REG-Worldwide Healthcare Trust Plc: Annual Financial Report
07/06/2023 07:15
7 June 2023
Worldwide Healthcare Trust PLC
(the “Company”)
This announcement contains regulated information
Annual Financial Report for the year ended 31 March 2023
COMPANY PERFORMANCE
HISTORIC PERFORMANCE FOR THE YEARS ENDED 31 MARCH
2018 2019 2020 2021 2022 2023
Net asset value per share (total return)*^ 2.8% 13.7% 6.5% 30.0% (5.8%) (0.1%)
Benchmark (total return)*^ (2.5%) 21.1% 5.7% 16.0% 20.4% 2.5%
Net asset value per share 2,411.1p 2,722.9p 2,868.9p 3,703.0p 3,465.2p 3,434.5p
Share price 2,405.0p 2,730.0p 2,920.0p 3,695.0p 3,275.0p 3,115.0p
(Discount)/Premium of share price to net asset value per share^ (0.3%) 0.3% 1.8% (0.2%) (5.5%) (9.3%)
Dividends per share 17.5p 26.5p 25.0p 22.0p 26.5p 31.0p
Leverage^ 16.4% 4.9% 12.0% 7.6% 10.9% 10.5%
Ongoing charges^ 0.9% 0.9% 0.9% 0.9% 0.9% 0.8%
Ongoing charges (including performance fees paid or crystallised during the year)^ 1.2% 1.1% 0.9% 0.9% 1.4% 0.8%
* Source: Morningstar
^ Alternative Performance Measure (see Glossary).
STATEMENT FROM THE CHAIR
DOUG MCCUTCHEON
INVESTMENT PERFORMANCE
This is my first full year report, having succeeded Sir Martin Smith as Chair
of the Board in July 2022.
I mentioned at the half-year stage that macro events, rather than industry
fundamentals, had been dictating the performance of global equity markets. In
the second half of the year, investors continued to be torn between the
overall economic and political background, on the one hand, and company and
industry developments on the other. As set out in our Portfolio Manager’s
Review, during the year your Company performed well in periods when markets
were being driven by sector fundamentals and struggled when macro factors were
in control.
Overall, the financial year ended 31 March 2023 proved to be a challenging one
for the Company, with market volatility much greater than year-end to year-end
results suggest. The Company’s net asset value per share total return was
-0.1% (2022: -5.8%) and the share price total return was -4.1% (2022: -10.8%).
Our results underperformed the Company’s Benchmark, the MSCI World Health
Care Index measured on a net total return, sterling adjusted basis, which
returned +2.5% during the year (2022: +20.4%). 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 5.5% as at 31 March 2022 to 9.3% at 31 March 2023.
The majority of the Company’s assets are denominated in U.S. dollars, and it
should be noted that our absolute net asset value performance was helped by
the weakness of sterling over the year, particularly compared to the dollar,
against which it depreciated by 6.5%.
A principal contributor to performance in the year, both in relative and
absolute terms, came from emerging biotechnology stocks (defined primarily as
small-and mid-capitalisation stocks). A key part of our Portfolio Manager’s
strategy is to be overweight the emerging biotechnology sector, reflecting the
high levels of innovation and growth found in these companies. However, for
some time, part of this strategy has included our overweight position in
emerging market stocks, particularly in China, which was not successful during
the past year.
More broadly, the Company’s results over the past two years have dragged
down our medium-term performance. While our net asset value per share compound
annual return over five years has been a respectable +8.2%, it was lower than
that of our Benchmark (+12.9%). Nonetheless, the long-term performance of the
Company continues to be strong. From the Company’s inception in 1995 to 31
March 2023, the total return of our net asset value per share has been
+4,234.1%, equivalent to a compound annual return of +14.5%. This compares to
a cumulative blended Benchmark return of +2,189.0% 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
Challenging stock market conditions since the beginning of 2022 have continued
to have a negative impact on share price discounts across the investment
company sector, with the average level of discount currently standing at
c.14.9%*.
* Source: Winterflood Investment Trusts
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. A total of 2,836,483 shares
were repurchased for treasury at a cost of £91.6m and at an average discount
of 8.8%.
On 31 March 2023, there were 62,620,763 shares in issue (excluding the
2,438,015 shares held in treasury). Since this date to 5 June 2023, a further
1,299,037 shares have been bought back for treasury, at a cost of £42.3m and
at an average discount of 10.0%. At the time of writing, the share price
discount stands at 9.4%. In line with 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 18 July 2023, will be cancelled.
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
7.0p per share for the year ended 31 March 2023, was paid on 11 January 2023
to shareholders on the register on 25 November 2022.
Due, in large part, to an increase in exposure to higher yielding stocks in
the portfolio and also to the continued weakness of sterling, the Company’s
revenue return per share for the year as a whole increased to 30.6p (2022:
26.8p). Accordingly, the Board is proposing an increased final dividend of
24.0p per share (2022:19.5p per share) which, together with the interim
dividend already paid, makes a total dividend for the year of 31.0p (2022:
26.5p per share). Due to the impact of share buybacks the total dividend for
the year is higher than the reported return per share. Based on the closing
mid market share price of 3,275.0p on 5 June 2023, the total dividend payment
for the year represents a current yield of 0.9%.
The final dividend will be payable, subject to shareholder approval, on 26
July 2023, to shareholders on the register of members on 9 June 2023. The
associated ex-dividend date will be 8 June 2023.
The Company’s dividend policy will be proposed for approval at the
forthcoming Annual General Meeting.
BOARD OF DIRECTORS
The process of Board refreshment, which began a few years ago, continued
during the year. As previously announced, Tim Livett and Jo Parfrey joined the
Board in September 2022. Between them, they have a wealth of experience in the
finance, investing, healthcare and governance fields, from which the Board
will benefit for years to come. During the year, Tim took over from Humphrey
van der Klugt as Chair of the Audit & Risk Committee, with Humphrey carrying
on as a Director of the Company. In addition, Jo took over from Bina Rawal as
Chair of the Management Engagement & Remuneration Committee.
Sarah Bates, the Company’s Senior Independent Director and the Chair of the
Nominations Committee, having served on the Board since 2013, will retire at
the conclusion of the Company’s Annual General Meeting on Tuesday, 18 July
2023. Sarah’s leadership, governance and investment industry experience,
including her deep knowledge of the investment trust sector, have been
invaluable to the Board. Her friendship and wise counsel will be greatly
missed. Bina will take over from Sarah as the Senior Independent Director and
Chair of the Nominations Committee.
SHARE SPLIT PROPOSAL
As a consequence of the Company’s strong investment returns over many years,
its share price has risen steadily. While this has been good news for our
shareholders, the Board believes that it may be unhelpful for those investors
seeking to purchase smaller quantities of shares, as well as for regular
savers. Accordingly, in order to address this and to increase market liquidity
and marketability, we are proposing to split the shares on a 10-for-1 basis.
Following the share split, each shareholder will receive nine additional
Ordinary shares for each Ordinary share held immediately prior to the
transaction. The net effect is that, following the split, you will have 10
times as many shares, but the Company’s share price should, in theory, be
one-tenth of what it was previously. The share split will not affect the value
of your overall investment in the Company, nor will it affect your shareholder
rights. Shareholders will have the opportunity to vote on this proposal at the
forthcoming Annual General Meeting and details can be found under Notice of
Meeting that forms part of the Annual Report.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) MATTERS
ESG matters continue to be an important priority for the Board and our
objective is to have full, transparent disclosure on the topic. Bina Rawal has
been working 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 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
OUTLOOK
Global stock markets continue to experience higher than usual levels of
uncertainty, with persistent inflation, central bank borrowing rates at much
higher levels than they were one year ago, a developing ongoing economic
downturn and several overhanging geopolitical issues. It is unsurprising,
therefore, that investors remain relatively risk-averse for the moment,
favouring more predictable businesses over the faster growing companies that
make up much of our portfolio and sector.
Against this challenging short-term background, however, our Portfolio Manager
OrbiMed continues to remain positive on the outlook for healthcare and our
Company. They expect the current accelerated levels of mergers and
acquisitions to continue, supported by attractive valuations, healthy balance
sheets and, within the pharmaceutical sector, a need to address future patent
expirations. Regardless of the market backdrop, the pace of scientific and
technological development within the sector continues unabated while clinical
and regulatory catalysts will continue to provide a regular flow of key share
price moving events. They further believe that the sector’s defensive growth
characteristics should continue to prove attractive in times of global
uncertainty.
Your Board shares OrbiMed’s perspective. We believe that long-term investors
in this sector will be rewarded and that the Company will continue to perform
strongly over time. Thus far, in the current financial year, performance is
off to a positive start, both in absolute and relative terms. From 1 April
2023 to the date of this letter, our net asset value per share has increased
by +6.2%, compared to +0.9% for our Benchmark.
ANNUAL GENERAL MEETING (“AGM”)
The Company’s AGM will be held at Saddlers’ Hall, 40 Gutter Lane, London
EC2V 6BR on Tuesday, 18 July 2023 at 12.30pm. 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.
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, subject of course to the occurrence of any
extraordinary events that might make attendance difficult or impossible. The
votes on the resolutions to be proposed at the AGM will be conducted on a
poll. The results of the proxy votes will be published immediately 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.
