TIDMPCGH TIDMPGHZ
RNS Number : 6261I
Polar Capital Global Health Tst PLC
15 December 2020
POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC
Legal Entity Identifier: 549300YV7J2TWLE7PV84
AUDITED RESULTS ANNOUNCEMENT FOR THE YEARED
30 SEPTEMBER 2020
FINANCIAL HIGHLIGHTS
For the year to 30 September 2020
Performance
Net asset value per Ordinary share (total return)* 14.14%
Benchmark index
(MSCI ACWI Health Care Index (total return in sterling
with dividends reinvested)) 15.95%
Share price total return* 7.81%
Since restructuring
Net asset value per Ordinary share (total return) since
restructuring * 27.48%
Benchmark index total return since restructuring 35.30%
Expenses 2020 2019
Ongoing charges* 1.01% 1.01%
--------------------------------------------- ------------------ ------------------ ----------
Financials As at As at
30 September 30 September
2020 2019 Change
--------------------------------------------- ------------------ ------------------ ----------
Total net assets (Group and
Company) GBP325,133,000 GBP288,447,000 +12.7%
Net asset value per Ordinary
share 268.11p 236.88p +13.2%
Net asset value per ZDP share^ 110.20p 106.99p +3.0%
Price per Ordinary share 233.00p 218.00p +6.9%
Discount per Ordinary share* 13.1% 8.0% -
Price per ZDP share^ 107.50p 108.50p -0.9%
Net gearing* 5.28% 7.21% -
Ordinary shares in issue (excluding
those held in treasury) 121,270,000 121,770,000 -0.4%
Ordinary shares held in treasury 2,879,256 2,379,256 +21.0%
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 2020:
Amount
per
Ordinary
Pay date share Record Date Ex-Date Declared Date
------------------------------ ----------- ------------- --------------- ----------------
First interim: 28 August 1.00p 7 August 2020 6 August 2020 22 July 2020
2020
Second interim: 26 February 1.00p 5 February 4 February 15 December 2020
2021 2021 2021
Total (2019: 2.10p) 2.00p
------------------------------ ----------- ------------- --------------- ----------------
* 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 information purposes.
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 2020 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 2020 have not
yet been delivered to the Registrar of Companies. The figures and
financial information for the period ended 30 September 2019 are
extracted from the published Annual Report and Financial Statements
for the period ended 30 September 2019 and do not constitute the
statutory accounts for that year. The Annual Report and Financial
Statements for the period ended 30 September 2019 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 December
2020.
National Storage Mechanism
A copy of the Annual Report has been submitted to the National
Storage Mechanism ('NSM') and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Neither the contents of the Company's website nor the contents
of any website accessible from the hyperlinks on the Company's
website (or any other website) is incorporated into or forms part
of this announcement .
CHAIR'S STATEMENT
I wrote my first statement to you as Chair of the Company within
the half-year report in May 2020, during a time of national
lock-down in connection with the government restrictions in place
due to the COVID-19 pandemic. At that time there was much talk of
easing the restrictions, but also fear of a second wave in the
autumn. I am writing to you again during a period of widespread
government restrictions, but also with cautious optimism for 2021,
as vaccines begin to be approved across the globe. 2020 has been a
year unlike any other in my lifetime, and your Board and I hope
that you and your families continue to remain safe and well.
PERFORMANCE
Performance of the portfolio has also been difficult over the
financial year; the first six months saw some steady performance
but this was dwarfed by the market crash in March, at the height of
the first wave of the COVID-19 pandemic and the start of more
widespread national lock-downs. In particular, our overweight
exposure in healthcare equipment was the main negative as we
entered the crisis. Elective procedures were effectively stopped
overnight, to prioritise care for COVID-19 patients, with little
visibility over when they would recommence, let alone when they
would reach pre-pandemic levels.
As with any market defining crisis, it was important for the
Managers to carry out a thorough re-evaluation of the portfolio,
not only to assess the impact of the crisis on their holdings, but
also to consider new and evolving opportunities. Despite a much
stronger second half, the falls experienced in March proved
difficult to pull back completely by the year end. Whilst showing
strong absolute returns, we have finished the year slightly behind
the benchmark. Full detail is given within the Managers'
Report.
OUTLOOK
The Board have continued to monitor performance and have met
virtually with the Managers several times to discuss the strategy
and approach, both directly within the portfolio, but more
generally to the sector. Whilst 2020 was a challenging year, we
continue to be confident that healthcare remains a sector offering
superior growth opportunities. We believe these opportunities will
persist, driven by demographics, innovation, and the need for
greater efficiency in the delivery of healthcare. COVID-19 has
caused challenges, but it has also provided some positives for
healthcare, not only highlighting the need for efficiency, but also
for innovation, particularly where it is driven by technological
change. These are explained in more detail in the Managers'
report.
Healthcare is a sector that has always been subject to high
levels of news flow, often resulting in sharp movements at a stock
level, causing valuations to become adrift from fundamentals.
During 2020 COVID-19 and uncertainty over the outcome of the US
Presidential election, have increased this volatility, some of
which is likely to persist in the months ahead. We believe that
having a specialist healthcare strategy, with a fund management
team which has wide experience across the healthcare universe, is
the right approach to identifying those companies that will benefit
from long term trends and applying rigour in the assessment of how
news or events will impact on individual company valuations.
To conclude, the Board believes investing in healthcare is an
exciting growth opportunity, and that view has been strengthened by
developments during 2020. The valuation of the S&P healthcare
sector relative to the overall market looks very attractive,
particularly now that the extreme outcomes of the US election have
been removed. The Company offers a well diversified approach to
gain access to growth and solid innovation ideas, without the need
to take risk in less developed areas, or on single product
outcomes.
FEES
On 14 October 2020, the Board announced that following
discussions with Polar Capital in connection with the relative
under-performance of the Company, we agreed a reduction in the
management fee charged for managing the assets. The management fee
was reduced with effect from 1 October 2020 to 0.75% per annum
(previously 0.85% per annum) based on the lower of the market
capitalisation and the adjusted net asset value. All other terms
within the Investment Management Agreement remain the same.
DIVIDS
The Company's focus remains on capital growth, and consequently
dividends are expected to represent a relatively small part of
Shareholders' total return.
In August 2020 the Company paid an interim dividend of 1.00p per
ordinary share. At that time the Board notified shareholders that,
having considered the level of revenue reserves available, it
intended to continue paying dividends, but at a reduced rate,
utilising the revenue reserves available. The Board has declared a
further interim dividend of 1.00p per ordinary share payable to
shareholders on the register as at 5 February 2021. This will bring
the total dividend paid for the financial year under review to
2.00p per ordinary share, a small reduction to the previous
financial year.
SHARE CAPITAL
The persistent and relatively high level of share price discount
continues to be a frustration and we as a Board proactively monitor
the situation with the Brokers and Managers, considering any
feedback received from Shareholders, market news, liquidity and
flow, size and life of the Company. We do, and continue to, buy
back shares on a selective basis when we consider it is in the
interests of Shareholders to do so. During the year, the Company
bought back 500,000 ordinary shares at a price of 207.00p per
ordinary share. These shares were placed into the treasury account
taking the balance held in treasury to 2,879,256 ordinary shares.
The Company has 121,270,000 ordinary shares in issue (excluding
those held in treasury) as at the date of writing.
The Company's share price on 30 September 2020 was 233.00p
(2019: 218.00p). The Company's market capitalisation at the
financial year end was GBP282.6m (2019: GBP265.5m). The Company's
share price traded at a discount throughout the year, ending the
year at a discount of 13.1% compared to 8.0% at the start of the
year.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
The requirement to report on Environmental, Social and
Governance (ESG) matters is ever increasing. We have been
discussing ESG, and how it impacts the investment process and
outcomes, with the Managers and with the wider Polar Capital team
in relation to the Polar Capital policy and approach across the
entire business. We recognise the importance of ESG but note that
this is only one factor in the investment process and should not be
the sole consideration when reviewing investments or actions. ESG
is discussed
further in the Managers' Report.
BOARD
I am very pleased to confirm that the fully refreshed Board has
settled into a rhythm, despite having only managed to meet in
person as a full Board twice before we entered the lockdown period.
Since March we have successfully utilised video conferencing
facilities and have met many times both as a full Board, with
additional guests as required, but also in a more ad hoc manner
with private director-only meetings and also in one-to-one
meetings.
We appreciate the efforts made by all of the service providers
to the Company during the lockdown period, and are pleased to
confirm that no service breaks or matters of concern have arisen in
the year either due to the remote working environment or for any
other reason.
COMPANIES ACT 2006, S172 - Directors' Duties
Directors have a duty to promote the success of the Company for
the benefit of its members. Our section 172 statement is contained
in the Annual Report and Accounts and details various actions taken
and considerations made during the year.
ANNUAL GENERAL MEETING
The Company's tenth Annual General Meeting (AGM) will be held at
2 pm on Tuesday, 26 January 2021. It is difficult to know where we
will be in relation to COVID-19 in January however, the health and
welfare of our shareholders, advisers and wider stakeholders is our
primary concern. We have therefore followed the current government
guidelines in relation to gatherings of individuals from multiple
households. This means that the AGM this year will a 'closed
meeting' with only a quorum present. The quorum will be represented
by board member and adviser shareholders; all resolutions will be
voted on by a poll and we would therefore encourage
you to submit your votes by proxy in accordance with the
instructions included with the Notice of AGM.
We acknowledge that a closed meeting does not represent an
opportunity for shareholders to engage with either the Board or the
Managers and for this reason we are offering a 'Meet the Manager
& Board' session by webinar. At this session you will have the
opportunity to hear a brief introduction from the Managers and
myself and there will be an opportunity to ask questions. We will
also be happy to receive questions ahead of the session by email to
marketing@polarcapital.co.uk, with the subject line PCGH Meet the
Manager & Board. The Webinar will be held at 2 pm on Thursday,
14 January 2021, full details are provided at the front of the
Annual Report and on the Company's website:
www.polarcapitalglobalhealthcare.co.uk.
I look forward to welcoming you to the Meet the Manager &
Board session at which we will very much value your questions and
feedback.
Lisa Arnold
Chair
14 December 2020
INVESTMENT MANAGER'S REPORT - FOR THE YEARED 30 SEPTEMBER
2020
The objective of Polar Capital Global Healthcare Trust plc is to
generate long-term capital appreciation by investing in a globally
diversified portfolio of healthcare companies, to include, but not
limited to, pharmaceutical, biotechnology, medical device and
healthcare services companies.
The Company's diversification strategy, coupled with its focus
on large-capitalisation healthcare companies with resilient,
medium-term growth profiles, helps drive the relatively lower
risk-profile of the underlying assets, relative to the more
volatile areas of healthcare. Further, the broad investment remit
affords the opportunity to invest in growth areas regardless of the
economic, political and regulatory environment. Importantly, the
Company also has the opportunity to invest in earlier-stage, more
innovative and disruptive companies, companies that tend to be
lower down the market capitalisation and liquidity scale. This is a
key advantage of a closed-end company like an investment trust.
Regardless of size, sub-sector or geography, stock selection is
central to the process, looking to identify companies where there
is a disconnect between valuations and the near and medium-term
growth drivers.
In terms of structure, the majority of the Company's assets
(calculated on a gross basis and referred to as the growth
portfolio) will be invested in companies with a market
capitalisation >$5bn at the time of investment, with the balance
invested in companies with a market capitalisation <$5bn (a
maximum of 20% of gross assets and referred to as the innovation
portfolio). At the end of the reporting period, 29 investments were
in the growth portfolio, comprising some 94.0% of net assets, and
14 investments were in the innovation portfolio, comprising 11.3%
of net assets. Structural debt, in the form of Zero Dividend
Preference Shares, offers access to additional liquidity and the
opportunity to enhance returns.
Market Cap 30 September 30 September
at 2020 2019
Large (>US$5bn) 94.0% 96.9%
Medium (US$1bn -
US$5bn) 7.1% 3.3%
Small (<US$1bn) 4.2% 6.9%
Other net liabilities (5.3%) (7.1%)
100.0% 100.0%
============= ==============
The seven-strong specialist healthcare team at Polar Capital,
set up in 2007, boasts 120+ years of industry experience. The team
has a wide range of skills, tenure and approaches to fund
management, but all are fundamental investors focused on stock
selection. Further, the majority of the team have held roles within
the healthcare industry, building complementary skill sets. The
team fits well within the collegiate, positive, forward-looking
culture at Polar Capital where the capacity of all investment
strategies is managed to enhance and protect performance.
Reflecting on last year's annual report and investment themes, the
focus was very much on how innovative technologies are being used
by the healthcare industry to disrupt and improve the delivery of
care. Continuous glucose monitoring in diabetes and minimally
invasive technologies that reduce surgery time and improve patient
outcomes are just two examples of how disrupting the status quo can
translate into commercial success. Still in their infancy, momentum
in those areas continues to be strong, but it is the COVID-19
crisis that has highlighted the need for further investment.
