) assuming that “more is
better”: the cardiovascular benefits shown by Wegovy should extend to
Mounjaro, if not more so, given the superior weight loss profile. Sales of
Mounjaro were annualising at almost $10 billion per annum at the end of 2023.
The year-end approval of Zepbound in obesity was the company’s first and
only approval so far in obesity and the launch has thus been explosive to
start 2024. The combination of data disclosures, approvals, launches, and
anticipation of next generation agents throughout the fiscal year caused the
share price to more than double in the period. Eli Lilly was the top
contributor to performance for the Company at 3.8%.
The other true pioneer of the GLP-1 class is the global sales leader in this
space, Novo Nordisk. 2023 contained a landmark moment for the company with the
announcement and presentation of the SELECT trial, a global study that
followed nearly 18,000 patients over five years to measure the benefits of
taking Wegovy (semaglutide) on cardiovascular disease in obese patients. The
full results were presented at the American Heart Association congress and
simultaneously published in the New England Journal of Medicine in November
2023. The data was stunning and unequivocally showed a 20% drop in the risk of
a patient suffering a “MACE” event (heart attack, stroke, or
cardiovascular related death) by taking a once-weekly injection of Wegovy.
This data surpassed all investor expectations and moved this drug from a
lifestyle intervention into a chronic care medicine that can prolong a
patient’s life. Sales growth has been explosive and the company’s total
GLP-1 franchise was annualising close to U.S.$25 billion by the end of 2023,
despite supply limitations, given insatiable demand. With additional
manufacturing coming online in 2024, we expect this exciting growth to
continue. With a share price rise of nearly 60% (sterling) in the period, Novo
Nordisk was the second largest contributor to the Company’s performance.
With a seasoned management team, multi-decade head start and superior robotic
technology, we view Intuitive Surgical as the best positioned company in the
fast-growing and vastly under-penetrated surgical robotics space. The company
operates as a monopoly with its da Vinci suite of robotic systems, and we see
upcoming competitor system launches as market expansive as opposed to driving
material share gains against Intuitive. Over the past year, building investor
excitement over a potential new system that should further insulate the
company from competition, as well as accelerating top and bottom-line growth,
has driven strong share performance. Intuitive’s procedure volumes benefited
from rebounding U.S. surgeries and deeper penetration into new procedure
categories and international markets. As procedures improved, customers
required further robotics capacity resulting in strong system placements as
well. The company’s latest system, the da Vinci 5, was U.S. Food & Drug
Administration (“FDA”) approved in March 2024 and the roll-out has already
begun. While there are still several unanswered questions about the pace of
new system purchases going forward, it is clear that consensus estimates have
yet to fully reflect the new system launch, and we see significant further
share price appreciation in the coming years.
Boston Scientific is an industry leading medical technology company that
develops, manufactures, and markets minimally invasive medical devices in
several high growth end markets including interventional cardiology, cardiac
rhythm management, peripheral interventions, electrophysiology, neurovascular
intervention, endoscopy, urology, gynecology, and neuromodulation. Over the
past year, the company has successfully driven accelerating organic sales
growth ahead of company guidance and investor expectations on the back of
several new product launches, improving labour issues at U.S. hospitals and
stabilising inflation headwinds. Moreover, investor optimism for improving
future growth has increased in recent months on the back of positive trial
results and subsequent FDA approval for the company’s next generation device
for the treatment of atrial fibrillation, known as the FARAPULSE Pulsed Field
Ablation System. While the company has several other new products launching
over the next three years, investors are particularly focused on the pulsed
field ablation device as the multi-billion dollar atrial fibrillation market
could rapidly shift toward this new technology. We believe the ongoing company
algorithm of best-in-class organic sales growth, differentiated margin
expansion potential and ongoing M&A should result in continued strong and
durable EPS growth for the foreseeable future.
The Texas-based hospital operator, Tenet Healthcare, had an excellent year, as
the most outsized beneficiary of favourable hospital market trends during the
fiscal year. Hospitals spent most of 2022 managing spikes in labour costs for
temporary nurse staffing, but were set up favourably for 2023 with continued
strong utilisation trends exiting COVID, receding labour costs, and
higher-than-average reimbursement trends in delayed recognition of higher
labour costs. This combination of strong volume, price, and lower cost drove
stellar results for hospitals throughout 2023, including Tenet Healthcare.
Share price gains were also realised by the company due to the company’s (1)
business mix toward higher-value ambulatory surgery centres, (2) impressive
free cash flow, and (3) reduced leverage. Finally, we would note the company
executed three significant hospital divestitures in early 2024 at valuations
far beyond their own, which unlocked further value to shareholders.
MAJOR DETRACTORS FROM PERFORMANCE
In 2023, one of the most notable new drug approvals was Leqembi (lecanemab),
the first monoclonal antibody to show unequivocal disease modifying effects in
the treatment of mild to moderate Alzheimer’s disease. This landmark full
approval was achieved by Eisai and their partner Biogen in July 2023 after
receiving accelerated approval in January 2023. However, the launch has proven
to be much more of a challenge than originally expected. Many factors
contributed to the guarded uptake of Leqembi for prospective patients,
including a cognitive test and physical exam, biomarker-confirmed diagnosis
using cerebral spinal fluid (via lumbar puncture) or positron emission
tomography test, confirmation of ApoE status (for safety considerations), and
enrolment in a federal patient registry.
Furthermore, the dosing regimen for Leqembi requires a patient to receive a
long duration intra-venous infusion once every two weeks at an appropriate
infusion centre. Much of the infrastructure for this was limited or even
absent in the first year of the launch, curbing access to “chair time” for
patients to get this novel medication. As a result, uptake has been modest
through the second half of 2023, although it has inflected in early 2024. This
situation has weighed on the share prices of both Eisai and Biogen. Share
price declines were exacerbated when delays arose to the companies’
sub-cutaneous formulation of Leqembi, a drug regimen that would circumvent the
need for infusion centres and perhaps require less frequent administration and
almost assuredly allow for greater uptake and utilisation of Leqembi in
afflicted patients.
Ultimately, Eisai and Biogen failed to dose 10,000 patients in the U.S. –
their stated goal at launch – in the financial year ended 31 March 2024.
Overall, the sub-optimal launch of Leqembi resulted in Eisai and Biogen being
the largest detractors to performance in the period. However, key opinion
leader feedback on Leqembi remains supportive; the drug remains an important
and beneficial clinical intervention for patients with Alzheimer’s disease.
We believe sales can and will inflect going forward and our ongoing investment
in these companies remains a lucrative opportunity.
Madrigal Pharmaceuticals is a clinical-stage biopharmaceutical company based
in Pennsylvania, pursuing novel therapeutics for the treatment of NASH
(nonalcoholic steatohepatitis), or the emerging acronym of MASH (metabolic
dysfunction-associated steatohepatitis). MASH is a severe form of fatty liver
disease, a condition in which the liver builds up excessive fat deposits. Over
time, inflammation, fibrosis, and cirrhosis can occur, leading to liver
failure. With few options to treat this deadly condition and a huge prevalence
globally, the commercial opportunity is large. Their primary pipeline asset,
resmetirom, is a thyroid hormone β-receptor agonist which is believed to play
a role in liver health. It has shown promising data in late stage, pivotal
trials for this disease. However, the emergence of data for the GLP-1 class of
drugs (for the treatment of diabetes and obesity from Eli Lilly and Novo
Nordisk) have shown significant ability to reduce liver fat accumulation,
decrease inflammation, and prevent the progression of fibrosis in patients
with NASH. This finding dramatically hurt investor sentiment for all NASH
players, including Madrigal. Share price declines were exacerbated by a change
in the CEO and a subsequent financing, which removed the takeout premium in
the stock. Ultimately, with the commercial opportunity for resmetirom blunted,
we exited the stock.
The Netherlands-based gene therapy player, uniQure, is a clinical-stage
company that focuses on neurological disorders. Gene therapy, whilst still
somewhat nascent, represents an incredible leap in innovation that has
curative properties. The company’s lead asset is a novel gene therapy,
AMT-130, for Huntington’s disease, an inherited disorder that causes cells
in parts of the brain to gradually degenerate and die, progressively impacting
a person’s functional abilities and results in movement, cognitive, and
psychiatric disorders. However, in June 2023 the company provided a mixed
interim update from its Phase I/II trial for AMT-130, which raised investor
concern over target engagement of the gene therapy. The stock fell on the news
and continued to sell-off. That said, we were encouraged by the totality of
the data, including the early indication of function benefit across multiple
measures. Ultimately, however, we concluded that the data was not approvable
as is and an additional large, multi-year trial would be required to satisfy
FDA and other regulatory authorities. As a result, we exited the stock.
The global pharmaceutical company, Bristol-Myers Squibb is well known for its
leadership in oncology, with major cancer franchises in both immuno-oncology
and multiple myeloma. However, both franchises are aged and have reached or
are nearing expiration of exclusivity. With a declining topline, the
company’s price-to-earnings multiple has compressed to below 10x, creating
the most heavily discounted stock in the large cap pharmaceutical space.
However, this “value play” turned into a “value trap” in 2023. The
company has had one of the most productive pipelines in the industry over the
past three years, with new approvals in immunology, haematology, oncology, and
cardiovascular disease. However, commercial execution of the many new product
launches has underwhelmed, and a top line renaissance has so far failed to
materialise. The share price has subsequently fallen further as has the
multiple. We exited the stock during the first half of the financial year as
our conviction level for a turnaround deteriorated. The share price continued
to move lower in the second half of the year.
DERIVATIVE STRATEGY
The Company has the ability to utilise equity swaps and options as part of its
financial strategy. Equity swaps are a financial tool, a derivative contract,
that allow for synthetic exposure to a basket of single stocks in an efficient
manner and within a well-defined theme. For example, having 15 to 50+
additional positions at smaller weights in the portfolio (i.e., non-core) is
suboptimal. An equity swap basket facilitates management of the investment
theme and tracking of performance. The swaps contain multiple single stock
long positions and the basket swap counterparty is Goldman Sachs, allowing for
confidence in forward trading and rebalancing strategies.
The Company strategically invested in three customised tactical basket swaps,
targeting growth opportunities in undervalued small and mid-capitalisation
biotech, therapeutic and medical device companies.
These baskets were constructed to capitalise on three prevailing themes: 1)
investment opportunities possessing considerable potential as attractive
acquisition targets for larger corporations (M&A swap basket), 2) those
exhibiting a favourable risk/reward profile in light of upcoming clinical
catalysts and 3) substantial valuation dislocations in small and
mid-capitalisation medical device companies brought about by the GLP-1 weight
loss craze.
During the period under review, the basket swaps gained £32.7 million, which
added 1.6% to performance. The gains were primarily due to the returns
generated by the propriety Biotech M&A Target Swap.
Throughout the year, the Company also used single stock equity swaps to access
Chinese and Indian investments, which would otherwise be inaccessible through
more traditional investment methods. During the period under review, single
stock equity swaps contributed £5.0 million to performance, and we remain
confident in the long-term prospects of emerging market securities,
particularly those trading locally in mainland China.
LEVERAGE STRATEGY
Historically, the typical leverage level employed by the Company has been in
the mid-to-high teens range. Considering the market volatility during the past
three plus financial years, we have, more recently, used leverage in a more
tactical fashion. In 2023, we have flexed leverage modestly in response to the
economic climate, including in consideration of a putative recession earlier
in the period and interest rate fluctuations and speculation.
Most recently, leverage has converged to the low-double digit range, a
reflection of our overall bullishness on the portfolio and a hopeful turn in
biotechnology stocks. Some factors that keep us from extending leverage even
further is the continued uncertainty with the macro backdrop, further
geopolitical risk, the looming U.S. Presidential election, and relatively
higher borrowing costs at present.
SECTOR DEVELOPMENTS
Innovation is one of the major value drivers across the healthcare space. One
of the most objective measures of said innovation is novel product approvals
and 2023 was record setting with 67 approvals across a wide range of
therapeutic categories. More impressive has been the nearly 400 new drugs
approved over the past 7 years. This marks one of the most productive periods
in the bio-pharmaceutical industry. With standards for new product approvals
ever increasing, this industry-wide accomplishment stands as one of the most
consequential achievements in the modern era of medicine. Additionally, the
recent return of FDA inspectors to China and other Asian venues for the first
time in two of years is an encouraging sign for the industry (source:
Washington Analysis).
There were many notable new drugs among the more than five dozen approvals in
2023. As mentioned previously in this report was the landmark approval of
Leqembi (lecanemab), the first monoclonal antibody to show unequivocal disease
modifying effects in the treatment of mild to moderate Alzheimer’s disease,
ushering in a new paradigm in helping patients and families with this
devastating disease. GSK presided over the best (non-COVID) vaccine launch in
history after the approval of Arexvy, indicated for seniors for active
immunisation for the prevention of lower respiratory tract disease in patients
exposed to Respiratory Syncytial Virus (RSV). Another medicine approved for
RSV was Beyfortus (nirsevimab), a monoclonal antibody designed to prevent
infections in newborns babies. Multiple novel gene therapies were also
approved, including Elevidys for Duchenne Muscular Dystrophy (a genetic
problem in producing dystrophin, a protein that protects muscle fibers from
breaking down, a disease found in young boys which results in the inability to
crawl or walk and early death) and Roctavian for Haemophilia A (a genetic
disorder resulting from a deficit of factor VIII, a vital blood-clotting
protein, that manifests as protracted and excessive bleeding either
spontaneously or secondary to trauma).
A significant investment theme in 2023 – a theme we expect to continue into
2024 – is the accelerated pace of mergers and acquisitions in the
therapeutics space, fuelled by a variety of factors. First, the industry is
facing another “patent cliff” with approximately U.S.$250 billion in
branded sales at risk to generic alternatives commencing in 2025. Second, the
looming drug price headwinds in the U.S. in 2026 (from the Inflation Reduction
Act) is pressuring management teams to bolster top lines via M&A. Third,
historically low biotechnology valuations have created bargains with many
small and mid-capitalisation biotechnology companies being taken out at or
below their all-time high price. Finally, and most importantly, innovation in
biotechnology is at all-time highs where 65% of the industry pipeline and 50%
of approved drugs originated from small and mid-capitalisation biotechnology
companies.
This has created a very positive environment for deal making as high interest
rates and a quiet initial public offering market created some barriers to
access for capital for these companies. The financial year saw a total of
40-bio-pharmaceutical takeovers valued at U.S.$115 billion. The first 14 weeks
of calendar 2024 saw14 deals, accelerating the trend into the new year.
INNOVATION
The largest sector development continues to be the incredible era of
innovation that the bio-pharmaceutical industry is presiding over. The global
phenomenon of obesity drugs that gripped the market in 2023 actually
represents a class of drugs that is nearly 20 years old, but the continued
innovation by the pioneers – Eli Lilly and Novo Nordisk – pushed the
efficacy benefits beyond expectations. And these companies are not stopping
here despite the recent launches of Wegovy and Zepound, rather,
next-generation incretins are already in late-stage development. Over the next
6-12 months, data for “CagriSema” (from Novo Nordisk) and
“retatrutide” (from Eli Lilly) will most likely improve the
standard-of-care beyond what we are seeing today, pushing the life cycle of
GLP-1 drugs (and the various combinations) well into the next decade and
beyond.
Capital expenditure exceeding U.S.$10 billion per company is being spent on
expanded global manufacturing capacity in attempt to satisfy the incredible
demand for these drugs. Additionally, both companies are in hot pursuit of
oral incretins as well, to further increase the size and reach of this market.
Another key tailwind for this class of drugs is also usage outside of
“diabesity” with impressive clinical data for cardiovascular disease,
heart failure, osteoarthritis, kidney disease, liver, and sleep apnea already
published. Over the coming year we should see data in other indications as
well, such as peripheral arterial disease and even Alzheimer’s disease. An
independent study out of France even showed proof-of-concept for a GLP-1
molecule benefiting patients with Parkinson’s disease. Of course, there are
many companies, both small and large, trying to enter this market and we
should see plenty of rival data in 2024.
As 2023 came to a close, the latest generation GLP-1’s were annualising at
U.S.$40 billion per annum – despite neither company having fully rolled out
Wegovy and Zepbound globally by year end. Previously, we speculated if this
market could reach U.S.$100 billion in annual sales by 2030. No more. Now we
are contemplating a market size of potentially U.S.$200 billion by the decade
end.
A therapeutic class that has been a hot bed of innovation over the past decade
has been oncology. The launch of the first “immuno-oncology” agent ushered
in a revolution in the treatment of cancer never before seen and despite the
bar constantly resetting higher, the industry continues to deliver as “IO”
agents eclipsed U.S.$45 billion in sales in 2023. This year, data for next
generation IO agents (such as TIGIT, LAG3, and newer CTLA-4) may prove
critical in the continued growth of this class. Also, novel bi-specific
formulations could be game changing.
Not to be outdone, but the largest inflection of interest in the oncology
space over the past year has been in the antibody-drug-conjugate (ADC) class
of drugs. ADCs are a form of targeted medicines that deliver chemotherapy
agents directly to cancer cells, destroying them whilst mostly sparing normal,
healthy cells. The pursuit of ADCs was behind the largest business development
deals in 2023, specifically the U.S.$43 billion acquisition of Seagen (by
Pfizer) and the U.S.$22 billion development deal between Daiichi Sankyo and
Merck.
Radiopharmaceuticals – the using of localised radiation in the form of
injectable isotopes – was another area of oncology which saw outsized M&A
activity with Eli Lilly, AstraZeneca, and Bristol-Myers Squibb all buying
their way in to compete with the industry leader, Novartis.
With record new drug approvals and clinical pipelines as full as they have
ever been, this impressive wave of innovation will be bountiful in 2024 and
for years to come. Whilst our focus here has been on metabolic disease and
oncology, by no means are new achievements in innovation limited to these
therapeutic classes. 2023 saw the approval of the very first disease modifying
agent for Alzheimer’s disease (Eisai’s Leqembi). 2023 saw the approval of
the very first vaccine for respiratory syncytial virus (GSK’s Arexvy). 2023
saw the first approval for a gene therapy treatment for Duchenne muscular
dystrophy (Sarepta Therapeutic’s Elevidys). Early 2024 saw the approval of
the most sophisticated surgical robotic suite ever produced (Intuitive
Surgical’s da Vince 5). Early 2024 saw the approval of the most efficacious
agent to treat pulmonary arterial hypertension (Merck’s Winrevair). This
list goes on and on – across immunology, inflammation, women’s health,
haematology, endocrinology, respiratory, dermatology, gastrointestinal,
neurology, infectious disease, and vaccines. The next 12-18 months will bring
new and novel data sets across numerous disease states, advancing the standard
of care in medicine, and driving the value of the sector higher.
Now in our 29th year, the performance from inception remains strong. As we
closed the financial year, the NAV was near all-time highs and our bullishness
into the new financial year remained steadfast. Overall, the Company’s net
asset value performance since inception (from 28 April 1995), has posted a
4,733% return, or an average of 14.4% per annum through 31 March 2024. This
compares to a benchmark return of 2,438% and 11.9% over the same investment
horizon. This compares to the FTSE All-Share Index return of +636% and +7.1%.
As we enter our 30th year of managing the Company, the multiple since
inception of 48x represents both the strength of the healthcare industry and
the unyielding global demand for healthcare related goods and services. It
also shows what an active manager or specialist investor can do in healthcare,
especially in the face of a highly idiosyncratic, global sector that possesses
many barriers to understanding the scientific, clinical, regulatory,
technological, and political environment that envelops all of healthcare.
OUTLOOK
The state of the healthcare industry remains strong, supported by significant
global demand and new product flow, underpinned by an era of incredible
innovation that has not been seen before. Moreover, the challenging investment
backdrop for healthcare stocks that has been in place since the easing of the
COVID pandemic appears to be in the past as the recent inflection of share
prices across the industry is much more indicative of the positive
fundamentals of the space. The long-term growth potential of healthcare also
remains strong: global demographics, aging populations, and constant,
persistent demand. Innovation, however, continues to advance in unparalleled
fashion and is the primary driver of value creation. Innovation is not just in
the domain of biotechnology, but across therapeutics, medical technology,
patient services, analytics, and platform technologies. Together, they are
improving patient care, advancing medical knowledge, and creating new
medicines, with many that now can offer a cure. The productivity in the
therapeutics space continues to be exceptional, with pipelines the fullest
they have ever been, and the number of new drug approvals at all-time highs.