Doug McCutcheon
Chair
6 June 2023
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 2023
Investments Sector Country Market value £’000 % of investments
AstraZeneca Pharmaceuticals UK 139,838 6.5
Boston Scientific Health Care Equipment & Supplies United States 114,463 5.3
Bristol-Myers Squibb Pharmaceuticals United States 112,095 5.2
Humana Health Care Providers & Services United States 104,491 4.8
Intuitive Surgical Health Care Equipment & Supplies United States 103,710 4.8
Sanofi Pharmaceuticals France 99,259 4.6
UnitedHealth Health Care Providers & Services United States 91,691 4.2
Novo Nordisk Pharmaceuticals Denmark 88,871 4.1
Roche Pharmaceuticals Switzerland 84,999 3.9
Stryker Health Care Equipment & Supplies United States 76,834 3.6
Top 10 investments 1,016,251 47.1
Daiichi Sankyo Pharmaceuticals Japan 76,125 3.5
BioMarin Pharmaceutical Biotechnology United States 76,049 3.5
Eisai Pharmaceuticals Japan 59,273 2.7
Sarepta Therapeutics Biotechnology United States 55,344 2.6
Thermo Fisher Scientific Life Sciences Tools & Services United States 53,900 2.5
Biogen Biotechnology United States 53,740 2.5
Evolent Health Health Care Providers & Services United States 52,218 2.4
Tenet Healthcare Health Care Providers & Services United States 45,509 2.1
Eli Lilly & Co Pharmaceuticals United States 44,971 2.1
Baxter International Health Care Equipment & Supplies United States 44,832 2.1
Top 20 investments 1,578,212 73.1
Caris Life Sciences* Life Sciences Tools & Services United States 40,900 1.9
Ionis Pharmaceuticals Biotechnology United States 36,373 1.7
Edwards Lifesciences Health Care Equipment & Supplies United States 36,118 1.7
Apellis Pharmaceuticals Biotechnology United States 32,234 1.5
Neurocrine Biosciences Biotechnology United States 31,196 1.4
Natera Life Sciences Tools & Services United States 28,994 1.3
SI-BONE Health Care Equipment & Supplies United States 28,526 1.3
Wuxi Biologics Cayman Life Sciences Tools & Services China 28,512 1.3
Vertex Pharmaceuticals Biotechnology United States 28,253 1.3
WuXi AppTec Life Sciences Tools & Services China 22,443 1.0
Top 30 investments 1,891,761 87.6
uniQure NV Biotechnology Netherlands 21,955 1.0
Progyny Health Care Providers & Services United States 20,833 1.0
Shanghai Kindly Medical Instruments Health Care Equipment & Supplies China 19,475 0.9
Mirati Therapeutics Biotechnology United States 19,009 0.9
Crossover Health* Health Care Providers & Services United States 17,163 0.8
R1 RCM Health Care Providers & Services United States 16,620 0.8
New Horizon Health Life Sciences Tools & Services China 16,011 0.7
Beijing Yuanxin Technology* Health Care Providers & Services China 14,606 0.7
EDDA Healthcare & Technology* Health Care Equipment & Supplies China 14,550 0.7
VISEN Pharmaceuticals* Biotechnology China 14,281 0.7
Top 40 investments 2,066,264 95.7
Iovance Biotherapeutics Biotechnology United States 14,104 0.7
Joinn Laboratories China Biotechnology China 13,760 0.6
API Holdings* Health Care Providers & Services India 13,668 0.6
RxSight Health Care Equipment & Supplies United States 12,431 0.6
Ruipeng Pet Group* Health Care Providers & Services China 11,900 0.6
Jiangxi RiMAG* Health Care Providers & Services China 11,673 0.5
Vaxcyte Biotechnology United States 10,755 0.5
Xenon Pharmaceuticals Biotechnology Canada 10,392 0.5
MabPlex* Health Care Providers & Services China 5,944 0.3
Dingdang Health Technology Health Care Providers & Services China 4,736 0.2
Top 50 investments 2,175,627 100.7
Ikena Oncology Pharmaceuticals United States 4,445 0.2
Shanghai Bio-heart Biological Technology Health Care Equipment & Supplies China 4,233 0.2
Passage Bio Biotechnology United States 1,627 0.1
Peloton Therapeutics* - DCC Biotechnology United States 485 0.0
Total investments 2,186,417 101.2
OTC Equity Swaps – Financed^
Healthcare M&A Target Basket Swap Baskets United States 105,629 4.9
Apollo Hospitals Enterprise Health Care Providers & Services India 32,672 1.5
Healthcare Catalyst Basket Swap Baskets United States 24,216 1.1
Pharmaron Beijing Life Sciences Tools & Services China 16,989 0.8
Jiangsu Yuyue Medical Equipment & Supply Health Care Equipment & Supplies China 11,197 0.5
Less: Gross exposure on financed swaps (217,596) (10.1)
Total OTC Swaps (26,892) (1.2)
Total investments including OTC Swaps 2,159,525 100.0
* Unquoted holding
DCC = deferred contingent consideration.
^ See Glossary and note 16 for further details in relation to the OTC Swaps.
SUMMARY
Investments Market value £’000 % of investments
Quoted equities 2,041,247 94.5
Unquoted equities 145,170 6.7
Equity swaps (26,892) (1.2)
Total of all investments 2,159,525 100.0
PORTFOLIO MANAGER’S REVIEW
MARKETS
The reported financial year was up and down for the global equity markets.
Whilst the pandemic eased as a global healthcare crisis, its lingering
economic impact still reverberated across the world. Inflation, rising
interest rates and the war in Ukraine all played major parts in shaping equity
returns. Overall, global inflation and the ensuing central bank responses led
to an array of conflicting crosscurrents between currency values, gross margin
pressures, and higher financing costs that all shaped the market. The year was
a product of many things, with perhaps the only constant being the unyielding
battle between macro factors and industry fundamentals – forcing investors
to grapple with the “yin and yang” of these two disparate market forces.
The net result, amazingly, was rather modest, with a global market total
return of -0.5% as measured by the MSCI World Index (in sterling terms). This
despite the significant volatility in between the start and end of the year
with several material drawdowns. Even local geographies were not in agreement
with the various market forces, with the FTSE All-Share Index finishing
notably up 2.8% whilst the S&P 500 finished down 1.8% (both figures in
sterling measured on a total return basis). Even healthcare stocks did not
fare as expected, partially eschewing their defensive characteristics to post
a +2.5% total return (sterling) in the year, obviously lagging the UK market
but outpacing others.
PERFORMANCE
Overall, for the year ended 31 March 2023, the Company generated a net asset
value total return of -0.1% whilst the share price total return was -4.1%.
This performance lagged the Benchmark return of +2.5%. Performance – both
absolute and relative – came intermittently throughout the year, largely
reflecting the aforementioned struggle between fundamental industry drivers
and macroeconomic factors that heavily influenced equity markets.
Certainly, the start of calendar year 2022 was dominated by the macro and
global markets came under intense pressure as investors focused on tightening
monetary policies, continued geopolitical tensions, and concerns about
COVID-induced lockdowns in China. Preference for “value-over-growth”
continued as a macro theme for investors, as did healthcare being relatively
defensive. This set-up was not conducive to performance given our preference
for innovative growth companies and as a result the Company’s returns
materially lagged the Benchmark to start the financial year in April and May.
However, as we had been expecting, mergers and acquisitions (M&A) in the
therapeutics space finally inflected in June and this phenomenon carried on
well into early October. This coincided with a host of important – and
positive – clinical catalysts which helped to move biotechnology stocks
higher during this period. Investor interest picked up and fund flows
followed. The Company recorded a +11.0% return during this period, which was
nearly 9.0% better than the Benchmark.
As the calendar-year-end approached, investor focus shifted yet again and
stock markets rounded off a tumultuous year with gains, including healthcare,
only to stumble in December as recessionary fears spiked. This environment
again favoured larger capitalisation stocks and value names, impacting the
Company’s relative returns in this three-month period.
Finally, the fourth quarter of the financial year was similarly volatile.
Healthcare stocks were clear laggards in January as investors pivoted from
fears of a looming recession, to the view that a softer landing may be
possible given decelerating inflation, a stronger European outlook, and the
swift re-opening in China. Defensive healthcare sectors – like large
capitalisation pharmaceutical stocks and managed care – therefore saw
investor outflows and this continued into February as healthcare stocks
continued to underperform the broader markets. This set-up favoured our
portfolio positioning and despite some modest declines in this segment, the
Company returned over 2.0% more than Benchmark.
We are pleased to report that this performance to start the calendar year has
continued in the first 6 weeks of the new financial year. M&A activity has
remained elevated thus far, a number of key catalysts have been positive, and
this has buoyed the Company’s performance as strong fundamentals are
consistent with our bullish positioning. Specifically, from the start of the
current financial year to the date of this report, the NAV has advanced 6.2%
compared to the Benchmark return of +0.9%.
Despite the volatility that marked the reported financial year, we are pleased
to report that the long-term performance of the Company is strong. Overall,
the Company’s net asset value performance since inception to 31 March 2023
(from 28 April 1995), is a return of +4,234.1%, an average of +14.5% per
annum, to 31 March 2023. This compares to a cumulative blended Benchmark
return of +2,189.0%, an average of +11.9% per annum, over the same investment
horizon. This compares to the FTSE All-Share Index return of +579% and +7.1%.
As we enter our 29th year of managing the Company, the multiple since
inception of 42x 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.
KEY SOURCES OF CONTRIBUTION
The key contributor to performance in the year was from emerging biotechnology
stocks (defined primarily as small - and mid-capitalisation stocks). Positive
contribution here was due to both allocation effect and individual stock
picking, contributing both absolute (over 4.5%) and relative (over 4.0%)
performance. Recall that our positioning in this sub-sector has been a key
strategic overweight for us and will remain so given the impressive innovation
cycle that continues to date. This contribution was partially offset due to
allocation effect within large capitalisation biotechnology stocks, where we
were not materially invested, which detracted approximately 1.0% relative to
the Benchmark.
The second largest contributor on a sub-sector basis was large capitalisation
pharmaceuticals. The group experienced similar volatility to the broad market
throughout the financial year, but finished higher on a relative basis. Our
exposure here contributed nearly 1.2% to performance. This was offset by
allocation, as we were materially underweight this sub-sector, creating nearly
1.6% of relative underperformance. However, we do note that we consider large
capitalisation pharmaceuticals as a funding source for biotechnology, so this
positioning overall was a net positive.
