TIDMPCGH TIDMPGHZ
RNS Number : 5463X
Polar Capital Global Health Tst PLC
19 December 2019
POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC
Legal Entity Identifier: 549300YV7J2TWLE7PV84
AUDITED RESULTS ANNOUNCEMENT FOR THE YEARED
30 SEPTEMBER 2019
FINANCIAL HIGHLIGHTS
For the year to 30 September 2019
Performance
Net Asset Value ('NAV') per Ordinary share (total return)
* -1.24%
Benchmark index
(MSCI ACWI Health Care Index (total return in sterling
with dividends reinvested)) 3.14%
Since restructuring
NAV per Ordinary share (total return) since restructuring* 11.69%
Benchmark index total return since restructuring 16.69%
Expenses 2019 2018
Ongoing charges* 1.01% 1.08%
------------------------------------------- ------------------ ------------------ ----------
Financials As at As at
30 September 30 September
2019 2018 Change
------------------------------------------- ------------------ ------------------ ----------
Total net assets (Group and
Company) GBP288,447,000 GBP296,263,000 -2.6%
NAV per Ordinary share 236.88p 241.91p -2.1%
NAV per ZDP share 106.99p 103.87p 3.0%
Price per Ordinary share 218.00p 223.00p -2.2%
Discount per Ordinary share* 8.0% 7.8%
Price per ZDP share 108.50p 104.50p 3.8%
Net gearing* 7.21% 8.29%
Ordinary shares in issue (excluding
those held in treasury) 121,770,000 122,470,000 -0.6%
Ordinary shares held in treasury 2,379,256 1,679,256 41.7%
ZDP shares in issue 32,128,437 32,128,437 -
------------------------------------------- ------------------ ------------------ ----------
Dividends
The Company has paid or declared the following dividends
relating to the financial year ended 30 September 2019:
Amount
per
Ordinary
Pay date share Record date Ex-date Declared date
------------------------------ ----------- ------------- --------------- ----------------
First interim: 30 August
2019 1.00p 2 August 2019 1 August 2019 23 July 2019
Second interim: 28 February 7 February 6 February
2020 1.10p 2020 2020 19 December 2019
Total (2018: 2.00p) 2.10p
------------------------------ ----------- ------------- --------------- ----------------
* See Alternative Performance Measures below.
The Company's portfolio was restructured on 20 June 2017. The
total return NAV performance since restructuring is calculated by
reinvesting the dividends in the assets of the Company from the
relevant payment date.
For further information please contact:
Ed Gascoigne-Pees Tracey Lago, FCG John Regnier-Wilson
Camarco Polar Capital Global Healthcare Polar Capital LLP
Tele. 020 3757 Trust Plc Tele. 020 7227 2725
4984 Tele. 020 7227 2742
STATUS OF ANNOUNCEMENT
The figures and financial information contained in this
announcement are extracted from the Audited Annual Report for the
year ended 30 September 2019 and do not constitute statutory
accounts for the period. The Annual Report and Financial Statements
include the Report of the Independent Auditors which is unqualified
and does not contain a statement under either section 498(2) or
Section 498(3) of the Companies Act 2006. The Annual Report and
Financial Statements for the year ended 30 September 2019 have not
yet been delivered to the Registrar of Companies. The figures and
financial information for the period ended 30 September 2018 are
extracted from the published Annual Report and Financial Statements
for the period ended 30 September 2018 and do not constitute the
statutory accounts for that year. The Annual Report and Financial
Statements for the period ended 30 September 2018 have been
delivered to the Registrar of Companies and included the Report of
the Independent Auditors which was unqualified and did not contain
a statement under either section 498(2) or Section 498(3) of the
Companies Act 2006.
The Directors' Remuneration Report and certain other helpful
Shareholder information has not been included in this announcement
but forms part of the Annual Report which will be available on the
Company's website and will be sent to Shareholders in January
2020.
CHAIRMAN'S STATEMENT
PERFORMANCE
The Net Asset Value ('NAV') per share fell by 1.24% over the
period on a total return basis. Although this was usefully ahead of
the rest of our AIC peer group this was nevertheless behind the
Company's benchmark, the MSCI ACWI Health Care Index (total return
in sterling), which returned 3.14% over the same period. The
discount to NAV at which our shares traded moved out from 7.8% to
8.0% which meant that the total return to Shareholders was
-1.35%.
PORTFOLIO POSITIONING
Over the course of the year we significantly increased our
exposure to healthcare equipment and also increased our weighting
in life sciences tools and services. We did so at the expense of
pharmaceuticals, biotechnology and managed healthcare, whose
weightings were significantly reduced. At 75% of net assets, the US
remains our largest geographic exposure both in absolute and
relative terms. Over the year the US dollar appreciated by 5.5%
against sterling which helped to boost our overall return in
sterling terms. Our invested position fell slightly over the year
from 108.3% to 107.2%. The Board has given the Managers a net
borrowing range of between 90% and 111% invested. This gives our
Managers the scope to gear up when they are positive and raise cash
if they are more cautious.
FUND MANAGEMENT TEAM
At the beginning of August Dan Mahony stepped down as one of our
three co-Managers. Dan has been directly involved with the
management of your Company since its original inception in 2010 and
the Board would like to thank him for his significant contribution
throughout this period. Dan will now focus on strategy for the
Healthcare team as a whole at Polar Capital, leaving Dr James
Douglas and Gareth Powell as co-Managers of our portfolio.
DIVIDS
A first interim dividend of 1.0p for the year ended 30 September
2019 was paid on 30 August 2019. We are declaring a second interim
dividend of 1.10p which will be payable in February 2020. Total
dividends for the current financial year therefore amount to 2.10p
compared with 2.00p last year, an increase of 5%.
Our dividend policy reflects the focus on capital growth which
means that dividends will likely represent a relatively small part
of Shareholders' total return over the medium term.
SHARE BUYBACKS
We continue to buy back shares on a selective basis when it is
in the best interest of Shareholders. In the year under review we
bought back a total of 700,000 shares which have been placed into
treasury for re-issue when the opportunity arises. Since the end of
the financial year we have bought back a further 500,000 shares
which have also been placed into treasury.
BOARD SUCCESSION
As I have previously reported, our plan is to refresh the entire
Board over a two year period and to do this in two phases. Phase
one was completed in February 2018 and on 23 October 2019 we
announced the appointment of Andrew Fleming and Jeremy Whitley as
independent non-executive directors, both of whom joined the Board
with effect from 1 December 2019.
Andrew Fleming was most recently chief executive of Waverton
Investment Management. He started his career at Gartmore where he
was a main board director and head of equities. He went on to hold
senior positions at ABN Amro and was chief executive of Kames
Capital for nine years. He was a director and chairman of JP Morgan
Japanese Investment Trust plc retiring in December 2018.
Jeremy Whitley is currently a non-executive director of The
Scottish Oriental Smaller Companies Trust plc. With effect from 1
February 2020, Jeremy will also join the board of JPMorgan Indian
Investment Trust plc. He was formerly Head of UK and European
Equities at Aberdeen Asset Management, a position he held from 2009
to 2017.
We are very pleased that both Andrew and Jeremy agreed to join
the Board and we look forward to benefiting from their extensive
investment experience. A resolution proposing their election as
non-executive directors will be put to Shareholders at the
forthcoming Annual General Meeting ('AGM') of the Company to be
held on 26 February 2020.
As previously indicated Tony Brampton and I, the remaining
original directors, will step down at the AGM in February. This
will complete phase two of the Board refreshment. I would like to
pay tribute to Tony who has been an excellent and supportive
director since the inception of the Trust in 2010 and whose
knowledge and insights will be much missed.
I have enjoyed being Chairman of your Company since its original
inception in 2010 and I would like to thank all our Shareholders
for their continued support, particularly at the time of our
restructuring in 2017. I am delighted to confirm that Lisa Arnold
has been invited by the Board, and has accepted, the role of
Chairman when I retire at the forthcoming AGM.
The Board believes that Lisa will bring a fresh perspective to
its proceedings and we all look forward to seeing the Company make
further progress under her guidance.
OUTLOOK
The outlook going into 2020 appears to be supportive for large
cap healthcare companies based on their defensive growth profile,
strong balance sheets and commitment to innovation. With the
economic cycle now quite mature, however, the outlook for smaller
companies is more challenging and we have therefore reduced our
exposure here to 10.2% awaiting better opportunities over the
months ahead.
Sentiment for the healthcare sector has been poor, largely due
to healthcare policy likely to be an increasingly important part of
the debate ahead of the US presidential election in November 2020.
With sentiment at extremes last seen in 2008 it seems likely that
the fog will eventually clear. Fundamentals for the healthcare
sector remain robust with good sales and earnings strength relative
to other areas of the market. We expect these fundamentals to
persist over the years ahead, generating attractive returns for
investors.
It is quite likely we may see some currency headwinds this year.
Until recently sterling has been weak against most of the overseas
currencies in which we invest and this has helped boost returns to
Shareholders. Assuming Brexit is finally accomplished it seems
quite likely that sterling will see a further bounce from these
levels. However, currency forecasting is fraught with difficulties
and this together with the fact that our Shareholders expect us to
have foreign currency exposure (and would be surprised if we
didn't) means that the Board has not engaged in any currency
hedging. This may of course change at some point in the future but
our normal stance is to run unhedged currency positions.
ANNUAL GENERAL MEETING
The Company's ninth Annual General Meeting will take place at
noon on Wednesday, 26 February 2020 at the offices of our Managers,
Polar Capital, 16 Palace Street, London SW1E 5JD. The nearest tube
and main line station is Victoria. A map of the location is
contained in the separate Notice of Annual General Meeting. One of
our co-managers, Dr James Douglas, will be giving a presentation to
Shareholders reflecting on the year past and the year ahead. I
would encourage as many as possible of you to attend and hear what
he has to say. Attendance at this meeting also provides a good
opportunity to meet members of the Board and to ask any questions
you might have, either of us or the Investment Manager.
A buffet lunch will be served at the conclusion of the
meeting.
James Robinson
Chairman
19 December 2019
INVESTMENT MANAGER'S REPORT - FOR THE YEARED 30 SEPTEMBER
2019
-- Fundamentals for the healthcare sector remain robust with
good sales and earnings strength relative to other areas of the
market
-- The US political environment could create some volatility and
valuation pressure in 2020, pressure that we would view as a buying
opportunity
-- We believe the uncertain economic outlook is supportive for
large cap healthcare stocks based on their defensive growth
profile, strong balance sheets and commitment to innovation
PERFORMANCE REVIEW
For the financial year to 30 September 2019, the Company
delivered a total return of -1.24%, which was behind the benchmark
(MSCI ACWI Health Care Index) that recorded a total return of 3.14%
over the same period.
Over the course of the year, there have been some fluctuations
in foreign exchange rates - which have had an impact on the Net
Asset Value (NAV) of the portfolio, which is denominated in
Sterling. Over the reporting period, the US dollar appreciated by
5.5% compared to Sterling and this had a positive impact on
returns, given that the majority of the Company's portfolio (and
its benchmark) are heavily weighted towards US dollar denominated
stocks.
The beginning of the Company's financial year marked a difficult
period for global stock markets, with the MSCI All-Country World
Index declining in the mid-teens during the fourth quarter of
calendar 2018. There were multiple reasons for the weakness
including US/China trade tensions, US monetary policy transitioning
to quantitative tightening and eroding confidence in the EU. As we
moved into 2019, however, the markets recovered from the late 2018
correction, with global growth concerns leading to a more dovish
outlook from Central Banks.
Healthcare experienced similar volatility to the broader market
over the reporting period, although the sector did underperform by
3.89% (MSCI ACWI Health Care Index vs MSCI ACWI Index (both daily
total return)). The late 2018 correction was followed by a rebound
during the first quarter of 2019, buoyed early in the year by
biotechnology company acquisitions by large pharmaceutical
companies. As the year progressed however, the attention of markets
pivoted away from fundamentals and started to focus more on the
political environment in the US. That focus weighed heavily on
sentiment, over-shadowing the industry's underlying operational
progress.
The major political debates in the US were, and continue to be,
drug pricing and the spectre of "Medicare For All". On the drug
pricing side, there is bi-partisan support to address the issue,
enhancing the odds of change. The precise details and mechanisms
for change are yet to be determined, but the political will is
undoubtedly there. In terms of "Medicare For All", the more
progressive Democratic nominees are promoting a single-payer system
in the US, something that could potentially disintermediate the US
Managed Care industry.
There was a wide dispersion of returns from the healthcare
sub-sectors. The life sciences and tools and medical equipment
sub-sectors outperformed, but the managed healthcare and services
sub-sectors had a difficult 12 months. Within therapeutics,
pharmaceuticals were in modest positive territory, but the
biotechnology sub-sector struggled.
REVIEW OF THE PORTFOLIO
The investment mandate for the Company is focused on capital
growth by investing in a diversified global portfolio of healthcare
companies with no restriction on sub-sector weighting. The
Company's portfolio comprises a single pool of investments but for
operational purposes we have divided these investments into a
growth portfolio and an innovation portfolio.
The majority of the Company's assets are allocated to the growth
portfolio and this comprised 34 large-cap healthcare stocks (some
96.9% of total net assets) at the end of the reporting period. All
companies in the growth portfolio had a market capitalisation
greater than $5bn at the time of investment.
The innovation portfolio provides exposure to healthcare
companies with a market capitalisation less than $5bn and is
invested in a range of medical devices, healthcare services and
biotechnology companies. There were 13 investments in the
innovation portfolio (which comprised some 10.2% of total net
assets).
The Company has structural debt in the form of Zero Dividend
Preference (ZDP) shares issued by the subsidiary company in June
2017. The net gearing level at the end of the period, as per the
AIC methodology, was 7.2%.
PERFORMANCE ATTRIBUTION
In terms of sub-sector weightings, we had overweight positions
in healthcare equipment (accelerating top-line growth) and life
sciences and tools (buoyant end-markets) with an underweight
position in pharmaceuticals (mature product portfolios) throughout
most of the financial year. Positioning and stock selection in
healthcare technology were positive contributors to performance, as
was stock selection in pharmaceuticals. Over-weight positions in
life sciences and tools and healthcare equipment was the correct
decision but stock selection disappointed. The biggest drags on
performance were healthcare services and biotechnology.
We decreased our weighting in managed care at the beginning of
the calendar year due to concerns about valuations and political
risk. We added to our exposure in healthcare equipment based on
accelerating growth driven by new product cycles. At the end of the
financial year our major over-weight sub-sectors were healthcare
equipment and life sciences and tools. We decreased our exposure to
biotechnology over the period and continue to have an under-weight
position in pharmaceuticals.
SIGNIFICANT PERFORMANCE CONTRIBUTORS
On an absolute basis, the top three contributors in the
portfolio were Renalytix AI, Merck & Co and Danaher with CVS
Health Corp, Humana and Jazz Pharmaceuticals the biggest
detractors. Renalytix AI, which is held in the innovation
portfolio, is a developer of artificial intelligence enabled
clinical diagnostic solutions for kidney disease, one of the most
common and costly chronic medical conditions globally. During the
reporting period Renalytix AI consistently delivered on regulatory
and commercial milestones, the most recent of which was a
reimbursement code for its diagnostics test in the US.
Merck & Co's strong performance reflects two things.
Firstly, the company's oncology franchise, led by its
immuno-oncology drug Keytruda, continued to deliver not just
positive clinical updates, but positive revenue momentum that has
put upwards pressure on earnings forecasts. Secondly, and perhaps
more importantly, the company's HPV vaccine, Gardasil, continues to
beat consensus revenue expectations. Vaccines is a business with
high barriers to entry and the global demand for Gardasil appears
to be very healthy and sustainable.