Healthcare systems globally need to accelerate the adoption of
products and services that drive efficiencies, broaden access to
care and improve clinical outcomes. It is that shift in the
healthcare landscape that we believe will yield a plethora of
interesting investment opportunities not just over the next 12
months, but for many years to come.
Over the financial year to the end of September 2020, the
healthcare sector comfortably outperformed global stock market
major indices. The collapse in markets in March 2020, driven by the
unprecedented COVID-19 crisis, defined the performance period under
review, further details of which are provided below. Over the full
period, the Company returned 14.14% but lagged its benchmark
healthcare index by 1.81%.
The healthcare sector outperformed during March, but driven by
defensive stocks, including large-capitalisation pharmaceutical and
large-capitalisation biotechnology. Also, any companies attempting
to develop or manufacture drugs or diagnostics in relation to
COVID-19 saw their stocks outperform. By contrast, reallocation of
resources away from standard hospital procedures to care for
COVID-19 patients led to a dramatic decline in elective procedures,
negatively impacting medical device companies and healthcare
providers, which had a material negative impact on the
portfolio.
The substantial fall in the markets in March was followed by an
equally dramatic recovery, driven mainly by an unparalleled fiscal
and monetary response, with $10 trillion of global stimuli
announced, a figure three times more than the response to the
2008-09 financial crisis.
Politics have also been prominent during the reporting period,
with the US election a big driver of sentiment amongst investors.
During 2019, when the more progressive Democratic nominees, Bernie
Sanders and Elizabeth Warren, were still in the running for office,
we witnessed periods of severe stress as the market focused on the
risks associated with Medicarefor-All (in essence, a Government run
and funded healthcare system not that dissimilar to the UK's
National Health Service). 2020, however, saw Joe Biden grab the
Democratic baton which we believe has removed the worst-case
scenario for the healthcare industry given his intention to invest
more dollars into the current system, as opposed to dismantling it.
The affordability of pharmaceuticals is on the agenda of both
political parties, but it will be the make-up of Congress that will
determine the ultimate success or failure of the various
policies.
As one would expect, this dramatic shift in the healthcare
landscape presented an opportunity to markedly change the
positioning of the Company's portfolio. As at the 30 September
2019, the biggest sub-sector relative over-weight was healthcare
equipment, a decision driven by innovation-fuelled revenue
acceleration, with pharmaceuticals the biggest relative
under-weight. As at the 30 September 2020, healthcare equipment's
weighting was reduced to a modest relative overweight driven by
uncertainty surrounding a potential second COVID-19 wave. The
biotechnology sub-sector exposure was increased materially, with
the relative over-weight reflecting our positive view on the high
levels of innovation in areas such as gene therapy, precision
oncology and rare diseases. Attractive valuations, healthy balance
sheets and supportive regulators helped underpin the decision
further. To the latter point, regulators are accelerating access to
medicines that meet high unmet medical needs. For example, the US
FDA has approved a comparable number of new medicines this year as
it did in 2019, this despite the challenges presented by COVID-19.
We continue to have an under-weight position in pharmaceuticals,
given the sub-sector's lack of top-line growth and mature operating
margins.
2020 has been an extremely challenging year, but one that
under-pins the value of the healthcare industry. This is
corroborated not just by the high levels of innovation that have
accelerated development of COVID-19 therapeutics and vaccines, but
also by the mass coordination and mobilisation of resources to
ensure wide-spread access to effective testing. The crisis has
also, however, highlighted the need for healthcare systems globally
to become more efficient as the demand for products and services
continues to rise.
PERFORMANCE REVIEW
Over the financial year to the end of September 2020, the
healthcare sector comfortably outperformed global stock markets.
Over the full period, the Company delivered strong absolute returns
14.14% but disappointingly lagged its benchmark index by 1.81%,
with the index returning 15.95%. The stock market crash in March,
driven by the COVID-19 crisis, defined the performance period under
review, with significant relative underperformance in the first
half of the financial year (-6.1%), followed by considerable
outperformance in the second half of the year (5.6%), but still not
quite enough to counter the impact of March on the portfolio.
As we have already mentioned, the defining period for the
financial year was March which in the first half of the month,
witnessed extreme fear and a rush for liquidity. The healthcare
sector outperformed, driven by defensive stocks, including
large-capitalisation pharmaceutical and large-capitalisation
biotechnology. Also, a number of companies attempting to develop or
manufacture drugs or diagnostics in relation to COVID-19 saw their
stocks outperform, often with extreme moves on scant newsflow.
Whilst stock-picking is central to the team's process, we do
invest time on assessing macro-factors and, unfortunately, the
Company entered the month with positioning driven by an optimistic
top-down view of the economic growth outlook for developed markets
with COVID-19 at the time deemed a problem isolated to China. With
leading economic indicators rising, the top-down part of the
investment process drove increased exposure to healthcare equipment
at 29.6% of the Company, overweight versus the benchmark by 10.7%,
and healthcare facilities at 3.6% of the portfolio, overweight by
2.3%. To fund this, defensive positioning was muted with the
weighting in pharmaceuticals at 23.5%, underweight versus the
benchmark by 20.3%. Hence the Company was not well positioned for
the market correction, carrying an overweight position in areas of
healthcare that were hit the hardest, namely healthcare equipment
and facilities, and carrying an under-weight position in the
sub-sectors that out-performed, i.e. large-capitalisation
pharmaceuticals. In an attempt to shift more defensively in
reaction to COVID-19 spreading from China, across Europe and into
the US, the exposure to pharmaceuticals was increased to 35.5% of
the Company and healthcare equipment was reduced to 18.2%. However,
this shift was too late to limit the damage from the COVID-19
outbreak, with the Company lagging its benchmark by 6.5%, for the
month of March.
Going into further detail, asset allocation was a negative
driver in March with the Company being over-weight in
mid-capitalisation stocks on a relative basis, as was stock
selection in large-capitalisation securities. On a geographical
basis, over-weight positioning in Europe and the US on arelative
basis was negative driven mainly by stock selection. On a
sub-sector basis, being over-weight in biotechnology was a positive
in terms of allocation, with negatives being the over-weight
positions in managed care, healthcare facilities and healthcare
equipment. Also, stocks with gearing were punished
indiscriminately. The challenge in large-capitalisation
stock selection was the impact on healthcare equipment and
healthcare facilities sub-sectors. The COVID-19 pandemic led to a
collapse in elective care procedures at hospitals, hence the
dramatic fall in the share prices of many companies in these
sub-sectors. On the drug development side, clinical trials for
non-COVID-19 drug development were delayed or paused, negatively
impacting the outsourcing providers (Clinical Research
Organisations or CROs).
The peak in risk aversion by investors appeared to occur in the
latter part of March, as markets started to digest the sheer size
of the stimulus packages. After the sharp collapse in stocks, we
saw this was as a compelling opportunity for the Company to shift
to a more aggressive approach and take advantage of the extreme
weakness. The view was taken that the worst was over and that the
worst of the data, whether it be economic activity or healthcare
utilisation, would hit a low in April and move aggressively higher,
at a rate much faster than generally expected. The belief here
stemmed in large part from efforts being made by the healthcare
industry, whether it be diagnostics or drug development against
COVID-19, to facilitate "living" with the pandemic pending the
successful development of vaccines. For the Company this view was
translated into increased exposure to life sciences tools and
services at 15.7% of the portfolio, managed care at 10.7% and
healthcare supplies at 6.6%, representing a more than doubling of
relative over-weighting of these sub-sectors in comparison to
positioning at the end of February. This shift enabled significant
outperformance over the second half of the financial year.
Over the full financial period, the strong second half was still
not enough to compensate for the March period. Stock selection was
the biggest negative driver for the Company, with
large-capitalisation securities the biggest drag on performance.
Both allocation and stock selection were positive for
mid-capitalisation stocks, whereas the picture was more mixed at
the small-capitalisation end with positive allocation and negative
selection. On a geographical basis, Japan was a positive
contributor, with the out-performance
driven by a single stock, Medley, held in the innovation
portfolio. Europe and the US & Canada were negative driven by a
mixture of allocation and stock selection. The underweight position
in Asia-Pac (ex- Japan) also hurt performance.
In terms of sub-sectors, pharmaceuticals was the biggest
positive contributor, with the material under-weight stance driving
positive allocation in conjunction with positive stock selection.
Healthcare technology was also a positive contributor, with both
allocation and stock selection contributing to performance. The
biggest drag on performance was healthcare equipment, with the
sector hit hardest during the peak of the COVID-19 crisis in March.
Life sciences tools and services were also a drag, with poor stock
selection off-setting the positive allocation effect.
Top 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Top 10 Weight vs BM
---------------------- -------- -------- -------- -------- -------------
Horizon Pharma 2.89 2.89 171.55 155.60 2.88
---------------------- -------- -------- -------- -------- -------------
Medley 0.94 0.94 308.53 292.58 1.56
---------------------- -------- -------- -------- -------- -------------
Bio-Rad Laboratories 3.18 3.05 47.46 31.51 0.90
---------------------- -------- -------- -------- -------- -------------
Align Technology 1.04 0.71 72.24 56.29 0.90
---------------------- -------- -------- -------- -------- -------------
ArgenX 1.09 1.07 121.20 105.25 0.77
---------------------- -------- -------- -------- -------- -------------
Catalent 1.08 1.01 71.09 55.14 0.75
---------------------- -------- -------- -------- -------- -------------
Incyte 2.52 2.25 15.08 -0.87 0.61
---------------------- -------- -------- -------- -------- -------------
Cigna 2.07 0.89 6.24 -9.71 0.60
---------------------- -------- -------- -------- -------- -------------
Axonics Modulation
Technologie 0.78 0.78 80.48 64.53 0.60
---------------------- -------- -------- -------- -------- -------------
Pfizer 0.00 -3.44 -2.77 -18.72 0.59
Source: Polar Capital, as at 30 September 2020. Past performance
is not indicative or a guarantee of future results.
Positive contributors to performance for the financial year
included Horizon Pharma, Medley, Bio-Rad Laboratories, Align
Technology and ArgenX. Horizon Pharma's performance reflects a very
strong launch for one of the company's lead assets, Tepezza for
Thyroid Eye Disease, a condition in which the eye muscles, eyelids,
tear glands and fatty tissues behind the eye become inflamed.
Despite the COVID-19 pandemic, Tepezza has consistently
out-stripped consensus expectations driving material revenue and
earnings upgrades. Indeed, Tepezza's impressive launch moved the
management team to increase the drug's peak sale potential to
>$3bn from >$1bn previously. Medley has been a significant,
positive contributor and has been held since the company's IPO in
December 2019. Medley runs one of Japan's largest human resource
recruitment systems in the medical and healthcare field but,
perhaps more interesting, is the medical platform business which
houses the largest telemedicine system in Japan known as CLINICS
Telemedicine. Very much in its infancy, and accelerated by
COVID-19, it is our view that the demand for telemedicine services
in Japan will continue to grow substantially. Life sciences tools
and services company, Bio-Rad Laboratories, has continued to
execute operationally, driven by top-line momentum in the Life
Science segment and steady operating margin progress. The stock
also benefited from exposure to COVID-19 testing and from its 34.3%
stake in German life sciences tools and services company,
Sartorius, which has performed strongly in 2020. Sartorius' success
has stemmed from exposure to the bio-processing market which not
only has strong, underlying fundamentals but has also received a
short-term boost from demand for COVID-19 related projects.
Align Technology's strong performance can be attributed to a
better-than-expected post COVID-19 recovery as dental practices
re-opened, with demand for the company's clear aligners
revitalised. Looking further forward, Align's digital approach to
dental treatment could be a catalyst for market share gains,
offering customers the advantage of fewer inpractice visits with
their dentist. This is something that has appeal in a COVID-19
world and should be sustainable once COVID-19 related restrictions
ease. Belgian biotechnology company ArgenX also had a good year,
with the biggest inflection coming after the company disclosed
positive data for its lead pipeline asset, efgartigimod. Being
investigated for the treatment of generalised Myasthenia Gravis (a
chronic and debilitating autoimmune disease that causes severe
muscle weakness), the product showed statistical significance with
the primary endpoint and delivered fast and deep responses. We
expect the company to submit its BLA (Biologics License
Application) to the FDA in H2'20 followed by a Japanese filing in
early 2021.