The final subsector with absolute contribution of over 1.0% was from Japan
pharmaceuticals. Here the contribution was completely due to stock picking.
Overall weighting was mostly in-line with the Benchmark, creating over 0.7% of
relative performance.
Lastly, another subsector of note was medical technology. Whilst we were fully
invested in this space, overall performance for these stocks was negative in
the financial year, down on average 7.5% in the Benchmark. The subsector was
adversely impacted by a mix of macro factors and fundamental headwinds, namely
hospital staffing shortages, semiconductor shortages, elevated oil and resin
prices, shipping bottlenecks and a dearth of meaningful new product cycles.
However, many of these issues have abated and even reversed, leading to a
tailwind for the sector going forward. Due to stock picking in the reported
period, our average returns were superior, down on average 0.3% in the
portfolio. This added over 1.1% of relative performance.
In terms of subsectors that materially detracted from performance, we
highlight two. First, specialty pharmaceuticals detracted more than 1.0% in
both absolute and relative performance, due to a single stock pick (Horizon
Therapeutics – discussed below). Second, emerging market stocks,
particularly China healthcare (a key strategic overweight) was particularly
volatile in the financial year. That said, China detracted over 1.6% in both
absolute and relative performance, due to a single stock pick (Shanghai
Bio-heart Biologics – discussed below).
UNQUOTEDS
During the financial year ended on 31 March 2023, the Company strategically
refrained from making new investments in unquoted companies, as we cautiously
navigated the challenging public offering market for small and
mid-capitalisation therapeutic firms. Encouragingly, however, one of the
existing unquoted investments, DingDang Health Technology Group, completed its
initial public offering (IPO) in mid-September, despite a subsequent share
price decline (described below). With the recent encouraging signs of
improvement in the capital market funding landscape, we are optimistic about
the potential for more unquoted investments to achieve listings in the current
financial year.
As of 31 March 2023, unquoted company investments made up 6.7% of the
Company’s net assets, only slightly down from 7.1% on 31 March 2022. The
existing unquoted portfolio demonstrates a diverse and forward-looking
approach. Geographically, around 60% is exposed to emerging markets and the
remainder is invested in North American companies. On a sector basis, half of
the unquoted investments are in healthcare services, with additional
allocations to life sciences tools, biotechnology, and medtech.
For the year ended 31 March 2023, the Company’s unquoted strategy
encountered a few challenges, resulting in a loss of £17.3 million and an
implied return of -10.3%, which somewhat offset the substantial gain of £42.5
million in the financial year ended 31 March 2022. The decline was primarily
driven by a post-listing decrease in DingDang Health Technology Group (£7.5
million) and net write-downs in the remaining unquoted portfolio of £9.8
million. Nevertheless, given the emerging positive trends in the market and
our strategic approach, we remain confident in the future performance of our
unquoted investments, echoing the successes of prior years.
MAJOR CONTRIBUTORS TO PEFORMANCE
The top six contributors to absolute performance were a combination of
therapeutic and nontherapeutic stocks, but the impact of M&A in the
biopharmaceutical sector on performance was the distinguishing feature of
positive performance in the year.
The largest contributor in the period was Global Blood Therapeutics. The
California based small-mid-capitalisation biotechnology company focuses on
clinical medicines used to treat blood-based disorders, such as sickle cell
disease (SCD). The company was acquired by Pfizer in an announced transaction
in August 2022. The agreed upon price was for a total enterprise value of
U.S.$5.4 billion, a 100% premium to the unaffected share price. In addition to
an already marketed product for the treatment of SCD, Oxbryta (voxelotor),
Pfizer also gained important pipeline assets, including GBT601, an oral,
once-daily, next-generation sickle haemoglobin (HbS) polymerization inhibitor
in the Phase 2 portion of a Phase 2/3 clinical study. GBT601 has the potential
to be a best-in-class agent targeting improvement in both haemolysis and
frequency of vaso-occlusive crisis (VOC). Another promising pipeline asset is
inclacumab, a fully human monoclonal antibody targeting P-selectin which is
being evaluated in two Phase 3 clinical trials as a potential quarterly
treatment to reduce the frequency of VOCs and to reduce hospital readmission
rates due to VOCs. The transaction officially closed in early October 2022.
In addition to the above, Pfizer also executed on the largest M&A healthcare
transaction of the year, acquiring Seattle-based oncology player, Seagen.
Pfizer announced its intention in March 2023. In a U.S.$43 billion deal “to
battle cancer”, the two companies entered into a definitive agreement that
will see Pfizer acquire the company for $229 per share, a premium of more than
100% to the company’s 52-week low. Seagen is a pioneer in “antibody drug
conjugate” (ADC) technology, with four of the twelve total U.S. Food & Drug
Administration (FDA)-approved and marketed ADCs using its technology
industry-wide. ADCs are a transformative modality that is emerging as a
powerful tool across a broad range of cancers designed to preferentially kill
cancer cells and limit off-target toxicities.
The Japanese pharmaceutical interest, Daiichi-Sankyo, has emerged as the other
leader in ADC technology and is a pioneer in creating “3rd generation”
ADCs that are more potent and safer than ever before. Their first offering,
Enhertu (trastuzumab deruxtecan), for the treatment of specific forms of
metastatic breast cancer, has already become a blockbuster product. The share
price re-rated multiple times in the fiscal year as the company disclosed new
data sets (low HER2+ expression), new approvals (high HER2+ expression), and
sales above expectations consistently through the year (sales >$1 billion in
the first nine months). One of the most interesting data disclosures occurred
in June 2022 at the American Society of Clinical Oncology meeting in Chicago
where Enhertu was shown to double the length of survival in women with “low
HER2+” expression. The data was so impressive, the thousands of oncologists
in attendance collectively rose in a standing ovation. The stock has also
appreciated ahead of the first pivotal data for the company’s next
ADC offering, datopotamab deruxtecan (Dato-DXd) for the treatment of specific
lung cancer, which “could be bigger than Enhertu”, as per the company’s
partner, AstraZeneca.
BioMarin Pharmaceutical is another California based small-mid-capitalisation
biotechnology company that was a material contributor to performance. The
company is well known for developing and commercialising therapeutic enzyme
products but has more recently added efforts in gene therapy. Their lead
asset, Roctavian (valoctocogene roxaparvovec), is the first gene therapy for
the treatment of severe haemophilia A. An approval for Roctavian in Europe
(August 2022) and an imminent approval by the FDA (expected in June 2023)
helped push the share price higher in the reported period, despite some profit
taking late in the year. Additionally, the company’s new product launch for
achondroplasia, Voxzogo (vosoritide), has been very successful. Multiple
upward sales revisions for Voxzogo through 2022 were also an important
tailwind for the share price.
The Cambridge, Massachusetts biotechnology company, Sarepta Therapeutics, has
evolved into a rare disease company with expertise in the treatment of
Duchenne Muscular Dystrophy (DMD), a severe type of muscle wasting found in
young males. More recently, the company has acquired and developed a platform
technology in gene therapy which they have applied to DMD patients. This
development programme had moved into pivotal stages and the data had looked
promising as a potential cure for these patients. The stock moved higher as a
result, and moved higher still after the company was granted an accelerated
approval path by the FDA for their lead gene therapy asset (delandistrogene
moxeparvovec). Some share price volatility of note closed the end of the
financial year due to some internal disagreement within the FDA about the
approvability of delandistrogene, which was ultimately resolved with a
positive recommendation for approval by an external advisory committee meeting
in May 2023.
Finally, yet another California based small-mid-capitalisation biotechnology
company was a significant contributor to performance via its acquisition
during the fiscal year. Turning Point Therapeutics was acquired by
Bristol-Myers Squibb for a total equity value of U.S.$4.1 billion,
representing a +125% premium to the previous closing share price. The deal
was announced in June 2022 and closed August 2022. Turning Point Therapeutics
is a clinical-stage precision oncology company with a pipeline of
investigational medicines designed to target the most common mutations
associated with oncogenesis.
Their lead asset, repotrectinib, is a next generation, potential best-in-class
tyrosine kinase inhibitor, targeting the ROS1 and NTRK oncogenic drivers of
non-small cell lung cancer (NSCLC) and other advanced solid tumours.
Repotrectinib is expected to be approved in the U.S. in the second half of
2023 and become a new standard of care for patients with ROS1-positive NSCLC
in the first-line setting.
MAJOR DETRACTORS FROM PERFORMANCE
Investments that experienced negative returns were very diverse in nature,
whether it be geographically (U.S., Europe, and China) or sector
(biotechnology, pharmaceuticals, and medical technology). The one common
thread each of the stocks faced was a unique individual event, such as a
clinical trial failure, a commercial sales slowdown, or even de-risking ahead
of a catalyst, which subsequently triggered a fall in share price.
The main detractor in the year was Shanghai Bio-heart Biological Technology
the China-based medical technology company is a leader in interventional
cardiovascular devices. The company has enjoyed enormous success since its
IPO in late 2021, with returns in excess of 250% of its original listing
price. However, the stock inexplicably began to sell off, even falling in
November on no obvious news. We speculated that some profit taking took place
ahead of an important data disclosure for the company’s novel renal
denervation device for uncontrolled hypertension, expected early in 2023. This
was partially confirmed when the competitor data (from Medtronic) failed to
prove that its renal denervation system reduced patients’ ambulatory
systolic blood pressure. Additionally, the share price was pressured as some
investors may have sold ahead of the lock-up expiration for private investors
in December 2022.
Mirati Therapeutics is a California-based biotechnology company developing
novel small molecule drugs to treat cancer. In particular, their lead program
is a targeted oncology therapy intended to treat patients with lung cancer
that harbours a specific mutation in the KRAS gene. Shares rose in late 2022
amid rumours that the company might be acquired; however, they ultimately fell
in December 2022 following the presentation of disappointing clinical trial
data. The data suggested that their lead programme might not be superior to
the standard of care therapy in first line lung cancers harbouring a KRAS
mutation. Instead, the drug may be used in more advanced lung cancer patients
where the market opportunity is smaller.