Danaher, the life sciences and tools company, continues to
deliver mid-single digit core growth, with the Life Sciences and
Diagnostics divisions the primary growth drivers. Underlying
operational excellence aside, performance was enhanced further by
the acquisition of the leading bio-processing business, GE
Biopharma. The deal was well received by the markets, with GE
Biopharma a high-performing asset exposed to one of the
fastest-growing areas of life sciences.
CVS Health Corp, the healthcare services business, had a
difficult period following the acquisition of the healthcare
insurer Aetna in January 2019. The company highlighted a number of
headwinds to the legacy CVS pharmacy business that were not in
consensus expectations. The magnitude of those headwinds was
quantified at the FY'18 results when management's FY'19 guidance
came in materially below expectations.
Jazz Pharmaceuticals' core sleep franchise has been in rude
health over the last 12 months, but the share price has suffered
from disappointing performance in the oncology franchise. In
essence, commercial execution with leukaemia asset, Vyxeos, was
left wanting with the company putting too much emphasis on safety
as opposed to efficacy. That misjudgement led to a period of
disappointing revenue updates for the asset. CVS and Jazz were sold
out of the portfolio.
Humana's disappointing performance can be attributed, we
believe, to the market starting to question the company's Medicaid
strategy (low income US citizens) and consequently the
achievability of 2020 consensus earnings.
POLITICAL RHETORIC CAN WEIGH ON SENTIMENT AND VALUATIONS,
CREATING OPPORTUNITIES
The US is the most important end-market for global healthcare,
so a watchful eye on the political environment is essential. The
two key areas gaining most attention in the US are drug pricing and
a potential move towards a single-payer, government-run healthcare
system. Whilst the updates and posturing are in a constant state of
flux, addressing the affordability of drugs is something that
appears to have bi-partisan support. At the end of July 2019, a
piece of legislation passed through the Senate Finance Committee
with the basic premise of lowering out-of-pocket drug costs and
controlling price inflation for US seniors. The timing of a
potential resolution is hard to predict, but we do believe that
clear progress could be a clearing event for the bio-pharmaceutical
sector given the removal of uncertainty.
Importantly, if pharmaceutical and biotechnology companies can
deliver high levels of innovation in areas such as oncology, rare
diseases, gene therapy and blood disorders, the US market will
remain an attractive one to generate returns. With drug pricing
concerns affecting sentiment across bio-therapeutics, the
opportunity for investors is to find those companies that are
either insulated from the potential regulatory developments by
nature of their product portfolios or which are developing
innovative products to address hitherto unmet medical needs.
Rhetoric surrounding a single-payer system has been the key
negative sentiment driver for healthcare. The impact has been quite
marked on managed-care companies' valuations, yet the chances of a
single-payer healthcare system in the US is very remote. Why?
Disruption, complexity and cost. Switching to a single-payer system
would be extremely complex due to a wide range of components and
requirements. Yet to be answered questions might include
eligibility and enrolment criteria, which services would be
covered, what role the current system would play, what the payment
rates would be and what role the Federal government would play.
There are also the cost implications to consider, with some
estimating that government health spending would increase by $32.6
trillion over 10 years (Source: Mercatus Center at George Mason
University in Virginia). Given the implications for taxes, choice,
flexibility and access to care, it would come as a huge surprise if
the US were to adopt a single-payer, government-run, healthcare
system.
INNOVATION, TO DRIVE EFFICIENCIES, REMAINS CRITICAL TO
COMMERCIAL SUCCESS
US healthcare spending was approximately $3.5 trillion in 2017,
with an overall share of gross domestic product related to
healthcare spending of 17.9%. Of that $3.5 trillion, 33% was spent
on hospital care, 20% on physician and clinical services and just
10% was spent on retail prescription drugs. The desire to control
the costs of prescription drugs is apparent, but to make the
healthcare system truly more efficient we believe the system must
align incentives, drive efficiencies without compromising quality
of care and reduce, or avoid completely, the amount of time
patients spend in hospital.
Some of the most tangible evidence for driving efficiencies in
the system, we believe, can be found in the world of medical
devices - devices that are minimally invasive, devices that yield
faster recovery times with no compromise on quality or even devices
that are designed to help patients manage their disease and avoid
hospitalisation altogether.
Edwards Lifesciences is one of the leading companies in the
treatment of aortic stenosis (the narrowing of the aortic valve)
using a procedure called Transcatheter Aortic Valve Replacement or
TAVR. Importantly, the procedure allows for patients to have a
heart valve replaced via a catheter, thereby avoiding full
open-heart surgery. That drives shorter recovery times - a clear
benefit for patients - but can also reduce total costs via reduced
length of hospital stays.
Late in 2017 Edwards Lifesciences released data from an economic
study of its SAPIEN-3 valve in intermediate risk patients that
highlighted lower costs as compared to standard surgical valve
replacements. Results from the 2,000 patient trial showed total
one-year average costs with the SAPIEN-3 valve to be at $80,977
versus standard surgical interventions at $96,489.
Avoiding hospital altogether makes obvious well-being and
commercial sense, with diabetes an excellent example of how
technology is being used to engage consumers and shift the
disease-management paradigm. Dexcom's G6 Continuous Glucose
Monitoring device has several appealing features including the
elimination of fingersticks to measure blood glucose, a long-life
sensor and alarms that alert patients to the potential for severe
hypoglycaemic events.
In a similar vein, US medical device peer Medtronic and
healthcare insurance company UnitedHealthcare published some
interesting analysis based on the concept of value-based care.
Results from an analysis of over 6,000 members with diabetes on
Medtronic's MiniMed 630G and previous generation insulin pumps
demonstrated 27% fewer preventable hospital admissions compared to
plan participants who are on multiple daily injections of insulin.
The MiniMed 630G system is an insulin pump that is fully integrated
with a glucose sensor, with the aim of enhanced diabetes
control.
21ST CENTURY CURES ACT HAS PROVIDED A CATALYST
One of the important provisions in the US 21st Century Cures
Act, which was signed into law in December 2016, was the focus on
using real-world evidence (RWE) to support regulatory decision
making. In December 2018, the US Food & Drug Administration
('FDA') published the framework for its RWE program. This framework
creates processes that will address some of the challenges with
real-world data (RWD) - particularly the relevance, quality and
reliability of certain datasets; the lack of standardisation; and
engagement with all stakeholders. This is an important step towards
a broad value-based reimbursement system that will affect all
companies in the healthcare value chain - from drug companies, to
device companies and to service providers.
WE SEE POTENTIAL FOR A MAJOR DISRUPTION OF THE PRODUCT
DEVELOPMENT PROCESS
For many years, the FDA has had a responsibility to monitor the
safety of products following approval - the existing adverse event
reporting systems are in effect a source of RWD. However, once a
product has been approved (based on the submission of clinical
trial data by a company), there is no formal mechanism to determine
its effectiveness post-approval. The use of RWE looks set to
transform how products are evaluated post-approval and could also
disrupt the entire product development process.
We believe that RWE has the potential to disrupt the entire
concept of a discrete clinical trial programme. Controlled studies
will still be required to show safety and efficacy of a novel
therapy but a marketing approval will not be the end of the
evaluation process. RWE could mean that companies will need to
evaluate the effectiveness of a product on an ongoing basis with
reimbursement linked to the associated demonstration of clinical
value.
REAL WORLD DATA IS CHANGING THE LANDSCAPE
A critical aspect of our structural change thesis is the use of
data and data analytics within healthcare systems to improve
efficiency. Over the last year, we have seen a step-up in the
pursuit of RWD and RWE by many participants in the healthcare
industry.
RWD arise from a number of sources in the healthcare system -
including electronic medical records, billing or claims data and
patient registries - as well as non-traditional sources such as
patient-generated data, health related apps, wearables and social
media. RWE describes the use of such data to generate clinical
evidence about the use and potential risk/benefits of a medical
product.
The underlying driver is the move to a value-based system of
reimbursement where any provider of a healthcare service or product
will be evaluated and paid on the basis of how such products or
services contribute to a clinical outcome.
HEALTHCARE COMPANIES ARE RESPONDING TO CHANGES AT THE FDA
Over the last year, we have noticed many more healthcare
companies beginning to talk about how they expect to use RWE. The
most interesting example in the last year was the FDA approval of
Pfizer's breast cancer drug, Ibrance, as a first-line treatment for
male breast cancer, that was based entirely on RWE. Pfizer used RWD
from the Iqvia insurance database, Flatiron's Health Breast Cancer
database and Pfizer's own global safety database. Historically,
such an expansion of indication would have required a controlled
clinical trial but in this case the FDA accepted the RWE to support
the supplementary filing.
We expect the field of RWE to evolve quite rapidly now that the
FDA is funding programmes to drive its use. Importantly, we have
begun to change the way we think about the investment risk of
product development companies. We used to focus more on the
clinical risk of a new product candidate (i.e. would it get
approved by the FDA?) but we now give greater weight to the
potential commercialisation risk of a new product.
CLINICAL RESEARCH ORGANISATIONS WITH THE RIGHT CAPABILITIES LOOK
TO BE THE NEAR-TERM WINNERS
From an investment perspective, we think that Clinical Research
Organisations ('CROs') will be the biggest near-term beneficiaries
of this burgeoning trend. While some pharmaceutical companies have
made significant investments in this area - notably Roche with its
acquisition of Flatiron last year - we think that most companies
will look to out-source the analysis of RWD.
Companies such as Iqvia and PRA Health Sciences, which are both
major suppliers of clinical research services to the pharmaceutical
industry, have been building access and analytical tools over the
last few years to enable their customers to generate RWE. In
addition, the strategic rationale behind LabCorp's acquisition of
Covance five years ago was initially to diversify into the CRO
market but it is now using RWD from its diagnostic division to
drive patient recruitment and design clinical trials. It is also
worth noting that Dassault's $5.7 billion acquisition of Medidata
was driven in large part by the historical clinical trial data-sets
that Medidata had accumulated - especially in oncology.
The CROs that have been quietly building analytical capabilities
and making significant investments in RWD look well set to exploit
new revenue opportunities from this new market segment.
OUTLOOK
Fundamentals for the healthcare sector remain robust with good
sales and earnings strength relative to other areas of the market
(8% 2019 vs 2018 earnings growth in the MSCI ACWI Health Care Index
vs 1% for MSCI ACWI Index (in local currency); Source: Citi
Research and Factset Consensus Data, 29 November 2019. Please note
these figures are estimates). Medical device companies continue to
enjoy the benefits of a significant cycle of new products, whilst
large capitalisation pharmaceutical companies are attractively
valued, generating significant free cash flow and carrying high
dividend yields. Life science tools and services companies are
delivering strong growth, particularly those with exposure to
biotechnology products as outsourcing trends continue. The
biotechnology sector continues to innovate with new technologies
such as gene and cell therapy creating exciting new platforms for
growth. These fundamentals should persist over the years ahead,
generating attractive returns for investors. M&A should also
continue in an industry that remains highly fragmented and thus
needs to consolidate to become more efficient.
The top-down outlook appears challenging for the global economy
with leading indicators suggesting a negative short/mid-term
outlook. Whilst trade wars have negatively impacted global growth,
this economic cycle is now quite long in the tooth. The challenging
data is likely to persist in the near term, with employment figures
remaining key. The outlook for the end of 2019 and into 2020 is
supportive for large cap healthcare stocks based on their defensive
growth profile, strong balance sheets and commitment to
innovation.
Smaller healthcare companies relevant to the innovation
portfolio, are more sensitive to the difficult macroeconomic
backdrop. With a relatively conservative outlook for markets
heading into 2020, the portfolio exposure to these types of
companies is mid-range, waiting for further opportunities which
should present themselves over the months ahead.
Despite the sound fundamentals, sentiment for the healthcare
sector remains cautious. Healthcare and biotech exchange traded
funds ('ETFs') flows have been persistently negative which offers a
strong contrarian buy signal, while valuations relative to the
market are in line with lows of previous episodes of fear around
the sector. The reason for such negativity is the political outlook
in the US. This issue becomes significant every four years, but
concern is only really magnified when healthcare policy is an
important part of the electoral debate. When this happens,
sentiment becomes extreme like it did in 2008 and like it is at
present.
Having experienced many of these sentiment cycles around
politics, one needs to recall how fearful behaviour from investors
can be a buying opportunity. The greatest fears never come to pass
but more likely lead to changes in the healthcare system that
create an environment for winners and losers from an investor
perspective. This will likely be the same again, with the market
appearing to discount worst-case risks and fears ahead for 2020.
Anything that goes the sector's way over the next year will likely
justify a significant positive re-rating for stocks sitting at
significant discounts. Further, history would suggest that
investors in healthcare who are willing to invest when others are
fearful, could be handsomely rewarded in the medium-term.
James Douglas & Gareth Powell
Co-Managers
19 December 2019
PORTFOLIO REVIEW
Full Portfolio as at 30 September 2019
Ranking Stock Sector Country Market Value % of total
GBP'000 net assets
2019 2018 2019 2018 2019 2018
----- --------------------- ------------------- --------------- --------- ------- --------- ------
1 (5) Merck & Co Pharmaceuticals United States 18,235 13,677 6.3% 4.6%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
2 (-) Sanofi Pharmaceuticals France 14,896 - 5.2% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
3 (16) Novo Nordisk Pharmaceuticals Denmark 13,763 9,093 4.8% 3.1%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
4 (17) Abbott Laboratories Equipment United States 10,863 9,001 3.8% 3.0%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
5 (27) Eli Lilly Pharmaceuticals United States 10,606 5,430 3.7% 1.8%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Koninklijke Healthcare
6 (-) Philips Equipment Netherlands 10,518 - 3.6% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
7 (23) Danaher Equipment United States 10,211 6,615 3.5% 2.2%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
8 (-) Cigna Services United States 9,612 - 3.3% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
9 (13) Grifols Biotechnology Spain 9,611 9,505 3.3% 3.2%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Life Sciences
10 (24) Bio-Rad Tools & Services United States 8,977 6,359 3.1% 2.1%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Top 10 investments 117,292 40.6%
------------------- --------------- --------- ------- --------- ------
Intuitive Healthcare
11 (-) Surgical Equipment United States 8,957 - 3.1% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
12 (8) HCA Healthcare Facilities United States 8,758 11,419 3.0% 3.9%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
13 (-) Abbvie Biotechnology United States 8,602 - 3.0% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
14 (-) Boston Scientific Equipment United States 8,598 - 3.0% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
15 (22) Incyte Biotechnology United States 8,193 7,010 2.8% 2.3%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
16 (-) Genmab Biotechnology Denmark 8,184 - 2.8% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
PRA Health Life Sciences
17 (19) Sciences Tools & Services United States 8,081 8,409 2.8% 2.8%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
18 (20) Becton Dickinson Equipment United States 7,961 8,208 2.8% 2.8%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Life Sciences
19 (7) Agilent Technologies Tools & Services United States 7,462 12,331 2.6% 4.2%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
20 (-) Horizon Pharma Pharmaceuticals United States 7,375 - 2.6% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Top 20 investments 199,463 69.1%
------------------- --------------- --------- ------- --------- ------
21 (4) Novartis Pharmaceuticals Switzerland 7,314 14,728 2.5% 5.0%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
22 (-) Baxter International Equipment United States 7,022 - 2.4% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
23 (-) Anthem Managed Healthcare United States 6,802 - 2.4% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
24 (-) Laboratory Services United States 6,796 - 2.4% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Life Sciences
25 (-) IQVIA Tools & Services United States 6,624 - 2.3% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Varian Medical Healthcare
26 (-) Systems Equipment United States 6,202 - 2.2% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
27 (-) Edwards Lifesciences Equipment United States 6,170 - 2.1% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Life Sciences
28 (-) Perkinelmer Tools & Services United States 6,078 - 2.1% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
29 (-) Hill-Rom Equipment United States 5,888 - 2.0% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
30 (-) Teleflex Equipment United States 5,765 2.0% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Top 30 investments 264,124 91.5%
------------------- --------------- --------- ------- --------- ------
Healthcare
31 (-) DexCom Equipment United States 5,211 - 1.8% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
32 (15) Humana Managed Healthcare United States 4,936 9,446 1.7% 3.1%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
33 (29) Quotient Supplies United Kingdom 4,767 5,823 1.7% 1.9%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
34 (26) Consort Medical Equipment United Kingdom 3,567 5,555 1.3% 1.9%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
35 (-) Recordati Pharmaceuticals Italy 3,046 - 1.1% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Tandem Diabetes Healthcare
36 (-) Care Equipment United States 2,834 - 1.0% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
37 (32) Oxford Immunotec Equipment United Kingdom 2,694 2,483 0.9% 0.8%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
38 (-) Zealand Pharma Biotechnology Denmark 2,678 - 0.9% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
39 (-) Otsuka Pharmaceuticals Japan 2,423 - 0.8% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Renalytix Healthcare
40 (-) AI Equipment United Kingdom 2,405 - 0.8% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Top 40 investments 298,685 103.5%
------------------- --------------- --------- ------- --------- ------
Intelligent
Ultrasound
(previously Healthcare
41 (45) MedaPhor) Technology United Kingdom 2,043 827 0.7% 0.3%
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
42 (-) Ship Healthcare Distributors Japan 1,878 - 0.7% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
43 (-) Korian Medica Facilities France 1,838 - 0.6% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Healthcare
44 (-) Penumbra Equipment United States 1,380 - 0.5% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
45 (-) Ra Pharmaceuticals Biotechnology United States 1,375 - 0.5% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
46 (-) BELLUS Health Biotechnology Canada 1,116 - 0.4% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Kalvista
47 (-) Pharmaceuticals Biotechnology United States 678 - 0.2% -
----- --------------------- ------------------- --------------- --------- ------- --------- ------
Total Equities 308,993 107.1%
------------------- --------------- --------- ------- --------- ------
Other Net Liabilities (20,546) (7.1%)
------------------- --------------- --------- ------- --------- ------
Net Assets 288,447 100.0%
------------------- --------------- --------- ------- --------- ------
Note - Sectors are from the GICS (Global Industry Classification
Standard).