The inflection in M&A in the space is just one testimony to this productivity,
one that has already continued in 2024.
Overall, we remain committed to our long-term investment strategy that has
underpinned our impressive track record since inception. There is no change to
our investment philosophy and we eschew change for its own sake. We look
forward to what the year ahead brings, across the entirety of the healthcare
spectrum, as the growth of this industry continues to create a multitude of
exciting investment opportunities.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
6 June 2024
ENVIRONMENTAL, SOCIAL AND GOVERNANCE AND CLIMATE CHANGE
ORBIMED’S APPROACH TO ESG
The Company’s Portfolio Manager, OrbiMed, is guided by its Responsible
Investing Policy in its approach to environmental, social, and governance
(“ESG”). They seek to invest in innovative healthcare companies that are
working towards addressing significant unmet medical needs, across
biopharmaceuticals, medical devices, diagnostics, and healthcare services
sectors, globally.
OrbiMed believes that there is a high congruence between companies that seek
to act responsibly and those that succeed in building long-term shareholder
value. The Portfolio Manager seeks to integrate ESG into the overall
investment process, with the objective of maximising investment returns.
Investment decisions are based on a variety of financial and non-financial
company factors, including ESG information. The Portfolio Manager has
appointed a full-time member of staff to the role of Director – ESG to
oversee the integration of ESG analysis.
As a responsible investor, OrbiMed negatively screens potential investments
and business sectors that may objectively lead to negative impacts on public
health or well-being. They consider healthcare sector-specific guidance from
the Sustainability Accounting Standards Board (“SASB”) to determine
material ESG factors as part of their investment research. Social factors such
as affordability, pricing, access, and safety dominate the financially
material ESG issues for the pharmaceutical, biotechnology, and medical devices
sub-sectors, followed by governance factors. For companies which do not have
manufacturing and are focused on drug discovery and development, environmental
factors such as greenhouse gas (“GHG”) emissions are seldom material.
Energy and waste management appear as material factors for healthcare
delivery, and drug retailer sub-sectors, where the physical footprint of the
companies is large. Healthcare and life sciences sectors are highly regulated,
globally. Environmental regulation, along with quality-related regulation is
well-established across developed markets and emerging markets for the sector.
To that end, OrbiMed considers compliance with local laws and regulations as
one of the factors in its investment evaluation. Depending on the investment,
all or a subset of the ESG factors that are financially material and relevant
are considered in OrbiMed’s research.
MONITORING AND ENGAGEMENT
OrbiMed utilises ESG scores for public equity holdings from third-party
service providers. To supplement the information from the third-party service
providers, OrbiMed also conducts proprietary analysis on ESG performance. The
scores from the third-party service providers are integrated with OrbiMed’s
analysis onto a business intelligence platform via programming interface, for
regular monitoring.
The Portfolio Manager also engages on a regular basis with its portfolio
companies through meetings with management, proxy voting, and in some cases,
through board representation.
OrbiMed’s analysts regularly track ESG information on safety of clinical
trials, drug safety, product safety, ethical marketing, call-backs and other
materially relevant factors. As part of these efforts, OrbiMed engages with
companies directly or through brokers, and facilitates dialogues and exchange
of leading practices among investors, companies, and other relevant experts on
ESG in the healthcare sector.
Between 1 April 2023 and 31 March 2024, a total of 626 proposals came to vote
within the Company’s portfolio. Of these, 607 were management proposals and
19 were shareholder proposals.
Proposed by Total number of proposals Voted for Voted against Votes abstained Number of votes against management’s proposed response
Management 607 562 45 0 45
5Shareholder 19 2 17 0 2
There were no management proposals referring to ESG that came to vote. Of the
19 shareholder proposals, there was one proposal regarding diversity, equity
and inclusion report and another proposal regarding impact of extension of
patents on access. ‘Access to medicine’ is one of the material ESG topics
listed in the Sustainability Accounting Standards Board guidance for the
Biotechnology and Pharmaceuticals sub-sector.
The Portfolio Manager provides a quarterly update on ESG to the Board of the
Company.
CLIMATE CHANGE
As per the guidance from SASB, climate change in relation to the Company’s
own operations is not a material ESG consideration for biotechnology and
pharmaceutical, medical equipment and supplies, and managed care sectors.
However, Energy management is noted as a material ESG concern for the
healthcare delivery sector. To that end, OrbiMed includes the scores on energy
management for the relevant sectors in its overall ESG monitoring.
REGULATORY UPDATE ON ESG
During the year, regulators around the world remained active on defining and
classifying ESG investing and curbing greenwashing. The UK Financial Conduct
Authority (“FCA”) released its final Policy Statement on Sustainability
Disclosure Requirements (“SDR”) and investment labels on 28 November 2023.
The UK SDR, which applies to all UK-domiciled funds, introduces a set of
sustainability-related product labels, product and entity-level disclosures,
and anti-greenwashing rules for sustainable investing in the UK. The product-
and entity-level disclosure requirements outlined in the UK SDR build on the
recommendations of the Task Force for Climate-related Financial Disclosures
(“TCFD”). The anti-greenwashing rules apply to firms and products from 31
May 2024, while the first annual report for funds with sustainability labels
are due 31 July 2025, and those for non-labelled funds are due 2 December
2025. Entity-level disclosures for entities with greater than GBP 50 billion
AUM are due 2 December 2025, and for those funds with greater than GBP 5
billion AUM are due 2 December 2026, and annually thereafter.
While the Portfolio Manager considers ESG issues to be important when
selecting investments, the Company does not have explicit sustainability
objectives in its investment policy and the Company will not seek to apply a
sustainability label under SDR.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
6 June 2024
BUSINESS REVIEW
The Strategic Report contains a review of the Company’s business model and
strategy, an analysis of its performance during the financial year and its
future developments and details of the principal risks and challenges it
faces. Its purpose is to inform shareholders in the Company and help them to
assess how the Directors have performed their duty to promote the success of
the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report. Such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying such forward-looking
information.
BUSINESS MODEL
Worldwide Healthcare Trust PLC is an externally managed investment trust and
its shares are listed on the premium segment of the Official List and traded
on the main market of the London Stock Exchange.
The purpose of the Company is to achieve a high level of capital growth for
its shareholders by providing a vehicle for investors to gain, through a
single investment, exposure to the global healthcare sector through a
diversified portfolio of shares in pharmaceutical and biotechnology companies
and related securities.
The Company’s strategy is to create value for shareholders by addressing its
investment objective.
As an externally managed investment trust, all of the Company’s day-to-day
managements and administrative functions are outsourced to service providers.
As a result, the Company has no executive directors, employees or internal
operations. The Company employs Frostrow Capital LLP (“Frostrow”) as its
Alternative Investment Fund Manager (“AIFM”), OrbiMed Capital LLC
(“OrbiMed”) as its Portfolio Manager, J.P. Morgan Europe Limited as its
Depositary and J.P. Morgan Securities LLC as its Custodian and Prime Broker.
Further details about their appointments can be found in the Business Review.
The Company is an investment company within the meaning of Section 833 of the
Companies Act 2006 and has been approved by HM Revenue & Customs as an
investment trust (for the purposes of Section 1158 of the Corporation Tax Act
2010). As a result the Company is not liable for taxation on capital gains.
The Directors have no reason to believe that approval will not continue to be
retained. The Company is not a close company for taxation purposes.
The Board is responsible for all aspects of the Company’s affairs, including
the setting of parameters for and the monitoring of the investment strategy a
s well as the review of investment performance and policy. It also has
responsibility for all strategic issues, the dividend policy, the share
issuance and buy-back policy, gearing, share price and discount/premium
monitoring and corporate governance matters.
CONTINUATION OF THE COMPANY
A resolution was passed at the Annual General Meeting (“AGM”) held in 2019
that the Company continues as an investment trust for a further five year
period. In accordance with the Company’s Articles of Association,
shareholders will have an opportunity to vote on the continuation of the
Company at this year’s AGM and every five years thereafter.
THE BOARD
The Board of the Company comprises Doug McCutcheon (Chair), Sven Borho, Dr
Bina Rawal, Humphrey van der Klugt, Tim Livett and Jo Parfrey. All of these
Directors served throughout the year. All are independent non-executive
Directors with the exception of Sven Borho who is not considered to be
independent by the Board.
All Directors, with the exception of Humphrey van der Klugt, are seeking
re-election by shareholders at this year’s Annual General Meeting.
DIVIDEND POLICY
It is the Company’s policy to pay out dividends to shareholders at least to
the extent required to maintain investment trust status for each financial
year. Such dividends will typically be paid twice a year by means of an
interim dividend and a final dividend.
KEY PERFORMANCE INDICATORS (“KPIs”)
The Board assesses the Company’s performance in meeting its objectives
against KPI’s as follows. The KPI’s have not changed from the previous
year:
· Net asset value (“NAV”) per share total return against the Benchmark;*
· Discount/premium of share price to NAV per share; and
· Ongoing charges ratio.*
* Alternative Performance Measure (See Glossary)
Information on the Company’s performance is provided in the Statement from
the Chair and the Portfolio Manager’s Review and a record of these measures
is shown in the Strategic Report. Further information can be found in the
Glossary.
NAV per share total return against the Benchmark
The Directors regard the Company’s NAV per share total return as being the
overall measure of value delivered to shareholders over the long term. This
reflects both net asset value growth of the Company and dividends paid to
shareholders.
The Board considers the most important comparator, against which to assess the
NAV per share total return performance, to be the MSCI World Health Care Index
measured on a net total return, sterling adjusted basis (the ‘Benchmark’).
As noted in the Strategic Report, OrbiMed has flexibility in managing the
investments and are not limited by the makeup of the Benchmark. As a result,
investment decisions are made that differentiate the Company from the
Benchmark and therefore the Company’s performance may also be different from
that of the Benchmark.
A full description of performance during the year under review is contained in
the Portfolio Manager’s Review.
Share price discount/premium to NAV per share
The share price discount/premium to the NAV per share is considered a key
indicator of performance as it impacts the share price total return of
shareholders and can provide an indication of how investors view the
Company’s performance and its Investment Objective.
Ongoing charges*
The Board continues to be conscious of expenses and works hard to maintain a
balance between good quality service and costs.
As at 31 March 2024 the ongoing charges figure was 0.9% (2023: 0.8%).
* Alternative Performance Measure (See Glossary).
PRINCIPAL SERVICE PROVIDERS
The principal service providers to the Company are the AIFM, Frostrow, the
Portfolio Manager, OrbiMed, the Custodian and Prime Broker J.P. Morgan
Securities LLC, and the Depositary, J.P. Morgan Europe Limited. Details of
their key responsibilities follow and further information on their contractual
arrangements with the Company are included in the Report of the Directors.
Alternative investment fund manager (“AIFM”)
Frostrow under the terms of its AIFM agreement with the Company provides,
inter alia, the following services:
· oversight of the portfolio management function delegated to OrbiMed
Capital LLC;
· portfolio administration and valuation;
· risk management services;
· marketing and shareholder services;
· share price discount and premium management;
· administrative and secretarial services;
· advice and guidance in respect of corporate governance requirements;
· maintenance of the Company’s accounting records;
· maintenance of the Company’s website;
· preparation and dispatch of annual and half-year reports (as applicable)
and monthly fact sheets; and
· ensuring compliance with applicable legal and regulatory requirements.
During the year, under the terms of the AIFM Agreement, Frostrow received a
fee as follows:
On market capitalisation up to £150 million: 0.3%; in the range £150 million
to £500 million: 0.2%; in the range £500 million to £1 billion: 0.15%; in
the range £1 billion to £1.5 billion: 0.125%; over £1.5 billion: 0.075%. In
addition, Frostrow receives a fixed fee per annum of £57,500.
Portfolio manager
OrbiMed under the terms of its portfolio management agreement with the AIFM
and the Company provides, inter alia, the following services:
· the seeking out and evaluating of investment opportunities;
· recommending the manner by which monies should be invested, disinvested,
retained or realised;
· advising on how rights conferred by the investments should be exercised;
· analysing the performance of investments made; and
· advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
OrbiMed receives a base fee of 0.65% of NAV and a performance fee of 15% of
outperformance against the Benchmark as detailed in the Report of the
Directors.
Depositary, custodian and prime broker
J.P. Morgan Europe Limited acts as the Company’s Depositary and J.P. Morgan
Securities LLC as its Custodian and Prime Broker.
J.P. Morgan Europe Limited, as Depositary, must take reasonable care to ensure
that the Company is managed in accordance with the Financial Conduct
Authority’s Investment Funds Sourcebook, the AIFMD and the Company’s
Articles of Association. The Depositary must in the context of this role act
honestly, fairly, professionally, independently and in the interests of the
Company and its shareholders.
The Depositary receives a variable fee based on the size of the Company as set
out in the Report of the Directors.
J.P. Morgan Europe Limited has discharged certain of its liabilities as
Depositary to J.P. Morgan Securities LLC. Further details of this arrangement
are set out in the Report of the Directors. J.P. Morgan Securities LLC, as
Custodian and Prime Broker, provides the following services under its
agreement with the Company:
· safekeeping and custody of the Company’s investments and cash;
· processing of transactions;
· provision of an overdraft facility. Assets up to 140% of the value of the
outstanding overdraft can be taken as collateral; and
· foreign exchange services.
AIFM AND PORTFOLIO MANAGER EVALUATION AND RE-APPOINTMENT
The performance of the AIFM and the Portfolio Manager is reviewed continuously
by the Board and the Management Engagement & Remuneration Committee (the
“Committee”) with a formal evaluation being undertaken each year. As part
of this process, the Committee monitors the services provided by the AIFM and
the Portfolio Manager and receives regular reports and views from them. The
Committee also receives comprehensive performance measurement reports to
enable it to determine whether or not the performance objectives set by the
Board have been met. The Committee reviewed the appropriateness of the
appointment of the AIFM and the Portfolio Manager in March 2024 with a
positive recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager is in the interests of shareholders as a whole. In coming to this
decision, it took into consideration, inter alia, the following:
· the quality of the service provided and the depth of experience of the
company management, company secretarial, administrative and marketing team
that the AIFM allocates to the management of the Company; and
· the quality of the service provided and the quality and depth of
experience allocated by the Portfolio Manager to the management of the
portfolio and the long-term performance of the portfolio in absolute terms and
by reference to the Benchmark.
RISK MANAGEMENT
The Board is responsible for the management of risks faced by the Company.
Through delegation to the Audit & Risk Committee, the Board has established
procedures to manage risk, to review the Company’s internal control
framework and establish the level and nature of the principal risks the
Company is prepared to accept in order to achieve its long-term strategic
objective. At least twice a year the Audit & Risk Committee carries out a
robust assessment of the principal risks and uncertainties with the assistance
of Frostrow (the Company’s AIFM) identifying the principal risks faced by
the Company. These principal risks and the ways they are managed or mitigated
are detailed on the following pages.
Principal risks and uncertainties Mitigation
Market risks
By the nature of its activities and Investment Objective, the Company’s portfolio is exposed to fluctuations in market prices (from both individual security prices and foreign exchange rates) and due to exposure to the global healthcare sector, it is To manage these risks the Board and the AIFM have appointed OrbiMed to manage the portfolio within the remit of the investment objective and policy, and imposed various limits and guidelines. These limits ensure that the portfolio is diversified, reducing the risks associated with individual stocks, and that the maximum exposure (through derivatives and an overdraft facility) is limited. The compliance with those limits and guidelines is monitored daily by Frostrow and OrbiMed and reported to the Board monthly. In addition, OrbiMed reports at each Board meeting on the performance of the Company’s portfolio, which encompasses the rationale for stock selection decisions, the make-up of the portfolio, potential new holdings and, derivative activity and strategy (further details on derivatives can be found in note 16). The Company does not currently hedge its currency exposure.
expected to have higher volatility than the wider market. As such investors should be aware that by investing in the Company they are exposing themselves to market risks and those additional risks specific to the sectors in which the Company invests, such
as political interference in drug pricing. In addition, OrbiMed’s approach is expected to lead to performance that will deviate from that of comparators, including both market indices and other investment companies investing in healthcare. The Company also
uses leverage (both through derivatives and gearing) the effect of which is to amplify the gains or losses the Company experiences.
Geopolitical/regulatory and macro economic risk
Macro events may have an adverse impact on the Company’s performance by causing exchange rate volatility, changes in tax or regulatory environments, and/or a fall in market prices. Emerging markets, which a portion of the portfolio is exposed to, can be While such events are outside the control of the Company the Board reviews regularly, and discusses with the Portfolio Manager, the wider economic and political environment, along with the portfolio exposure and the execution of the investment policy against the long-term objectives of the Company. The ongoing tensions in the Asia Pacific Region and also the instability caused by the war in the Ukraine have featured in these discussions. The Portfolio Manager’s risk team perform systematic risk analysis, including country and industry specific risk monitoring. The Board monitors regulatory developments but relies on the services of its external advisers to ensure compliance with applicable law and regulations. The Board has appointed a specialist investment trust AIFM and Company Secretary who provides industry and regulatory updates at each Board meeting.
subject to greater political uncertainty and price volatility than developed markets.
Unquoted investment risk
The Company’s risk could be increased by its investment in unquoted companies. These investments may be more difficult to buy, sell or value, so changes in their valuations may be greater than for listed assets. The valuation of unquoted investments To mitigate this risk the Board and AIFM have set a limit of 10% of the portfolio, calculated at the time of investment, that can be held in unquoted investments and have established a robust and consistent valuation policy and process as set out in Note 1(b), which is in line with UK GAAP requirements and the International Private Equity and Venture Capital (“IPEV”) Guidelines. The Board also monitors the performance of these investments compared to the additional risks involved.
requires considerable judgement as explained in Note1(a) and as such realisations may be materially lower than the value as estimated by the Company. Particular events, outside the control of the Company, may also have a significant impact on the valuation
and considerable uncertainty may exist around the potential future outcomes for each investment.
Investment management key person risk
There is a risk that the individuals responsible for managing the Company’s portfolio may leave their employment or may be prevented from undertaking their duties. The Board manage this risk by: · appointing OrbiMed, who operate a team environment such that the loss of any individual should not impact on service levels; · receiving reports from OrbiMed at each Board meeting, such report includes any significant changes in the make-up of the team supporting the Company; · meeting the wider team, outside the designated lead managers, at OrbiMed’s offices and encouraging the participation of the wider OrbiMed team in investor updates; and · delegating to the Management Engagement & Remuneration Committee responsibility to perform an annual review of the service received from OrbiMed, including, inter alia, the team supporting the lead managers and succession planning.
Counterparty risk
In addition to market and foreign currency risks, discussed above, the Company is exposed to risk arising from the use of counterparties. If a counterparty were to fail, the Company could be adversely affected through either delay in settlement or loss of This risk is managed by the Board through: · reviews of the arrangements with, and services provided by, the Depositary and the Custodian and Prime Broker to ensure that the security of the Company’s assets is being maintained. Legal opinions are sought, where appropriate, as part of this review. Also, the Board regularly monitors the credit rating of the Company’s Custodian and Prime Broker; · monitoring of the assets taken as collateral (further details can be found in note 16); · reviews of OrbiMed’s approved list of counterparties, the Company’s use of those counterparties and OrbiMed’s process for monitoring, and adding to, the approved counterparty list; · monitoring of counterparties, including reviews of internal control reports and credit ratings, as appropriate; · by primarily investing in markets that operate DVP (Delivery Versus Payment) settlement. The process of DVP mitigates the risk of losing the principal of a trade during the settlement process; and · J.P. Morgan Securities LLC is subject to regular monitoring by J.P. Morgan Europe Limited, the Company’s Depositary, and the Board receives regular reports from J.P. Morgan Europe Limited.
assets. The most significant counterparty the Company is exposed to is J.P. Morgan Securities LLC which is responsible for the safekeeping of the Company’s assets and provides the overdraft facility to the Company. As part of the arrangements with J.P.
Morgan Securities LLC they may take assets, up to 140% of the value of the drawn overdraft, as collateral and have first priority security interest or lien over all of the Company’s assets. Such assets taken as collateral may be used, loaned, sold,
rehypothecated or transferred by J.P. Morgan Securities LLC. Although the Company maintains the economic benefit from the ownership of those assets it does not hold any of the rights associated with those assets. Any of the Company’s assets taken as
collateral are not covered by the custody arrangements provided by J.P. Morgan Securities LLC. The Company is, however, afforded protection in accordance with SEC rules and U.S. legislation equal to the value of the assets that have been rehypothecated.