Horizon Therapeutics is a U.S. based specialty pharmaceutical company that
presided over one of the most successful drug launches ever in 2020. Tepezza
(teprotumumab) was developed by the company to treat “TED” or thyroid eye
disease, a painful, disfiguring, and debilitating disorder of the musculature
of the eye. Launched in January 2020, the drug was well on its way to
blockbuster status despite the commercial headwinds of the COVID-19 pandemic.
Despite a temporary government-mandated shutdown in the manufacturing of
Tepezza due to the prioritisation of COVID-19 vaccine production in early
2021, the re-launch of the product in April 2021 exceeded expectations. Whilst
this success continued into early 2022, the sales growth for Tepezza then
began to unexpectedly flatten, and the company reported second quarter sales
that were disappointing and full year sales guidance was lowered.
Additionally, investors learned that a key study (Tepezza usage in chronic
patients) was delayed into 2023. As a result, the stock fell. We exited the
position as the company pondered new marketing initiatives and increased spend
to reinvigorate Tepezza sales in 2023, whilst awaiting trial results for the
chronic indication. We were no longer invested in the company when Amgen
announced its intention to acquire the company in December 2022.
Investing in healthcare necessarily brings with it clinical risk. For Swiss
pharmaceutical giant, Roche, the bad news came in threes during 2022. First,
the company started the financial year off on the wrong foot when in April
2022 they confirmed that their investigative oral hormonal therapy,
giredestrant, a “SERD” (selective estrogen receptor degrader), failed to
show a benefit in advanced breast cancer. Then in May 2022, Roche confirmed
that their “anti-TIGIT” antibody, tiragolumab, failed on an interim look
in the treatment of lung cancer. And finally in November 2022, Roche confirmed
that their high risk / high reward antibody, gantenerumab, failed delaying the
progression in mild-to-moderate Alzheimer’s patients. This string of
unfortunate clinical trial failures coupled with declines in profits due to
the dwindling effects of COVID-related sales (particularly in the company’s
diagnostics unit), led to share price declines in the period.
The medical technology company, Edwards Lifesciences, is a developer of tissue
replacement heart valves, and more specifically transcatheter heart valves
(THV). The company’s current valve portfolio is largely comprised of
transcatheter aortic heart valves (TAVR), a market which has been growing
solidly in the double-digit range but experienced some disruption in the
second half of 2022 due to hospital staffing shortages across the U.S. This
has fuelled investor concerns that the market is maturing and is one of the
primary reasons for prolonged weakness in the share price during the reported
period. Other headwinds facing the stock were mostly macro in nature,
including the negative sentiment for growth stocks and rising interest rates.
However, there is evidence that staffing shortages and other hospital
difficulties have eased so far in 2023, which should benefit all medtech
companies and especially those most exposed to inpatient procedure volumes,
such as Edwards. Moreover, the company is the process of launching a key new
product cycle in the transcatheter mitral heart valve (TMVR) market, which has
the potential to accelerate top line growth in 2023 and more fully in 2024.
DERIVATIVE STRATEGY
The Company has the ability to utilise equity swaps and options as part of its
financial strategy. Throughout the financial year, the Company leveraged
single stock equity swaps to access Chinese and Indian investments in emerging
markets, which would otherwise be inaccessible through more traditional
investment methods. Despite detracting £22.8 million from performance in the
financial year ended 31 March 2023, we remain confident in the long-term
prospects of emerging market securities, particularly those trading locally in
mainland China.
Additionally, the Company strategically invested in two customised tactical
basket swaps, targeting growth opportunities in undervalued small and
mid-capitalisation therapeutic companies. These baskets were constructed to
capitalise on two prevailing themes that we anticipate will deliver strong
returns in current financial year: 1) investment opportunities possessing
considerable potential as attractive acquisition targets for larger
corporations, and 2) those exhibiting a favourable risk/ reward profile in
light of upcoming clinical catalysts.
LEVERAGE STRATEGY
Historically, the typical range of leverage level employed by the Company has
been between high single digits to mid-teens. Considering the market
conditions over the past three financial years, we have, more recently, used
leverage in a more tactical fashion. Examples include the volatility around
the original emergence of the pandemic in March 2020 and the U.S. Presidential
election in November 2020 and the subsequent U.S. Senate run-off in January
2021.
More recently, we increased leverage back into the low-to-double digits, a
reflection of our overall bullishness on the portfolio, a turn in
biotechnology stocks, and the relative outlook for healthcare ahead of a
potential recession. One caveat that keeps us from extending leverage even
further, is the volatile and uncertain macro backdrop, either economic in
nature or even further geopolitical unsettlement in the east.
SECTOR DEVELOPMENTS AND OUTLOOK
Whilst healthcare stocks in general may have struggled this year given the
see-saw of macro headwinds, there were a number of positive sector
developments to highlight. First, some investors expressed angst over a
slowdown of new drug approvals at the FDA. However, entering 2023, disrupted
work schedules because of the coronavirus have dwindled and most recently, FDA
inspectors returned to China for the first time in years which is encouraging
(source: Washington Analysis).
A significant number of complete response letters and extended user fee dates
had been issued by the agency due to the inability to complete the
inspections, so this is a welcome relief for the industry. More importantly,
despite some delays, the past six years have been the most productive in
industry history, with almost 300 new product approvals during that span. The
FDA has kept pace so far in 2023, with 13 additional approvals in the first
three months of the calendar year (source: fda.gov).
Perhaps the largest sector development that has occurred during this period is
new legislation that was approved by the U.S. Senate and signed into law in
July 2022 – the Inflation Reduction Act of 2022 (“IRA”) – which
settled concerns about prescription drug price reform. The threat of drug
price reform in the U.S. has been a persistent source of uncertainty and
negative sentiment, an overhang for the biopharmaceutical sector for decades,
but particularly over the past two years since President Biden took office.
The IRA was modest in scope and included a mix of positive and negative
factors for the biopharmaceutical industry. Overall, we view the IRA as very
manageable for the biopharmaceutical sector, with limited impact on profits
into the end of the decade, and perhaps the issue of drug price reform can now
begin to dissipate as an overhang on the sector.
The Company has taken advantage of accelerating M&A activity within the
biotechnology space and we expect that trend to continue. With the insatiable
need for large capitalisation companies to continue to fill their pipelines
and replace revenues lost to patent expirations, this is a logical view. In
fact, the pharmaceutical industry appears to be facing another “patent
cliff”, starting in 2023 and inflecting in 2025. A number of major
blockbusters will be losing their exclusivity and sales will erode
substantially, leaving major gaps in revenues and earnings for a number of
companies. With the historic small-mid-capitalisation biotechnology stock
sell-off and large capitalisation executives talking up the need to execute
deals, a plethora of transactions began in earnest, inflecting in June 2022.
The result for the financial year was a near doubling in the number of
biotechnology transactions to 30 and near quadrupling of the value of deals,
to U.S.$113 billion. This has been a real rallying point for the industry,
especially in biotechnology, and as we have seen in the past, M&A can move the
entire sector higher and we have finally seen these stocks move off the bottom
after experiencing the largest and longest drawdown in the history of the
“XBI” (the biotech ETF).
BIOTECH M&A: YEAR-OVER-YEAR ACCELERATION
# of Deals $ Value of Deals
FY 2024 17 $31 billion
FY 2022 30 $113 billion
YOY +76% +265%
Periods ending March 31. SOURCE: FactSet, Company Websites
We expect this accelerated M&A pace to continue. Why? The pace of innovation
within the biotechnology industry remains impressive and is the number one
value driver in the industry. The patent cliff keeps the appetite of large
capitalisation companies for additional new pipelines and products very high.
Additionally, historically low biotechnology valuations will continue to fuel
biotechnology acquisitions. Over 200 life sciences companies continue to trade
at negative enterprise values (i.e., market capitalisations below net cash).
Another important phenomenon that typically follows an acceleration of M&A is
the rekindling of clinical and regulatory catalysts as key stock moving
events. After an inflection of M&A, typically there is a renewed appreciation
of the catalyst strategy as investors are reminded of why companies are being
bought for 100 to 200% premiums – innovation. And in 2023, we expect
investor focus to return to such catalysts, across such examples as gene
therapy, a highly scrutinised new therapeutic technology that was left for
dead in 2022 due to emerging safety concerns, but is now on the precipice of
three new product launches. And there are many more, across oncology,
nephrology, neurology, and so on. The commercial opportunities that are
eventually created are significant. The top 15 new product opportunities in
biotechnology today could create over U.S.$60 billion in cumulative sales by
the next decade (source: Jefferies).