30 September 30 September
Geographical Exposure at 2019 2018
----------------------------------- ---------------- -------------
United States 75.0% 69.5%
Denmark 8.5% 3.1%
France 5.8% -
United Kingdom 5.4% 11.6%
Netherlands 3.6% -
Spain 3.3% 3.2%
Switzerland 2.5% 5.0%
Japan 1.5% 4.8%
Italy 1.1% 0.6%
Canada 0.4% -
Ireland - 9.1%
Sweden - 0.8%
Norway - 0.4%
Other net liabilities (7.1%) (8.1%)
---------------- -------------
Total 100.0% 100.0%
================ =============
30 September 30 September
Sector Exposure at 2019 2018
----------------------------------- ---------------- -------------
Healthcare Equipment 36.8% 20.3%
Pharmaceuticals 27.0% 33.2%
Biotechnology 13.9% 22.8%
Life Sciences Tools & Services 12.9% 9.9%
Healthcare Services 5.7% 3.4%
Managed Healthcare 4.1% 11.4%
Healthcare Facilities 3.6% 3.9%
Healthcare Supplies 1.7% 2.0%
Healthcare Technology 0.7% 0.9%
Healthcare Distributors 0.7% -
Education Services - 0.3%
Other net liabilities (7.1%) (8.1%)
Total 100.0% 100.0%
================ =============
30 September 30 September
Market Cap at 2019 2018
----------------------------- --------------- -------------
Large (>US$5bn) 96.9% 95.1%
Medium (US$1bn - US$5bn) 3.3% 3.2%
Small (<US$1bn) 6.9% 9.8%
Other net liabilities (7.1%) (8.1%)
100.0% 100.0%
=============== =============
STRATEGIC REPORT
The information provided in the Chairman's Statement, the
Investment Manager's Report, including information on the
portfolio, and this report comprise the Strategic Report.
The Strategic Report has been prepared to provide information to
Shareholders on the Company's strategies and potential for those
strategies to succeed, including a fair review of the performance
of the Company during the year ended 30 September 2019, and a
description of the principal risks and uncertainties faced by the
Company. Throughout the Strategic Report there are certain forward
looking statements; these statements are made by the Directors in
good faith based on the information available to them at the time
of their approval of this Report. Such statements should be treated
with caution due to inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking
information.
The Board remains positive on the outlook for healthcare and the
Company will continue to pursue its Investment Objective in
accordance with the stated investment policy and strategy. Future
performance is dependent to a significant degree on the world's
financial markets and their reactions to economic events and other
geo-political forces. The Chairman's Statement and the Investment
Manager's Report comment on the development and performance of the
business during the financial year, the outlook and potential risks
to the performance of the portfolio.
HISTORY
In June 2017 a reconstruction of the Company and change in
investment mandate was implemented having been approved by
Shareholders. Further information is provided within the Additional
Information in the full Annual Report and Financial Statements and
on the Company's website www.polarcapitalhealthcaretrust.co.uk
Following the reconstruction, the Articles of Association
require the Directors to put forward at the first Annual General
Meeting to be held after 1 March 2025, a resolution for the
voluntary winding up of the Company and the appointment of a
liquidator. Members voting in favour, whether in person or by
proxy, shall collectively have sufficient votes, irrespective of
number, to pass the resolution.
BUSINESS MODEL AND REGULATORY ARRANGEMENTS
The business model of the Company follows that of an externally
managed, London Stock Exchange listed investment trust. The Company
is designated an Alternative Investment Fund ('AIF') under the
Alternative Investment Fund Management Directive ('AIFMD') and, as
required by the Directive, has contracted with Polar Capital LLP to
act as the Alternative Investment Fund Manager ('AIFM') and HSBC
Bank Plc to act as the Depositary.
Both the AIFM and the Depositary have responsibilities under
AIFMD for ensuring that the assets of the Company are managed in
accordance with the investment policy and are held in safe custody.
The Board remains responsible for setting the investment strategy
and operational guidelines as well as meeting the requirements of
the applicable UK and European legislation including the Financial
Conduct Authority ('FCA') Listing Rules. Statements from the AIFM
and the Depositary can be found on the Company's website.
The Company seeks to manage its portfolio in such a way as to
meet the tests in Section 1158 and 1159 of the Corporation Tax Act
2010 (as amended by Section 49(2) of the Finance Act 2011) and
continue to qualify as an investment trust. This qualification
permits the accumulation of capital within the portfolio without
any liability to UK Capital Gains Tax. Further information is
provided in the Directors' Report. The Company has no employees or
premises and the Board is comprised of non-executive directors. The
day to day operations and functions of the Group and Company have
been delegated to third parties.
INVESTMENT OBJECTIVE
The Company's Investment Objective is to generate capital growth
by investing in a global portfolio of healthcare stocks across all
four healthcare sub-sectors, being pharmaceuticals, biotechnology,
medical technology and healthcare services.
INVESTMENT POLICY
The Company will seek to achieve its objective by investing in a
diversified global portfolio consisting primarily of listed
equities. The portfolio is diversified by geography, industry
sub-sector and investment size.
The portfolio will comprise a single pool of investments, but
for operational purposes, the Investment Manager will maintain a
growth portfolio and an innovation portfolio. The growth portfolio
is expected to comprise the majority of the Company's assets; for
this purpose, once an innovation stock's market capitalisation has
risen above US $5bn, it will ordinarily then be treated as a growth
stock. Innovation companies are broadly defined by the Investment
Manager as small/mid cap innovators that are driving disruptive
change, giving rise not only to new drugs and surgical treatments
but also to a transformation in the management and delivery of
healthcare.
The relative ratio between the two portfolios may vary over the
life of the Company due to factors such as asset growth and the
Investment Manager's views as to the risks and opportunities
offered by investments in each pool and across the combined
portfolio. While there is no restriction on geographical exposure,
the majority of the companies in the growth portfolio will be US
listed or traded and/or headquartered in the US, although this may
also change over the life of the Company.
It was originally anticipated that the number of investments
would be limited to 50 however, to enhance fund management
flexibility, in 2018, the Board authorised an increase to a maximum
of 65 investments.
The combined portfolio will therefore be made up of interests in
up to 65 companies, with no single investment accounting for more
than 10% (or 15% in the case of an investment in another fund
managed by the Investment Manager) of the Gross Assets at the time
of investment. The innovation portfolio may include stocks which
are neither quoted nor listed on any stock exchange but the
exposure to such stocks, in aggregate, will not exceed 5% of Gross
Assets at the time of investment. In the event that the Investment
Manager launches a dedicated healthcare innovation fund, the
Company's exposure to innovation stocks may be achieved, subject to
Board approval and a limit of 15% in whole or in part by an
investment in that fund.
STRATEGY
As the day to day management of the Company is outsourced to
external service providers the Board's primary focus at each
meeting is on investment performance, including the outlook and
strategy. The Board also considers the management and provision of
services received from third-party service providers and the risks
inherent in the various matters reviewed and discussed.
The Investment Manager's investment process is primarily based
on bottom-up fundamental analysis. The Investment Manager uses a
qualitative filter consisting of six key criteria to build up a
watch-list of securities that is monitored on a regular basis. Due
diligence is then carried out on the individual securities on the
watch-list. Each individual holding is assessed on its own merits
in terms of risk:reward. While the Company expects normally to be
fully or substantially invested, the Company may hold cash or money
market instruments pending deployment in the portfolio. In
addition, it will have the flexibility, when the Investment Manager
perceives there to be actual or expected adverse equity market
conditions, to maintain cash holdings as it deems appropriate.
SERVICE PROVIDERS
Polar Capital LLP has been appointed to act as the Investment
Manager and AIFM as well as to provide or procure company
secretarial services and administrative services, including
accounting, portfolio valuation and trade settlement which it has
arranged to deliver through HSBC Securities Services.
The Company also contracts directly, on terms agreed
periodically, with a number of third parties for the provision of
specialist services:
-- Panmure Gordon & Co as corporate broker;
-- Herbert Smith Freehills LLP as solicitors;
-- Equiniti Limited as the share registrar;
-- PricewaterhouseCoopers LLP as independent Auditors; and
-- Emperor as internet service provider including website
design, designers and printers for Shareholder communications.
GEARING
Following the restructure of the Company in June 2017, the
Company maintains long-term structural gearing in the form of a
loan from the wholly owned subsidiary PCGH ZDP Plc. No short-term
borrowings have been made and there are no arrangements made for
any bank loans. The Articles of Association provide that the
Company may borrow up to 15% of its Net Asset Value at the time of
drawdown, for tactical deployment when the Board believes that
gearing will enhance returns to Shareholders.
BENCHMARK
The Company measures the Investment Manager's performance
against the MSCI ACWI Health Care Index total return, in sterling
with dividends reinvested. The portfolio may diverge substantially
from the constituents of this index. Although the Company has a
benchmark, this is neither a target nor an ideal investment
strategy. The purpose of the Benchmark is to set a reasonable
return for Shareholders above which the Investment Manager is
entitled to a share of the extra performance it has delivered.
PERFORMANCE AND KEY PERFORMANCE OBJECTIVES
The Board appraises the performance of the Company and the
Investment Manager as the key supplier of services to the Company
against key performance indicators ('KPIs'). The objectives
comprise both specific financial and Shareholder related measures
including:
OBJECTIVE CONTROL PROCESS KPI/OUTCOME
THE PROVISION OF INVESTMENT At each meeting the The Company's NAV total
RETURNS TO SHAREHOLDERS Board reviews the return, over the year
MEASURED BY LONG- performance of the ended 30 September 2019,
TERM NAV TOTAL RETURN portfolio and considers was -1.24% while the benchmark
RELATIVE TO THE BENCHMARK the views of the Investment index over the same period
INDEX. Manager. increased by 3.14%. The
Company's performance
The Board also considers is explained in the Investment
the value delivered Manager's Report.
to Shareholders through
NAV growth and dividends Since restructuring on
paid. 20 June 2017, the total
return of the NAV was
11.69% and the benchmark
was 16.69%.
------------------------------- ----------------------------------
THE ACHIEVEMENT OF Financial forecasts Two dividends have been
THE DIVID POLICY. are reviewed to track paid or are payable in
income and distributions. respect of the year ended
30 September 2019 totalling
2.10p per share (2018:
two dividends totalling
2.0p per share) an increase
of 5% over the prior year.
Payments were in line
with the dividend policy.
------------------------------- ----------------------------------
MONITORING AND REACTING The Board receives The discount of the Ordinary
TO ISSUES CREATED regular information share price to the NAV
BY THE DISCOUNT OR on the composition per Ordinary share at
PREMIUM OF THE ORDINARY of the share register the year ended 30 September
SHARE PRICE TO THE including trading 2019 was 8.0% (2018: 7.8%).
NAV PER ORDINARY SHARE patterns and discount/premium
WITH THE AIM OF REDUCED levels of the Company's During the year ended
DISCOUNT VOLATILITY Ordinary shares. The 30 September 2019, the
FOR SHAREHOLDERS. Board discusses and Company bought back 700,000
authorises the issue Ordinary shares into treasury,
or buy back of shares no shares were issued.
when appropriate. The number of shares in
issue, at the year end
A daily NAV per share, was 124,149,256 of which
calculated in accordance 2,379,256 were held in
with the AIC guidelines treasury. Since the year
is issued to the London end, a further 500,000
Stock Exchange. shares have been bought
back and placed in treasury.
------------------------------- ----------------------------------
TO CONTINUE TO MEET The Board receives The Company was granted
THE REQUIREMENTS FOR regular financial investment trust status
SECTIONS 1158 AND information which annually up to 1 October
1159 OF THE CORPORATION discloses the current 2014 and is deemed to
TAX ACT 2010. and projected financial be granted such status
position of the Company by for each subsequent
against each of the year subject to the Company
tests set out in Sections continuing to satisfy
1158 and 1159. the conditions of Section
1158 of the Corporation
Tax Act 2010 and other
associated ongoing requirements.
------------------------------- ----------------------------------
TO CONTROL AND MONITOR The Board receives Ongoing charges for the
ONGOING CHARGES. regular financial year ended 30 September
information which 2019 were 1.01%, compared
discloses expenses to 1.08% the previous
against budget. year.
------------------------------- ----------------------------------
In addition to the above performance objectives the Investment
Manager and Directors use a variety of financial alternative
performance measures ('APMs') to assess the performance of the
Company. See below.
Principal Risks and Uncertainties
The Board is responsible for the management of risks to the
Company in delivering long-term returns to Shareholders. The
identification, monitoring and appraisal of the risks, any
mitigating factors and control systems is crucial.
The Board has carried out a robust assessment of the risks faced
by the Company and maintains a risk map which separates the
principal risks into four main risk categories, business, portfolio
management, infrastructure and external. The risk map details each
identified risk and any factors, both internal and external, that
could provide mitigation, as well as outlining a reporting
structure to monitor the risks as far as practical.
The risk map is regularly considered to monitor existing
principal risks and identify new or emerging risks and any
developments or additions to the controls and reporting
environment.
PRINCIPAL RISKS AND MANAGEMENT OF RISKS THROUGH MITIGATION &
UNCERTAINTIES CONTROLS
BUSINESS
---------------------------------------------
The Board seeks to mitigate the impact of
* Failure to achieve Investment Objective. such risks through the regular reporting
and monitoring of the Company's investment
performance against its peer group,
benchmark
* Investment performance below agreed benchmark and other agreed indicators of relative
objective or market/industry average. performance.
For months when the Board is not scheduled
to meet they receive a monthly report
* Possible loss of liquidity in shares and shrinkage in containing
assets. financial information on the Company
including
gearing and cash balances.