Bottom 10 Relative Contributors (%)
Average Active Stock Stock Total
Stock Weight Return Return Attribution
Bottom 10 Weight vs BM
------------------ -------- -------- -------- -------- -------------
Quotient 1.73 1.73 -37.03 -52.98 -1.05
------------------ -------- -------- -------- -------- -------------
UnitedHealth 2.02 -2.51 36.56 20.61 -0.99
------------------ -------- -------- -------- -------- -------------
Intuitive
Surgical 1.41 0.28 25.09 9.14 -0.91
------------------ -------- -------- -------- -------- -------------
Bristol Myers
Squibb 2.87 0.63 13.17 -2.77 -0.83
------------------ -------- -------- -------- -------- -------------
Smith & Nephew 0.89 0.58 -22.59 -38.54 -0.75
------------------ -------- -------- -------- -------- -------------
HCA Healthcare 2.85 2.28 -1.44 -17.39 -0.70
------------------ -------- -------- -------- -------- -------------
PRA Health
Sciences 1.22 1.22 -2.69 -18.64 -0.69
------------------ -------- -------- -------- -------- -------------
Becton Dickinson 3.50 2.34 -12.44 -28.39 -0.68
------------------ -------- -------- -------- -------- -------------
eHealth 0.43 0.43 12.59 -3.36 -0.63
------------------ -------- -------- -------- -------- -------------
Lundbeck 1.49 1.45 -5.31 -21.26 -0.61
Source: Polar Capital, as at 30 September 2020. Past performance
is not indicative or a guarantee of future results.
Negative contributors to performance for the financial year 2020
included Quotient, UnitedHealth Group, Intuitive Surgical, Bristol
Myers Squibb and Smith & Nephew. Before the COVID-19 crisis the
Quotient management team had consistently delivered on stated
timelines and objectives, but two factors have adversely impacted
performance in the last 12 months. Firstly, there have been
financing overhangs which have been resolved for the time being.
Secondly, COVID-19 related shutdowns delayed field trials for the
company's MosaiQ IH microarray, delays that have now been rectified
as sites have re-opened and trials re-started. The Company's
under-weight position in UnitedHealth Group detracted from
performance following the stock's strong recovery during the first
financial quarter of the reporting period. The managed healthcare
sector was volatile during calendar 2019, with the sector's
fortunes very much tied to the campaign momentum of the more
progressive Democratic nominees, namely Elizabeth Warren and Bernie
Sanders. As a reminder, that positive campaign momentum compressed
the valuation multiples of the managed healthcare sector as it
raised the spectre of Medicare-For-All, a Government funded and run
insurance programme that would potentially disintermediate the
healthcare insurance industry. Once the more moderate Joe Biden
started to gain momentum, that valuation pressure eased and the
sector started to recover.
Medical device companies Intuitive Surgical and Smith &
Nephew also detracted from performance during the reporting period,
with both stocks suffering quite markedly during the March
sell-off. One of the big challenges the healthcare industry faced
during the first wave of the COVID-19 crisis was the cancellation
of elective or non-urgent procedures, freeing up much-needed
hospital capacity to care for COVID-19 patients. These
cancellations impacted the medical device companies, with demand
for their products and services materially impacted. Smith &
Nephew manufactures hips and knees and was therefore directly
exposed. Intuitive Surgical,
a leading protagonist in the field of robotic surgery, was
similarly affected by the downturn in patient volumes. Intuitive
Surgical's challenges were further compounded as the market started
to question the strength of hospitals' balance sheets and hence
their appetite to purchase capital equipment such as Intuitive's
surgical robots. The portfolio was also under-weight in Bristol
Myers Squibb during the first half of the 2020 financial year, at a
time when the company delivered a steady stream of positive
newsflow, primarily from its oncology division, that positively
re-rated the stock.
Compelling opportunities lie-ahead
There are a number of key themes and opportunities in healthcare
that are exciting and that we believe offer the potential for
significant returns in the years ahead. In brief, the major
investment themes, which we discuss further below, are:
-- Employing technology to disrupt healthcare delivery and shift
utilisation to lower cost settings;
This will be by far the most important structural shift in
healthcare for the next 10-20 years and the enablers of this shift
should enjoy significant growth.
-- Product and service innovation;
Long-term product or service development success dependent on
ability to lower healthcare costs.
-- Consolidation on the rise again;
Leaders that can acquire high quality assets in fragmented
markets at attractive valuations can enjoy significant
outperformance.
-- Growth in emerging market healthcare demand;
Due to move significantly higher over the next 15-20 years -
investing in the long-term structural growth stories should deliver
handsome returns.
-- Outsourcing;
Not a new theme but growth is robust across clinical trial
outsourcing, manufacturing and early stage research.
-- Prevention;
References diagnostics and vaccines, both of which provide
tremendous value to healthcare systems as prevention is the most
cost-effective way of delivering care. The impact of COVID-19 has
highlighted the value of diagnostics and vaccines.
Healthcare delivery disruption: Shifting utilisation to lower
cost settings
Healthcare systems globally are embracing new products and
technologies to drive efficiencies without compromising quality of
care, and this mega-trend should yield compelling investment
opportunities that should generate attractive, medium-term returns.
Whilst one would never trivialise the human suffering and practical
implications of the COVID-19 crisis, it has been a real catalyst
for positive change in the healthcare industry. Telehealth and
virtual interactions with physicians and specialists are here to
stay, as is the shift of patient volumes from traditional
in-patient hospital settings to lower-cost out-patient facilities.
All this at a time when the biotechnology, pharmaceutical and
medical device industries are investing heavily in innovative
medicines and devices to target unmet medical needs. The structural
growth drivers for healthcare are reasonably well understood, i.e.
we are all getting older and we are all consuming more and more
healthcare products and services, it is the hidden opportunities
within structural change that are really exciting and possibly
under-appreciated.
The marriage between healthcare and technology has been a
consistent theme for Polar Capital's healthcare team and one that
has significantly accelerated during the COVID-19 crisis. The
ability to virtually interact with physicians and other healthcare
professionals has proved to be invaluable. US-based virtual care
provider, Teladoc, for example, posted a 92% increase in total
visits in Q1'20. Importantly, whilst volume growth eased over the
course of April and May, utilisation stabilised in late May and
throughout most of June at a level of roughly 40% higher than prior
to COVID-19. Further, the US Department of Health & Human
Services (HHS) took steps to make it easier to access telehealth
services during the crisis, encouraging providers to adopt and use
the latest technologies. This was followed by the Centres for
Medicare & Medicaid Services (CMS) who have proposed to
permanently allow Medicare providers to use telehealth to carry out
home-visits. To quote Seema Verma, the CMS administrator; "I think
the genie's out of the bottle on this one," "I think it's fair to
say that the advent of telehealth has been just completely
accelerated, that it's taken this crisis to push us to a new
frontier, but there's absolutely no going back." And it is not just
the US that is embracing telehealth services, with the Japanese
company Medley* the owner of the largest telemedicine system in the
country known as CLINICS Telemedicine. Very much in its infancy,
and accelerated by COVID-19, it is our view that the demand for
telemedicine services in Japan will continue to grow substantially.
COVID-19 is also expected to accelerate the transition of care
delivery out of hospital in-patient facilities to alternative sites
of care, such as Ambulatory Surgery Centres (ASCs) or the home.
Patients wanting to avoid hospitals due to COVID-19 risks is short
term, but it is the convenience of shorter stays, and the cost
advantages of ASCs, that will drive a longer-term trend. Clearly
not all procedures can be performed in an ASC, but there could be
an acceleration of those that can. With reimbursement aligned,
orthopaedics is an area that could see an inflection, especially
now that the use of robots can reduce the number of instrument
trays needed to perform the procedures. Ophthalmology is another
area that could see an acceleration, with the efficiency of an ASC
appealing as the system attempts to clear its backlog.
The drive to generate efficiencies and reduce costs should also
encourage more patient volume into the home, with the industry
bracing itself for a strong rebound in demand for its services.
AdaptHealth* appears to be especially well-positioned as a leading
provider of Home Medical Equipment (HME), diabetes management
products and medical supplies to the home. Clearly home health can
encompass a wide variety of chronic illnesses but home dialysis is
worth highlighting following President Trump's Executive Order (EO)
the goals of which include; 1) Reducing the number of Americans
developing end-stage renal disease by 25% by 2030; 2) Having 80% of
new end-stage renal disease patients in 2025 either receiving
dialysis at home or receiving a transplant; and 3) Doubling the
number of kidneys available for transplant by 2030. A clear
positive for patients, the EO has positive implications for medical
device
providers such as Baxter International* and Fresenius Medical
Care*, and for dialysis providers themselves, such as DaVita and
Fresenius Medical Care*.
Another area of healthcare that could see a period of sustained
investment is diagnostics and high-throughput screening. Companies
within the diagnostics and life sciences tools and services arena
have been very quick to mobilise their resources to develop and
disseminate COVID-19 tests, not just for the antigen, but also for
the antibody. The sub-sectors that have really driven this effort
include a number of large capitalisation life sciences tools and
services and diagnostics companies such as Abbott Laboratories,
Thermo Fisher Scientific, PerkinElmer and Hologic, as well as
Quidel and Quotient* which are further down the market
capitalisation scale. One of the early bottlenecks in some
healthcare systems, however, was access to the capital equipment
and systems to perform the tests quickly and at scale. Those
jurisdictions that have invested in testing infrastructure appeared
to have a sizeable advantage over those that have neglected to
invest, including the UK. Looking further out, once the
infrastructure is in place, it is reasonable to surmise that
diagnostic testing rates will increase in many different areas of
medicine. Companies that could potentially benefit from
significant and sustained investment in infrastructure include
Roche Holdings* via its Diagnostics division, Becton Dickinson* and
European peers Biomerieux and Diasorin.
* Denotes a portfolio holding at the time of writing
Politics and COVID-19 cannot be ignored
If one assumes that ballot recounts in Georgia fail to change
the course of the US election, then democrat Joe Biden will have
won the race, an outcome that prima facie sets a cautionary tone
for the healthcare industry. Importantly, however, the balance of
power in the Senate will be key to determining how far-reaching
Biden's healthcare reform can go. At the time of writing, the
Republicans hold 50 seats in the Senate, the Democrats effectively
hold 48 seats, with 2 seats yet to be decided. Those 2 seats are in
Georgia and are heading to run-off elections to be held on the 5th
January 2021. The outcome of those run-offs will determine the
make-up of the Senate, a critical factor given it holds sway over
judicial nominations and legislative agenda. A 51:49 outcome
favouring the Republicans would make it very difficult for the
Democratic party to pass its more progressive healthcare policies,
especially with senator Mitch McConnell leading the Republicans in
the Senate. Even if the Senate gets split 50:50, with the President
carrying the tiebreaking vote, disruptive changes to law are
unlikely given the reliance on bi-partisan coordination and
agreement.
Heading into the election Joe Biden's focus was on building on
and investing in the current healthcare system, known as the
Affordable Care Act (ACA), and addressing the high cost of
prescription drugs. With regards the former, Joe Biden has
signalled he will consider a public insurance option and will also
consider lowering the eligibility age for Medicare from the current
65 years of age. Investing in the ACA, and lowering the eligibility
age for Medicare, are both tailwinds for the insurance industry
given the positive volume implications. A public insurance option,
however, could present a challenge but only if administered and
under-written by the Federal government. Head-line grabbing
perhaps, but unlikely to present a material challenge to the
managed care industry.
With bi-partisan support, addressing the high out-of-pocket
costs for prescription drugs, especially for US seniors, is a
directive that will have traction. A divided Senate is unlikely to
support the more draconian policies such as direct negotiation of
drug prices by the Government, but we do believe that the
Administration will look at a number of plans including, but not
exhaustively; Using international pricing mechanisms to value drugs
ahead of US launch; Prohibiting drug manufacturers from increasing
prices above the general rate of inflation; Allowing for drug
reimportation; Supporting the development of lower-cost generics.
Regardless of the potential changes, the message to the
bio-pharmaceutical industry is very clear - innovate and target
unmet medical needs because pricing pressure is here to stay.
On a more positive note, the first Phase III COVID-19 vaccine
update was extremely encouraging. Early in November, Pfizer and
BioNTech announced positive results from the first interim analysis
of the Phase III study for their vaccine candidate, BNT162b2. The
vaccine was found to be >90% effective in preventing COVID-19 in
participants without evidence of prior SARS-CoV-2 infection.
Importantly, no serious adverse concerns had been observed. A
hugely uplifting update, and one that should be widely applauded,
it is important to check euphoria by reflecting on some of the yet
unanswered questions. Whilst there were no serious adverse events
reported, we are yet to fully understand the tolerability profile
of the vaccine (fever, chills, nausea etc), nor do we know if the
vaccine is effective in the elderly or in high-risk groups. The
vaccine's ability to prevent re-infection is also an unknown. When
trying to assess access and availability, capacity and distribution
should also be considered. A two-dose course, Pfizer/BioNTech will
have approximately 50 million doses of BNT162b2 available by the
end of 2020, and up to 1.3 billion available in 2021. It is also
worth noting that the vaccine needs to be stored at -70 degrees
Celsius, so wide-spread distribution is not a trivial matter and
will require substantial investment. With multiple COVID-19
vaccines in late-stage development, using a variety of mechanisms
and approaches, we firmly believe an optimistic stance is the right
one to adopt.