Finally, a word on emerging markets. China’s re-emergence from its
zero-COVID policy provides an important new growth driver for global
healthcare companies. Major Chinese cities have gone from lockdowns to traffic
jams in just a few months. The principle here is simple – as China re-opens
from its zero-COVID policy, the economy and the local equity market should
follow. The Hong Kong healthcare index hit all-time lows in October 2022,
after ill-founded investor fears about government and political interference -
both from China and the U.S. - created a market dislocation. A rebound into
calendar year-end ensued in anticipation of an economic re-opening. And whilst
geopolitical tensions created some volatility early in 2023, we are optimistic
about China going forward as this oversold situation should reverse.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
6 June 2023
CONTRIBUTION BY INVESTMENT
ABSOLUTE CONTRIBUTION BY INVESTMENT FOR THE YEAR ENDED 31 MARCH 2023
Principal contributors to and detractors from net asset value performance
Contribution
Contribution per share*
Top five contributors Country Sector £’000 £
Global Blood Therapeutics** USA Biotechnology 30,805 0.5
Seagen** USA Biotechnology 28,289 0.4
Daiichi Sankyo Japan Pharmaceutical 23,488 0.4
BioMarin Pharmaceutical USA Biotechnology 21,598 0.3
Sarepta Therapeutics USA Biotechnology 20,665 0.3
Top five detractors
Edwards Lifesciences USA Healthcare Equipment & Supplies (18,551) (0.3)
Roche Switzerland Pharmaceutical (24,481) (0.4)
Horizon Therapeutics** USA Biotechnology (29,324) (0.5)
Mirati Therapeutics USA Biotechnology (33,332) (0.5)
Shanghai Bio-heart Biological Technology China Healthcare Equipment & Supplies (42,324) (0.7)
* Calculation based on 64,474,422 shares being the
weighted average number of shares in issue during the year ended 31 March 2023
** Not held at 31 March 2023
ENVIRONMENTAL, SOCIAL AND GOVERNANCE AND CLIMATE CHANGE
The Company’s Portfolio Manager, OrbiMed, is guided by its Responsible
Investing Policy in its approach to ESG (Environmental, Social and
Governance). 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. They seek to integrate ESG into the overall investment process, with
the objective of maximising investment returns. OrbiMed has recruited a senior
executive who has the responsibility of overseeing this project. Investment
decisions are based on a variety of financial and non-financial company
factors, including environmental, social, and governance information.
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. Environmental factors such as
greenhouse gas (GHG) emissions are not featured as 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.
The healthcare and life sciences sector is highly regulated, globally.
Environmental regulation, along with quality-related regulation is
well-established across both developed and emerging markets. 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 these providers, OrbiMed
also conducts proprietary analysis of ESG performance. The scores from the
third-party service providers are integrated with OrbiMed’s own analysis
onto a proprietary business intelligence platform for regular monitoring.
OrbiMed also generally 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/product safety, ethical marketing, call-backs and other
materially relevant factors. In addition, OrbiMed is taking the initiative in
leading meaningful ESG engagement in the healthcare sector. As part of these
efforts, OrbiMed engages with companies directly or through brokers, and
facilitates dialogue and an exchange of best practice among investors,
companies, and other relevant experts on ESG in the healthcare sector. Some
examples of engagement include:
* Engagement with large capitalisation pharmaceutical companies on reporting,
environmental sustainability, access, product pricing, supplier engagement and
targets on ESG through an investor conference and broker-led ESG road shows;
* Participation in an ESG conference where a mid-capitalisation biotechnology
company disclosed its ESG governance, and discussed key programmes including
increasing diversity in clinical trials, employee diversity and
talent-building initiatives, and other community initiatives; and
* As part of the ‘Industry Investor Connect’, OrbiMed participated in an
ESG roundtable discussion with a large capitalisation medical devices company
and a pharmaceutical company, alongside 10 other investors. Topics discussed
included drugs and product safety, litigation, and access to medicines.
OrbiMed also participated in the Goldman Sachs Sustainability Conference in
September 2022 and the Jefferies London Healthcare Conference in November
2022, alongside several healthcare companies and investors, to allow further
dissemination and discussion of leading ESG practices in the healthcare
sector.
Between April 1, 2022, and March 31, 2023, a total of 776 proposals came to
vote within the Company’s portfolio. Of these, 759 were management proposals
and 17 were shareholder proposals.
Number of votes
against
management’s
Total number Voted Votes proposed
Proposed by of proposals Voted for against abstained response
Management 759 667 92 0 88
Shareholder 17 2 15 0 2
There was one management proposal referring to an ESG report and two
shareholder proposals regarding product pricing. ‘Affordability and
pricing’ is one of the material ESG topics listed in the Sustainability
Accounting Standards Board guidance for the Biotechnology and Pharmaceuticals
sub-sector.
OrbiMed provides a quarterly update on ESG to the Board of the Company. This
provides updates on the evolving regulatory landscape as well as details of
monitoring, engagement and its proxy voting activity. ESG reporting by
companies within the portfolio is also examined in the quarterly report.
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 the 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
In October 2022, the UK Financial Conduct Authority (FCA) published the
Consultation Paper on UK-specific Sustainability Disclosure Requirements
(SDR). The proposed SDR is focused on asset managers and their UK-based fund
products and portfolio management services. The Consultation Paper’s core
elements are labelling and classification; disclosure; and naming and
marketing rules. The FCA has concluded the Consultation on the draft Rules.
The final rules which were expected to be published in June 2023, are now
expected to be published in the third quarter of 2023. Upon the release of the
Final Rules, anti-greenwashing rules will take effect immediately and will be
applicable to all regulated firms in the UK. Labelling and classification
rules come into effect a year later, and the disclosure rules will follow
after a further year.
In May 2022, the U.S. Securities and Exchange Commission (SEC) proposed
amendments to rules and reporting forms to promote disclosures for investors
concerning funds’ and advisers’ incorporation of ESG. Following this, in
2023, the Division of Examinations of the SEC announced the publication of its
2023 examination priorities, which include a focus on ESG-related advisory
services and fund offerings, to evaluate labelling and practices with respect
to stated policies and processes, in the United States.
International coherence on ESG between regimes is yet to be achieved. The
changing regulatory landscape is continuously being monitored by OrbiMed.
Sven H. Borho and Trevor M. Polischuk
OrbiMed Capital LLC
Portfolio Manager
6 June 2023
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 held in 2019 that the
Company continues as an investment trust for a further five year period. In
accordance with the Company’s Articles of Association, shareholders will
have an opportunity to vote on the continuation of the Company at the Annual
General Meeting to be held in 2024 and every five years thereafter.
THE BOARD
The Board of the Company comprises Doug McCutcheon (Chair), Sarah Bates, Sven
Borho, Dr Bina Rawal, Humphrey van der Klugt, Tim Livett and Jo Parfrey. All
of these Directors, with the exception of Tim Livett and Jo Parfrey 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 Sarah Bates, are seeking election or
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 make up 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 to
that of the Benchmark.
A full description of performance during the year under review is contained in
the Portfolio Manager’s Review.
Share price discount/premium to NAV per share
The share price discount/premium to 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 ratio
The Board continues to be conscious of expenses and works hard to maintain a
balance between good quality service and costs.
PRINCIPAL SERVICE PROVIDERS
The principal service providers to the Company are the AIFM, Frostrow, 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
contained within the Annual Report.
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 which can be found in the Annual Report.
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 which forms part of the Annual Report.
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. See note 16 to the Financial
Statements for further details; 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 2023 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 below.
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 to the Financial Statements). 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) to the Financial Statements 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;
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. * monitoring of the assets taken as collateral (further details can be found in note 16 to the Financial Statements);
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, * 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;
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 * monitoring of counterparties, including reviews of internal control reports and credit ratings, as appropriate;
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. * 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.
Service provider risk
The Company is reliant on the systems of the 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 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;
regulations leading to reputational damage and/ or financial loss. * 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.
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;
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. * 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. Company promotional activities have been delegated to Frostrow, who report to the Board at each Board meeting on these activities.
Emerging risks
The Company has carried out a robust assessment of the Company’s emerging
and principal risks and the procedures in place to identify emerging risks are
described below. The International Risk Governance Council definition of an
‘emerging’ risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging). Failure to
identify emerging risks may cause reactive actions rather than being proactive
and, in 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 map 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. There are currently no
emerging risks being monitored by the Audit & Risk Committee.
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 its shares if the Company’s 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 at a small
premium to the cum income net asset value per share. This acts as an effective
share price premium management tool.
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 seven Directors, five
of whom are resident in the UK, one in Canada and one in the U.S.
The Board holds the majority of its regular meetings in the U.K., 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 contained in the Annual Report. 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.
LONGER TERM VIABILITY
The Board has carried out a robust assessment of the principal risks facing
the Company including those that would threaten its business model, future
performance, solvency or liquidity. The Board has drawn up a matrix of risks
facing the Company and has put in place a schedule of investment limits and
restrictions, appropriate to the Company’s investment objective and policy,
in order to mitigate these risks as far as practicable. The principal risks
and uncertainties which have been identified, and the steps taken by the Board
to mitigate these as far as possible.
The Board believes it is appropriate to assess the Company’s viability over
a five year period. This period is also deemed appropriate due to our
Portfolio Manager’s long-term investment horizon and also what it believes
to be investors’ horizons, taking account of the Company’s current
position and the potential impact of the principal risks and uncertainties.
The Directors also took into account the liquidity of the portfolio and the
expectation that the Company will pass the next continuation vote in 2024 when
considering the viability of the Company over the next five years and its
ability to meet liabilities as they fall due.
The Directors do not expect there to be any significant change in the
principal risks that have been identified or the adequacy of the mitigating
controls in place, and do not envisage any change in strategy or objectives or
any events that would prevent the Company from continuing to operate over that
period as the Company’s assets are liquid, its commitments are limited and
the Company intends to continue to operate as an investment trust.
Based on this assessment, the Directors have a reasonable expectation that the
Company will be able to continue in operation and meet its liabilities as they
fall due over the next five-year period.
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.
Who? Why? How?
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 buy backs 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 addition, the Chairman met with a number of
the Company’s larger shareholders during the year. 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? Outcomes and actions
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 Chairman
also met with key shareholders during the year to discuss the Company’s investment strategy including ESG.
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.
Who? Why? How?
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? Outcomes and actions
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 Board engaged with the Portfolio Management team to discuss the Company’s overall performance as well as developments in individual portfolio companies and wider
* The integration of ESG factors into the Portfolio Manager’s investment processes. 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. 2,836,483 shares were
bought back during the year, and a further 1,299,037 shares were bought back since the year-end to 5 June 2023. No new shares were issued during the year, nor following
the year-end to 5 June 2023. (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 2023
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 director’s
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 2023;
* the Statement from the Chair, 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 2023
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 – Sarah Bates 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 Sarah Bates 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 seven non-executive Directors, each of whom, with the
exception of Sven Borho, is independent of OrbiMed and the Company’s other
service providers. No member of the Board is a Director of another investment
company managed by OrbiMed, nor has any Board member (with the exception of
Sven Borho) been an employee of OrbiMed or any of the Company’s service
providers.