Service provider risk
The Company is reliant on the systems of its service providers and as such disruption to, or a failure of, those systems (including, for example, as a result of cyber-crime or a ‘black swan’ event) could lead to a failure to comply with law and regulations To manage these risks the Board: · receives a monthly compliance report from Frostrow, which includes, inter alia , details of compliance with applicable laws and regulations; · reviews internal control reports, key policies, including measures taken to combat cyber security issues, and also the disaster recovery procedures of its service providers; · maintains a risk matrix with details of risks the Company is exposed to, the controls relied on to manage those risks and the frequency of the controls operation; · receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with these; and · has considered the increased risk of cyber-attacks and received reports and assurance at meetings with its service providers where the information security controls in place were reviewed.
leading to reputational damage and/ or financial loss.
ESG related risks
Both the Board and the Portfolio Manager recognise the importance of having a coherent ESG policy. There is a risk that investing in companies that disregard ESG factors will have a negative impact on investment returns and also that the Company itself may The Portfolio Manager provides ESG reports at each Board meeting, highlighting examples where ESG issues influenced investment decisions and/or led to engagement with an investee company. The Portfolio Manager also produces a quarterly ESG update. The Board ensures that the Portfolio Manager’s ESG approach is in line with standards elsewhere and the Board’s expectations. A summary of the Portfolio Manager’s approach to Responsible Investing can be found in the Strategic Report.
become unattractive to investors if ESG is not appropriately considered in the Portfolio Manager’s decision making process.
Shareholder relations and share price performance risk
The Company is also exposed to the risk, particularly if the investment strategy and approach are unsuccessful, that the Company may underperform resulting in the Company becoming unattractive to investors and a widening of the share price discount to NAV In managing this risk the Board: · reviews the Company’s Investment Objective in relation to market, and economic, conditions and the operation of the Company’s peers; · discusses at each Board meeting the Company’s future development and strategy; · reviews the shareholder register at each Board meeting; · actively seeks to promote the Company to current and potential investors; and · has implemented a discount/premium control mechanism. The Board undertakes a regular review of the Company’s share price compared to the NAV per share. Further information can be found in the Business Review. Company promotional activities have been delegated to Frostrow, who report to the Board at each Board meeting on these activities.
per share. Also, falls in stock markets and the risk of a global recession, are likely to adversely affect the performance of the Company’s shares.
Emerging risks
The Company has carried out a robust assessment of the Company’s emerging
and principal risks and the procedures in place to identify emerging risks are
described below. The International Risk Governance Council definition of an
‘emerging’ risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging). Failure to
identify emerging risks may cause reactive actions rather than being proactive
and, in worst case, could cause the Company to become unviable or otherwise
fail or force the Company to change its structure, objective or strategy.
The Audit & Risk Committee reviews a risk schedule at its half-yearly
meetings. Emerging risks are discussed in detail as part of this process and
also throughout the year to try to ensure that emerging (as well as known)
risks are identified and, so far as practicable, mitigated.
During the year the Audit & Risk Committee discussed how artificial
intelligence (AI) might impact the Company itself and also its portfolio
companies in the future. It was agreed that these developments should be
regarded as an opportunity as well as a possible threat.
COMPANY PROMOTION
The Company has appointed Frostrow to provide marketing and investor relations
services, in the belief that a well-marketed investment company is more likely
to grow over time, have a more diverse and stable shareholder register and
will trade at a superior rating to its peers.
Frostrow actively promotes the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers
and a range of execution-only platforms:
Frostrow regularly talks and meets with institutional investors, discretionary
wealth managers and execution-only platform providers to discuss the
Company’s strategy and to understand any issues and concerns, covering both
investment and corporate governance matters;
Making Company information more accessible: Frostrow works to raise the
profile of the Company by targeting key groups within the investment
community, holding annual investment seminars, overseeing PR output and
managing the Company’s website and wider digital offering, including
Portfolio Manager videos and social media;
Disseminating key Company information: Frostrow performs the Investor
Relations function on behalf of the Company and manages the investor database.
Frostrow produces all key corporate documents, distributes monthly Fact
Sheets, Annual Reports and updates from OrbiMed on portfolio and market
developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders: Frostrow maintains regular contact with sector broker
analysts and other research and data providers, and conducts periodic investor
perception surveys, liaising with the Board to provide up-to-date and accurate
information on the latest shareholder and market developments.
DISCOUNT/PREMIUM CONTROL
The Board undertakes a regular review of the level of discount/premium and
consideration is given to ways in which share price performance may be
enhanced, including the effectiveness of marketing, share issuance and share
buybacks, where appropriate.
It is the Board’s policy to buy back the Company’s shares if the share
price discount to the net asset value per share exceeds 6% on an ongoing
basis. Shares repurchased are held as treasury shares. Treasury shares can be
sold back to the market at a later date at a premium to the cum-income net
asset value per share (See Glossary). Shareholders should note, however, that
it remains very possible for the discount to be greater than 6% for extended
periods of time particularly when sentiment towards the Company, the sector
and to investment trusts generally remains poor.
While buybacks may prove unable to prevent the discount from widening, they
also enhance the net asset value per share for remaining shareholders and go
some way to dampening discount volatility which can adversely affect
investors’ risk adjusted returns.
At times when there are unsatisfied buying orders for the Company’s shares
in the market, the Company has the ability to issue new shares or to re-issue
treasury shares at a small premium to the cum income net asset value per
share. This acts as an effective share price premium management tool.
Details of share issuance and share buybacks are set out in the Report of the
Directors.
SOCIAL, HUMAN RIGHTS AND ENVIRONMENTAL MATTERS
The Directors, through the Company’s Portfolio Manager, encourage companies
in which investments are made to adhere to best practice with regard to
corporate governance. In light of the nature of the Company’s business there
are no relevant human rights issues and the Company does not have a human
rights policy.
The Company recognises that social and environmental issues can have an effect
on some of its investee companies.
The Company is an investment trust and so its own direct environmental impact
is minimal. As an externally- managed investment trust, the Company does not
have any employees or maintain any premises, nor does it undertake any
manufacturing or other physical operations itself. All its operational
functions are outsourced to third party service providers. Therefore, the
Company has no material, direct impact on the environment or any particular
community and the Company itself has no environmental, human rights, social or
community policies. The Board of Directors consists of six Directors, four of
whom are resident in the UK, one in Canada and one in the U.S. The Board holds
the majority of its regular meetings in the UK, with usually one meeting held
each year in New York, and has a policy that travel, as far as possible, is
minimal, thereby minimising the Company’s greenhouse gas emissions. Further
details concerning greenhouse gas emissions can be found within the Report of
the Directors. Video conferencing has proved to be a very effective way of
holding meetings, and this medium continues to be used alongside in person
meetings.
The Portfolio Manager engages with the Company’s underlying investee
companies in relation to their corporate governance practices and the
development of their policies on social, community and environmental matters.
INTEGRITY AND BUSINESS ETHICS
The Company is committed to carrying out business in an honest and fair manner
with a zero-tolerance approach to bribery, tax evasion and corruption. As
such, policies and procedures are in place to prevent this. In carrying out
its activities, the Company aims to conduct itself responsibly, ethically and
fairly, including in relation to social and human rights issues.
The Company believes that high standards of ESG make good business sense and
have the potential to protect and enhance investment returns. The Portfolio
Manager’s investment criteria provide that ESG and ethical issues are taken
into account and best practice is encouraged by the Board. The Board’s
expectations are that its principal service providers have appropriate
governance policies in place.
TASKFORCE FOR CLIMATE-RELATED FINANCIAL DISCLOSURES (“TCFD”)
The Company notes the TCFD recommendations on climate-related financial
disclosures. The Company is an investment trust with no employees, internal
operations or property and, as such, it is exempt from the Listing Rules
requirement to report against the TCFD framework.
GOING CONCERN
The financial statements have been prepared on a going concern basis. The
Directors consider this is the appropriate basis as the Company has adequate
resources to continue in operational existence for the foreseeable future,
being taken as 12 months after approval of the financial statements. The
Company’s shareholders are asked every five years to vote for the
continuation of the Company, this will next be put to shareholders at this
year’s Annual General Meeting. The content of the Company’s portfolio,
trading activity, the Company’s cash balances and revenue forecasts, and the
trends and factors likely to affect the Company’s performance are reviewed
and discussed at each Board meeting. The Board has considered a detailed
assessment of the Company’s ability to meet its liabilities as they fall
due, including stress and liquidity tests which modelled the effects of
substantial falls in markets and significant reductions in market liquidity,
on the Company’s net asset value, its cash flows and its expenses. Further
information is provided in the Audit & Risk Committee Report.
Based on the information available to the Directors at the date of this
report, including the results of these stress tests, the conclusions drawn in
the Viability Statement, the Company’s cash balances, and the liquidity of
the Company’s listed investments, the Directors are satisfied that the
Company has adequate financial resources to continue in operation for at least
the next 12 months and that, accordingly, it is appropriate to continue to
adopt the going concern basis in preparing the financial statements.
VIABILITY STATEMENT
The Directors have assessed the Company’s position and prospects, including
consideration of the Company’s principal risks, and have formed a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the next five financial years. The Board
has chosen a five-year horizon in view of both the long-term outlook adopted
by the Portfolio Manager when making investment decisions and also the
investment horizon adopted by investors.
To make this assessment, the Audit & Risk Committee has considered the
Company’s financial position, its ability to liquidate the portfolio and to
meet its liabilities as they fall due. The following points were noted:
· The portfolio is comprised principally of investments traded on major
international stock exchanges. Based on recent market volumes 96.0% of the
current portfolio could be liquidated within 5 trading days. There is no
current expectation that the nature of the investments held within the
portfolio will be significantly different in future.
· The Board has considered the viability of the Company under various
scenarios, including periods of stock market and economic volatility, and
concluded that it would expect to be able to ensure the financial stability of
the Company due, in large part, to having a diversified portfolio comprising
principally of listed and readily realisable assets. As illustrated in note 16
to the financial statements, the Board has considered the following risks with
appropriate sensitivity analysis having been undertaken: market risk
(including foreign currency risk, interest rate risk and other price risk),
liquidity risk and credit risk.
With an ongoing charges ratio of 0.9%, the expenses of the Company are
predictable and modest in comparison with the assets and there are no known
capital commitments which would alter that position.
· The Company has an overdraft facility which can be used to meet its
liabilities. Details of the Company’s current liabilities as at 31 March
2024 are set out in notes 10 and 12 to the financial statements.
· The Company has no employees. Therefore, it does not have redundancy or
other employment related liabilities or responsibilities.
The Audit & Risk Committee, in addition to considering the potential impact of
the Company’s principal risks and various plausible downside scenarios, has
made the following assumptions in considering the Company’s longer-term
viability:
· There will continue to be demand for investment trusts;
· The Portfolio Manager will continue to adopt a long-term view when making
investments;
· The Company invests principally in the securities of listed companies
traded on international stock exchanges to which investors will wish to
continue to have exposure;
· Shareholders will vote for the continuation of the Company at this
year’s Annual General Meeting and at five-year intervals thereafter.
Following a programme of extensive engagement with the Company’s principal
shareholders, there is an expectation that the resolution will be passed.
· Due to the closed-ended nature of the Company, unlike open-ended funds, it
does not have to sell investments when shareholders wish to sell their shares;
· The Company will continue to be able to fund share buybacks when required.
The Company bought back 80,265,298 shares in the year under review at a total
cost of £252.7 million. It had shareholders’ funds in excess of £2,081.2
million at the year-end; and
· The long-term performance of the Company will continue to be satisfactory.
STAKEHOLDER INTERESTS AND BOARD DECISION-MAKING (SECTION 172 OF THE COMPANIES
ACT 2006)
The Directors are required to explain more fully how they have discharged
their duty under s172 of the Companies Act 2006 in promoting the success of
the Company for the benefit of the members as a whole. This includes the
likely consequences of the Directors’ decisions in the long term and how
they have taken wider stakeholders’ needs into account.
The Directors aim to act fairly between the Company’s stakeholders. The
Board’s approach to shareholder relations is summarised in the Corporate
Governance Report. The Statement from the Chair provides an explanation of
actions taken by the Directors during the year to achieve the Board’s
long-term aim of ensuring that the Company’s shares trade at a price close
to the NAV per share.
As an externally managed investment trust, the Company has no employees,
customers, operations or premises. Therefore, the Company’s key stakeholders
(other than its shareholders) are considered to be its service providers. The
need to foster business relationships with the service providers and maintain
a reputation for high standards of business conduct are central to the
Directors’ decision-making as the Board of an externally managed investment
trust. The Directors believe that fostering constructive and collaborative
relationships with the Company’s service providers will assist in their
promotion of the success of the Company for the benefit of all shareholders.
The Board engages with representatives from its service providers throughout
the year. Representatives from OrbiMed and Frostrow are in attendance at each
Board meeting. As the Portfolio Manager and the AIFM respectively, the
services they provide are fundamental to the long-term success and smooth
running of the Company. The Statement from the Chair and the Business Review,
describe relevant decisions taken during the year relating to OrbiMed and
Frostrow. Further details about the matters discussed in Board meetings and
the relationship between OrbiMed and the Board are set out in the Corporate
Governance Report.
Representatives from other service providers are asked to attend Board
meetings when deemed appropriate.
Further details are set out overleaf.
Stakeholder group The benefits of engagement with the Company's stakeholders How the board, the portfolio manager and the AIFM have engaged with the Company’s stakeholders
Investors Clear communication of the Company’s strategy and the performance against the Company’s objective can help the share price trade at a narrower discount or a premium to its net asset value per share which benefits shareholders. New shares can be issued to meet demand without net asset value per share dilution to existing shareholders. Increasing the size of the Company can benefit liquidity as well as spread costs. Share buybacks are undertaken at the discretion of the Directors. The Portfolio Manager and Frostrow, on behalf of the Board, complete a programme of investor relations throughout the year. In advance of this year’s continuation vote,
the Chair of the Board, the Portfolio Manager and Frostrow undertook a series of meetings with the Company’s principal shareholders. The purpose of these meetings was two
fold: to give holders the opportunity to raise issues of a corporate governance nature and to discuss any portfolio related matters. An analysis of the Company’s
shareholder register is provided to the Directors at each Board meeting along with marketing reports from Frostrow. The Board reviews and considers the marketing plans on
a regular basis. Reports from the Company’s broker are submitted to the Board on investor sentiment and industry issues. Key mechanisms of engagement include: · The
Annual General Meeting, where the Portfolio Manager provides an update on the Company’s performance and strategy. This is followed by a question and answer section. · The
Company’s website which hosts reports, articles and insights, and monthly fact sheets. · One-on-one and group investor meetings. · Should any significant votes be cast
against a resolution proposed at the Annual General Meeting the Board will engage with shareholders. · The Board will explain in its announcement of the results of the
Annual General Meeting any actions it intends to take to consult shareholders in order to understand the reasons behind significant votes against. · Following any
consultation, an update would be published no later than six months after the Annual General Meeting and the Annual Report will detail the impact shareholder feedback has
had on any decisions the Board has taken and any actions or resolutions proposed.
What were the key areas of engagement? What actions were taken, including main decisions?
Key areas of engagement with investors · Ongoing dialogue with shareholders concerning the strategy of the Company, performance and the portfolio. · The Portfolio Manager and Frostrow meet regularly with shareholders and potential investors to discuss the Company’s strategy, performance and portfolio. The Chair of the Board also met with key shareholders during the year to discuss corporate
governance matters and also the Company’s investment strategy. Frostrow and the Portfolio Manager engage with retail investors through a number of different channels: (i) The Company’s website, which is maintained by Frostrow, contains articles, webinars
and quarterly updates; (ii) A distribution list of shareholders (retail and professional) which is maintained by Frostrow and is used to communicate with investors on a regular basis; (iii) The Portfolio Manager provides annual presentations online –
(webcasts) and offline (Annual General Meeting), which shareholders are able to attend and participate in; and (iv) Frostrow ensures that the Company is available through a wide range of leading execution only platforms.
Stakeholder group The benefits of engagement with the Company's stakeholders How the board, the portfolio manager and the AIFM have engaged with the Company’s stakeholders
Portfolio Manager Engagement with the Company’s Portfolio Manager is necessary to evaluate their performance against the Company’s stated strategy and to understand any risks or The Board met regularly with the Company’s Portfolio Manager throughout the year. The Board also receives monthly performance and compliance reporting. The Portfolio Manager’s attendance at each Board meeting provides the opportunity for the Portfolio Manager and Board to further reinforce their mutual understanding of what is expected from both parties. The Board encourages the Company’s Portfolio Manager to engage with companies and in doing so expects ESG issues to be an important consideration. The Board receives an update on Frostrow’s engagement activities by way of a dedicated report at Board meetings and at other times during the year as required.
opportunities this may present. The Board ensures that the Portfolio Manager’s environmental, social and governance (“ESG”) approach is in line with standards elsewhere
and the Board’s expectations. Engagement also helps ensure that the Portfolio Manager’s fees are closely monitored and remain competitive. Gaining a deeper understanding
of the portfolio companies and their strategies as well as incorporating consideration of ESG factors into the investment process assists in understanding and mitigating
risks of an investment as well as identifying future potential opportunities.
Service Providers The Company contracts with third parties for other services including: custody, company secretarial, accounting & administration and registrar. The Company ensures that The Board and Frostrow, acting in its capacity as AIFM, engage regularly with other service providers both in one-to-one meetings and via regular written reporting. This regular interaction provides an environment where topics, issues and business development needs can be dealt with efficiently and collegiately. The Board together with Frostrow also carried out a review of the service providers’ business continuity plans and additional cyber security provisions. The review of the performance of the Portfolio Manager and Frostrow is a continuous process carried out by the Board and the Management Engagement & Remuneration Committee with a formal evaluation being undertaken annually.
the third parties to whom the services have been outsourced complete their roles in line with their service level agreements thereby supporting the Company in its success
and ensuring compliance with its obligations.
What were the key areas of engagement? What actions were taken, including main decisions?
Key areas of engagement with the Portfolio Manager on an ongoing basis are portfolio composition, performance, outlook and business updates.
• Regular review of the performance and make-up of the investment portfolio. • The integration of ESG factors into the Portfolio Manager’s investment processes. • The Board engaged with the Portfolio Management team to discuss the Company’s overall performance as well as developments in individual portfolio companies and wider macroeconomic developments. • The Portfolio Manager reports on ESG issues at each Board
meeting.
Key areas of engagement with Service Providers
• The Directors have frequent engagement with the Company’s other service providers through the annual cycle of reporting. This engagement is completed with the aim of maintaining an effective working relationship and oversight of the services provided. • No specific action required as 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.
Key areas of engagement with the broker
• The Board is cognisant that the trading of the Company‘s shares at a persistent and significant discount or premium to the prevailing NAV per share is not in the interests of shareholders. • Throughout the year the Board closely monitored the Company’s discount/premium to NAV per share and received regular updates from the broker. 80,265,298 shares were bought back during the year, and a further 10,677,869 shares were bought back since the
year-end to 5 June 2024. No new shares were issued during the year, nor following the year-end to 5 June 2024. (Please see the Statement from the Chair for further information.)
PERFORMANCE AND FUTURE DEVELOPMENTS
A review of the Company’s year, its performance and the outlook for the
Company can be found in the Chair’s Statement and in the Portfolio
Manager’s Review.
The Company’s overall strategy remains unchanged.
LOOKING TO THE FUTURE
The Board concentrates its attention on the Company’s investment performance
and OrbiMed’s investment approach and on factors that may have an effect on
this approach. Marketing reports are given to the Board at each board meeting
by the AIFM which include how the Company will be promoted and details of
planned communications with existing and potential shareholders. The Board is
regularly updated by the AIFM on wider investment trust industry issues and
discussions are held at each Board meeting concerning the Company’s future
development and strategy.
A review of the Company’s year, its performance since the year-end and the
outlook for the Company can be found in the Chair’s Statement and in the
Portfolio Manager’s Review. It is expected that the Company’s Strategy
will remain unchanged in the coming year.
ALTERNATIVE PERFORMANCE MEASURES
The Financial Statements set out the required statutory reporting measures of
the Company’s financial performance. In addition, the Board assesses the
Company’s performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are explained in greater
detail in the Strategic Report, under the heading ‘Key Performance
Indicators’.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 June 2024
REPORT OF THE DIRECTORS
The Directors present their Annual Report on the affairs of the Company
together with the audited financial statements and the Independent Auditors’
Report for the year ended 31 March 2024.