Positioning and process; Constructive on biotechnology and life
sciences tools and services
As at 30 September 2020, the portfolio's biggest relative
overweight sub-sector was biotechnology, focusing on companies that
are developing and commercialising drugs that target high, unmet
medical needs. The constructive stance also reflects views on
valuations, balance sheet strength and a supportive regulatory
backdrop. Lastly, and clearly impossible to predict the timing and
market participants, M&A is a theme that feels especially
relevant in the biotechnology sector as companies look to bolster
either their pipelines or financial profiles or both. We are
increasingly positive on the life sciences tools and services
sector given it is an area of the market that has the benefit of
being insulated from political rhetoric, has fastgrowing
end-markets such as bio-processing, and has potential COVID-19
upside driven by the testing market and by supplying consumables
needed to manufacture COVID-19 therapeutics and vaccines. Contract
Research Organisations (CROs) are also insulated from political
pressure and have the added benefit of operating in an extremely
well-funded environment, with biotechnology financing hitting
record highs. For context, as at the end of August 2020
biotechnology companies had raised $100bn in 2020, a broad measure
of the health of the industry and the end-markets.
The portfolio continues to be under-weight pharmaceuticals,
reflecting not just our concerns on drug pricing, but also the lack
of growth that the sub-sector offers versus other parts of the
healthcare ecosystem. To be clear, we do believe that we can find
attractive stock specific opportunities within pharmaceuticals,
often driven by under-appreciated pipeline assets or earnings
upside from better-than-expected drug launches. With regards to the
managed healthcare sector, we have a modest over-weight as we
balance a constructive view on industry fundamentals versus the
near-term challenges of a volatile US political environment as
described previously. We do not believe that the healthcare
insurance industry will be disintermediated, rather taking the view
that the participants will play a critical role in managing costs
and driving efficiencies across the healthcare ecosystem.
Geographical Exposure 30 September 2020 30 September 2019
at
----------------------- ------------------ ------------------
United States 68.0% 75.0%
Denmark 6.5% 8.5%
Ireland 5.5% -
Netherlands 5.3% 3.6%
Germany 5.2% -
Switzerland 4.8% 2.5%
France 3.9% 5.8%
United Kingdon 3.7% 5.4%
Japan 2.4% 1.5%
Spain - 3.3%
Italy - 1.1%
Canada - 0.4%
Other net liabilities (5.3%) (7.1%)
------------------ ------------------
Total 100.0% 100.0%
------------------ ------------------
Source: Polar Capital, portfolio as at 30 September 2020.
Sector Exposure at 30 September 2020 30 September 2019
------------------------- ------------------ ------------------
Pharmaceuticals 25.1% 27.0%
Biotechnology 22.6% 13.9%
Healthcare Equipment 21.3% 36.8%
Life Sciences Tools
& Services 12.5% 12.9%
Managed Healthcare 8.2% 4.1%
Healthcare Distributors 4.2% 0.7%
Healthcare Supplies 3.8% 1.7%
Healthcare Technology 3.4% 0.7%
Healthcare Services 2.7% 5.7%
Healthcare Facilities 1.5% 3.6%
Other net liabilities (5.3%) (7.1%)
------------------ ------------------
Total 100.0% 100.0%
------------------ ------------------
Source: Polar Capital, portfolio as at 30 September 2020.
Whilst the above does focus on sub-sector weightings, bottom-up
stock selection is central to the team's investment process,
adopting an agnostic approach to sub-sector and geographic
allocation. The healthcare industry is extremely complicated and
dynamic, and subject to varied newsflow, often hyped, which lends
itself to active management. We look to take advantage of
dislocations between near-term valuations and medium-term returns.
Our own in-house idea generation is complemented with input from
external research, with conviction built through company meetings,
investor conferences and expert physician and consultant networks.
The team also has strong valuation discipline looking at a number
of metrics including sales and earnings revisions,
price-to-earnings, enterprise values, free-cash flow and returns on
invested capital.
Environmental, Social and Governance (ESG)
ESG considerations are increasingly an integral part of the
Company's investment process. Material ESG controversies that have
been identified by the team, or through use of third-party
research, are addressed and adjudicated on a case-by-case basis.
The team uses MSCI ESG data to monitor the status of portfolio
companies to identify outliers, or those with positive or negative
ratings momentum. Any company that is rated CCC by MSCI ESG, for
example, is carefully reviewed by the team to assess the merits of
holding, investing or selling. Most importantly, the team will use
MSCI ESG ratings and research, where available, when assessing the
merits of potential new investments. Regular contact with companies
allows for ongoing dialogue with respect to challenges that could
impact long-term returns. The team also reviews corporate
governance frequently, using professional third-party proxy voting
services to complement direct actions.
Healthcare delivery disruption: Shifting utilisation to lower
cost settings
The portfolio is richly populated with companies that are
directly exposed to the delivery disruption investment theme, i.e.
companies that are developing products, technologies and services
to drive efficiencies and reduce costs without compromising quality
of care. Within the growth portfolio Fresenius Medical Care,
Phillips, Roche Holdings and UnitedHealth Group are all good
examples of companies looking to be part of the solution.
AdaptHealth, Quotient and Renalytix in the Innovation portfolio are
also looking to disrupt the status quo and deliver value to the
system. It is important to remember, however, that we do not
divorce valuation and
potential returns from our process, rather we actively seek out
opportunities where we find dislocation from underlying value. That
dynamism will inevitably lead to opportunities outside of the core
investment themes of the Company.
Fresenius Medical Care (FMC) is a vertically integrated company
involved in the delivery of products and services to patients that
need dialysis treatment. With more than 4,000 dialysis centres
globally, FMC treats approximately 350,000 patients and performs
more than 50 million dialysis treatments every year. Whilst FMC's
extensive network and scale is clearly an advantage when it comes
to an efficiency drive, the company is also actively engaging in
value-based contracts, working with payors to generate savings.
If
successful, the contracts are mutually beneficial given that any
savings generated are shared between the company and the payors.
FMC is also very well-positioned to benefit from the shift of
patient volume from traditional settings, i.e. dialysis clinics, to
the home. With aligned incentives and backing from the US
Government, the direction of travel is clear. FMC has invested
heavily in both products (dialysers) and information technologies
(connected care) to take advantage of the growth opportunity.
Potential advantages to the patients of home dialysis are clear,
but the payors are also set to benefit from reduced costs of care
and FMC should benefit given potential savings in labour, i.e.
reduced staffing requirements, and capital investment, i.e. reduced
investment
in new dialysis centres.
Healthcare equipment company Philips has three divisions;
Diagnosis and Treatment, Connected Care and Personal Health. The
benefits of precise diagnosis and co-ordinated treatment planning
are clear, but it is Philips' Connected Care division that is best
positioned to benefit from the efficiency mega-trend. Philips has
invested in telehealth, patient monitoring and analytics as they
look to manage patient workflow and coordinate the treatment of
chronic diseases. A near-term beneficiary from the COVID-19
pandemic via its ventilators business, it is on-going investment in
hospital and clinical informatics platforms that we believe has
greater durability. Swiss pharmaceutical giant Roche Holdings is
not only innovating in R&D but it is also innovating on pricing
and affordability. Hemlibra, for the treatment of haemophilia, and
lung cancer drug Rozlytrek, were both launched at 50% discounts to
incumbent treatments that they were trying to displace, despite
having highly competitive clinical profiles. Ocrevus, Roche's novel
treatment for multiple sclerosis, was also launched at a material
discount (25%) to the list price of existing treatments on the
market. The company is pursuing a similar strategy with Evrysdi for
the treatment of Spinal Muscular Atrophy, a rare disorder that
primarily affects boys. Roche is pricing the drug at <$100,000 /
year in infants and a maximum price of $340,000 / year in older
children. This is a 25% discount over a 5-year treatment plan
versus the current treatment, Biogen's Spinraza. Roche also has the
largest diagnostics business globally, offering a comprehensive
suite of platforms, software solutions and consumables. More
interestingly, perhaps, in close collaboration with its
pharmaceuticals division, Roche is a leader in personalised
healthcare. According to Roche, 60% of late-stage products in
development have an accompanying companion diagnostic test as the
industry looks to produce targeted therapeutics. These targeted
medicines are not only more efficacious but also reduce waste as
they are administered in only those patients that will respond to
treatment.
Perhaps the best example of a business driving down costs is
UnitedHealth Group. The Group has a healthcare insurance business,
UnitedHealthcare, providing benefits to individuals, employers,
Medicare (for the over 65's) and Medicaid (for low income US
citizens). The Group also has three ancillary businesses that have
one shared mission; to improve performance, generate efficiencies
and bend healthcare's cost-curve. OptumHealth provides care
directly through localised networks of medical groups and
ambulatory care systems, including primary, specialty, urgent and
surgical care. The unit also provides products and services that
help consumers control their health needs and manage chronic
conditions. OptumInsight provides data, analytics, consulting
services, research and technologies that help healthcare systems
reduce costs, meet compliance mandates and improve clinical
outcomes. OptumRx is the Group's PBM that uses its scale to
negotiate the best possible deals for its members - low cost
medications benefit not just consumers but also the sponsors and,
ultimately, shareholders.
AdaptHealth is a leading provider of Home Medical Equipment
(HME) and is a direct play on home health. Operating across most of
the US, AdaptHealth offers a broad range of products and services
to help patients adapt to life in the home. These include diabetes
management, sleep and respiratory therapies, mobility products,
wound care, non-invasive ventilation and nutrition supplies. A
heavy user of technology, AdaptHealth is very focused on tailored
solutions that empower patients to live and lead better lives.
AdaptHealth is a classic play on the consolidation theme that is
most relevant to healthcare services. The HME market is very
fragmented and thus a significant opportunity exists to acquire
assets at attractive valuation levels. With AdaptHealth's use of
technology, it can manage this consolidation in a more effective
manner at a much greater pace than competitors.
Quotient is a commercial-stage diagnostics company looking to
reduce healthcare costs and improve patient care through the
development of innovative tests for blood grouping. Blood grouping
involves specific procedures performed at donor or patient testing
laboratories to characterise blood, which includes antigen typing
and antibody identification. The company's MosaicQ platform is
potentially disruptive given that it significantly reduces the cost
of blood grouping, is easy to use, and can be used for high
throughput results. The efficiencies that the platform provides are
key as the economics in blood donation and testing are
extremely
challenging. The technology should allow development in other
areas of diagnostics, with proof of this coming from Quotient's
ability to produce a COVID-19 antibody test in rapidly and with
best-in-class accuracy.
With a clear focus on prevention rather than treatment,
Renalytix is an artificial intelligence-enabled in-vitro
diagnostics company, focused on optimising clinical management of
kidney disease to drive improved patient outcomes and lower
healthcare costs. The company's KidneyIntelX platform uses
artificial intelligence to combine and analyse a broad range of
data inputs, including validated bio-markers, genetics and
personalised patient data, to generate unique patient risk scores.
These scores are then used to predict a patient's risk of
deteriorating kidney function and progress towards Chronic Kidney
Disease (CKD). It is hoped that a powerful prognostic tool can help
slow the progression of kidney disease and potentially prevent the
occurrence of progressive kidney function decline such as kidney
failure and the need for longterm dialysis or kidney transplant.
According to the Centers for Disease Control and Prevention CKD
affects approximately 37 million people in the US alone, and the
National Kidney Foundation estimates that one third of adults in
the US are at risk of developing kidney disease. The revenue
opportunity for Renalytix is substantial, as is the potential to
generate savings for healthcare systems globally.
Top 10 Holdings Relative to Benchmark[1] Relative
------------------------------------------ ------------
Avantor 3.2%
Humana 2.9%
Medtronic 2.9%
IQVIA 2.9%
Horizon Pharma 2.9%
Bio-Rad Laboratories 2.9%
INC Research Holdings 2.9%
Incyte 2.6%
Amgen 2.6%
Vertex Pharmaceuticals 2.5%
Source: Polar Capital, 30 September 2020. 1. Benchmark: MSCI AC
World Daily TR Net Health Care Index. It should not be assumed that
recommendations made in future will be profitable or will equal
performance of the securities in this document. A list of all
recommendations made within the immediately preceding 12 months is
available upon request.
Conclusion
2020 will of course be remembered for the COVID-19 pandemic, the
biggest economic, social and healthcare crisis of our generation.
Importantly, however, the crisis has been a genuine catalyst for
positive change in the healthcare industry, accelerating the
adoption of products, technologies and services designed to make
wide-scale access to healthcare more efficient and more affordable
without compromising quality. It is that structural shift that we
believe will yield some truly exciting investment opportunities,
opportunities that should generate highly attractive, near and
long-term returns.