The Board carefully considers the various guidelines for determining the
independence of non-executive Directors, placing particular weight on the view
that independence is evidenced by an individual being independent of mind,
character and judgement. All Directors 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.
Shareholder communications
The Board, the AIFM and the Portfolio Manager consider maintaining good
communications with shareholders and engaging with larger shareholders through
meetings and presentations a key priority. Shareholders are being informed by
the publication of annual and half-year reports which include financial
statements. These reports are supplemented by the daily release of the net
asset value per share to the London Stock Exchange and the publication of
monthly fact sheets. All this information, including interviews with the
Portfolio Manager, is available on the Company’s website at
www.worldwidewh.com.
The Board 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
The Board regularly considers its structure and recognises the need for
progressive refreshment. (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.
During the year, the Board reviewed the policy on Directors’ tenure and
considered the overall length of service of the Board as a whole.
Policy on the tenure of the chair and other non-executive directors
The tenure of each non-executive Director, including the Chair, is not
ordinarily expected to exceed nine years. However, the Board has agreed that
the tenure of the Chair may be extended for an agreed time provided such an
extension is conducive to the Board’s overall orderly succession. The Board
believes that this more flexible approach to the tenure of the Chair is
appropriate in the context of the regulatory rules that apply to investment
companies, which ensure that the Chair remains independent after appointment,
while being consistent with the need for regular refreshment and diversity.
The Board has been refreshing its membership and will continue to do so over
time. It may be the case that Directors serve for longer than nine years to
ensure that any changes made are done so in an orderly and structured manner.
All Directors seek election or re-election every year. Further details
regarding the refreshment process can be found in the Chair’s Statement.
The Board subscribes to the view that long serving Directors should not
necessarily be prevented from forming part of an independent majority. The
Board considers that a Director’s tenure does not necessarily reduce his or
her ability to act independently and will continue to assess each Director’s
independence annually, through a formal performance evaluation.
Appointments to the board
The Nominations Committee considers annually the skills possessed by the Board
and identifies any skill shortages to be filled by new Directors.
The rules governing the appointment and replacement of Directors are set out
in the Company’s articles of association and the aforementioned succession
planning policy. Where the Board appoints a new Director during the year, that
Director will stand for election by shareholders at the next 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 as follows:
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.
In accordance with the Listing Rules, the Board has provided the following
information in relation to its diversity as at the year end.
Number Percentage Number of senior positions on the
of Board of the Board Board (CEO, CFO,
Members SID and Chair)
Men 4 57% 2
Women 3 43% 1
Not specified/prefer not to say – – –
Number Percentage Number of senior positions on the
of Board of the Board Board (CEO, CFO,
Members SID and Chair)
White British or other White (including minority-white groups) 6 86% 3
Mixed/Multiple Ethnic Groups – – –
Asian/Asian British 1 14% –
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. 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 Committee
to be a senior position and therefore the Company has defined the ‘senior
positions on the Board’ as Chairman, 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 2022/23 Board Audit & Risk Committee Nominations Committee Management Engagement & Remuneration Committee
(6) (2) (1) (1)
Sir Martin Smith^ 3 – 0 0
Sarah Bates 6 2 1 1
Sven Borho* 5 – – –
Tim Livett+ 2 1 1 1
Humphrey van der Klugt 5 2 1 1
Doug McCutcheon~ 6 1 1 1
Jo Parfrey** 2 1 1 1
Dr Bina Rawal 6 2 1 1
^ Sir Martin Smith was not a member of the Audit & Risk Committee. He retired
from the Board on 6 July 2022
* Sven Borho does not sit on any of the
Company’s Committees + Tim Livett joined the Board on 1 September 2022
~ Doug McCutcheon become the Chair of the Company on 6 July 2022. He ceased
to be a member of the Audit & Risk Committee on that day
** Jo Parfrey joined the Board on 1 September 2022
All of the serving Directors with the exception of Humphrey van der Klugt,
attended the Annual General Meeting held on 6 July 2022. Humphrey was unable
to attend the Annual General Meeting and also a Board Meeting as he was
unwell.
BOARD EVALUATION
During the year the performance of the Board, its committees and individual
Directors (including each Director’s independence) was evaluated through a
formal assessment led by the Senior Independent Director. The performance of
the Chair was also evaluated by the Senior Independent Director. The review
concluded that the Board was working well. The Board is satisfied that the
structure, mix of skills and operation of the Board continue to be effective
and relevant for the Company.
As an independent external review of the Board was undertaken in 2021 the next
such review will be held in 2024.
The Board pays close attention to the capacity of individual Directors to
carry out their work on behalf of the Company. In recommending individual
Directors to shareholders for re-election, it considered their other Board
positions and their time commitments and is satisfied that each Director has
the capacity to be fully engaged with the Company’s business. The Board has
considered the position of all of the Directors as part of the evaluation
process, and believes that it would be in the Company’s best interests to
propose them for election and/or re-election (with the exception of Sarah
Bates who will be retiring from the Board on the date of this year’s AGM) at
the forthcoming 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.
Humphrey van der Klugt joined the Board in February 2016. A former fund
manager and Director of Schroder Investment Management Limited, Humphrey has
extensive experience of the investment trust sector. He is a Chartered
Accountant.
Tim Livett joined the Board on 1 September 2022.
A qualified accountant, Tim is Chair of the Audit & Risk Committee.
Tim is the Chief Financial Officer at Caledonia Investments PLC, and is also a
member of the Valuation and Audit & Risk Committees at Oxford University
Endowment Management. He was formerly Chief Financial Officer at Wellcome
Trust, the global charitable foundation focused on health research. He has an
extensive and broad financial background.
Tim studied chemistry at Oxford University.
Jo Parfrey joined the Board on 1 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 nonexecutive 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 services.
Jo studied chemistry at Oxford University.
Dr Bina Rawal joined the Board on November 2019. A physician with 25 years’
experience in life sciences research and development, she has held senior
executive roles in drug development and scientific evaluation in four global
pharmaceutical companies.
The 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.
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 Tuesday, 18 July 2023 from 12.30 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 13 Proposed share split
Resolution 14 Authority to allot shares
Resolution 15 Authority to disapply pre-emption rights
Resolution 16 Authority to sell shares held in Treasury on a non pre-emptive basis
Resolution 17 Authority to buy-back shares
Resolution 18 Authority to hold General Meetings (other than the Annual General Meeting) on at least 14 clear days’ notice
Resolutions 13 and 14 will be proposed as Ordinary Resolutions and resolutions
15 to 18 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 2023
INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2023
2023 2022
Notes Revenue £’000 Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000
Gains/(Losses) on investments 9 – 10,388 10,388 – (152,475) (152,475)
Exchange losses on currency balances – (18,302) (18,302) – (6,342) (6,342)
Income from investments 2 23,945 – 23,945 23,471 – 23,471
AIFM, portfolio management and performance fees 3 (877) (16,657) (17,534) (938) 1,061 123
Other expenses 4 (1,142) (22) (1,164) (1,305) (529) (1,834)
Net return/(loss) before finance charges and taxation 21,926 (24,593) (2,667) 21,228 (158,285) (137,057)
Finance costs 5 (193) (3,658) (3,851) (40) (761) (801)
Net return/(loss) before taxation 21,733 (28,251) (6,518) 21,188 (159,046) (137,858)
Taxation 6 (2,021) (248) (2,269) (3,668) – (3,668)
Net return/(loss) after taxation 19,712 (28,499) (8,787) 17,520 (159,046) (141,526)
Return/(loss) per share 7 30.6p (44.2) (13.6) 26.8p (243.5) (216.7)
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 2023
Share Capital redemption reserve Share premium account Capital reserve Revenue reserve Total shareholders’ funds
capital £’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
FOR THE YEAR ENDED 31 MARCH 2022
Share Capital redemption reserve Share premium account Capital Revenue reserve £’000 Total shareholders’ funds
capital £’000 £’000 reserve £’000
£’000 £’000
At 1 April 2021 16,078 8,221 796,357 1,542,628 18,141 2,381,425
Net (loss)/return after taxation – – – (159,046) 17,520 (141,526)
Final dividend paid in respect of year ended 31 March 2021 – – – – (10,085) (10,085)
Interim dividend paid in respect of year ended 31 March 2022 – – – – (4,586) (4,586)
New shares issued 307 – 45,242 – – 45,549
Shares purchased for treasury – – – (2,544) – (2,544)
At 31 March 2022 16,385 8,221 841,599 1,381,038 20,990 2,268,233
STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2023
2023 2022
Notes £’000 £’000
Fixed assets
Investments 9 2,186,417 2,379,848
Derivative – OTC swaps 9 & 10 209 283
2,186,626 2,380,131
Current assets
Debtors 11 4,376 14,724
Cash 58,925 26,594
63,301 41,318
Current liabilities
Creditors: amounts falling due within one year 12 (72,105) (147,804)
Derivative – OTC swaps 9 & 10 (27,101) (5,412)
(99,206) (153,216)
Net current liabilities (35,905) (111,898)
Total net assets 2,150,721 2,268,233
Capital and reserves
Share capital 13 16,265 16,385
Capital redemption reserve 8,341 8,221
Share premium account 841,599 841,599
Capital reserve 17 1,261,025 1,381,038
Revenue reserve 23,491 20,990
Total shareholders' funds 2,150,721 2,268,233
Net asset value per share 14 3,434.5p 3,465.2p
The financial statements were approved by the Board of Directors and
authorised for issue on 6 June 2023 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 2023
2023 2022
Notes £’000 £’000
Net cash inflow/(outflow) from operating activities 18 5,394 (13,329)
Purchases of investments and derivatives (1,189,133) (1,330,279)
Sales of investments and derivatives 1,404,617 1,253,138
Realised (loss)/gain on foreign exchange transactions (18,240) (5,541)
Net cash inflow/(outflow) from investing activities 197,244 (82,682)
Issue of shares 13 – 48,126
Shares repurchased 13 (91,514) (2,544)
Equity dividends paid (17,211) (14,671)
Interest paid (3,851) (801)
Net cash (outflow)/inflow from financing activities (112,576) 30,110
Decrease/(Increase) in net cash/(debt) 90,062 (65,901)
Cash flows from operating activities include interest received of £2,301,000
(2022: £968,000) and dividends received of £20,507,000 (2022: £23,853,000).