* Loss of portfolio manager or other key staff. Performance and strategy are reviewed
throughout
the year at regular Board meetings where
the Board can challenge the Investment
* Persistent excessive share price discount to NAV. Manager.
They also receive a monthly commentary from
the Investment Manager published in the
factsheets
for all the Polar Capital managed healthcare
funds.
The Management Engagement Committee
undertakes
the year-end consideration of the
suitability
of the Investment Manager on the basis of
performance and other services provided.
In consultation with its advisors, including
the corporate stockbroker, the Board
regularly
considers the level of premium and discount
of the share price to the NAV and the Board
reviews ways to enhance Shareholder value
including share issuance and buy backs. The
windup date in 2025 should help to limit
discount volatility.
The Board is committed to a clear
communication
programme to ensure Shareholders understand
the investment strategy. This is maintained
through the use of monthly factsheets which
have a market commentary from the Investment
Manager as well as portfolio data, an
informative
website as well as annual and half year
reports.
The Chairman regularly engages with the
senior
management of the Investment Manager.
---------------------------------------------
Portfolio Management
---------------------------------------------
The Board has set appropriate guidelines
* While the portfolio is diversified across a number of and monitors the position of the portfolio
stock markets worldwide, the investment mandate is against exposures to certain investment
focused on healthcare and thus the portfolio will be markets
more sensitive to investor sentiment and the and sectors. At each meeting the Board
commercial acceptance of healthcare developments than discusses
a general investment portfolio. developments in healthcare and drug
pipelines
with the Investment Manager.
* As the Company's assets comprise mainly listed At each meeting the composition and
equities the portfolio is exposed to risks such as diversification
market price, credit, liquidity, foreign currency and of the portfolio by geographies, sectors
interest rates. and capitalisation are considered along with
sales and purchases of investments.
Individual
investments are discussed with the
* The portfolio is actively managed. The Investment Investment
Manager's style focuses primarily on the investment Manager as well as the Investment Manager's
opportunity of individual stocks and, accordingly, general views on the various investment
may not follow the makeup of the benchmark. This may markets
result in returns which are not in line with the and the healthcare sector in particular.
benchmark.
Analytical performance data and attribution
analysis is presented by the Investment
Manager.
* Execution of unauthorised trade / dealing error.
The policies for managing the risks posed
by exposure to market prices, interest
* Gearing, either structural gearing through the issue rates,
of ZDP shares by the wholly owned subsidiary, PCGH foreign currency exchange rates, credit and
ZDP Plc, or through bank debt or the use of liquidity are set out in Note 26 to the
derivatives may be utilised from time to time. Whilst financial
the use of gearing is intended to enhance the NAV statements.
total return, it will have the opposite effect when
the return on the Company's investment portfolio is The Investment Policy and Board guidelines
negative. are encoded into Polar Capital's dealing
system and trades are monitored by Polar
Capital's compliance department. Each trade
is matched electronically between the
* The ability to fund dividends is impaired due to transacting
currency risk exposure. broker and the Company's administrator,
before
settlement at the custodian. Polar Capital
also has a policy to compensate clients for
* Income is less than expected due to currency exposure any losses, and to pass on any profit,
underlying the portfolio. incurred
by Polar Capital as a result of dealing
errors
or unauthorised trades.
* Level of dividend is lower than intended.
The Board considered the benefits and
drawbacks
of the structural debt at the time of
restructuring
and concluded that the ability to lock-in
an effective interest rate of 3% pa for the
7-year life would be beneficial to
investment
returns, the Board remains of the same
belief.
The asset cover necessary to repay the ZDP
shares is reviewed at each Board meeting.
If any flexible gearing is contemplated the
Board would agree the overall levels of
gearing
with the AIFM. The arrangement of bank
facilities
and drawing of funds under such arrangements
are controlled by the Board. Derivatives
are considered as being a form of gearing
and a policy for their use has been agreed
by the Board. The deployment of any borrowed
funds is based on the Investment Manager's
assessment of risk and reward.
The Board monitors currency exposure through
monthly management accounts and discussion
and currency hedging takes place if
appropriate.
Investors have sight of the entire portfolio
and geographic exposure to investments.
---------------------------------------------
Infrastructure
---------------------------------------------
At each Board meeting there is an
* There are risks, including those stemming from administration
breaches of cyber security, resulting in the failure report which provides details on general
of, or disruption to, operational and accounting corporate matters including legislative and
systems and processes provided by the Investment regulatory developments and changes in
Manager including any subcontractors to which the substantial
Investment Manager has delegated a task as well as shareholdings.
directly appointed suppliers.
There is an annual review of suppliers and
their internal control reports which
includes
* The misvaluation of investments or the loss of assets the disaster recovery procedures of the
from the custodian or sub custodians which impact the Investment
NAV per share or lead to a loss of Shareholder value. Manager.
The Investment Manager reports on cyber
security
* The Company may fail to continue as an investment for its own systems and comments where
trust and suffer capital gains tax or fail to recover appropriate
as fully as possible withholding taxes on overseas on third party suppliers.
investments.
Regular reporting from the Depositary on
the safe custody of the Company's assets
and the operation of control systems related
* The legal and regulatory risks include failure to to the portfolio reconciliation are
comply with the FCA's Prospectus Rules, Listing Rules monitored.
and Disclosure Guidance and Transparency Rules; not
meeting the provisions of the Companies Act 2006 and Specialist advice is sought on taxation
other UK, European and overseas legislation affecting issues
UK companies and not complying with accounting as and when required. The Audit Committee
standards. Further risks arise from not keeping has oversight on such work.
abreast of changes in legislation and regulations
which have in recent years been substantial. Information and guidance on legal and
regulatory
risks is managed by using the Investment
Manager or professional advisers where
* As an investment company, the Company is dependent on necessary
a framework of tax laws, regulation (both UK and EU) and the submission of reports to the Board
and company law. for discussion and, if required, any
remedial
action or changes considered necessary.
The Board monitors new developments and
changes
in the regulatory environment and seeks to
ensure that both their impact on the Company
is understood and their requirements are
complied with.
---------------------------------------------
External
---------------------------------------------
The Board regularly discusses the general
* There is significant exposure to the economic cycles economic conditions and developments.
of the markets in which the underlying investments
conduct their business operations as well as the The impact on the portfolio from Brexit and
economic impact on investment markets where such other geopolitical changes including the
investments are listed. trade war between the US and China are
reviewed
and discussed. While it is difficult to
quantify
the impact of such changes, it is not
anticipated
that they will fundamentally affect the
business
of the Company or make healthcare investing
any less desirable.
---------------------------------------------
MANAGEMENT COMPANY AND MANAGEMENT OF THE PORTFOLIO
As the Company is an investment vehicle for Shareholders, the
Directors have sought to ensure that the business of the Company is
managed by a leading specialist investment management team and that
the investment strategy remains attractive to Shareholders. The
Directors believe that a strong working relationship with Polar
Capital LLP (the Investment Manager) will achieve the optimum
return for Shareholders and the Board and Investment Manager
operate in a supportive, co-operative and open environment.
The Company has an investment management agreement ('IMA') with
the Investment Manager to act as Investment Manager and AIFM of the
Company. The Investment Manager has responsibility for the
discretionary management of the Company's assets (including
uninvested cash) and sole responsibility to take decisions as to
the purchase and sale of individual investments. The Investment
Manager also has responsibility for asset allocation and sector
selection within the limits of both the investment policy and the
guidelines established and regularly reviewed by the Board. The
activities of the Investment Manager are subject to the overall
control and supervision of the Board.
The Investment Manager has other resources which support the
investment team and has experience in managing and administering
other investment trust companies. The Investment Manager also
provides or procures accountancy services, company secretarial
support and day to day administrative services including the
monitoring of third-party suppliers which are directly appointed by
the Company. The Investment Manager has, with the consent of the
Directors, delegated the provision of certain of these
administrative
functions to HSBC Securities Services and to Polar Capital
Secretarial Services Limited.
Information is provided to the Directors in a timely manner
covering all relevant management, regulatory and financial
information. The Board has a report from the investment team at
each meeting and representatives of the Investment Manager attend
Board meetings, enabling the Directors to probe further on matters
of interest or seek clarification where necessary.
While the Board reviews the performance of the Investment
Manager at each Board meeting and the Company's performance against
the benchmark and the Investment Objective, the Management
Engagement Committee formally carries out the annual review of the
IMA and the continued appointment of the Investment Manager.
INVESTMENT TEAM
The Investment Manager provides a team of healthcare specialists
and the portfolio is managed by Dr James Douglas and Mr Gareth
Powell.
TERMINATION ARRANGEMENTS
The IMA is terminable by either the Investment Manager or the
Company giving to the other not less than 12 months' written
notice. The IMA may be terminated earlier by the Company with
immediate effect on the occurrence of certain events, including: if
an order has been made or an effective resolution passed for the
liquidation of the Investment Manager; (ii) if the Investment
Manager ceases or threatens to cease to carry on its business;
(iii) where the Company is required to do so by a relevant
regulatory authority; (iv) on the liquidation of the Company; or
(v) subject to certain conditions, where the Investment Manager
commits a material breach of the IMA.
In the event the IMA is terminated before the expiry of the
Company's fixed life then, except in the event of termination by
the Company for certain specified causes, the base fee and the
performance fee will be calculated pro rata for the period up to
and including the date of termination.
FEE ARRANGEMENTS
MANAGEMENT FEE
Under the terms of the IMA, the Investment Manager will be
entitled to a management fee together with reimbursement of
reasonable expenses incurred by it in the performance of its
duties. The management fee is payable monthly in arrears and will
be at the rate of 0.85% per annum of the lower of the Group's
market capitalisation and the Company's adjusted Net Asset Value on
the relevant day.
In accordance with the Directors' policy on the allocation of
expenses between income and capital, in each financial year 80% of
the management fee payable is charged to capital and the remaining
20% to income.
PERFORMANCE FEE
The Investment Manager may be entitled to a performance fee. The
performance fee was reset at the date of reconstruction of the
Company and will be paid in cash at the end of the Company's
expected life (except in the case of an earlier termination of the
IMA). The performance fee will be an amount equal to 10% of the
excess total return (based on the Adjusted Net Asset Value per
Ordinary share at that time) over the total return of the benchmark
plus 1.5% compounded annually on each anniversary of share
admission and adjusted for periods of less than 12 months.
For the purposes of calculating the performance fee, the
Company's Adjusted Net Asset Value will be based on the Net Asset
Value adjusted by the amount of any dividends paid by the Company
deemed to have been reinvested on the date of payment in Ordinary
shares at their Net Asset Value (on such date) and the resulting
amount added to the Company's Net Asset Value.
If at the end of the Company's expected life the amount
available for distribution to Shareholders is less than 215.9p per
Ordinary share, no performance fee will be payable. If the amount
is more than 215.9p per Ordinary share but payment of the
performance fee in full would reduce it below that level, then the
performance fee will be reduced such that Shareholders receive
exactly 215.9p per share.
No performance fee has been paid or accrued since inception and
up to 30 September 2019.
CORPORATE RESPONSIBILITY - ENVIRONMENTAL, SOCIAL, GOVERNANCE
(ESG)
SOCIALLY RESPONSIBLE INVESTING AND EXERCISING OF VOTING
POWERS
The Board requires the Investment Manager to have regard to
underlying ESG issues when selecting stocks in which to invest. The
Investment Manager has an ESG policy (which is available on the
Polar Capital website); the Investment Manager utilises agency
rating reports along with industry intelligence, team expertise and
research when considering whether to invest in a company. The Board
has also considered the Investment Manager's Stewardship Code and
Proxy Voting Policy. The Proxy Voting Policy directs the Investment
Manager to vote at all general meetings of companies in line with
Institutional Shareholder Services ('ISS') policy. However, in
exceptional cases, where the Investment Manager believes that the
ISS policy would be detrimental to the interests of Shareholders or
the financial performance of the Company, the Investment Manager
has discretion to vote contrary to the ISS policy. This Policy
changed during the financial year, as the prior default instruction
had been for the Investment Manager to vote at all general meetings
of companies in favour of management's recommendation.
The Investment Manager has voted at 48 company meetings over the
year ended 30 September 2019, with 11.5% of all votes being against
management and 46% of meetings having at least one against or
withheld vote. The Investment Manager reports to the Board, when
requested, on the application of the Stewardship Code and Proxy
Voting Policy, both of which can be found on Polar
Capital's website (www.polarcapital.co.uk).
The Company's core activities are undertaken by its Investment
Manager which seeks to limit the use of non-renewable resources and
reduce waste where possible.
The Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013 require companies listed on the Main Market of the
London Stock Exchange to report on the greenhouse gas ('GHG')
emissions for which they are responsible. The Company is an
investment trust, with neither employees nor premises, nor has it
any financial or operational control of the assets which it owns.
Consequently, it has no GHG emissions to report from its operations
nor does it have responsibility for any other emissions.
DIVERSITY AND GER REPORTING
The Company has no employees and at the year end the Board
comprised one female and three male non-executive directors.
In the recruitment process for non-executive directors, when
compiling a shortlist of candidates and selecting individuals for
interview, the Board had regard to the benefits of diversity,
including gender, but will ultimately seek to ensure directors
appointed to the Board are chosen on merit. Both Andrew Fleming and
Jeremy Whitley, appointed 1 December 2019, were chosen as the most
appropriate candidates for the Board based on their experience and
complementary skillsets with each other and the current Board.
The Company has not adopted a policy on human rights as it has
no employees or operational control of its assets.
MODERN SLAVERY ACT
As an investment company, the Company does not provide goods or
services in the normal course of business and does not have any
customers. Accordingly, it is considered that the Company is not
required to make any slavery or human trafficking statements under
the Modern Slavery Act 2015.
ANTI-BRIBERY, CORRUPTION AND TAX EVASION
The Board has adopted a zero-tolerance policy (available on the
Company's website) to bribery, corruption and the facilitation of
tax evasion in its business activities. The policy uses the
principles of the policies formulated and implemented by the
Investment Manager and expects the same standard of zero-tolerance
to be adopted by third party service providers with which the
Company conducts business.
The Company has implemented a conflicts of interest policy to
which the Directors must adhere, in the event of divergence between
the Investment Manager's policy and the Company's policy the
Company's policy shall prevail. The Company is committed to acting
with integrity and in the interests of Shareholders.
DIRECTORS' DUTIES - s172 STATEMENT
The statutory duties of the Directors are listed in s171-177 of
the Companies Act 2006. Under s172, directors have a duty to
promote the success of the Company for the benefit of its
Shareholders as a whole, and in doing so to have regard to the
consequences of any decision in the long term, as well as having
regard to the Company's stakeholders amongst other
considerations.
The fulfilment of this duty not only helps the Company achieve
its investment objective but ensures decisions are made in a
responsible and sustainable way for Shareholders. The Directors
have considered this duty when making the strategic decisions
during the year that affect Shareholders, including monitoring the
Investment Manager's use of gearing, buying back the Company's
shares when appropriate and completing the second phase of the
Board refresh. The Board has also sought to better understand the
views of both Shareholders and stakeholders.
Accordingly, the Directors have attended several industry events
to meet with Shareholders and prospective investors, as well as
meeting the Company's service providers. For the first time,
Shareholders will also have the opportunity to consider the
Company's dividend policy, approval of which will be sought by way
of ordinary resolution at the Company's AGM on 26 February 2020
(further details can be found in the Directors' Report). The Board
views the understanding of Shareholder's views as essential in
fulfilling its duty under s172 and welcomes the opportunity to meet
and speak with Shareholders. Shareholders are therefore encouraged
to attend the Company's AGM or contact the Directors via the
Company Secretary.