SIGNIFICANT AGREEMENTS
Details of the services provided under these agreements are included in the
Strategic Report.
Alternative investment fund management agreement
Frostrow is the designated AIFM for the Company on the terms and subject to
the conditions of the alternative investment fund management agreement between
the Company and Frostrow (the “AIFM Agreement”).
The notice period on the AIFM Agreement with Frostrow is 12 months,
termination can be initiated by either party.
Details of the fee payable to Frostrow can be found in the Business Review.
Portfolio management agreement
Under the AIFM Agreement Frostrow has delegated the portfolio management
function to OrbiMed, under a portfolio management agreement between it, the
Company and Frostrow (the “Portfolio Management Agreement”).
OrbiMed receives a periodic fee equal to 0.65% p.a. of the Company’s NAV and
a performance fee as set out in the Performance Fee section below. Its
agreement with the Company may be terminated by either party giving notice of
not less than 12 months.
Performance fee
Dependent on the level of long-term outperformance of the Company, OrbiMed is
entitled to a performance fee. The performance fee is calculated by reference
to the amount by which the Company’s NAV performance has outperformed the
Benchmark (see inside front cover for details of the Benchmark).
The fee is calculated quarterly by comparing the cumulative performance of the
Company’s NAV with the cumulative performance of the Benchmark since the
launch of the Company in 1995. The performance fee amounts to 15.0% of any
outperformance over the Benchmark. Provision is made within the daily NAV per
share calculation as required and in accordance with generally accepted
accounting standards.
In order to ensure that only sustained outperformance is rewarded, at each
quarterly calculation date any performance fee payable is based on the lower
of:
(i) The cumulative outperformance of the portfolio over the Benchmark as at
the quarter end date; and
(ii) The cumulative outperformance of the portfolio over the Benchmark as at
the corresponding quarter end date in the previous year
less any cumulative outperformance on which a performance fee has already been
paid.
The effect of this is that outperformance has to be maintained for a twelve
month period before it is paid.
As at 31 March 2024 no performance fees were accrued or payable (31 March
2023: £nil).
Depositary agreement
The Company appointed J.P. Morgan Europe Limited (the “Depositary”) as its
Depositary in accordance with the AIFMD on the terms and subject to the
conditions of the Depositary agreement between the Company, Frostrow and the
Depositary (the “Depositary Agreement”).
Under the terms of the Depositary Agreement the Company has agreed to pay the
Depositary a fee calculated at 1.75bp on net assets up to £150 million, 1.50
bps on net assets between £150 million and £300 million, 1.00bps on net
assets between £300 million and £500 million and 0.50bps on net assets above
£500 million.
The Depositary has delegated the custody and safekeeping of the Company’s
assets to J.P. Morgan Securities LLC (the “Custodian and Prime Broker”)
pursuant to a delegation agreement between the Company, Frostrow, the
Depositary and the Custodian and Prime Broker (the “Delegation
Agreement”).
The Delegation Agreement transfers the Depositary’s liability for the loss
of the Company’s financial instruments held in custody by the Custodian and
Prime Broker to the Custodian and Prime Broker as permitted by the AIFMD. The
Company has consented to the transfer and reuse of its assets by the Custodian
and Prime Broker (known as “rehypothecation”) in accordance with the terms
of an institutional account agreement between the Company, the Custodian and
Prime Broker and certain other J.P. Morgan entities (as defined therein).
Prime brokerage agreement
The Company appointed J.P. Morgan Securities LLC on the terms and subject to
the conditions of the prime brokerage agreement between the Company, Frostrow
and the Depositary (the “Prime Brokerage Agreement”). The Custodian and
Prime Broker receives interest on the drawn overdraft as detailed in note 12..
The Custodian and Prime Broker is a registered broker-dealer and is regulated
by the United States Securities and Exchange Commission.
RESULTS AND DIVIDENDS
The results attributable to shareholders for the year and the transfer to
reserves are shown in the Income Statement and the Statement of Changes in
Equity Details of the Company’s dividend record can be found in the
Strategic Report.
Substantial interests in share capital
The Company was aware of the following substantial interests in the voting
rights of the Company:
30 April 2024 31 March 2024
Shareholder Number of shares % of issued share capital Number of shares % of issued share capital
Rathbone Brothers plc 48,038,882 8.88 48,436,836 8.85
Investec Wealth & Investment Limited 41,413,773 7.66 42,232,373 7.72
Interactive Investor 37,594,401 6.95 37,766,720 6.90
Hargreaves Lansdown plc 31,735,426 5.87 32,444,732 5.93
Charles Stanley & Co Limited 27,085,383 5.01 27,284,055 4.99
Forsyth Barr 20,859,186 3.86 21,376,017 3.91
Craigs Investment Partners 19,540,173 3.61 19,672,830 3.60
Evelyn Partners 19,239,555 3.56 19,450,805 3.56
Quilter Cheviot Investment Management 18,204,177 3.37 18,651,596 3.41
RBC Brewin Dolphin 18,758,151 3.47 18,495,921 3.38
As at 31 March 2024 the Company had 545,942,332 shares in issue (excluding
55,722,868 shares held in treasury). As at 30 April 2024 there were
540,098,103 shares in issue (excluding 61,567,097 shares held in treasury).
CAPITAL STRUCTURE
The Company’s capital structure comprises solely ordinary shares.
Share split
The price of the Company’s shares has increased substantially over the last
10 years. To assist monthly savers, those who reinvest their dividends or are
looking to invest smaller amounts the Directors proposed a sub-division of
each share of 25p each into 10 new shares of 2.5p each during the year. This
was approved by shareholders at the AGM on 18 July 2023 and became effective
on 27 July 2023. All comparative per share amounts within this Annual Report
have been restated to reflect this share split.
During the year, and to 5 June 2024, no new shares were issued. A total of
2,507,439 shares of 25p were repurchased prior to the share split on 27 July
2023. Post 27 July 2023 55,190,908 shares of 5p were repurchased. The total
cost of the shares repurchased during the year was £252,759,000 and the
average discount to the NAV per share was 10.5%. Shares bought back are held
in treasury and were previously cancelled annually after the Company’s AGM.
In a change to the Company’s stated policy, all shares held in treasury at
the date of the Company’s AGM will now not be cancelled and will continue to
be held in treasury for re-issue at a premium to the net asset value per
share. Following the year-end, to 5 June 2024, the latest practicable date
prior to the publication of this Annual Report, a further 10,677,869 shares
were repurchased at an average discount of 10.1% to the cum income NAV per
share. As at 5 June 2024 there were 535,264,463 shares in issue excluding
66,400,737 shares held in treasury.
Voting rights in the Company’s shares
Details of the voting rights in the Company’s shares at the date of this
Annual Report are given in note 9 to the Notice of Annual General Meeting.
Each shareholder is entitled to one vote on a show of hands and, on a poll,
one vote for every share held.
DIRECTORS’ & OFFICERS’ LIABILITY INSURANCE COVER
Directors’ & officers’ liability insurance cover was maintained by the
Company during the year ended 31 March 2024 and to the date of this report. It
is intended that this policy will continue for the year ending 31 March 2025
and subsequent years.
DIRECTORS’ INDEMNITIES
During the year under review and to the date of this report, indemnities were
in force between the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted by law, in
respect of certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also indemnified against
the costs of defending any criminal or civil proceedings or any claim by the
Company or a regulator as they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs to the Company. The
indemnities are qualifying third party indemnity provisions for the purposes
of the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the
Company’s registered office during normal business hours and will be
available for inspection at the Annual General Meeting. Please refer to the
Statement from the Chair for details of this year’s Annual General Meeting
arrangements.
POLITICAL AND CHARITABLE DONATIONS
The Company has not in the past and does not intend in the future to make
political or charitable donations.
MODERN SLAVERY ACT 2015
The Company does not provide goods or services in the normal course of
business, and as a financial investment vehicle does not have customers. The
Directors do not therefore consider that the Company is required to make a
statement under the Modern Slavery Act 2015 in relation to slavery or human
trafficking.
ANTI-BRIBERY AND CORRUPTION POLICY
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly, it expressly prohibits any Director or associated
persons when acting on behalf of the Company, from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private in the UK or abroad to secure any improper benefit for themselves or
for the Company.
The Board ensures that its service providers apply the same standards in their
activities for the Company.
A copy of the Company’s Anti Bribery and Corruption Policy can be found on
its website at www.worldwidewh.com. The policy is reviewed regularly by the
Audit & Risk Committee.
CRIMINAL FINANCES ACT 2017
The Company has a commitment to zero tolerance towards the criminal
facilitation of tax evasion.
A copy of the Company’s Prevention of the Facilitation of Tax Evasion Policy
can be found on its website at www.worldwidewh.com. The policy is reviewed
regularly by the Audit & Risk Committee.
GLOBAL GREENHOUSE GAS EMISSIONS
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Reports and Directors’ Reports)
Regulations 2013 or the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018, including those
within the Company’s underlying investment portfolio. Consequently, the
Company consumed less than 40,000 kWh of energy during the year in respect of
which the Report of the Directors is prepared and therefore is exempt from the
disclosures required under the Streamlined Energy and Carbon Reporting
criteria.
COMMON REPORTING STANDARD (“CRS”)
CRS is a global standard for the automatic exchange of information
commissioned by the Organisation for Economic Cooperation and Development and
incorporated into UK law by the International Tax Compliance Regulations 2015.
CRS requires the Company to provide certain additional details to HMRC in
relation to certain shareholders. The reporting obligation began in 2016 and
is an annual requirement. The Registrars, Link Group, have been engaged to
collate such information and file the reports with HMRC on behalf of the
Company.
ARTICLES OF ASSOCIATION
Amendments of the Company’s Articles of Association require a special
resolution to be passed by shareholders.
REQUIREMENTS OF THE LISTING RULES
Listing Rule 9.8.4 requires the Company to include certain information in a
single identifiable section of the Annual Report or a cross reference table
indicating where the information is set out. The Directors confirm that there
are no disclosures to be made under Listing Rule 9.8.4.
UK SANCTIONS
The Board has made due diligence enquiries of the service providers that
process the Company’s shareholder data, to ensure the Company’s compliance
with the UK sanctions regime. The relevant service providers have confirmed
that they check the Company’s shareholder data against the UK sanctions list
on a daily basis. At the date of this report, no sanctioned individuals had
been identified on the Company’s shareholder register. The Board notes that
stockbrokers and execution-only platforms also carry out their own due
diligence.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 June 2024
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the
Financial Statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors are required to:
· select suitable accounting policies and apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· follow applicable UK accounting standards comprising FRS 102;
· prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business; and
· prepare a director’s report, a strategic report and a directors’
remuneration report which comply with the requirements of the Companies Act
2006.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company’s transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for ensuring that the Report of the Directors
and other information included in the Annual Report is prepared in accordance
with company law in the United Kingdom. They are also responsible for ensuring
that the Annual Report includes information required by the Listing Rules of
the FCA.
The Directors are also responsible for ensuring that the Annual Report and the
Financial Statements are made available on a website. The Annual Report and
the Financial Statements are published on the Company’s website at
www.worldwidewh.com and via Frostrow’s website at www.frostrow.com. The
maintenance and integrity of these websites, so far as it relates to the
Company, is the responsibility of Frostrow. The work carried out by the
Auditors does not involve consideration of the maintenance and integrity of
these websites and, accordingly, the Auditors accept no responsibility for any
changes that have occurred to the financial statements since they were
initially presented on these websites. Visitors to the websites need to be
aware that legislation in the United Kingdom governing the preparation and
dissemination of the financial statements may differ from legislation in their
jurisdiction.
DISCLOSURE OF INFORMATION TO THE AUDITORS
So far as the Directors are aware, there is no relevant information of which
the Auditors are unaware. The Directors have taken all steps they ought to
have taken to make themselves aware of any relevant audit information and to
establish that the Auditors are aware of such information.
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL
REPORT
The Directors confirm to the best of their knowledge that:
· the Annual Report and the Financial Statements have been prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the year ended
31 March 2024;
· the Chairman’s Statement, Strategic Report and the Report of the
Directors include a fair review of the information required by 4.1.8R to
4.1.11R of the FCA’s Disclosure Guidance and Transparency Rules; and
· the Annual Report and the Financial Statements, includes a fair review of
the development and performance of the Company and of its financial position,
together with a description of the principal risks and uncertainties it faces.
Also, that taken as a whole they are fair, balanced and understandable and
provide the information necessary to assess the Company’s performance,
business model and strategy.
On behalf of the Board
Doug McCutcheon
Chair
6 June 2024
CORPORATE GOVERNANCE
THE BOARD AND COMMITTEES
Responsibility for effective governance lies with the Board. The governance
framework of the Company reflects the fact that as an investment company it
has no employees and outsources portfolio management to OrbiMed and risk
management, company management, company secretarial, administrative and
marketing services to Frostrow.
THE BOARD Chair – Doug McCutcheon Senior Independent Director – Dr. Bina Rawal Five additional non-executive Directors, all considered independent, except for Sven Borho. Key responsibilities: * to provide leadership and set strategy, values and standards within a framework of prudent effective controls which enable risk to be assessed and managed;
* to ensure that a robust corporate governance framework is implemented; and
* to challenge constructively and scrutinise performance of all outsourced activities.
Management Engagement & Remuneration Committee Chair Jo Parfrey All Independent Directors Key Audit & Risk Committee Chair Tim Livett* Nominations Committee Chair Dr. Bina Rawal All Independent Directors Key responsibilities: * to review regularly the Board’s structure and composition; and
responsibilities: * to review regularly the contracts, the performance and remuneration of the All Independent Directors (excluding the Chair, Doug McCutcheon) Key responsibilities: * to review the Company’s financial reports; * to make recommendations for any changes or new appointments.
Company’s principal service providers; * to oversee the risk and control environment and financial reporting; and
* to set the Directors’ Remuneration Policy; and * to have primary responsibility for the relationship with the Company’s external Auditors, to review their independence and performance, and to determine their remuneration.
* to review the terms and conditions of the Directors’ appointments.
* The Board believes that Tim Livett has the necessary recent and relevant
financial experience to Chair the Company’s Audit & Risk Committee.
Copies of the full terms of reference, which clearly define the
responsibilities of each Committee, can be obtained from the Company Secretary
and can be found at the Company’s website at www.worldwidewh.com. Copies
will also be available for inspection on the day of the Annual General
Meeting.
CORPORATE GOVERNANCE STATEMENT
The Board is committed to maintaining and demonstrating high standards of
corporate governance. The Board has considered the principles and
recommendations of the AIC Code of Corporate Governance published in February
2019 (‘AIC Code’). The AIC Code addresses all the principles set out in
the UK Corporate Governance Code (the ‘UK Code’), as well as setting out
additional provisions on issues that are of specific relevance to the Company.
The Financial Reporting Council has confirmed that by following the AIC Code
boards of investment companies will meet their obligations in relation to the
UK Code and paragraph 9.8.6 of the UK Listing Rules.
The Board considers that reporting in accordance with the principles and
recommendations of the AIC Code (which has been endorsed by the Financial
Reporting Council) provides more relevant and comprehensive information to
shareholders. By reporting against the AIC Code, the Company meets its
obligations under the UK Code (and associated disclosure requirements under
paragraph 9.8.6 of the Listing Rules) and as such does not need to report
further on issues contained in the UK Code which are irrelevant to the Company
as an externally managed investment company, including the provisions relating
to the role of the chief executive, executive directors’ remuneration and
the internal audit function.
The Company has complied with the principles and recommendations of the AIC
Code.
The AIC Code can be viewed at www.theaic.co.uk and the UK Code can be viewed
on the Financial Reporting Council website at www.frc.org.uk. The Corporate
Governance Report forms part of the Report of the Directors.
BOARD LEADERSHIP AND PURPOSE
Purpose and strategy
The purpose and strategy of the Company are described in the Strategic Report.
THE BOARD
The Board is responsible for the effective Stewardship of the Company’s
affairs. Strategy issues and all operational matters of a material nature are
considered at its meetings.
The Board consists of six non-executive Directors, each of whom, with the
exception of Sven Borho, is independent of OrbiMed and the Company’s other
service providers. No member of the Board is a Director of another investment
company managed by OrbiMed, nor has any Board member (with the exception of
Sven Borho) been an employee of OrbiMed or any of the Company’s service
providers. Further details regarding the Directors can be found in the
governance section of the annual report.
The Board carefully considers the various guidelines for determining the
independence of non-executive Directors, placing particular weight on the view
that independence is evidenced by an individual being independent of mind,
character and judgement. All Directors retire at the AGM each year and, if
appropriate, seek election or re-election. Each Director has signed a letter
of appointment to formalise the terms of their engagement as a non-executive
Director, copies of which are available on request at Frostrow’s offices.
BOARD CULTURE
The Board aims to consider and discuss differences of opinion, unique vantage
points and to exploit fully areas of expertise. The Chair encourages open
debate to foster a supportive and co-operative approach for all participants.
Strategic decisions are discussed openly and constructively. The Board aims to
be open and transparent with shareholders and other stakeholders and for the
Company to conduct itself responsibly, ethically and fairly in its
relationships with service providers.
The Board has gained assurance on whistleblowing procedures at the Company’s
principal service providers to ensure employees at those companies are
supported in speaking up and raising concerns. No concerns relating to the
Company were raised during the year.
Shareholder relations
The Company has appointed Frostrow to provide marketing and investor relations
services, in the belief that a well marketed investment company is more likely
to grow over time, have a more diverse, stable list of shareholders and its
shares will trade at close to net asset value per share over the long run.
Frostrow actively promotes the Company as set out in the Strategic Report.
Shareholder communications
The Board, the AIFM and the Portfolio Manager consider maintaining good
communications with shareholders and engaging with larger shareholders through
meetings and presentations a key priority. Shareholders are kept informed by
the publication of annual and half-year reports which include financial
statements. These reports are supplemented by the daily release of the net
asset value per share to the London Stock Exchange and the publication of
monthly fact sheets. All this information, including interviews with the
Portfolio Manager, is available on the Company’s website at
www.worldwidewh.com.
The Board monitors the share register of the Company; it also reviews
correspondence from shareholders at each meeting and maintains regular contact
with major shareholders. Shareholders who wish to raise matters with a
Director may do so by writing to them at the registered office of the Company.
The Board supports the principle that the Annual General Meeting be used to
communicate with private investors, in particular. Shareholders are encouraged
to attend the AGM, where they are given the opportunity to question the Chair,
the Board and representatives of the Portfolio Manager. In addition, the
Portfolio Manager makes a presentation to shareholders covering the investment
performance and strategy of the Company at the AGM. Voting at the AGM is
conducted on a poll and details of the proxy votes received in respect of each
resolution will be made available on the Company’s website.
Significant holdings and voting rights
Details of the shareholders with substantial interests in the Company’s
shares, the Directors’ authorities to issue and repurchase the Company’s
shares, and the voting rights of the shares are set out in the Directors’
Report.
BOARD MEETINGS
The Board meets formally at least four times each year. A representative of
OrbiMed attends all meetings; representatives from Frostrow are also in
attendance at each Board meeting. The Independent Directors also meet before
each formal Board meeting without representatives from Frostrow and OrbiMed
being present. The Chair encourages open debate to foster a supportive and
co-operative approach for all participants.
The Board has agreed a schedule of matters specifically reserved for decision
by the Board. This includes establishing the investment objectives, strategy
and the Benchmark, the permitted types or categories of investments, the
markets in which transactions may be undertaken, the amount or proportion of
the assets that may be invested in any geography or category of investment or
in any one investment, and the Company’s share issuance and share buyback
policies.
The Board, at its regular meetings, undertakes reviews of key investment and
financial data, revenue projections and expenses, analyses of asset
allocation, transactions and performance comparisons, share price and net
asset value performance, marketing and shareholder communication strategies,
the risks associated with pursuing the investment strategy, peer group
information and industry issues.
The Chair is responsible for ensuring that the Board receives accurate, timely
and clear information. Representatives of OrbiMed and Frostrow Capital LLP
report regularly to the Board on issues affecting the Company.
The Board is responsible for strategy and has established an annual programme
of agenda items under which it reviews the objectives and strategy for the
Company at each meeting.