RECONCILIATION OF NET CASH FLOW MOVEMENT TO MOVEMENT IN NET CASH/(DEBT)
2023 2022
£’000 £’000
Decrease/(Increase) in net cash/(debt) resulting from cashflows 90,062 (65,901)
Losses on foreign currency cash and cash equivalents (62) (801)
Movement in net cash/(debt) in the year 90,000 (66,702)
Net debt at 1 April (87,003) (20,301)
Net cash/(debt) at 31 March 2,997 (87,003)
Net cash/(debt) includes the bank overdraft of £55,928,000 (2022:
£113,597,000) (see note 12) and cash as per the balance sheet of £58,925,000
(2022: £26,594,000).
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 2023, 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 buy backs. Any gains in the fair value of investments that
are not readily convertible to cash are treated as unrealised gains in the
capital reserve. 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
2023 2022
£’000 £’000
Income from investments
Overseas dividends 18,431 19,678
Fixed interest income 184 772
UK dividends 3,212 2,825
21,827 23,275
Other income
Derivatives 79 151
Deposit interest 2,039 45
Total income from investments 23,945 23,471
Total income comprises:
Dividends 21,643 22,503
Interest 2,302 968
23,945 23,471
3. AIFM, PORTFOLIO MANAGEMENT AND PERFORMANCE FEES
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
AIFM fee 151 2,862 3,013 160 3,046 3,206
Portfolio management fee 726 13,795 14,521 778 14,781 15,559
Performance fee (reversal) – – – – (18,888) (18,888)
877 16,657 17,534 938 (1,061) (123)
* During the year ended 31 March 2022, due to underperformance against the
Benchmark, a reversal of prior period performance fee provisions totalling
£18,888,000 occurred.
Further details on the above fees are set out in the Strategic Report and in
the Report of the Directors.
4. OTHER EXPENSES
2023 2022
£’000 £’000
Directors’ remuneration 212 207
Employer’s NIC on Directors’ remuneration 18 20
Auditors’ remuneration for the audit of the Company’s financial statements 54 47
Auditors’ remuneration for non-audit services – 5
Depositary and custody fees 208 213
Listing fees 85 77
Registrar fees 45 63
Legal and professional costs 181 255
Broker fees (15) 117
Other costs 354 301
1,142 1,305
Professional fees (Capital)^ 22 529
1,164 1,834
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
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Finance costs 193 3,658 3,851 40 761 801
6. TAXATION
(A) Analysis of charge in year
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Corporation tax at 19% (2022: 19%) – – – – – –
Overseas taxation 2,021 248 2,021 3,668 – 3,668
2,021 248 2,269 3,668 – 3,668
(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 higher (2022: higher) than the standard rate
of corporation tax of 19% (2022: 19%).
The difference is explained below.
2023 2022
Revenue Capital Total Revenue Capital Total
£’000 £’000 £’000 £’000 £’000 £’000
Net return before taxation 21,733 (28,251) (6,518) 21,188 (159,046) (137,858)
Corporation tax at 19% (2022: 19%) 4,129 (5,415) (1,286) 4,026 (30,219) (26,193)
Non-taxable gains on investments – 1,551 1,551 – 30,175 30,175
Overseas withholding taxation 2,021 – 2,021 3,668 – 3,668
Overseas capital gains tax – 248 248 – – –
Non taxable dividends (4,112) – (4,112) (4,276) – (4,276)
Excess management expenses (17) 3,864 3,847 250 44 294
Total tax charge 2,021 248 2,269 3,668 – 3,668
(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 £49,985,000 (25% tax
rate) (2022: £45,055,000 (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
2023 2022
£’000 £’000
The return/(loss) per share is based on the following figures:
Revenue return 19,712 17,520
Capital (loss) (28,499) (159,046)
(8,787) (141,526)
Weighted average number of ordinary shares in issue during the year 64,474,422 65,307,132
Revenue return per ordinary share 30.6p 26.8p
Capital (loss) per ordinary share (44.2p) (243.5p)
(13.6p) (216.7p)
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:
2023 2022
£’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 2021 – 10,085
Interim dividend in respect of the year ended 31 March 2022 – 4,586
17,211 14,671
In respect of the year ended 31 March 2023, an interim dividend of 7.0p per
share was paid on 11 January 2023. A final dividend of 24.0p will be payable,
subject to shareholder approval, on 26 July 2023, the associated ex dividend
date will be 8 June 2023. The total dividends payable in respect of the year
ended 31 March 2023 amount to 31.0p per share (2022: 26.5p per share). The
aggregate cost of the final dividend, based on the number of shares in issue
(excluding shares held in treasury) at 5 June 2023, will be £14,717,000. 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.
2023 2022
£’000 £’000
Revenue available for distribution by way of dividend for the year 19,712 17,520
Interim dividend in respect of the year ended 31 March 2022 – (4,586)
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* (14,717) –
Net retained revenue 505 213
* based on 61,321,726 shares in issue as at 5 June 2023.
9. INVESTMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
Derivative
Financial
Quoted Unquoted Instruments -
Investments Investments Net Total
£’000 £’000 £’000 £’000
Cost at 1 April 2022 1,952,701 136,760 – 2,089,461
Investment holdings gains/(losses) at 1 April 2022 254,674 35,713 (5,129) 285,258
Valuation at 1 April 2022 2,207,375 172,473 (5,129) 2,374,719
Movement in the year:
Purchases at cost 1,168,434 – – 1,168,434
Sales - proceeds (1,390,864) (4,332) 1,072 (1,394,124)
Transfer between levels* 14,019 (14,019) – –
Net movement in investment holding gains/(losses) 42,283 (8,952) (22,835) 10,496
Valuation at 31 March 2023 2,041,247 145,170 (26,892) 2,159,525
Cost at 31 March 2023 1,828,139 122,597 – 1,950,736
Investment holding gains/(losses) at 31 March 2023 213,108 22,573 (26,892) 208,789
Valuation at 31 March 2023 2,041,247 145,170 (26,892) 2,159,525
* See Note 16.
The Company received £1,393,875,000 (2022: £1,253,317,000) from investments
and derivatives sold in the year. The book cost of these was £1,307,159,000
(2022: £1,278,065,000). 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.
2023 2022
£’000 £’000
Net movement in investment holding gains/(losses) in the year 33,331 (130,139)
Net movement in derivative holding (losses)/gains in the year (22,835) (21,985)
Effective interest rate amortisation (108) (351)
Gains/(Losses) on investments 10,388 (152,475)
Purchase transaction costs were £1,660,000 (2022: £1,668,000). Sales
transaction costs were £1,266,000 (2022: £1,244,000). These comprise mainly
commission and stamp duty.
10. DERIVATIVE FINANCIAL INSTRUMENTS
2023 2022
£’000 £’000
Fair value of OTC equity swaps (asset) 209 283
Fair value of OTC equity swaps (liability) (27,101) (5,412)
(26,892) (5,129)
See note 9 above for movements during the year.
11. DEBTORS
2023 2022
£’000 £’000
Amounts due from brokers 88 10,581
Withholding taxation recoverable 2,882 2,587
VAT recoverable – –
Prepayments and accrued income 1,406 1,556
4,376 14,724
12. CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR
2023 2022
£’000 £’000
Amounts due to brokers 9,432 30,131
Overdraft drawn* 55,928 113,597
Other creditors and accruals 6,745 4,076
72,105 147,804
* 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
Total
Treasury shares
Shares shares in issue
number number number
Issued and fully paid at 1 April 2022 65,457,246 80,509 65,537,755
Shares purchased for treasury (2,836,483) 2,836,483 –
Shares cancelled from treasury – (478,977) (478,977)
At 31 March 2023 62,620,763 2,438,015 65,058,778
2023 2022
£’000 £’000
Issued and fully paid:
Ordinary Shares of 25p 16,265 16,385
During the year ended 31 March 2023 no new shares were issued, 2,836,483
shares were repurchased into Treasury at a cost of £91,514,000 (2022:
1,227,500 shares were issued raising £45,549,000 and 80,509 shares were
repurchased for treasury at a cost of £2,544,000).
14. NET ASSET VALUE PER SHARE
2023 2022
Net asset value per share 3,434.5p 3,465.2p
The net asset value per share is based on the assets attributable to equity
shareholders of £2,150,721,000 (2022: £2,268,233,000) and on the number of
shares in issue at the year end (excluding those shares held in treasury) of
62,620,763 (2022: 65,457,246).
15. RELATED PARTIES
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 £33,573 (2022: £33,573). Details of fees paid to OrbiMed by the
Company can be found in note 3 to the Financial Statements. All material
related party transactions have been disclosed in notes 3 and 4 to the
Financial Statements.
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 20% in Frostrow, the Company’s AIFM. Details of the fees
paid to Frostrow by the Company can be found in note 3 to the Financial
Statements.
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.