Approved by the Board on 19 December 2019
By order of the Board
TRACEY LAGO, FCG
POLAR CAPITAL SECRETARIAL SERVICES LIMITED
COMPANY SECRETARY
19 December 2019
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report,
the Directors' Remuneration Report and the Group and Company
Financial Statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare the Group and
Company Financial Statements for each financial year. Under that
law the Directors have prepared the Group and Company Financial
Statements in accordance with International Financial Reporting
Standards ('IFRSs') as adopted by the European Union.
Under company law, the Directors must not approve the Group and
Company Financial Statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and
Company and of the profit or loss of the Group and Company for that
period. In preparing these financial statements, the Directors are
required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
- assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern;
and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the Group and Company Financial Statements and
the Directors' Remuneration Report comply with the Companies Act
2006 and, as regards the Group and Company Financial Statements,
Article 4 of the IAS Regulations. They are also responsible for
safeguarding the assets of the Group and Company and hence for
taking reasonable steps for the prevention and detection of fraud
and other irregularities. The Directors are responsible for such
internal control as they determine necessary to enable the
preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
The Directors consider that the Annual Report including the
Group and Company Financial Statements taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Group and Company's performance,
business model and strategy. Under applicable law and regulations,
the Directors are responsible for preparing a Strategic Report,
Report of the Directors, Directors' Remuneration Report and a
Corporate Governance Statement that are each compliant with the
associated laws and regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website although day to day maintenance has been
delegated to Polar Capital LLP. Legislation in the United Kingdom
governing the preparation and dissemination of Financial Statements
may differ from legislation in other jurisdictions.
The work carried out by the Auditor does not involve
consideration of these matters and, accordingly, the Auditor accept
no responsibility for any changes that may have occurred to the
Financial Statements since they were initially presented on the
Company's website.
Disclosure of Information to the Auditor
As far as the Directors are aware and to the best of their
knowledge, having made enquiries, there is no relevant audit
information of which the Auditor is unaware and the Directors have
taken steps to make themselves aware of any relevant audit
information and to establish that the Auditor is aware of such
information.
Going Concern
The Board has, through the Audit Committee, considered the Group
and Company's position as at 30 September 2019 and the factors
impacting the forthcoming year are set out in the Chairman's
Statement, the Investment Manager's Report, Strategic Review and in
the Report of the Directors which incorporates the Corporate
Governance Statement.
The financial position of the Group and Company, their cash
flows, and their liquidity position are described in the Strategic
Report and the Financial Statements. Note 26 to the Financial
Statements includes the Group and Company's policies and process
for managing their capital; their financial risk management
objectives and details of financial instruments and hedging
activities. Exposure to credit risk and liquidity risk are also
disclosed.
The Group has a portfolio of investments listed and traded on
stock exchanges around the world, the great majority of which can
be sold within seven working days, providing considerable financial
resources. After making enquiries, the Directors have a reasonable
expectation that the Group and Company have adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the Annual Report and Financial Statements.
Longer-Term Viability
The Board, through the Audit Committee, considered and addressed
the ability of the Company to continue to operate over a longer
period. The work of the Audit Committee in looking at the
longer-term viability is described within the Annual Report.
As an investment company with a liquid portfolio, the majority
of which can be sold within seven working days, limited expenses
which are modest in relation to the asset base of the Company and
no employees, the Directors are of the opinion that the Company can
continue in operation up to its wind-up date expected to be in
March 2025.
Responsibility Statement Under the Disclosure and Transparency
Rules
Each of the Directors in office for the period under review of
Polar Capital Global Healthcare Trust plc, confirm that, to the
best of their knowledge:
- the Financial Statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Company; and
- the Chairman's Statement, Investment Manager's Report,
Strategic Review and Report of the Directors (together constituting
the Management Report) include a fair review of the development and
performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The Financial Statements and the Responsibility Statement were
approved by the Board on 19 December 2019 and James Robinson was
authorised to sign them on behalf of the Board.
James Robinson
Chairman
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2019
Group Group
---------------------------------- ---- ---------------------------- ----------------------------
Year ended Year ended
30 September 2019 30 September 2018
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Investment income 3 4,131 - 4,131 3,877 102 3,979
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other operating income 4 79 - 79 459 - 459
---------------------------------- ---- -------- -------- -------- -------- -------- --------
(Losses)/gains on investments
held at fair value 5 - (3,337) (3,337) - 49,559 49,559
---------------------------------- ---- -------- -------- -------- -------- -------- --------
(Losses) on derivatives - - - - (19) (19)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other currency gains/(losses) 6 - 43 43 - (259) (259)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Total income 4,210 (3,294) 916 4,336 49,383 53,719
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Expenses
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Investment management
fee 7 (503) (2,013) (2,516) (478) (1,910) (2,388)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other administrative
expenses 8 (610) (69) (679) (607) (182) (789)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Total expenses (1,113) (2,082) (3,195) (1,085) (2,092) (3,177)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
(Loss)/profit before
finance costs and tax 3,097 (5,376) (2,279) 3,251 47,291 50,542
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Finance costs 9 (9) (1,037) (1,046) (3) (983) (986)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
(Loss)/profit before
tax 3,088 (6,413) (3,325) 3,248 46,308 49,556
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Tax 10 (535) - (535) (437) (3) (440)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Net (loss)/profit for
the year and total comprehensive
income 2,553 (6,413) (3,860) 2,811 46,305 49,116
---------------------------------- ---- -------- -------- -------- -------- -------- --------
(Loss)/earnings per
Ordinary share (pence) 12 2.09 (5.25) (3.16) 2.29 37.77 40.06
---------------------------------- ---- -------- -------- -------- -------- -------- --------
The total column of this statement represents the Group's
Statement of Comprehensive Income, prepared in accordance with IFRS
as adopted by the European Union.
The revenue return and capital return columns are supplementary
to this and are prepared under guidance published by the
Association of Investment Companies.
The Group does not have any other income or expense that is not
included in net profit/(loss) for the year. The net profit/(loss)
for the year disclosed above represents the Group's total
comprehensive income/(expense).
There are no dilutive securities and therefore the Earnings per
Share and the Diluted Earnings per Share are the same.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
in the year.
The notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2019
Group and Company
Year ended 30 September 2019
----------------- ---- ----------------------------------------------------------------------------------------
Called Capital Special
up share redemption Share premium distributable Capital Revenue
capital reserve reserve reserve reserves reserve Total Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Total equity at
1 October 2018 31,037 6,575 80,685 6,225 169,059 2,682 296,263
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Total comprehensive
(expense)/income:
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
(Loss)/Profit for
the year ended
30 September 2019 - - - - (6,413) 2,553 (3,860)
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Transactions with
owners, recorded
directly to equity:
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Shares bought
back and held
in treasury 20 - - - (1,513) - - (1,513)
----------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Equity dividends
paid 11 - - - - - (2,443) (2,443)
----------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Total equity at
30 September 2019 31,037 6,575 80,685 4,712 162,646 2,792 288,447
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Group and Company
Year ended 30 September 2018
--------------------- ---- ----------------------------------------------------------------------------------------
Called Capital Special
up share redemption Share premium distributable Capital Revenue
capital reserve reserve reserve reserves reserve Total Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Total equity at
1 October 2017 31,037 6,575 80,685 6,754 122,754 2,324 250,129
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Total comprehensive
income:
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Profit for the
year ended 30 September
2018 - - - - 46,305 2,811 49,116
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Transactions with
owners, recorded
directly to equity:
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Shares bought
back and held
in treasury 20 - - - (529) - - (529)
--------------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Equity dividends
paid 11 - - - - - (2,453) (2,453)
--------------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Total equity at
30 September 2018 31,037 6,575 80,685 6,225 169,059 2,682 296,263
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
The notes below form part of these financial statements.
BALANCE SHEETS
As at 30 September 2019
Group Company
----- ------------------------------------ ------------------------------------
30 September 2019 30 September 2018 30 September 2019 30 September 2018
Notes GBP'000 GBP'000 GBP'000 GBP'000
----- ----------------- ----------------- ----------------- -----------------
Non-current assets
Investments held at fair value 13 308,993 320,321 308,993 320,321
Investment in subsidiary 13 - - 50 50
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current assets
Receivables 14 17,237 459 17,237 459
Overseas tax recoverable 693 557 693 557
Cash and cash equivalents 24 6,862 13,851 6,812 13,801
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
24,792 14,867 24,742 14,817
Total assets 333,785 335,188 333,785 335,188
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current liabilities
Payables 15 (10,961) (3,841) (10,961) (3,841)
Bank overdraft 24 (4) (1,712) (4) (1,712)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
(10,965) (5,553) (10,965) (5,553)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Non-current liabilities
Zero dividend preference shares 16 (34,373) (33,372) - -
Loan from subsidiary - - (34,373) (33,372)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total liabilities (45,338) (38,925) (45,338) (38,925)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net assets 288,447 296,263 288,447 296,263
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Equity attributable to equity
Shareholders
Called up share capital 17 31,037 31,037 31,037 31,037
Share premium reserve 19 80,685 80,685 80,685 80,685
Capital Redemption reserve 18 6,575 6,575 6,575 6,575
Special distributable reserve 20 4,712 6,225 4,712 6,225
Capital reserves 21 162,646 169,059 162,646 169,059
Revenue reserve 22 2,792 2,682 2,792 2,682
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total equity 288,447 296,263 288,447 296,263
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net asset value per Ordinary share
(pence) 23 236.88 241.91 236.88 241.91
Net asset value per ZDP share
(pence) 23 106.99 103.87 -- -
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
The parent company has taken advantage of section 408 of the
Companies Act 2006 and has not included its own income statement in
the financial statements. The parent company's loss for the year
was GBP3,860,000 (2018: return of GBP49,116,000).
The financial statements were approved and authorised for issue
by the Board of Directors on 19 December 2019 and signed on its
behalf by
James Robinson
Chairman
Registered number 7251471
The notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 30 September 2019
Group and Company
--------------------------------------
Year ended Year ended
30 September 2019 30 September 2018
Note GBP'000 GBP'000
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from operating activities
(Loss)/profit before finance costs and tax (2,279) 50,542
Adjustment for non-cash items:
Loss/(gain) on investments held at fair value through profit or loss 3,337 (49,559)
--------------------------------------------------------------------- ---- ------------------ ------------------
Adjusted profit before tax 1,058 983
Adjustments for:
Purchases of investments, including transaction costs (532,121) (329,500)
Sales of investments, including transaction costs 530,063 343,187
Decrease/(increase) in receivables 222 (4)
Increase in payables 169 202
Overseas tax deducted at source (671) (564)
Net cash (used in)/generated from operating activities (1,280) 14,304
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from financing activities
Cost of shares repurchased (1,513) (529)
Interest paid (45) (14)
Equity dividends paid 11 (2,443) (2,453)
Net cash used in financing activities (4,001) (2,996)
--------------------------------------------------------------------- ---- ------------------ ------------------
Net (decrease)/increase in cash and cash equivalents (5,281) 11,308
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash and cash equivalents at the beginning of the year 12,139 831
Cash and cash equivalents at the end of the year 24 6,858 12,139
--------------------------------------------------------------------- ---- ------------------ ------------------
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2019
1. General Information
The consolidated financial statements for the year ended 30
September 2019 comprise the financial statements of the Company and
its wholly-owned subsidiary PCGH ZDP plc (together referred to as
the 'Group').
The Group and Company financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS),
which comprise standards and interpretations approved by the
International Accounting Standards Board (IASB) and International
Accounting Standards Committee (IASC), as adopted by the European
Union, and with those parts of the Companies Act 2006 applicable to
companies under IFRS.
The Group and Company's presentational currency is pounds
sterling (rounded to the nearest GBP'000). Pounds sterling is also
the functional currency of the Group and Company because it is the
currency which is most relevant to the majority of the Group and
Company's Shareholders and creditors and the currency in which the
majority of the Group and Company's operating expenses are
paid.
2. Accounting Policies
The principal accounting policies which have been applied
consistently for all years presented are set out below:
(a) Basis of Preparation
The financial statements have been prepared on a going concern
basis under the historical cost convention, as modified by the
revaluation of investments and derivative financial instruments at
fair value through profit or loss.
Where presentational guidance set out in the Statement of
Recommended Practice (SORP) for investment trusts issued by the
Association of Investment Companies (AIC) in November 2014 and
updated in February 2018, is consistent with the requirements of
IFRS, in so far as those requirements are applicable to the
financial statements, the Directors have sought to prepare the
financial statements on a basis compliant with the recommendations
of the SORP.
Basis of consolidation - The Group financial statements
consolidate the Financial Statements of the Company and its wholly
owned subsidiary, PCGH ZDP plc, drawn up to the same accounting
date. The subsidiary is consolidated from the date of its
incorporation.
The Company has taken advantage of the exemption under section
408 of the Companies Act 2006 and accordingly has not presented a
separate parent company income statement.
(b) Presentation of the Statement of Comprehensive Income
In order to better reflect the activities of an investment trust
company and in accordance with the guidance set out by the AIC,
supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented alongside the Statement of Comprehensive Income.
The results presented in the revenue return column is the measure
the Directors believe appropriate in assessing the Group and
Company's compliance with certain requirements set out in section
1158 of the Corporation Tax Act 2010.
(c) Income
Dividends receivable from equity shares are recognised and taken
to the revenue return column of the Statement of Comprehensive
Income on an ex-dividend basis.
Special dividends are recognised on an ex-dividend basis and may
be considered to be either revenue or capital items. The facts and
circumstances are considered on a case by case basis before a
conclusion on appropriate allocation is reached.
Income from US/Canadian Real Estate Investment Trusts ('REITs')
is initially taken to the revenue return column of the Statement of
Comprehensive Income on an ex-dividend basis. An adjustment may
then be made to reallocate a proportion of this income to capital,
depending on the information announced by the REITs.
Where the Group and Company has received dividends in the form
of additional shares rather than in cash, the amount of the cash
dividend foregone is recognised in the revenue return column of the
Statement of Comprehensive Income. Any excess in value of shares
received over the amount of the cash dividend foregone is
recognised in the capital return column of the Statement of
Comprehensive Income.
Bank interest is accounted for on an accruals basis. Interest
outstanding at the year end is calculated on a time apportionment
basis using market rates of interest.
(d) Written Options
The Group and Company may write exchange-traded options with a
view to generating income. This involves writing short-dated
covered-call options and put options. The use of financial
derivatives is governed by the Group and Company's policies, as
approved by the Board.
These options are recorded initially at fair value, based on the
premium income received, and are then measured at subsequent
reporting dates at fair value. Changes in the fair value of the
options are recognised in the capital return for the period.
The option premiums are recognised evenly over the life of the
option and shown in the revenue return, with an appropriate amount
shown in the capital return to ensure the total return reflects the
overall change in the fair value of the options.
Where an option is exercised, any balance of the premium is
recognised immediately in the revenue return with a corresponding
adjustment in the capital return based on the amount of the loss
arising on exercise of the option.
(e) Expenses
All expenses, including the management fee, are accounted for on
an accruals basis and are recognised when they fall due.
All expenses have been presented as revenue items except as
follows:
Expenses are charged to the capital column of the Statement of
Comprehensive Income where a connection with the maintenance or
enhancement of the value of investments can be demonstrated. In
this respect the investment management fees have been charged to
the Statement of Comprehensive Income in line with the Board's
expected long-term split of returns, in the form of capital gains
and income from the Group and Company's portfolio. As a result 20%
of the investment management fees are charged to the revenue
account and 80% charged to the capital account of the Statement of
Comprehensive Income.
The performance fee (when payable) is charged entirely to
capital as the fee is based on the out-performance of the benchmark
and is expected to be attributable largely, if not wholly, to
capital performance.