CONFLICTS OF INTEREST
Company Directors have a statutory obligation to avoid a situation in which
they (and connected persons) have, or can have, a direct or indirect interest
that conflicts, or may possibly conflict, with the interests of the Company.
The Board has in place procedures for managing any actual or potential
conflicts of interest. No conflicts of interest arose during the year under
review.
BOARD FOCUS AND RESPONSIBILITIES
With the day to day management of the Company outsourced to service providers
the Board’s primary focus at each Board meeting is reviewing the investment
performance and associated matters, such as, inter alia, future outlook and
strategy, gearing, asset allocation, investor relations, marketing, and
industry issues.
In line with its primary focus, the Board retains responsibility for all the
key elements of the Company’s strategy and business model, including:
· the Investment Objective, Policy and Benchmark, incorporating the
investment and derivative guidelines and limits, and changes to these;
· the maximum level of gearing and leverage the Company may employ;
· a review of performance against the Company’s KPIs;
· a review of the performance and continuing appointment of service
providers; and
· the maintenance of an effective system of oversight, risk management and
corporate governance.
The Investment Objective, Policy, and Benchmark, including the related limits
and guidelines, are set out in the Strategic Report, along with details of the
gearing and leverage levels allowed.
Details of the principal KPIs and further information on the principal service
providers, their performance and continuing appointment, along with details of
the principal risks, and how they are managed, are set out in the Strategic
Report.
The Corporate Governance Report includes a statement of compliance with
corporate governance codes and best practice, and the Business Review includes
details of the internal control and risk management framework within which the
Board operates.
BOARD COMPOSITION AND SUCCESSION
Succession planning
During the year, the Nominations Committee considered the structure of the
Board, recognising the need for progressive refreshment. A plan for recruiting
a Director to succeed Humphrey van der Klugt, following his retirement at the
forthcoming AGM, was also agreed. (Please see the Statement from the Chair for
further information).
The Board has an approved succession planning policy to ensure that (i) there
is a formal, rigorous and transparent procedure for the appointment of new
Directors; and (ii) the Board is comprised of members who collectively display
the necessary balance of professional skills, experience, length of service
and industry/Company knowledge.
Policy on the tenure of the Board Chair and other Directors
All Directors seek election or re-election every year. The Board subscribes to
the view that long-serving Directors should not necessarily be prevented from
forming part of an independent majority. The Board considers that a
Director’s tenure does not necessarily reduce his or her ability to act
independently and will continue to assess each Director’s independence
annually through a formal performance evaluation.
The tenure of each Director is not ordinarily expected to exceed nine years.
However, the Board has agreed that the tenure of the Board Chair may be
extended in order to facilitate the Board’s overall orderly succession. The
Board believes that this more flexible approach to the tenure of the Chair is
appropriate in the context of the regulatory rules that apply to investment
companies, which ensure that the Board Chair remains independent after
appointment, while being consistent with the need for regular refreshment and
diversity.
The Board asked Doug McCutcheon to take on the role of Board Chair from July
2022 for a period of three to five years. This was in order to oversee the
renewal of the Board, including the retirement and replacement of all but one
of the then Directors as well as changing the composition and leadership of
all of the Board’s Committees.
Since then, good progress has been made toward the end goal of having a Board
structure that will facilitate Director renewal on a more regular basis than
has occurred historically. And the process continues – as stated in the
Statement from the Chair, Humphrey van der Klugt will be retiring as a
Director at this year’s Annual General Meeting and the Board expects to
recruit a new Director to join the Board later this year. In the light of this
progress, the Board now expects Doug McCutcheon’s term as Board Chair to not
exceed four years.
Portfolio Manager Representative on the Board
The Company was founded in 1995 by our Portfolio Manager, OrbiMed. Since that
time, the Company has performed strongly, producing a compound net asset value
per share annual return of +14.4%, well above our Benchmark and making us the
third best performing trust in the UK across all sectors over the period
(Source: Winterflood Investment Trusts).
Since our inception, a representative of OrbiMed has served as a Director of
the Company. While less common in the investment trust sector today than when
the Company was founded, the Board believes that the Company’s long-term
performance and its shareholders have and will continue to benefit from this
arrangement. The Board has also taken steps to avoid any potential conflicts
of interest – the current OrbiMed representative, Sven Borho, does not sit
on any of the Board’s Committees and he does not receive a salary for
serving as a Director.
Appointments to the Board
The Nominations Committee considers annually the skills possessed by the Board
and identifies any skill shortages to be filled by new Directors.
The rules governing the appointment and replacement of Directors are set out
in the Company’s articles of association and the aforementioned succession
planning policy. Where the Board appoints a new Director during the year, that
Director will stand for election by shareholders at the next AGM. Subject to
there being no conflict of interest, all Directors are entitled to vote on
candidates for the appointment of new Directors and on the recommendation for
shareholders’ approval for the Directors seeking re-election at the AGM.
When considering new appointments, the Board endeavours to ensure that it has
the capabilities required to be effective and oversee the Company’s
strategic priorities.
This will include an appropriate range, balance and diversity of skills,
experience and knowledge. The Company is committed to ensuring that any
vacancies arising are filled by the most qualified candidates.
Diversity policy
The Board supports the principle of Boardroom diversity, of which gender and
ethnicity are two important aspects. The Company’s policy is that the Board
and its committees should be comprised of directors with a diverse range of
skills, knowledge and experience and that appointments should be made on merit
against objective criteria, including diversity in its broadest sense.
The objective of the policy is to have a broad range of approaches,
backgrounds, skills, knowledge and experience represented on the Board. To
this end, achieving a diversity of perspectives and backgrounds on the Board
will be a key consideration in any director search process. The Board
encourages any recruitment agencies it engages to find a diverse range of
candidates that meet the criteria agreed for each appointment and, from the
shortlist, aims to ensure that a diverse range of candidates is brought
forward for interview.
The Board will continue to give due regard to the new diversity targets in the
Listing Rules set out below. The Board will not discriminate unfairly on the
grounds of gender, ethnicity, age, sexual orientation, disability or
socio-economic background when considering the appointment of a new Director.
Candidates’ educational and professional backgrounds, their cognitive and
personal strengths, are considered against the specification prepared for each
appointment.
The Board has noted the FCA’s new Listing Rules which require companies to
report against the following diversity targets:
a) At least 40% of individuals on the board are women;
b) At least one of the senior board positions is held by a woman; and
c) At least one individual on the board is from a minority ethnic background.
As an externally managed investment company, the Company does not have the
positions of CEO or CFO and therefore, as permitted by the Listing Rules, it
has not reported formally against the second target as it is not applicable.
As shown in the tables below, the Company has met the third target but has not
yet met the first target. The Board notes that the statistics will change when
Humphrey van der Klugt retires from the Board at the conclusion of the
forthcoming AGM and will have due regard to these targets in future Director
recruitment processes.
In accordance with the Listing Rules, the Board has provided the following
information in relation to its diversity as at the year end.
Number of
Number of senior
Board Percentage of positions on
Members the Board the Board*
Men 4 67% 2
Women 2 33% 1
Not specified/prefer not to say – – –
Number of
Number of senior
Board Percentage of positions on
Members the Board the Board*
White British or other White (including minority-white groups) 5 83% 2
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British 1 17% 1
Black/African/Caribbean/Black British – – –
Other ethnic group, including Arab – – –
Not specified/ prefer not to say – – –
* The format of the above tables is prescribed in the Listing Rules which
define ‘senior positions on the Board’ as ‘CEO, CFO, SID and Chair’.
However, as an externally managed investment trust, the Company has no
executive management functions, including the roles of CEO and CFO, and the
Company has therefore excluded columns relating to executive management. In
the absence of the aforementioned roles, the Board considers the Chair of the
Audit & Risk Committee to be a senior position and therefore the Company has
defined the ‘senior positions on the Board’ as Chair, Senior Independent
Director and Chair of the Audit & Risk Committee.
The information above was obtained by asking the Directors to indicate on an
anonymous form, how they should be categorised for the purposes of the Listing
Rules disclosures.
MEETING ATTENDANCE
The number of meetings held during the year of the Board and its Committees,
and each Director’s attendance level, is shown below:
Type and number of meetings held in 2023/24 Board (5) Audit & Risk Committee (3) Nominations Committee (2) Management Engagement & Remuneration Committee (1)
Sarah Bates* 2 1 1 1
Sven Borho^ 5 – – –
Tim Livett 5 3 2 1
Humphrey van der Klugt 5 3 2 1
Doug McCutcheon~ 5 – 2 1
Jo Parfrey 5 3 2 1
Dr Bina Rawal 5 3 2 1
* Retired from the Board on 18 July 2023.
^ Sven Borho does not sit on any of the Company’s Committees.
~ Not a member of the Audit & Risk Committee.
All of the serving Directors attended the Annual General Meeting held on 18
July 2023.
BOARD EVALUATION
During the year, an externally facilitated review of the Board its committees
and individual Directors (including each Director’s independence) was
carried out by Stephenson Executive Search Ltd. The evaluation took the form
of a series of one-to-one meetings with the Directors. Areas covered in the
evaluation included Board and Board Committee structure, succession planning,
recruitment and the Board’s compliance with AIC corporate governance
guidelines, paying particular attention to diversity and Board tenure.
The evaluation concluded that the Board works in a collegiate, efficient and
effective manner, and there were no material weaknesses or concerns
identified. The Board is satisfied that the structure, mix of skills and
operation of the Board, its committees, and individual Directors continue to
be effective.
The Board pays close attention to the capacity of individual Directors to
carry out their work on behalf of the Company. In recommending individual
Directors to shareholders for re-election, it considered their other Board
positions and their time commitments and is satisfied that each Director has
the capacity to be fully engaged with the Company’s business. The Board has
considered the position of all of the Directors as part of the evaluation
process, and believes that it would be in the Company’s best interests to
propose them for re-election (with the exception of Humphrey van der Klugt who
will be retiring from the Board on the date of this year’s AGM), for the
following reasons:
Doug McCutcheon joined the Board in November 2012 and became Chair in July
2022. Doug was an investment banker at S.G. Warburg and then UBS for 25 years,
most recently as the head of Healthcare Investment Banking for Europe, the
Middle East, Africa and Asia-Pacific. It is noted that Doug has been a
Director of the Company for more than nine years. The Board has agreed to this
period of longer service to ensure an orderly succession. The Senior
Independent Director conducted a preliminary evaluation of the Chair shortly
after his appointment with no issues being raised. The Board continues to
believe that Doug remains independent in thought and judgement.
Sven Borho joined the Board in June 2018. Sven is a founder and Managing
Partner of OrbiMed and heads their public Equity team and is the portfolio
manager for OrbiMed’s public equity and hedge funds.
Having a senior OrbiMed representative on the Board dates back to the
Company’s inception in 1995. The Board believes that there is great value in
the current representative, Sven Borho, being a Director of the Company as a
result of his considerable knowledge and experience. Sven does not receive a
fee for being a Director, neither is he a member of any of the Company’s
Committees.
Tim Livett joined the Board in September 2022. A qualified accountant, Tim is
Chair of the Audit & Risk Committee. Tim was formerly the Chief Financial
Officer at Caledonia Investments PLC. Prior to this role he was Chief
Financial Officer at Wellcome Trust, the global charitable foundation focused
on health research and at Virgin Atlantic Limited. Tim is a non-executive
Director of British Standards Institution and of Oxford University Endowment
Management, plus a Trustee of Babraham Institute; he chairs the respective
Audit and Risk Committees of these institutions. He has an extensive and broad
financial background.
Jo Parfrey joined the Board in September 2022. Jo is Chair of the Management
Engagement & Remuneration Committee. She is a non-executive Director and Chair
of the Audit Committee of Henderson International Income Trust plc, and a
non-executive Director of Octopus AIM VCT. She is also a non-executive
Director and Chair of the Audit Committee of Start Codon Limited and IESO
Digital Health Limited and the non-executive Chair of Babraham Research Campus
Limited. A Chartered Accountant, Jo has extensive experience of both global
investment trusts and healthcare, including life sciences.
Dr Bina Rawal joined the Board on November 2019. A physician with 25 years’
experience in life sciences research and development, she has held senior
executive roles in drug development and scientific evaluation in four global
pharmaceutical companies. She has also worked in senior roles with two medical
research funding organisations.
The Chair is pleased to report that following a formal performance evaluation,
the Directors’ performance continues to be effective and they continue to
demonstrate commitment to the role.
TRAINING AND ADVICE
New appointees to the Board are provided with a full induction programme. The
programme covers the Company’s investment strategy, policies and practices.
The Directors are also given key information on the Company’s regulatory and
statutory requirements as they arise including information on the role of the
Board, matters reserved for its decision, the terms of reference of the Board
Committees, the Company’s corporate governance practices and procedures and
the latest financial information. It is the Chair’s responsibility to ensure
that the Directors have sufficient knowledge to fulfil their role and
Directors are encouraged to participate in training courses where appropriate.
The Directors have access to the advice and services of a Company Secretary
through its appointed representative which is responsible to the Board for
ensuring that Board procedures are followed and that applicable rules and
regulations are complied with. The Company Secretary is also responsible for
ensuring good information flows between all parties.
There is an agreed procedure for Directors, in the furtherance of their
duties, to take independent professional advice if necessary at the
Company’s expense.
RISK MANAGEMENT AND INTERNAL CONTROLS
The Board has overall responsibility for the Company’s risk management and
internal control systems and for reviewing their effectiveness. The Company
applies the guidance published by the Financial Reporting Council on internal
controls. Internal control systems are designed to manage, rather than
eliminate, the risk of failure to achieve the business objective and can
provide only reasonable and not absolute assurance against material
misstatement or loss. These controls aim to ensure that the assets of the
Company are safeguarded, that proper accounting records are maintained and
that the Company’s financial information is reliable. The Directors have a
robust process for identifying, evaluating and managing the significant risks
faced by the Company, which are recorded in a risk matrix. The Audit & Risk
Committee, on behalf of the Board, considers each risk as well as reviewing
the mitigating controls in place. Each risk is rated for its “likelihood”
and “impact” and the resultant numerical rating determines its ranking
into ‘Principal/Key’, ‘Significant’ or ’Minor’. This process was
in operation during the year and continues in place up to the date of this
report. The process also involves the Audit & Risk Committee receiving and
examining regular reports from the Company’s principal service providers.
The Board then receives a detailed report from the Audit & Risk Committee on
its findings. The Directors have not identified any significant failures or
weaknesses in respect of the Company’s internal control systems.
BENEFICIAL OWNERS OF SHARES – INFORMATION RIGHTS
Beneficial owners of shares who have been nominated by the registered holder
of those shares to receive information rights under section 146 of the
Companies Act 2006 are required to direct all communications to the registered
holder of their shares rather than to the Company’s registrar, Link Group,
or to the Company directly.
The Company has adopted a nominee share code which is set out below.
The annual and half-year financial reports, and a monthly fact sheet are
available to all shareholders. The Board, with the advice of Frostrow, reviews
the format of the annual and half-year financial reports so as to ensure they
are useful to all shareholders and others taking an interest in the Company.
In accordance with best practice, the annual report, including the Notice of
the Annual General Meeting, is sent to shareholders at least 20 working days
before the meeting. Separate resolutions are proposed for substantive issues.
ANNUAL GENERAL MEETING
The following information to be considered at the forthcoming annual general
meeting is important and requires your immediate attention.
If you are in any doubt about the action you should take, you should seek
advice from your stock broker, bank manager, solicitor, accountant or other
financial adviser authorised under the Financial Services and Markets Act 2000
(as amended). If you have sold or transferred all of your ordinary shares in
the Company, you should pass this document, together with any other
accompanying documents, including the form of proxy, at once to the purchaser
or transferee, or to the stock broker, bank or other agent through whom the
sale or transfer was effected, for onward transmission to the purchaser or
transferee
The Company’s Annual General Meeting will be held at Saddlers’ Hall, 40
Gutter Lane, London EC2V 6BR on Wednesday, 10 July 2024 from 1.00 p.m. Please
refer to the Chair’s Statement for details of this year’s arrangements.
In particular, resolutions relating to the following items will be proposed at
the forthcoming Annual General Meeting.
Resolution 11 Authority to allot shares
Resolution 12 Authority to disapply pre-emption rights
Resolution 13 Authority to sell shares held in treasury on a non pre-emptive
basis
Resolution 14 Authority to buy-back shares
Resolution 15 Authority to hold General Meetings (other than the Annual
General Meeting) on at least 14 clear days’ notice
Resolution 16 The continuance of the Company as an investment trust for a
further period of five years
Resolutions 11 and 16 will be proposed as Ordinary Resolutions and resolutions
12 to 15 will be proposed as Special Resolutions.
The full text of the resolutions can be found in the Notice of Annual General
Meeting.
EXERCISE OF VOTING POWERS
The Board and the AIFM have delegated authority to OrbiMed to vote the shares
owned by the Company. The Board has instructed that OrbiMed submit votes for
such shares wherever possible. This accords with current best practice whilst
maintaining a primary focus on financial returns. OrbiMed may refer to the
Board on any matters of a contentious nature. The Board has reviewed
OrbiMed’s Voting Guidelines and is satisfied with their approach.
The Company does not retain voting rights on any shares that are held as
collateral in connection with the overdraft facility provided by J.P. Morgan
Securities LLC.
NOMINEE SHARE CODE
Where shares are held in a nominee company name, the Company undertakes:
· to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
· to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company’s general meetings.
By order of the Board
Frostrow Capital LLP
Company Secretary
6 June 2024
INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2024
2024 2023
Notes Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Gains on investments 9 – 213,794 213,794 – 10,388 10,388
Exchange losses on currency – (5,492) (5,492) – (18,302) (18,302)
Income from investments balances 2 21,398 – 21,398 23,945 – 23,945
AIFM, portfolio management and performance fees 3 (813) (15,454) (16,267) (877) (16,657) (17,534)
Other expenses 4 (1,294) – (1,294) (1,142) (22) (1,164)
Net return/(loss) before finance charges and taxation 19,291 192,848 212,139 21,926 (24,593) (2,667)
Finance costs 5 (406) (7,718) (8,124) (193) (3,658) (3,851)
Net return/(loss) before taxation 18,885 185,130 204,015 21,733 (28,251) (6,518)
Taxation 6 (2,853) – (2,853) (2,021) (248) (2,269)
Net return/(loss) after taxation 16,032 185,130 201,162 19,712 (28,499) (8,787)
Return/(loss) per share* 7 2.7p 31.7p 34.4p 3.0p (4.4)p (1.4)p
* Comparative period restated for the sub-division of each ordinary share
into 10 new ordinary shares during the year.
The “Total” column of this statement is the Income Statement of the
Company. The “Revenue” and “Capital” columns are supplementary to this
and are prepared under guidance published by The Association of Investment
Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above
and therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these statements.
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2024
Capital Share Total
Share redemption premium Capital Revenue shareholders’
capital reserve account reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000
At 31 March 2023 16,265 8,341 841,599 1,261,025 23,491 2,150,721
Net return after taxation – – – 185,130 16,032 201,162
Final dividend paid in respect of year ended 31 March 2023 – – – – (14,709) (14,709)
Interim dividend paid in respect of year ended 31 March 2024 – – – – (3,998) (3,998)
Shares purchased for treasury – – – (252,759) – (252,759)
Shares cancelled from treasury (1,223) 1,223 – – – –
At 31 March 2024 15,042 9,564 841,599 1,193,396 20,816 2,080,417
FOR THE YEAR ENDED 31 MARCH 2023
Capital Share Total
Share redemption premium Capital Revenue shareholders’
capital reserve account reserve reserve funds
£’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2022 16,385 8,221 841,599 1,381,038 20,990 2,268,233
Net (loss)/return after taxation – – – (28,499) 19,712 (8,787)
Final dividend paid in respect of year ended 31 March 2022 – – – – (12,721) (12,721)
Interim dividend paid in respect of year ended 31 March 2023 – – – – (4,490) (4,490)
Shares purchased for treasury – – – (91,514) – (91,514)
Shares cancelled from treasury (120) 120 – – – –
At 31 March 2023 16,265 8,341 841,599 1,261,025 23,491 2,150,721
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2024
Notes 2024 £’000 2023 £’000
Fixed assets
Investments 9 2,108,235 2,186,417
Derivative – OTC swaps 9 & 10 944 209
2,109,179 2,186,626
Current assets
Debtors 11 10,232 4,376
Cash 73,797 58,925
84,029 63,301
Current liabilities
Creditors: amounts falling due within one year 12 (100,373) (72,105)
Derivative – OTC swaps 9 & 10 (12,418) (27,101)
(112,791) (99,206)
Net current liabilities (28,762) (35,905)
Total net assets 2,080,417 2,150,721
Capital and reserves
Share capital 13 15,042 16,265
Capital redemption reserve 9,564 8,341
Share premium account 841,599 841,599
Capital reserve 17 1,193,396 1,261,025
Revenue reserve 20,816 23,491
Total shareholders' funds 2,080,417 2,150,721
Net asset value per share* 14 381.1p 343.5p
* Comparative period restated for the sub-division of each ordinary share
into 10 new ordinary shares during the year.