James Douglas & Gareth Powell
Co-Managers
14 December 2020
PORTFOLIO REVIEW
Full Investment Portfolio
As at 30 September
Ranking Stock Sector Country Market Value % of total
GBP'000 net assets
2020 2019 2020 2019 2020 2019
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare
1 (-) Medtronic Equipment Ireland 16,519 - 5.1% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
United
2 (-) Amgen Biotechnology States 15,815 - 4.9% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
3 (-) Roche Pharmaceuticals Switzerland 15,491 - 4.8% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Bristol Myers United
4 (-) Squibb Pharmaceuticals States 14,393 - 4.4% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
5 (2) Sanofi Pharmaceuticals France 12,825 14,896 3.9% 5.2%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
United
6 (5) Eli Lilly Pharmaceuticals States 12,337 10,606 3.8% 3.7%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Managed United
7 (32) Humana Healthcare States 12,330 4,936 3.8% 1.7%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Vertex United
8 (-) Pharmaceuticals Biotechnology States 11,561 - 3.6% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Life Sciences
Tools & United
9 (-) Avantor Services States 10,948 - 3.4% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Life Sciences
Tools & United
10 (25) IQVIA Services States 10,897 6,624 3.4% 2.3%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Top 10 investments 133,116 41.1%
---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
11 (18) Becton Dickinson Equipment States 10,258 7,961 3.2% 2.8%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Koninklijke Healthcare
12 (6) Philips Equipment Netherlands 10,071 10,518 3.1% 3.6%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Life Sciences
Tools & United
13 (10) Bio-Rad Services States 9,867 8,977 3.0% 3.1%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
14 (3) Novo Nordisk Pharmaceuticals Denmark 9,731 13,763 3.0% 4.8%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Baxter Healthcare United
15 (22) International Equipment States 9,696 7,022 3.0% 2.4%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
United
16 (15) Incyte Biotechnology States 9,431 8,193 2.9% 2.8%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
United
17 (20) Horizon Pharma Pharmaceuticals States 9,335 7,375 2.9% 2.6%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Life Sciences
Tools & United
18 (-) Syneos Health Services States 8,948 2.7% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Fresenius Medical Healthcare
19 (-) Care Services Germany 8,815 - 2.7% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
20 (-) Zimmer Biomet Equipment States 8,631 - 2.6% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Top 20 investments 227,899 70.2%
---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
21 (-) Amerisourcebergen Distributors States 8,545 - 2.6% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Managed United
22 (-) Centene Healthcare States 8,526 - 2.6% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare
23 (-) Sartorius Equipment Germany 8,254 - 2.5% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
24 (-) Align Technology Supplies States 7,615 - 2.3% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
25 (-) ArgenX Biotechnology Netherlands 7,216 - 2.2% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Neurocrine United
26 (-) Biosciences Biotechnology States 7,076 - 2.2% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
United
27 (-) Exelixis Biotechnology States 6,980 - 2.1% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Acadia United
28 (-) Pharmaceuticals Biotechnology States 6,581 - 2.0% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
29 (-) Lundbeck Pharmaceuticals Denmark 6,508 - 2.0% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare
30 (-) Medley Technology Japan 5,905 - 1.8% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Top 30 investments 301,105 92.5%
---------------- ------------ --------- ----------------- --------- ------------
Managed United
31 (-) UnitedHealth Healthcare States 5,898 - 1.8% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
32 (33) Quotient Supplies Kingdom 4,874 4,767 1.5% 1.7%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
33 (38) Zealand Pharma Biotechnology Denmark 4,742 2,678 1.5% 0.9%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
34 (12) HCA Healthcare Facilities States 4,726 8,758 1.5% 3.0%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Intelligent Healthcare United
35 (41) Ultrasound Technology Kingdom 4,062 2,043 1.2% 0.7%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Axonics
Modulation Healthcare United
36 (-) Technologies Equipment States 3,896 - 1.2% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Biohaven United
37 (-) Pharmaceutical Biotechnology States 3,821 - 1.2% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
38 (-) AdaptHealth Distributors States 2,804 - 0.9% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare
39 (42) Ship Healthcare Distributors Japan 1,850 1,878 0.6% 0.7%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
40 (37) Oxford Immunotec Equipment Kingdom 1,805 2,694 0.6% 0.9%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Top 40 investments 339,583 104.5%
---------------- ------------ --------- ----------------- --------- ------------
Healthcare United
41 (40) Renalytix AI Technology Kingdom 1,523 2,405 0.4% 0.8%
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Avadel
42 (-) Pharmaceuticals Pharmaceuticals Ireland 1,105 - 0.3% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Healthcare
43 (-) Uniphar Distributors Ireland 193 - 0.1% -
----- ------------------ ---------------- ------------ --------- ----------------- --------- ------------
Total equities 342,404 105.3%
---------------- ------------ --------- ----------------- --------- ------------
Other net liabilities (17,271) (5.3%)
---------------- ------------ --------- ----------------- --------- ------------
Net assets 325,133 100.0%
------------------ ---------------- ------------ --------- ----------------- --------- ------------
Note - Sectors are from the GICS (Global Industry Classification
Standard).
STRATEGIC REPORT
The Strategic Report comprises the Chair's Statement, the
Investment Manager's Report, including information on the
portfolio, and this Strategic Report.
This Report has been prepared to provide information to
shareholders on the Company's strategy and the potential for this
strategy to succeed, including a fair review of the Company's
performance during the year ended 30 September 2020, the position
of the Company at the year end and a description of the principal
risks and uncertainties. Throughout the Strategic Report there are
certain forward-looking statements 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.
HISTORY
In June 2017 a reconstruction of the Company, change in
investment mandate and change of name 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 and in the absence of any prior
proposals, 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.
The Board remains positive on the outlook for healthcare and the
Company will continue to pursue its investment objective in
accordance with the stated investment policy and strategy. Future
performance is dependent to a significant degree on the world's
financial markets and their reactions to economic events and other
geo-political forces. The Chair's Statement and the Investment
Manager's Report comment on the development and performance of the
business during the financial year, the outlook and potential risks
to the performance of the portfolio.
INTRODUCTION AND BUSINESS MODEL
The Company's business model follows that of an externally
managed investment trust providing Shareholders with access
to a global portfolio of healthcare stocks.
The Company is designated an Alternative Investment Fund ('AIF')
under the Alternative Investment Fund Management Directive
('AIFMD') and, as required by the Directive, has contracted with
Polar Capital LLP to act as the Alternative Investment Fund Manager
('AIFM') and HSBC Bank Plc to act as the Depositary.
INVESTMENT OBJECTIVE AND POLICY
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.
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. Innovation companies
are broadly defined by the Investment Manager as small/mid cap
innovators that are driving disruptive change, giving rise not only
to new drugs and surgical treatments but also to a transformation
in the management and delivery of healthcare. The growth portfolio
is expected to comprise a majority of the Company's assets; for
this purpose, once an innovation stock's market capitalisation has
risen above US $5bn, it will ordinarily then be treated as a growth
stock.
The relative ratio between the two portfolios may vary over the
life of the Company due to factors such as asset growth and the
Investment Manager's views as to the risks and opportunities
offered by investments in each pool and across the combined
portfolio. The original make up of the combined portfolio was of up
to 50 stocks, with growth stocks being primarily US listed. In
2018, the Board authorised an increase to the number of stocks able
to be held to 65 and confirmed there is no restriction on
geographical exposure.
The combined portfolio will therefore be made up of interests in
up to 65 companies, with no single investment accounting for more
than 10% (or 15% in the case of an investment in another fund
managed by the Investment Manager) of the Gross Assets at the time
of investment. The innovation portfolio may include stocks which
are neither quoted nor listed on any stock exchange but the
exposure to such stocks, in aggregate, will not exceed 5% of Gross
Assets at the time of investment. In the event that the Investment
Manager launches a dedicated healthcare innovation fund, the
Company's exposure to innovation stocks may be achieved in whole or
in part by an investment in that fund. In any event, the Company
will not, without the prior consent of the Board, acquire more than
15% of any such healthcare innovation fund's issued share
capital.
STRATEGY
As the day to day management of the Company is outsourced to
service providers the Board's 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 key criteria to build up a
watch-list of securities that is monitored on a regular basis. Due
diligence is then carried out on the individual securities on the
watch-list.
Each individual holding is assessed on its own merits in terms
of risk:reward including various ESG factors. 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 ('Alternative Investment Fund Manager') 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, including:
-- Panmure Gordon & Co as Corporate Broker;
-- Herbert Smith Freehills LLP as solicitors;
-- HSBC Securities Services as Custodian and Depositary;
-- Equiniti Limited as the Registrar;
-- PricewaterhouseCoopers LLP as independent Auditors;
-- Emperor as internet service provider for website design and internet hosting services; and
-- Perivan Limited as 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. Further details of
the loan provided by the subsidiary are provided in the Annual
Report.
BENCHMARK
The Company will measure the Investment Manager's performance
against the MSCI ACWI Healthcare Index total return, in sterling
with dividends reinvested. Although the Company has a benchmark,
this is neither a target nor an ideal investment strategy. The
portfolio may diverge substantially from the constituents of this
index. 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.
REGULATORY ARRANGEMENTS
Both the AIFM ('Alternative Investment Fund Managers Directive')
and the Depositary have responsibilities under AIFMD for ensuring
that the assets of the Company are managed in accordance with the
investment policy and are held in safe custody. The Board remains
responsible for setting the investment strategy and operational
guidelines as well as meeting the requirements of the Financial
Conduct Authority ('FCA') Listing Rules and the Companies Act
2006.
The AIFMD requires certain information to be made available to
investors in AIFs ("Alternative Investment Funds") before they
invest and requires that material changes to this information be
disclosed in the Annual Report of each AIF. Investor Disclosure
Documents, which set out information on the Company's investment
strategy and policies, leverage, risk, liquidity, administration,
management, fees, conflicts of interest and other Shareholder
information are available on the Company's website.
There have been no material changes to the information requiring
disclosure. Any information requiring immediate disclosure pursuant
to the AIFMD will be disclosed to the London Stock Exchange through
a primary information provider. Statements from the Depositary and
the AIFM 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.
PERFORMANCE AND KEY PERFORMANCE OBJECTIVES
The Board appraises the performance of the Company and the
Investment Manager as the key supplier of services to the Company
against key performance indicators ('KPIs'). The objectives of the
KPIs comprise both specific financial and Shareholder related
measures.
KPI CONTROL PROCESS OUTCOME
The provision of investment The Board reviews As at 30 September 2020,
returns to shareholders the performance of the total net assets of
measured by long-term the portfolio in detail the Company amounted to
NAV growth and relative and hears the views GBP325,133,000. The Company's
performance against of the Investment NAV total return, over
the Manager at each meeting. the year ended 30 September
Benchmark. 2020, was 14.14% while
The Board also considers the Benchmark Index over
the value delivered the same period increased
to shareholders through by 15.95%. The Company's
NAV growth and dividends performance is explained
paid. further in the Investment
Manager's Report.
Since restructuring on
20 June 2017, the total
return of the NAV was
27.48% and the benchmark
was 35.30%. Investment
performance is explained
in the Chair's Statement
and the Investment Manager's
Report.
------------------------------- ----------------------------------
The achievement of Financial forecasts Two dividends have been
the dividend policy. are reviewed to track paid or are payable in
income and distributions. respect of the year ended
30 September 2020 totalling
2.00p per share (2019:
two dividends totalling
2.10p per share).
------------------------------- ----------------------------------
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 2020 was 13.1% (2019:
NAV per ordinary share patterns and discount/premium 8.0%).
with the aim of reduced levels of the Company's
discount volatility ordinary shares. The During the year ended
for shareholders. Board discusses and 30 September 2020, the
authorises the issue Company bought back 500,000
or buy back of shares ordinary shares into treasury,
when appropriate. and no new shares or treasury
shares were issued.
The Board is aware
of the vulnerability The number of shares in
of a sector specialist issue, at the year end
investment trust to was 124,149,256 of which
a change in investor 2,879,256 were held in
sentiment to that treasury. The total voting
sector. While there rights of the Company
is no formal discount are 121,270,000 shares.
policy the Board discusses
the market factors
giving rise to any
discount or premium,
the long or short-term
nature of those factors
and the overall benefit
to Shareholders of
any actions. The market
liquidity is also
considered when authorising
the issue or buy back
of shares when appropriate
market conditions
prevail.
A daily NAV per share,
calculated in accordance
with the AIC guidelines
is issued to the London
Stock Exchange.
------------------------------- ----------------------------------
To qualify and continue The Board receives The Company was granted
to meet the requirements regular financial investment trust status
for Sections 1158 information which annually up to 1 October
and 1159 of the Corporation discloses the current 2014 and is deemed to
Tax Act and projected financial be granted such status
2010 ('investment position of the Company for each subsequent year
trust status'). against each of the 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.