The research costs relate solely to specialist healthcare
research and are accounted for on an accrual basis and, are
allocated 20% to revenue and 80% capital. This is in line with the
Board's expected long-term split of revenue and capital return from
the Company's investment portfolio.
Finance costs
The ZDP shares are designed to provide a pre-determined capital
growth from their original issue price of 100p on 16 June 2017 to a
final capital repayment of 122.99p on 19 June 2024. The initial
capital will increase at a compound interest rate of 3% per
annum.
No dividends are payable on the ZDP shares. The provision for
the capital growth entitlement of the ZDP shares is included as a
finance cost and charged 100% to capital within the Statement of
Comprehensive Income (AIC SORP paragraph 53 issued in November 2014
and updated in February 2018).
Overdraft interest costs are allocated 20% to revenue and 80% to
capital in line with the Board's expected long-term split of
revenue and capital return from the Company's investment
portfolio.
Share issue costs
Costs incurred directly in relation to the issue of shares in
the subsidiary are borne by the Company and taken 100% to capital.
Share issue costs relating to Ordinary share issues by the Company
are taken 100% to the share premium account.
Zero Dividend Preference (ZDP) shares
Shares issued by the subsidiary are treated as a liability of
the Group, and are shown in the Balance Sheet at their redemption
value at the Balance Sheet date. The appropriations in respect of
the ZDP shares necessary to increase the subsidiary's liabilities
to the redemption values are allocated to capital in the Statement
of Comprehensive Income. This treatment reflects the Board's
long-term expectations that the entitlements of the ZDP
Shareholders will be satisfied out of gains arising on investments
held primarily for capital growth.
(f) Taxation
The tax expense represents the sum of the overseas withholding
tax deducted from investment income, tax currently payable and
deferred tax.
The tax currently payable is based on the taxable profits for
the year ended 30 September 2019. Taxable profit differs from net
profit as reported in the Statement of Comprehensive Income because
it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group and Company's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted at the balance sheet date.
In line with the recommendations of the SORP, the allocation
method used to calculate tax relief on expenses presented against
capital returns in the supplementary information in the Statement
of Comprehensive Income is the "marginal basis". Under this basis,
if taxable income is capable of being offset entirely by expenses
presented in the revenue return column of the Statement of
Comprehensive Income, then no tax relief is transferred to the
capital return column.
Deferred tax is the tax expected to be payable or recoverable on
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit, and is accounted
for using the balance sheet liability method. Deferred tax
liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised.
Investment trusts which have approval as such under section 1158
of the Corporation Tax Act 2010 are not liable for taxation on
capital gains.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax rates that have been enacted or substantively
enacted at the balance sheet date.
Deferred tax is charged or credited in the Statement of
Comprehensive Income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
(g) Investments Held at Fair Value Through Profit or Loss
When a purchase or sale is made under contract, the terms of
which require delivery within the timeframe of the relevant market,
the investments concerned are recognised or derecognised on the
trade date and are initially measured at fair value.
On initial recognition the Group and Company has designated all
of its investments as held at fair value through profit or loss as
defined by IFRS. All investments are measured at subsequent
reporting dates at fair value, which is either the bid price or the
last traded price, depending on the convention of the exchange on
which the investment is quoted.
All investments, classified as fair value through profit or
loss, are further categorised into the following fair value
hierarchy:
Level 1 : Unadjusted prices quoted in active markets for
identical assets and liabilities.
Level 2: Having inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3: Having inputs for the asset or liability that are not
based on observable market data.
Changes in fair value of all investments held at fair value and
realised gains and losses on disposal are recognised in the capital
return column of the Statement of Comprehensive Income.
In the event a security held within the portfolio is suspended
then judgement is applied in the valuation of that security.
(h) Receivables
Receivables are initially recognised at fair value and
subsequently measured at amortised cost. Receivables do not carry
any interest and are short-term in nature and are accordingly
stated at their nominal value (amortised cost) as reduced by
appropriate allowances for estimated irrecoverable amounts.
(i) Cash and Cash Equivalents
Cash comprises cash on hand and demand deposits. Cash
equivalents are short-term, maturity of three months or less,
highly liquid investments that are readily convertible to known
amounts of cash.
(j) Dividends Payable
Dividends payable to Shareholders are recognised in the
financial statements when they are paid or, in the case of final
dividends, when they are approved by the Shareholders.
(k) Payables
Other payables are not interest-bearing and are initially valued
at fair value and subsequently stated at their nominal value
(amortised cost).
(l) Foreign Currency Translation
Transactions in foreign currencies are translated into sterling
at the rate of exchange ruling on the date of each transaction.
Monetary assets, monetary liabilities and equity investments in
foreign currencies at the balance sheet date are translated into
sterling at the rates of exchange ruling on that date. Realised
profits or losses on exchange, together with differences arising on
the translation of foreign currency assets or liabilities, are
taken to the capital return column of the Statement of
Comprehensive Income.
Foreign exchange gains and losses arising on investments held at
fair value are included within changes in fair value.
(m) Capital Reserves
Capital reserve arising on investments sold includes:
-- gains/losses on disposal of investments
-- exchange differences on currency balances
-- transfer to subsidiary in relation to ZDP funding requirement
-- other capital charges and credits charged to this account in
accordance with the accounting policies above.
Capital reserve arising on investments held includes:
-- increases and decreases in the valuation of investments held at the balance sheet date.
All of the above are accounted for in the Statement of
Comprehensive Income.
(n) Repurchase of Ordinary Shares (Including Those Held in Treasury)
The costs of repurchasing Ordinary shares including related
stamp duty and transaction costs are taken directly to equity and
reported through the Statement of Changes in Equity as a charge on
the special distributable reserve. Share repurchase transactions
are accounted for on a trade date basis.
The nominal value of Ordinary share capital repurchased and
cancelled is transferred out of called up share capital and into
the capital redemption reserve.
Where shares are repurchased and held in treasury, the transfer
to capital redemption reserve is made if and when such shares are
subsequently cancelled.
(o) New and revised accounting Standards
There were no new IFRSs or amendments to IFRSs applicable to the
current year which had any significant impact on the Group and
Company's accounts.
The following standards became effective on 1 January 2018 and
the adoption of the standards and interpretations have not had a
material impact on the financial statements of the Group and
Company.
IFRS 9 (2014) Financial Instruments.
The requirement of IFRS 9 and its application to the assets and
liabilities held by the Group and Company were considered ahead of
its adoption on 1 January 2018. The classification of all assets
and liabilities remains unchanged under IFRS 9 and all figures will
be directly comparable to the existing basis of valuation.
IFRS 15, Revenue with Contracts with Customers.
IFRS 15 sets out the requirements for revenue recognition. The
Company's only revenue streams are dividend income and gains and
losses from sale of investments. Given the nature of the Company's
revenue streams from financial instruments, the provisions of this
standard are not expected to have a material impact.
At the date of authorisation of these financial statements, the
following new IFRSs and amendments that potentially impact the
Group and Company are in issue but are not yet effective and have
not been applied in these accounts:
Effective for periods commencing on or after 1 January 2019:
IFRS 16 Leases
As the Group and Company neither holds, trades or has any lease
obligations of any type, the provisions of this standard are not
expected to have a material impact on the accounts.
IFRIC 23 Uncertainty over Income Tax Treatments
The interpretation provides guidance on considering uncertain
tax treatments in relation to taxable profit or loss and does not
add any new disclosures. The Company complies with all relevant tax
laws where applicable and the provisions of this interpretation are
not expected to have a material impact on the accounts.
IAS 19 (amended) Employee Benefits
As the Group and Company has no employees, the amendments to
this standard are not expected to have any impact on the
accounts.
IAS 28 (amended) Investments in Associates and Joint
Ventures
As the Group and Company has no investment in associates or
joint ventures, the amendments to this standard are not expected to
have any impact on the accounts.
IFRS 9 (Amended) Prepayment Features with Negative
Compensation
Negative compensation arises where the contractual terms permit
a borrower to prepay the instrument before its contractual
maturity, but the prepayment amount could be less than unpaid
amounts of principal and interest. The Company has no such terms in
any of its loan agreements in place and the amendments are not
expected to have any impact on the accounts.
Annual Improvement Cycles 2015-2017 (Amendments)
This makes narrow-scope amendments to four IFRS Standards: IFRS
3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Incomes
Taxes and IAS 23 Borrowing costs. These limited amendments are not
expected to have any impact on the accounts.
Effective for periods commencing on or after 1 January 2020:
IFRS 3 Business combinations (amended)
IAS 1 and IAS 8 Definition of Material (amended)
References to the conceptual Framework in IFRS Standards
(amended)
The Directors expect that the adoption of the standards listed
above will have either no impact or that any impact will not be
material on the Financial Statement of the Company in future
periods.
(p) Segmental Reporting
Under IFRS 8, 'Operating Segments', operating segments are
considered to be the components of an entity about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. The chief operating
decision maker has been identified as the Investment Manager (with
oversight from the Board).
The Directors are of the opinion that the Group and Company has
only one operating segment and as such no distinct segmental
reporting is required.
3. Investment Income
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------------------ ------------- -------------
Revenue:
Franked: Listed investments
Dividend income 377 491
------------------------------------------ ------------- -------------
Unfranked: Listed investments
Dividend income 3,754 3,386
------------------------------------------ ------------- -------------
Total investment income allocated to
revenue 4,131 3,877
------------------------------------------ ------------- -------------
Capital:
Dividends from REITs allocated to capital - 102
------------------------------------------ ------------- -------------
Total investment income allocated to
capital - 102
------------------------------------------ ------------- -------------
4. Other Operating Income
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
----------------------------- ------------- -------------
Option premium income - 437
Other income 30 -
Bank interest 49 22
----------------------------- ------------- -------------
Total other operating income 79 459
----------------------------- ------------- -------------
Option premium income arises from writing short-dated
covered-call options and put options in the expectation that the
options will not be exercised or, in overall terms, any losses that
may arise following exercise will be outweighed by the premiums
received.
There was no option premium income received for the current
year.
5. (Losses)/Gains on Investments Held at Fair Value
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Net gains on disposal of investments
at historic cost 22,892 30,676
Less fair value adjustments in earlier
years (33,931) (13,268)
------------------------------------------- ------------- -------------
(Losses)/gains based on carrying value
at previous balance sheet date (11,039) 17,408
Valuation gains on investments held during
the year 7,702 32,151
------------------------------------------- ------------- -------------
(3,337) 49,559
------------------------------------------- ------------- -------------
6. Other Currency Gains/(Losses)
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Exchange gains/(losses) on currency balances 43 (259)
--------------------------------------------- ------------- -------------
7. Investment Management Fee
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------------- ------------- -------------
Management fee
- charged to revenue 503 478
- charged to capital 2,013 1,910
------------------------------------- ------------- -------------
Investment management fee payable to
Polar Capital LLP 2,516 2,388
------------------------------------- ------------- -------------
Management fees are allocated 20% to revenue and 80% to
capital.
8. Other Administrative Expenses (Including VAT where appropriate)
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Directors' fees(1) 122 130
Directors' NIC 12 13
Auditors' remuneration(2) :
For audit of the Group and Company financial
statements 32 30
Depositary fee 24 23
Registrar fee 34 20
Custody and other bank charges 30 28
UKLA and LSE listing fees 44 48
Legal & professional fees - 4
AIC fees 20 19
Directors' and officers' liability insurance 8 9
Corporate broker's fee 30 29
Marketing expenses(3) 17 28
Research costs(4) 17 45
Shareholder communications 34 31
HSBC administration fee 150 143
Other expenses(5) 36 7
--------------------------------------------- ------------- -------------
610 607
--------------------------------------------- ------------- -------------
Transaction charges - allocated to capital - 1
Research cost - allocated to capital(4) 69 181
--------------------------------------------- ------------- -------------
679 789
--------------------------------------------- ------------- -------------
1 Full disclosure is given in the Directors' Remuneration Report
within the Annual Report.
2 2019 includes GBP5,175 (2018: GBP4,600) paid to the Auditor
for the audit of PCGH ZDP plc.
3 Includes marketing expenses payable to Polar Capital LLP of
GBP7,500 (2018: GBP22,500).
4 Research costs (which applied from 3 January 2018) payable by
the Company relate solely to specialist healthcare research and are
capped at US $232,994 (GBP189,000) (2018: US $394,867 (GBP303,000))
with the cost of general non-specialist research and any amounts
exceeding the agreed cap being absorbed by Polar Capital. Any
adjustment to the prior year's budget versus the actual spend is
included in the current period. These costs are allocated 20% to
revenue and 80% to capital and are included in the ongoing charges
calculation.
5 2019 includes costs in relation to non-executive director
search fee.
Ongoing charges represents the total expenses of the fund,
excluding finance costs and tax, expressed as a percentage of the
average daily net asset value, in accordance with AIC guidance
issued in May 2012.
The ongoing charges ratio for the year ended 30 September 2019
was 1.01% (2018: 1.08%). See Alternative Performance Measures
below.
9. Finance Costs
Year ended 30 September Year ended 30 September
2019 2018
--------------------------- ---------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- -------- -------- ------- -------- -------- -------
Interest on overdrafts 9 36 45 3 11 14
Appropriation to
ZDP shares - 1,001 1,001 - 972 972
----------------------- -------- -------- ------- -------- -------- -------
Total finance costs 9 1,037 1,046 3 983 986
----------------------- -------- -------- ------- -------- -------- -------
10. Taxation
Year ended Year ended
30 September 2019 30 September 2018
---------------------------- ----------------------------
Revenue Capital Total Revenue Capital Total
return return return return return return
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- -------- --------
a) Analysis of tax charge
for the year:
Overseas tax 535 - 535 437 3 440
--------------------------- -------- -------- -------- -------- -------- --------
Total tax for the year
(see note 10b) 535 - 535 437 3 440
--------------------------- -------- -------- -------- -------- -------- --------
b) Factors affecting tax
charge for the year:
The charge for the year
can be reconciled to the
profit per the Statement
of Comprehensive Income
as follows:
Profit/(loss) before tax 3,088 (6,413) (3,325) 3,248 46,308 49,556
--------------------------- -------- -------- -------- -------- -------- --------
Tax at the UK corporation
tax rate of 19% (2018:
19%) 587 (1,218) (631) 617 8,799 9,416
Tax effect of non-taxable
dividends (785) - (785) (756) (20) (776)
Losses/(gains) investments
that are not taxable - 626 626 - (9,363) (9,363)
Unrelieved current period
expenses
and deficits 198 402 600 139 399 538
Overseas tax suffered 535 - 535 437 3 440
Expenses not allowable - 190 190 - 185 185
Total tax for the year
(see note 10a) 535 - 535 437 3 440
--------------------------- -------- -------- -------- -------- -------- --------
c) Factors that may affect future tax charges:
The Company has an unrecognised deferred tax asset of
GBP2,555,000 (2018: GBP2,018,000) based on a prospective
corporation tax rate of 17% (2018: 17%).
The deferred tax asset has arisen due to the cumulative excess
of deductible expenses over taxable income. Given the composition
of the Company's portfolio, it is not likely that this asset will
be utilised in the foreseeable future and therefore no asset has
been recognised in the accounts.
Given the Company's intention to meet the conditions required to
retain its status as an Investment Trust Company, no provision has
been made for deferred tax on any capital gains or losses arising
on the revaluation or disposal of investments.
11. Amounts Recognised as Distributions to Ordinary Shareholders in the Year
Dividends paid in the year ended 30 September 2019
Year ended
30 September
Pence per 2019
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
28 February 2019 122,470,000 1.00p 1,225
30 August 2019 121,770,000 1.00p 1,218
-------------
2,443
-------------
The revenue available for distribution by way of dividend for
the year is GBP2,553,000 (2018: GBP2,811,000).