The financial statements were approved by the Board of Directors and
authorised for issue on 6 June 2024 and were signed on its behalf by:
Doug McCutcheon
Chair
The accompanying notes are an integral part of this statement.
Worldwide Healthcare Trust PLC – Company Registration Number 3023689
(Registered in England)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2024
Notes 2024 £’000 2023 £’000
Net cash inflow from operating activities 18 2,262 5,394
Purchases of investments and derivatives (975,783) (1,189,133)
Sales of investments and derivatives 1,260,461 1,404,617
Realised loss on foreign exchange transactions (5,535) (18,240)
Net cash inflow from investing activities 279,143 197,244
Shares repurchased 13 (252,760) (91,514)
Equity dividends paid (18,707) (17,211)
Interest paid (8,124) (3,851)
Net cash outflow from financing activities (279,591) (112,576)
Increase in net cash 1,814 90,062
Cash flows from operating activities include interest received of £3,219,000
(2023: £2,302,000) and dividends received of £17,463,000 (2023:
£20,507,000).
RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET CASH/(DEBT)
2024 2023
£’000 £’000
Increase in net cash/debt resulting from cashflows 1,814 90,062
Gains/(Losses) on foreign currency cash and cash equivalents 44 (62)
Movement in net cash/debt in the year 1,858 90,000
Net cash/(debt) at 1 April 2,997 (87,003)
Net cash at 31 March 4,855 2,997
Net cash includes the bank overdraft of £68,942,000 (2023: £55,928,000) (see
note 12) and cash as per the balance sheet of £73,797,000 (2023:
£58,925,000).
The accompanying notes are an integral part of this statement.
NOTES TO THE FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these financial statements, are set
out below:
(A) Basis of preparation
These financial statements have been prepared in accordance with the Companies
Act 2006, FRS 102 ‘The Financial Reporting Standard applicable in the UK and
Ireland’ (‘UK GAAP’) and the guidelines set out in the Statement of
Recommended Practice (‘SORP’), published in February 2021, for Investment
Trust Companies and Venture Capital Trusts issued by the Association of
Investment Companies (‘AIC’), the historical cost convention, as modified
by the valuation of investments and derivatives at fair value. The Board has
considered a detailed assessment of the Company’s ability to meet its
liabilities as they fall due, including stress and liquidity tests which
modelled the effects of substantial falls in markets and significant
reductions in market liquidity (including further stressing the current
economic conditions) on the Company’s financial position and cash flows. The
results of the tests showed that the Company would have sufficient cash, or
the ability to liquidate a sufficient proportion of its listed holdings, to
meet its liabilities as they fall due. Based on the information available to
the Directors at the time of this report, including the results of the stress
tests, the Company’s cash balances, and the liquidity of the Company’s
listed investments, the Directors are satisfied that the Company has adequate
financial resources to continue in operation for at least the next 12 months
from the date of approval of these financial statements and that, accordingly,
it is appropriate to adopt the going concern basis in preparing these
financial statements.
The Company’s financial statements are presented in sterling, being the
functional and presentational currency of the Company. All values are rounded
to the nearest thousand pounds (£’000) except where otherwise indicated.
In addition, investments and derivatives held at fair value are categorised
into a fair value hierarchy based on the degree to which the inputs to the
fair value measurements are observable and the significance of the inputs to
the fair value measurement in its entirety, which are described as follows:
· Level 1 – Quoted prices in active markets.
· Level 2 – Inputs other than quoted prices included within Level 1 that
are observable (i.e. developed using market data), either directly or
indirectly.
· Level 3 – Inputs are unobservable (i.e. for which market data is
unavailable).
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and
in accordance with the SORP, supplementary information which analyses the
Income Statement between items of a revenue and capital nature has been
presented alongside the Income Statement. The net revenue return is the
measure the Directors believe appropriate in assessing the Company’s
compliance with certain requirements set out in Sections 1158 and 1159 of the
Corporation Tax Act 2010.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting estimates will, by
definition, seldom equal the related actual results.
In the course of preparing the financial statements, the only key source of
estimation uncertainty in the process of applying the Company’s accounting
policies, is in relation to the valuation of the unquoted (Level 3)
investments. The nature of estimation means that the actual outcomes could
differ from those estimates, possibly significantly. The estimates relate to
the investments where there is no appropriate market price i.e. the private
investments. Whilst the board considers the methodologies and assumptions
adopted in the valuation are supportable, reasonable and robust, because of
the inherent uncertainty of valuation, those estimated values may differ
significantly from the values that would have been used had a ready market for
the investment existed. As at 31 March 2024, there is no single key assumption
used in the valuation of the unquoted investments, or other key source of
estimation uncertainty, that, in the Directors’ opinion has a significant
risk of causing a material adjustment to the carrying values of assets and
liabilities within the next financial year.
Unquoted investments are all valued in line with the accounting policy set out
below.
(B) Investments
Investments are measured under FRS 102 and are measured initially, and at
subsequent reporting dates, at fair value. Investments are recognised and
de-recognised at trade date where a purchase or sale is under a contract whose
terms require delivery within the time frame established by the market
concerned. Changes in fair value and gains or losses on disposal are included
in the Income Statement as a capital item.
For quoted securities fair value is either bid price or last traded price,
depending on the convention of the exchange on which the investment is listed.
Fair value is the price for which an asset could be exchanged between
knowledgeable, willing parties in an arm’s length transaction. In estimating
the fair value of unquoted investments, the AIFM and Board apply valuation
techniques which are appropriate in light of the nature, facts and
circumstances of the investment, and use reasonable current market data and
inputs combined with judgement and assumptions and apply these consistently.
The following principles used in determining the valuation of unquoted
investments, are consistent with the International Private Equity and Venture
Capital Valuation (“IPEV”) Guidelines. The assumptions and estimates made
in determining the fair value of each unquoted investment are considered at
least each six months or sooner if there is a triggering event. An example of
where a valuation would be considered out of the six-month cycle is the
success or failure of a drug under development to meet an anticipated outcome
of its trial, announcement of the company undergoing an initial public
offering, or other performance against tangible development milestones.
The primary valuation method applied in the valuation of the unquoted
investments is the probability-weighted expected return method (“PWERM”),
which considers on a probability weighted basis the future outcomes for the
investment. When using the PWERM method significant judgements are made in
estimating the various inputs into the model and recognising the sensitivity
of such estimates. Examples of the factors where significant judgement is made
include, but are not limited to, the probability assigned to potential future
outcomes; discount rates; and, the likely exit scenarios for the investor
company, for example, IPO or trade sale.
Where the investment being valued was itself made recently, or there has been
a third party transaction in the investment, the price of the transaction may
provide a good indication of fair value. Using the Price of Recent Investment
technique is not a default and at each reporting date the fair value of recent
investments is estimated to assess whether changes or events subsequent to the
relevant transaction would imply a material change in the investment’s fair
value.
When using the price of a recent transaction in the valuations the Company
looks to ‘re-calibrate’ this price at each valuation point by reviewing
progress within the investment, comparing against the initial investment
thesis, assessing if there are any significant events or milestones that would
indicate the value of the investment value has changed materially and
considering whether an alternative methodology would be more appropriate.
(C) Derivative financial instruments
The Company uses derivative financial instruments (namely put and call options
and equity swaps).
All derivative instruments are valued initially, and at subsequent reporting
dates, at fair value in the Statement of Financial Position.
The equity swaps are accounted for as Fixed Assets or Current Liabilities.
All gains and losses on over-the-counter (OTC) equity swaps are accounted for
as gains or losses on investments. Where there has been a re-positioning of
the swap, gains and losses are accounted for on a realised basis. All such
gains and losses have been debited or credited to the capital column of the
Income Statement.
Cash collateral held by counterparties is included within cash, except where
there is a right of offset against the overdraft facility.
(D) Investment income
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company’s
right to receive payment is established. Foreign dividends are grossed up at
the appropriate rate of withholding tax, with the withholding tax recognised
in the taxation charge.
Income from fixed interest securities is recognised on a time apportionment
basis so as to reflect the effective interest rate. Deposit interest is
accounted for on an accruals basis.
(E) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
· expenses which are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Income Statement; and
· expenses are charged to the capital column of the Income Statement where a
connection with the maintenance or enhancement of the value of the investments
can be demonstrated. In this respect the portfolio management and AIFM fees
have been charged to the Income Statement in line with the Board’s expected
long-term split of returns, in the form of capital gains and income, from the
Company’s portfolio. As a result, 5% of the portfolio management and AIFM
fees are charged to the revenue column of the Income Statement and 95% are
charged to the capital column of the Income Statement.
Any performance fee is charged in full to the capital column of the Income
Statement.
(F) Finance costs
Finance costs are accounted for on an accruals basis. Finance costs are
charged to the Income Statement in line with the Board’s expected long-term
split of returns, in the form of capital gains and income, from the
Company’s portfolio. As a result 5% of the finance costs are charged to the
revenue column of the Income Statement and 95% are charged to the capital
column of the Income Statement. Finance charges are accounted for on an
accruals basis in the Income Statement using the effective interest rate
method and are added to the carrying amount of the instrument to the extent
that they are not settled in the period in which they arise.
(G) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue using the marginal basis.
Deferred taxation is provided on all timing differences that have originated
but not been reversed by the Statement of Financial Position date other than
those differences regarded as permanent. This is subject to deferred tax
assets only being recognised when it is probable that there will be suitable
profits from which the reversal of timing differences can be deducted. Any
liability to deferred tax is provided for at the rate of tax enacted or
substantially enacted.
(H) Foreign currency
Transactions recorded in overseas currencies during the year are translated
into sterling at the appropriate daily exchange rates. Assets and liabilities
denominated in overseas currencies at the Statement of Financial Position date
are translated into sterling at the exchange rates ruling at that date.
Exchange gains/losses on foreign currency balances
Any gains or losses on the translation of foreign currency balances, including
the foreign currency overdraft, whether realised or unrealised, are taken to
the capital or the revenue column of the Income Statement, depending on
whether the gain or loss is of a capital or revenue nature.
(I) Capital redemption reserve
This reserve arose when ordinary shares were redeemed by the Company and
subsequently cancelled. When ordinary shares are redeemed by the Company and
subsequently cancelled, an amount equal to the par value of the ordinary share
capital is transferred from the ordinary share capital to the capital
redemption reserve.
(J) Capital reserve
The following are transferred to this reserve:
· gains and losses on the disposal of investments;
· exchange differences of a capital nature, including the effects of changes
in exchange rates on foreign currency borrowings;
· expenses, together with the related taxation effect, in accordance with
the above policies; and
· changes in the fair value of investments and derivatives.
This reserve can be used to distribute realised capital profits by way of
dividend or share buybacks. Any gains in the fair value of investments that
are not readily convertible to cash are treated as unrealised gains in the
capital reserve. Distributions are only payable out of the capital reserve if
capital reserves are greater than the proposed distribution and positive on
the date of distribution.
(K) Revenue reserve
The revenue reserve is distributable by way of dividend. Dividends are only
payable out of the revenue reserve if revenue reserves are greater than the
proposed dividend and positive on the date of distribution.
(L) Dividend payments
Dividends paid by the Company on its shares are recognised in the financial
statements in the year in which they become payable and are shown in the
Statement of Changes in Equity.
(M) Cash and cash equivalents
Cash comprises cash at bank and cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash and are
subject to an insignificant risk of changes in value.
Bank overdrafts are considered as a component of cash and cash equivalents as
they are repayable on demand and form an integral part of the Company’s cash
management.
2. INCOME FROM INVESTMENTS
2024 2023
£’000 £’000
Income from investments
Overseas dividends 14,699 18,431
Fixed interest income – 184
UK dividends 3,480 3,212
18,179 21,827
Other income
Derivatives 27 79
Deposit interest 3,192 2,039
Total income from investments 21,398 23,945
Total income comprises:
Dividends 18,179 21,643
Interest 3,219 2,302
21,398 23,945
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 141 2,689 2,830 151 2,862 3,013
Portfolio management fee 672 12,765 13,437 726 13,795 14,521
813 15,454 16,267 877 16,657 17,534
Further details on the above fees are set out in the Strategic Report and in
the Report of the Directors.
4. OTHER EXPENSES
2024 2023
£’000 £’000
Directors’ remuneration 211 212
Employer’s NIC on Directors’ remuneration 17 18
Auditors’ remuneration for the audit of the Company’s financial statements 56 54
Depositary and custody fees 227 208
Listing fees 101 85
Registrar fees 58 45
Legal and professional costs 267 181
Broker fees – (15)
Other costs 357 354
1,294 1,142
Professional fees (Capital)^ – 22
1,294 1,164
Details of the amounts paid to Directors are included in the Directors’
Remuneration Report.
^ Professional fees in respect of acquisition of unquoted investments. These
fees do not form part of the ongoing charge ratio.
5. FINANCE COSTS
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs 406 7,718 8,124 193 3,658 3,851
6. TAXATION
(A) Analysis of charge in year
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 25% (2023: 19%) – – – – – –
Overseas taxation 2,853 – 2,853 2,021 248 2,269
2,853 – 2,853 2,021 248 2,269
(B) Factors affecting the tax charge for the year
Approved investment trusts are exempt from tax on capital gains made within
the Company.
The tax charged for the year is lower (2023: higher) than the standard rate of
corporation tax of 25% (2023: 19%).
The difference is explained below.
2024 2023
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return/(loss) before taxation 18,885 185,130 204,015 21,733 (28,251) (6,518)
Corporation tax at 25% (2023: 19%) 4,721 46,283 51,004 4,129 (5,415) (1,286)
Non-taxable (gains)/losses on investments – (52,076) (52,076) – 1,551 1,551
Overseas withholding taxation 2,853 – 2,853 2,021 – 2,021
Overseas capital gains tax – – – – 248 248
Non taxable dividends (4,545) – (4,545) (4,112) – (4,112)
Unutilised management expenses (176) 5,056 4,880 (17) 3,864 3,847
Corporate interest restriction – 737 737 – – –
Total tax charge 2,853 – 2,853 2,021 248 2,269
(C) Provision for deferred tax
No provision for deferred taxation has been made in the current or prior year.
The Company has not provided for deferred tax on capital profits and losses
arising on the revaluation or disposal of investments, as it is exempt from
tax on these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of £54,349,000 (25% tax
rate) (2023: £49,985,000 (25% tax rate)) as a result of excess management
expenses and overdraft expenses. It is not anticipated that these excess
expenses will be utilised in the foreseeable future.
7. RETURN/(LOSS) PER SHARE
2024 2023
£’000 £’000
The return/(loss) per share is based on the following figures:
Revenue return 16,032 19,712
Capital return/(loss) 185,130 (28,499)
201,162 (8,787)
Weighted average number of ordinary shares in issue during the year 585,308,530 644,744,220
Revenue return per ordinary share 2.7p 3.0p
Capital return/(loss) per ordinary share 31.7p (4.4)p
34.4p (1.4)p
2023 return per share figures restated for the sub-division of each ordinary
share into 10 new ordinary shares during the year.
The calculation of the total, revenue and capital (loss)/return per ordinary
share is carried out in accordance with IAS 33, “Earnings per Share”, in
accordance with the requirements of FRS 102.
8. DIVIDENDS
Under UK Company Law, final dividends are not recognised until they are
approved by shareholders and interim dividends are not recognised until they
are paid. They are also debited directly from reserves. Amounts recognised as
distributable in these financial statements were as follows:
2024 2023
£’000 £’000
Final dividend in respect of the year ended 31 March 2022 – 12,721
Interim dividend in respect of the year ended 31 March 2023 – 4,490
Final dividend in respect of the year ended 31 March 2023 14,709 –
Interim dividend in respect of the year ended 31 March 2024 3,998 –
18,707 17,211
In respect of the year ended 31 March 2024, an interim dividend of 0.7p per
share was paid on 11 January 2024. A final dividend of 2.1p will be payable,
subject to shareholder approval, on 26 July 2024, the associated ex-dividend
date will be 13 June 2024. The total dividends payable in respect of the year
ended 31 March 2024 amount to 2.8p per share (2023: 31.0p per share, prior to
10 for 1 share split). The aggregate cost of the final dividend, based on the
number of shares in issue (excluding shares held in treasury) at 5 June 2024,
will be £11,241,000. In accordance with FRS 102 dividends will be reflected
in the financial statements for the year in which they become payable. Total
dividends in respect of the financial year, which is the basis on which the
requirements of s1158 of the Corporation Tax Act 2010 are considered, are set
out below.
2024 £’000 2023 £’000
Revenue available for distribution by way of dividend for the year 16,032 19,712
Interim dividend in respect of the year ended 31 March 2024 (3,998) –
Final dividend in respect of the year ended 31 March 2024* (11,241) –
Interim dividend in respect of the year ended 31 March 2023 – (4,490)
Final dividend in respect of the year ended 31 March 2023 – (14,717)
Net retained revenue 793 505
* based on 535,264,463 shares in issue (excluding shares held in treasury) as
at 5 June 2024.
9. INVESTMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative
Financial
Quoted Unquoted Instruments - Total
Investments Investments Total Net Investments
£’000 £’000 £’000 £’000 £’000
Cost at 1 April 2023 1,829,033 121,703 1,950,736 – 1,950,736
Investment holdings gains/(losses) at 1 April 2023 212,214 23,467 235,681 (26,892) 208,789
Valuation at 1 April 2023 2,041,247 145,170 2,186,417 (26,892) 2,159,525
Movement in the year:
Purchases at cost 987,042 3,278 990,320 – 990,320
Sales - proceeds (1,244,565) – (1,244,565) (22,313) (1,266,878)
Net movement in investment holding gains/(losses) 191,384 (15,321) 176,063 37,731 213,794
Valuation at 31 March 2024 1,975,108 133,127 2,108,235 (11,474) 2,096,761
Cost at 31 March 2024 1,549,252 124,985 1,674,237 – 1,674,237
Investment holding gains/(losses) at 31 March 2024 425,856 8,142 433,998 (11,474) 422,524
Valuation at 31 March 2024 1,975,108 133,127 2,108,235 (11,474) 2,096,761
* See Note 16.
The Company received £1,266,878,000 (2023: £1,393,875,000) from investments
and derivatives sold in the year. The book cost of these was £1,266,824,000
(2023: £1,307,159,000). These investments and derivatives have been revalued
over time and until they were sold any unrealised gains/losses were included
in the fair value of the investments.
2024 2023
£’000 £’000
Net movement in investment holding gains in the year 176,063 33,331
Net movement in derivative holding gains/(losses) in the year 37,731 (22,835)
Effective interest rate amortisation – (108)
Gains on investments 213,794 10,388
Purchase transaction costs were £992,000 (2023: £1,660,000). Sales
transaction costs were £1,299,000 (2023: £1,266,000). These comprise mainly
commission and stamp duty.
10. DERIVATIVES
2024 2023
£’000 £’000
Fair value of OTC equity swaps (asset) 944 209
Fair value of OTC equity swaps (liability) (12,418) (27,101)
(11,474) (26,892)
See note 9 above for movements during the year.
11. DEBTORS
2024 2023
£’000 £’000
Amounts due from brokers 6,508 88
Withholding taxation recoverable 1,665 2,882
Prepayments and accrued income 2,059 1,406
10,232 4,376
12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2024 2023
£’000 £’000
Amounts due to brokers 23,973 9,432
Overdraft drawn* 68,942 55,928
Other creditors and accruals 7,458 6,745
100,373 72,105
* The Company’s borrowing requirements are met through the utilisation of
an overdraft facility provided by J.P. Morgan Securities LLC. The overdraft is
drawn down in U.S. dollars. Interest on the drawn overdraft is charged at the
United States Overnight Bank Funding Rate plus 45 basis points.