The Directors confirm
that the tests have been
met in the financial year
ended 30 September 2020
and believe that they
will continue to be met.
------------------------------- ----------------------------------
To ensure the efficient The Board considers The Board has received,
operation of the Company annually the services and considered satisfactory,
by monitoring the provided by the Investment the internal controls
services provided Manager, both investment report of the Investment
by third party suppliers, and administrative, Manager and other key
including the Investment and reviews on a cycle suppliers including the
Manager, and controlling the provision of services contingency arrangements
ongoing charges. from third parties to facilitate the ongoing
including the costs operations of the Company
of their services. in the event of withdrawal
or failure of services.
The annual operating
expenses are reviewed The ongoing charges for
and any non-recurring the year ended 30 September
project related expenditure 2020 were 1.01%, compared
approved by the Board. to 1.01% the previous
year.
------------------------------- ----------------------------------
Principal Risks and Uncertainties
The Board is responsible for the management of risks faced by
the Company and, through delegation to the Audit Committee, has
established procedures to manage risk, oversee the internal control
framework and determine the nature and extent of the principal
risks the Company is willing to take in order to achieve its
long-term strategic objectives.
The Audit Committee carries out, at least annually, a robust
assessment of the principal risks and uncertainties with the
assistance of the Investment Manager, continually monitors
identified risks and meets to discuss both long-term and emerging
risks outside of the normal cycle of Audit Committee meetings.
A Risk management process has been established to identify and
assess various risks, their likelihood and the possible severity of
impact then, considering both internal and external controls and
factors that could provide mitigation, a post mitigation risk
impact score is determined. The Audit Committee has identified the
key risks faced by the Company. During the year the Audit
Committee, in conjunction with the Board and the Investment
Managers undertook a full review of the Company's Risk Map
including the mitigating factors and controls to reduce the impact
of the risks, and made a number of amendments including the
introduction of a Heat Map providing a visual reflection of the
Company's identified risks. The key risks which are those
classified as having the highest risk impact score post mitigation
are detailed below with a high-level summary of the management
through mitigation and status arrows to indicate any change in
assessment over the past financial year.
The Audit Committee has also considered the risks posed by
COVID-19, which have been considered as a Black Swan event. Further
information on how the Committee has considered COVID-19 when
assessing its effect on the Company's ability to operate as a going
concern and the Company's longer-term viability can be found in the
full Annual Report.
Portfolio Management
Description Assessment Mitigation
--------------------------- ----------------------- ------------------------------
Investment Performance Investment Manager Risk is elevated The Board seeks
unable to deliver from 2019 to reflect to mitigate the
the Investment Objective the market and impact of such risks
leading to poor portfolio performance through the regular
performance against associated with reporting and monitoring
the benchmark or the COVID-19 of the Company's
market/ pandemic. investment performance
industry average. against its peer
group, benchmark
and other agreed
indicators of relative
performance. A detailed
annual review of
the investment strategy
is undertaken by
the Investment Manager
with the Board including
analysis of investment
markets and sector
trends.
At each meeting
the Board discusses
developments in
healthcare and drug
pipelines with the
Investment Manager
in addition to the
composition and
diversification
of the portfolio
with sales and purchases
of investments and
the degree of risk
which the
Investment Manager
incurs to generate
investment returns.
Individual investments
are discussed with
the Investment Manager
as well as the Investment
Manager's general
views on the various
investment markets
and the healthcare
sector in particular.
Analytical performance
data and attribution
analysis is presented
by the Investment
Manager.
The Board is committed
to a clear communication
program to ensure
Shareholders understand
the investment strategy.
This is maintained
through the use
of monthly factsheets
which have a market
commentary from
the Investment Manager
as well as portfolio
data, an informative
website as well
as annual and half
year reports.
--------------------------- ----------------------- ------------------------------
Gearing Inability to repay Unchanged from The Board considered
ZDP loan and or previous year. the benefits and
inappropriate use drawbacks of the
of derivatives. 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
a minimum of 1.8x.
The asset cover
at the year end
of 30 September
2020 was 9.1x. 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.
--------------------------- ----------------------- ------------------------------
Discount/Premium Persistent discount Risk is elevated The Board regularly
in excess of Board from 2019 to reflect considers, in comparison
or Shareholder acceptable the continued to the sector and
levels. double -- digit peers, the level
discount level. of premium and discount
of the share price
to the NAV and ways
to enhance Shareholder
value including
share issuance and
buy backs.
The Board has carefully
monitored the discount
level and market
movements during
the COVID-19 pandemic
and has discussed
performance with
the Managers and
advisers. The Chair
has also met with
key shareholders
to understand any
concerns and views
as detailed in the
Chair's Statement
and within the s172
Report. The Board
and the Managers
continue to work
together in an aim
to improve performance
to mitigate the
discount level and
will report to shareholders
in due course should
it be deemed necessary.
Further detail on
the performance
and the impact of
COVID-19 on the
Company is given
in the Investment
Manager's Report.
--------------------------- ----------------------- ------------------------------
Trading Execution of unauthorised Unchanged from Investment limits
trade/dealing error. previous year. and restrictions
Error or breach are encoded into
may cause regulatory the dealing and
investigation leading operations systems
to fines, reputational of the Investment
damage and risk Manager and various
to investment trust oversight functions
status. are undertaken to
ensure there is
early warning of
any potential issue
of compliance or
regulatory matters.
--------------------------- ----------------------- ------------------------------
Operational Risk
Description Assessment Mitigation
------------------------------- ---------------- ---------------------------------
Service Failure Failure in services Unchanged from The Board carries
provided by the previous year. out an annual review
Investment Manager, of internal control
Custodian, reports from suppliers
Depositary or other which includes the
service providers; Investment Manager's
Accounting, Financial cyber protocols
or Custody Errors and disaster recovery
resulting in regulatory procedures. Due
investigation or diligence and service
financial loss, reviews are undertaken
failure of trade with third-party
settlement, potential service providers
loss of Shareholder including the Custodian
assets and investment and Depositary.
trust status.
A full review of
the internal control
framework is carried
out at least annually.
Regular reporting
is received by the
Investment Manager
on behalf of the
Board from the Depositary
on the safe custody
of the Company's
assets. The Board
undertakes independent
reviews of the Depositary
and external Administrator
services and additional
resources have been
put in place by
the Investment Manager.
Management accounts
are produced and
reviewed monthly,
statutory reporting
and
daily NAV calculations
are produced by
the external Administrator
and verified by
the Investment Manager.
Accounting records
are tested, and
valuations verified
independently as
part of the year-end
financial
reporting process.
------------------------------- ---------------- ---------------------------------
Cyber Risk Cyber-attack causing Unchanged from The number, severity
disruption to or previous year. and success rate
failure of operational of cyber-attacks
and accounting systems have increased considerably
and processes provided over recent years,
by the Investment controls are however
Manager creating in place and the
an unexpected event Board proactively
and/or adverse impact seeks to keep abreast
on personnel or of developments
the portfolio. through a series
of meetings with
relevant service
providers. In light
of the COVID-19
pandemic and the
lockdown measures
introduced by the
UK Government, the
Audit Committee
sought assurance
from each of the
Company's service
providers on the
resilience of their
business continuity
arrangements whilst
the majority of
their employees
worked remotely.
These assurances
and the subsequent
detailed updates
that were given
to the Committee
provided a satisfactory
level of assurance
that there had not
been, and there
was no anticipation
of any disruption
in the ability of
each service provider
to fulfil their
duties as would
typically be expected.
------------------------------- ---------------- ---------------------------------
Key Man Loss of Investment Unchanged from The strength and
Manager or other previous year. depth of investment
key management professionals. team provides comfort
Impact on investor that there is not
confidence leading over-reliance on
to widening of the one person with
discount and/or alternative portfolio
poor performance managers available
creating a period to act if needed.
of uncertainty and For each key business
potential termination process roles, responsibilities
of the Investment and reporting lines
Management Agreement. are clear and unambiguous.
The Investment Manager
has implemented
business continuity
planning arrangements
as a result of COVID-19
with staff working
remotely with no
loss of service.
------------------------------- ---------------- ---------------------------------
Shareholder Failure to effectively Unchanged from The Board is committed
Communications communicate significant previous year. to a clear communication
events to the shareholder programme to ensure
and investor base. 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.
------------------------------- ---------------- ---------------------------------
Regulatory Risk
Description Assessment Mitigation
------------------------------ ---------------- ---------------------------
Non-compliance with Unchanged from The Board monitors
statutes, regulations previous year. regulatory change
and disclosure requirements, with the assistance
including FCA listed of the
company regime and Investment Manager,
Companies Act 2006; Company Secretary
s1158/1159 of the and external professional
Corporation Tax suppliers and implements
Act 2010, the Companies necessary changes
Act 2006 and other should they be required.
UK, European and
overseas legislation The Board receives
affecting UK companies regulatory reports
including MiFID for discussion and,
II and the GDPR. if required, considers
the need for any
Not complying with remedial action.
accounting standards In addition, as
could result in an investment company,
a suspension of the Company is required
listing or loss to comply with a
of investment trust framework of tax
status, reputational laws, regulation
damage and Shareholder (both UK and EU)
activism. and company law.
Further risks arise The Board keeps
from not keeping abreast of third
abreast of changes party service provider
in legislation and internal controls
regulations which processes to ensure
have in recent years requirements are
been substantial. met in accordance
with regulatory
requirements.
------------------------------ ---------------- ---------------------------
Economic and Market Risk
Description Assessment Mitigation
------------------------------- ------------------------- ------------------------------
Financial loss due Risk is elevated The Board regularly
to unexpected natural from 2019 to reflect discusses the general
disaster or other the market and economic conditions
unpredictable event portfolio performance and developments.
disrupting the ability associated with
to operate or significant the COVID-19 pandemic The impact on the
exposure to the and to reflect portfolio from Brexit
economic cycles the continued and other geopolitical
of the markets in double-digit discount changes including
which the underlying level. the trade war between
investments the US and China
conduct their business are monitored through
operations as well existing control
as the economic systems and discussed
impact on regularly
investment markets by the Board. While
where such investments it is difficult
are listed. to quantify the
impact of such changes,
Uncertainty in the it is not anticipated
regulatory environment that they will fundamentally
and impact on London affect the business
Financial Services of the Company or
industry due to make healthcare
UK vote to leave investing any less
the EU ("Brexit") desirable. The longer
and the potential term effects of
for the exit arrangements COVID-19 on this
to adversely impact risk, for example
portfolio the unprecedented
investee companies. levels of fiscal
stimulus and travel
Fluctuations in restrictions will
stock markets and continue to be assessed
currency exchange by the Audit Committee.
rates could be advantageous
or disadvantageous The Company has
to the Company and a disaster recovery
its performance. plan in place.
Disruption to trading
platforms and support
services.
----------------------------- ------------------------- --------------------------------
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.
INVESTMENT TEAM
The Investment Manager is Polar Capital LLP ('Polar Capital'),
which is authorised and regulated by the Financial Conduct
Authority.
Under the terms of the investment management agreement Polar
Capital provides investment management, and provides or procures
accounting, company secretarial and 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.
Polar Capital provides a team of healthcare specialists and the
portfolio is co-managed by Dr James Douglas and Mr Gareth
Powell.
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, 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.
TERMINATION ARRANGEMENTS
The IMA may be terminated by either party giving 12 months'
notice. The IMA may be terminated earlier by the Company with
immediate effect on the occurrence of certain events, including:
(i) 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, was,
for the year under review and prior years, charged 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
October 2020, following discussion with Polar Capital, a reduction
in the base management fee to 0.75% per annum based on the lower of
the market capitalisation and adjusted net asset value was
agreed and became effective from 1 October 2020.
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. In May
2020, the Board and Investment Manager agreed an amendment to the
Performance fee arrangements, to take immediate effect, whereby a
cap was added to reflect that, in the event of a performance fee
becoming payable on the future portfolio realisation date, such fee
would be subject to a maximum amount of 3.5% of the terminal
NAV.
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 2020.
CORPORATE RESPONSIBILITY
Environmental, Social and Governance (ESG)
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 Investment Manager has a corporate
ESG policy and wherever possible and appropriate the parameters of
such are considered and adopted by the investment team in relation
to the Company's management and portfolio construction. As detailed
further within the Investment Manager's Report the Investment
Managers are required to have consideration to ESG factors when
reviewing new, continuing or exiting investments but they are not
required to take an investment
decision solely on the basis of ESG factors. The Board monitors
the Investment Manager's approach to ESG and they themselves take
into account ESG factors in the management of the Company.
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 is
comprised of one female and three male Independent non-executive
Directors.