The total dividends payable in respect of the financial year
ended 30 September 2019, which is the basis on which the
requirements of Section 1158 of the Corporation Tax Act 2010 are
considered, are set out below:
Year ended
30 September
Pence per 2019
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
30 August 2019 121,770,000 1.00p 1,218
28 February 2020 121,270,000* 1.10p 1,334
2,552
-------------
*Number of shares in issue at the date of this report.
Dividends paid in the year ended 30 September 2018
Year ended
30 September
Pence per 2018
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
28 February 2018 122,750,000 1.00p 1,228
31 August 2018 122,470,000 1.00p 1,225
2,453
-------------
The total dividends payable in respect of the financial year
ended 30 September 2018 which is the basis on which the
requirements of Section 1158 Corporation Tax Act 2010 are
considered, is set out below:
Year ended
30 September
Pence per 2018
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
31 August 2018 122,470,000 1.00p 1,225
28 February 2019 122,470,000 1.00p 1,225
2,450
-------------
All dividends are paid as interim dividends.
The dividends paid in February each year relate to a dividend
declared in respect of the previous financial year but paid in the
current accounting year.
12. (Loss)/earnings per Ordinary Share
Year ended Year ended
30 September 2019 30 September 2018
----------------------------------------- -------------------------------------------
Capital Capital
Revenue return return Total return Revenue return return Total return
-------------- ----------- ------------ -------------- ----------- ------------
The calculation of
basic earnings per
share is based
on the following
data:
Net (loss)/profit
for the year (GBP'000) 2,553 (6,413) (3,860) 2,811 46,305 49,116
Weighted average
Ordinary
shares in issue
during the year 122,123,685 122,123,685 122,123,685 122,602,712 122,602,712 120,602,712
Basic - Ordinary
shares (pence) 2.09 (5.25) (3.16) 2.29 37.77 40.06
------------------------ -------------- ----------- ------------ -------------- ----------- ------------
As at 30 September 2019 there were no potentially dilutive
shares in issue.
13. Investments Held at Fair Value
(a) Movements on investments
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------ ------------ ------------
Cost brought forward 276,747 249,824
Valuation gains 43,574 24,692
------------------------------ ------------ ------------
Valuation brought forward 320,321 274,516
Additions at cost 539,072 330,921
Proceeds on disposal (547,063) (334,675)
(Losses)/gains on disposal (11,039) 17,408
Valuation gains 7,702 32,151
------------------------------ ------------ ------------
Valuation at 30 September 308,993 320,321
------------------------------ ------------ ------------
Cost at 30 September 291,648 276,747
Closing fair value adjustment 17,345 43,574
------------------------------ ------------ ------------
Valuation at 30 September 308,993 320,321
------------------------------ ------------ ------------
The following transaction costs, including stamp duty and broker
commissions were incurred during the year:
30 September 30 September
2019 2018
GBP'000 GBP'000
--------------- ------------ ------------
On acquisition 363 197
On disposal 237 151
--------------- ------------ ------------
600 348
--------------- ------------ ------------
(b) Fair value hierarchy
30 September 30 September
2019 2018
GBP'000 GBP'000
-------------------------- ------------ ------------
Level 1 assets 308,993 320,321
-------------------------- ------------ ------------
Valuation at 30 September 308,993 320,321
-------------------------- ------------ ------------
All Level 1 assets are traded on a recognised Stock
Exchange.
(c) Subsidiary undertaking
Country of registration, Number and class
incorporation and of shares held by
Company and business operation the Company Holding
--------------------- ------------------------- ----------------------- -------
50,000 Ordinary shares
PCGH ZDP Plc England and Wales of GBP1 100%
--------------------- ------------------------- ----------------------- -------
The Company is a public limited company with the sole purpose of
issuing Zero Dividend Preference (ZDP) shares. The registered
office is at Polar Capital, 16 Palace Street, London SW1E 5JD.
The investment is stated in the Company's Financial Statements
at cost, which is considered by the Directors to equate to fair
value.
The subsidiary is non-trading and the value of the net assets
have not changed since the acquisition of the Ordinary share
capital by the Company. The cost is therefore considered to equate
to the fair value of the shares held.
14. Receivables
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------------------- ------------ ------------
Sales for future settlement 17,000 -
Accrued income 222 436
Prepayments 15 23
---------------------------- ------------ ------------
17,237 459
---------------------------- ------------ ------------
15. Payables
30 September 30 September
2019 2018
GBP'000 GBP'000
-------------------------------- ------------ ------------
Purchases for future settlement 10,289 3,338
Accruals 672 503
-------------------------------- ------------ ------------
10,961 3,841
-------------------------------- ------------ ------------
16. Zero Dividend Preference Shares ('ZDP Shares')
30 September 30 September
2019 2018
GBP'000 GBP'000
----------------------------- ------------ ------------
At 1 October 33,372 32,400
Capital growth of ZDP shares 1,001 972
----------------------------- ------------ ------------
At 30 September 34,373 33,372
----------------------------- ------------ ------------
17. Called up Share Capital
30 September 30 September
(i) Ordinary shares - Allotted, Called 2019 2018
up and Fully paid: GBP'000 GBP'000
--------------------------------------------- ------------ ------------
Ordinary shares of nominal value 25p
each:
Opening balance of 122,470,000 (30 September
2018: 122,750,000) 30,617 30,687
Repurchase of 700,000 (2018: 280,000)
Ordinary shares, into treasury (175) (70)
--------------------------------------------- ------------ ------------
Allotted, Called up and Fully paid:
121,770,000 (2018: 122,470,000) Ordinary
shares of 25p 30,442 30,617
2,379,256 (2018: 1,679,256) Ordinary
shares, held in treasury 595 420
--------------------------------------------- ------------ ------------
At 30 September 31,037 31,037
--------------------------------------------- ------------ ------------
700,000 Ordinary shares were repurchased into treasury at a
total cost of GBP1,513,000 (2018: GBP529,000).
Subsequent to the year end 500,000 Ordinary shares were
repurchased at a price of 207.00p per share and held in
treasury.
The Ordinary shares held in treasury have no voting rights and
are not entitled to dividends.
(ii) Subsidiary Company (for information
purposes)
30 September 30 September
ZDP shares - Allotted, Called up and Fully 2019 2018
paid: GBP'000 GBP'000
----------------------------------------------- ------------ ------------
ZDP shares of nominal value 1p each:
Opening balance of 32,128,437 ZDP shares
(2018: 32,128,437) 32,128 32,128
Allotted, Called up and Fully paid: 32,128,437
(2018: 32,128,437) ZDP shares of 1p 32,128 32,128
----------------------------------------------- ------------ ------------
At 30 September 32,128 32,128
----------------------------------------------- ------------ ------------
18. Capital Redemption Reserve
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------- ------------ ------------
At 1 October 6,575 6,575
At 30 September 6,575 6,575
---------------- ------------ ------------
This reserve is not distributable.
19. Share Premium Reserve
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------- ------------ ------------
At 1 October 80,685 80,685
At 30 September 80,685 80,685
---------------- ------------ ------------
This reserve is not distributable.
20. Special Distributable Reserve
30 September 30 September
2019 2018
GBP'000 GBP'000
-------------------------------------- ------------ ------------
At 1 October 6,225 6,754
Repurchase of 700,000 (2018: 280,000)
Ordinary shares into treasury (1,513) (529)
-------------------------------------- ------------ ------------
At 30 September 4,712 6,225
-------------------------------------- ------------ ------------
Surpluses to the credit of the special distributable reserve can
be used to purchase the Group and Company's own shares. In
addition, the Group and Company may use this reserve for the
payment of dividends.
21. Capital Reserves
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
At 1 October 169,059 122,754
Net (losses)/gains on disposal of investments (11,039) 17,408
Valuation gains on investments held during
the year 7,702 32,151
Exchange gains/(losses) on currency balances 43 (259)
Derivatives realised loss - (19)
Capital dividends - 102
Irrecoverable tax on special capital
dividends - (3)
Overdraft interest allocated to capital (36) (11)
Transaction charges allocated to capital - (1)
Research costs to capital (69) (181)
Investment management fee allocated to
capital (2,013) (1,910)
Capital contribution to ZDP entitlement (172) (163)
ZDP appropriation (829) (809)
---------------------------------------------- ------------ ------------
At 30 September 162,646 169,059
---------------------------------------------- ------------ ------------
The balance on the capital reserve represents a profit of
GBP17,345,000 (2018: GBP43,574,000) on investments held and a
profit of GBP145,301,000 (2018: GBP125,485,000) on investments
sold.
The balance on investments held comprises holding gains on
investments (which may be deemed to be realised and other amounts,
which are unrealised. An analysis has not been made between the
amounts that are realised (and may be distributed or used to
repurchase the Group and Company's shares) and those that are
unrealised.
The balance on investments sold are realised distributable
capital reserves which may be used to repurchase the Group and
Company's shares or be distributed as dividends.
22. Revenue Reserve
30 September 30 September
2019 2018
GBP'000 GBP'000
----------------------- ------------ ------------
At 1 October 2,682 2,324
Revenue profit 2,553 2,811
Interim dividends paid (2,443) (2,453)
----------------------- ------------ ------------
At 30 September 2,792 2,682
----------------------- ------------ ------------
The revenue reserve may be distributed or used to repurchase the
Group and Company's shares (subject to being a positive
balance).
23. Net Asset Value Per Share
30 September 30 September
(i) Ordinary shares 2019 2018
------------------------------------------------- ------------ ------------
Net assets attributable to Ordinary Shareholders
(GBP'000) 288,447 296,263
Ordinary shares in issue at end of year 121,770,000 122,470,000
Net asset value per Ordinary share (pence) 236.88 241.91
------------------------------------------------- ------------ ------------
Total issued Ordinary shares 124,149,256 124,149,256
Ordinary shares held in treasury 2,379,256 1,679,256
Ordinary shares in issue 121,770,000 122,470,000
------------------------------------------------- ------------ ------------
As at 30 September 2019 there were no potentially dilutive
shares in issue.
(ii) Subsidiary Company (for information
purposes)
30 September 30 September
ZDP shares 2019 2018
------------------------------------------- ------------- -------------
Calculated entitlement of ZDP Shareholders
(GBP) GBP34,372,824 GBP33,372,440
ZDP shares in issue at the end of the
year 32,128,437 32,128,437
------------------------------------------- ------------- -------------
Net asset value per ZDP share (pence) 106.99 103.87
------------------------------------------- ------------- -------------
24. Cash and Cash Equivalents
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Cash at bank 5,706 12,777
Cash held at derivative clearing houses 1,106 1,024
Bank overdraft (4) (1,712)
---------------------------------------- ------------ ------------
Company cash and cash equivalents 6,808 12,089
Cash held at subsidiary 50 50
---------------------------------------- ------------ ------------
Group cash and cash equivalents 6,858 12,139
---------------------------------------- ------------ ------------
25. Transactions with the Investment Manager and Related Party Transactions
(a) Transactions with the Manager
Under the terms of an agreement dated 26 May 2010 the Group has
appointed Polar Capital LLP ("Polar Capital") to provide investment
management, accounting, secretarial and administrative services.
Details of the fee arrangement for these services are given in the
Strategic Report. The total fees, paid under this agreement to
Polar Capital in respect of the year ended 30 September 2019 were
GBP2,516,000 (2018: GBP2,388,000) of which GBP433,000 (2018:
GBP212,000) was outstanding at the year-end.
In addition, the total research costs in respect of the year
ended 30 September 2019 was GBP184,000 (2018: GBP226,000) of which
GBP43,000 relates to the period 1 October 3018 to 31 December 2018
and GBP141,000 relates to the period from 1 January 2019 to 30
September 2019. As at the year end, GBP95,000 (2018: GBP168,000)
was outstanding. Refer to note 8 for more details.
(b) Related party transactions
The Group and Company have no employees and therefore no key
management personnel other than the Directors. The Group and
Company paid GBP122,000 (2018: GBP130,000) to the Directors and the
Remuneration Report, including Directors' shareholdings and
movements within the year is provided within the full Annual
Report.
26. Derivatives and Other Financial Instruments
RISK MANAGEMENT POLICIES AND PROCEDURES FOR THE GROUP AND
COMPANY
The Group and Company invests in equities and other financial
instruments for the long term to further the investment objective
set out above. This exposes the Group and Company to a range of
financial risks that could impact on the assets or performance of
the Group and Company.
The main risks arising from the Group and Company's pursuit of
its Investment Objective are market risk, liquidity risk and credit
risk and the Directors' approach to the management of them is set
out below.
The Group and Company's exposure to financial instruments can
comprise:
-- Equity and non-equity shares and fixed interest securities
which may be held in the investment portfolio in accordance with
the Investment Objective.
-- Bank overdrafts, the main purpose of which is to raise
finance for the Group and Company's operations.
-- Cash, liquid resources and short-term receivables and
payables that arise directly from the Group and Company's
operations.
-- Derivative transactions which the Group and Company enters
into may include equity or index options, index futures contracts,
and forward foreign exchange contracts.
The purpose of these is to manage the market price risks and
foreign exchange risks arising from the Group and Company's
investment activities.
The overall management of the risks is determined by the Board
and its approach to each risk identified is set out below. The
Board and the Investment Manager co-ordinate the risk management
and the Investment Manager assesses the exposure to market risk
when making each investment decision.
(a) Market Risk
Market risk comprises three types of risk: market price risk
(see note 26(a)(i)), currency risk (see note 26(a)(ii)), and
interest rate risk (see note 26(a)(iii)).
(i) Market Price Risk
The Group and Company is an investment company and as such its
performance is dependent on its valuation of its investments.
Consequently, market price risk is the most significant risk that
the Group and Company faces.
Market price risk arises mainly from uncertainty about future
prices of financial instruments used in the Group and Company's
operations.
It represents the potential loss the Group and Company might
suffer through holding market positions in the face of price
movements.
A detailed breakdown of the investment portfolio is given above.
Investments are valued in accordance with the
accounting policies as stated in Note 2(g).
At the year end, the Group and Company did not hold any
derivative instruments (2018: nil).
Management of the risk
In order to manage this risk it is the Board's policy to hold an
appropriate spread of investments in the portfolio in order to
reduce both the statistical risk and the risk arising from factors
specific to a particular healthcare sub sector. The allocation of
assets to international markets, together with stock selection
covering small, medium and large companies, and the use of index
options, are other factors which act to reduce price risk. The
Investment Manager actively monitors market prices throughout the
year and reports to the Board which meets regularly in order to
consider investment strategy.
Market price risks exposure
The Group and Company's exposure to changes in market prices at
30 September on its investments was as follows:
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
-------------------------------------- ------------- -------------
Non-current asset investments at fair
value through profit or loss 308,993 320,321
-------------------------------------- ------------- -------------
308,993 320,321
-------------------------------------- ------------- -------------
Market price risk sensitivity
The following table illustrates the sensitivity of the return
after taxation for the year and the value of Shareholders' funds to
an increase or decrease of 15% in the fair values of the Group and
Company's investments. This level of change is considered to be
reasonably possible based on observation of current market
conditions and historic trends.
The sensitivity analysis is based on the Group and Company's
investments at each balance sheet date, with all other variables
held constant.
Year ended Year ended
30 September 2019 30 September 2018
---------------------------------- ------------------------ ------------------------
Increase Decrease Increase Decrease
in in in in
fair value fair value fair value fair value
GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- ----------- ----------- ----------- -----------
Statement of Comprehensive Income
-
profit after tax
Revenue return (78) 78 (81) 81
Capital return 46,034 (46,034) 47,721 (47,721)
---------------------------------- ----------- ----------- ----------- -----------
Change to the profit after tax
for the year 45,956 (45,956) 47,640 (47,640)
---------------------------------- ----------- ----------- ----------- -----------
Change to equity attributable
to Shareholders 45,956 (45,956) 47,640 (47,640)
---------------------------------- ----------- ----------- ----------- -----------
(ii) Currency Risk
The Group and Company's total return and net assets can be
significantly affected by currency translation movements as the
majority of the Group and Company's assets and revenue are
denominated in currencies other than sterling.