J.P. Morgan Securities LLC may take investments up to 140% of the value of the
overdrawn balance as collateral and has been granted a first priority security
interest or lien over the Company’s assets.
13. SHARE CAPITAL
2024 2023
Number Number
As at 1 April 62,620,763 65,457,246
Purchase of shares into treasury pre-share split (2,507,439) (2,836,483)
Issue of shares following 10 for 1 share split 541,019,916 –
Purchase of shares into treasury post-share split (55,190,908) –
As at year end:
In circulation 545,942,332 62,620,763
In Treasury 55,722,868 2,438,015
Listed 601,665,200 65,058,778
Nominal Value of 2.5p (2023: 25p) ordinary shares (£000) 15,042 16,265
During the year, the Company bought back ordinary shares at a cost of
£252,759,000 (Year ended 31 March 2023: £91,514,000).
Following the AGM held in July 2023 4,892,258 shares were cancelled from
treasury. At the AGM shareholders approved a resolution for a ten for one
share split such that each shareholder would receive ten shares with a nominal
value of 2.5 pence each for every one share held. 541,498,680 additional
shares (541,019,916 to shareholders and 478,764 in relation to shares held in
treasury) were issued on 27 July 2023 following this approval.
14. NET ASSET VALUE PER SHARE
2024 2023
Net asset value per share 381.1p 343.5p
The net asset value per share is based on the assets attributable to equity
shareholders of £2,080,417,000 (2023: £2,150,721,000) and on the number of
shares in issue at the year-end (excluding those shares held in treasury) of
545,942,332 (2023: 62,620,763) in issue. Comparative NAV per share adjusted to
reflect ten for one share issue during the year).
15. RELATED PARTIES AND TRANSACTIONS WITH THE AIFM
The following are considered to be related parties:
· Frostrow Capital LLP (the Company’s AIFM, a related party under the
Listing Rules only)
· OrbiMed Capital LLC (the Company’s Portfolio Manager)
· The Directors of the Company
Sven Borho is a Managing Partner at OrbiMed and has waived his Director’s
fee of £34,244 (2023: £33,573). Details of fees paid to OrbiMed by the
Company can be found in note 3. All material related party transactions have
been disclosed in notes 3 and 4.
Details of the remuneration of all Directors can be found in the Remuneration
Report. Details of the Directors’ interests in the capital of the Company
can also be found in the Remuneration Report.
Three current and two former partners at OrbiMed have a minority financial
interest totalling 19.4% in Frostrow, the Company’s AIFM. Details of the
fees paid to Frostrow by the Company can be found in note 3.
16. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company’s financial instruments comprise securities and other
investments, derivative instruments, cash balances, overdrafts and debtors and
creditors that arise directly from its operations.
As an investment trust, the Company invests in equities and other investments
for the long term so as to secure its investment objective. In pursuing its
investment objective, the Company is exposed to a variety of risks that could
result in a reduction in the Company’s net assets.
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk (including foreign currency risk, interest rate risk and
other price risk)
(ii) liquidity risk
(iii) credit risk
These risks, with the exception of liquidity risk, and the Directors’
approach to the management of them have not changed from the previous
accounting year. The AIFM, in close co-operation with the Board and the
Portfolio Manager, co-ordinates the Company’s risk management.
Use of derivatives
Equity swaps are used within the Company’s portfolio.
OTC equity swaps
The Company uses OTC equity swap positions to gain access to the Indian and
Chinese markets when it is more cost effective to gain access via swaps or to
gain exposure to thematic baskets of stocks.
Offsetting disclosure
Swap trades and OTC derivatives are traded under ISDA† Master Agreements.
The Company currently has such agreements in place with Goldman Sachs and JP
Morgan.
These agreements create a right of set-off that becomes enforceable only
following a specified event of default, or in other circumstances not expected
to arise in the normal course of business. As the right of set-off is not
unconditional, for financial reporting purposes, the Company does not offset
derivative assets and derivative liabilities.
† International Swap Dealers Association Inc.
(i) Other price risk
In pursuance of the Company’s Investment Objective the Company’s
portfolio, including its derivatives, is exposed to the risk of fluctuations
in market prices and foreign exchange rates.
The Board manage these risks through the use of limits and guidelines, monthly
compliance reports from Frostrow and reports from Frostrow and OrbiMed
presented at each Board meeting.
Other price risk exposure
The Company’s gross exposure to other price risk is represented by the fair
value of the investments and the underlying exposure through the derivative
investments held at the year-end as shown in the table below.
2024 2023
Notional* Notional*
Assets Liabilities exposure Assets Liabilities exposure
£’000 £’000 £’000 £’000 £’000 £’000
Investments 2,108,235 – 2,108,235 2,186,417 – 2,186,417
OTC equity swaps 944 (12,418) 198,082 209 (27,101) 190,704
2,109,179 (12,418) 2,306,318 2,186,626 (27,101) 2,377,121
* The notional exposure is calculated in accordance with the AIFMD
requirements for calculating exposure via derivatives. See glossary.
Other price risk sensitivity
If market prices of all of the Company’s financial instruments including the
derivatives at the Statement of Financial Position date had been 25% higher or
lower (2023: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £0.2 million (2023:
£0.2 million); the capital return would have increased/decreased by £572.5
million (2023: £596.6 million); and, the return on equity would have
increased/decreased by £572.3 million (2023: £594.6 million). The
calculations are based on the portfolio as at the respective Statement of
Financial Position dates and are not representative of the year as a whole.
(ii) Foreign currency risk
A significant proportion of the Company’s portfolio and derivative positions
are denominated in currencies other than sterling (the Company’s functional
currency, and the currency in which it reports its results). As a result,
movements in exchange rates can significantly affect the sterling value of
those items.
Foreign currency exposure
The fair values of the Company’s monetary assets and liabilities that are
denominated in foreign currencies are shown below.
2024 2023
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£’000 £’000 £’000 £’000 £’000 £’000
U.S. dollar 140,646 (166,711) 1,579,696 115,823 (124,286) 1,488,321
Swiss franc 11,102 – 11,652 2,466 – 84,999
Japanese yen 1,041 – 130,007 793 – 135,398
Hong Kong dollar – – 62,058 – – 109,170
Other 993 – 132,435 194 – 201,798
153,782 (166,711) 1,915,848 119,276 (124,286) 2,019,686
Foreign currency sensitivity
The following table details the sensitivity of the Company’s net return for
the year and shareholders’ funds to a 10% increase and decrease in sterling
against the relevant currency (2023: 10% increase and decrease).
These percentages have been determined based on market volatility in exchange
rates over the previous 12 months. The sensitivity analysis is based on the
Company’s significant foreign currency exposures at each Statement of
Financial Position date.
2024 2023
USD YEN CHF HKD USD YEN CHF HKD
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Sterling depreciates 195,910 14,561 2,528 6,895 188,606 15,132 9,718 12,130
Sterling appreciates (160,290) (11,913) (2,069) (5,642) (154,314) (12,381) (7,951) (9,925)
(iii) Interest rate risk
Interest rate changes may affect:
– the interest payable on the Company’s variable rate borrowings;
– the level of income receivable from floating and fixed rate securities
and cash at bank and on deposit;
– the fair value of investments in fixed interest
securities.
Interest rate exposure
The Company’s main exposure to interest rate risks is through its overdraft
facility with J.P. Morgan Securities LLC, which is repayable on demand, and
its holding in fixed interest securities. The exposure of financial assets and
liabilities to fixed and floating interest rates, is shown below.
The interest rate exposure is shown in the table below.
2024 2023
Floating Floating
rate rate
£’000 £’000
Cash 78,721 100,366
Overdraft facility (12,412) (97,369)
Financed swap positions (209,556) (217,596)
(143,247) (214,599)
All interest rate exposures are held in U.S. dollars.
Cash of £78.7 million (2023: £100.4 million) was held as collateral against
the financed swap positions, of which £4.9 million (2023: £41.4 million)
was offset against the overdraft position.
Interest rate sensitivity
If interest rates had been 1% higher or lower and all other variables were
held constant, the Company’s net return for the year ended 31 March 2024 and
the net assets would increase/decrease by £1.4 million (2023:
increase/decrease by £2.1 million).
(iv) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
Management of the risk
Liquidity risk is not considered significant as the majority of the
Company’s assets are investments in quoted securities that are readily
realisable within one week, in normal market conditions. There may be
circumstances where market liquidity is lower than normal. Stress tests have
been performed to understand how long the portfolio would take to realise in
such situations. The Board is comfortable that in such a situation the Company
would be able to meet its liabilities as they fall due.
Liquidity exposure and maturity
Contractual maturities of the financial liability exposures as at 31 March
2024, based on the earliest date on which payment can be required, are as
follows:
2024 2023
3 to 12 3 months 3 to 12 3 months
months or less months or less
£’000 £’000 £’000 £’000
Overdraft facility – 12,412 – 97,369
Amounts due to brokers and accruals – 31,461 – 16,177
OTC equity swaps 12,418 – 27,101 –
12,418 43,873 27,101 113,546
£4.9 million of cash held as collateral is offset against the overdraft
facility in the Statement of Financial Position, as set out in Note 16(iii)
above.
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a financial loss.
The carrying amounts of financial assets best represent the maximum credit
risk at the Statement of Financial Position date.
The Company’s quoted securities are held on its behalf by J.P. Morgan
Securities LLC acting as the Company’s Custodian and Prime Broker.
Certain of the Company’s assets can be held by J.P. Morgan Securities LLC as
collateral against the overdraft provided by them to the Company. As at 31
March 2024 such assets held by J.P. Morgan Securities LLC are available for
rehypothecation (see Glossary). As at 31 March 2024, assets with a total
market value of £104.1 million (2023: £134.7 million) were available to J.P.
Morgan Securities LLC to be used as collateral against the overdraft facility
which equates to 140% of the overdrawn position (calculated on a settled
basis).
CREDIT RISK EXPOSURE
2024 2023
£’000 £’000
Derivative – OTC equity swaps 944 209
Current assets:
Other receivables (amounts due from brokers, dividends and interest receivable) 10,232 4,376
Cash 73,797 58,925
(vi) Fair value of financial assets and financial liabilities
Financial assets and financial liabilities are either carried in the Statement
of Financial Position at their fair value (investments and derivatives) or the
Statement of Financial Position amount is a reasonable approximation of fair
value (due from brokers, dividends and interest receivable, due to brokers,
accrual, cash at bank, and the overdraft).
(vii) Hierarchy of investments
The Company has classified its financial assets designated at fair value
through profit or loss and the fair value of derivative financial instruments
using a fair value hierarchy that reflects the significance of the inputs used
in making the fair value measurements. The hierarchy has the following levels:
· Level 1 – quoted prices (unadjusted) in active markets for identical
assets or liabilities;
· Level 2 – inputs other than quoted prices included with Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
· Level 3 – inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
As of 31 March 2024 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments held at fair value through profit or loss 1,975,108 – 133, 127 2,108,235
Derivatives: OTC swaps (assets) – 944 – 944
Derivatives: OTC swaps (liabilities) – (12,418) – (12,418)
Financial instruments measured at fair value 1,975,108 (11,474) 133,127 2,096,761
As at 31 March 2024 & 2023, ten equity investments and a deferred
consideration investment have been classified as level 3. All level 3
positions have been valued in accordance with the accounting policy set out in
Note 1(b).
During 2023 one unquoted investment was transferred to Level 1 following their
initial public offering.
As of 31 March 2023 Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000
Investments held at fair value through profit or loss 2,041,247 – 145,170 2,186,417
Derivatives: OTC swaps (assets) – 209 – 209
Derivatives: OTC swaps (liabilities) – (27,101) – (27,101)
Financial instruments measured at fair value 2,041,247 (26,892) 145,170 2,159,525
(viii) Capital management policies and procedures
The Company’s capital management objectives are to ensure that it will be
able to continue as a going concern and to maximise the income and capital
return to its equity shareholders through an appropriate level of gearing or
leverage.
The Board’s policy on gearing and leverage is set out in the Strategic
Report.
As at 31 March 2024 the Company had a net leverage percentage of 10.8% (2023:
10.5%).
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as shown in the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company’s capital on an ongoing
basis. This includes a review of:
– the planned level of gearing, which takes into
account the Portfolio Manager’s view of the market;
– the need to buy back equity shares, either for
cancellation or to hold in treasury, in light of any share price discount to
net asset value per share in accordance with the Company’s share buy-back
policy;
– the need for new issues of equity shares,
including issues from treasury; and
– the extent to which revenue in excess of that
which is required to be distributed should be retained.
The Company’s objectives, policies and processes for managing capital are
unchanged from the preceding accounting year.
17. CAPITAL RESERVE
Capital Reserves
Investment
Holding
Other Gains* Total
£’000 £’000 £’000
At 1 April 2023 888,953 372,072 1,261,025
Net gains/(losses) on investments 60 213,734 213,794
Expenses and taxation charged to capital (23,172) – (23,172)
Exchange loss on currency balances (5,492) – (5,492)
Shares repurchased for Treasury (252,759) – (252,759)
At 31 March 2024 607,590 585,806 1,193,396
* Investment holding gains relate to the revaluation of investments and
derivatives held at the reporting date. (See note 9 for further details).
Under the Company’s Articles of Association, sums within “capital reserves
– other” are also available for distribution.
18. RECONCILIATION OF OPERATING RETURN/(LOSS) TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
2024 2023
£’000 £’000
Gain/(loss) before finance charges and taxation 212,139 (2,667)
Add: capital (gain)/loss before finance charges and taxation (192,848) 24,593
Revenue return before finance charges and taxation 19,291 21,926
Expenses charged to capital (15,454) (16,679)
(Increase)/decrease in other debtors (653) 150
Increase in other creditors 714 2,669
Net taxation suffered on investment income (1,636) (2,564)
Amortisation – (108)
Net cash inflow from operating activities 2,262 5,394
GLOSSARY OF TERMS AND ALTERNATIVE PERFORMANCE MEASURES (“APMS”)
ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE (“AIFMD”)
Agreed by the European Parliament and the Council of the European Union and
transported into UK legislation, the
AIFMD classifies certain investment vehicles, including investment companies,
as Alternative Investment Funds (AIFs) and requires them to appoint an
Alternative Investment Fund Manager (AIFM) and a depositary to manage and
oversee the operations of the investment vehicle. The Board of the Company
retains responsibility for strategy, operations and compliance and the
Directors retain a fiduciary duty to shareholders.
Alternative performance measure (“APM”)
An APM is a numerical measure of the Company’s current, historical or future
financial performance, financial position or cash flows, other than a
financial measure defined or specified in the applicable financial framework.
In selecting these Alternative Performance Measures, the Directors considered
the key objectives and expectations of typical investors in an investment
trust such as the Company.
Discount or premium
A description of the difference between the share price and the net asset
value per share. The size of the discount or premium is calculated by
subtracting the share price from the net asset value per share and is usually
expressed as a percentage (%) of the net asset value per share. If the share
price is higher than the net asset value per share the result is a premium. If
the share price is lower than the net asset value per share, the shares are
trading at a discount.
Equity swaps
An equity swap is an agreement where one party (counterparty) transfers the
total return of an underlying equity position to the other party (swap holder)
in exchange for a payment of the principal, and interest for financed swaps,
at a set date. Total return includes dividend income and gains or losses from
market movements. The exposure of the holder is the market value of the
underlying equity position.
The Company currently only uses financed equity swaps, where payment is made
on maturity. Financed swaps increase exposure by the value of the underlying
equity position, with no initial outlay and no increase in the investment
portfolio’s value – there is therefore embedded leverage within a financed
swap due to the deferral of payment to maturity.
The Company employs swaps for two purposes:
· To gain access to individual stocks in the Indian, Chinese and other
emerging markets, where the Company is not locally registered to trade or is
able to gain in a more cost efficient manner than holding the stocks directly;
and,
· To gain exposure to thematic baskets of stocks (a Basket Swap). Basket
Swaps are used to build exposure to themes, or ideas, that the Portfolio
Manager believes the Company will benefit from and where holding a Basket Swap
is more cost effective and operationally efficient than holding the underlying
stocks or individual swaps.
Gearing
Gearing is calculated as the overdraft drawn, less net current assets
(excluding dividends), divided by Net Assets, expressed as a percentage. For
years prior to 2013, the calculation was based on borrowings as a percentage
of Net Assets.
* Alternative Performance Measure
International swaps and derivatives association (“ISDA”)
ISDA has created a standardised contract (the ISDA Master Agreement) which
sets out the basic trading terms between the counterparties to derivative
contracts.
Leverage
Leverage is defined in the AIFMD as any method by which the AIFM increases the
exposure of an AIF. In addition to the gearing limit the Company also has to
comply with the AIFMD leverage requirements. For these purposes the Board has
set a maximum leverage limit of 140% for both methods. This limit is expressed
as a % with 100% representing no leverage or gearing in the Company. There are
two methods of calculating leverage as follows:
The Gross Method is calculated as total exposure divided by Shareholders’
Funds. Total exposure is calculated as net assets, less cash and cash
equivalents, adding back cash borrowing plus derivatives converted into the
equivalent position in their underlying assets.
The Commitment Method is calculated as total exposure divided by Shareholders
Funds. In this instance total exposure is calculated as net assets, less cash
and cash equivalents, adding back cash borrowing plus derivatives converted
into the equivalent position in their underlying assets, adjusted for netting
and hedging arrangements.
See the definition of Equity Swaps for more details on how exposure through
these instruments is calculated.
2024 £’000 2023 £’000
Fair Value Exposure* Fair Value Exposure*
Investments 2,108,235 2,108,235 2,186,417 2,186,417
OTC equity swaps (11,474) 198,082 (26,092) 190,704
2,096,761 2,306,317 2,159,525 2,377,121
Shareholders’ funds 2,081,180 2,150,721
Leverage % 10.8% 10.5%
* Calculated in accordance with AIFMD requirements using the Commitment
Method
MSCI World Health Care Index (the Company’s Benchmark)
The MSCI World Health Care Index is designed to capture the large and mid
capitalisation segments across 23 developed markets countries: All securities
in the index are classified as healthcare as per the Global Industry
Classification Standard (GICS). Developed Markets countries include:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland the UK and the U.S. The net
total return of the Index is used which assumes the reinvestment of any
dividends paid by its constituents after the deduction of relevant withholding
taxes. The performance of the Index is calculated in U.S.$ terms. Because the
Company’s reporting currency is £ the prevailing U.S.$/£ exchange rate is
applied to obtain a £ based return.
NAV per share (pence)
The value of the Company’s assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also
described as ‘shareholders’ funds’ per share. The NAV is often expressed
in pence per share after being divided by the number of shares which have been
issued. The NAV per share is unlikely to be the same as the share price which
is the price at which the Company’s shares can be bought or sold by an
investor. The share price is determined by the relationship between the demand
and supply of the shares.
* Alternative Performance Measure
Net asset value (NAV) per share total return*
The theoretical total return on shareholders’ funds per share, reflecting
the change in NAV assuming that dividends paid to shareholders were reinvested
at NAV at the time the shares were quoted ex-dividend. A way of measuring
investment management performance of investment trusts which is not affected
by movements in discounts/premiums.
2024 2023
NAV Total Return p p
Opening NAV 343.5 346.5
Increase/(decrease) in NAV 37.6 (3.1)
Closing NAV 381.1 343.5
% increase/(decrease) in NAV 10.9% (0.9%)
Impact of reinvested dividends 1.1% 0.8%
NAV Total Return 12.0% (0.1%)
Ongoing Charges*
Ongoing charges are calculated by taking the Company’s annualised ongoing
charges, excluding finance costs, taxation, performance fees and exceptional
items, and expressing them as a percentage of the average daily net asset
value of the Company over the year.
2024 2023
£’000 £’000
AIFM & Portfolio Management fees (Note 3) 16,267 17,534
Other Expenses – Revenue (Note 4) 1,294 1,142
Total Ongoing Charges 17,561 18,676
Performance fees paid/crystallised – –
Total 17,561 18,676
Average net assets 2,036,653 2,247,296
Ongoing Charges 0.9% 0.8%
Ongoing Charges (including performance fees paid or crystallised during the year) 0.9% 0.8%
Rehypothecation
Rehypothecation is the practice by banks and brokers of using, for their own
purposes, assets that have been posted as collateral by clients.
Share Price Total Return*
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested.