When compiling a shortlist of candidates and selecting
individuals for interview, the Board has 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 skill-sets both with each other and
the remaining 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 Board uses the
principles formulated and implemented by the Investment Manager and
expects the same standard of zero-tolerance to be adopted by third
party service providers.
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 at all
times.
Approved by the Board on 14 December 2020
By order of the Board
TRACEY LAGO, FCG
POLAR CAPITAL SECRETARIAL SERVICES LIMITED
COMPANY SECRETARY
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group 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 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 the financial statements, the directors
are required to:
- select suitable accounting policies and then apply them consistently;
- state whether applicable IFRSs as adopted by the European
Union have been followed for the group financial statements and
IFRSs as adopted by the European Union have been followed for the
company financial statements, subject to any material departures
disclosed and explained in the financial statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the group and company
will continue in business.
The directors 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 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 financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
The directors are responsible for the maintenance and integrity
of the company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors' confirmations
The directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group and
company's position and performance, business model and
strategy.
Each of the directors, whose names and functions are listed in
the Strategic Report confirm that, to the best of their
knowledge:
- the company financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the company;
- the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the group; and
- the Strategic Report includes a fair review of the development
and performance of the business and the position of the group and
company, together with a description of the principal risks and
uncertainties that it faces.
In the case of each director in office at the date the
Directors' Report is approved:
- so far as the director is aware, there is no relevant audit
information of which the group and company's auditors are unaware;
and
- they have taken all the steps that they ought to have taken as
a director in order to make themselves aware of any relevant audit
information and to establish that the group and company's auditors
are aware of that information.
Lisa Arnold
Chair
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 September 2020
Group Group
---------------------------------- ---- ---------------------------- ----------------------------
Year ended Year ended
30 September 2020 30 September 2019
---------------------------- ----------------------------
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 3,446 - 3,446 4,131 - 4,131
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other operating income 4 17 - 17 79 - 79
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Gains/(losses) on investments
held at fair value 5 - 42,435 42,435 - (3,337) (3,337)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other currency (losses)/gains 6 - (647) (647) - 43 43
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Total income 3,463 41,788 45,251 4,210 (3,294) 916
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Expenses
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Investment management
fee 7 (535) (2,140) (2,675) (503) (2,013) (2,516)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Other administrative
expenses 8 (685) (107) (792) (610) (69) (679)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Total expenses (1,220) (2,247) (3,467) (1,113) (2,082) (3,195)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Profit/(loss) before
finance costs and tax 2,243 39,541 41,784 3,097 (5,376) (2,279)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Finance costs 9 (1) (1,038) (1,039) (9) (1,037) (1,046)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Profit/(loss) before
tax 2,242 38,503 40,745 3,088 (6,413) (3,325)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Tax 10 (472) - (472) (535) - (535)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Net profit/(loss) for
the year and total comprehensive
income 1,770 38,503 40,273 2,553 (6,413) (3,860)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
Earnings/(loss) per
Ordinary share (pence) 12 1.46 31.74 33.20 2.09 (5.25) (3.16)
---------------------------------- ---- -------- -------- -------- -------- -------- --------
The total column of this statement represents 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 for the year. The net profit for the
year
disclosed above represents the Group's total comprehensive
income.
There are no dilutive securities and therefore the Earnings per
Share and the Diluted Earnings per share are the same.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or
discontinued in the year.
The notes below form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September 2020
Group and Company
Year ended 30 September 2020
--------------------- ---- ----------------------------------------------------------------------------------------
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 2019 31,037 6,575 80,685 4,712 162,646 2,792 288,447
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Total comprehensive
income:
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Profit for the
year ended 30 September
2020 - - - - 38,503 1,770 40,273
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Transactions with
owners, recorded
directly to equity:
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
Shares bought
back and held
in treasury 14 - - - (1,040) - - (1,040)
--------------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Equity dividends
paid 11 - - - - - (2,547) (2,547)
--------------------- ---- --------- ----------- ------------- -------------- --------- -------- ------------
Total equity at
30 September 2020 31,037 6,575 80,685 3,672 201,149 2,015 325,133
--------------------------- --------- ----------- ------------- -------------- --------- -------- ------------
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 14 - - - (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
----------------------- --------- ----------- ------------- -------------- --------- -------- ------------
The notes below form part of these financial statements.
BALANCE SHEETS
As at 30 September 2020
Group Company
----- ------------------------------------ ------------------------------------
30 September 2020 30 September 2019 30 September 2020 30 September 2019
Notes GBP'000 GBP'000 GBP'000 GBP'000
----- ----------------- ----------------- ----------------- -----------------
Non-current assets
Investments held at fair value 342,404 308,993 342,404 308,993
Investment in subsidiary - - 50 50
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current assets
Receivables 3,082 17,237 3,082 17,237
Overseas tax recoverable 589 693 589 693
Cash and cash equivalents 16 17,845 6,862 17,795 6,812
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
21,516 24,792 21,466 24,742
Total assets 363,920 333,785 363,920 333,785
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Current liabilities
Payables (3,382) (10,961) (3,382) (10,961)
Bank overdraft 16 - (4) - (4)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
(3,382) (10,965) (3,382) (10,965)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Non-current liabilities
Zero Dividend Preference shares (35,405) (34,373) - -
Loan from subsidiary - - (35,405) (34,373)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total liabilities (38,787) (45,338) (38,787) (45,338)
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net assets 325,133 288,447 325,133 288,447
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Equity attributable to equity
Shareholders
Called up share capital 14 31,037 31,037 31,037 31,037
Share premium reserve 80,685 80,685 80,685 80,685
Capital Redemption reserve 6,575 6,575 6,575 6,575
Special distributable reserve 3,672 4,712 3,672 4,712
Capital reserves 201,149 162,646 201,149 162,646
Revenue reserve 2,015 2,792 2,015 2,792
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Total equity 325,133 288,447 325,133 288,447
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
Net asset value per Ordinary share
(pence) 15 268.11 236.88 268.11 236.88
Net asset value per ZDP share
(pence) 110.20 106.99 - -
----------------------------------- ----- ----------------- ----------------- ----------------- -----------------
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
profit for the year was GBP40,273,000 (2019: loss of
GBP3,860,000).
The financial statements were approved and authorised for issue
by the Board of Directors on 14 December 2020 and signed on its
behalf by
Lisa Arnold
Chair
Registered number 7251471
The notes below form part of these financial statements.
CASH FLOW STATEMENT
For the year ended 30 September 2020
Group and Company
--------------------------------------
Year ended Year ended
30 September 2020 30 September 2019
Note GBP'000 GBP'000
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from operating activities
Profit/(loss) before finance costs and tax 41,784 (2,279)
Adjustment for non-cash items:
(Gain)/loss on investments held at fair value through profit or loss (42,435) 3,337
Scrip dividends received (204) -
--------------------------------------------------------------------- ---- ------------------ ------------------
Adjusted (loss)/profit before tax (855) 1,058
Adjustments for:
Purchases of investments, including transaction costs (952,341) (532,121)
Sales of investments, including transaction costs 967,884 530,063
Decrease in receivables 85 222
Increase in payables 176 169
Overseas tax deducted at source (368) (671)
Net cash generated from/(used in) operating activities 14,581 (1,280)
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash flows from financing activities
Cost of shares repurchased (1,040) (1,513)
Interest paid (7) (45)
Equity dividends paid 11 (2,547) (2,443)
Net cash used in financing activities (3,594) (4,001)
--------------------------------------------------------------------- ---- ------------------ ------------------
Net increase/(decrease) in cash and cash equivalents 10,987 (5,281)
--------------------------------------------------------------------- ---- ------------------ ------------------
Cash and cash equivalents at the beginning of the year 6,858 12,139
Cash and cash equivalents at the end of the year 16 17,845 6,858
--------------------------------------------------------------------- ---- ------------------ ------------------
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 September 2020
1. General Information
The consolidated financial statements for the year ended 30
September 2020 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 October 2019 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.
Following the guidance of the revised SORP, issued in October
2019, the presentation of gains and losses arising from
disposals
of investments and gains and losses on revaluation of
investments have now been combined, as shown in Note 13 with no
impact to the net asset value or profit/(loss) reported for both
the current or prior year. No other accounting policies or
disclosures have changed as a result of the revised 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.
The financial position of the Group and Company as at 30
September 2020 is shown in the balance sheet above. As at 30
September 2020 the Group and Company's total assets exceeded its
total liabilities by a multiple of over 9. The assets of the Group
and Company consist mainly of securities that are held in
accordance with the Group and Company's Investment Policy, as set
out above and these securities are readily realisable. The
Directors have considered a detailed assessment of the Group and
Company's ability to meets its liabilities as they fall due. The
assessment took account of the Company's current financial
position, its cash flows and its liquidity position. In addition to
the assessment the Group and Company carried out stress testing,
including for the impact of COVID-19, which used a variety of
falling parameters to demonstrate the effects on the Company's
share price and net asset value. In light of the results of these
tests, the Group and Company's cash balances, and the liquidity
position, the Directors consider that the Group and Company has
adequate financial resources to enable it to continue in
operational existence. Accordingly, the Directors believe that it
is appropriate to continue to adopt the going concern basis in
preparing the Group and Company's financial statements.
(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 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 in 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 20 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 October
2019).
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 Group 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 2020. 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 Taxes 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) 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.
(p) Key Estimates and judgements
Estimates and assumptions used in preparing the financial
statements are reviewed on an ongoing basis and are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances. The results of these
estimates and assumptions form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. The Group and Company do not consider
that there have been any significant estimates or assumptions in
the current financial year.
(q) New and revised accounting Standards
There were no new IFRSs or amendments to IFRSs applicable to the
current year which had any significant impact on the Group and
Company's financial statements.
The following standards became effective on 1 January 2019 and
the adoption of the standards and interpretations have not had a
material impact on the financial statements of the Group and
Company.
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 financial statements.
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 financial statements.
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 financial
statements.
IAS 19 (amended) Employee Benefits
As the Group and Company has no employees, the amendment to this
standard are not expected to have any impact on the financial
statements.
IAS 28 (amended) Investments in Associates and Joint
Ventures
As the Group and Company have no investments in associates or
joint ventures, the amendments to this standard are not expected to
have any impact on the financial statements.
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 financial statements.
At the date of authorisation of the Group and Company's
financial statements, the following new IFRSs that potentially
impact the Group and Company are in issue but are not yet effective
and have not been applied in the financial statements:
Effective for periods commencing on or after 1 January 2020:
IFRS 3 Business Combinations (amended)
The IASB has made narrow-scope amendments to improve the
definition of a business in order to help companies determine
whether an acquisition made is of a business or a group of assets.
These amendments are not expected to have any impact on the
financial statements.
IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform
(amended)
The IASB has issued amendments to IFRS 9, IAS 39 and IFRS 7 that
provide certain reliefs in connection with interest rate benchmark
reform. The reliefs relate to hedge accounting and have the effect
that IBOR reform should not generally cause hedge accounting to
terminate. These amendments are not expected to have any impact on
the financial statements.
IAS 1 and IAS 8 Definition of Material (amended)
The definition of material has been amended to state that
"information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial
information about a specific reporting entity." This new definition
is not expected to change how materiality judgements are currently
made by the Group and Company nor have any impact on the material
information included in the Annual Report.
References to the Conceptual Framework in IFRS Standards
(amended)
The amendments to References to the Conceptual Framework in IFRS
Standards was issued to support transition to the revised
Conceptual Framework for companies that develop accounting policies
using the Conceptual Framework when no IFRS Standard applies to a
particular transaction. These amendments are not expected to have
any impact to the financial statements.
Effective for periods commencing on or after 1 January 2021:
IFRS 4 Insurance Contracts - temporary exemption from IFRS 9
(amended)
The temporary exemption permits companies whose activities are
predominantly connected with insurance to defer the application of
IFRS 9.
IFRS 9, IAS 39, IFRS 7, IFRS 16 and IFRS 4: Interest Rate
Benchmark Reform - phase 2 (amended)
Interest Rate Benchmark Reform-Phase 2, address issues that
might affect financial reporting during the reform of an interest
rate benchmark, including the effects of changes to contractual
cash flows or hedging relationships arising from the replacement of
an interest rate benchmark with an alternative benchmark rate.
Effective for periods commencing on or after 1 January 2023:
IFRS 17 Insurance Contracts
The standard establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts.
This information gives a basis for users of financial statements to
assess the effect that contracts have on the financial position,
financial performance and cash flows of a company.
The Directors expect that the adoption of the standards listed
above will have either no impact or that any impact will not be
material on the Financial Statements of the Company in future
periods.