Management of the risk
The Investment Manager mitigates risks through an international
spread of investments.
Settlement risk on investment trades is managed through short
term hedging.
Foreign currency exposure
The table below shows, by currency, the split of the Group and
Company's monetary assets, liabilities and investments that are
priced in currencies other than sterling.
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
------------------------------------------ ------------- -------------
Monetary Assets:
Cash and short term receivables
US Dollars 13,617 69
Japanese Yen 4,241 166
Swiss Francs 852 725
Euros 146 135
Danish Krone 60 448
Monetary Liabilities:
Other payables
US Dollars (12,337) (733)
Japanese Yen (4,241) -
Danish Krone - (422)
------------------------------------------ ------------- -------------
Foreign currency exposure on net monetary
items 2,338 388
Non-Monetary Items:
Investments at fair value through profit
or loss that are equities
US dollars 234,441 252,232
Euros 30,299 -
Danish Krone 24,625 9,093
Swiss Francs 7,314 16,730
Japanese Yen 4,300 14,206
Swedish Krona - 2,227
Norwegian Krona - 1,347
Total net foreign currency exposure 303,317 296,223
------------------------------------------ ------------- -------------
During the financial year, movements against sterling in the
four major currencies noted above were:
US Dollar appreciated by 5.5% (2018: appreciated by 2.8%),
Euros depreciated by 0.7% (2018: appreciated by 1.1%),
Danish Krone depreciated by 0.8% (2018: appreciated by 0.9%),
and
Swiss Franc appreciated by 3.5% (2018: appreciated by 1.9%).
Foreign currency sensitivity
The following table illustrates the sensitivity of the profit
after tax for the year and the value of equity attributable to
Shareholders in regard to the financial assets and financial
liabilities and the exchange rates for the GBP/US Dollar,
GBP/Euros, GBP/Danish Krone and GBP/ Swiss Francs.
Based on the year end position, if sterling had depreciated by a
further 15% (2018: 15%) against the currencies shown, this would
have the following effect:
Year ended 30 September 2019
GBP'000
----------------------------------
Danish Swiss
US Dollars Euros Krone Francs
---------- ----- ------ -------
Statement of Comprehensive Income
- profit after tax
Revenue return 226 26 11 150
Capital return 41,372 5,347 4,346 1,291
---------------------------------- ---------- ----- ------ -------
Change to the profit after tax
for the year
and to equity attributable to
Shareholders 41,598 5,373 4,357 1,441
---------------------------------- ---------- ----- ------ -------
Year ended 30 September 2018
GBP'000
---------------------------------- -----------------------------------
US Swiss Japanese Danish
Dollars Francs Yen Krone
---------------------------------- -------- ------- -------- ------
Statement of Comprehensive Income
- profit after tax
-------- ------- -------- ------
Revenue return 12 128 29 79
Capital return 44,512 2,952 2,507 1,605
---------------------------------- -------- ------- -------- ------
Change to the profit after tax
for the year
and to equity attributable
to Shareholders 44,524 3,080 2,536 1,684
---------------------------------- -------- ------- -------- ------
Based on the year end position, if sterling had appreciated by a
further 15% (2017: 15%) against the currencies shown, this would
have the following effect:
Year ended 30 September 2019
GBP'000
----------------------------------------- -----------------------------------
US Danish Swiss
Dollars Euros Krone Francs
----------------------------------------- -------- ------- ------- -------
Statement of Comprehensive Income
- profit after tax
Revenue return (167) (19) (8) (111)
Capital return (30,579) (3,952) (3,212) (954)
----------------------------------------- -------- ------- ------- -------
Change to the profit after tax
for the year and to equity attributable
to Shareholders (30,746) (3,971) (3,220) (1,065)
----------------------------------------- -------- ------- ------- -------
Year ended 30 September 2018
GBP'000
---------------------------------- ------------------------------------
US Swiss Japanese Danish
Dollars Francs Yen Krone
---------------------------------- -------- ------- -------- -------
Statement of Comprehensive Income
- profit after tax
Revenue return (9) (95) (22) (58)
Capital return (32,900) (2,182) (1,853) (1,186)
---------------------------------- -------- ------- -------- -------
Change to the profit after tax
for the year
and to equity attributable
to Shareholders (32,909) (2,277) (1,875) (1,244)
---------------------------------- -------- ------- -------- -------
In the opinion of the Directors, while these are regarded as
reasonable estimates, neither of the above sensitivity analyses are
representative of the year as a whole since the level of exposure
changes frequently as part of the currency risk management process
used to meet the Group's objectives.
(iii) Interest Rate Risk
Although the majority of the Group and Company's financial
assets are equity shares which pay dividends, not interest, the
Group and Company will be affected by interest rate changes as
interest is earned on any cash balances and paid on any overdrawn
balances.
Given the interest rate risk exposure noted below, the impact of
any interest rate change is not considered to be significant and as
such, no sensitivity analysis has been provided. Interest rate
changes will also have an impact on the valuation of equities,
although this forms part of price risk, which has already been
considered separately above.
Management of the risk
The possible effects on fair value and cash flows that could
arise as a result of changes in interest rates are taken into
account when making investment decisions.
Derivative contracts are not used to hedge against the exposure
to interest rate risk.
Interest rate exposure
At the year-end, financial assets and liabilities exposed to
floating interest rates were as follows:
Year ended Year ended
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------- -------------
Cash at bank and at derivative clearing
houses 6,812 13,801
Cash held at subsidiary 50 50
Bank overdraft (4) (1,712)
---------------------------------------- ------------- -------------
6,858 12,139
---------------------------------------- ------------- -------------
The above year-end amounts may not be representative of the
exposure to interest rates in the year ahead since the level of
cash held during the year will be affected by the strategy being
followed in response to the Board's and Investment Manager's
perception of market prospects and the investment opportunities
available at any particular time.
(b) Liquidity Risk
Liquidity risk is the possibility of failure of the Group and
Company to realise sufficient assets to meet its financial
liabilities.
Management of the risk
The Group and Company's assets mainly comprise readily
realisable securities which may be sold to meet funding
requirements as necessary.
Liquidity risk exposure
At 30 September the financial liabilities comprised:
30 September 30 September
2019 2018
GBP'000 GBP'000
----------------------------- ------------ ------------
Due within 1 month:
Other creditors and accruals 10,961 3,841
Bank overdraft 4 1,712
Due in more than 1 year
ZDP's entitlement 34,373 33,372
----------------------------- ------------ ------------
45,338 38,925
----------------------------- ------------ ------------
The ZDP shares have a planned repayment date of 19 June 2024 at
an amount of GBP39,514,000.
(c) Credit Risk
Credit risk is the exposure to loss from failure of a
counterparty to deliver securities or cash for acquisitions or
disposals of investments or to repay deposits.
Management of the risk
The Group and Company manages credit risk by using brokers from
a database of approved brokers and by dealing through Polar
Capital. All cash balances are held with approved
counterparties.
HSBC Bank plc is the custodian of the Group and Company's
assets. The Group and Company's assets are segregated from HSBC's
own trading assets and are therefore protected in the event that
HSBC were to cease trading.
These arrangements were in place throughout the current and
prior year.
Credit risk exposure
The maximum exposure to credit risk at 30 September 2019 was
GBP7,084,000 (2018: GBP14,287,000) comprising:
30 September 30 September
2019 2018
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Accrued Income 222 436
Cash at bank and at derivative clearing
houses 6,862 13,851
---------------------------------------- ------------ ------------
7,084 14,287
---------------------------------------- ------------ ------------
All of the above financial assets are current, their fair values
are considered to be the same as the values shown and the
likelihood of a material credit default is considered low. None of
the Group and Company's assets are past due or impaired. All
deposits were placed with banks that had a rating of A or
higher.
(d) Capital Management Policies and Procedures
The Group and Company's capital, or equity, is represented by
its net assets which amounted to GBP288,447,000 for the year ended
30 September 2019 (2018: GBP296,263,000), which are managed to
achieve the Group's and Company's Investment Objective set out in
the Annual Report.
The Board monitors and reviews the broad structure of the
Group's and Company's capital on an ongoing basis. This review
includes:
i. the need to issue or buy back equity shares for cancellation,
which takes account of the difference between the net asset value
per share and the share price (i.e. the level of share price
discount or premium); and
ii. the determination of dividend payments.
The Group and Company is subject to externally imposed capital
requirements through the Companies Act with respect to its status
as a public company. In addition, in order to pay dividends out of
profits available for distribution by way of dividend, the Group
and Company has to be able to meet one of two capital restriction
tests imposed on investments by company law.
These requirements are unchanged since the previous year end and
the Group and Company has complied with them.
27. Post Balance Sheet Events
After the year end, a further 500,000 Ordinary shares were
bought back and held in treasury. Following these share buybacks,
the total number of shares in issue was 124,149,256 of which
2,879,256 shares were held in treasury. No other significant events
occurred after the end of the reporting period to the date of this
report requiring disclosure.
ALTERNATIVE PERFORMANCE MEASURES (APMS)
In assessing the performance of the Company and Group the
Investment Manager and the Directors use the following APMs which
are considered to be known industry metrics:
Net Asset Value (NAV)
The NAV is the value attributed to the underlying assets of the
Company less the liabilities, presented either on a per share or
total basis.
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.
As at 30 September 2019, the Group's total equity was
GBP288,447,000 and there were 121,770,000 Ordinary shares in issue.
The Group's NAV per share was therefore 236.88p
(GBP288,447,000/121,770,000).
At 30 September 2019, the value of the ZDP shares was
GBP34,373,000 (note 16 of the notes to the financial statements
above) and the number of ZDP shares in issue was 32,128,437. The
NAV per ZDP share was therefore 106.99p
(GBP34,373,000/32,128,437).
Total Net Assets (Group and Company)
The value of the Group's and Company's assets, principally
investments made in other companies and cash being held, minus any
liabilities.
At 30 September 2019, the total assets were GBP333,785,000 and
the total liabilities were GBP45,338,000, the total net assets
therefore were GBP288,447,000 (GBP333,785,000 - GBP45,338,000).
NAV Total Return
The NAV total return shows how the net asset value has performed
over a period of time taking into account both capital returns and
dividends paid to Shareholders.
NAV total return is calculated as the change in NAV from the
start of the period, assuming that dividends paid to Shareholders
are reinvested on the payment date in Ordinary shares at their net
asset value. The adjusted NAV at the start of the period was
244.12p.
As at 30 September 2019, the Group's NAV per share was 236.88p,
the impact of the dividend reinvestment in NAV was 4.20p and the
adjusted NAV per share was therefore 241.08p (236.88p+4.20p). The
NAV total return over the year was -1.24%
((241.08p-244.12p)/244.12p).
NAV total return since restructuring is calculated as the change
in NAV from the date of reconstruction on 20 June 2017, assuming
that dividends paid to Shareholders are reinvested on the payment
date in Ordinary shares at their net asset value. The NAV at
reconstruction was 215.85p.
As at 30 September 2019, the Group's adjusted NAV per share was
241.08p, the NAV total return since reconstruction was 11.69%
((241.08p-215.85p)/215.85p).
Share Price Total Return
Share price total return shows how the share price has performed
over a period of time. It assumes that dividends paid to
Shareholders are reinvested in the shares at the time the shares
are quoted ex dividend.
As at 30 September 2019, the Company's share price was 218.00p
and the opening share price as at 30 September 2018 was 223.00p; a
reinvestment factor of 1.009104, relating to the impact of the
reinvested dividends during the year, was applied to reach a
closing adjusted share price for the purposes of the calculation of
share price performance with income reinvested of 219.98p. The
share price total return is -1.35% ((219.98p-223.00p)/223.00p).
Discount /Premium
A description of the difference between the share price and the
net asset value per share usually expressed as a percentage (%) of
the net asset value per share. If the share price is higher than
the NAV per share the result is a premium. If the share price is
lower than the NAV per share, the shares are trading at a
discount.
The share price at 30 September 2019 was 218.00p and NAV was
236.88p, the discount was therefore 8.0%,
((218.00p-236.88p)/236.88p).
Total Expenses (Group and Company)
Comprising all the operating expenses, which includes research
costs, of the Group and Company plus those expenses which are
excluded from the ongoing charges calculation, including
transaction costs, finance costs, tax and non-recurring expenses.
Costs in relation to share issues and share buybacks are excluded
from the calculation.
At 30 September 2019, the total operating expenses including
management fees were GBP3,195,000, finance costs were GBP1,046,000
and taxes were GBP535,000; the total expenses therefore were
GBP4,776,000 (GBP3,195,000 + GBP1,046,000 + GBP535,000).
Ongoing Charges
Ongoing charges are calculated in accordance with AIC guidance
by taking the Company's annual ongoing charges, excluding
performance fees and exceptional items, if any, and expressing them
as a percentage of the average daily net asset value of the Company
over the year.
Ongoing charges include all regular operating expenses of the
Company. Transaction costs, interest payments, tax and
non-recurring expenses are excluded from the calculation as are the
costs incurred in relation to share issues and share buybacks.
Where a performance fee is paid or is payable, a second ongoing
charge is provided, calculated on the same basis as the above but
incorporating the amount of performance fee due or paid.
Ongoing charges for the year equal the management fee of
GBP2,516,000 plus other operating expenses of GBP679,000 divided by
the Group's average NAV in the period.
(GBP3,195,000/GBP316,065,695=1.01%)
Since there was no performance fee paid or payable for the year
the ongoing charges including performance fee is the same as the
ongoing charges.
Net Gearing
Gearing is calculated in line with AIC guidelines and represents
net gearing. This is defined as total assets less cash and cash
equivalents divided by net assets. The total assets are calculated
by adding back the structural gearing which is the ZDP value. Cash
and cash equivalents are cash and purchases and sales for future
settlement outstanding at the year end.
As at 30 September 2019 the net assets were GBP288,447,000, ZDP
value was GBP34,373,000 and cash and cash equivalents (including
amounts for future settlement) were GBP13,569,000, and the net
gearing was therefore 7.21%,
(((GBP288,447,000+GBP34,373,000-GBP13,569,000)/GBP288,447,000)
-1).
AGM
The Annual Report and separate Notice for the Annual General
Meeting will be posted to Shareholders in January 2020 and is
available from the Company Secretary at the Company's Registered
Office, (16 Palace Street London SW1E 5JD) or from the Company's
website. The AGM will be held at the Company's Registered Office at
12 noon on 26 February 2020.
FORWARD LOOKING STATEMENTS
Certain statements included in the Annual Report and Financial
Statements contain forward-looking information concerning the
Company's strategy, operations, financial performance or condition,
outlook, growth opportunities or circumstances in the countries,
sectors or markets in which the Company operates. By their nature,
forward-looking statements involve uncertainty because they depend
on future circumstances, and relate to events, not all of which are
within the Company's control or can be predicted by the Company.
Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can be
given that such expectations will prove to have been correct.
Actual results could differ materially from those set out in the
forward-looking statements. For a detailed analysis of the factors
that may affect our business, financial performance or results of
operations, we urge you to look at the principal risks and
uncertainties included in the Strategic Report Section the Annual
Report and Financial Statements.
No part of these results constitutes, or shall be taken to
constitute, an invitation or inducement to invest in Polar Capital
Global Healthcare Trust plc or any other entity, and must not be
relied upon in any way in connection with an investment decision.
The Company undertakes no obligation to update any forward-looking
statements.
Neither the contents of the Company's website nor the contents
of any website accessible from hyperlinks on the company's website
(or any other website) is incorporated into, or forms part of, this
announcement.
-END-
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFFFIUFUSEDE
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