2024 2023
Share Price Total Return p p
Opening share price 311.5 327.5
Increase in share price 23.5 16.0
Closing share price 335.0 311.5
% increase in share price 7.5% (4.9%)
Impact of reinvested dividends 1.1% 0.8%
Share Price Total Return 8.6% (4.1%)
* Alternative Performance Measure
NOTICE OF THE ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of Worldwide Healthcare
Trust PLC will be held at Saddlers' Hall, 40 Gutter Lane, London EC2V 6BR on
Wednesday, 10 July 2024 from 1.00 p.m. for the following purposes:
Ordinary Resolutions
To consider and, if thought fit, pass the following resolutions which will be
proposed as ordinary resolutions:
1. That the Report of the Directors and the audited Accounts for the year
ended 31 March 2024 together with the Report of the Auditors thereon be
received and adopted.
2. To approve the payment of a final dividend of 2.1p per ordinary share for
the year ended 31 March 2024.
3. To approve the Company’s dividend policy, as set out on page 31 of the
Annual Report for the year ended 31 March 2024.
4. To re-elect Mr Doug McCutcheon as a Director of the Company.
5. To re-elect Mr Sven Borho as a Director of the Company.
6. To re-elect Dr Bina Rawal as a Director of the Company.
7. To re-elect Mr Tim Livett as a Director of the Company.
8. To re-elect Ms Jo Parfrey as a Director of the Company.
9. To re-appoint PricewaterhouseCoopers LLP as the Company’s Auditors and
to authorise the Audit & Risk Committee to determine their remuneration.
10. To approve the Directors’ Remuneration Report for the year ended 31
March 2024.
Authority to Allot Shares
11. THAT in substitution for all existing authorities the Directors be and
are hereby generally and unconditionally authorised in accordance with section
551 of the Companies Act 2006 (the “Act”) to exercise all powers of the
Company to allot relevant securities (within the meaning of section 551 of the
Act) up to a maximum aggregate nominal amount equal to 10% of the issued share
capital of the Company at 5 June 2024 (or, if changed, the number representing
10% of the issued share capital of the Company at the date at which this
resolution is passed), provided that this authority shall expire at the
conclusion of the Annual General Meeting of the Company to be held in 2025 or
15 months from the date of passing this resolution, whichever is the earlier,
unless previously revoked, varied or renewed, by the Company in General
Meeting and provided that the Company shall be entitled to make, prior to the
expiry of such authority, an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the Directors may
allot relevant securities pursuant to such offer or agreement as if the
authority conferred hereby had not expired.
Special Resolutions
To consider and, if thought fit, pass the following resolutions which will be
proposed as special resolutions:
Disapplication of Pre-Emption Rights
12. THAT in substitution for all existing powers (and in addition to any
power conferred on them by resolution 13 set out in the notice convening the
Annual General Meeting at which this resolution is proposed (“Notice of
Annual General Meeting”)) the Directors be and are hereby generally
empowered pursuant to Section 570 of the Companies Act 2006 (the “Act”) to
allot equity securities (within the meaning of Section 560 of the Act) for
cash pursuant to the authority conferred on them by resolution 11 set out in
the Notice of Annual General Meeting or otherwise as if Section 561(1) of the
Act did not apply to any such allotment:
(a) pursuant to an offer of equity securities open for acceptance for a
period fixed by the Directors where the equity securities respectively
attributable to the interests of holders of shares in the capital of the
Company (“Shares”) are proportionate (as nearly as may be) to the
respective numbers of Shares held by them but subject to such exclusions or
other arrangements in connection with the issue as the Directors may consider
necessary, appropriate or expedient to deal with equity securities
representing fractional entitlements or to deal with legal or practical
problems arising in any overseas territory, the requirements of any regulatory
body or stock exchange, or any other matter whatsoever;
(b) provided that (otherwise than pursuant to sub-paragraph (a) above) this
power shall be limited to the allotment of equity securities up to an
aggregate nominal value equal to 10% of the issued share capital of the
Company at 5 June 2024 (or, if changed, the number representing 10% of the
issued share capital of the Company at the date at which this resolution is
passed) and provided further that (i) the number of equity securities to which
this power applies shall be reduced from time to time by the number of
treasury shares which are sold pursuant to any power conferred on the
Directors by resolution 13 set out in the Notice of Annual General Meeting and
(ii) no allotment of equity securities shall be made under this power which
would result in Shares being issued at a price which is less than the net
asset value per Share as at the latest practicable date before such allotment
of equity securities as determined by the Directors in their reasonable
discretion; and
such power shall expire at the conclusion of the next Annual General Meeting
of the Company after the passing of this resolution or 15 months from the date
of passing this resolution, whichever is earlier, unless previously revoked,
varied or renewed by the Company in General Meeting and provided that the
Company shall be entitled to make, prior to the expiry of such authority, an
offer or agreement which would or might otherwise require equity securities to
be allotted after such expiry and the Directors may allot equity securities
pursuant to such offer or agreement as if the power conferred hereby had not
expired.
13. THAT in substitution for all existing powers (and in addition to any
power conferred on them by resolution 12 set out in the Notice of Annual
General Meeting) the Directors be and are hereby generally empowered pursuant
to Section 570 of the Companies Act 2006 (the “Act”) to sell relevant
shares (within the meaning of Section 560 of the Act) if, immediately before
the sale, such shares are held by the Company as treasury shares (as defined
in Section 724 of the Act (“treasury shares”)), for cash as if Section
561(1) of the Act did not apply to any such sale provided that:
(a) this power shall be limited to the sale of relevant shares having an
aggregate nominal value equal to 10% of the issued share capital of the
Company at 5 June 2024 (or, if changed, the number representing 10% of the
issued share capital of the Company at the date at which this resolution is
passed) and provided further that the number of relevant shares to which power
applies shall be reduced from time to time by the number of Shares which are
allotted for cash as if Section 561(1) of the Act did not apply pursuant to
the power conferred on the Directors by resolution 15 set out in the Notice of
Annual General Meeting,
and such power shall expire at the conclusion of the next Annual General
Meeting of the Company after the passing of this resolution or 15 months from
the date of passing this resolution, whichever is earlier, unless previously
revoked, varied or renewed by the Company in General Meeting and provided that
the Company shall be entitled to make, prior to the expiry of such authority,
an offer or agreement which would or might otherwise require treasury shares
to be sold after such expiry and the Directors may sell treasury shares
pursuant to such offer or agreement as if the power conferred hereby had not
expired.
Authority to Repurchase Ordinary Shares
14. THAT the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 (the
“Act”) to make one or more market purchases (within the meaning of section
693 of the Act) of ordinary shares in the capital of the Company
(“Shares”) (either for retention as treasury shares for future reissue,
resale, transfer or cancellation), provided that:
(a) the maximum aggregate number of Shares authorised to be purchased shall
be that number of shares which is equal to 14.99% of the issued share capital
of the Company as of the value of the date of the passing of this resolution;
(b) the minimum price (exclusive of expenses) which may be paid for a Share
is 2.5 pence;
(c) the maximum price (exclusive of expenses) which may be paid for a Share
is an amount equal to the greater of (i) 105% of the average of the middle
market quotations for a Share as derived from the Daily Official List of the
London Stock Exchange for the five business days immediately preceding the day
on which that Share is purchased and (ii) the higher of the price of the last
independent trade and the highest then current independent bid on the London
Stock Exchange as stipulated in the technical standards referred to in Article
5(6) of the Market Abuse Regulation (EU) No. 596/2014 (which forms part of UK
law by virtue of the European Union (Withdrawal) Act 2018);
(d) the authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2025 or, if earlier, on
the expiry of 15 months from the date of the passing of this resolution unless
such authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
General Meetings
15. THAT the Directors be authorised to call general meetings (other than the
Annual General Meeting of the Company) on not less than 14 clear days’
notice, such authority to expire on the conclusion of the next Annual General
Meeting of the Company, or, if earlier, on the expiry 15 months from the date
of the passing of the resolution.
Ordinary Resolution
To consider and, if thought fit, pass the following resolution which will be
proposed as an ordinary resolution:
Continuance of the Company
16. To approve the continuance of the Company as an investment trust for a
further period of five years.
By order of the Board Registered Office:
One Wood Street
London EC2V 7WS
Frostrow Capital LLP
Company Secretary
6 June 2024
NOTES
1. Members are entitled to appoint a proxy to exercise all or any of their
rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting
provided that each proxy is appointed to exercise the rights attached to a
different share or shares held by that shareholder. A proxy need not be a
shareholder of the Company.
2. A vote withheld is not a vote in law, which means that the vote will not
be counted in the calculation of votes for or against the resolutions. If no
voting indication is given, a proxy may vote or abstain from voting at his/her
discretion. A proxy may vote (or abstain from voting) as he or she thinks fit
in relation to any other matter which is put before the meeting.
3. Hard copy forms of proxy have not been included with this notice. Members
can vote by: logging onto www.signalshares.com and following instructions;
requesting a hard copy form of proxy directly from the registrars, Link Group
at shareholderenquiries@linkgroup.co.uk or in the case of CREST members,
utilising the CREST electronic proxy appointment service in accordance with
the procedures set out below. To be valid any proxy form or other instrument
appointing a proxy must be completed and signed and received by post or
(during normal business hours only) by hand at Link Group, PXS1, Central
Square, 29 Wellington Street, Leeds LS1 4DL no later than 1.00 p.m. on Monday,
8 July 2024. Alternatively, if you are an institutional shareholder you may
also be able to appoint a proxy electronically via the proxymity platform (see
note 14 below).
4. In the case of a member which is a company, the instrument appointing a
proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power
of attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any CREST
Proxy Instruction (as described below) will not prevent a shareholder
attending the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a
“Nominated Person”) may, under an agreement between him/her and the
shareholder by whom he/she was nominated, have a right to be appointed (or
have someone else appointed) as a proxy for the meeting. If a Nominated Person
has no such proxy appointment right or does not wish to exercise it, he/she
may, under any such agreement, have a right to give instructions to the
shareholder as to the exercise of voting rights.
7. The statement of the rights of shareholders in relation to the appointment
of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons.
The rights described in these paragraphs can only be exercised by shareholders
of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations
2001, only shareholders registered on the register of members of the Company
(the “Register of Members”) at the close of business on Monday, 8 July
2024 (or, in the event of any adjournment, on the date which is two days
before the time of the adjourned meeting) will be entitled to attend and vote
or be represented at the meeting in respect of shares registered in their name
at that time. Changes to the Register of Members after that time will be
disregarded in determining the rights of any person to attend and vote at the
meeting.
9. As at 5 June 2024 (being the last business day prior to the publication of
this notice) the Company’s issued share capital consists of 601,665,200
ordinary shares, carrying one vote each. The Company holds 66,400,737 shares
in treasury. Therefore, the total voting rights in the Company as at 5 June
2024 are 535,264,463.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with the
specifications of Euroclear UK & International (“CRESTCo”), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the
appointment of a proxy or is an amendment to the instruction given to a
previously appointed proxy must, in order to be valid, be transmitted so as to
be received by the issuer’s agent (ID RA10) no later than 48 hours before
the time appointed for holding the meeting. For this purpose, the time of
receipt will be taken to be the time (as determined by the timestamp applied
to the message by the CREST Application Host) from which the issuer’s agent
is able to retrieve the message by enquiry to CREST in the manner prescribed
by CREST. After this time any change of instructions to proxies appointed
through CREST should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to
ensure that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting system providers are referred, in particular,
to those sections of the CREST Manual concerning practical limitations of the
CREST system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. If you are an institutional investor you may also be able to appoint a
proxy electronically via the Proxymity platform, a process which has been
agreed by the Company and approved by the Registrar. For further information
regarding Proxymity, please go to www.proxymity.io. Your proxy must be lodged
by 1.00pm on 8 July 2024 in order to be considered valid or, in the event of
any adjournment, close of business on the date which is two working days
before the time of the adjourned meeting. Before you can appoint a proxy via
this process you will need to have agreed to Proxymity’s associated terms
and conditions. It is important that you read these carefully as you will be
bound by them and they will govern the electronic appointment of your proxy.
An electronic proxy appointment via the Proxymity platform may be revoked
completely by sending an authenticated message via the platform instructing
the removal of your proxy vote.
15. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the most senior
holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Register of Members in respect of the
joint holding (the first named being the most senior).
16. Members who wish to change their proxy instructions should submit a new
proxy appointment using the methods set out above. Note that the cut-off time
for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the
relevant cut-off time will be disregarded.
17. Members who have appointed a proxy using the hard-copy proxy form and who
wish to change the instructions using another hard-copy form, should contact
Link Group on 0371 664 0300 or +44 371 664 0300. Calls are charged at the
standard geographic rate and will vary by provider. Calls outside the United
Kingdom are charged at the applicable international rate. Lines are open 09.00
to 17.30 Monday to Friday excluding public holidays in England and Wales.
18. If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies
will take precedence.
19. In order to revoke a proxy instruction, members will need to inform the
Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Link Group, PXS1, 29 Wellington
Street, Central Square, Leeds LS1 4DL. In the case of a member which is a
company, the revocation notice must be executed under its common seal or
signed on its behalf by an officer of the company or an attorney for the
company. Any power of attorney or any other authority under which the
revocation notice is signed (or a duly certified copy of such power of
attorney) must be included with the revocation notice. If a member attempts to
revoke their proxy appointment but the revocation is received after the time
for receipt of proxy appointments (see above) then, subject to paragraph 4,
the proxy appointment will remain valid.
EXPLANATORY NOTES TO THE RESOLUTIONS
Resolution 1 – To receive and adopt the Annual Report and Accounts
The Annual Report and Accounts for the year ended 31 March 2024 will be
presented to the Annual General Meeting (“AGM”). These accounts accompany
this Notice of Meeting.
Resolution 2 – To approve a Final Dividend
The rationale for the payment of a final dividend is set out in the Statement
from the Chair and the Report of the Directors.
Resolution 3 – Approval of the Company’s Dividend Policy
Resolution 3 seeks shareholder approval of the Company’s dividend policy.
Resolutions 4 to 8 – Re-election of Directors
Resolutions 4 to 8 deal with the re-election of each Director.
The Board has confirmed, following a performance review, that the Directors
standing for re-election and election continue to perform effectively.
Resolution 9 – Re-appointment of Auditors and the determination of their
remuneration
Resolution 9 relates to the re-appointment of PricewaterhouseCoopers LLP as
the Company’s independent Auditors to hold office until the next AGM of the
Company and also authorises the Audit & Risk Committee to set their
remuneration.
Resolution 10 – Directors’ Remuneration Report
The Directors’ Remuneration Report is set out in full within the governance
section of the annual report.
Resolutions 11, 12 and 13 – Issue of Shares
Ordinary Resolution 11 in the Notice of AGM will renew the authority to allot
the unissued share capital up to an aggregate nominal amount equal to 10% of
the aggregate nominal amount of the Company’s issued share capital on 5 June
2024, being the nearest practicable date prior to the signing of this Report
(or if changed, the number representing 10% of the issued share capital of the
Company at the date at which the resolution is passed). Such authority will
expire on the date of the next AGM or after a period of 15 months from the
date of the passing of the resolution, whichever is earlier. This means that
the authority will have to be renewed at the next AGM.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006
(the “Act”) provides that existing shareholders have pre-emption rights
and that the new shares must be offered first to such shareholders in
proportion to their existing holding of shares. However, shareholders can, by
special resolution, authorise the Directors to allot shares otherwise than by
a pro rata issue to existing shareholders. Special Resolution 12 will, if
passed, give the Directors power to allot for cash equity securities up to an
aggregate nominal amount equal to 10% of the Company’s share capital on
5 June 2024 (or if changed, the number representing 10% of the issued share
capital of the Company at the date at which the resolution is passed), as if
Section 551 of the Act does not apply. This is the same nominal amount of
share capital which the Directors are seeking the authority to allot pursuant
to Resolution 13. This authority will also expire on the date of the next
Annual General Meeting or after a period of 15 months, whichever is earlier.
This authority will not be used in connection with a rights issue by the
Company.
Under the Companies (Acquisition of Own Shares) (Treasury Shares) Regulations
2003 (as amended) (the “Treasury Share Regulations”) the Company is
permitted to buyback and hold shares in treasury and then sell them at a later
date for cash, rather than cancelling them. The Treasury Share Regulations
require such sale to be on a pre-emptive, pro rata, basis to existing
shareholders unless shareholders agree by special resolution to disapply such
pre-emption rights. Accordingly, in addition to giving the Directors power to
allot unissued share capital on a non pre-emptive basis pursuant to Resolution
12, Resolution 13, if passed, will give the Directors authority to sell shares
held in treasury on a non pre-emptive basis. No dividends may be paid on any
shares held in treasury and no voting rights will attach to such shares. The
benefit of the ability to hold treasury shares is that such shares may be
resold. This should give the Company greater flexibility in managing its share
capital, and improve liquidity in its shares. It is the intention of the Board
that any re-sale of treasury shares would only take place at a premium to the
cum income net asset value per share. It is also the intention of the Board
that sales from treasury would only take place when the Board believes that to
do so would assist in the provision of liquidity to the market. The number of
treasury shares which may be sold pursuant to this authority is limited to an
aggregate nominal amount equal to 10% of the Company’s share capital on 5
June 2024 (or if changed, the number representing 10% of the issued share
capital of the Company at the date at which the resolution is passed) (reduced
by any equity securities allotted for cash on a non-pro rata basis pursuant to
Resolution 12, as described above). This authority will also expire on the
date of the next Annual General Meeting or after a period of 15 months,
whichever is earlier.
The Directors intend to use the authority given by Resolutions 11, 12 and 13
to allot shares and disapply pre-emption rights only in circumstances where
this will be clearly beneficial to shareholders as a whole. The issue proceeds
would be available for investment in line with the Company’s investment
policy. No issue of shares will be made which would effectively alter the
control of the Company without the prior approval of shareholders in general
meeting.
New Shares will only be issued at a premium to the Company’s cum income net
asset value per share at the time of issue.
Resolution 14 – Share Repurchases
The Directors wish to renew the authority given by shareholders at the
previous AGM. The principal aim of a share buyback facility is to enhance
shareholder value by acquiring shares at a discount to net asset value, as and
when the Directors consider this to be appropriate. The purchase of Shares,
when they are trading at a discount to net asset value per share should result
in an increase in the net asset value per share for the remaining
shareholders. This authority, if conferred, will only be exercised if to do
so would result in an increase in the net asset value per share for the
remaining shareholders and if it is in the best interests of shareholders
generally. Any purchase of shares will be made within guidelines established
from time to time by the Board. It is proposed to seek shareholder authority
to renew this facility for another year at the AGM.
Under the current Listing Rules, the maximum price that may be paid on the
exercise of this authority must not exceed the higher of (i) 105% of the
average of the middle market quotations for the shares over the five business
days immediately preceding the date of purchase and (ii) the higher of the
last independent trade and the highest current independent bid on the trading
venue where the purchase is carried out. The minimum price which may be paid
is 2.5p per Share. Existing shares which are purchased under this authority
will either be cancelled or held as Treasury Shares.
Special Resolution 14 in the Notice of AGM will renew the authority to
purchase in the market a maximum of 14.99% of the issued share capital of the
Company as at the date of the passing of the resolution, 14.99% of the issued
share capital of the Company as changed by that resolution. Such authority
will expire on the date of the next AGM or after a period of 15 months from
the date of passing of the resolution, whichever is earlier. This means in
effect that the authority will have to be renewed at the next AGM or earlier
if the authority has been exhausted.
Resolution 15 – General Meetings
Special Resolution 15 seeks shareholder approval for the Company to hold
General Meetings (other than the AGM) at 14 clear days’ notice. The Board
confirms that the shorter notice period would only be used where it was
merited by the purpose of the meeting.
Resolution 16 – Continuance of the Company as an investment trust. Ordinary
Resolution 16 seeks shareholder approval for the Company to continue as an
investment trust for a further period of five years.
Recommendation
The Board considers that the resolutions relating to the above items are in
the best interests of shareholders as a whole. Accordingly, the Board
unanimously recommends to the shareholders that they vote in favour of the
above resolutions to be proposed at the forthcoming AGM as the Directors
intend to do in respect of their own beneficial holdings totalling 548,017
shares.
-ENDS-
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.
For further information please contact
Mark Pope
For and on behalf of Frostrow Capital LLP
Company Secretary
0203 008 4913
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