2023 2022
Notional* Notional*
Assets Liabilities exposure Assets Liabilities exposure
£’000 £’000 £’000 £’000 £’000 £’000
Investments 2,186,417 – 2,186,417 2,379,848 – 2,379,848
OTC equity swaps 209 (27,101) 190,704 283 (5,412) 135,018
2,186,626 (27,101) 2,377,121 2,380,131 (5,412) 2,514,866
* 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 (2022: 25% higher or lower) while all other variables remained constant:
the revenue return would have decreased/increased by £0.2 million (2022:
£0.2 million); the capital return would have increased/decreased by £596.6
million (2022: £625.4 million); and, the return on equity would have
increased/decreased by £594.6 million (2022: £625.2 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.
2023 2022
Current Current Current Current
assets liabilities Investments assets liabilities Investments
£’000 £’000 £’000 £’000 £’000 £’000
U.S. dollar 115,823 (124,286) 1,488,321 64,264 (169,551) 1,821,239
Swiss franc 2,466 – 84,999 2,202 – 113,899
Japanese yen 793 – 135,398 332 114 83,225
Hong Kong dollar – – 109,170 851 (851) 190,260
Other 194 – 201,798 155 – 30,803
119,276 (124,286) 2,019,686 67,804 (170,288) 2,239,426
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 (2022: 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.
2023 2022
USD YEN CHF HKD USD YEN CHF HKD
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Sterling depreciates 188,606 15,132 9,718 12,130 206,233 9,297 12,900 21,140
Sterling appreciates (154,314) (12,381) (7,951) (9,925) (168,736) (7,606) (10,555) (17,296)
(iii) Interest rate risk
Interest rate changes may affect:
– the interest payable on the Company’s variable rate borrowings;
– the level of income receivable from floating and
fixed rate securities and cash at bank and on deposit;
– the fair value of investments in fixed interest
securities.
Interest rate exposure
The Company’s main exposure to interest rate risks is through its overdraft
facility with J.P. Morgan Securities LLC, which is repayable on demand, and
its holding in fixed interest securities. The exposure of financial assets and
liabilities to fixed and floating interest rates, is shown below.
At 31 March 2023, the Company held no investments in securitised debt (2022:
0.4% of the portfolio). The exposure is shown in the table below.
2023 2022
Weighted average period for which rate is fixed Years Weighted average fixed interest rate % Fixed rate £’000 Floating rate £’000 Weighted average period for which rate is fixed Years Weighted average fixed interest rate % Fixed rate £’000 Floating rate £’000
Unquoted debt investments – – – – 2.9 2.6 5,024 –
Cash – – – 100,366 – 56,336
Overdraft facility – – – (97,369) – (143,339)
Financed swap positions – – – (217,596) – (140,147)
– (214,599) 5,024 (227,150)
All interest rate exposures are held in U.S. dollars.
Cash of £100.4 million (2022: £56.3 million) was held as collateral against
the financed swap positions, of which £41.4 million (2022: £29.7 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 2023 and
the net assets would increase/decrease by £2.1 million (2022:
increase/decrease by £2.3 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 maybe
circumstances where market liquidity is lower than normal. Stress tests have
been performed to understand how long the portfolio would take to realise in
such situations. The Board 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
2023, based on the earliest date on which payment can be required, are as
follows:
2023 2022
3 to 12 3 months 3 to 12 3 months
months or less months or less
£’000 £’000 £’000 £’000
Overdraft facility – 97,369 – 143,339
Amounts due to brokers and accruals – 16,177 – 30,131
OTC equity swaps 27,101 – 5,412 –
27,101 113,546 5,412 173,470
£41.4 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 2023 such assets held by J.P. Morgan Securities LLC are available for
rehypothecation (see Glossary). As at 31 March 2023, assets with a total
market value of £134.7 million (2022: £203.1 million) were available to
J.P. Morgan Securities LLC to be used as collateral against the overdraft
facility which equates to 140% of the overdrawn position (calculated on a
settled basis).
CREDIT RISK EXPOSURE
2023 2022
£’000 £’000
Unquoted debt investments – 5,024
Derivative – OTC equity swaps 209 283
Current assets:
Other receivables (amounts due from brokers, dividends and interest receivable) 4,376 14,724
Cash 58,925 26,594
(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 2023 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’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
As at 31 March 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 offerings.
As of 31 March 2022 Level 1 Level 2 Level 3 Total
£’000 £’000 £’000 £’000
Investments held at fair value through profit or loss 2,207,375 – 172,473 2,379,848
Derivatives: OTC swaps (assets) – 283 – 283
Derivatives: OTC swaps (liabilities) – (5,412) – (5,412)
Financial instruments measured at fair value 2,207,375 (5,129) 172,473 2,374,719
As at 31 March 2022, one debt, twelve equity and a deferred consideration
investment have been classified as Level 3. All level 3 positions have been
valued using an independent third party pricing source or using the price of a
recent transaction.
During 2022 four unquoted investments were transferred to Level 1 following
their initial public offerings.
(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.
As at 31 March 2023, the Company had a net leverage percentage of 10.5% (2022:
10.9%).
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as shown in the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company’s capital on an ongoing
basis. This includes a review of:
– the planned level of gearing, which takes into
account the Portfolio Manager’s view of the market;
– the need to buy back equity shares, either for
cancellation or to hold in treasury, in light of any share price discount to
net asset value per share in accordance with the Company’s share buy-back
policy;
– the need for new issues of equity shares,
including issues from treasury; and
– the extent to which revenue in excess of that
which is required to be distributed should be retained.
The Company’s objectives, policies and processes for managing capital are
unchanged from the preceding accounting year.
17. CAPITAL RESERVE
Capital Reserves
Investment
Holding
Other Gains* Total
£’000 £’000 £’000
At 1 April 2022 932,497 448,541 1,381,038
Net gains/(losses) on investments 86,857 (76,469) 10,388
Expenses and taxation charged to capital (20,585) – (20,585)
Exchange loss on currency balances (18,302) – (18,302)
Shares repurchased for Treasury (91,514) – (91,514)
At 31 March 2023 888,953 372,072 1,261,025
* Investment holding gains relate to the revaluation of investments and
derivatives held at the reporting date. (See note 9 to the Financial
Statements for further details).
Under the Company’s Articles of Association, sums within “capital reserves
– other” are also available for distribution.
18. RECONCILIATION OF OPERATING (LOSS)/RETURN TO NET CASH INFLOW/(OUTFLOW)
FROM OPERATING ACTIVITIES
2023 2022
£’000 £’000
Loss before finance charges and taxation (2,667) (137,057)
Add: capital loss before finance charges and taxation 24,593 158,285
Revenue return before finance charges and taxation 21,926 21,228
Expenses charged to capital (16,679) 532
Decrease in other debtors 150 1,342
Increase/(Decrease) in provisions, and other creditors and accruals 2,669 (32,120)
Net taxation suffered on investment income (2,564) (3,960)
Amortisation (108) (351)
Net cash inflow/(outflow) from operating activities 5,394 (13,329)
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 uses two types of equity swap:
* funded, where payment is made on acquisition. They are equivalent to holding
the underlying equity position with the exception of additional counterparty
risk and not possessing voting rights in the underlying; and,
* financed, where payment is made on maturity. 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.
2023 2022
£’000 £’000
Fair Value Exposure* Fair Value Exposure*
Investments 2,186,417 2,186,417 2,379,848 2,379,848
OTC equity swaps (26,892) 190,704 (5,129) 135,018
2,159,525 2,377,121 2,374,719 2,514,866
Shareholders’ funds 2,150,721 2,268,233
Leverage % 10.5% 10.9%
* Calculated in accordance with AIFMD requirements using the Commitment
Method
MSCI World Health Care Index (the company’s Benchmark)
The MSCI World Health Care Index is designed to capture the large and mid
capitalisation segments across 23 developed markets countries: All securities
in the index are classified as healthcare as per the Global Industry
Classification Standard (GICS). Developed Markets countries include:
Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong
Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland the UK and the U.S. The net
total return of the Index is used which assumes the reinvestment of any
dividends paid by its constituents after the deduction of relevant withholding
taxes. The performance of the Index is calculated in U.S.$ terms. Because the
Company’s reporting currency is £ the prevailing U.S.$/£ exchange rate is
applied to obtain a £ based return.
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.
2023 2022
NAV Total Return p p
Opening NAV 3,465.2 3,703.0
(Decrease) in NAV (30.7) (237.8)
Closing NAV 3,434.5 3,465.2
% (decrease) in NAV (0.9%) (6.4%)
Impact of reinvested dividends 0.8% 0.6%
NAV Total Return (0.1%) (5.8%)
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.
2023 2022
£’000 £’000
AIFM & Portfolio Management fees (Note 3) 17,534 18,765
Other Expenses – Revenue (Note 4) 1,142 1,305
Total Ongoing Charges 18,676 20,070
Performance fees paid/crystallised – 12,861
Total 18,676 32,931
Average net assets 2,247,296 2,356,131
Ongoing Charges 0.8% 0.9%
Ongoing Charges (including performance fees paid or crystallised during the year) 0.8% 1.4%
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.
2023 2022
Share Price Total Return p p
Opening share price 3,275.0 3,695.0
(Decrease)/increase in share price (160.0) (420.0)
Closing share price 3,115.0 3,275.0
% (decrease)/increase in share price (4.8%) (11.4%)
Impact of reinvested dividends 0.7% 0.6%
Share Price Total Return (4.1%) (10.8%)
* Alternative Performance Measure
Annual Report and Financial Statements
Copies of the Annual Report and financial statements will be posted to
shareholders on 15 June 2023 and will be available on the Company’s website
(www.worldwidewh.com) or in hard copy format from the Company Secretary.
The Company's Annual Report for the year ended 31 March 2023 has been
submitted to the Financial Conduct Authority and will shortly be available for
inspection on the National Storage Mechanism (NSM)
via https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
The Annual General Meeting will be held on Tuesday, 18 July 2023.
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.
-ENDS-
For further information please contact
Mark Pope
For and on behalf of Frostrow Capital LLP
Company Secretary
0203 008 4913
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