3. Investment Income
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
------------------------------------- ------------- -------------
Revenue:
Franked: Listed investments
Dividend income 63 377
------------------------------------- ------------- -------------
Unfranked: Listed investments
Dividend income 3,179 3,754
------------------------------------- ------------- -------------
Scrip dividends 204 -
------------------------------------- ------------- -------------
Total investment income allocated to
revenue 3,446 4,131
------------------------------------- ------------- -------------
4. Other Operating Income
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
----------------------------- ------------- -------------
Other income - 30
Bank interest 17 49
----------------------------- ------------- -------------
Total other operating income 17 79
----------------------------- ------------- -------------
5. Gains/(losses) on Investments Held at Fair Value
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
------------------------------------------- ------------- -------------
Net gains on disposal of investments
at historic cost 39,352 22,892
Less fair value adjustments in earlier
years (11,710) (33,931)
------------------------------------------- ------------- -------------
Gains/(losses) based on carrying value
at previous balance sheet date 27,642 (11,039)
Valuation gains on investments held during
the year 14,793 7,702
------------------------------------------- ------------- -------------
42,435 (3,337)
------------------------------------------- ------------- -------------
6. Other Currency (Losses)/Gains
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
--------------------------------------------- ------------- -------------
Exchange (losses)/gains on currency balances (647) 43
--------------------------------------------- ------------- -------------
7. Investment Management Fee
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
------------------------------------- ------------- -------------
Management fee
- charged to revenue 535 503
- charged to capital 2,140 2,013
------------------------------------- ------------- -------------
Investment management fee payable to
Polar Capital LLP 2,675 2,516
------------------------------------- ------------- -------------
Management fees are allocated 20% to revenue and 80% to capital.
Details of the fee arrangements are given in the Strategic
Report above.
8. Other Administrative Expenses (Including VAT where appropriate)
Year ended Year ended
30 September 30 September
2020 2019
GBP'000 GBP'000
----------------------------------------------- ------------- -------------
Directors' fees(1) 143 122
Directors' NIC 14 12
Auditors' remuneration(2) :
For audit of the Group and Company financial
statements 44 32
Depositary fee 23 24
Registrar fee 31 34
Custody and other bank charges 39 30
UKLA and LSE listing fees 46 44
Legal & professional fees 6 -
AIC fees 21 20
Directors' and officers' liability insurance 9 8
Corporate broker's fee 24 30
Marketing expenses(3) 42 17
Research costs - allocated to revenue(4) 27 17
Shareholder communications 30 34
HSBC administration fee 182 150
Other expenses(5) 4 36
----------------------------------------------- ------------- -------------
Total other administrative expenses allocation
to revenue 685 610
----------------------------------------------- ------------- -------------
Research cost - allocated to capital(4) 107 69
----------------------------------------------- ------------- -------------
Total other administrative expenses 792 679
----------------------------------------------- ------------- -------------
1 Full disclosure is given in the Directors' Remuneration Report
within the Annual Report.
2 2020 includes GBP6,000 (2019: GBP5,175) paid to the Auditor
for the audit of PCGH ZDP Plc.
3 Includes marketing expenses payable to Polar Capital LLP of
GBP22,500 (2019: GBP7,500).
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 (GBP180,000) (2019: US $232,994 (GBP189,000))
with the cost of general non-specialist research and any amounts
exceeding the agreed cap being absorbed by Polar Capital. Any
adjustments to the prior year's budget versus 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 included costs in relation to non-executive Director
search fee.
Ongoing charges represents the total expenses of the Company,
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 2020
was 1.01% (2019: 1.01%). See Alternative Performance Measures
below.
9. Finance Costs
Year ended 30 September Year ended 30 September
2020 2019
--------------------------- ---------------------------
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 1 6 7 9 36 45
Appropriation to
ZDP shares - 1,032 1,032 - 1,001 1,001
----------------------- -------- -------- ------- -------- -------- -------
Total finance costs 1 1,038 1,039 9 1,037 1,046
----------------------- -------- -------- ------- -------- -------- -------
10. Taxation
Year ended Year ended
30 September 2020 30 September 2019
---------------------------- ----------------------------
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 472 - 472 535 - 535
--------------------------- -------- -------- -------- -------- -------- --------
Total tax for the year
(see note 10b) 472 - 472 535 - 535
--------------------------- -------- -------- -------- -------- -------- --------
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 2,242 38,503 40,745 3,088 (6,413) (3,325)
--------------------------- -------- -------- -------- -------- -------- --------
Tax at the UK corporation
tax rate of 19% (2019:
19%) 426 7,316 7,742 587 (1,218) (631)
Tax effect of non-taxable
dividends (655) - (655) (785) - (785)
(Gains)/losses investments
that are not taxable - (7,940) (7,940) - 626 626
Unrelieved current period
expenses
and deficits 229 427 656 198 402 600
Overseas tax suffered 472 - 472 535 - 535
Expenses not allowable - 197 197 - 190 190
Total tax for the year
(see note 10a) 472 - 472 535 - 535
--------------------------- -------- -------- -------- -------- -------- --------
c) Factors that may affect future tax charges:
The Company has an unrecognised deferred tax asset of
GBP3,513,000 (2019: GBP2,555,000) based on a prospective
corporation tax rate of 19% (2019: 17%). At Budget 2020, the
government announced that the main rate of corporation tax would
remain at 19% for fiscal years beginning on 1 April 2020 and
2021.
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 20 20
Year ended
30 September
Pence per 2020
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
28 February 2020 121,270,000 1.10p 1,334
28 August 2020 121,270,000 1.00p 1,213
-------------
2,547
-------------
The revenue available for distribution by way of dividend for
the year is GBP1,770,000 (2019: GBP2,553,000).
The total dividends payable in respect of the financial year
ended 30 September 2020, 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 2020
Payment date No of shares share GBP'000
----------------- ------------ --------- -------------
28 August 2020 121,270,000 1.00p 1,213
26 February 2021 121,270,000 1.00p 1,213
2,426
-------------
Dividends paid in the year ended 30 September 20 19
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 total dividends payable in respect of the financial year
ended 30 September 2019 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 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
-------------
All dividends are paid as interim dividends, and all have been
charged to revenue, where necessary utilising the revenue
reserves.
The dividends paid in February each year relate to a dividend
declared in respect of the previous financial year but paid in the
current accounting year.
12. Earnings/(losses) per Ordinary Share
Year ended Year ended
30 September 2020 30 September 2019
----------------------------------------- -------------------------------------------
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 profit/(loss)
for the year (GBP'000) 1,770 38,503 40,273 2,553 (6,413) (3,860)
Weighted average
Ordinary
shares in issue
during the year 121,291,858 121,291,858 121,291,858 122,123,685 122,123,685 122,123,685
Basic - Ordinary
shares (pence) 1.46 31.74 33.20 2.09 (5.25) (3.16)
------------------------ -------------- ----------- ------------ -------------- ----------- ------------
As at 30 September 2020 there were no potentially dilutive
shares in issue.
13. 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. Called up Share Capital
30 September 30 September
Ordinary shares - Allotted, Called up 2020 2019
and Fully paid: GBP'000 GBP'000
------------------------------------------ ------------ ------------
Ordinary shares of nominal value 25p
each:
Opening balance of 121,770,000 (2019:
122,470,000) 30,442 30,617
Repurchase of 500,000 (2019: 700,000)
Ordinary shares, into treasury (125) (175)
------------------------------------------ ------------ ------------
Allotted, Called up and Fully paid:
121,270,000 (2019: 121,770,000) Ordinary
shares of 25p 30,317 30,442
2,879,256 (2019: 2,379,256) Ordinary
shares, held in treasury 720 595
------------------------------------------ ------------ ------------
At 30 September 31,037 31,037
------------------------------------------ ------------ ------------
500,000 Ordinary shares were repurchased into treasury at a
total cost of GBP1,040,000 (2019: GBP1,513,000).
The Ordinary shares held in treasury have no voting rights and
are not entitled to dividends.
15. Net Asset Value Per Share
30 September 30 September
Ordinary shares 2020 2019
------------------------------------------------- ------------ ------------
Net assets attributable to Ordinary Shareholders
(GBP'000) 325,133 288,447
Ordinary shares in issue at end of year 121,270,000 121,770,000
Net asset value per Ordinary share (pence) 268.11 236.88
------------------------------------------------- ------------ ------------
Total issued Ordinary shares 124,149,256 124,149,256
Ordinary shares held in treasury 2,879,256 2,379,256
Ordinary shares in issue 121,270,000 121,770,000
------------------------------------------------- ------------ ------------
As at 30 September 2020 there were no potentially dilutive
shares in issue.
16. Cash and Cash Equivalents
30 September 30 September
2020 2019
GBP'000 GBP'000
---------------------------------------- ------------ ------------
Cash at bank 17,795 5,706
Cash held at derivative clearing houses - 1,106
Bank overdraft - (4)
---------------------------------------- ------------ ------------
Company cash and cash equivalents 17,795 6,808
Cash held at subsidiary 50 50
---------------------------------------- ------------ ------------
Group cash and cash equivalents 17,845 6,858
---------------------------------------- ------------ ------------
17. Transactions with the Investment Manager and Related Party Transactions
(a) Transactions with the Manager
Under the terms of an agreement dated 26 May 2010 the 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 2020 were
GBP2,675,000 (2019: GBP2,516,000) of which GBP457,000 (2019:
GBP433,000) was outstanding at the year-end.
In addition, the total research cost in respect of the year
ended 30 September 2020 was GBP170,000 (2019: GBP184,000) of
which
GBP35,000 relates to 1 October 2019 to 31 December 2019 and
GBP135,000 relates to 1 January 2020 to 30 September 2020. As at
the year end, GBP90,000 (2019: GBP95,000) was outstanding. Refer to
note 8 above for more details.
(b) Related party transactions
The Group and Company has no employees and therefore no key
management personnel other than the Directors. The Group and
Company paid GBP143,000 (2019: GBP122,000) to the Directors and the
Remuneration Report, including Directors' shareholdings and
movements within the year is provided within the full Annual
Report.
18. Post Balance Sheet Events
There are no significant events that have occurred after the end
of the reporting period to the date of this report which require
disclosure.
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 2020, the Group's total equity was
GBP325,133,000 and there were 121,270,000 ordinary shares in issue.
The Group's NAV per share was therefore 268.11p
(GBP325,133,000/121,270,000).
At of 30 September 2020, the value of the ZDP shares was
GBP35,405,000 (note 16 of the notes to the financial statements
within the full Annual Report) and the number of ZDP shares in
issue was 32,128,437. The NAV per ZDP share was therefore 110.20p
(GBP35,405,000/32,128,437).
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 2020, the total assets were GBP363,920,000 and
the total liabilities were GBP38,787,000, the total net assets
therefore were GBP325,133,000 (GBP363,920,000 - GBP38,787,000).
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 NAV at the start of the period was 241.08p.
As at 30 September 2020, the Group's NAV per share was 268.11p,
the impact of the dividend reinvestment in NAV was 7.05p and the
adjusted NAV per share was therefore 275.16p (268.11p+7.05p). The
NAV total return over the year was 14.14%
((275.16p-241.08p)/241.08p).
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 2020, the Group's adjusted NAV per share was
275.16p, the NAV total return since reconstruction was 27.48%
((275.16p-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 2020, the Company's share price was 233.00p
and the opening share price as at 30 September 2019 was 218.00p; a
reinvestment factor of 1.008701, 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 235.03p. The
share price total return is 7.81% ((235.03p-218.00p)/218.00p).
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 2020 was 233.00p and NAV was
268.11p, the discount was therefore 13.1%,
((233.00p-268.11p)/268.11p).
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 2020, the total operating expenses including
management fees were GBP3,467,000, finance costs were GBP1,039,000
and taxes were GBP472,000; the total expenses therefore were
GBP4,978,000 (GBP3,467,000 + GBP1,039,000 + GBP472,000).
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
GBP2,675,000 plus other operating expenses of GBP792,000 divided by
the Group's average NAV in the period.
(GBP3,467,000/GBP343,020,000=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 2020 the net assets were GBP325,133,000, ZDP
value was GBP35,405,000 and cash and cash equivalents (including
amounts for future settlement) were GBP18,241,000, and the net
gearing was therefore 5.28%,
(((GBP325,133,000+GBP35,405,000-GBP18,241,000)/GBP325,133,000)-1).
AGM
The Annual Report and separate Notice for the Annual General
Meeting will be posted to Shareholders in December 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
2pm on 26 January 2021. Due to the social distancing measures and
restrictions currently in place prohibiting public gatherings as a
result of COVID-19, the AGM will be held as a closed meeting with
only the necessary quorum present to conduct the formal
business.
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-
[1] Source: Polar Capital, 30 September 2020. 1. Benchmark: MSCI
AC World Daily TR Net Health Care Index. It should not be assumed
that recommendations made in future will be profitable or will
equal performance of the securities in this document. A list of al
recommendations made within the immediately preceding 12 months is
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(END) Dow Jones Newswires
December 15, 2020 02:00 ET (07:00 GMT)
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